TaxTMI Updates e-Newsletter
Dec 05,2024

Payment of interest under Section 56 of the Central Goods and Services Tax Act, 2017 - refund of tax and interest - administrative direction to disburse refund and interest - Circular No.17/17/2017 - interest payment procedure - inter se liability between State and Central GST authorities

Payment of interest under Section 56 of the Central Goods and Services Tax Act, 2017 - refund of tax and interest - Circular No.17/17/2017 - interest payment procedure - Entitlement of the petitioner to interest for delay in payment of the sanctioned refund. - HELD THAT: - The Court found that a refund of the claimed amount had been sanctioned and subsequently credited to the petitioner's bank account, but payment was delayed beyond the statutory period. Section 56 of the CGST Act, 2017 provides for payment of interest where refund is not made within the prescribed period. The Assistant Commissioner, CGST & Central Excise had communicated to the State authority requesting disbursement of the unpaid refund along with appropriate interest as per Circular No.17/17/2017, and that communication was relied upon by the Court. The Court held that the petitioner cannot be deprived of interest due to any dispute between State and Central authorities about which office is ultimately liable to bear the cost; the entitlement to interest is the petitioner's right once refund was delayed, and the State respondent (Respondent No.3) was directed to pay the interest in terms of Section 56 and the said Circular within one month. The Court left open the question of inter se liability between the authorities for them to decide in accordance with law, but made clear that such inter se dispute cannot impede payment of interest to the taxpayer. [Paras 5, 9, 10, 11, 12]

Petitioner is entitled to interest for delay in payment of the sanctioned refund; Respondent No.3 directed to pay interest in terms of Section 56 of the CGST Act, 2017 and Circular No.17/17/2017 within one month, without prejudice to inter se adjustment between authorities.

Final Conclusion: Writ petition allowed; State respondent ordered to pay interest on the delayed refund in terms of Section 56 of the CGST Act, 2017 and Circular No.17/17/2017 within one month, while any dispute as to ultimate liability between State and Central authorities is left to be resolved between them.

Principles of natural justice - opportunity of personal hearing - limitation for passing assessment not a justification for denial of hearing - quashing and remand for fresh adjudication

Principles of natural justice - opportunity of personal hearing - Assessment passed without affording the petitioner an opportunity of personal hearing despite a specific request in the statutory reply violated principles of natural justice. - HELD THAT: - The show-cause notice recorded 'NA' in the column relating to personal hearing, indicating no intention to grant a hearing. The petitioner, in the prescribed form (DRC-06) and in its reply, marked the option for personal hearing as 'Yes' and specifically sought an opportunity of hearing before any final decision. Having received that clear request, the Assessing Authority was obliged to afford a hearing. Passing the assessment order on the same date the reply was filed, without granting the requested personal hearing, is ex facie contrary to the principles of natural justice and unsustainable. [Paras 5, 6]

Assessment order of 06.08.2024 is quashed insofar as it was passed without affording the requested personal hearing.

Limitation for passing assessment not a justification for denial of hearing - quashing and remand for fresh adjudication - Expiry of limitation for passing the assessment could not justify denial of the opportunity of personal hearing and the matter must be remitted for fresh decision after hearing. - HELD THAT: - The court rejected the contention that impending limitation justified omission of a hearing. Even if limitation was near, the authority could have fixed a short date for hearing rather than proceeding to pass the order without hearing. Consequently, the impugned assessment is set aside and remitted to the authority to pass a fresh order after affording the petitioner an opportunity of hearing. The court directed that the petitioner shall appear before the authority on 10.12.2024 and that no fresh notice need be issued for that purpose. [Paras 7, 8, 9]

Matter remitted for fresh adjudication after affording personal hearing; petitioner to appear on 10.12.2024 and no fresh notice is required.

Final Conclusion: Writ petition allowed; impugned assessment order dated 06.08.2024 quashed and set aside for fresh decision after affording the petitioner a personal hearing, with directions for the petitioner to appear before the authority on 10.12.2024 without issuance of a fresh notice.

Due communication of notice and order via GST portal - uploading on 'Additional Notices and Orders' tab vs 'Due Notices and Orders' tab - proceedings under Section 73 of the Goods and Service Tax Act, 2017 - benefit of doubt where notice not properly displayed - quashing of order for defective service and remand for fresh notice with 15 days' clear notice

Due communication of notice and order via GST portal - uploading on 'Additional Notices and Orders' tab vs 'Due Notices and Orders' tab - benefit of doubt where notice not properly displayed - quashing of order for defective service and remand for fresh notice with 15 days' clear notice - Validity of the demand order dated 26.12.2023 in view of defective/publication of notices on the GST portal and consequent entitlement to relief. - HELD THAT: - The Court accepted the petitioner's contention, not disputed by the Department, that the reminder and the impugned order were uploaded under the 'Additional Notices and Orders' tab instead of the 'Due Notices and Orders' tab on the GST portal, resulting in the assessee not being notified in a manner required for due communication. Relying on the coordinate Bench decision in Ola Fleet Technologies Pvt. Ltd., the Court held that where the impugned order does not properly reflect under the tab where notices and orders are ordinarily viewed, the assessee is entitled to the benefit of doubt. In those circumstances, the impugned order was quashed and set aside and the matter remitted for fresh service of notice. The Court directed that a fresh notice, giving at least fifteen days' clear notice, be issued to the petitioner in the manner prescribed by law and that further proceedings may then take place, thereby safeguarding the assessee's opportunity to be heard before any fresh adjudication on the demand.

Impugned order dated 26.12.2023 quashed and set aside; Assessing Officer to issue fresh notice in the prescribed manner with at least fifteen days' clear notice and proceed thereafter.

Final Conclusion: Writ petition allowed; impugned demand order quashed and remitted for fresh notice and further proceedings in accordance with law, with a direction to issue at least fifteen days' clear notice to the petitioner.

Input tax credit - Section 16(5) of the CGST Act, 2017 - benefit of retrospective amendment - stay of demand - application of amendment where State Act not amended (WBGST)

Input tax credit - Section 16(5) of the CGST Act, 2017 - stay of demand - Interim relief in respect of the order dated 17th August, 2024 for the tax period August, 2019 to March, 2020 - HELD THAT: - The Court considered the petitioner's contention that insertion of sub Section (5) to Section 16 of the CGST Act, 2017 (by notification dated 16th August, 2024 with retrospective effect from 1st July, 2017) substantially alters the operation of sub Section (4) and entitles the registered person to take input tax credit in returns filed up to 30th November, 2021 for specified financial years. Having heard parties and taken note that the petitioner has shown prima facie entitlement to raise the challenge based on the newly inserted provision, and noting the State law (WBGST Act) has not yet been amended, the Court found the writ petition required further hearing. In the interim the Court granted relief by restraining operation of the impugned order dated 17th August, 2024 in relation to the stated tax period until the next hearing, while permitting fuller consideration of the questions raised.

The order dated 17th August, 2024 for the tax period August, 2019 to March, 2020 is stayed until the next date of hearing.

Final Conclusion: The writ petition was directed to be heard; an interim stay was granted on the impugned order dated 17th August, 2024 for the tax period August, 2019 to March, 2020, on the basis that a prima facie case was made out concerning the effect of Section 16(5) of the CGST Act, 2017; the matter was listed in the Combined Monthly list of January, 2025.

Refund of accumulated ITC on export - realisation of export proceeds in Indian Rupees through freely convertible Vostro account - eBRC evidence of realisation currency - interpretation of Circular No. 88/07/2019-GST[F.NO. CBEC-20/16/04/2018-GST] dated 01-02-2019 - quashing of adjudicatory and appellate orders and remand for fresh consideration

EBRC evidence of realisation currency - refund of accumulated ITC on export - Validity of rejection of the petitioner's refund claim on the basis that the submitted eBRCs evidenced realization of export proceeds in INR rather than in freely convertible currency - HELD THAT: - The appellate authority had rejected the refund by treating eBRCs evidencing realization in INR as incapable of supporting entitlement to export-related refund. The High Court held that the original and appellate orders cannot be sustained without examining the effect of the Governmental clarification permitting realization in INR when routed through a freely convertible Vostro account (and in accordance with RBI guidelines). Consequently the Court found that rejection solely on the ground that eBRCs show INR realization is not conclusive without applying the Circular and verifying whether the INR realisations were through permitted Vostro arrangements or otherwise in compliance with applicable RBI guidelines. The Court therefore quashed the impugned adjudicatory and appellate orders and directed fresh consideration of the refund claim in light of the Circular and the material placed on record. [Paras 5, 6, 10, 11]

Impugned orders rejecting the refund claim are quashed and the refund application is directed to be reconsidered afresh by the adjudicating authority in light of Circular No. 88/07/2019-GST and the material on record.

Realisation of export proceeds in Indian Rupees through freely convertible Vostro account - interpretation of Circular No. 88/07/2019-GST[F.NO. CBEC-20/16/04/2018-GST] dated 01-02-2019 - Applicability of the Circular permitting realization of export proceeds in INR (through freely convertible Vostro accounts) to the petitioner's exports and the need for verification of 'specific exports' contention - HELD THAT: - The Court accepted the petitioner's reliance on the Circular which clarifies that export proceeds may be realized in INR where permitted by RBI, including where realised through a freely convertible Vostro account of a non-resident bank (subject to the exclusions noted in the Circular). The Court observed that the respondents had raised a question whether the Circular applies only to 'specific exports' and therefore directed that the adjudicating authority should verify and examine this aspect afresh. All rights and contentions on whether the Circular applies to the petitioner's particular exports (including the 'specific exports' argument) were left open for determination by the adjudicating authority. [Paras 7, 8, 11, 12]

The question of applicability of the Circular to the petitioner's exports (including the 'specific exports' aspect) is remanded to the adjudicating authority for verification and fresh determination.

Final Conclusion: Writ petition allowed; impugned orders dated 23-11-2022 and 25-10-2023 quashed. The refund application shall be reconsidered by the adjudicating authority in light of Circular No. 88/07/2019-GST and the petitioner's material, with the limited issue of applicability to 'specific exports' left open for verification; determination to be completed with expedition (preferably within six weeks) and, if refund is allowed, with statutory interest.

Deposit for stay of tax demand - modification of deposit directions - application of central notification to state levy - stay of first appellate order - compliance with appellate deposit conditions

Deposit for stay of tax demand - modification of deposit directions - stay of first appellate order - Impugned first appellate order to remain stayed subject to a reduced deposit of 10% of the disputed tax - HELD THAT: - The petitioner sought modification of the deposit condition imposed by the First Appellate Authority so that the impugned order would be stayed on a reduced deposit. A Central notification had reduced the deposit requirement to 10% and the State revenue issued a corresponding notification. The Court accepted the petitioner's submission that, in view of the corresponding State notification, the deposit requirement for maintaining the stay of the first appellate order should be reduced to 10% of the disputed tax. The petitioner is directed to make the deposit accordingly and, upon such compliance, the impugned first appellate order shall remain stayed. [Paras 5, 6]

Writ petition disposed by modifying the deposit requirement so that the impugned first appellate order remains stayed on deposit of 10% of the disputed tax.

Final Conclusion: The writ petition is disposed of by accepting the petitioner's prayer for reduction of the deposit required for stay; the impugned first appellate order shall remain stayed subject to deposit of 10% of the disputed tax in accordance with the State notification.

Penalty for transporting goods after expiry of e-way bill - Requirement of deliberate and wilful attempt to evade tax / lack of bona fide for imposition of penalty - Contextual application of procedural e-way bill rules where no tax evasion is shown - E-way bill validity and electronic extension under Rule 138(10) / Notification mechanism

Penalty for transporting goods after expiry of e-way bill - Requirement of deliberate and wilful attempt to evade tax / lack of bona fide for imposition of penalty - Contextual application of procedural e-way bill rules where no tax evasion is shown - Whether the penalty imposed for transporting goods after expiry of the e-way bill was justified in the absence of any evidence of tax evasion or mala fides. - HELD THAT: - The Court examined the materials and concluded that procedural compliance under the GST framework is important but penalties imposed solely for procedural lapses, without any evidence of diversion of goods, suppression of outward supply or deliberate attempt to evade tax, defeat the legislative intent. Relying on the reasoning in Hanuman Ganga Hydroprojects (P.) Ltd. the Court observed that invocation of penal powers requires a definite finding of deliberate and willful attempt to evade tax or lack of bona fide. Applying that principle to the facts-where e-invoice and e-way bill had been generated, tax was paid, records were reflected in returns and the goods were found near the consignee's unit-the Court found no indicia of malafide or tax evasion. Consequently, imposing the penalty was excessive and unwarranted. The Court therefore set aside the orders of the Adjudicating and Appellate Authorities and quashed the penalty, also taking note of the decision in Progressive Metals (P.) Ltd. for similar proposition. [Paras 13, 15]

Penalty set aside as unwarranted in absence of intent to evade tax and given petitioner's bona fide compliance; orders of Adjudicating and Appellate Authorities quashed.

E-way bill validity and electronic extension under Rule 138(10) / Notification mechanism - Contextual application of procedural e-way bill rules where no tax evasion is shown - Whether the availability of electronic extension of e-way bill validity (including the 8-hour extension) precludes relief where the validity was not extended and goods were in transit. - HELD THAT: - The Court noted the respondent's submission as to Rule 138(10) and Notification permitting extension of e-way bill validity electronically, and that such extension is available irrespective of weekends or holidays. However, the Court held that the existence of a procedural option to extend does not automatically validate imposition of penal consequences where there is no evidence of diversion or tax evasion. The determinative question is the contextual application of procedural rules: where the petitioner's conduct and records demonstrate bona fide movement and no prejudice to revenue, excusing the procedural lapse was appropriate. Thus, while the rule confers the electronic extension remedy and places responsibility on the taxpayer/transporter, it does not mandate imposition of penalty in every case of non-extension absent willful evasion. [Paras 12, 13]

Availability of electronic extension does not, by itself, mandate penalty where there is no deliberate evasion; procedural lapse to be viewed contextually.

Final Conclusion: The High Court set aside the penalty and the concurrent orders of the Adjudicating and Appellate Authorities, holding that in the absence of any deliberate and willful attempt to evade tax and given the petitioner's bona fide compliance, imposition of penalty for transportation after e-way bill expiry was unwarranted; procedural remedies for extension exist but do not compel penal action where no malafide is shown.

Imposition of penalty under Section 129 of the CGST/SGST Acts - Minor documentary discrepancies vis-a -vis intention to evade tax - Penalty under Section 122 as a limited alternative - Consideration of Section 126 in imposing penal consequences - Writ jurisdiction under Article 226 and availability of alternative remedy under Section 107

Imposition of penalty under Section 129 of the CGST/SGST Acts - Minor documentary discrepancies vis-a -vis intention to evade tax - Whether Section 129 authorises imposition of the statutory penalty where the only defect is non-generation of an e-invoice and there is no case of tax evasion. - HELD THAT: - The court held that Section 129 does not authorise imposition of the penalties contemplated by that provision in cases where only minor discrepancies are noticed and there is no finding of intention to evade tax. The judgment relies on the declaration in T.P. Metal Roofings (supra) that penalties under Section 129(1)(a) or (b) are appropriate where violations lead to evasion of tax, are deliberate with intent to evade, or are repeated; in other cases authorities must have due regard to Sections 122 and 126 and may impose penalties accordingly. Applying that principle, the mere absence of an e-invoice when goods were transported under an e-way bill and accompanied by invoices, without a case of evasion, does not justify the penalty as imposed under Section 129.

Ext.P16 is quashed insofar as it purports to impose penalty under Section 129 for the single defect of non-generation of an e-invoice; such cases must be dealt with having regard to Sections 122 and 126 and not by routine application of Section 129.

Writ jurisdiction under Article 226 and availability of alternative remedy under Section 107 - Whether the writ petition is maintainable notwithstanding the existence of an alternative statutory remedy of appeal under Section 107. - HELD THAT: - The court overruled the respondent's objection that the petitioner has an effective alternative remedy under Section 107 and that writ jurisdiction should not be exercised. Having found that the impugned order (Ext.P16) was legally unsustainable in the manner it imposed penalty under Section 129, the court entertained the writ petition and granted relief.

Objection based on availability of alternative remedy under Section 107 is rejected and the writ petition is entertained.

Penalty under Section 122 as a limited alternative - Consideration of Section 126 in imposing penal consequences - What remedial course should follow after quashing the impugned order which imposed penalty under Section 129. - HELD THAT: - The court directed that the competent authority may impose penalty in terms of Section 122 (and have regard to Section 126) after fresh consideration, in accordance with the principles stated in T.P. Metal Roofings (supra). The court therefore quashed Ext.P16 and permitted the authority to proceed afresh to impose any penalty legitimately available under Section 122, ensuring compliance with statutory constraints and the distinction between minor discrepancies and evasion. Any amount collected pursuant to Ext.P16 is to be refunded until fresh orders are passed.

Ext.P16 is quashed; the competent authority is permitted to pass fresh orders imposing penalty in terms of Section 122, keeping in view Section 126; amounts collected under Ext.P16 shall be refunded until such fresh orders are made.

Final Conclusion: Ext.P16 quashed; writ petition allowed. The matter is remitted to the competent authority to consider imposition of any penalty only under Section 122 (with regard to Section 126) after fresh consideration consistent with the court's reasoning that Section 129 is not to be invoked for mere minor documentary discrepancies absent evasion; amounts collected under the impugned order to be refunded pending fresh orders.

Unconstitutional levy - refund of tax paid under mistake of law - writ jurisdiction under Article 226 - reverse charge mechanism - deeming fiction in notification

Unconstitutional levy - deeming fiction in notification - reverse charge mechanism - Validity of levy of IGST on ocean freight by virtue of Notification Nos. 8/2017 and 10/2017. - HELD THAT: - The Court observed that the question whether IGST could be levied on ocean freight under the impugned notifications is no longer res integra and has been finally resolved by the Apex Court in Union of India v. Mohit Minerals (affirming this Court's earlier decision). When the notification itself is struck down as unconstitutional, respondent authorities cannot insist on levy of IGST on the amount of ocean freight. The Court relied on the binding pronouncement of the higher forum and prior decisions of this Court holding the impugned notifications invalid insofar as they impose tax via a deeming fiction under the reverse charge mechanism. [Paras 7]

The levy of IGST on ocean freight under the challenged notifications cannot be sustained and is void.

Refund of tax paid under mistake of law - writ jurisdiction under Article 226 - Maintainability of writ relief and entitlement to refund of IGST paid on ocean freight where levy held unconstitutional. - HELD THAT: - Applying the framework in Mafatlal Industries, the Court distinguished three species of refund claims: (i) challenge to the statutory charging provision (unconstitutional levy) giving rise to writ remedy, (ii) illegal levy by misconstruction where refund arises under the statute, and (iii) payment under mistake of law. The present case was treated as falling within the first category because the levy (by notification) has been declared unconstitutional by higher courts. Consequently, the petitioner is entitled to seek relief by way of writ under Article 226. The Court held that the petition for refund is maintainable and the impugned administrative rejection of the refund claim (on limitation grounds) must be set aside in view of the constitutional invalidation of the levy. [Paras 7, 8]

The writ petition seeking refund of IGST paid on ocean freight is maintainable; the impugned rejection is quashed and the petition is allowed.

Final Conclusion: The petition is allowed; the order rejecting the refund claim is quashed and set aside and the petitioner is entitled to relief by way of writ consequent to the constitutional invalidation of the impugned notifications. No order as to costs.

