TaxTMI Updates e-Newsletter
Dec 03,2025

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of GST registration for non-filing of returns for six months under Section 29(2)(c) of the Central/State GST Acts, read with Rule 22 of the CGST Rules, 2017, could be revisited in light of the proviso to Rule 22(4) when the registered person expresses willingness to file pending returns and pay dues.

1.2 Whether the case is covered by an earlier decision of a Coordinate Bench on identical facts and law, warranting grant of similar relief.

1.3 Manner in which the period under Section 73(10) of the Central/State GST Acts is to be computed in the event of restoration of registration, and the assessee's liability for arrears of tax, interest, penalty and late fees.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Cancellation of GST registration for non-filing of returns and applicability of proviso to Rule 22(4)

Legal framework (as discussed)

2.1 The Court referred to Section 29(2)(c) of the GST Acts, which empowers the proper officer to cancel registration where a registered person has not furnished returns for a continuous period of six months.

2.2 The Court extracted and relied upon Rule 22 of the CGST Rules, 2017, particularly:

(a) Sub-rule (1): issuance of show-cause notice in Form GST REG-17 where registration is liable to be cancelled under Section 29.

(b) Sub-rule (2): reply in Form GST REG-18 within the stipulated period.

(c) Sub-rule (3): order of cancellation in Form GST REG-19, directing payment of arrears of tax, interest and penalty.

(d) Sub-rule (4) and its proviso: dropping of cancellation proceedings and passing of order in Form GST REG-20 where the person, instead of replying, furnishes all pending returns and makes full payment of tax dues along with applicable interest and late fee in cases covered by Section 29(2)(b) or (c).

Interpretation and reasoning

2.3 The Court noted that the petitioner's registration was cancelled for non-filing of returns for six months, squarely falling under Section 29(2)(c), and that cancellation of registration entails serious civil consequences.

2.4 Relying on the interpretation adopted in the earlier Coordinate Bench decision, the Court read the proviso to Rule 22(4) to mean that if a person, whose registration is proposed to be cancelled under Section 29(2)(c), is ready and willing to furnish all pending returns and make full payment of tax dues along with applicable interest and late fee, the proper officer may drop the cancellation proceedings and pass an appropriate order in Form GST REG-20.

2.5 The Court accepted the statement that the petitioner was ready and willing to comply with all the formalities under the proviso to Rule 22(4), and that GST returns had been updated up to a specified period.

Conclusions

2.6 The Court held that, notwithstanding the earlier cancellation and the expiry of the statutory time limit for a revocation application, the petitioner is entitled to seek restoration of registration by invoking the mechanism contemplated in the proviso to Rule 22(4), subject to furnishing all pending returns and paying all tax dues with applicable interest, penalty and late fee.

Issue 2: Applicability of a Coordinate Bench decision on identical facts and law

Interpretation and reasoning

2.7 The Court perused the earlier judgment of a Coordinate Bench dealing with cancellation of GST registration under Section 29(2)(c) for non-filing of returns for six months, where the same provisions of Section 29 and Rule 22, including the proviso to Rule 22(4), were examined.

2.8 The Court observed that the earlier decision directed the authority to consider restoration of registration if the assessee approached within a stipulated time, furnished all pending returns and made full payment of tax dues, interest and late fees, and further clarified computation of limitation under Section 73(10) post such order.

2.9 The Court recorded the concession by the respondent that the facts and law in the present case are similar to those considered in the earlier decision, and held that the said judgment "squarely covers" the present matter.

Conclusions

2.10 The Court concluded that the petitioner is entitled to be granted relief in terms identical to that awarded in the earlier Coordinate Bench judgment and accordingly extended similar directions for restoration of registration, subject to compliance with the statutory conditions.

Issue 3: Computation of limitation under Section 73(10) and liability for arrears upon restoration

Legal framework (as discussed)

3.1 The Court referred to Section 73(10) of the Central/State GST Acts in relation to the period of limitation for passing adjudication orders and to Section 44 in respect of the financial year 2024-25.

Interpretation and reasoning

3.2 Following the Coordinate Bench's approach, the Court held that, in view of the intended restoration of registration, it is necessary to clarify how the limitation period under Section 73(10) is to be reckoned so as to avoid prejudice to the revenue.

Conclusions

3.3 The Court directed that the period stipulated under Section 73(10) of the Central/State GST Acts shall be computed from the date of the present order, except for the financial year 2024-25, which shall be governed by Section 44 of the Central/State GST Acts.

3.4 The Court further held that the petitioner shall make payment of all arrears, namely tax, penalty, interest and late fees, as a condition for restoration of GST registration.

Operative directions (arising from all issues)

4.1 The petitioner shall approach the concerned authority within 60 days from the date of the order, seeking restoration of GST registration.

4.2 If such application is filed and the petitioner complies with all requirements of the proviso to Rule 22(4) of the CGST Rules, 2017, the concerned authority shall consider the application in accordance with law and take necessary steps to restore the GST registration as expeditiously as possible.

4.3 Computation of limitation under Section 73(10) and the petitioner's obligation to pay all arrears, including tax, interest, penalty and late fees, shall be as specified above.

Issues: Whether Rule 86A of the Punjab Goods and Services Tax Rules, 2017 permits the Commissioner or an authorised officer to block a taxpayer's electronic credit ledger by an amount exceeding the credit available at the time of the order.

Analysis: The rule was construed on its plain language as a preventive and provisional measure. Its invocation is conditioned on the existence of input tax credit in the electronic credit ledger and on recorded reasons to believe that such credit has been fraudulently availed or is ineligible. Once credit is not available in the ledger, or has already been utilised, the power under Rule 86A cannot be exercised to create a negative balance or to effect a debit beyond the available credit. The availability of credit is therefore a condition precedent to the exercise of the power, and the authority must resort to the ordinary statutory recovery mechanisms where warranted.

Conclusion: Rule 86A does not authorise negative blocking of the electronic credit ledger beyond the credit available at the relevant time, and the impugned blocking was unsustainable.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Scope of power under Rule 86A of the GST Rules, 2017: Whether Rule 86A permits blocking of the Electronic Credit Ledger by an amount exceeding the Input Tax Credit actually available, resulting in a negative balance ("negative blocking").

1.2 Procedural safeguards under Rule 86A: Whether prior notice or show cause notice is mandatory before exercising the power to block the Electronic Credit Ledger under Rule 86A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Scope of power under Rule 86A and permissibility of "negative blocking"

Legal framework (as discussed):

2.1 The Court examined Rule 86A of the Goods and Services Tax Rules, 2017, in light of its earlier decision, and judgments of other High Courts, particularly the reasoning of the Gujarat High Court in interpreting Rule 86A. The provision empowers the Commissioner or an authorised officer to disallow debit of Input Tax Credit from the Electronic Credit Ledger where there is "reason to believe" that such credit has been fraudulently availed or is ineligible, for an amount equivalent to such credit.

Interpretation and reasoning:

2.2 The Court reiterated that the right to avail and utilise Input Tax Credit is a statutory right, subject to conditions provided in the statute.

2.3 Relying on and endorsing the Gujarat High Court's construction, the Court held that availability of credit in the Electronic Credit Ledger is a condition precedent for invoking Rule 86A. If no Input Tax Credit is available in the ledger on the date of blocking, Rule 86A cannot be validly invoked.

2.4 The Court adopted the reasoning that Rule 86A is divided into: (i) conditions for invocation (including that Input Tax Credit must be available in the ledger and there must be recorded "reasons to believe" of fraudulent or ineligible availing), and (ii) the consequences (temporary restriction on debit of an equivalent amount). If the preconditions are not satisfied, the consequences cannot operate.

2.5 It was emphasised that Rule 86A only authorises temporary disallowance of debit of existing credit; it does not authorize the officer to create debit entries or impose a negative balance in the Electronic Credit Ledger. Any such negative entry would amount to permanent recovery, which must be effected only through statutory mechanisms such as proceedings under Sections 73 or 74 of the PGST/CGST Acts.

2.6 The Court endorsed the view that once Input Tax Credit is credited to the Electronic Credit Ledger, it forms part of a fungible pool; the rule therefore speaks of blocking "an amount equivalent" to the allegedly fraudulent or ineligible credit, presupposing the existence of sufficient credit in the ledger. In the absence of such available credit, there can be no blocking under Rule 86A.

2.7 Concerns that a taxpayer may persistently avail and utilise fraudulent credit were held not to justify an extended interpretation of Rule 86A beyond its plain language. The Court noted that other statutory measures remain available to the authorities, including recovery under Sections 73/74, cancellation of registration under Section 29, and provisional attachment under Section 83.

2.8 The Court characterised the power to restrict debit from the Electronic Credit Ledger as "extremely harsh" and preventive in nature, applied at a stage anterior to determination of liability, and therefore to be strictly confined to the specific statutory language.

2.9 The Court reaffirmed its earlier view that there is no ambiguity in Rule 86A, and that literal construction does not lead to absurdity; therefore, there can be no action based on supposed intendment to justify "negative blocking" when no credit is available.

2.10 The Court expressly agreed with the interpretation of the High Courts of Gujarat, Delhi, Telangana and Bombay, and expressly declined to follow the contrary view of the High Courts of Calcutta, Allahabad and Andhra Pradesh on this specific issue.

Conclusions:

2.11 Rule 86A can be invoked only when Input Tax Credit is actually available in the Electronic Credit Ledger on the date of the blocking order.

2.12 Blocking of the Electronic Credit Ledger in excess of the credit available, resulting in a negative balance ("negative blocking"), is beyond the scope of Rule 86A and is without jurisdiction and illegal.

2.13 Orders or entries disallowing debit from the Electronic Credit Ledger beyond the amount of Input Tax Credit available at the time of the decision are unsustainable and liable to be set aside to that extent.

Issue 2 - Requirement of prior notice or show cause notice before blocking under Rule 86A

Legal framework (as discussed):

2.14 The Court considered the nature of Rule 86A as a preventive, temporary measure, operating on the basis of "reasons to believe" recorded by the competent authority, and its relationship to the detailed recovery provisions under Sections 73 and 74 of the PGST/CGST Acts.

Interpretation and reasoning:

2.15 The Court reiterated its earlier interpretation that Rule 86A is designed to meet an emergent situation, and is invoked at a pre-assessment, pre-demand stage, distinct from the final determination of liability under Sections 73 and 74.

2.16 In this preventive context, the Court endorsed the view that the rule does not require issuance of a prior notice or show cause notice before blocking the Electronic Credit Ledger, so long as the statutory prerequisites (including "reasons to believe" recorded in writing) are met.

Conclusions:

2.17 Prior notice or a show cause notice is not a mandatory precondition for exercise of power under Rule 86A to temporarily disallow debit of available Input Tax Credit.

2.18 However, even in the absence of prior notice, the authority's action must remain within the limits of Rule 86A and cannot extend to negative blocking or permanent recovery, for which separate statutory procedures are prescribed.

Ancillary conclusion - Liberty to pursue other statutory remedies

2.19 While setting aside the impugned blocking to the extent it exceeded the available credit, the Court clarified that the authorities remain at liberty to undertake recovery or other proceedings in accordance with law, including recourse to the statutory mechanisms under the PGST/CGST Acts for determination and recovery of wrongly availed or utilised Input Tax Credit.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether Rule 86A of the Goods and Services Tax Rules, 2017 permits blocking of the Electronic Credit Ledger in an amount exceeding the input tax credit actually available therein, resulting in a negative balance ("negative blocking").

1.2 Whether, under Rule 86A of the Goods and Services Tax Rules, 2017, prior notice or show cause notice is a precondition for temporarily disallowing debit of input tax credit in the Electronic Credit Ledger.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Scope of Rule 86A: power to block Electronic Credit Ledger beyond available ITC / negative blocking

Legal framework (as discussed by the Court)

2.1 The Court referred to and relied upon its own earlier decision rendered on 04.11.2025, which had analysed Rule 86A of the Goods and Services Tax Rules, 2017 and endorsed the view taken by the High Courts of Gujarat, Delhi, Telangana and Bombay. The Court reproduced in detail the reasoning of the Gujarat High Court in "Samay Alloys India Pvt. Ltd." on the construction of Rule 86A, including: (i) the precondition that "credit of input tax should be available in the electronic credit ledger" before Rule 86A can be invoked; (ii) that Rule 86A enables only a temporary disallowance of debit from the ledger and is not a provision for permanent recovery; and (iii) that blocking cannot be invoked where there is no credit or where the credit has already been utilised.

2.2 The Court reiterated that under Rule 86A(1): (a) existence of input tax credit in the Electronic Credit Ledger; (b) reasons to believe, recorded in writing, that such credit has been fraudulently availed or is ineligible; and (c) restriction only to an amount "equivalent" to such credit are cumulative statutory conditions for exercise of power.

Interpretation and reasoning

2.3 The Court noted as an undisputed factual position that the petitioner's Electronic Credit Ledger was blocked from 01.09.2025 to 23.09.2025, and that the blocking entries dated 02.09.2025 resulted in a negative balance in the ledger.

2.4 Relying on its earlier judgment in CWP-23675-2025 (decided on 04.11.2025), the Court endorsed the reasoning that Rule 86A presupposes existence of input tax credit in the Electronic Credit Ledger at the time of invocation, and that "availability of credit in the ECL is a condition precedent for exercise of power under Rule 86-A of Rules, 2017." If no input tax credit is available, blocking the ledger and inserting a negative balance is "wholly without jurisdiction and illegal."

2.5 The Court adopted the distinction drawn in the Gujarat judgment between: (i) the "opening part" of Rule 86A(1), which sets conditions for invocation of the rule; and (ii) the "second part," which deals with the consequences (temporary restriction of debit). It held that where the conditions (including actual availability of credit) are not satisfied, Rule 86A cannot be invoked and its consequences cannot apply.

2.6 The Court accepted that once input tax credit is entered in the Electronic Credit Ledger, it forms a fungible pool, and the rule therefore speaks of restriction on an "amount equivalent" to the allegedly fraudulent or ineligible credit; however, this restriction necessarily presupposes existence of such credit in the ledger. On the "plain language" of Rule 86A, there can be no action without availability of credit; any attempt to justify negative blocking on the basis of supposed legislative intent was rejected as contrary to settled principles of statutory interpretation.

2.7 The Court reiterated that Rule 86A is a harsh, preventive measure operative at a stage anterior to final assessment or demand and therefore must be strictly construed. In particular, it cannot be used as a mechanism for permanent recovery; such recovery must be undertaken through the statutory provisions under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 or other specific recovery/attachment provisions.

2.8 The Court expressly aligned itself with the views of the High Courts of Gujarat, Delhi, Telangana and Bombay on this interpretation and recorded its disagreement with the contrary views of the High Courts of Calcutta, Allahabad and Andhra Pradesh. It also noted that the view of the Delhi High Court in "Kings Security Guard Services Pvt. Ltd." and "Karuna Rajendra Ringshia" had been upheld by the Supreme Court upon dismissal of special leave petitions.

Conclusions

2.9 The Court held that under Rule 86A of the Goods and Services Tax Rules, 2017, the competent authority can only disallow debit of the Electronic Credit Ledger to the extent of input tax credit actually available in the ledger at the time of passing the blocking order. The rule does not authorise blocking that creates a negative balance or disallows debit in excess of the existing credit.

2.10 Any "negative blocking" or disallowance beyond the amount of input tax credit available in the Electronic Credit Ledger is without jurisdiction and unsustainable in law.

2.11 Applying this principle, the impugned entries/orders were set aside to the extent they disallowed debit from the petitioner's Electronic Credit Ledger in excess of the input tax credit available at the relevant time.

2.12 The Court clarified that the authorities remain at liberty to resort to the specific statutory remedies for determination and recovery of wrongly availed or utilised input tax credit, including proceedings under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 and other available recovery mechanisms, in accordance with law.

Issue 2 - Requirement of prior notice or show cause notice before blocking under Rule 86A

Legal framework (as discussed by the Court)

2.13 In referring to its earlier decision in CWP-23675-2025, the Court considered the nature of Rule 86A as a provision for temporary, preventive restriction on utilisation of input tax credit pending determination of its legitimacy, and contrasted it with the detailed adjudicatory procedures under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 for final determination and recovery.

Interpretation and reasoning

2.14 The Court reaffirmed the view taken in its earlier judgment that Rule 86A is "for meeting an emergent situation" and is in the nature of an interim, temporary measure. On this basis, it endorsed the view that issuance of prior notice or show cause notice is not a precondition to the exercise of power under Rule 86A to temporarily disallow debit from the Electronic Credit Ledger, provided the statutory conditions (including reasons to believe recorded in writing) are met.

2.15 The Court, however, balanced this by reiterating that the temporary nature of the measure and the requirement of strict compliance with the conditions of Rule 86A, including existence of credit in the ledger, are essential safeguards against abuse; in the absence of such credit, the authority cannot resort to "negative blocking."

Conclusions

2.16 The Court held that Rule 86A does not require issuance of a prior notice or show cause notice before temporarily restricting debit of input tax credit in the Electronic Credit Ledger, as the provision is designed to address emergent situations.

2.17 Nevertheless, such power can be exercised only within the limits of Rule 86A, namely, to the extent of credit actually available in the ledger and subject to the conditions prescribed therein; any negative blocking remains impermissible and invalid even if undertaken without prior notice.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the writ petition under Article 226 challenging an order-in-original raising GST demand for alleged fraudulent availment of Input Tax Credit is maintainable in view of the statutory appellate remedy under Section 107 of the CGST Act.

1.2 Whether there was any violation of principles of natural justice in passing the impugned order, specifically on the grounds of alleged denial of personal hearing and non-consideration of the petitioner's written reply.

1.3 Whether, in the facts of the case, the petitioner should be relegated to the statutory appellate remedy with appropriate directions regarding limitation and pre-deposit, and whether previously imposed costs were liable to be waived.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Maintainability of writ petition in presence of statutory appeal under Section 107 of the CGST Act in cases of alleged fraudulent ITC

Legal framework (as discussed)

2.1.1 The Court referred to the decision of the Supreme Court in 'The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited', wherein it was held that although the existence of an alternate remedy is not an absolute bar to a writ petition under Article 226, such jurisdiction should be exercised only in exceptional circumstances such as: (i) breach of fundamental rights; (ii) violation of principles of natural justice; (iii) excess of jurisdiction; or (iv) challenge to vires of statute or delegated legislation.

2.1.2 The Court also relied on its own earlier decisions in matters involving fraudulent availment of ITC, including Mukesh Kumar Garg, M/s Sheetal and Sons, and M/s MHJ Metal Techs, wherein it had consistently held that in such cases, considering the burden on the exchequer, impact on the GST regime, complexity and factual nature of the disputes, writ jurisdiction ought not to be exercised and parties should be relegated to the remedy of appeal under Section 107 of the CGST Act.

Interpretation and reasoning

2.1.3 The Court noted that the matter arises out of serious allegations of fraudulent availment of ITC involving multiple non-existent firms, large-scale transfer of ITC, and complex transactional chains, similar to matters previously considered by the Court.

2.1.4 The Court reiterated its settled view that disputes relating to fraudulent ITC involve complex factual analysis, examination of voluminous evidence and detailed findings of the tax authorities, which are not suitable for adjudication in writ proceedings.

2.1.5 The Court emphasized that in such ITC fraud cases, a balance has to be drawn between the burden on the public exchequer and the impact on the GST regime on one hand, and the interests of the taxpayers on the other, which are adequately safeguarded by the statutory appellate mechanism under Section 107.

2.1.6 The Court observed that it had already considered a writ petition challenging the very same impugned order in another matter and, following its earlier view, had relegated the petitioner therein to the appellate remedy. It considered it appropriate to follow the same approach in the present case, arising from the same adjudication.

Conclusions

2.1.7 The Court held that this was not a fit case for exercise of extraordinary writ jurisdiction under Article 226, given the serious allegations of fraudulent ITC, the complex factual matrix, and the existence of an effective alternative remedy of appeal under Section 107 of the CGST Act.

2.1.8 The writ petition was held to be not entertainable on the ground of availability of a statutory appellate remedy, and the petitioner was relegated to pursue such remedy.

2.2 Alleged violation of principles of natural justice in passing the impugned order

Interpretation and reasoning

2.2.1 The petitioner contended that no personal hearing was granted and that its reply dated 5 August 2024 was not considered in the impugned order, thereby alleging violation of principles of natural justice.

2.2.2 The respondents refuted this and pointed out that the impugned order itself records the filing of the reply and indicates that it was considered while passing the detailed order.

2.2.3 The Court noted that the petitioner was well aware of the notices issued and that a reply had in fact been filed by the petitioner, which is recorded in the impugned order.

2.2.4 The Court, in line with its approach in analogous matters, did not undertake a detailed factual inquiry into the nature or adequacy of hearing or the extent of consideration of the reply, holding that such issues are best examined by the appellate authority in statutory appeal proceedings.

Conclusions

2.2.5 The Court did not find sufficient grounds to hold that there was a violation of principles of natural justice warranting interference under Article 226, especially in the face of an available statutory appeal.

2.2.6 The Court concluded that any grievance relating to the extent of hearing or consideration of the reply may be appropriately urged before the appellate authority.

2.3 Direction to avail appellate remedy; extension of limitation and waiver of earlier costs

Interpretation and reasoning

2.3.1 Following its consistent practice in similar ITC fraud cases, the Court, while declining to entertain the writ, considered it appropriate to safeguard the petitioner's right to appeal by granting specific time to file an appeal under Section 107 along with pre-deposit.

2.3.2 The Court directed that if the appeal is filed by the stipulated date along with the requisite pre-deposit, the appellate authority shall adjudicate the appeal on merits and shall not dismiss it on the ground of limitation.

2.3.3 Considering the reasons set out in the interlocutory application, the Court also waived the costs that had earlier been imposed on the petitioner by a prior order.

2.3.4 The Court clarified that any observations made in the order would not affect the merits of the matter before the appellate authority.

Conclusions

2.3.5 The Court disposed of the writ petition by relegating the petitioner to the appellate remedy under Section 107 of the CGST Act, granting time up to 5 January 2026 to file the appeal with pre-deposit, directing that such appeal not be rejected as time-barred if so filed, and waiving the previously imposed costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether Rule 86A of the Goods and Services Tax Rules, 2017 permits blocking of an Electronic Credit Ledger in excess of the input tax credit actually available therein, including by creating a negative balance.

1.2 Whether availability of credit in the Electronic Credit Ledger is a condition precedent for exercise of powers under Rule 86A of the Goods and Services Tax Rules, 2017.

1.3 Whether blocking of the Electronic Credit Ledger under Rule 86A requires prior notice, and what alternative statutory remedies are available to the authorities for recovery of wrongly availed or utilised input tax credit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Scope of Rule 86A and requirement of available credit for blocking the Electronic Credit Ledger

Legal framework (as discussed)

2.1 The Court examined Rule 86A of the Goods and Services Tax Rules, 2017, which empowers the Commissioner or an authorised officer to disallow debit of an amount from the Electronic Credit Ledger (ECL) where there is "reason to believe" that the credit of input tax "available" in the ECL has been fraudulently availed or is ineligible, and to restrict such debit "for an amount equivalent" to such credit.

2.2 The Court referred to and relied upon the interpretation of Rule 86A by multiple High Courts, particularly the Gujarat High Court decision holding that: (i) availability of input tax credit in the ECL is a condition precedent to invoking Rule 86A; (ii) where no credit is available or where it has already been utilised, Rule 86A cannot be invoked; and (iii) insertion of a negative balance in the ECL is without jurisdiction.

Interpretation and reasoning

2.3 The Court noted that, on the date of blocking (03.10.2025), the petitioner's ECL had an available balance of only Rs. 66/-, yet a negative block of Rs. 8,00,164/- was created, thereby exceeding the available credit and resulting in an artificial negative balance.

2.4 The Court adopted the reasoning that Rule 86A is divided into two parts: the first part lays down conditions for its invocation, including the requirement that "credit of input tax should be available in the electronic credit ledger"; the second part prescribes consequences once those conditions are met, namely disallowing debit "for an amount equivalent" to the ineligible or fraudulently availed credit.

2.5 It was emphasised that the consequences of Rule 86A cannot determine its applicability; rather, applicability is controlled by the express precondition of availability of credit in the ECL. Where such credit is not available or is already utilised, the rule is inapplicable and any blocking or negative entry is ex facie without jurisdiction.

2.6 The Court endorsed the view that Rule 86A does not authorise the officer to make debit entries or to effect "permanent recovery" of input tax credit. It is a provisional, preventive measure allowing only temporary disallowance of debit from the ECL, and permanent recovery must be undertaken through the statutory machinery under Sections 73 and 74 of the CGST/PGST Acts.

2.7 The Court further endorsed the conclusion that the phrase "an amount equivalent" in Rule 86A presupposes the existence of credit in a fungible pool in the ECL; it authorises restriction on debit of an equivalent amount out of the pool, not the creation of a negative balance beyond what is actually available.

2.8 The Court expressly agreed with the interpretation of the Gujarat, Delhi, Telangana and Bombay High Courts that: (i) there is no ambiguity in the plain language of Rule 86A; (ii) its literal construction does not lead to absurdity; and (iii) "negative blocking" of the ECL, in the absence of available credit, is not contemplated by Rule 86A.

2.9 The Court reiterated and followed its own earlier decision which had, in turn, endorsed the above line of authority and declined to follow contrary views expressed by the Calcutta, Allahabad and Andhra Pradesh High Courts.

Conclusions

2.10 The Court held that availability of credit in the ECL is a mandatory condition precedent for exercise of power under Rule 86A.

2.11 The Court held that Rule 86A does not authorise blocking of an amount exceeding the credit actually available in the ECL, nor does it authorise creation of a negative balance.

2.12 The Court concluded that the impugned blocking/entry was unsustainable to the extent it disallowed debit from the petitioner's ECL in excess of the input tax credit available therein at the time of passing the order.

2.13 Accordingly, the writ petition was allowed in terms of the earlier decision, and the impugned order/entry blocking the ECL was set aside to the extent of such excess/negative blocking.

Issue 3: Requirement of prior notice and availability of alternative statutory remedies

Legal framework (as discussed)

3.1 The Court considered Rule 86A in the context of Sections 73 and 74 of the CGST/PGST Acts, which provide the machinery for determination and recovery of wrongly availed or utilised input tax credit, as well as other statutory measures available to the authorities.

Interpretation and reasoning

3.2 The Court affirmed that Rule 86A is a temporary, preventive provision intended to meet emergent situations, permitting the Commissioner to withhold available ITC in the ECL where there is reason to believe that it has been fraudulently availed or is ineligible.

3.3 In line with its earlier decision and the view of other High Courts endorsed therein, the Court held that, given the emergent and preventive nature of the provision, issuance of a prior notice or show-cause notice is not a condition for invoking Rule 86A.

3.4 At the same time, the Court stressed that Rule 86A cannot be used to achieve recovery which properly falls within the ambit of Sections 73 and 74. Questions as to whether input tax credit was wrongly availed or utilised must be determined by the competent authority under those provisions, following the procedure prescribed therein.

3.5 The Court noted that in the absence of available credit in the ECL, authorities are not left remediless; they may resort to the regular statutory measures for recovery in accordance with law, rather than resorting to negative blocking under Rule 86A.

Conclusions

3.6 The Court held that prior notice (show-cause notice) is not required before invoking Rule 86A, given its character as a provisional and emergent measure, but its use is confined strictly to blocking available credit without creating a negative balance.

3.7 The Court clarified that authorities remain at liberty to initiate proceedings and resort to other statutory remedies for recovery under applicable provisions, including Sections 73 and 74 of the CGST/PGST Acts.

3.8 The Court, while allowing the petition and setting aside the impugned blocking to the extent it exceeded available credit, expressly reserved liberty to the respondents to undertake and resort to recovery remedies available in law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the order blocking the electronic credit ledger by invoking Rule 86A of the KGST/CGST Rules, 2017 is vitiated for want of pre-decisional hearing and absence of recorded "reasons to believe".

1.2 Whether an order under Rule 86A can validly be based on "borrowed satisfaction" or mere reference to enforcement reports, without independent application of mind and cogent reasons in the order.

1.3 Whether the continued blocking of the electronic credit ledger is impermissible after expiry of the one-year period prescribed in Rule 86A(3).

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Validity of blocking order under Rule 86A for want of pre-decisional hearing and recorded "reasons to believe"

Legal framework (as discussed): The Court considered Rule 86A of the CGST Rules, 2017 and the binding Division Bench decision in K-9 Enterprises, which held that: (i) pre-decisional hearing is required before blocking an electronic credit ledger; and (ii) the competent authority must have and record "reasons to believe" based on tangible, cogent material that ITC is fraudulently availed or ineligible. The Court also took note of the CBIC Circular dated 02.11.2021 elaborating the preconditions, the need for objective satisfaction and careful, non-mechanical exercise of this "drastic and draconian" power.

Interpretation and reasoning: The Court applied the principles in K-9 Enterprises that: (a) Rule 86A requires two prerequisites-material before the authority and recording of reasons in writing-as mandatory conditions for blocking the electronic credit ledger; (b) power under Rule 86A is extraordinary and must be exercised with utmost circumspection, on objective material, and cannot be based on mere suspicion or mechanical reliance on investigation reports; and (c) ITC is a valuable right and cannot be disabled without strict adherence to statutory safeguards. In the present case, the Court found that no pre-decisional hearing was afforded to the petitioner before passing the impugned order and that the order did not disclose any independent, cogent "reasons to believe" justifying the blocking of the electronic credit ledger.

Conclusions: The Court held that the blocking order under Rule 86A was contrary to the mandatory requirements laid down in K-9 Enterprises and Rule 86A itself, for want of pre-decisional hearing and for failure to record proper "reasons to believe", and on this ground the impugned order was liable to be quashed.

2.2 Reliance on "borrowed satisfaction" and absence of independent application of mind

Legal framework (as discussed): Referring to K-9 Enterprises and the CBIC Circular, the Court reiterated that the authority invoking Rule 86A must form its own opinion on "reasons to believe" based on independent inquiry and objective material, and cannot act merely on directions, communications or investigation reports of other officers ("borrowed satisfaction").

Interpretation and reasoning: The Court noted that, as in K-9 Enterprises, the impugned blocking order relied on reports of the enforcement authority without demonstrating independent analysis or satisfaction. It emphasised that an order under Rule 86A cannot be passed mechanically or solely on investigation material, and that reasons must show a genuine, independent evaluation of whether ITC has been fraudulently or ineligibly availed. The Court further observed that, apart from a bare assertion that the petitioner had availed ITC fraudulently by receiving invoices without physical receipt of goods, no further reasons or examination of facts were set out in the impugned order.

Conclusions: The Court held that the impugned order was based on impermissible "borrowed satisfaction", was bald, vague, cryptic, unreasoned and non-speaking, and therefore invalid under the standards laid down in K-9 Enterprises. On this ground also, the order blocking the electronic credit ledger was quashed.

2.3 Effect of expiry of one-year period under Rule 86A(3)

Legal framework (as discussed): The Court referred to the statutory limitation contained in Rule 86A(3), which prescribes that the restriction on use of amount available in the electronic credit ledger shall cease to have effect after one year from the date of imposing such restriction.

Interpretation and reasoning: The Court recorded the undisputed fact that the impugned order blocking the petitioner's electronic credit ledger was passed on 06.09.2024 and that the one-year period prescribed under Rule 86A(3) had expired. It held that, by operation of the rule itself, continuation of the blocking of the electronic credit ledger beyond the one-year period was impermissible.

Conclusions: The Court concluded that, independent of the other defects, the impugned order could not survive after expiry of the one-year statutory period under Rule 86A(3), and therefore deserved to be quashed on this additional ground as well.

2.4 Resultant directions

Interpretation and reasoning: Having found the impugned blocking order unsustainable on all the above grounds, the Court directed that the electronic credit ledger be unblocked forthwith to enable the petitioner to file returns, while reserving liberty to the revenue authorities to proceed against the petitioner in accordance with law and in conformity with the principles laid down in K-9 Enterprises.

Conclusions: The writ petition was allowed; the impugned order blocking the electronic credit ledger was quashed; and the respondents were directed to immediately unblock the ledger, subject to their right to initiate or continue proceedings in accordance with law and the binding Division Bench judgment.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the notice issued under section 148 for assessment year 2015-16 on 21.04.2021 was barred by limitation and invalid in view of the amended reassessment regime, section 149, and the operation of TOLA, as interpreted by the Jurisdictional High Court and the Supreme Court.

(2) Whether, upon the notice under section 148 for assessment year 2015-16 being held invalid, the consequential reassessment order under section 147 read with section 144B and the quantum additions made therein could survive.

(3) Whether penalties imposed for assessment year 2015-16 under sections 271(1)(c), 271A and 271F could be sustained when the underlying reassessment order itself was quashed as void ab initio.

(4) For assessment years 2013-14, 2014-15 and 2016-17, whether the cash deposits/credits in the assessee's bank accounts could be taxed substantially as unexplained money under section 69A, or only the profit element was taxable by estimating net profit on such deposits treated as business turnover.

(5) For assessment years 2013-14, 2014-15 and 2016-17, what rate of net profit should be reasonably applied on the bank deposits (treated as business turnover) of a brass trading commission agent in the absence of regular books, and whether such income is taxable at normal rates or under section 115BBE.

(6) For assessment years 2013-14 and 2014-15, whether penalty under section 271(1)(c) was leviable where the additions were made only on estimated net profit rates on turnover/deposits.

(7) For assessment year 2013-14, whether penalty under section 271A for failure to maintain books of account was exigible when the assessee was a small taxpayer eligible to file under the presumptive scheme of section 44AD and thus not statutorily obliged to maintain books under section 44AA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Validity and limitation of notice under section 148 for A.Y. 2015-16 issued on 21.04.2021

Legal framework discussed

(a) The Tribunal considered the limitation for issuance of notice under section 148 for assessment year 2015-16 in light of the amended reassessment scheme operative from 01.04.2021, section 149, and the relaxation provisions under TOLA.

(b) The Tribunal relied on the decision of the Jurisdictional High Court in Gordhanbhai Devjibhai Kapadia v. ITO, which in turn referred to and applied the ratio and concessions recorded by the Supreme Court in Union of India v. Rajeev Bansal, Deepak Steel and Power Ltd. v. CBDT, and other allied decisions.

Interpretation and reasoning

(c) The Tribunal noted that the impugned notice under section 148 was issued on 21.04.2021 for assessment year 2015-16.

(d) It recorded that, as per the Jurisdictional High Court in Gordhanbhai Devjibhai Kapadia, for assessment year 2015-16 the time limit for issuing reassessment notice under the amended section 149 stood exhausted, and notices issued during the extended period under TOLA (01.04.2021 to 30.06.2021) were invalid.

(e) The Tribunal reproduced and relied upon the reasoning of the High Court that, in view of the Supreme Court's decision in Rajeev Bansal and the concession of the Revenue recorded therein, all notices for assessment year 2015-16 issued on or after 01.04.2021 were required to be dropped as they could not be completed within the prescribed period under TOLA.

(f) The Tribunal rejected the Revenue's contention that the assessee's participation in assessment proceedings should preclude the assessee from raising this legal objection, holding that the question of limitation and validity of jurisdictional notice is a pure legal issue and controlling precedent of the Jurisdictional High Court has to be followed.

Conclusions

(g) The Tribunal held that the notice under section 148 dated 21.04.2021 for assessment year 2015-16 was issued beyond the permissible period and was therefore time barred and invalid.

(h) It held the notice under section 148 for assessment year 2015-16 to be void and without jurisdiction in view of the binding jurisdictional precedent.

Issue (2): Consequence of invalid notice on reassessment order and quantum additions for A.Y. 2015-16

Interpretation and reasoning

(a) Having found the section 148 notice for assessment year 2015-16 invalid, the Tribunal considered the effect on the reassessment order passed under section 147 read with section 144B on 27.05.2023 and on the additions made under section 69A and the taxability under section 115BBE.

(b) The Tribunal applied the principle that where the foundational jurisdictional notice is void, all consequential proceedings and orders based upon it are vitiated.

Conclusions

(c) The Tribunal quashed the reassessment order dated 27.05.2023 passed under section 147 read with section 144B for assessment year 2015-16 as void ab initio.

(d) In consequence, all issues on the merits of additions for assessment year 2015-16, including characterization of deposits as unexplained money under section 69A and applicability of section 115BBE, were held to be academic and infructuous and were not adjudicated.

Issue (3): Sustainability of penalties under sections 271(1)(c), 271A and 271F for A.Y. 2015-16 when reassessment is quashed

Interpretation and reasoning

(a) The Tribunal observed that all the penalties for assessment year 2015-16 had been imposed with reference to the reassessment order which stood quashed as void ab initio.

(b) It invoked the legal maxim "sublato fundamento cadit opus" to hold that once the very foundation (reassessment order) is removed, the entire superstructure of consequential penalty proceedings falls.

(c) It held that where the assessment itself is non est in law, penalties founded upon such assessment cannot survive.

Conclusions

(d) The Tribunal quashed and deleted the penalties imposed for assessment year 2015-16 under: (i) section 271(1)(c); (ii) section 271A; and (iii) section 271F, holding them to be void as consequential to an invalid reassessment.

Issue (4): Characterization of cash deposits/credits in bank accounts for A.Ys. 2013-14, 2014-15, 2016-17 - unexplained money u/s 69A vs. business turnover with only profit taxable

Legal framework (as discussed)

(a) The Tribunal considered section 69A (unexplained money) and the principle that mere bank deposits, when explained as business receipts with supporting evidences, cannot automatically be treated as unexplained income on a standalone basis if corresponding withdrawals and trading pattern support a business explanation.

Interpretation and reasoning

(b) For assessment years 2013-14, 2014-15 and 2016-17, the assessee had substantial cash deposits/credits in three ICICI Bank accounts across various locations in India, with withdrawals at Jamnagar claimed to be for purchase of brass items.

(c) The assessee stated that he was engaged in trading in brass items on commission basis, that customers deposited sale proceeds directly into the bank accounts from different cities, and that the assessee immediately withdrew cash to purchase brass items.

(d) During the assessment and appellate proceedings, the assessee furnished bank statements, sample sale invoices, details of customers and deposit entries, and other materials to authenticate the existence of business and to show that deposits represented sale proceeds or business turnover.

(e) The Tribunal noted that neither the Assessing Officer nor the Commissioner (Appeals) disputed the existence of the brass trading business or the assessee's role as a commission agent, nor did they hold the evidences produced to be bogus.

(f) The Tribunal observed that there were regular and substantial withdrawals corresponding to deposits, leaving negligible balances, consistent with a trading pattern and not with unexplained cash accumulation.

(g) The Tribunal referred to a prior decision of the same Bench (as cited before it and confirmed by the High Court and Supreme Court) where, in comparable circumstances of deposits and withdrawals in bank accounts linked to trading activities, it was held that deposits cannot be treated as income on a standalone basis without considering withdrawals, and that only the profit element should be taxed.

(h) The Tribunal held that gross credits in business bank accounts cannot be treated in toto as income when the business explanation and supporting evidences are broadly accepted and not disproved.

(i) It therefore rejected the approach of treating a large portion of deposits as unexplained money under section 69A and held that deposits should be considered as representing turnover/business receipts, on which a reasonable net profit has to be estimated.

Conclusions

(j) The Tribunal concluded that, for assessment years 2013-14, 2014-15 and 2016-17, the cash deposits/credits in the assessee's bank accounts are to be treated as business turnover of a brass trading commission agent, and not as unexplained money under section 69A to the extent determined by the lower authorities.

(k) Only the profit element on such turnover is to be brought to tax on an estimated net profit basis; the deposits themselves are not the assessee's income in full.

Issue (5): Reasonable net profit rate on bank deposits/turnover and head/rate of tax for A.Ys. 2013-14, 2014-15, 2016-17

Interpretation and reasoning

(a) The assessee voluntarily declared income at 2% of the total credits/deposits for each relevant year, claiming that in similar brass commission/trading cases, 2%-5% had been accepted by appellate authorities as a reasonable net profit rate.

(b) The Assessing Officer, citing absence of regular books and full documentary support, rejected the assessee's 2% rate and, for A.Y. 2016-17, treated 25% of deposits as unexplained money under section 69A; the Commissioner (Appeals), while accepting that most deposits were business receipts, estimated 10% of deposits as unexplained money and thus upheld additions of 10% of deposits (and 5% in some earlier years) to safeguard the interests of Revenue.

(c) The Tribunal accepted that there is no fixed or standard profit margin in this line of brass trading/commission business; profits can vary between 0.5% and 5% depending on products and business model.

(d) It took note that the assessee was effectively acting as an agent/commission agent, that prices were competitive and open in the market, and that it would be difficult for such an agent to earn a very high margin, especially when comparable data indicated lower margins.

(e) The Tribunal observed that the assessee had produced a chart of average net profit rates of comparable entities in similar business; these indicated that margins in the range of 2%-5% were typical, and that in other similar cases the Tribunal had accepted net profit rates between 2% and 5% on bank credits treated as turnover.

(f) At the same time, the Tribunal also considered that the assessee had not maintained regular books and there were certain inconsistencies and incomplete documentation, warranting some upward adjustment over the 2% claimed.

(g) Balancing these factors, and to account for possible deficiencies in record keeping while not unduly inflating income, the Tribunal held that adoption of a 3% net profit rate on total cash deposits/credits in the bank accounts would meet the ends of justice.

(h) It directed that such net profit so computed should be treated as business income taxable at the normal rates applicable under the Act, instead of invoking section 69A read with section 115BBE on the gross credits or on a higher deemed portion.

(i) It further clarified that this estimation at 3% is made on the peculiar facts of this case and is not to be treated as a binding precedent for other years.

Conclusions

(j) For assessment years 2013-14, 2014-15 and 2016-17, the Tribunal directed the Assessing Officer to compute income by applying a net profit rate of 3% on the total cash deposits/credits in the assessee's bank accounts, treating the same as turnover.

(k) The additions sustained by the Commissioner (Appeals) at 5% or 10% of deposits, or by the Assessing Officer at 25% of deposits under section 69A, were reduced and replaced by this 3% net profit estimation.

(l) The resultant income is to be assessed as business income chargeable at normal rates of tax, and not under section 69A/section 115BBE.

Issue (6): Levy of penalty under section 271(1)(c) on estimated additions for A.Ys. 2013-14 and 2014-15

Legal framework (as discussed)

(a) The Tribunal considered section 271(1)(c) relating to penalty for concealment of income or furnishing inaccurate particulars of income, and examined whether such penalty can be sustained where the underlying additions are purely based on estimation of profit rate.

(b) It relied on the decision of a Co-ordinate Bench in Gipilon Texturising Pvt. Ltd., wherein it was held, following jurisdictional High Court decisions (including Manish Dhirajlal Mehta and Vijay Proteins Ltd.), that no penalty under section 271(1)(c) is leviable on purely estimated additions.

Interpretation and reasoning

(c) The Tribunal observed that, in the present case, the Assessing Officer had made additions by estimating income based on turnover/bank deposits and that, on appeal, the Commissioner (Appeals) further altered the rate of estimation (5% or 10%), which itself showed the inherently estimative nature of the additions.

(d) It noted that there was no categorical finding by the Revenue authorities of any specific concealment of particular items of income or of deliberate furnishing of inaccurate particulars; the dispute essentially related to what net profit percentage should be reasonably applied.

(e) Applying the binding principle that penalty is not justified where additions rest solely on estimation and where there is no concrete evidence of concealment beyond such estimation, the Tribunal held that the preconditions for invoking section 271(1)(c) were not satisfied.

Conclusions

(f) The Tribunal held that penalties under section 271(1)(c) for assessment years 2013-14 and 2014-15, levied on the basis of estimated additions, were not sustainable.

