TaxTMI Updates e-Newsletter
Dec 02,2025

Issues: (i) Whether cross-Line of Control (LoC) barter trade is an intra-state supply under the GST enactments; (ii) Whether the impugned show cause notices are attractable to Section 74(1) of the CGST Act, 2017 (i.e. notice for fraud/willful mis-statement or suppression of facts) or are notices under Section 73; (iii) Whether the show cause notices issued under Section 74(1) are barred by limitation under Section 74(2) read with Section 74(10); (iv) Whether a composite (bunched) show cause notice covering tax periods in two financial years is permissible under the CGST/JKGST Acts; (v) Whether the availability of statutory remedy under Section 107 bars entertainment of writ petitions under Article 226.

Issue (i): Whether cross-LoC barter trade is an intra-state supply under GST.

Analysis: The statutory definitions treat an intra-state supply as where the location of the supplier and place of supply are in the same State/Union Territory. The territorial definition of India and the statutory definition of State (Jammu & Kashmir) were applied to the factual matrix that the trade occurred between parts of the then State of Jammu & Kashmir (including territory under de facto control of Pakistan). The trading arrangement under the SOP (2008) was a barter arrangement between persons across the LoC within the territorial ambit of the State.

Conclusion: The cross-LoC barter trade, as characterised on the facts, is an intra-state supply for the purposes of the CGST/JKGST enactments.

Issue (ii): Whether the impugned notices fall within Section 74(1) rather than Section 73.

Analysis: Sections 73 and 74 operate on distinct grounds Section 73 for non-fraudulent short payment/non-payment and Section 74 where fraud, willful mis-statement or suppression of facts is involved. The impugned notices' recitals state non-declaration of facts, deliberate non-cooperation with investigation, failure to supply invoices and an assertion that, but for departmental inquiry, the evasion would have remained undiscovered. Those averments, taken at prima facie level, invoke the concept of suppression as defined in the statute.

Conclusion: Prima facie the impugned notices have been issued on grounds falling within Section 74(1) (suppression of facts) and not merely under Section 73.

Issue (iii): Whether the Section 74 notices are time-barred under Section 74(2) read with Section 74(10).

Analysis: Section 74(10) prescribes a five-year period for passing an order and Section 74(2) requires issuance of notice at least six months prior to the expiry of that period. The due dates for furnishing annual returns for the relevant years as extended were identified and the show cause notices were issued within the window required by Section 74(2).

Conclusion: The impugned show cause notices under Section 74(1) are not barred by limitation as per Sections 74(2) and 74(10).

Issue (iv): Whether bunching (a composite show cause notice covering two financial years) is permissible.

Analysis: The GST enactments do not prohibit issuing a composite notice for multiple periods provided statutory requirements are met: specification of period(s), issue within limitation, clear grounds and year-wise quantification, and compliance with principles of natural justice. Bunching is impermissible only where these requirements are lacking (e.g., no year-wise quantification, vagueness, absence of specific evidence per period, part of the notice time-barred, or prejudice to the assessee).

Conclusion: A composite show cause notice covering the two financial years is permissible where it contains year-wise break-up, specific allegations and is within limitation; the notices in question meet those criteria on a prima facie reading.

Issue (v): Whether availability of remedy of appeal under Section 107 precludes entertaining writ petitions under Article 226.

Analysis: The High Court's discretionary power under Article 226 is subject to the rule that an effective and efficacious statutory remedy ordinarily precludes exercise of writ jurisdiction. Exceptions exist (e.g., fundamental rights, breach of natural justice, orders wholly without jurisdiction or vires challenges). Where the challenged action is amenable to the statutory remedy and the controversy involves disputed facts and available remedies, the Court may decline to entertain the writ petition and direct pursuit of the statutory route.

Conclusion: In view of the prima facie validity of the show cause notices and the availability of effective statutory remedies (including appeal under Section 107), the writ petitions are not maintainable and the petitioners are to be relegated to the statutory remedies.

Final Conclusion: The decided legal effect is that on the prima facie record the cross-LoC barter trade qualifies as intra-state supply; the impugned notices prima facie fall within Section 74(1); such notices are within limitation; composite notices are permissible where statutory and procedural safeguards are observed; and because efficacious statutory remedies exist, the constitutional writ petitions are declined and the petitioners must pursue the prescribed statutory remedies and proceedings.

Ratio Decidendi: Where supplies occur between locations within the territorial ambit of the same State/Union Territory, they constitute intra-state supplies under the GST enactments; a show cause notice invoking penalty for suppression of facts is properly issued under Section 74(1) when the notice itself alleges deliberate non-declaration or non-cooperation amounting to suppression, and such notices issued within the statutory limitation and with period-wise quantification may validly be framed as composite notices; availability of an effective statutory appeal ordinarily bars exercise of writ jurisdiction.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a writ petition is maintainable against an order appealable to the Appellate Tribunal when such Tribunal is not constituted or functional.

1.2 Whether, after constitution and operationalisation of the Appellate Tribunal and issuance of timelines for filing appeals, the writ petition should continue or the petitioner should be relegated to the statutory appellate remedy.

1.3 Whether the statutory pre-deposit requirement under Section 112(8) of the GST Act can be bypassed when a party approaches the Writ Court due to non-constitution of the Appellate Tribunal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of writ petition in absence of functional Appellate Tribunal

Interpretation and reasoning

2.1 The Court recorded that the Appellate Tribunal under Section 112 of the GST Act was not earlier constituted and functional, thereby rendering the statutory appellate remedy practically unavailable to an aggrieved person.

2.2 The Court held that it is settled law that where the forum of appeal is provided but is not made functional or constituted, the Writ Court can be approached to assail the order, since a person cannot be rendered remediless.

Conclusions

2.3 The writ petition was entertainable at the stage when the Appellate Tribunal was not functional, as the petitioner otherwise had no effective appellate forum.

Issue 2: Effect of subsequent constitution of Appellate Tribunal and notified timelines on continuation of writ proceedings

Legal framework discussed

2.4 The Court referred to Section 112 of the GST Act providing for appeal to the Appellate Tribunal.

2.5 The Court noticed Notification S.O. No. 4220(E) dated 17 September 2025 issued under Section 112(1) of the GST Act, prescribing 30 June 2026 as the outer date up to which appeals may be filed before the Appellate Tribunal in respect of orders communicated before 1 April 2026, and further prescribing that appeals against orders communicated on or after 1 April 2026 shall be filed within three months from communication.

2.6 The Court further noticed the "User Advisory for the GSTAT e-Filing Portal" prescribing a staggered period and detailed schedule for filing appeals before the Appellate Tribunal, including the possibility of filing at any subsequent date up to 30 June 2026 in case the particular initial window is missed.

Interpretation and reasoning

2.7 The Court observed that the appellate forum under the statute has now been made functional and that the period for filing appeals has been extended and structured in a "fragmented" (staggered) manner, providing sufficient time for filing appeals.

2.8 In view of the functional Appellate Tribunal and the clear timelines for filing appeals, the Court held that it would not be proper for the Writ Court to keep such writ petitions pending where the dispute can now be adjudicated by the statutory forum specifically created for that purpose.

Conclusions

2.9 The writ petition was disposed of and the petitioner was relegated to the statutory remedy before the Appellate Tribunal, to be availed within the timelines prescribed in the Notification and the User Advisory for the GSTAT e-Filing Portal.

2.10 The Court directed the petitioner to file an appeal before the Appellate Tribunal as per the said timelines, and directed that if the appeal is filed in conformity with Section 112 and the relevant Rules, it shall be entertained by the Appellate Tribunal.

Issue 3: Applicability and enforcement of pre-deposit requirement under Section 112(8) in the context of writ jurisdiction

Legal framework discussed

2.11 The Court reproduced Section 112(8) of the GST Act, which stipulates that no appeal shall be filed unless the appellant has paid:

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him, and

(b) a sum equal to ten per cent of the remaining amount of tax in dispute, in addition to the amount paid under Section 107(6), subject to a maximum of twenty crore rupees.

Interpretation and reasoning

2.12 The Court held that although the Writ Court can entertain a petition when the appellate forum is not functional, such recourse does not absolve an aggrieved person from compliance with statutory conditions attached to filing an appeal, including the mandatory pre-deposit under Section 112(8).

2.13 The Court observed that the Writ Court must ensure strict compliance with such statutory pre-conditions and a litigant cannot "steal a march" by invoking writ jurisdiction to circumvent the restrictions and obligations that the legislature has attached to the appellate remedy.

Conclusions

2.14 The Court directed the petitioner to deposit, if not already deposited, the amount required under Section 112(8) of the GST Act before the Appellate Tribunal as a condition for filing the appeal.

2.15 The Court clarified that the appeal, once filed with the requisite pre-deposit and in conformity with Section 112 and the relevant Rules, shall be entertained by the Appellate Tribunal, and that the Court has not expressed any opinion on the merits of the first appellate order.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a writ petition under Article 226 challenging a show cause notice issued under the CGST Act, at the stage of notice, was maintainable or premature.

1.2 Whether material and statements seized and recorded by the Income Tax Department under the Income Tax Act, 1961, particularly under Sections 132(4), 132(4A) and 292C, could lawfully form the basis of investigation and issuance of a show cause notice under the CGST Act, 2017.

1.3 Whether presumptions available under Sections 132(4A) and 292C of the Income Tax Act extend to or can be invoked in proceedings under the CGST Act.

1.4 Whether the impugned show cause notice was vague or bereft of material particulars and therefore liable to be quashed in light of the legal standards governing show cause notices under the CGST regime.

1.5 Whether use of incorrect or non-existent judicial precedents, including those apparently generated through Artificial Intelligence tools, in the show cause notice, vitiated the notice.

1.6 Whether the challenge to the constitutional validity of Section 75(2) of the CGST Act was ripe for consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability / prematurity of writ against show cause notice

Interpretation and reasoning

2.1 The Court noted that the matter was at the stage of show cause notice under Section 74 of the CGST Act. No adjudication had taken place and the Petitioner had not yet filed a reply.

2.2 The show cause notice itself contained a detailed narration of facts, analysis of documents and statements, computation of alleged GST liability, and annexed all relied upon documents (RUDs). The Petitioner had been supplied with these RUDs.

2.3 The Court took note that an earlier writ petition by the same Petitioner, challenging the commencement of investigation and non-compliance with summons, had already been dismissed by a Coordinate Bench, and the dismissal had been affirmed by the Supreme Court. Under these circumstances, the Court viewed the present challenge to the show cause notice as a second attempt to stall the statutory process.

2.4 The Court emphasised that all objections, including on admissibility and evidentiary value of material, can be urged before the adjudicating authority in response to the show cause notice, and that the Petitioner is entitled to a personal hearing and full opportunity to rebut the material.

Conclusions

2.5 The Court held that the challenge to the show cause notice was premature and that the writ petition, to that extent, was not liable to be entertained.

2.6 The Petitioner was directed to submit a reply to the show cause notice and participate in the adjudication, where all legal and factual objections could be raised and considered.

Issue 2: Use of Income Tax Department material in GST proceedings

Legal framework (as discussed)

2.7 The Court examined Sections 132(4), 132(4A) and 292C of the Income Tax Act, which govern search and seizure, admissibility of statements, and presumptions regarding books of account, documents, money and other assets found during search/survey.

2.8 The Court referred to judicial precedents interpreting these provisions, holding that the presumptions therein are rebuttable and operate within the framework of the Income Tax Act for limited purposes.

Interpretation and reasoning

2.9 The Court recorded that the Income Tax Department had conducted a search, seized extensive digital and physical material (including the "JSK" server and various devices), recorded statements of multiple persons, and prepared special audit reports and assessment orders for several financial years.

2.10 The Income Tax Department then shared all such material, RUDs, special audit reports, statements and assessment orders with the GST Department.

2.11 The Court noted that, as per paragraph 15 of the show cause notice, the GST Department had scrutinised the documents "with the GST point of view", independently analysed the special audit reports and assessment orders, and recorded detailed, year-wise findings on alleged GST evasion, modus operandi, and computation of alleged taxable turnover and GST liability.

2.12 The Court held that material and statements collected under the Income Tax Act cannot, by themselves, be treated as conclusive evidence or be automatically imported with Income Tax presumptions into GST proceedings. However, they can legitimately be used as a starting point and basis for independent investigation and formation of a prima facie view by the GST Department.

2.13 The Court observed that the GST authorities had not blindly adopted Income Tax findings; instead, they scrutinised statements of multiple employees and related entities, correlated them with electronic records (including WhatsApp chats and "kachchi parchis"), and carried out their own analysis before issuing the show cause notice.

Conclusions

2.14 The Court held that there is no legal bar on the GST Department using documents and statements seized by the Income Tax Department as material for an independent investigation under the CGST Act.

2.15 The Court held that such material can form the basis for issuance of a show cause notice, subject always to the assessee's right to rebut and contest their evidentiary value in the GST proceedings.

Issue 3: Applicability of Income Tax presumptions (Sections 132(4A) and 292C) to CGST proceedings

Legal framework (as discussed)

2.16 The Court analysed Section 132(4A) and Section 292C of the Income Tax Act, and the judicial view that these provisions create rebuttable presumptions about ownership, truthfulness of contents, and signatures relating to seized books and documents.

2.17 It noted that such presumptions are confined to proceedings "under this Act" (the Income Tax Act) and, in particular, to proceedings relating to search, seizure, provisional assessment and retention of assets, unless expressly extended by statute.

Interpretation and reasoning

2.18 The Court held that the Income Tax presumptions cannot be automatically transposed into GST proceedings. The IT Act and CGST Act are distinct taxing statutes, both to be strictly construed; presumptions created by one statute cannot be read into another in the absence of express legislative incorporation.

2.19 The Court clarified that, even under the Income Tax Act, such presumptions are rebuttable and primarily applicable for provisional purposes and not for framing final assessment orders in the absence of other evidence.

2.20 In contrast, the CGST Act has its own evidentiary and presumptive provisions. The Court referred to Section 144 of the CGST Act (not extracted but noticed in the judgment) as permitting reliance on material and evidence from "any source" with certain rebuttable presumptions with respect to such material.

2.21 The Court held that statements recorded under Section 132(4) of the Income Tax Act may be used as evidence in Income Tax proceedings; in GST matters, they may at best serve as a starting point or material for investigation but do not, by operation of the Income Tax Act alone, carry statutory presumptions in CGST proceedings.

Conclusions

2.22 The Court concluded that presumptions under Sections 132(4A) and 292C of the Income Tax Act are confined to proceedings under the Income Tax Act and do not, as such, apply to proceedings under the CGST Act.

2.23 Nevertheless, documents and statements seized by the Income Tax Department can be examined and relied upon by GST authorities as material, subject to independent scrutiny and subject to rebuttal in CGST proceedings.

Issue 4: Alleged vagueness and insufficiency of the show cause notice under CGST Act

Legal framework (as discussed)

2.24 The Court considered a prior judgment that laid down requirements for a valid show cause notice under the GST regime:

(i) It cannot be vague.

(ii) It must be supported by evidence commensurate with the gravity of allegations.

(iii) It must set out the background for initiation of proceedings.

(iv) It must clearly state the legal provisions allegedly contravened.

(v) All materials relied upon must be disclosed and appended to enable an effective reply.

Interpretation and reasoning

2.25 The Court undertook a detailed examination of the impugned show cause notice. It recorded that the notice:

* Describes the alleged business model ("Pakka" and "Kachcha" transactions) and modus operandi of clandestine cash-based supplies and commissions.

* Summarises special audit reports for multiple financial years and the analysis of the "JSK" parallel books/server.

* Analyses statements of numerous employees, accountants, executives and persons handling cash, as well as statements of suppliers and buyers whose names surfaced from the JSK server.

* Correlates material such as WhatsApp chats, "kachchi parchis", internal branch documents and digital ledgers in support of the allegation of concealed business operations.

* Computes alleged unaccounted taxable turnover and corresponding GST liability for multiple financial years, and sets out the provisions of the CGST Act proposed to be invoked.

2.26 The Court noted that the list of RUDs indicated annexation of statements, letters, summons, Income Tax special audit reports and assessment orders, and that these had been furnished to the Petitioner.

2.27 In this factual context, the Court rejected the contention that the show cause notice was vague, unsupported by evidence, or issued without independent application of mind by GST authorities.

Conclusions

2.28 The Court held that the show cause notice, read as a whole, contained adequate particulars of allegations, evidence, legal provisions, background and computation of alleged liability, and met the legal requirements for a valid GST show cause notice.

2.29 The Court held that the notice could not be quashed on the ground of vagueness or lack of material at this stage.

Issue 5: Effect of incorrect / non-existent case law citations and use of Artificial Intelligence tools

Interpretation and reasoning

2.30 The Petitioner contended that some judicial precedents cited in paragraph 21 of the show cause notice were non-existent or AI-generated.

2.31 The Court independently verified, through physical law reports, each of the three judgments cited in the show cause notice. It found that:

* One precedent (Pullangode Rubber Produce Co. Ltd. v. State of Kerala) had been correctly cited.

* The citation purportedly for "Surjeet Singh Chhabda v. Union of India" in fact corresponded to an entirely different decision, and the named case was non-existent.

* The citation given for "Kishan Lal v. Union of India" actually related to a different case (Commissioner of Income Tax v. Kishan Lal (HUF)) on issues unconnected with the propositions stated in the show cause notice.

2.32 The Court observed that such discrepancies suggested the possibility of reliance on AI tools that may hallucinate or fabricate case law. It referred to other judicial pronouncements warning against unverified use of AI-generated citations, including instances where non-existent case law had been relied upon by tax authorities.

2.33 The Court underscored that, although AI tools may be used for preliminary research and analysis, they cannot substitute human verification when exercising quasi-judicial or adjudicatory functions. Authorities must take full responsibility for verifying the existence, correctness and relevance of any precedent cited in official documents such as show cause notices and assessment orders.

Conclusions

2.34 The Court held that at least one cited judgment in the show cause notice was non-existent and another was inaccurately described, and cautioned the GST Department and other authorities to exercise "utmost caution" and to verify all judgments before issuing notices or completing assessments.

2.35 While deprecating such practice and directing careful verification of case-law, the Court did not hold that these citation errors, by themselves, rendered the entire show cause notice invalid at the threshold, particularly in view of the substantial factual and evidentiary material forming its foundation.

Issue 6: Challenge to constitutional validity of Section 75(2) of the CGST Act

Interpretation and reasoning

2.36 The show cause notice in question had been issued under Section 74 of the CGST Act. The Petitioner nevertheless challenged the constitutional validity of Section 75(2), apprehending that the proceedings may be converted into proceedings under Section 73(1).

2.37 The Court noted that, as on date, there was no decision by the GST authorities to invoke or apply Section 75(2) in the Petitioner's case. Any presumption that Section 75(2) would be invoked was speculative.

2.38 The Court therefore considered the challenge to be premature in the absence of any actual adverse action or proceeding under Section 75(2) against the Petitioner.

Conclusions

2.39 The Court held that the challenge to Section 75(2) of the CGST Act was premature and did not arise for adjudication at this stage.

2.40 The Petitioner was granted liberty to challenge the vires of Section 75(2) if and when any concrete action or proceeding is taken against it involving that provision and if it is then aggrieved.

Overall Disposition

2.41 The writ petition was disposed of with directions that the Petitioner reply to the show cause notice, avail of personal hearing, and raise all permissible objections on facts, law, admissibility and evidentiary value of material before the adjudicating authority, which shall decide the matter in accordance with law. The Court expressly refrained from expressing any opinion on the merits of the allegations of GST evasion.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a writ challenge to the order dated 24.08.2024 passed under Section 73 of the GST enactments is maintainable after it has been revised and substituted by the rectification order dated 18.03.2025 under Section 161.

1.2 Whether the rectification order dated 18.03.2025 passed under Section 161 of the GST enactments, confirming a fresh tax demand on a different ground, is vitiated for non-compliance with the third proviso to Section 161 and the principles of natural justice.

1.3 In light of the delay and the existence of an appellate remedy, whether the Court should exercise writ jurisdiction, and if so, on what terms, including conditions for remand, pre-deposit and lifting of bank attachment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of challenge to the order dated 24.08.2024 after rectification by order dated 18.03.2025

Interpretation and reasoning

2.1 The Court noted that the initial demand confirmed by the order dated 24.08.2024 under Section 73, pursuant to the Show Cause Notice in FORM DRC-01 dated 30.05.2024, was later rectified on an application dated 24.11.2024, resulting in the order dated 18.03.2025 under Section 161.

2.2 By the rectification order dated 18.03.2025, the entire demand confirmed by the order dated 24.08.2024 stood obliterated and was substituted by a fresh tax demand of Rs. 3,85,35,356/- on a different ground.

2.3 The Court held that, once the earlier order and demand stood revised and substituted, the effective order in force was the rectification order dated 18.03.2025. Any grievance against the demand should therefore have been directed against that order, and against the rejection order dated 31.03.2025 passed on the subsequent rectification application dated 24.03.2025.

Conclusions

2.4 The challenge to the order dated 24.08.2024 was held to be without merit, as that order had been superseded and had no operative demand surviving; the writ petition directed against it was dismissed.

Issue 2: Validity of the order dated 18.03.2025 under Section 161 and compliance with the third proviso and natural justice

Legal framework (as discussed)

2.5 The Court referred to Section 161 of the GST enactments and in particular to the third proviso, which mandates that where rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification.

Interpretation and reasoning

2.6 The rectification order dated 18.03.2025, passed under Section 161, resulted in the confirmation of a fresh tax demand of Rs. 3,85,35,356/- on a different basis, thus adversely affecting the petitioner.

2.7 The record showed that, pursuant to the petitioner's rectification application dated 24.11.2024, the authority had issued two notices dated 05.12.2024 and 25.01.2025 calling upon the petitioner to furnish documents/information. The petitioner did not respond to these notices.

2.8 The Court held that this constituted only "part compliance" with the third proviso to Section 161. Merely calling upon the petitioner to furnish documents was not sufficient; before confirming a substantial tax demand on a new ground, the authority ought to have issued a proper notice and afforded a real opportunity consistent with the principles of natural justice.

2.9 At the same time, the Court noted that the petitioner had also been non-vigilant, both in not responding to the notices dated 05.12.2024 and 25.01.2025 and in not promptly availing statutory remedies or approaching the Court after the orders dated 18.03.2025 and 31.03.2025.

Conclusions

2.10 The Court found that the rectification proceedings culminating in the order dated 18.03.2025 suffered from inadequate compliance with the third proviso to Section 161 and the principles of natural justice, although the petitioner was also at fault for non-cooperation.

2.11 To balance the interests of both sides, the matter was remitted to the second respondent to pass a fresh order in lieu of the order dated 18.03.2025, insofar as it confirmed the tax demand of Rs. 3,85,35,356/-, after affording proper opportunity.

2.12 For the purposes of the remand, the order dated 18.03.2025 was directed to be treated as a Show Cause Notice.

Issue 3: Exercise of writ jurisdiction despite alternate remedy and delay; conditions for remand and interim protection

Interpretation and reasoning

2.13 The respondents objected to the maintainability of the writ petitions, contending that the petitioner had "slept over" its rights and failed to file an appeal under Section 107 within time, relying on decisions of the Supreme Court emphasising strict adherence to limitation and statutory remedies.

2.14 The Court acknowledged that the petitioner had not been diligent: it had not pursued an appeal, had approached the Court only on 03.11.2025, and had filed yet another rectification application dated 24.03.2025 (rejected on 31.03.2025) instead of availing the appellate remedy.

2.15 Nevertheless, in view of the partial non-compliance with the third proviso to Section 161 and the principles of natural justice in passing the order dated 18.03.2025, the Court considered it appropriate, in the overall facts and circumstances, to exercise writ jurisdiction in a limited manner by ordering a conditional remand.

2.16 To balance equities and account for the petitioner's delay and non-cooperation, the Court imposed a pre-condition for remand: the petitioner must deposit 10% of the disputed tax in cash from its Electronic Cash Register within thirty days from receipt of the Court's order.

2.17 Upon such deposit and after giving due notice to the petitioner, the second respondent was directed to pass a final order on merits and in accordance with law as expeditiously as possible, preferably within three months of the reply/pre-deposit.

2.18 It was further directed that, subject to the petitioner's compliance with the 10% pre-deposit and there being no other arrears except the amount demanded under the impugned order, the attachment of the petitioner's bank account shall automatically stand vacated; otherwise, the bank attachment shall continue.

2.19 In the event of failure to comply with the pre-deposit condition, the second respondent was given liberty to proceed to recover the tax in accordance with law as if the writ petition had been dismissed in limine, after giving due notice to the petitioner.

Conclusions

2.20 Writ jurisdiction was exercised in a restricted manner: the challenge to the original order dated 24.08.2024 was rejected, while the proceedings relating to the rectification order dated 18.03.2025 were remitted on conditions of pre-deposit and fresh consideration with observance of natural justice, with corresponding directions on bank attachment and recovery.

Issues: Whether the impugned GST assessment order deserved interference in writ jurisdiction and whether the matter should be remitted for fresh consideration on payment of a stipulated pre-deposit.

Analysis: The Petitioner had not responded to the show-cause notice or availed the personal hearing. The appeal remedy under Section 107 of the Central Goods and Services Tax Act, 2017 had already become time-barred. To balance the interests of both sides, the Court adopted the course followed in similar matters and directed remand with a condition of deposit of 50% of the disputed tax in cash within the stipulated time. The Petitioner was also directed to file a reply with documents, and the earlier recovery was ordered to be adjusted subject to verification. On compliance, the adjudicating authority was required to pass a fresh order on merits and the bank attachment was to stand lifted.

Conclusion: The writ petition was allowed in part by remitting the matter for fresh adjudication subject to pre-deposit, with consequential relief against bank attachment on compliance.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appellate authority, while deciding an appeal under Section 107 of the WBGST Act, 2017 against an order passed under Section 74(9), is required to pass a reasoned order in terms of Section 74(12) of the Act and general principles of law.

1.2 Whether the impugned appellate order, being unreasoned and reflecting non-application of mind to the facts and grounds of appeal, can withstand judicial scrutiny under Article 226 of the Constitution of India.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement of a reasoned order by the appellate authority under the WBGST Act

Legal framework

2.1 The Court referred to Section 74(12) of the WBGST Act, 2017, noting that it mandates that reasons must be provided to support the ultimate decision.

2.2 The Court reiterated the general legal principle that reasons constitute the "live link between the narrative and the directive", and that absence of reasons can render an order a nullity.

Interpretation and reasoning

2.3 The appellate order, extending over only two pages, was examined. The Court found that the bulk of the order merely recited the history of the case, statement of facts, grounds of appeal, and the prayer.

