TaxTMI Login
Just a moment...
By creating an account you can:
of 45
Press 'Enter' after typing page number.
of 45Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of 45Press 'Enter' after typing page number.
of 45Press 'Enter' after typing page number.
All Daily Newsletter
of 45Press 'Enter' after typing page number.
All Daily Newsletter
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
Issues: Whether the impugned order of the High Court called for interference in proceedings arising from a show cause notice and whether the petition deserved dismissal.
Analysis: The Court recorded that counsel for both sides addressed the materials on record, including the show cause notice, the relevant legal provision and the pleadings. On that basis, it found no error, much less any error of law, in the High Court's order. The Court also directed that adjudication on the show cause notice should proceed expeditiously and in accordance with law, leaving all contentions open before the adjudicating authorities.
Conclusion: The impugned order was upheld and the petition was dismissed.
Maintainability of second petition - Seeking to release/ provide the original copy of documents seized by the Respondent from the premises of the Petitioner during various searches conducted and not relied upon in the SCN - permission to submit detailed reply within a period of 30 (Thirty) days from the release/ provision of the original copy of documents seized by the Respondent - direction to allow the Petitioner to cross- examine the witnesses whose evidence has been relied upon in the show cause notices upon release/ provision of the original copy of documents seized by the Respondent - It was held by High Court that 'the respondents have relied on the statements of 11 witnesses in the SCN and all have been produced in the adjudication proceedings and all have been cross examined by the petitioner, this petition is absolutely misconceived and filed with a malafide intention to install the adjudication of the show cause notice proceedings.'
HELD THAT:- There are no error not to speak of any error of law could be said to have been committed by the High Court in passing the impugned order.
This petition fails and is hereby dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether input tax credit could be denied and reversed under Section 74 of the GST Act where the purchasing dealer bought goods from a seller who was registered on the date of transaction, had filed returns and deposited tax, but whose registration was cancelled subsequently.
1.2 Whether, in the facts of the case, the statutory conditions of Section 16 of the GST Act for availing input tax credit stood satisfied by the purchasing dealer.
1.3 Whether initiation and continuation of proceedings under Section 74 of the GST Act against the purchasing dealer were justified in the absence of any fraud, wilful misstatement or suppression on its part.
1.4 Whether the burden to prove actual movement of goods and genuineness of the transaction was discharged by the purchasing dealer, and whether the precedents relied on by the revenue regarding proof of movement of goods were applicable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Denial of input tax credit under Sections 16 and 74 where the seller was registered and had paid tax; effect of subsequent cancellation of seller's registration
Legal framework (as discussed)
2.1 The Court referred to Section 16 of the GST Act to note that input tax credit can be availed by a purchasing dealer upon satisfaction of statutory conditions, including that the tax in respect of the supply has been paid by the selling dealer. Section 74 permits initiation of proceedings for recovery where input tax credit has been wrongly availed or utilized by reason of fraud, wilful misstatement or suppression of facts.
Interpretation and reasoning
2.2 The Court found from the record that the purchasing dealer had shown its purchases from a dealer who was undisputedly registered at the time of the transaction.
2.3 The record showed that the selling dealer had filed GSTR-1 and GSTR-3B up to the relevant period, and for the supplies made to the purchasing dealer the tax had been paid and deposited with the department.
2.4 The Court noted that payments for the purchases, including the tax component, were made through banking channels. It was not the case of the revenue that either the purchasing dealer or its supplier were unregistered on the transaction date; rather, the supplier's registration was cancelled only subsequently.
2.5 The Court observed that under the GST mechanism, filing of GSTR-1 enables auto-population of GSTR-2A for the recipient and opens the window for filing GSTR-3B by the supplier for payment of tax. The existence of GSTR-3B and GSTR-2A entries, auto-populated in accordance with the statute, was not disputed by the authorities, yet the impugned orders did not deal with these forms and proceeded on the contrary assumption that there was no material showing deposit of tax by the seller.
2.6 The Court held that where the selling dealer was registered on the date of transaction, the tax in respect of the supply stood deposited with the department, and the transaction was duly reflected in statutory returns and payment was made through banking channel, the conditions under Section 16 stood satisfied for the purchasing dealer to claim input tax credit.
2.7 The Court further held that subsequent cancellation of the seller's registration, especially when done with effect from a date after the transaction, could not retrospectively affect the purchasing dealer's entitlement to input tax credit for that transaction, and no adverse inference could validly be drawn against the purchaser solely on such subsequent cancellation.
2.8 Relying on binding and coordinate precedents, the Court reiterated that if on the date of transaction the seller was a registered dealer, the transaction and the invoice cannot ordinarily be doubted for purposes of input tax credit, and input tax credit ought to be granted when the tax has in fact been deposited with the revenue.
Conclusions
2.9 The Court concluded that the statutory requirements of Section 16 for availing input tax credit were fully complied with by the purchasing dealer.
2.10 The denial and reversal of input tax credit on the ground of alleged non-genuineness of the seller or subsequent cancellation of the seller's registration were held to be unsustainable.
Issue 3: Validity of proceedings under Section 74 in absence of fraud, wilful misstatement or suppression by the purchasing dealer
Legal framework (as discussed)
3.1 The Court, referring to prior decisions, reiterated that Section 74 of the GST Act can be invoked only when input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful misstatement or suppression of facts to evade tax.
Interpretation and reasoning
3.2 The Court noted that the case was proceeded with against the purchasing dealer on the basis of an investigation in another State alleging that multiple suppliers were involved in fictitious transactions and that no actual trading activity existed at their premises. However, as far as the purchasing dealer was concerned, the material on record clearly showed purchases from a registered dealer, proper tax invoices and e-way bill, banking channel payments, and filing of returns by the seller with deposit of tax.
3.3 The Court observed that there was no finding or material establishing fraud, wilful misstatement, or suppression of facts on the part of the purchasing dealer. The impugned orders proceeded essentially on assumptions regarding the supplier and its supply chain, without addressing the documentary compliance by the purchasing dealer.
3.4 On this basis, and following prior decisions of the same Court, the Court held that the factual scenario did not fall within the mischief contemplated by Section 74 and could not justify proceedings under that provision against the purchasing dealer.
Conclusions
3.5 The initiation and continuation of proceedings under Section 74 against the purchasing dealer were held to be without jurisdictional foundation, as the essential pre-conditions of fraud, wilful misstatement or suppression were absent.
3.6 The orders passed under Section 74, including reversal of input tax credit, demand of interest and imposition of penalty, were held liable to be quashed.
Issue 4: Burden of proving movement of goods; applicability of revenue's precedents
Interpretation and reasoning
4.1 The revenue argued that the purchasing dealer had failed to adduce cogent material to prove actual movement of goods and that the burden to prove such movement lay on the dealer claiming input tax credit, relying on decisions emphasizing strict proof for exemptions, deductions, or input tax credit.
4.2 The Court distinguished the precedents cited by the revenue on the ground that, in the present case, all relevant documents and statutory compliances were on record: valid registration of the seller at the time of transaction, tax invoices, e-way bill, returns filed by the seller, auto-populated GSTR-2A entries for the purchaser, GSTR-3B filed by the seller, and payments through banking channels, coupled with actual deposit of tax with the department which was not disputed.
4.3 The Court held that in such circumstances, and in light of the statutory return mechanism and the undisputed deposit of tax, the burden placed on the purchasing dealer regarding the genuineness of the transaction and movement of goods stood adequately discharged. The mere fact of a later cancellation of the seller's registration or adverse findings in respect of the seller could not, by itself, negate the purchaser's evidentiary showing.
Conclusions
4.4 The Court held that the precedents relied upon by the revenue regarding proof of movement of goods and strict construction of exemptions/deductions did not advance the revenue's case in the present factual and statutory matrix.
4.5 The Court concluded that the purchasing dealer had sufficiently established its entitlement to input tax credit and that the contrary findings in the impugned orders were inconsistent with the record and the applicable legal position.
Overall disposition
4.6 On the cumulative reasoning that the conditions under Section 16 were fulfilled, that Section 74 was wrongly invoked, and that the subsequent cancellation of the seller's registration did not affect the purchaser's vested right to input tax credit for a genuine, tax-paid transaction, the Court quashed the impugned orders and allowed the petition.
Recovery of tax with interest and penalty - inadmissible ITC have been acquired or transferred through inward and outward transaction on the basis of fictitious invoice without actual movement of goods - validity of proceedings against the purchasing dealer - petitioner has failed to prove any cogent material that the goods have been purchased from the registered dealer and there was actual movement of goods - burden of prove on selling dealer - HELD THAT:- The record shows that the supplier has filed GSTR-1 and GSTR-3B. It is the matter of common knowledge that after filing GSTR-1, an auto operating window opens for filing GSTR-3B for payment of tax and GSTR-2A can be viewed by the purchaser of the goods in question. Once the said form was generated and the said facts have not been disputed by any of the authorities while passing the impugned orders, the authorities have failed to consider the fact that GSTR-3B and GSTR-2A, as prescribed under the Act, which was auto populated to which not a single word has been whispered in the impugned orders. Contrary, an observation has been made against the petitioner that has failed to bring on record any cogent material that the seller has deposited the tax is against the record.
This Court in the case of Solvi Enterprises [2025 (3) TMI 1313 - ALLAHABAD HIGH COURT] has categorically held that the proceedings under Section 74 of the GST Act can be initiated against the dealer if ITC has wrongly been availed or utilized by reason of fraud or willful wrong statement of facts or by means of fraud and upon adjudication can recover the same but the case in hand is not such.
Further, the Apex Court recently in the case of Shakti Karan India Ltd. [2025 (10) TMI 607 - SC ORDER] has categorically held that on the date of transaction the selling dealer was registered. Neither the transaction nor the invoice in question can be doubted and ITC should have been granted.
Similarly, in the case of M/s Safecon Lifescience Pvt. Ltd. vs. Additional Commissioner Grade 2 and another [2025 (9) TMI 919 - ALLAHABAD HIGH COURT] this Court has taken the similar view. Further the judgment relied upon by the revenue is not of any aid as the case in hand, all the documents were on record. Moreover, the payment of tax made by the petitioner to its selling dealer have already been deposited with the revenue and the same has not been disputed at any stage.
The impugned order cannot be sustained and are hereby quashed - Petition allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the appellate authority under Section 107 of the WBGST Act, 2017/CGST Act, 2017 has power to waive the mandatory statutory pre-deposit prescribed under Section 107(6).
1.2 Whether recovery by the tax authorities of an amount exceeding 10% of the disputed tax satisfies the statutory condition of pre-deposit under Section 107(6), thereby requiring the appellate authority to hear the appeal on merits without insisting on any further pre-deposit.
1.3 Whether, in the circumstances of delay in approaching the High Court and the non-functioning of the Appellate Tribunal under Section 112, the dismissal of the appeal for non-compliance with pre-deposit should be set aside and the matter remanded for decision on merits, and whether any order of refund of recovered tax should be made.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Power of appellate authority to waive mandatory pre-deposit under Section 107(6)
Interpretation and reasoning:
The Court held that the appellate authority functioning under Section 107 of the said Act of 2017 has no power to waive the mandatory statutory pre-deposit requirement. The condition in Section 107(6) is mandatory in nature and not discretionary, and the appellate authority is bound by the statute.
Conclusions:
The appellate authority lacked jurisdiction to entertain an application seeking waiver of the statutory pre-deposit and correctly dismissed the appeal for non-compliance with the mandatory requirement. On this limited aspect, the impugned order could not be faulted.
Issue 2 - Effect of prior recovery exceeding 10% of disputed tax on the requirement of pre-deposit
Interpretation and reasoning:
The Court noted that subsequent to the appellate order, the GST authorities had proceeded to recover the entire disputed tax. Since the statutory pre-deposit required under Section 107(6) is 10% of the disputed tax, the Court treated the recovery of an amount more than 10% of the disputed tax as satisfying the statutory condition of pre-deposit.
In view of such recovery, there was no further purpose in insisting on an additional deposit for maintaining the appeal. The condition prescribed by Section 107(6) stood substantially complied with by reason of the recovery already effected.
Conclusions:
The precondition of depositing 10% of the disputed tax under Section 107(6) stood satisfied by recovery already made by the authorities. The appellate authority, upon remand, is required to hear the appeal on merits without demanding any further pre-deposit from the petitioner.
Issue 3 - Remand of appeal despite delay and non-functioning of the Appellate Tribunal; refusal of refund
Interpretation and reasoning:
The Court considered that the petitioner could not press the appeal before the appellate authority due to non-fulfilment of the mandatory pre-deposit condition and that the final fact-finding authority, namely the Appellate Tribunal under Section 112 of the said Act of 2017, was not yet functional. In such circumstances, denial of an opportunity to have the appeal decided on merits would be inappropriate.
The Court took into account the reasons advanced by the petitioner for delay in approaching the High Court, including financial hardship arising from recovery of substantial sums and the petitioner's wait for the Appellate Tribunal to become functional, as also the explanations in the supplementary affidavit.
At the same time, the Court noted that the petitioner had approached the Court long after the disputed tax had been recovered. Having regard to this delay, and the fact that the appeal itself was being restored for adjudication on merits, the Court declined to pass any order for refund of the amounts already recovered.
Conclusions:
The impugned order dismissing the appeal for want of pre-deposit was set aside, and the matter was remanded to the appellate authority to consider and decide the appeal on merits.
The appellate authority was directed to proceed without requiring any additional pre-deposit, since an amount exceeding 10% of the disputed tax had already been recovered.
No order of refund of the recovered tax was made in view of the petitioner's delayed approach to the Court.
Dismissal of petitioner’s appeal against an order passed u/s 74 of WBGST Act, 2017/CGST Act, 2017 on the ground of noncompliance with the mandatory condition of statutory pre-deposit - power of appellate authority under Section 107 of the Act to waive the mandatory condition of pre-deposit - HELD THAT:- Having regard to the fact that the petitioner could not press its appeal before the appellate authority for want of compliance with the mandatory condition of pre-deposit in terms of Section 107(6) of the said Act of 2017 and the fact that the final fact finding authority i.e. the Appellate Tribunal has not yet become functional, this Court is of the view that if the petitioner is not afforded an opportunity of pressing his appeal before the appellate authority on merits. Accordingly the order impugned dated May 11, 2023 passed by the appellate authority is set aside and the matter is remanded to the appellate authority for considering the appeal on merits.
It is clarified that since an amount more than 10% of the disputed tax has already been recovered and the precondition of putting in the pre-deposit equivalent to 10% of the disputed tax in terms of the Section 107(6) stands satisfied, therefore the appellate authority shall proceed to hear the petitioner’s appeal on merits, without requiring the petitioner to make any further pre-deposit. It is also clarified that since the petitioner has approached this Court much later to the date when the disputed tax was recovered, no order of refund is being made at present.
Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether a writ petition under Article 226 challenging an order-in-original involving alleged fraudulent availment of Input Tax Credit is maintainable in the presence of an efficacious statutory appellate remedy under Section 107 of the Central Goods and Services Tax Act, 2017.
1.2 Whether there was a violation of the principles of natural justice on account of alleged non-grant of proper hearing and a typographical error in the due date for filing reply in the show cause notice.
1.3 Whether directions are warranted to the tax administration to exercise greater caution in recording material particulars such as financial years and due dates in show cause notices and orders.
---2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Maintainability of writ petition in presence of appellate remedy under Section 107 CGST Act in fraudulent ITC matters
Legal framework (as discussed)
2.1 The Court referred to Section 107 of the Central Goods and Services Tax Act, 2017 providing a statutory appellate remedy against orders-in-original.
2.2 The Court relied on the principles laid down by the Supreme Court in "The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited" on when writ jurisdiction under Article 226 may be exercised despite an alternate remedy, viz., only in exceptional circumstances involving: (i) breach of fundamental rights; (ii) violation of principles of natural justice; (iii) excess of jurisdiction; or (iv) challenge to vires of statute/delegated legislation.
Interpretation and reasoning
2.3 The Court noted that the impugned order arises from an investigation into large-scale fraudulent availment of Input Tax Credit, involving 16 taxpayers, 79 allegedly fake entities, 1155 recipients and transfer of ITC exceeding Rs. 122 crores, with the petitioner being one of the noticees and saddled with liability in the impugned order.
2.4 The Court reiterated its consistent view that in matters involving fraudulent availment of ITC, writ jurisdiction ought not ordinarily to be exercised, since such cases involve complex, interlinked transactions, voluminous evidence and detailed factual determinations, which are more appropriately examined by the statutory appellate authority.
2.5 The Court emphasized the systemic impact and burden on the exchequer of fraudulent ITC claims, observing that misuse of the Input Tax Credit mechanism under Section 16 CGST Act, if unchecked, would create a serious dent in the GST regime.