(g) It deleted the penalties under section 271(1)(c) for these years in full.

Issue (7): Penalty under section 271A for non-maintenance of books where assessee is under presumptive scheme of section 44AD (A.Y. 2013-14)

Legal framework (as discussed)

(a) The Tribunal considered section 271A (penalty for failure to keep, maintain or retain books of account as required under section 44AA) and section 44AD (presumptive taxation scheme for eligible small taxpayers).

(b) It noted that, under section 44AD read with section 44AA(2), an eligible assessee opting for presumptive taxation is not required to maintain books of account as otherwise prescribed under section 44AA.

Interpretation and reasoning

(c) The Tribunal recorded that the assessee fell in the category of small taxpayers who returned income on a presumptive basis, and that the assessee's stand was that he was filing under section 44AD and therefore not obliged to maintain books.

(d) The Revenue's case was that, because the bank credits were treated as turnover, the assessee ought to have maintained books and thus was liable for penalty under section 271A.

(e) The Tribunal held that, where an assessee is eligible for and opts to declare income under the presumptive provisions of section 44AD, the statute itself exempts such assessee from the requirement of maintaining books of account under section 44AA.

(f) It emphasized that income under section 44AD is computed on a presumptive basis (at prescribed percentages of turnover), irrespective of actual profits, and in such a regime the legislative intent is to relieve small taxpayers from the compliance burden of maintaining formal books; therefore, failure to maintain books cannot be penalised under section 271A in such circumstances.

Conclusions

(g) The Tribunal held that, the assessee being an eligible small taxpayer under the presumptive scheme of section 44AD and not statutorily required to maintain books of account under section 44AA, no penalty under section 271A could be imposed for non-maintenance of books.

(h) It deleted the penalty under section 271A for assessment year 2013-14.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a writ petition under Article 226 is maintainable to challenge a notice under Section 148 and the initial order rejecting objections, after the assessee has followed the procedural steps prescribed in the decision laying down the proper course of action in reassessment proceedings.

1.2 Whether reassessment proceedings under Sections 147/148, initiated beyond four years from the end of the relevant assessment year, were without jurisdiction on the grounds that (a) reasons were not properly recorded under Section 148(2), (b) there was no "failure to disclose fully and truly all material facts" as required by the proviso to Section 147, and (c) the reopening amounted to curing an earlier error or omission of the Assessing Officer in applying Section 14A read with Rule 8D.

1.3 Whether, in the context of disallowance under Section 14A read with Rule 8D, the duty to "disclose fully and truly all material facts" rests solely on the assessee, or whether the failure of the Assessing Officer in the original assessment precludes reopening under Section 147 beyond four years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of the writ petition after following the reassessment procedure

Legal framework

2.1 The Court referred to the binding directions governing the "proper course of action" when a notice under Section 148 is issued: the assessee must (i) file a return, (ii) seek reasons for issuance of notice, (iii) on receipt of reasons, file objections; and the Assessing Officer is bound to dispose of such objections by a speaking order before proceeding with the reassessment.

Interpretation and reasoning

2.2 The Court noted that the assessee had in fact: (a) filed a return in response to the notice dated 09.03.2018, (b) sought and obtained reasons, and (c) filed objections, which were rejected by a detailed speaking order dated 08.11.2018, followed by further correspondence and rejection of objections by communication dated 29.11.2018.

2.3 The challenge in the writ petition was, however, confined to (i) the notice issued under Section 148 dated 09.03.2018 and (ii) the initial order rejecting objections dated 08.11.2018, without directly challenging the final order overruling the objections after the entire exchange of correspondence.

2.4 The Court held that, after having substantially availed and exhausted the statutory procedural steps and after objections had been considered and rejected by speaking orders, it was not appropriate to invoke writ jurisdiction merely to assail the initial notice and the first rejection order, while allowing the later rejection to stand.

2.5 The Court emphasised that, at this stage, reassessment proceedings must be allowed to proceed to their logical conclusion and that writ jurisdiction cannot be used to re-appreciate facts or to sit in review over the subjective satisfaction of the Assessing Officer as to "reason to believe".

Conclusions

2.6 The writ petition, having been filed after the assessee had fully participated in the reassessment process and after a speaking order had been passed rejecting objections, was held to be not maintainable.

Issue 2: Validity of reopening beyond four years - recording of reasons and "failure to disclose fully and truly" under Section 147 proviso

Legal framework

2.7 Section 147 empowers the Assessing Officer, if he "has reason to believe that any income chargeable to tax has escaped assessment", to assess or reassess such income, subject to Sections 148-153. The proviso stipulates that, where an assessment under Section 143(3) or Section 147 has already been made, no action shall be taken after four years from the end of the relevant assessment year unless income has escaped assessment "by reason of" the assessee's failure (a) to make a return under Section 139 or in response to notice under Section 142(1) or Section 148, or (b) to disclose fully and truly all material facts necessary for the assessment.

2.8 Section 148(2), as then in force, required the Assessing Officer, before issuing any notice under that Section, to "record his reasons" for doing so.

2.9 The Court discussed precedent establishing: (a) the wide scope of powers under Section 147, subject to existence of "reason to believe" and compliance with Sections 148-153, (b) that reassessment jurisdiction is attracted when there are reasonable grounds to think there has been non-disclosure of primary facts having a material bearing on under-assessment, and (c) that mere production of books or documents does not, by itself, discharge the assessee's duty of full and true disclosure.

Interpretation and reasoning

2.10 The assessee argued that (i) the notice dated 09.03.2018 was issued beyond four years from the end of assessment year 2011-2012, and (ii) no valid reasons were recorded as required by Section 148(2), thereby rendering the notice without jurisdiction.

2.11 The Court noted that sanction under Section 151 had been obtained from the competent authorities, who examined the relevant records and recommended issuance of notice under Section 148, indicating that reasons were in fact recorded and considered at the sanction stage.

2.12 Relying on decisions explaining the scope of Section 147 and its proviso, the Court held that the power to reassess is "wide" and can be exercised beyond four years where escapement of income is attributable to the assessee's failure to disclose fully and truly all material facts, and that the High Court's role in writ proceedings is limited to seeing whether the conditions conferring jurisdiction to reopen exist, not to finally decide if there was in fact a failure.

2.13 The Court adopted the reasoning that "failure" to fully and truly disclose is not confined to what is stated in the return or audit report, but extends to the entire assessment proceedings; it arises where the assessee does not furnish complete and correct information which it is under an obligation to disclose. The burden is on the assessee to make such full and true disclosure.

2.14 The Court further noted that precedent expressly rejects the contention that mere production of books or evidence suffices; the assessee must bring to the Assessing Officer's notice the specific items or portions relevant to assessment. Even if the Assessing Officer, by greater diligence, could have discovered the truth from the material on record, that does not negate a failure on the assessee's part or bar reassessment jurisdiction.

2.15 Applying these principles, the Court rejected the assessee's contention that the notice was inherently without jurisdiction merely because it was issued after four years and allegedly for correcting the Assessing Officer's earlier omission. The statutory exception in the proviso to Section 147 permitted such reopening where there was escapement of income attributable to the assessee's failure in disclosure.

Conclusions

2.16 The Court held that (a) the reassessment notice issued beyond four years was not per se barred, given the scope of Section 147 and the proviso, (b) the requirement of recording reasons and obtaining sanction had been complied with, and (c) in writ jurisdiction, it was not open to quash the notice on the basis of a detailed re-evaluation of whether there was, in fact, a failure to disclose fully and truly all material facts.

Issue 3: Section 14A disallowance, Rule 8D and the effect of the Assessing Officer's earlier omission on reopening power

Legal framework

2.17 The original and subsequent reassessment proceedings concerned disallowance of expenditure relating to exempt income under Section 14A of the Act, read with Rule 8D of the Income-tax Rules, 1962.

2.18 The learned Single Judge had held that, under Section 14A(2), the duty to appropriately determine the amount of expenditure lay on the Assessing Officer, that the assessee could make any claim (even if wrong), and that failure of the Assessing Officer to apply Rule 8D correctly could not justify reopening of a concluded assessment after four years.

Interpretation and reasoning

2.19 The Division Bench reviewed the legal position on reopening and the duty of disclosure, particularly in relation to Section 14A, referring to the reasoning that: (a) the assessee has a positive duty to disclose fully and truly all material facts, including expenses relatable to tax-free/exempt income that have been claimed as deduction; and (b) omission or failure to point out such details can amount to failure to disclose.

2.20 The Court emphasised that the explanation to Section 147 makes it clear that mere production of books or evidence is not enough; material embedded in records, which the Assessing Officer could have uncovered with more diligence, does not prevent reopening if the assessee has not, in the first place, specifically and truly disclosed the material facts.

2.21 In this light, the Court disagreed with the approach of the learned Single Judge that the reopening was barred merely because any alleged escapement arose from the Assessing Officer's prior failure to apply Rule 8D properly. The correct test was whether there was escapement of income and whether there was a failure on the part of the assessee in making full and true disclosure, not whether the Assessing Officer had earlier erred or omitted to apply a method.

2.22 The Court therefore rejected the premise that the revenue was "taking advantage of its own wrong" by initiating reassessment, holding instead that the statutory scheme under Section 147, its proviso, and the Explanation, read with decisions on Section 14A, recognise jurisdiction to reopen where the assessee has not discharged its disclosure obligations, even if the Assessing Officer could earlier have discovered the issue by greater diligence.

Conclusions

2.23 The Court held that the existence of an earlier assessment under Section 143(3), and any failure or omission by the Assessing Officer in computing disallowance under Section 14A read with Rule 8D, did not by itself bar resort to Section 147 beyond four years, provided the conditions under the proviso (including failure to fully and truly disclose material facts) were satisfied.

2.24 The contrary view of the learned Single Judge-that reopening was impermissible as it merely sought to correct the Assessing Officer's own earlier omission under Section 14A/Rule 8D-was set aside.

Overall Disposition

2.25 The Court set aside the order of the learned Single Judge, held that the writ petition was not maintainable in the circumstances, upheld the continuation of the reassessment proceedings initiated under Sections 147/148, and allowed the writ appeal, without any order as to costs.

Issues: (i) Whether deletion of penalty under Section 271AAB of the Income-tax Act, 1961 by the Tribunal required quashing of prosecution under Section 276C(1) of the Income-tax Act, 1961; (ii) Whether pendency of the Department's appeal against the Tribunal's order affected maintainability of the quashing petition under Section 482 of the Code of Criminal Procedure, 1973; (iii) Whether cognizance by the trial court barred exercise of inherent powers under Section 482 of the Code of Criminal Procedure, 1973.

Issue (i): Whether deletion of penalty under Section 271AAB of the Income-tax Act, 1961 by the Tribunal required quashing of prosecution under Section 276C(1) of the Income-tax Act, 1961.

Analysis: The prosecution and the penalty arose from the same search-based allegations of concealed income and willful evasion. The Tribunal had deleted the penalty on merits after finding that the statutory preconditions for penalty were not satisfied and that concealment was not established. The judgment applied the settled principle that where the factual foundation for concealment is judicially negated by the final fact-finding authority, criminal prosecution resting on the same foundation cannot survive. The presumption under Section 278E of the Income-tax Act, 1961 could not operate once the foundational facts themselves stood negated.

Conclusion: Yes. The deletion of penalty on merits warranted quashing of the prosecution.

Issue (ii): Whether pendency of the Department's appeal against the Tribunal's order affected maintainability of the quashing petition under Section 482 of the Code of Criminal Procedure, 1973.

Analysis: Mere filing or pendency of the appeal did not stay the Tribunal's findings or revive the factual basis of the prosecution. In the absence of any stay, the Tribunal's exoneration continued to hold the field. The inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 remained available where continuation of prosecution would amount to abuse of process or where the proceedings lacked a surviving legal foundation.

Conclusion: No. The pendency of the appeal did not make the petition non-maintainable.

Issue (iii): Whether cognizance by the trial court barred exercise of inherent powers under Section 482 of the Code of Criminal Procedure, 1973.

Analysis: Taking of cognizance is not a fetter on the High Court's inherent power. If the continuation of proceedings is unjust, oppressive, or an abuse of process, the High Court can still quash the matter to secure the ends of justice. The existence of cognizance therefore did not preclude intervention under Section 482 of the Code of Criminal Procedure, 1973.

Conclusion: No. Cognizance did not bar exercise of inherent powers.

Final Conclusion: Since the penalty proceedings had been set aside on merits and the prosecution was founded on the same alleged concealment, the criminal case could not be sustained; the proceedings were quashed as an abuse of process, while leaving liberty to seek revival if the appellate challenge to the Tribunal's order succeeds.

Ratio Decidendi: Where a competent tax appellate forum, acting as the final fact-finding authority, conclusively negates concealment or the statutory basis of penalty on merits, prosecution for willful tax evasion founded on the same facts cannot continue unless that exoneration is stayed or reversed; pendency of appeal or prior cognizance does not curtail the High Court's power to quash abuse of process.

Issues: (i) Whether losses of eligible software technology park units could be set off against income from other units while computing total income; (ii) whether payments made to Sprint USA for international private leased circuits were royalty and therefore liable to disallowance for non-deduction of tax at source; (iii) whether the non-discrimination clause in the India-USA DTAA prevented disallowance under section 40(a)(i); (iv) whether miscellaneous income from interest on staff loans and sale of scrap qualified for deduction under section 10A/10B; and (v) whether interest was chargeable under section 234D.

Issue (i): Whether losses of eligible software technology park units could be set off against income from other units while computing total income.

Analysis: The deduction under section 10A is to be worked out at the stage of the eligible undertaking itself, and the Court applied the Supreme Court's interpretation that the eligible unit must be computed independently before the general aggregation and set-off provisions operate. The earlier contrary view could not govern the assessment years in question.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether payments made to Sprint USA for international private leased circuits were royalty and therefore liable to disallowance for non-deduction of tax at source.

Analysis: The Court held that the later explanations inserted in section 9(1)(vi) by the Finance Act, 2012 could not be applied retrospectively to fasten royalty liability for the relevant assessment years. The definition of royalty under the applicable DTAA controlled the matter, and on that basis the payment for IPLC did not amount to royalty so as to attract section 40(a)(i).

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the non-discrimination clause in the India-USA DTAA prevented disallowance under section 40(a)(i).

Analysis: The Court held that Article 26(3) requires deductible payments to a resident of the other Contracting State to be allowed under the same conditions as if paid to a resident. Since the domestic disallowance operated only in the case of non-resident payments for the relevant years, the provision was discriminatory and could not be invoked to sustain the disallowance.

Conclusion: The issue was decided in favour of the assessee.

Issue (iv): Whether miscellaneous income from interest on staff loans and sale of scrap qualified for deduction under section 10A/10B.

Analysis: The Court applied the principle that incidental income arising in the ordinary course of the export-oriented business and integrally connected with the undertaking forms part of the eligible profits. Interest on staff loans and scrap sale were treated as having the requisite nexus with the undertaking's business.

Conclusion: The issue was decided in favour of the assessee.

Issue (v): Whether interest was chargeable under section 234D.

Analysis: In view of the retrospective amendment to the provision and the dates of assessment, the levy of interest on excess refund was held to be legally sustainable.

Conclusion: The issue was decided against the assessee.

Final Conclusion: The appeals were allowed in respect of the set-off loss issue, the IPLC royalty and withholding-tax issues, and the miscellaneous income deduction issue, while the levy of interest under section 234D was sustained.

Ratio Decidendi: For the relevant assessment years, the scope of royalty under a DTAA cannot be enlarged by retrospective domestic amendments, eligible undertaking deductions under section 10A/10B are computed at the undertaking level, and the non-discrimination article bars a disallowance mechanism that applies only to non-resident payments on less favourable terms.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the earlier order dismissing the writ petition required recall in view of the subsequent authoritative exposition of law in the decisions interpreting reassessment notices issued under the unamended and amended provisions of the Income-tax Act, 1961.

1.2 Whether the notice issued on 30.06.2021 under section 148 of the Income-tax Act, 1961 (old regime) for Assessment Year 2016-2017, and the consequential proceedings under sections 148A(d) and 148 (new regime), were barred by limitation under section 149 read with section 151 of the Act and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Recall of earlier dismissal order in light of subsequent Supreme Court decisions

Legal framework

2.1 The Court considered paragraph 28 of the decision in Union of India v. Ashish Agarwal and paragraphs 112 and 114 of the decision in Union of India v. Rajeev Bansal, which re-examined and clarified the legal position concerning reassessment notices issued under the old and new regimes of sections 147-151 of the Income-tax Act, 1961 and the effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

Interpretation and reasoning

2.2 The Court noted that the earlier dismissal order dated 04.11.2025 had been passed before closely examining the above authoritative pronouncements and, upon reconsideration of the relevant passages, a doubt arose regarding the correctness of the earlier conclusion.

2.3 Having perused the documents, list of dates and events, and the binding ratio of the Supreme Court in the above decisions, the Court found it necessary, for fair adjudication, to recall the earlier order and decide the writ petition afresh in accordance with the clarified legal position.

Conclusions

2.4 The order dated 04.11.2025 dismissing the case was recalled to enable a fresh decision in conformity with the law laid down in Ashish Agarwal and Rajeev Bansal.

Issue 2 - Limitation and validity of reassessment proceedings under sections 148, 148A, 149, 151 and TOLA

Legal framework

2.5 The Court applied the ratio of paragraph 28 of Ashish Agarwal, under which all notices issued under unamended section 148 between 01.04.2021 and 30.06.2021 are deemed to be notices under section 148A(b) of the Act (new regime), and the Assessing Officer is required within thirty days to provide information and material relied upon, giving two weeks to the assessee to respond.

2.6 The Court relied on paragraph 114 of Rajeev Bansal which, inter alia, held that: (a) after 01.04.2021, the Act must be read with the substituted provisions; (b) TOLA continues to apply where relevant time limits fall between 20.03.2020 and 31.03.2021; (c) section 3(1) of TOLA overrides section 149 only to relax the time limit for issuing notices under section 148; (f) directions in Ashish Agarwal extend to all reassessment notices issued under the old regime between 01.04.2021 and 30.06.2021; (g) the period from issuance of such deemed show-cause notices till supply of information and two weeks for reply is to be excluded; and (h) reassessment notices under the new regime must be issued within the surviving limitation under the Act read with TOLA, and any notice beyond such period is time barred.

2.7 The Court further relied on the illustration at paragraph 112 of Rajeev Bansal explaining computation of the surviving period under section 149 after giving effect to the exclusions and deeming fiction introduced through Ashish Agarwal and TOLA.

2.8 The Court also took note of the fourth proviso to section 149 of the Act (as amended with effect from 01.04.2021), which allowed a maximum of seven days beyond the surviving period in a specified situation.

Interpretation and reasoning

2.9 For Assessment Year 2016-2017, as the alleged income escaping assessment was less than Rs. 50,00,000/-, the outer time limit under section 149 of the Act to issue a notice under section 148 (old regime) would have expired on 31.03.2020. By virtue of TOLA extensions, this date stood extended up to 30.06.2021.

2.10 In the present case, the notice under section 148 (old regime) was in fact issued on 30.06.2021, the last date of limitation as extended by TOLA.

2.11 Applying the deeming fiction in Ashish Agarwal, this notice dated 30.06.2021 under the old regime had to be treated as a notice under section 148A(b) under the new regime. Consequently, by virtue of paragraph 28 of Ashish Agarwal and paragraph 114(g) of Rajeev Bansal, the period from issuance of such deemed show-cause notice until (i) supply of information and material by the Assessing Officer and (ii) the further two-week period granted to the assessee to respond stood excluded, during which time the notices were deemed to be stayed.

2.12 The relevant chronology showed that: (i) the old-regime notice under section 148 was issued on 30.06.2021; (ii) the Supreme Court rendered its decision in Ashish Agarwal on 04.05.2022; (iii) notice under section 148A(b) was issued on 20.05.2022; (iv) reply by the assessee was given on 03.06.2022; and (v) order under section 148A(d) and fresh notice under section 148 (new regime) were issued on 28.07.2022.

2.13 Since the original old-regime notice was itself issued on the last possible extended date, 30.06.2021, the Court held that, after excluding the thirty days allowed to the Department to furnish material and the further two weeks allowed to the assessee to respond, there was no residual time left under section 149 read with TOLA for issuance of a fresh notice under section 148 of the new regime, save and except the seven days contemplated by the fourth proviso to section 149.

2.14 On this basis, the Court reasoned that, in the facts of the present case, the Assessing Officer had, at best, only seven days from the date of receipt of the assessee's reply on 03.06.2022 to issue a valid reassessment notice under the new regime. Therefore, any notice under section 148 (new regime) ought to have been issued on or before 10.06.2022.

2.15 As the notice under section 148 (new regime) was actually issued only on 28.07.2022, the Court held that it was beyond the surviving limitation period as computed in terms of section 149 read with TOLA and the binding interpretations in Ashish Agarwal and Rajeev Bansal.

Conclusions

2.16 The Court concluded that the notice dated 30.06.2021 issued under section 148 (old regime) is to be treated as a deemed notice under section 148A(b) in the new regime, but that, after giving effect to all statutory and judicially mandated exclusions and the fourth proviso to section 149, there was no valid time left beyond seven days from 03.06.2022 to issue a notice under section 148 (new regime).

2.17 As the notice under section 148 (new regime) and the order under section 148A(d), both dated 28.07.2022, were issued beyond the permissible limitation, they were held to be time barred and liable to be set aside.

2.18 Consequently, the entire reassessment proceedings initiated by the notice dated 30.06.2021, continued by the notice under section 148A(b) dated 20.05.2022, and culminating in the order under section 148A(d) and notice under section 148 dated 28.07.2022, were quashed as being beyond time, and the writ petition challenging these proceedings was allowed.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether any substantial question of law arises in an appeal against the Tribunal's order deleting transfer pricing adjustment where the Transfer Pricing Officer failed to apply any of the statutorily prescribed methods for determining the arm's length price and this failure was not disputed by the Revenue.

(2) How "tax effect" is to be computed under the CBDT Circular dated 15 March 2024 for purposes of filing or prosecuting appeals, and whether an appeal is maintainable where the tax effect relatable to the disputed issues in that appeal is below the monetary limit, notwithstanding a higher aggregate tax effect for the assessment year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Substantial question of law in transfer pricing appeal where no prescribed method applied

Interpretation and reasoning

(a) The Tribunal recorded a categorical finding that, in determining the arm's length price for the impugned international transaction, the Transfer Pricing Officer had not followed any of the methods prescribed under the Income-tax Act.

(b) The Tribunal further recorded that this factual position was not controverted by the Departmental Representative before it.

(c) Relying on prior decisions, the Tribunal held that it is incumbent upon the Transfer Pricing Officer to follow one of the methods prescribed in law for benchmarking; failure to do so renders the transfer pricing adjustment vulnerable and unsustainable.

(d) It was also noted that precedent holds that where the prescribed method is not followed, the Transfer Pricing Officer cannot be afforded a "second innings" to cure the defect by redoing the exercise.

(e) Before the Court, the Revenue sought to argue that, in the peculiar facts, there was no question of following any other method than what the Transfer Pricing Officer had adopted; however, this contention had not been raised before the Tribunal, and the Revenue had, in fact, effectively conceded that the prescribed methods were not followed and only sought a fresh opportunity.

(f) The Court observed that the new argument was neither raised nor involved before the Tribunal and did not even find reflection in the questions formulated in the appeal memo.

Conclusions

(g) In view of the undisputed factual finding that no prescribed transfer pricing method was followed, and the application of binding precedent by the Tribunal, no substantial question of law arose for consideration.

(h) The appeal was dismissed at the admission stage, with the clarification that questions on the broader legal position are left open for determination in an appropriate future case where they properly arise.

Issue 2: Computation of "tax effect" under CBDT Circular dated 15 March 2024 and maintainability of appeal

Legal framework

(a) The Court referred to paragraph 5.1 of the CBDT Circular dated 15 March 2024 defining "tax effect" as the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which the appeal is intended to be filed ("disputed issues"), inclusive of surcharge and cess, with specific rules for loss cases and penalty orders.

Interpretation and reasoning

(b) The Revenue contended that for the relevant assessment year, since there were multiple appeals and the aggregate tax effect exceeded Rs. 2 crores, the monetary limit in the CBDT Circular would not bar the present appeal.

(c) The assessee contended, by placing reliance on paragraph 5.1, that "tax effect" must be confined to the income pertaining to the specific disputed issues forming the subject matter of the particular appeal, and on that basis, the tax effect in the instant appeal was only Rs. 10,18,145/-, well below the Rs. 2 crores threshold.

(d) The Court noted that the connected appeal for the same assessment year, in which the larger tax effect had been computed, stood dismissed. Consequently, the outstanding tax effect relatable to the present appeal alone was Rs. 10,18,145/-.

(e) The Court emphasised that paragraph 5.1 lays stress on the phrase "the issues against which the Appeal is intended to be filed", and this expression cannot be ignored while determining the tax effect. Even if the concept of "aggregate tax effect" for the year is invoked, it must still be read in the context of this definition.

(f) The Court observed that, even assuming the substantial questions of law regarding disallowance under Section 14A read with Rule 8D were to be answered in favour of the Revenue, the recoverable amount in this appeal would remain restricted to Rs. 10,18,145/- plus interest; effectively, therefore, the tax effect for the purposes of the Circular was only Rs. 10,18,145/-.

(g) The Court was referred to decisions suggesting that where no exempt income is earned, disallowance under Section 14A is not warranted, and also to a decision indicating that disallowance under Section 14A cannot exceed the exempt income. The Court found that these decisions prima facie supported the assessee's case but, given the low tax effect, chose not to adjudicate these substantive issues.

Conclusions

(h) The Court held that the tax effect, as understood under paragraph 5.1 of the CBDT Circular dated 15 March 2024, in relation to the disputed issues in the present appeal, was far below the monetary ceiling of Rs. 2 crores.

(i) The appeal was disposed of on the ground of low tax effect, with all questions of law raised in the appeal kept open for consideration in an appropriate future case.

(j) It was clarified that, in any such future proceedings, the assessee would be entitled to rely on the cited decisions in its favour, and the Revenue would be at liberty to contend that those decisions do not govern the issue.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether a reassessment order under Section 147, passed pursuant to a notice under Section 148 and an order under Section 148A(d) which had already been quashed by the Court and had attained finality, is without jurisdiction.

(2) Whether the decision of the Supreme Court in the matter concerning limitation for reassessment proceedings (popularly referred to as the "Rajeev Bansal" decision) automatically revived or validated reassessment proceedings in all cases across India, including those where notices under Section 148 and orders under Section 148A(d) had already been quashed and not appealed.

(3) Whether the notice under Section 148 dated 25.07.2022 for A.Y. 2014-15 was barred by limitation, applying the "surviving period" concept as laid down by the Supreme Court, having regard to Section 149, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and the decision in Ashish Agarwal.

(4) Whether the absence of a reply by the assessee to the show-cause notice under Section 148A(b) affects the computation of limitation and the "surviving period" for issuance of a notice under Section 148 under the new regime.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Validity of reassessment order based on quashed Section 148 notice and Section 148A(d) order

Interpretation and reasoning

The Court noted that the notice under Section 148 and the order under Section 148A(d), both dated 25.07.2022 for A.Y. 2014-15, had been quashed by the Court in an earlier writ petition by order dated 03.04.2024 on the ground of limitation. That order was not challenged before the Supreme Court and hence attained finality. Despite this, the Assessing Officer proceeded to issue a notice under Section 142(1), and ultimately passed a reassessment order under Section 147 on 17.10.2025 relying on paragraph 115 of the Supreme Court's judgment in the case referred to as "Rajeev Bansal" to justify "revival" of the case.

The Court examined paragraph 115 of that judgment and found that it merely set aside or modified certain specified High Court judgments "to the extent of the observations made" in the Supreme Court's judgment and did not state that all pending cases across India, irrespective of their stage or status, would stand automatically governed or revived. The Court emphasised that there was no direction in that judgment similar to the explicit "PAN India" applicability direction that had been given by the Supreme Court in Ashish Agarwal. The Court also observed that the Revenue continued to file special leave petitions in other, similar matters after the "Rajeev Bansal" decision, which indicated that even the Revenue did not treat that judgment as automatically covering all reassessment matters nationwide.

Conclusions

The Court held that once the notice under Section 148 and the order under Section 148A(d) were quashed by the High Court and that order attained finality, the Assessing Officer could not proceed to pass a reassessment order pursuant to such quashed notice. The impugned assessment order dated 17.10.2025, being founded on the quashed Section 148 notice dated 25.07.2022 and the quashed Section 148A(d) order of the same date, was held to be wholly without jurisdiction and liable to be quashed.

Issue (2): Scope of applicability of the Supreme Court's "Rajeev Bansal" decision

Legal framework discussed

The Court referred to paragraph 115 of the "Rajeev Bansal" judgment, in which specified High Court judgments were set aside "to the extent of the observations made" in that judgment. The Court contrasted this with paragraph 92 of the Supreme Court's decision in Ashish Agarwal, where the Supreme Court expressly stated that its directions would apply to designated categories of cases and added that "the present order shall be applicable PAN INDIA."

Interpretation and reasoning

The Court held that, unlike Ashish Agarwal, the "Rajeev Bansal" judgment did not contain a statement that it would apply PAN India or that it would revive or govern all cases irrespective of the status of the notices. The reference in paragraph 115 to specified existing judgments and "other judgments ... which relied on these judgments" was read as confined to the approximately 900 cases listed and tagged along with that batch, and not as a blanket directive covering all reassessment disputes.

The Court also reasoned that if "Rajeev Bansal" were meant to apply universally to all similar reassessment cases, there would have been no necessity for the Revenue to continue challenging other High Court judgments in the Supreme Court on the very same issues; the fact that such SLPs continued indicated that "Rajeev Bansal" was not of universal automatic application of the type asserted by the Assessing Officer.

Conclusions

The Court concluded that the Supreme Court's decision in "Rajeev Bansal" could not be invoked to revive or reopen reassessment proceedings that had already been quashed by a final High Court order in the present case. It did not confer jurisdiction on the Assessing Officer to ignore or override the final order dated 03.04.2024 of the High Court quashing the Section 148 and Section 148A(d) proceedings.

Issue (3): Limitation and "surviving period" for issuance of notice under Section 148 dated 25.07.2022 for A.Y. 2014-15

Legal framework discussed

The Court applied and relied on:

(i) Section 149(1) and its first proviso, which requires that a notice issued on or after 1 April 2021 must be within the time permissible under the unamended Section 149(1);

(ii) TOLA, which extended time limits for issuing reassessment notices up to 30.06.2021;

(iii) The Supreme Court's decisions in Ashish Agarwal and "Rajeev Bansal", particularly paragraphs 108 to 114 of "Rajeev Bansal", which clarified the effect of the legal fiction deeming old Section 148 notices to be show-cause notices under Section 148A(b), and laid down the manner of computing the "surviving" limitation period after exclusion of specified time segments.

Interpretation and reasoning

The Court summarised the Supreme Court's reasoning in "Rajeev Bansal" as follows:

* Old regime Section 148 notices issued between 01.04.2021 and 30.06.2021 are deemed to be notices under Section 148A(b);

* The "legal fiction" created in Ashish Agarwal stops the limitation clock from the date of the old Section 148 notice until specified milestones are completed; the remaining (surviving) period under the Act read with TOLA is then available for completing the Section 148A procedure and issuing a fresh Section 148 notice under the new regime;

* The period to be excluded for computing limitation includes: (a) the time from the date of the deemed notice under Section 148A(b) until supply of information/material to the assessee in terms of Ashish Agarwal; and (b) a further two weeks granted to the assessee to respond to such material, as recognised by the third proviso to Section 149;

* After expiry of the excluded period, the "surviving" time, calculated as the number of days between the date of the deemed notice and 30.06.2021, begins running from the date of receipt of the assessee's reply (or, where no reply is filed, from the last date by which such reply could have been filed); within this surviving time, the Assessing Officer must (i) consider the reply or absence thereof, (ii) pass an order under Section 148A(d), and (iii) issue a notice under Section 148 of the new regime; any notice beyond this surviving period is time-barred.

The Court also recorded that, for A.Y. 2014-15, under unamended Section 149(1)(b), the last permissible date for issuing a notice under the old regime was 31.03.2021, and the Supreme Court, in "Rajeev Bansal", had accepted the principle that, post-1 April 2021, the validity of a Section 148 notice must be tested with reference to the law then in force, including the first proviso to Section 149(1)(b) and TOLA.

Applying the above framework to the present facts, the Court laid out the chronology:

* 30.06.2021 - old Section 148 notice (deemed Section 148A(b) notice);

* 25.05.2022 - information and reasons for reopening supplied to the assessee, granting two weeks' time to reply;

* 08.06.2022 - expiry of the two weeks allowed for reply; no reply was filed;

* 25.07.2022 - order under Section 148A(d) and fresh Section 148 notice issued.

The Court, following the method prescribed in "Rajeev Bansal", computed that only one day of the "surviving period" remained for the Revenue to complete the Section 148A(d) procedure and issue a fresh Section 148 notice. That one day expired on 09.06.2022 (i.e., the day after the last date for filing the reply, 08.06.2022). Thus, any notice under Section 148 issued after 09.06.2022 would be beyond the surviving period.

Conclusions

The Court held that the notice under Section 148 dated 25.07.2022 was issued after expiry of the surviving period, was therefore barred by limitation, and was liable to be set aside. Consequently, even apart from the earlier quashing order, the foundation for the impugned reassessment order failed on limitation grounds.

Issue (4): Effect of non-filing of reply to Section 148A(b) notice on limitation and "surviving period"

Interpretation and reasoning

The Revenue argued that since the assessee did not file any reply to the notice issued on 25.05.2022 under Section 148A(b), the limitation computation and the notion of "surviving period" as set out in "Rajeev Bansal" would not apply, and consequently the Section 148 notice could not be treated as time-barred. It was contended that under Section 148A(d) the order was to be passed within one month from the end of the month in which the reply was to be filed, and since no reply was actually filed, the limitation constraint should be deemed inapplicable.

The Court rejected this contention. It noted that "Rajeev Bansal" expressly held that: (i) the period from the deemed Section 148A(b) notice until supply of information/material under Ashish Agarwal, and (ii) a further two weeks for the assessee to respond, were to be excluded from the computation of limitation. There was no indication in "Rajeev Bansal" that if no reply was filed by the assessee, the limitation period would become open-ended or that the surviving period would cease to exist.

The Court held that where no reply is filed, the surviving period must be computed as beginning from the last date on which the reply could have been filed (in this case, 08.06.2022). The Assessing Officer is then required to complete all subsequent steps-consideration of material, passing of an order under Section 148A(d), and issuance of a Section 148 notice-within the balance surviving period calculated in accordance with "Rajeev Bansal".

Conclusions

The Court concluded that non-filing of a reply by the assessee to the show-cause notice under Section 148A(b) does not suspend, extend, or eliminate the limitation period. The surviving period starts from the expiry of the time granted to reply and continues to bind the Assessing Officer. Accordingly, in the present case, the Section 148 notice dated 25.07.2022 remained time-barred despite the absence of a reply.

Final operative outcome

Conclusions

On both jurisdictional and limitation grounds, the Court quashed and set aside:

* the assessment order under Section 147 dated 17.10.2025, together with the computation sheet, notice of demand, and consequential penalty show-cause notice; and

* the notice under Section 148 dated 25.07.2022, the order under Section 148A(d) of the same date, and the original show-cause notice under Section 148A(b) dated 30.06.2021.

No order as to costs was made.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether deduction under section 80IAC can be denied solely on the ground that the audit report in Form 10CCB was furnished after the "specified date" under section 44AB but before completion of assessment.

1.2 Whether, after the amendment to section 80IA(7) by the Finance Act, 2020, the requirement of furnishing the audit report by the specified date is a substantive condition affecting eligibility or a procedural requirement as to time of compliance.

1.3 Whether, in the first year of claim under section 80IAC, the matter requires remand to the Assessing Officer for examination of eligibility and quantification of deduction, even if delay in filing Form 10CCB is condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Effect of delayed filing of Form 10CCB and nature of requirement post Finance Act, 2020

Legal framework (as discussed):

2.1 The Court noted that for claiming deduction under section 80IAC, the assessee must comply, inter alia, with section 80IA(7). Section 80IA(7) provides that deduction shall not be admissible unless the accounts of the undertaking are audited by an accountant before the "specified date" referred to in section 44AB and the audit report in the prescribed form is furnished by that date.

2.2 The "specified date" in section 44AB is defined as one month prior to the due date for filing the return under section 139(1). For the relevant assessment year, the specified date was 31.10.2023 and the due date for return filing was 30.11.2023.

2.3 Prior to the amendment by the Finance Act, 2020, the audit report was required to be furnished along with the return of income. Post amendment, the audit report is required to be furnished before the specified date under section 44AB. The Court considered the scope and effect of this change in timing.

2.4 The Court referred to the decision of the Supreme Court in CIT v. GM Knitting Industries (P) Ltd., holding that though it is necessary to file the audit report in Form 10CCB, filing the report before completion of assessment (even if not along with the return) is sufficient compliance for deduction under section 80IB. The Court also relied on the jurisdictional High Court decision in CIT v. Contimeters Electrical (P) Ltd. and coordinate bench decisions including Sanjay Kukreja v. ACIT and Kumaon Exports (P) Ltd. v. DCIT, which took the same view on the procedural nature of the timing of filing the report.

Interpretation and reasoning:

2.5 The Court recorded that the assessee's accounts were duly audited, and Form 10CCB was prepared and signed by the auditor by the specified date (31.10.2023). The defect found was only that the assessee did not upload/furnish the audit report on the portal by that specified date; it was uploaded on 13.12.2023, i.e., after the specified date but before completion of processing/assessment.

2.6 The Court held that the requirement to have the accounts audited and to furnish the audit report in the prescribed form is a mandatory condition for availing deduction under section 80IAC. However, the timing as to when such report is furnished (whether exactly by the specified date or later but before completion of assessment) is procedural in nature.

2.7 The Court reasoned that the amendment by the Finance Act, 2020 only shifts the time-line for furnishing the audit report-from furnishing it "along with the return" to furnishing it "before the specified date" under section 44AB. This alteration of the time of compliance does not convert the timing into a substantive eligibility condition so as to disentitle an otherwise compliant assessee solely for a marginal delay, where the report exists and is furnished before assessment is completed.

2.8 The Court rejected the Department's contention that post-amendment there is no scope to accept audit reports filed after the specified date, holding that the Supreme Court's principle-that filing of the audit report before completion of assessment is sufficient compliance-continues to govern, as the essential requirement is the existence and furnishing of the audit report, while the exact date of filing is procedural.

2.9 The Court emphasized that if an assessee satisfies all substantive conditions under section 80IAC and section 80IA(7), and the audit report in prescribed form, duly signed by the accountant, is in existence by the specified date and is furnished before completion of assessment, deduction cannot be denied at the threshold on the sole ground of delayed electronic filing of Form 10CCB.

Conclusions on Issue 1 & 2:

2.10 Furnishing of the audit report in Form 10CCB is a mandatory requirement for deduction under section 80IAC, but the stipulation that it be filed by the specified date under section 44AB is a procedural requirement.

2.11 Where the audit report is duly signed by the specified date and is furnished electronically after the specified date but before completion of assessment, the conditions of section 80IA(7) are sufficiently complied with.

2.12 Deduction under section 80IAC cannot be denied solely on the ground of delayed filing of Form 10CCB in these circumstances; the question of law is answered in favour of the assessee.

Issue 3: Necessity of remand to examine eligibility and quantum of deduction under section 80IAC

Interpretation and reasoning:

2.13 The Court noted that the relevant assessment year is the first year in which the assessee has claimed deduction under section 80IAC.

2.14 It was observed that the Assessing Officer had not examined either (i) the assessee's substantive eligibility under section 80IAC(1), (3) and (4), or (ii) the correctness and quantum of the deduction claimed, because the claim was rejected at the threshold on the ground of late filing of Form 10CCB.

2.15 Given that the legal impediment relating to delay in furnishing the audit report stood removed by the Court's decision, the factual aspects of eligibility and quantification remained unexamined and required determination by the Assessing Officer.

Conclusions on Issue 3:

2.16 The disallowance of deduction under section 80IAC at the threshold on account of late filing of Form 10CCB is unsustainable.

2.17 The issue of the assessee's eligibility for deduction under section 80IAC and the correct quantum of deduction is remitted to the Assessing Officer for fresh examination.

2.18 The Assessing Officer shall allow the deduction under section 80IAC if, upon such examination, the assessee is found eligible in terms of the statutory provisions, after affording reasonable opportunity of hearing and passing an order in accordance with law.

Issues: Whether external development charges paid to the Department of Town & Country Planning were liable to tax deduction at source under section 194C of the Income-tax Act, 1961, and whether the demand under section 201(1) and section 201(1A) was sustainable.

Analysis: The payment towards external development charges was held to fall within the scope of section 194C, and the Tribunal noted that the issue stood covered by binding precedent holding such payments liable to TDS. No reason was found to interfere with the demand raised for non-deduction of tax.

Conclusion: The demand for non-deduction of TDS was upheld and the assessee's challenge failed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Validity of reassessment proceedings under sections 147/148 where the mandatory sanction under section 151, for a notice issued beyond three years from the end of the relevant assessment year, was granted by the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax.

1.2 Necessity to adjudicate other jurisdictional, natural justice, and merits-related grounds when reassessment itself is held invalid for want of proper sanction under section 151.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment where sanction under section 151 was granted by PCIT instead of PCCIT for reopening beyond three years

Legal framework (as discussed)

2.1 The reassessment proceedings were initiated under sections 147/148 of the Income-tax Act, with an order under section 148A(d), and the requirement of prior sanction under section 151 for issuance of notice under section 148 was examined.

2.2 The Court relied on the ratio of the jurisdictional High Court in decisions examining section 151 in the context of reassessment beyond three years, including the interpretation that the Taxation & Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) does not alter the identification of the "competent authority" under section 151 for granting sanction.

Interpretation and reasoning

2.3 The notice under section 148 for the relevant assessment year was issued beyond three years from the end of the assessment year; therefore, in terms of section 151, sanction ought to have been obtained from the Principal Chief Commissioner of Income Tax, being the competent authority for such cases.

2.4 The record showed that sanction had been accorded only by the Principal Commissioner of Income Tax and not by the Principal Chief Commissioner of Income Tax.

2.5 The Tribunal, following the jurisdictional High Court's decision in a case where it was expressly held that: (a) TOLA has no bearing on determining the competent authority under section 151; and (b) sanction by the PCIT for reassessment beyond three years does not satisfy the statutory requirement when sanction of PCCIT is mandated, held that the same legal position squarely applied.

2.6 A further jurisdictional High Court decision was noted as having taken a similar view on invalidity of reassessment where the approval under section 151 was granted by the wrong authority.

2.7 On this basis, the Tribunal held that obtaining sanction from an authority not prescribed by section 151 for the given time frame is a jurisdictional defect, rendering the entire reassessment process invalid and vitiating the assumption of jurisdiction under section 147.

Conclusions

2.8 The sanction under section 151 having been granted by the Principal Commissioner instead of the Principal Chief Commissioner, the reassessment proceedings initiated under sections 147/148 were held invalid and were quashed.

2.9 The additional ground challenging the assumption of jurisdiction on this specific facet of section 151 approval was allowed.

Issue 2: Need to examine remaining grounds on jurisdiction, natural justice, and merits

Interpretation and reasoning

2.10 Once the reassessment proceedings themselves were quashed on the foundational jurisdictional defect of improper sanction under section 151, the Tribunal considered that adjudication of other grounds-relating to other aspects of jurisdiction under section 147, alleged violation of principles of natural justice, and merits of the additions-was rendered academic.