2.4 The only operative paragraph of the appellate order simply recorded that the appellate authority had gone through the statement of facts, grounds of appeal, the adjudication order, and the documents submitted, and then concluded that there was no reason to interfere, as the proper officer had passed the order "properly as per the provision of law".

2.5 The Court held that such a paragraph fell "short of even a modicum of reasoning" and did not disclose any independent analysis or examination of the facts, documents, or grounds urged in appeal.

Conclusions

2.6 The Court concluded that Section 74(12) of the WBGST Act, 2017, read with general principles requiring recording of reasons, obligates the appellate authority to pass a reasoned order, which was not complied with in the present case.

Issue 2: Sustainability of the impugned appellate order under Article 226 of the Constitution of India

Interpretation and reasoning

2.7 On perusal of the impugned appellate order, the Court found that the appellate authority had not applied its mind to the matter and had effectively "dittoed" the adjudication order without delving into the facts of the case.

2.8 The Court noted that the statement of facts and grounds of appeal, annexed to the writ petition, did not appear to have been considered by the appellate authority while arriving at its conclusion.

2.9 The Court characterised the impugned order as "wholly unreasoned" and held that such an order cannot sustain scrutiny in exercise of the Court's jurisdiction under Article 226 of the Constitution of India.

Conclusions

2.10 The impugned appellate order dated June 26, 2025 was set aside on the ground of being unreasoned and reflecting non-application of mind.

2.11 The matter was remanded to the appellate authority for fresh consideration of the appeal in accordance with law, with all points kept open and without any adjudication on the merits of the underlying tax dispute.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether uploading the show cause notice under the "Additional notices and orders" tab instead of the "Normal" tab constituted effective communication to the assessee.

1.2 Whether, in the absence of effective communication of the show cause notice and consequent lack of opportunity of hearing, the adjudication order under Section 73(9) of the WBGST Act, 2017 and the appellate order rejecting the appeal as time-barred could be sustained.

1.3 Whether, in the facts, the assessee was entitled to be relegated to the stage of filing reply to the show cause notice, and the applicability of the precedent in Sankar Agarwala.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Effective communication of show cause notice via "Additional notices and orders" tab

Legal framework (as discussed)

2.1 The Court noted the settled principle that there must be an "effective communication" of a show cause notice to enable the noticee, against whom an adverse decision is contemplated, to submit a reply.

Interpretation and reasoning

2.2 It was undisputed that the show cause notice was uploaded under the "Additional notices and orders" tab and not under the "Normal" tab.

2.3 The Court treated such mode of uploading, in the circumstances, as insufficient to constitute effective communication, given that it prevented the assessee from becoming aware of the notice at the relevant time.

Conclusions

2.4 The Court held that there was no effective communication of the show cause notice to the petitioner, as it was uploaded under the "Additional" tab instead of the "Normal" tab.

Issue 2: Sustainability of adjudication and appellate orders in absence of effective communication and opportunity of hearing under Section 75(4) WBGST Act

Legal framework (as discussed)

2.5 Section 75(4) of the WBGST Act, 2017 provides that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty or where any adverse decision is contemplated against such person.

Interpretation and reasoning

2.6 On examining the show cause notice, the Court found that an adverse decision was clearly contemplated against the petitioner.

2.7 Given that there was no effective communication of the show cause notice, the petitioner was prevented by sufficient cause from filing a reply and from attending the hearing before the adjudicating authority.

2.8 The appellate authority had dismissed the appeal as time-barred on the ground that it was filed beyond the condonable period, without addressing the foundational issue that the assessee had not effectively received the show cause notice and thus had been denied a real opportunity of hearing.

Conclusions

2.9 The adjudication order under Section 73(9) and the appellate order rejecting the appeal as time-barred were held unsustainable and were set aside.

Issue 3: Relief of restoring proceedings to the stage of reply to show cause notice and applicability of precedent

Interpretation and reasoning

2.10 The Court noted that immediately after becoming aware of the adjudication order, the petitioner preferred an appeal and applied for condonation of delay, indicating bona fides and linking the delay to lack of knowledge of the show cause notice.

2.11 The Court relied on its earlier decision in Sankar Agarwala, where, in an almost identical fact situation, the orders of the original authority and appellate authority were set aside and the assessee was permitted to file a reply to the show cause notice despite the appeal having been dismissed as time-barred.

2.12 Holding that the precedent squarely applied, the Court considered it appropriate to grant a "last opportunity" to the petitioner to contest the proceedings from the stage of filing reply to the show cause notice, subject to strict conditions and timelines.

Conclusions

2.13 The writ petition was allowed.

2.14 The adjudication order dated 30 July 2024 and the appellate order dated 31 July 2025 were set aside.

2.15 The petitioner was permitted, as a last opportunity, to file a reply to the show cause notice dated 2 May 2024 within three weeks from receipt of a server copy of the Court's order, whereafter the adjudicating authority must fix a date of hearing and serve notice of hearing.

2.16 It was made explicit that if the petitioner failed to submit the reply within the stipulated period, the benefit of the Court's order would not enure to the petitioner and the writ petition would stand automatically dismissed without further reference to the Court.

2.17 No order as to costs was made.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether rent received for leasing a residential premises to an educational foundation for accommodation of students, teachers and staff is covered by the exemption for "services by way of renting of residential dwelling for use as a residence" under Entry 13 of Notification No. 9/2017, and therefore not exigible to GST.

(2) Whether, in light of the above, the appellate order rejecting the refund claim and the related endorsement are liable to be set aside and the refund application reconsidered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Applicability of GST exemption for renting of residential dwelling used as residence

Legal framework (as discussed in the judgment)

(a) Entry 13 of Notification No. 9/2017 dated 28.06.2017 exempts "services by way of renting of residential dwelling for use as residence".

(b) The Court relies on and reproduces in detail the decision of the Division Bench in Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling, Karnataka, which considered the same Entry 13 and the expression "services by way of renting of residential dwelling for use as residence".

(c) The Division Bench, after examining statutory interpretation principles for exemption notifications and the meaning of "residential dwelling", held that leasing of residential premises used as hostels by students and working professionals for long-term accommodation is covered by Entry 13 and is exempt from GST.

Interpretation and reasoning

(d) The Court notes that the petitioner's premises were leased to an educational foundation for accommodation of students, teachers and staff; the Gram Panchayat had certified the property as a residential dwelling, and the second respondent's initial audit report itself had treated the rent as derived from a residential premises exempt from GST.

(e) The Court explicitly applies the ratio of the Division Bench in Taghar Vasudeva Ambrish, observing that the Division Bench has already concluded that rent received by leasing out residential premises for the purpose of accommodation of students, staff and teachers is not exigible to GST under Entry 13.

(f) The Court does not undertake a fresh interpretative exercise, but treats the Division Bench decision as binding and directly applicable to the facts, which are materially similar, namely renting of a residential dwelling used as residential accommodation for students, staff and teachers.

Conclusions

(g) The rent received by the petitioner from leasing the residential premises to the foundation for accommodation of students, teachers and staff is not exigible to GST, being covered by the exemption in Entry 13 of Notification No. 9/2017.

(h) The contrary view reflected in the revised audit report and subsequent orders rejecting exemption/refund is inconsistent with the binding Division Bench precedent.

Issue (2): Validity of refund rejection and appellate order; direction to reconsider refund

Interpretation and reasoning

(i) The petitioner had paid GST on the rent "under protest" and sought refund on the basis that the services were exempt. The initial audit report supported this position, but a revised audit report and subsequent orders rejected the exemption and the refund, leading to the impugned endorsement and appellate order.

(j) Since, applying Taghar Vasudeva Ambrish, the underlying rental service is not taxable, the appellate order dated 10.01.2024, which rejected the refund claim, is premised on an incorrect view of the law.

(k) The Court holds that this legal error vitiates the impugned appellate order, and that the refund claim must be reconsidered afresh in accordance with the principles laid down by the Division Bench.

Conclusions

(l) The impugned appellate order dated 10.01.2024 rejecting the petitioner's appeal for refund is set aside.

(m) The respondents are directed to reconsider the refund application dated 26.09.2022 and to pass appropriate orders within six weeks from receipt of the Court's order, bearing in mind and applying the principles laid down in Taghar Vasudeva Ambrish.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether, under Section 254(2) of the Income-tax Act, the Appellate Tribunal can modify or recall its earlier order on merits, effectively reviewing or re-deciding the appeal.

(2) Whether the rectification order dated 26.03.2013 passed by the Appellate Tribunal in exercise of Section 254(2), enhancing the taxable income by re-estimating profits, was within its jurisdiction.

(3) Consequentially, whether the subsequent rectification application filed by the assessee, seeking reconsideration of the order dated 26.03.2013, survived for adjudication and what order should govern the assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Scope and limits of rectification power under Section 254(2)

Legal framework

Section 254(2) empowers the Appellate Tribunal, within the prescribed period, to amend its order passed under Section 254(1) "with a view to rectifying any mistake apparent from the record". The first proviso mandates notice to the assessee where rectification would enhance assessment or increase liability.

The Court referred to the decisions of the Supreme Court and a Division Bench of the same Court explaining Section 254(2), inter alia:

- The powers under Section 254(2) are akin to those under Order XLVII Rule 1 CPC; they do not permit a re-hearing on merits or a review of the earlier order.

- Only a "mistake apparent from the record" can be rectified; such mistake must be patent, manifest, self-evident, and not requiring elaborate reasoning or reappreciation of evidence.

- Amendment of an order under Section 254(2) does not mean obliteration of the original order and substitution by a new order.

- Section 254(2) does not confer power on the Tribunal to sit in appeal over its own decision or to allow parties to re-argue an already decided appeal.

Interpretation and reasoning

The Court held that:

- The Tribunal's jurisdiction under Section 254(2) is confined strictly to rectifying mistakes apparent from the record and cannot be used to revisit or redetermine issues on merits.

- An erroneous or debatable order can only be challenged before an appellate court under Section 260A and cannot be corrected under the guise of rectification.

- Where two views are possible on facts or law, the matter is debatable and thus outside the ambit of "mistake apparent from the record".

- Rectification is permissible only to correct glaring mistakes of fact or law that are manifest on the face of the record and do not require a long-drawn process of reasoning or reappraisal of material.

Conclusions

The Court concluded that Section 254(2) does not empower the Tribunal to review, recall, or materially alter its earlier order on merits; its use is confined to correcting patent errors apparent from the record.

Issue (2): Validity of ITAT rectification order dated 26.03.2013 enhancing income

Interpretation and reasoning

The Court examined the sequence of orders:

- The Assessing Officer, on remand, completed block assessment under Section 143(3), estimating undisclosed income at Rs. 6,17,00,860/-, after allowing a lump sum deduction of 1/3rd of the originally computed income towards probable expenses, considering that 120% profit could not realistically be earned.

- On appeal, the Tribunal, by order dated 21.09.2011, considered the matter on merits, rejected the assessee's plea for a 2.5% profit rate, found the business clandestine and unlawful, treated the AO's recomputation as working out to a profit rate of 8%, and held that 8% was excessive in the specific context of uniform cloth supplies under a government scheme. It partly allowed the appeal by reducing the profit rate to 5%.

- In the first rectification application by the assessee, the Tribunal on 09.03.2012 merely clarified that the 5% profit rate related to the "gross turnover", consistent with the assessment order; this clarification did not disturb the substantive reasoning or findings.

- In the subsequent rectification application filed by the Revenue (M.P.No.31/Mds/2012), the Tribunal, by order dated 26.03.2013, reappraised materials already considered, held that crucial points had been overlooked, treated the earlier order as mistaken, vacated the direction fixing profit at 5%, and proceeded afresh to determine estimated income at 50% of the income determined in the original assessment, thereby effectively effacing the earlier final order dated 21.09.2011.

The Court held that:

- In passing the order dated 26.03.2013, the Tribunal had not confined itself to correcting any patent or self-evident error; instead, it re-examined the entire estimation exercise, altered the basis of computation, and substituted its earlier considered view with a new one.

- Such reappraisal and redetermination amounts to exercising appellate jurisdiction over its own order, which is clearly beyond the rectification power under Section 254(2).

- By completely displacing the earlier final order and re-fixing the income at 50% of the original assessment, the Tribunal had in substance reviewed and rewritten its prior decision, which is legally impermissible under Section 254(2).

Conclusions

The rectification order dated 26.03.2013 was held to be erroneous, perverse, and beyond the jurisdiction conferred by Section 254(2), as it amounted to a re-adjudication on merits and an exercise of appellate power. The order dated 26.03.2013 was set aside, and the original Tribunal order dated 21.09.2011 stood restored.

Issue (3): Effect on later rectification application by assessee and final position of assessment

Interpretation and reasoning

- The assessee's third rectification petition (M.P.No.175/Mds/2014) sought reconsideration of the Tribunal's rectification order dated 26.03.2013. The Tribunal dismissed that petition, holding that it had no power to review its earlier order under Section 254(2) and could only rectify errors apparent on the face of the record, and that the issues raised were for the appellate court under Section 260A.

- The Court observed that, while this reasoning correctly stated the law on Section 254(2), the Tribunal had failed to apply the same logic to the Revenue's rectification petition decided on 26.03.2013, in which it had in fact reviewed and re-decided the matter.

- Once the Court set aside the rectification order dated 26.03.2013 as without jurisdiction, there remained nothing substantive for adjudication in the appeal arising from the dismissal of the assessee's rectification petition directed against that order.

- The Court further noted that the Revenue's appeal against the main order dated 21.09.2011 (TCA No.114 of 2015) had already been dismissed on withdrawal due to low tax effect, thereby allowing the Tribunal's original order to attain finality.

Conclusions

- With the rectification order dated 26.03.2013 set aside, the original Tribunal order dated 21.09.2011, fixing the profit rate at 5% on gross turnover, stands restored and attains finality.

- The substantial questions of law in the appeal challenging the rectification order enhancing income were answered in favour of the assessee and against the Revenue, and that appeal was allowed.

- The connected appeal arising from the dismissal of the assessee's subsequent rectification petition became infructuous in substance and stood dismissed, no further issue surviving for decision.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the income declared under the Income Declaration Scheme, 2016, but not effectively covered by the Scheme due to non-payment of full tax, was liable to be assessed as "income from business" at the normal rate or as unexplained income under Section 69A of the Income-tax Act, 1961.

(2) Whether the assessee was entitled to credit/adjustment of the part tax installments paid under the Income Declaration Scheme, 2016, despite failure to pay the entire IDS liability within the prescribed time and the declaration being treated as non est.

(3) Whether, while computing the assessee's tax liability for A.Y. 2017-18, the assessee was entitled to credit of advance tax, TDS and self-assessment tax, subject to verification.

(4) Whether the revisional order under Section 264 declining to interfere with the assessment on characterization of income, and declining to give credit for IDS payments, called for interference under Article 226 of the Constitution.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Characterization of income as "business income" or as unexplained income under Section 69A

Legal framework (as discussed):

Section 69A of the Income-tax Act was noted as applying where an assessee is found to be the owner of money, bullion, jewellery, etc., not recorded in the books of account, and fails to offer a satisfactory explanation about the nature and source of such acquisition; such amounts may be treated as income of the assessee.

Interpretation and reasoning:

The Tribunal (Commissioner in revision) recorded that no returns of income were filed for A.Ys. 2014-15 and 2015-16; the assessee declared substantial undisclosed income under IDS, 2016 for those years but did not explain the sources of such income either in the assessment or in the revisional proceedings. Compliance with notices under Section 142(1) was minimal, and the return for A.Y. 2017-18 reflecting the disputed income was filed only at the fag end of reassessment proceedings without any supporting evidence as to its source. In these circumstances, the revisional authority concluded that the conditions for invoking Section 69A were satisfied and the income could not be treated as normal "business income" taxable at 30%.

The Court held that this view of the revisional authority on characterization of income was "a plausible and possible view" on the facts and within his jurisdiction under Section 264.

Conclusions:

(a) The income in question, originally declared under IDS, 2016 and later brought to tax in A.Y. 2017-18, was validly treated as unexplained income under Section 69A rather than as "income from business".

(b) The revisional authority's decision on characterization did not suffer from any legal infirmity warranting interference under Article 226; the challenge to this aspect of the order was rejected and the characterization under Section 69A was upheld.

Issue (2): Entitlement to credit of part tax paid under the Income Declaration Scheme, 2016

Legal framework (as discussed):

The Court referred to the statutory provisions of the Income Declaration Scheme, 2016 (including Section 187(3)) which state that if the declarant fails to pay the prescribed tax, surcharge and penalty within the specified time, the declaration shall be deemed never to have been made under the Scheme and becomes non est. It also adverted to Section 191 of IDS and Article 265 of the Constitution ("no tax shall be levied or collected except by authority of law").

The Court relied extensively on a prior Division Bench decision where, on analogous provisions of IDS, 2016 and earlier voluntary disclosure schemes, it was held that: (i) declarations become void/non est if payment conditions are not fulfilled; (ii) nevertheless, revenue cannot retain amounts paid under such void declarations without authority of law; and (iii) such amounts must be refunded or adjusted in accordance with law.

Interpretation and reasoning:

The revisional authority had denied credit on the ground that payments were made under IDS, 2016 and the declaration had failed for non-payment of the full amount, rendering the declaration non est. The Court held that this approach was contrary to binding precedent.

Following the earlier Division Bench ruling in Pinnacle Vastunirman Pvt. Ltd. and the line of authorities discussed therein (including Hemlatha Gargya and other High Court decisions on similar schemes), the Court reiterated that:

(a) Where a declaration under IDS, 2016 is deemed never to have been made due to non-payment of full tax, the Scheme itself does not authorise retention of tax already paid under that declaration.

(b) Retention of such amounts without giving refund or adjustment is contrary to Article 265, as there is no authority of law to retain tax in respect of a declaration that is void and non est.

(c) Accordingly, the assessee is entitled, at minimum, to have such amounts adjusted/credited against lawful tax liabilities under the Income-tax Act, 1961.

The Court found that the revisional order, insofar as it denied credit for IDS payments, was in direct conflict with the law laid down in Pinnacle and hence was unsustainable.

Conclusions:

(a) The assessee is entitled to credit/adjustment of the tax already paid under the Income Declaration Scheme, 2016, notwithstanding that the declaration under the Scheme is deemed void for non-payment of the entire liability.

(b) The portion of the revisional order refusing such credit is set aside as being contrary to binding Division Bench authority and Article 265.

(c) The Assessing Officer is directed to verify the amounts actually paid under IDS, 2016 and grant appropriate credit while computing the tax payable for A.Y. 2017-18.

Issue (3): Credit of advance tax, TDS, and self-assessment tax for A.Y. 2017-18

Legal framework (as discussed):

The judgment notes that the revisional authority directed the Assessing Officer to verify prepaid taxes (advance tax, TDS and self-assessment tax) in the light of latest judicial precedents, with reference to the decision in Kamla Chandra Singh Kabali, which confirms that such pre-payments, upon verification, should be duly credited while computing tax liability.

Interpretation and reasoning:

The revisional authority had partially allowed the revision by directing verification and grant of credit for prepaid taxes. The Court characterised this as a direction that all such taxes paid by the assessee must be verified and credit given while computing tax for A.Y. 2017-18, in line with the judicial position.

The Court found these directions to be consistent with the law and adequate protection of the assessee's rights, and did not find any reason to interfere with them.

Conclusions:

(a) The assessee is entitled, in principle, to credit for advance tax, TDS and self-assessment tax, subject to factual verification by the Assessing Officer.

(b) The direction to the Assessing Officer to verify and then grant such credit is upheld and reaffirmed; such verification and credit must be undertaken while recomputing tax for A.Y. 2017-18.

Issue (4): Scope of interference under Article 226 with the revisional order under Section 264

Interpretation and reasoning:

The Court evaluated the revisional order issue-wise. On the question of characterization of income under Section 69A, it held that the revisional authority had considered the relevant facts and provisions, and had reached a plausible and possible view based on the materials and the assessee's failure to explain the sources of income. Such a view did not disclose any perversity or jurisdictional error warranting interference in writ jurisdiction.

On the issue of credit for tax paid under IDS, 2016, the Court found a clear legal error: the revisional authority's refusal to grant credit was inconsistent with binding precedent and with the constitutional requirement under Article 265. To that limited extent, the order was interfered with and set aside.

Conclusions:

(a) In exercise of powers under Article 226, the Court will not interfere with a revisional order under Section 264 where the view taken is plausible and within jurisdiction, even if another view is possible on facts (as in characterization of income under Section 69A).

(b) However, where the revisional authority's order is contrary to binding precedent or violates constitutional requirements governing the levy and collection of tax (as in refusal of credit for IDS payments), the Court will set aside that part of the order and issue appropriate directions.

(c) The writ petition is disposed of by (i) upholding the revisional order on characterization of income, (ii) setting aside the denial of IDS tax credit and directing verification and grant of such credit, and (iii) affirming the directions for verification and credit of advance tax, TDS and self-assessment tax for A.Y. 2017-18.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the objections filed by the assessee to the Draft Assessment Order under Section 144C(1) of the Income Tax Act were within the prescribed period of limitation.

1.2 Whether the Dispute Resolution Panel was justified in rejecting the objections as time-barred and, consequentially, whether the Assessing Officer could validly pass the final assessment order and penalty order without awaiting or acting upon DRP directions.

1.3 Whether, in light of the statutory scheme under Section 144C and the precedents cited, the impugned assessment order, DRP order, and penalty order are liable to be quashed with consequential directions to the DRP and Assessing Officer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the objections filed by the assessee to the Draft Assessment Order under Section 144C(1) were within the prescribed period of limitation.

Legal framework (as discussed)

2.1 The judgment proceeds on the basis of the statutory scheme under Section 144C of the Income Tax Act, as discussed and applied in earlier decisions, namely LG Soft India (P) Ltd., Open Silicon Research (P) Ltd., and INFRRD Private Limited. Under this scheme, upon receipt of a draft assessment order, an "eligible assessee" has 30 days from the date of receipt to file objections before the Dispute Resolution Panel.

Interpretation and reasoning

2.2 The Draft Assessment Order was passed on 16.03.2024 and was communicated to the assessee on 18.03.2024 as per the communication/letter dated 18.03.2024 issued by the Assessing Officer.

2.3 The assessee filed objections in Form No. 35A on 16.04.2024, which were received by the respondents through courier on the same date. The Court treats the date of communication (18.03.2024) as the starting point for computing the 30-day limitation period under Section 144C.

2.4 On these undisputed dates, the Court holds that filing on 16.04.2024 falls within the prescribed 30-day period from the date of communication of the draft order.

2.5 The Dispute Resolution Panel proceeded on the premise that the objections had not been filed within 30 days and therefore rejected them as time-barred. The Court finds this premise to be contrary to the material on record, since the objections were demonstrably filed and received within the statutory period.

Conclusion on Issue 1

2.6 The objections filed by the assessee to the Draft Assessment Order were within the prescribed 30-day limitation period, and the DRP committed an error in rejecting them as being filed beyond time.

Issue 2: Whether the DRP was justified in rejecting the objections as time-barred and, consequentially, whether the Assessing Officer could validly pass the final assessment order and penalty order without awaiting or acting upon DRP directions.

Legal framework (as discussed)

2.7 The Court refers to and applies the principles laid down in prior decisions, particularly LG Soft India (P) Ltd., Open Silicon Research (P) Ltd., and INFRRD Private Limited, which interpret Section 144C of the Income Tax Act.

2.8 From these precedents, the following statutory principles are reiterated and applied:

(a) After issuance of a Draft Assessment Order to an eligible assessee, the assessee has two alternatives: either to accept the variations or to file objections before the DRP within the stipulated time.

(b) Once objections are filed before the DRP within time, the Assessing Officer is obliged to await directions from the DRP and proceed to complete the assessment strictly in conformity with those directions, in terms of Section 144C(5)-(13).

(c) Passing of a final assessment order without awaiting DRP directions, when valid objections have been filed, is arbitrary, illegal, and without jurisdiction.

Interpretation and reasoning

2.9 The Court notes that the assessee's objections were filed within limitation and were in fact transferred to the concerned DRP-1, Bengaluru on 08.05.2024. Despite this, the DRP rejected the objections as time-barred, leading the Assessing Officer to treat the case as if no valid objections existed and to pass the impugned final assessment order and consequential demand and penalty.

2.10 Relying on INFRRD Private Limited, LG Soft India (P) Ltd., and Open Silicon Research (P) Ltd., the Court reiterates that once an eligible assessee files objections before the DRP within time, the Assessing Officer cannot proceed to pass a final assessment order until the DRP concludes the proceedings and issues directions. Any such final order passed in the interregnum is in violation of the mandatory procedure under Section 144C.

2.11 The rejection of the assessee's objections by the DRP on the erroneous assumption that they were time-barred vitiates the subsequent steps taken by the Assessing Officer, because those steps are premised on a legally incorrect and factually unsustainable foundation.

2.12 The Court follows the ratio of the cited precedents to hold that the Assessing Officer ought to have awaited the conclusion of DRP proceedings and could not have proceeded to pass the impugned assessment order and penalty order when timely objections had been filed.

Conclusion on Issue 2

2.13 The DRP was not justified in rejecting the assessee's objections as time-barred. Consequently, the final assessment order, demand notice, and penalty order passed without awaiting and giving effect to valid DRP proceedings are arbitrary, illegal, and without jurisdiction and are liable to be quashed.

Issue 3: Whether, in light of the statutory scheme under Section 144C and the binding precedents, the impugned orders are liable to be quashed with consequential directions to the DRP and Assessing Officer.

Legal framework (as discussed)

2.14 The Court expressly relies on and applies the principles from:

- LG Soft India (P) Ltd.: holding that once objections are filed before the DRP within the prescribed period, the Assessing Officer cannot proceed to complete the assessment without awaiting DRP directions; any such assessment is arbitrary, illegal, and without jurisdiction.

- Open Silicon Research (P) Ltd.: holding that even where there is lapse in intimation to the Assessing Officer, once objections are filed before the DRP and directions are issued, the Assessing Officer must proceed only in conformity with such directions, and failure to await or follow DRP directions vitiates the assessment.

- INFRRD Private Limited: applying the above principles to quash a final assessment order passed without awaiting DRP outcome despite timely objections, and directing the authorities to proceed only after DRP concludes the matter.

Interpretation and reasoning

2.15 Applying these principles to the facts, the Court finds that:

(a) The assessee is an eligible assessee who was served with a Draft Assessment Order under Section 144C(1).

(b) The assessee filed objections within the statutory period, thus triggering the mandatory DRP procedure under Section 144C.

(c) The DRP's rejection of these objections as time-barred is contrary to undisputed dates on record and thus erroneous.

(d) The Assessing Officer's passing of the impugned final assessment order and penalty order, without awaiting proper DRP adjudication on validly filed objections, contravenes the mandatory scheme of Section 144C as interpreted in the binding precedents.