Classification of goods by HSN - Exclusion from Chapter 11 where substances are added as food preparations - Classification under Chapter Heading 11.02 and 11.06 - Rule 3(b) of the General Rules for Interpretation (essential character) - Residuary entry 2106 (Food preparations not elsewhere specified) - Applicability of CBIC Circular on 'Sattu' (clarificatory circular) - Principle of noscitur a sociis

Classification under Chapter Heading 11.02 - Exclusion from Chapter 11 where substances are added as food preparations - Whether the fourteen instant mix flours qualify as flours under Chapter Heading 11.02 of the Customs Tariff Act, 1975 - HELD THAT: - The authority examined the explanatory notes to Chapter 11 and found that Chapter 11.02 covers pulverised products obtained by milling the cereals listed in Chapter 10 and permits only the addition of very small quantities of specified substances to remain within the heading. The appellant's product compositions (as admitted) contain spices and other ingredients in proportions ranging from 5% to 37% and these ingredients are not among the limited specified substances permissible under the explanatory notes. The recipes demonstrate that the additives are incorporated with a view to use as food preparations. Several of the mixes also contain wheat flour, which falls within the Chapter 11 descriptive scope but the presence and proportion of non permissible additives exclude the products from heading 11.02. Consequently the mixes do not fall within Chapter 11.02. [Paras 18]

Products excluded from Chapter Heading 11.02

Classification under Chapter Heading 11.06 - Exclusion from Chapter 11 where substances are added as food preparations - Whether the fourteen instant mix flours fall under Chapter Heading 11.06 (flour/meal/powder of dried leguminous vegetables) of the Customs Tariff Act, 1975 - HELD THAT: - Chapter 11.06 covers flours, meals and powders of dried leguminous vegetables (heading 07.13) and certain other specified products. Classification must be determined by the terms of the headings (Rule 1 GRI). The authority found that the appellant's products contain spices and other ingredients in proportions and of kinds not contemplated by the Chapter 11.06 heading or its explanatory notes. Because these additional ingredients are not within the scope of 11.06 and are added as part of food preparations, the products cannot be classed under heading 11.06. [Paras 20]

Products not classifiable under Chapter Heading 11.06

Rule 3(b) of the General Rules for Interpretation (essential character) - Classification of mixed or composite goods - Whether Rule 3(b) (classification by essential character) requires classifying the instant mix flours under Chapter 11 headings - HELD THAT: - Rule 3(b) provides that mixtures should be classified according to the material giving them their essential character when Rule 3(a) does not resolve classification. The authority held that Rule 3(b) cannot be applied to assign the goods to Chapter 11 because, on the merits, the products are excluded from Chapters 11.02 and 11.06 owing to the nature and proportion of added ingredients. Having excluded the goods from those headings, the premise for invoking Rule 3(b) in favour of Chapter 11 does not arise. Accordingly the appellant's contention that the most advantageous entry (Chapter 11) must be preferred was rejected. [Paras 21]

Rule 3(b) inapplicable to place products under Chapter 11 once excluded by composition

Applicability of CBIC circular on 'Sattu' - Clarificatory circulars and their limited applicability - Whether CBIC Circular No. 80/54/2018-GST (classification of 'Sattu') applies to the appellant's products - HELD THAT: - The circular clarifies that flour of ground pulses and cereals ('Sattu') improved by very small amounts of additives continues to be classifiable under HSN 1106. The authority found the circular inapplicable because the appellant's mixes contain spices and other ingredients in proportions that cannot be characterized as 'very small amounts' akin to Sattu. Therefore the circular's clarification does not assist the appellant's case. [Paras 23]

CBIC circular on 'Sattu' not applicable

Residuary entry 2106 (Food preparations not elsewhere specified) - Preparations for use after processing (cooking) - Whether the fourteen instant mix flours are classifiable under Chapter Heading 21.06 (specifically 2106.90 'Other') - HELD THAT: - Chapter 21.06 covers preparations for use either directly or after processing (such as cooking) for human consumption and preparations consisting wholly or partly of foodstuffs used in making food preparations. The authority observed that the appellant's mixes are preparations consisting wholly of foodstuffs (flours, spices and condiments) intended for making food preparations and are not covered by any other specific heading. The fact that the products require cooking or further processing before consumption does not exclude them from Chapter 21.06. As they are not specifically provided for elsewhere in the Tariff, they fall under the residuary tariff item 2106.90 (others). [Paras 25, 26, 27]

Products classifiable under Tariff Item 2106.90 (Chapter Heading 21.06)

Principle of noscitur a sociis - Preference for specific over general headings - Whether the principles of noscitur a sociis or the rule preferring a more specific heading preclude classification under 2106 - HELD THAT: - The appellant argued that noscitur a sociis and the rule of preferring a specific entry should prevent classification under the general entry 2106. The authority held that those principles operate only where the good is otherwise within a specific heading; here the products were excluded from the specific Chapter 11 headings by reason of composition. Since no specific tariff heading covers the mixes, classification under the residuary entry 2106.90 is appropriate and the general nature of 2106 does not preclude such classification. [Paras 21, 25, 26]

Noscitur a sociis and preference for specific heading do not preclude residuary classification under 2106 where specific headings are excluded

Final Conclusion: Appeal dismissed. The fourteen instant mix flours are excluded from Chapter Headings 11.02 and 11.06 on account of the nature and proportion of added ingredients and are correctly classifiable under Tariff Item 2106.90 (Chapter Heading 21.06) attracting the rate of GST determined by the authority; the appellant's alternative contentions and reliance on the 'Sattu' circular and Rule 3(b) are rejected.

Benefit under Section 10(20) of the Income Tax Act, 1961 - Application of Sections 11 and 12 of the Income Tax Act, 1961 - Remand for fresh consideration on merits - Quash and set aside of impugned orders - Consistency in disposal of identical appeals

Benefit under Section 10(20) of the Income Tax Act, 1961 - Application of Sections 11 and 12 of the Income Tax Act, 1961 - Whether the High Court was justified in dismissing the Revenue's appeals by granting the assessee benefit under Section 10(20) when the assessee had not claimed that benefit and had proceeded under Sections 11 and 12. - HELD THAT: - The Court noted that the respondent-assessee never claimed exemption under Section 10(20) and had proceeded on the basis of Sections 11 and 12. The High Court, however, granted benefit under Section 10(20) while dismissing the Revenue's appeals. That course was found to be unsustainable because the benefit granted did not reflect the claim advanced by the assessee and the proper basis of adjudication. In view of this misapplication, the impugned judgment and orders could not be sustained and required reconsideration by the High Court on the correct legal footing and on merits.

Impugned orders directing benefit under Section 10(20) where not claimed were set aside and the matters remanded to the High Court for fresh consideration in accordance with law and on merits.

Remand for fresh consideration on merits - Consistency in disposal of identical appeals - Quash and set aside of impugned orders - Whether these appeals should be remanded to the High Court for fresh consideration following the Court's earlier order in related matters and for ensuring consistent disposal. - HELD THAT: - Having extracted and relied upon the earlier order dated 08.09.2022 which quashed and set aside similar High Court orders and remanded those matters for fresh consideration, the Court observed that the present matters involve identical controversies. In the interest of consistency and because the High Court's disposal was founded on an improper basis, the Court remanded these appeals to the High Court to be considered afresh in accordance with law and on their own merits, directing expeditious disposal.

These appeals were allowed to the extent that the impugned orders were quashed and set aside and the matters remanded to the High Court for fresh adjudication; appeals disposed of accordingly.

Final Conclusion: The Supreme Court set aside the impugned High Court orders which had granted benefit under Section 10(20) where such benefit was not claimed, and remanded the matters to the High Court for fresh consideration on merits to ensure consistent and lawful disposal; appeals allowed and disposed of, no costs.

Prosecution under Section 276-B for failure to deposit TDS - consequences of belated deposit of TDS with interest - CBDT instructions limiting prosecution where TDS deposited - reasonableness defence under Section 278(AA) - amendment inserting proviso to Section 276B excluding prosecution where TDS paid before prescribed time for filing statement - abuse of process of court

Prosecution under Section 276-B for failure to deposit TDS - consequences of belated deposit of TDS with interest - CBDT instructions limiting prosecution where TDS deposited - abuse of process of court - amendment inserting proviso to Section 276B excluding prosecution where TDS paid before prescribed time for filing statement - Whether the criminal proceedings under Sections 276-B and 278-B of the Income Tax Act should be quashed where the deducted TDS amounts were belatedly deposited with interest - HELD THAT: - The Court found as an admitted fact that in each case the deducted TDS amount had been deposited belatedly with interest and this is not disputed by the Department. The court applied its earlier decision in M/s Dev Multicom Pvt. Ltd., which was affirmed by the Supreme Court, and noted the relevance of CBDT instructions that prosecution under Section 276-B is not normally to be proposed where the amount involved and/or period of default is not substantial and the amount in default has been deposited in the meantime. The Parliament has also inserted a proviso to Section 276B by the Finance Act, 2024, excluding the applicability of the provision where the payment has been made to the credit of the Central Government on or before the time prescribed for filing the statement under subsection (3) of section 200. Given the admitted deposit with interest, the settled precedent and the legislative amendment, the continuance of criminal proceedings was held to amount to an abuse of the process of court, warranting quashing of the cognizance and entire criminal proceedings in the respective Economic Offence Cases/C.O. Case. [Paras 14, 15, 16]

The cognizance orders and the entire criminal proceedings under Sections 276-B and 278-B in the listed Economic Offence Cases / C.O. Case are quashed.

Final Conclusion: Writ petitions allowed; cognizance orders and criminal proceedings in the respective Economic Offence Cases / C.O. Case, alleging belated deposit of TDS for the specified financial years, are quashed as amount was deposited with interest and continuation of proceedings would be an abuse of process, having regard to the Court's precedent affirmed by the Supreme Court and the amendment to Section 276B.

Reopening assessment under Section 147/148 - reason to believe test - cryptic and vague reasons - non-application of mind - failure to disclose fully and truly all material facts - reliability of books of account - deeming provision for unexplained money under Section 69A - change of opinion doctrine

Reopening assessment under Section 147/148 - reason to believe test - cryptic and vague reasons - non-application of mind - reliability of books of account - deeming provision for unexplained money under Section 69A - Validity of the notices issued on 31.03.2021 under Section 148 read with Section 147 for A.Y. 2014-15, A.Y. 2015-16 and A.Y. 2016-17 - HELD THAT: - The Court examined the reasons recorded by the Assessing Officer for reopening and found them to be repetitive, cryptic and lacking any nexus between the information relied upon and the formation of a prima facie reason to believe that income had escaped assessment. The reasons repeatedly refer to a common allegation of cash deposits and to information from Investigation Wings, but do not explain how those entries, or the asserted ownership of funds, render the books unreliable or demonstrate unexplained income attractable to the deeming provision relied upon. The Assessing Officer's order disposing of objections was non-speaking and did not address the petitioner's explanations that the cash deposits represented sales already recorded in the books. In these circumstances there is no demonstrated application of mind showing a prima facie satisfaction necessary to assume jurisdiction to reopen assessments; mere repetition of information and bald references to section 69A without evidentiary nexus is insufficient. [Paras 9]

Not persuaded that the Assessing Officer had a valid reason to believe to reopen; the notices for all three assessment years are quashed.

Change of opinion doctrine - failure to disclose fully and truly all material facts - Whether reopening of assessment for A.Y. 2014-15 amounted to an impermissible change of opinion - HELD THAT: - The respondent contended that information from the Investigation Wing was new and was not available to the A.O. at the time of the original scrutiny assessment. The record shows that the regular assessment proceedings had sought party-wise details, which the assessee did not furnish, and the Revenue asserted that the Investigation Wing later provided further information. The Court nevertheless held that even if additional information was alleged to have emerged, the reasons recorded did not identify or explain how that information altered the prima facie position or led to a specific preliminary finding of escapement of income. Consequently, the exercise did not escape the vice of being a change of opinion in form or substance because the reasons lack the requisite connection between the new material and the satisfaction recorded. [Paras 6, 9]

Reopening could not be sustained on the basis alleged; the contention that fresh information justified reopening fails because the reasons do not disclose how such information produced a bona fide formation of belief.

Final Conclusion: The petitions are allowed; the notices dated 31.03.2021 under Section 148 for A.Y. 2014-15, A.Y. 2015-16 and A.Y. 2016-17 are quashed and set aside for want of a valid reason to believe and for non-application of mind in recording reasons to reopen.

Condonation of delay under Section 119(2)(b) of the Income Tax Act - genuine hardship - liberal exercise of power to enable recovery of refunds where tax has been deducted at source - effect of CBDT Circular No.9/2015 on interest when delay is condoned

Condonation of delay under Section 119(2)(b) of the Income Tax Act - genuine hardship - liberal exercise of power to enable recovery of refunds where tax has been deducted at source - Rejection of the petitioner's application to condone the delay of 380 days in filing the return for Assessment Year 2022-23 - HELD THAT: - The Court held that the respondent, while exercising delegated power under Section 119(2)(b), ought to have taken into account the petitioner's age, medical condition and bona fide difficulties in light of the fact that the return related to claiming a refund of tax deducted at source on a single sale transaction. Although filing facilities exist online, the petitioner's residence abroad and documented medical ailments were sufficient to warrant a liberal exercise of power to condone the delay so as to permit the petitioner to claim the refund. The Court noted that, in any event, no interest would be payable if the delay is condoned in terms of CBDT Circular No.9/2015, and therefore the petitioner should not be deprived of the refund to which he is otherwise entitled. [Paras 9, 10]

Impugned order rejecting condonation is quashed; matter remitted to respondent to pass appropriate order to condone the 380 day delay and enable the petitioner to claim the refund.

Final Conclusion: Petition allowed; impugned order dated 12.06.2024 quashed and set aside. Matter remanded to the respondent to pass an appropriate order condoning the 380 day delay within 12 weeks so that the petitioner may obtain the refund to which he is entitled (without interest as per CBDT Circular No.9/2015).

Issuance of Form No.5 under the Direct Tax Vivad se Vishwas Act, 2020 - beneficial construction of a remedial/amnesty fiscal scheme - waiver of interest and penalty under the Vivad se Vishwas scheme - condonation of short and inadvertent delay in payment to advance object of the scheme - power of the High Court under Article 226 to do complete justice in extraordinary circumstances - prohibition against judicially extending or modifying a statutory scheme

Issuance of Form No.5 under the Direct Tax Vivad se Vishwas Act, 2020 - waiver of interest and penalty under the Vivad se Vishwas scheme - condonation of short and inadvertent delay in payment to advance object of the scheme - beneficial construction of a remedial/amnesty fiscal scheme - Whether the petitioner is entitled to issuance of Form No.5 under the DTVSV Act despite a delayed short payment of Rs.1,533/- paid twelve days after the stipulated date, and consequent entitlement to waiver of interest and penalty under the Scheme. - HELD THAT: - The Court found that the petitioner had paid the substantial part of the amount required under Form 3 (Rs.12,27,183/- of Rs.12,28,500/-) on or before the specified date and that the residual shortfall of Rs.1,533/- was paid twelve days later. The DTVSV Act is a beneficial remedial enactment aimed at resolving disputed tax and reducing litigation; its provisions must be interpreted to advance that object. A trivial, inadvertent and short delay in payment which does not indicate intent to evade should not be allowed to frustrate the scheme's purpose. The Court noted that acceptance of the petitioner's case would not prejudice the revenue and would further the statute's objectives. While recognising the settled principle that courts cannot ordinarily modify or extend a statutory scheme, the Court distinguished the facts here-near-complete payment within time and bona fide short delay-and relied on equitable jurisdiction under Article 226 to do substantial justice in exceptional circumstances. Applying these considerations, and having regard to analogous decisions allowing relief where delays were short, unintentional or caused by extraneous circumstances, the Court concluded that the respondent's refusal to issue Form No.5 was unsustainable and ought to be set aside. [Paras 13, 14, 16, 17, 18]

The impugned order refusing issuance of Form No.5 is quashed; respondent is directed to issue Form No.5 to the petitioner under the DTVSV Act within twelve weeks from receipt of the order.

Final Conclusion: Petition allowed to the extent that the respondent's refusal to issue Form No.5 is quashed and the respondent is directed to issue Form No.5 under the DTVSV Act within twelve weeks; no order as to costs.

Reopening of assessment on the basis of audit objection as "information" for issuance of notice under section 148 - requirement to consider and deal with the assessee's reply to a notice under section 148A(b) before issuing notice under section 148 - prior acceptance of a claim in earlier assessments as a bar to reopening subsequent years on the same facts - non-application of mind in an order under section 148A(d) - limits of treating audit objections as conclusive without independent examination of records

Reopening of assessment on the basis of audit objection as "information" for issuance of notice under section 148 - requirement to consider and deal with the assessee's reply to a notice under section 148A(b) before issuing notice under section 148 - prior acceptance of a claim in earlier assessments as a bar to reopening subsequent years on the same facts - non-application of mind in an order under section 148A(d) - Validity of issuance of notice under Section 148A(b) and order under Section 148A(d) (and consequential notice under Section 148) for AYs 2017-18 and 2018-2019 where the reopening was based on audit objections despite earlier acceptance of depreciation on goodwill in earlier assessments and notwithstanding the assessee's reply. - HELD THAT: - The Court held that while audit objections may constitute "information" capable of triggering proceedings under Section 148, the Assessing Officer must independently examine the records and the explanation furnished by the assessee under Section 148A(b) before issuing a notice under Section 148. The Assessing Officer in the present case reproduced the audit objection and restated its conclusion without dealing with the specific reply and documentary material showing that depreciation on the goodwill had been claimed and accepted in earlier assessments (Assessment Years 2015-16 and 2016-17). That omission amounted to non-application of mind. Reopening an assessment for the later years on the same factual basis which had earlier been considered and accepted by the department could not be sustained where the reply pointed out factual errors in the audit objection and demonstrated prior acceptance of the claim. Consequently the order under Section 148A(d) was not a reasoned decision to justify issuance of a notice under Section 148. [Paras 8, 9, 10, 11, 12]

Impugned notice under Section 148A(b) dated 10.02.2024, the orders under Section 148A(d) dated 30.03.2024 and the consequent notice under Section 148 dated 30.03.2024 quashed and set aside for AYs 2017-18 and 2018-2019.

Final Conclusion: The petitions succeed: the Assessing Officer's decision to reopen assessments for AYs 2017-18 and 2018-2019 on the basis of the audit objection, without properly considering the assessee's reply and earlier departmental acceptance of the depreciation claim, amounted to non-application of mind; the impugned notices and orders are quashed and set aside.

Addition under section 68 - unexplained cash credit - onus of proof under section 68 - creditworthiness of the donor - duty of the Assessing Officer to make independent enquiries once prima facie evidence is produced - reliance on unverified newspaper reports/online search is insufficient to discharge departmental burden

Addition under section 68 - unexplained cash credit - onus of proof under section 68 - creditworthiness of the donor - duty of the Assessing Officer to make independent enquiries once prima facie evidence is produced - reliance on unverified newspaper reports/online search is insufficient to discharge departmental burden - Validity of deletion by CIT(A) of addition of Rs.3 crores made under section 68 as gift from the assessee's son - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the assessee had discharged the primary onus under section 68 by producing the donor's identity and bank statements showing transfers and sufficient funds, thereby creating a prima facie case. Once such materials were furnished, the burden shifted to the Assessing Officer to undertake independent enquiries; the AO did not perform any effective verification and instead relied on unverified internet and local newspaper reports. The Tribunal accepted that the donor was an NRI and that requiring Indian ITRs was unwarranted for income earned abroad; the alleged SEBI ban, as relied upon by the Department, was not substantiated and was irrelevant to the donor's demonstrated bank balances. The investments by the assessee of the gifted amounts and subsequent transactions with the Indian company did not negate the genuineness of the gift for purposes of section 68. As the AO failed to rebut or discredit the evidence produced, the addition under section 68 was unjustified and rightly deleted by the CIT(A). [Paras 7, 8]

The deletion of the addition of Rs.3 crores under section 68 is sustained; revenue's grounds are dismissed.

Final Conclusion: The Tribunal dismissed the revenue appeal and affirmed the CIT(A)'s deletion of the addition under section 68 in Assessment Year 2011-12, holding that the assessee discharged the evidential onus and the Assessing Officer failed to make requisite independent enquiries.

Apportionment of head office expenses to eligible unit - allocation of common expenses on reasonable and scientific basis - treatment of intra-group transfers to SEZ/10AA unit - determination of fair market value - taxability of Fees for Technical Services under section 9 and Article 12 of Indo USA DTAA - obligation to deduct tax at source under section 195 - 'any sum chargeable' test and recourse to section 195(2) - exception to FTS taxability where services are utilized for earning income from sources outside India - 'make available' requirement for FTS under DTAA - allowability of business expenses under section 37 - prior period, foreign travel, gifts, garden expenses - penalty under section 271(1)(c) - consequential failure where assessment foundation is removed (sublato fundamento cadit opus)

Apportionment of head office expenses to eligible unit - allocation of common expenses on reasonable and scientific basis - Allocation of head office expenses (including directors' commission, audit and certification fees, bank and loan processing charges) to the MEPZ (section 10AA) eligible unit - HELD THAT: - The Tribunal found that where head office expenses relate to strategic, managerial or overarching activities benefiting all divisions, they are properly susceptible to reasonable allocation to an eligible unit. In the factual matrix of the year under appeal the MEPZ unit made profits (unlike earlier years when it had losses) and apportionment of common HQ expenses cannot be ignored as tax neutral. Allocation in proportion to turnover was held to be a reasonable basis. The Tribunal relied on overarching principles permitting approximation where no statutory formula exists and on the nexus between the head office activities and the eligible unit. [Paras 14, 15]

Addition/disallowance on account of allocation of head office expenses and bank/loan processing charges to the MEPZ unit is sustained.

Treatment of intra-group transfers to SEZ/10AA unit - determination of fair market value - Computation of income attributable to goods transferred to the MEPZ unit under section 10AA(9) read with section 80IA(8) - HELD THAT: - The Tribunal observed that the Assessing Officer had applied a notional GP rate without recording that goods were transferred at fair market value. Respectfully following precedent, the Tribunal concluded that the fair market value of intra group transfers must be ascertained and remitted the matter to the AO to determine FMV of goods transferred to/from the MEPZ unit so as to arrive at the correct profit of the eligible unit. [Paras 16]

Issue remitted to the Assessing Officer for ascertainment of fair market value of goods transferred to the MEPZ unit.

Allowability of prior period expenses under section 37 - Disallowance of certain prior period expenses claimed by the assessee - HELD THAT: - CIT(A) had allowed the amount which it considered crystallised and disallowed a portion where the assessee failed to furnish particulars to demonstrate crystallisation in the year under consideration. The Tribunal noted that while the principle is that expenses are deductible when crystallised, the assessee did not controvert the CIT(A)'s specific findings that documentary explanation was not furnished for misc. expenses, legal/professional fees and repairs. Absent substantiation that liabilities had crystallised, the disallowance was sustained. [Paras 22]

Disallowance of Rs. 5,05,156 (portion of prior period expenses) is sustained.

Taxability of Fees for Technical Services under section 9 and Article 12 of Indo USA DTAA - 'make available' requirement for FTS under DTAA - obligation to deduct tax at source under section 195 - 'any sum chargeable' test and recourse to section 195(2) - Whether warehouse charges paid to a non resident independent warehouse provider (ESG International, USA) constitute Fees for Technical Services (FTS) chargeable to tax in India and whether payer was obliged to deduct tax under section 195 - HELD THAT: - The Tribunal examined section 9(1)(vii)(b), Explanation 2, the Explanation to section 9 and Article 12 (Fees for Included Services) of the Indo USA DTAA. It held that the DTAA provides a narrower definition (technical/consultancy services with 'make available' requirement) and, under section 90(2), the DTAA definition prevails if more beneficial. The warehousing payments related to space utilization and operational services outside India for the assessee's overseas operations; ESGI had no business activity in India. The 'make available' condition was not satisfied given the nature and continuity of services and no transfer of technical know how; managerial services (if any) are excluded under the DTAA. Consequently the receipts did not deemed to accrue or arise in India and were not 'any sum chargeable' for purposes of section 195. The Tribunal also reiterated that recourse to section 195(2) is available only where the payer has doubt about taxability of a composite payment. [Paras 42, 45, 46, 47, 48]

Payments to ESG International for warehousing services are not FTS chargeable in India; no TDS under section 195 was required and corresponding additions are deleted.