Conclusions

2.11 In view of quashing of the reassessment proceedings, the Tribunal declined to examine or decide the remaining grounds on law and facts, and expressly left them open.

2.12 The appeal was allowed on the basis of the allowed additional ground concerning invalid approval under section 151.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, after acceptance of the combined benchmarking under TNMM for the manufacturing segment (with royalty treated as an operating expense), a separate transfer pricing adjustment can be made in respect of the international transaction of payment of royalty by applying a different method (CUP).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Separate TP adjustment on royalty despite acceptance of combined TNMM benchmarking

Legal framework (as discussed)

2.1 The assessment involved benchmarking of multiple international transactions using the Transactional Net Margin Method (TNMM) on an aggregate basis, with the profit level indicator (PLI) being operating profit to operating revenue. Payment of royalty was included as an operating expense in determining the entity-level operating margin. The Transfer Pricing Officer (TPO) initially made an adjustment on manufacturing operations and also separately benchmarked the royalty transaction under the Comparable Uncontrolled Price (CUP) method. Pursuant to the Dispute Resolution Panel's directions, the TPO accepted the assessee's operating margin of 4.19% as being within the arm's length range for the manufacturing segment and deleted the TP adjustment in respect of manufacturing, but retained a separate adjustment on royalty under CUP.

Interpretation and reasoning

2.2 The Court noted that the TPO, in the order giving effect to the Dispute Resolution Panel's directions, categorically accepted that the assessee's operating margin of 4.19% falls within the arm's length range of comparables and reduced the earlier adjustment on manufacturing to nil. It was undisputed that this 4.19% operating margin had been computed after treating royalty as part of operating costs.

2.3 On these facts, the Court held that once a combined benchmarking approach under TNMM is accepted for the manufacturing activity, and the PLI (operating margin) that has been accepted as arm's length already embeds the royalty payment as an operating expense, then the same royalty transaction cannot be subjected to a separate benchmarking and adjustment.

2.4 The Court relied on the ratio of the jurisdictional High Court in Magneti Marelli Powertrain India Private Ltd. v. DCIT, wherein it was held that, having accepted TNMM as the most appropriate method in respect of all international transactions (including the impugned item), it is not open to the TPO to carve out a single element and benchmark it separately under a different method (CUP). Each method is a complete package of filters and standards for arm's length determination, and mixing methods within the same set of transactions for the same year would distort the arm's length price determination and create inconsistency and uncertainty.

2.5 The Court observed that the same principle applies where the TPO has accepted the assessee's entity-level operating margin (including royalty) as arm's length under TNMM: to then separately apply CUP only to royalty would offend the accepted combined approach and effectively lead to multiple methods being applied to interlinked transactions already benchmarked together.

2.6 The Court also noted that similar principles have been affirmed in other judicial precedents cited, and treated those as supporting the proposition that once aggregation under TNMM is accepted and found at arm's length, a separate royalty adjustment is unwarranted.

Conclusions

2.7 The Court held that, in the circumstances where the TPO has accepted the combined TNMM benchmarking and the entity-level operating margin of 4.19% (computed after including royalty as an operating expense) as being at arm's length, a separate transfer pricing adjustment for the royalty transaction is impermissible.

2.8 The separate adjustment made on account of payment of royalty was deleted, and the assessee's appeal was allowed. Grounds relating to alternative benchmarking of royalty (selection/rejection of comparables and effective royalty rate) did not require adjudication in view of this conclusion.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, while processing the return under section 143(1), tax on the assessee-trust, treated as an AOP, was chargeable at the maximum marginal rate of 30% or at normal slab rates applicable to an AOP/individual.

1.2 Whether the levy of surcharge at 37% on the assessee's total income, instead of 15% claimed by the assessee, was in accordance with the applicable rate structure.

1.3 Whether, in view of the nature of the assessee as a charitable trust and CBDT Circular No. 320 dated 11.01.1982, section 167A and the maximum marginal rate regime could be applied to the assessee.

1.4 Whether the directions issued by the first appellate authority to verify members' share and incomes, as a condition for applying slab rates and lower surcharge, were legally justified in the facts of the present trust.

1.5 Whether interest under sections 234B and 234C, levied consequent to tax and surcharge computation under section 143(1), was sustainable.

1.6 Whether, for the subsequent assessment year with identical facts, the above conclusions applied mutatis mutandis.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 3 & 4: Rate of tax on assessee-trust (AOP) and applicability of maximum marginal rate / section 167A / CBDT Circular No. 320

Legal framework (as discussed):

2.1 The Tribunal referred to CBDT Circular No. 320 dated 11.01.1982 [F.No.131(31)/81-TP (Pt.)], explaining the scope of section 167A concerning assessment of an association of persons where shares of members are indeterminate or unknown and charging such income at the maximum marginal rate.

2.2 The Circular clarifies that in cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, where the members or trustees are not entitled to any share in the income of the association of persons, provisions of section 167A are not attracted and tax is payable at rates ordinarily applicable to an AOP, and not at the maximum marginal rate.

Interpretation and reasoning:

2.3 The Tribunal noted the factual position that the assessee is a charitable trust engaged in charitable activities for public at large and had not claimed exemption under section 11 or benefits of registration under section 12A, and is liable to tax as per normal slab rates.

2.4 It found that the first appellate authority failed to appreciate the character of the assessee as a charitable trust and its tax treatment as per the above CBDT Circular.

2.5 The direction of the first appellate authority required the Assessing Officer to verify the shares of members of the AOP and the taxable income of such members, and only if the shares were determined and the income of any member did not exceed the basic exemption limit, to compute tax as per slab rates.

2.6 The Tribunal held that this approach was misplaced in the case of a charitable trust covered by CBDT Circular No. 320, because in such trusts, members or trustees are not entitled to any share in the income of the AOP, and therefore the regime of maximum marginal rate under section 167A, based on indeterminate/unknown shares, is inapplicable.

2.7 Having examined the facts, the Tribunal held that the assessee-trust satisfied all the conditions spelt out in the CBDT Circular for being outside the scope of maximum marginal rate and for being taxed at the ordinary slab rates applicable to an AOP.

Conclusions:

2.8 The Tribunal concluded that tax in the assessee's case should be charged at normal slab rates applicable to an AOP (aligned to slab rates as in the case of an individual), and not at the flat maximum marginal rate of 30%.

2.9 The directions of the first appellate authority, making application of slab rates conditional upon verification of members' shares and their individual income levels, were not warranted in law in the case of this charitable trust and stood effectively overridden by the Tribunal's conclusion based on CBDT Circular No. 320.

2.10 Consequently, the adjustment made under section 143(1) by applying 30% flat rate was held to be unsustainable, and the grounds challenging that adjustment were allowed.

Issue 2: Correct rate of surcharge on the assessee's income

Interpretation and reasoning:

2.11 The assessee contended that surcharge had been incorrectly levied at 37% instead of 15%, having regard to paragraph (A) of Part I of the First Schedule to the relevant Finance Act and the composition of its income (including dividend income and income excluding such dividends).

2.12 Having held that the assessee is to be taxed at slab rates applicable to an AOP / individual and not at maximum marginal rate, the Tribunal directed that surcharge should also be computed strictly in accordance with the rates prescribed for such category, rather than at 37% as applied by the CPC.

Conclusions:

2.13 The Tribunal held that surcharge must be recomputed in the assessee's case in accordance with the rates prescribed for an AOP taxed at slab rates, thereby negating the 37% surcharge levied under section 143(1).

2.14 The ground challenging erroneous levy of surcharge was allowed.

Issue 5: Levy of interest under sections 234B and 234C

Interpretation and reasoning:

2.15 The levy of interest under sections 234B and 234C arose consequentially from the tax and surcharge computation made under section 143(1) at the maximum marginal rate and higher surcharge.

2.16 Once the Tribunal directed computation of tax and surcharge at slab rates applicable to an AOP / individual, the basis for the earlier computation of interest under sections 234B and 234C was disturbed.

Conclusions:

2.17 The Tribunal allowed the grounds pertaining to charging of interest under sections 234B and 234C, directing that interest, if any, be recomputed only consequentially on the basis of tax and surcharge recomputed as per slab rates.

Issue 6: Application of findings to subsequent assessment year

Interpretation and reasoning:

2.18 For the subsequent assessment year, the Tribunal recorded that facts and issues were identical to those decided in relation to the earlier assessment year.

2.19 The Tribunal, therefore, applied its reasoning and conclusions from the earlier year mutatis mutandis to the later year.

Conclusions:

2.20 For the subsequent assessment year, the Tribunal allowed the appeal, directing that the assessee be taxed at slab rates applicable to an AOP / individual, with surcharge and consequential interest recomputed in line with that treatment.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessment order was bad in law and without jurisdiction, including on account of alleged violation of CBDT Instruction No. 1/2011, and whether the assessee could validly raise a jurisdictional objection at the appellate stage.

1.2 Whether the appellate authority erred in relying on the remand report without affording the assessee an opportunity to rebut it, and the consequent validity of the confirmation of addition on account of long-term capital gains.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Objection to jurisdiction and validity of assessment order

Legal framework

2.1 The Tribunal referred to section 124 of the Income-tax Act, 1961, particularly sub-sections (3) and (4), governing when and how an assessee may call in question the jurisdiction of an Assessing Officer.

2.2 Section 124(3)(a) provides that where the assessee has made a return under section 139(1), he is not entitled to question the jurisdiction of the Assessing Officer after the expiry of one month from the date on which he was served with a notice under section 142(1) or section 143(2), or after completion of the assessment, whichever is earlier.

2.3 Section 124(4) mandates that, subject to section 124(3), when an assessee objects to the jurisdiction of the Assessing Officer, the Assessing Officer, if not satisfied, shall refer the matter for determination in terms of section 124(2) before making the assessment.

Interpretation and reasoning

2.4 The Tribunal noted that the assessee voluntarily filed its return of income with the specified Assessing Officer (Ward-1(1)(1)), and thereafter the first notice under section 143(2) was issued on 03.08.2016, followed by several notices under section 142(1), none of which were responded to by the assessee.

2.5 Applying section 124(3)(a), the Tribunal held that the assessee could have questioned the jurisdiction only within one month from service of the first statutory notice (i.e., before 03.09.2016), and only before the Assessing Officer. No such objection was raised either before the Assessing Officer or before the first appellate authority.

2.6 The Tribunal held that, in view of section 124(3), the assessee was not entitled to raise the jurisdictional objection for the first time before the Tribunal by way of an additional ground after completion of assessment and appellate proceedings.

2.7 The Tribunal further held that section 124 constitutes a self-contained mechanism on jurisdiction, and that the case law relied upon by the assessee did not deal with section 124, particularly sub-section (3), and therefore did not assist the assessee.

2.8 As regards the reliance on CBDT Instruction/Circular No. 1/2011, the Tribunal observed that since the assessee itself filed the return of income before the concerned Assessing Officer, the contention that the assessment was without jurisdiction on the basis of that Instruction did not arise on the facts.

Conclusions

2.9 The Tribunal concluded that the assessee had no locus standi to question the Assessing Officer's jurisdiction at this stage in view of section 124(3)(a), and rejected the additional ground challenging the assessment as bad in law, illegal, or without jurisdiction, including the plea based on CBDT Instruction No. 1/2011.

Issue 2: Opportunity to rebut remand report and confirmation of long-term capital gain addition

Interpretation and reasoning

2.10 The Tribunal examined the appellate order and noted that the appellate authority had called for and relied upon a detailed remand report from the Assessing Officer, which was adverse to the assessee and formed the basis for confirming the addition on account of long-term capital gains.

2.11 It was observed that, although the remand report was relied upon extensively, the assessee was not given an effective opportunity to rebut or respond to the findings and discrepancies recorded therein.

2.12 The Tribunal found force in the assessee's contention that non-grant of such opportunity violated the principles of natural justice, particularly when the remand report was determinative in sustaining the addition.

Conclusions

2.13 The Tribunal held that the confirmation of the addition of Rs. 5,80,85,164/- on account of long-term capital gains, without affording the assessee an opportunity to controvert the remand report, was not sustainable.

2.14 In the interest of justice, the Tribunal set aside the matter to the file of the jurisdictional Assessing Officer, directing that one more opportunity of hearing be given to the assessee to substantiate its claim relating to long-term capital gains and supporting documentation.

2.15 The Tribunal clarified that the assessee must effectively utilise this final opportunity and that the Assessing Officer shall pass a fresh order on the merits of the case after providing due opportunity of being heard.

2.16 The appeal was accordingly treated as allowed for statistical purposes, with the quantum addition on long-term capital gains remitted for de novo consideration and not decided on merits at this stage.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment proceedings initiated under sections 147 and 148, beyond four years from the end of the assessment year, on the very same income and material already considered in the original assessment under section 143(3), were valid in law.

1.2 Whether, in the facts of the case, the reasons recorded for reopening constituted a mere "change of opinion" without any fresh tangible material or specific allegation of failure to disclose fully and truly all material facts necessary for assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of reassessment under sections 147/148; absence of fresh material; change of opinion; reopening beyond four years

Legal framework (as discussed)

2.1 The Tribunal noted the statutory requirements of section 147, including the necessity of "reason to believe" that income chargeable to tax has escaped assessment, and, where more than four years have elapsed from the end of the relevant assessment year, the additional condition of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

2.2 The Tribunal referred to judicial principles laid down by the jurisdictional High Court and the Supreme Court, inter alia, that:
(a) It is impermissible for an Assessing Officer to reopen an assessment based on the very same material with a view to take another view once one view is conclusively taken.
(b) A mere change of opinion does not constitute "reason to believe".
(c) A general or vague statement regarding failure to disclose is insufficient; the Assessing Officer must indicate what material fact was not fully and truly disclosed.
(d) Once a query is raised during original assessment and replied to by the assessee, that issue is deemed to have been considered, even if not discussed in the assessment order.

Interpretation and reasoning

2.3 The Tribunal recorded that the assessee's original assessment was completed under section 143(3), wherein:
(i) The interest income from investments in co-operative banks and the related deduction under section 80P were examined and allowed; and
(ii) The other incomes (e.g., receipts from certain companies and service tax credited to the income and expenditure account) were also considered and adjudicated, with additions made and partially deleted by the first appellate authority relying on a coordinate bench decision and the principle of mutuality.

2.4 The reasons recorded for reopening under section 148 specifically relied on:
(a) Interest received from fixed deposits with co-operative banks and a nationalised bank allegedly not eligible for deduction under section 80P(2)(d); and
(b) Certain receipts from companies and service tax credited to the income and expenditure account allegedly not covered by the principle of mutuality.

2.5 The Tribunal found that these very items of income and the eligibility of deduction under section 80P had already been examined during the original assessment proceedings, and the corresponding additions had been dealt with in appeal. The Tribunal held that there was no new or additional tangible material brought on record by the Assessing Officer at the time of recording reasons for reopening.

2.6 The assessee, in response to the section 148A(b) notice, specifically pointed out that:
(a) The original assessment had been completed after detailed inquiries and submissions; and
(b) There was no change in facts or any new tangible material to justify reopening; and
(c) The purported escapement was only on account of re-examination of the same issues, amounting to a change of opinion.

2.7 The Assessing Officer, in the order under section 148A(d), reiterated the same reasoning as in the recorded reasons, namely that interest from co-operative banks was not eligible for deduction under section 80P(2)(d), without identifying any fresh material or any specific failure of disclosure by the assessee.

2.8 The Tribunal noted that:
(i) The reassessment was clearly founded on the same material and the same heads of income considered earlier;
(ii) The Assessing Officer had not demonstrated which material fact was not truly and fully disclosed by the assessee in the original assessment; and
(iii) The reassessment was therefore an attempt to review or revisit an earlier concluded view, which the settled law does not permit.

2.9 In support, the Tribunal relied on:
- The jurisdictional High Court decision holding that reopening on the very same material, to take another view, is impermissible and that a mere change of opinion cannot justify reopening; and
- The principle that once queries are raised and answered in original assessment, the issue is deemed to have been considered, and reopening on that very issue constitutes a change of opinion.

2.10 The Tribunal also noted that the legal position regarding deduction under section 80P(2)(d) on interest from co-operative banks has since been conclusively settled by the Supreme Court, but emphasized that, even independently of that, the reassessment fails at the threshold for want of fresh tangible material and for being a change of opinion.

Conclusions

2.11 The Tribunal held that:
(a) The reassessment was initiated on the very same grounds and income items that were already examined and concluded during the original assessment proceedings;
(b) No fresh tangible material was brought on record to justify reopening under section 147;
(c) The reasons recorded amounted to a mere change of opinion of the Assessing Officer; and
(d) The mandatory condition, in a case beyond four years, of demonstrating failure by the assessee to disclose fully and truly all material facts was not satisfied.

2.12 Consequently, the Tribunal declared the reassessment proceedings invalid in law and quashed the reassessment order passed under section 147 read with section 144B. The appeal was allowed on this legal ground, rendering further adjudication on merits unnecessary.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment notice and proceedings were vitiated for want of proper sanction under section 151 in the context of the substituted reassessment regime, TOLA, and the legal fiction created by the Supreme Court in respect of notices issued between 01.04.2021 and 30.06.2021.

1.2 Whether reassessment under section 147, leading to additions under sections 69B and 69C on account of alleged "on-money" for land and construction, could be sustained when a prior assessment under section 153A had already examined the same property transaction and when the additions were based solely on an unsigned third-party Excel sheet and general disclosure by the developer group, without independent corroboration or nexus to the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of sanction under section 151 for reassessment notice issued in the transitional period

Legal framework (as discussed):

2.1 The Tribunal considered the substituted provisions of sections 147-151, the effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and the Supreme Court decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, in light of the binding judgment of the Gujarat High Court in Dhanraj Govindram Kella v. ITO.

2.2 The High Court in Dhanraj Govindram Kella held that where reassessment notices issued under the old law between 01.04.2021 and 30.06.2021 are saved by the legal fiction created by the Supreme Court, the sanction obtained from the authority under section 151(1)(i) (Principal Commissioner / Principal Director / Commissioner / Director) is to be treated as valid, provided the three-year limitation from the end of the relevant assessment year fell within the extended window covered by TOLA. Approval of the Principal Chief Commissioner is not mandatory in such cases.

Interpretation and reasoning:

2.3 The assessee's additional grounds challenged jurisdiction on (i) the alleged incompetence of the sanctioning authority under section 151 and (ii) the contention that the Revenue ought to have invoked section 263 instead of section 147.

2.4 The Tribunal noted that the assessee's contentions as to invalidity of approval under section 151 were "identical" to those rejected by the Gujarat High Court in Dhanraj Govindram Kella, and that the factual matrix of the present case fell within the framework explained in that judgment, namely: the notice was issued in the covered period and the approval had been obtained from an authority falling under section 151(1)(i) within the TOLA-extended limitation.

2.5 Applying the ratio of Dhanraj Govindram Kella, the Tribunal held that the approval obtained by the Assessing Officer under section 151(1)(i) satisfied the statutory requirement and could not be assailed on the ground that sanction of the Principal Chief Commissioner was necessary.

Conclusions:

2.6 The additional grounds of the assessee challenging the validity of the reassessment on the basis of want of proper sanction under section 151, and generally questioning the jurisdiction to proceed under section 147, were rejected and dismissed.

Issue 2 - Sustainability of additions under sections 69B and 69C based on third-party unsigned digital data and general group disclosure, in the backdrop of prior scrutiny under section 153A

Legal framework (as discussed):

2.7 The Tribunal referred to judicial principles laid down inter alia in:

(a) PCIT v. Kaushik Nanubhai Majithia (Guj.), holding that an unsigned Excel sheet seized from a third party has no evidentiary value against an assessee unless it is duly corroborated and specifically linked to the assessee;

(b) ITO v. Bharat A. Mehta (Guj.), where it was held that notings in the books or records of another person reflecting alleged on-money payments cannot justify additions in the hands of an assessee absent clear evidence of actual payment by the assessee;

(c) Various Tribunal decisions (including Kiritkumar Champaklal Shah v. ITO; Deputy Commissioner of Income-tax, Central v. Mahalaxmi Infracontract Ltd.; Pradeep Amrutlal Runwal; Regency Mahavir Properties; Vinit Ranawat) consistently holding that loose papers, unsigned Excel sheets, or digital data seized from third parties cannot, without independent corroboration and opportunity of cross-examination, form the sole basis for additions under sections 69, 69B, or 69C.

Interpretation and reasoning:

2.8 The Tribunal noted that, for the year in question, the assessee had purchased only an open plot of land (Plot/Unit No. 117 in the Kalhaar Blues & Greens project) under a registered deed dated 04.08.2016. There was no purchase of a constructed villa by the assessee during the year.

2.9 In assessment under section 153A read with section 143(3), the Assessing Officer had already scrutinized the same transaction in depth: calling for the purchase deed, source of funds, bank statements and other details, and, after examination, accepted the transaction without any addition.

2.10 The subsequent reassessment additions under sections 69C (Rs. 1,05,00,000 as alleged unexplained expenditure towards construction) and 69B (Rs. 35,01,500 as alleged unexplained investment in land) were founded solely on an unsigned Excel sheet stated to have been recovered from the laptop of a third party (an employee of the developer group) and on the fact of a general disclosure by that group before the Settlement Commission.

2.11 The Tribunal emphasized that the Assessing Officer had not:

(i) demonstrated that the Excel sheet belonged to the assessee;

(ii) established that the specific entries in the sheet related to transactions of the assessee; or

(iii) produced any independent evidence to show that the assessee actually paid any on-money to the developer.

2.12 There was also no opportunity afforded to the assessee to cross-examine any person whose statements or data were relied upon, and no corroborative material such as bank trail, cash flow, or contemporaneous records linking the alleged on-money to the assessee was brought on record.

2.13 On the contrary, the registered sale deed dated 22.01.2021, placed on record, showed that construction on the said plot was carried out entirely by the developer at its own cost, and at the time of ultimate sale the purchasers made separate payments-land consideration to the assessee and construction consideration directly to the developer. This factual position negatived the allegation that the assessee had borne construction cost or paid any "construction on-money".

2.14 In light of the above, and following the binding precedents that unsigned, third-party digital data and loose documents, without corroboration and nexus, cannot form the sole basis of additions, the Tribunal concurred with the CIT(A)'s view that the impugned additions were based on presumptions and conjectures, rather than on legally sustainable evidence.

Conclusions:

2.15 The Excel sheet relied upon by the Assessing Officer was held to be an unsigned, unverified third-party digital document, with no established nexus to the assessee, and insufficient in law to sustain additions under sections 69B and 69C.

2.16 Having regard to the prior detailed scrutiny of the same transaction in the section 153A assessment, the absence of any independent corroborative evidence of on-money, and the clear documentary record showing that construction was neither carried out nor funded by the assessee, the Tribunal upheld the deletion of the additions of Rs. 1,05,00,000 under section 69C and Rs. 35,01,500 under section 69B.

2.17 The Revenue's appeal on merits was dismissed, and the order of the Commissioner (Appeals) deleting the additions was affirmed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the adjudicating authority, in the remand proceedings, acted in defiance of the directions of the Tribunal by relying on statements of witnesses who were not cross-examined and by ignoring the depositions of witnesses who were cross-examined.

1.2 How Section 138-B of the Customs Act, 1962 governs the admissibility and relevancy of statements of witnesses in adjudication proceedings, particularly where some witnesses remain unavailable for cross-examination despite opportunities.

1.3 Whether the impugned adjudication order, based on selective reliance on witness statements and without the requisite findings and safeguards under Section 138-B, could be sustained in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with the Tribunal's remand directions regarding cross-examination

Interpretation and reasoning

2.1 The Tribunal had set aside the earlier order on the ground that six witness statements had been relied upon without granting cross-examination under Section 138-B, and remanded the matter "for fresh adjudication after granting the appellant due opportunity for cross-examination", keeping all issues open.

2.2 On remand, three witnesses (Prahladbhai Indarmal Jhaver, Suresh Gangdas Patel and Sanjay Notandas Gandhi) appeared, were cross-examined and deposed in favour of the petitioners. Three other witnesses (Ankit Changani, Anand Patel and Dineshbhai Changani) did not appear despite four opportunities.

2.3 The adjudicating authority, in the impugned order, relied on the statements of the non-appearing three witnesses (recorded earlier without cross-examination) and ignored the evidence of the three witnesses who were actually examined and cross-examined in the remand proceedings.

2.4 The Tribunal's directions were to provide the petitioners an opportunity for cross-examination. Since three witnesses did not avail of the opportunity, the Court held that the adjudicating authority was not per se in breach of the remand directions; the question was how their statements could be treated under Section 138-B in such circumstances.

Conclusions

2.5 The Tribunal's remand was complied with to the extent that opportunities for cross-examination were extended to all six witnesses; non-appearance of three witnesses did not by itself constitute violation. However, the manner of using their earlier statements had to conform strictly to Section 138-B and principles of natural justice, which the adjudicating authority failed to observe.

Issue 2: Scope and application of Section 138-B of the Customs Act, 1962

Legal framework as discussed

2.6 The Court reproduced Section 138-B, which deals with relevancy of statements made before a gazetted customs officer, and noted that sub-section (2) extends its application to proceedings other than before a court.

2.7 Clause (b) of sub-section (1) covers situations where the person who made the statement is examined as a witness and the court (or authority) admits the statement in the interests of justice.

2.8 Clause (a) of sub-section (1) covers situations where the person is dead, cannot be found, is incapable of giving evidence, is kept out of the way by the adverse party, or whose presence cannot be obtained without unreasonable delay or expense.

Interpretation and reasoning

2.9 The Court held that clause (b) necessarily envisages that the witness is available during the inquiry or proceedings and offers herself/himself for cross-examination; only then can the statement be admitted in evidence in the interests of justice. Without cross-examination, such statements are inadmissible, as denial of cross-examination violates principles of natural justice and fair play.

2.10 Clause (a) was construed as analogous to Section 32 of the Indian Evidence Act, 1872 (now Section 26 of the Bharatiya Sakshya Adhiniyam, 2023), dealing with statements of persons not available to testify. However, the Court underscored that such unavailability must be affirmatively established.

2.11 The Court held that under clause (a), the authority may treat the statement as relevant only when it records a clear finding that the circumstances prescribed in clause (a) are satisfied and that it is impossible, despite reasonable efforts, to secure the presence of the witness.

2.12 Reasonable attempts must be made within a reasonable time to secure the presence of the witness, and the process should not be unduly delayed. During this process, an opportunity should also be provided to the assessee to secure the presence of the witness at the assessee's own expense.

2.13 Even when a witness is unavailable and clause (a) is invoked, the assessee must be confronted with the statement and given full opportunity to respond to and rebut it. The bare statement cannot be relied upon blindly; corroborative material must be present, and reasons based on the material must be recorded for treating the statement as reliable and relevant.

2.14 The Court concluded that, whether under clause (a) or clause (b), the evidence must satisfy the "test of admissibility in the interest of justice", which includes observance of natural justice, consideration of corroboration, and reasoned findings.

Conclusions

2.15 Statements of witnesses available for examination can be relied upon only after affording cross-examination under clause (b).

2.16 Statements of witnesses not produced for cross-examination may be treated as relevant under clause (a) only if the conditions of unavailability are specifically established, a clear finding is recorded, attempts to secure presence (including with the assessee's assistance) have failed within a reasonable time, and the assessee is duly confronted with such statements and allowed to rebut them. Corroboration and reasoned evaluation are mandatory.

Issue 3: Validity of the impugned order in light of Section 138-B and the evidentiary record

Interpretation and reasoning

2.17 The adjudicating authority relied on statements of three witnesses who did not appear on remand and were never cross-examined, and simultaneously ignored the testimonies of three witnesses who did appear and deposed in favour of the petitioners after cross-examination.

2.18 The respondents did not dispute that the impugned order selectively relied on non-cross-examined statements and disregarded the cross-examined evidence favourable to the petitioners.

2.19 The Court held that, in the remand proceedings, the adjudicating authority was required to consider: (i) the evidence of the three witnesses who were examined and cross-examined; and (ii) the statements of the three witnesses who did not appear, by applying the structured approach required under Section 138-B, particularly clause (a), as elaborated by the Court.

2.20 The adjudicating authority failed to undertake the required exercise: it did not properly weigh statements of all six witnesses with corroborative material and the assessee's defence, nor did it record the necessary findings on unavailability, attempts to secure presence, or provide a proper opportunity for the petitioners to meet the statements of the non-appearing witnesses in the manner mandated.

Conclusions

2.21 The impugned order did not conform to the requirements of Section 138-B and principles of natural justice, as it was based on selective and improper reliance on untested statements and exclusion of cross-examined evidence favourable to the petitioners.

2.22 The writ petition was allowed; the impugned order was quashed and set aside, and the matter remanded to the adjudicating authority for fresh adjudication in accordance with the Court's interpretation of Section 138-B, to be completed within a stipulated time, with all rights and contentions kept open and no opinion expressed on merits.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the writ jurisdiction under Article 226 can be invoked to challenge an Order-in-Original under the Customs Act despite availability of a statutory appellate remedy.

1.2 Whether alleged violation of principles of natural justice, including non-consideration of contentions/documents and rejection of cross-examination, justified bypassing the rule of exhaustion of alternate remedies.

1.3 Whether inability or unwillingness to comply with the statutory pre-deposit requirement for filing an appeal can constitute an exceptional ground to maintain a writ petition.

1.4 Whether filing writ petitions on vague, unsubstantiated pleas of natural justice and financial incapacity amounts to abuse of the process of Court warranting imposition of costs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Maintainability of writ petition in presence of statutory appeal; alleged breach of natural justice as an exception

Legal framework (as discussed)

2.1 The Court noted that the Customs Act provides a statutory right of appeal against the Order-in-Original and that the doctrine of exhaustion of alternate remedies ordinarily restrains the exercise of writ jurisdiction where such efficacious remedies exist.

2.2 The Court referred to prior decisions, including those in Oberoi Constructions Ltd., Khemchand Uttamchand Bhojwani, and the Supreme Court's decision in Rikhab Chand Jain, which emphasize that High Courts should not entertain writ petitions under Article 226 when effective statutory remedies are available, save in exceptional cases such as jurisdictional error or clear violation of natural justice.

Interpretation and reasoning

2.3 The Court observed that the impugned Order-in-Original runs to about 335 pages. Even assuming substantial reproduction of the show cause notice, approximately 30 pages deal with merits, and on perusal, the Adjudicating Authority has either considered the petitioners' arguments or taken into account relevant documents submitted in response to the show cause notice.

2.4 The plea that none of the petitioners' contentions or documents were considered was found to be inconsistent with the record of the adjudication order. The Court declined to undertake a deeper merits review so as not to prejudice the petitioners' statutory appeal rights.

2.5 The ground of denial of cross-examination was noted to have not been strongly argued; further, the main thrust of challenge was subsequently shifted to non-consideration of contentions and financial inability to meet pre-deposit, undermining the seriousness of the natural justice plea.

2.6 The Court distinguished the precedent relied upon (GlobeOp Financial Services), observing that in that case almost none of the noticee's contentions or documents were referred to or considered, whereas here there was a detailed order disposing of the adjudication proceedings.

2.7 It was held that dissatisfaction with the merits or sufficiency of reasoning in the adjudication order is a matter for statutory appeal, and such grievances do not in themselves constitute a ground to invoke writ jurisdiction bypassing the appellate remedy.

Conclusions

2.8 The Court held that no exceptional circumstances or clear violation of principles of natural justice were made out to justify deviation from the rule of exhaustion of alternate remedies.

2.9 The writ petitions challenging the Order-in-Original were held to be not maintainable in the face of the statutory appellate remedy under the Customs Act.

Issue 3: Inability or unwillingness to comply with pre-deposit requirement as ground to bypass alternate remedy

Legal framework (as discussed)

3.1 The Court recorded that the statutory requirement of pre-deposit for maintaining an appeal is mandatory.

3.2 Reference was made to prior decisions (including Oberoi Constructions Ltd. and Khemchand Uttamchand Bhojwani) where vague assertions of incapacity to pay pre-deposit, unsupported by material, were held insufficient to justify entertaining a writ petition; the Supreme Court had declined to interfere with this approach.

Interpretation and reasoning

3.3 The Court noted that the real reason for resorting to the writ jurisdiction emerged only at a later stage of arguments, when counsel for the petitioners asserted inability to comply with the pre-deposit requirement, after it became apparent that the natural justice challenge was not impressing the Court.

3.4 Apart from a bare statement from the bar, there was no pleading or material on record to substantiate financial incapacity. The Court held such an unsubstantiated assertion could not be the basis for bypassing the statutory appeal.

3.5 The Court referred to findings in the impugned order describing the petitioners' alleged roles in large-scale smuggling and trade-based money laundering operations involving substantial values of smuggled gold and large financial flows through multiple accounts and dummy entities. Without pronouncing on the correctness of these findings (which were left to the Appellate Authority), the Court cited them to demonstrate the hollowness of the plea that the petitioners could not afford the pre-deposit.

3.6 The Court also adverted to a comparable writ petition by another alleged participant in the same smuggling racket, where a similar plea of inability to pay 7.5% pre-deposit was rejected and the petition dismissed due to lack of supporting material and an affidavit that concealed more than it disclosed.

Conclusions

3.7 The Court held that financial incapacity to meet pre-deposit, particularly when asserted only orally and without evidentiary support, cannot constitute an exceptional ground to invoke writ jurisdiction in preference to the statutory appellate remedy.

3.8 The plea of inability to comply with pre-deposit was rejected, and it was held that the petitioners must pursue the statutory appeal with the mandated pre-deposit if they wish to contest the Order-in-Original.

Issue 4: Abuse of process and imposition of costs

Interpretation and reasoning

4.1 The Court observed an increasing tendency of litigants to institute writ petitions on false or frivolous averments, often without adequate pleadings, as a strategy to obtain interim relief and delay statutory processes, fully aware of docket pressures that impede early final hearing.

4.2 In the present matters, the Court found that: (a) the plea of violation of natural justice was prima facie untenable and deployed mainly to avoid the pre-deposit requirement; (b) the financial incapacity plea was raised late in arguments, unbacked by pleadings or material; and (c) the overall approach reflected an attempt to circumvent the statutory scheme rather than to vindicate any genuine procedural right.

4.3 Relying on the approach endorsed in earlier cases and in line with the principle that exceptional cases must be supported by proper pleadings and material, the Court treated the institution of these petitions as an abuse of the process of Court.

Conclusions

4.4 The writ petitions were dismissed as not maintainable and as an abuse of process.

4.5 The Court imposed costs of Rs. 50,000/- in each petition, directed to be paid to the Maharashtra Legal Services Authority within four weeks from the date of uploading of the order.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the rejection of the declared transaction value of imported "Copper Scrap - druid" and its enhancement on the basis of contemporaneous import/NIDB data was in accordance with Section 14 of the Customs Act, 1962 and Rules 3 and 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

1.2 Whether the proper officer complied with the mandatory procedural requirements under Rule 12 of the 2007 Rules, including recording and communicating cogent reasons for doubting the truth or accuracy of the declared value, before discarding the transaction value.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality of rejection of transaction value and compliance with Section 14 and Rule 12 of the 2007 Rules

Legal framework (as discussed by the Court)

2.1 Section 14 of the Customs Act provides that the value of imported goods shall be the "transaction value", i.e., the price actually paid or payable for the goods when sold for export to India, where buyer and seller are not related and price is the sole consideration.

2.2 Rule 3(1) of the 2007 Rules stipulates that the value of imported goods shall be the transaction value adjusted in accordance with Rule 10, and Rule 3(1) is expressly made subject to Rule 12.

2.3 Rule 3(2) requires acceptance of the declared value when conditions in clauses (a) to (d) are fulfilled; Rule 12 grants the proper officer power to reject the declared value where there is "reason to doubt the truth or accuracy" of the declared value and envisages a two-step process: (i) calling for further information/documents from the importer; and (ii) where reasonable doubt persists, treating the transaction value as not determinable under Rule 3(1) and proceeding to Rules 4 to 9.

2.4 The Explanation to Rule 12 (particularly clause (iii) read with clauses (a) to (f)) illustrates situations which may constitute "reason to doubt", though these are not exhaustive. Under Rule 12(2), upon request by the importer, the proper officer must communicate in writing the grounds for doubting the declared value.

2.5 Relying on the apex court's interpretation of Section 14 and Rule 12, the Tribunal notes that: (a) formation of reasonable doubt and recording of reasons is mandatory; (b) communication of such reasons, when sought by the importer, cannot be ignored or waived; and (c) rejection of declared value without cogent and good reasons in terms of Section 14(1) and Rule 12 is contrary to law.

Interpretation and reasoning

2.6 The Tribunal observes that the Order-in-Original merely reproduces NIDB data of so-called "contemporaneous imports" and, by invoking Rule 12(1), proceeds to reject the declared value and enhance it, without a detailed discussion of how the statutory preconditions under Rule 12 are fulfilled.

2.7 It is noted that the laboratory report only indicated the composition of the goods (various percentages of galvanized iron, copper, plastic, aluminium, woven fabric, paper and yarn) and did not, by itself, provide any basis to doubt the declared price.

2.8 The Tribunal finds that neither the Order-in-Original nor the Order-in-Appeal records specific, cogent reasons under Section 14(1) read with Rule 12 for forming a reasonable doubt as to the truth or accuracy of the declared value, nor do they demonstrate adherence to the two-step procedure envisaged in Rule 12, including calling for and examining additional information from the importer.

2.9 On examining the NIDB data referred to in the Order-in-Original (para 10), the Tribunal notes that most of the items are clearly different from the goods in question; even in respect of two bills of entry that appear somewhat similar, there is no specific mention of country of origin and the quantities imported are not comparable. Furthermore, it is recorded that even the department did not have copies of those bills of entry, as admitted by the CPIO's letter.

2.10 The Tribunal holds that, in light of the principles laid down by the apex court, mere reference to NIDB data, without establishing identity/similarity of goods and without cogent reasoning, does not satisfy the mandate for rejection of transaction value. Absence of proper reasons, supported by contemporaneous and comparable material, renders the enhancement unsustainable.

2.11 The Tribunal therefore concludes that the lower authorities have disregarded the statutory mandate under Section 14 and Rules 3 and 12 by rejecting the transaction value solely on a generalized or inadequately supported reference to contemporaneous imports, without satisfying the conditions for doubting and discarding the declared value.

Conclusions

2.12 The proper officer did not validly invoke Rule 12, as no cogent and recorded reasons demonstrating "reason to doubt the truth or accuracy" of the declared value were shown, nor was there proper reliance on comparable contemporaneous imports.

2.13 The rejection of the declared transaction value and the consequent enhancement, as upheld by the first appellate authority, are contrary to Section 14 of the Customs Act and Rules 3 and 12 of the 2007 Rules.

2.14 The impugned appellate order, affirming the enhancement of value, is held to be flawed and unsustainable in law and is accordingly set aside.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether import of rough granite blocks by a 100% Export Oriented Unit, without a specific licence where such goods are "restricted" under the Foreign Trade Policy, renders the goods "prohibited" for the purposes of Section 111(d) of the Customs Act and Section 23(2) thereof.

1.2 Whether an importer can claim abandonment / relinquishment of title to uncleared imported goods under Section 23(2) of the Customs Act when the import is in violation of restrictions under the Foreign Trade Policy and no valid import licence has been produced.

1.3 Whether penalty under Section 112(a) of the Customs Act is imposable, and if so, to what quantum, where restricted goods have been imported without licence, remained uncleared, and were abandoned, having regard to the absence of mala fides and reliance on precedents where penalty was held not imposable in cases of abandonment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Nature of the goods: "restricted" versus "prohibited" and effect on confiscation

Legal framework

2.1 The judgment refers to: (a) Section 111(d) of the Customs Act, 1962, empowering confiscation of "prohibited" goods; (b) Para 6.2(b) of the relevant Foreign Trade Policy permitting EOUs to import goods without payment of duty, provided they are not "prohibited" items; (c) Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992, which deems all goods that are prohibited, restricted or regulated for import/export to be "prohibited" goods under Section 11 of the Customs Act.

2.2 The Tribunal relies on case law: (a) a Supreme Court decision holding that "prohibition" covers "restriction" whether complete or partial and that restricted goods under EXIM/Foreign Trade Policy are "prohibited goods" for purposes of the relevant enactments; (b) decisions following this view, including one by the Tribunal.

Interpretation and reasoning

2.3 The Tribunal examines whether, for a 100% Export Oriented Unit, the expression "prohibited" in the Policy and Section 111(d) of the Customs Act excludes "restricted" goods. It holds that "prohibition" is not confined to an absolute ban but extends to goods subject to any conditions or restrictions.

2.4 By reference to the cited Supreme Court judgment and subsequent authorities, it reasons that restricted goods under the Foreign Trade Policy are treated as "prohibited goods" for purposes of the Customs Act when the conditions of import (such as licence) are not complied with.

2.5 The Tribunal notes that the rough granite blocks were "restricted" items under the then Foreign Trade Policy requiring specific import licence/authorisation. The appellant failed to produce any such licence or to clear the goods under the proper 100% EOU scheme by executing the requisite bond or producing procurement certificate.

2.6 It concludes that, once the condition (licence) for import of restricted goods is not complied with, those goods become "prohibited" goods for enforcement under the Customs Act. The status of the importer as a 100% EOU does not, by itself, cure the absence of a required licence or regularisation under the EOU scheme.

Conclusions

2.7 The rough granite blocks, being "restricted" under the Foreign Trade Policy and imported without satisfying the prescribed licensing conditions, are to be treated as "prohibited" goods for the purposes of Section 111(d) of the Customs Act.

2.8 Confiscation under Section 111(d) is attracted in such circumstances, notwithstanding the importer's 100% EOU status.

Issue 2 - Entitlement to abandon / relinquish goods under Section 23(2) in case of invalid / restricted imports

Legal framework

2.9 The Tribunal considers Section 23(2) of the Customs Act, 1962, which permits an importer to relinquish title to the goods before clearance for home consumption or warehousing, subject to conditions. It also notes that the custodian issued notices under Section 48 of the Customs Act due to non-clearance, and that the appellant had failed to file Bills of Entry under Section 46.

Interpretation and reasoning

2.10 The appellant contended that, as a 100% EOU, it could import restricted goods (only prohibited goods being barred) and that the department wrongly rejected its request for abandonment under Section 23(2), arguing that the rough granite blocks were not "prohibited" goods. The Tribunal rejects this premise, having already held that non-compliant restricted goods are to be treated as "prohibited".

2.11 The Tribunal observes that abandonment under Section 23(2) is not an automatic facility. It is conditional upon the import itself being otherwise valid, i.e., in accordance with law. If the import violates statutory restrictions or lacks the necessary licence/authorisation, simple relinquishment cannot regularise such illegality.

2.12 The Tribunal notes that the appellant's explanations are internally inconsistent: on one hand it claims no consent for shipment, while on the other it attributes abandonment to escalated costs due to delay and increased charges. This contradiction undermines the assertion that the goods were shipped without its consent.

2.13 The Tribunal further observes that it is not the appellant's case that it was disinterested in the goods per se; rather, it would have cleared the goods but for escalation in cost of importation. No evidence was produced to show that the appellant had not requested shipment from the supplier.

2.14 It endorses the Original Authority's view that, since the goods are restricted and the appellant has not produced any licence or complied with EOU scheme requirements for clearance, the importer cannot claim relinquishment as a matter of right to avoid the consequences of an invalid import.