2.16 In view of the above, and consistent with the approach adopted in INFRRD Private Limited, LG Soft India (P) Ltd., and Open Silicon Research (P) Ltd., the Court considers it just and appropriate to quash the DRP order rejecting the objections, the final assessment order, and the penalty order, and to restore the matter to the DRP stage for fresh consideration of the objections.

Conclusions on Issue 3

2.17 The impugned DRP order rejecting objections (Annexure H), the assessment order and demand notice (Annexure J), and the penalty order dated 25.08.2025 are quashed.

2.18 The jurisdictional Dispute Resolution Panel is directed to consider afresh the objections filed by the assessee to the Draft Assessment Order and to conclude the proceedings in accordance with law, after providing sufficient and reasonable opportunity and personal hearing.

2.19 Upon receipt of the DRP's directions, the Assessing Officer is directed to provide adequate opportunity and personal hearing to the assessee and to pass appropriate orders strictly in accordance with law and in conformity with the DRP's directions, as mandated by Section 144C.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment proceedings initiated under sections 147/148 were valid when the reasons recorded referred to unexplained source of investment in shares, but the eventual addition was made under section 56(vii) as deemed income.

1.2 Whether the information received from the Investigation Wing, reproduced in the reasons for reopening, constituted a proper basis for "reason to believe" when there was no independent application of mind by the Assessing Officer and the investment in shares was already disclosed in the return of income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of reassessment under sections 147/148 and requirement of proper "reason to believe"

Legal framework (as discussed)

2.1 The Court referred to the scheme of section 147/148 of the Act and the requirement that the Assessing Officer must have a tangible, substantive and specific belief that income has escaped assessment, formed on specific information relatable to the assessee and supported by application of mind. It also noted the proposition that at the stage of reopening only a prima facie view is required and sufficiency of material is not to be examined, as relied upon from the decision in Raymond Woollen Mills Ltd. Vs. ITO. The Court further relied on the principle laid down by the jurisdictional High Court in Ranbaxy Laboratories Ltd. Vs. CIT that reassessment must be based on the ground for which jurisdiction was assumed and that additions on issues not forming the basis of reopening, where no valid assumption of jurisdiction exists, are not sustainable.

Interpretation and reasoning

2.2 The Court examined the recorded reasons and found that the Assessing Officer first downloaded and examined the assessee's return in the light of information from the Investigation Wing regarding purchase of shares of two companies at face value, despite their substantial asset base, and the Investigation Wing's opinion about possible applicability of section 56(vii) or other provisions and introduction of unaccounted money.

2.3 In the "analysis of information" portion of the reasons, the Assessing Officer stated that the information was required to be examined for the purpose of finding the "source of the purchase of shares worth Rs. 56,94,000/-" on 21.05.2010 and recorded that the source of purchase remained unexplained and could not be reconciled with the return of income, leading to a belief of escapement of income of Rs. 56,94,000/-.

2.4 The assessee demonstrated from its return and balance sheet that it had disclosed total investments of Rs. 307.62 lakhs, which included the impugned investment of Rs. 56,94,000/- in shares of the two companies, acquired through banking channels from different sellers. This disclosure was also specifically pointed out to the Assessing Officer in reply dated 28.09.2018.

2.5 The Court noted that the foundational premise in the recorded reasons was that the "source" of the investment of Rs. 56,94,000/- was unexplained, thus treating it as an unexplained investment. However, the eventual assessment did not question or make any addition on account of unexplained source of investment; instead, addition was made under the deeming provisions of section 56(vii) of the Act on a different footing.

2.6 The Court held that there was a clear divergence between the reason recorded for reopening and the issue on which the addition was actually made. The assumption of jurisdiction was for examining alleged unexplained source of investment, whereas the addition was made under section 56(vii). On these facts, as per the ratio of Ranbaxy Laboratories Ltd. Vs. CIT, such reassessment is not sustainable because for the additions actually made, there was no valid assumption of jurisdiction under section 147.

2.7 The Court also accepted the contention that the Assessing Officer had merely reproduced the information received from the Investigation Wing without any independent verification or application of mind to establish a nexus between the material and alleged escapement of income, particularly when the investment was already reflected in the return of income. The reasons failed to demonstrate a proper link between the tangible material and a reasoned belief of escapement of income.

Conclusions

2.8 The Court concluded that the reassessment proceedings under sections 147/148 were not validly initiated with respect to the additions ultimately made under section 56(vii) of the Act, as there was no valid assumption of jurisdiction for such additions and the foundational reasons related only to alleged unexplained source of investment.

2.9 The impugned addition made under section 56(vii) was held to be unsustainable and was quashed, and the appeal of the assessee was allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Disallowance under Section 14A read with Rule 8D in absence of exempt income and without proper satisfaction regarding the correctness of the assessee's suo motu disallowance.

1.2 Disallowance under Section 40(a)(i) for payments to foreign vendors on the ground of non-deduction of tax at source under Section 195, including characterization of such payments under Section 9 of the Act and the applicable DTAA, and the taxability of reimbursements.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance under Section 14A read with Rule 8D

Legal framework (as discussed)

2.1 The Court examined the applicability of Section 14A of the Act and Rule 8D, particularly the requirement under Section 14A(2) that the Assessing Officer record satisfaction, based on examination of the assessee's accounts, that the claim of expenditure relating to exempt income is incorrect before invoking Rule 8D.

Interpretation and reasoning

2.2 The assessee had earned dividend income and made a suo motu disallowance under Section 14A. The Assessing Officer, being "not satisfied" with this, invoked Rule 8D and recomputed a higher disallowance, asserting that significant time, energy and infrastructural resources were devoted to investments.

2.3 The First Appellate Authority held that the Assessing Officer failed to record proper satisfaction under Section 14A(2), as there was no examination of the accounts demonstrating incorrectness of the assessee's suo motu disallowance; the dissatisfaction was characterized as "casual". Reliance was placed on precedents holding that Rule 8D can be applied only after recording such satisfaction based on accounts.

2.4 The Court noted that, on facts, there was admittedly no exempt income for the year and therefore Section 14A itself could not have been invoked. It endorsed the First Appellate Authority's view that, in addition, no specific reasons were cited for rejecting the assessee's suo motu disallowance.

2.5 While accepting that the reasons recorded by the Assessing Officer "need not be elaborate", the Court emphasized that they must at least be illustrative of examination of financials and existence of reasonable nexus in concluding that resources were devoted to earning exempt income. That standard was not met in the present case.

Conclusions

2.6 In absence of exempt income, Section 14A could not be invoked. Further, the statutory requirement of recorded satisfaction under Section 14A(2) before applying Rule 8D was not complied with. The deletion of the disallowance by the First Appellate Authority was upheld and the ground of the Revenue was rejected.

Issue 2: Disallowance under Section 40(a)(i) for payments to foreign vendors and applicability of Section 195

Legal framework (as discussed)

2.7 The Court considered Section 40(a)(i), which disallows certain payments to non-residents where tax is deductible under Section 195 but not deducted, read with Section 9 of the Act (income deemed to accrue or arise in India) and the relevant Double Taxation Avoidance Agreements, particularly in relation to "royalty" and "fees for included/technical services". Section 195 was treated as applicable only where the sum paid is "chargeable to tax in India".

Interpretation and reasoning

2.8 The Assessing Officer disallowed payments made to foreign vendors under Section 40(a)(i) on the footing that tax was deductible under Section 195. The First Appellate Authority held that none of the payments were chargeable to tax in India and hence Section 195 was not attracted.

2.9 The Court highlighted the factual findings of the First Appellate Authority that the impugned payments-comprising conference charges, sponsorships, fees, subscriptions and staff training-were for services utilized outside India. It was found that such payments were not taxable in India under Section 9 and did not qualify as "royalty" or "fees for included services" under the applicable DTAA.

2.10 The Court further noted the finding that reimbursements, such as travel and hotel expenses, whether paid abroad or to Indian residents, contained no income element and therefore fell outside the scope of Section 195 and, correspondingly, Section 40(a)(i).

2.11 The factual findings of the First Appellate Authority regarding the non-taxable nature of the payments and reimbursements remained uncontroverted by the Revenue.

Conclusions

2.12 Since the payments to foreign vendors and the reimbursements were not chargeable to tax in India under Section 9 or the DTAA, no obligation to deduct tax under Section 195 arose. Consequently, disallowance under Section 40(a)(i) was unwarranted. The deletion of the disallowance by the First Appellate Authority was upheld and the Revenue's grounds were dismissed.

2.13 With all grounds of the Revenue failing on both issues, the appeal was dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether customs duty/Extra Duty Deposit (EDD) paid under protest, pursuant to a quantified demand of customs authorities, is allowable as deduction under section 43B of the Income-tax Act, 1961 in the year of payment, notwithstanding provisional character, pendency of proceedings, or accounting treatment.

1.2 Whether sustaining disallowance of such customs duty/EDD, when the subsequent refund has been offered to tax in later assessment years, would result in impermissible double taxation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deductibility under section 43B of customs duty/EDD paid under protest

Legal framework

2.1 The judgment considers section 43B of the Income-tax Act, 1961, which permits deduction of specified statutory liabilities only on actual payment, "notwithstanding anything contained in any other provision of this Act" and irrespective of the method of accounting followed by the assessee.

2.2 The Court refers to principles laid down by the Supreme Court in decisions holding that once statutory liability is quantified and accrued, payment made in discharge of such liability is allowable, even if the matter is pending in appeal or further adjudication.

Interpretation and reasoning

2.3 The assessee imported goods from a related party and, as per CBEC/SVB instructions and Circular No. 5/2016 dated 09.02.2016, was required to pay 1% Extra Duty Deposit (EDD) on a provisional basis until completion of valuation investigation. This was paid as customs duty "under protest".

2.4 The Court finds that the assessee's liability to pay customs duty arose on raising of demand by customs authorities in the year of import and on passing of the order for clearance of goods. Once the customs authority orders clearance, the statutory liability to pay customs duty is deemed to have been incurred in that year.

2.5 The Court observes that the amount paid, though under protest and subject to final determination, was in discharge of a quantified statutory demand and therefore constitutes "payment" of a statutory liability within the meaning of section 43B.

2.6 It is held that section 43B creates a clear departure from the assessee's method of accounting and allows deduction in the year of actual payment, even if the liability was incurred in a different year and irrespective of whether the amount has been debited to the profit and loss account.

2.7 Applying these principles and relying on binding Supreme Court precedents, the Court holds that once the customs duty/EDD has been actually paid pursuant to a statutory demand, deduction under section 43B cannot be denied merely because the payment is provisional, made under protest, or subject to a possible future refund.

Conclusions

2.8 Customs duty/EDD paid under protest, in compliance with quantified demands raised by customs authorities and CBEC/SVB instructions, is an allowable deduction under section 43B in the year of payment.

2.9 The disallowance made by the assessing authority under section 43B in respect of such payment is unsustainable on merits and is deleted.

Issue 2: Effect of subsequent refund and avoidance of double taxation

Interpretation and reasoning

2.10 The Court notes that the assessee subsequently received a favourable order from the SVB accepting the declared import price, resulting in refund becoming payable of the customs duty/EDD earlier paid under protest.

2.11 The assessee has offered the refunded amount to tax in assessment year 2020-21 and undertaken to offer any further refund in the year of actual receipt.

2.12 The Court observes that if the deduction for the customs duty/EDD paid is denied in the year of payment, while the refunded amount is taxed in a subsequent year, it would lead to double taxation of the same amount, which is impermissible.

Conclusions

2.13 In view of the fact that refunds of the customs duty/EDD are or will be brought to tax in subsequent years, the deduction of the amount paid must be allowed in the year of payment to avoid double taxation.

2.14 The grounds raised by the assessee in both years are allowed, and the additions/disallowances on account of customs duty/EDD under section 43B are deleted.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an assessment under section 143(3) can be validly completed without awaiting the Departmental Valuation Officer's report once a reference has been made under section 50C(2), in view of section 50C(2) read with section 142A(6) and section 153 (including Explanation 1(iii) and sub-section (5)).

1.2 Whether an assessment order expressly made "subject to rectification on receipt of valuation report from the Valuation Officer" is a valid final assessment or an impermissible provisional/contingent order under the scheme of the Act.

1.3 Whether rectification under section 154 can validly be invoked to recompute capital gains on the basis of a DVO report received after completion of the assessment, having regard to the scope of "mistake apparent from the record."

1.4 Whether failure to await the DVO's report and to provide opportunity to the assessee to contest such valuation constitutes violation of the mandatory procedure under section 50C(2) (read with section 16A of the Wealth-tax Act, 1957) and principles of natural justice, thereby vitiating the assessment.

1.5 Whether the disallowances towards indexed cost of improvement (furniture) and transfer expenses, sustained by the first appellate authority, and the approach of the appellate authority in dealing with judicial precedents and requests for opportunity, are sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of assessment completed without DVO report and nature of "subject to rectification" assessment

Legal framework discussed

2.1 The Court examined section 50C(2) (mandatory reference to Valuation Officer where assessee disputes stamp duty value), section 142A(6), section 153 including Explanation 1(iii) and section 153(5), which exclude from limitation the period between reference to the Valuation Officer and receipt of the valuation report.

Interpretation and reasoning

2.2 Once the Assessing Officer invoked section 50C(1) and, on the assessee's objection, made a reference under section 50C(2), the statutory scheme required that the assessment be finalised on the basis of the DVO's determination. The period taken by the DVO stood statutorily excluded from the limitation period, making it clear that the Assessing Officer was expected to await the valuation report and was not compelled to complete the assessment before its receipt.

2.3 Completion of the assessment without the DVO report was held to defeat the statutory reference mechanism and legislative intent, which contemplate a final assessment after incorporating the DVO's findings, not by pre-empting them.

2.4 The explicit observation in the assessment order that it was "subject to rectification on receipt of valuation report from the Valuation Officer" demonstrated that the order was conditional and incomplete. The Act does not recognize any provisional or tentative assessment under section 143(3); it contemplates only one final assessment. A conditional or contingent assessment is alien to the statutory scheme.

Conclusions

2.5 The assessment order passed under section 143(3) read with section 144B, without awaiting the DVO's valuation report when such report was statutorily awaited, was held to be not a valid and complete assessment in law.

2.6 The characterization of the order as "subject to rectification" confirmed its provisional nature, which is impermissible. The assessment order was thus held unsustainable and invalid.

Issue 3: Validity of rectification under section 154 based on subsequent DVO report

Legal framework discussed

2.7 The Court considered the scope of section 154, particularly the requirement that rectification can only address a "mistake apparent from the record" and cannot be used to rely on subsequent material or events.

Interpretation and reasoning

2.8 The DVO's report came into existence only after completion of the original assessment and therefore did not form part of the "record" of that assessment. Invoking section 154 to recompute capital gains on the basis of such subsequent material was beyond the statutory scope of rectification.

2.9 Determination of fair market value on the basis of a valuation report involves application of judgment to new evidence and is not a clerical error or obvious mistake. It cannot be treated as a self-evident error apparent from the existing record.

2.10 The Court relied on co-ordinate bench precedent holding that a valuation report received post-assessment cannot constitute a "mistake apparent from record" and that reassessment of capital gains based on such report through section 154 is impermissible and amounts to a review.

Conclusions

2.11 The rectification order under section 154, passed after receipt of the DVO's report and used to alter the assessed capital gains, was held to be beyond the jurisdiction conferred by section 154.

2.12 The rectification order was therefore declared invalid and unsustainable.

Issue 4: Violation of section 50C(2) safeguards and principles of natural justice

Legal framework discussed

2.13 The Court examined section 50C(2) and its incorporation of the procedure under section 16A of the Wealth-tax Act, 1957, including the requirement that the Valuation Officer provide a reasonable opportunity of being heard and of producing evidence before finalising valuation.

Interpretation and reasoning

2.14 Section 50C(2) was characterised as a mandatory procedural safeguard in favour of the assessee when stamp-duty value is disputed. Upon such objection, the Assessing Officer is obliged to refer the matter to the DVO and to complete the assessment on that basis, after the assessee has had opportunity to contest the valuation before the Valuation Officer.

2.15 In the present case, although a reference to the DVO was made, the Assessing Officer finalised the assessment based solely on stamp duty valuation without awaiting the DVO's determination. As a result, the assessee was deprived of the statutory right to contest the valuation before an independent authority and to be heard in accordance with section 16A(4) of the Wealth-tax Act.

2.16 The Court also noted the assessee's peculiar financial hardship and bona fide circumstances surrounding the sale, which underscored the prejudice caused by denial of the statutory opportunity to establish that the declared consideration reflected true market value.

Conclusions

2.17 Failure to await the DVO's report and to afford the assessee an effective opportunity under section 50C(2) (read with section 16A) was held to be a violation of a mandatory statutory safeguard and of principles of natural justice.

2.18 This violation was held to vitiate the assessment, rendering it legally unsustainable.

Issue 5: Sustainability of disallowances and approach of the first appellate authority

Interpretation and reasoning

2.19 The Court observed that the first appellate authority dismissed the assessee's appeal by broadly terming cited judicial precedents as "distinguishable on facts," without engaging in analytical discussion of their ratio or explaining why they were inapplicable. Such summary rejection of authorities was treated as indicative of non-application of mind.

2.20 The Court found that the assessee had not been given an effective opportunity to substantiate claims relating to cost of acquisition, indexed cost of improvement (including furniture), and transfer expenses. The appellate authority decided these issues without further hearing, despite the assessee's request to produce additional material, thus infringing principles of natural justice.

2.21 On this basis, the Court held that the disallowances upheld by the appellate authority could not be treated as conclusive and required proper verification after granting adequate opportunity.

Conclusions

2.22 The approach of the appellate authority in dealing with precedents and in confirming disallowances without proper opportunity was held to be erroneous in law and on facts.

2.23 However, since the assessment itself was quashed as invalid on jurisdictional and procedural grounds, the Court held that no further adjudication on the merits of the additions/disallowances was necessary.

Overall Conclusion

2.24 The assessment order passed without awaiting the DVO's report and the consequential rectification order under section 154, based on material not forming part of the original record, were declared invalid and quashed. In view of the foundational jurisdictional infirmities and breach of mandatory procedure and natural justice, the assessee's appeal was allowed and no adjudication on substantive additions was undertaken.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether deduction under section 36(1)(viia) is required to be computed with reference to "total income" as defined in section 2(45), including capital gains, or is restricted only to income under the head "Profits and Gains of Business or Profession".

1.2 Whether the conditions for invoking revisional jurisdiction under section 263 were satisfied in relation to the Assessing Officer's treatment of (a) the deduction under section 36(1)(viia) and (b) non-application of section 14A read with Rule 8D in respect of exempt interest income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope of "total income" for deduction under section 36(1)(viia) and validity of revision under section 263 on this point

Legal framework

2.1 The Court examined section 36(1)(viia), which allows deduction in respect of provision for bad and doubtful debts for specified banks, computed as a percentage of "total income (computed before making any deduction under this clause and Chapter VIA)".

2.2 The Court referred to section 28 (income from business), section 2(45) (definition of "total income" as total amount of income referred to in section 5 computed in the manner laid down in the Act) and section 5 (scope of total income).

2.3 The Court relied on principles of statutory interpretation as enunciated by the Supreme Court, holding that where language of a tax statute is clear and unambiguous, it must be applied as written, without importing any unwritten limitations or intendment.

Interpretation and reasoning

2.4 The Court held that the expression "total income" in section 36(1)(viia), when read with sections 2(45) and 5, covers the total amount of income from whatever source derived, computed in accordance with the Act, and that the statute does not carve out any exclusion for capital gains or income under any particular head for the purpose of this computation.

2.5 It was emphasised that section 36(1)(viia) expressly speaks of a percentage of "total income" computed before specified deductions, and does not restrict the base to "profits and gains of business or profession". No such limitation is found in the statutory text.

2.6 Applying the principle that clear statutory language must be given effect as it stands, the Court held it was impermissible to read into section 36(1)(viia) any restriction confining the base only to business income when the Legislature has used the broader, defined term "total income" without qualification.

2.7 On facts, the Court found that the Assessing Officer had allowed the deduction by computing the eligible amount with reference to the assessee's total income including capital gains, which was in conformity with the explicit language of section 36(1)(viia).

2.8 The Court noted that the Assessing Officer had conducted enquiry during the assessment proceedings: the claim was disclosed in the return/computation; notices under sections 143(2) and 142(1) were issued; detailed replies and workings were furnished; and the deduction was allowed thereafter. Thus, the Assessing Officer had taken a considered and plausible view on a debatable legal interpretation.

2.9 The Principal Commissioner's view that deduction under section 36(1)(viia) must be restricted only to business income, on the ground that the provision falls under Chapter IV-D, was held to be an interpretative view not supported by the express statutory language, and could not render the assessment order "erroneous" for purposes of section 263 when the Assessing Officer's view was legally sustainable.

Conclusions

2.10 Deduction under section 36(1)(viia) is to be computed with reference to "total income" as defined in section 2(45), and such total income is not confined only to income under the head "Profits and Gains of Business or Profession"; capital gains and other heads of income are not excluded by the statute for this computation.

2.11 Since the Assessing Officer had made due enquiry and adopted a plausible view in line with the clear statutory wording, the assessment order on this issue was neither "erroneous" nor "prejudicial to the interests of the Revenue" within the meaning of section 263.

2.12 The revisional direction of the Principal Commissioner to recompute deduction under section 36(1)(viia) by restricting it to business income only was unsustainable in law and was set aside.

Issue 2: Non-application of section 14A read with Rule 8D and sustainability of revision under section 263 on this point

Legal framework

2.13 The Court proceeded on the basis, as noted by the Principal Commissioner and undisputed in the order, that where exempt income exists, section 14A read with Rule 8D requires disallowance of expenditure incurred in relation to such exempt income.

Interpretation and reasoning

2.14 It was noted that the assessee had earned exempt interest income from tax-free bonds under section 10(15), but the Assessing Officer, in completing the assessment, had not examined applicability of section 14A, had made no enquiry on this aspect, and had not recorded any satisfaction or computation regarding disallowance of expenditure relatable to such exempt income.

2.15 From the case records, the Court found that the issue of disallowance under section 14A was not examined at all by the Assessing Officer during assessment proceedings, distinguishing it from the first issue where enquiry had been made.

2.16 The absence of any enquiry on a clearly arising statutory issue concerning exempt income and related disallowance was treated as an error in the assessment order resulting in potential prejudice to the Revenue, thereby attracting the provisions of section 263.

Conclusions

2.17 The failure of the Assessing Officer to examine and apply section 14A read with Rule 8D in relation to exempt interest income constituted an error rendering the assessment order prejudicial to the interests of the Revenue.

2.18 The Principal Commissioner was justified in invoking section 263 and directing the Assessing Officer to apply section 14A read with Rule 8D and make appropriate disallowance in respect of the exempt interest income; the revisional order on this issue was upheld.

2.19 Overall, the revision under section 263 was quashed in respect of the direction relating to recomputation of deduction under section 36(1)(viia), but sustained in respect of the direction to apply section 14A read with Rule 8D; the appeal was accordingly partly allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the entire sale proceeds of shares, already offered to tax as short term capital gains, could be treated as unexplained cash credits and added under section 68 on the allegation of penny stock / bogus transactions.

1.2 Whether the reassessment proceedings initiated under section 147, after completion of an original assessment under section 143(3), were valid when based on information regarding alleged penny stock transactions already examined in the original assessment.

1.3 Whether reassessment proceedings initiated after the expiry of four years from the end of the relevant assessment year were valid in the absence of any allegation or finding of failure by the assessee to fully and truly disclose all material facts.

1.4 Whether the reassessment order was vitiated for failure of the Assessing Officer to observe the mandatory four-week period between disposal of objections to reopening and passing of the reassessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under section 68 in respect of already taxed capital gains from share transactions

Interpretation and reasoning

2.1 The assessee had purchased 19,000 shares of a listed company through a SEBI-registered stock broker on a recognized stock exchange, paid consideration through banking channels, and later sold those shares on the exchange through the same mode. The sale consideration was duly reflected, net of brokerage and other charges, and short term capital gain arising therefrom was disclosed in the return of income and assessed in the original scrutiny assessment under section 143(3).

2.2 The Assessing Officer, in reassessment, treated the entire sale proceeds as unexplained cash credits under section 68 on the basis of investigation wing information branding the scrip as "penny stock" used for accommodation entries and bogus capital gains. The assessee produced supporting documents and demonstrated that the income had already been offered and taxed as short term capital gains in the relevant year.

2.3 The first appellate authority found, on appraisal of the assessment records and the assessee's documentary evidence, that the specific share transactions and resultant short term capital gains had already been accepted in the original assessment. It held that once the amount had been brought to tax as disclosed income, the same sum could not again be subjected to tax by invoking section 68, particularly when the transactions were routed through recognized stock exchange and banking channels and no contrary evidence was brought to undermine their genuineness.

2.4 The Tribunal noted that the assessee had complied with all requisitions during reassessment, furnished complete details, and that the capital gain on sale of shares had already been offered to tax. It accepted the appellate authority's appraisal that there was no material to justify re-characterizing the already taxed capital gain as unexplained cash credit merely on a general allegation of "penny stock" without specific adverse evidence against the assessee's transactions.

Conclusions

2.5 The treatment of the entire sale proceeds of shares as unexplained cash credits under section 68 was unsustainable when the same transaction had already resulted in disclosed and assessed short term capital gains. The same income could not be taxed again by conversion into section 68 addition. The deletion of the addition by the appellate authority was upheld, and the Revenue's ground on merits was dismissed.

Issue 2: Validity of reassessment under section 147 on a matter already examined in original assessment (change of opinion)

Legal framework (as discussed)

2.6 The Tribunal proceeded on the settled principle that reassessment under section 147 cannot be initiated merely on a "change of opinion" on the same material that was available and examined during the original assessment under section 143(3). Formation of "reason to believe" must be based on tangible material and not on reappraisal of the same facts.

Interpretation and reasoning

2.7 In the original scrutiny assessment, the case had been selected under CASS, a questionnaire was issued specifically requiring details of capital gains, and the assessee furnished full particulars of the impugned share transactions and resulting gains. The Assessing Officer accepted the returned income without any addition on this count.

2.8 The reassessment was initiated later on the basis of information from the investigation wing / portal regarding penny stock transactions, but related to the same share transactions which had already been disclosed and examined. The Tribunal found that no new, independent material was brought on record beyond this general information to justify reopening, and that the Assessing Officer had not conducted any independent enquiry prior to recording reasons.

2.9 On this factual matrix, the Tribunal held that the reassessment was premised on re-examination of an issue already scrutinized and accepted in the original assessment, and thus amounted to a mere change of opinion. Such reopening was held to be impermissible in law.