2.6 The Court relied on its earlier decisions in similar ITC fraud matters (including those in Mukesh Kumar Garg, Sheetal and Sons, MHJ Metal Techs and Toshniwal Electricals) where petitioners were relegated to the appellate remedy under Section 107, noting that such approach had been accepted by the Supreme Court (which only extended time to file appeal in the MHJ Metal Techs matter).
2.7 The Court found that the impugned order is a detailed, appealable order; no case was made out of any of the exceptional grounds (breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to vires) that alone could justify bypassing the appellate remedy.
2.8 The Court also observed that entertaining writ petitions in such fact-intensive ITC fraud matters could result in multiplicity of proceedings and potentially contradictory findings across forums.
Conclusions
2.9 The writ petition was held not maintainable in view of the efficacious statutory remedy under Section 107 CGST Act, particularly considering the nature of the allegations of fraudulent ITC and the need for factual adjudication by the appellate authority.
2.10 The petitioner was relegated to avail the appellate remedy under Section 107 of the CGST Act, with liberty to file appeal by a specified outer date along with requisite pre-deposit, and with a direction that if so filed, the appeal shall be entertained on merits and not dismissed on limitation.
---Issue 2 - Alleged violation of natural justice due to lack of hearing and typographical error in due date
Interpretation and reasoning
2.11 The petitioner contended that no proper hearing was afforded and that there was a typographical error in the show cause notice specifying the due date for reply as 28th August 2025 instead of 28th August 2024, asserting violation of principles of natural justice.
2.12 The Court noted that even if the erroneously printed date (28th August 2025) is taken at face value, there is nothing on record to show that the petitioner ever filed any reply to the show cause notice.
2.13 The Court held that the typographical error in mentioning the due date was "merely an error" which could not be taken advantage of by the petitioner's counsel, especially in the absence of any substantive reply on record.
2.14 The Court observed that the show cause notice had been properly uploaded on the portal and that, even as per the petitioner's own showing, they had written to the Department seeking certain documents, which indicates knowledge of proceedings and opportunity to participate.
2.15 The Court, while relying on the Supreme Court's formulation in Commercial Steel, found that the facts of the case do not disclose a real violation of principles of natural justice that would justify exercise of writ jurisdiction in the face of an alternative remedy.
Conclusions
2.16 The Court rejected the plea of violation of natural justice, holding that neither the alleged lack of hearing nor the typographical error in the due date for filing reply constituted sufficient ground to bypass the statutory appellate remedy under Section 107 CGST Act.
2.17 The petitioner was directed to raise all factual and legal contentions, including those relating to alleged procedural deficiencies, before the appellate authority.
---Issue 3 - Directions to tax administration on accuracy in show cause notices and orders
Interpretation and reasoning
2.18 While holding against the petitioner on maintainability and natural justice, the Court noted the existence of errors such as incorrect financial years and due dates for replies in show cause notices and orders, and considered it appropriate to address systemic concerns.
2.19 The Court "advised" the CGST Department to exercise caution in future while mentioning financial years, due dates for replies and other material particulars to avoid recurrence of such errors, especially in high-stake and large-scale proceedings.
2.20 The Court directed that a copy of the order be communicated to the Chief Commissioner of Central Tax, CGST, Delhi Zone, for information and compliance, and that the order be circulated to all Commissionerates highlighting that there are many errors in orders and show cause notices, so that they may be properly supervised and rectified.
Conclusions
2.21 The Court issued administrative directions to the tax administration to improve accuracy and supervision in issuance of show cause notices and orders, without granting any substantive relief to the petitioner on that ground.
Maintainability of petition - availability of alternative remedy - fraudulent availment of Input Tax Credit - absence of proper opportunity of hearing - violation of principles of natural justice - HELD THAT:- This Court has consistently taken the view that in cases involving fraudulent availment of ITC, ordinarily, the Court would not be inclined to exercise its writ jurisdiction. It is routinely seen in such cases that there are complex transactions involved which require factual analysis and consideration of voluminous evidence, as also the detailed orders passed after investigation by the Department. In such cases, it would be necessary to consider the burden on the exchequer as also the nature of impact on the GST regime, and balance the same against the interest of the Petitioners, which is secured by availing the right to statutory appeal.
It would be apposite to refer to some of the cases which have been decided by the Supreme Court as also by this Court on these aspects. The Supreme Court in the context of Central Goods and Service Tax Act, 2017, has, in The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited [2021 (9) TMI 480 - SUPREME COURT] held that 'There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises. However, since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.'
In matters of this nature, where there are a large number of notices who are connected to each other, the SCN has been properly uploaded on the portal and no satisfactory reply is filed by the Petitioner, the Court shall not interfere. Even according to Mr. S.B. Sharma, ld. Counsel, the Petitioner had written a letter to the Department seeking certain documents - Under such circumstances, there is no reason as to why this Court should adopt a different approach in the present case. Accordingly, following the decision in Toshniwal Electricals Pvt Ltd [2025 (11) TMI 240 - DELHI HIGH COURT] the Petitioner is also relegated to avail of the appellate remedy under Section 107 of the Central Goods and Service Tax Act, 2017, in accordance with law.
The petition is disposed of.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether a writ petition challenging an Order-in-Original confirming GST demand on alleged fraudulent availment/passing on of ITC is maintainable when an efficacious alternative appellate remedy under Section 107 of the CGST Act is available.
2. Whether non-issuance of a pre-Show Cause Notice consultation in terms of Rule 142(1A) of the CGST Rules, 2017, after its amendment by Notification No. 79/2022-Central Tax, renders the Show Cause Notice dated 12 March 2025 and the consequential Order-in-Original invalid.
3. How the pending challenge to the validity of Notification No. 79/2022-Central Tax and the interpretation of amended Rule 142(1A) affect the present proceedings and the remedies available to the petitioner.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Maintainability of writ petition in presence of alternative remedy and in a case of alleged fraudulent ITC
Interpretation and reasoning
The Court noted that the case concerns alleged large-scale fraudulent availment and passing on of ITC involving multiple entities and transactions worth crores of rupees. The respondent relied on prior decisions of the Court holding that in such matters of fraudulent ITC, writ petitions are generally not maintainable, and assessees must ordinarily pursue the statutory appellate remedy. The Court observed that the petitioner's limitation period for filing an appeal under Section 107 of the CGST Act had not expired. It also recorded that the petitioner had already deposited Rs. 1.66 crores during investigation, which could be adjusted towards the pre-deposit required for the appeal.
Conclusions
The Court held that, in the circumstances of alleged fraudulent ITC involving complex transactions and given the availability of an efficacious appellate remedy under Section 107 of the CGST Act within the limitation period, it was not inclined to entertain the writ petition. The petitioner was relegated to the appellate remedy, with liberty to file an appeal and to seek adjustment of the amount of Rs. 1.66 crores as pre-deposit.
Issue 2: Effect of non-issuance of pre-SCN consultation under amended Rule 142(1A)
Legal framework
The Court extracted Rule 142(1A) of the CGST Rules, 2017 as amended with effect from 15 October 2020, which provides that the proper officer "may" before service of notice under Sections 73 or 74 communicate the details of tax, interest and penalty ascertained by him in Part A of FORM GST DRC-01A. The Court noted that prior to the amendment the rule used the expression "shall". It referred to its earlier decision in Gulati Enterprises which distinguished between the pre-amendment and post-amendment positions, holding that pre-SCN consultation was mandatory only for SCNs issued prior to the amendment. It also referred to Banson Enterprises and Zeta International, where the Court had considered the post-amendment regime.
Interpretation and reasoning
The petitioner argued that absence of a pre-SCN consultative notice under Rule 142(1A) vitiated the SCN dated 12 March 2025 and the Order-in-Original, contending that this issue had not been considered in the Order-in-Original and challenging the amendment which changed "shall" to "may". The Court noted that, in Banson Enterprises, it had already been held that after the amendment brought in by Notification No. 79/2022-Central Tax, issuance of a pre-SCN consultation notice is no longer mandatory. The Court further observed that, particularly in cases of large-scale fraudulent ITC involving a complex maze of transactions and multiple entities with high-value demands, pre-SCN consultation would, in its prima facie view, be of little or no practical significance, unlike in simple or straightforward transactions. The Court indicated that even where searches are conducted, parties can tender illegally obtained amounts, but usually do not, reinforcing the limited utility of pre-consultation in such fraud cases.
Conclusions
The Court concluded that, post-amendment of Rule 142(1A) by Notification No. 79/2022-Central Tax (effective 15 October 2020), issuance of a pre-SCN consultation notice is not mandatory. Since the SCN in the present case was issued on 12 March 2025, after the amendment came into force, non-issuance of a pre-SCN consultation did not render the SCN or the Order-in-Original invalid and did not justify interference in writ jurisdiction.
Issue 3: Effect of pending challenge to Notification No. 79/2022-Central Tax and future proceedings
Legal framework
The Court recorded that Notification No. 79/2022-Central Tax, which amended Rule 142(1A) from "shall" to "may", had itself been challenged and that such challenge was already pending before the Court. It referred to the decision in Zeta International, wherein under similar circumstances and considering the same Notification, the Court had held that pre-SCN consultation is not mandatory after the amendment.
Interpretation and reasoning
While the petitioner sought to question the constitutional or legal validity of Notification No. 79/2022-Central Tax within the present writ, the Court noted that this very challenge is sub judice in other proceedings. It held that there was no occasion in this writ to reopen or independently determine that issue. Instead, it clarified how the pending adjudication would impact the petitioner's statutory appeal.
Conclusions
The Court held that the decision to be rendered in the pending matter in Zeta International regarding Notification No. 79/2022-Central Tax and amended Rule 142(1A) would bind the further proceedings in the petitioner's appeal under Section 107 of the CGST Act and thereafter. The Court disposed of the writ on this basis, expressly stating that its observations would not affect the merits of the case before the appellate authority.
Recovery of ITC availed/utilized in excess with interest and penalty - no Pre-SCN Consultative Notice in terms of Rule 142 (1A) of the Goods and Services Tax Rules, 2017 - violation of principles of natural justice - HELD THAT:- In Banson Enterprises [2025 (5) TMI 1438 - DELHI HIGH COURT], this very issue has been considered by this Court. It is noticed that after the change, which has been brought about, the issuance of pre-SCN consultation notice would not be mandatory. Moreover, in the case of such large scale fraudulent availment of ITC with multiple entities, pre-SCN consultation notice may also have no impact. In the prima facie opinion of the Court such a notice would be having some bearing, only when certain simple transactions are noted. In such complex maze of transactions involving multiple parties, worth crores of rupees, pre-consultation would be meaningless due to the nature of the issues involved. In fact even when searches etc., are conducted, parties can always tender the illegally obtained amounts, but they do not do so usually.
In any event, the challenge to Notification No. 79/2022-Central Tax is already pending before this Court and the SCN in this case has been issued on 12th March, 2025 i.e., after the coming into effect of the said notification. The Petitioner has also deposited a sum of Rs.1.66 crores during the course of investigation, which can also be adjusted towards the pre-deposit.
Insofar as the Petitioner is concerned, the limitation period has also yet not expired. Accordingly, the Petitioner is free to avail of its appellate remedy under Section 107 of the CGST Act - Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the writ petition under Article 226 challenging a demand order relating to alleged fraudulent availment of Input Tax Credit is maintainable in the presence of an alternative statutory appellate remedy under Section 107 of the Central Goods and Services Tax Act, 2017.
1.2 Whether the alleged non-issuance / non-service of a show cause notice upon the petitioner and the incorrect mention of the financial year in Form DRC-07 render the adjudication order and demand unsustainable for violation of principles of natural justice or for being legally invalid.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Maintainability of writ petition in presence of statutory appellate remedy under Section 107 of the CGST Act in cases of alleged fraudulent ITC
Legal framework
2.1 The Court referred to Section 107 of the CGST Act providing a statutory remedy of appeal against adjudication orders and to the principles laid down by the Supreme Court in relation to maintainability of writ petitions under Article 226 where an alternative remedy exists, particularly in the context of tax proceedings.
2.2 The Court relied upon the decision of the Supreme Court which held that although availability of an alternative remedy is not an absolute bar, writ jurisdiction should be exercised only in exceptional circumstances, namely: (i) breach of fundamental rights; (ii) violation of principles of natural justice; (iii) excess of jurisdiction; or (iv) challenge to the vires of the statute or delegated legislation, and that factual assessment is to be undertaken by the appellate authority.
2.3 The Court also relied upon its own earlier decisions in matters involving fraudulent availment of ITC, where it consistently declined to exercise writ jurisdiction and relegated parties to the appellate remedy under Section 107 of the CGST Act, keeping in view the nature of allegations, complexity of transactions, burden on the exchequer, and impact on the GST regime.
Interpretation and reasoning
2.4 The Court noted that the allegations relate to fraudulent availment of ITC from non-existent firms, involving complex transactions and a detailed investigation culminating in a speaking adjudication order and corresponding demand, including in respect of several entities.
2.5 The Court reiterated its consistent approach that cases of fraudulent ITC, which generally involve a "complex maze of transactions" and detailed fact-finding, are unsuitable for adjudication under writ jurisdiction, as the factual matrix, the role of the assessee, the correctness and proportionality of penalties, and the appreciation of evidence fall within the province of the statutory appellate authority.
2.6 The Court emphasized that the GST Input Tax Credit regime under Section 16 of the CGST Act is a key, business-friendly feature of the GST framework and that its misuse through fictitious or non-existent suppliers, without actual supply of goods or services or deposit of output tax, poses a serious threat to the GST regime and the public exchequer, which justifies reluctance in entertaining writ petitions in such matters.
2.7 The Court followed its earlier pronouncements that writ jurisdiction should not be exercised to aid "unscrupulous litigants" in such fraudulent ITC cases and that permitting parties to pursue parallel or alternative forums in such matters leads to multiplicity of proceedings and a risk of contradictory findings.
2.8 The Court noted that the impugned order is appealable under Section 107 of the CGST Act, and that in similar circumstances, in earlier matters, the Court had declined to entertain writ petitions and granted liberty to file appeals, with extended time where warranted; such an approach had also been upheld or recognized by the Supreme Court, which had in some cases only extended time for filing the statutory appeal.
Conclusions
2.9 The Court held that no exceptional circumstance was established to justify exercise of writ jurisdiction under Article 226 in the face of the available statutory appellate remedy under Section 107 of the CGST Act.
2.10 The Court therefore declined to entertain the writ petition on merits and relegated the petitioner to avail the appellate remedy, while granting liberty to file an appeal against the adjudication order and the DRC-07 and directing that, if filed by the stipulated extended date with the requisite pre-deposit, the appeal shall be decided on merits and not dismissed on limitation.
Issue 2 - Effect of alleged non-service of show cause notice and incorrect financial year in DRC-07 on validity of adjudication and demand; plea of violation of natural justice
Legal framework
2.11 The petitioner relied upon Section 73 of the CGST Act read with Rule 142(1A) of the CGST Rules and emphasized the mandatory nature of the requirement of issuance of show cause notice by referring to the use of the word "shall".
Interpretation and reasoning
2.12 The petitioner's principal contention was that no show cause notice had been issued to it prior to passing of the adjudication order, thereby rendering the order void for lack of notice and violation of principles of natural justice; the petitioner also pointed out that the DRC-07 mentioned the wrong financial year.
2.13 On behalf of the department, it was submitted, with supporting documents, that a common show cause notice had in fact been issued on 1 August 2024 to all noticees, including the petitioner, and that the notice was sent to the registered email address of the petitioner and uploaded on the GST portal; it was further clarified that the DRC-07's reference to financial year 2017-18 was an inadvertent error, whereas the show cause notice and the proceedings related to FY 2023-24.
2.14 The Court examined the email dated 1 August 2024, noting that it was addressed from the department's email and showed the petitioner's registered email ID as one of the recipients. The Court observed that there was no categorical disclosure in the writ petition that the email was not received; nor was a proper rebuttal placed on record regarding non-receipt. At the hearing, a copy of the petitioner's reply dated 10 August 2024 was produced, which indicated that the petitioner had responded to the proceedings.
2.15 In light of the material produced, the Court held that it was not in dispute that the email dated 1 August 2024 was received by the petitioner and that the petitioner was under a duty to appear and participate fully in the adjudication proceedings, which undermined the plea of absence of show cause notice or violation of natural justice.
2.16 As regards the incorrect mention of the financial year as 2017-18 in DRC-07, the Court treated this as an "inadvertent error", especially since the show cause notice and substantive proceedings related to FY 2023-24. The Court found that such a mistake in DRC-07 could not be characterized as a "fatal error" vitiating the entire adjudication or demand.