Conclusions

2.15 Abandonment / relinquishment under Section 23(2) is not available in a case where import of restricted goods is effected without requisite licence or without compliance with the conditions of the EOU scheme; the import is not "valid" in law, and the goods stand as prohibited for enforcement purposes.

2.16 The department was justified in rejecting the request for abandonment and in proceeding with confiscation and penalty.

Issue 3 - Imposition and quantum of penalty under Section 112(a) where restricted goods are abandoned

Legal framework

2.17 The Tribunal considers Section 112(a) of the Customs Act, 1962, which provides for imposition of penalty on persons who, in relation to any goods liable to confiscation, do or omit to do any act rendering the goods so liable.

2.18 The appellant relied on decisions where penalty was held not imposable where imported goods were abandoned under Section 23(2), namely Peirce Leslie India Ltd., Sewa Rax & Bros., and Garima Trade Services Ltd.

Interpretation and reasoning

2.19 The Tribunal notes that, in the precedents cited by the appellant, the ratio was that penalty is not imposable where goods are validly abandoned under Section 23(2). It examines their applicability to the present facts and finds them distinguishable.

2.20 The Tribunal stresses that, in the instant case, the allegation pertains to an attempt to import restricted goods without complying with the requisite licensing or EOU scheme conditions. The goods were "restricted" and, in the absence of compliance, became prohibited for Customs purposes. They were not being cleared under the bona fide EOU scheme for manufacture.

2.21 It holds that where there is an attempt to import restricted goods contrary to policy and statutory conditions, penalty under Section 112(a) is imposable even if the importer subsequently abandons the goods before clearance, since abandonment does not efface or cure the earlier contravention.

2.22 However, the Tribunal evaluates the degree of culpability. It records that no mala fides can be attributed to the conduct of the appellant on the material before it. The abandonment was linked primarily to escalation of costs rather than a deliberate attempt to smuggle or otherwise evade policy in a clandestine manner.

2.23 On that basis, the Tribunal finds that the quantum of penalty of Rs. 4,00,000/- imposed by the lower authorities is disproportionate to the value of the goods abandoned and to the nature of the contravention.

Conclusions

2.24 Penalty under Section 112(a) is legally sustainable in principle in the given facts, despite abandonment of the goods, as the import was of restricted (treated as prohibited) goods without fulfilment of legal conditions.

2.25 Considering the absence of mala fides and the disproportionality of the original penalty, the Tribunal reduces the penalty from Rs. 4,00,000/- to Rs. 1,00,000/- under Section 112(a) of the Customs Act and modifies the impugned order accordingly.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessing officer was justified in rejecting the declared transaction value of imported LLDPE and enhancing it on the basis of NIDB data and PLATT bulletin rates.

1.2 Whether enhancement of value was made in conformity with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and applicable departmental standing orders.

1.3 Whether failure to furnish contemporaneous import data and underlying documents (including NIDB details and relevant bills of entry) to the importer vitiated the assessment on grounds of violation of principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for rejection of declared transaction value and enhancement based on NIDB and PLATT data

Interpretation and reasoning

2.1 The Court noted that the importer purchased LLDPE on high seas sale basis at USD 1.34 per kg and declared this transaction value in the bill of entry. The assessing officer, relying on a standing order and contemporaneous prices/NIDB data as well as PLATT rates, doubted the declared value, rejected it under the valuation rules, and enhanced the value to USD 1.42139 per kg.

2.2 The adjudicating authority relied on a table of contemporaneous imports for May-June 2015, showing prices in the range of USD 1430-1485 per MT for LLDPE of UAE origin, and chose the nearest bill of entry dated 2 June 2015. However, in the operative portion, the authority finally assessed the goods at USD 1440.86 per MT based on PLATT rates for South East Asia as on 6 May 2015.

2.3 The Court observed that the order did not disclose crucial comparability parameters such as quality of goods and commercial quantity in the referenced bills of entry, which are necessary to determine whether the contemporaneous imports were of comparable goods for the purpose of rejecting the declared value and redetermining assessable value.

Conclusions

2.4 The assessing officer had sufficient reason to doubt the declared value and could proceed to examine it; however, the manner of rejection of the declared value and reliance on NIDB and PLATT data, without establishing proper comparability and without adequate disclosure to the importer, was found to be deficient and could not be sustained as such.

Issue 2: Compliance with Customs Valuation Rules and departmental standing orders in enhancement of value

Legal framework (as discussed)

3.1 The Court referred to rejection of the transaction value under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, including Rule 3(1), Rule 4 and Rule 12, and to the standing order issued by the Chief Commissioner directing reliance on PLATT rates for plastic items, with a prescription that PLATT rates one week prior to the date of the letter of credit be applied.

Interpretation and reasoning

3.2 The assessing officer claimed to have followed the standing order by applying FOB PLATT rate of LLDPE for South East Asia as on 6 May 2015. The Court, however, observed from the record that, in terms of the standing order itself, the relevant PLATT rate should have been that of one week prior to the date of the letter of credit, which in this case was 10 April 2015. Hence, even on the Department's own guideline, the PLATT rate used was not correctly chosen.

3.3 The Court also noted that while contemporaneous import data was mentioned in the adjudication order, the underlying bills of entry and complete particulars (quantity, supplier, commercial terms, etc.) were neither furnished nor discussed in a manner that would demonstrate satisfaction of comparability requirements under the valuation rules.

Conclusions

3.4 The enhancement of value was not shown to be in strict conformity with the Customs Valuation Rules or with the conditions and methodology prescribed in the standing order, particularly regarding selection and application of PLATT rates and demonstration of comparability of contemporaneous imports.

Issue 3: Violation of principles of natural justice due to non-furnishing of contemporaneous import data and supporting documents

Interpretation and reasoning

4.1 The importer specifically contested non-furnishing of NIDB data and contemporaneous prices relied upon for enhancement. The Court found that although the adjudicating authority reproduced a table of contemporaneous imports in the order, copies of the relevant bills of entry, with details like quantity, supplier name, and country of origin, were not made available to the importer.

4.2 The Court held that, given that the enhancement was founded on contemporaneous imports and PLATT rates, it was necessary, in keeping with principles of natural justice, to disclose the complete details and materials relied upon to the importer to enable an effective defence of the declared transaction value.

4.3 The Court considered that the assessing officer did have grounds to doubt the declared value and could proceed after giving opportunity to explain; however, without full disclosure of the material relied upon, the process was incomplete and procedurally defective.

Conclusions

4.4 Non-furnishing of the full contemporaneous data and supporting documents relied upon for value enhancement amounted to a violation of principles of natural justice.

4.5 The matter was remanded to the assessing officer with directions to:

* Disclose full details of contemporaneous imports and all materials relied upon (including NIDB data and relevant bills of entry) to the importer.

* Allow the importer an opportunity to justify the declared transaction value in light of such material.

* Only upon failure of the importer to justify the transaction value, proceed to reject the declared value and re-determine the assessable value strictly in accordance with the Customs Valuation Rules.

4.6 The appeal was disposed of by way of remand in these terms.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the allegation that the importer was a non-existent entity operating from fake addresses had any bearing on the adjudication of the present dispute.

1.2 Whether the declared transaction value of the imported water purifier spare parts could be rejected and reassessed under section 14 of the Customs Act, 1962 read with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, solely on the basis of NIDB data.

1.3 Whether enhancement of value based on NIDB data, and the consequential confiscation, redemption fine, differential duty demand with interest, and penalties under sections 112 and 114AA of the Customs Act, 1962, were legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Alleged non-existence / fake address of the importer

Interpretation and reasoning

2.1 The Tribunal noted that the allegation of non-existence of the importer and use of fake addresses was not part of the controversy in earlier stages and was not questioned when the importer operated under a valid IEC and pursued proceedings, including before the High Court.

2.2 The Tribunal observed that the importer's IEC was in force, appeals were entertained by superior forums, and there was no contemporaneous doubt by the Department on the importer's identity or address at the time of provisional release or earlier proceedings.

Conclusions

2.3 The Tribunal declined to examine this allegation further, holding that the issue of non-existence/fake address was not relevant for deciding the present appeal and did not affect the adjudication on valuation.

Issue 2 - Rejection of transaction value and use of NIDB data for enhancement

Legal framework (as discussed)

2.4 The Tribunal extracted and relied on Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, which mandates that, subject to Rule 12, the value of imported goods shall be the "transaction value" adjusted as per Rule 10 and that such transaction value "shall be accepted".

2.5 The Tribunal referred to the scheme of the Valuation Rules, including the requirement to proceed to valuation based on "identical" or "similar" goods only after valid rejection of the declared transaction value, and the necessity to consider comparability in terms of commercial level, quantities, country of origin, time and place of import.

2.6 The Tribunal cited and relied upon prior decisions interpreting section 14 of the Customs Act and the Valuation Rules to emphasize that: (a) transaction value cannot be discarded without clear, cogent evidence; (b) recording reasons for rejection is mandatory; and (c) NIDB data cannot be the sole or direct basis for enhancement of declared value.

Interpretation and reasoning

2.7 The Tribunal found that the goods were originally assessed by Customs officers (not by self-assessment), with some enhancement accepted by the importer at that stage. The subsequent investigation merely led to further enhancement using NIDB data, without any fresh, concrete basis for rejecting the originally accepted transaction value.

2.8 The Tribunal observed that throughout the proceedings there was no allegation, nor evidence, that any of the statutory exclusions under Rule 3 for rejecting transaction value were attracted; specifically, there was no material to show:

(a) that the buyer and seller were "related" in a manner affecting price;

(b) that price was not the sole consideration for sale; or

(c) that any extra consideration over and above the invoice value had been paid.

2.9 The Tribunal underscored that the Department had not undertaken any exercise to establish that the declared price was not the actual price paid or payable, nor were there findings on quality, quantity, characteristics, country of origin, or contemporaneous imports that were truly "identical" or "similar" as per the Valuation Rules.

2.10 The Tribunal held that directly adopting NIDB data to enhance value, without first lawfully discarding the declared transaction value by recording plausible and cogent reasons, was contrary to Rule 3 and section 14.

2.11 The Tribunal further held that even after discarding transaction value, the Department must then proceed methodically to identify imports of "identical" or "similar" goods, matching as closely as possible in terms of description, grade, quantity, country of origin, commercial level and time of import; in the present case there was no demonstration that such comparative analysis had been carried out.

2.12 On the specific use of NIDB data, the Tribunal relied on earlier judicial pronouncements holding that NIDB data is, at best, a guideline and cannot be directly or solely used as a basis to enhance value or to reject the declared transaction value in the absence of specific, corroborative evidence that the invoice does not reflect the actual transaction value.

2.13 The Tribunal noted that the Department failed to discharge its burden of proving that the declared values were incorrect or manipulated, and that the enhancement rested essentially on NIDB figures and presumptions without independent evidence.

Conclusions

2.14 The Tribunal held that the declared transaction value of the imported water purifier spare parts was required to be accepted under Rule 3 of the Valuation Rules, as no valid grounds had been established for its rejection.

2.15 The Tribunal concluded that the enhancement of value based solely on NIDB data, without first rejecting the transaction value with cogent reasons and without proper application of the hierarchy of valuation methods (including examination of identical/similar goods), was illegal and unsustainable.

2.16 Consequently, the re-assessment of duty based on the enhanced value was set aside.

Issue 3 - Validity of confiscation, redemption fine, duty demand with interest, and penalties

Interpretation and reasoning

2.17 The Tribunal noted that the confiscation of the goods under section 111(m), the imposition of redemption fine under section 125, the differential duty demand with interest under section 28AA, and the penalties under sections 112 and 114AA were all premised on the finding that the goods were mis-declared in value and that the declared value was liable to be rejected and enhanced.

2.18 As the foundational basis of undervaluation and lawful rejection of transaction value had failed, the Tribunal considered the consequential actions (confiscation, fine, demand of differential duty, and penalties) to be devoid of legal support.

Conclusions

2.19 The Tribunal held that in the absence of a valid rejection of transaction value and sustainable enhancement of value, the orders of confiscation, redemption fine, differential duty with interest, and penalties under sections 112 and 114AA could not be sustained.

2.20 The impugned order was set aside in toto, and the appeal was allowed with consequential relief as permissible in law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a refund claim under Section 27 of the Customs Act, 1962 is maintainable when the importer has not challenged the self-assessment of the Bill of Entry under the appeal provisions of the Act.

1.2 Whether an amendment of the Bill of Entry under Section 149 of the Customs Act, 1962, sought on the basis of documents issued after clearance of the goods and after expiry of the appeal period, can be relied upon to sustain a refund claim of excess duty paid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of refund claim under Section 27 without challenging self-assessment

Legal framework

2.1 The Court referred to the law laid down by the Supreme Court in ITC Ltd. v. Commissioner of Central Excise, Kolkata, wherein it was held that: (a) self-assessment under the Customs Act is an "assessment" order; (b) an order of self-assessment is appealable under Section 128 as a "decision or order" under the Act; (c) refund proceedings under Section 27 are in the nature of execution and do not permit reassessment or correction of the assessment; and (d) a refund claim cannot be entertained unless the order of assessment or self-assessment is first modified through appropriate proceedings.

Interpretation and reasoning

2.2 The Court noted that the Bill of Entry was self-assessed and duty was paid accordingly. The alleged excess duty arose because the overseas supplier's invoice contained an excess unit price for one component.

2.3 The importer did not file any appeal or seek modification of the self-assessment order within the prescribed appeal period under Section 128, but directly filed a refund claim under Section 27.

2.4 Relying on the ratio of ITC Ltd., and also on the Tribunal's own earlier decision in Tata Projects Ltd. v. Commissioner of Customs, the Court held that: (a) acceptance of the Bill of Entry constitutes self-assessment; (b) if the importer is aggrieved by self-assessment, the proper course is to seek modification/reassessment through appeal or other prescribed proceedings; and (c) the refund authority cannot reassess or correct the assessment while processing a refund claim.

2.5 The Tribunal observed that, in view of the binding precedent of the Supreme Court, the refund proceedings cannot be used to reopen or set aside the self-assessment, and that an unchallenged self-assessment must be given effect to as such.

Conclusions

2.6 Since the importer had not contested or got modified its own self-assessment, which is an order of assessment under the Act, the refund claim under Section 27 was held to be not maintainable and could not be entertained.

2.7 The rejection of the refund claim by the original authority and its affirmation by the appellate authority were found to be legally correct.

Issue 2: Applicability of Section 149 amendment to support refund based on post-clearance documents and delayed request

Legal framework

2.8 The Court examined Section 149 of the Customs Act, which permits amendment of documents (including Bills of Entry) based on documentary evidence in existence at the time of clearance of goods.

Interpretation and reasoning

2.9 The importer contended that: (a) an application for amendment of the Bill of Entry under Section 149 had been made to correct the excess price; (b) the supplier's letter dated 08.07.2013 admitting clerical error and issuing a credit memo, together with the amendment request, entitled them to reassessment and consequential refund; and (c) refund should be sanctioned after allowing amendment, placing reliance on certain Tribunal decisions (Dinesh Mills Ltd., Usha International Ltd., and Kirloskar Ferrous Industries Ltd.).

2.10 The Court distinguished the cited decisions and held that the binding ratio of the Supreme Court in ITC Ltd. prevailed, governing the present case.

2.11 On facts, the Court noted: (a) the Bill of Entry was filed on 14.06.2013 and duty was paid on 17.06.2013; (b) the supplier's letter and credit memo admitting clerical error were both dated 08.07.2013; (c) the importer's letter to the assessing group seeking amendment under Section 149 was dated 25.11.2013; and (d) the refund claim was filed on 26.11.2013.

2.12 The Court held that, under Section 149, the documentary evidence relied upon for amendment must be in existence before clearance of the goods. In this case, the supplier's letter and credit memo came into existence only after clearance, and therefore did not meet the statutory requirement.

2.13 The Tribunal further observed that the request for amendment under Section 149 and the refund claim were made much after the expiry of the appeal period from the date of assessment and payment, and that there was unreasonable delay on the part of the importer.

2.14 The Court reasoned that permitting amendment under Section 149 after the appeal period has lapsed, so as to indirectly alter an assessment which was never appealed, would frustrate the statutory scheme of assessment and appeal under the Customs Act.

Conclusions

2.15 The contention that refund should have been sanctioned after first allowing amendment of the Bill of Entry under Section 149 was rejected.

2.16 The request for amendment based on documents issued after clearance, and made after lapse of the appeal period, was held to be outside the permissible scope of Section 149 and contrary to the statutory appeal mechanism.

2.17 In consequence, the Tribunal upheld the impugned appellate order and rejected the appeal, confirming denial of the refund claim.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether mere specification of goods by Central Government notification under section 4A(1) of the Central Excise Act is, by itself, sufficient to mandate valuation on the basis of retail sale price for the purposes of additional duty of customs (CVD).

(2) Whether a show cause notice and consequential adjudication proceedings are vitiated when they proceed on the basis of the Legal Metrology Act, 2009 and Legal Metrology (Packaged Commodities) Rules, 2011 for a period during which only the Standards of Weights and Measures Act, 1976 and the Rules made thereunder were in force.

(3) Consequential effect of a fundamentally defective show cause notice on the validity of the demand of duty, confiscation, interest and penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Conditions for application of section 4A-based MRP valuation to imported goods for CVD

Legal framework

The Court examined section 3 of the Customs Tariff Act, 1975, which levies additional duty on imported articles equal to the excise duty on like articles manufactured in India, and its linkage to section 4A of the Central Excise Act, 1944 where valuation is with reference to retail sale price in cases covered by the Standards of Weights and Measures Act, 1976 (SWMA) and notifications issued thereunder.

The Court relied on the judgment of the Supreme Court in "JAYANTI FOOD PROCESSING P. LTD. v. COMMISSIONER OF CENTRAL EXCISE, RAJASTHAN", which interpreted section 4A of the Central Excise Act and laid down the conditions for its applicability.

Interpretation and reasoning

The Court noted that, as per the Supreme Court, section 4A applies only where all of the following factors are cumulatively satisfied:

(i) the goods are excisable goods;

(ii) the goods are sold in packaged form;

(iii) there is a requirement under the SWMA, the Rules made thereunder, or any other law, to declare on the package the retail sale price of such goods;

(iv) the Central Government has specified such goods by notification in the Official Gazette under section 4A(1); and

(v) valuation is then to be done on the basis of the declared retail sale price on the packages, less the notified abatement.

The Court emphasized that the "thrust of section 4A is on the packages and not on the commodity", and that the nature of sale (wholesale, bulk, retail) is not the relevant factor; instead, the decisive factor is whether the goods are required, under the SWMA/Rules or other law, to carry a retail sale price declaration.

On this basis, the Court held that the revenue's stand that once goods are specified in a notification under section 4A(1), that fact alone mandates assessment under section 4A is unsustainable. Specification by notification is only one among several mandatory preconditions; the statutory requirement to declare retail sale price on the package under the SWMA/Rules is equally indispensable.

Conclusions

The Court concluded that:

(a) Mere specification of the goods by notification under section 4A(1) is not, by itself, sufficient to attract section 4A-based valuation.

(b) For section 4A to apply, all conditions enumerated by the Supreme Court in JAYANTI FOOD PROCESSING, including a legal requirement under SWMA/Rules (or other law) to declare retail sale price on the package, must be fulfilled.

(c) The broader proposition advanced by revenue-that specification in the notification alone compels RSP-based assessment-cannot be sustained.

Issue (2): Validity of reliance on the Legal Metrology Act, 2009 and 2011 Rules for the period January 2007 to August 2008

Legal framework

The period of dispute is January 2007 to August 2008. During that period, section 4A of the Central Excise Act referred exclusively to the SWMA, 1976 and the Rules made thereunder.

The show cause notice and order-in-original, however, invoked and relied upon specific provisions of the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011 ("New Act" and "New Rules"), which came into force on 01.04.2011, i.e. after the disputed period.

The Court referred to:

- Article 265 of the Constitution of India ("No tax shall be levied or collected except by authority of law").

- The principle that statutes are presumed to be prospective in operation, encapsulated in the maxim "nova constitutio futuris formam imponere debet non praeteritis".

- Supreme Court decisions including:

* Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd. (show cause notice is the foundation of the proceedings; allegations must be clearly spelt out);

* Collector of Central Excise, Calcutta v. Pradyumna Steel Ltd. (mere mention of a wrong provision is not fatal if power exists under some other applicable provision);

* Glaxo Smith Kline PLC v. Controller of Patents and Designs (pre-existing rights are governed by old law);

* T. Kaliamurthi v. Five Gori Thaikkal Wakf (no statute is to be construed as retrospective unless clearly so intended).

Interpretation and reasoning

The Court noted the following critical features of the show cause notice and adjudication:

- Paragraphs of the show cause notice and the order-in-original specifically relied upon provisions of the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011, both of which were not in force during January 2007 to August 2008.

- The show cause notice stated violations of "Legal Metrology Act, 2009 / Standards of Weights and Measures Act 1976 and the Rules made thereunder" and of the Legal Metrology (Packaged Commodities) Rules, 2011, described as "earlier Standards of Weights and Measures (Packaged Commodities) Rules, 1977".

- The appellant had specifically contended in reply that provisions of a later Act and Rules not in force during the material period could not be relied upon for that earlier period; this contention was not addressed in the order-in-original.

The Court held that:

- There is nothing in the Legal Metrology Act, 2009 to indicate retrospective operation; consequently, the Legal Metrology (Packaged Commodities) Rules, 2011 also cannot operate retrospectively.

- A dispute must be adjudicated in accordance with the law in force at the time when the relevant facts occurred; statutory liability must be tested against the validity and content of the applicable law at that time.

- This is not a case of a mere mis-citation of a section where the underlying power is traceable to a correct provision; rather, it is a case where the very foundation of the allegations and legal characterisation rests upon a statute and rules that were non-existent during the relevant period. This goes to the core of the show cause notice.

- Failure to properly notify the assessee of the applicable legal provisions, while basing allegations on a subsequent Act and Rules, undermines the assessee's ability to mount an effective defence and results in a failure of justice.

Conclusions

The Court held that:

(a) The Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011, not being in force during January 2007 to August 2008 and not being retrospective, could not legally govern the disputed period.

(b) The show cause notice and adjudication, having substantially proceeded on the basis of that later legislation, are fundamentally defective.

(c) Such a foundational defect goes to the root of jurisdiction and vitiates the entire proceedings; the defect cannot be cured by characterising it as a mere wrong citation of provision.

Issue (3): Effect of the defective show cause notice on duty demand, confiscation, interest and penalties

Interpretation and reasoning

Having found that the show cause notice was fundamentally defective because it invoked a statute and rules not in force during the relevant period, the Court considered the impact on the adjudication.

It held that:

- As per Article 265, no tax can be levied or collected except by authority of law in force at the relevant time.

- When the very legal basis identified in the show cause notice is inapplicable to the period in question, the jurisdictional foundation for demand of duty, confiscation, interest and imposition of penalties is destroyed.

- Proceedings based on such a defective notice "have occasioned a failure of justice" and cannot be sustained.

The Court noted that, in view of this threshold defect, it was constrained from deciding the several other "complex and novel" legal issues argued by both sides (including limitation, correctness of CVD computation, and confiscation/penalty issues) on their merits.

Conclusions

The Court concluded that:

(a) The impugned order, being founded on a fundamentally defective show cause notice that relied on inapplicable legislation, is vitiated.

(b) The impugned order is set aside in entirety.

(c) As a consequence, the demand of differential duty, proposals for confiscation, interest and penalties do not survive.

(d) The appellant is entitled to consequential relief in accordance with law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the supplementary claims of duty drawback filed on 03.01.2008 were barred by limitation under Rule 15 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.

1.2 Consequent to the finding on limitation, whether the rejection of the supplementary drawback claims and the impugned orders could be sustained, or the matter required remand for fresh consideration of the claims on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Limitation for supplementary drawback claims under Rule 15 of the Drawback Rules, 1995

Interpretation and reasoning

2.1 The Court noted that the original drawback claim was filed on 21.07.2003 and partially sanctioned on 31.03.2004. The appellant thereafter sought re-valuation and reconsideration of the drawback amount and repeatedly reminded the authorities.

2.2 The authorities referred the matter to the Apparel Export Promotion Council (AEPC) on 20.09.2007, and AEPC, by letter dated 25.09.2007, opined that the value of the relevant goods should be between Rs. 230/- and Rs. 240/- per piece. This communication was received on 05.10.2007.

2.3 The Court treated the receipt of the AEPC valuation on 05.10.2007 as the point at which the "cause-of-action for the Supplementary Claim of drawback" arose, since the supplementary claim was based on the revised valuation.

2.4 The appellant, after reminders on 17.10.2007 and 03.12.2007, filed the formal application for supplementary drawback under Rule 15 on 03.01.2008, at the instance of the authorities.

2.5 On these facts, the Court held that the relevant three-month limitation period under Rule 15 was to be computed from 05.10.2007, and that the filing on 03.01.2008 fell "well within the period of limitation of three months as provided under Rule 15."

Conclusions

2.6 The supplementary claims of duty drawback filed on 03.01.2008 were not barred by limitation under Rule 15 of the Drawback Rules, 1995.

2.7 The orders of the Development Commissioner rejecting the supplementary claims as time-barred under Rule 15(1) were held to be unsustainable and were set aside for both appeals.

Issue 2 - Consequential directions upon setting aside rejection on limitation

Interpretation and reasoning

2.8 Having held that the supplementary claims were filed within time, the Court considered the appropriate consequential relief.

2.9 Since the claims had been rejected solely on limitation and not examined on merits, the Court deemed it proper to remit the matter to the Development Commissioner / proper officer to consider and decide the supplementary claims afresh.

Conclusions

2.10 The impugned orders dated 12/13.12.2017 were set aside.

2.11 The matters were remanded to the Development Commissioner, Falta Special Economic Zone / proper officer to examine the supplementary drawback claims and to sanction the eligible amount of drawback, if any, in accordance with the re-valuation of the goods done by AEPC.

2.12 The appeals were allowed with consequential relief as per law.

Issues: (i) Whether the show cause notice issued by officers of the Directorate of Revenue Intelligence lacked jurisdiction. (ii) Whether sending imported goods to a sister concern for job work after fulfilment of export obligation violated the actual user condition or Notification No. 30/97-Cus. and justified the confirmed duty and penalty.

Issue (i): Whether the show cause notice issued by officers of the Directorate of Revenue Intelligence lacked jurisdiction.

Analysis: The jurisdictional objection was examined in the light of the subsequent legal position recognised by the Supreme Court, which clarified that officers of the Directorate of Revenue Intelligence are competent proper officers for the purposes of Section 28 of the Customs Act, 1962. The earlier challenge based on absence of jurisdiction therefore no longer survived.

Conclusion: The objection to jurisdiction was rejected.

Issue (ii): Whether sending imported goods to a sister concern for job work after fulfilment of export obligation violated the actual user condition or Notification No. 30/97-Cus. and justified the confirmed duty and penalty.

Analysis: The imported material was found to have been substantially used in the appellants' own manufacturing activity and the balance sent to a sister concern for job work. The legal question was whether such movement amounted to a prohibited transfer or diversion under the notification. The Tribunal relied on the later legal position that an actual user industrial unit may have the imported goods processed through another unit or jobber, and that transfer between units of the same person for own use does not by itself amount to a transfer to another person. It was also held that absence of prior permission for such job work was, at most, a procedural lapse and not a substantive breach warranting denial of the exemption benefit.

Conclusion: The sending of goods for job work did not violate the notification, and the duty demand and penalty could not be sustained.

Final Conclusion: The appeal succeeded on merits, the jurisdictional challenge failed, and the demand and penalties arising from the alleged diversion and notification breach were set aside.

Ratio Decidendi: Where imported goods are covered by an actual user exemption and are sent for job work within the same person's manufacturing arrangement after export obligation is fulfilled, such movement does not constitute a prohibited transfer to another person, and non-obtaining of prior permission is only a procedural lapse unless the notification expressly makes it substantive.

Issues: (i) whether crude rice bran oil imported for refining and subsequent edible use was entitled to exemption under the relevant customs exemption notifications; (ii) whether the demand, limitation objection, and penalty could be sustained on the facts found.

Issue (i): whether crude rice bran oil imported for refining and subsequent edible use was entitled to exemption under the relevant customs exemption notifications.

Analysis: The exemption entry covered goods under tariff heading 1515 described as crude and edible grade. The governing clarification in Chapter 15 of the Customs Tariff Act, 1975, together with the Board's circulars, made it clear that edible grade in this context was to be understood with reference to suitability after processing and refining, not only at the point of import. The record showed that the imported oil was ultimately used for edible purposes after refining. The acid value at import stage was therefore not decisive for denying the exemption. The contemporaneous circulars also supported the view that oil fit for human consumption after further processing remains within the benefit of the exemption.

Conclusion: The exemption was admissible and the denial of benefit was unsustainable.

Issue (ii): whether the demand, limitation objection, and penalty could be sustained on the facts found.

Analysis: Once the exemption was held admissible, the confirmed differential duty could not survive. The finding that the import documentation and testing process did not establish suppression or wilful misstatement meant that the extended period of limitation was not available. In the absence of a sustainable duty demand, interest and penalty also could not be upheld.

Conclusion: The demand, extended limitation, and penalty were not sustainable.

Final Conclusion: The customs demand was set aside, the revenue appeal failed, and the importer retained the benefit of exemption on the disputed consignments.

Ratio Decidendi: For crude edible oils covered by the exemption entry, eligibility depends on their being used for edible purposes after refining, and not on their meeting an edible-grade standard solely at the time of import; absent suppression or wilful misstatement, extended limitation and penalty cannot be invoked.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the adjudication proceedings suffered from violation of principles of natural justice, including non-supply of relied upon documents, denial of adequate opportunity of hearing and cross-examination, and non-application of mind by the adjudicating authority.

(2) Whether the findings of undervaluation of transaction value through use of dual invoices and evasion of basic customs duty were factually and legally sustainable.

(3) Whether the findings of mis-declaration and undervaluation of retail sale price leading to evasion of additional duty of customs (on RSP basis) were sustainable.

(4) Whether confiscation of goods under section 111 of the Customs Act, 1962, imposition of redemption fine under section 125, recovery of duty with interest under section 28 read with section 28AB, and imposition of penalties under sections 114A and 112 were valid and called for interference.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Alleged violation of principles of natural justice and non-application of mind

Interpretation and reasoning

(a) The Tribunal noted that in an earlier round, when the appellants pleaded non-supply of relied upon documents (RUDs), they were expressly directed to collect the RUDs within two months and thereafter file their reply before the adjudicating authority within 45 days, with a corresponding direction to the Commissioner to pass a reasoned order.

(b) Despite repeated reminders from the Department, the appellants collected the RUDs only on 20.01.2012, i.e., nearly seven months after the Tribunal's order, and even thereafter did not file a substantive reply within the time but only an "interim reply" seeking more documents.

(c) The Department informed the appellants' counsel telephonically and through letters dated 12.04.2012 and 27.04.2012 to collect the further documents sought, but the appellants neither collected those documents nor filed any complete reply.

(d) The Commissioner fixed three personal hearings on 15.03.2012, 09.05.2012 and 16.05.2012. No one appeared on any of these dates and no written or oral submissions were made.

(e) In these circumstances, the Commissioner proceeded to adjudicate on the basis of the records and materials available and passed the impugned order. The Tribunal held that adequate and repeated opportunities were afforded, which the appellants chose not to avail.

(f) The Tribunal further recorded that even in the appellate proceedings, the appellants failed to comply with pre-deposit directions, leading to dismissal of the appeals; that, after restoration, they again did not appear; and that, even after a final opportunity with a specific indication that it would be the last, they remained absent. This conduct was treated as indicative of lack of diligence rather than any denial of natural justice.

(g) The allegation that the findings were "perverse" or that there was "non-application of mind" was not substantiated by any specific material in the appeals, and the Tribunal found no such infirmity in the impugned order upon perusal of the record.

(h) The contention that RUDs and documents obtained from foreign sources, being photocopies without signatures of exporters or customs officers, vitiated the proceedings was not accepted, as the Tribunal found no basis in the record to treat such materials as unreliable in the absence of any rebuttal or evidence from the appellants, who failed to contest them despite repeated opportunities.

Conclusions

(i) There was no violation of principles of natural justice; sufficient opportunity was afforded and not availed by the appellants.

(j) The plea of denial of cross-examination and opportunity to rebut was rejected, the appellants having themselves defaulted in participating in the proceedings.

(k) The impugned order was found to be reasoned and based on the material on record, and not vitiated by perversity or non-application of mind.

Issue (2): Undervaluation of transaction value and evasion of basic customs duty

Interpretation and reasoning

(a) The Tribunal recorded that the Directorate of Revenue Intelligence gathered specific evidence that the appellants were importing goods using dual invoicing: a lower-value invoice "for customs purpose" and a higher-value invoice representing the actual transaction value.

(b) Reference was made to an e-mail dated 29.12.2003 wherein the proprietor of the appellant concerns requested the overseas supplier to issue an invoice at one-fourth of the actual value "for customs purpose." In response, the supplier issued two invoices: one reflecting the actual price (e.g. Euro 13,155) and a second at the reduced amount (e.g. Euro 2,790), the latter being used at the time of filing the Bill of Entry.

(c) The Tribunal found that the Basic Customs Duty was payable on the actual transaction value, and that the appellants' act of using artificially lowered invoices at the time of import clearly constituted undervaluation with intent to evade duty.

(d) Investigation by DRI, including through its overseas network, yielded the actual invoices and associated records, which formed the basis of the differential duty demand in the show cause notice and its confirmation in the impugned order.

(e) In the absence of any rebuttal, explanation, or evidence from the appellants, the Tribunal accepted the Department's case of deliberate undervaluation as duly established by direct evidence.

Conclusions

(f) The finding that the appellants had undervalued the imported goods by using lower-value invoices "for customs purposes" was upheld.

(g) The demand of basic customs duty on the basis of the actual transaction value as established through investigation was held to be correct and sustainable.

Issue (3): Mis-declaration and undervaluation of Retail Sale Price and evasion of additional duty of customs

Interpretation and reasoning

(a) The Tribunal noted that the additional duty of customs on the goods in question was chargeable with reference to the Retail Sale Price (RSP) with permissible abatement.

(b) Investigation revealed that the appellants were declaring a much lower RSP in the Bills of Entry than the actual selling price in the domestic market. An illustrative instance cited was a Plasma TV model imported with a declared RSP of Rs. 3.60 lakhs but sold at Rs. 10.95 lakhs.

(c) Multiple instances of such RSP mis-declarations were detected during searches. Records of actual sales and price realizations, along with statements of the proprietors, corroborated that the declared RSPs were suppressed, leading to evasion of additional duty of customs.

(d) The Tribunal treated these materials as cogent and direct evidence of deliberate mis-declaration of RSP, particularly as there was no rebuttal or contrary evidence tendered by the appellants despite repeated opportunities.

Conclusions

(e) The finding of systematic mis-declaration of RSP by the appellants was affirmed.

(f) The consequential differential demand of additional duty of customs, computed on the basis of correct RSPs established from the investigation, was held to be legally valid and rightly confirmed.

Issue (4): Validity of confiscation, redemption fine, interest and penalties under sections 111, 125, 28, 28AB, 114A and 112

Interpretation and reasoning

(a) On the basis of the established undervaluation of transaction value and mis-declaration of RSP, the Tribunal held that the imported goods were liable to confiscation under section 111(d) and section 111(m) read with section 118 of the Customs Act, 1962.

(b) The order of confiscation of seized goods valued at the amount specified in the impugned order, coupled with an option to redeem on payment of a redemption fine of Rs. 20 lakhs under section 125, along with the corresponding customs duty of Rs. 9,99,513/- under section 125(2), was found to be proper and justified.

(c) The demands of duty under section 28 of the Customs Act against the respective concerns, as detailed in the impugned order, including appropriation of amounts voluntarily paid, were upheld as correctly quantified on the basis of the evidence of undervaluation and mis-declaration.

(d) Liability to pay interest on the duty demanded under section 28AB was affirmed as a statutory consequence once duty evasion was established.

(e) Penalties equivalent to the duty demanded under section 114A were upheld in view of the deliberate and established nature of undervaluation and mis-declaration with intent to evade duty.

(f) Personal penalty imposed under section 112 on the individual proprietor controlling the importing entities was also upheld, as the evidence showed his direct involvement in arranging dual invoices and mis-declared RSPs.

Conclusions

(g) Confiscation of goods under section 111, imposition of redemption fine under section 125, confirmation of duty demands with interest under sections 28 and 28AB, and penalties under sections 114A and 112 were found to be legal, proper, and calling for no interference.

(h) The impugned order was upheld in its entirety and all appeals were dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appeal before the first appellate authority was time-barred, having regard to the date of communication of the Order-in-Original.

1.2 Whether non-intimation of change of address by the assessee to the customs department and/or the postal authorities could be invoked to treat the Order-in-Original as not duly served so as to extend limitation.

1.3 Whether the assessee's subsequent knowledge of the Order-in-Original, and conduct thereafter, justified treating a later date as the date of communication for computation of limitation.

1.4 Whether the precedents relied upon by the assessee, concerning belated communication of orders and change of address, applied to the facts of the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation for appeal - date of communication of the Order-in-Original

Interpretation and reasoning

2.1 The Tribunal noted that the Order-in-Original dated 29.05.2012 was passed and dispatched by the department to the address available in its records, i.e. the old office address. All subsequent demand, detention and recovery communications were also sent to that same address.

2.2 The assessee contended that the Order-in-Original should be treated as communicated only on 03.02.2021, when a copy was received along with the detention order in response to an RTI-based process, and that the appeal filed on 22.03.2021 would then be within 60 days.

2.3 The Tribunal observed that, pursuant to the assessee's letter dated 06.12.2019 from its new address, the Assistant Commissioner, by letter dated 12.12.2019 addressed to that new address, informed the assessee that recovery action had been initiated and enclosed a copy of the recovery letter dated 31.12.2018, which specifically mentioned the details and number of the Order-in-Original dated 29.05.2012 and the amount of Rs. 8,88,737/-.

2.4 On this factual basis, the Tribunal held that the assessee was clearly aware, at least by 12.12.2019, that an Order-in-Original dated 29.05.2012 had been passed against it confirming the demand. Despite this, the assessee waited until 17.11.2020 to file an RTI application and did not promptly approach the adjudicating authority for a copy of the order.

2.5 The Tribunal found no justification or evidence explaining the delay between 12.12.2019 (when knowledge of the order was obtained) and 17.11.2020 (when RTI was filed), or why the assessee did not immediately request a certified copy from the adjudicating authority "across a table".

Conclusions

2.6 The Tribunal rejected the assessee's plea to treat 03.02.2021 as the date of communication, holding that the assessee had knowledge of the Order-in-Original at least from 12.12.2019 and, in any event, the statutory time limit of 60 days plus 30 days' condonable period from the original order date stood long expired.

2.7 It was concluded that the appeal before the Commissioner (Appeals) was correctly dismissed as time-barred, and there was no basis to interfere with that finding.

Issue 2: Effect of non-intimation of change of address to the department/post office

Interpretation and reasoning

2.8 The Tribunal recorded that the assessee had vacated its rented premises at the old address and surrendered its Import Export Licence in 2009, and claimed that since no litigation was pending, it did not inform the customs department of the change of address. The assessee sought to show bona fides by demonstrating that it informed the Income Tax Department of the change.

2.9 The Tribunal held that, in general practice, a person vacating tenancy premises, particularly a business entity, is expected to intimate the concerned post office to redirect correspondence to the new address. The assessee had produced no evidence of having instructed the post office to redirect its mail.

2.10 The Tribunal treated this omission as "gross negligence" by the assessee, which directly led to all departmental communications, including the Order-in-Original and subsequent demands, being sent to the old address.

Conclusions

2.11 Non-intimation of change of address either to the customs department or to the postal authorities could not be used by the assessee to claim that the Order-in-Original was not served or communicated in law.

2.12 The assessee's own negligent failure to arrange redirection or to notify the department disentitled it from invoking lack of service to overcome the bar of limitation.

Issue 3: Effect of subsequent knowledge and conduct on computation of limitation

Interpretation and reasoning

2.13 The Tribunal considered the chain of events beginning with the freezing of the bank account and deduction of Rs. 8,88,737/- on 30.11.2019, the assessee's letter dated 06.12.2019 seeking details, and the department's reply dated 12.12.2019 referring to the Order-in-Original and recovery action.

2.14 The Tribunal held that, once the assessee was informed on 12.12.2019 of the existence and particulars of the Order-in-Original, it had the responsibility to act with diligence. Instead, the assessee waited nearly one year to file an RTI application and did not immediately seek a certified copy of the order from the adjudicating authority.

2.15 In the Tribunal's view, these factual aspects "do not come to the rescue" of the assessee; rather, they reinforced that the assessee had delayed unreasonably even after acquiring knowledge of the order.

Conclusions

2.16 The Tribunal declined to treat any belated date (such as 03.02.2021, when a physical copy of the order was obtained) as the operative "date of communication" for limitation purposes, in light of the earlier knowledge and lack of due diligence.

2.17 The conduct of the assessee post-12.12.2019 was held inconsistent with any claim for liberal treatment of limitation, supporting dismissal of the appeal as time-barred.

Issue 4: Applicability of cited precedents on delayed communication and change of address

Legal framework (as discussed)

2.18 The Tribunal examined two decisions cited by the assessee: (a) an order in the case of Steel Authority of India Ltd., where the date of receipt of finally assessed Bills of Entry was treated as the relevant date; and (b) the decision in R. Ravichandran, where an assessee who had duly intimated change of address had still been served at the old address.

Interpretation and reasoning

2.19 In relation to the Steel Authority of India matter, the Tribunal noted that the facts there involved provisionally assessed Bills of Entry that were finally assessed on 09.09.2022 but not communicated until 20.05.2023, and the appellate authority treated the date of actual communication as the date of receipt. The Tribunal held that the factual matrix in that case was "totally different" from the present case.

2.20 As to the decision in R. Ravichandran, the Tribunal observed, based on the text of that judgment, that the assessee in that case had specifically intimated the change of address to the department, yet the Order-in-Original was still sent to the old address. In contrast, in the present case there was no such intimation to the customs department, nor any step taken to have mail redirected through the post office.

Conclusions

2.21 The Tribunal held that neither of the cited precedents assisted the assessee: in Steel Authority of India, the issue arose from non-communication of final assessment in a different factual setting; in R. Ravichandran, the assessee had done what the present assessee had failed to do-formally intimate the department of the change of address.

2.22 Consequently, the Tribunal affirmed that the Commissioner (Appeals) had rightly rejected the appeal as time-barred, and the present appeal before the Tribunal lacked merit and was dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in the case of bulk liquid cargo where customs duty is specific, the quantity for levy of duty is to be taken as the shore tank receipt quantity or the discharged quantity at the port.

1.2 Whether demurrage charges incurred after arrival of goods at the Indian port are includible in the assessable value for levy of customs duty.

1.3 Whether, for the relevant period after 01.03.2008, the correct rate and structure of duty on imported High Speed Diesel was a purely specific rate per litre, or a combination of ad valorem duty plus a lower specific duty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Basis of quantity for levy of customs duty on bulk liquid cargo where duty is specific

Legal framework (as discussed)

2.1 The Court referred to Circular No. 96/2002 dated 27.12.2002, providing that, in case of bulk liquid cargo imports, whether for home consumption or warehousing, the shore tank receipt quantity should be taken as the basis for levy of customs duty.

2.2 The Court also referred to Circular No. 06/2006 dated 12.01.2006, which directed that import duty on liquid cargo in bulk shall be levied on the transaction value; where duty is specific, it shall be levied on shore tank receipt quantity; where duty is ad valorem, it shall be levied on the transaction value irrespective of quantity received on shore.