Conclusions

2.10 The reassessment proceedings initiated under section 147 were invalid as they were based on a change of opinion on an issue already examined and accepted in the original assessment under section 143(3). On this ground alone, the reassessment was liable to be quashed.

Issue 3: Reopening beyond four years without failure to fully and truly disclose material facts

Legal framework (as discussed)

2.11 The Tribunal proceeded on the statutory requirement that where an assessment has been completed under section 143(3), no action under section 147 can be taken after four years from the end of the relevant assessment year unless income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

Interpretation and reasoning

2.12 The original assessment under section 143(3) was completed on 27-10-2016. The reassessment proceedings were initiated after the expiry of four years from the end of the relevant assessment year. The Tribunal examined the reasons recorded for reopening and found that they were based merely on information from the portal / investigation wing regarding penny stock transactions.

2.13 The reasons did not allege, nor did the assessment order establish, any specific failure on the part of the assessee to disclose fully and truly all material facts relating to the share transactions. On the contrary, the assessee had disclosed the short term capital gains in the return, had not claimed any exemption thereon, and had provided all relevant particulars during the original scrutiny, which were accepted.

2.14 The Tribunal concluded that, in the absence of any allegation or demonstration of failure of disclosure, the jurisdictional pre-condition for reopening beyond four years was not satisfied. Further, the mere receipt of third-party information, without independent application of mind or verification by the Assessing Officer, could not suffice to override this statutory requirement.

Conclusions

2.15 The reassessment initiated after four years from the end of the relevant assessment year was invalid in law, as there was no failure by the assessee to fully and truly disclose all material facts. On this independent ground also, the reassessment was held to be bad in law and quashed.

Issue 4: Non-compliance with mandatory four-week period after disposal of objections to reopening

Legal framework (as discussed)

2.16 The Tribunal referred to the judicial mandate that, where objections are filed by the assessee to a notice under section 148, and such objections are rejected, the Assessing Officer must not proceed further with the assessment for a period of four weeks from the date of service of the order disposing of the objections, so as to afford the assessee an opportunity to seek appropriate remedy.

Interpretation and reasoning

2.17 In the present case, notices under section 142(1) were issued and the assessee filed replies. The Assessing Officer disposed of the assessee's objections to reopening by order dated 20-03-2022, and the reassessment order was passed on 30-03-2022, i.e., within ten days, without observing the four-week interval.

2.18 Relying on the binding judicial precedent which directs strict adherence to the four-week standstill period after disposal of objections, the Tribunal held that the Assessing Officer's failure to observe this mandatory requirement vitiated the reassessment proceedings.

Conclusions

2.19 The reassessment order passed within four weeks of rejection of objections to reopening was contrary to the mandatory judicially prescribed procedure and, on this procedural illegality as well, the reassessment was held to be bad in law.

Overall disposition

2.20 In view of the above findings: (a) the addition under section 68 in respect of share sale proceeds already taxed as short term capital gains was rightly deleted and the Revenue's appeal was dismissed; and (b) the reassessment proceedings were held to be invalid on grounds of change of opinion, absence of failure to disclose for reopening beyond four years, and breach of the four-week post-objection requirement; accordingly, the cross objection was allowed and the reassessment quashed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether weighted deduction under Section 35(1)(ii) of the Income-tax Act, 1961 is allowable in respect of donation made during the relevant assessment year to a research institute whose approval under that provision had expired and whose activities were found to be non-genuine.

1.2 Whether the Revenue's appeal before the Tribunal is maintainable notwithstanding the monetary limits prescribed by CBDT Circular No. 09/2024, in view of the exceptions contained in CBDT Circular No. 05/2024 and the CBDT notification dated 14.12.2018 regarding bogus donations under Section 35(1)(ii).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of weighted deduction under Section 35(1)(ii)

Legal framework (as discussed):

2.1 The Court proceeded on the basis of the statutory scheme of Section 35(1)(ii), which allows weighted deduction for donations made to an institution approved for the purposes of scientific research. The Court also referred to the requirement that such institution must hold a valid approval from the prescribed authority for the relevant period to be eligible to receive donations qualifying for deduction.

2.2 The Court noted the CBDT notification/communication dated 14.12.2018, which recorded that the concerned trust had been earlier approved under Section 35(1)(ii) up to 31.03.2006 only, and that subsequent donations were raised on the basis of forged certificates, leading to "irregularly claimed weighted deduction u/s 35(1)(ii)."

Interpretation and reasoning:

2.3 The Assessing Officer had undertaken enquiries by issuing notice under Section 133(6) to the institute, which remained unanswered, and by obtaining confirmation from the jurisdictional Commissioner of Income-tax (Exemption) that no approval under Section 35(1)(ii) existed for the institute for the relevant assessment year and that its registration under Section 12AA had been cancelled and its activities held to be not genuine.

2.4 The Court treated as an undisputed fact that the institute's approval under Section 35(1)(ii) had expired on 31.03.2006 and that all donations received thereafter, including in the relevant assessment year, were supported by forged documents. The CBDT's advisory letter dated 14.12.2018 directing field formations to examine irregular claims of weighted deduction in relation to this institute was specifically taken into account.

2.5 The Court held that the mere fact that the assessee, at the time of making the donation, relied on documents furnished by the institute and was not aware of the expiry of approval or of any adverse material against the institute, does not convert an otherwise ineligible donation into one eligible for deduction under Section 35(1)(ii). The genuineness of the assessee's belief or the absence of evidence of cash-back to the assessee was held to be irrelevant for the statutory condition of valid approval of the donee institute.

2.6 The Court relied on consistent decisions of co-ordinate Benches in relation to the same institute, wherein denial of weighted deduction under Section 35(1)(ii) on donations to this institute had been upheld on the ground that it was neither recognised for the purposes of Section 35(1)(ii) nor eligible to raise donations for scientific research during the relevant period (including decisions in Iolite Cube Inframaterial Limited, C K Zipper (P.) Limited, Kapadia Marketing Inc., and Parag Dave).

Conclusions:

2.7 The Court concluded that, since the institute did not hold a valid approval under Section 35(1)(ii) after 31.03.2006 and had raised donations on the basis of forged documents, the assessee's donation could not qualify for weighted deduction under Section 35(1)(ii) for the assessment year in question.

2.8 The disallowance of the weighted deduction made by the Assessing Officer was held to be in accordance with law and was upheld. The order of the appellate authority granting the deduction was set aside, and the Revenue's appeal on this issue was allowed.

Issue 2: Maintainability of Revenue's appeal in view of CBDT monetary limit circulars

Legal framework (as discussed):

2.9 The assessee relied on CBDT Circular No. 09/2024 dated 17.09.2024, which prescribes monetary limits for filing appeals in income-tax cases and, specifically, a limit of Rs. 60,00,000 of tax effect for filing an appeal before the Tribunal. On that basis, the assessee contended that, as the tax effect in the case was about Rs. 20,66,348, the Revenue's appeal was not maintainable.

2.10 The Revenue relied on CBDT Circular No. 05/2024 dated 15.03.2024, particularly clause (m) of paragraph 3.1, which provides an exception to the monetary limits for "any other case or class of cases where in the opinion of the Board it is necessary to contest in the interest of justice or revenue and specified so by a circular issued by Board in this regard."

2.11 The Court further relied on CBDT notification F.No.225/351/2018-ITA(II) dated 14.12.2018 titled "Information regarding bogus donation racket under section 35(1)(ii) of the Act, 1961," which recorded that the concerned trust's approval under Section 35(1)(ii) expired on 31.03.2006, that it had thereafter raised substantial donations on the basis of a forged certificate, and that donors had irregularly claimed weighted deductions under Section 35(1)(ii). The notification directed that scrutiny assessment cases of such donors should be handled in the light of these facts and that a list of donors for specified years be drawn and circulated for appropriate examination.

Interpretation and reasoning:

2.12 The Court interpreted clause (m) of paragraph 3.1 of Circular No. 05/2024 to mean that where the Board has, by a separate circular/notification, identified a case or class of cases requiring contest in the interest of justice or revenue, such cases fall outside the monetary thresholds for filing appeals.

2.13 Referring to the 14.12.2018 notification, the Court held that the CBDT had expressly treated the class of cases involving bogus/irregular weighted deductions under Section 35(1)(ii) in respect of donations to the concerned trust as a special category requiring particular scrutiny and action. The direction to the field formations to examine claims and pass suitable assessment orders in such donor cases was viewed as an explicit instruction to treat these matters as requiring contest irrespective of monetary limits.

2.14 On that basis, the Court held that donor cases involving this institute and claims of weighted deduction under Section 35(1)(ii) constituted a class of cases covered by the exception in clause (m) of Circular No. 05/2024. Consequently, the general monetary limit prescribed by Circular No. 09/2024 for filing appeals could not bar the Revenue's appeal in such cases.

Conclusions:

2.15 The Court held that the Revenue's appeal was maintainable despite the tax effect being below Rs. 60,00,000, because the case fell within the exception contemplated in clause (m) of CBDT Circular No. 05/2024, read with the CBDT notification dated 14.12.2018 on bogus donations under Section 35(1)(ii).

2.16 The cross objection of the assessee seeking dismissal of the Revenue's appeal on the ground of low tax effect was rejected and dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal by the Revenue, the assessee could invoke Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 to support the relief granted by the first appellate authority on an independent legal ground challenging the validity of the notice issued under section 148 of the Act.

1.2 Whether the reassessment notices issued under section 148 on 27.07.2022, pursuant to original notices dated 30.06.2021 (falling in the period 01.04.2021 to 30.06.2021), were time-barred in view of the "surviving time" doctrine laid down by the Supreme Court in the context of TOLA, the Finance Act, 2021 regime, and the decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal.

1.3 Whether the statutory time-frame under section 148A(d) (one month from end of the month of the assessee's reply) could extend or override the "surviving period" of limitation available to the Assessing Officer as per the law declared by the Supreme Court in Union of India v. Rajeev Bansal.

1.4 Consequentially, whether the reassessment orders passed under section 147 read with section 144B, and the additions made therein, could survive if the notices under section 148 were found to be time-barred.

1.5 Whether, the facts and chronology for A.Y. 2015-16 being identical to A.Y. 2014-15, the same legal conclusion on limitation and validity of notice under section 148 would follow mutatis mutandis.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Invocation of Rule 27 by the assessee to challenge validity of section 148 notice

Interpretation and reasoning

2.1.1 The assessee had raised a legal ground on the validity of the reopening under section 147 before the first appellate authority, which was rejected, though the additions were deleted on merits.

2.1.2 In the appeal filed by the Revenue, the assessee moved an application under Rule 27 to support the order of the first appellate authority on the independent legal ground that the notice under section 148 was time-barred.

2.1.3 The Tribunal held that the legality of notice under section 148 goes to the root of the Assessing Officer's jurisdiction and therefore must be examined first. The assessee was entitled, under Rule 27, to support the ultimate appellate relief on a ground decided against it.

Conclusion

2.1.4 The Tribunal entertained the assessee's challenge to the validity and limitation of the section 148 notice under Rule 27 and proceeded to decide it as a preliminary jurisdictional issue.

2.2 Validity and limitation of reassessment notice under section 148 dated 27.07.2022 in light of TOLA, Ashish Agarwal and Rajeev Bansal

Legal framework as discussed

2.2.1 The original notice under section 148 was issued on 30.06.2021 under the old regime within extended time as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

2.2.2 In Union of India v. Ashish Agarwal, the Supreme Court held that all notices issued under section 148 between 01.04.2021 and 30.06.2021 under the old regime would be deemed to be show-cause notices under section 148A(b) of the new regime, and directed that:

(i) the Revenue shall within 30 days supply the material/information relied on; and

(ii) the assessee shall be given 15 days (later addressed as two weeks) to respond before passing an order under section 148A(d) and issuing notice under section 148.

2.2.3 In Union of India v. Rajeev Bansal, the Supreme Court considered the interplay of Ashish Agarwal, the amended sections 147-151, and TOLA, and held:

(a) The legal fiction in Ashish Agarwal treated the earlier section 148 notices as deemed section 148A(b) show-cause notices and "stopped the clock of limitation" from the date of issuance of the old notice.

(b) The period from the date of deemed notice until supply of material/information, and the further two weeks granted to the assessee to reply, is excluded from limitation.

(c) The "clock started ticking" for the Revenue only after receipt of the assessee's reply to the deemed section 148A(b) notice.

(d) Thereafter, the Assessing Officer had to: consider the reply under section 148A(c), pass an order under section 148A(d), and, if appropriate, issue a notice under section 148 of the new regime-"within the surviving time limit".

(e) The "surviving time limit" was defined as the balance limitation available under the Income Tax Act read with TOLA, computed as the number of days between the date of issuance of the original (deemed) notice and 30.06.2021.

(f) Any new regime notice under section 148 issued beyond this surviving time limit is time-barred and invalid.

2.2.4 The Tribunal also noted the Gujarat High Court decision in Dhanraj Govindram Kella, where the High Court, applying Rajeev Bansal, computed "surviving time" case-wise and held that notices under section 148 issued beyond such surviving time were invalid.

Application to facts and reasoning

2.2.5 In the present case (A.Y. 2014-15), the chronology was:

- 30.06.2021: Original notice issued under section 148 (old regime).

- 06.05.2022: Final order of jurisdictional High Court on writ against said notice.

- 31.05.2022: Notice issued under section 148A(b) (pursuant to Ashish Agarwal).

- 07.06.2022: Assessee's reply to section 148A(b).

- 27.07.2022: Order under section 148A(d) and fresh notice under section 148 (new regime).

2.2.6 Since the original notice under section 148 (old regime) was dated 30.06.2021, the surviving time available as per the Supreme Court's formulation in Rajeev Bansal (i.e., days between date of original notice and 30.06.2021) was only one day.

2.2.7 The Tribunal held that, in conformity with the Supreme Court's directions, this surviving one day was effectively extended to seven days from the date of the assessee's reply to the section 148A(b) notice. The assessee's reply was filed on 07.06.2022; hence, the Assessing Officer had only up to 14.06.2022 to:

- consider the reply under section 148A(c);

- pass order under section 148A(d); and

- issue a notice under section 148 (new regime).

2.2.8 The Assessing Officer, however, passed the order under section 148A(d) and issued the new notice under section 148 on 27.07.2022, i.e., beyond the seven-day surviving period (beyond 14.06.2022), rendering the notice time-barred under the principle laid down in Rajeev Bansal.

Conclusion

2.2.9 The Tribunal held that, in view of the binding law declared by the Supreme Court in Rajeev Bansal and followed by the jurisdictional High Court in Dhanraj Govindram Kella, the notice under section 148 dated 27.07.2022 was issued beyond the "surviving time" and was therefore invalid and time-barred.

2.3 Whether section 148A(d) one-month time-frame could extend or override the surviving limitation period

Legal framework as discussed

2.3.1 The Revenue argued that under section 148A(d), the Assessing Officer is required to pass the order within one month from the end of the month in which the assessee's reply to section 148A(b) is received; and that the order under section 148A(d) and the consequent section 148 notice dated 27.07.2022 were within that prescribed period.

2.3.2 The Tribunal referred to the Supreme Court's discussion in Rajeev Bansal on Article 142, where the Court held that its directions in Ashish Agarwal and Rajeev Bansal were issued to do "complete justice", supplement existing legal framework, and could, in appropriate circumstances, override strict statutory timelines to prevent inequitable results.

Interpretation and reasoning

2.3.3 The Tribunal reasoned that the Supreme Court had explicitly mandated that all further actions-including passing order under section 148A(d) and issuing notice under section 148 of the new regime-must be completed within the surviving time under the Income Tax Act read with TOLA.

2.3.4 Consequently, the specific period of one month from the end of the month of receipt of reply, as mentioned in section 148A(d), could not be construed to enlarge or override the surviving period of limitation fixed by the Supreme Court under Article 142.

2.3.5 The Tribunal concluded that, to the extent of conflict, the law declared by the Supreme Court in Rajeev Bansal, operating under Article 142, prevails over the literal application of section 148A(d)'s time-frame for passing the order and issuing the section 148 notice.

Conclusion

2.3.6 The Revenue's contention that compliance with section 148A(d)'s one-month time-limit validated the notice was rejected. The controlling limitation is the surviving period as defined in Rajeev Bansal, and the impugned notice dated 27.07.2022, having been issued beyond that period, was held to be invalid.

2.4 Consequential validity of reassessment proceedings and assessment order

Interpretation and reasoning

2.4.1 Once the notice under section 148 dated 27.07.2022 was held invalid and time-barred, the very jurisdiction to reassess under section 147 stood vitiated.

2.4.2 The Tribunal noted that a reassessment notice issued without complying with the preconditions of limitation and procedure is invalid and affects the jurisdiction of the Assessing Officer, as recognized by the Supreme Court in Rajeev Bansal.

2.4.3 Consequently, all proceedings taken pursuant to an invalid section 148 notice, including the assessment order passed under section 147 read with section 144B on 29.05.2023, cannot survive.

Conclusion

2.4.4 The proceedings initiated under section 148 were quashed as time-barred. Accordingly, the consequential assessment order dated 29.05.2023 was also quashed and set aside for A.Y. 2014-15.

2.4.5 As the reassessment itself was annulled on jurisdictional grounds, the grounds raised by the Revenue on merits of the addition under section 69A and on the nature of alleged accommodation entries became infructuous and were not adjudicated.

2.5 Application of the same reasoning to A.Y. 2015-16

Interpretation and reasoning

2.5.1 For A.Y. 2015-16, the material dates were:

- 30.06.2021: Original notice under section 148 (old regime);

- 24.05.2022: Notice under section 148A(b);

- 06.06.2022: Assessee's reply to section 148A(b);

- 27.07.2022: Order under section 148A(d) and fresh notice under section 148.

2.5.2 The Tribunal recorded that the facts and sequence of events for this year were identical in principle to A.Y. 2014-15. The original notice under section 148 was again dated 30.06.2021, giving the Assessing Officer only one-day "surviving time" under the Act read with TOLA, subject to the same seven-day extension logic after the assessee's reply.

2.5.3 The impugned notice under section 148 dated 27.07.2022 was thus also issued beyond the surviving period available post reply dated 06.06.2022, and hence equally hit by limitation as per Rajeev Bansal and the Gujarat High Court's approach in Dhanraj Govindram Kella.

Conclusion

2.5.4 Applying mutatis mutandis the reasoning and conclusion reached for A.Y. 2014-15, the Tribunal held the notice under section 148 dated 27.07.2022 for A.Y. 2015-16 to be invalid and time-barred.

2.5.5 The reassessment proceedings and assessment order for A.Y. 2015-16 were quashed and set aside, and the Revenue's appeal for this year was dismissed, the legal ground of the assessee being allowed.

Issues: Whether credit for tax deducted at source from salary can be denied to the assessee merely because the deductor failed to deposit the deducted tax with the Central Government.

Analysis: The statutory scheme under section 199 of the Income-tax Act, 1961 and section 205 of the Income-tax Act, 1961, along with the CBDT instruction on non-deposit of tax deducted at source, shows that the assessee should not be burdened with direct demand to the extent tax has already been deducted from income. The revenue retains the liberty to proceed against the deductor for recovery of the unpaid tax, and judicial discipline requires subordinate authorities to follow binding decisions on the issue.

Conclusion: The assessee was entitled to TDS credit, and the denial of such credit for want of deposit by the employer was unsustainable.

Final Conclusion: The appeal succeeded and the assessee obtained relief in respect of the TDS credit claimed.

Ratio Decidendi: Where tax has been deducted at source from income, the assessee cannot be made to suffer denial of TDS credit or coercive demand merely because the deductor failed to remit the deducted tax to the Government.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appeal could be decided ex-parte in the absence of the assessee despite repeated opportunities of hearing.

1.2 Whether purchases from certain suppliers, identified as hawala dealers and admitted by the assessee as non-genuine, warranted 100% disallowance or only an estimated disallowance of a percentage of such purchases.

1.3 Whether, on the assessee's own statement denying any transaction with one of the named parties, the alleged purchases from that particular party could be sustained for addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Ex-parte disposal of the appeal

Interpretation and reasoning

2.1 The matter was listed for hearing on more than ten occasions. Notices were issued through RPAD and e-mail, and even physical service was attempted. The assessee did not appear and did not file adjournment requests, except once citing medical treatment, after which again there was non-appearance. The assessee was thus found not interested in prosecuting the matter.

2.2 On these facts, the Tribunal was satisfied that sufficient opportunities had been granted and that no further adjournment was warranted.

Conclusions

2.3 The Tribunal held that the appeal could be disposed of ex-parte qua the assessee after hearing the Departmental Representative.

Issue 2 - Extent of disallowance on bogus purchases: 100% disallowance vs. percentage estimation

Legal framework (as discussed)

2.4 The disallowance was made under section 37(1) in the reassessment framed pursuant to information from the Investigation Wing and Sales Tax Department. Summons under section 131 and notices under section 133(6) were issued to the suppliers.

Interpretation and reasoning

2.5 The undisputed factual position considered by the Tribunal was:

(a) All five suppliers were identified as hawala dealers by the Sales Tax Department and the Investigation Wing.

(b) Summons under section 131 and notices under section 133(6) to all these parties were returned unserved.

(c) The assessee failed to produce any of the suppliers or any supporting material such as transport or delivery evidence to substantiate actual movement of goods.

(d) In his statement under section 131, the assessee admitted that no material was supplied by these parties and that they were hawala operators.

2.6 On these admitted and uncontroverted facts, the Tribunal held that the Assessing Officer had rightly concluded that purchases from four parties (excluding the one where the assessee denied any transaction) were bogus and represented accommodation entries. The burden of proving bogus purchases was held to have been discharged by the Assessing Officer.

2.7 The Tribunal found that the appellate authority accepted that the parties were hawala operators and that notices were unserved, yet mechanically applied a profit estimation of 15% of the purchases on the ground that sales were not doubted. The appellate authority did so without addressing or rebutting the specific findings of the Assessing Officer and the Investigation Wing and without any supporting evidence from the assessee to show genuineness of the underlying transactions.

2.8 The Tribunal expressly held that where purchases are found to be sham and completely non-genuine, as opposed to merely unverifiable, the principle of estimating profit element on purchases does not apply. In such cases, it is well-settled that entire purchases are to be disallowed.

2.9 The Tribunal relied on and applied the ratio of the decision of the jurisdictional High Court in a comparable matter, wherein on similar facts involving hawala purchases and non-cooperation by the assessee, the entire amount of bogus purchases was confirmed as disallowance. The Tribunal found the factual situation in the present case to be identical in substance, including non-cooperation and lack of any contemporaneous documentation evidencing genuine trade transactions.

2.10 The Tribunal further recorded that documents and paperwork ordinarily accompanying genuine commercial transactions were either absent or not produced, and no distinguishing feature was shown to take the present case outside the principle laid down in the relied upon precedent.

Conclusions

2.11 The Tribunal held that the estimation approach adopted by the appellate authority was not justified on the facts of complete sham purchases.

2.12 The Tribunal concluded that 100% disallowance of purchases in respect of the four identified bogus suppliers was warranted and restored the addition made by the Assessing Officer in full in respect of those four parties.

Issue 3 - Treatment of alleged purchases from the party with which the assessee denied any transaction

Interpretation and reasoning

2.13 In the statement under section 131, the assessee categorically stated that it had not undertaken any transaction with one of the named suppliers. The Tribunal noted that this admission by the assessee could not be accepted or used selectively; it had to be taken as a whole.

2.14 While holding that the assessee's admissions established the bogus nature of purchases from the other parties, the Tribunal reasoned that the same statement equally supported the assessee's stand that no transaction at all had taken place with this particular supplier.

Conclusions

2.15 The Tribunal held that the alleged purchases from this particular supplier could not be sustained for addition, as the assessee's admission that there was no transaction with this entity had to be given due effect.

2.16 Accordingly, the Tribunal ignored the alleged transaction with this one party and upheld the disallowance only in respect of the remaining four suppliers, thereby allowing the revenue's appeal partly.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the writ jurisdiction should be exercised to interfere with an adjudication order under the Customs Act despite the availability of an alternative statutory remedy of appeal under Section 129, on the ground of alleged breach of principles of natural justice.

1.2 Whether the circumstances of the case warranted protection to the petitioner in relation to limitation for filing an appeal before the Appellate Authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Writ jurisdiction versus alternative statutory remedy under Section 129 of the Customs Act, in the context of alleged breach of natural justice

Interpretation and reasoning

2.1 The Court noted that an appeal lies against the impugned adjudication order under Section 129 of the Customs Act, which constitutes an alternate and statutory remedy.

2.2 The petitioner attempted to avoid the alternate remedy by asserting that it was prevented from leading evidence and that there was a breach of natural justice which, according to the petitioner, could not be cured in appeal.

2.3 During arguments, it was further urged that none of the petitioner's contentions were considered and that the petitioner's defence had been confused with that of other parties, amounting to a gross violation of principles of natural justice and attracting an exception to the rule of exhaustion of alternate remedies.

2.4 The Court perused the impugned order with the assistance of counsel and found it to be detailed. Prima facie, the Court did not accept the allegation that none of the petitioner's contentions had been considered; the order also referred to certain admissions attributed to the petitioner.

2.5 The Court held that, at this stage, it was not required to determine whether such admissions were actually made or to assess the correctness of the Commissioner's view on merits.

2.6 The Court characterised the allegations of breach of natural justice as casually made and held that the assertion that none of the petitioner's defences were considered could not, at least prima facie, be accepted. On such a basis, it would not be proper to depart from the normal rule requiring exhaustion of statutory remedies.

2.7 The Court observed that a detailed review would be necessary even to determine whether there was any breach of natural justice and, if so, whether any prejudice had been caused. It emphasised that a mere or technical breach of natural justice is not always sufficient to grant final relief; prejudice must be pleaded and established.

2.8 The Court relied on its earlier decision in a batch of matters (including one involving Oberoi Construction Ltd.), where the law on exhaustion of alternate remedies, as settled by the Supreme Court, had been considered. Applying that reasoning, the Court held that the petition ought not to be entertained in the face of an efficacious appellate remedy.

2.9 The Court also referred to a recent decision of the Supreme Court highlighting the importance of exhausting alternate remedies and not bypassing them unless well-settled exceptions applied. The Court held that none of the recognised exceptions, including those based on egregious breach of natural justice, were attracted in the present case.

Conclusions

2.10 The Court declined to exercise writ jurisdiction and refused to entertain the petition, holding that the petitioner must be relegated to the statutory appellate remedy under Section 129 of the Customs Act.

2.11 The Court clarified that it had not examined the matter on merits and that all contentions of all parties on merits were kept open for consideration by the Appellate Authority.