Conclusions
2.17 The Court concluded that the requirement of issuance and service of a show cause notice had been substantially complied with, that the petitioner had notice of the proceedings and an opportunity to respond, and that no violation of principles of natural justice was made out on that ground.
2.18 The Court further concluded that the misdescription of the financial year in DRC-07 was a non-fatal, inadvertent error which did not, by itself, invalidate the adjudication order or the demand, and that such issues could appropriately be raised and examined in the statutory appeal.
2.19 On the combined effect of these findings, the Court held that neither the plea of absence of show cause notice nor the clerical error in DRC-07 constituted a ground to set aside the impugned order in writ proceedings, and that the petitioner's remedy lay in filing an appeal under Section 107 of the CGST Act within the extended time granted.
Violation of principles of natural justice - no SCN was issued to the Petitioner in this matter - reliability upon the word ‘shall’ in Section 73 read with Rule 142(1A) of the Central Goods and Services Tax Act, 2017 - fraudulent availment of ITC - HELD THAT:- This Court has consistently taken the view that in cases involving fraudulent availment of ITC, ordinarily, the Court would not be inclined to exercise its writ jurisdiction. It is routinely seen in such cases that there are complex transactions involved which require factual analysis and consideration of voluminous evidence, as also the detailed orders passed after investigation by the Department. In such cases, it would be necessary to consider the burden on the exchequer as also the nature of impact on the GST regime, and balance the same against the interest of the Petitioners, which is secured by availing the right to statutory appeal.
It is not in dispute that the email dated 01st August, 2024 was received by the Petitioner. The Petitioner had a duty to appear and to also participate in the proceedings fully. The SCN is also stated to have been uploaded on the GST portal but the same has not been placed on record. Ld. Counsel for the Respondent has placed it on record - Under these circumstances, while there could be an error in the DRC-07, the same cannot be held to be a fatal error. It would only be an inadvertent error.
This Court is of the view that the Petitioner can only be permitted to file an appeal challenging the impugned order and DRC-07. Similarly, this Court in M/S Ganpati Polymers v. Commissioner of Central Goods and Service Tax and Anr. [2025 (8) TMI 857 - DELHI HIGH COURT] had extended time for filing an appeal under Section 107 of the Central Goods and Services Tax Act, 2017.
The Petitioner is permitted to file an appeal, challenging the impugned order dated 01st February, 2025 along with the DRC-07 dated 18th February, 2025 - The appeal, if filed by 15th January, 2026, shall be adjudicated on merits and shall not be dismissed on the ground of limitation.
Petition disposed off.
Issues: Whether the assignment and sale of leasehold rights in a GIDC-allotted plot amounts to a taxable supply of service under the GST regime, and whether the resulting show-cause notice issued under the State GST law was sustainable.
Analysis: The Court followed the earlier binding view that a long-term lease granted by GIDC is distinct from a subsequent transfer of leasehold rights by the lessee to a third party. While the original allotment and lease-based enjoyment of the plot may fall within the inclusive scope of supply, the absolute transfer of leasehold rights by the lessee-assignor is a transfer of benefits arising out of immovable property. Such transfer is not treated as a supply of service under Section 7(1)(a) of the State Goods and Service Tax Act, 2017, read with Clause 5(b) of Schedule II and Clause 5 of Schedule III. Consequently, GST is not leviable on such assignment.
Conclusion: The transfer of leasehold rights was not exigible to GST and the impugned show-cause notice could not survive.
Final Conclusion: The writ petition was allowed and the demand proceedings founded on the notice were quashed.
Ratio Decidendi: Absolute transfer of leasehold rights in immovable property by a lessee to an assignee is not a supply of service under the GST law and is outside the charge of GST.
Validity of SCN issued u/s 74 of State Goods & Service Tax Act, 2017 - assignment of lease hold rights by the petitioner - supply of service under Section 7(1)(a) of the Act or not - HELD THAT:- This Court in various decisions has already decided that assignment by sale and transfer of lease hold right of the plot of land allotted by GIDC to the lessee in favour of third party – assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of “immovable property” by the lessee – assignor. In such circumstances, the provision of Section 7(1)(a) of the Act providing for scope of supply read with Clause 5(b) of Schedule 2 and Clause 5 of Schedule 3 of the Act would not be applicable to such transaction of assignment of lease hold rights and the same would not be subject to levy of GST as provided under Section 9 of the Act.
The impugned show-cause notice dated 23.09.2025 issued under Section 74of the Act in form GST DRC 01 is hereby quashed and set aside - Petition allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the software consultancy and related services provided by the petitioner to its overseas parent company constitute "export of services" or "intermediary" services under the Integrated Goods and Services Tax Act, 2017.
1.2 Whether the petitioner's refund claims of unutilised input tax credit on zero-rated supplies were barred by limitation under Section 54 of the Central Goods and Services Tax Act, 2017.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Characterisation of services as "export of services" or "intermediary" services
Legal framework
2.1 The Court referred to Section 2(6) of the IGST Act defining "export of services", which requires, inter alia, that: (i) the supplier is located in India; (ii) the recipient is located outside India; (iii) the place of supply is outside India; and (iv) payment is received in convertible foreign exchange or permitted Indian rupees; and that supplier and recipient are not merely establishments of a distinct person as per Explanation 1 to Section 8.
2.2 The Court also referred to Section 2(13) of the IGST Act defining "intermediary" as a broker, agent or any other person who arranges or facilitates the supply of goods or services or both between two or more persons, but excluding a person who supplies such goods or services on his own account.
2.3 Section 16 of the IGST Act, providing for "zero rated supply" including export of services, was noticed as the governing provision for treating supplies as zero-rated.
Interpretation and reasoning
2.4 The Court examined the services agreement between the petitioner (Indian entity) and its US parent company, particularly clauses 1.1.1, 1.1.2, 4.2 and 4.4. Under clause 1.1.1, the petitioner is to assist the US entity in carrying on the business of providing information services and consultancy in the business of software development, editorial services, customer support, sales and marketing of information management products, including setting up consultations and meetings between globally based experts and globally based clients and participating in business as consultants, agents, sub-agents, liaison agents/sub-agents for the US entity and foreign clients. Clause 1.1.2 contemplates consultancy in designing and developing programs and related technical and administrative operations.
2.5 On the basis of these clauses, the Court held that the petitioner is itself providing substantive services (software consultancy, information services, technical and business support) on its own account to its parent company, and is not merely arranging or facilitating supplies between the parent company and its customers without supplying any service itself. The scope of work shows that the petitioner is engaged in carrying on and assisting the business of the parent, rather than acting as a conduit between two other parties.
2.6 The Court also considered the commercial terms: under clause 4.2, the petitioner raises monthly invoices to the parent company for work completed, and is paid a fee equal to its costs plus an 8% markup, signifying that it earns profit on services supplied. Under clause 4.4, this fee is the full consideration; the petitioner bears all its own expenses, including taxes and operational costs, confirming that it is operating as an independent service provider and not as a mere intermediary compensated by commission or facilitation charges.
2.7 Dispute resolution clause 7.2, providing for arbitration between the petitioner and the parent company in case of disputes arising from the agreement, reinforced that the petitioner is a distinct and independent contracting party with its own rights and obligations, not an ancillary facilitator in a tri-partite arrangement.
2.8 The Court noted that the agreement is bipartite, involving only the petitioner and its parent company. There is no third-party recipient with whom the petitioner is arranging or facilitating a supply. This absence of a tri-partite structure is inconsistent with the statutory notion of "intermediary", which contemplates the arrangement or facilitation of supply "between two or more persons".
2.9 The Court thus accepted the petitioner's contention, supported by CBIC Circular No. 159/15/2021-GST, that none of the essential elements of "intermediary" service as elaborated therein were satisfied on the facts of the case.
2.10 The Court relied on decisions which had similarly held that entities providing services on a principal-to-principal basis to overseas group entities are not "intermediaries" but exporters of services, including the Delhi High Court decision in M/s. Ernst and Young Limited. It noted that where the services are not intermediary services, the place of supply is determined by the location of the recipient, and when the recipient is outside India, such services fall within Section 2(6) as "export of services".
Conclusions
2.11 The Court held that on a proper reading of the service agreement and the factual arrangement, the petitioner supplies services on its own account to its overseas parent company and does not arrange or facilitate supplies between the parent company and any third party.
2.12 The services provided by the petitioner are not "intermediary" services under Section 2(13) of the IGST Act but qualify as "export of services" under Section 2(6) read with Section 16 of the IGST Act.
2.13 The finding of the authorities below that the petitioner was providing intermediary services was held to be erroneous and was set aside.
Issue 2 - Limitation for refund claim under Section 54 of the CGST Act
Legal framework
2.14 The Court proceeded on the basis of Section 54(1) of the CGST Act, which prescribes a two-year limitation period from the "relevant date" for filing a refund application, and the procedure prescribed under Circular No. 17/17/2017-GST and Circular No. 24/24/2017-GST for filing refund applications, including filing on the common portal and subsequent physical submission.
2.15 The Court referred to its earlier decision in Charomotolab and Biotech Solutions, which interpreted the effect of the CBIC circular of 15.11.2017 prescribing physical submission of refund applications in addition to filing on the common portal.
Interpretation and reasoning
2.16 In Charomotolab and Biotech Solutions, extracted in detail, the Court had held that when a refund application in Form GST RFD-01A is filed on the common portal within the prescribed period and an ARN is generated, the date of filing on the portal must be treated as the relevant date for limitation purposes under Section 54, and subsequent physical submission of documents pursuant to a procedural circular cannot be used to treat the application as time-barred.
2.17 The Court noted that in the present case it was not in dispute that the petitioner had submitted the refund application and that the question of limitation turned on how the date of filing should be reckoned, in light of the statutory provision and applicable circulars.
2.18 Applying the principles from Charomotolab and Biotech Solutions, the Court accepted that a procedural circular cannot override the statutory right to refund within the two-year period under Section 54, and the filing within that period could not be denied on the basis that supporting documents or physical submission occurred later.
Conclusions
2.19 The Court concluded that the petitioner's refund applications, being in respect of zero-rated supplies treated as export of services, were filed within the limitation prescribed under Section 54 of the CGST Act.
2.20 The rejection of the refund claims on the ground of limitation was unsustainable.
Overall disposition
2.21 The Court held that the authorities had erred in classifying the petitioner's services as "intermediary" services and in rejecting the refund claims as time-barred. The impugned appellate order and the order-in-original rejecting the refund were quashed and set aside.
2.22 The respondents were directed to process the petitioner's refund claims treating the services as export of services and the claims as within limitation, and to complete the exercise in accordance with law within twelve weeks of receipt of the judgment.
Classification of service - export of service or intermediary services - software consultancy and related services provided by the petitioner to its overseas parent company - refund of unutilised input tax credit on zero-rated supplies - time limitation - HELD THAT:- Section 16 of IGST Act provides for zero rated supply. Section 16 defines the ‘zero rated supplies’ of export of goods or services or both. Therefore, the short question which is required to be answered is as to whether the service provided by the petitioner should be considered as export of service or intermediary service under provisions of IGST Act.
On perusal of the terms of the service agreement in question, it is apparent that the petitioner is required to assist the US entity in carrying on the business of providing information and consultancy in business of software development and for that purpose, the petitioner is required to set up consultations and meetings between globally based experts and globally based clients and to participate in any business of consultants, agents, sub-agents, liaison agents/liaison sub-agents for its parent company and foreign clients for such activities. The petitioner is also to provide advisory services for expansion of business, marketing, advertisement, publicity, personnel accounting to its parent company. Therefore, on conjoint reading of the scope of services to be provided by the petitioner, it cannot be said that the petitioner is only to work as an agent or a broker between parent company and its customers without supplying any goods or services on its own account - In view of the terms of the agreement executed between the petitioner and its parent company, it cannot be said that the petitioner was not exporting services but was working as an intermediary for its parent company. The petitioner is an independent company incorporated in India having distinct entity and in such circumstances, the service provided by the petitioner to its parent company was in independent capacity and not in the capacity of either agent or broker or any other person.
Both the authorities below have committed an error in holding that the petitioner was providing intermediary service to its parent company in the facts of the case. The respondents are directed to process the refund claim in accordance with the law considering the services provided by the petitioner as export of service to its parent company and refund claims are filed within the limitation.
The impugned order is therefore, accordingly quashed and set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether initiation of proceedings under Section 74 of the WBGST/CGST Act, 2017, on the basis of a show-cause notice dated June 14, 2024, in respect of the period July 2017 to March 2018 and in the context of TRAN-1 scrutiny, was within the jurisdiction of the GST authorities.
1.2 Whether the show-cause notice dated June 14, 2024, founded on alleged non-furnishing of documents, was vitiated for vagueness for not specifying the particular documents allegedly not supplied.
1.3 Whether the existence of an appellate remedy under Section 107 of the WBGST/CGST Act, 2017 barred the exercise of writ jurisdiction when a jurisdictional challenge and challenge to the validity of the show-cause notice were raised.
1.4 Whether, pending final adjudication of the writ petition, interim protection against coercive action pursuant to the adjudication order dated February 5, 2025, ought to be granted.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Jurisdiction of GST authorities to invoke Section 74 in the given factual context
2.1.1 Legal framework (as noticed by the Court)
The proceedings were initiated under Section 74 of the WBGST/CGST Act, 2017, on the basis of a show-cause notice dated June 14, 2024, alleging liability for the period July 2017 to March 2018 and arising out of scrutiny of TRAN-1 returns filed on transition from the service tax regime to the GST regime.
2.1.2 Interpretation and reasoning
The petitioners contended that: (i) the extended limitation under Section 74 could not be invoked in the manner adopted by the authorities for the said tax period; and (ii) the authorities had no jurisdiction to investigate affairs pertaining to service tax for the same period in the guise of scrutinizing TRAN-1 returns under the GST regime. The State respondents maintained that jurisdiction had been properly exercised and that the matter involved factual enquiry not warranting interference in writ jurisdiction.
The Court recorded that, in the facts and circumstances disclosed, it "needs to be assessed" whether the GST authorities "had/have jurisdiction" to issue the impugned show-cause notice under Section 74. On the materials presently available, the Court formed a prima facie view in favour of the petitioners on the jurisdictional challenge, treating it as a serious and arguable issue justifying examination in writ proceedings.
2.1.3 Conclusions
The Court held that a prima facie case had been made out questioning the jurisdiction of the GST authorities to issue the show-cause notice under Section 74 in the given factual matrix. Final determination was expressly reserved for decision after full hearing.
2.2 Validity of the show-cause notice - vagueness and non-specification of documents
2.2.1 Interpretation and reasoning
The petitioners asserted that: (i) the show-cause notice was premised solely on alleged non-furnishing of documents sought by the Central GST authorities; (ii) they had responded to the requisitions; and (iii) the notice failed to specify which documents were allegedly not provided, rendering it vague and unsustainable.
The Court noted, prima facie, that the show-cause notice was "vague" inasmuch as it was issued on the footing that "certain documents, which ought to have been provided...have not been provided", yet "the notice does not indicate or specify which document according to the respondent authorities was lacking". The Court observed that, on this ground alone, the show-cause notice "may not withstand scrutiny of Court", subject to a final decision after hearing all parties.
2.2.2 Conclusions
The Court concluded, at the prima facie stage, that the impugned show-cause notice suffered from vagueness due to non-specification of the missing documents and therefore may not withstand judicial scrutiny. The ultimate validity of the notice was kept open for final adjudication.
2.3 Maintainability of writ petition despite availability of alternative remedy under Section 107
2.3.1 Legal framework (as noticed by the Court)
The State respondents relied on the appellate remedy under Section 107 of the WBGST/CGST Act, 2017 as an "equally efficacious alternative remedy". The petitioners contended that the writ was maintainable as a jurisdictional issue had been raised and because the very foundation of the proceedings-the show-cause notice-was under challenge.
2.3.2 Interpretation and reasoning
The Court accepted that the matter involved a jurisdictional challenge as well as a challenge to the validity of the show-cause notice for vagueness. It took note of authorities cited by the petitioners where courts had intervened even at the show-cause stage on similar jurisdictional or foundational infirmities, and of a Co-ordinate Bench order granting protection in an "identical fact situation".
On consideration of submissions and material, the Court held that the petitioners had made out a prima facie case warranting interference notwithstanding the existence of a statutory appellate remedy, particularly because the jurisdiction of the authority and the legality of the show-cause notice itself were in question.
2.3.3 Conclusions
The Court implicitly held the writ petition to be maintainable at this stage despite the remedy under Section 107, since jurisdictional issues and foundational defects in the show-cause notice were involved. The matter was directed to be listed for further consideration on a subsequent date.