2.3 The Court relied on the ratio laid down in earlier decisions, including its own prior order in the same assessee's case and the decision of the Apex Court in the matter concerning bulk liquid cargo, holding that only the quantity actually received into the shore tank should be the basis for duty.

Interpretation and reasoning

2.4 The Court noted that the dispute concerned the quantity on which customs duty was to be calculated: shore tank receipt quantity versus the discharged quantity at the port.

2.5 It observed that the CBEC circulars, read together, make a clear distinction between specific duty and ad valorem duty. For specific duty, the basis is shore tank receipt quantity; for ad valorem duty, the basis is the transaction value irrespective of quantity received.

2.6 It was an admitted position that, in the present case, the customs duty was of a specific nature. Therefore, as per the explicit mandate of Circular No. 06/2006 and consistent with Circular No. 96/2002, the duty had to be levied on the quantity actually received in shore tanks.

2.7 The Court further relied on its own earlier order in the same assessee's matter, where, following the Apex Court, it had held that the quantity actually received into the shore tank in India alone should form the basis for payment of customs duty in the case of bulk liquid cargo.

Conclusions

2.8 The Court held that, since the duty in the present case is specific, customs duty is required to be levied on the shore tank receipt quantity and not on the discharged quantity or on any other basis.

2.9 The assessments made on any basis other than shore tank receipt quantity were held to be unsustainable to that extent and required reassessment accordingly.

Issue 2: Includibility of demurrage charges in assessable value

Legal framework (as discussed)

2.10 The Court referred to the decision of the Apex Court which held that demurrage charges, being incurred after the goods have reached Indian ports, constitute a post-importation event and cannot form part of the transaction value.

2.11 The Court also referred to the prior decision wherein the same principle was applied, namely that demurrage is not includible in the assessable value as it is incurred post importation.

Interpretation and reasoning

2.12 It was undisputed that the demurrage charges in question were incurred only after the goods had reached the Indian port.

2.13 Applying the ratio of the Apex Court, the Court reasoned that such demurrage is a post-importation expense and, by its very nature, falls outside the scope of the transaction value that is to be adopted for customs assessment.

2.14 Consequently, the inclusion of prorated demurrage charges in the assessable value by the adjudicating authority was contrary to the law as settled by the Apex Court and by the Tribunal in the cited decisions.

Conclusions

2.15 Demurrage charges incurred after arrival of the goods at the Indian port are post-importation expenses and are not includible in the assessable value for the purpose of levy of customs duty.

2.16 The Court held that the demurrage charges included by the adjudicating authority in the assessable value must be excluded, and the duty liability recalculated after such exclusion.

Issue 3: Correct rate and structure of duty on High Speed Diesel after 01.03.2008

Legal framework (as discussed)

2.17 The Court noted the effect of the Finance Act, 2008, whereby with effect from 01.03.2008, the ad valorem component of the CVD on unbranded diesel was abolished and the specific duty component was enhanced to Rs. 2.60 per litre.

Interpretation and reasoning

2.18 In the specific appeal relating to a bill of entry dated 07.03.2008, the adjudicating authority had levied duty by charging an ad valorem duty at 6% plus a specific duty of Rs. 1.25 per litre.

2.19 The Court found that, in light of the change effective from 01.03.2008, the correct levy should consist solely of specific duty at the rate of Rs. 2.60 per litre, without the ad valorem component.

2.20 The Court held that the application of an ad valorem rate in addition to a lower specific duty was inconsistent with the prevailing statutory regime after 01.03.2008.

Conclusions

2.21 For High Speed Diesel imported under the bill of entry dated 07.03.2008, the correct duty is payable at the specific rate of Rs. 2.60 per litre only, without any ad valorem component.

2.22 The Court directed the adjudicating authority to reassess the relevant bills of entry by levying duty on the shore tank receipt quantity, excluding demurrage from the assessable value, and applying the specific duty rate of Rs. 2.60 per litre for the period after 01.03.2008.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the confiscation of three foreign-marked gold bars under Section 111 of the Customs Act, 1962 was justified in view of the evidentiary material produced by the noticee and the burden of proof under Section 123.

1.2 Whether the absolute confiscation of silver bullion seized from the premises of the noticee under Section 111 of the Customs Act, 1962 was legally sustainable.

1.3 Whether the confiscation of seized Indian currency under Section 121 of the Customs Act, 1962 as "sale proceeds of smuggled gold" was warranted and whether Section 123 applied to such seizure.

1.4 Whether the imposition of penalties under Section 112(b) of the Customs Act, 1962 could survive once the confiscation of gold, silver bullion and currency was found unsustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Confiscation of foreign-marked gold bars; burden under Section 123

Legal framework (as discussed):

2.1 The Court proceeded on the basis that under Section 123 of the Customs Act, 1962 the burden to prove the licit acquisition of notified goods such as gold initially lies on the person from whose possession, or on whose behalf, such goods are seized; once such person discharges this burden with credible evidence, the onus shifts to the Revenue to rebut that evidence.

Interpretation and reasoning:

2.2 The gold seized (three bars weighing 2997 grams) bore foreign markings and was intercepted from two carriers who, at the time of interception, could not produce documents evidencing legal procurement.

2.3 On the basis of their statements, investigation was extended to the putative owner of the gold, who consistently claimed ownership and produced purchase invoices, stock register entries, balance sheet, and sale/purchase ledgers, all duly certified by a Chartered Accountant, as well as evidence of payment through banking channels.

2.4 The appellate authority recorded a categorical finding that the purchases corresponding to the seized gold bars were reflected in the stock ledger and that the gold was purchased under valid, GST-paid invoices duly entered in the books of account and CA-certified.

2.5 The Revenue assailed this finding mainly on the grounds: (a) the gold bore foreign markings; (b) no documents were found with the carriers or during search at the premises; (c) the carriers had a previous history with foreign-origin smuggled gold; (d) inculpatory statements of the carriers regarding smuggling through Mumbai airport; and (e) alleged inconsistencies and gaps in the explanation about conversion of gold pieces into bars and delivery to an artisan ("Raju bhai").

2.6 The Court held that the mere presence of foreign markings, absence of documents at the point of interception, and prior involvement of the carriers in a past case could, at best, give rise to suspicion but did not, by themselves, rebut the direct documentary evidence subsequently produced by the claimed owner.

2.7 The Court emphasized that the Revenue had not challenged the genuineness or veracity of the GST-paid invoices, stock ledger entries, or the CA certification, nor produced any contrary documentary or other cogent evidence to show the documents were fabricated, incorrect, or unrelated to the seized gold.

2.8 The Court treated the production of a CA certificate and accounting records as a legitimate attempt "ex abundanti cautela" to establish lawful procurement, and held that these formed "important proof of legitimate procurement" since they were part of the regular books of account and produced at the first available opportunity.

2.9 The various investigative points stressed by the Revenue (including contradictions about the artisan, absence of moulds with markings at the refinery, and statements of the refiner) were considered extraneous and not directly connecting the seized gold to smuggling in the face of uncontroverted invoices and accounting records for tax-paid procurement.

2.10 The Court reiterated that "suspicion howsoever grave cannot take the place of proof" and that once the initial burden under Section 123 had been discharged by the noticee through credible documentary evidence, the Revenue was required to negate such evidence through valid and direct proof, which it failed to do.

Conclusions:

2.11 The noticee had sufficiently discharged the burden under Section 123 of the Customs Act, 1962 regarding the seized gold bars by producing GST-paid invoices, stock ledger entries, and CA-certified books showing legitimate procurement and payment through banking channels.

2.12 The Revenue failed to rebut or disprove the documentary evidence or to establish the smuggled nature of the gold; the reliance on foreign markings, past conduct of co-accused, and speculative reasoning was held inadequate.

2.13 Consequently, absolute confiscation of the gold bars under Section 111 and related findings in the order of adjudicating authority were held unsustainable, and the appellate authority's decision setting aside confiscation in respect of gold was upheld.

Issue 2 - Confiscation of silver bullion seized from the premises

Interpretation and reasoning:

2.14 The silver bullion (243,640.64 grams) seized from the premises of the noticee did not bear any foreign markings.

2.15 The appellate authority held, and the Court agreed, that in the absence of foreign markings there was no foundational basis to form a "reason to believe" that the silver bullion was of smuggled nature or illicitly acquired, particularly when no independent evidence of smuggling was adduced.

2.16 The noticee produced tax-paid invoices from identified suppliers, with GST numbers and specific invoice details for the silver quantities, and these were reflected in the stock ledger, all of which was CA-certified.

2.17 The Court found that the stock of silver available at the time of seizure was duly entered in the stock ledger and GST liability was discharged thereon, indicating local procurement duly accounted for in the books of account.

2.18 The Revenue did not advance substantive reasons or evidence questioning the genuineness of the invoices or entries in the stock ledger or linking the silver bullion to any specific smuggling activity.

Conclusions:

2.19 In the absence of foreign markings, credible evidence of smuggling, or any challenge to the tax-paid invoices and stock records, there were no grounds to sustain confiscation of the silver bullion under Section 111 of the Customs Act, 1962.

2.20 The order of absolute confiscation of silver bullion was rightly set aside by the appellate authority and stands affirmed.

Issue 3 - Confiscation of Indian currency as sale proceeds of smuggled gold; applicability of Section 123

Legal framework (as discussed):

2.21 Confiscation of sale proceeds of smuggled goods is governed by Section 121 of the Customs Act, 1962, which requires that the seized currency be established as sale proceeds of smuggled goods.

2.22 Section 123 of the Customs Act, 1962 (reverse burden of proof) applies only to notified goods; Indian currency is not a notified item for the purposes of Section 123.

Interpretation and reasoning:

2.23 The adjudicating authority had confiscated Indian currency of Rs. 29,71,970/- treating it as sale proceeds of smuggled gold.

2.24 The Court found that there was "not an iota of evidence" to support the assertion that the seized currency constituted sale proceeds of smuggled gold or silver; no link was demonstrated between specific smuggled consignments and the seized cash.

2.25 The Revenue's case rested on assumptions and presumptions, without any concrete evidence, such as transactional tracing, accounts analysis, or corroborated statements, to show that the cash represented proceeds of any illicit bullion transaction.

2.26 The noticee's explanation that the cash formed part of the cash flow/cash in trade of the business remained unrebutted; the Revenue failed to produce tangible evidence contradicting this explanation.

2.27 The Court underscored that for currency to be confiscated as "sale proceeds" under Section 121, the Revenue must positively establish the nexus between the currency and smuggled goods; mere conjecture or inference is insufficient.

2.28 The Court further held that, as the seized item was Indian currency, Section 123 of the Customs Act, 1962 had no application, and the burden could not be reversed or lightened in favour of the Revenue.

2.29 The characterisation of the seized cash as "sale-proceeds of smuggled gold" was described as "whimsical" and "without a shred of evidence", making the confiscation unsustainable.

Conclusions:

2.30 The statutory conditions under Section 121 for treating the seized currency as "sale proceeds of smuggled goods" were not satisfied; the Revenue failed to establish any nexus between the cash and smuggled bullion.

2.31 Section 123 being inapplicable to Indian currency, the burden remained on the Revenue throughout and was not discharged.

2.32 Confiscation of Indian currency under Section 121 was therefore invalid and liable to be set aside, as correctly held by the appellate authority.

Issue 4 - Sustainability of penalties under Section 112(b)

Interpretation and reasoning:

2.33 Penalties had been imposed under Section 112(b) of the Customs Act, 1962 on the respondents in relation to alleged improper importation and handling of smuggled gold, silver bullion and the alleged sale proceeds thereof.

2.34 The Court's findings that (a) the gold was not proved to be of smuggled origin, (b) the silver bullion was lawfully procured and not shown to be smuggled, and (c) the seized currency was not established as sale proceeds of smuggled goods, effectively removed the foundational facts necessary to sustain any penal liability under Section 112(b).

2.35 With the confiscation itself being set aside and the alleged smuggled character of the goods and proceeds not established, the element of "knowingly or intentionally" dealing with goods liable to confiscation was not proved.

Conclusions:

2.36 Penalties imposed under Section 112(b) could not be sustained in the absence of legally sustainable confiscation or proof of smuggling, and thus stood annulled as a corollary to the setting aside of confiscation.

2.37 The appellate authority's order setting aside confiscation and consequential penalties was upheld, and the Revenue's appeals were dismissed in entirety.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether there existed a pre-existing dispute between the parties within the meaning of Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016, so as to bar admission of the Section 9 application.

1.2 Whether contractual interest claimed on the invoices could be included in determining the quantum of "operational debt" and satisfaction of the minimum threshold under Section 4 of the Insolvency and Bankruptcy Code, 2016.

1.3 Whether Invoice No. TCIPL/GST/127 for Rs. 26,00,000/- was a genuine, undisputed invoice forming part of the operational debt, or a disputed/bogus claim liable to be excluded.

1.4 Whether the amounts arising from invoices whose defaults fell within the restricted period under Section 10A of the Insolvency and Bankruptcy Code, 2016 were liable to be excluded for the purpose of default and threshold computation, and, upon such exclusion (along with the disputed invoice and interest), whether the Section 9 application was maintainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Existence of pre-existing dispute under Sections 8 and 9 IBC

Legal framework

2.1 The Court referred to Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code, 2016, which mandates rejection of an application if "notice of dispute" has been received by the operational creditor or there is a record of dispute in the information utility.

2.2 The Court relied on the principles laid down in the decision in Mobilox Innovations, which held that at the admission stage the Adjudicating Authority must reject a Section 9 application if there exists a "plausible contention" showing a dispute which is not spurious, illusory or mere bluster, without adjudicating the merits of such dispute.

Interpretation and reasoning

2.3 The Court noted materials relied upon by the respondent indicating repeated malfunctioning and breakdown of harvesters supplied, returns and exchanges of machines, consumer complaints and litigation, and demands for replacements during 2020-21.

2.4 It took into account the letter of the principal manufacturer acknowledging that machines required "upgradation of components", together with newspaper reports and other materials reflecting farmers' grievances and agitation concerning defective harvesters.

2.5 The Court accepted the respondent's case that several harvesters became unusable, were returned or abandoned, and that the respondent had to exchange or replace machines at its own cost, which led to commercial disputes regarding quality and performance of the supplied machines.

2.6 The Court held that these facts, taken cumulatively, constituted "incontrovertible records" evidencing a dispute that existed prior to the Section 8 demand notice. It rejected the contention that the dispute was a moonshine, afterthought or merely raised in response to the demand notice.

2.7 Applying Mobilox, the Court held that the defence raised by the respondent was a plausible contention requiring further investigation and was not a patently feeble legal argument or assertion of fact unsupported by evidence. Therefore, once such notice of dispute existed, the Adjudicating Authority was bound, under Section 9(5)(ii)(d), to reject the Section 9 application.

Conclusions

2.8 The Court concluded that there was a genuine, bona fide pre-existing dispute relating to the quality and performance of the machines and related claims, which pre-dated the demand notice.

2.9 On this ground alone, the Section 9 application was held to be not admissible, and there was no infirmity in the Adjudicating Authority's refusal to admit it.

Issue 2 - Inclusion of contractual interest in "operational debt" and threshold computation

Legal framework

2.10 The Court considered Section 4 of the Insolvency and Bankruptcy Code, 2016 (minimum default threshold of Rs. 1 crore) and examined prior appellate rulings, including Comet Performance Chemicals and Rishabh Infra, where it was held that interest for delayed payment can be charged only if there is an express agreement between the parties, and unilateral interest clauses in invoices, not forming part of the contract, are unenforceable for IBC purposes.

Interpretation and reasoning

2.11 The operational creditor had claimed that invoices contained terms stipulating interest at 24% per annum on delayed payments; the petition, however, claimed interest at 18% per annum, and both principal and interest were aggregated to arrive at total operational debt of Rs. 2,37,84,627.60.

2.12 The respondent disputed levy of interest, contending that the interest clause was unilaterally imposed, not traceable to any prior concluded agreement, and that the invoices did not consistently specify clear payment terms or the period from which interest would run, rendering the interest claim vague.

2.13 Relying on its own reasoning in Comet Performance, the Court held that no interest can be charged for delayed payment unless there is an express prior agreement between parties; mere boilerplate language in invoices, unbacked by a substantive contract, is insufficient.

2.14 The Court noted that the operational creditor had itself varied the interest rate (from 24% in invoices to 18% in the petition) unilaterally, and there was no demonstrated contractual basis enabling it to claim such interest as part of the operational debt.

Conclusions

2.15 The Court concluded that interest claimed on the invoices lacked contractual foundation and could not be included for computing the "operational debt" or for crossing the statutory threshold.

2.16 For further analysis, the Court treated the total operational debt as Rs. 1,64,89,928/- (principal amount only), and not Rs. 2,37,84,627.60 (principal plus interest).

Issue 3 - Status of Invoice No. TCIPL/GST/127 for Rs. 26,00,000/-

Interpretation and reasoning

2.17 The operational creditor asserted that Invoice No. TCIPL/GST/127 dated 09.08.2021 for Rs. 26,00,000/- represented the supply of two harvesters, priced at Rs. 13 lakh each, following concluded negotiations; it claimed that the respondent took delivery and did not raise any objection until litigation.

2.18 The respondent alleged that this invoice was "bogus", issued unilaterally in August 2021 to overcome the bar under Section 10A, whereas the alleged goods were said to have been supplied in or about April 2020, with no delivery challan, bill of lading, or corroborative delivery documents on record.

2.19 The respondent relied on contemporaneous WhatsApp communications showing that price negotiations regarding the said harvesters remained inconclusive, and that the respondent had asked the supplier to "keep the harvesters", indicating no finalized sale or agreed price as on the date of those chats.

2.20 The Court observed that the tax invoice itself did not disclose supporting delivery details or agreed terms, and that the correspondence indicated non-finalization of price and dispute on the transaction.

Conclusions

2.21 The Court held that Invoice No. TCIPL/GST/127 for Rs. 26,00,000/- was a disputed invoice and could not be treated as an undisputed part of operational debt for the purposes of a Section 9 petition.

2.22 Accordingly, the amount of Rs. 26,00,000/- under this invoice was excluded from the principal claim of Rs. 1,64,89,928/- in computing the admissible operational debt.

Issue 4 - Exclusion of invoices hit by Section 10A IBC and effect on maintainability and threshold

Legal framework

2.23 The Court considered Section 10A of the Insolvency and Bankruptcy Code, 2016, which prohibits filing of any application for initiation of CIRP in respect of a default occurring on or after 25.03.2020 till 24.03.2021, and mandates that such applications "shall never be filed".

2.24 It referred to earlier decisions, including Comet Performance Chemicals and Decor Paper Mills, which held that invoices whose defaults fell within the Section 10A period must be excluded from default claims for the purpose of Section 9 applications, and that the Adjudicating Authority is duty-bound to scrutinise whether any part of the claim is barred by Section 10A, even if not formally raised as a defence.

Interpretation and reasoning

2.25 The respondent produced a tabulated list of invoices raised between March 2020 and May 2020, aggregating to Rs. 45,07,324/-, whose due dates (calculated on agreed/payment or reasonable credit periods) fell during the Section 10A restricted window.

2.26 The Court accepted that, even where specific payment terms were not recorded on some invoices, a 30-day period from the date of invoice or receipt could be taken as a "reasonable time" in line with trade practice and prior precedent (Manishaas Infratecho Solutions), resulting in the due dates of those invoices falling within the Section 10A bar period.

2.27 Applying the reasoning in Comet Performance and Decor Paper Mills, the Court held that defaults related to invoices whose due dates fell within the Section 10A period could not be used as the basis of a Section 9 insolvency application and must be excluded from computation of default and threshold.

2.28 The Court therefore deducted Rs. 45,07,324/- (invoices hit by Section 10A) and Rs. 26,00,000/- (disputed Invoice No. TCIPL/GST/127) from the principal claim of Rs. 1,64,89,928/-, yielding a balance of Rs. 93,82,604/-.

2.29 The Court also reiterated that this scrutiny is required even if the corporate debtor does not specifically raise Section 10A as a defence, as it is the duty of the Adjudicating Authority to ensure that claims barred by law are not used to trigger insolvency.

Conclusions

2.30 After exclusion of (i) invoices whose defaults fell within the Section 10A window (Rs. 45,07,324/-), and (ii) the disputed invoice of Rs. 26,00,000/-, and (iii) disallowed interest, the operational debt that could legitimately form the basis of a Section 9 petition stood at Rs. 93,82,604/-, below the statutory threshold of Rs. 1 crore prescribed under Section 4 IBC.

2.31 Consequently, even apart from the existence of a pre-existing dispute, the Section 9 petition was independently not maintainable for failure to meet the minimum default threshold.

Overall conclusion

2.32 The Court held that: (a) a bona fide, pre-existing dispute existed between the parties prior to issuance of the Section 8 demand notice; (b) claimed interest was not contractually enforceable and was to be excluded; (c) Invoice No. TCIPL/GST/127 for Rs. 26,00,000/- was disputed and excluded; and (d) invoices whose defaults fell within the Section 10A period were statutorily barred and excluded, resulting in the admissible debt falling below the Rs. 1 crore threshold.

2.33 On these grounds, the Court affirmed the Adjudicating Authority's order rejecting admission of the Section 9 application and dismissed the appeal, leaving the appellant to pursue other remedies outside the Insolvency and Bankruptcy Code.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, on the admitted and contemporaneous documentary record, the relationship between the parties gave rise to an "operational debt" owed by the corporate debtor under the invoices relied upon in the Section 9 application.

1.2 Whether there existed a "pre-existing dispute" within the meaning of the Insolvency and Bankruptcy Code, 2016, as explained in the decision in Mobilox Innovations, sufficient to mandate rejection of the Section 9 application.

1.3 Whether change of the corporate debtor's registered office, after admission of the petition and during pendency of the appeal, affected the jurisdiction of the Appellate Tribunal to decide the appeal on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Existence and nature of "operational debt"

Interpretation and reasoning

2.1 The Tribunal first analysed the "true nature of the transaction" between the parties. The operational creditor had a Purchase Finance Facility from OXYZO, a subsidiary of the corporate debtor, under a sanction letter and Master Facility Agreement. OXYZO disbursed funds directly to SAIL for steel purchased by the operational creditor, while no hypothecation security was provided under the Master Facility Agreement, though Clause 10(i) permitted set-off and lien across OXYZO and its subsidiaries/associates.

2.2 The corporate debtor pleaded, with detailed particulars in its reply to the Section 9 application, that: (i) goods were picked up from SAIL by the corporate debtor on instructions of the operational creditor; (ii) the goods were stored in a warehouse leased by the corporate debtor, in "safe custody" as security for OXYZO under the Purchase Finance Facility; (iii) the operational creditor raised invoices on the corporate debtor merely to transfer title/logistically facilitate movement of goods from the corporate debtor's custody to the operational creditor's customers; and (iv) the corporate debtor in turn raised "counter-invoices" on such customers and transferred sale proceeds to OXYZO towards the operational creditor's liability under the finance facility.

2.3 The Tribunal considered contemporaneous email correspondence of April 2018 (set out in extenso in the judgment) between key representatives of the corporate debtor, OXYZO and the operational creditor. These communications recorded that: (a) the corporate debtor had picked up material from SAIL on behalf of the operational creditor; (b) part of the material had been released to the operational creditor, while substantial quantities were lying "in safe custody of OFB"; (c) further lifting of material from SAIL was to be done by the corporate debtor, with custody to be retained by it; and (d) payments from the operational creditor's customers (BBJ, Gammon etc.) would be used to pay OXYZO, with material being released against such payments. The Tribunal held that these emails corroborated the pleaded position that the corporate debtor was acting as a facilitator/custodian within a structured financing and logistics arrangement, not as a buyer of the goods.

2.4 In paragraph 11 of its reply, the corporate debtor had tabulated the full "chain of events / invoicing": SAIL invoicing the operational creditor; goods held in custody by the corporate debtor as security for OXYZO; the operational creditor issuing invoices to the corporate debtor merely to pass title for logistics and e-way bill purposes; and the corporate debtor issuing corresponding counter-invoices to the operational creditor or its customers with shipping details of those customers. The Tribunal noted that the corporate debtor placed on record (i) the invoices raised by SAIL on the operational creditor, (ii) the invoices relied on by the operational creditor as allegedly due from the corporate debtor, and (iii) matching counter-invoices raised by the corporate debtor to third-party purchasers (GC Steels, Rajesh Sales Corporation) and the operational creditor itself, covering the same material.

2.5 A comparative table, on record before the Adjudicating Authority, showed that: (a) the total value of invoices raised by the operational creditor on the corporate debtor (including the invoices dated 29.08.2018 and 30.08.2018 forming the basis of the Section 8 demand notice) was Rs. 6,90,20,447/-, while (b) the actual sale proceeds realised by the corporate debtor on onward sale of the same material to customers totalled Rs. 6,31,23,755/-, evidencing a loss of Rs. 58,96,692/- for the corporate debtor on those transactions. Ledger extracts also showed the corporate debtor remitting sale proceeds (about Rs. 4.8 crores / Rs. 5.30 crores in different tranches) to OXYZO to set off the operational creditor's liability.

2.6 On this material, the Tribunal held that the Adjudicating Authority's finding that "there is no supporting document to corroborate" the corporate debtor's case that it was merely a facilitator in the Purchase Finance Facility was "unsustainable". The Tribunal found ample contemporaneous documentary support for the corporate debtor's version that: (i) the goods were purchased by the operational creditor from SAIL; (ii) OXYZO funded those purchases; (iii) the corporate debtor held the goods as security/custodian and facilitated their onward sale to customers of the operational creditor; and (iv) the corporate debtor remitted sale proceeds to OXYZO, not to the operational creditor, in discharge of the latter's financing liability.

2.7 The Tribunal rejected the operational creditor's attempt to segment the August 2018 invoices (29.08.2018 and 30.08.2018) as constituting a separate, independent sale transaction where the corporate debtor was the buyer liable to pay invoice value. It held that those invoices formed part of the same integrated financing-cum-logistics arrangement and were raised only to enable the corporate debtor to issue counter-invoices for sale to the operational creditor's customers and to route payment to OXYZO.

Conclusions

2.8 On the totality of pleadings and documentary record, the Tribunal concluded that: (i) the corporate debtor was not a purchaser of goods from the operational creditor; (ii) the invoices raised on the corporate debtor were not "consideration for goods" payable by the corporate debtor to the operational creditor but were issued purely to enable onward sale/logistics and settlement of the operational creditor's liability to OXYZO; and (iii) there was therefore no "operational debt" due and payable by the corporate debtor to the operational creditor in respect of the invoices forming the basis of the Section 9 claim. On this ground alone, the Section 9 application "did not deserve to be admitted."

Issue 2 - Existence of "pre-existing dispute" under Sections 8 and 9 IBC

Legal framework (as discussed)

2.9 The Tribunal set out Section 8(2) IBC and relied on the Supreme Court's decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, which holds that where a "notice of dispute" is received, the Adjudicating Authority must reject a complete Section 9 application if: (i) there is a plausible contention requiring further investigation; and (ii) the dispute is not spurious, illusory, hypothetical or a patently feeble legal argument. The Adjudicating Authority is not required to assess the likely success of the defence but only to weed out sham or moonshine disputes.

Interpretation and reasoning

2.10 The operational creditor's Section 8 demand notice dated 13.02.2020 claimed principal of Rs. 1,63,54,418/- with interest, relying on invoices dated 29.08.2018 and 30.08.2018. The corporate debtor, within time, issued a detailed "notice of dispute" dated 27.02.2020, expressly asserting that: (i) no operational debt was due; (ii) the relationship between the parties did not fall within the IBC concept of operational creditor-corporate debtor; and (iii) there existed a "dispute within meaning of Section 5(6) of the Code."

2.11 In that reply, the corporate debtor narrated the underlying arrangement, including that it had picked up material worth Rs. 13.98 crores for the operational creditor from SAIL; that goods were kept in its custody; and that, acting on the operational creditor's instructions, it had been compelled to sell the goods at a loss due to the operational creditor's default and failure to purchase or take delivery. It also itemised multiple categories of charges and losses (warehouse costs, security, logistics, interest etc.) allegedly recoverable from the operational creditor and referred to prior emails documenting these issues.

2.12 The Tribunal emphasised that from September 2018 until the demand notice in February 2020, there had been no communication from the operational creditor asserting that any amount was due from the corporate debtor in relation to the impugned invoices, which supported the corporate debtor's case that no liability was understood or treated as due from it during that period.

2.13 In the proceedings under Section 9, the corporate debtor further elaborated its defence, annexing: (i) the detailed correspondence of April 2018 evidencing the agreed structure of custody, security and sale; (ii) ledgers showing transfer of sale proceeds to OXYZO; and (iii) comparative invoice tables and counter-invoices evidencing sale of the same goods to the operational creditor's customers and the resultant loss. The Tribunal noted that these materials were all before the Adjudicating Authority but were brushed aside with the observation that there were "no supporting documents" and that the defence was "moonshine".

2.14 Applying Mobilox, the Tribunal held that the corporate debtor's defence was grounded in contemporaneous documents, not in bare assertion. The nature and structure of the transactions, the role of OXYZO, the custody arrangement, and the sale and payment trail to OXYZO together raised at least a "plausible contention which requires further investigation". The dispute could not be characterised as spurious, illusory or mere bluster.

Conclusions

2.15 The Tribunal concluded that:

(a) The reply to the demand notice dated 27.02.2020 constituted a proper "notice of dispute" within Section 8(2), specifically invoking the existence of a dispute under Section 5(6) IBC.

(b) The corporate debtor's defence, supported by emails, ledgers and invoices, clearly demonstrated a genuine and substantial dispute on (i) whether any operational debt existed at all and (ii) whether any amount was due from the corporate debtor under the impugned invoices.

(c) In terms of Mobilox, such a defence could not be treated as a "moonshine defence". The Adjudicating Authority erred in holding that there were "no supporting documents" and in admitting the Section 9 petition notwithstanding the existence of this documented dispute.

(d) The presence of this pre-existing dispute was an independent and sufficient ground requiring rejection of the Section 9 application under Section 9(5)(i)(d) IBC.

Issue 3 - Effect of change of registered office on appellate jurisdiction

Interpretation and reasoning

2.16 During pendency of the appeal, the operational creditor filed an interlocutory application contending that, subsequent to initiation of CIRP by the impugned order, the corporate debtor's registered office had been shifted from Delhi to Gujarat. It was argued that: (i) the registered office is the "jurisdictional fact" determining territorial competence; (ii) upon such shift, the territorial jurisdiction of the NCLT, New Delhi (which passed the impugned order), and consequently of any appeal arising therefrom, ceased; and (iii) since an appeal is a continuation of original proceedings, the change in registered office during appeal rendered the appeal non-maintainable before the present Appellate Bench.

2.17 The Tribunal rejected this argument. It held that the appeal before it was directed against the specific order dated 10.11.2023 admitting the Section 9 application. Jurisdiction to entertain and decide that appeal was to be tested with reference to the jurisdiction of the Adjudicating Authority at the time it passed the impugned order and the statutory appellate structure, not by reference to any subsequent change in the corporate debtor's registered office.

2.18 The Tribunal observed that a post-order shift in registered office, as reflected in MCA records, could not retrospectively divest the NCLAT of jurisdiction over an appeal already competently filed against that order. To accept the respondent's contention would permit parties to alter appellate jurisdiction mid-stream by unilaterally changing the registered office, which was impermissible.

Conclusions

2.19 The Tribunal held that:

(a) Change of the corporate debtor's registered office after passing of the impugned order does not affect or curtail the Appellate Tribunal's jurisdiction to hear and decide the pending appeal on merits.

(b) The interlocutory application seeking dismissal of the appeal as non est and without jurisdiction was "without substance" and was rejected.

Overall Disposition

2.20 On the combined findings that: (i) there was no operational debt due from the corporate debtor to the operational creditor in respect of the impugned invoices; and (ii) in any event a genuine, pre-existing dispute was established on substantial and corroborated grounds, the Tribunal held that the Section 9 application ought not to have been admitted. The impugned order admitting the application and commencing CIRP was set aside, and the Section 9 petition was dismissed, with parties directed to bear their own costs.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether encashment of cheques during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016, pursuant to cheques dated prior to commencement of CIRP, violates the moratorium, and whether the doctrine of "relation back" to the cheque date is applicable when sufficient funds were not available in the corporate debtor's account on the cheque date.

(2) Whether the impugned payments could be justified as being pursuant to a pre-existing understanding or arrangement and/or in the ordinary course of business so as to defeat the direction to refund.

(3) Whether principles of natural justice were violated by the Adjudicating Authority in passing the impugned order without due consideration of the appellants' defence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Applicability of moratorium under Section 14 to cheques dated prior to CIRP commencement and the doctrine of relation back

Legal framework (as discussed)

(a) Section 14(1)(b) of the Insolvency and Bankruptcy Code, 2016 prohibits, during moratorium, "transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein".

(b) Earlier NCLAT precedent holds that even if a cheque "dates back" to the date of handover, it cannot be encashed after moratorium starts, as no person can recover any amount from the account of the corporate debtor once moratorium has commenced.

Interpretation and reasoning

(c) The appellants argued that the cheques, both dated 31.07.2020, were issued prior to the CIRP commencement date (03.08.2020) and, by application of the settled doctrine of "relation back", payment must be deemed to have been made on the cheque date, not on the date of encashment (06.08.2020). On that basis, they contended there was no violation of Section 14.

(d) The respondent contended that on 31.07.2020 the corporate debtor's accounts had negligible balances: in the RBL Bank account, approximately Rs. 8,398/-; in the IndusInd Bank account, approximately Rs. 9,151.56/-. The funds used to honour the cheques (Rs. 50,00,000/- and Rs. 41,00,000/-) were credited into those accounts only on 04.08.2020, after the commencement of CIRP and moratorium.

(e) The Tribunal examined the bank statements and found as facts that: (i) no material credits occurred on 31.07.2020 to support the cheque amounts; (ii) substantial credits of Rs. 50,00,000/- (from one source) and Rs. 41,00,000/- (from another source) were received on 04.08.2020; and (iii) the exact corresponding amounts were debited on 06.08.2020 on encashment of the two cheques. The balances before and after these transactions confirmed that the cheques were effectively funded entirely by post-moratorium credits.

(f) On these facts, the Tribunal held that the cheques, though dated 31.07.2020, were clearly issued in anticipation of future receipts, and were never realistically payable prior to 04.08.2020. There were no funds in the relevant accounts as on the cheque date sufficient to honour them.

(g) The Tribunal distinguished the authorities relied upon by the appellants on "relation back" on the ground that those decisions were not concerned with a situation where the drawer's account was insufficient on the cheque date, nor with the supervening statutory bar of a moratorium under the Code. In those cases there was an underlying debt and no question of insufficiency of funds as at the date of cheque issuance.

(h) Relying on its own earlier decisions, the Tribunal reiterated that: (i) once moratorium starts, no person can unilaterally recover any amount from the corporate debtor's account; (ii) even if the cheque date "relates back" for certain purposes, encashment of a cheque after moratorium is statutorily impermissible; and (iii) cheques cannot be encashed post-moratorium, and if they are, the resolution professional is entitled to seek recovery, with the payee relegated to filing a claim in the CIRP.

(i) The Tribunal rejected the contention that the doctrine of relation back operates irrespective of the sufficiency of funds. It held that, in the insolvency context and in the presence of a clear statutory moratorium, the doctrine cannot be used to backdate depletion of assets that in fact occurred after CIRP commencement using funds credited post-moratorium.

(j) The Tribunal also noted the timing: the cheques were issued while orders in the Section 7 petition were reserved, and were cleared only after CIRP commenced, out of funds received post-moratorium, reinforcing the inference that the transactions were not bona fide pre-moratorium disbursements.

Conclusions

(k) The encashment of both cheques on 06.08.2020, funded entirely by credits received on 04.08.2020 after commencement of CIRP and moratorium, amounted to a transfer/disposal of assets of the corporate debtor during moratorium in breach of Section 14(1)(b).

(l) In circumstances where there were no sufficient funds in the corporate debtor's accounts on the cheque date, and where the actual depletion of assets occurred post-moratorium, the doctrine of relation back to the cheque date is inapplicable.

(m) The cheques cannot be treated as valid pre-moratorium payments; the amounts were recoverable, and the direction to refund Rs. 91,00,000/- to the corporate debtor was legally sustainable.

Issue (2): Effect of alleged pre-existing understanding / ordinary course of business

Interpretation and reasoning

(n) The appellants asserted that the payments were made pursuant to a pre-existing internal understanding and a series of documents (joint venture agreement, supplemental deed, deed of confirmation, and memorandum of understanding) between them, the corporate debtor and a third-party developer, and were transactions in the ordinary course of business. They relied on ledger entries sent by the erstwhile resolution professional purportedly showing amounts paid on behalf of the third party to the appellants.

(o) The respondent disputed the existence of any valid agreement or internal understanding justifying the cheques, alleged misrepresentation and fraudulent intent, and contended that the cheques were issued only to utilise post-moratorium credits to favour the appellants over other creditors.

(p) The Tribunal noted that the Adjudicating Authority had already recorded a categorical finding that no money was due and payable to the appellant concern from the corporate debtor, and that the payment was merely an accommodation on a returnable basis. The Appellate Tribunal found no reason to differ from this finding.

(q) In light of the absence of sufficient funds on the cheque date, the proximity to the reserved judgment in the Section 7 proceedings, and the utilisation of post-moratorium credits, the Tribunal held that the corporate debtor's issuance and clearance of these cheques could not be regarded as transactions in the ordinary course of business.

(r) The Tribunal considered the respondent's assertion of mala fides and found it plausible in the factual background, particularly when there were no available funds in the corporate debtor's accounts on the cheque date and the cheques were nevertheless honoured using funds received after moratorium commenced.

Conclusions

(s) The alleged pre-existing understanding or arrangement, even assuming its existence, did not justify depletion of the corporate debtor's assets during the moratorium period.

(t) The payments in question were not in the ordinary course of business, involved no subsisting debt to the appellants, and were in substance accommodation transactions; hence, the direction to refund the sums to the corporate debtor was appropriate.

Issue (3): Alleged violation of principles of natural justice

Interpretation and reasoning

(u) The appellants argued that the Adjudicating Authority failed to consider their reply and submissions and thus violated principles of natural justice, rendering the impugned order arbitrary and unreasoned.

(v) The respondent countered that the Adjudicating Authority had recorded and considered the appellants' contentions, and that the appellants were granted full opportunity of hearing.

(w) The Tribunal, on examining the impugned order and the record, found that the Adjudicating Authority had taken note of the appellants' submissions and dealt with the issues, even though the final view went against them.

Conclusions

(x) There was no breach of principles of natural justice. The appellants were heard, their contentions were considered, and the order cannot be set aside on that ground.

(y) In view of the above findings on all issues, the appeal was dismissed and the direction to jointly and severally refund Rs. 91,00,000/- to the corporate debtor was affirmed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether encashment of the two cheques of Rs. 50,00,000/- and Rs. 41,00,000/- after commencement of CIRP constituted a violation of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.

1.2 Whether Section 66(1) and Section 66(2) of the Insolvency and Bankruptcy Code, 2016 form a single composite provision requiring proof of intent to defraud, or operate as distinct, independently invocable provisions.

1.3 Whether, on the facts, the conduct of the directors satisfied the ingredients of Section 66(2) of the Insolvency and Bankruptcy Code, 2016, warranting a direction to contribute Rs. 91,00,000/- to the assets of the corporate debtor.

1.4 Whether the interim moratorium under Sections 95 and 96 of the Insolvency and Bankruptcy Code, 2016, in respect of a personal insolvency application against one director, barred the adjudicating authority from passing an order under Section 66.

1.5 Whether the adjudicating authority had jurisdiction under Section 66 to direct payment of interest at 12% per annum on the amount ordered to be contributed.

1.6 Whether the subsequent application under Section 66 (I.A. No. 1099 of 2024) amounted to impermissible re-litigation in view of the earlier order in I.A. No. 3921 of 2022.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Violation of moratorium under Section 14 by encashment of cheques

Legal framework:

2.1.1 The Court considered Section 14(1)(b) of the Code, which prohibits, during moratorium, "transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein." The Court relied on precedents holding that cheques cannot be encashed after moratorium commencement, irrespective of the date of issuance.

Interpretation and reasoning:

2.1.2 It was undisputed that: (i) the Section 7 petition had been reserved for orders on 19.02.2020; (ii) the cheques dated 31.07.2020 aggregating Rs. 91,00,000/- were issued when the corporate debtor's bank balances were negligible (Rs. 8,398/- and Rs. 9,151.56/-); (iii) CIRP and moratorium commenced on 03.08.2020; (iv) credits of Rs. 50,00,000/- and Rs. 41,00,000/- came into the corporate debtor's accounts on 04.08.2020; and (v) the cheques were encashed on 06.08.2020 using these post-moratorium credits.

2.1.3 The beneficiary (Darshan Developers) admitted that the cheques were handed over on 31.07.2020. The Court held that, in any event, encashment of the cheques after moratorium commencement was determinative.

2.1.4 Relying on earlier decisions (including SREI Equipment Finance Ltd. v. Amit Gupta and Sunil Guttee v. Avil Menezes), the Court reiterated that once moratorium begins, no person can recover any amount from the account of the corporate debtor; even cheques issued earlier cannot be encashed post-moratorium.

2.1.5 The Court further noted that, unlike those precedents which involved cheques for pre-existing liabilities, the present cheques were issued without proof of any subsisting obligation, aggravating the infraction.

Conclusions:

2.1.6 The encashment of the cheques on 06.08.2020, using post-moratorium credits, was held to be a clear breach of Section 14, and the transaction could not be treated as being in the ordinary course of business.

2.2 Relationship between Section 66(1) and Section 66(2) of the Code

Legal framework:

2.2.1 The Court addressed the contention that Section 66(1) and 66(2) are part of a single remedial scheme and that the requirement of "intent to defraud creditors" under Section 66(1) must also be read into Section 66(2).

2.2.2 The Court relied on a recent appellate decision (Swapan Kumar Saha v. Ashok Kumar Agarwal) and on Section 67 of the Code, which expressly refers to orders under "sub-section (1) or sub-section (2) of Section 66", to interpret the provisions disjunctively.

2.2.3 The Court also cited Supreme Court authority (Forage & Co. v. Municipal Corpn. of Greater Bombay) for the principle that headings cannot control or cut down the plain, unambiguous text of a statutory provision, and can be used only where there is ambiguity.

Interpretation and reasoning:

2.2.4 The Court found no ambiguity in the text of Sections 66(1) and 66(2). It held that each sub-section is self-contained, with distinct ingredients and mechanisms, and may be invoked independently.

2.2.5 The Court rejected the argument that both sub-sections necessarily require proof of "intent to defraud" as a common mens rea. Section 66(2) instead turns on knowledge (or constructive knowledge) that there was no reasonable prospect of avoiding CIRP, coupled with failure to exercise due diligence to minimise loss.

Conclusions:

2.2.6 Section 66(1) and Section 66(2) operate independently. The requirement of fraudulent intent under Section 66(1) cannot be imported into Section 66(2). The impugned order, having been passed under Section 66(2), had to be tested only against the ingredients of Section 66(2).

2.3 Satisfaction of ingredients of Section 66(2) on the facts

Legal framework:

2.3.1 The Court identified two cumulative requirements under Section 66(2): (a) the director knew or ought to have known that there was no reasonable prospect of avoiding commencement of CIRP; and (b) the director failed to exercise due diligence in minimising potential loss to creditors.