Issue 2: Protection regarding limitation for filing appeal before the Appellate Authority

Interpretation and reasoning

2.12 The Court noted that the petition was instituted on 17 March 2025, which was within the period prescribed for filing an appeal against the impugned order.

2.13 Since the petitioner had approached the Court within the appellate limitation period and was now being relegated to the alternate remedy, the Court considered it appropriate to protect the petitioner from any adverse consequence of limitation before the Appellate Authority.

Conclusions

2.14 The Court directed that, if the petitioner files an appeal before the Appellate Authority after complying with all prescribed formalities within four weeks from the date of the order, the Appellate Authority shall consider such appeal on its own merits without adverting to the issue of limitation.

2.15 The Court further clarified that any observations in its order are only for deciding whether an extraordinary case existed to deviate from the rule of exhaustion of alternate remedies and shall not influence the Appellate Authority in deciding the appeal on merits.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the Revenue established, by cogent and positive evidence, that the seized betel nuts were of foreign origin and smuggled goods, so as to justify confiscation and imposition of penalty under the Customs Act, 1962.

1.2 Consequent upon the finding on smuggled nature of the goods, whether confiscation of the betel nuts, imposition of redemption fine on goods and vehicle, and penalty under Section 112 of the Customs Act, 1962 were legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Proof of foreign / smuggled origin of seized betel nuts

Legal framework (as discussed)

2.1 The Court noted that betel nuts are not notified goods under Section 123 of the Customs Act, 1962 and therefore the burden to prove that the goods are smuggled lies on the Department. The Court relied on the principle, as affirmed in prior Tribunal decisions, that for non-notified goods the Department must adduce positive and cogent evidence of smuggling and cannot rest on presumptions or negative inferences.

Interpretation and reasoning

2.2 The Court observed that the Department's case was founded essentially on (i) local market opinion that the seized betel nuts appeared to be of foreign origin, and (ii) the alleged failure of the owner to establish Indian origin of the goods to the satisfaction of the officers.

2.3 The Court found that such material could, at best, create a reasonable doubt as to the origin of the betel nuts, but did not constitute affirmative proof that the goods were smuggled into India. Investigation was directed mainly at showing absence or non-verifiability of proof of indigenous and licit procurement rather than establishing a positive chain or mode of smuggling.

2.4 The Court held that, since betel nuts are also produced in India and are non-notified goods, the Department must prove the smuggled nature of the goods by cogent and positive evidence. It is not sufficient to rely on negative inference, uncorroborated local opinion, or the mere inability of the claimant to further substantiate his version.

2.5 The Court underscored that the record contained no reference, narration, or evidence as to how, from where, and by what route the goods had allegedly been smuggled. In the absence of any such substantive evidence, the statutory burden resting on the Department was held not to be discharged.

Conclusions

2.6 The Court concluded that the seized betel nuts were neither proved to be of foreign origin nor proved to be smuggled goods. The Department failed to establish, as required for non-notified goods under Section 123 of the Customs Act, 1962, that the goods were illegally imported into India. Accordingly, no confiscation could be sustained on the basis of the material relied upon by the Department.

Issue 2: Validity of confiscation, redemption fine, and penalty under Section 112

Interpretation and reasoning

2.7 Proceeding from the above finding that the goods were not proved to be smuggled, the Court held that the very foundation for confiscation under the Customs Act, 1962 failed. If goods are neither imported nor established as smuggled, there is no legal basis to treat them as liable to confiscation.

2.8 Since confiscation was unsustainable, the consequential orders imposing redemption fine on the seized betel nuts and on the vehicle used for transport, and the penalty imposed on the appellant under Section 112 of the Customs Act, 1962, also could not stand.

Conclusions

2.9 The Court held that seizure and confiscation of the betel nuts were not justified and set aside the confiscation in toto.

2.10 The redemption fine imposed on the seized betel nuts and on the vehicle was set aside as a consequence of the setting aside of confiscation.

2.11 The penalty of Rs. 4,00,000/- imposed on the appellant under Section 112 of the Customs Act, 1962 was set aside.

2.12 The appeal was allowed with consequential relief as per law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether freight, insurance and landing charges were in fact excluded from the assessable value declared in the relevant Bills of Entry, justifying the demand of differential IGST and interest.

1.2 Whether the ingredients for invoking the extended period under Section 28(4) of the Customs Act, 1962, on the basis of alleged suppression of facts or misstatement, were satisfied.

1.3 Whether imposition of penalty under Section 114A of the Customs Act, 1962, was legally sustainable in the facts and circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Alleged non-inclusion of freight, insurance and landing charges in assessable value

Interpretation and reasoning:

2.1 The Tribunal examined the "Distributorship Agreement - Export Market" dated 01.01.2018 between the exporter and the appellant. Article 02(a) explicitly provided that the product price to the buyer is inclusive of transportation and insurance cost up to the buyer's destination, thereby indicating that the invoice values were on CIF/FOR terms and already subsumed such elements.

2.2 The Tribunal noted that similar agreements were in place prior to 01.01.2018, supporting continuity of this pricing structure for the entire period in dispute.

2.3 The Tribunal further considered a certificate from TCI Freight, Jaigaon, stating that the transporter had an agreement with the exporter and did not charge the appellant any freight transportation or insurance charges, corroborating that the appellant did not incur such costs separately.

2.4 A letter dated 30.04.2024 from the exporter, addressed to the customs authority, clarified that the prices charged to the appellant were "all inclusive of the cost incurred," reinforcing that freight and insurance components were embedded in the invoiced value.

2.5 On this evidentiary basis, the Tribunal found no merit in the allegation that freight, insurance and landing cost had been excluded from the assessable value declared in the Bills of Entry.

2.6 The Tribunal also took note that, in an appeal of another similarly placed importer, the same Commissioner (Appeals) had accepted an identical agreement and held that the invoices were on CIF terms with no short levy, thereby underscoring the consistency of contractual and commercial arrangements.

Conclusions:

2.7 The Tribunal held that the demand of differential duty and the consequential interest, raised on the premise of non-inclusion of freight, insurance and landing charges, was unsustainable and liable to be set aside.

Issue 2: Validity of invoking extended period under Section 28(4) based on suppression/misstatement

Interpretation and reasoning:

2.8 The notice under Section 28(4) was premised on alleged suppression of facts and misstatement regarding non-inclusion of freight, insurance and landing charges in 27 Bills of Entry (and landing cost in 3 Bills of Entry).

2.9 The Tribunal found, on facts, that all imports from Bhutan were in FOR terms and that the invoice prices were inclusive of transportation, insurance, loading and forwarding charges, as evidenced by the Distributorship Agreement, the transporter's certificate and the exporter's clarificatory letter.

2.10 In light of these documents, the Tribunal held that there was no concealment or misstatement; the declared values correctly reflected the full contractual price inclusive of the impugned elements, and there was no separate or undisclosed cost component.

Conclusions:

2.11 The Tribunal concluded that the allegation of suppression of facts or misstatement was not established and the foundational requirement for invoking Section 28(4) was absent.

Issue 3: Justification for penalty under Section 114A

Interpretation and reasoning:

2.12 Penalty under Section 114A was imposed coextensively with the duty demand confirmed under Section 28(4), on the basis of alleged suppression and wilful misstatement.

2.13 The Tribunal reiterated that, since the imports were on FOR/CIF terms and all costs (including freight, insurance, loading and forwarding) were already embedded in the invoiced/declared value, there was no suppression or misstatement by the appellant.

2.14 The Tribunal relied on the contractual agreement, transporter's certificate, and exporter's letter as sufficient proof negating any fraudulent intent or deliberate evasion.

Conclusions:

2.15 Holding that the essential ingredients for imposition of penalty under Section 114A were not satisfied, the Tribunal set aside the penalty in full.

2.16 Consequently, the entire impugned order, including the duty demand, interest and penalty, was set aside and the appeal allowed with consequential relief according to law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the seized leather jackets and readymade garments, not being goods notified under Section 123 of the Customs Act, 1962, were proved by the Department to be smuggled into India without payment of customs duty.

1.2 Whether mere transportation of the seized goods in a railway parcel van leased to the appellant, without corroborative evidence of smuggling, justified imposition of penalty under Section 112 of the Customs Act, 1962.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Proof of smuggled nature of seized goods (non-notified items)

Legal framework: The Court noted that leather jackets and garments are not notified items under Section 123 of the Customs Act, 1962, and therefore the burden lies on the Department to establish that the goods are smuggled and imported without payment of appropriate customs duties.

Interpretation and reasoning: The Court observed that the seizure was made on the belief that the recovered 1248 pieces of leather jackets and readymade garments were smuggled into the country without payment of customs duty. However, it found no evidence on record to corroborate this allegation. No material was produced to show illicit importation or non-payment of duty, and the mere presence of foreign-origin garments in the parcel van was held insufficient to establish smuggling when Section 123 did not apply.

Conclusions: The Court held that the Department failed to discharge its burden of proving that the seized goods were smuggled in nature and illegally imported without payment of customs duties.

Issue 2: Liability to penalty under Section 112 for transportation of alleged smuggled goods

Legal framework (as discussed): Penalty under Section 112 of the Customs Act, 1962, presupposes involvement in, or facilitation of, acts rendering goods liable to confiscation, such as aiding transportation of smuggled goods.

Interpretation and reasoning: The Court noted that the parcel van from which the goods were recovered was leased to the appellant, and therefore transportation of booked consignments in that van was his responsibility. However, it held that this fact alone did not establish that the appellant was involved in transporting smuggled goods. In the absence of evidence establishing that the goods were smuggled, it could not be inferred that the appellant had helped in transportation of smuggled goods. The penalty had effectively been imposed merely because the goods were found in a parcel van leased to the appellant, without any corroborative evidence of smuggling or of the appellant's knowledge or involvement.

Conclusions: The Court concluded that, as the smuggled nature of the goods was not established, the allegation that the appellant engaged in transportation of smuggled goods was unsustainable. Consequently, no penalty was imposable on the appellant under Section 112 of the Customs Act, 1962, and the penalty imposed was set aside with consequential relief.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether, on the facts established in the offence report and inquiry, the conduct of the Customs Broker in filing a Bill of Entry for an entity other than the consignee named in the IGM constituted a violation of Regulation 10(e) of the Customs Broker Licensing Regulations, 2018, relating to exercise of due diligence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Alleged violation of Regulation 10(e) of CBLR, 2018 for lack of due diligence in filing Bill of Entry

(a) Legal framework (as discussed)

Regulation 10(e) of the Customs Broker Licensing Regulations, 2018 requires a Customs Broker to "exercise due diligence to ascertain the correctness of any information, which he imparts to a client with relation to any work related to clearance of cargo or baggage". The Revenue alleged that filing a Bill of Entry in favour of an importer who was not the consignee named in the IGM, despite the IGM containing particulars such as GSTIN and PAN of the actual importer, constituted breach of this obligation.

(b) Interpretation and reasoning

(i) The Tribunal noted that the adjudicating authority had found, on the basis of the Inquiry Report, that the Bill of Entry was filed by the Customs Broker on the strength of documents (invoice, packing list and other documents) received via e-mail from the importer, which themselves had been redirected from the overseas supplier. The importer had also granted due authorization to the Customs Broker to file the Bill of Entry on the basis of such e-mail documents.

(ii) It was specifically recorded that the invoice number, Bill of Lading number, and quantity of goods tallied in all respects between the documents relied upon by the Customs Broker and the relevant IGM/Bill of Lading particulars. The divergence related only to the e-mail address and phone number appearing in the IGM, which the concerned employee of the Customs Broker treated as secondary information and to which no particular attention was paid.

(iii) The Tribunal took note of the factual finding that, after breach of contract between the original intended importer and the overseas supplier, the overseas supplier unilaterally amended the Bill of Lading by changing the name of the notified beneficiary to another importer, and that such change of consignee by the foreign supplier was not communicated either to the original importer or to the Customs Broker.

(iv) It was also observed that in actual practice the name of the importer is not mentioned at the stage of generation of ICEGATE IGM, and that, since all mandatory particulars (such as invoice number, Bill of Lading number and quantity) tallied, the Customs Broker proceeded to file the Bill of Entry. The discrepancy in contact details (e-mail and mobile number) was found to be peripheral to the core clearance documents relied upon.

(v) The Tribunal endorsed the Inquiry Officer's conclusion that the conduct of the Customs Broker, in the circumstances, was unintentional and without any motive, and that the error arose from non-communication of the subsequent change of consignee by the foreign supplier rather than from any deliberate or negligent failure on the part of the Customs Broker to verify essential particulars.

(vi) On these findings, the Tribunal held that it could not be reasonably inferred that the Customs Broker had failed to exercise the due diligence mandated by Regulation 10(e). The characterisation of the lapse as a "human error" by the Inquiry Officer and adjudicating authority was accepted, and the Tribunal found no legal basis to treat this as a culpable lack of due diligence or as collusion with the original importer.

(c) Conclusions

(i) The charge of violation of Regulation 10(e) of the Customs Broker Licensing Regulations, 2018, on the ground of failure to exercise due diligence in ascertaining correctness of information while filing the Bill of Entry, was held to be untenable.

(ii) The Tribunal upheld the adjudicating authority's order dropping the proceedings against the Customs Broker, finding no infirmity in the reliance placed on the Inquiry Report and no merit in the Revenue's contentions.

(iii) The appeal filed by the Revenue was dismissed.

Issues: Whether the refund of excess customs duty arising from an obvious error in declaring the country of origin in the Bill of Entry could be denied on the ground that no appeal had been filed against the assessment.

Analysis: The goods were found to be of Nepali origin and the declaration of another country was an obvious mistake. The appellant had promptly sought amendment of the Bill of Entry and refund of the excess duty by letter. The refund application had also been verified by departmental officials and accepted by the adjudicating authority. In these circumstances, the objection that the appellant ought first to have challenged the assessment was not accepted.

Conclusion: The denial of refund was unsustainable. The appeal was allowed, the order of the Commissioner (Appeals) was set aside, and the adjudication order granting refund was restored.

Issues: (i) Whether the alleged belated filing of the cost audit report was a delay or only a clerical error in the uploaded form; (ii) Whether the criminal complaint and cognizance were barred by limitation for an offence punishable with fine only.

Issue (i): Whether the alleged belated filing of the cost audit report was a delay or only a clerical error in the uploaded form.

Analysis: The record showed that the board approved the cost audit report on 30.06.2016, the cost auditor signed and handed over the report on the same date, and Form CRA-4 was filed on 27.07.2016. On that material, the period fell within thirty days. The incorrect date entered in the form was treated as a clerical mistake in uploading, and the surrounding documents supported the petitioners' case.

Conclusion: The alleged contravention of the thirty-day requirement was not made out against the petitioners.

Issue (ii): Whether the criminal complaint and cognizance were barred by limitation for an offence punishable with fine only.

Analysis: The alleged default, even on the complaint's case, attracted only monetary penalty under the governing provision. The complaint was instituted after about three years, far beyond the period of limitation applicable to such an offence. In those circumstances, taking cognizance was held to be unsustainable, and continuation of the proceeding was considered an abuse of process.

Conclusion: The complaint and cognizance were barred by limitation and liable to be quashed.

Final Conclusion: The proceeding was terminated in exercise of inherent jurisdiction because the alleged default was not substantiated on the documents and the complaint was time-barred.

Ratio Decidendi: Where the contemporaneous records show compliance and the only apparent discrepancy is a clerical mistake in the form, a prosecution for the alleged default cannot be sustained, and a complaint for a fine-only offence filed beyond the limitation period cannot validly survive.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether interlocutory and docket orders passed during the pendency of a company petition survive and confer any enforceable relief after dismissal of the main petition on merits.

1.2 Whether certain findings and observations of the Tribunal in specified paragraphs of the final judgment, particularly relating to relief No. 2, can be treated as grant of partial relief to the petitioners despite dismissal of the company petition.

1.3 Whether, in the absence of an appeal or cross-appeal by the original petitioners against dismissal of the company petition, the findings recorded therein can be used against the respondents/appellants in collateral proceedings such as contempt.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Survival and effect of interlocutory and docket orders after dismissal of the main petition

Legal framework (as discussed)

2.1 The Court proceeded on the principle of merger, namely, that interlocutory orders passed during the pendency of proceedings merge in the final order passed on merits, and that once the main proceedings are decided, such interlocutory orders do not retain an independent existence.

Interpretation and reasoning

2.2 The Court examined the reliance placed on docket orders dated 01.08.2023 and 16.08.2023 of the Tribunal, which were argued to have granted partial relief relating to relief No. 2 of the company petition.

2.3 It held that, given the company petition was ultimately dismissed on merits by judgment dated 28.11.2023, all interlocutory and docket orders passed during its pendency "would automatically stand merged with the final unchallenged order" and "would meet its legal death."

2.4 The Court rejected the attempt to read those docket orders as if they were still "independent still an existing order" or as a surviving grant of any portion of the substantive reliefs sought.

Conclusions

2.5 Interlocutory and docket orders passed during the pendency of the company petition do not survive or confer any independent or continuing relief after dismissal of the petition on merits; they merge into and are extinguished by the final order.

Issue 2: Whether findings in the judgment can be treated as partial grant of relief despite dismissal of the petition

Legal framework (as discussed)

2.6 The Court referred to the nature of the adjudication under Sections 241, 242, 57, 58, 59 and 62 of the Companies Act, 2013, and to the principle that the operative part of a final order determines whether reliefs are granted or denied.

Interpretation and reasoning

2.7 The appellants challenged specific findings in paragraphs 11, 17, 18, 19, 21, 22, 23 and 24 of the judgment dated 28.11.2023 as being based on misreading of evidence and as perverse.

2.8 The Court noted that, irrespective of such observations, the company petition itself had been dismissed and that order of dismissal remained unchallenged by the original petitioners.

2.9 It held that once the petition is dismissed, "the relief that was sought for by the Respondent/Petitioner would be treated to have been denied in totality." Any "stray finding" or incidental observation cannot be extracted and read as if it constituted a separate grant of relief, particularly relief No. 2 relating to cancellation of share allotment.

2.10 The Court clarified that paragraphs 22, 23 and 24 of the impugned judgment were "only incidental in nature" and were part of the reasoning to answer whether the controversy fell within Sections 241, 242, 57, 58, 59, 62 of the Companies Act, 2013. They were not to be treated as operative conclusions conferring any relief.

2.11 The contention that, despite dismissal of the petition, relief No. 2 could be deemed granted on a reading of the findings in the judgment was expressly rejected as "not acceptable."

Conclusions

2.12 Dismissal of the company petition on merits operates as a denial of all reliefs claimed, including relief No. 2; no part of the Tribunal's reasoning or stray observations in the body of the judgment can be treated as a partial or deemed grant of any relief.

2.13 The impugned paragraphs are to be read only as part of the internal reasoning to support dismissal and not as independent or operative relief in favour of the petitioners.

Issue 3: Use of findings against the respondents in absence of appeal/cross-appeal by petitioners and in collateral proceedings

Legal framework (as discussed)

2.14 The Court referred to the scheme under Order XLI Rule 22 of the Code of Civil Procedure, 1908, regarding cross-appeals/cross-objections, to underline that the petitioners had neither appealed the dismissal nor filed any cross-appeal.

Interpretation and reasoning

2.15 It was noted that the order dismissing the company petition dated 28.11.2023 had not been challenged by the original petitioners by any independent appeal or cross-appeal as contemplated under Order XLI Rule 22 CPC.

2.16 In such circumstances, the Court held that the legal consequence of the unchallenged dismissal is that all the reliefs sought stand finally rejected.

2.17 The Court further held that any findings in the impugned paragraphs, even if questioned by the appellants, "will be only confined to be read in the context of the order dated 28.11.2023" and "cannot be derived and extracted to be utilised as against the Appellant in any other collateral proceedings including the Contempt Petitions."

2.18 It characterised those findings as having also met their "judicial death" with the dismissal of the petition and as merged with the final decision, thereby precluding their use as an independent foundation for subsequent or collateral action against the appellants.

Conclusions

2.19 In the absence of any appeal or cross-appeal by the original petitioners, the dismissal of the company petition attains finality and the findings recorded therein cannot be used adversely against the respondents/appellants in collateral or subsequent proceedings, including contempt proceedings.

2.20 All challenged findings are to be restricted to their limited role in the adjudication of the dismissed company petition and are not to be extended or relied upon for any collateral purposes.

Issues: Whether auctioned secured assets could be excluded from the insolvency petition under Section 94 of the Insolvency and Bankruptcy Code, 2016, and whether the moratorium under Section 96 of that Code could undo an auction concluded before the petition was filed.

Analysis: The auction of the secured asset had been held and confirmed before the insolvency petition was filed. The sale consideration had been paid and the sale certificate had been issued, so the auction purchaser's rights had crystallised before the moratorium could operate. The moratorium under Section 96 was held to be prospective and not capable of invalidating transactions lawfully completed earlier. On that basis, the right of redemption of the personal guarantor was treated as having extinguished before commencement of the moratorium, and the auctioned asset was regarded as no longer forming part of the guarantor's estate.

Conclusion: The exclusion of the auctioned assets from the Section 94 proceeding was upheld, and the challenge to that course failed.

Final Conclusion: The appeal was rejected because the impugned exclusion of the auctioned secured assets from the insolvency proceeding disclosed no error in law.

Ratio Decidendi: A moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 operates prospectively and does not unsettle an auction of secured assets that was already concluded and confirmed, with rights of the auction purchaser having crystallised, before the insolvency petition was filed.

1. ISSUES PRESENTED AND CONSIDERED

1. Whether directions could be issued to restrain the corporate debtor from negotiating or entering into any settlement, compromise or agreement in relation to its property or share capital contrary to specified High Court orders and affecting the applicant's shareholding and directorship.

2. Whether further directions were required to ensure that the pending suit and orders of the High Court, concerning the applicant's 50% shareholding and related property rights, are included in the information memorandum and related CIRP documents.

3. Whether any modification of the impugned order of the Adjudicating Authority was warranted in light of the earlier order of the Appellate Tribunal and the undertakings of the IRP/RP.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Restraining the corporate debtor from settlements/transactions contrary to High Court orders and affecting applicant's rights

Interpretation and reasoning

The Adjudicating Authority had refused Prayer-G on the ground that the issues raised therein were required to be dealt with under the provisions of the Insolvency and Bankruptcy Code, 2016. The Appellate Tribunal confined itself to examining only Prayer-G in the appeal and clarified that no other issue was being considered. The Tribunal noted that the subject matter of the restraint sought was integrally connected with the conduct of the corporate insolvency resolution process (CIRP) and with rights and obligations to be governed by the Code.

Conclusions

The Tribunal did not interfere with the refusal of Prayer-G by the Adjudicating Authority and left the issues covered by that prayer to be dealt with under the applicable provisions of the Insolvency and Bankruptcy Code, 2016.

Issue 2: Necessity of specific directions to include pending High Court suit and orders in the information memorandum

Legal framework (as discussed)

The Tribunal referred to its earlier order in an intervention application, wherein the IRP had stated, with reference to Section 25 of the Insolvency and Bankruptcy Code, that the IRP/RP is bound to provide details of all material litigation and ongoing proceedings in the information memorandum, and to represent and act on behalf of the corporate debtor in pending proceedings.

Interpretation and reasoning

The applicant contended that, even if Prayer-G was not allowed, directions were necessary to ensure that the pending suit before the High Court and the various orders passed therein be specifically included in the information memorandum. The Tribunal examined its earlier order dated 15.07.2024, where:

* The applicant had sought directions to incorporate in the information memorandum the existence of the suit, the fact that 50% shareholding was the subject matter of that suit, and that any order in the insolvency proceedings would be subject to further orders of the High Court.

* The IRP had expressly stated that, irrespective of such prayers, he was bound to provide details of all material litigation and that the information memorandum would contain all relevant information including material pending litigation, rendering the specific prayer infructuous.

* The Tribunal had recorded the IRP's statement that, when the information memorandum is prepared, details of all litigation including the orders passed by the High Court would be duly reflected, and disposed of the application on that basis.

The Tribunal further noted that, subsequent to that order, a letter was written to the RP and directions were given, and it was specifically indicated that all relevant litigation pending before the High Court, along with the orders passed, would be referred to, as also confirmed in an e-mail communication.

On this basis, the Tribunal held that the apprehension of the appellant that the litigation and orders might not be included in the information memorandum or related documents was misconceived, as the RP had already undertaken to reflect all such litigation and orders.

Conclusions

No further or fresh directions were required to mandate inclusion of the High Court suit and orders in the information memorandum or CIRP documents, since the obligation and undertaking of the IRP/RP to include all material litigation, including the Bombay High Court proceedings and orders, had already been recorded and accepted by the Tribunal in the earlier order.

Issue 3: Need for modification of the impugned order in light of prior Tribunal order and RP's undertaking

Interpretation and reasoning

The Tribunal clarified that, in the present appeal, it was considering only Prayer-G made by the appellant in the underlying application and that no other issue was examined. In view of:

* The prior order of the Tribunal dated 15.07.2024, disposing of the intervention application after recording the IRP's obligation and undertaking to include all relevant litigation and High Court orders in the information memorandum; and

* The subsequent communications and directions confirming that all relevant litigation and orders would be reflected,

the Tribunal held that the appellant's concerns were already addressed. Accordingly, there was no basis to amend or modify the impugned order of the Adjudicating Authority.

Conclusions

The impugned order required no amendment or modification. The appeal was disposed of, with the Tribunal reiterating that only Prayer-G was considered and that, in light of the existing undertakings and previous order, no further relief or alteration of the order was warranted.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the delay in filing and refiling the appeal was liable to be condoned.

1.2 Whether the liquidator was entitled to a fixed monthly fee during liquidation in the absence of fee fixation by the Committee of Creditors or the Stakeholders' Consultation Committee.

1.3 Whether the liquidator could claim fee on the basis of Regulation 4(2)(b) of the IBBI (Liquidation Process) Regulations, 2016, despite having realised or distributed no assets.

1.4 Whether a prior decision of the Committee of Creditors fixing remuneration for another proposed liquidator could confer a right to similar remuneration on the present liquidator.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Condonation of delay in filing and refiling the appeal

Interpretation and reasoning

2.1 The Tribunal noted that there was 9 days' delay in filing the appeal and 36 days' delay in refiling after issuance of the defect list. The explanation offered was that the appeal was voluminous and documents had to be collated and shared for refiling.

2.2 The Tribunal accepted the reasons advanced as "sufficient cause" for both filing and refiling delays.

Conclusions

2.3 Delay of 9 days in filing and 36 days in refiling the appeal was condoned, and the interlocutory applications for condonation of delay were allowed.