2.4 Grant of interim protection against coercive action on the basis of the adjudication order
2.4.1 Interpretation and reasoning
Noting that: (i) there was a pending jurisdictional challenge; (ii) the show-cause notice was, prima facie, vague and possibly unsustainable; and (iii) a "prima facie case" had been made out by the petitioners, the Court considered that allowing coercive steps to continue on the strength of the adjudication order dated February 5, 2025 would prejudice the petitioners before final adjudication of their challenge.
2.4.2 Conclusions
The Court restrained the GST authorities from taking any coercive action on the basis of the impugned adjudication order dated February 5, 2025 until further orders, and directed that the matter be listed for further consideration on a specified future date.
Challenge to adjudication order passed u/s 74 of the WBGST Act, 2017/CGST Act, 2017 - validity of initiation of proceeding u/s 74 of the said Act of 2017 on the basis of a show-cause notice dated June 14, 2024 taking advantage of the enlarged period available to the authorities for initiating the proceedings - HELD THAT:- This Court is of the view that a prima facie case has been made out by the petitioners. Since, prima facie, it appears that the notice to show-cause dated June 14, 2024 is vague inasmuch as while the same has been issued on the basis that certain documents, which ought to have been provided by the petitioners, have not been provided, yet the notice does not indicate or specify which document according to the respondent authorities was lacking. Furthermore it also needs to be assessed as to whether the respondents GST authorities had/have jurisdiction to issue notice to show-cause under Section 74 of the said Act of 2017 in the facts and circumstances of the instant case.
This Court is of the prima facie view that the show-cause notice may not withstand scrutiny of Court. However, the final decision shall be taken only upon hearing the parties.
Petition disposed off.
Issues: (i) Challenge to the constitutional validity of the amendment making pre-consultation before issuance of a show cause notice discretionary under Rule 142(1A) of the Central Goods and Services Tax Rules, 2017; (ii) interim direction regarding continuation of proceedings arising from the show cause notice and non-giving effect to any final order without further orders of the Court.
Outcome: Notice issued. The petition remains pending. The petitioner is directed to participate in the show cause proceedings, and any final order that may be passed is not to be given effect to without further orders of the Court.
Constitutional validity of N/N. 79/2020 Central Tax dated 15th October, 2020 issued by the Central Board of Indirect Taxes and Customs by which Rule 142(1A) of the Central Goods and Service Tax Rules, 2017 - SCN amended by making pre-consultation to the SCN discretionary - HELD THAT:- Issue notice. Ld. Counsel for the parties to file their respective written submissions by the next date of hearing.
In the meantime, it is directed that the proceedings emanating from Show Cause Notice dated 25th February, 2025, shall continue and a final order may also be passed. However, the same shall not be given effect to, without further orders of this Court.
List on 27th January, 2026.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the cancellation of GST registration suffered from violation of principles of natural justice or non-compliance with the prescribed statutory procedure, including manner of service of notice and non-supply of visit note.
1.2 Whether the conduct of the Petitioner, including contradictory and false statements on affidavit, disentitled him to equitable relief under Article 226 of the Constitution of India.
1.3 Whether the order refusing to condone delay in filing the statutory appeal against cancellation of GST registration was vitiated by any legal infirmity, including incorrect reckoning of limitation and reliance on false or contradictory averments.
1.4 Whether the precedents relied upon by the Petitioner concerning cancellation of registration and principles of natural justice were applicable to the facts of the present case.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Alleged violation of natural justice and prescribed procedure in cancellation of GST registration
Interpretation and reasoning
2.1 The Court examined the record, including the visit note prepared by the GST officials after visiting the address mentioned in the registration records. The note recorded that the Petitioner was present, that the purpose of the visit and authority were explained, his endorsement obtained, and that he stated he had no business activities related to the registered entity, was only running a small stationery shop, and that some relative might have misused his Aadhaar and photograph for GST registration.
2.2 The visit note further recorded that, on the Petitioner furnishing the relative's mobile number, the officials called that number; the call was answered but disconnected when questions about GST registration were raised.
2.3 The Court noted that in the writ proceedings, although the Petitioner alleged that the procedure was defective, that the visit note was not supplied, and that the show cause notice was only uploaded on the website, he did not produce any credible supporting material. The rejoinder was characterised as containing "tall statements" without documents.
2.4 The Court found, on the basis of the record, that "more than ample opportunities were granted" to the Petitioner during the cancellation proceedings. Despite such opportunities, no credible material was produced either before the authorities or before the Court to establish that the Petitioner was genuinely engaged in the business of the registered entity or that the alleged procedural lapses caused any prejudice.
2.5 The Court stressed that principles of natural justice cannot be placed in a straitjacket and that some prejudice must be shown. Here, the Petitioner sought to challenge the impugned orders on a technical plea of breach of natural justice which was "not even made good", and without establishing any prejudice, while simultaneously attempting to retract from his earlier statements recorded in the departmental proceedings.
2.6 It was also expressly noted that this was not a case where the registration had been cancelled on a ground not referred to in the show cause notice, nor a case where the show cause notice was vague. The allegation in the notice was that registration had been obtained through "suppression, fraud, and misrepresentation", and the material on record "prima facie supports" these allegations.
Conclusions
2.7 The Court held that the plea of breach of natural justice and non-compliance with prescribed procedure was misconceived; sufficient opportunity had been given, no prejudice was shown, and the cancellation of registration did not suffer from any violation of natural justice warranting interference under Article 226.
Issue 2 - Effect of the Petitioner's conduct and contradictory statements on entitlement to relief under Article 226
Interpretation and reasoning
2.8 At the outset, the Court recorded that, on the facts, the Petitioner's conduct did not entitle him to equitable relief under Article 226 of the Constitution.
2.9 The Court considered the Petitioner's statements at different stages: (i) his recorded statement at the time of the visit, disclaiming any connection with the registered entity and asserting he only ran a small stationery shop, and (ii) later pleadings wherein he claimed transparency and full cooperation, denied having made the earlier statement, and asserted that the department's version was misconceived, arbitrary, and unverified.
2.10 The rejoinder affidavit was found to contain serious allegations against the department but no supporting documents. There was also no assertion that the contents were read over and explained to the Petitioner, which the Court deemed necessary given the defences previously raised by him.
2.11 In the affidavit filed before the appellate authority seeking condonation of delay, the Petitioner admitted that an investigation had been carried out in May 2023 and stated that "during the course of such mentioned procedure, I was not of stable mind at that time to give any statement." However, in the writ petition he pleaded that he filed GST returns in May 2023, and in the rejoinder he repeatedly claimed transparency and cooperation, without any "unstable mind" plea.
2.12 The Court noted that these were plainly contradictory defences raised in different proceedings without explanation. It accepted the Respondents' contention that the Petitioner was "blowing hot and cold" and making "false and contradictory statements on affidavit to suit the occasion."
2.13 The Court regarded the writ petition as "an abuse of the judicial process" and agreed that, in such circumstances, exemplary costs were warranted, while modulating the amount in view of the Petitioner's age and apparent economic condition.
Conclusions
2.14 The Court held that, because of the Petitioner's inconsistent and false stands and abuse of process, he was not entitled to discretionary and equitable relief under Article 226. The petition was liable to be dismissed with costs.
Issue 3 - Validity of refusal to condone delay in filing appeal against cancellation of registration
Interpretation and reasoning
2.15 The Petitioner challenged the appellate order refusing condonation of delay, contending inter alia that the appellate authority wrongly reckoned the limitation from the date of the original order and not from its communication, and that the rejection order was perverse.
2.16 The Court referred to the affidavit filed by the Petitioner before the appellate authority for condonation of delay and found it "replete with false and contradictory statements," particularly the plea of being of unstable mind at the time of giving statement, which was inconsistent with his other pleadings and conduct.
2.17 In light of these contradictions and the absence of credible justification, the Court held that there was no infirmity in the order rejecting the condonation application. The Court did not accept the Petitioner's criticism that the appellate authority proceeded on an improper basis in reckoning limitation or otherwise.
Conclusions
2.18 The Court upheld the refusal to condone the delay in filing the appeal and found no legal error in the appellate authority's order warranting interference.
Issue 4 - Applicability of cited precedents on natural justice and cancellation of registration
Interpretation and reasoning
2.19 The Petitioner relied on decisions of this Court and another High Court to contend that cancellation of registration on grounds not mentioned in the show cause notice, or on vague notices, or without proper compliance with procedural safeguards, would vitiate the cancellation.
2.20 The Court held that these decisions had "no application to the gross facts of the present case," because: (i) the show cause notice in this case specifically alleged that registration was obtained through suppression, fraud, and misrepresentation; (ii) the notice could not be said to be vague; and (iii) the cancellation was not based on any ground outside the notice. Additionally, the material on record prima facie supported the allegations in the show cause notice.
Conclusions
2.21 The precedents relied upon by the Petitioner were distinguished as factually inapplicable, and no ground was made out on the strength of those authorities to interfere with the cancellation of registration or the appellate order.
Overall result and consequential directions
2.22 The petition was dismissed with costs of Rs. 5,000/-, payable within four weeks to a specified government hospital, having regard to the Petitioner's age and the prima facie indication that his small stationery shop premises may have been used by others to issue fake invoices. The Petitioner was directed to file an affidavit of compliance and furnish a copy to the Respondents' counsel.
Cancellation of GST registration of petitioner - refusal to condone the delay in filing Appeal - violation of principles of natural justice or non-compliance with the prescribed statutory procedure - HELD THAT:- The argument about breach of natural justice are quite misconceived. The record shows that more than ample opportunities were granted to the Petitioner. The Petitioner, without producing any credible material whatsoever and after giving detailed statements that he had no concern with M/s. Digital Storm, or that he was only carrying out a small stationery shop from the premises for which registration was obtained, now wants to raise a contradictory plea. Even such a plea is backed by no material. The learned counsel for the Petitioner almost suggests that there was no requirement to produce such material in these proceedings, and that, only if an appropriate show-cause notice were to be issued to the Petitioner, the Petitioner would have produced the same.
The principles of natural justice cannot be placed in a straitjacket. Some prejudice must be shown. In this case, the Petitioner, on a technical plea that has not even been made good, seeks to challenge the impugned orders/decisions. For this, the Petitioner has shown no qualms about making false and contradictory statements on oath.
There is no infirmity in the order dismissing Petitioner’s delay condonation application. The affidavit accompanying the same was replete with false and contradictory statements. It is possible that the Petitioner merely lent his name and the stationery shop address [ for monetary consideration] to some persons/relatives to set up an establishment to issue fake invoices and claim input tax credit.
Petition dismissed with costs of only Rs. 5,000/-. This is because, from the photographs produced before us and the visit note, we find that the Petitioner’s stationery shop appears to be used by some parties to issue fake invoices. The Petitioner is 75 years old and, as per his own statement, is only involved in his small stationery store. Based on these prima facie circumstances, we are imposing costs of only Rs.5,000/-, which the Petitioner should pay within four weeks to the Government K.E.M. Hospital at Parel.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the cancellation of GST registration under Section 29 of the Central Goods and Services Tax Act, 2017 read with Rules 21 and 21A of the Central Goods and Services Tax Rules, 2017, on the ground of non-existence of the declared place of business and use of fake/forged documents, was valid and justified.
1.2 Whether any violation of principles of natural justice or non-consideration of relevant material vitiated the order of cancellation of GST registration as affirmed by the appellate authority.
1.3 Whether any ground was made out for interference by the High Court in exercise of writ jurisdiction with the appellate order upholding cancellation of GST registration.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of cancellation of GST registration under Section 29 read with Rules 21 and 21A
Legal framework (as noticed and applied by the Court)
2.1 The cancellation order was passed under Section 29 of the Act read with Rule 21 of the Rules and Rule 22(3) of the Rules, on the ground that the registered person was not conducting business from the declared place of business and had obtained registration through fraudulent means.
Interpretation and reasoning
2.2 The appellate authority, on the basis of a detailed report from the jurisdictional Assistant Commissioner of Central Tax, found that physical verification conducted by DGGI officers on 18.03.2025 at the originally declared place of business established that no such entity existed there and that no person with the petitioner's name had conducted any business from that premises.
2.3 The owner of the originally declared premises categorically stated that she had never rented the premises to the petitioner or to the firm in question, that a men's hostel had been operating there for eight years, and that the rental agreement relied upon for registration was fake and bore a forged signature. These proceedings were recorded in a panchanama dated 18.03.2025 and treated as substantiating the non-existence of the entity at the declared place of business.
2.4 The authority further found that the petitioner had applied for amendment of the place of business on 18.03.2025, the very date on which inspection was conducted, and that there were two inconsistent rental agreements for the alleged new premises from the same owner: one dated 25.11.2024 (submitted physically to the Superintendent) and another dated 18.03.2025 (uploaded on the portal). This inconsistency raised "serious doubts" as to the genuineness of the documents.
2.5 The appellate authority concluded that the taxpayer had obtained registration fraudulently by uploading fake documents and that the cancellation under Section 29 read with Rule 21 had been carried out after following due process of law. The High Court specifically noted these findings and held them to be "unimpeachable," emphasizing the serious doubts arising both in relation to the original declared premises and the purported new premises.
2.6 The High Court also noted that cancellation was additionally founded on the ground that the petitioner had not conducted any business from the declared place of business, which was treated as a contravention attracting Rule 21A of the Rules.
Conclusions
2.7 The Court held that the cancellation of GST registration was validly made under Section 29 of the Act read with Rules 21 and 21A of the Rules, based on cogent material demonstrating non-existence of the declared place of business, use of fake/forged rental agreements, and non-conduct of business from the declared premises.
2.8 The Court found no infirmity in the reasoning that the petitioner's registration was obtained and operated in a non-bona fide manner and that the grounds for cancellation were fully made out.
Issue 2: Alleged violation of principles of natural justice and non-consideration of material
Interpretation and reasoning
2.9 The petitioner contended that the cancellation was arbitrary, violative of natural justice, contrary to the third proviso to Section 29(2), based on surmises and conjectures, and that the appellate authority failed to consider documents regarding ongoing business activity including a verification report allegedly supporting the petitioner.
2.10 The appellate authority, however, recorded that the cancellation was carried out "after due process of law" and that the petitioner failed to produce credible evidence to rebut the findings of non-existence of the declared place of business or to establish bona fide conduct of business.
2.11 The High Court, after examining the findings and materials referred to by the appellate authority, accepted that the competent authorities had considered the inspection report, the owner's categorical denial, the panchanama, and the contradictory rental agreements for the new premises. It did not find any basis to characterize the decision as arbitrary or based on conjectures.
2.12 The Court did not find any demonstrated breach of natural justice in the process leading to cancellation or in the appellate consideration, particularly when the petitioner's explanation and documents were found unreliable and inconsistent by the authorities.
Conclusions
2.13 The Court rejected the plea that the cancellation order or the appellate order was vitiated by violation of principles of natural justice or by non-consideration of relevant material, holding that due process was followed and the petitioner failed to rebut the adverse findings.
Issue 3: Scope of interference in writ jurisdiction with appellate order upholding cancellation
Interpretation and reasoning
2.14 The Court confined itself to examining whether any legal or factual infirmity existed in the findings of the appellate authority that could warrant writ interference.
2.15 Upon considering the submissions and materials, the Court expressly held that there were "no grounds to interfere" with the impugned order of cancellation as confirmed in appeal, noting the serious doubts regarding both the initial and amended places of business and the absence of credible rebuttal from the petitioner.
Conclusions
2.16 The Court declined to exercise writ jurisdiction to disturb the appellate order and dismissed the writ petition, thereby affirming the cancellation of GST registration.
Cancellation of Petitioner’s GST registration - petitioner has not been conducting any business from his declared place of business - HELD THAT:- The findings of the learned appellate authority appear to be unimpeachable as there are serious doubts as to the place of business against the earlier premises alleged to have been declared by the petitioner at the time of grant of registration and also against the new premises in respect of which the petitioner itself has furnished two rental agreements of two different dates 25.11.2024 and 18.03.2025.
The cancellation of GST registration of the petitioner has also been made on the ground that petitioner has not conducted any business from the declared place of business, which is in contravention of Rule 21A of the Rules - there are no ground to interfere with the impugned order of cancellation of GST registration of the petitioner as confirmed in the appeal.
The instant Writ Petition is dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the applicant qualifies as a "pure agent" under Rule 33 of the CGST Rules, 2017 in respect of the freight amounts routed through its bank account.
1.2 Whether the balance freight amount deposited by shippers into the applicant's bank account for onward transfer to carriers constitutes "consideration" in relation to any supply by the applicant under Section 2(31) of the CGST Act, 2017.