2.3.2 The Court referred to the Supreme Court's exposition in Piramal Capital & Housing Finance Ltd. v. 63 Moons Technologies Ltd on the nature of inquiry under Section 66, particularly the power to direct persons who were knowingly parties to wrongful trading to contribute to the assets of the corporate debtor.

Interpretation and reasoning:

2.3.3 The Section 7 petition against the corporate debtor had been filed in April 2019, and the admission order was reserved on 19.02.2020. The Court held that by 31.07.2020, when the cheques were issued, the directors were fully aware that admission of CIRP was imminent and that there was no reasonable prospect of avoiding it.

2.3.4 The cheques were issued two days before the admission order, despite negligible account balances, and were honoured only from funds credited after moratorium. The Court held this demonstrated an intention to dissipate assets in anticipation of CIRP rather than to protect creditor interests.

2.3.5 The Court examined the MOU of 17.12.2019 with Shreeniwas Developers. It noted that it provided for an interest-free facility up to Rs. 20 crores at a time when the corporate debtor was already under severe financial distress and faced multiple insolvency proceedings. The Court considered such extension of interest-free financial accommodation, in these circumstances, to be a design to dissipate the corporate debtor's assets.

2.3.6 The Court emphasised that the impugned payments were made not to the joint venture partner (Shreeniwas Developers) but to a third party, Darshan Developers, who was not a party to the MOU, and whose partner was a close relative (first cousin) of one of the appellants. This strengthened the inference of asset dissipation rather than bona fide business necessity.

2.3.7 The Court rejected reliance on authorities stressing the need for specific pleading and proof of fraud under Section 66(1), holding them distinguishable because the present case was examined under Section 66(2), and the pleadings in I.A. No. 1099 of 2024 sufficiently alleged knowledge of imminent CIRP and lack of due diligence.

2.3.8 The Court also rejected the argument that absence of personal benefit or that funds were paid to a third party exonerated the directors. Section 66(2) focuses on wrongful conduct causing loss to creditors, not on whether the director personally received the funds.

Conclusions:

2.3.9 The Court held that: (i) the directors knew, or ought to have known, that CIRP was unavoidable; and (ii) they failed to exercise due diligence to minimise creditor losses and instead facilitated dissipation of Rs. 91,00,000/- post-moratorium to a related third party. The ingredients of Section 66(2) were therefore satisfied, justifying a direction to jointly and severally contribute Rs. 91,00,000/- to the assets of the corporate debtor.

2.4 Effect of interim moratorium under Sections 95 and 96 on proceedings under Section 66

Legal framework:

2.4.1 The Court considered Section 96(1)(b), which provides that, upon filing an application under Section 94 or 95, an interim moratorium commences and: (i) any legal action or proceeding pending "in respect of any debt" shall be deemed stayed; and (ii) creditors shall not initiate any legal action or proceeding "in respect of any debt." "Debt" is defined in Section 3(11) as a liability or obligation in respect of a claim which is due from any person.

Interpretation and reasoning:

2.4.2 The Court held that the interim moratorium under Section 96 applies only to proceedings "in respect of any debt" that is due on the date of commencement of interim moratorium, and cannot be extended to future liabilities or to proceedings of a different character.

2.4.3 Proceedings under Section 66 were characterised as actions to address fraudulent or wrongful trading and to protect the corporate insolvency process by compelling contribution to the corporate debtor's assets, rather than actions "in respect of a debt" owed by the director as on that date.

2.4.4 The Court held that Section 96(1)(b) does not bar the adjudicating authority from passing appropriate orders under Section 66 against suspended directors or related parties during the CIRP or liquidation process.

Conclusions:

2.4.5 The pendency of an application under Section 95 and the resulting interim moratorium under Section 96 did not preclude the adjudicating authority from passing the impugned order under Section 66. The contrary contention was held unsustainable.

2.5 Power to award interest under Section 66

Legal framework:

2.5.1 The argument raised was that Section 66, being quasi-penal and silent on interest, does not authorise imposition of interest on contributions directed to be made, and must therefore be strictly construed.

2.5.2 The Court examined the language of Section 66(1) and 66(2), which empower the adjudicating authority to order persons found liable "to make such contributions to the assets of the corporate debtor as it may deem fit."

Interpretation and reasoning:

2.5.3 The Court construed the phrase "such contributions ... as it may deem fit" as conferring a broad discretion on the adjudicating authority to fashion appropriate relief, including recovery of the asset dissipated and its time value.

2.5.4 In the present case, the direction to pay interest at 12% per annum was treated as part of quantifying the contribution, including the time value of money wrongfully taken from the corporate debtor during CIRP, and not as a separate punitive imposition outside the statute.

Conclusions:

2.5.5 The direction to refund Rs. 91,00,000/- with interest at 12% per annum was held to be within the scope of the adjudicating authority's power under Section 66. The challenge to jurisdiction to award interest was rejected.

2.6 Alleged re-litigation in view of earlier order in I.A. No. 3921 of 2022

Legal framework and prior order:

2.6.1 In I.A. No. 3921 of 2022, the adjudicating authority had directed Respondent Nos. 1 and 2 (Darshan Developers and another) to refund Rs. 91,00,000/- to the corporate debtor, and recorded that no prayer had been made under Section 66 against the then Respondent Nos. 3 to 7 (including the present appellants). It expressly granted liberty to file an appropriate application under Section 66 seeking their contribution.

Interpretation and reasoning:

2.6.2 The Court held that the earlier order did not adjudicate Section 66 liability of the directors; on the contrary, it preserved liberty to initiate a distinct application under Section 66 against them.

2.6.3 I.A. No. 1099 of 2024 was filed pursuant to that liberty to specifically invoke Section 66 in respect of the directors. The Court found that this was not an attempt to reopen an issue already decided, but to pursue a remedy explicitly left open.

Conclusions:

2.6.4 The plea that I.A. No. 1099 of 2024 constituted re-litigation or violated principles of finality and judicial discipline was rejected. The application under Section 66 was held to be competent and in line with the earlier liberty granted.

2.7 Overall conclusion on the appeal

2.7.1 Having found (i) a clear violation of moratorium and dissipation of assets post-CIRP; (ii) that Section 66(2) operates independently and its ingredients were satisfied; (iii) that the interim moratorium under Sections 95 and 96 did not bar proceedings under Section 66; (iv) that the adjudicating authority could include interest within the "contribution" directed; and (v) that the Section 66 application did not amount to re-litigation, the Court upheld the adjudicating authority's order.

2.7.2 The appeal by the suspended directors against the directions under Section 66(2) to jointly and severally refund Rs. 91,00,000/- with interest to the corporate debtor was dismissed, and the order of the adjudicating authority was affirmed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Limitation for application under Section 95 of the Insolvency and Bankruptcy Code, 2016 - Whether the application filed under Section 95 against the personal guarantor was within the prescribed period of limitation.

1.2 Continuing liability of personal guarantor - Whether the guarantee executed by the appellant continued to bind him, or stood extinguished/novated/substituted by the subsequent mediation settlement and undertakings given by the promoters.

1.3 Effect of alleged novation/settlement on guarantee - Whether the mediation settlement recorded by the Tribunal and the personal undertakings of the promoters constituted a novation under Section 62 or a discharge under Section 133 of the Contract Act so as to release the guarantor.

1.4 Scope of objection based on misaddressed/earlier notices - Whether reliance on service defects in prior notices, including the notice relied upon in Mathew Varghese, affected the validity of the Section 95 proceedings where proper notice under Section 95 was admittedly served.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Limitation for application under Section 95 of the Insolvency and Bankruptcy Code, 2016

2.1.1 Interpretation and reasoning

2.1.1.1 The Tribunal rejected the contention that limitation was to be computed only from the loan recall notice dated 18.07.2017, holding that the creditor-debtor relationship continued thereafter through arbitration, admission of CIRP, mediation and settlement in December 2019, and subsequent part-payments.

2.1.1.2 The mediation settlement dated 02.12.2019 was recorded and incorporated in an order of the Tribunal dated 06.12.2019. That order treated the settlement terms as directions of the Tribunal and provided that, in the event of default of the agreed instalments or dishonour of post-dated cheques, the unpaid amount would be treated as "admitted debt" and CIRP could be revived. The Tribunal held that the original debt was not extinguished but placed in a "suspended state", to revive on breach of the settlement.

2.1.1.3 The Tribunal noted that part-payments were made by the corporate debtor on 11.09.2020 and 29.04.2021 in the relevant loan accounts. These payments, being admitted and undisputed, were held to constitute part-payments within the meaning of Section 19 of the Limitation Act and to extend the period of limitation.

2.1.1.4 The Tribunal held that, in law, acknowledgment or part-payment by the principal debtor extends limitation against the guarantor also, so long as the guarantee continues and is not released; no agreement to treat the guarantor differently or any revocation/release of guarantee by the creditor was shown.

2.1.1.5 The revival of CIRP by the Adjudicating Authority on 23.11.2021, on the footing that the settlement terms recorded under the Tribunal's orders dated 06.12.2019 and 15.03.2021 had been breached, was treated as an objective judicial affirmation that the underlying debt subsisted and was not time-barred.

2.1.1.6 The Tribunal further held that a fresh demand notice (Form-B) was issued to the personal guarantor on 25.01.2022, duly received on 28.01.2022. Given that the guarantor's liability is co-extensive with that of the principal debtor, this notice crystallised default as against the guarantor, and the Section 95 application filed on 03.05.2022 was clearly within the extended limitation period, which ran at least till April 2024 due to the part-payments.

2.1.1.7 The Tribunal declined to accept the appellant's plea that only the 2017 recall notice governed limitation and held that limitation law could not ignore subsequent acknowledgments/part-payments merely because these were made by the principal debtor and not personally signed by the guarantor, while the guarantee remained operative.

2.1.2 Conclusions

2.1.2.1 The application under Section 95 filed on 03.05.2022 was held to be within limitation, in view of the mediation settlement recorded by the Tribunal, the part-payments made in 2020 and 2021, the revival of CIRP in November 2021, and the demand notice of January 2022 to the guarantor.

2.1.2.2 The objection that the Section 95 application was barred by limitation was rejected, and the Adjudicating Authority's admission order was upheld on this ground.

2.2 Continuing liability of personal guarantor and effect of mediation settlement/undertakings

2.2.1 Legal framework discussed

2.2.1.1 The Tribunal examined the nature of a "continuing guarantee" and the effect of changes in the underlying contract with reference to Sections 62, 133 and 19 of the Indian Contract Act, 1872, and the concept of co-extensive liability of a guarantor.

2.2.1.2 The Tribunal also considered the construction of the specific clauses of the Deed of Guarantee (including Clauses 8, 10, 14, 15 and 19) as governing the scope, duration, and irrevocability of the guarantee, and the effect of any novation/variation or enhancement of loan.

2.2.2 Interpretation and reasoning - scope of guarantee and second loan

2.2.2.1 The Tribunal noted that the corporate debtor had availed two facilities: the first loan (Loan Account LNPIT00712-130002234) and the second loan (Loan Account LNPIT03516-170006753). It relied on the appellant's own submissions and the settlement agreement recitals to note that the second loan was sanctioned specifically "to regularise the aforesaid account" and thus formed part of a continuing financial arrangement.

2.2.2.2 Clause 15 of the Guarantee Agreement provided that, in the event of enhancement of the loan by the creditor, "with or without informing the Guarantor, this guarantee shall remain valid for such enhanced limit also". The Tribunal interpreted this to mean that the guarantee automatically extended to cover further or regularising finance forming part of the same overall credit exposure.

2.2.2.3 Clause 8 declared the guarantee to be a "continuing" guarantee until the creditor had no subsisting claim and all dues were fully discharged to its satisfaction. Clause 19 made the guarantee "unconditional and irrevocable" and provided that it would remain so until the creditor expressly discharged it in writing. No such written discharge was shown.

2.2.2.4 The Tribunal also noted that payments continued to be made in both loan accounts during 2020 and 2021, reinforcing that both loans were treated as components of a single composite financial obligation covered by the continuing guarantee.

2.2.3 Interpretation and reasoning - effect of variation/settlement on guarantee

2.2.3.1 Clause 10 of the Guarantee Agreement provided that "any novation/variation of the Agreement and for concessions acquiescence made by" the creditor to the borrower, with or without informing the guarantor, would not discharge the guarantee, and that concessions, indulgences or variations in respect of the borrower's terms or securities would not prejudice the creditor's rights against the guarantor.

2.2.3.2 Clause 14 stipulated that in the event of the borrower's default, the entire sum outstanding under the agreement would become forthwith due and payable, crystallising the guarantor's liability.

2.2.3.3 The Tribunal held that the 2019 mediation settlement did not amount to a novation under Section 62. The settlement did not expressly extinguish or substitute the original loan contract; it merely provided a structured repayment schedule and concessions, with a specific clause that, upon default of the first instalment or two consecutive instalments, the unpaid amount would be treated as "admitted debt" and CIRP could be revived.

2.2.3.4 On this wording, the Tribunal reasoned that the original rights and obligations under the loan agreement were not abandoned but kept in abeyance, to revive automatically on breach of the settlement. A contract whose old obligations "spring back" upon failure of the new arrangement does not qualify as a novation that extinguishes the pre-existing obligations.

2.2.3.5 The Tribunal further emphasised that the settlement was not a purely private contract but was incorporated into the Tribunal's orders dated 06.12.2019 and 15.03.2021. Those orders expressly provided that failure to adhere to the settlement terms would lead to revival of CIRP. This reinforced that, on breach, the original loan and guarantee continued to operate.

2.2.3.6 With reference to Section 133 of the Contract Act, the Tribunal held that a guarantor is discharged only if there is a variation in the contract between creditor and debtor that prejudicially affects the guarantor. In this case, the settlement conferred concessions and reduced liability by quantifying a smaller payable sum; it did not impose any additional burden on the guarantor. A concession to the debtor was held not to be a prejudicial variation discharging the guarantor.

2.2.3.7 The Tribunal held that the giving of personal undertakings and willingness of promoters to provide personal guarantees under the settlement did not, in itself, release the existing guarantor. A creditor may have multiple guarantors; the earlier guarantor is discharged only by clear, explicit release or waiver, which was absent. Clause 19 expressly required a discharge "by issuing a letter" from the creditor, which was never issued.

2.2.3.8 The Tribunal concluded that, following default on the settlement and dishonour of post-dated cheques, CIRP was revived by order dated 23.11.2021. Since the principal debtor's liability thus revived and continued, the guarantor's liability - being co-extensive - also continued, there being no agreement to treat him differently.

2.2.4 Conclusions

2.2.4.1 The guarantee executed by the appellant was held to be a continuing, unconditional, and irrevocable guarantee, extending to the second loan as part of the same financial arrangement, by virtue of the express terms of the Guarantee Agreement.

2.2.4.2 The mediation settlement of 2019, as recorded in and forming part of the Tribunal's orders, did not amount to novation or extinguishment of the original loan or guarantee under Section 62, nor did it constitute a prejudicial variation discharging the guarantor under Section 133.

2.2.4.3 The subsequent undertakings by the promoters and their willingness to furnish personal guarantees did not release or substitute the appellant's existing guarantee, in the absence of an express discharge by the creditor.

2.2.4.4 The appellant remained liable as personal guarantor, and the creditor was entitled to proceed against him under Section 95 of the Code. The Adjudicating Authority's view that the guarantee continued to bind the appellant and that PIRP could be initiated was upheld.

2.3 Effect of reliance on Mathew Varghese and alleged defects in earlier notices

2.3.1 Interpretation and reasoning

2.3.1.1 The appellant relied on Mathew Varghese to contend that notices addressed in an incorrect capacity or served defectively vitiate subsequent enforcement steps. The Tribunal examined that decision and noted that it related to strict statutory notice requirements under the SARFAESI Act for sale of secured assets.

2.3.1.2 The Tribunal distinguished the present context, which concerned a contractual guarantee invoked through a proceeding under Section 95 of the Code, where the relevant statutory requirement is service of the Section 95 application/notice on the guarantor in the prescribed manner.

2.3.1.3 The Tribunal found that the appellant had duly received the notice under Section 95 and had responded and contested the proceedings. Hence, any prior misdescription or capacity error in earlier termination/arbitration notices had no bearing on the validity of the present Section 95 process.

2.3.2 Conclusions

2.3.2.1 The principle in Mathew Varghese, based on the SARFAESI statutory scheme, was held to be inapplicable to the present IBC guarantee context.

2.3.2.2 The service and receipt of the Section 95 notice having been admitted, alleged defects in earlier notices did not vitiate the proceedings under Section 95 or affect the guarantor's liability.

2.4 Overall disposition

2.4.1 In light of the findings that (i) the Section 95 application was within limitation, and (ii) the guarantee continued and was not discharged or substituted, the Tribunal found no infirmity in the Adjudicating Authority's order initiating the personal insolvency resolution process against the guarantor.

2.4.2 The appeal was dismissed, pending interlocutory applications were closed, and no order as to costs was made.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, issued by the operational creditor and relied upon for initiation of proceedings under Section 9, was validly and sufficiently served on the corporate debtor in terms of Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

1.2 Whether the Adjudicating Authority erred in law in rejecting the Section 9 application solely on the ground of alleged non-service/insufficient service of the Section 8 demand notice, without properly appreciating the material on record and without affording adequate opportunity to the operational creditor to substantiate service.

1.3 Whether the impugned order rejecting the Section 9 application on the ground of non-service warranted interference and remand for fresh consideration on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and sufficiency of service of demand notice under Section 8 IBC

Legal framework

2.1 The Court considered Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 and Rules 5 and 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

2.2 The Court noted that: (i) service of a demand notice under Section 8 is a condition precedent to filing an application under Section 9; (ii) Section 8(1) requires delivery of the demand notice of unpaid operational debt in the prescribed form and manner; and (iii) Rule 5(2) permits service of the demand notice at the registered office by hand, registered post or speed post with acknowledgement due, or by electronic mail to specified officers of the corporate debtor.

Interpretation and reasoning

2.3 The Court recorded that, as per Form 5 (Part III) filed before the Adjudicating Authority, the operational creditor categorically asserted that a fresh demand notice dated 18.03.2024 was issued under Section 8, claiming an operational debt of Rs. 1,21,27,895/-, and that:

(a) the notice was sent by email to the corporate debtor at the email address available in the records of the Ministry of Corporate Affairs and another email address reflected in the Form-D record of default;

(b) the notice was sent by speed/registered post to the registered office of the corporate debtor as per the MCA records; and

(c) the notice was sent to the head office of the corporate debtor as displayed on the corporate debtor's website.

2.4 It was further recorded that, in Form 5, the operational creditor specifically stated: (i) the demand notice dated 18.03.2024 was successfully delivered at the corporate debtor's head office address as displayed on its website; and (ii) the notice sent to the registered office address was returned with the postal endorsement that the company "refused to accept the same". Copies of emails, tracking reports and postal proof were stated to have been annexed.

2.5 The Adjudicating Authority nevertheless held service to be insufficient on multiple grounds, inter alia: (i) the registered office address was allegedly not in the possession of the corporate debtor as per an earlier postal endorsement regarding an earlier notice dated 30.12.2023; (ii) the operational creditor, having been aware that the company allegedly did not exist at the earlier address, ought to have used alternative modes under Rule 5; (iii) the emails were not proved to be connected to the corporate debtor or to a specified officer; and (iv) the head office address was not proved by any website printout or supporting material.

2.6 The Court held that the Adjudicating Authority's approach in treating the 18.03.2024 notice as undelivered, by relying on the postal endorsement relating to a previous notice dated 30.12.2023, was erroneous. The focus should have been on whether the notice dated 18.03.2024, sent to the registered address as per MCA records, was in fact returned with a "refused" endorsement and what legal effect such refusal would have.

2.7 The Court observed that the Adjudicating Authority failed to return any clear finding on the specific plea that the 18.03.2024 notice sent to the registered office, as per MCA records, was returned with the endorsement "company has refused to accept service". The Adjudicating Authority instead relied on an earlier endorsement pertaining to a different notice and an earlier, withdrawn application.

2.8 The Court held that, under Rule 5, service at the registered office of the corporate debtor by registered/speed post with acknowledgement due is one of the statutory modes. If the notice is sent to the registered office as per MCA records and is returned with an endorsement of "refused", the Adjudicating Authority was required to give a "crystal clear" finding on why such refusal would not amount to sufficient service; this was not done.

2.9 The Court further noted that, in its reply before the Appellate Tribunal, the corporate debtor expressly admitted that the registered office address as recorded in the MCA data is accurate and that it continues to operate from that address. The addresses mentioned in the affidavit of the partner of the corporate debtor matched the addresses to which the 18.03.2024 notice had been sent. This admission was considered to enhance the significance of the alleged "refusal" endorsement.

2.10 Regarding email service, the Court noted that the Adjudicating Authority had discarded email service on the basis that the designation of the addressee was not mentioned and that no material connected the relevant email address (including the "dipak" email address) with the corporate debtor. The Court held that although the burden of proof lies on the party asserting service, the party cannot be expected to produce evidence that it had no opportunity to place on record. If there was any doubt regarding email service, the Adjudicating Authority ought to have afforded an opportunity to the operational creditor to produce supporting material.

2.11 The Court refrained from itself deciding the factual sufficiency of email service, especially in view of additional correspondence placed on record before the Appellate Tribunal, and held that this factual inquiry should be undertaken by the Adjudicating Authority upon remand.

Conclusions

2.12 Service of a Section 8 demand notice is a condition precedent for initiation of CIRP under Section 9 and can be effected under Rule 5 at the registered office by registered/speed post or by email in the manner prescribed.

2.13 The Adjudicating Authority erred in law in treating the 18.03.2024 notice as not duly served by: (i) relying on a postal endorsement pertaining to an earlier, withdrawn notice instead of examining the endorsement on the 18.03.2024 notice itself; and (ii) failing to record a clear finding on the effect of an alleged "refusal" endorsement at the registered address which the corporate debtor admits is correct.

2.14 The Adjudicating Authority further erred in discarding email and head office service without affording the operational creditor an opportunity to place supporting material on record.

2.15 The question of whether service of the 18.03.2024 notice was in fact valid and sufficient in law remains to be finally determined by the Adjudicating Authority upon remand, after allowing the parties to adduce evidence.

Issue 2: Propriety of rejection of Section 9 application and necessity of remand

Interpretation and reasoning

2.16 The Court held that, in light of the statutory scheme of Sections 8 and 9 read with Rules 5 and 6, the Adjudicating Authority was required to: (i) properly examine whether the requirements of service under Section 8 and Rule 5 were satisfied; and (ii) before rejecting on the ground of any defect, afford a reasonable opportunity to the applicant to cure such defect or to place necessary material on record.

2.17 The Court found that the Adjudicating Authority had rejected the Section 9 application solely on the alleged non-service of the Section 8 demand notice, without a proper examination of the postal endorsement on the 18.03.2024 notice and without providing the operational creditor an opportunity to demonstrate the correctness of the addresses, the connection of email IDs with the corporate debtor, or the authenticity of the head office address as per the website.

2.18 In view of these deficiencies, the Court concluded that the impugned order suffered from errors apparent on the face of the record and from failure to afford adequate opportunity, warranting interference.

Conclusions

2.19 The impugned order rejecting the Section 9 application solely on the ground of alleged non-service of the 18.03.2024 demand notice under Section 8 was unsustainable in law.

2.20 The appeal was allowed; the impugned order dated 28.06.2024 was set aside; CP/IB/219/AHM/2024 was restored to the file of the Adjudicating Authority for fresh decision on merits.

2.21 The matter was remanded to the Adjudicating Authority, which has been directed to decide afresh, after providing reasonable opportunity to both parties to lead evidence on which they intend to rely, including on the issue of service of the demand notice, strictly in accordance with law and uninfluenced by any observations in the appellate order.

2.22 The Court expressly clarified that it had not adjudicated upon, and left open for consideration by the Adjudicating Authority on remand, the issues relating to: (i) whether the minimum threshold under Section 4 of the Code is met if interest is included with principal; and (ii) whether there was any pre-existing dispute between the parties.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation under the Limitation Act, 1963.

1.2 Whether part payment made on 18.02.2021 and subsequent e-mails dated 11.08.2022 and 22.12.2022 constituted acknowledgment of liability so as to extend or revive limitation under Sections 18 and 19 of the Limitation Act, 1963.

1.3 Whether the operational transactions between the parties constituted a "running account" so that limitation did not run invoice-wise but on a consolidated basis.

1.4 Whether registration and "deemed authentication" of financial information/record of default with an Information Utility and/or issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 could by themselves give rise to a fresh period of limitation.

1.5 Whether there existed a "pre-existing dispute" regarding the operational debt so as to render the Section 9 application not maintainable.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Limitation of the Section 9 application

Legal framework:

2.1.1 The Court applied the Limitation Act, 1963 to proceedings under the Insolvency and Bankruptcy Code, 2016, and adverted to the settled position that Section 18 of the Limitation Act applies to IBC proceedings, as recognized in the judgment of the Supreme Court in Dena Bank v. C. Shivakumar Reddy. It reiterated that limitation for a Section 9 application is three years from the date of default, extendable only upon a valid acknowledgment or part payment within the prescribed period.

Interpretation and reasoning:

2.1.2 The work orders and invoices undisputedly pertained to the period 2010-2019, with the last invoice dated 02.01.2019. The Section 9 application was filed on 29.08.2024.

2.1.3 Even on the Operational Creditor's own showing, if the last relevant event for extending limitation is taken as the part payment made on 18.02.2021, the three-year limitation would expire on 17.02.2024, whereas the Section 9 application was instituted on 29.08.2024, beyond this period.

2.1.4 The Court held that, prima facie, all invoices were hit by limitation, and even if the limitation period were computed afresh from 18.02.2021, the Section 9 application remained time-barred.

Conclusions:

2.1.5 The Court concluded that the Section 9 application was barred by limitation and therefore not maintainable.

2.2 Effect of part payment and e-mails dated 11.08.2022 and 22.12.2022 on limitation (acknowledgment under Sections 18 and 19 of the Limitation Act)

Legal framework:

2.2.1 The Court reiterated that Section 18 of the Limitation Act is attracted when there is an acknowledgment of liability in writing and signed by the debtor, in respect of the very liability for which action is initiated under the IBC, and that such acknowledgment must be made before expiry of the prescribed limitation period (including any extended period). Part payment can similarly extend limitation under Section 19 if referable to the specific debt.

Interpretation and reasoning:

2.2.2 The Operational Creditor relied on (i) part payment of Rs. 7,81,313/- on 18.02.2021, and (ii) e-mails dated 11.08.2022 and 22.12.2022, claiming they amounted to acknowledgment of the entire outstanding operational debt and revived limitation for all invoices from 2010-2019.

2.2.3 The Court observed that the invoices related to multiple distinct work sites, and the part payment made on 18.02.2021 was against certain specific, identified invoices. Such part payment could extend limitation only for those mapped invoices and not for all other unrelated invoices.

2.2.4 On examining the e-mails dated 11.08.2022 and 22.12.2022, the Court found that the Corporate Debtor had taken the position that Rs. 28.36 lakhs had already been paid and adjusted; that only Rs. 15.03 lakhs could be considered, subject to submission of compliance documents; and that the Corporate Debtor was proceeding on the assumption that no claims existed beyond Rs. 15.03 lakhs.

2.2.5 The Court held that these communications reflected limited, conditional acknowledgment, focused only on specific invoices aggregating Rs. 15.03 lakhs and coupled with insistence on documentation. They did not amount to a clear or unequivocal acknowledgment of liability in respect of all outstanding invoices.

2.2.6 The Court also clarified that the mere existence of a jural relationship of debtor and creditor does not, by itself, extend limitation; there must be a clear acknowledgment or admission of liability in respect of the specific debt.

Conclusions:

2.2.7 The part payment dated 18.02.2021 and the e-mails dated 11.08.2022 and 22.12.2022 could, at best, extend limitation only for certain specific mapped invoices and not for the entirety of the outstanding operational debt.

2.2.8 For the remaining invoices, there was no valid acknowledgment or part payment within the limitation period; those invoices therefore remained individually time-barred.

2.2.9 Even computing limitation from 18.02.2021, the Section 9 application filed on 29.08.2024 was beyond the three-year period and hence barred.

2.3 Whether the transactions constituted a "running account" affecting computation of limitation

Interpretation and reasoning:

2.3.1 The Operational Creditor contended that the parties operated on a running account basis and that the invoices from 2010-2019 constituted a continuous course of dealing, so that limitation could not be considered invoice-wise and was extended for all invoices by the last part payment and subsequent correspondence.

2.3.2 The Court examined the invoices placed on record and noted that they related to multiple distinct and unrelated work sites such as Rashtrapati Bhawan, MGF Mega City, IIT Delhi, IRCA Building, TATA Power, Jubilant Ltd., Talkatora Stadium, etc.

2.3.3 There was no single overarching or common contract or any material on record showing that all these invoices were part of one continuous, inter-connected running account. Each invoice arose from distinct work orders and different sites, with no demonstrated overriding nexus.

2.3.4 The Court accepted the Corporate Debtor's contention that payments could be mapped to specific invoices and that default in respect of each invoice constituted an independent cause of action with its own period of limitation.

2.3.5 It therefore rejected the plea that a running account existed or that a continuing cause of action arose covering all invoices.

Conclusions:

2.3.6 The Court held that the transactions did not constitute a running account. Each invoice was an independent cause of action with its own limitation period.

2.3.7 Part payments and acknowledgments related to particular invoices could not revive or extend limitation for other, separate invoices.

2.4 Effect of Information Utility records and Section 8 demand notice on limitation

Legal framework:

2.4.1 The Court referred to Regulations 20 and 21 of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, governing acceptance of information and authentication of default by Information Utilities, including the status categories of "Authenticated", "Disputed", and "Deemed to be Authenticated".

Interpretation and reasoning:

2.4.2 The Operational Creditor argued that (i) registration of financial information/debt on the Information Utility (NeSL) in 2023, and (ii) the Record of Default showing the debt as "Deemed to be Authenticated", amounted to an acknowledgment by the Corporate Debtor, thereby giving rise to a fresh period of limitation.

2.4.3 The Court found that the Corporate Debtor had not confirmed or admitted the information lodged with the IU; the status of "Deemed to be Authenticated" arose due to non-response to reminders, not due to a positive acknowledgment.

2.4.4 The Court held that Information Utilities serve as neutral repositories of financial information to facilitate insolvency proceedings and that the act of submission or storage of such information by the creditor, or its "deemed authentication" due to debtor's non-response, does not amount to a jural act of acknowledgment under Section 18 of the Limitation Act.

2.4.5 It observed that extension of limitation depends on the debtor's act of acknowledging liability, not on the creditor's unilateral act of filing information with an IU.

2.4.6 As to the issuance of a demand notice under Section 8 on 17.02.2024, the Court held that a unilateral demand by the creditor cannot extend the period of limitation. Limitation can be extended only by acknowledgment of liability or part payment by the debtor, not by a notice issued by the creditor.

Conclusions:

2.4.7 Registration of debt with an Information Utility and the status of "Deemed to be Authenticated" do not, by themselves, constitute acknowledgment of liability by the debtor and do not restart or extend limitation.

2.4.8 Issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 does not give rise to a fresh period of limitation.

2.4.9 Accordingly, neither the IU record nor the demand notice could salvage the otherwise time-barred Section 9 application.

2.5 Existence of pre-existing dispute

Interpretation and reasoning:

2.5.1 Although the Court had already found the Section 9 application to be barred by limitation, it proceeded to examine the existence of a pre-existing dispute, as this ground had been considered by the Adjudicating Authority and challenged in appeal.

2.5.2 The Operational Creditor argued that disputes had not been raised earlier, that the Corporate Debtor had utilized its services but withheld legitimate dues on frivolous grounds such as alleged non-availability of documents, and that registration of debt with the IU and TDS entries supported the absence of genuine dispute.

2.5.3 The Court noted that, in e-mails dated 11.08.2022 and 22.12.2022, the Corporate Debtor had clearly raised issues of non-submission of compliance documents (attendance sheets, wage registers, PF/ESIC challans, etc.), raised objections regarding certain invoices, and categorically restricted its admitted liability, if any, to Rs. 15.03 lakhs subject to documentation.

2.5.4 These communications, being prior to the Section 8 demand notice dated 17.02.2024, were found to be anterior and thus capable of constituting "pre-existing disputes".

2.5.5 The Court further relied on the Corporate Debtor's detailed reply to the demand notice, in which it: (i) denied the veracity and certification of most invoices; (ii) asserted non-compliance with purchase order conditions regarding supporting documents; (iii) stated that compliance documents had been provided only for Rs. 15.03 lakhs; (iv) characterized the larger claim of Rs. 1,20,46,835/- as false, frivolous, and time-barred; and (v) reiterated ongoing disputes over work certification, amounts, and documentation.

2.5.6 The Court noted that the Operational Creditor had not effectively controverted the Corporate Debtor's assertions that repeated reminders had been issued for compliance documents over a prolonged period and that disputes had been raised well before the demand notice.

2.5.7 It agreed with the Adjudicating Authority's observation that the e-mail chain reflected ongoing disputes over work certification, quantum, and supporting documentation, and that such disputes were genuine and not a mere afterthought or moonshine.

Conclusions:

2.5.8 The Court held that there was a clear, discernible pre-existing dispute between the parties regarding the operational debt prior to the issuance of the Section 8 demand notice.

2.5.9 On this independent ground also, apart from limitation, the rejection of the Section 9 application by the Adjudicating Authority was justified.

2.5.10 The appeal was dismissed, and the impugned order was upheld, with no order as to costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, instituted in the name of a registered welfare association of homebuyers, is maintainable when the association itself is not the "financial creditor".

1.2 Whether the authorisation produced in favour of the persons filing the Section 7 application on behalf of the homebuyers, being only a resolution of the "core committee" of the association, satisfied the statutory requirement of authorisation by the financial creditors.

1.3 Whether the defect in authorisation for filing the Section 7 application is a curable defect and whether the adjudicating authority ought to have permitted the filing of individual affidavits of homebuyers authorising the association/applicants.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Maintainability of Section 7 application filed in the name of a registered welfare association of homebuyers

Legal framework

2.1 Section 7(1) of the Insolvency and Bankruptcy Code, 2016, permits a "financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government" to file an application for initiation of CIRP.

2.2 The Central Government notification dated 27.02.2019, issued under Section 7(1), specifies four categories of persons who may file such application on behalf of a financial creditor: (i) a guardian, (ii) an executor or administrator of an estate of a financial creditor, (iii) a trustee (including a debenture trustee), and (iv) a person duly authorised by the Board of Directors of a company.

2.3 Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 mandates that a financial creditor make the application in Form 1. In Form 1, Part I, item 5 requires disclosure of "name and address of the person authorised to submit application on its behalf (enclose authorisation)".

Interpretation and reasoning

2.4 The application in Form 1 showed the "name of the financial creditor" as the welfare association; however, in Part IV it was specifically pleaded that the financial creditor "comprises of flat purchasers" who have purchased 98 flats, and that the debt is the total value of such flats and the monies paid by these homebuyers.

2.5 The Court noted that, in substance, the financial creditors are the 98 homebuyers, and the dues of these individual flat purchasers form the basis of the Section 7 claim. The welfare association, registered under the Societies Registration Act, is only a vehicle representing them.

2.6 The notification dated 27.02.2019 does not list a registered society or welfare association as one of the notified "persons" who can file on behalf of a financial creditor under Section 7(1). However, Form 1, Part I, item 5 contemplates that "any person" can be authorised by the financial creditor to submit the application on its behalf, provided due authorisation is in place.

2.7 The Court therefore distinguished between: (a) the identity of the "financial creditors" (the 98 flat buyers) and (b) the person who actually submits the application on their behalf (which can be a society/association or individuals, if duly authorised by the financial creditors).

Conclusions

2.8 The financial creditors in law are the 98 homebuyers, not the welfare association itself.

2.9 A welfare association or registered society may act as the applicant in a Section 7 filing if it is duly authorised by the actual financial creditors in terms of Form 1, Part I, item 5; the association's competence thus turns on the existence and validity of such authorisation.

2.10 In light of the Court's approach of allowing the defect in authorisation to be cured, it held that, upon establishing valid authorisation from the homebuyers, the Section 7 application at the instance of the welfare association is to be treated as maintainable and proceeded with in accordance with law, making detailed examination of precedents unnecessary.

Issue 2 - Sufficiency and validity of the "core committee" resolution as authorisation for filing the Section 7 application

Legal framework

2.11 Form 1, Part I, item 5 requires disclosure of the "person authorised to submit application" on behalf of the financial creditor and mandates enclosure of the authorisation.

Interpretation and reasoning

2.12 The Section 7 application relied on a resolution dated 23.01.2024 (Exhibit A), described as a "certified true copy of the resolution passed at the virtual meeting of the core committee members of the Avenue 54 Welfare Association".

2.13 This resolution authorised certain named members to appoint legal representatives and to "file Section 7 Petitions before the National Company Law Tribunal, Mumbai" against the promoters, along with other authorisations relating to litigation and protection of the association's interests.

2.14 The Court noted that the resolution is expressly by "core committee members of the Avenue 54 Welfare Association", and not a resolution of all members of the association or of all 98 flat purchasers whose claims form the basis of the Section 7 application.

2.15 On the face of the pleadings, the Section 7 proceeding is based on the dues of all 98 flat buyers; therefore, any authority to institute insolvency proceedings on their behalf must emanate from all such financial creditors, and not merely a subset or internal committee of the association.

Conclusions

2.16 The core committee resolution dated 23.01.2024 does not constitute sufficient authorisation by all the financial creditors (i.e., all 98 homebuyers) to the persons filing the Section 7 application.

2.17 There was a defect in the authorisation supporting the Section 7 application, as the authorisation did not demonstrably emanate from or on behalf of all members whose claims were being asserted.

Issue 3 - Whether the defect in authorisation is curable and whether the adjudicating authority ought to have allowed filing of individual affidavits by the homebuyers

Interpretation and reasoning

2.18 During the hearing of the interlocutory applications seeking dismissal of the Section 7 petition, the applicants (homebuyers/association) offered to file individual affidavits of the homebuyers "stating their identity, as also the fact that they individually have authorised the applicants in the present Company Petition", as recorded in the order dated 17.06.2025 of the adjudicating authority.

2.19 The corporate debtor opposed the move on the ground that the matter had already been substantially argued and that such affidavits should not be permitted to be tendered at that stage. The adjudicating authority declined to take such affidavits on record, treating them as "new material".

2.20 The Court examined the structure of Form 1 and observed that the statutory scheme allows any person to be authorised by the financial creditors to submit the application on their behalf. The essence of the objection was therefore not to the nature of the association per se, but to the fact that there was inadequate proof of authorisation from the actual financial creditors.

2.21 The Court treated this deficiency as procedural and curable: the objection could be addressed by filing individual affidavits from each homebuyer, evidencing their identity and explicit authorisation of the applicant/association for purposes of the Section 7 petition.

2.22 The Court held that, in these circumstances, the adjudicating authority ought to have allowed the Section 7 applicants to cure the defect by filing such affidavits, particularly since the offer to do so was made during the hearing itself.

Conclusions

2.23 The defect in authorisation supporting the Section 7 application is not fatal; it is a curable defect.

2.24 The adjudicating authority erred in refusing to take on record the individual affidavits of the homebuyers that were offered to be filed to establish and regularise authorisation.

2.25 To serve the ends of justice, the Court granted the welfare association a period of 7 days to file individual affidavits of the homebuyers stating their identity and confirming that they have individually authorised the applicants in the company petition.

2.26 Upon filing of these affidavits and thereby curing the defect in authorisation, the Section 7 application is to be treated as maintainable and the adjudicating authority is to proceed to hear and decide the Section 7 application in accordance with law.

2.27 The impugned order of the adjudicating authority rejecting the applications seeking dismissal of the Section 7 petition was not interfered with, for the reasons indicated, and the appeals were disposed of with the above directions.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a bidder, after participating in an e-auction pursuant to a sale notice, can subsequently challenge the validity or arbitrariness of a forfeiture clause contained in that sale notice.

1.2 Whether the terms of the e-auction sale notice and the tender document are to be read together as a composite set of binding conditions governing the bidder's rights and obligations.

1.3 Whether a bidder who deposits EMD but does not submit any bid in the e-auction is entitled to refund of EMD under a clause providing for refund to "unsuccessful bidders".

1.4 Whether forfeiture of EMD, in the circumstances of non-participation in bidding after deposit of EMD, is valid and enforceable under the contractual terms and the principles laid down by the Supreme Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Subsequent challenge to forfeiture clause after participation in e-auction

Legal framework (as discussed)

2.1 The Court relied on the principle enunciated by the Supreme Court in "Tej Prakash Pathak v. High Court of Rajasthan" that a participant in an auction process is deemed to have accepted the terms and conditions of the auction notice by participating therein after going through such terms.

Interpretation and reasoning

2.2 The e-auction sale notice dated 25.08.2023 contained Clause 11, which explicitly stipulated that if none of the intended bidders participating in the e-auction increased the bid amount, the EMD amount of the bidders would be forfeited.

2.3 The Appellant, with full knowledge of Clause 11, submitted EMD on 11.09.2023 and tender form in response to the e-auction notice, without raising any objection or challenge to the forfeiture clause at that stage.

2.4 The Court held that the offer made by the e-auction notice was unconditionally accepted by the Appellant upon submission of EMD, and under settled principles, the Appellant ought not to have participated in the process if it intended to challenge the arbitrariness of Clause 11.

2.5 Once having participated by depositing EMD, the Appellant could not subsequently turn around and allege Clause 11 to be arbitrary or invalid.

Conclusions

2.6 The Appellant, having voluntarily participated in the e-auction with knowledge of Clause 11, is estopped from challenging the forfeiture clause at a later stage. The challenge to Clause 11 on grounds of arbitrariness is not sustainable.

Issue 2: Inter-relationship between e-auction sale notice and tender document

Interpretation and reasoning

2.7 The Appellant contended that the e-auction sale notice was only an invitation to offer and that the binding rights and liabilities were governed exclusively by the tender document (Annexure 6), including its Clause 8 dealing with refund of EMD.

2.8 The Court held that the tender document and the conditions contained therein form part and parcel of, and are in extension to, the e-auction sale notice dated 25.08.2023. The two documents coexist and jointly operate to achieve the common object of conducting and completing the bidding process.

2.9 The Court clarified that neither the auction notice nor the tender document has an independent existence; they must be read together as a composite set of conditions governing the conduct of bidders, including the Appellant.

Conclusions

2.10 The terms of the e-auction sale notice and the tender document are co-extensive and jointly binding on the Appellant. The Appellant's rights and liabilities are governed by both, and the tender document cannot be isolated from the conditions in the auction notice, including Clause 11 on forfeiture.

Issue 3: Entitlement to refund of EMD under "unsuccessful bidder" clause where no bid was submitted

Interpretation and reasoning

2.11 Clause 8 of the tender conditions, relied upon by the Appellant, stipulates that "The EMD amount of unsuccessful Bidders will be refunded within one week."

2.12 The Court interpreted Clause 8 to mean that refund arises only after a bidder has actually participated in the bidding process and has, upon evaluation, been determined to be an "unsuccessful bidder".

2.13 It is an admitted factual position, recorded in the impugned order and noted by the Court, that the Appellant did not submit any bid during the e-auction conducted on 13.09.2023, despite having deposited EMD and submitted the tender form.

2.14 The Appellant's explanation that, on assessing the market value, it found the property not lucrative and therefore chose not to bid, was held by the Court to be a matter of the Appellant's own conduct and decision, for which it must bear the consequences.

2.15 Since the Appellant never became a participant-bidder in the actual bidding process on 13.09.2023, there was no occasion to classify it as an "unsuccessful bidder" within the meaning of Clause 8.