Issue 2 - Entitlement of the liquidator to a fixed monthly fee in absence of fee fixation by CoC or SCC

Legal framework (as discussed)

2.4 The Tribunal considered Regulation 4 of the IBBI (Liquidation Process) Regulations, 2016, particularly sub-regulation (2)(b), which prescribes the liquidator's fee in cases where it is not fixed under Regulation 4(1) or 4(1A), as a percentage of the amount realised (net of other liquidation costs) and distributed.

2.5 The Tribunal also referred to the Adjudicating Authority's findings that: (i) the Committee of Creditors did not fix the liquidator's remuneration at the time of recommending liquidation under Section 33 of the Code, as envisaged under Regulation 39D of the CIRP Regulations; and (ii) the Stakeholders' Consultation Committee did not fix the fee in its first meeting as required under Regulation 4(1A) of the Liquidation Regulations.

Interpretation and reasoning

2.6 The Tribunal noted that the liquidator's proposal for a monthly fee of Rs. 2.5 lakhs was placed before the Stakeholders' Consultation Committee but was not approved.

2.7 In view of the admitted position that neither the Committee of Creditors nor the Stakeholders' Consultation Committee had fixed the liquidator's fee, the Tribunal held that the case fell under Regulation 4(2) of the Liquidation Regulations, and not under any provision permitting a fixed monthly fee.

2.8 The Tribunal endorsed the Adjudicating Authority's view that, in such circumstances, the liquidator's remuneration "shall be calculated only as a percentage of the amount realised (net of other liquidation costs) and distributed during the liquidation process, and not by way of a fixed monthly fee."

Conclusions

2.9 The liquidator was not entitled to a fixed monthly fee of Rs. 2.5 lakhs in the absence of fee fixation by the CoC or SCC, and his remuneration had to be governed strictly by Regulation 4(2) of the Liquidation Regulations.

Issue 3 - Entitlement to fee under Regulation 4(2)(b) where no assets are realised or distributed

Legal framework (as discussed)

2.10 The Tribunal quoted Regulation 4(2)(b) of the IBBI (Liquidation Process) Regulations, 2016, which entitles a liquidator, in cases not covered under sub-regulation (1) and (1A), to a fee "as a percentage of the amount realised net of other liquidation costs, and of the amount distributed, for the balance period of liquidation" based on specified slabs of realisation and distribution.

2.11 The Tribunal also noted the clarification appended to clause (b), that the liquidator is entitled to fee corresponding to the amount realised where he realises but does not distribute, and corresponding to the amount distributed where he distributes amounts not realised by him.

Interpretation and reasoning

2.12 It was an undisputed fact that the liquidator had neither realised any assets of the corporate debtor nor distributed any amount to stakeholders.

2.13 The Tribunal held that, since entitlement under Regulation 4(2)(b) is explicitly linked to the "amount realised net of other liquidation costs" and/or the "amount distributed," no fee can accrue in the absence of either realisation or distribution.

2.14 The Tribunal rejected the contention that steps taken by the liquidator, such as efforts for revocation of attachment by the Directorate of Enforcement, could in themselves justify fee entitlement under Regulation 4(2)(b) without actual realisation or distribution.

Conclusions

2.15 As no assets had been realised or distributed, the liquidator had no entitlement to remuneration under Regulation 4(2)(b), and the rejection of his claim for fee by the Adjudicating Authority was upheld.

Issue 4 - Effect of prior CoC decision fixing fee for another proposed liquidator

Interpretation and reasoning

2.16 The liquidator argued that the CoC had fixed the fee for a liquidator earlier recommended by it, and although that recommendation was rejected by the Adjudicating Authority, the present liquidator, being appointed in place of the recommended person, should be entitled to the fee earlier fixed by the CoC.

2.17 The Tribunal noted the Adjudicating Authority's finding that the CoC had not fixed the present liquidator's remuneration at the time of recommending liquidation, and that this factual finding was not disputed.

2.18 The Tribunal held that, in the absence of any CoC resolution or SCC decision specifically fixing the present liquidator's remuneration, he could not rely on fee fixed for another recommended liquidator to claim a fixed monthly fee.

Conclusions

2.19 A prior decision of the CoC fixing remuneration for another proposed liquidator did not confer any right upon the present liquidator to claim the same or similar fee; his remuneration remained governed strictly by Regulation 4(2) of the Liquidation Regulations.

2.20 The appeal challenging rejection of the application for fixation of monthly fee of Rs. 2.5 lakhs was found to be without merit and was dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a delay of 12-13 days in filing the appeal against the impugned order deserved condonation under the proviso to Section 61(2) of the Insolvency and Bankruptcy Code, 2016.

1.2 Whether a prospective resolution applicant, who did not submit a resolution plan within the prescribed timeline and whose intervention earlier stood finally rejected, has locus standi to maintain an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016 challenging the resolution process and the approved resolution plan.

1.3 Whether alleged defects and non-updation of the Information Memorandum, including non-reflection of certain liabilities, vitiated the CIRP and warranted setting aside the process from the stage of issuance of the Information Memorandum, issuance of a fresh Form G, and calling for fresh resolution plans.

1.4 Whether, in the facts of the case, the Adjudicating Authority or the Appellate Tribunal could interfere with or remit the resolution plan for reconsideration by questioning the commercial wisdom of the Committee of Creditors, absent any established violation of Section 30(2) of the Insolvency and Bankruptcy Code, 2016.

1.5 Whether the appeal and the underlying application were a bona fide challenge based on alleged informational deficiencies, or a mala fide attempt to derail and re-run the resolution process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing the appeal

Legal framework (as discussed)

2.1 The Court considered the limitation prescribed in Section 61(2) of the Insolvency and Bankruptcy Code, 2016, particularly the proviso permitting extension of the 30-day appeal period up to a maximum of 45 days on sufficient cause being shown.

Interpretation and reasoning

2.2 The impugned order was uploaded on 27.03.2025. The basic 30-day period expired on 26.04.2025. The appeal was filed on 07.05.2025, resulting in 12 days' delay beyond the initial 30 days but still within the 45-day outer limit contemplated by the proviso to Section 61(2).

2.3 The Court examined the reasons stated in the condonation application (especially paras 3.2 and 3.3) and found them satisfactory for explaining the short delay.

Conclusions

2.4 The delay of 12 days in filing the appeal was condoned as it fell within the statutory outer limit of 45 days and sufficient cause was shown.

Issue 2: Locus standi of the appellant to challenge the resolution process and plan

Legal framework (as discussed)

2.5 The application before the Adjudicating Authority was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016. The Court examined the concept of "aggrieved person" and locus standi in the context of an unsuccessful/ non-participating prospective resolution applicant seeking to assail the resolution plan and resolution process.

Interpretation and reasoning

2.6 The appellant was only a shortlisted Prospective Resolution Applicant (PRA) whose name appeared in the final list; however, he did not submit any resolution plan by the cut-off date of 18.03.2024, despite publication of Form G on 08.12.2023 and adequate notice of the deadline.

2.7 The appellant's intervention application (IA No. 20/2024) to be impleaded in proceedings concerning approval of the successful resolution applicant's plan had been rejected by the Adjudicating Authority on 13.06.2024. That rejection was affirmed by the Court in earlier appeals decided on 20.12.2024, wherein it was categorically held that:

- The revised plan allegedly submitted by the appellant had been rejected; that rejection was never challenged and had attained finality.

- The appellant had no locus standi to intervene or challenge the approval of the resolution plan of the successful resolution applicant.

- Upon rejection of intervention and affirmation of that order, the appellant ceased to have any right to challenge the resolution plan approval process.

- The appellant did not fall within the domain of an "aggrieved person" capable of challenging the approval of the resolution plan.

2.8 It was undisputed that the said judgment of 20.12.2024 had not been challenged before the Supreme Court and therefore had attained finality. On that premise, the Court held that the issue of the appellant's locus was concluded and binding.

2.9 In light of the above, the Court reasoned that the appellant, having failed to submit a resolution plan, having had his intervention rejected, and having had his earlier appeals dismissed, could not again seek to challenge the same resolution plan indirectly by alleging defects in the Information Memorandum through IA (IBC) No. 439/2025.

Conclusions

2.10 The appellant had no locus standi to challenge the resolution plan or the resolution process. He was neither a successful nor an unsuccessful resolution applicant and did not qualify as an aggrieved person. The application IA (IBC) No. 439/2025 was thus not maintainable at his behest.

Issue 3: Effect of alleged defects and non-updation of the Information Memorandum; prayer to set aside CIRP from IM stage and call for fresh plans

Interpretation and reasoning

2.11 The appellant contended that the Information Memorandum was incomplete and defective as it did not reflect certain liabilities towards individual purchasers (who had filed separate IAs) and that, despite specific directions in those IAs, the Resolution Professional failed to revise the Information Memorandum. He argued that this prevented him from formulating a viable resolution plan and vitiated the CIRP.

2.12 The Resolution Professional contended that the liabilities in question were already reflected in the financial statements forming an integral part of the Information Memorandum, that the successful resolution applicant had been directed and had undertaken to incorporate the liabilities in its plan, and that PRAs were independently obligated to conduct their own due diligence.

2.13 The Adjudicating Authority had found that the alleged defects in the Information Memorandum were not material enough to justify issuance of a fresh Form G or re-starting the process. It also found no violation of Section 30(2) of the Insolvency and Bankruptcy Code on that account.

2.14 The Court concurred that the alleged information gaps did not impact the viability or legality of the resolution plan. The new information (i.e., certain units having already been sold) would normally reduce the asset value and hence the resolution value, but in this case the successful resolution applicant had acknowledged the liability and undertaken to comply with the directions of the Adjudicating Authority. Hence, there was no necessity to alter or revisit the resolution plan approval process on that ground.

2.15 The Court further held that, in any event, given the appellant's lack of locus, he could not demand revision of the Information Memorandum or a re-run of the CIRP from the IM stage.

Conclusions

2.16 The alleged deficiencies or non-updation of the Information Memorandum did not vitiate the CIRP or warrant setting aside the process from the IM stage, issuance of a fresh Form G, or calling for fresh resolution plans.

2.17 The liabilities in question stood acknowledged by the successful resolution applicant, and there was no established breach of Section 30(2) of the Insolvency and Bankruptcy Code on this account.

Issue 4: Scope of interference with the commercial wisdom of the Committee of Creditors and applicability of Section 30(2)

Legal framework (as discussed)

2.18 The Court examined the limitation on judicial intervention in matters falling within the commercial wisdom of the Committee of Creditors and the circumstances under which a resolution plan can be interfered with, particularly in the context of express violations of Section 30(2) of the Insolvency and Bankruptcy Code, 2016.

Interpretation and reasoning

2.19 The resolution plan submitted by the successful resolution applicant had been approved by the Committee of Creditors on 22.03.2024. An application for approval of the plan was pending, with orders reserved.

2.20 The Adjudicating Authority had concluded that no grounds had been made out to show violation of Section 30(2), and thus it could not interfere with the commercial wisdom of the Committee of Creditors or remit the plan for reconsideration.

2.21 The Court endorsed this view, holding that it found no occasion or ground to differ from the Adjudicating Authority. In the absence of specific and proven contraventions of Section 30(2), it was impermissible to question the Committee of Creditors' business decision to approve the plan.

Conclusions

2.22 There was no established violation of Section 30(2) of the Insolvency and Bankruptcy Code in the approval process of the resolution plan.

2.23 Neither the Adjudicating Authority nor the Court could interfere with or remit the resolution plan by questioning the commercial wisdom of the Committee of Creditors in the facts presented.

Issue 5: Nature of the challenge - bona fide grievance or mala fide attempt to derail CIRP

Interpretation and reasoning

2.24 IA (IBC) No. 439/2025 was filed nearly a year after the last date for submission of resolution plans (18.03.2024), and after the resolution plan of the successful resolution applicant had been approved by the Committee of Creditors and the matter reserved for orders.

2.25 The Court noted that the appellant, having failed to submit a resolution plan within time and having already lost his intervention attempts and earlier appeals, sought a re-run of the resolution process on the ostensible ground of a faulty Information Memorandum.

2.26 The Court inferred that no legitimate or fruitful objective could be intended by seeking issuance of a fresh Form G at such a belated stage, other than to derail the decision-making process and resolution of the corporate debtor's insolvency.

2.27 The Court characterised the appellant, in these circumstances, as an "intruder" to the proceedings, who had no right to be heard and was not likely to be adversely affected by any order on the resolution plan.

Conclusions

2.28 The proceeding initiated by the appellant, under the guise of correcting a faulty Information Memorandum, was held to be mala fide and intended to derail the CIRP.

2.29 The appeal lacked merit and was dismissed; all pending interlocutory applications were closed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the inordinate delay of approximately 389 days in refiling the appeal, after defects were notified by the Registry, could be condoned under the applicable procedural rules.

1.2 What constitutes "sufficient cause" or a reasonable and justifiable explanation for condonation of delay in refiling an appeal before the Tribunal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of inordinate delay in refiling the appeal

Legal framework:

2.1 The Tribunal referred to Rules 26 and 14 of the National Company Law Appellate Tribunal Rules, 2016. Rule 26(2)-(4) prescribes that if, on scrutiny, an appeal is found defective, it shall be returned for compliance, and if defects are not cured within seven days, the matter is placed before the Registrar, who may pass appropriate orders, including declining to register the appeal. Rule 14 empowers the Tribunal to exempt compliance with any requirement of the Rules only where sufficient cause is shown, in the interest of justice.

2.2 The Tribunal also noted that the Insolvency and Bankruptcy Code (IBC) is a self-contained code with a time-bound mechanism and prescribed time limits for filing appeals, beyond which the Appellate Authority has no statutory power to condone delay.

Interpretation and reasoning:

2.3 The appeal was e-filed on 09.09.2023; defects were notified on 16.09.2023; and the appeal was refiled only on 16.10.2024, resulting in a delay of 389 days in refiling. Under Rule 26, the defects should have been cured within seven days from notification, which did not occur.

2.4 The Tribunal held that delay in refiling can be condoned only if there is reasonable and justifiable cause and if the reasons cited were beyond the control of the appellant, coupled with due diligence and utmost care in attempting to remove the defects.

2.5 The only plea advanced in the condonation application was that the delay was "unintentional and for reasons beyond control of the appellant." The Tribunal characterised this as no reason or justification at all, as it lacked any particulars, explanation, or material showing circumstances beyond control or diligent efforts to cure the defects.

2.6 On perusal of the application, the Tribunal found that it did not provide "sufficient cause" within the meaning of Rule 14. The duration of delay-more than one year in refiling-was described as unduly long, and in the absence of specific and cogent reasons, the Tribunal found it impermissible to exercise its discretionary power to condone.

2.7 Emphasising the time-bound nature of proceedings under the IBC and the limited statutory power to condone delay, the Tribunal held that such an inordinate delay in refiling, unsupported by substantiated cause, could not be excused.

Conclusions:

2.8 The Tribunal held that no sufficient cause was shown for the 389-day delay in refiling the appeal.

2.9 IA No. 7255 of 2024 seeking condonation of delay in refiling was dismissed.

2.10 Consequently, the memorandum of appeal was also dismissed without examination of the merits of the underlying challenge to the order of the Adjudicating Authority.

Outcome: The appeal was disposed of as withdrawn, with liberty to the appellant to pursue an appropriate application before the Tribunal.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether Section 66(1) and Section 66(2) of the Insolvency and Bankruptcy Code operate independently, and what is the scope of jurisdiction of the Adjudicating Authority and the Appellate Tribunal under Section 66 in relation to fraudulent/wrongful trading.

(2) Whether, in proceedings under Section 66, the Adjudicating Authority/Tribunal can examine the validity of the Memorandum of Understanding relating to acquisition of the Mafatlal receivable, treat it as void ab initio/fraudulent, and ignore it without recourse to a civil court.

(3) Whether the transaction involving the Corporate Debtor's acquisition of the Mafatlal debt through the MOU, and the related payments to the assignee, constituted business carried on with "intent to defraud creditors or for any fraudulent purpose" within the meaning of Section 66(1).

(4) Whether the absence of a statutory look-back period, the long time gap between the impugned transaction (2011-2014) and commencement of CIRP (2019), and the fact that the Code was not then in force, precluded action under Section 66(1).

(5) Whether, on the facts proved, the direction to the erstwhile directors to contribute Rs. 36.53 crores to the assets of the Corporate Debtor under Section 66(1) was legally sustainable, or the dispute was merely a contractual/civil dispute outside insolvency jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Operation and scope of Section 66(1) and 66(2) IBC

Legal framework (as discussed)

(a) The Tribunal referred to its prior decisions clarifying that Section 66(1) and Section 66(2) are "self-contained provisions" and operate independently, each with its own ingredients and mechanism for invocation during CIRP.

(b) Section 66(1) is broad, enabling orders against "any person" knowingly party to carrying on the business of the Corporate Debtor with intent to defraud creditors or for any fraudulent purpose.

(c) Section 66(2) is narrower, dealing specifically with directors/partners where, before the insolvency commencement date, they knew or ought to have known that insolvency was unavoidable and failed to exercise due diligence to minimise loss to creditors.

(d) Prior appellate and other decisions were cited to emphasise: (i) the need to establish "dishonest intention" and fraudulent conduct by adequate material (preponderance of probability but with heavy onus on the applicant); and (ii) that not every loss-making commercial transaction is fraudulent.

Interpretation and reasoning

(e) The Tribunal adopted the view that Section 66(1) and 66(2) "operate in a different arena"; Section 66(1) does not depend on the pre-insolvency foreseeability test embedded in Section 66(2), and can be applied where the business of the Corporate Debtor has been carried on for a fraudulent purpose even if insolvency was not then in contemplation.

(f) Relying on earlier appellate precedents, the Tribunal held that the applicant under Section 66 bears a heavy evidentiary burden to establish fraud, but such proof can be drawn from circumstantial evidence and attending facts; once the applicant discharges the initial onus, the burden shifts to the opposing party.

(g) The Tribunal also relied on the Supreme Court's exposition that Section 66 does not itself confer power to "avoid or set aside" transactions, but empowers the Adjudicating Authority, upon finding fraudulent or wrongful trading, to direct persons involved to make contribution to the assets of the Corporate Debtor.

Conclusions

(h) Section 66(1) and Section 66(2) are independent; Section 66(1) is wide and applies to "any person" involved in fraudulent carrying on of business, whereas Section 66(2) specifically targets directors/partners in the twilight of insolvency.

(i) In the present case, action and contribution directions rest on Section 66(1), not on Section 66(2), and the standard of proof is preponderance of probability, subject to a heavy onus to establish fraudulent intent, which the Tribunal found to be satisfied.

Issue (2): Power under Section 66 to examine and ignore the MOU as void ab initio / fraudulent

Legal framework (as discussed)

(a) The Tribunal examined decisions holding that Section 66(1) confers no jurisdiction to "declare any transaction as void" but only to fix personal liability for fraudulent or wrongful business, and that ordinarily, questions of setting aside or declaring documents void fall within civil courts, unless otherwise provided.

(b) The Tribunal also considered Supreme Court and High Court authority distinguishing between: (i) a voidable document, which requires a decree for cancellation; and (ii) a document void ab initio, which is non est in law and can be treated as a nullity without a formal decree.

(c) The Tribunal relied on a Supreme Court decision affirming that company law/NCLT fora have wide jurisdiction to decide issues integral or incidental to allegations before them, including questions of validity of instruments that lie at the "core" of the dispute, subject to no express statutory bar.

Interpretation and reasoning

(d) The Tribunal accepted the proposition that Section 66(1) does not, by its text, authorise the NCLT to formally "declare" a transaction void; its remedial focus is on contribution to the corporate debtor's assets. However, it drew a crucial distinction: where a document is fraudulent and void ab initio, it is, in law, a nullity and need not be set aside by any court; it may simply be ignored.

(e) The Tribunal held that in this case the validity and nature of the MOU was itself central to the Section 66 inquiry-whether the business of the Corporate Debtor was carried on with fraudulent intent. Therefore, the NCLT was bound to examine the MOU, assess whether it was per se fraudulent, and treat it accordingly.

(f) Applying the doctrine of void versus voidable transactions, the Tribunal reasoned that once the MOU is found to be a fraudulent device, void ab initio, it is non-existent in the eyes of law and may justifiably be ignored by the NCLT in deciding liability under Section 66(1), without requiring recourse to a civil court.

Conclusions

(g) While Section 66(1) does not confer a general power to decree avoidance or cancellation of contracts, the Adjudicating Authority is competent, in a Section 66 proceeding, to examine the impugned MOU which is central to the fraud allegation.

(h) On the Tribunal's findings that the MOU was per se fraudulent and void ab initio, it was non est, and the NCLT rightly ignored it for the purpose of fixing contribution under Section 66(1); there was no jurisdictional error in not relegating the matter to a civil court for cancellation.

Issue (3): Whether the Mafatlal receivable acquisition transaction amounted to fraudulent trading under Section 66(1)

Interpretation and reasoning

(a) Undisputed facts were summarised:

* A receivable owed by Mafatlal Engineering (already under court liquidation) with principal Rs. 15.34 crores (with 12% interest) was assigned by the bank to the assignee on 29.11.2011.

* The Official Liquidator of Mafatlal admitted a claim of approximately Rs. 16.68 crores against Mafatlal in favour of the assignee.

* On 17.12.2011, the assignee entered into the MOU with the Corporate Debtor to assign the same receivable for a much higher consideration of Rs. 36.90 crores, with 99% to be paid by 28.11.2011 and the remaining 1% by 30.06.2013 (extendable to 30.06.2014).

* By 28.11.2011, i.e. before (i) execution of the MOU (17.12.2011) and (ii) completion of the bank's assignment to the assignee (29.11.2011), the Corporate Debtor had already paid Rs. 36.53 crores (98.997% of the agreed MOU consideration).

* After 28.11.2011, the Corporate Debtor continued to pay and, by 07.01.2014, had paid a total of Rs. 38.19 crores to the assignee, i.e. over and above the MOU consideration.

* The MOU contained a clause that in the event of default in making payment as per the schedule, the purchaser would get 10 days' grace; failing payment, the amounts already paid would stand forfeited and the MOU cancelled.

(b) The Tribunal identified several circumstances indicating fraudulent design rather than bona fide commercial misjudgment:

* Gross overvaluation and commercial inexplicability: The receivable admitted by the Official Liquidator at around Rs. 16.68 crores was being acquired by the Corporate Debtor at Rs. 36.90 crores-more than double-without any rational explanation, notwithstanding that Mafatlal was in liquidation and that the Corporate Debtor was a real estate company, not a financial asset investor. This was held to be "against all commercial wisdom and common sense".

* Pre-dated payment schedule and acquisition: The MOU (executed on 17.12.2011) stipulated that 99% of the consideration be paid by 28.11.2011, a date prior to the assignee's own acquisition (29.11.2011) and even prior to the MOU itself. The Corporate Debtor had in fact paid 98.997% by that date. The Tribunal found this deliberate structuring-requiring payment before the seller had title and before contract execution-highly suspicious.

* Engineered default and forfeiture: On the MOU's own terms, the Corporate Debtor was in "default" of the 99% requirement on the date of MOU execution because only 98.997% had been paid. The Tribunal reasoned that by fixing the threshold at 99% and ensuring payment fell marginally short, default and consequent forfeiture were intentionally built into the contract.

* Continuation of payments post-default: Despite the alleged default and forfeiture, the Corporate Debtor continued paying till 2014-ultimately more than the total MOU consideration-without ever securing execution of the actual assignment deed. The Tribunal considered this continued outflow, coupled with non-enforcement of rights, as inconsistent with bona fide conduct and indicative of a conscious design to move funds out of the Corporate Debtor.

* Unusual expense/consultancy set-offs: The assignee claimed large amounts towards handling, consultancy and other expenses, set off against the Corporate Debtor's payments, and appropriated sums received from the Mafatlal Official Liquidator, all without transparent commercial rationale. The Tribunal viewed the "expenses" and "no recourse & forfeiture" clauses as deliberately introduced to facilitate siphoning and protect the beneficiaries.

* Lack of effort to protect the Corporate Debtor's interest: The erstwhile directors never took steps to insist on execution of the assignment deed or contest the forfeiture or recovery of excess amounts, even over a prolonged period, which the Tribunal considered inconsistent with the fiduciary duty owed to creditors and supportive of fraudulent intent.

(c) On cumulative assessment of the above, the Tribunal held that:

* The transaction structure (overvaluation, back-dated payment schedule, forfeiture mechanism), timing (payments preceding seller's own acquisition), and conduct (continued payment, non-enforcement of rights, opaque expense claims) indicated that the business of the Corporate Debtor was being carried on not as a normal investment, but as a mechanism to divert and siphon funds.

* These facts, taken together, were more than sufficient circumstantial evidence that the appellants carried on the business of the Corporate Debtor with "intent to defraud creditors" and "for a fraudulent purpose" within Section 66(1).

Conclusions

(d) The transaction concerning the purported acquisition of the Mafatlal debt was held to be a fraudulent device, not an ordinary or bona fide commercial transaction.

(e) The business of the Corporate Debtor, in entering into and acting upon the MOU, was carried on by the erstwhile directors with the intent to defraud creditors, satisfying the ingredients of Section 66(1) IBC.

Issue (4): Effect of time gap, pre-IBC conduct, and absence of look-back period on Section 66(1) jurisdiction

Interpretation and reasoning

(a) It was argued that since the impugned transactions occurred in 2011-2014, long before CIRP in 2019 and before the Code commenced, the directors could not have contemplated insolvency, and Section 66(2)-type considerations should preclude liability.

(b) The Tribunal distinguished between Section 66(1) and Section 66(2): the former is not conditioned on the "twilight of insolvency" test or any fixed look-back period; it focuses on whether, in fact, the business was carried on with fraudulent intent.

(c) The Tribunal observed that the legislature, "consciously, has not provided any look back period for fraudulent transactions" under Section 66(1). To read in a temporal bar or implied limitation period would amount to judicially supplementing the statute, contrary to legislative intent.

(d) The mere lapse of time or the fact that the Corporate Debtor was then a going concern was held irrelevant where the transaction itself is found to be fraudulent. The Tribunal emphasised that once fraud is established within Section 66(1), "the time gap between the transaction and CIRP, in our understanding is meaningless".

Conclusions

(e) The absence of a statutory look-back period under Section 66(1) means that fraudulently carried on business can be examined irrespective of when, in relation to CIRP, the transaction occurred.

(f) The fact that the impugned MOU and payments pre-dated both CIRP and even the Code's enactment did not bar proceedings or relief under Section 66(1), once the transaction was found to be fraudulent.

Issue (5): Justification for directing contribution by erstwhile directors; characterization as insolvency vs. civil/contractual dispute

Interpretation and reasoning

(a) The appellants contended that the dispute was purely contractual-concerning performance, forfeiture, alleged excess payment, and specific performance/refund under the MOU-and thus belonged to civil courts; further, they asserted there was no material of fraudulent intent or mens rea; and some appellants claimed no involvement.