1.3 Whether the routing and holding of the balance freight amount through the applicant's bank account constitutes a "supply" under Section 7 of the CGST Act, 2017, attracting levy of GST in the hands of the applicant.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Qualification as "pure agent" under Rule 33 of CGST Rules
Legal framework
2.1.1 The Court referred to the definition of "pure agent" in the Explanation to Rule 33 of the CGST Rules, 2017, which contemplates a person who, while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement at actuals without adding it to the value of his own supply.
Interpretation and reasoning
2.1.2 The applicant's stated role was to operate an online portal facilitating connection between shippers and carriers and to receive the balance freight amount into a designated bank account (earlier described as "escrow account", later corrected to "separate current account") for onward payment in full to carriers upon proof of delivery, without any deduction or mark-up.
2.1.3 The Court noted that the applicant does not receive any other supply on behalf of shippers or carriers nor incur expenditure on such supply; it only holds and transfers amounts belonging to the parties concerned.
2.1.4 The applicant separately receives subscription/commission from shippers and carriers for facilitation services, on which it undertakes to pay GST.
Conclusions
2.1.5 The concept and conditions of "pure agent" under Rule 33 are not satisfied on these facts, and the applicant cannot be treated as a pure agent in respect of the freight amounts routed through its bank account.
2.2 Characterisation of the balance freight amount as "consideration" under Section 2(31) of CGST Act
Legal framework
2.2.1 The Court considered Section 2(31) of the CGST Act, defining "consideration" to include any payment made or to be made, in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, by the recipient or any other person, and the proviso that a deposit given in respect of a supply shall not be treated as payment unless the supplier applies such deposit as consideration.
Interpretation and reasoning
2.2.2 The Court found that the actual supply of service (freight/service of carriage) is between shippers and carriers; the major portion of freight and corresponding consideration flows directly between them.
2.2.3 Only the balance portion of the freight amount is deposited into the applicant's current account, to be forwarded in full to the carrier upon fulfilment of delivery obligations. This amount represents consideration for freight services rendered by the carrier to the shipper, not for any supply by the applicant.
2.2.4 From the applicant's perspective, the balance freight amount is a sum held as deposit/entrusted funds belonging to the parties, not in respect of any supply of goods or services or both by the applicant.
2.2.5 Even if treated as a "deposit" in respect of a supply, under the proviso to Section 2(31), it does not become consideration to the applicant unless the applicant, as supplier, applies it as consideration for its own supply, which is not the case.
Conclusions
2.2.6 The balance freight amount deposited with and transferred by the applicant cannot be regarded as "consideration" accruing to the applicant in relation to any supply by it.
2.2.7 The only "consideration" received by the applicant is the subscription/commission from shippers and carriers for facilitation services, which is independently subject to GST.
2.3 Whether routing/holding of freight amounts constitutes "supply" under Section 7 of CGST Act and GST liability thereon
Legal framework
2.3.1 The Court referred to Section 7 of the CGST Act, which defines "supply" to include all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made or agreed to be made for a consideration in the course or furtherance of business, as well as specified activities without consideration under Schedule I, and exclusions under Schedule III.
Interpretation and reasoning
2.3.2 For an activity to qualify as "supply", it must be made for a "consideration" in the course or furtherance of business.
2.3.3 On the admitted facts, the applicant's role with respect to the freight amount is limited to acting as a facilitator/agent holding and transferring amounts which do not belong to it, strictly in accordance with directions of shippers and carriers.
2.3.4 Since the balance freight amount does not constitute "consideration" to the applicant, the mere receipt, holding and onward transfer of this amount cannot be treated as a taxable "supply" by the applicant.
2.3.5 The only taxable activity constituting "supply" in the hands of the applicant is the facilitation service for which it receives subscription/commission from shippers and carriers, on which GST is payable as admitted.
Conclusions
2.3.6 No "supply" of goods or services or both arises vis-à-vis the applicant in respect of the balance freight amount deposited in and routed through its bank account.
2.3.7 The applicant is not liable to pay GST on the balance freight amount deposited by shippers into its current account and forwarded without deduction to carriers; GST liability is confined to the subscription/commission earned for facilitation services.
Pure Agent - GST exemption in respect of an escrow deposit account to be opened and operated solely to facilitate forwarding of freight amounts as deposited by shippers to the accounts of carriers without any deduction - amount involved herein shall be treated in the nature of a ‘consideration’ for a supply effected or not - HELD THAT:- In terms of Section 7 of the Act, ibid, it is clear that the term ‘Supply’ includes all forms of supply of goods/services or both such as sale, transfer, barter, exchange, licence, rental or disposal made or agreed to be made for a consideration in the course of furtherance of business. Accordingly, the activity in relation to any supply, should be made for a consideration, and under the facts and circumstances of the instant case, it is found that the only activity of the applicant that merits payment of a consideration, is the applicant’s role as a facilitator or an agent in holding and transferring the balance freight amounts which does not belong to the applicant and which belongs to the parties concerned. Therefore the balance freight amount that is held as deposit with the applicant and which is liable to be transferred, per-se, as per the directions of the parties concerned, cannot be considered as ‘consideration’ accruing to the applicant in lieu of any supply made by them.
It is found that no supply of goods or service or both takes place in the instant case, except for the receipt of subscription or commission by the applicant on which the applicant undertakes to pay GST, for extending their role of a facilitator/agent between the shipper and the carrier.
Thus, once it is held that the freight amount deposited with the applicant, does not constitute a ‘consideration’ to the applicant, and once it is clear that no supply of goods or service or both is involved in the instant case, we are of the opinion that the applicant is not liable to pay taxes under GST on the deposit amount which does not belong to the applicant.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Classification of Quick Lime (90% purity) and Hydrated Lime (85%-95% purity) under the appropriate Heading of the First Schedule to the Customs Tariff Act, 1975 for GST purposes.
1.2 Determination of the applicable rate of GST on Quick Lime (90% purity) and Hydrated Lime (85%-95% purity) under the relevant rate notifications issued under Section 9(1) of the CGST Act, 2017.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Quick Lime and Hydrated Lime
Legal framework
2.1 The Court referred to Section 9(1) of the CGST Act, 2017 and Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, which adopts the First Schedule to the Customs Tariff Act, 1975 for classification of goods, along with its Section and Chapter Notes and General Explanatory Notes.
2.2 Chapter 25 of the Customs Tariff Act covers "Salt; sulphur; earths and stone; plastering materials, lime and cement", and Heading 2522 covers "Quicklime, slaked lime and hydraulic lime, other than calcium oxide and hydroxide of heading 28.25."
2.3 Chapter 28 covers "Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes", and Heading 2825 covers "other inorganic bases; other metal oxides, hydroxides and peroxides," including calcium oxide and calcium hydroxide in the pure state.
2.4 Notes and General Notes to Chapter 25 and Chapter 28, and the Explanatory Notes to Headings 2522 and 2825, were considered to determine when a product is treated as "quicklime / slaked lime" under Chapter 25 versus "calcium oxide / calcium hydroxide in the pure state" as separate chemically defined compounds under Chapter 28.
Interpretation and reasoning
2.5 The applicant's products were found to have the following composition: Quick Lime - 90% CaO, 8% CaCO3, 2% Silica; Hydrated Lime - 85-95% Ca(OH)2, 3-13% CaCO3, 2% Silica, implying 10-15% impurities.
2.6 Explanatory Notes to Heading 2522 describe "Quicklime (an impure calcium oxide)" obtained by calcining limestone and "slaked lime (calcium hydroxide)" obtained by combining quicklime with water, while expressly excluding purified calcium oxide and hydroxide of Heading 2825.
2.7 Explanatory Notes to Heading 2825 restrict its scope to calcium oxide and calcium hydroxide "in the pure state (i.e., containing practically no clay, iron oxide, manganese oxide, etc.)," typically around 98% purity with only negligible impurities, as separate chemically defined compounds.
2.8 General Notes to Chapter 28 clarify that the Chapter is limited to "separate chemically defined compounds" whose composition is defined by a constant stoichiometric ratio of elements, permitting only small, non-intentionally created deviations.
2.9 The Court found that the applicant's Hydrated Lime, containing 85-95% Ca(OH)2 with 10-15% impurities (CaCO3 and Silica), is not a "separate chemically defined compound" within the meaning of Chapter 28 and cannot be regarded as calcium hydroxide in the "pure state" contemplated by Heading 2825.
2.10 For the same reason, the applicant's Quick Lime with about 10% impurities was held to be "impure calcium oxide" corresponding to the description of "quicklime" under Heading 2522, and not "pure" calcium oxide under Heading 2825.
2.11 On the combined reading of the Chapter Notes, General Notes and Explanatory Notes, the Court held that goods with 10-15% impurities do not qualify for classification as purified calcium oxide or hydroxide under Heading 2825, but appropriately fall under Heading 2522 as quicklime and slaked (hydrated) lime.
Conclusions
2.12 Quick Lime with 90% CaO and approximately 10% impurities and Hydrated Lime with 85-95% Ca(OH)2 and 10-15% impurities are classifiable under Heading 2522 of the First Schedule to the Customs Tariff Act, 1975, and not under Heading 2825.
Issue 2: Applicable GST rate on Quick Lime and Hydrated Lime
Legal framework
2.13 Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, issued under Section 9(1) of the CGST Act, prescribes GST rates for goods classified as per the Customs Tariff Act. Schedule I to this notification specifies goods taxable at 2.5% Central Tax.
2.14 Serial No. 131 of Schedule I to the said notification specifies Heading 2522 for "Quicklime, slaked lime and hydraulic lime, other than calcium oxide and hydroxide of heading 2825," attracting Central Tax at 2.5% (with an equivalent State Tax, totalling 5% GST).
2.15 The Court noted that Notification No. 1/2017-Central Tax (Rate) was superseded by Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025, but the applicable GST rate on Quick Lime and Hydrated Lime under Heading 2522 remained unchanged.
Interpretation and reasoning
2.16 Having concluded that the applicant's Quick Lime and Hydrated Lime fall under Heading 2522 and are not covered by Heading 2825, the Court applied Serial No. 131 of Schedule I, which expressly covers goods of Heading 2522.
2.17 As the applicant's products do not qualify as calcium oxide or hydroxide of Heading 2825, the exclusion in Serial No. 131 ("other than calcium oxide and hydroxide of heading 2825") does not apply, and the concessional rate under Heading 2522 is applicable.
Conclusions
2.18 Quick Lime (90% purity) and Hydrated Lime (85%-95% purity) supplied by the applicant, classifiable under Heading 2522, attract GST at the total rate of 5% (CGST 2.5% + SGST 2.5%).
Rate of GST - collecting 5% GST on Quick Lime and Hydrated Lime having purity less than 98% - there is lot of confusion regarding the GST rate whether GST rate is 5% or 18% - HELD THAT:- Heading 2522 covers Quicklime, an impure calcium oxide, obtained by calcining pure limestone. Slaked Lime (Calcium Hydroxide) is obtained by combining Quick Lime with water. The product in consideration has impurities up to 10% to 15% - it is seen that the goods supplied by the applicant contain impurities to the extent of 10% to 15%. Therefore, based on the applicant's claim of composition of the goods supplied, it can be concluded that the Quick Lime and Hydrated Lime supplied by the applicant fall under the Heading 2522 and not under the Heading 2825.
It is seen that the said N/N. 1/2017-Central Tax (Rate) dated 28.06.2017 was superseded by N/N. 9/2025-Central Tax (Rate) dated 17.09.2025 but the rate of tax on Quick Lime and Hydrated Lime remained unchanged even as per the new Notification.
The goods supplied by the applicant, namely, 90% Quick Lime and 85% to 95% Hydrated Lime, fall under the heading 2522 and attract GST at the rate of 5%.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether rent received for a godown used for storage of paddy is exigible to GST or is exempt by virtue of the notifications prescribing a nil rate for services relating to storage or warehousing of agricultural produce.
1.2 Whether paddy qualifies as "agricultural produce" within the meaning of the relevant GST rate and exemption notifications.
1.3 Whether the application for advance ruling on the above issue is admissible under Section 97(2)(b) of the CGST/TNGST Acts as relating to the applicability of a notification.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Admissibility of the application under Section 97(2)(b)
Legal framework
2.1 The Court referred to Section 97(2)(b) of the CGST/TNGST Acts, which covers questions relating to "applicability of a notification issued under the provisions of this Act".
Interpretation and reasoning
2.2 The question raised concerns the applicability of Notification No. 11/2017-Central Tax (Rate) and Notification No. 12/2017-Central Tax (Rate) to the rent received for godown services used for storage of paddy.
2.3 On this basis, the Court held that the query squarely falls within Section 97(2)(b) as it involves determination of applicability of a notification under the Act.
Conclusions
2.4 The application for advance ruling was held to be admissible under Section 97(2)(b) of the CGST/TNGST Acts.
Issue 2: Taxability under GST of rent received for godown used for storage of paddy; applicability of nil-rated agricultural support service entry
Legal framework
2.5 The Court considered S. No. 24 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and S. No. 54 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, both under Heading 9986.
2.6 Under these entries, services relating to cultivation of plants and other agricultural activities, including "loading, unloading, packing, storage or warehousing of agricultural produce", are prescribed a nil rate of GST.
2.7 The notifications define "agricultural produce" as any produce out of cultivation of plants or rearing of animals (except horses) for specified purposes, on which either no further processing is done or such processing as is usually done by a cultivator or producer, which does not alter essential characteristics but makes it marketable for the primary market.
Interpretation and reasoning
2.8 The factual position, as accepted by the Court based on the application and submissions at hearing, is that the premises are rented out as a godown for storage of paddy.
2.9 The Court proceeded on the basis of these stated facts, notwithstanding non-production of the rental agreement and bills, and examined whether such storage constitutes "storage or warehousing of agricultural produce".
Whether paddy is "agricultural produce"
2.10 The Court analysed the nature of paddy and rice. It noted that paddy is the rice grain with its husk, an unprocessed grain harvested from the rice plant, being the raw, unmilled form produced from cultivation.
2.11 Rice, in contrast, is the edible, processed grain obtained after milling paddy and removing the husk, often with further processing depending on the variety.
2.12 Applying the definition in the notifications, the Court identified the following cumulative conditions for a product to qualify as "agricultural produce":
(a) it must come from cultivation of plants;
(b) no further processing is done, or
(c) if processing is done, it is by the cultivator or producer;
(d) such processing does not alter the essential characteristics of the product; and
(e) such processing only makes it marketable for the primary market.
2.13 The Court found that paddy is a produce of cultivation of plants and any processing (such as removal of husk to the extent done by the cultivator to make it saleable) does not alter its essential characteristics but merely renders it marketable in the primary market.
2.14 On this reasoning, the Court held that paddy satisfies all the conditions of the definition and is covered within "agricultural produce" for the purpose of the notifications.
Character of services and applicable rate
2.15 Having held paddy to be "agricultural produce", the Court treated the renting of the godown for storage of paddy as a service of "storage or warehousing of agricultural produce" under Heading 9986.
2.16 Under S. No. 54 of Notification No. 12/2017-Central Tax (Rate), such services relating to storage or warehousing of agricultural produce are assigned a nil rate of GST.
Conclusions
2.17 Paddy qualifies as "agricultural produce" as defined in the relevant GST rate and exemption notifications.
2.18 Renting of godown premises for storage of paddy constitutes a service of storage or warehousing of agricultural produce under Heading 9986.
2.19 By virtue of S. No. 54 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, the rent received by the applicant towards the godown used for storage of paddy is not taxable and attracts a nil rate of GST.
Taxability or otherwise of Rent received for the Godown used for storage of Paddy - applicability of S.no.54 of N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 - whether Paddy could be termed as an agricultural produce or not - HELD THAT:- Any produce out of cultivation of plants on which either no further processing is done or such processing is done as usually done by a cultivator or producer without altering the essential characteristics but makes the product marketable for the primary market would be termed as an 'agricultural produce'.
Paddy is the product of cultivation, and processing if any, is done by the cultivator to remove the husk. This processing retains the essential characteristics of Paddy and makes it marketable in the primary product. Paddy with husk is not marketable and the process to remove the husk undertaken by the cultivator makes it marketable in the primary market - all the necessary requisites for a product to be termed under 'agricultural produce' is satisfied in respect of Paddy and as such, Paddy is covered under 'agricultural produce'.
As the services relating to or storage or warehousing of agricultural produce is attracting Nil rate of GST as per S.No.54 of the N/N. 12/2017-CT (Rate) dated 28.06.2017, the Godown rented for storage of Paddy is not taxable under GST.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether surtax paid by the assessee is an allowable deduction in computing taxable income.
1.2 Whether the assessee could change the method of valuation of closing stock from total cost method to direct/variable cost method and whether specified indirect/establishment expenses must be included in the value of closing stock.
1.3 Whether the assessee is entitled to weighted deduction under Section 35B in respect of commission paid in relation to export promotion activities carried out through a foreign agent and an Indian agent, and the necessity of remand for factual determination.