Conclusions

2.16 The precondition for applicability of Clause 8-namely, that the bidder participates and is then determined to be unsuccessful-was not satisfied.

2.17 The Appellant, having failed to submit any bid during the e-auction, does not qualify as an "unsuccessful bidder" and, therefore, is not entitled to refund of EMD under Clause 8 of the tender conditions.

Issue 4: Validity of forfeiture of EMD for non-participation in bidding after depositing EMD

Legal framework (as discussed)

2.18 The Court relied on the principle laid down by the Supreme Court in "NTPC v. Ashok Kumar Singh" that where an agreement contains a forfeiture clause, and there is a breach of condition by the purchaser or intending participant, forfeiture of earnest money in terms of such clause is permissible and binding.

Interpretation and reasoning

2.19 Clause 11 of the e-auction sale notice provided for forfeiture of EMD when none of the intended bidders participating in the e-auction increased the bid amount.

2.20 The Court found that the Appellant deposited EMD and submitted the tender form in response to the auction notice dated 25.08.2023, thereby accepting the terms including Clause 11.

2.21 During the e-auction held on 13.09.2023, the Appellant did not submit any bid, despite being eligible and having paid EMD, leading to a situation squarely attracting the forfeiture consequence contemplated by Clause 11.

2.22 The Court held that by failing to participate in the bidding process after deposit of EMD, the Appellant committed a breach of the accepted auction conditions, and in terms of the binding forfeiture clause, the EMD automatically stood forfeited.

2.23 The Court also observed that, in light of these facts and the settled legal position on forfeiture of earnest money, there was no error in the Tribunal's refusal to order refund of the EMD.

Conclusions

2.24 Forfeiture of the EMD amount is valid and enforceable in view of Clause 11 of the e-auction notice and the Appellant's non-participation in the bidding process after voluntarily accepting the conditions and depositing EMD.

2.25 The Tribunal's order declining to refund the EMD and implicitly upholding its forfeiture does not suffer from any apparent error warranting interference. The appeal was, therefore, dismissed as devoid of merit.

Issues: Whether an application under Rule 11 of the NCLT Rules, 2016 could be entertained to recall an order passed on merits after participation in the proceedings, and whether the dismissal of such recall application called for interference.

Analysis: Rule 11 preserves only the inherent power of the Tribunal to make orders necessary to meet the ends of justice or prevent abuse of process. That power permits recall in limited situations such as jurisdictional defect, lack of notice, fraud, collusion, or a procedural error apparent on the record, but it does not confer a power of review or a power to re-open and re-adjudicate a matter already decided on merits. The impugned order of 24.03.2025 was passed after the appellant participated in the proceedings and the recall application sought to revisit the merits of that order under the guise of recall. Such a challenge was outside the narrow scope of recall jurisdiction.

Conclusion: The recall application was not maintainable as it amounted to a review of an order passed on merits, and the rejection of the recall application was /justified and not liable to be interfered with.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the sums advanced by the appellant under the Reseller Agreement and addenda constitute a "financial debt" within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

1.2 Whether, on the facts and documentation, the appellant qualifies as a "financial creditor" under Section 5(7) entitled to maintain an application under Section 7 of the Code.

1.3 Whether the commercial arrangement governed by the Reseller Agreement, containing an arbitration clause, could properly be made the subject of a CIRP petition, or whether recourse ought to have been to arbitration, rendering the invocation of the Code an abuse of process.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Characterisation of the transaction as "financial debt" under Section 5(8) IBC

2.1.1 Legal framework

2.1.1(a) The Court referred to Section 5(8) of the Code, particularly clause (f), which defines "financial debt" as a debt, with or without interest, disbursed against the consideration for the time value of money, including "any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing".

2.1.1(b) Relying on the judgment in Anuj Jain, IRP of Jaypee Infratech Ltd. v. Axis Bank Ltd., the Court reiterated that: (i) disbursal against consideration for time value of money is an essential element of "financial debt"; (ii) this element must be traceable in any of the sub-clauses of Section 5(8); and (iii) a financial creditor is typically one with direct engagement in the functioning of the corporate debtor, involved from the beginning and in its financial restructuring.

2.1.2 Interpretation and reasoning

2.1.2(a) The Court analysed the Reseller Agreement dated 07.12.2020 and noted the following essential features:

- The appellant is expressly termed a "Reseller", defined as the party purchasing products from the respondent with the sole purpose of reselling them on Amazon.

- The relationship is expressly that of "seller and buyer" on a principal-to-principal basis, not of principal and agent.

- The appellant agreed to pay a "consideration amount" of Rs. 20 lakhs and to make advance payments for sale of goods, against which the respondent was to dispatch goods within 15 days.

- The Reseller was to reinvest amounts received from Amazon for the first six months with the respondent; only thereafter could the reseller withdraw a 7% "profit" amount on Rs. 20 lakhs.

2.1.2(b) On this basis, the Court held that the underlying arrangement was a commercial reseller/distribution agreement for purchase and resale of branded goods on Amazon, not a lending or borrowing transaction. There was:

- No clause evidencing a loan, interest, repayment schedule, or acknowledgment of borrowing;

- No indication that the respondent undertook a debt obligation to repay a sum with interest over time; rather, the appellant was to earn profit margins from resale activities.

2.1.2(c) The Court emphasised that the obligation to reinvest initial Amazon proceeds for six months and the right thereafter to take out 7% "profit" clearly reflected a revenue/profit-sharing business model, inconsistent with a debt or lending structure. The so-called "assured returns" were characterised as profit margins from commercial activity, not interest on a loan.

2.1.2(d) The Court considered the appellant's argument that promised returns of 7%, 9% and 12% per month on successively increased "investments" (Rs. 20 lakhs, Rs. 50 lakhs, Rs. 1 crore) constituted time value of money. The Court reasoned that a 12% monthly return (144% per annum, without compounding) is commercially incongruent with a typical borrowing arrangement and is more consistent with speculative commercial profit-sharing than with a financial debt.

2.1.2(e) The Court noted that in many distributorship, reseller or joint venture arrangements, parties agree on fixed returns or margins; however, such fixed margins do not by themselves convert the transaction into "financial debt" unless the structure clearly reflects a disbursal against consideration for time value of money and has the commercial effect of a borrowing.

2.1.2(f) Referring to its own decisions in Ambica Enclave Pvt. Ltd. v. Ashrae Baba Infra Projects Pvt. Ltd. and Neeraj Jain v. Cloudwalker Streaming Technologies, the Court reiterated that:

- Advance payments for commercial purposes, even with clauses for fixed returns, do not amount to financial debt unless structured as a loan/borrowing.

- Contributions made as part of commercial partnerships or collaborations, without a clear intention of repayment with interest, do not qualify as financial debt.

2.1.2(g) Applying these principles, the Court found that the appellant's arrangement was a revenue-sharing/commercial reseller business model, with returns conditional and contingent on business outcomes, not a disbursal carrying time value of money in the sense of the Code.

2.1.2(h) The Court held that emails and correspondence in which the respondent acknowledged receipt of funds or certain liabilities could not alter the basic nature of the original transaction. Mere admission of amounts due in a commercial relationship does not convert that relationship into one of financial debt for IBC purposes; the nature and purpose of the original arrangement remain determinative.

2.1.2(i) The Court also took note that the respondent's books of account and balance sheet did not reflect the appellant's funds as a loan or borrowing, nor treat the appellant as a creditor. This accounting treatment supported the conclusion that the parties did not intend the arrangement to be a borrowing carrying time value of money.

2.1.3 Conclusions

2.1.3(a) The disbursement by the appellant under the Reseller Agreement and addenda was not "disbursed against the consideration for the time value of money" and did not have the commercial effect of a borrowing under Section 5(8)(f).

2.1.3(b) The transaction was a commercial reseller/distribution arrangement with profit-sharing or margin-based compensation, not a financial lending/borrowing transaction.

2.1.3(c) The essential ingredients of "financial debt" under Section 5(8), as interpreted in Anuj Jain and subsequent NCLAT decisions, were absent; the claim did not constitute a "financial debt" under the Code.

2.2 Status of the appellant as "financial creditor" and maintainability of Section 7 application

2.2.1 Legal framework

2.2.1(a) The Court noted that under Section 5(7), a "financial creditor" is a person to whom a "financial debt" is owed, and that only a financial creditor is entitled to initiate CIRP under Section 7.

2.2.1(b) Referring again to Anuj Jain, the Court observed that a financial creditor is typically one with a direct financial engagement in the functioning and viability of the corporate debtor, including in its restructuring during financial stress.

2.2.2 Interpretation and reasoning

2.2.2(a) Having found that the amount claimed by the appellant did not constitute "financial debt", the Court held that the condition precedent for recognising the appellant as a financial creditor failed.

2.2.2(b) The Court also observed that there was no material to show that the appellant played any role akin to that of a financial creditor in the corporate debtor's business, such as assessing viability, participating in restructuring, or functioning as a lender/guardian of the business. The relationship remained confined to commercial resale of goods.

2.2.2(c) The Court held that correspondence and acknowledgements by the respondent, even if evidencing some unpaid commercial liability, could only found a civil/commercial dispute; they did not transform the appellant into a financial creditor within the meaning of the Code.

2.2.3 Conclusions

2.2.3(a) As the underlying claim is not a financial debt, the appellant is not a "financial creditor" under Section 5(7) of the Code.

2.2.3(b) Consequently, the appellant has no locus to invoke Section 7, and the Section 7 petition was liable to be dismissed at the threshold for want of a qualifying financial debt and creditor status.

2.3 Effect of arbitration clause and propriety of invoking CIRP for a commercial dispute

2.3.1 Legal framework

2.3.1(a) Clause 18 of the Reseller Agreement provides that any dispute between the parties shall be resolved by a sole arbitrator seated at New Delhi, with the arbitral award being final and binding, and costs borne by the unsuccessful party unless otherwise directed.

2.3.2 Interpretation and reasoning

2.3.2(a) The Court noted the existence of the arbitration clause as evidence that the parties had consciously agreed to submit disputes arising out of the Reseller Agreement to arbitration.

2.3.2(b) In light of its finding that the underlying relationship was purely commercial and not one of financial debt, the Court viewed the dispute as one that should have been resolved through the contractually agreed arbitral mechanism rather than by invoking the CIRP provisions of the Code.

2.3.2(c) The Court observed that attempting to trigger CIRP in such a commercial, non-financial-debt setting amounted to misuse of the insolvency process, particularly where a complete alternate dispute resolution forum (arbitration) was contractually stipulated.

2.3.3 Conclusions

2.3.3(a) The presence of a comprehensive arbitration clause reinforces that the parties contemplated commercial dispute resolution through arbitration, not insolvency proceedings.

2.3.3(b) Invoking the CIRP mechanism in the absence of a financial debt and in the face of an agreed arbitration clause was characterised as an abuse of the insolvency process.

2.4 Final determination

2.4.1 The Court held that the amounts advanced by the appellant under the Reseller Agreement and addenda do not constitute "financial debt" under the Code.

2.4.2 The appellant is not a "financial creditor" within the meaning of Section 5(7) and is therefore not entitled to maintain an application under Section 7.

2.4.3 The dispute, being purely commercial and governed by an arbitration clause, ought to be pursued, if at all, through arbitration or other appropriate civil remedies, not through CIRP.

2.4.4 The appeal was dismissed, and the findings of the Adjudicating Authority were affirmed, with no order as to costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether failure by the company to issue shares or refund the foreign remittance within the prescribed 180 days constituted contravention of Section 6(3)(b) of FEMA read with Para 8 of Schedule I to the 2000 Regulations.

1.2 Whether the appellant, as Managing Director during the relevant period, was liable under Section 42(1) of FEMA for the company's contravention.

1.3 Whether the existence or absence of mens rea or mala fides is relevant to the imposition of penalty under Section 13(1) of FEMA.

1.4 Whether, in the facts and circumstances, the quantum of penalty imposed on the appellant was disproportionate and liable to reduction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Contravention by the company in respect of foreign remittance

Legal framework

2.1 The contravention alleged was under Section 6(3)(b) of FEMA read with Para 8 of Schedule I to Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, relating to issuance of shares/refund of share application money within 180 days.

Interpretation and reasoning

2.2 The Tribunal recorded that the primary issue was the non-issuance of shares within 180 days of receipt of foreign remittance amounting to Rs. 5,49,96,598 by the company.

2.3 It was treated as "undisputed" that such contravention occurred "in so far as the Company... is concerned", and reference was made to the adjudicating authority's finding that the share application money was "left unattended for over a period of more than 4 years", implying "a serious lapse on the part of administration".

Conclusions

2.4 The Tribunal proceeded on the basis that there was a clear contravention by the company of Section 6(3)(b) of FEMA read with Para 8 of Schedule I, and did not reopen or disturb that finding.

Issue 2: Liability of the appellant as Managing Director under Section 42(1) FEMA

Legal framework

2.5 Section 42(1) FEMA, making persons in charge of and responsible to the company for the conduct of its business liable for contraventions, was applied.

Interpretation and reasoning

2.6 The Tribunal found as an "admitted fact" that the appellant was the Managing Director of the company from its inception and continued in that position till 2014.

2.7 The foreign remittances in question (FDI of Rs. 5,49,96,598) were received during 2010-2012, i.e., within the period when the appellant was Managing Director.

2.8 On that basis, the Tribunal held that "it is therefore obvious that the Appellant was responsible for the affairs of the Company during the relevant period."

2.9 The appellant's contention that he had no role in day-to-day management or regulatory compliance, and that another director handled such matters, was not accepted as sufficient to absolve him of responsibility under Section 42(1).

Conclusions

2.10 The Tribunal held the appellant liable for penalty for the company's contravention in terms of Section 42(1) FEMA, as a person responsible for the affairs of the company during the period of contravention.

Issue 3: Relevance of mens rea for penalty under Section 13(1) FEMA

Legal framework

2.11 Section 13(1) FEMA, prescribing penalty for contravention of the Act, rules, regulations, etc., was reproduced and examined.

2.12 The Tribunal also relied on the judgment of the Supreme Court in The Chairman, SEBI v. Shriram Mutual Fund, holding that penalty is attracted upon establishment of contravention of a statutory obligation, irrespective of intention, unless the statute requires proof of mens rea.

Interpretation and reasoning

2.13 The Tribunal noted the absence in Section 13(1) of words indicating any requirement of mens rea, such as "wilful", "deliberately", or "intentionally".

2.14 Applying the principle laid down in the cited Supreme Court decision, the Tribunal held that once contravention is established, the intention of the party becomes "wholly irrelevant" unless the statute expressly requires proof of guilty intention.

2.15 On that basis, the appellant's argument that the contravention was unintentional or bona fide was rejected as a ground to escape liability.

Conclusions

2.16 The Tribunal concluded that mens rea is not a necessary element for imposition of penalty under Section 13(1) FEMA; penalty is attracted upon proof of contravention, regardless of intention.

Issue 4: Quantum and proportionality of penalty on the appellant

Interpretation and reasoning

2.17 The Tribunal took note that the appellant had resigned from the company and had ceased to carry out any responsibility towards it.

2.18 It also recorded the plea that the penalty be made proportionate to the offence with which the appellant had been charged.

2.19 The Tribunal noted that it had earlier directed a pre-deposit of Rs. 5,00,000 towards the imposed penalty of Rs. 25,00,000.

2.20 Having regard to the facts and circumstances, including the appellant's position and subsequent resignation, the Tribunal found it appropriate to reduce the quantum of penalty.

Conclusions

2.21 While affirming the appellant's liability for contravention, the Tribunal reduced the penalty from Rs. 25,00,000 to Rs. 5,00,000.

2.22 The amount already deposited as pre-deposit was directed to be adjusted towards the reduced penalty.

2.23 The appeal was accordingly partly allowed to the limited extent of reduction of penalty.

ISSUES PRESENTED AND CONSIDERED

1. Whether the remittance of foreign exchange abroad for purported import of goods that never arrived constitutes contravention of Section 10(6) of FEMA read with paragraph 6(1) of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulation, 2000.

2. Whether the trading firm and/or specified individual(s) are liable for penalty for such contravention - specifically, liability of the firm that arranged the remittance and liability of persons "in-charge" or responsible for conduct of business.

3. Whether mitigation of penalty is warranted having regard to (a) efforts made to recover the remitted amount abroad, (b) the fact the consignment was sold on "High Seas Sale Basis" prior to arrival, and (c) evidence of fraud by the overseas consignor.

4. Whether a penalty imposed on a deceased appellant (represented by legal representatives) should be sustained or set aside when those legal representatives were belatedly brought on record.

5. Whether belated compliance with a pre-deposit direction (including deposit in form of fixed deposit receipts/FDRs) and subsequent restoration of appeal justifies adjustment/reduction of penalty.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Contravention under Section 10(6) FEMA and paragraph 6(1) RRR Regulations

Legal framework: Section 10(6) of FEMA prohibits contraventions relating to dealings in foreign exchange/foreign security and payments without required compliances; paragraph 6(1) of the RRR Regulations governs realisation/repatriation/surrender of foreign exchange and prescribes obligations where imports do not materialise.

Precedent treatment: The Tribunal relied on its earlier Final Order (26.11.2024) in related matters to assess similar facts; no authority was overruled or distinguished.

Interpretation and reasoning: The Tribunal found indisputable fact that US$6,56,000 was remitted though the imported copper wire scrap never arrived; regardless of forged inspection certificates and fraud by the foreign seller, the firm permitted remittance before goods reached port and therefore failed regulatory safeguards. The Tribunal applied the statutory/regulatory provisions literally to hold that non-arrival of goods coupled with remittance abroad amounted to contravention.

Ratio vs. Obiter: Ratio - remittance abroad prior to due realisation and without effective safeguards when imports do not occur constitutes contravention of Section 10(6) FEMA read with paragraph 6(1) RRR Regulations. Obiter - observations on the nature of forged documents and foreign fraud as factual aggravation/mitigating context.

Conclusion: The firm contravened Section 10(6) FEMA read with paragraph 6(1) RRR Regulations.

Issue 2 - Liability of the Firm versus Individuals "In-Charge"

Legal framework: Penalty provisions attach to entities responsible for contraventions and may extend to persons in charge of, or responsible for, conduct of business per Section 42(1) FEMA (as applied in the Impugned Order).

Precedent treatment: The Tribunal applied its prior assessment in related appeals to distinguish persons who undertook active control from those not responsible for business conduct.

Interpretation and reasoning: The Tribunal examined conduct: the firm authorised remittance and did not demonstrate that partners personally undertook recovery steps abroad; a broker's representative (not the firm's partners) was deputed; the firm sold goods on High Seas Sale Basis before arrival, suggesting partial mitigation but not negating responsibility. For the deceased appellant, the Tribunal held that his role mirrored another appellant whose penalty was previously set aside on finding no responsibility for conduct of business or making remittance.

Ratio vs. Obiter: Ratio - firm-level liability established where the firm authorised remittance and failed due diligence; Ratio - individual liability requires proof of being in-charge/responsible for the act of remittance; Obiter - commentary on appropriateness of deputing non-partner agents to pursue recovery abroad.

Conclusion: The firm is liable; persons not shown to be in-charge or responsible for remittance are not liable and penalties on such persons (including the deceased appellant represented by LR) were set aside where record shows lack of responsibility.

Issue 3 - Sufficiency of Efforts to Recover Remitted Amount and Effect on Penalty

Legal framework: Penalty assessment under FEMA permits consideration of mitigating or aggravating facts, including bona fide efforts to recover foreign exchange and whether the person exercised due diligence.

Precedent treatment: Tribunal relied on earlier findings (26.11.2024) criticizing lack of serious recovery efforts and failure to pursue civil remedies.

Interpretation and reasoning: The Tribunal found that though some recovery steps were taken (letters to banks/consulate, engagement of an agent, contact with inspection agency), those steps were limited: partners did not travel to recover amounts; the broking intermediary's role was suspicious and due diligence on broker selection was inadequate; no civil suit was filed to recover funds. While the firm appears to have been cheated, its post-remittance actions were insufficient to absolve it from penalty.

Ratio vs. Obiter: Ratio - partial and insufficient recovery efforts do not negate contravention and may not prevent penalty; Obiter - recognition that fraud by overseas party may mitigate quantum but cannot wholly absolve regulatory breach absent substantial bona fide recovery measures.

Conclusion: Recovery attempts were inadequate to extinguish liability; they constitute mitigating circumstances but do not eliminate penalty liability.

Issue 4 - Quantification and Reduction of Penalty; Effect of FDRs and Belated Compliance with Pre-deposit Direction

Legal framework: Tribunal has discretion to reduce penalty in view of facts and to accept pre-deposit/security; pre-deposit conditions must be complied with but belated compliance may be considered for restoration.

Precedent treatment: The Tribunal applied its discretion consistent with earlier reduction in related appeals (reducing penalty to 25% in a related matter) and considered submitted FDRs as potential realization mechanisms.

Interpretation and reasoning: While imposition of penalty was warranted, the Tribunal balanced aggravating (lack of due diligence) and mitigating (firm cheated, some recovery steps, belated FDRs) factors. It reduced the firm's penalty from Rs.30,00,000 to Rs.7,50,000 (25%). It treated the submitted FDRs (in the name of another appellant) as potential pre-deposit realizable by the Directorate and ordered adjustment if encashable. The Tribunal also allowed restoration where pre-deposit had ultimately been complied with belatedly and considered overall facts in exercising discretion to restore and reduce penalty.

Ratio vs. Obiter: Ratio - Tribunal may reduce penalty to a proportionate amount in light of mitigation even where contravention established; Ratio - belated but eventual compliance with pre-deposit conditions can justify restoration and adjustment of amounts via FDRs if realizable; Obiter - recommended practice that appellants should pursue civil remedies to recover funds abroad.

Conclusion: Penalty on the firm reduced to 25% of original amount; realizable FDRs to be adjusted against reduced penalty; belated pre-deposit compliance warranted restoration of appeal.

Issue 5 - Substitution of Legal Representatives and Effect on Appeal of Deceased Appellant

Legal framework: Procedural rules permit substitution of legal representatives for deceased appellants if brought on record within reasonable time; prolonged failure can lead to dismissal but substitution may be allowed where justified.

Precedent treatment: The Tribunal distinguished a previously dismissed appeal for prolonged non-substitution but accepted a later substitution application where the record and related findings supported setting aside penalty.

Interpretation and reasoning: An appeal dismissed earlier for non-substitution was later revisited on substitution application. On merits and by parity with a related appellant found not responsible, the Tribunal set aside penalty on the deceased appellant now represented by LR.

Ratio vs. Obiter: Ratio - substitution of LRs allowed where justified and, if coupled with merits showing lack of responsibility, penalty may be set aside; Obiter - procedural default is not an absolute bar to relief where substantive justice and parity with co-appellants require corrective action.

Conclusion: Penalty on the deceased appellant set aside following substitution and on merits; restoration/substitution permitted in present circumstances.

Overall Disposition (Court's Conclusions)

The firm contravened Section 10(6) FEMA read with paragraph 6(1) RRR Regulations; firm-level penalty reduced to 25% of original amount (quantified reduction to Rs.7,50,000) to meet ends of justice; submitted FDRs, if realizable by the Enforcement Directorate, to be adjusted against the reduced penalty. Penalties on persons not shown to be in-charge or responsible for the remittance were set aside; substitution of legal representatives and restoration were permitted consistent with these findings.

Issues: (i) Whether the Competition Commission had jurisdiction to examine allegations concerning licensing and exploitation of a patented pharmaceutical product in view of the Patents Act, 1970 and the protection under Section 3(5) of the Competition Act, 2002.

Analysis: The appeal turned on the relationship between the Competition Act and the Patents Act in the context of patent-based licensing arrangements. The Tribunal relied on the view that disputes concerning the exercise of patent rights, the reasonableness of licensing conditions, and reliefs connected with patented inventions are governed by the special regime under the Patents Act. It also noticed that the patent had expired and that the subject matter had entered the public domain, while placing emphasis on the statutory protection for reasonable conditions necessary to protect patent rights under Section 3(5) of the Competition Act. The Tribunal treated the later and special patent law framework as prevailing over the general competition law framework for the controversy before it.

Conclusion: The Competition Commission lacked power to proceed against the patent-holder on the facts presented, and the jurisdictional challenge succeeded against the assessee.

Ratio Decidendi: Where the alleged anti-competitive conduct arises from exercise of patent rights, the Patents Act operates as the special and later statute and governs the inquiry, while reasonable conditions protecting patent rights remain outside the mischief of Section 3 of the Competition Act, 2002.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the twin conditions under Section 45(1) of the Prevention of Money-Laundering Act, 2002 apply to an application for pre-arrest bail under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023 in respect of an offence under the PMLA.

1.2 Whether, on the materials placed on record, a prima facie case of "money-laundering" under Section 3 read with Section 4 of the PMLA, based on the alleged "proceeds of crime" from scheduled predicate offences, is made out against the applicant.

1.3 Whether, in the facts and circumstances, the applicant satisfies the statutory conditions, including those under Section 45 of the PMLA, so as to be entitled to pre-arrest bail.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Section 45 PMLA twin conditions to pre-arrest bail under BNSS

Legal framework

2.1 The Court referred to Section 45 of the PMLA (as amended in 2018), which prescribes that when the Public Prosecutor opposes a bail application, bail can be granted only if there are reasonable grounds for believing that the accused is not guilty of the offence under the Act and is not likely to commit any offence while on bail. It also considered Sections 65 and 71 of the PMLA, which respectively provide for the application of the Code of Criminal Procedure (and correspondingly BNSS) insofar as not inconsistent with the PMLA, and for the overriding effect of the PMLA.

2.2 The Court relied on the decisions of the Supreme Court in Vijay Madanlal Choudhary v. Union of India and Directorate of Enforcement v. M. Gopal Reddy, which held that the twin conditions under Section 45 of the PMLA apply equally to applications for pre-arrest bail under Section 438 Cr.P.C. (now Section 482 BNSS).

Interpretation and reasoning

2.3 The Court held that, by virtue of Sections 65 and 71 of the PMLA, the provisions of the Cr.P.C./BNSS apply only to the extent they are not inconsistent with the PMLA. The specific restrictions on bail under Section 45(1) PMLA, being special provisions, override the general provisions relating to bail under Cr.P.C./BNSS.

2.4 The Court further observed that Section 45(2) PMLA expressly declares that the limitations on granting bail under Section 45(1) are in addition to the limitations under Cr.P.C. or any other law. Hence, the power to grant bail, whether under Sections 438/439 Cr.P.C. (corresponding to Sections 482/483 BNSS), is subject not only to the usual considerations for bail but also to the stricter twin conditions specified in Section 45(1).

Conclusions

2.5 The Court concluded that the twin conditions under Section 45(1) of the PMLA are mandatory, have overriding effect, and apply fully to an application for pre-arrest bail under Section 482 BNSS in respect of offences under the PMLA.

Issue 2 - Existence of prima facie case of money-laundering under Section 3 PMLA

Legal framework

2.6 The Court examined Chapter II of the PMLA and specifically Section 3, which stipulates that "money-laundering" is an offence when a person directly or indirectly attempts to indulge or knowingly is a party to, or is actually involved in, any process or activity connected with the "proceeds of crime," including its concealment, possession, acquisition, use and projecting or claiming it as untainted property.

2.7 The Court referred to Section 2(1)(p) which defines "money-laundering" as having the meaning assigned in Section 3, and Section 2(u) which defines "proceeds of crime" as any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, or the value of such property.

Interpretation and reasoning

2.8 The Court explained that money-laundering has two components: (i) the predicate offence, being the underlying criminal activity generating the proceeds, and (ii) the "surface offence" of money-laundering, which is the activity connected with the proceeds of crime. The predicate offences in this case were the scheduled offences alleged in the five police crimes involving cheating, criminal breach of trust and forgery, some of which are scheduled offences under the PMLA.

2.9 The Court held that "money-laundering" encompasses any process or activity connected with the proceeds of crime, including their concealment, possession, acquisition, use, or projecting/claiming them as untainted. Participation in any one of these processes or activities is sufficient to attract Section 3. The offence under Section 3 is distinct from, and does not otherwise depend on, the underlying scheduled offence except to the extent that the proceeds of crime must originate from such scheduled offence.

2.10 On the factual allegations, the Court noted that the applicant and co-accused allegedly cheated multiple persons under the guise of importing and supplying cashews and by offering job opportunities, thereby obtaining a total of Rs. 25,52,79,015/-, a substantial part of which was transacted through bank transfers. Since the predicate offences involve scheduled offences, the above amount obtained was held to prima facie fall within the definition of "proceeds of crime."

2.11 The Court highlighted that investigation had revealed that Rs. 2.03 crores were credited to the applicant's bank account by the complainants, which were not transferred overseas for imports as claimed. It observed that even mere possession of "proceeds of crime" would attract the offence under Section 3 of the PMLA.

Conclusions

2.12 The Court concluded that, on the materials presently available and the nature of transactions disclosed, a prima facie case of money-laundering under Section 3 read with Section 4 of the PMLA is made out against the applicant.

Issue 3 - Entitlement of the applicant to pre-arrest bail under Section 482 BNSS in light of Section 45 PMLA and the facts

Interpretation and reasoning

2.13 The Court considered the applicant's contention that he was falsely implicated, including allegations that the case was a counterblast to a complaint made by him against an Enforcement Directorate officer, and that even if the prosecution case is accepted in toto, no offence under the PMLA is made out. It contrasted this with the respondent's submission regarding the sufficiency of materials, the high magnitude of the alleged economic offence, and the strict constraints of Section 45(1) PMLA.

2.14 Applying Section 45(1) PMLA, the Court examined whether it could at this stage record satisfaction that there are "reasonable grounds for believing" that the applicant is not guilty of the offences alleged and that he is not likely to commit any offence while on bail. The Court held that "reasonable grounds" in Section 45(1)(ii) connote substantial probable cause for such belief, and that such satisfaction cannot be recorded on the present materials.

2.15 The Court noted that investigation in all five predicate crimes and in the money-laundering case is ongoing and at a crucial stage, and that further time would be required by the investigating agency to gather all materials, particularly to establish the nexus between the applicant and the alleged crimes.

2.16 The Court took into account the respondent's assertion, borne out by the counter-affidavit, that although the applicant appeared pursuant to summons on some occasions, he was not cooperating with the investigation. The Court also noted the huge amount involved and found that custodial interrogation of the applicant appears necessary.

2.17 The Court accepted the submission that, if pre-arrest bail were granted, there would be a real possibility of the applicant influencing witnesses and interfering with the investigation, especially given the nature of allegations and scale of transactions.

Conclusions

2.18 The Court held that the applicant had failed to satisfy the mandatory twin conditions of Section 45(1) PMLA and that, on the facts and at the current stage of investigation, it was not possible to form reasonable grounds for believing that he is not guilty or would not commit any offence while on bail. Consequently, the Court declined to exercise its jurisdiction under Section 482 BNSS to grant pre-arrest bail and dismissed the bail application.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in the absence of identifiable "proceeds of crime", properties in the possession of accused persons or their associates can be attached as "value thereof" under the Prevention of Money Laundering Act, 2002, even if acquired prior to the commission of the scheduled offence.

1.2 Whether the Appellate Tribunal has the power to permit a secured creditor bank to auction a mortgaged property already attached and its attachment confirmed under the Prevention of Money Laundering Act, 2002, prior to conclusion of the criminal trial, and if so, on what conditions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Attachment of properties as "value thereof" in absence of direct proceeds of crime

Legal framework (as discussed)

2.1 The Court proceeded on the basis of the scheme of attachment under the Prevention of Money Laundering Act, 2002, including attachment of "proceeds of crime" and of other properties as "value thereof" when the direct proceeds are not available.

Interpretation and reasoning

2.2 The Court noted that, based on investigation and charge-sheets, loan funds sanctioned and disbursed to the borrowing firm had been largely siphoned off and mis-utilized by the borrowers in connivance with certain other accused, resulting in the account turning into a Non-Performing Asset with substantial outstanding dues.

2.3 It was observed that the direct proceeds of crime could not be traced in the possession of the borrowers or their firm, and therefore the Enforcement Directorate had attached four properties as "value thereof", including the mortgaged flat at serial no. 1, even though that flat had been purchased earlier under a separate housing loan transaction.

2.4 The Court expressly recorded its view that, in the absence of direct proceeds of crime, "any property in possession of the accused persons, their relatives, associates & employees can be attached as value thereof, seeing their role for helping in layering/siphoning of the proceeds of crime."

Conclusions

2.5 The attachment of properties as "value thereof" in the hands of accused persons or their associates is permissible where direct proceeds of crime are not available or traceable, irrespective of whether such properties were acquired prior to the commission of the scheduled offence, provided their possession and the role of the concerned persons in the offence justify such attachment.

Issue 2 - Power of the Appellate Tribunal to permit auction of attached mortgaged property by the secured creditor before conclusion of trial, and conditions thereof

Legal framework (as discussed)

2.6 The Court considered the operation of attachment under the Prevention of Money Laundering Act, 2002, the rights of a secured creditor bank over a mortgaged property, and the procedure for enforcement of security interest under the SARFAESI Act.

2.7 The respondent contended that, under Sections 8(6) to 8(8) of the Prevention of Money Laundering Act, 2002, recourse should be taken before the Special Court (PMLA Court) for auction of an attached property, and that the Appellate Tribunal was not empowered to grant such permission.

Interpretation and reasoning

2.8 The Court accepted in principle that properties could be attached as "value thereof", but distinguished the position where such properties were mortgaged to a bank as a secured creditor.

2.9 It held that, in the case of mortgaged properties, "no useful purpose will be served by directing the bank to wait for conclusion of the trial and thereafter, obtain permission from the trial court for auction of the said properties."

2.10 The Court expressly rejected the contention that the Appellate Tribunal lacked power to permit auction before the conclusion of trial, stating that "there is no bar that this Appellate Tribunal cannot exercise the said power to grant permission to the Appellant Bank even prior to the conclusion of the trial", and cautioned that refusal to do so "may result in financial constraint to the Appellant Bank."

2.11 The Court also took note that the appeal was pressed only in relation to the property at serial no. 1, which had been independently mortgaged to the appellant bank under a housing loan well before the generation of the alleged proceeds of crime, and that the loan account of the borrowing firm had subsequently been settled with the bank under a one-time settlement.

Conclusions

2.12 The Appellate Tribunal possesses the authority to permit a secured creditor bank to auction an attached mortgaged property even prior to conclusion of the trial under the Prevention of Money Laundering Act, 2002; it is not restricted to directing the bank to seek such relief only from the Special Court under Sections 8(6) to 8(8).

2.13 In exercising such power, the Tribunal may balance the enforcement needs under the Prevention of Money Laundering Act, 2002, with the secured creditor's rights and financial constraints, and can impose conditions to safeguard the interest of the Enforcement Directorate.

2.14 Applying this approach, the Court allowed the appeal in respect of property at serial no. 1 and directed that the appellant bank is permitted to auction the said mortgaged flat in accordance with the procedure laid down in the SARFAESI Act, subject to the condition that, after discharge of its outstanding liabilities from the sale proceeds, the bank shall deposit the excess amount, if any, with the Enforcement Directorate in the form of a fixed deposit receipt, to be dealt with in accordance with law.

2.15 The Court clarified that these directions regarding auction and deposit of surplus amounts are without prejudice to, and shall not affect, the merits of the pending criminal trial.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the material on record established that the appellant was involved in fraudulent remittances abroad and thereby generated "proceeds of crime" liable to action under the Prevention of Money Laundering Act, 2002.

1.2 Whether properties of the appellant and his family, including those acquired prior to the alleged criminal activity, could be attached as "proceeds of crime" or as property of "equivalent value" under Section 2(1)(u) read with Section 5 of the Act.

1.3 Whether ongoing SARFAESI proceedings, mortgage, and NPA status of the attached properties barred or affected attachment under the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Existence of "proceeds of crime" and involvement of the appellant

Legal framework (as discussed)

2.1 The Tribunal proceeded on the basis of the definition of "proceeds of crime" under Section 2(1)(u) of the Act, including any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, and the value of any such property.

2.2 The Tribunal relied on the scheme of the Act concerning money laundering as a process or activity connected with "proceeds of crime" as explained by the Supreme Court in Vijay Madanlal Choudhary.

Interpretation and reasoning

2.3 The Tribunal found, on the basis of statements recorded under Section 50 of the Act and extensive documentary evidence obtained from Bank of Baroda and other banks, that the appellant had created and used multiple front firms in the names of employees and persons of no financial means solely for the purpose of remitting funds abroad under the guise of import of software.

2.4 It was noted that the purported import firms had no infrastructure or capacity to import or process software; Chartered Accountants' statements and fake certificates were used to project sham software imports; and the software was admittedly never imported.

2.5 The Tribunal recorded that proforma invoices and declarations were generated in India and submitted to banks to obtain foreign exchange for remittances to foreign companies controlled or managed by the appellant in Hong Kong and Dubai, without any genuine import intention.

2.6 The Tribunal held that the appellant was the key person orchestrating the scheme, using 59 firms/companies and dummy proprietors/directors to effect bogus remittances of foreign exchange equivalent to approximately Rs. 39 crores, thereby acquiring "proceeds of crime".

Conclusions

2.7 The Tribunal concluded that overwhelming evidence established a fraudulent modus operandi of obtaining foreign exchange and remitting it abroad without actual imports, constituting "proceeds of crime" under Section 2(1)(u), and justified action under the Act.

Issue 2 - Attachment of properties acquired prior to the alleged crime and concept of "equivalent value"

Legal framework (as discussed)

2.8 Section 2(1)(u) of the Act (definition of "proceeds of crime"), including "the value of any such property" and "property equivalent in value" where property is taken or held outside the country, was reproduced and relied upon.

2.9 The Tribunal referred to and relied on: (i) the Supreme Court judgment in Vijay Madanlal Choudhary explaining that the relevant date for money-laundering is the date of the laundering process/activity, not the date of the predicate offence; and clarifying that money-laundering is a continuing offence; (ii) paragraph 68 of the same judgment upholding the width of "proceeds of crime" including "value of any such property", irrespective of whether the property is held outside India; (iii) the Delhi High Court judgment in Prakash Industries (following Axis Bank), clarifying the scope of "value of any such property" and "property equivalent in value held within the country or abroad"; and (iv) this Tribunal's own judgment in Sadananda Nayak reiterating that all three limbs of the definition of "proceeds of crime" must be given effect and that properties acquired prior to the commission of crime may be attached as "equivalent value" in appropriate circumstances.

Interpretation and reasoning

2.10 The appellant's primary contention that the attached properties were acquired between 1996-2007, much before registration of the FIR in 2015, and thus could not be "proceeds of crime", was rejected in light of the above precedents. The Tribunal held that: (i) the offence of money-laundering is linked to the process/activity of dealing with proceeds of crime, not to the date of acquisition of the property or date of the scheduled offence; and (ii) the date of laundering activity is decisive.

2.11 The Tribunal endorsed the view that Section 2(1)(u) covers not only property directly derived from the scheduled offence, but also any property representing "the value of any such property", as well as property equivalent in value where the tainted property is taken/held outside India or is untraceable.

2.12 Relying on Prakash Industries and Axis Bank, the Tribunal held that it is permissible to proceed against untainted properties as "value of any such property" or "property equivalent in value" when the actual tainted property is not available, provided there is equivalence in value and the other statutory safeguards are observed.

2.13 The Tribunal agreed with the reasoning that to interpret the definition of "proceeds of crime" by ignoring or restricting the "value thereof" limb would defeat the object of the Act, as it would allow an accused to siphon off or vanish the tainted assets immediately after commission of the scheduled offence, leaving no attachable property.

2.14 The Tribunal further endorsed its prior view in Sadananda Nayak that properties acquired prior to the commission of the scheduled offence are not per se immune from attachment if taken as "equivalent value" when the actual proceeds of crime are untraceable or held abroad, and that such an interpretation alone gives full meaning to all limbs of Section 2(1)(u).

2.15 On facts, the Tribunal noted that the foreign exchange constituting "proceeds of crime" had been remitted abroad and was not available in India. Therefore, attachment of the appellant's and his family's properties was made as "equivalent value" under Section 5 read with Section 2(1)(u). The Tribunal observed that the value of attached properties (Rs. 17.52 crores) was less than 50% of the alleged proceeds of crime (about Rs. 39 crores), reinforcing proportionality and the "equivalent value" rationale.

Conclusions

2.16 The Tribunal held that, consistent with the statutory definition and binding judicial precedents, properties acquired prior to the alleged crime can be attached as "value of any such property" or "equivalent in value" where the actual proceeds of crime are not available.

2.17 Accordingly, the plea that pre-crime acquisition insulated the attached properties from action under the Act was rejected, and the attachment as "equivalent value" was upheld.

Issue 3 - Effect of SARFAESI proceedings, mortgage, and NPA status on attachment under the Act

Legal framework (as discussed)

2.18 The Tribunal relied on Section 71 of the Act, which provides that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Interpretation and reasoning

2.19 The appellant contended that certain attached properties were mortgaged to financial institutions, that loan accounts had become NPAs, and that recovery actions under the SARFAESI Act were underway; this, it was argued, should be considered against attachment under the Act.

2.20 The Tribunal, referring to Section 71, held that proceedings and rights under the SARFAESI Act cannot override or invalidate attachment under the Act, since the Act has overriding effect over other inconsistent laws.

Conclusions

2.21 The Tribunal concluded that SARFAESI proceedings, mortgage status, or NPA character of the accounts do not constitute a ground to set aside or interfere with attachment under the Act.

Overall Result

2.22 In light of the above findings, the Tribunal held that the appeal was devoid of merit and dismissed it, thereby affirming the confirmation of attachment of the properties in question.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the services provided by the respondent to foreign universities constitute "intermediary" services under Rule 2(f) of the Place of Provision of Services Rules, 2012, or qualify as "export of services" under Rule 6A of the Service Tax Rules, 1994.

(2) Consequent upon the above, whether Rule 9(c) of the Place of Provision of Services Rules, 2012, is correctly invoked so as to treat the place of provision as India and levy service tax.

(3) Whether the show cause notice dated 17 December 2015 was barred by limitation.

(4) Whether any substantial question of law arises so as to warrant interference with the order of the Tribunal in an appeal under Section 35G of the Central Excise Act, 1944.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1) & (2): Characterisation of services as "intermediary" or "export of services"; applicability of Rule 9(c) POPS Rules

Legal framework discussed

(a) Rule 2(f) of the Place of Provision of Services Rules, 2012 defining "intermediary" as a broker, agent or any other person who arranges or facilitates provision of a main service or supply of goods between two or more persons, but excluding a person who provides the main service or supplies goods on his own account.

(b) Rule 6A(1) of the Service Tax Rules, 1994 prescribing the conditions when provision of any service is treated as "export of service", including: (i) provider located in taxable territory, (ii) recipient located outside India, (iii) service not in the negative list, (iv) place of provision outside India, (v) payment received in convertible foreign exchange, and (vi) provider and recipient not merely establishments of a distinct person.

(c) Rule 9(c) of the Place of Provision of Services Rules, 2012 deeming the place of provision of "intermediary services" to be the location of the service provider.

Interpretation and reasoning

(1) The Court noted that the respondent entered into agreements with a large number of foreign universities/institutions to arrange and facilitate recruitment of students as an education agent, and received commission in convertible foreign exchange from such foreign universities. The respondent did not charge any consideration from Indian students.

(2) The Adjudicating Authority had held the respondent to be an "intermediary" on the basis that it was advertising and promoting educational services of foreign universities and facilitating student recruitment, and, applying Rule 9(c) read with Rule 6A, concluded there was no export of services.