(b) The Tribunal, having already held the transaction to be per se fraudulent under Section 66(1), rejected the characterisation of the matter as a mere civil/contractual dispute. It held that insolvency fora are competent to address fraudulent trading and protect the estate, even if the same facts might also support civil remedies.

(c) The Tribunal underscored that:

* The directors were in office during the relevant period and responsible for the impugned decisions.

* They permitted large outflows (Rs. 38.19 crores) for acquisition of an asset worth only about Rs. 16.68 crores, in a business area outside the Corporate Debtor's ordinary course, under a contract deliberately structured to allow forfeiture.

* They made no real efforts for nearly a decade to enforce the supposed rights under the MOU (assignment deed, reversal of forfeiture, recovery of excess amounts), nor to challenge the assignee's stance.

* The directors' inaction in the face of obvious red flags, and their failure to safeguard the Corporate Debtor's and creditors' interests, supported an inference of participation in carrying on business for a fraudulent purpose.

(d) In light of the fraudulent nature of the transaction and the direct depletion of the Corporate Debtor's estate, the Tribunal considered that the requirement under Section 66(1)-that persons "knowingly" parties to the fraudulent carrying on of the business may be directed to contribute-was satisfied with respect to the erstwhile directors.

(e) The Tribunal also observed that where a transaction has been proved fraudulent, "it could not be exonerated on technical issues or minor irregularities committed by the adjudicating authority", given the impact of such fraud on the Corporate Debtor, stakeholders and the broader economy.

Conclusions

(f) The matter was not a mere contractual dispute but a case of fraudulent carrying on of business under Section 66(1); insolvency jurisdiction was properly invoked and exercised.

(g) On the established facts and circumstances, the direction to the erstwhile directors to contribute Rs. 36.53 crores to the assets of the Corporate Debtor under Section 66(1) was upheld as lawful and justified.

(h) The appeal was dismissed, and the Tribunal declined to interfere with the order of contribution passed by the Adjudicating Authority.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, under Clause 28 of the Special Conditions of Contract, non-receipt of corresponding payment by the corporate debtor from its client precludes a finding of "default" for the purposes of a Section 9 application under the Insolvency and Bankruptcy Code.

1.2 Whether guidelines and observations issued by a High Court in disputes involving other contractors and municipal corporations can be relied upon to negate or override the contractual payment condition in Clause 28 in Section 9 proceedings under the Insolvency and Bankruptcy Code.

1.3 Whether dismissal of the Section 9 application for want of default under the contract affects the operational creditor's right to pursue other contractual or legal remedies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Effect of Clause 28 on existence of "default" under Section 9

Legal framework (as discussed)

2.1 The Court proceeded on the basis of the contractual arrangement between the operational creditor and the corporate debtor, in particular Clause 28 of the Special Conditions of Contract, to assess whether there was a "default" supporting admission of a Section 9 application.

Interpretation and reasoning

2.2 Clause 28, as reproduced and relied upon, provides that the contractor (operational creditor) "shall become entitled to payment only after" the corporate debtor receives the corresponding payment from the client/owner for the work done by the contractor.

2.3 Clause 28 further stipulates that any delay in release of payment by the client/owner to the corporate debtor, leading to delay by the corporate debtor in releasing the corresponding payment to the contractor, "shall not entitle the contractor any compensation / interest" from the corporate debtor.

2.4 The Court treated Clause 28 as an express contractual condition precedent governing entitlement to payment, and consequently the point at which any payment obligation and potential default could arise.

2.5 As it was undisputed that the corporate debtor had not yet received payment from the client (NDRF), the Court held that, under the agreed terms, the entitlement of the operational creditor to payment had not yet accrued.

2.6 In the absence of accrued entitlement under Clause 28, the Court held that "default" within the meaning relevant to Section 9 could not be said to have occurred, since the payment obligation itself had not matured under the contract.

Conclusions

2.7 Where the contract clearly provides that the contractor's entitlement to payment arises only upon receipt of the corresponding payment by the corporate debtor from its client, non-receipt of such client payment means no default is committed by the corporate debtor for the purpose of a Section 9 application.

2.8 The Adjudicating Authority's reliance on Clause 28 to reject the Section 9 application was upheld, and no error was found in treating absence of client payment as precluding a finding of default.

Issue 2 - Reliance on Delhi High Court guidelines in Section 9 proceedings

Legal framework (as discussed)

2.9 The appellant relied on a Delhi High Court judgment (North Delhi Municipal Corporation & Ors. v. Sanjeev Oberoi) wherein certain general guidelines were issued in a batch of contractor-municipal corporation disputes, including guidelines against indefinite delay of payments.

Interpretation and reasoning

2.10 The Court noted that the Delhi High Court guidelines were framed in a different context-disputes between contractors and municipal corporations (NrDMC and EDMC)-and were intended to streamline contractual compliance and payment processes in that specific sphere.

2.11 The Court observed that these guidelines, being context-specific to municipal corporation contracts, could not be imported to override or re-write the express payment condition mutually agreed in Clause 28 between the present parties.

2.12 The Court declined to treat those guidelines as controlling or determinative in proceedings under Section 9 of the Insolvency and Bankruptcy Code, where the central inquiry remains whether, under the existing contract, there is a crystallized debt and a default.

Conclusions

2.13 General guidelines issued in a High Court judgment concerning other parties and contracts cannot be relied upon in Section 9 insolvency proceedings to displace, dilute, or ignore a specific contractual term such as Clause 28 governing entitlement to payment.

2.14 The appellant's reliance on the Delhi High Court decision and its guidelines did not affect the contractual analysis under Clause 28 or the conclusion that no default had occurred.

Issue 3 - Effect of dismissal of Section 9 application on other remedies

Interpretation and reasoning

2.15 The Court clarified that the findings of the Adjudicating Authority, and the present appellate decision, are confined to the maintainability and merits of the Section 9 application under the Insolvency and Bankruptcy Code, based on the contractual condition in Clause 28.

2.16 The Court expressly stated that the dismissal of the Section 9 application does not adjudicate upon, or bar, the operational creditor's substantive rights under the contract or under other applicable laws.

2.17 The Court emphasized that the observations made by the Adjudicating Authority and by the Court are only with respect to Section 9 proceedings, and are not intended to prejudice any other proceedings or remedies that the operational creditor may initiate.

Conclusions

2.18 Dismissal of the Section 9 application on the ground that no default has arisen under Clause 28 does not preclude the operational creditor from pursuing such other contractual or legal remedies as may be available in law.

2.19 The observations in the insolvency proceedings are to be treated as confined to the limited question of default for the purpose of Section 9 and shall not operate as a bar or conclusive determination in any other forum or proceeding.

Issues: Whether, for the purpose of Section 60(2) of the Insolvency and Bankruptcy Code, 2016, a proceeding against a corporate guarantor can be filed before the same Adjudicating Authority where an application under Section 7 against the principal borrower is already pending, even though CIRP in the principal borrower's case has not yet commenced by admission.

Analysis: Section 60(1) fixes jurisdiction with reference to the registered office of the corporate person, but Section 60(2) creates a special exception where CIRP or liquidation proceedings of the corporate debtor are already pending before a National Company Law Tribunal. The expression "pending" was held to refer to a proceeding that has been initiated and remains undecided, and not only to a proceeding after formal admission and commencement of CIRP. The object of the provision is to place connected insolvency proceedings arising from the same transaction before one forum and avoid conflicting decisions. On the facts, the application against the principal borrower had already been filed earlier and was pending when the application against the corporate guarantor was instituted, so the Chennai Bench had jurisdiction. The objection as to territorial jurisdiction was also not available to be raised at the appellate stage after the appellant had participated in the proceedings without timely contest.

Conclusion: The objection to maintainability on territorial jurisdiction failed, and the application against the corporate guarantor was rightly entertained by the Chennai Bench.

Ratio Decidendi: For Section 60(2) of the Insolvency and Bankruptcy Code, 2016, "pending" includes an already instituted and undecided CIRP application, and once such a proceeding exists against the principal borrower, the corporate guarantor's insolvency application must be filed before the same Adjudicating Authority notwithstanding the general rule in Section 60(1).

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether amounts collected from flat buyers under the head "lease rent" and payable to the development authority are liable to be included in the taxable value of "construction of complex" service under Section 67 of the Finance Act, 1994 for the pre-14.05.2015 period.

(2) Whether, on the facts, the "lease rent" amounts collected from flat buyers are properly characterized as reimbursable expenses (and/or in the nature of pure agent recoveries) rather than consideration for taxable services.

(3) Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 is invocable for non-payment of service tax on such "lease rent" amounts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Inclusion of "lease rent" collected from flat buyers in taxable value of construction service

Interpretation and reasoning (Majority - Division Bench + Third Member)

(a) The Tribunal examined the lease deed executed between the development authority and the appellant, which recorded payment of one-time lease rent of Rs. 13,34,16,568/- (11% of land premium) by the appellant in lieu of annual lease rent of 1% of premium.

(b) The Tribunal further examined: (i) the challan dated 14.06.2010 evidencing payment of the said one-time lease rent to the authority; (ii) the party ledger/voucher recording "one time lease rent to NOIDA"; and (iii) tripartite sub-lease/sale deeds between the authority (lessor), appellant (lessee) and flat buyer (sub-lessee), which clearly state that the lessor has already received one-time lease rent of the plot from the lessee and that the sub-lessee is not to pay any lease rent to the lessor during the unexpired portion of the lease.

(c) The Tribunal considered customer-wise "Customer Lease Rent List" for the relevant years and sample provisional allotment letters showing a separate head "One Time Lease Rent" apportioned flat-wise, the aggregate Rs. 8.21 crore recovered from buyers being less than the Rs. 13.34 crore actually paid to the authority. This evidences that the impugned amounts were only recovery toward lease rent already discharged by the appellant to the authority, not consideration for construction services.

(d) The Tribunal applied the ratio of the judgments in Intercontinental Consultants & Technocrats (Delhi High Court, as affirmed by the Supreme Court) and Bhayana Builders, noting that Section 67 mandates that service tax is chargeable only on the "gross amount charged ... for such service", i.e. consideration which is quid pro quo for the taxable service actually rendered. Any amount collected not for providing "such taxable service" cannot be part of taxable value.

(e) The Tribunal emphasized that prior to the amendment of Section 67 by the Finance Act, 2015 (w.e.f. 14.05.2015), "consideration" did not statutorily include reimbursable expenditure or cost; such inclusion is a substantive and prospective change. For the period April 2012 to January 2015, reimbursed expenses could not be added to taxable value in the absence of such statutory authority.

(f) It was found that the "lease rent" component was not for construction service but represented recovery of an obligation which, in substance, would have fallen on the ultimate sub-lessee (flat buyer) under the long-term lease, and which the appellant had paid upfront to the authority. Therefore the sums collected by the appellant from buyers under the head "One Time Lease Rent" were in the nature of reimbursement of lease rent, not consideration for the construction of complex service.

Conclusions (Majority)

(g) The "lease rent" amounts collected from flat buyers, being reimbursable payments toward lease rent already paid to the development authority and not part of consideration for construction service, cannot be included in the taxable value of "construction of complex" service under Section 67 for the period April 2012-January 2015.

(h) The demand of service tax on such "lease rent" amounts, together with interest and penalty, is unsustainable and is set aside; the appeal is allowed on merits with consequential relief.

Interpretation and reasoning (Dissent - Member Technical)

(i) The dissenting Member accepted that the appellant is a builder providing "Construction of Residential and Commercial Complex" services and that "lease rent" is one of the heads under which amounts are collected from flat buyers.

(j) Referring to Section 67 and Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and the concept of "pure agent", the dissent held that the flat buyers have no privity of contract or direct liability under the lease agreement with the authority; all obligations, including lease rent, were contractually between the authority and the appellant. Therefore, payments made by the appellant to procure leasehold land are costs of the project, akin to other inputs/input services, and not reimbursable expenses incurred as a pure agent.

(k) Applying the definition of "pure agent" in Explanation 1 to Rule 5(2), the dissent concluded that the appellant neither acted under a contractual mandate to incur costs "as pure agent", nor refrained from holding title or using the goods/services so procured, and therefore did not satisfy any of the pure agent conditions.

(l) The dissent read Intercontinental Consultants as striking down Rule 5 insofar as it required addition of "reimbursable expenses" to taxable value, but not as mandating exclusion of all costs incurred in the course of providing taxable services from the value; costs which form part of the service provider's own input costs remain part of the consideration for the taxable service.

(m) On this reasoning, the dissent held that lease rent paid by the appellant to the authority for procuring land is a part of the cost structure of the construction service, and amounts recovered from buyers under the head "lease rent" are part of the consideration for the construction of flats and therefore taxable.

Conclusions (Dissent)

(n) The amounts collected from buyers as "lease rent" are not reimbursable expenses but part of the gross amount charged for construction of complex service, and are includible in taxable value under Section 67; the demand should be upheld and the appeal dismissed.

Issue (2): Characterisation of "lease rent" as reimbursable expense / pure agent recovery

Legal framework discussed

(a) Section 66 and Section 67 of the Finance Act, 1994 (levy and valuation of service tax); pre-2015 language of Section 67 regarding "gross amount charged" and "consideration".

(b) Explanation inserted in Section 67 by Finance Act, 2015 (w.e.f. 14.05.2015), expanding "consideration" to include "reimbursable expenditure or cost incurred by the service provider".

(c) Rule 5 of the Service Tax (Determination of Value) Rules, 2006, including Explanation 1 defining "pure agent".

(d) Judicial pronouncements discussed: Intercontinental Consultants & Technocrats; Bhayana Builders; KDP Infrastructure; Supertech Realtors; and the statutory interpretation principles in the cited Supreme Court decision on retrospectivity (Vatika Township) as quoted in Intercontinental.

Interpretation and reasoning (Majority - on reimbursable expense)

(b) The majority first undertook a factual/evidentiary inquiry and held that the lease deed, payment challan, ledger and tripartite sub-lease deeds form a complete chain proving that: (i) the appellant paid "one time lease rent" to the authority; (ii) sub-lessees, by virtue of this, had no further lease rent liability toward the authority for the residual lease period; and (iii) the impugned amounts collected from customers exactly correspond to their proportionate share of such lease rent.

(c) On these facts, the majority held that the amounts received under the head "One Time Lease Rent" were recoveries of an identifiable statutory/contractual levy already discharged by the appellant to the authority, and not amounts charged as quid pro quo for construction services.

(d) Applying Intercontinental and Bhayana Builders, the majority reasoned that these lease rent recoveries are classic reimbursable expenses: they lack nexus with the taxable construction service as "consideration" and therefore fall outside "value of such service" under unamended Section 67.

(e) The majority further noted that Parliament's 2015 amendment, expressly bringing reimbursable expenses within "consideration", is a substantive and prospective change; hence, for the period in dispute, such reimbursement cannot be included in taxable value.

(f) In view of this finding, the majority expressly found it unnecessary to decide whether the appellant also satisfied the technical criteria of a "pure agent" under Rule 5(2); the exclusion flows directly from the statute as interpreted in Intercontinental and Bhayana Builders.

Conclusions (Majority)

(g) On the proved facts and in the pre-14.05.2015 legal regime, the "lease rent" amounts collected from flat buyers constitute reimbursable expenses in respect of lease rent already paid to the authority and are not consideration for construction services; they must be excluded from the gross amount charged while determining taxable value under Section 67.

(h) It is not necessary to rest the exclusion on "pure agent" status; exclusion follows from the statutory concept of "consideration" and the binding interpretation in Intercontinental and Bhayana Builders.

Interpretation and reasoning (Dissent - on reimbursable expense / pure agent)

(i) The dissent emphasized that the buyers are not parties to the original lease with the authority and have no direct liability to pay lease rent under that lease. The appellant alone is contractually obliged to pay lease rent to procure the land on which it constructs flats; therefore, this payment is part of its own cost of providing construction services.

(j) Since the lease rent is not incurred "on behalf of" identified flat buyers under a pure agency arrangement, but to secure land as an input for its own business, the dissent held that the conditions in Explanation 1 to Rule 5(2) (contractual agreement to act as pure agent, non-use and non-holding of title, recovery of only actual amounts, etc.) are not met.

(k) Accordingly, the lease rent paid to the authority is not a reimbursable expense in the legal sense, but a cost component of the taxable construction service, and recoveries under that head from buyers are part of the consideration for the service.

(l) The dissent read Intercontinental as invalidating Rule 5 only to the extent it required adding genuine reimbursable expenses; it does not, in the dissent's view, authorize exclusion from taxable value of the provider's own costs that form part of the agreed price for the taxable service.

Conclusions (Dissent)

(m) The impugned "lease rent" recoveries cannot be treated as reimbursable expenses or pure agent recoveries; they are part of the consideration for construction services and remain includible in taxable value.

Issue (3): Invocation of extended period of limitation under proviso to Section 73(1)

Interpretation and reasoning (Member Technical / Commissioner (Appeals) view)

(a) The show cause notice recorded that the appellant did not disclose the impugned transactions in ST-3 returns, nor did it show the amounts under any head such as "amounts recovered as pure agent"; the irregularity surfaced only during audit. On this basis, it alleged suppression of material facts with intent to evade payment of service tax, and invoked the extended period.

(b) The appellate authority noted that mere filing of ST-3 returns or the fact of prior audits does not grant immunity from statutory obligations. Certain facts can be unearthed only through audit or preventive checks, and omission to disclose material particulars affecting valuation can justify extended limitation.

(c) The dissenting Member endorsed this reasoning, holding that non-declaration of these "lease rent" recoveries in returns amounted to suppression of the gross value of services for determination of taxable value, thereby justifying invocation of the extended period.

Conclusions on limitation

(d) The Division Bench majority allowed the appeal on merits and expressly declined to delve into limitation, treating it as unnecessary once the demand was held unsustainable on valuation grounds.

(e) The dissent would uphold invocation of the extended period on the basis of suppression/non-disclosure of the impugned amounts in statutory returns.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the activities undertaken for construction of an electricity substation, including civil works and erection, commissioning and installation, were liable to service tax under "Erection, Commissioning and Installation service" or were exempt as services relating to transmission and distribution of electricity.

(2) Whether "hamali charges" collected in the course of sale and delivery of cattle feed were taxable under "Cargo Handling Service" or formed part of Goods Transport Agency (GTA) service and hence not independently taxable as cargo handling.

(3) Whether the appellant was liable to pay service tax under GTA services for local transportation, in view of the reverse charge mechanism and the exemption under Notification No. 34/2004-ST dated 3.12.2004.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Taxability of construction and erection, commissioning and installation services for electricity substation

Legal framework (as discussed):

- Section 66 of the Finance Act, 1994 (charging provision for service tax).

- Notification No. 45/2010-ST dated 20.07.2010 issued under section 11C of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994, granting retrospective exemption to "all taxable services relating to transmission and distribution of electricity" for specified past periods.

Interpretation and reasoning:

- The appellant executed a project for construction of a heavy substation for an electricity distribution utility under three separate work orders dated 19.06.2004: (a) a turnkey "supply" contract for supply and pre-commission testing of equipment and its transportation to the utility's stores; (b) a turnkey "civil work" contract covering design, approval of drawings, supply of materials and manpower, and completion of the civil structures including finishing and making them ready for use; and (c) a turnkey "erection, testing and commissioning" contract for transporting equipment from the utility's stores to site, installing, coordinating testing and calibration, and commissioning the substation.

- The Court accepted that the overall activity related to setting up a substation and thus to transmission and distribution of electricity.

- Relying on Notification No. 45/2010-ST, and on Tribunal decisions interpreting it (including those holding that erection, commissioning and installation of transmission towers and meters, and associated technical services, fall within "services relating to transmission and distribution of electricity"), the Court held that the services rendered for construction and commissioning of the substation were covered by the retrospective exemption.

- The Court noted that the appellant had bifurcated the composite arrangement into three contracts and had already paid an amount of service tax on the erection and commissioning portion, but considered that in view of the retrospective exemption under Notification No. 45/2010-ST, any further service tax demand on such activities was unsustainable.

Conclusions:

- Activities of construction of the substation, including civil works and erection, testing and commissioning, are "taxable services relating to transmission and distribution of electricity" within the scope of Notification No. 45/2010-ST.

- By virtue of the retrospective exemption, the demand of service tax under "Erection, Commissioning and Installation service" for the substation project is unsustainable and is set aside.

Issue (2): Classification and taxability of hamali charges as Cargo Handling Service

Legal framework (as discussed):

- Section 65(23) and section 65(105)(zr) of the Finance Act, 1994 defining and charging "Cargo Handling Service".

- CBEC Circular No. 104/7/2008-ST dated 06.08.2008 clarifying that ancillary activities like loading, unloading, packing/unpacking, etc., when provided in the course of transportation by road, form part of GTA service and are not independent taxable services.

Interpretation and reasoning:

- The appellant was engaged in the sale of cattle feed, and in the course of transportation and delivery of such goods, had collected hamali (loading/unloading) charges from customers as part of the sale transaction.

- The Court accepted the appellant's contention that there was no independent contract or activity for cargo handling as a service; the hamali charges arose only incidentally in the course of transportation and sale of goods.

- Applying CBEC Circular No. 104/7/2008-ST, the Court treated such hamali or loading/unloading charges as ancillary to transportation by road and therefore forming part of GTA service, not a separate taxable "Cargo Handling Service".

Conclusions:

- Hamali charges collected in connection with delivery of cattle feed are ancillary to transportation by road and form part of GTA service.

- Such charges cannot be independently classified and taxed under "Cargo Handling Service".

- The demand of service tax under "Cargo Handling Service" is contrary to the law as clarified by CBEC and is set aside.

Issue (3): Liability under GTA services and applicability of Notification No. 34/2004-ST

Legal framework (as discussed):

- Rule 2(1)(d)(v) of the Service Tax Rules, 1994, placing liability to pay service tax on the person who pays or is liable to pay freight under reverse charge for GTA services.

- Notification No. 34/2004-ST dated 03.12.2004 granting exemption where the gross amount charged on a consignment transported in a goods carriage does not exceed Rs. 750 per trip.

Interpretation and reasoning:

- The appellant contended that in cases where buyers of goods directly paid freight to transporters, such buyers, and not the appellant, were liable to pay service tax under reverse charge.

- Where the appellant merely collected freight charges from buyers and passed them on to transporters, such freight per trip was stated to be less than Rs. 750, attracting the exemption under Notification No. 34/2004-ST.

- The Court noted that the appellant had consistently taken the position that the transportation charges in question qualified for the small-amount exemption and that the statutory reverse charge mechanism fastened the liability, where applicable, on the freight payer, not on the appellant in all cases.

- Accepting these submissions, the Court held that the demand of service tax under GTA services on the appellant was not sustainable.

Conclusions:

- Where freight is paid by the buyers directly, they, and not the appellant, are liable under the reverse charge provisions of Rule 2(1)(d)(v).

- Where the amount charged for local transportation per trip does not exceed Rs. 750, the service is exempt under Notification No. 34/2004-ST.

- The demand of service tax against the appellant under GTA services is unsustainable and is set aside.

Overall disposition

- The Court held that the demands of service tax under Erection, Commissioning and Installation service, Cargo Handling Service, and GTA service are unsustainable in law and quashed the entire demand with consequential relief, rendering penalties and interest unsupportable as well.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the extended period of limitation was validly invoked for demanding service tax on hiring of earthmoving equipment.

(2) Whether the demand of service tax under the taxable category of "Supply of Tangible Goods Service" on hiring of JCBs / tippers, based primarily on bank statements / income-tax data and without establishing "transfer of right to use" or effective control, was legally sustainable, including the consequential penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Validity of invocation of extended period of limitation

Legal framework (as discussed)

The Tribunal examined the proviso relating to the extended period of limitation under the Finance Act, 1994, in light of the principles laid down by the Supreme Court on "suppression" and "mala fides", particularly that the burden to prove mala fide conduct and ingredients for invoking the extended period lies on the Revenue and that specific averments are required in the show cause notice.

Interpretation and reasoning

(a) The period of demand was from May 2008 to June 2011, while the show cause notice was issued on 04.10.2013; the demand thus travelled beyond the normal period and rested entirely on the extended period.

(b) The only allegation in the show cause notice was that the appellant had not obtained service tax registration and had not disclosed receipts/income by filing ST-3 returns or otherwise, which was characterized as "suppression of facts".

(c) The Court, relying on the Supreme Court's reasoning, held that mere non-registration and non-filing of returns, without more, does not automatically establish mala fide intent or willful suppression so as to justify the extended period; the burden to prove mala fides rests on the Department.

(d) It was noted that the show cause notice did not contain specific, concrete averments establishing willful default or deliberate suppression; nor was any positive material brought on record to demonstrate a conscious intention to evade tax.

Conclusions

(e) The conditions for invoking the extended period of limitation were not satisfied.

(f) The demand raised for the period May 2008 to June 2011 under the extended period was held to be barred by limitation.

Issue (2): Sustainability of demand under "Supply of Tangible Goods Service"

Legal framework (as discussed)

(a) Prior to 01.07.2012, "Supply of Tangible Goods Service" under Section 65(105)(zzzzj) covered supply of tangible goods without transfer of right of possession and effective control to the recipient; if there was a transfer of right to use, the transaction would not fall under this service.

(b) With effect from 01.07.2012, transfer of goods by way of hiring, leasing, licensing or similar arrangements, without transfer of right to use, was declared as a "deemed service".

(c) Tribunal precedents were discussed, holding that: (i) service tax liability on supply of tangible goods depends on whether right to use and effective control are retained or transferred; and (ii) demands cannot be sustained merely on the basis of Income Tax Returns / Form 26AS / bank data, without corroborative evidence linking receipts to taxable services.

Interpretation and reasoning

(d) The lower authorities had mainly relied on bank statements, receipts and certain responses from service recipients, but had not verified or analyzed the factual requirements of "supply of tangible goods", in particular whether there was a transfer of right to use or retention of effective control by the appellant.

(e) The material on record, including statements that the recipients had engaged contractors who might have rented equipment and that payments may have been made directly to such contractors, at best indicated "lending" of equipment; however, this did not concretely establish that the appellant retained control or that the arrangement fell squarely within "supply of tangible goods service".

(f) The Court emphasized that what is legally relevant is the "transfer of right to use"; mere reference to hiring or lending, without ascertaining the terms of the understanding (written or verbal) between the parties, cannot justify classification under "Supply of Tangible Goods Service".