1.4 Whether the assessee is entitled to deduction under Section 40A(5) as claimed.
1.5 Whether expenditure on air-conditioners, coolers, calculators and fans used by the research and development department qualifies for deduction as R&D expenditure.
1.6 Whether extra shift allowance on new plant and machinery is admissible on the plant and machinery as a whole or only on the basis of the number of days each machinery was put to use.
1.7 Whether excise duty is to be included in the valuation of closing stock.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Deductibility of surtax paid by the assessee
Interpretation and reasoning: The Court recorded the assessee's own acknowledgment that the issue of allowability of surtax as a deduction already stands settled against the assessee by the Supreme Court. The Revenue also did not dispute this legal position.
Conclusions: The question relating to deduction of surtax paid by the assessee is answered against the assessee, holding that surtax is not an allowable deduction.
2.2 Change in method of valuation of closing stock and inclusion of indirect expenses
Legal framework (as discussed): The issue arose in the context of assessment under the Income Tax Act, 1961 and the Tribunal's order permitting the assessee to adopt either direct cost or total cost method for valuing closing stock, while directing inclusion of certain indirect/establishment costs in such valuation.
Interpretation and reasoning: The Court noted that from assessment year 1982-83 onwards, the assessee adopted the direct/variable cost method, while the Revenue contended that the earlier total cost method must be continued. The Tribunal had held that the assessee was free to adopt either direct or total cost method, but ordered inclusion of certain indirect/establishment expenses in the value of closing stock. It was noticed that inclusion of such indirect costs in closing stock for one year would necessarily lead to their exclusion in the next year's computation, and counsel for the assessee could not controvert this. Counsel for the Revenue expressly stated before the Court that the Revenue had no objection to the method of valuation as applied and approved by the Tribunal.
Conclusions: Accepting the factual and legal position and the parties' statements, the Court answered the question relating to inclusion of expenses in the value of closing stock against the assessee, thereby upholding the Tribunal's direction requiring inclusion of the specified expenses. The Revenue's objection to the change in method of valuation itself was not sustained in view of its concession.
2.3 Weighted deduction under Section 35B on commission related to export promotion
Legal framework (as discussed): The issue concerned weighted deduction under Section 35B, particularly Clause (iv) of Section 35B(1)(b) of the Income Tax Act, 1961, in light of Supreme Court decisions including the remand directions in relation to commission to agents and the judgment in Commissioner of Income Tax v. Stepwell Industries Ltd.
Interpretation and reasoning: It was recorded that the Supreme Court had in another matter remanded the issue of weighted deduction under Section 35B on commission paid to Indian agents to the Tribunal for factual examination. In the present case, the assessee claimed that it had appointed a foreign agent to promote its products outside India, and that this foreign agent, in turn, appointed an Indian agent; the assessee asserted eligibility to weighted deduction under Section 35B(1)(b)(iv). The Court found that the factual position regarding the nature of services rendered, the identity and role of the foreign and Indian agents, and the precise character of the commission payments required fresh examination. Counsel for the Revenue suggested, and both parties agreed, that the matter should be remanded for fact-finding and decision in accordance with the statutory mandate and applicable Supreme Court judgments.
Conclusions: The question of weighted deduction under Section 35B on commission payments is remanded to the Assessing Officer to examine the factual matrix and pass a fresh order in accordance with Section 35B and relevant Supreme Court decisions, specifically including Commissioner of Income Tax v. Stepwell Industries Ltd. The Court refrained from finally answering the question on merits, leaving it to the Assessing Officer.
2.4 Deduction under Section 40A(5)
Legal framework (as discussed): The controversy related to the allowability and scope of deduction under Section 40A(5) of the Income Tax Act, 1961, and was noted to be governed by the Supreme Court's decision in Commissioner of Income Tax v. Mafatlal Gangabhai & Co. (P) Ltd.
Interpretation and reasoning: The Court recorded that, as per the above Supreme Court authority, the legal issue stood settled against the Revenue. The Tribunal had decided the question of deduction under Section 40A(5) in favour of the assessee, and the Court saw no reason to take a different view in light of binding precedent.
Conclusions: The question under Section 40A(5) is answered in favour of the assessee, affirming the allowability of the deduction as determined in accordance with the Supreme Court's ruling.
2.5 R&D expenditure on air-conditioners, coolers, calculators and fans
Interpretation and reasoning: The assessee claimed a deduction of Rs. 25,628/- in respect of air-conditioners, coolers, calculators and fans used by its research and development department, asserting that these formed part of R&D expenditure. The Revenue disputed that such items could be treated as R&D expenditure. After hearing the parties and considering the nature and use of these assets as forming part of the research and development department's infrastructure, the Court accepted the assessee's claim.
Conclusions: The question relating to deduction for expenditure on air-conditioning and coolers, calculators and fans used in R&D is answered in favour of the assessee, holding such expenditure as eligible for deduction as R&D-related.
2.6 Extra shift allowance on new plant and machinery
Legal framework (as discussed): The dispute centred on whether extra shift allowance on new plant and machinery is to be computed with reference to the plant and machinery as a whole or restricted to the number of days each item was put to use. The Court relied on the Supreme Court's decision in South India Viscose Ltd. v. CIT.
Interpretation and reasoning: In view of the binding precedent, the Court held that the issue already stood concluded. No independent or contrary interpretation was warranted in the face of the Supreme Court's ruling.
Conclusions: The question of extra shift allowance on new plant and machinery is answered in favour of the assessee, in terms of the principles laid down by the Supreme Court in South India Viscose Ltd., thereby sustaining the assessee's method of claiming extra shift allowance.
2.7 Inclusion of excise duty in valuation of closing stock
Legal framework (as discussed): The issue related to whether excise duty should be included in the valuation of closing stock. The Court referred to and followed the Supreme Court's decision in CIT v. Dynavision Ltd.
Interpretation and reasoning: Given that the Supreme Court had decided the principle governing inclusion of excise duty in closing stock, the Court applied that binding precedent to the present case. No separate reasoning beyond adherence to the Supreme Court's interpretation was undertaken.
Conclusions: The question of inclusion of excise duty in the value of closing stock is answered in favour of the assessee, in accordance with the Supreme Court's decision in Dynavision Ltd., thereby holding that excise duty is not to be included in the manner contended by the Revenue.
Deduction u/s 40A(5) is answered in favour of assessee as per Mafatlal Gangabhai and Co. (P) Ltd. [1996 (3) TMI 6 - SUPREME COURT]
Question of deduction with respect to air-conditioning, coolers, calculators, fans used in R&D is answered in favour of assessee.
Extra shift allowance on new plant and machinery is answered in favour of assessee in terms of South India Viscos Ltd. [1997 (7) TMI 9 - SUPREME COURT] Question of inclusion of excise duty in the value of closing stock is answered in favour of assessee in terms of Dynavision Ltd. [2012 (9) TMI 265 - SUPREME COURT]
Weighted deduction - The assessee is claiming that it appointed an agent outside India who promoted its product outside India. The foreign agent appointed an agent in India. The assessee is entitled to deduction in terms of Clause (iv) of Section 35B(1)(b) of 1961 Act. The factual position needs to be examined and matter further needs to be adjudicated in the light of judgments of Supreme Court as well as mandate of Section 35B. Both parties are in tandem that this issue needs to be remanded to assessing authority, accordingly, this question is referred to Assessing Authority who would pass fresh order considering factual position as well judgment of Stepwell Industries Ltd. [1997 (8) TMI 5 - SUPREME COURT]
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, for Assessment Year 2006-07, disallowance under section 14A could be validly computed by applying Rule 8D of the Income Tax Rules, 1962.
1.2 Whether the Tribunal was justified in setting aside the order of the first appellate authority and remanding the matter to the Assessing Officer with a direction that the disallowance under section 14A, if any, should not exceed 5% of the exempt income.
1.3 Whether the questions proposed by the Revenue raised any substantial question of law warranting interference by the Court in second appeal.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Applicability of Rule 8D for Assessment Year 2006-07 in making disallowance under section 14A
Legal framework
2.1.1 The Court noted that the Assessing Officer had applied Rule 8D for computing disallowance under section 14A for Assessment Year 2006-07.
2.1.2 The Court referred to the decision of the Supreme Court in Commissioner of Income Tax 5, Mumbai v. Essar Teleholdings Ltd., wherein it was held that Rule 8D is prospective in operation and cannot be applied to assessment years prior to Assessment Year 2008-09.
Interpretation and reasoning
2.1.3 The Court observed that Assessment Year 2006-07 precedes Assessment Year 2008-09 and, therefore, the Assessing Officer could not have invoked Rule 8D for this year.
2.1.4 Since the disallowance sustained by the first appellate authority proceeded on the basis of the disallowance originally computed by the Assessing Officer under Rule 8D, the foundation of the Revenue's computation was itself contrary to the legal position clarified by the Supreme Court.
Conclusions
2.1.5 Rule 8D is not applicable to Assessment Year 2006-07, and the Assessing Officer's action in applying Rule 8D for that year was impermissible in law.
2.2 Justification for Tribunal's direction to remand and cap disallowance at 5% of exempt income
Interpretation and reasoning
2.2.1 The Tribunal noted that in Assessment Year 2004-05, in the assessee's own case and under similar circumstances, the first appellate authority had restricted the disallowance of expenditure relating to exempt income to 5%, and that order had been accepted by the Assessing Officer without further appeal.
2.2.2 The Tribunal, relying on that earlier year and other decisions of the Court holding 5% to be a reasonable basis for disallowance, set aside the order of the first appellate authority and remanded the matter to the Assessing Officer to freshly evaluate the assessee's plea, with a direction that the disallowance, if any, should not exceed 5% of the exempt income.
2.2.3 The Court endorsed this approach, noting that in the absence of applicability of Rule 8D, and considering prior acceptance of a 5% disallowance in the assessee's own case as well as several judgments treating 5% as reasonable, the Tribunal's direction was justified.
Conclusions
2.2.4 The Tribunal was justified in remanding the matter to the Assessing Officer to re-evaluate the assessee's claim under section 14A, with a ceiling that any disallowance should not exceed 5% of the exempt income.
2.3 Existence of substantial question of law in Revenue's appeal
Interpretation and reasoning
2.3.1 The Revenue's questions challenged the Tribunal's direction to limit the disallowance to 5% of exempt income and relied on a CBDT Circular and the Supreme Court's decision in Maxopp Investment Ltd. to support a broader application of the principle of apportionment.
2.3.2 The Court held that once it is accepted, in light of Essar Teleholdings Ltd., that Rule 8D could not be applied to the relevant assessment year, the basis of the Revenue's challenge falls away.
2.3.3 In that view, the Tribunal's order, being consistent with binding precedent on the prospective operation of Rule 8D and with prior decisions treating 5% as a reasonable disallowance, did not give rise to any substantial question of law.
2.3.4 The Court observed that, having found no substantial question of law arising from the first proposed question, the second proposed question, which was dependent on the first, also did not survive for consideration.
Conclusions
2.3.5 No substantial question of law arose from the Tribunal's order, and the appeal by the Revenue was liable to be dismissed.
Disallowance u/s 14A r.w.r. 8D - exemption incurred on earning exempt income - HELD THAT:- Hon’ble Supreme Court in the case of Essar Telepholdings Ltd.[2018 (2) TMI 115 - SUPREME COURT] has held that Rule 8D is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 2008-09. In the present case, admittedly, the Assessing Officer had applied Rule 8D for coming to the conclusion he has.
ITAT was fully justified in setting aside the order of the CIT (Appeals) and remanding it back to the Assessing Officer to evaluate the plea of the Assessee afresh, and to ensure that any disallowance retained by the Assessing Officer should not exceed 5% of the exempt income. The reason why the ITAT put this restriction is because several judgments of this Court have held that 5% is a reasonable deduction and in the Assessee’s own case for Assessment Year 2004-05, the CIT (Appeals) had restricted the disallowance to 5% of the exempt income.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether purchases made from a supplier alleged to be issuing bogus GST invoices could be treated as unexplained expenditure under section 69C of the Act.
(2) Whether unsecured loans received from certain creditors could be treated as unexplained cash credits under section 68 of the Act despite production of confirmations, income-tax returns and bank statements of the creditors.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Addition under section 69C on account of alleged bogus purchases
Interpretation and reasoning
The Tribunal noted that the assessee had purchased MS Scrap from a particular supplier which was alleged by the tax authorities to be engaged in providing accommodation entries and issuing bogus/fake GST invoices. The Assessing Officer relied primarily on an adverse report from CGST authorities and on non-compliance of summons issued to the supplier to hold the purchases as non-genuine and to make addition under section 69C.
The Tribunal recorded that the assessee had furnished before the Assessing Officer and the appellate authority documentary evidences including purchase bills, e-way bills, consignment notes, ledger account of the supplier and relevant bank statements showing payments through banking channels. These evidences were part of the record and demonstrated that the purchases were used in the manufacturing process.
The Tribunal observed that, apart from relying on the CGST report alleging the supplier's involvement in bogus/fake invoices, the Assessing Officer had not brought on record any independent material to disprove the genuineness of the actual purchases by the assessee or to show that the goods were not received or not utilized in manufacturing.
Conclusions
The Tribunal held that, in the presence of corroborative documentary evidence establishing actual purchases and their use in manufacturing, a mere adverse report against the supplier, without further inquiry or contrary material, was insufficient to sustain the addition under section 69C. The order of the appellate authority sustaining the addition was set aside and the Assessing Officer was directed to delete the addition made under section 69C.
Issue 2: Addition under section 68 in respect of unsecured loans
Interpretation and reasoning
The Tribunal recorded that the assessee had raised unsecured loans from 15 parties and that the Assessing Officer had made addition in respect of loans aggregating to a specified amount received from five creditors on the ground that the assessee failed to prove identity, creditworthiness and genuineness of the transactions, and that some lenders were allegedly not filing returns.
The Tribunal noted that the assessee had submitted, before both the Assessing Officer and the appellate authority, confirmations of accounts, copies of income-tax returns and bank statements of the said five creditors, and these documents were placed in the paper book. It was also noted that written submissions, along with these evidences, were filed before the appellate authority.
The Tribunal emphasized that neither the Assessing Officer nor the appellate authority had pointed out any specific defect, deficiency or inconsistency in the confirmations, returns or bank statements submitted in support of the loan transactions. The appellate authority's conclusion that the assessee failed to discharge the onus under section 68 was not supported by any analysis of the materials filed.
The Tribunal placed reliance on the decision wherein it was held that, when documentary evidences such as confirmations, bank statements and other materials from loan creditors are on record and not found to be defective or unreliable, addition under section 68 without discussing or rebutting those materials is perverse and unsustainable.
Conclusions
The Tribunal held that the assessee had discharged the onus of establishing identity, creditworthiness of the creditors and genuineness of the loan transactions through the evidences furnished. In the absence of any specific adverse finding or defect in those materials, the addition under section 68 in respect of the unsecured loans from the five creditors could not be sustained. The order of the appellate authority affirming the addition was set aside and the Assessing Officer was directed to delete the addition.
Addition u/s 69C - treating the purchases as unexplained expenditure - HELD THAT:- We find that the assessee has purchased MS Scrap from M/s Ultra Trade Mart, which according to the ld. AO is engaged in providing bogus accommodation entries whereas as a matter of fact the assessee has furnished the copy of purchase bills, e-way bills, consignment notes, ledger copy of M/s Ultra Trade Mart along with relevant portion of bank statement evidencing the payment through banking channels, which are available.
We note that these evidences were also available before the authorities below. Considering these evidences on record we find that the purchases made by the assessee were used in the manufacturing process and the AO has not brought on record any other evidences other than the report of the CGST qua the assessee that it is engaged in the bogus/ fake purchases invoices. Consequently, we set aside the order of CIT(A) and direct the ld. AO to delete the addition. The ground no. 2 is allowed.
Addition u/s 68 in respect of unsecured loans - We find that the assessee inter alia has raised unsecured loans from five parties namely Budapest Traders, Emperor Marketing, Essence Dealmarks Pvt. Ltd., Megha Associates and VKS Jaiswal. The assessee filed before the ld. AO as well as before the ld. CIT(A) copies of ITRs, confirmation of accounts, bank statements etc. the copies of which are available - assessee also submitted that it had filed the written submissions before the ld. CIT(A), a copies of which are attached. The written submissions are dated 16.06.2025 and 23.06.2026. We note that the assessee has furnished before the CIT(A), the ITRs, confirmations and bank statements, etc.in respect of these parties. However, authorities below have not pointed out any defect or deficiency in the same. CIT(A) has not pointed any defect or deficiency in the same. Therefore, the order passed by the ld. CIT(A) cannot be sustained on this issue.