(3) The Tribunal, after examining the agreements and the nature of activities, found: (i) contracts existed only between the respondent and foreign universities; (ii) consideration was paid by foreign universities in foreign exchange; (iii) Indian students did not have any contractual relationship with the respondent for the impugned services; and (iv) Indian students were merely beneficiaries/users, and not service recipients. It, therefore, concluded that the respondent's services amounted to export of services and not intermediary services.

(4) The Court referred to and relied upon its earlier decisions and other binding precedents under the IGST and service tax regimes, noting that the definition of "intermediary" in Rule 2(f) POPS Rules is in pari materia with Section 2(13) of the IGST Act and that the corresponding place-of-supply rules are similar:

  (i) In Ernst & Young Ltd., it was held that an intermediary merely "arranges or facilitates" supply between two or more persons and that a person who supplies services on his own account to the recipient is not an intermediary. A service provider rendering services directly to its foreign client, without arranging any supply from a third party, cannot be treated as an intermediary.

  (ii) In Verizon Communication India Pvt. Ltd., the Court held that the "recipient" of service is determined by (a) the contract, (b) who has the contractual right to receive the services, and (c) who is liable to pay for them. Users or persons affected by the service are not thereby recipients. The destination of services is to be determined by the place of consumption and the locus of the contractual recipient paying for the service.

  (iii) The CESTAT's Larger Bench decision in Paul Merchants Ltd. was approved, affirming that the service recipient is the person on whose instructions the services are provided, who pays for them, and whose need is satisfied, and that as long as the party abroad derives benefit from services performed in India, the services qualify as export.

  (iv) In K.C. Overseas Education Pvt. Ltd., the Bombay High Court, following Ernst & Young Ltd. and the CBIC circular, held that education consultants providing services to foreign universities, paid by such universities in foreign exchange, were not intermediaries and were entitled to export benefits. The Supreme Court dismissed the challenge against that decision, taking note of its own judgment in Vodafone India Ltd. and dismissal of SLP in Blackberry India Pvt. Ltd..

  (v) In Krishna Consultancy (CESTAT, Mumbai), student guidance/consultancy entities under similar arrangements with foreign universities were held not to be intermediaries; their services were characterised as export services.

(5) The Court observed that the Tribunal's approach in the present case was consistent with the above line of authority, including Verizon Communication India Pvt. Ltd., in treating foreign universities as the recipients of the service, since: (i) they entered into the contracts; (ii) they were liable to pay consideration; and (iii) the services were rendered for promotion and publicity of their educational programmes among Indian students.

(6) The Court also noticed that in Global Opportunities, similar educational support/recruitment services were held to be export of services, not intermediary services, after considering the same statutory framework and case law. The Court further noted that the GST Council had recommended omission of Section 13(8)(b) of the IGST Act, thereby aligning the place of supply for intermediary services with Section 13(2) (location of recipient), to remove confusion and enable export benefits, indicating the consistent policy and interpretative trend.

(7) On these authorities and the factual matrix, the Court agreed with the Tribunal's conclusion that the respondent was not arranging or facilitating a supply between two independent parties while remaining outside that transaction, but was itself providing the main service to its foreign university clients on its own account.

(8) Consequently, the pre-condition for invoking Rule 9(c) POPS Rules (that the service be "intermediary services") was not satisfied. Therefore, the deeming rule fixing place of provision at the location of the service provider was inapplicable.

Conclusions

(a) The respondent's activities under agreements with foreign universities do not fall within the definition of "intermediary" in Rule 2(f) of the Place of Provision of Services Rules, 2012.

(b) The foreign universities are the "recipients" of the services; Indian students are only users/beneficiaries and not recipients.

(c) All conditions of Rule 6A of the Service Tax Rules, 1994 for "export of services" stand satisfied in respect of the impugned services.

(d) Rule 9(c) of the Place of Provision of Services Rules, 2012 is wrongly invoked; the services in question are export of services and fall outside the ambit of service tax.

(e) The Tribunal was correct in holding that no service tax was payable on the foreign consultancy/commission earned from foreign universities.

Issue (3): Limitation - validity of the show cause notice

Interpretation and reasoning

(1) The Adjudicating Authority had held that the show cause notice dated 17 December 2015 was within limitation under Section 73 of the Finance Act, 1994.

(2) The Tribunal, having found that the respondent's services were export of services and not intermediary services, further held that the show cause notice was "barred by time".

(3) The Court, having accepted the Tribunal's characterisation of the services and its legal view on taxability, noted that the Tribunal had also held the show cause notice to be time-barred and, viewing the impugned order as a whole, found no ground to interfere.

Conclusions

(a) The Tribunal's finding that the show cause notice was barred by limitation stands affirmed by the Court.

(b) No legal error was shown in the Tribunal's conclusion on limitation warranting interference.

Issue (4): Existence of substantial question of law under Section 35G

Interpretation and reasoning

(1) The appeal was preferred under Section 35G of the Central Excise Act, 1944, which requires that a "substantial question of law" arise from the Tribunal's order.

(2) The Court noted that the Tribunal's view on the nature of the respondent's services, the identification of service recipient, and the export-of-services characterisation was in line with consistent judicial precedent from the same Court, another High Court, CESTAT decisions, and the Supreme Court's approvals/dismissals of SLPs in related matters.

(3) In light of this settled position on "intermediary" and "export of services", and the Tribunal's conformity with it, the Court held that no substantial question of law arose for consideration.

Conclusions

(a) The appeal does not give rise to any substantial question of law under Section 35G of the Central Excise Act, 1944.

(b) The Tribunal's order, holding that the services were not intermediary services, that they constituted export of services, that Rule 9(c) POPS Rules was inapplicable, and that the show cause notice was time-barred, does not warrant interference.

(c) The appeal is dismissed.

Issues: Whether the writ court should interfere with a show-cause notice issued by the competent authority, and whether the notice was liable to be quashed for want of jurisdiction.

Analysis: The impugned communication was treated as a show-cause notice requiring the petitioner to appear and submit a reply. The notice was found to have been issued by the competent authority under Section 182(2) of the Madhya Pradesh Land Revenue Code. Interference under Article 226 of the Constitution of India against a show-cause notice is warranted only where the notice is shown to be a nullity or issued without jurisdiction. As no such jurisdictional defect was found, and the petitioner was given an opportunity to respond before the authority, interference was declined.

Conclusion: The challenge to the show-cause notice was not maintainable and the writ court was not required to interfere.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the short term executive and outreach programmes conducted for planters and officials of commodity boards are exigible to service tax under "commercial training or coaching service" or fall within the statutory exclusion for institutes issuing recognised educational qualifications.

1.2 Whether, in light of the statutory definitions and explanatory amendment to section 65(105)(zzc), the appellant-institute can be treated as a "commercial training or coaching centre" notwithstanding its status as an educational institution conducting recognised long-term courses.

1.3 Whether the extended period of limitation and imposition of penalties are sustainable in view of the interpretational nature of the dispute and prevailing divergent decisions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Taxability of short term programmes as "commercial training or coaching service" and applicability of exclusion for recognised educational institutions

Legal framework (as discussed):

2.1 The Court examined sections 65(26), 65(27) and 65(105)(zzc) of the Finance Act, 1994, as applicable during the relevant period.

2.2 Section 65(26) defines "commercial training or coaching" as any training or coaching provided by a commercial training or coaching centre.

2.3 Section 65(27) defines "commercial training or coaching centre" as any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field (other than sports), with or without issuance of certificate, and specifically excludes: (i) pre-school coaching and training centres; and (ii) any institute or establishment which issues any certificate, diploma, degree or any educational qualification recognised by law for the time being in force.

2.4 Section 65(105)(zzc) defines taxable service as any service provided to any person by a commercial training or coaching centre in relation to commercial training or coaching, with an Explanation clarifying that: - "commercial training or coaching centre" includes any centre or institute, by whatever name called, where training or coaching is imparted for consideration, - regardless of registration as a trust, society or similar organisation, and - irrespective of whether carried on with or without profit motive.

2.5 The Court relied on the ratio of Larger Bench and coordinated Bench decisions interpreting these provisions, particularly that: - exclusion under section 65(27) is confined to institutes which themselves issue certificates/diplomas/degrees/educational qualifications recognised by law to the persons to whom they impart training or coaching, and - once an entity imparts training or coaching for consideration, its activity is prima facie commercial training or coaching unless it squarely falls under the exclusion.

Interpretation and reasoning:

2.6 It was undisputed that the appellant conducted Short Term Executive Programmes and Reach Out Programmes for planters and officials of commodity boards for a consideration.

2.7 The appellant contended that: - these were only workshops or seminars sponsored by commodity boards, and - since the institute also conducts AICTE-recognised PG Diploma and MBA courses and issues recognised qualifications in that context, the institute as such stands excluded from the definition of "commercial training or coaching centre", relying on the exclusion clause and a CBEC circular.

2.8 The Court held that, as per the statutory definitions and the Explanation to section 65(105)(zzc), the decisive test is: - whether the particular activity involves imparting training or coaching for consideration; and - whether the institute, in relation to such activity, issues any certificate/diploma/degree/educational qualification recognised by law.

2.9 The Court accepted the Larger Bench view that: - to claim exclusion, an institute must itself issue certificates recognised by law for the time being in force to the recipients of the training or coaching in question; - institutes that do not issue such recognised qualifications, or issue qualifications not recognised by law, are "commercial training or coaching centres".

2.10 Applying this test, the Court found: - there was nothing on record to show that, in respect of the short term executive and outreach programmes for planters and commodity board officials, the appellant issued any certificate, diploma, degree or other educational qualification recognised by law; and - therefore, these programmes did not fall within the statutory exclusion.

2.11 The Court also noted that various attempts made by the appellant before the Ministry to obtain exemption had failed, reinforcing that no statutory exemption covered the impugned activities.

Conclusions on Issues 1 & 2:

2.12 The short term executive and outreach programmes provided to planters and officials of commodity boards, being training or coaching imparted for consideration, are classifiable as "commercial training or coaching service" under sections 65(26), 65(27) read with section 65(105)(zzc).

2.13 The appellant-institute does not qualify for the exclusion in section 65(27) in respect of these specific programmes, as there is no evidence of issuance of any certificate, diploma, degree or educational qualification recognised by law to the participants of those programmes.

2.14 Service tax liability on the impugned services is upheld on merits.

Issue 3: Applicability of extended period of limitation and penalties

Interpretation and reasoning:

2.15 The Court considered the nature of the dispute and the judicial history relating to the taxability of educational and training institutions, noting: - multiple Larger Bench and higher judicial pronouncements on the scope of "commercial training or coaching service", and - the existence of differing views over time, later resolved by clarificatory amendments and authoritative decisions.

2.16 In light of such interpretational complexity and evolving jurisprudence, the Court held that the case involved issues of interpretation of law rather than deliberate suppression or wilful misstatement.

Conclusions on Issue 3:

2.17 The extended period of limitation is not invocable; the demand is sustainable only for the normal period.

2.18 Penalties are not warranted in the circumstances; they are set aside.

2.19 The appeal is partly allowed by restricting the demand to the normal period and by deleting penalties, while upholding tax liability on merits for that period.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the services obtained from foreign consultants in relation to evaluation and acquisition of a sugar factory in Brazil are classifiable as "management or business consultant" services under Section 65(105)(r) of the Finance Act, 1994.

1.2 Whether, on the facts, the foreign services were "received" by a person in India so as to attract service tax under Section 66A of the Finance Act, 1994 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 under the reverse charge mechanism.

1.3 Whether penalties under Sections 77 and 78 of the Finance Act, 1994 are sustainable when the entire amount of service tax with interest was paid prior to issuance of the show cause notice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Classification of services as "management or business consultant" and taxability under Section 66A (reverse charge)

Legal framework

2.1 The Court referred to the definition of "management or business consultant" in Section 65(105) of the Finance Act, 1994, and the taxable service under Section 65(105)(r): services provided by a management or business consultant to any person in connection with the management of any organization or business in any manner.

2.2 The Court reproduced Section 66A of the Finance Act, 1994 governing charge of service tax on services provided from outside India and received in India, including the deeming fiction treating the recipient in India as the service provider where services are received by a person having place of business or permanent address in India.

2.3 The Court noted that under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, the recipient of such services in India is liable to pay service tax under the reverse charge mechanism.

Interpretation and reasoning

2.4 The Court examined a representative "Services Agreement" dated 28.05.2009 entered into between the appellant (an Indian company) and a Brazilian consultant. The agreement recited that:

(i) the consultant is engaged in consulting services in cane sugar, sugar and ethanol;

(ii) the Indian company is interested in assessing information on these industries and evaluating the feasibility of purchasing a sugar cane processing plant in Brazil; and

(iii) the consultant agreed to supply such services.

2.5 The scope of services included reviewing and evaluating cane sugar and biofuel proposals of interest to the Indian company, reviewing the competitive landscape, conducting site visits, advising on strategic, political, legislative and external factors for investment decisions, interacting with the Indian company's functional specialists, assisting in defining scope of research/investigation to assess economic and strategic advantages, advising on targeted company documents, advising in contracting other consultants for due diligence and auditing, and analyzing and providing expert opinion on due diligence results and economic risks.

2.6 The Court held that these activities-evaluation of cane sugar and biofuels, financial advisory services, legal, engineering and technical related advisory services pertaining to investments and acquisition-are in the nature of "management and business consultancy services" within the statutory definition.

2.7 The appellant contended that these agreements were entered into on behalf of its Mauritius subsidiary; that the subsidiary was the actual recipient and consumer of the services abroad; that payments made by the appellant were only reimbursements recoverable from the subsidiary; and therefore Section 66A, which applies when services are received in India, was not attracted.

2.8 The Court rejected this contention. It found that:

(a) the agreements were entered into in the name of, and by, the Indian company with the foreign service providers;

(b) the payments to the foreign consultants were made by the Indian company in India, as evident from the balance sheets placed on record; and

(c) there was no evidentiary material produced to establish that the agreements were executed on behalf of the Mauritius subsidiary or that the subsidiary was the contracting party.

2.9 The Court treated the services as "tangible services" performed in terms of contracts where the Indian company was the identified recipient and contracting party. On that basis, it held that the Indian company was the "recipient" of the services for the purposes of Section 66A.

2.10 The Court also noted that the mere assertion that payments were made "on behalf of" the foreign subsidiary and reimbursed later was not sufficient to displace the legal incidence where the contracts and payments were in the name of, and made by, the Indian company.

2.11 In light of the statutory provisions and the contractual evidence, the Court concluded that the services were provided by persons located outside India to a person having place of business in India, attracting the charge under Section 66A and the corresponding reverse charge liability.

Conclusions

2.12 The services rendered by the foreign entities as per the examined agreements fall within the scope of "management and business consultancy services" under the Finance Act, 1994.

2.13 The Indian company, being the contracting party and payer under the agreements executed in India, is the recipient of the services in India for the purposes of Section 66A.

2.14 Service tax liability under the reverse charge mechanism, as demanded by the Revenue, is upheld, along with interest.

Issue 3: Sustainability of penalties under Sections 77 and 78 where tax and interest paid before show cause notice

Legal framework

3.1 The Court considered the imposition of penalties under Sections 77 and 78 of the Finance Act, 1994, in circumstances where the entire service tax and interest had been paid prior to issuance of the show cause notice.

3.2 The Court relied on the decision of a High Court which held that where the disputed duty is paid even before issuance of the show cause notice, this indicates absence of fraud, misrepresentation or suppression of facts, and therefore penalty and interest should not be imposed or levied.

Interpretation and reasoning

3.3 It was recorded that the entire service tax amount of Rs. 67,68,277/- and interest of Rs. 14,30,873/- had been paid on 09.08.2011, prior to issuance of the show cause notice dated 16.08.2011.

3.4 Applying the principle laid down in the cited High Court judgment, the Court inferred that payment of tax and interest prior to issuance of notice indicated absence of the requisite mens rea for invoking penal provisions such as Section 78.

3.5 On that reasoning, the Court held that imposition of penalties under Sections 77 and 78 "does not arise", once the tax and interest were voluntarily discharged before initiation of formal proceedings.

Conclusions

3.6 Penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are set aside.

3.7 The demand of service tax under reverse charge and the liability to interest are confirmed, while the appeal is allowed only to the extent of deletion of penalties.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the process of filling dry batteries with electrolyte, charging, checking, drying and washing amounts to "manufacture" under the Central Excise Tariff, thereby rendering service tax not payable on such activity.

1.2 Whether questions relating to limitation under Section 11B of the Central Excise Act, 1944 and unjust enrichment in respect of the refund claims could be decided at the appellate stage or should be remanded to the original authority for fresh adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the battery processing activity amounts to "manufacture" and service tax is not payable

Interpretation and reasoning

2.1 The Tribunal noted that the appellants receive dry batteries, fill them with electrolytic liquid, connect them to charging points, charge them, check liquid levels, dry and wash the batteries, and then clear them.

2.2 The Tribunal relied upon Note 6 to Section XVI of the Central Excise Tariff Act (as invoked by the appellants) and the precedent of the Tribunal in the case dealing with similar processes in relation to batteries (Exide Industries), as well as a decision of the same Bench in a matter involving an identical process (Eliza Power Industries).

2.3 The Tribunal also took into account a CBEC Circular which clarified that such processes undertaken on batteries amount to "manufacture". These authorities were considered sufficient to hold that the controversy was no longer res integra and that the legal position stood settled.

Conclusions

2.4 The Tribunal held that the process undertaken by the appellants amounts to "manufacture" and, consequently, service tax was not payable on the said activity. On merits, the appeals were allowed to this extent and the impugned orders were set aside insofar as they held that the process did not amount to manufacture and denied refund on that basis.

Issue 2: Adjudication of limitation under Section 11B and unjust enrichment, and propriety of remand

Legal framework (as discussed)

2.5 The Tribunal recorded that both sides addressed arguments on (a) applicability of limitation under Section 11B of the Central Excise Act, 1944 to the refund of service tax, and (b) the bar of unjust enrichment, including reliance by the Department on a Tribunal decision holding Section 11B applicable to such refunds.

Interpretation and reasoning

2.6 The Tribunal observed that the adjudicating authority and the appellate authority had confined their decisions to the question whether the activity amounted to manufacture and had not rendered any findings on limitation under Section 11B or on unjust enrichment in relation to the refund claims.

2.7 Being an appellate forum, the Tribunal considered it inappropriate to decide these questions in the first instance without any findings of fact or reasoning from the original authority on these specific aspects. It considered that a proper adjudication required examination of the records, invoices, and supporting evidence concerning passing on of the tax burden and the timeliness of the claims.

Conclusions

2.8 The Tribunal declined to decide the issues of limitation under Section 11B and unjust enrichment at the appellate stage and remanded the matter to the original authority to examine and decide these issues afresh, in light of the records, submissions of the appellants, and applicable jurisprudence, while proceeding on the settled position that the process amounts to manufacture and service tax was not payable.

Issues: Whether refund of service tax credit on rent a cab services used by an SEZ unit for authorised operations could be denied on the ground that the service was not approved by the Approval Committee when received and that the relevant inclusion through Instruction No. 79 applied only prospectively.

Analysis: Notification No. 12/2013 did not require prior approval by the Approval Committee at the time the services were received. The refund claims were filed after rent a cab service had been included in the specified services list, and the governing principle applied was the date of filing of the refund claim, not the date of receipt of the services. The SEZ regime grants exemption for services used for authorised operations, and Section 51 of the Special Economic Zones Act, 2005 gives the SEZ Act and Rules overriding effect over inconsistent requirements in the service tax regime. The later instruction was treated as clarificatory in nature and therefore applicable retrospectively.

Conclusion: The denial of refund on the ground of absence of Approval Committee approval during the relevant period was not sustainable, and the assessee was entitled to refund with consequential relief.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether works contract services rendered for construction of tourism-related accommodation facilities qualify for exemption under Clause 12 and Clause 12A of Notification No. 25/2012-ST.

1.2 Whether a sub-contractor is liable to pay service tax on works contract services when the principal contractor is a government agency or has discharged service tax on the same activity.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption under Notification No. 25/2012-ST (Clause 12 and 12A) for works contract services relating to tourism projects

Legal framework

2.1 The Court considered Clause 12 of Notification No. 25/2012-ST, granting exemption to services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or other original works "meant predominantly for use other than for commerce, industry, or any other business or profession".

2.2 The Court noted that sub-clause (a) of Clause 12 was omitted with effect from 1.4.2015 vide Notification No. 6/2015-ST, and that exemption was subsequently restored in a limited form by insertion of Clause 12A vide Notification No. 9/2016-ST, for contracts entered prior to 1.3.2015, with applicable stamp duty paid before that date, with continuation of exemption up to 31.03.2020.

Interpretation and reasoning

2.3 The Court examined whether the works undertaken by the appellant - construction of single bedroom huts, double bedroom huts, and eco log huts for GMVN/KMVN/UK Pey Jal Nigam under projects of the Uttarakhand Tourism Development Board - were "meant predominantly for use other than for commerce, industry, or any other business or profession".

2.4 It was found that the constructed huts were intended to be rented out to tourists, and that such renting activity was of a commercial nature.

2.5 The Court held that, as per the wording of Clause 12 and Clause 12A, the critical test is the end-use of the civil structure or original works; if the use is commercial, the exemption is not available.

2.6 The Court applied the settled principle that exemption notifications must be construed strictly and that the burden lies on the assessee to demonstrate that its case falls squarely within the exemption.

2.7 On this basis, the Court agreed with the findings of the authorities below that the services in question did not satisfy the requirement of being meant predominantly for non-commercial use and therefore fell outside the scope of the exemption.

Conclusions

2.8 Works contract services rendered for construction of huts/log huts to be rented out to tourists do not qualify as being "meant predominantly for use other than for commerce, industry, or any other business or profession".

2.9 The appellant is not entitled to exemption under Clause 12 or Clause 12A of Notification No. 25/2012-ST in respect of the said works contract services.

Issue 2: Service tax liability of a sub-contractor where principal contractor is a government agency or has discharged tax

Legal framework

2.10 The Court considered the appellant's contention that, being a sub-contractor to GMVN/KMVN/UPRNN (government or government-related entities), the ultimate service tax liability rested with the principal contractor.

2.11 The Court relied on the Larger Bench decision in "Melange Developers Private Ltd.", which held that a sub-contractor is independently liable to pay service tax on taxable services provided by it, even if the main contractor has discharged service tax on the overall activity.

Interpretation and reasoning

2.12 Applying the ratio of the Larger Bench, the Court held that the status of the appellant as a sub-contractor does not absolve it from its own service tax liability on taxable services provided by it under the works contracts.

2.13 The Court rejected the plea that liability shifts entirely to the principal contractor merely because the principal is a government agency or has been awarded the main work by a governmental authority.

Conclusions

2.14 A sub-contractor providing taxable works contract services is liable to pay service tax on its own portion of services, irrespective of the principal contractor's status or tax payments.

2.15 The appellant, as a sub-contractor, remains liable to pay service tax on the impugned works contract services and cannot shift the liability to GMVN/KMVN/UPRNN or other principals.

2.16 On both issues, the Court found no infirmity in the order confirming the demand of service tax (with interest and penalties), and the appeal was dismissed.

Issues: Whether compensation received by the service provider for loss of specialised equipment/tools "Lost-in-Hole" (LIH) while rendering drilling/logging services is required to be included in the value of taxable service for the purpose of service tax.

Analysis: The contract between the parties provided a contractual mechanism under which the service recipient reimbursed or compensated the service provider for LIH equipment/tools upon verification, and the payments were made as per a formula reflecting depreciated value. The payments were triggered by loss of equipment that ceased to assist in providing the service and were not payments for any continuing or additional service performed by the service provider. The Tribunal's prior decision in Halliburton Offshore Services, applied by this Bench, treated such receipts as contractual compensation/indemnity rather than consideration for taxable services. The department's contention that LIH payments constituted recovery of consumable costs includable under valuation rules was addressed by distinguishing reimbursement/compensation (an indemnity) from consideration for service; the latter requires a quid pro quo for the provision of taxable service, which is absent where the equipment is irretrievably lost and replaced and the replacement alone is used to provide the service.

Conclusion: The compensation received for LIH equipment/tools is not includable in the value of taxable service and the appeal is allowed; the ruling is in favour of the assessee.

Final Conclusion: Payments made as contractual compensation for irretrievable loss of specialised equipment (LIH) do not constitute consideration for taxable service and therefore are excluded from service tax valuation.

Ratio Decidendi: Compensation paid under a contractual indemnity for irretrievable loss of equipment that no longer assists in the provision of service is not consideration for the service and is not includable in the taxable value under the Service Tax (Determination of Value) Rules, 2006.

Issues: Whether the Tribunal's order, having disposed of the appeal only on a preliminary point and without adjudicating the remaining grounds, ought to be set aside and the matter remanded for fresh consideration under Order 41 Rule 23 of the Code of Civil Procedure, 1908.

Analysis: The appeal before the Tribunal was decided exclusively on the basis of an earlier High Court judgment, and the Tribunal did not examine the other grounds raised by the appellants. Since that decision was later reversed by the Supreme Court, the foundation of the Tribunal's disposal no longer survived. In such a situation, where material grounds remained undecided, remand was warranted under Order 41 Rule 23 of the Code of Civil Procedure, 1908 so that the Tribunal could consider the appeal afresh on all surviving issues.

Conclusion: The matter was required to be remanded to the Tribunal for fresh adjudication of the remaining grounds.

Ratio Decidendi: Where an appellate forum disposes of an appeal on a preliminary point without deciding the other substantive grounds, and the basis of that preliminary disposal is subsequently reversed, remand for fresh consideration of the undecided issues is appropriate under Order 41 Rule 23 of the Code of Civil Procedure, 1908.

Issues: Whether cement cleared in 50 kg bags for captive consumption to contractors within the factory premises was liable to valuation under section 4A of the Central Excise Act, 1944 on the basis that the packages required affixation of retail sale price, or under section 4(1)(b) of that Act read with rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

Analysis: The dispute turned on the nature of the clearances and the applicable valuation provision. The clearances were made for self-consumption within the factory premises and were invoiced as such. The earlier proceedings between the parties had already determined that such clearances did not attract section 4A valuation because the packages were not intended for retail sale. That view had also been accepted in the prior Tribunal order, which followed the reasoning that the packaged commodities rules requiring retail sale price marking apply only where the packages are intended for retail sale. The earlier decision in the appellant's own case had held that valuation in such circumstances falls under section 4(1)(b) of the Central Excise Act, 1944 read with rule 8 of the 2000 Valuation Rules. The Commissioner (Appeals) in the present matter failed to follow that binding and directly relevant determination.

Conclusion: The valuation of cement cleared for captive consumption in 50 kg bags was not governed by section 4A of the Central Excise Act, 1944 but by section 4(1)(b) read with rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and the demand was unsustainable.

Ratio Decidendi: Goods cleared for captive consumption and not intended for retail sale are not subject to section 4A valuation on the basis of retail sale price, and must be assessed under section 4(1)(b) read with the prescribed cost-based valuation rules.

Issues: Whether confiscation of seized goods, redemption fine, and penalties under the Central Excise Act and the Central Excise Rules could survive when the duty demand arising from the same investigation and the same period had already been settled under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and a discharge certificate had been issued.

Analysis: The Scheme under Chapter V of the Finance Act, 2019 provides that a discharge certificate is conclusive as to the matter and time period covered by the declaration and bars further duty, interest, penalty, or reopening of the same matter. The Tribunal noted that the demand, interest, and penalties relating to the second show cause notice had already been settled under the Scheme and that the discharge certificate had attained finality. It then examined the nature of confiscation and redemption fine under the Central Excise Act and relied on the view that confiscation and redemption fine are consequences of non-payment of duty and form part of the same dispute. Since the seizure/confiscation proceedings and the duty demand arose from the same investigation and the same period, the benefit of the Scheme could not be restricted to duty alone while leaving redemption fine and confiscation alive.

Conclusion: The confiscation order with redemption fine and the connected penalties could not be sustained after the discharge certificate was issued for the same dispute and period; the challenge succeeded in favour of the assessee.

Issues: Whether the assessee was entitled to exemption under Notification No. 06/2006-CE dated 01.03.2006 read with Notification No. 21/2002-Cus. dated 01.03.2002 for supplies made to the Combined Cycle Gas Turbine Mega Power Project of ONGC Tripura Power Company Ltd.

Analysis: The exemption dispute turned on whether the project satisfied the revised mega power policy threshold for a thermal plant located in Tripura. The Tribunal noted that the revised policy in the Office Memorandum dated 14.12.2009 treated a thermal power plant of 700 MW or more in the specified States, including Tripura, as eligible for mega power benefits. The record also contained a certificate from the Ministry of Power showing the project capacity as 726 MW, and that factual position was not disputed. The appellate authority had not given proper effect to the revised policy or the competent certificate and had proceeded on an incorrect understanding of the threshold requirement.

Conclusion: The assessee was eligible for the exemption and the denial of benefit was unsustainable.

Final Conclusion: The impugned demand and penalty could not be sustained, and the appeal succeeded with consequential reliefs as permissible in law.

Ratio Decidendi: Where a revised mega power policy expressly extends exemption eligibility to a thermal project meeting the prescribed regional capacity threshold and the competent Ministry certificate confirms such capacity, the revenue authorities cannot deny the exemption by ignoring the governing policy and certificate.

Issues: Whether the demand of central excise duty alleging clandestine manufacture and removal could be sustained on the basis of third-party statements, private records and un-certified computer printouts without corroborative evidence and without compliance with the statutory requirements governing admissibility of such material.

Analysis: The demand was founded substantially on records and statements obtained from a third party, together with computer printouts and an input-output ratio worked out by the department. No substantive corroboration was found in the assessee's books, no evidence of excess electricity consumption, extra labour, transport movement, or buyer-side evidence was brought on record, and the former director denied the alleged cash purchases. The statements recorded from the third party officials were relied upon without compliance with the mandatory procedure for admitting such statements in adjudication, and the computer printouts from the third party system were not shown to satisfy the statutory requirements for electronic evidence. In a clandestine removal case, presumptions cannot substitute proof, and the department must establish receipt of raw material, manufacture, removal and flow-back by tangible evidence.

Conclusion: The demand was not sustainable and the issue is decided in favour of the assessee.

Final Conclusion: The impugned duty, interest and penalty were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Allegations of clandestine manufacture and removal cannot be sustained on third-party statements and unverified electronic records alone unless the revenue proves the case with corroborative, legally admissible evidence and complies with the statutory procedure for admitting such material.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether sales tax / VAT amounts retained by the assessee under a State remission / incentive scheme are includible in the "transaction value" / assessable value under Section 4 of the Central Excise Act, 1944.

1.2 Whether the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 was validly invoked on the allegation of suppression / wilful mis-statement with intent to evade duty in respect of non-inclusion of VAT remission.

1.3 Consequentially, whether the entire demand, interest and penalty under Section 11AC are sustainable in law in view of limitation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Includibility of VAT remission in assessable value

Legal framework (as discussed):

2.1 The Tribunal referred to Section 4 of the Central Excise Act, 1944, including the concept of "transaction value" under Section 4(3)(d), and to the law laid down by the Supreme Court in Commissioner of Central Excise v. Super Synotex (India) Ltd., holding that only those taxes actually paid or payable to the concerned Government / statutory authority are deductible from the transaction value.

Interpretation and reasoning:

2.2 The Court held that, in light of Super Synotex, sales tax / VAT retained by the assessee under a remission scheme and not actually paid to the State Government is not excludible from the transaction value.

2.3 It was concluded that the issue of includibility of the retained VAT in assessable value is settled against the assessee by the said Supreme Court judgment.

Conclusions:

2.4 On merits, the Tribunal held that the sales tax / VAT concession retained by the assessee is includible in the assessable value for levy of Central Excise duty, and the legal issue stands decided against the assessee.

Issue 2 - Validity of invoking the extended period of limitation under Section 11A(4)

Legal framework (as discussed):

2.5 The demand was raised by invoking the extended period under Section 11A(4) on the basis of alleged suppression / wilful mis-statement with intent to evade duty. The Tribunal also referred to Board Circular No. 1063/2/2018-CX dated 16-2-2018, which, while accepting certain judicial decisions (including those following Super Synotex), clarified that the extended period is not invocable in such VAT remission cases.

Interpretation and reasoning:

2.6 The Tribunal recorded that during the entire disputed period, regular EA-2000 audits by jurisdictional Central Excise authorities and AG audits were conducted, during which the assessee's balance sheets containing the remission figures of sales tax / VAT were scrutinized, and no objection was raised.

2.7 The assessee had been granted an eligibility certificate under the relevant Assam remission scheme, entitling it to retain 99% of VAT collected and pay 1% to the State Government. The Tribunal held that the Department was fully aware that the assessee was availing this scheme and retaining 99% of VAT.

2.8 The Tribunal found no positive act of suppression or wilful mis-statement, noting that: (i) VAT was collected in full and reflected in invoices; (ii) 99% remission was availed only after collection; (iii) remission figures were duly reflected in audited financial statements; and (iv) there was no tampering with invoices.

2.9 The Tribunal observed that, during the relevant period, the legal position was unsettled and "mired in litigation", with Tribunal decisions holding that sales tax concessions retained by assessees were not to be added to assessable value. Hence, the assessee's conduct was based on an arguable legal view then prevailing, and no mens rea to evade duty could be attributed.

2.10 Relying on the Tribunal's decision in Jalshakti Plastic Industries in identical factual and legal circumstances, and the aforesaid Board Circular which treated such cases as not fit for extended period, the Tribunal held that the extended period under Section 11A(4) was not available.

Conclusions:

2.11 The Tribunal held that invocation of the extended period of limitation under Section 11A(4) was unsustainable, as the Department failed to establish suppression, wilful mis-statement or any positive act evidencing intent to evade duty.

Issue 3 - Sustainability of demand, interest and penalty in view of limitation

Interpretation and reasoning:

2.12 The period of dispute was from May 2009 to March 2010, whereas the Show Cause Notice was issued on 26.05.2014. The Tribunal found that the entire demand period fell only within the extended period, and no part of the demand was within normal limitation.

2.13 Since the extended period had been held to be non-invocable, the Tribunal concluded that the entire demand, including interest, stood vitiated by limitation.

2.14 Consequently, as the foundational requirement of suppression / mens rea necessary for both extended period and penalty was absent, the penalty under Section 11AC was also held to be unsustainable.

Conclusions:

2.15 The Tribunal set aside the entire demand of duty (including cesses), interest, and penalty as time-barred, and allowed the appeal on the ground of limitation, notwithstanding that the issue on merits stood decided against the assessee.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the restriction imposed by the Tribunal on consideration of additional Form 'F' beyond those produced before it was legally sustainable.

1.2 Whether Form 'F' produced subsequently, including during remand and writ proceedings, could be considered for grant of benefit of non-taxable branch transfer under the Central Sales Tax regime.

1.3 How the non-verification or expiry of validity of Form 'F' pertaining to a particular State (Rajasthan) should affect the assessee's tax liability and whether waiver in respect thereof could be granted.

1.4 Extent of relief to be granted in exercise of writ jurisdiction, in view of the assessee's undertaking to restrict its claim only to the Form 'F' already produced on record.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Restriction by Tribunal on additional Form 'F' and entitlement to benefit on subsequently produced forms

Legal framework (as discussed)

2.1 The Court proceeded on the settled position that an assessee is eligible for reduced rate of tax under the Central Sales Tax Act, 1956 on production of Form 'C' for inter-State sales and nil rate of tax on production of Form 'F' for branch transfers, and that Form 'F' serves to validate the claim of non-taxable branch transfer.

Interpretation and reasoning

2.2 The Court noted that the relevant assessment year was 2013-14 and the controversy regarding production of Form 'F' had persisted for about 11 years. It recorded that the authorities did not dispute that the underlying transactions were branch transfers and that Form 'F' had been duly certified and issued by the competent authorities.

2.3 The Tribunal, while remanding the case, had confined verification only to Form 'F' of Rs. 1,61,10,688/- already submitted before it as on 19.10.2023, and refused to consider additional Form 'F' obtained thereafter. The Court treated this restriction as unwarranted because it deprived the assessee of the benefit of non-taxable stock transfer despite the fact that the stock transfers and the corresponding statutory forms existed and were capable of verification.

2.4 The Court took note of the petitioner's subsequent production of additional Form 'F' amounting to Rs. 15,08,05,573/-, all already placed on record before the Court, and the categorical undertaking in the additional affidavit that the petitioner would not seek any further claim beyond the aggregate value of Rs. 16,69,16,261/- (i.e. Rs. 1,61,10,688/- + Rs. 15,08,05,573/-).

2.5 Having regard to the long pendency, the undisputed nature of branch transfers, and the verification exercise undertaken by the assessing authority, the Court considered it appropriate, in writ jurisdiction, to permit consideration of all Form 'F' already produced on record rather than confining relief to the forms earlier produced before the Tribunal.

Conclusions

2.6 The Tribunal's effective bar on consideration of additional Form 'F' obtained and produced after its earlier order was not sustained. The writ petition was allowed to the extent of directing consideration of all Form 'F' already produced by the petitioner and verified by the respondent, within the declared monetary limit.

Issue 3: Effect of non-verification/expiry of Form 'F' for Rajasthan and possibility of waiver

Legal framework (as discussed)

2.7 The Court reiterated that Form 'F' is the statutory instrument for claiming nil tax on branch transfer. The verification of the genuineness of such forms by the assessing authority is part of the statutory assessment process.

Interpretation and reasoning

2.8 Based on the respondent's affidavits, the Court recorded that: (i) all Form 'F' had been verified except those relating to the State of Rajasthan; (ii) the Form 'F' for Rajasthan had been issued on 15.10.2013 and was valid for two years; and (iii) due to the expiry of this validity period, the concerned authorities could not verify the Rajasthan form.

2.9 The respondent themselves invited the Court to consider the aspect of non-verification of the Rajasthan Form 'F' owing to expiry of validity and requested that appropriate orders be passed, including grant of waiver in respect of the non-verified form to the tune of Rs. 40,08,250/-.

2.10 The Court accepted the position that except for the Rajasthan component, the Form 'F' had been verified, and that the inability to verify the Rajasthan form stemmed from expiry of its formal validity rather than any dispute about the nature of the underlying transaction.

Conclusions

2.11 The Court proceeded on the basis of the respondent's stand and treated the Rajasthan-related Form 'F' as a matter for waiver to the extent indicated, while otherwise directing consideration of all verified Form 'F'. The respondent was directed to ascertain the remaining transactions and compute tax liability accordingly.

Issue 4: Scope of writ relief in light of the petitioner's undertaking

Interpretation and reasoning

2.12 The Court placed substantial weight on the petitioner's explicit undertaking that it would (i) restrict its claim strictly to Form 'F' aggregating Rs. 16,69,16,261/- already on record, and (ii) not seek any further benefit on the basis of any additional Form 'F' in future.

2.13 This undertaking, coupled with the State's verification exercise and concessions regarding waiver for Rajasthan, enabled the Court to craft a final direction that would bring closure to the prolonged litigation and avoid further rounds of proceedings.

Conclusions

2.14 Exercising powers under Articles 226 and 227, the Court allowed the writ petition to the limited extent of directing the respondent to consider and verify the Form 'F' already produced, give the consequential benefit of nil tax for eligible branch transfers, ascertain any remaining taxable turnover, and ensure that the resulting tax dues are paid by the petitioner within twelve weeks. The petition was disposed of with rule made absolute to this limited extent.

Issues: (i) Whether the writ petition was maintainable despite the availability of an alternate statutory remedy; (ii) whether the proceedings initiated to cancel compounding permission were barred by limitation; (iii) whether initiation of the proceedings at the instance of the Deputy Commissioner vitiated the action for want of proper application of mind under the relevant provision; (iv) whether the proceedings were unsustainable in view of the protective regime under the later amendment dealing with suppressed turnover of gold; and (v) whether cancellation could be based on suppression alleged in the very same assessment year.

Issue (i): Whether the writ petition was maintainable despite the availability of an alternate statutory remedy

Analysis: The rule of alternate remedy is a rule of self-imposed restraint and not an absolute bar. Writ jurisdiction may still be exercised where the dispute is purely legal, does not require resolution of disputed facts, or where the impugned action is alleged to be contrary to the statute itself. The controversy in the present case turned largely on questions of law arising from admitted facts, and the proceedings had been pending for a substantial period.

Conclusion: The writ petition was held maintainable and the assessee was not relegated to the statutory authority.

Issue (ii): Whether the proceedings initiated to cancel compounding permission were barred by limitation

Analysis: Although the notices referred to the general reassessment provision, the real source of power was the provision governing cancellation of compounding permission. That provision did not expressly prescribe a limitation period. In such a situation, a reasonable period has to be read into the statute. Applying the five-year benchmark drawn from the scheme of the Act and the rules, proceedings begun after expiry of that period were treated as time-barred.

Conclusion: The proceedings were held barred by limitation and this issue was decided in favour of the assessee.

Issue (iii): Whether initiation of the proceedings at the instance of the Deputy Commissioner vitiated the action for want of proper application of mind under the relevant provision

Analysis: The notices were founded on information from the intelligence side regarding suppression of purchases, and the prior orders of the Deputy Commissioner did not by themselves establish absence of jurisdiction or predetermined action. The notices were only show-cause notices, and the assessee retained the opportunity to raise all objections before the assessing authority. The prior approval requirement was treated as procedural rather than fatal.

Conclusion: The challenge on this ground failed and the issue was decided against the assessee.

Issue (iv): Whether the proceedings were unsustainable in view of the protective regime under the later amendment dealing with suppressed turnover of gold

Analysis: The later amendment provided that where suppression of turnover of gold is detected in respect of a dealer paying compounded tax, only the suppressed turnover is to be assessed at the scheduled rate and the compounding option for that year is not to be cancelled. As the proceedings were still pending and no completed best judgment assessment stood in place, the beneficial amended provision was held applicable to the pending proceedings.

Conclusion: The notices proposing cancellation of the compounding permission were held unsustainable and this issue was decided in favour of the assessee.

Issue (v): Whether cancellation could be based on suppression alleged in the very same assessment year

Analysis: The compounding tax liability was linked to prior years and not to the alleged suppression in the same year for which compounding had been opted. The earlier binding reasoning accepted in favour of the assessee was treated as continuing to govern the issue.

Conclusion: Cancellation on that basis was held impermissible and this issue was decided in favour of the assessee.

Final Conclusion: The impugned notices and all consequential proceedings were quashed, and the assessee succeeded on the substantial legal challenges concerning limitation and the scope of cancellation of compounding permission.

Ratio Decidendi: Where a taxing statute authorises cancellation of a benefit but prescribes no express initiation period, the court may read in a reasonable limitation consistent with the statutory scheme; and a pending proceeding must be tested against a beneficial amendment that governs the manner of dealing with suppressed turnover without cancelling the compounding option.

Issues: Whether the order taking cognizance was liable to be interfered with for want of detailed reasons and whether the High Court was justified in remanding the matter on that basis.

Analysis: At the stage of taking cognizance and issuing process, the Magistrate is required to examine whether the police papers and case diary disclose a prima facie case and is not bound to record elaborate reasons. The order under challenge recorded that the case diary and case record had been perused and that a prima facie case was made out. Such an order cannot be faulted merely because it is not a detailed or speaking order. The High Court, therefore, erred in setting aside the cognizance order and remitting the matter for fresh consideration on the supposed absence of disclosed prima facie material.

Conclusion: The cognizance order was valid and the High Court's remand was unsustainable.

Ratio Decidendi: At the stage of cognizance or issuance of process, the court must only satisfy itself that the materials disclose a prima facie case, and the order need not contain detailed reasons unless the statute specifically requires them.