(g) The Tribunal further relied on decisions holding that demands based solely on Income Tax/AS-26 data or on unsegregated bank credits, without corroborative evidence to show that such receipts are consideration for taxable services, are unsustainable. In the present case, there was no proper segregation of bank credits between (i) sale of sand/bricks, (ii) LIC maturity receipts, (iii) cash deposits from sale of bricks, and (iv) hire charges for JCBs; nor was there independent verification that the amounts treated as taxable were indeed consideration for the specified taxable service.

(h) The Tribunal also took note that in similar fact situations concerning hiring of JCBs, it had been held that no service tax was leviable under "Supply of Tangible Goods Service" when the essential elements of the taxable service (particularly on control/right to use) were not established.

Conclusions

(i) The Department failed to establish, on facts, that the appellant's transactions in hiring JCBs and tippers satisfied the legal ingredients of "Supply of Tangible Goods Service", particularly in relation to transfer/retention of right to use and effective control.

(j) The demand could not be sustained when founded primarily on bank statements / income-tax data without proper segregation or corroborative evidence showing that the receipts constituted consideration for taxable services.

(k) On merits, the demand of service tax under "Supply of Tangible Goods Service" was held to be unsustainable.

(l) As the demand failed both on merits and on limitation, the impugned order was set aside in toto and the appeal was allowed, with all consequential relief, including setting aside of the associated penalties.

Issues: Whether the demand of service tax raised on the gross amounts received by the respondent from flat buyers (including amounts passed on to the landowner) by treating the same as consideration for project management and co-ordination services is sustainable.

Analysis: The dispute concerns characterization of receipts in a joint development/contractual arrangement and whether service tax can be imposed on the gross billed amount including amounts attributable to land/transferable development rights. Relevant legal framework includes the definition and charging provisions of taxable service under the Finance Act, 1994 (including Sections 65B(44), 66B and Section 67 on taxable value), the abatement/exemption conditions in Notification No.26/2012-S.T., and the treatment of transferrable development rights as immovable property under Section 3(26) of the General Clauses Act, 1897. Precedents require segregation of service element from transfer of property in works contracts and preclude levy of service tax on the non-service (immovable property) element; where the service provider has accounted for and discharged service tax on the amount retained as consideration for construction services and fulfilled conditions of the abatement notification (including non-availment of CENVAT credit and accounting of gross receipts), further demand on the same gross receipts would amount to double taxation and is unsustainable. The factual finding that the respondent retained the portion attributable to construction services, paid service tax on that retained amount, did not avail CENVAT, and accounted for receipts aligns with the statutory scheme and precedents cited.

Conclusion: Demand of service tax on the gross amounts including sums passed on to the landowner is not sustainable; the impugned demand is rejected and the appeal by the Revenue is dismissed in favour of the respondent.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether amounts paid as excess service tax or during investigation, which are subsequently held as not payable, constitute "service tax" attracting Section 11B of the Central Excise Act, 1944.

1.2 If Section 11B is inapplicable, whether interest on refund of such amounts is governed by Section 11BB and the related notification fixing interest at 6% per annum, or whether interest at 12% per annum is payable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Section 11B to amounts paid by mistake / during investigation

Interpretation and reasoning

2.1 The Court noted as an admitted fact that, in both appeals, the assessee either paid excess service tax or made payments during the course of investigation which "could not form the shape of Service Tax" and were ultimately found not payable.

2.2 The Court relied on prior Tribunal decisions, particularly in Meenu Builders, which in turn relied upon decisions including KVR Construction and Tripura Cricket Association, as upheld by the Supreme Court, to hold that where tax is paid under a mistake of law and is not legally payable at all, such payment is to be treated as "revenue deposit" and not as duty/service tax.

2.3 Those decisions emphasized that Section 11B applies only to refund of "duty of excise" (or corresponding service tax legally leviable and collected) and not to amounts paid without authority of law or under mistaken notion when the department had no authority to demand or retain such amounts.

2.4 On this reasoning, the Court held that the payments in question did not partake the character of "service tax payable" in law and fell outside the purview of Section 11B.

Conclusions

2.5 Amounts paid by the appellant as excess tax or during investigation, which were later found not legally payable, are to be treated as revenue deposits and not as service tax, and therefore the provisions of Section 11B of the Central Excise Act, 1944 are inapplicable.

Issue 2 - Entitlement and rate of interest on refunds when Section 11B/11BB are inapplicable

Legal framework (as discussed)

2.6 The Revenue contended that interest at 6% had rightly been paid under Section 11BB of the Central Excise Act, 1944. The appellant claimed entitlement to interest at 12% per annum on the footing that Section 11B (and consequently Section 11BB and Notification No. 67/2003-CE (NT)) did not apply.

Interpretation and reasoning

2.7 Following Meenu Builders and other Tribunal decisions (including Gajendra Singh Sankhla and Indus Towers Limited) which dealt with similar situations of tax paid by mistake of law, the Court noted that once Section 11B is held inapplicable, the machinery of Section 11BB for determining interest rate and the linked notification prescribing 6% interest are also inapplicable.

2.8 In Meenu Builders and related decisions, after holding that such payments were revenue deposits and not tax, the Tribunal had granted interest at 12% per annum on delayed refunds, treating Section 11B/11BB as inapplicable and applying a higher compensatory rate.

2.9 The Court expressly held that the same reasoning and result applied to the present appeals because, as already found, the amounts refunded could not form part of service tax and were outside the scope of Section 11B and 11BB.

Conclusions

2.10 As the amounts refunded are not covered by Section 11B, the interest provision under Section 11BB and Notification No. 67/2003-CE (NT) do not govern the case, and interest is not restricted to 6% per annum.

2.11 The appellant is entitled to interest at 12% per annum on the delayed refund of the amounts paid in excess or during investigation, which were subsequently held not payable as service tax.

2.12 The appeals are allowed by directing payment of interest at 12% per annum on the refunded amounts, in modification of the impugned orders that had granted interest only at 6% per annum.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether any interference was warranted with the confirmed demand of duty, including the grant of CENVAT credit and cum-duty benefit, as upheld by the first appellate authority.

1.2 Whether the penalty imposed under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC(1) of the Central Excise Act, 1944 required reduction in the facts and circumstances of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Interference with duty demand and related benefits (CENVAT credit and cum-duty price)

Interpretation and reasoning

2.1 The Tribunal noted that all contentions now raised had already been urged and dealt with by the lower adjudicating authority and the first appellate authority, and that those authorities had examined the issues in detail.

2.2 It was specifically observed that there was no dispute as to the quantification of duty since the lower authorities had already accepted the appellant's claims regarding eligibility to CENVAT credit and benefit of cum-duty pricing.

2.3 In the present appeal, the Tribunal found that the appellant's effective grievance was confined to the quantum of penalty, and not to the duty demand or the manner of its computation.

Conclusions

2.4 The Tribunal declined to interfere with the duty demand of Rs.11,54,788/- as confirmed by the lower authorities, along with the grant of CENVAT credit and cum-duty benefit already extended.

Issue 2: Justification and quantum of penalty under Rule 25 read with Section 11AC(1)

Interpretation and reasoning

2.5 The Tribunal recorded that the only surviving plea of the appellant pertained to the penalty, based on the assertion that surrender of central excise registration and subsequent non-payment of duty arose from a bona fide mistake.

2.6 It was taken into account that the surrender of registration had been accepted by the Departmental officers, which was projected as indicating a mutual mistake or oversight on both sides.

2.7 While not upsetting the finding of liability to penalty, the Tribunal considered that, in the totality of circumstances, the ends of justice would be met by reducing the quantum rather than by complete waiver.

Conclusions

2.8 The Tribunal upheld the imposition of penalty in principle under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC(1) of the Central Excise Act, 1944, but reduced the penalty from Rs.1,00,000/- to Rs.30,000/-.

2.9 The appeal was thus partly allowed to the limited extent of reduction of penalty, with consequential relief, if any, in accordance with law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessable value of goods cleared from the factory to depots could be determined on the basis of depot Price Lists under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, particularly rule 7 or rule 11, read with section 4(1) of the Central Excise Act, 1944.

1.2 Whether any net short payment of duty existed when the appellant had, on its own, paid differential duty based on actual depot sale prices and disclosed such payments in ER-1 returns.

1.3 Whether the conditions for invocation of the extended period of limitation under section 11A of the Central Excise Act were satisfied, including the computation of the five-year period and the effect of excess duty payments.

1.4 Whether penalties imposed on the appellant and on the concerned officers were legally sustainable in view of the previous remand order and the facts on record.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Basis and method of valuation for clearances to depots

Legal framework

2.1 The judgment reproduces and considers rule 7 and rule 11 of the 2000 Valuation Rules and section 4(1) of the Central Excise Act. Rule 7 mandates valuation based on "normal transaction value" of goods sold from the depot at or about the same time. Rule 11 is a residual rule permitting determination of value by "reasonable means" consistent with the rules and section 4(1) when value cannot be determined under the preceding rules.

Interpretation and reasoning

2.2 The Commissioner proceeded to confirm the demand using rule 11, treating the depot Price Lists as reflecting the "best price" for assessment, even though the show cause notices alleged liability under rule 7.

2.3 The Court notes that the appellant's pricing at depots was dynamic; actual transaction prices at depots could be higher or lower than the indicative Price List, and whenever depot sale prices exceeded the assessable value adopted at factory clearance, the appellant paid differential duty and disclosed it in monthly ER-1 returns.

2.4 The Court observes that rule 7 is aimed at using the "normal transaction value" at the depot at or about the time of removal where actual sale value at factory is not available. The appellant's practice of tracking actual depot sale prices and paying differential duty on that basis was considered closer to the methodology contemplated by rule 7 than valuation based purely on Price List figures.

2.5 The Court finds that the Price Lists were only indicative and did not uniformly match actual transaction values; goods were sometimes sold below and sometimes above the Price List rates. Therefore, Price List figures could not represent the "transaction value" or "normal transaction value" required for valuation.

2.6 It is held that the Commissioner's reliance on rule 11, using Price Lists as the basis of valuation, was misplaced because (i) valuation could be aligned with rule 7 through actual transaction values, and (ii) the Price List was neither conclusive nor representative of actual transaction values.

Conclusions

2.7 Valuation of depot clearances could not lawfully be based on the depot Price Lists under either rule 7 or rule 11 of the 2000 Valuation Rules.

2.8 The methodology adopted in the impugned order for determining assessable value on the basis of Price Lists under rule 11 was contrary to the statutory framework and unsustainable.

Issue 2 - Existence of duty short payment in light of self-paid differential duty

Interpretation and reasoning

2.9 The Court notes from the Commissioner's own chart that, for the period September 2009 to December 2013, the differential duty "payable" as per the show cause notice calculations was Rs. 13,02,67,932/-, whereas the appellant had, on its own, already paid Rs. 16,65,35,816/-, resulting in an excess payment of Rs. 3,62,67,884/-.

2.10 For the subsequent period January 2014 to June 2017, supported by a Chartered Accountant's certificate, the appellant's working showed that against a differential duty "payable" of Rs. 5,98,21,607/-, the appellant had actually paid Rs. 6,80,62,960/-, again indicating excess payment.

2.11 The Court treats these figures, together with the regular disclosure of differential duty in ER-1 returns, as demonstrating that, on an overall basis, there was no net short payment of duty and, in fact, there was excess payment for the periods in dispute.

Conclusions

2.12 On the factual quantification as reflected in the record and acknowledged in the earlier remand order, there was no sustainable basis to hold that duty had been short paid; rather, the appellant had paid duty in excess of the amounts worked out in the show cause notices.

2.13 The demand confirmed on the footing of undervaluation, ignoring the excess payments, is therefore unsustainable.

Issue 3 - Invocation of extended period of limitation and demand beyond five years

Legal framework

2.14 The Court applies section 11A of the Central Excise Act, including Explanation 1(b) defining "relevant date" for computation of limitation, and the settled requirement that extended limitation can be invoked only on proof of suppression, mis-declaration, etc., with intent to evade duty.

Interpretation and reasoning

2.15 The show cause notice dated 08.10.2014 invoked the extended period on the allegation that the appellant did not disclose its valuation pattern and Price Lists and "wilfully evaded" duty by undervaluation.

2.16 The Court finds that during the relevant period the appellant regularly filed ER-1 returns and, crucially, disclosed and paid substantial differential duty on its own, which exceeded the alleged differential duty payable. In these circumstances, the Court holds that it cannot be inferred that there was any intention to evade payment of duty.

2.17 The Court emphasizes that mere non-disclosure or suppression is not sufficient for invoking the extended period; there must be a positive act indicating intent to evade duty, and the department must both allege and substantiate such intent with evidence. On the facts, such intent is not established.

2.18 The Court rejects the department's contention that the five-year period should be computed from the date of "knowledge" (19.12.2013, the date of search). It holds that this position is contrary to the statutory definition of "relevant date" in Explanation 1(b) to section 11A.

2.19 Specifically, the demand for the period June 2009 to August 2009 is found to be beyond even the extended five-year period when computed in accordance with section 11A and cannot be saved by resort to the "date of knowledge" theory.

Conclusions

2.20 The conditions precedent for invoking the extended period of limitation under section 11A are not satisfied; the extended period could not validly be invoked in the facts of the case.

2.21 The portion of demand covering June 2009 to August 2009 is, in any event, time-barred as being beyond five years from the statutorily prescribed "relevant date."

Issue 4 - Legality of penalties on the appellant and its officers

Legal framework

2.22 The impugned order imposed penalties on the appellant under section 11AC of the Central Excise Act and on two officers in their individual capacities.

Interpretation and reasoning

2.23 In the earlier remand order, the Tribunal had recorded a clear finding that "the case does not call for a imposition of penalties" and remanded only for re-quantification and reconsideration of extended limitation. The Court notes that this finding was not challenged by the department and hence attained finality.

2.24 In the present judgment, the Court reiterates that, given the appellant's self-payment of differential duty and full disclosure in ER-1 returns, the factual matrix does not exhibit the requisite culpable mental state to justify penalties.

2.25 Consequently, the imposition of penalties on the appellant, as well as on the concerned officers, is held to be contrary to the binding earlier finding of the Tribunal and unsustainable on merits.

Conclusions

2.26 Penalties imposed under section 11AC on the appellant cannot be sustained and are liable to be set aside.

2.27 Penalties imposed on the individual officers are equally unsustainable and are set aside.

Overall disposition

2.28 In view of the incorrect valuation basis, absence of any net duty short payment, invalid invocation of the extended period, part of the demand being time-barred, and the impermissible imposition of penalties, the entire impugned order is set aside and all appeals are allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether CENVAT credit on common input services was liable to be reversed under rule 6 of the CENVAT Credit Rules, 2004 for the period up to February 2011, in respect of 'idli stand' manufactured by contractors and not liable to central excise duty.

1.2 For the period after February 2011, whether the denial of concessional rate of duty and fastening of liability under rule 6(3) of the CENVAT Credit Rules, 2004 was sustainable when the appellant had opted to discharge liability under rule 6(3), and whether the adjudicating authority could impose a mode of reversal without considering such option and submissions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of rule 6 of the CENVAT Credit Rules, 2004 to the period up to February 2011

Legal framework (as discussed)

2.1 The Court examined rule 2 and rule 6 of the CENVAT Credit Rules, 2004, in the context of the concepts of "input" and "exempted goods", and the status of a "job-worker" vis-à-vis the "principal manufacturer", in a situation where the goods in question were not liable to central excise duty during the relevant period.

Interpretation and reasoning

2.2 It was common ground that, up to February 2011, 'idli stand' was not liable to duties of central excise. Raw materials were supplied by the appellant to the contractor, but manufacturing was in fact carried out by the contractor, not by the appellant.

2.3 The Court held that for a contractor to qualify as a "job-worker", it is essential that the contractual arrangement contemplates the principal manufacturer assuming responsibility for discharge of duty liability on the goods produced by the job-worker.

2.4 In circumstances where there is no leviability of central excise duty on the product, the concept of "job-worker" becomes superfluous and, by default, the actual producer is to be treated as the manufacturer. Consequently, exempted goods cannot be treated as being cleared on job-work basis by the contractor on behalf of the appellant.

2.5 On this reasoning, the Court held that the exempted goods cleared by the contractor to the appellant could not be treated as liable to central excise duty and hence could not be deemed as "input" procured for clearance of exempted goods by the appellant in terms of rule 2 of the CENVAT Credit Rules, 2004.

2.6 Therefore, for the period up to February 2011, 'idli stand' were not "exempted goods" cleared by the appellant as principal manufacturer under rule 6, and the appellant was not subject to the restrictions on retention of credit of common input services under rule 6 of the CENVAT Credit Rules, 2004.

Conclusions

2.7 The invocation of rule 6 of the CENVAT Credit Rules, 2004, and the consequent demand of reversal of CENVAT credit of input services for the period up to February 2011, was unsustainable.

2.8 The recovery ordered for the period up to February 2011 was set aside absolutely and entirely.

Issue 2 - Liability and mode of reversal under rule 6(3) and eligibility for concessional rate after February 2011

Legal framework (as discussed)

2.9 The Court considered rule 6(3) of the CENVAT Credit Rules, 2004, notifications no. 2/2011-CE dated 1 March 2011 and 19/2012-CE dated 17 March 2012 (granting concessional rate of 1%/2% subject to non-availment of credit on inputs and input services), and rule 15 of the CENVAT Credit Rules, 2004 regarding penalties.

2.10 The Court referred to the decision of the Supreme Court in "Precot Meridian Ltd" holding that the "option of mode of reversal" under rule 6 lies with the assessee, and to Tribunal and High Court decisions (including "Tiara Advertising" and "Agrawal Metal Works Pvt Ltd") which reiterated that the revenue authorities cannot impose a particular option under rule 6(3) upon the assessee.

Interpretation and reasoning

2.11 For the period after February 2011, it was not disputed that the appellant was discharging central excise duty on 'idli stand' and that the contractor was, in that period, a job-worker of the appellant. Goods manufactured by the contractor were brought to the appellant's factory and cleared on payment of duty.

2.12 The dispute for this period concerned alleged non-compliance with the conditions for availing the concessional rate of 1%/2% central excise duty, on the ground that the appellant had not reversed CENVAT credit on common input services and thus did not meet the requirement of non-availment of credit.

2.13 The appellant had, however, expressly opted to discharge liability in terms of rule 6(3) of the CENVAT Credit Rules, 2004 and claimed the corresponding benefit of the above notifications. It was specifically contended that this option and the fact of discharge of such liability were not considered by the adjudicating authority.

2.14 The Court held that, in light of the decision in "Precot Meridian Ltd" and the subsequent jurisprudence, the option regarding the manner of reversal under rule 6(3) must be exercised by the assessee, and the authorities cannot unilaterally select an option or disregard an option already exercised by the assessee.

2.15 The Court found that fastening of liability for the period after February 2011 without examining and considering the appellant's submissions regarding their exercise of the option under rule 6(3) vitiated the impugned order for that period.

Conclusions

2.16 For the period after February 2011, the impugned order, to the extent it confirmed demand and denied the concessional rate without considering the appellant's chosen mode of reversal under rule 6(3), was held to be flawed.

2.17 The matter for the subsequent period was remitted to the original authority for fresh adjudication, with a direction to recompute the liability and re-determine all consequential detriments in accordance with the appellant's submissions, settled law, and rule 15 of the CENVAT Credit Rules, 2004.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether availment of Cenvat credit of additional duty of customs and special additional duty of customs on imported capital goods was barred by the exclusion contained in Rule 9(1)(b) of the Cenvat Credit Rules, 2004.

1.2 Whether the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 was validly invoked for recovery of the alleged inadmissible Cenvat credit and consequential interest and penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Bar on Cenvat credit under Rule 9(1)(b) of the Cenvat Credit Rules, 2004

Legal framework

2.1 The Court reproduced Rule 9(1)(b) of the Cenvat Credit Rules, 2004, which permits taking of Cenvat credit on the basis of a supplementary invoice or similar document evidencing payment of additional excise duty or additional duty of customs, but specifically excludes cases where the additional duty became recoverable on account of non-levy or short-levy by reason of fraud, collusion, wilful mis-statement, suppression of facts, or contravention of provisions of the Excise Act or Customs Act or rules thereunder with intent to evade payment of duty.

Interpretation and reasoning

2.2 The Court noted that the capital goods were imported under the EPCG scheme with exemption benefit and that customs duty was paid subsequently upon non-fulfilment of export obligation. The department's contention was that, as duty became payable only after detection and issuance of a customs show cause notice and penalty under the Customs Act, the exclusion under Rule 9(1)(b) applied, thereby barring Cenvat credit.

2.3 The Court held that, for the exclusion under Rule 9(1)(b) to apply, the department must establish that the additional duty became recoverable due to fraud, collusion, wilful mis-statement, suppression of facts, or contravention of statutory provisions with intent to evade payment of duty. Mere failure to fulfil EPCG obligations or delayed payment of duty does not, by itself, satisfy these requirements.

2.4 The Court found that the appellant had separately reflected the Cenvat credit on imported capital goods in the Cenvat credit table of ER-1 returns filed with the department. As these facts were on record and it was not alleged that the ER-1 disclosures were false, the department could not claim that the appellant had not informed it about availment of such credit or that there was suppression or mis-statement.

2.5 The Court observed that the burden lies on the department to prove malafide intention to evade duty, and that no material had been produced to show fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade duty in relation to the customs duty on the capital goods.

Conclusions

2.6 The Court concluded that the conditions for invoking the exclusion in Rule 9(1)(b) were not satisfied. Consequently, the availment of Cenvat credit of additional duty of customs and special additional duty of customs on the imported capital goods was not barred under Rule 9(1)(b) of the Cenvat Credit Rules, 2004.

Issue 2 - Validity of extended period under Section 11A(4) and imposition of penalty

Legal framework

2.7 The Court reproduced Section 11A(4) of the Central Excise Act, 1944, which permits invocation of an extended limitation period of five years where non-levy, non-payment, short-levy, short-payment, or erroneous refund of duty is "by reason of" fraud, collusion, wilful mis-statement, suppression of facts, or contravention of statutory provisions with intent to evade payment of duty, and authorises recovery of duty with interest and penalty equivalent to the duty.

2.8 The demand and penalty in the impugned orders were founded on Section 11A(4) read with Rule 14 and Rule 15(2) of the Cenvat Credit Rules, 2004 and Section 11AC of the Central Excise Act.

Interpretation and reasoning

2.9 The Court held that the same elements (fraud, collusion, wilful mis-statement, suppression, or contravention with intent to evade duty) underpin both the exclusion in Rule 9(1)(b) and the extended period under Section 11A(4). As the department had not established any such element for purposes of Rule 9(1)(b), it likewise failed to justify invocation of Section 11A(4).

2.10 The Court emphasised that the appellant had disclosed availment of Cenvat credit in ER-1 returns, and that there was no allegation that these disclosures were incorrect. In such a situation, there could be no ground to allege wilful mis-statement or suppression of facts so as to attract Section 11A(4).

2.11 The Court relied on the decision of the jurisdictional High Court in Dynamic Industries Ltd., wherein it was held that when Cenvat credit is duly reflected in ER-1 returns and there is no material to indicate suppression, the extended period of limitation under the proviso to Section 11A (and corresponding provisions) is not available to the Revenue. The Court found the facts of the present case to be identical in principle.

2.12 On these findings, the Court held that there was no basis to allege that duty was not paid or was short-paid by reason of fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade payment of duty. Accordingly, Section 11A(4) could not be invoked.

Conclusions

2.13 The Court concluded that the extended period of limitation under Section 11A(4) was not available to the department. The entire demand for the period from November 2014 to June 2017 was held to be barred by limitation.

2.14 As the substantive demand failed on limitation and the requisite mens rea was not proved, the consequential imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was also unsustainable.

2.15 The Court therefore held that the impugned order upholding demand of Cenvat credit, interest, and penalty was not legally sustainable, set it aside, and allowed the appeal.

Issues: (i) Whether, after the Negotiable Instruments (Amendment) Act, 2015, the court within whose local jurisdiction the payee's branch bank is situated has jurisdiction to try a complaint under Section 138 of the Negotiable Instruments Act, 1881. (ii) Whether a complaint under Section 138 can be transferred to that court when recording of evidence under Section 145(2) has already commenced.

Issue (i): Whether, after the Negotiable Instruments (Amendment) Act, 2015, the court within whose local jurisdiction the payee's branch bank is situated has jurisdiction to try a complaint under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: The pre-amendment position under Sections 177, 178 and 179 of the Code of Criminal Procedure, 1973 was reconsidered in the context of the offence under Section 138 of the Negotiable Instruments Act, 1881. The judgment holds that the amendment introduced Section 142(2), which fixes jurisdiction for account-payee cheques at the branch where the payee maintains the account, read with the Explanation deeming delivery at any branch to be delivery at the home branch. The Court rejects an interpretation that would allow forum shopping by the payee and holds that the special statutory scheme governs territorial jurisdiction.

Conclusion: Yes. The court within whose local jurisdiction the payee's home branch is situated has jurisdiction to try such a complaint.

Issue (ii): Whether a complaint under Section 138 can be transferred to that court when recording of evidence under Section 145(2) has already commenced.

Analysis: Section 142A of the Negotiable Instruments Act, 1881 validates transfer of pending cases to the court having jurisdiction under Section 142(2). At the same time, where proceedings had already reached the stage of evidence, the Court applied the ends-of-justice approach and held that the complaint should be restored and continued in the court to which it had effectively been returned, so that the matter is not re-litigated from the outset.

Conclusion: Yes. The complaint is to be transferred and proceeded with in the competent court from the stage prior to return of the complaint.

Final Conclusion: The jurisdictional issue under the amended cheque dishonour law is resolved in favour of the payee's home branch for account-payee cheques, and the pending proceedings are to continue before the competent court rather than being invalidated by the earlier jurisdictional shift.

Ratio Decidendi: For a cheque delivered for collection through an account, territorial jurisdiction under Section 142(2)(a) of the Negotiable Instruments Act, 1881 lies with the court within whose local jurisdiction the payee's bank branch where the account is maintained is situated, and the special jurisdictional scheme overrides the general criminal venue rules.

Issues: Whether the applicant was entitled to bail in a case alleging impersonation of a public servant, conspiracy to demand illegal gratification, and involvement in a trap case supported by CCTV, voice identification, and witness statements.

Analysis: The charge-sheet and supplementary charge-sheet were filed, and the material on record indicated that the applicant posed as the Commissioner of CGST under the name of Mishraji and participated in the demand for bribe along with co-accused persons. The applicant's presence at the meeting place was supported by CCTV footage, identification by the complainant and other witnesses, and voice comparison material. The conduct attributed to him also showed attempts to evade investigation and non-bailable process. In view of the prima facie material, the Court found no basis to enlarge the applicant on bail.

Conclusion: Bail was refused and the applicant was not entitled to be released on bail.