The case of the assessee find support from the decision in case of PCIT vs. Sreeleathers [2022 (7) TMI 747 - CALCUTTA HIGH COURT] notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the AO and there is no discussion on this aspect. Thus, the tribunal rightly dismissed the appeal filed by the revenue. Appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether reassessment proceedings initiated under section 147 on the basis of information emanating from search proceedings in another case were invalid for want of recourse to section 153C.
1.2 Whether notices under section 148 (and related orders under section 148A) issued by the jurisdictional Assessing Officer in physical charge, post Notification No. 18 of 2022 dated 29.03.2022, were invalid for non-adherence to the faceless, automated allocation procedure.
1.3 Whether the Assessing Officer lacked valid jurisdiction for initiating reassessment under sections 147/148, rendering the consequential assessment orders and demands void.
1.4 Whether dismissal of appeals by the appellate authority for non-prosecution, without adjudication on merits and without considering evidence, was legally sustainable.
1.5 Whether delay in filing the appeal for a particular assessment year, explained on account of serious illness (cancer treatment), deserved condonation.
1.6 Consequential relief and directions on issues relating to additions under sections 69A and 69C, where no adjudication on merits was carried out by the appellate authority.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of reassessment under section 147 where information emanates from search in another case vis-à-vis section 153C
Interpretation and reasoning
2.1 The Tribunal noted that reassessment under section 147 was initiated based on information that the assessee had received accommodation entries in the form of bogus long term capital gains.
2.2 It was recorded that search and seizure action had been carried out in the "Kushal Group", but the Assessing Officer had conducted an independent enquiry and recorded independent reasons for reopening the assessee's case.
2.3 On these facts, the Tribunal held that the assessee's plea that only section 153C could be invoked, and hence section 147 could not be resorted to, "does not come in picture".
Conclusions
2.4 Reassessment initiated under section 147 on the basis of information emanating from search in another case, supported by independent enquiry and recorded reasons, is valid; section 153C need not necessarily be invoked in such circumstances.
2.5 Grounds challenging the validity of notice under section 148 on the footing that section 153C was the only permissible route were dismissed for all assessment years.
Issue 2: Validity of notices under section 148 issued by jurisdictional Assessing Officer in alleged contravention of Notification No. 18 of 2022 and faceless regime
Legal framework (as discussed)
2.6 The assessee contended that, in view of Notification No. 18 of 2022 dated 29.03.2022, notices under section 148 must be issued through automated allocation and in a faceless manner, and that issuance by the jurisdictional Assessing Officer in physical charge was in direct contravention of the said Notification.
Interpretation and reasoning
2.7 For the relevant assessment years where this plea was raised, the Tribunal held that the Assessing Officer had "rightly invoked section 147 by following due procedure as the Income Tax Law".
2.8 No specific infirmity in the procedure adopted by the Assessing Officer was found by the Tribunal on the facts before it, and the assessee's technical objections on this count were rejected.
Conclusions
2.9 Notices under section 148 issued by the jurisdictional Assessing Officer and the consequent reassessment proceedings were upheld as valid; the challenge based on alleged violation of Notification No. 18 of 2022 and faceless procedure was rejected.
2.10 Grounds alleging that notices and orders under sections 148/148A were nullities for this reason were dismissed.
Issue 3: Challenge to jurisdiction of the Assessing Officer to initiate reassessment under sections 147/148
Interpretation and reasoning
2.11 The assessee raised general grounds that the Assessing Officer lacked valid jurisdiction for issuance of notices under section 148 and for passing orders under sections 144/144B read with section 147.
2.12 The Tribunal, after noting that reasons had been recorded and requisite approvals obtained, accepted the Revenue's position that section 147 had been properly invoked based on information of escapement of income.
2.13 In the absence of demonstrated procedural or substantive jurisdictional defects, the Tribunal found no basis to invalidate the reassessment proceedings.
Conclusions
2.14 Jurisdictional challenges to the reassessment proceedings under sections 147/148 were rejected for all assessment years.
2.15 Grounds alleging lack of jurisdiction, and consequent invalidity of assessment orders and demand notices, were dismissed.
Issue 4: Legality of dismissal of appeals by the appellate authority for non-prosecution without adjudication on merits
Interpretation and reasoning
2.16 For all assessment years, the appellate authority had dismissed the appeals essentially for non-prosecution, without rendering findings on the merits of the additions.
2.17 In particular, for one assessment year, the assessee contended that no notices were received at the email address mentioned in Form 35; and in general, it was noted that the appellate authority had not taken cognizance of documentary evidence filed before the Assessing Officer and had not examined the issues on merits.
2.18 The Tribunal observed that there was no discussion or finding by the appellate authority on additions made under sections 69A and 69C, nor on the evidences relevant to such additions.
2.19 Considering these circumstances, the Tribunal found it appropriate that the issues on merits be remanded to the appellate authority for proper verification and adjudication, with due observance of principles of natural justice.
Conclusions
2.20 Dismissal of the appeals by the appellate authority for non-prosecution, without adjudication on merits and without dealing with the evidence, was held unsustainable.
2.21 Issues on merits, including those relating to additions under sections 69A and 69C, were remanded to the appellate authority for fresh adjudication in accordance with law, after affording adequate opportunity of hearing.
Issue 5: Condonation of delay in filing appeal on account of serious illness
Interpretation and reasoning
2.22 For one assessment year, the appeal before the Tribunal was filed belatedly.
2.23 The assessee furnished substantive details regarding his cancer treatment as explanation for the delay.
2.24 The Tribunal, having considered the medical circumstances as constituting sufficient cause, decided to condone the delay.
Conclusions
2.25 Delay in filing the appeal for the concerned assessment year was condoned in view of the assessee's serious illness and the supporting details relating to cancer treatment.
Issue 6: Consequential treatment of additions under sections 69A and 69C
Interpretation and reasoning
2.26 The Assessing Officer had made additions treating alleged long-term capital gains as unexplained money under section 69A and further additions under section 69C at a percentage of such receipts.
2.27 The appellate authority had either dismissed the appeals ex parte or for non-prosecution, without adjudicating these additions on merits.
2.28 The Tribunal did not enter into the merits of these additions in view of the incomplete adjudication by the appellate authority and instead directed reconsideration by that authority.
Conclusions
2.29 All grounds relating to the quantum and merits of additions under sections 69A and 69C were restored to the file of the appellate authority for fresh decision on merits.
2.30 For each assessment year, the appeals were treated as partly allowed for statistical purposes, to the limited extent of remand on merits while upholding the validity of reassessment proceedings.
Proceedings u/s 147 r.w.s. 148 initiated on the basis of information and document received from the search carried out at premise of another person u/s 132/132A due to mandatory provision of section 153C - addition u/s 69A and being 2% of total receipt of the said amount u/s 69C of the Act - HELD THAT:- Order passed under Section 147 by the Assessing Officer was in respect of the information that the assessee received accommodation entry as bogus Long Term Capital Gain. Though a search and seizure action was carried out in Kushal Group there was an independent inquiry and independent reasons given by the Assessing Officer for reopening assessee’s case. Therefore, the plea of the assessee that Section 153C should have been invoked does not come in picture. Therefore, Ground No. 2 and 3 of assessee’s appeal does not survive. Ground Nos. 2 and 3 of assessee’s appeal are dismissed.
Addition u/s 69A and 69C - CIT(A) has not commented anything on the merits of the case and has not taken cognizance of the documentary evidences filed by the assessee before the Assessing Officer. Therefore, it will be appropriate to remand back this issue on merit to the file of the CIT(A) for proper verification of the evidences and adjudicate the issues as per Income Tax Act.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the addition of Rs. 10,00,000 as unexplained cash credit under section 68 of the Income-tax Act, 1961, in respect of an unsecured loan received from a creditor, was legally sustainable when the sole basis was cash deposit in the creditor's bank account immediately before advancing the loan.
1.2 Whether, in the facts, any addition, if warranted, ought to have been considered in the hands of the creditor under section 69A of the Act instead of section 68 in the hands of the assessee.
1.3 Whether the Assessing Officer and the first appellate authority properly applied and examined the statutory requirements of identity, creditworthiness and genuineness of the transaction for invoking section 68 of the Act.
1.4 Whether the first appellate authority discharged its obligations under section 250(4) and (6) of the Act while upholding the addition under section 68.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Validity of addition under section 68 in assessee's hands versus possible application of section 69A in creditor's hands
Legal framework (as discussed): The Court examined the scope of section 68 (unexplained cash credits) requiring examination of identity of the creditor, creditworthiness of the creditor and genuineness of the transaction, and contrasted it with section 69A dealing with unexplained money in the hands of the person in whose account cash is found deposited.
Interpretation and reasoning:
2.1 The addition was made solely because Rs. 10,00,000 was deposited in cash in the creditor's bank account immediately before advancing the loan to the assessee, and because the creditor did not furnish balance sheet and capital account or explain the source of such cash deposit.
2.2 The Court held that, where the issue is unexplained cash deposited in the bank account of the creditor, the proper provision to be considered is section 69A in the hands of that creditor, not section 68 in the hands of the assessee, if the nature and source of such deposit remains unexplained.
2.3 The Court noted that nothing in the assessment order of the assessee showed that the Assessing Officer of the creditor had treated the cash deposit as unexplained money under section 69A in the creditor's assessment.
2.4 The Court reasoned that if no such addition has been made in the hands of the creditor, then there is, in effect, no dispute as to the credibility of the cash deposited in the creditor's bank account; consequently, the limb of creditworthiness, genuineness and identity, for the purpose of section 68 in the assessee's case, stands satisfied.
2.5 The Court observed that, in the absence of any evidence that the amount had been treated as unexplained in the creditor's hands, the Assessing Officer's action in directly invoking section 68 in the assessee's hands on the mere timing of the cash deposit was "misplaced, arbitrary and bad in law".
Conclusions:
2.6 Addition of Rs. 10,00,000 as unexplained cash credit under section 68 in the assessee's hands, solely on the basis of cash deposit in the creditor's bank account immediately prior to advancing the loan, was held to be without legal basis.
2.7 Any concern about unexplained cash deposit in the creditor's bank account, if at all, could be addressed under section 69A in the creditor's assessment and not through an addition under section 68 in the assessee's assessment in the circumstances of this case.
Issue 3: Compliance with the three ingredients under section 68 - identity, creditworthiness, and genuineness
Interpretation and reasoning:
3.1 The Court recorded that the assessee had furnished, inter alia, copy of income-tax return, bank statement, and confirmation for the creditor, and the creditor's representative appeared before the Assessing Officer with ITR acknowledgement, computation of income and bank statement.
3.2 The Assessing Officer made the impugned addition under section 68 only on the ground that Rs. 10,00,000 was deposited in cash in the creditor's bank account just before the loan transaction, and that the creditor's balance sheet and capital account were not furnished and the source of cash deposit was not explained.
3.3 The Court held that the Assessing Officer did not bring on record any positive material to demonstrate that the assessee had failed to establish the three essential ingredients of section 68 - identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction - prior to making the addition.
3.4 It was noted that other lenders, who had furnished similar documents, were accepted by the Assessing Officer without adverse inference, and no clear reasoning was given as to why, on identical or comparable evidentiary footing, the particular creditor was singled out for adverse treatment.
3.5 The Court found that mere non-furnishing of balance sheet and capital account and proximity of cash deposit to the loan transaction, without more, could not by itself establish failure of the assessee to discharge the onus under section 68 in the absence of other corroborative evidence.
3.6 The Court further observed that, in the absence of any evidence on record that the same amount was treated as unexplained money in the creditor's case, the necessary correlation to challenge the creditor's creditworthiness and the genuineness of the loan in the assessee's hands was lacking.
Conclusions:
3.7 The statutory onus on the assessee under section 68 to establish identity, creditworthiness and genuineness was not shown to have been breached by the Assessing Officer on the material available.
3.8 The invocation of section 68 and the resultant addition of Rs. 10,00,000 in the assessee's case was held to be unsustainable for failure to establish the requisite three ingredients.
Issue 4: Validity of the first appellate authority's approach under section 250(4) & (6)
Legal framework (as discussed): The Court referred to the powers and duties of the appellate authority under section 250(4) and the obligation to pass a speaking order under section 250(6) while dealing with an appeal against an addition under section 68.
Interpretation and reasoning:
4.1 The first appellate authority confirmed the addition mainly on the basis that there were cash deposits of Rs. 10,00,000 in the creditor's account immediately preceding the loan, and that the creditor's bank account did not reflect sufficient cash withdrawals to explain such deposit, thereby expressing dissatisfaction with the explanation.
4.2 The Court held that the appellate authority did not undertake any independent enquiry or verification to test the correctness of the Assessing Officer's conclusion, nor did it examine whether any addition was made or even proposed in the hands of the creditor by her Assessing Officer for the same amount.
4.3 It was noted that the appellate authority did not analyze the "trail and factual events" underlying the Assessing Officer's action, nor did it engage with the requirements of section 68 in terms of identity, creditworthiness and genuineness, in the manner expected under section 250(4) and (6).
4.4 The Court observed that the appellate authority "summarily upheld" the addition under section 68 without providing a reasoned and adequately corroborated basis.
Conclusions:
4.5 The order of the first appellate authority upholding the addition under section 68 was found to be legally defective for want of proper enquiry and a reasoned analysis as required under section 250(4) and (6).
4.6 The appellate order was set aside and the Assessing Officer was directed to delete the addition of Rs. 10,00,000 made under section 68 from the assessee's income.
Addition u/s 68 - loan creditor from whom the assessee had obtained loan has deposited in the bank account of loan creditor just before lending of the money to the assessee firm and the said lender viz. Smt Kamla Bai Bhushnia had not furnished the balance sheet and the capital account.
HELD THAT:- There is no evidence placed on record by the A.O to show that the assessee has failed to establish the three ingredients of Section 68 of the Act before making the addition. Similarly, the Ld. CIT(Appeals)/NFAC has also not brought on record any enquiry in terms with Section 250(4) & (6) of the Act so to justify the sustainability of the said addition u/s. 68 in the hands of the assessee. In such circumstances, as per above examination the said addition is misplaced, arbitrary and bad in law. There is no nexus of the ingredients enshrined in the said provision of Section 68 to trigger in the case of the assessee.
As examined in any case as has been brought out by the A.O with regard to non-availability of the explanation of such cash deposits in the account of the lender viz. Smt Kamla Bai Bhushnia, but that cannot trigger the addition u/s. 68 in the hands of the assessee per se without other corroborative evidence as discussed in the foregoing para.
As seen that the A.O had summarily accepted the version of the lenders who had filed the relevant documents before the A.O. The A.O has failed to justify the reasoning for allowance of these amounts and at the same breath in the case of Smt Kamla Bai Bhushnia, since the balance sheet/capital account was not furnished and the money deposited in her bank account just prior to transaction how that can trigger addition u/s. 68 of the Act in the hands of the assessee that is a matter of remote contemplation and reasoning best known to the A.O.
A.O should have at least brought on record evidence regarding whether the addition of Rs. 10 lacs was made in the hands of Smt Kamla Bai Bhushnia by her A.O. If that part was complied with and if the evidences were there on record to justify that at the threshold itself such amount deposited in the A/c. of the said creditor/lender were added as unexplained money then in such scenario, it could have triggered the issue of creditworthiness, genuineness thus satisfying ingredients of Section 68 of the Act for making the addition. In absence of any such co-relation and exercise done by the revenue authorities, in my considered view, addition made u/s. 68 of the Act in the hands of the assessee suffers from legal validity. Addition made u/s. 68 deleted.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the delay of 544 days in filing the appeal before the Tribunal against the order of rejection of registration under Section 12AB deserved to be condoned.
1.2 Whether rejection of the application for registration under Section 12AB on the ground of delay in filing Form No. 10AB, in view of the time limits under Section 12A(1)(ac) and CBDT Circular No. 22/2022, was legally sustainable when the merits of eligibility under Section 12A/12AB were not examined.
1.3 Whether the matter required remand to the Commissioner (Exemptions) for fresh adjudication after due consideration of the merits and compliance with principles of natural justice.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Condonation of delay in filing appeal
Interpretation and reasoning: The Tribunal noted that there was a delay of 544 days in filing the appeal. The assessee supported the condonation request with a detailed affidavit explaining that the earlier Chartered Accountant mishandled and did not properly follow the proceedings, and that the trustees were not aware of the intricacies of law and could not properly follow up. The Tribunal considered these reasons to be genuine. The objection of the Departmental Representative that a delay of almost two years should not be condoned was considered but not accepted, as the Tribunal had already found sufficient cause in the assessee's explanation.
Conclusion: The delay in filing the appeal was condoned and the appeal was admitted.