Penalty under section 271(1)(c) - consequential failure where assessment foundation is removed (sublato fundamento cadit opus) - Sustainability of penalty under section 271(1)(c) premised on additions which were deleted - HELD THAT: - Having deleted the substantive addition relating to the payment to ESGI as FTS, the Tribunal applied the principle that if the foundation of assessment is removed, consequential orders including penalty fall. The CIT(A)'s confirmation of penalty in relation to the FTS addition was therefore rendered unsustainable. [Paras 92, 93]

Penalty under section 271(1)(c) in respect of the FTS addition is deleted.

Allowability of business expenses under section 37 - foreign travel, gifts, garden expenses - Allowability of various business expenses disallowed or disallowed partly by AO (foreign travel of directors, irrecoverable excise duty, gift/present, garden expenses, ad hoc travelling disallowance) - HELD THAT: - On the facts, the Tribunal found that several disputed expenses were incurred for advancing the assessee's business and were not shown to be doubtful. For foreign travel by directors to promote subsidiaries/JVs, commercial expediency and business purpose were held to be established; following precedent the AO was directed to delete the addition. Irrecoverable excise duty paid on returned goods was held to be an allowable business expense under section 37 where credit was not refunded. Gift/present and garden expenses, and ad hoc foreign travel disallowances, were similarly found to be allowable on the facts, and ad hoc or unsupported disallowances were deleted. [Paras 59, 60, 69, 76, 84]

Additions on account of directors' foreign travel, irrecoverable excise taxes, gifts/presents and garden/related expenses are deleted; ad hoc travelling disallowance is deleted.

Final Conclusion: The Tribunal partly allowed and partly dismissed the assessee's appeals across the specified assessment years: it sustained allocation of head office and related charges to the MEPZ unit (appeals decided against the assessee on that issue), remitted the pricing of intra group transfers to the AO for FMV determination, sustained a limited prior period disallowance for lack of substantiation, and in favour of the assessee held that warehouse payments to the non resident ESG International were not FTS chargeable in India (no TDS under section 195), consequently deleting related additions and penalties; several business expenditure disallowances were deleted where business purpose was established.

Audit requirement under section 44AB - Penalty under section 271B - Reasonable cause under section 273B - Discretionary nature of penalty - Admission of additional evidence in appellate proceedings - Principles of natural justice

Admission of additional evidence in appellate proceedings - Principles of natural justice - Admissibility of affidavits filed before the Tribunal which were not placed before the lower authorities - HELD THAT: - The Tribunal found that the affidavits filed by the partner and the accountant did not constitute new facts but were evidentiary support of submissions already made before the lower authorities regarding reasons for delay. The first appellate authority had dismissed the appeal solely on the ground of non-submission of evidence without specifically calling for or considering such evidence. In the interest of justice the Tribunal admitted the additional affidavits for adjudication, noting they were not available earlier and that the assessee had articulated the same factual contentions before the authorities below. [Paras 4]

Additional evidences (affidavits) admitted for adjudication.

Penalty under section 271B - Reasonable cause under section 273B - Audit requirement under section 44AB - Discretionary nature of penalty - Whether penalty under section 271B should be sustained despite the assessee's explanation of delay in filing audit report - HELD THAT: - The Tribunal analysed Sections 44AB, 271B and the overriding non obstante provision in section 273B. It emphasised that levy of penalty under section 271B is not automatic and that the initial burden lies on the assessee to prove reasonable cause. Having examined the admitted affidavits and conduct of the assessee, the Tribunal held that the sudden resignation of the accountant and illness of the managing partner constituted a reasonable cause within the meaning of section 273B. The Tribunal noted that once the accountant rejoined, the accounts were finalised and the audit report and return were filed, there was no addition in assessment and no loss to the revenue. The CIT(A)'s failure to consider the plea of reasonable cause therefore vitiated the order below. [Paras 9, 10]

Penalty levied under section 271B cancelled.

Final Conclusion: The Tribunal admitted the additional affidavits and, on merits, held that the assessee established reasonable cause under section 273B for delay in filing the audit report required by section 44AB; consequently the penalty under section 271B was annulled and the appeal allowed for AY 2017-18.

Information for section 148 - reassessment under section 147 - section 148A show-cause procedure - internal audit memo not CAG objection - change of opinion doctrine - void ab initio

Information for section 148 - section 148A show-cause procedure - internal audit memo not CAG objection - change of opinion doctrine - Validity of initiation of reassessment proceedings under section 147/issuance of notice under section 148 read with section 148A when based solely on an internal audit memo - HELD THAT: - The Tribunal examined whether the internal audit memorandum dated 06.02.2018 amounted to "information" as defined in Explanation 1 to section 148 on the date the show-cause notice under section 148A(b) was deemed issued (29.06.2021). The pre-amendment Explanation 1 then limited "information" to (i) risk-management flagged information and (ii) final objections by the Comptroller and Auditor General of India. The Tribunal held that the material test is the state of the information on the date of the section 148A(b) show-cause notice, and that a material which does not satisfy Explanation 1 on that date cannot thereafter be converted into valid "information" by a later amendment. Applying these principles, and following the reasoning in the jurisdictional High Court decision in Hashmukh Estates Pvt. Ltd., the Tribunal found that an internal audit memo is not a CAG objection and therefore did not constitute "information" within Explanation 1 as it stood on 29.06.2021. Initiation of reassessment on that basis amounted to a mere change of opinion and was impermissible. Consequentially, the notice under section 148 was held to be void ab initio and the reassessment and resultant order under section 147 r.w. section 144B were quashed. [Paras 16, 17, 18]

Reassessment proceedings initiated on the basis of the internal audit memo are invalid; notice under section 148 is void ab initio and the reassessment/assessment order is quashed.

Reassessment under section 147 - void ab initio - Consequence of quashing reassessment on the addition made under section 68 - HELD THAT: - The Tribunal observed that because the jurisdictional defect (invalid initiation of reassessment) was established and the reassessment order quashed, the Revenue's challenge to the deletion of the addition under section 68 by the CIT(A) became academic. The Tribunal therefore declined to adjudicate the merits of the section 68 addition and treated the Revenue's ground on that addition as rendered infructuous by the jurisdictional decision. [Paras 19, 20]

Challenge to deletion of addition under section 68 is rendered infructuous and dismissed.

Final Conclusion: The Revenue's appeal is dismissed; the assessee's cross-objection is partly allowed. The notice under section 148 (deemed show-cause under section 148A(b)) dated 29.06.2021 and the consequent reassessment/assessment order under section 147 r.w. section 144B are quashed as void ab initio, and the challenge to deletion of the addition under section 68 is rendered infructuous.

Disallowance under section 14A - Rule 8D applicability to quantification of disallowance - Reasonable allocation of expenditure attributable to exempt income - Precedential effect of coordinate bench and High Court decisions in the assessee's own case - Application of section 14A disallowance to computation of book profit under section 115JB

Disallowance under section 14A - Rule 8D applicability to quantification of disallowance - Reasonable allocation of expenditure attributable to exempt income - Precedential effect of coordinate bench and High Court decisions in the assessee's own case - Limitation that disallowance cannot exceed total expenditure claimed - Whether the disallowance computed by the Assessing Officer under section 14A read with Rule 8D should be sustained or deleted - HELD THAT: - The Tribunal examined the assessee's factual matrix, the suo moto disallowance already made by the assessee, and earlier orders in the assessee's own case. Coordinate bench decisions of the ITAT for earlier assessment years and observations of the High Court were considered persuasive: those authorities accepted a reasonable allocation methodology and restricted disallowance to amounts determined by the Tribunal where appropriate. The assessee had already disallowed very large amounts in its computation and had claimed total expenditure of record. The Tribunal noted that disallowance in any manner cannot exceed the total expenditure claimed by the assessee, and that no material was placed on record by the Revenue to controvert the total expenditure figure. Having regard to the identical facts and absence of any contrary legal or factual change, the Tribunal followed the earlier decisions in the assessee's own case and found no justification to uphold the Assessing Officer's recomputation under Rule 8D. Accordingly, the addition computed by the AO was deleted. [Paras 5]

The disallowance of Rs. 9,79,36,392/- computed by the Assessing Officer under section 14A read with Rule 8D is deleted and the appeal is allowed.

Final Conclusion: Following precedents in the assessee's own case and observing that the disallowance cannot exceed the total expenditure claimed, the Tribunal deleted the additional disallowance computed by the Assessing Officer under section 14A read with Rule 8D and allowed the appeal for AY 2017-18.

Arm's length price - need and benefit test for intra-group services - Transactional Net Margin Method (TNMM) - benchmarked cost-plus allocation for intra-group services - business expediency not determinative of ALP - deletion of transfer pricing adjustment

Arm's length price - need and benefit test for intra-group services - Transactional Net Margin Method (TNMM) - business expediency not determinative of ALP - Whether the upward transfer pricing adjustment treating the arm's length price of management fees paid to the associated enterprise as Nil (amounting to Rs. 7,04,32,927) was sustainable - HELD THAT: - The Tribunal examined the TPO/AO's determination that the ALP of intra-group management fees should be held at Nil on the basis that the assessee had not furnished quantifiable need/benefit evidence or AE cost data and that the transaction led to profit shifting. Relying on precedents, the Tribunal held that mere questioning of commercial expediency or profitability is not a ground to disallow or reduce an expenditure to Nil where the assessee has demonstrated bona fide receipt and rendition of services and adopted a permissible benchmarking method. The assessee had applied TNMM, produced a primary and secondary analysis (including entity-level comparables and combined TNMM showing margins), and filed documentary material and activity segmentation to substantiate rendition and allocation. The authorities below rejected the TNMM without adopting any alternative legally permissible method to establish that the ALP was Nil. The Tribunal followed coordinate decisions that: (i) an AO/TPO cannot substitute its own commercial judgment for the assessee's business decision; (ii) rejection of an adopted method requires adoption of another permissible method to justify an opposite ALP finding; and (iii) stewardship/shareholder activity distinctions do not justify wholesale denial where services rendered are supported by documentation. Applying these principles to the facts, the Tribunal found no legally sustainable foundation for treating the management fee ALP as Nil and concluded that the TP adjustment must be deleted.

The transfer pricing adjustment treating the arm's length price of the management fee as Nil (and the related upward adjustment) is deleted; the assessee's appeal is allowed.

Final Conclusion: The impugned transfer pricing adjustment in respect of the management fee for AY 2020-21 is deleted and the appeal is allowed, the Tribunal finding that the authorities below erred in treating the ALP as Nil without adopting a permissible substitute method or legally sustainable reasons.

Disallowance under section 14A - Rule 8D statutory formula - AO's satisfaction for invoking section 14A - Exclusion of investments not yielding exempt income - TDS credit verification under section 199 and rule 37BA - DDT challan clerical error-administrative remedy - Foreign tax credit under section 90/91 - Allowability of ESOP expense as revenue expenditure under section 37

Disallowance under section 14A - Rule 8D statutory formula - AO's satisfaction for invoking section 14A - Exclusion of investments not yielding exempt income - Validity and quantum of disallowance under section 14A and application of Rule 8D in respect of dividend/exempt income - HELD THAT: - The Tribunal held that Rule 8D provides the statutory formula for quantification of disallowance under section 14A and ordinarily applies where prima facie material exists. Where the assessee has substantial investments yielding exempt dividend income, a suo moto nominal disallowance by the assessee may be insufficient and the Assessing Officer may invoke Rule 8D after forming satisfaction. The AO's issuance of a show-cause notice and express recording of satisfaction, viewed against the financial statements/accounts, sufficed to invoke section 14A and Rule 8D; explicit formalistic recital of reasons akin to section 148(2) is not required. However, the quantification must be confined to investments which actually yielded exempt income and the disallowance cannot exceed the exempt income claimed. Applying these principles, the CIT(A)'s modification to exclude investments not yielding exempt income and limit disallowance to the extent of exempt income was sustained (with similar directions made for the other assessment years considered). [Paras 4, 6, 11, 14]

Invocation of section 14A and application of Rule 8D held valid; disallowance to be computed with reference only to investments yielding exempt income and capped by the amount of exempt income; CIT(A)'s modifications upheld.

TDS credit verification under section 199 and rule 37BA - Claim for short credit of TDS and direction for verification and grant of credit - HELD THAT: - The Tribunal noted the assessee's claim of short TDS credit and that the CIT(A) had directed the assessee to furnish party-wise details and segregation of entries in Form 26AS for the relevant financial year. The Tribunal directed the Assessing Officer to verify the claim expeditiously and grant TDS credit in accordance with law (section 199 read with rule 37BA), restoring the matter to the AO for implementation of the appellate directions. Similar directions were given across the other assessment years where short TDS credit was contested. [Paras 5, 15]

AO directed to verify details and grant TDS credit as per law; appeals partly allowed for statistical purposes to enable AO action.

DDT challan clerical error-administrative remedy - Claim for credit of Dividend Distribution Tax where wrong assessment year was mentioned in challan - HELD THAT: - The Tribunal observed that where the DDT challan reflects an incorrect assessment year due to a bonafide clerical error, correction and grant of credit is an administrative matter for the Competent Authority of the Income-tax Department. The forum declined to direct reallocation of the challan credit itself, advising the assessee to seek administrative correction or pursue the prescribed departmental remedies. Consequently, the Tribunal refused to interfere with the CIT(A)'s refusal to grant credit on that basis. [Paras 7, 12]

Claim for DDT credit dismissed by Tribunal as matter for administrative correction by Competent Authority; no direction issued by Tribunal.

Foreign tax credit under section 90/91 - Claim for foreign tax credit under section 90/91 remitted for fresh consideration - HELD THAT: - The Tribunal found that the assessee had furnished TDS certificates in support of foreign tax credit, and the CIT(A) had remitted the issue back to the Assessing Officer. The Tribunal directed the AO to expeditiously consider and decide the assessee's claim for relief under section 90/91 in accordance with law, restoring the grievance to the AO's file for fresh adjudication. [Paras 8]

Matter remanded to the AO for expeditious consideration and decision on foreign tax credit under section 90/91.

Allowability of ESOP expense as revenue expenditure under section 37 - Whether ESOP compensation expense is allowable as revenue expenditure - HELD THAT: - The Tribunal accepted the CIT(A)'s conclusion that ESOP compensation is an allowable business expenditure under section 37, relying on the assessee's earlier favourable orders for prior years and on relevant jurisdictional decisions which treat ESOP discount/compensation as an ascertained revenue liability. The tribunal saw no reason to depart from the coordinate bench's approach in the assessee's own case and upheld deletion of the disallowance of ESOP expenditure. [Paras 18]

Disallowance of ESOP compensation deleted; ESOP expense held allowable as revenue expenditure under section 37.

Final Conclusion: The Tribunal partly allowed the assessee's appeals by upholding invocation of section 14A and Rule 8D while restricting disallowance to investments yielding exempt income and not exceeding the exempt income; directed the Assessing Officer to verify and grant TDS credits and to decide claims for foreign tax credit; declined to direct reallocation of DDT credits which require administrative correction; and dismissed the Revenue appeals on the ESOP issue by holding ESOP compensation allowable as revenue expenditure.

Time-barred reassessment - limitation under section 153(2) - applicability of section 144C timelines - extension of limitation by reference to Transfer Pricing Officer - admission of additional legal grounds in appellate proceedings

Admission of additional legal grounds in appellate proceedings - Admission of additional grounds challenging legality of final assessment order passed under Section 147 read with Section 144C(13). - HELD THAT: - The Tribunal held that the additional grounds raised by the assessee challenging the legality and limitation of the final assessment order are purely legal in nature and therefore admissible at the appellate stage. The Tribunal relied on the principle that pure questions of law can be urged at any stage of the proceedings and admitted the additional grounds for adjudication. [Paras 6]

Additional grounds admitted.

Time-barred reassessment - limitation under section 153(2) - applicability of section 144C timelines - extension of limitation by reference to Transfer Pricing Officer - Whether the final reassessment orders passed under Section 147 read with Section 144C(13) are barred by limitation. - HELD THAT: - The Tribunal examined interplay between Section 144C (procedure and timelines for eligible assessees) and the statutory limitation in Section 153. While acknowledging that the assessee is an eligible assessee under Section 144C(15)(b) and that draft order-DRP procedure under Section 144C applies, the Tribunal held that the extended limitation under Section 153(4) is contingent upon a reference under Section 92CA(1) to the TPO. Absent such reference, the limitation prescribed by Section 153(2) (one year from the end of the financial year in which notice under Section 148 was served, as applicable) governs completion of reassessment. Applying those timelines to the facts (notice issued 29.03.2021 and presumably served in April 2021), the Tribunal concluded the AO had to complete reassessment by 31.03.2023, and therefore the final orders dated 08.01.2024 were beyond the permissible period and are time barred. [Paras 17, 18, 19, 24, 25]

Final reassessment orders under Section 147 r.w.s. 144C(13) dated 08.01.2024 quashed as barred by limitation.

Capital asset status of agricultural land - Adjudication on whether the impugned land is a 'capital asset' under Section 2(14) and whether capital gains arise was not decided by the Tribunal. - HELD THAT: - Although the assessee advanced evidence and arguments that the land sold was agricultural land situated beyond 12 km from the nearest municipality and thus outside the definition of 'capital asset' under Section 2(14), the Tribunal refrained from deciding the substantive merit because it found the reassessment to be time barred. The Tribunal expressly recorded that it was convinced by the assessee's submissions on merits but did not adjudicate the issue in view of the preliminary limitation finding. [Paras 20]

Substantive issue not adjudicated; left undecided due to quashing of reassessment on limitation grounds.

Final Conclusion: The Tribunal admitted the additional legal grounds and, applying the limitation in Section 153(2) (in the absence of a reference to the TPO under Section 92CA), held the final assessment orders dated 08.01.2024 for A.Y. 2016-17 and 2018-19 to be time barred; those reassessment orders were quashed. The substantive dispute on capital gains was not adjudicated as academic in view of the limitation finding.

Penalty under 271(1)(c) for concealment of particulars of income - Validity of show-cause notice under section 274 where assessment record mentions concealment - Deeming fiction in section 271(1B) and Explanation 5A - effect on initiation of penalty proceedings - Remand for de novo adjudication after failure to make representation before appellate authority

Penalty under 271(1)(c) for concealment of particulars of income - Validity of show-cause notice under section 274 where assessment record mentions concealment - Deeming fiction in section 271(1B) and Explanation 5A - effect on initiation of penalty proceedings - Remand for de novo adjudication after failure to make representation before appellate authority - Whether the penalty imposed under section 271(1)(c) could be set aside solely on the ground of a defect in the show-cause notice and the course to be adopted where the assessee did not make representation before the first appellate authority. - HELD THAT: - The Tribunal applied the rulings of the jurisdictional High Court elucidating that subsection (1B) of section 271 creates a deeming fiction which, together with Explanation 5A, operates to validate initiation of penalty proceedings where the assessment order records satisfaction of concealment; a consequential notice under section 274 is therefore in many cases merely formal provided the assessee was aware of the grounds recorded in the assessment order and was afforded an opportunity to be heard. The Tribunal noted that cancellation of penalty solely on the ground of a defective notice is not permissible where the legal fiction in section 271(1B) and the assessment order disclose satisfaction of concealment and natural justice requirements have been met. However, in the present matters the assessee did not pursue the appeal before the CIT(A) despite multiple notices and did not present the contention regarding notice defect before the CIT(A). No finding was recorded by the CIT(A) on that specific contention. In the interests of justice the Tribunal considered it appropriate to set aside the CIT(A) orders and remit the matters to the CIT(A) for fresh consideration de novo after affording the assessee an opportunity to be heard and to raise all contentions, including any objection to the notice, so that the questions can be decided on merits by the appellate authority. [Paras 6, 7]

The CIT(A) orders confirming the penalty are set aside and both matters are remitted to the CIT(A) for de novo adjudication after affording the assessee an opportunity of being heard; appeals allowed for statistical purposes.

Final Conclusion: Both appeals for AY 2007-08 and AY 2008-09 are set aside to the CIT(A) for fresh adjudication de novo after giving the assessee an opportunity to be heard; the Tribunal applied the jurisdictional High Court's exposition of section 271(1B)/Explanation 5A and held that a defective notice alone does not mandate cancellation of penalty, but remand was warranted because the contention was not raised or decided before the CIT(A).

Provisional release of goods - Interim order - Subject to terms imposed by Single Judge - Preservation of High Court jurisdiction - Listing for further hearing

Provisional release of goods - Interim order - Subject to terms imposed by Single Judge - Provisional release of the goods pending disposal of the Special Leave Petitions, subject to the terms and conditions imposed by the Single Judge. - HELD THAT: - The Court directed that, pending final disposal of the Special Leave Petitions, the goods shall be provisionally released but only on the terms and conditions previously imposed by the Single Judge. This constitutes an interim measure to preserve the parties' interests while the matter awaits adjudication by this Court. The direction is procedural and limited to provisional release; it does not determine the merits of the underlying disputes. [Paras 2]

Goods to be provisionally released pending disposal of the Special Leave Petitions, subject to the Single Judge's terms and conditions.

Listing for further hearing - Preservation of High Court jurisdiction - Listing of the Special Leave Petitions and clarification that the interim order does not preclude the High Court from hearing and disposing of the matters pending before it. - HELD THAT: - The Court listed the Special Leave Petitions for hearing on the specified date and expressly clarified that the interim direction for provisional release shall not prevent the High Court from proceeding with and deciding the matters pending before it. Thus, the High Court's jurisdiction to hear the related matters remains intact despite this interim order. [Paras 1, 3]

Matters listed for hearing; interim order does not preclude the High Court from hearing and disposing of the pending matters.

Final Conclusion: Special Leave Petitions listed for hearing on 28.11.2024; goods ordered provisionally released in the interim subject to the Single Judge's imposed terms, and the interim order does not bar the High Court from proceeding with the matters before it.

Personal jewellery as "personal effects" under the Baggage Rules - distinction between "personal jewellery" and "jewellery" for baggage concessions - confiscation for attempted smuggling of jewellery - declaration by passenger through green channel - requirement of statutory prohibition before confiscation and penalty

Personal jewellery as "personal effects" under the Baggage Rules - distinction between "personal jewellery" and "jewellery" for baggage concessions - declaration by passenger through green channel - Whether jewellery worn by the incoming passenger fell within the concept of used personal effects and therefore could not be confiscated merely by reason of its value or lack of separate export documentation - HELD THAT: - The Court analysed the legislative history and prior administrative clarification of the Baggage Rules and held that the Board's earlier Circular and the evolution of the Rules support a distinction between 'personal jewellery' (used items carried as bona fide personal effects) and 'jewellery' in the abstract. The Court accepted that the 2016 Rules introduced a definition which excludes jewellery from the definition of personal effects, but read that definition in the context of prior rules and the clarificatory Circular which expressly included personal jewellery within 'personal effects' for the purpose of duty-free concession. Applying the reasoning of this Court and the Supreme Court in Pushpa Lekhumal Tulani, and the Kerala High Court in Vigneswaran Sethuraman, the Court concluded that jewellery worn on the person and not concealed or shown to be intended for sale abroad cannot be summarily treated as smuggled goods or denied treatment as personal effects simply because of high monetary value or lack of export paperwork. The Court found that the petitioner wore the chain and kara openly on arrival and there was no evidence of concealment or intent to import for sale; therefore the items were to be viewed in the light of the baggage regime applicable to personal jewellery rather than confiscatory provisions. [Paras 10, 13, 15, 16, 17]

The jewellery worn by the petitioner qualified as personal jewellery/personal effects for the purpose of the Baggage Rules and could not be confiscated on the basis advanced by the authorities.

Confiscation for attempted smuggling of jewellery - requirement of statutory prohibition before confiscation and penalty - Whether the Order in Original and the Revisional Authority's order confiscating the gold and imposing customs duty and penalty were sustainable - HELD THAT: - Having held that the jewellery was to be regarded as personal jewellery/personal effects and noting there was no finding of concealment or other indicia of an intention to smuggle, the Court concluded that the adjudicating and revisional authorities misconstrued the scheme and objectives of the Baggage Rules. The Court relied upon the principles in Pushpa Lekhumal Tulani and its affirmation by the Supreme Court to the effect that mere high value or newness does not ipso facto deprive jewellery of treatment as personal effects, and that confiscation and penalties requiring a statutory basis cannot be sustained where no express prohibition or legally sustainable basis for confiscation is shown. On that footing the Court found the confiscation, demand of customs duty and levy of penalty lacked legal foundation. [Paras 17, 18, 19]

The confiscation, the customs duty demand and the penalty were without legal foundation and liable to be set aside.

Confiscation for attempted smuggling of jewellery - Relief to be granted consequent to the findings - HELD THAT: - Because the impugned revisional order restoring confiscation was quashed, the Court directed that the consequences follow; the authorities' orders of confiscation, customs duty and penalty having been declared without legal foundation, the petitioner is entitled to the return of the seized gold and all consequential reliefs appropriate in the circumstances. [Paras 19, 20]

Order dated 13.08.2018 is quashed and set aside; writ petition allowed and the petitioner is entitled to return of the gold along with consequential reliefs.

Final Conclusion: The revisional order restoring confiscation was quashed. The Court held that jewellery worn openly by the incoming passenger qualified as personal jewellery/personal effects under the baggage regime and that confiscation, duty and penalty imposed without a statutory foundation could not be sustained; the writ petition is allowed and the seized gold is to be returned with consequential reliefs.

Right to cross-examination and principles of natural justice - admissibility of statements under Section 138B of the Customs Act - admissibility of electronic evidence and requirement of certificate under Section 138C of the Customs Act pari materia to Section 65B of the Evidence Act - penalty under Section 112(a) and Section 114AA of the Customs Act requiring establishment of positive act/omission, knowledge and mala fide - corroboration and reliance on importer's statements for imposition of penalty

Right to cross-examination and principles of natural justice - Adjudicating authority failed to afford the appellants the requested opportunity for cross-examination and thereby violated principles of natural justice. - HELD THAT: - The Tribunal found that the adjudicating authority did not consider the appellants' request to cross-examine the persons whose statements were relied upon. Statements recorded during investigation can be relied upon in adjudication only if the witness is examined and, if the evidence is found admissible, the witness is made available for cross-examination. The omission to permit cross-examination rendered reliance on those statements impermissible and vitiated the adjudicatory process. [Paras 4]

The failure to permit cross-examination amounted to a breach of natural justice and undermined the admissibility of the evidence relied upon.

Admissibility of statements under Section 138B of the Customs Act - Statements recorded during the inquiry were not admissible in the adjudication because the statutory procedure under Section 138B was not complied with. - HELD THAT: - Section 138B requires that if an authority wishes to rely on statements recorded during enquiry, the person must be examined as a witness and, upon finding the evidence admissible, offered for cross-examination. The Tribunal held that the requisite steps under Section 138B were not followed; therefore the statements could not be treated as admissible evidence against the appellants. Absence of this compliance meant the department's case based on those statements did not stand. [Paras 4]

In the absence of compliance with Section 138B, the statements relied upon are inadmissible and cannot support the penalties imposed.

Admissibility of electronic evidence and requirement of certificate under Section 138C of the Customs Act pari materia to Section 65B of the Evidence Act - Email and other electronic evidence could not be relied upon because the mandatory certification required by Section 138C was not produced. - HELD THAT: - The Tribunal noted that electronic records were relied upon by the department to establish the appellants' role. However, Section 138C (being pari materia to Section 65B of the Evidence Act) mandates satisfaction of prescribed conditions, including production of a certificate, before computer-generated or electronic printouts are admissible. No such certificate was placed on record in this case; accordingly electronic evidence could not be acted upon to prove the appellants' involvement. [Paras 4]

Electronic evidence in the absence of the statutory certificate under Section 138C is inadmissible and cannot sustain the penalties.

Penalty under Section 112(a) and Section 114AA of the Customs Act requiring positive act and mala fide - corroboration and reliance on importer's statements for imposition of penalty - Penalties under Sections 112(a) and 114AA could not be sustained because there was no evidence of a positive act, knowledge or mala fide on the part of the appellants, nor adequate corroboration of the importer's allegations. - HELD THAT: - For imposing penalties under Section 112(a) or Section 114AA, a positive wrongful act or omission and mala fide or knowledge of contravention by the delinquent are to be shown. The Tribunal found no direct or indirect evidence establishing the appellants' knowledge or involvement in the improper importation; the Bill of Entry was filed by the importer and the importer's inconsistent conduct (seeking release of goods) undermined reliance on his statements. In absence of independent corroborative evidence and given the inadmissibility of relied-upon statements and electronic records, the statutory prerequisites for levy of the impugned penalties were not fulfilled. [Paras 4]

There being no proof of positive act, knowledge or mala fide on the part of the appellants, the penalties under Sections 112(a) and 114AA cannot be upheld.

Final Conclusion: The Tribunal allowed the appeals, set aside the adjudicating authority's order imposing penalties on the appellants, and quashed the penalties with consequential relief.

Confiscation of imported goods infringing intellectual property rights - Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 - compliance and right holder participation - prohibition of import of goods with false trade mark under Notification No. 51/2010-Cus - valuation of counterfeit goods - inadmissibility of original brand prices and deductive method

Confiscation of imported goods infringing intellectual property rights - Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 - compliance and right holder participation - Whether absolute confiscation of imported goods bearing counterfeit trade marks was sustainable when the procedural requirements of the IPR (Imported Goods) Enforcement Rules, 2007 were not complied with and the right holders did not participate in the customs proceedings. - HELD THAT: - The Tribunal held that Notification No.51/2010-Cus. makes goods bearing false trade marks prohibited for import subject to the conditions and procedures set out in the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007. The Rules make registration/notice by the right holder and certain procedural steps (including execution of bond/indemnity and participation within the specified time-limits) mandatory before such imported goods are to be treated as prohibited. Where the right holder has not given notice or otherwise fulfilled the conditions prescribed by the Rules and has not joined proceedings within the time allowed under Rule 7, the Rules envisage release of the goods provided other import conditions are met. In the present case the right holders did not participate and the mandatory requirements of the IPR Rules were not followed; accordingly the goods could not be held to be prohibited imports and absolute confiscation under the Customs Act was not warranted. [Paras 6, 7, 9]

Absolute confiscation of the imported shoes bearing counterfeit trade marks was not sustainable because the IPR Enforcement Rules, 2007 procedural requirements were not complied with and the right holders did not participate.

Valuation of counterfeit goods - inadmissibility of original brand prices and deductive method - Whether the valuation adopted by Revenue - taking prices of original branded goods from an e commerce site and applying the deductive method - could be validly used to enhance the value of goods alleged to be counterfeit. - HELD THAT: - The Tribunal found that where the case of the department itself is that the goods are counterfeit, the market price of the genuine branded articles is not a proper comparable for valuation. Although the deductive method is permissible in principle, it must be applied to a relevant price; using the price of original branded goods from e commerce as the base for valuing counterfeit goods was held to be arbitrary and legally unsustainable in the facts of this case. Consequently the enhanced valuation adopted by Revenue was set aside. [Paras 8]

The valuation enhancement based on prices of original branded goods taken from an e commerce site (with the deductive method applied) was incorrect and unsustainable for counterfeit goods.

Penalties under Customs Act for misdeclaration and IPR infringement - Whether penalties imposed under Section 112(a) and Section 114AA should stand where confiscation and valuation were found unsustainable. - HELD THAT: - Having held that absolute confiscation was not justified because the IPR Rules were not complied with and that the valuation enhancement was invalid, the Tribunal concluded that the consequential penalties imposed on the appellants could not be sustained. The appellants also expressed no interest in obtaining release of the goods; nevertheless, on legal grounds the penalties were set aside and appeals allowed with consequential relief. [Paras 9]

The penalties imposed under Section 112(a) and Section 114AA were set aside as unsustainable in view of the findings on confiscation and valuation.

Final Conclusion: The appeals are allowed: absolute confiscation was not warranted because the mandatory procedures under the IPR (Imported Goods) Enforcement Rules, 2007 were not followed and right holders did not participate; the valuation enhancement based on original brand prices was unsustainable; accordingly the penalties imposed were set aside with consequential relief to the appellants.

Appellate Tribunal jurisdiction to decide appeals in respect of goods imported or exported as baggage - Proviso to Section 129A(1) of the Customs Act, 1962 - Maintainability of appeal before the Tribunal - Return of appeal for presentation to the appropriate forum / Revisional Authority

Appellate Tribunal jurisdiction to decide appeals in respect of goods imported or exported as baggage - Proviso to Section 129A(1) of the Customs Act, 1962 - Maintainability of appeal before the Tribunal - Tribunal lacks jurisdiction to entertain the appeal as the impugned order relates to goods imported or exported as baggage and is therefore not maintainable before the Appellate Tribunal under the proviso to Section 129A(1) of the Customs Act, 1962. - HELD THAT: - The Appellate Representative urged a preliminary objection that appeals in respect of orders which relate to goods imported or exported as baggage fall outside the Tribunal's jurisdiction by virtue of the proviso to Section 129A(1). The record shows the seizure of foreign currency from the appellant (Panchanama dated 07.03.2023) and the appellant's counsel conceded that the matter pertains to the Revisional Authority rather than to the Tribunal and requested return of the appeal for filing before the proper forum. Applying the proviso to Section 129A(1), the Bench held that the Tribunal has no jurisdiction to decide an appeal which relates to goods imported or exported as baggage, and consequently the appeal cannot be entertained by this Tribunal and must be returned to the appellant for presentation before the appropriate authority. [Paras 5, 6]

Appeal is not maintainable before the Appellate Tribunal; it is returned to the appellant for filing before the appropriate forum.

Final Conclusion: The appeal was returned to the appellant for presentation before the appropriate authority because the Tribunal lacks jurisdiction under the proviso to Section 129A(1) of the Customs Act, 1962 in respect of orders relating to goods imported or exported as baggage; the appeal is disposed accordingly.

Re-assessment under section 17(4) of the Customs Act, 1962 - speaking order under section 17(5) of the Customs Act, 1962 - self-assessment by importer - appellate authority cannot substitute reasons of the proper officer - natural justice / investigative notice not a substitute for statutory speaking order - remand for fresh decision in accordance with section 17

Speaking order under section 17(5) of the Customs Act, 1962 - re-assessment under section 17(4) of the Customs Act, 1962 - self-assessment by importer - Validity of re-assessment when no speaking order under section 17(5) has been passed by the proper officer. - HELD THAT: - The Tribunal held that where re-assessment under the statutory power in section 17(4) is contrary to the self-assessment, the proper officer is obliged to pass a speaking order in terms of section 17(5). The record showed no speaking order explaining the cause for revision between filing of the bill of entry and conclusion of assessment. Absence of such reasoned order renders the re-assessment invalid ab initio. The appellate authority's acceptance of the revised classification despite lack of a speaking order was therefore contrary to the statutory mandate and could not sustain the higher duty levy. [Paras 7, 8]

Re-assessments made without the speaking order mandated by section 17(5) are invalid and must be set aside for compliance with the statutory procedure.

Appellate authority cannot substitute reasons of the proper officer - natural justice / investigative notice not a substitute for statutory speaking order - remand for fresh decision in accordance with section 17 - Whether the first appellate authority could uphold the revised classification and supply reasons in place of the proper officer or treat investigative notices and compliance with natural justice as substitutes for the speaking order. - HELD THAT: - The Tribunal found that the first appellate authority improperly stood in the shoes of the proper officer by supplying reasons for re-classification in the absence of any speaking order from the original adjudicating authority. A show-cause or investigatory notice issued by an agency during probe, and satisfaction of certain aspects of natural justice, do not discharge the statutory obligation on the proper officer to pass a speaking order under section 17(5). The appellate authority's reasoning that the lack of a speaking order was harmless because appeals lay against assessed bills of entry was rejected as permitting disregard of the statutory accountability that assessment law requires. Consequently, the appellate decision affirming the reassessment was set aside. [Paras 5, 6, 8, 9]

The appellate authority erred in substituting its own reasoning for the proper officer's mandated speaking order; its affirmation of the reassessment is set aside and the matter remanded to the original authority for disposal under section 17.

Final Conclusion: Impugned orders affirming re-assessment are set aside; the bills of entry are restored to the original authority for fresh adjudication in accordance with section 17 of the Customs Act, 1962, and the appeals are allowed by way of remand.

Confiscation for mis-declaration and penalties under the Customs Act - Amendment of Customs documents under Section 149 - Burden of proof for clandestine removal and inadmissibility of conclusions based on presumptions - Admissibility of loose documents and requirement of corroborative evidence - Duty liability under Special Economic Zone Rules (Rule 37) on expiry of Letter of Approval

Confiscation for mis-declaration and penalties under the Customs Act - Amendment of Customs documents under Section 149 - Whether confiscation of imported goods and imposition of penalties for alleged mis declaration of quantity in the bill of entry were justified in respect of the consignment covered by Bill of Entry No. 1008329 dated 09.06.2022 - HELD THAT: - The Tribunal found on the record that the importer had placed two orders (917 cases and 1329 cases) and that the overseas supplier erroneously shipped 1329 cases while the accompanying documents showed 917 cases. The importer applied for amendment of the bill of entry on 29.06.2022. On these facts the Tribunal held that there was no evidence of fraudulent intention or prior knowledge on the part of the importer and that the error was bona fide. The Tribunal observed that Section 149 provides for correction of such errors and that refusal to allow amendment would render that provision meaningless. Reliance on precedents where amendment applications did not attract confiscation or penalty was noted. Consequently, confiscation and penalties imposed by the adjudicating authority in respect of the said consignment were unsustainable. [Paras 4]

Confiscation and penalties in respect of the imported consignment were set aside; amendment should have been permitted and there was no warrant for confiscation or penalty.

Burden of proof for clandestine removal and inadmissibility of conclusions based on presumptions - Admissibility of loose documents and requirement of corroborative evidence - Whether the computerized/typed sheet and other loose documents found during search established clandestine removal or clandestine payments sufficient to sustain demand, confiscation and penalties - HELD THAT: - The Tribunal examined the typed/computerized sheet relied upon by the adjudicating authority and found no cogent correlation between the entries in that sheet and the goods in question. The Tribunal emphasized that allegations of clandestine removal must be proved on preponderance of probabilities and cannot rest on mere suspicion, presumptions or uncorroborated loose papers. The authorship of the disputed documents was not established nor were they corroborated by other evidence or admission by persons whose statements were relied upon. In these circumstances the Tribunal held that the Revenue failed to discharge its burden of proof and that reliance on such documents to sustain confiscation and demand was unjustified. [Paras 4]

Typed/loose documents did not constitute admissible evidence of clandestine removal or clandestine payments; demands and confiscation based on them could not be upheld.

Confiscation for mis-declaration and penalties under the Customs Act - Burden of proof for clandestine removal and inadmissibility of conclusions based on presumptions - Whether confiscation of 2328 cases found during search (2049 + 279) and imposition of a redemption fine in lieu of confiscation were legally tenable where stock verification showed admitted shortage and duty was paid for part of the shortage - HELD THAT: - The adjudicating authority had confiscated the entire 2328 cases and imposed a redemption fine on the ground that the appellants failed to explain stock and production of statutory records. The Tribunal noted that the adjudicator himself recorded that a shortage of 511 cases was admitted after stock verification and that duty in respect of that shortage was paid by the appellants. The Tribunal held that confiscation provisions apply where goods are concealed and undeclared; mere shortages without other corroborative evidence of clandestine removal do not establish unlawful clearance. Citing settled precedents, the Tribunal held that shortages alone, absent additional evidence, cannot sustain clandestine removal charges. Thus the confiscation of all 2328 cases and the redemption fine were legally incorrect. [Paras 4]

Confiscation of the 2328 cases and the redemption fine in lieu of confiscation were set aside; shortages without corroborative evidence do not justify confiscation.

Duty liability under Special Economic Zone Rules (Rule 37) on expiry of Letter of Approval - Whether duty could be demanded on 729 cases of beer found expired in the warehouse on the basis that they were goods admitted to a SEZ and therefore liable to duty - HELD THAT: - The Tribunal applied Rule 37(1) and (2) of the Special Economic Zone Rules, 2006 which provide that goods admitted to a SEZ are to be utilized, exported or disposed of within the validity period of the Letter of Approval and that failure to do so attracts duty as if removed to DTA on expiry of that validity. The Revenue did not contend or establish that the Letter of Approval's validity had expired. In absence of any finding or evidence that the validity period had lapsed, the Tribunal held that demand of duty on the expired beer was not sustainable. [Paras 4]

Demand of duty on the 729 expired cases was not legally sustainable and was set aside in absence of any finding of expiry of the Letter of Approval.

Admissibility of loose documents and requirement of corroborative evidence - Burden of proof for clandestine removal and inadmissibility of conclusions based on presumptions - Whether alleged clearances without bills reflected on loose sheets (entries for 180 and 303 cases) were proved to be removals without invoice so as to sustain confiscation and demand - HELD THAT: - The investigation did not identify the authors of the loose sheets nor establish that the entries represented actual removals or buyers; the partner of the firm denied any clearance without bills and disclaimed knowledge of the authorship. The documents were neither tested for authorship nor supported by corroborative evidence. The Tribunal reiterated the settled principle that loose papers unsupported by corroboration do not suffice to prove clandestine removal and that the Revenue must produce positive evidence. Therefore the entries on the loose sheets could not sustain the impugned orders. [Paras 4]

Allegations of removals without bills based on loose sheets were not proved; demands and confiscation founded on them could not be upheld.

Final Conclusion: The Tribunal allowed the appeals, set aside the demand of duty, confiscation orders and penalties imposed on the appellant firm, its partner and employee; consequent relief, if any, to be given as per law.

Natural justice - remand for fresh adjudication - Section 138B of the Customs Act - opportunity of cross-examination - reconsideration of evidence on merits - setting aside of adjudication order

Remand for fresh adjudication - natural justice - Section 138B of the Customs Act - opportunity of cross-examination - Whether the impugned adjudication order should be upheld or remanded for fresh consideration in view of procedural defects and non-compliance with principles of natural justice and Section 138B. - HELD THAT: - The Tribunal noted that the adjudicating authority confirmed demand relying on documentary and oral material collected during investigation, including alleged markings on packing material and statements of witnesses. It also noted that a witness who had made inculpatory statements subsequently filed a retraction affidavit which was not considered by the adjudicating authority, and that the appellants objected to the witness statements but the witnesses and independent panchas were not examined in the adjudication proceedings. In view of these procedural shortcomings and the need for compliance with Section 138B of the Customs Act and the principles of natural justice (including adequate opportunity to confront or seek cross-examination of witnesses and to have evidence fairly tested), the Tribunal found it appropriate to set aside the impugned order and remit the matter for fresh adjudication. The Tribunal expressly kept all substantive issues open for reconsideration by the adjudicating authority in the remand proceedings. [Paras 4, 5]

Impugned order set aside; matter remanded to the adjudicating authority for fresh adjudication in accordance with principles of natural justice and Section 138B, with all issues kept open.

Final Conclusion: The Tribunal has set aside the adjudication order and remanded the matter to the adjudicating authority for fresh consideration, directing compliance with principles of natural justice and Section 138B of the Customs Act and leaving all substantive issues open.

Absolute confiscation - duty demand not sustainable where goods are absolutely confiscated - abandonment of imported goods under Section 23(2) of the Customs Act - penalty under Section 114A of the Customs Act - penalty imposed on a partnership firm and its partners (double penalty principle) - penalty on employees of customs broker (requirement of specific attributable findings)

Absolute confiscation - duty demand not sustainable where goods are absolutely confiscated - Sustainability of demand of customs duty on the importer where the imported goods have been absolutely confiscated. - HELD THAT: - The Tribunal held that, as an undisputed fact the goods (areca nuts) were absolutely confiscated by the Revenue, the demand of duty on the appellants is not sustainable. The decision relied upon precedents where confiscation of goods leads to the position that duty cannot be demanded from the person on whose name goods are recorded when goods stand absolutely confiscated. Applying that principle to the present facts, the Tribunal set aside the demand of duty confirmed by the adjudicating authority. [Paras 12]

Demand of duty is not sustainable and is set aside.

Abandonment of imported goods under Section 23(2) of the Customs Act - Effect of the appellant's abandonment of the goods on liability to pay duty or penalty. - HELD THAT: - The Tribunal noted that the appellants had abandoned the goods by letter dated 17.05.2023. Citing authority, it observed that Section 23(2) permits the owner to relinquish title before clearance and that abandonment in a bona fide case removes liability to pay duty. The Principal Commissioner had denied Section 23 benefit as an 'afterthought', but the Tribunal followed precedents holding that abandonment, absent evidence of fraud or knowledge of misdescription, precludes demand of duty and supports setting aside penalties tied to duty liability. [Paras 11]

Abandonment accepted as bona fide; supports setting aside demand/penalty linked to duty.

Penalty under Section 114A of the Customs Act - Attractiveness of penalty under Section 114A for alleged false or paper transactions in the import. - HELD THAT: - The Tribunal examined Section 114A which targets intentionally false documents and paper transactions where no actual goods are involved. It found Revenue did not contend that the transaction was a paper transaction or that no goods were imported. Relying on precedent, the Tribunal held Section 114A is not attracted on the facts of this case and consequently set aside the penalty imposed under that provision. [Paras 13]

Penalty under Section 114A is not attracted and is set aside.

Penalty imposed on a partnership firm and its partners (double penalty principle) - Sustainability of imposing separate penalties on individual partners after imposing penalty on the partnership firm. - HELD THAT: - The Tribunal followed binding and persuasive authorities holding that a partnership firm is not a separate legal entity in law such that imposing penalty on the firm and again on its partners would amount to double punishment. As the adjudication proposed penalty on the partnership firm, the Tribunal found no specific individual conduct attributed to partners warranting separate penalties and therefore set aside penalties imposed on all partners of the appellant firm. [Paras 16]

Penalties imposed on the partners are set aside.

Penalty on employees of customs broker (requirement of specific attributable findings) - Sustainability of penalties imposed on employees of the customs broker/CHA firm in absence of specific adverse findings. - HELD THAT: - On review of the impugned order, the Tribunal observed that no specific reasons or findings were recorded to establish mala fide conduct or misstatements attributable to the employees of the CHA firm. In the absence of concrete findings establishing culpability of those employees, the penalties imposed on them could not be sustained and were accordingly set aside. [Paras 17]

Penalties on the employees of the CHA firm are set aside for lack of specific attributable findings.

Final Conclusion: All appeals are allowed: confirmed duty demand is set aside as goods were absolutely confiscated and abandoned; penalty under Section 114A is not attracted and is set aside; penalties imposed on the partners of the appellant firm and on the employees of the CHA firm are set aside for the reasons stated, with consequential reliefs granted.

Confessions under Section 108 of the Customs Act, 1962 admissible as substantive evidence - retraction of statements made under Section 108 - belated retraction inadmissible - confiscation of smuggled goods and conveyance - penalty under Section 112 of the Customs Act, 1962 - BATTERIES (MANAGEMENT AND HANDLING) RULES, 2001 - restrictions on trade and dealer/recycler responsibilities - standard of proof in customs confiscation proceedings - circumstantial evidence and probability

Confessions under Section 108 of the Customs Act, 1962 admissible as substantive evidence - retraction of statements made under Section 108 - belated retraction inadmissible - standard of proof in customs confiscation proceedings - circumstantial evidence and probability - Admissibility and evidentiary value of statements recorded under Section 108 and effect of subsequent retraction - HELD THAT: - The Tribunal upheld the lower authorities' conclusion that confessional statements recorded under Section 108 by Noticees No.1 to No.4 are reliable and admissible as substantive evidence. Belated retractions, first raised in defence replies more than nine months after the original statements, were held to be afterthoughts and not admissible to nullify the earlier confessions. The Tribunal applied precedents holding that Section 108 statements can be used to connect persons with customs contraventions and that retractions not addressed to the recording authority or made belatedly do not necessarily vitiate the original statement. On objective evaluation of the record and in view of the confessions together with corroborative circumstances, the Department discharged the evidentiary burden to raise a permissible inference of smuggling; the prosecution is not required to prove every link with mathematical precision but to establish such degree of probability as would satisfy a prudent person. [Paras 32]

Statements recorded under Section 108 are admissible and credible; belated retractions are not accepted and do not negate the evidentiary value of those statements.

Confiscation of smuggled goods and conveyance - standard of proof in customs confiscation proceedings - circumstantial evidence and probability - Liability of the seized battery scrap and the vehicle to confiscation as smuggled goods brought through unauthorized route - HELD THAT: - On evaluation of the panchnama, statements under Section 108 and other materials, the Tribunal found the seized battery scrap to be of foreign/third-country origin smuggled from Nepal through an un-notified route and loaded on tractor trolleys before transshipment into the intercepted truck. The Tribunal accepted the reasoning that smuggling, being clandestine, may be proved by direct and circumstantial evidence sufficient to raise the requisite inference; what is admitted need not be proved. Accordingly the findings of confiscation under the Customs Act were sustained. [Paras 31, 32, 36]

The seized battery scrap and the vehicle were correctly treated as liable to confiscation as smuggled goods and conveyance.

Penalty under Section 112 of the Customs Act, 1962 - BATTERIES (MANAGEMENT AND HANDLING) RULES, 2001 - restrictions on trade and dealer/recycler responsibilities - Imposition and quantum of penalty on the appellant (Noticee No.5) for involvement in smuggling; appellant's defence of local procurement rejected - HELD THAT: - The Tribunal accepted the adjudicating authority's finding that the appellant admitted dealing in battery scrap and issued invoice(s) in respect of the seized goods, and that he did not maintain purchase records. The appellant's contention of local procurement was rejected as contrary to the statutory scheme under the BATTERIES (MANAGEMENT AND HANDLING) RULES, 2001 which regulate collection and movement of used batteries and render the claimed free-market procurement story implausible. While upholding liability to penalty, the Tribunal exercised appellate discretion in quantification: noting relative culpability of co-noticees and the prospective beneficiary, it reduced the penalty imposed on the appellant from the original amount to a moderated figure (as specified in the order). [Paras 4]

Penalty liability under Section 112 is sustained against the appellant for involvement in smuggling; the penalty is reduced on appeal to the lesser amount recorded by the Tribunal.

Final Conclusion: The appeal is partly allowed: the Tribunal sustained the confiscation findings and the admissibility of Section 108 statements, rejected the appellant's plea of local procurement in view of the BATTERIES Rules and the evidentiary record, affirmed liability to penalty under Section 112 but reduced the penalty imposed on the appellant to the lesser amount directed by the Tribunal.

Obligations of Customs Broker - Suspension of license under Regulation 16 - Requirement of reasoned order and postdecisional hearing - Immediate suspension not to be mechanical or routine - Procedure for revoking license or imposing penalty under Regulation 17 - Offence report as prima facie framing of charges

Suspension of license under Regulation 16 - Immediate suspension not to be mechanical or routine - Requirement of reasoned order and postdecisional hearing - Continued suspension of the appellants' Customs Broker licence under Regulation 16 of CBLR, 2018 is unsustainable - HELD THAT: - The Tribunal found that Regulation 16 permits suspension only in appropriate cases where immediate action is necessary and where an enquiry is pending or contemplated, and requires reasons to be recorded and a postdecisional hearing. The Commissioner had continued suspension after a long lapse (over four years) without recording specific grounds demonstrating the appropriateness or urgency of suspension, and without evidential material implicating the appellants in the alleged overvaluation. The Tribunal also noted CBIC guidance that suspension must not be exercised in a routine or mechanical manner and that reasons be recorded. In view of absence of recorded justification, absence of specific evidence against the appellants, and the delay between the alleged acts and suspension, the impugned continued suspension was held to be not in conformity with CBLR, 2018 and liable to be set aside. [Paras 6, 8, 9]

Impugned order dated 04.05.2023 continuing suspension is set aside; appellants entitled to resume carrying on business as Customs Broker with immediate effect and the Commissioner directed to comply with the Tribunal's directions.

Procedure for revoking license or imposing penalty under Regulation 17 - Offence report as prima facie framing of charges - Allegations under Regulation 10 are not finally adjudicated by the Tribunal and an inquiry under Regulation 17 is required to be conducted by the licensing authority - HELD THAT: - The Tribunal declined to examine the merits of alleged contraventions of Regulations 10(d), 10(e), 10(k) and 10(n), observing that Regulation 17 prescribes a detailed inquiry procedure (show cause notice, written statement, inquiry officer, evidence and crossexamination, inquiry report, representations and a speaking order). Because those inquiry proceedings have not been completed by the licensing authority, the Tribunal refrained from expressing any opinion on the alleged violations and remitted the matter for completion of the prescribed inquiry process. The Tribunal directed expeditious completion of the inquiry in accordance with Regulation 17. [Paras 6, 7, 8, 9]

Matter remitted to the Commissioner to initiate/complete inquiry under Regulation 17 of CBLR, 2018 and pass a speaking order; inquiry to be completed expeditiously preferably within six months from receipt of this order.

Final Conclusion: The Tribunal set aside the continued suspension order of 04.05.2023 for want of recorded reasons and evidential basis under Regulation 16 of CBLR, 2018, allowed the appeal, and remitted the matter to the licensing authority to complete inquiry under Regulation 17 expeditiously (preferably within six months), while permitting the appellants to resume Customs Broker business forthwith.

Classification of goods under Customs Tariff - Mis-declaration and suppression of facts - Extended period of limitation under the Customs Act - Eligibility for benefit of exemption notification - Penalty under Customs for mis-declaration

Mis-declaration and suppression of facts - Extended period of limitation under the Customs Act - Eligibility for benefit of exemption notification - Whether the extended period of limitation could be invoked where the Bill of Entry correctly described the imported goods as 'JOSS Powder (Wood Powder for making incense sticks)' despite their classification under a different Chapter Heading and the appellant claimed exemption under a notification. - HELD THAT: - The Tribunal found that the appellant had correctly described the nature and intended use of the imported goods in the Bills of Entry as 'JOSS Powder (Wood Powder for making incense sticks)'. Relying on the reasoning in Northern Plastic Ltd. (as cited in the judgment), a declaration made as a claim based on the appellant's belief and accompanied by full and correct particulars of the goods does not amount to a mis-declaration or suppression of facts that would attract invocation of the extended period of limitation. Since the description in the Bill of Entry disclosed the true nature of the goods (used in manufacture of incense sticks), there was no dishonest intention to evade duty, and therefore the prerequisites for invoking the extended period were not satisfied. Consequently the demand founded on the extended period of limitation could not be sustained. The Tribunal accordingly upheld the re-classification but held that the extended period of limitation was not applicable. [Paras 5, 6, 7]

Classification upheld; extended period of limitation not attracted as there was no mis-declaration or suppression of facts; appeal allowed.

Final Conclusion: The Tribunal upheld the re-classification of the imported goods but held that the extended period of limitation under the Customs Act could not be invoked because the Bills of Entry correctly described the goods and there was no mis-declaration or suppression; the appeal was allowed.

Reporting obligations relating to fraud under Section 143(12) and SA 240 - Obligation to obtain sufficient appropriate audit evidence and evaluation of management's expert under SA 500 - Audit documentation requirements under SA 230 - Disclosure requirements of Ind AS 16 regarding restrictions on title and assets pledged as security - Basis for Disclaimer of Opinion on Internal Financial Controls and obligations under Section 143(3)(i)

Reporting obligations relating to fraud under Section 143(12) and SA 240 - EP failed to discharge duties relating to identification and reporting of fraud and showed gross negligence in respect of SA 240 and Section 143(12). - HELD THAT: - NFRA found multiple indicators of potential fraud - a substantial increase in Expected Credit Loss provision on trade receivables, defaults on bank borrowings, fresh sales to defaulting parties and ongoing CIRP - which required the auditor to apply professional skepticism and consider reporting under Section 143(12) and the requirements of SA 240. The Engagement Partner issued a disclaimer on trade receivables and ECL but did not carry out existence checks for major foreign parties constituting about 80% of the ECL, did not adequately question fresh credit sales to defaulting parties, and did not examine the matter from a fraud perspective. The disclaimer did not absolve the EP from statutory reporting obligations. On these findings NFRA concluded gross negligence and failure to discharge statutory duties to report fraud. [Paras 19, 20, 21, 22, 23]

EP found grossly negligent for failing to address indicators of fraud and to discharge reporting obligations under SA 240 and Section 143(12).

Obligation to obtain sufficient appropriate audit evidence and evaluation of management's expert under SA 500 - EP failed to obtain sufficient appropriate audit evidence regarding valuation of investments and unduly relied on the management's expert without adequate evaluation, contrary to SA 500. - HELD THAT: - The valuation report relied upon by management's expert contained an express disclaimer that no due diligence or independent verification was performed and that the expert relied on information provided by management. The EP did not question the expert's lack of due diligence, did not establish the expert's valuation-related competence, nor performed independent procedures to assess whether impairment of investments in fellow subsidiaries and related entities was required. The EP also failed to address group-related facts (e.g., related entities owing significant receivables) that should have prompted further inquiry into the investments' recoverable value. On this basis NFRA concluded non compliance with SA 500 and lack of due diligence. [Paras 25, 27, 28, 30, 31]

EP failed to comply with SA 500 by not obtaining sufficient appropriate audit evidence and by improperly relying on the management's expert without adequate evaluation.

Audit documentation requirements under SA 230 - EP violated Para 9 of SA 230 by deficient audit documentation, including lack of preparer authentication, undated EP signatures, and working papers prepared by a person not shown as part of the engagement team. - HELD THAT: - Audit working papers lacked authentication by preparers and did not record review dates or the EP's authentication, contrary to Para 9 of SA 230 which requires documentation of who performed and who reviewed audit work and when. Critical workpapers (journal entry review, trial balance tracing, fraud risk questionnaire) were not evidenced as reviewed by the EP. Additionally, some working papers were prepared by an individual not listed as a member of the engagement team and without an independence confirmation, calling into question the integrity of the audit file. These deficiencies establish failure to comply with SA 230. [Paras 33, 34, 35, 36, 37]

EP found to have violated SA 230 due to inadequate and unauthenticated audit documentation.

Disclosure requirements of Ind AS 16 regarding restrictions on title and assets pledged as security - EP failed to report non-compliance by the company with Para 74(a) of Ind AS 16 concerning disclosure of restrictions on title and PPE pledged as security. - HELD THAT: - Financial statements and audit workpapers did not evidence that the EP obtained or tested disclosures concerning restrictions on title and assets pledged as security for liabilities, despite valuation reports and audit work indicating such pledges were known. The EP's disclaimer on borrowings did not adequately address or disclose the non compliance with Ind AS 16 disclosure requirements. NFRA found that the EP failed to exercise due diligence in auditing disclosures under Ind AS 16. [Paras 5, 40, 41, 42]

EP failed to report non compliance with Ind AS 16 disclosure requirements regarding restrictions on title and pledged PPE.

Basis for Disclaimer of Opinion on Internal Financial Controls and obligations under Section 143(3)(i) - EP's basis for issuing a Disclaimer of Opinion on Internal Financial Controls over Financial Reporting was deficient and not supported by audit documentation. - HELD THAT: - The EP's disclaimer on ICOFR in Annexure-B was premised largely on the NCLT order initiating CIRP, but the EP failed to document in the audit file the additional factual basis (e.g., timing of CIRP, resignation of independent directors, inability to obtain evidence) asserted in his submissions. Because the audit file does not record sufficient appropriate evidence supporting the disclaimer, NFRA concluded that the basis for the disclaimer was deficient and reflected gross negligence and lack of due diligence in respect of Section 143(3)(i) obligations. [Paras 5, 43, 44]

EP's disclaimer on ICOFR found to be inadequately supported and deficient for want of documented audit evidence.

Final Conclusion: NFRA found CA Chirag Doshi guilty of professional misconduct for gross negligence and failures identified under SA 240, SA 500 and SA 230 and for deficiencies in reporting and disclosure obligations under the Companies Act and Ind AS; accordingly a monetary penalty of Rs. 5,00,000 (five lakhs) was imposed and the order becomes effective 30 days from its date.

Professional misconduct - failure to exercise professional skepticism and due diligence - failure to report fraud under section 143(12) - principal auditor's duty of access to subsidiary records (proviso to section 143(1)) - engagement quality control review deficiency - improper audit reporting: disclaimer of opinion with Key Audit Matters and Emphasis of Matter - violation of Standards on Auditing and SQC 1 - improper acceptance of audit engagement without communicating with predecessor auditor - penalty and debarment under section 132(4)(c)

Failure to exercise professional skepticism and due diligence - failure to report fraud under section 143(12) - principal auditor's duty of access to subsidiary records (proviso to section 143(1)) - violation of Standards on Auditing and SQC 1 - Auditors failed to identify, investigate and report diversion of funds and evergreening of loans involving MACEL and related parties, in violation of auditing standards and statutory duties, including the obligation to report fraud under section 143(12). - HELD THAT: - NFRA found that the principal auditor had access to a detailed investigation report highlighting red flags (absence of commercial rationale, pre-signed cheques, and circulation of funds) and that CDEL's standalone and consolidated statements showed material exposures to subsidiaries and related-party balances. Despite these circumstances (a special circumstance under SA 600 and the proviso to section 143(1) giving right of access to subsidiary records), the auditors did not exercise required professional skepticism, did not obtain sufficient appropriate audit evidence by examining subsidiary records and bank statements, and failed to evaluate or report the fraud. The Authority concluded that the auditors' disclaimer of opinion did not absolve them from the obligations under SA 200, SA 240, SA 315, SA 330, SA 550 and CARO to assess fraud risk and report material fraud to the Central Government, and that their contrary conduct amounted to gross negligence and non-compliance with auditing standards. [Paras 5, 21, 22, 24, 30]

Charge that the auditors failed to identify, investigate and report the diversion of funds/evergreening and thereby violated applicable SAs and section 143(12) is proved.

Improper acceptance of audit engagement without communicating with predecessor auditor - violation of SQC 1 and SA 220 - The audit firm accepted and commenced the statutory audit engagement before completing mandatory procedures and before completing proper communication with the predecessor auditor, breaching quality control and professional requirements. - HELD THAT: - NFRA examined the sequence of events and audit workpapers showing client acceptance steps initiated on 01.08.2020, engagement acceptance on 05.08.2020, and receipt of the predecessor auditor's no-objection only on 06.08.2020. The client acceptance documentation was superficial and lacked evidence of evaluation of management integrity despite publicly available information about irregularities. This conduct violated paragraphs of SQC 1, SA 220, and SA 300 concerning acceptance/continuance procedures, evaluation of client integrity, and communication with the predecessor auditor. [Paras 36, 40, 41, 42]

Charge that the auditors accepted and commenced the engagement without performing mandatory acceptance procedures and without proper predecessor communication is proved.

Improper audit reporting: disclaimer of opinion with Key Audit Matters and Emphasis of Matter - violation of Standards on Auditing (SA 705, SA 706) - The auditors' Independent Auditor's Reports were internally inconsistent and contrary to auditing standards: they issued disclaimers while incorrectly including Key Audit Matters, Emphasis of Matter paragraphs on matters not presented or disclosed, and language inconsistent with a disclaimer. - HELD THAT: - NFRA found contradictions where the auditors stated inability to obtain sufficient appropriate audit evidence in the Basis for Disclaimer of Opinion yet elsewhere claimed sufficient evidence; included KAMs despite SA 705 prohibiting KAM when a disclaimer is issued (unless required by law), and inserted EOM paragraphs on matters not presented/disclosed contrary to SA 706 which requires EOM only for matters presented/disclosed and that the opinion is not modified in respect of such matters. The audit reports also used phrasing ('We have audited') inconsistent with SA 705's requirement to indicate the auditor was 'engaged to audit' when disclaiming opinion. These infirmities demonstrated gross negligence in forming and presenting the auditor's report. [Paras 43, 44, 45]

Charge that the audit reports were improperly formed and violated SA 705 and SA 706 is proved.

Engagement quality control review deficiency - violation of SQC 1 and SA 220 - The Engagement Quality Control Reviewer did not perform or document an effective engagement quality control review prior to issuance of the audit report, in breach of SQC 1 and SA 220. - HELD THAT: - NFRA observed absence of contemporaneous documentation showing EQCR's objective evaluation of significant judgments, reliance instead on a generic certificate signed after the audit report date, and no evidence that any substantive review was completed before report issuance. This timing and lack of documented review contravened SQC 1's requirement that the EQCR complete the review before report date and SA 220 obligations, indicating the EQCR's duties were not performed appropriately and amounted to gross negligence. [Paras 46, 50, 52, 53]

Charge that the EQCR failed to perform an adequate engagement quality control review is proved.

Failure to comply with section 185 / CARO reporting obligations - violation of Companies (Auditor's Report) Order - Auditors failed to report non-compliance with section 185 in the CARO as regards loans and guarantees to wholly-owned subsidiaries, including absence of special resolutions and end-use verification. - HELD THAT: - NFRA found that TDL and CDH&RPL were wholly owned by CDEL and hence transactions fell within section 185's ambit; audit workpapers did not evidence verification of special resolution approvals or end-use of loan proceeds by the subsidiaries. Given the subsidiaries' lack of independent governance and evidence of funds diversion to the promoter entity, the auditors' affirmative CARO statement that section 185 was complied with was incorrect and constituted a failure of due diligence. [Paras 32, 34, 35]

Charge that the auditors failed to report non-compliance with section 185 and thus violated CARO is proved.

Firm-level responsibility and supervision - violation of SQC 1 - The audit firm bore primary responsibility for the deficiencies in the engagement due to inadequate supervision, quality control and failure to ensure compliance with auditing standards. - HELD THAT: - NFRA held that the firm, as the statutory auditor appointed under section 139, is accountable for engagement quality, systems and personnel compliance. The firm's policies and oversight were insufficient to prevent the multiple breaches identified (deficient procedures, failure to access subsidiary records, flawed engagement acceptance, improper reporting, and inadequate EQCR work). The Authority concluded that these firm-level lapses contributed materially to the professional misconduct found against the firm and its partners. [Paras 55, 58, 62, 63]

Charge that the firm failed in its supervisory and quality control responsibilities and is responsible for the misconduct established against the engagement team is proved.

Final Conclusion: NFRA found M/s Venkatesh & Co., the Engagement Partner and the Engagement Quality Control Reviewer guilty of professional misconduct for the FY 2019-20 audit of Coffee Day Enterprises Limited. Consequent to the proved violations of the Companies Act, Standards on Auditing and SQC 1, NFRA imposed monetary penalties and debarments: M/s Venkatesh & Co. is penalised and the engagement partners are penalised and debarred for specified periods; the order takes effect 30 days from issuance.

Professional misconduct of an auditor - failure to obtain sufficient appropriate audit evidence - lack of professional skepticism in audit - insufficient audit documentation in breach of SA 230 - non-compliance with auditing standards including SA 200, SA 230, SA 240, SA 260, SA 265, SA 315, SA 501, SA 700 and SA 705 - non-compliance with accounting standards including Ind AS-2, Ind AS-23, Ind AS-36, Ind AS-110 and Ind AS-28 - failure to communicate deficiencies to Those Charged With Governance - Power under Section 132(4) of the Companies Act, 2013 to impose penalties for professional misconduct

Failure to verify existence and valuation of inventories - non-compliance with Ind AS-2 and Ind AS-23 - SA 501: Audit Evidence-Specific Considerations for Selected Items - EP was grossly negligent in audit of inventories and failed to obtain sufficient appropriate audit evidence regarding existence and valuation of material inventories, resulting in overvaluation and non-reporting of misstatement. - HELD THAT: - The Authority found that the engagement partner did not establish that paddy and soya seed qualified for capitalization of borrowing costs under Ind AS-23, there was no supporting evidence in the audit file for the EP's business-understanding assertions, alternative procedures were not performed for unverified plant locations and inventory categories, and the sampling was biased and unsupported contrary to SA 530 and SA 501. The EP's post hoc reliance on another company's accounting policy and unsubstantiated management assertions were rejected as afterthoughts. Consequential overvaluation and failure to report or modify the audit opinion were thus held to be non-compliant with Ind AS-2/Ind AS-23 and the SAs. [Paras 20, 21, 22, 24, 25]

EP guilty of gross negligence in audit of inventories; failed to comply with Section 143(3)(e), SA 501 and SA 705.

Failure to verify ownership, valuation and impairment of investments - non-compliance with Ind AS-36 on impairment - SA 700 and SA 705-reporting of misstatements - EP failed to obtain sufficient appropriate audit evidence and evaluate impairment of investments in loss-making subsidiary and associate, and the explanations and late submissions were rejected as afterthoughts. - HELD THAT: - Given losses and negative net worth of investee entities, the EP was required to assess indications of impairment and perform recoverable amount estimates per Ind AS-36. The audit file lacked working papers evidencing such procedures, enquiries of management, or consideration of misstatement for audit reporting. Documents produced after issue of the SCN were not accepted as proper audit evidence or compliant with SA 230. The Authority concluded the EP failed to exercise due diligence and professional skepticism in relation to investments. [Paras 27, 30, 31, 34, 35]

EP guilty of gross negligence in audit of investments; failed to comply with Section 143(3)(e), SA 700 and SA 705.

Failure to evaluate and report non-compliance with consolidation standards - Ind AS-110 and Ind AS-28-requirement to prepare consolidated financial statements and use equity method - SA 600-using the work of another auditor - EP was grossly negligent in evaluating and reporting SCL's non-compliance with consolidation requirements and in failing to liaise with auditors of subsidiaries/associates. - HELD THAT: - SCL did not prepare consolidated financial statements nor account for the associate by the equity method as required. The audit file contained no communications with management or Those Charged With Governance regarding consolidation, no liaison with other auditors as envisaged by SA 600, and the EP's asserted verbal assurances and subsequent resignation were not substantiated in the file. The Authority treated these deficiencies as material failures to detect and report non-compliance with Ind AS-110 and Ind AS-28. [Paras 37, 38, 39, 40, 42]

EP guilty of gross negligence for failing to evaluate and report non-compliance with consolidation standards; breached Section 143(3)(e), SA 700 and SA 705.

Failure to assess and address risk of material misstatement in revenue - SA 200, SA 240 and SA 315-professional skepticism and ROMM assessment - EP failed to plan and perform audit procedures with requisite professional skepticism for revenue, did not perform adequate substantive and analytical procedures, and thus was grossly negligent in auditing revenue. - HELD THAT: - Revenue formed a critical part of SCL's financials. The EP's audit file lacked evidence of understanding of the business, meaningful control testing, analytical procedures, inter-unit sale verifications, and appropriate testing of material revenue streams; sample selections were inadequate and unsupported. Disclosure and verification of other income (futures trading) were insufficient. These omissions meant the EP did not identify or respond to ROMM as required by SA 200, SA 240 and SA 315. [Paras 43, 46, 47, 49, 50]

EP guilty of gross negligence in audit of revenue; failed to comply with SA 200, SA 240 and SA 315.

Failure to obtain sufficient appropriate audit evidence for trade receivables - ageing analysis, confirmations and verification of receivables with bank statements - SA 200 and SA 315-risk assessment procedures - EP did not obtain sufficient appropriate audit evidence in respect of trade receivables, failed to perform ageing/expected credit loss analysis, and lacked adequate external confirmations and sample-selection rationale, amounting to gross negligence. - HELD THAT: - Trade receivables were material and wholly unsecured; audit files lacked evidence of broad-based confirmations (over 64% of receivables had no confirmations), no ageing or expected credit loss analyses, and no enquiries or reconciliations with bank-submitted receivable statements. The EP's reliance on management representation and selective or undocumented confirmations evidenced absence of professional skepticism and inadequate risk assessment per SA 200 and SA 315. [Paras 55, 59, 61, 62, 63]

EP guilty of gross negligence in audit of trade receivables; failed to comply with SA 200 and SA 315.

Forming audit opinion without obtaining reasonable assurance - SA 700-requirement to obtain sufficient appropriate audit evidence before forming opinion - EP formed an opinion that the financial statements presented a true and fair view despite failing to obtain reasonable assurance and sufficient appropriate audit evidence on material matters, and thus was grossly negligent. - HELD THAT: - Multiple material areas (inventories, investments, consolidation, revenue, receivables) lacked sufficient evidence and control testing. Yet the EP issued an unmodified opinion (except as to gratuity estimation) and an unqualified internal financial controls report. The Authority concluded that the EP failed to obtain reasonable assurance as required by SA 700 and therefore erred in forming the audit opinion. [Paras 65, 66, 67, 69, 70]

EP guilty of gross negligence in forming the audit opinion without reasonable assurance; failed to comply with SA 700.

Insufficient audit documentation in breach of SA 230 - requirement that audit file enable an experienced auditor to understand work performed - EP failed to prepare adequate audit documentation as required by SA 230; missing and inadequately captioned working papers justified presumption of non-performance of work. - HELD THAT: - The audit file lacked critical working papers (inventory consolidation, investment valuation, trade receivable analyses, minutes of meetings, related party verification, resignation and ADT-3 until late), and existing papers omitted identifying details, preparer/reviewer signatures and dates contrary to Paras 8-9 of SA 230. The Authority adopted regulators' position that non-documentation indicates work was not performed and found gross negligence. [Paras 72, 73, 75, 76, 77]

EP guilty of gross negligence for failing to prepare sufficient audit documentation; breached SA 230.

Failure to determine and communicate with Those Charged With Governance - SA 260 and SA 265-communication of auditor responsibilities and internal control deficiencies - EP failed to determine Who Constituted Those Charged With Governance and did not document communications about audit scope, timing or deficiencies, thereby being grossly negligent. - HELD THAT: - No minutes or documentary evidence exist in the audit file of communications with TCWG, and management representation letters were insufficient to replace required communications and documentation. The EP did not communicate significant issues such as impairment requirements or non-consolidation to TCWG, contrary to SA 260 and SA 265. [Paras 82, 83, 84, 85]

EP guilty of gross negligence for failing to communicate appropriately with TCWG; breached SA 260 and SA 265.

Failure to comply with statutory auditing obligations under Section 143(9) of the Companies Act, 2013 - breach of multiple Standards on Auditing - EP was found to have contravened Section 143(9) by failing to comply with applicable Standards on Auditing across multiple areas of the audit. - HELD THAT: - Having established violations of SA 200, SA 315, SA 230, SA 260, SA 265, SA 700, SA 705 and others in the audit file and conduct, the Authority concluded that the EP breached the statutory duty to comply with SAs under Section 143(9). The findings across the audit areas collectively supported this statutory violation. [Paras 87, 89, 90]

EP guilty of gross negligence and breach of Section 143(9) for non-compliance with the Standards on Auditing.

Final Conclusion: After conclusion that the engagement partner committed multiple proved instances of professional misconduct and gross negligence in the statutory audit of Sanwaria Consumer Limited for FY 2017-18, NFRA imposed a monetary penalty of Rs. 5,00,000 and debarred the engagement partner from appointment as auditor/internal auditor or undertaking any audit of a company or body corporate for one year; the order becomes effective thirty days from its issue.

Related party under section 2(76) of the Act - failure to exercise due diligence in the conduct of professional duties - misrepresentation to the regulator - independence of auditor - double jeopardy - monetary penalty under section 132(4)(c) of the Act

Related party under section 2(76) of the Act - substance over form - Four companies were related parties of MACEL for the purposes of disclosure - HELD THAT: - The Authority found that CDHRPL and the two subsidiaries (WRPL and KWRPL) were related to MACEL because of common directorships and the overwhelming shareholding (more than 99%) of CDHRPL in the subsidiaries, bringing them within clause (vi) of section 2(76). In respect of Chandrapore Estates Pvt Ltd and Kurkenmutty Estates Pvt Ltd, although the controlling person (VGS) was not a formal director or manager of MACEL, the admitted factual control and nexus with the majority shareholder of MACEL led the Authority to apply the principle of substance over form and treat those companies as related parties under clause (iv) read with the broader interpretation of subsection (vii) of section 2(76). The respondent's technical objection that the requisite formal office-holding was absent was rejected on the ground of admitted effective control. [Paras 8, 9, 11, 12]

The four companies are related parties of MACEL under section 2(76) of the Act.

Failure to exercise due diligence in the conduct of professional duties - responsibility to provide complete information to regulator - Non-disclosure of revenue from related parties constituted professional misconduct - HELD THAT: - The Authority held that the obligation to provide complete and accurate information to NFRA formed part of the auditor's professional duties. The omission to disclose revenues earned from the related parties of MACEL was found to be a misrepresentation of facts material to evaluation of the auditor's independence and performance. Consequently, the conduct fell within the professional misconduct definition set out in the Second Schedule, Part I, paragraph 7 of the Chartered Accountants Act, 1949, namely failure to exercise due diligence in professional duties. [Paras 3, 13, 14]

The omission amounted to professional misconduct for failure to exercise due diligence in the conduct of professional duties.

Double jeopardy - Previous NFRA orders did not preclude initiation of proceedings for non-disclosure in separate show cause notice - HELD THAT: - The respondent relied on alleged 'double jeopardy' because earlier NFRA orders addressed deficiencies in audit process. The Authority distinguished the present proceedings as addressing the separate and distinct issue of submission of incomplete/wrong information about revenue from related parties during NFRA proceedings. Since the subject-matter of the SCN was misrepresentation/non-disclosure rather than the earlier audit deficiencies, the plea of double jeopardy was rejected. [Paras 10]

Double jeopardy objection is not tenable; proceedings for non-disclosure could be continued.

Misrepresentation to the regulator - monetary penalty under section 132(4)(c) of the Act - Appropriate relief: imposition of a token monetary penalty - HELD THAT: - Having found misrepresentation and nondisclosure affecting assessment of auditor independence, and noting earlier sanctions imposed in relation to audit deficiencies, the Authority exercised its powers under section 132(4)(c) to impose a monetary penalty. Considering the circumstances and the fact that prior penalties had been levied, the Authority determined a token penalty to be appropriate in the facts of the case. The order directs recovery of the monetary penalty and states an effective date 30 days from issue. [Paras 15, 16]

Imposition of a monetary penalty of Rs One lakh upon CA Lavitha Shetty, effective after 30 days from the date of issue.

Final Conclusion: The Authority held that four companies were related parties of MACEL under section 2(76), that the auditor's omission to disclose revenue from those related parties amounted to professional misconduct for failure to exercise due diligence and misrepresentation to the regulator, rejected the double jeopardy plea, and imposed a token monetary penalty of Rs One lakh under section 132(4)(c), effective after 30 days.

Ultra-vires challenge to subordinate legislation - exemption of delisting under a resolution plan from the Delisting Regulations - IBC as a complete code with overriding non-obstante effect - harmonious construction of SEBI Act/SC R A and IBC - protection of investors under the SEBI Act versus legislative scheme of IBC - challenge to sanctioning order of Adjudicating Authority under IBC - Article 14 and manifest arbitrariness in economic legislation

Ultra-vires challenge to subordinate legislation - exemption of delisting under a resolution plan from the Delisting Regulations - harmonious construction of SEBI Act/SC R A and IBC - Validity of Regulation 3(2)(b)(i) of the SEBI (Delisting of Equity Shares) Regulations, 2021 vis-a -vis the SEBI Act and SCRA - HELD THAT: - The Court held that Regulation 3(2)(b)(i), which provides that the Delisting Regulations shall not apply to delisting made pursuant to a resolution plan approved under the IBC, is within the powers conferred on SEBI by the SCRA and the SEBI Act. Considering the objects and breadth of the parent Acts and the wide regulatory powers vested in SEBI to prevent undesirable transactions and to regulate and develop the securities market, the impugned exemption does not exceed SEBI's enabling authority. The Court further reasoned that the IBC is a later enactment containing a non-obstante clause and operates as a complete code; accordingly, it was open to SEBI to recognise that delisting under an approved resolution plan would be governed by the IBC and its regulations. The impugned provision, therefore, is a clarificatory accommodation of the relative positions of the statutes rather than an ultra-vires excess of delegated power. [Paras 53, 54, 64, 69]

Regulation 3(2)(b)(i) is not ultra-vires the SEBI Act or the SCRA and is intra vires SEBI's regulatory powers.

IBC as a complete code with overriding non-obstante effect - protection of investors under the SEBI Act versus legislative scheme of IBC - Whether application of the Delisting Regulations to delisting pursuant to an IBC-approved resolution plan would be permissible despite Section 238 IBC and the Explanation to Section 30(2)(e) - HELD THAT: - The Court accepted that the IBC, being a comprehensive later enactment with an overriding clause, governs the consequences of an approved resolution plan and that the legal fiction in Section 30(2)(e) (deeming shareholder approvals) must be given full effect. The Court observed that sufficient safeguards for stakeholders are embedded in the legislative and regulatory scheme under the IBC/CIRP Regulations and that excluding the Delisting Regulations in the specified circumstances avoids a statutory conflict. Consequently, recognising IBC's primacy and permitting SEBI to frame the impugned exemption is consistent with harmonious construction of the statutes. [Paras 62, 63, 68, 69]

Delisting pursuant to an IBC-approved resolution plan will be governed by the IBC and its regulations; the Delisting Regulations may be excluded in such cases without contravening the parent statutes.

Challenge to sanctioning order of Adjudicating Authority under IBC - challenge by post-admission shareholder and locus to question regulatory provision - Maintainability and merits of challenge to the NCLT order sanctioning the resolution plan and directing delisting - HELD THAT: - The Court found the petitioner's factual position (purchase of a minuscule shareholding after CIRP commencement and failure to appeal the NCLT order to the NCLAT) material. It noted that the petitioner had not challenged any IBC provisions or the CIRP regulations and that the NCLT's finding of nil liquidation value and directions for delisting were within the statutory scheme. Given that the impugned regulation was upheld, the petitioner's challenge to the NCLT order, which depended upon the regulation being ultra-vires, falls away. The Court also observed that the petitioner may not be the appropriate relator but, on merits, the challenge fails and the scope of judicial review of commercial/comparative valuations is limited. [Paras 41, 43, 83, 85]

The challenge to the NCLT order dated 27 February 2024 is rejected and the petition is dismissed.

Article 14 and manifest arbitrariness in economic legislation - Allegation of violation of Article 14 by the Impugned Regulation - HELD THAT: - The Court rejected the claim of arbitrariness. It held that the test of manifest arbitrariness must be applied against the parent statute and, since there is no conflict with the SEBI Act or the SCRA and the exemption is defined and principled, the impugned provision cannot be impugned as capricious or without rational basis. The Court further emphasised deference in reviewing economic legislation and experimentation, and concluded that no discrimination or lack of a determinative principle was shown. [Paras 74, 75, 76, 77]

The Article 14 challenge to the Impugned Regulation is rejected; the regulation is not manifestly arbitrary.

Final Conclusion: The petition challenging Regulation 3(2)(b)(i) of the SEBI (Delisting of Equity Shares) Regulations, 2021 and the NCLT order dated 27 February 2024 is dismissed. The Court upholds the impugned Regulation as intra vires, finds no arbitrariness under Article 14, and declines to disturb the NCLT sanction of the resolution plan and consequent delisting.

Grounds of arrest - reasons to believe - need and necessity to arrest - relevance of exculpatory material - judicial review (not merits review) - information to the accused and compliance with Section 19(2) PMLA - forwarding of arrest order and material to the Adjudicating Authority - right against self incrimination / non cooperation - remand orders and their relation to legality of arrest

Grounds of arrest - reasons to believe - Validity and sufficiency of the grounds of arrest and whether the grounds subsume the 'reasons to believe' required under Section 19 PMLA. - HELD THAT: - The Court examined whether the arresting officer's opinion was formed on the material in possession, whether the opinion logically flowed from those facts, and whether any vital ground was omitted or any error of law committed. The grounds of arrest in this case were detailed and ran into multiple paragraphs; the remand application contained substantially the same facts. The Court accepted that the grounds, as formulated by the ED on 09 July 2024, contained sufficient narrative matter which the ED treated as subsuming the 'reasons to believe' (notwithstanding that the separate requirement to furnish written 'reasons to believe' was articulated by the Supreme Court a few days later). On the facts before it, the Court found no perversity, mis application of law, or failure to consider any vital material that would vitiate the officer's opinion recorded in the grounds of arrest. [Paras 46, 47, 48, 53]

The grounds of arrest (as filed on 09 July 2024) were not vitiated and, on the material before the Court, the officer's opinion as recorded in those grounds could not be faulted.

Information to the accused and compliance with Section 19(2) PMLA - forwarding of arrest order and material to the Adjudicating Authority - Whether the statutory requirements to inform the accused of grounds of arrest and to forward the arrest order and material to the Adjudicating Authority were complied with. - HELD THAT: - The Court noted the statutory mandate to inform the arrestee of grounds and to forward a copy of the arrest order and material to the Adjudicating Authority. The arrest occurred on 09 July 2024 at 10:38 p.m.; the ED produced records showing forwarding to the Adjudicating Authority on the morning of 10 July 2024. Given the timing and the contemporaneous records shown from the ED file, and considering the legal position at the time of arrest (pre Arvind Kejriwal pronouncement requiring separate reasons to be furnished), the Court found that the communication of grounds and the forwarding to the Adjudicating Authority was made in accordance with the statutory scheme. [Paras 47, 49, 52, 53, 55]

Statutory requirements to inform the arrestee of the grounds and to forward the arrest order with material to the Adjudicating Authority were satisfied in the circumstances of this case.

Reasons to believe - judicial review (not merits review) - Whether the 'reasons to believe' were required to be furnished as a separate document at the time of this arrest and the scope of judicial review of those 'reasons to believe'. - HELD THAT: - The Court analysed the temporal aspect: the arrest occurred on 09 July 2024 while the Supreme Court's decision in Arvind Kejriwal (which expressly required furnishing of 'reasons to believe') was pronounced on 12 July 2024. It found it unrealistic to impose the later articulation retrospectively on the ED for the 09 July arrest. The Court reiterated that judicial review of the authorised officer's opinion is available but is confined to jurisdictional and legal errors and not a merits or mini trial; the court must examine whether the reasons are based on material that establishes a logical nexus to the conclusion reached, and whether any vital exculpatory material was ignored or any decision making error occurred. [Paras 39, 40, 46, 55, 58]

The ED was not obliged retroactively to furnish a separate 'reasons to believe' document for the 09 July 2024 arrest; judicial review is available but limited to legal or jurisdictional infirmities and not a merits review.

Relevance of exculpatory material - Whether the ED disregarded or failed to consider exculpatory material such that the arrest was vitiated. - HELD THAT: - The Court scrutinised the specific exculpatory materials relied upon by the petitioner (e.g., a scanned letter of MKA dated 17 September 2019, FARs by other auditors, setting aside of 'fraud' declarations and stays of 'wilful defaulter' statuses). It accepted the ED's contention that certain documents claimed to be exculpatory were not in the IO's possession at the time, were limited in scope or bore disclaimers, or were otherwise not conclusive. The Court found that the ED had in its possession significant inculpatory material (money trail, large diversions, numerous companies and properties, admissions by lower rung employees) and that the alleged exculpatory material did not demonstrate that the arresting officer had ignored a vital absolving ground that would render the arrest illegal. [Paras 56]

The contention of non consideration of exculpatory material did not establish a legal infirmity in the arrest on the facts before the Court.

Need and necessity to arrest - Section 41 Cr.P.C. parameters - Whether, on the material, there was need and necessity to arrest the petitioner in July 2024. - HELD THAT: - Although the broader question of whether 'need and necessity' is a separate ground for challenging arrest has been referred to a larger Bench by the Supreme Court, the Court here applied the relevant principles and Section 41 Cr.P.C. considerations. On the facts (large alleged diversion of public money, risk of tampering with evidence, transfers of properties to relatives, insolvency context and proposed extreme haircut), the Court held that the ED's assessment of need and necessity to arrest in July 2024 could not be faulted and was supported prima facie by the material in possession. [Paras 41, 53, 54, 55, 57]

On the material before it the Court found the ED's assessment of necessity to arrest to be sustainable and not vitiated.

Right against self incrimination / non cooperation - Whether alleged non cooperation by the petitioner could by itself justify arrest under Section 19 PMLA. - HELD THAT: - The Court observed the constitutional protection against self incrimination and noted the settled principle that 'mere non cooperation' is not by itself a sufficient ground for arrest under Section 19. It recorded that the petitioner had attended ED multiple times and had statements recorded; nonetheless, the ED combined alleged non cooperation with other factors in forming its opinion. The Court did not accept non cooperation alone as justification for arrest on the facts of this case. [Paras 27, 44, 56]

Non cooperation alone is not a lawful basis for arrest; on the facts, non cooperation was one factor among others and did not alone vitiate the arrest.

Remand orders and their relation to legality of arrest - Whether the subsequent remand orders cured any alleged illegality in the arrest. - HELD THAT: - The Court reiterated settled law that a remand order cannot cure an arrest that is unconstitutional or unlawful under Section 19. It then examined the remand orders and found they contained assessments of the grounds of arrest and that the magistrate had satisfied himself as required. Given the Court's finding that the arrest itself was not vitiated, the remand orders did not suffer from the defect of validating an unlawful arrest. [Paras 45, 53, 59]

Remand orders did not cure any non existent illegality; the remand orders were not vitiated in the circumstances of this case.

Final Conclusion: The petition challenging the validity of arrest is dismissed. On the material before the Court the arrest under Section 19 PMLA and the consequent remands did not violate Section 19; judicial review (not a merits review) was applied and found no jurisdictional or legal infirmity that would vitiate the arrest. The petitioner remains entitled to agitate all factual and evidentiary contentions, including those relied upon as exculpatory, at the appropriate stage such as a bail hearing or trial.

Offence of money-laundering - Offences by companies - Proceeds of crime - PMLA as a standalone code - Presumption in proceedings relating to proceeds of crime - ECIR and independence from FIR

Offences by companies - Offence of money-laundering - Maintainability of a complaint under PMLA against directors individually when the company which committed the predicate offence is not impleaded in the PMLA complaint. - HELD THAT: - The court held that Section 70 of the PMLA does not mandate that the company must be impleaded as an accused whenever proceedings are instituted against persons who were in charge of the company. A distinction exists between liability for the predicate scheduled offence committed by a company and liability for the separate offence under Section 3 of the PMLA which punishes concealment, possession, acquisition, use or projecting of proceeds of crime. Even if the predicate offence was committed by the company, the act constituting money-laundering may have been committed by persons in their individual capacity; consequently, failure to array the company in the PMLA complaint does not vitiate prosecution of persons who satisfy the ingredients of Section 3. If investigation later establishes that the company itself satisfies the ingredients of money-laundering, proceedings against the company can follow by supplementary complaint. [Paras 13, 14, 15, 20, 24]

Complaint under PMLA against the directors in their individual capacity is maintainable even though the company is not impleaded, provided the ingredients of Section 3 are made out.

PMLA as a standalone code - ECIR and independence from FIR - Whether prosecution under PMLA can proceed independently of trial or outcome in the predicate/scheduled offence. - HELD THAT: - The court affirmed that proceedings under PMLA are independent and the PMLA constitutes a special code; ECIR, though born from an FIR, becomes an independent document. The offence of money-laundering under Section 3 is a separate, stand-alone offence connected only through the existence of proceeds of crime derived from a scheduled offence. Consequently, prosecution under PMLA can be instituted and continued without awaiting the trial or determination of the predicate offence; pendency of proceedings in the scheduled offence is not an absolute bar to PMLA trial. [Paras 28, 29, 30, 31]

PMLA prosecution may proceed independently of the trial or result in the predicate/scheduled offence.

Proceeds of crime - Presumption in proceedings relating to proceeds of crime - Liability of persons who are alleged to have acquired, possessed or projected immovable properties as proceeds of crime despite denial of day-to-day management roles in the company. - HELD THAT: - The court found that the complaint alleges that proceeds of the scheduled offence were traced to immovable properties in the names of the petitioners and that possession, acquisition and projecting as untainted property constitute the ingredients of Section 3. Liability under PMLA is not restricted to acts done in an official capacity for the company; mere denial of day-to-day administrative control does not negate a case where the person is alleged to have acquired or possessed proceeds of crime. Further, Section 24 casts a statutory presumption in proceedings relating to proceeds of crime which places onus on the accused to rebut it at trial. The proviso to Section 70 permitting proof of absence of knowledge or due diligence remains available as a defence to be tested at trial. [Paras 20, 21, 24, 25, 32]

Petitioners who are alleged to possess, acquire or project immovable properties as proceeds of crime are properly proceeded against under PMLA notwithstanding their claimed lack of day-to-day management; issues of knowledge, due diligence and the statutory presumption are matters for trial.

Final Conclusion: The petition is dismissed; the trial in the PMLA complaint shall proceed, the trial court to act uninfluenced by the observations of this order.

Provisional attachment - proceeds of crime - burden of proof under sections 8(1), 23 and 24 - attachment pending prosecution does not alter ownership - retrospective application of procedural amendment to Section 8 - effect on confirmed attachments

Provisional attachment - proceeds of crime - burden of proof under sections 8(1), 23 and 24 - Attachment of Flat No. 701-C, Kasmanda Regent Apartment as proceeds of crime was rightly confirmed. - HELD THAT: - The Tribunal examined the sale deed and bank records and noted the registered sale deed dated 01.03.2011 showing cash consideration paid "on different dates" and a cash withdrawal of Rs. 9,00,000 from the appellant's proprietorship account during the relevant period. The timing of purchase fell within the period of the alleged scheduled offence and the appellant failed, on the preponderance of probabilities, to establish that the cash consideration was sourced from an independent, untainted source. The Tribunal applied the statutory allocation of burden upon the person claiming innocent source under sections 8(1), 23 and 24 of the Act and found that the appellant did not discharge that burden. Given the material relied upon by the Enforcement Directorate and the findings of the Adjudicating Authority that the claimed documentary proofs were unreliable, the Tribunal concluded there was sufficient tangible material to form a belief that the property was acquired out of proceeds of crime and hence the provisional attachment was properly confirmed. [Paras 30, 31, 34, 35, 36]

Appeal challenging attachment of Flat No. 701-C dismissed; attachment confirmed.

Retrospective application of procedural amendment to Section 8 - effect on confirmed attachments - attachment pending prosecution does not alter ownership - Confirmation of provisional attachment in 2016 was not vitiated by absence of a prosecution complaint at that time. - HELD THAT: - The Tribunal held that the appellant's reliance on authorities forbidding retrospective imposition of criminal liability was misplaced because the 2013 amendment to Section 5/8 (and later Finance Act, 2018 changes) relate to procedural timelines for filing prosecution and not to substantive criminal liability. At the time of the Adjudicating Authority's order (24.02.2016) there was no time-limit for filing prosecution; subsequent amendments providing time-limits (notification dated 19.04.2018) do not nullify provisional attachments already made and confirmed earlier. The Tribunal also emphasised that attachment merely prohibits transfer and does not change ownership; the balance of interests favours continuance of attachment while the prosecution is pending, and the Directorate filed the prosecution complaint within the applicable period after the 2018 amendment. [Paras 36, 37, 38]

Challenge to confirmation based on absence of prosecution complaint rejected; attachment to continue pending prosecution.

Proceeds of crime - provisional attachment - Seizure and attachment of cash (Rs. 9.50 lakh) from the residence of the appellant was properly treated as proceeds of crime and the attachment confirmed. - HELD THAT: - The Tribunal noted the cash was seized from the residential premises (not from the separate hotel proprietorship) and that the appellant denied knowledge of how the cash came to be present. Investigations showed large cash withdrawals from M/s Siddhi Traders (an entity linked to the appellant) during the relevant period and evidence indicating non-supply or deficient supply under NRHM tenders, supporting a money trail. The Adjudicating Authority had disbelieved documentary explanations tendered by the appellant as fabricated or unsigned. On this record, the Tribunal held there was adequate tangible material to form the requisite belief that the seized cash was directly or indirectly derived from proceeds of crime and that, at the attachment stage, probable cause sufficed. [Paras 49, 50, 51, 52, 53]

Appeal against seizure/attachment of Rs. 9.50 lakh dismissed; attachment upheld.

Final Conclusion: Both appeals are dismissed and the provisional attachments confirmed to continue pending disposal of the prosecution; no costs ordered.

Search and seizure under Section 17 - Retention of property and continuation beyond 180 days under Section 20 - Adjudicating Authority confirmation of retention - Transmission of seized material to Adjudicating Authority in sealed cover - Relevance of seized material to prosecution complaint

Search and seizure under Section 17 - Relevance of seized material to prosecution complaint - Seizure and retention of documents and digital devices recovered from a person not formally arraigned as an accused (Abhinav Saxena). - HELD THAT: - The Tribunal held that Section 17 authorises search and seizure where a person is found in possession of records relating to moneylaundering and does not condition such powers upon the person being formally 'accused'. The material seized from the appellant was found relevant to the transactions forming the subjectmatter of investigation, was subsequently filed along with the Prosecution Complaint and thereby indicated the relevance of the seized material to the offence. On these facts, the Tribunal found no ground to order release of the seized documents and devices even though the appellant asserted he was not an accused. [Paras 19, 22, 26]

No interference with the seizure and retention of material recovered from Abhinav Saxena; Section 17 applies where a person possesses records relating to moneylaundering even if not formally an accused.

Retention of property and continuation beyond 180 days under Section 20 - Adjudicating Authority confirmation of retention - Validity of retention of seized property beyond the initial 180day period specified in Section 20. - HELD THAT: - The Tribunal explained that Section 20(1) provides for initial retention for up to 180 days but contemplates that retention may continue if the Adjudicating Authority, upon application under the statute, confirms retention. Since the Adjudicating Authority had confirmed retention of the seized documents and devices in the present case, continuation beyond 180 days did not render the retention unlawful. [Paras 20, 21]

Retention beyond 180 days is permissible where the Adjudicating Authority has independently confirmed retention; accordingly the continuation of retention in this case was valid.

Transmission of seized material to Adjudicating Authority in sealed cover - Procedure for forwarding reasons and material under the 2005 Rules - Allegation that certain seized items (locker key, hard disk) were not sent to the Adjudicating Authority in sealed cover as required. - HELD THAT: - The appellant raised nontransmission of specific items to the Adjudicating Authority and relied on authorities emphasising transmission in sealed covers and completeness of material. The Tribunal observed that the contention regarding nontransmission was factual and had not been pleaded before the Adjudicating Authority or properly raised in the appeal; the respondents maintained that the panchnama recorded the recovered material and that the material was transmitted and is now part of the Prosecution Complaint. In the absence of pleaded factual particulars, the Tribunal declined to embark on a factual inquiry and found no established breach warranting interference. [Paras 10, 11, 16, 24, 25]

No interference on the ground of alleged failure to forward specific items; claim not pleaded and record shows seized material recorded in panchnama and forming part of the PC.

Final Conclusion: Appeals dismissed; Tribunal finds seizure and continued retention of documents and devices lawful under Sections 17 and 20 where material was in possession of the appellant and found relevant to the investigation, and where the Adjudicating Authority confirmed retention; allegations of procedural nontransmission of particular items were not sustained on the record and were not permitted to found interference.

Provisional attachment under the Prevention of Money Laundering Act - continuation of attachment during investigation for a period not exceeding three hundred and sixty five days under Section 8(3)(a) PMLA - pendency of proceedings before a court - lapse of attachment for failure to file prosecution complaint within statutory period - ECIR and its effect on commencement of court proceedings - perishable goods and consequences of prolonged freezing

Continuation of attachment during investigation for a period not exceeding three hundred and sixty five days under Section 8(3)(a) PMLA - lapse of attachment for failure to file prosecution complaint within statutory period - perishable goods and consequences of prolonged freezing - Whether the provisional attachment/ freezing confirmed by the Adjudicating Authority continues where no prosecution complaint has been filed and the investigation has not been completed within 365 days. - HELD THAT: - The Tribunal examined Section 8 of the Prevention of Money Laundering Act, noting that provisional attachment/ freezing is permitted to continue during investigation for a period not exceeding 365 days or during the pendency of proceedings before a court once prosecution complaint is filed. Given that no prosecution complaint has been filed against any of the accused even after the expiry of 365 days, the statutory period for investigation under Section 8(3)(a) has elapsed. The Tribunal further observed the practical consequence in the present case of continued freezing of perishable goods for over two years. Applying the statutory scheme, the Tribunal held that the confirmed attachment cannot continue by reason of mere passage of time when the investigative period has lapsed and no prosecution complaint has been filed, and accordingly set aside the confirmation of freezing/attachment.

The confirmed freezing/attachment has lapsed for want of filing of prosecution complaint within 365 days and the impugned order confirming attachment is set aside.

ECIR and its effect on commencement of court proceedings - pendency of proceedings before a court - Whether submission of the ECIR to the court or mere initiation of investigation constitutes "pendency of the proceedings relating to any offence" so as to extend attachment beyond 365 days. - HELD THAT: - The Tribunal rejected the contention that submission of the ECIR or interlocutory investigative steps amount to pendency of proceedings in a court. Relying on prior reasoning that the pendency of proceedings before a court under Section 8(3)(a) begins with the filing of the prosecution complaint (and consequent court proceedings), the Tribunal held that treating ECIR submission as commencement of court pendency would negate the statutory time limit for investigation. Therefore, mere submission of ECIR does not convert the investigative period into judicial pendency capable of extending the attachment beyond 365 days.

Submission of ECIR does not amount to pendency of proceedings before a court for the purposes of extending attachment beyond the statutory 365 day period.

Final Conclusion: The appeals are allowed; the confirmation of provisional attachment/ freezing is declared lapsed for non filing of prosecution complaint within 365 days and the impugned order is set aside, with costs on the officer waived.

Eligibility of CENVAT Credit on input services - definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 - services used in relation to setting up, modernization, renovation or repairs of a factory - activities relating to business

Eligibility of CENVAT Credit on input services - definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 - services used in relation to setting up, modernization, renovation or repairs of a factory - activities relating to business - Input service credit availed for services in relation to modernization and renovation of the factory is eligible under Rule 2(l) of the CENVAT Credit Rules, 2004 for the period April 2009 to March 2011. - HELD THAT: - The Tribunal examined the definition of "input service" as it stood during the relevant period and noted that the inclusive part expressly covered services used in relation to setting up, modernization, renovation or repairs of a factory and also extended to "activities relating to business." Applying that definition, the input services utilised by the appellant for modernization and renovation fall squarely within the scope of eligible "input service" credit. The Tribunal followed and applied earlier decisions which reached the same conclusion, including Maruti Suzuki India Ltd. , Toyota Kirloskar Motor Pvt. Ltd. and Commissioner of C.Ex., Nagpur v. Ultratech Cement Ltd. , which construed the inclusive limb of Rule 2(l) broadly to include services integrally connected with business and specifically those for setting up or modernizing factory premises. Consequently, the denial of credit by the original authority was held to be unsustainable and the demand, interest and penalty founded on that denial were set aside. [Paras 6, 7, 8]

The CENVAT credit availed on input services used for modernization and renovation of the appellant's plant is allowed; the demand, interest and penalty imposed are set aside.

Final Conclusion: Appeal allowed: the Tribunal held that, for April 2009 to March 2011, the definition of "input service" under Rule 2(l) covered services relating to modernization/renovation and activities relating to business, and therefore the CENVAT credit availed by the appellant is admissible; corresponding demand, interest and penalty were set aside.

Mandatory pre-deposit - condonation of delay - remand for fresh consideration - service tax return non-filing - evidentiary proof of payment

Mandatory pre-deposit - evidentiary proof of payment - adjustment towards duty - Whether the amounts shown in the challans constitute the mandatory pre-deposit required for maintaining the appeal. - HELD THAT: - The appellant produced challans evidencing payments described as 'Video Tape Prod Ser-Tax Collection' made through internet banking during April 2015 to August 2016. The Original Order recorded non-filing of ST-3 returns for the half-yearly periods in FY 2015-16 and did not accept the payments shown in the challans as duty because there was no documentary proof that the amounts were paid as duty and thus did not adjust them against the demand. On examining the appeal memorandum and connected papers, the Tribunal found that, in the factual matrix before it, the amounts paid as shown in the challans qualify as pre-deposit and satisfy the requirement under the statutory scheme read together with the relevant provisions governing pre-deposit for filing the appeal. The Tribunal therefore concluded in favour of the appellant on this preliminary requirement and allowed the appeal to that extent. [Paras 5, 7]

Amounts shown in the challans are treated as pre-deposit and the appellant satisfies the mandatory pre-deposit requirement; appeal allowed to that extent.

Condonation of delay - remand for fresh consideration - proof of service receipt - Whether the appeal was filed within the condonable period and, if not, whether condonation should be granted. - HELD THAT: - There was conflicting and unclear information on the dates of receipt of the Original Order and the date of filing of the appeal with attendant delay. The Commissioner (Appeals) recorded a delay of 28 days beyond the statutory limit and rejected the appeal on that ground, while the appellant contended compliance with the condonable timelines under the statutory scheme. The Tribunal observed that when limitation is determinative, the authority deciding the time-bar must set out dates, the basis for adopting them and the specific provision relied upon; similarly the appellant should have furnished clear proof in the appeal memorandum. Given the absence of clarity and specific documentary proof from both sides on the critical dates, the Tribunal found it necessary to remit the matter to the Commissioner (Appeals) for fresh determination of the time-bar issue. The remand requires the Commissioner (Appeals) to examine the dates and supporting evidence and, if the appeal is found within the condonable period, to proceed to decide the appeal on merits. [Paras 6, 7]

Time-bar issue remanded to the Commissioner (Appeals) for fresh determination with directions to examine dates and documentary proof; if within condonable period, decide the appeal on merits.

Final Conclusion: Appeal partly allowed: pre-deposit requirement held to be satisfied and appeal allowed to that extent; time-bar issue is remanded to the Commissioner (Appeals) for fresh consideration and, if found within condonable period, the appeal is to be decided on merits.

Refund of mistakenly paid service tax - right of ultimate consumer to claim refund - presumption of passing on the incidence of tax - unjust enrichment - time bar under Section 11B as applied to service tax - limits on appellate authority travelling beyond the record/SCN

Refund of mistakenly paid service tax - right of ultimate consumer to claim refund - presumption of passing on the incidence of tax - unjust enrichment - Whether the appellant, who paid service tax to the Trust, was entitled to claim refund despite the Trust having deposited service tax to Government account - HELD THAT: - Section 11B permits 'any person' to claim refund; the statutory presumption in Section 12B that a payer has passed on the incidence must be overcome by the claimant. The Tribunal applied authorities holding that the ultimate incidence of an indirect tax rests on the final consumer and that a consumer who proves that the tax burden rested on him is entitled to refund. The appellant produced evidence of payment to the Trust and asserted he bore the ultimate incidence and did not obtain set off; the Trust's deposit of service tax did not preclude the appellant from claiming refund once he established he bore the incidence. The Tribunal held that no unjust enrichment arose because the amount was paid from the appellant's own resources and there was no proof that the incidence was passed on to any other person, relying on the principle that the rightful recipient of refund is the person who finally bore the tax. [Paras 5]

The appellant, as the ultimate bearer of the tax incidence, is eligible to claim refund and the appeal on this issue succeeds.

Time bar under Section 11B as applied to service tax - Whether the appellant's refund claim was barred by limitation - HELD THAT: - The impugned order had already found that the appellant's letter dated 30/01/2017 seeking refund was not barred by limitation under Section 11B. The Department did not appeal that finding; accordingly the Tribunal treated that conclusion as final and did not re open the limitation question. [Paras 6]

The refund claim is not time barred; the finding of the lower authority in this regard is final.

Limits on appellate authority travelling beyond the record/SCN - Whether the Trust qualifies for exemption from service tax (examination of which was undertaken by the Commissioner (Appeals)) - HELD THAT: - The Tribunal held that the question of whether the Trust qualified for exemption did not arise from the Order in Original and was beyond the scope of the show cause notice (SCN). An appellate authority should not travel outside the record of the lower authority; hence the merits of the Trust's exempt status could not be examined suo motu at the first appeal stage. [Paras 7]

The issue of the Trust's entitlement to exemption was not decided on merits and could not be examined at the appellate stage as it was beyond the record/SCN.

Final Conclusion: The appeal is allowed: the appellant is entitled to refund as the ultimate bearer of the tax incidence (no unjust enrichment), the claim is not time barred, and the question of the Trust's exempt status was not decided as it lay beyond the record; consequential relief to follow as per law.

Club or Association Services - doctrine of mutuality - Event Management Services - tax liability of event host versus event manager - definition of service under the post-2012 negative list

Club or Association Services - doctrine of mutuality - definition of service under the post-2012 negative list - Service tax demand under 'Club or Association Services' in respect of membership contributions received by the appellant, an incorporated society, is not sustainable. - HELD THAT: - The Tribunal applied the doctrine of mutuality and followed the decision of the Hon'ble Supreme Court in State of West Bengal v. Calcutta Club Limited and the coordinate bench decision in Sumel Business Park 3 Co-operative Service Society v. CST - 2023 (10) TMI 740. The show cause notice and impugned order recorded that the demand related to membership contributions received by the appellant, an incorporated society. The definition of 'club or association' excludes bodies established or constituted by or under any law; consequently an incorporated members' body does not fall within the taxable category. The Tribunal further noted the Supreme Court's reasoning that, post-2012, the negative-list scheme taxes a service only where one person carries out an activity for another for consideration and that Explanation 3 to the statutory definition preserves the pre-2012 exclusion for incorporated members' clubs. Applying these principles to the facts, the Tribunal held there was no provision of service between the incorporated society and its members and set aside the demand under the club/association head. [Paras 5]

Demand under 'Club or Association Services' set aside as not tenable.

Event Management Services - tax liability of event host versus event manager - Service tax demand under 'Event Management Services' against the appellant (being the event host) is unsustainable because the appellant acted as host and not as an event manager providing the taxable service. - HELD THAT: - Relying on departmental circular No. 68/17/2003-ST and this Bench's decision in CCE v. Saurashtra Cricket Association - 2022 (11) TMI 152, the Tribunal observed that 'Event Management' denotes services provided by an event manager engaged to organise or manage an event at the behest of a sponsor. The circular clarifies that service tax is on the service of managing an event and not on the event itself; where the sponsor/host organises and manages the event by itself, no event-management service is provided to the host. The adjudicating authority's own records and the show cause notice indicated that the appellant was the host and not the service provider. Applying the circular and precedent, the Tribunal concluded that the event-management demand cannot be sustained and directed that it be dropped. [Paras 6]

Demand under 'Event Management Services' dropped as unsustainable.

Final Conclusion: The appeal is partly allowed: demands of service tax under 'Club or Association Services' and 'Event Management Services' confirmed in the impugned order are set aside; the Tribunal did not examine the demand made under section 73A (sponsorship services) as that ground was not pressed, and the impugned order is modified accordingly.

Valuation under Section 67 of the Finance Act, 1994 - Gross amount charged - Adjustment by credit notes - Eligibility to adjust excess service tax under Rule 6(3) - Distinction between sale of goods and taxable service - Burden of proof on the Revenue - Composite transaction doctrine

Valuation under Section 67 of the Finance Act, 1994 - Gross amount charged - Adjustment by credit notes - Eligibility to adjust excess service tax under Rule 6(3) - Credit notes issued by the appellant reduced the taxable value of services and the tax paid on the reduced (unbilled) amount was eligible for adjustment under the statutory scheme. - HELD THAT: - The Tribunal found on the facts that the invoices for handling services issued by the appellant were reflected net of credit notes and that the reductions so effected related to the consideration actually charged for the taxable services. Relying on the statutory scheme in Section 67, which defines value as the gross amount charged and expressly includes adjustments by credit notes and book adjustments, the Bench held that the taxable value must be the invoiced amount after taking credit notes into account. The Bench applied precedent and its own reasoning to conclude that tax paid on amounts eliminated by credit notes did not form part of the value of taxable service and was therefore eligible for adjustment under the rules. The Tribunal therefore set aside the demand founded on treating the credit-note reductions as taxable consideration. [Paras 4, 5]

Adjustment effected by credit notes reduced the value of taxable services under Section 67; tax paid on the reduced amounts was eligible for adjustment and the demand was set aside.

Distinction between sale of goods and taxable service - Gross amount charged - Whether the reasons for reductions (though relating to goods) were relevant to valuation of the handling services - the Tribunal held they were relevant where attributable to the service provider's role. - HELD THAT: - The Tribunal examined the contractual allocation of roles and the reconciliation process and recorded factual findings that the credit-note reductions arose predominantly from deviations in quality and quantity occurring after unloading at the destination port - the period when the appellant's handling responsibility commenced. Because the reductions were applied to the appellant's service invoices and not to the supplier's sale invoices, the Tribunal treated them as reductions in consideration for the services. Consequently, the fact that the adjustments derived from attributes of goods (coal) was not decisive; what mattered was attribution of cause to the service period and to the appellant's contractual responsibility. The Bench emphasised that Section 67 requires valuation according to the consideration actually charged for the service, irrespective of whether the causal facts relate to goods, when those facts are attributable to the service provider's performance. [Paras 4]

Deviations attributable to the appellant's handling activity justified reduction of the taxable value of services; the origin of adjustments in parameters of goods did not preclude their treatment as service-value reductions.

Burden of proof on the Revenue - Composite transaction doctrine - Whether the transaction was a composite contract (sale with incidental handling) such that handling would be excluded from service tax - the Tribunal did not decide the composite transaction issue on merits and declined to examine it because the appellant's entitlement to adjustment was resolved on Section 67 grounds. - HELD THAT: - The adjudicating authority had raised the composite transaction argument, observing joint and several liability and a single tender. The Tribunal observed that accepting the composite-transaction contention would lead to a different remedial consequence (refunding the entire service tax). However, having decided that the credit-note reductions validly reduced the taxable value under Section 67 (and tax on the excess was adjustable), the Tribunal expressly declined to adjudicate the composite-transaction question. Separately, the Tribunal reaffirmed that the Revenue bears the burden to prove its allegations and that no evidence was produced to show recovery from the supplier; absence of such evidence informed the factual findings on attribution. [Paras 4]

Composite-transaction issue not decided by the Tribunal and left unadjudicated; burden of proof remained on the Revenue and its failure to lead contrary evidence influenced the factual findings on attribution.

Final Conclusion: On the facts before it the Tribunal held that credit-note reductions properly reduced the gross amount charged for the appellant's handling services under Section 67 and that tax paid on the reduced (unbilled) amounts was eligible for adjustment; factual findings attributed the deviations to the period of the appellant's handling responsibility and the Revenue's demand was set aside. The Tribunal did not decide the alternative composite-transaction contention.

Treatment of supplies to SEZ as "export" for purposes of Rule 5 of the Cenvat Credit Rules - application of SEZ Act definition of "export" to Cenvat Rules - refund of accumulated Cenvat credit for DTA to SEZ supplies - rebate of duty on goods cleared from DTA to SEZ - SEZ deemed outside the customs territory - overriding effect of the SEZ Act over other laws - administrative clarification: Circular No.1001/8/2015-CX.8 dated 28-4-2015

Treatment of supplies to SEZ as "export" for purposes of Rule 5 of the Cenvat Credit Rules - administrative clarification: Circular No.1001/8/2015-CX.8 dated 28-4-2015 - Whether supplies from Domestic Tariff Area to SEZ constitute "export" for the purpose of refund under Rule 5 of the Cenvat Credit Rules, 2004 - HELD THAT: - The Court recorded that after the proceedings giving rise to the impugned orders a Board circular dated 28-4-2015 clarifies that supplies treated as "export" under the SEZ Act are to be treated as "export" for purposes of refund under Rule 5 of the Cenvat Credit Rules. The judgment notes statutory indicia in the SEZ Act - including the deeming of SEZ as outside customs territory and the overriding provision - and administrative practice reflected in SEZ Rules and earlier DGEP circulars to the effect that DTA-to-SEZ clearances have been treated as exports. Because the impugned orders were passed before the circular, the Court declined to decide the substantive controversy on merits and instead remanded the question to the adjudicating/appellate authority to reconsider the matter afresh in light of the circular and the authorities the parties rely upon, permitting full opportunity of hearing. [Paras 3, 4, 6, 7, 8]

Remanded to the original adjudicating and appellate authorities to decide afresh whether DTA to SEZ supplies constitute "export" for refund under Rule 5, after considering Circular No.1001/8/2015-CX.8 dated 28-4-2015 and the case law relied upon, with opportunity of personal hearing.

Application of SEZ Act definition of "export" to Cenvat Rules - overriding effect of the SEZ Act over other laws - Whether the definition of "export" in the SEZ Act applies to the Cenvat Credit Rules and Central Excise Rules - HELD THAT: - The Court observed that Section 51 of the SEZ Act gives that Act overriding effect in case of inconsistency with other laws and that Section 53 deems SEZ to be outside the customs territory. The Board's circular adopts the view that the SEZ Act meaning of export applies for purposes of the relevant excise rules. Rather than pronouncing finally on the legal question, the Court remitted the issue so the authorities can re-examine and decide it afresh in light of the circular and such judicial decisions as the parties place before them. [Paras 3, 4, 6, 7]

Remanded for fresh adjudication on whether the SEZ Act definition of "export" applies to the Cenvat and Central Excise Rules, to be decided by the authorities after considering the Board circular and relevant case law.

Refund of accumulated Cenvat credit for DTA to SEZ supplies - rebate of duty on goods cleared from DTA to SEZ - Whether rebate of duty and refund of accumulated Cenvat credit are available for goods cleared from DTA to SEZ - HELD THAT: - The Court noted the Board's clarification that rebate under Rule 18 of the Central Excise Rules and refund of accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules continue to be available for licit clearances from DTA to SEZ because such clearances are to be treated as exports. The Court declined to resolve the entitlement finally in these matters since earlier orders were rendered before issuance of the circular, and directed that the authorities reconsider the claims de novo while keeping the parties' rights to rely on judicial precedents. [Paras 4, 5, 6, 7]

Remitted to the adjudicating and appellate authorities to reconsider entitlement to rebate and refund for DTA to SEZ clearances in light of the Board circular and relevant precedents, with directions to pass reasoned orders after personal hearing.

Final Conclusion: The impugned orders are quashed and the matters are remanded to the original adjudicating and appellate authorities for fresh adjudication in light of Circular No.1001/8/2015-CX.8 dated 28-4-2015 and the case law which the parties may rely upon; authorities to pass reasoned orders after affording personal hearing; all contentions left open; no order as to costs.

Pre-deposit under Section 35F of the Central Excise Act, 1944 - mandatory pre-deposit as pre-condition for entertaining appeals - writ jurisdiction under Article 226 of the Constitution of India - alternative efficacious remedy of appeal to the CESTAT - prima facie case for waiver of pre-deposit - disputed questions of fact versus writ interference

Pre-deposit under Section 35F of the Central Excise Act, 1944 - writ jurisdiction under Article 226 of the Constitution of India - alternative efficacious remedy of appeal to the CESTAT - prima facie case for waiver of pre-deposit - mandatory pre-deposit as pre-condition for entertaining appeals - Whether the writ petition for waiver/reduction of the statutory pre-deposit can be entertained or whether the petitioner must first avail the remedy of appeal before the CESTAT. - HELD THAT: - The Court held that Section 35F requires a mandatory pre-deposit (subject to the statutory cap) as a condition precedent for entertaining appeals and that no discretion has been left to the Court to grant a waiver or reduction of that statutory pre-deposit on grounds of financial hardship. Given the availability of an alternative efficacious remedy (appeal to the CESTAT), the High Court should not ordinarily exercise writ jurisdiction to bypass the statutory appellate mechanism. The petitioner's submissions on prima facie merits raise disputed questions of fact and issues of interpretation of Rules 12 and 17(2) of the Pan Masala Packing Machines Rules, 2008, which are matters to be examined by the CESTAT; the High Court refrained from adjudicating merits and declined to grant relief in the writ jurisdiction. Consequently the petition seeking waiver/reduction of the pre-deposit and other reliefs was not entertained. [Paras 13, 15, 16, 20, 21]

Writ petition declined; petitioner must avail the statutory remedy of appeal to the CESTAT and the Court cannot waive or reduce the mandatory pre-deposit under Section 35F in writ jurisdiction.

Final Conclusion: The Special Civil Application is dismissed; the High Court declines to exercise writ jurisdiction to grant waiver or reduction of the statutory pre-deposit and leaves the petitioner to pursue the remedy of appeal before the CESTAT in accordance with Section 35F of the Central Excise Act, 1944. Notice discharged; no order as to costs.

Export warehousing facility - Transit loss - Condonation of transit losses up to 1% - Consignor liability under Rule 20(4) of the Central Excise Rules - Distinction between storage loss and transit loss - CBEC Circular No. 261 dated 30.10.1985 - CBEC Circular No. 804/1/2005 - post-withdrawal clarifications

Export warehousing facility - Transit loss - Condonation of transit losses up to 1% - CBEC Circular No. 261 dated 30.10.1985 - CBEC Circular No. 804/1/2005 - post-withdrawal clarifications - Consignor liability under Rule 20(4) of the Central Excise Rules - Distinction between storage loss and transit loss - Whether excise duty is payable on transit loss up to 1% in respect of Naphtha and ATF cleared under bond for export warehousing - HELD THAT: - The court found that the export-warehousing facility under Notification No.46/2001 continued to be in force for removals to export warehouses, and therefore the movement from the refinery to the export storage fell within that export-warehousing regime. CBEC Circular No. 804/1/2005 addressed post-withdrawal issues but, as interpreted by this Court, dealt with prohibiting storage losses in export warehouses/tanks and the consequences of withdrawal of domestic warehousing; it did not negative the earlier clarification embodied in File No.261 dated 30.10.1985 permitting condonation of transit losses up to 1% where applicable. The revisional authority misapplied Circular No. 804/2005 by treating the prohibition on storage losses as displacing the separate and earlier rule on transit losses; that approach ignored the continued applicability of Notification No.46/2001 and the specific treatment of transit loss in the CBEC clarification of 1985. On the facts (dispatches by tank trucks and tank wagons and evidence of duty paid where loss exceeded 1%), the Commissioner (Appeals) was correct to allow transit loss up to 1% and set aside the demand, and the revisional order restoring demand, interest and penalty was unsustainable. [Paras 18, 19, 20]

Impugned revisional orders quashed; Commissioner (Appeals) order restored and demands, interest and penalty set aside insofar as they relate to transit loss up to 1% for the period April 2008 to March 2009.

Final Conclusion: The petition is allowed to the extent indicated: the demand, interest and penalty confirmed by the revisional authority are quashed and the Commissioner (Appeals) order allowing transit loss up to 1% is restored; rule made absolute. No order as to costs.

Cenvat credit on returned goods - remanufacture and resale after return - suppression and misdeclaration - departmental silence and laches - penalty under section 11AC of the Central Excise Act, 1944 - Rule 16(2) of the Central Excise Rules - interest and penalty on shortage of inputs

Cenvat credit on returned goods - remanufacture and resale after return - suppression and misdeclaration - Rule 16(2) of the Central Excise Rules - departmental silence and laches - Demand of recovery of Cenvat credit of Rs.11,24,760 for alleged clandestine clearance and imposition of penalty in respect thereof is not sustainable and is quashed. - HELD THAT: - The appellant reversed credit on first clearance, issued tax invoices and, upon return of the goods, informed the department, recorded the returned goods in RG23A PartI and availed credit in RG23A PartII; these events were reflected in monthly ER1 returns. The goods were subsequently reprocessed/remanufactured (as supported by the Chartered Engineer's technical report) and resupplied after payment of duty. In these circumstances, the material on record belies any case of suppression or misdeclaration. Rule 16(2) permits treatment of goods reintroduced into manufacture/clearance following return and reprocessing. The department remained silent for some 16-17 months after intimations and cannot, in light of the documentary evidence and technical certification, sustain a belated recovery or penalty. Amounts paid under apprehension or misconception not due to the department cannot be retained by Revenue. [Paras 6, 7, 8]

Demand of Rs.11,24,760 and corresponding penalty under section 11AC is quashed.

Shortage of inputs - interest and penalty on shortage of inputs - penalty under section 11AC of the Central Excise Act, 1944 - Shortage of certain inputs (reprocessed granules and calcium carbonate) involving duty of Rs.37,343 is admitted to be payable; interest and penalty under section 11AC are also payable. - HELD THAT: - The department's inspection found a shortfall of specified inputs. The appellant concedes the shortfall and has reportedly paid the duty on the shortage. The Tribunal records that duty on the shortage is rightly payable and directs the appellant to pay interest thereon and the equivalent penalty under section 11AC in respect of the admitted shortage. A timebound compliance is ordered. [Paras 2, 9, 10]

Assessee to pay interest and penalty under section 11AC on the dutyamount relating to the shortage; payment to be made within one month.

Final Conclusion: The appeal is allowed insofar as the demand and penalty of Rs.11,24,760 for alleged clandestine clearance and suppression are quashed; insofar as the admitted shortage entailing duty of Rs.37,343, the assessee must pay interest and the equivalent penalty under section 11AC within one month, and the appeal is disposed of accordingly.

Cenvat credit on outward goods transport agency services - Assessable value includes freight - FOR/destination sale and point of sale - Place of removal - Beneficial circulars and retrospective withdrawal

Cenvat credit on outward goods transport agency services - Assessable value includes freight - FOR/destination sale and point of sale - Place of removal - Entitlement to cenvat credit of service tax paid on outward GTA where freight is included in the assessable value and goods are delivered under FOR/destination sale - HELD THAT: - The Tribunal found as an undisputed fact that the appellant contracted to deliver goods to the customer's premises and that freight charges were not separately collected but were included in the assessable value shown on the excise invoice. Applying the principle that where sale is on FOR/destination basis ownership, risk and liability remain with the seller until delivery at the buyer's premises, the cost of transportation included in assessable value forms part of valuation for excise and the corresponding service tax on outward GTA qualifies as input/cenvat credit. The Court relied on this Tribunal's decision in Ultratech Cement Ltd (upheld by the High Court) and related authoritative pronouncements on the concept of place of removal and point of sale, and accepted that the invoicing practice (freight not charged separately and borne by seller) brings the case within the destination/ FOR sale exception. The Tribunal's settled approach and Board Circular clarification were applied; the Court also accepted that beneficial circulars operative at the relevant time cannot be withdrawn retrospectively. In these facts the impugned denial of credit was set aside and credit granted. [Paras 4, 5]

The impugned orders are set aside; the appellant is entitled to cenvat credit on outward GTA in the facts of this case and the appeals are allowed.

Final Conclusion: On the admitted facts that freight was included in the assessable value and the goods were cleared on FOR/destination basis (seller bearing freight and risk till delivery), the appellant is entitled to cenvat credit of service tax on outward GTA; impugned orders set aside and appeals allowed.

Condonation of delay - defect/deficiency memo requirement - maintainability of appeal notwithstanding short delay - inclusion of subsidy in transaction value - effect of promotional subsidy on selling price - binding effect of Tribunal precedent on merits

Condonation of delay - defect/deficiency memo requirement - maintainability of appeal notwithstanding short delay - Three-day delay in filing the appeal can be condoned and the office should have issued a deficiency memo to inform the appellant to file an application for condonation. - HELD THAT: - The Commissioner (Appeals) dismissed the appeal as barred by time because it was filed three days beyond the sixty-day period and no condonation application was on record. The Tribunal observed that, where a short delay exists and the appellate office proceeds to number the appeal and issue notices for final hearing without issuing a defect/deficiency memo pointing out the delay, the appellant is deprived of the opportunity to seek condonation. Reliance was placed on the principle articulated by the Madras High Court that the appellant ought to have been called upon to explain maintainability and, if given that opportunity, could have filed an application to condone the delay. Given that the appeal was prepared in time but filed belatedly and that no notice was given to the appellant about the delay, the Tribunal found the three-day delay prima facie explicable and condonable. [Paras 3, 4, 6, 7]

The short delay of three days is condoned; the office should have issued a deficiency memo and the appellant was entitled to an opportunity to seek condonation.

Inclusion of subsidy in transaction value - effect of promotional subsidy on selling price - binding effect of Tribunal precedent on merits - Subsidy under the Rajasthan Investment Promotion Scheme, 2010 is not includible in the transaction value; the appeal is allowed on merits following the Tribunal's earlier decision in Harit Polytech. - HELD THAT: - The Superintendent's order raised the question whether an amount collected as sales tax but not deposited, and subsidy under the Rajasthan Investment Promotion Scheme, 2010, should be treated as additional consideration for assessing central excise duty. The Tribunal referred to its earlier decision in Harit Polytech where it held that the subsidy under the promotion policy does not reduce the selling price, is not additional consideration, does not affect the selling price, and provisions of the State VAT Act were inapplicable to the facts. As the Commissioner (Appeals) had not examined the merits due to dismissal on limitation grounds, the Tribunal declined to remit the matter and proceeded to decide the appeal on merits. Applying the principles in Harit Polytech, the Tribunal concluded that the impugned order could not be sustained. [Paras 9, 11, 12, 13]

The impugned orders are set aside on merits; the subsidy is not includible in transaction value and the appeal is allowed.

Final Conclusion: The three-day delay in filing the appeal is condoned; the Commissioner (Appeals) and Superintendent orders are set aside and the appeal is allowed on merits pursuant to the Tribunal's precedent that the promotional subsidy does not form part of the transaction value.