Issue 2: Legality of rejection of registration under Section 12AB on ground of delay in Form 10AB
Legal framework: The Tribunal referred to Section 12A(1)(ac) prescribing time limits for filing applications in Form No. 10A and 10AB, and to CBDT Circular No. 22/2022, which extended the time limit for filing such applications up to 25.11.2022. The provisions of Section 12AB governing registration of trusts and the requirement of examining the objects and activities for granting registration were also implicit in the discussion.
Interpretation and reasoning: The Commissioner (Exemptions) considered the time limits under Section 12A(1)(ac) as mandatory and held that the assessee had not filed its application for registration at least six months prior to expiry of the provisional registration, i.e., on or before 30.09.2022, and accordingly rejected the application. The Tribunal observed that the CBDT, by Circular No. 22/2022, had already extended the time limit for filing the application in Form No. 10AB up to 25.11.2022. In this backdrop, the Tribunal held that the Commissioner (Exemptions) could not reject the application solely on the ground of delay in filing Form No. 10AB. Further, the Tribunal noted that the Commissioner (Exemptions) had not examined or discussed the merits of the trust's case in the context of Section 12A and the substantive conditions for grant of registration, and the order was confined only to the aspect of limitation.
Conclusion: Rejection of the application for registration under Section 12AB solely on the ground of delay in filing Form No. 10AB, without considering the extended time limit under CBDT Circular No. 22/2022 and without examining the merits under Section 12A/12AB, was held to be unsustainable.
Issue 3: Requirement of remand and observance of natural justice
Interpretation and reasoning: Since the Commissioner (Exemptions) had not evaluated the objects, activities and other relevant details of the assessee trust for purposes of registration under Section 12AB, the Tribunal considered it appropriate that the matter be reconsidered by the Commissioner (Exemptions) on merits. The Tribunal emphasized that the Commissioner (Exemptions) must verify the details filed by the assessee and adjudicate the eligibility for registration in accordance with law. The Tribunal also directed that, in such fresh proceedings, the assessee must be afforded an opportunity of hearing, and the principles of natural justice must be followed.
Conclusion: The matter was remanded to the Commissioner (Exemptions) for fresh adjudication of the assessee's application for registration under Section 12AB on merits, after granting adequate opportunity of hearing and following principles of natural justice. The appeal was treated as partly allowed for statistical purposes.
Cancellation of registration of the appellant u/s. 12AB - delay in filing in Form No. 10AB - HELD THAT:- It is pertinent to note that the contention of the Ld. DR that the delay should not be condoned is already dealt in earlier paragraph. As regards, the delay in filing in Form No. 10AB the same was already extended by CBDT as per Circular No. 22/2022 and therefore, solely on the said ground the CIT(E) cannot reject the application of the applicant trust.
Besides this the merit of the applicant trust was not at all discussed in contest of Section 12A for granting registration. Therefore, it will be appropriate to remand back this issue to the file of the CIT(E) for proper adjudication of the issues after verifying the details filed by the applicant trust. Appeal of the applicant trust is partly allowed for statistical purposes.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the sum received as unsecured loan from a corporate lender could be treated as unexplained cash credit under section 68 on the basis of investigation reports and FIU alerts, despite the assessee furnishing documentary evidence of identity, creditworthiness and genuineness.
1.2 Whether reliance on third-party material and statements, not confronted to the assessee and without affording cross-examination, vitiated the addition under section 68 for violation of principles of natural justice.
1.3 Whether, on the totality of facts, the loan transaction in question constituted a mere accommodation entry/colourable device or a bona fide commercial transaction.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sustainability of addition under section 68 on alleged bogus/unexplained loan
Legal framework (as discussed)
2.1 The Tribunal reproduced and relied upon the exposition of section 68 by the High Court in PCIT v. Sreeleathers, emphasizing: (i) the expression "assessee offers no explanation" covers absence of proper, reasonable and acceptable explanation; (ii) the assessee carries only an initial burden to establish identity of creditor/investor, genuineness of transaction and creditor's creditworthiness; (iii) once such prima facie discharge occurs, the onus shifts to the Assessing Officer to pursue enquiries and objectively deal with the explanation; and (iv) explanations and evidence cannot be rejected arbitrarily, capriciously or on mere suspicion.
Interpretation and reasoning
2.2 The Tribunal found as a matter of fact that the assessee had raised a loan of Rs. 3,43,50,000 from a corporate lender and immediately advanced it to a Section 8 company (AARDA Education) jointly promoted by the assessee and the lender for setting up a DPS School in Assam. This was held to demonstrate a clear commercial rationale and bona fide nature of the transaction, inconsistent with the allegation of accommodation entry or colourable device.
2.3 The assessee had furnished before the Assessing Officer and the appellate authority the lender's ITR, audited balance sheet, loan confirmation, bank statements and an assessment order under section 143(3) in the lender's case. The Tribunal noted that the Assessing Officer had independently issued a notice under section 133(6) to the lender, which was duly replied to, confirming the loan transactions.
2.4 The Tribunal recorded that neither the Assessing Officer nor the appellate authority pointed out any specific defect, inconsistency or deficiency in the documents submitted by the assessee or by the lender, nor carried out any further inquiry to dislodge the evidentiary value of such material.
2.5 The addition under section 68 was found to rest essentially on generalized allegations derived from investigation wing reports, FIU alerts, the lender's alleged high-risk/NBFC status and routing of funds through alleged shell entities, without linking any incriminating cash trail, rotation of funds or specific adverse evidence to the assessee's transaction.
2.6 Applying the principles from Sreeleathers, the Tribunal held that: (i) the assessee had discharged the initial onus under section 68 by providing cogent documentation on identity, genuineness and creditworthiness; (ii) the burden had therefore shifted to the Assessing Officer; and (iii) the authorities had failed to objectively deal with the explanation or to undertake meaningful enquiry into the materials produced.
Conclusions
2.7 The Tribunal concluded that the treatment of the loan as unexplained cash credit under section 68 was unsustainable, the addition being founded on suspicion and unverified third-party material rather than on a proper evaluation of the assessee's evidence. The addition of Rs. 3,43,50,000 under section 68 was directed to be deleted.
Issue 2: Use of un-confronted material and denial of cross-examination - violation of natural justice
Legal framework (as discussed)
2.8 The Tribunal relied on the Supreme Court decision in Andaman Timber Industries, reiterating that: (i) where statements of witnesses are made the basis of an adverse order, denial of opportunity to cross-examine such witnesses constitutes a serious flaw amounting to violation of principles of natural justice; (ii) such denial can render the order a nullity; and (iii) adjudicatory authorities cannot presume what cross-examination might yield, nor ignore a specific request for cross-examination.
Interpretation and reasoning
2.9 It was found that the Assessing Officer had relied on investigation wing materials, FIU alerts and purported statements recorded in unrelated search proceedings against third parties to characterize the loan transaction as accommodation entry and the lender as a shell/high-risk entity.
2.10 The Tribunal noted that: (i) these materials and statements were neither furnished nor confronted to the assessee at the stage of proceedings under section 148A(d) or during assessment; (ii) the assessee's specific request for cross-examination of persons whose adverse statements were relied upon was not granted; and (iii) no opportunity was afforded to rebut or test the veracity of such third-party statements.
2.11 The Tribunal held that reliance on such untested, undisclosed material, without disclosure or cross-examination, constituted a direct violation of the fundamental principles of natural justice as explained in Andaman Timber Industries. Once the untested statements were excluded, there remained no substantive material connecting the assessee's loan transaction to any alleged accommodation entry mechanism.
Conclusions
2.12 The Tribunal held that the addition under section 68, having been based substantially on un-confronted and untested third-party materials and statements, could not stand in law due to breach of natural justice. This constituted an independent ground to delete the addition.
Issue 3: Characterization of the transaction as accommodation entry versus bona fide commercial transaction
Interpretation and reasoning
2.13 The appellate authority had relied on factors such as the assessee's salaried status and low declared income, absence of security or interest on the loan, long outstanding balance, lender's alleged involvement in shell-company routes, and regulatory concerns against the lender, to conclude that the loan was an accommodation entry.
2.14 The Tribunal, however, placed weight on the undisputed facts that: (i) the funds were immediately deployed in a Section 8 educational entity (AARDA Education) jointly promoted by the assessee and the lender; (ii) the funds were used for setting up a school under the DPS brand at a specific location in Assam; and (iii) the lender's confirmation and banking trail supported the flow of funds.
2.15 On this factual foundation, and in the absence of any contrary enquiry or evidence from the revenue discrediting the business purpose or tracing funds back to the assessee, the Tribunal found that the transaction carried a clear commercial rationale and could not be brushed aside as a mere accommodation entry or colourable device.
Conclusions
2.16 The Tribunal rejected the characterization of the loan as an accommodation entry and accepted it as a genuine, bona fide commercial transaction for investment in an educational venture. This finding reinforced the conclusion that section 68 could not be invoked on the facts of the case.
Overall disposition
2.17 On a combined evaluation of the evidentiary record, the legal position under section 68, and the violation of natural justice, the Tribunal set aside the appellate order and directed deletion of the entire addition made as unexplained cash credit. The appeal was allowed.
Unexplained cash credit u/s. 68 - bogus credit - HELD THAT:- Addition made by the AO is based solely on suspicion, generalized allegations relating to third parties, and reliance on purported statements recorded in unrelated search proceedings none of which were ever furnished/confronted to the assessee or subjected to cross-examination without enquiring or dealing with the evidences furnished by the assessee.
Further in our opinion the reliance on untested, undisclosed material is a direct violation of the fundamental principles of natural justice as enunciated in Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT]
No adverse material, no cash trail, rotation of funds, or incriminating evidencesrelating to the assessee's transaction was brought on records by the authorities below. No enquiry has been conducted into the documents/evidences furnished by the assessee.
The reassessment itself is based on borrowed satisfaction arising merely from FIU alerts and Investigation Wing references, without any application of mind to the assessee's own facts or records. Moreover no cross examination was allowed to the assessee to examine the material and the person whose statement was relied by the AO which in violation of natural justice. The case of the assessee is squarely covered by the decision of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT]
We are inclined to set aside the order of learned CIT (A) and direct the AO to delete the addition. The appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the amount of Rs. 16,00,000 received by the assessee from a closely held company could be taxed as "deemed dividend" under Section 2(22)(e) of the Income-tax Act when the payment was made to a corporate sister concern and not to the shareholder-beneficial owner of shares.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Taxability of inter-corporate loan as deemed dividend under Section 2(22)(e)
Legal framework
2.1 The Court reproduced and applied the text of Section 2(22)(e), which treats as "dividend" any payment by a closely held company, by way of advance or loan, to (i) a shareholder being a beneficial owner of not less than 10% voting power, or (ii) any concern in which such shareholder is a member/partner having substantial interest, or (iii) any payment on behalf of or for the individual benefit of such shareholder, to the extent of accumulated profits.
Interpretation and reasoning
2.2 The assessee was a company engaged in manufacturing of chemicals. It received Rs. 16,00,000 as loan from another private company. A common individual held 87.7% shares in the lending company and 50% shares in the assessee-company.
2.3 The assessee contended that funds moved between sister concerns on need basis for short periods, in the course of business exigencies, and relied on a Tribunal decision in a connected matter where such inter se transactions between sister concerns were held not to be in the nature of loan or deposit for purposes of deemed dividend.
2.4 The Court noted that the statutory trigger under Section 2(22)(e) is a payment "to a shareholder being a person who is a beneficial owner of shares" (holding not less than 10% voting power) or to a concern in which such shareholder has substantial interest. The Court emphasized that in the present case the payment was made by the lending company to the assessee-company, which is a corporate sister concern, and not to the individual shareholder who was the beneficial owner of the requisite shareholding.
2.5 On these facts, the Court held that the transaction between the lending company and the assessee-company could not be treated as a payment to a shareholder-beneficial owner of shares, nor could the assessee-company be treated as such shareholder. Hence, the essential statutory condition for invoking Section 2(22)(e) was not satisfied.
2.6 The Court referred to an earlier Tribunal decision involving the same group, which had categorically held that such transactions between sister concerns cannot partake the nature of "loan" or "deposit" for the purposes of deemed dividend, even where interest is charged.
2.7 The Court further observed that the decision of the Delhi High Court in "CIT v. Ankitech Pvt. Ltd." would not apply on the facts of the present case and therefore did not assist the Revenue in sustaining the addition.
Conclusions
2.8 As the loan was advanced by the closely held company to a sister concern (the assessee-company) and not to the individual shareholder who was the beneficial owner of the shares, the statutory preconditions of Section 2(22)(e) were not met.
2.9 The addition of Rs. 16,00,000 as deemed dividend under Section 2(22)(e), made by the Assessing Officer and confirmed by the first appellate authority, was held to be unjustified and was deleted.
2.10 Consequent upon deletion of the deemed dividend addition, the assessee's appeal was allowed in full.
Deemed dividend u/s. 2(22)(e) - payment by way of loan / advance to the extent of accumulated profits by a closely held company is to be treated as dividend - HELD THAT:- As per Section 2(22)(e), payment by a company not being a company in which the public substantially interested by any sum by way of advance or loan to a shareholder being a person who is a beneficial owner of shares not being shares entitled to a fixed rate of dividend whether with or without right to participate in profits holding not less than 10% of the voting power or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest or any payment by any such company on behalf or for the individual benefit of any such shareholder to the extent to which the company in either case possesses accumulated profits is called as dividend.
In the present assessee’s case the transaction was between assessee company and M/s. Monachem Additives Pvt. Ltd. cannot be termed as dividend because the loan was to a sister concern and not to shareholder being a person is the beneficial owners of the shares. The decision of the Tribunal in case of Shri Dilip G Shah [2023 (3) TMI 1102 - ITAT AHMEDABAD] which has the same parties has categorically mentioned therein.
The decision in case of CIT vs. Ankitech Pvt. Ltd. [2011 (5) TMI 325 - DELHI HIGH COURT] will not be applicable in the present assessee’s case as well. Thus, the addition made by the AO and confirmed by the CIT(A) is not justifiable, hence, the addition is deleted. Thus, appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the loss arising from non-recovery of advance paid for supply of materials in a real estate project is allowable as a business (trading) loss, notwithstanding non-recognition of revenue from the concerned project and inapplicability of section 36(1)(vii).
1.2 Whether interest paid to customers on refund of booking advances, and its apportionment across different projects, is allowable as a deductible business expenditure even where revenue from the concerned project is not recognized in the relevant year.
1.3 Whether disallowance of a portion of interest paid on unsecured loans to directors, on the ground that the rate of interest is excessive/unreasonable vis-à-vis interest earned from group concerns, is justified.
1.4 Whether an addition to closing stock of a real estate project on account of alleged stock (area) difference is sustainable where the Assessing Officer has adopted incorrect area figures, and where any variation is revenue neutral.
1.5 Whether amounts standing as outstanding service tax and professional tax liabilities, not debited to the profit and loss account, can be disallowed under section 43B.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Allowability of loss on non-recovery of advance for supply of ready-mix concrete as business (trading) loss
Interpretation and reasoning
2.1 The Tribunal noted that the assessee, a real estate developer, had advanced a sum for supply of ready-mix concrete for a specific commercial project. The supplier neither supplied the material nor refunded the advance, and the assessee wrote off the amount in the profit and loss account as a loss.
2.2 The Assessing Officer and the appellate authority had disallowed the claim on two grounds: (i) no revenue had been recognized from the concerned project during the year and expenses were shown as work-in-progress; and (ii) the amount constituted a capital loss and was not allowable as bad debt under section 36(1)(vii), as it had not been offered to tax in earlier years.
2.3 The Tribunal examined the business model and found that the assessee followed the project completion method: project-related expenses were accumulated as work-in-progress and customer advances were shown as liabilities, with revenue recognition occurring on completion of the project or in subsequent years. It was also noted that commercial spaces had already been booked and amounts received from customers were reflected as liabilities.
2.4 The Tribunal applied the principle that a "trading loss" has a wider scope than "bad debt"; while a bad debt may be a trading loss, a trading loss need not qualify as a bad debt under section 36(1)(vii). A loss incurred in the ordinary course of business, even if not falling within section 36(1)(vii), is deductible in computing real business income as a trading loss.
2.5 The advance for supply of materials was found to be integrally connected with the assessee's regular business of real estate development and was given in the ordinary course of business. The loss arose due to non-recovery of such business advance and not on account of any capital transaction.
2.6 The Tribunal held that the allowability of the loss as a trading loss is not dependent on whether corresponding project revenue has been recognized in the same year. The non-recognition of revenue under the project completion method cannot, by itself, bar deduction of a genuine business loss arising in the course of the project.
Conclusions
2.7 The loss on account of non-recovery of the advance for supply of materials is a business (trading) loss incurred in the ordinary course of business, distinct from a "bad debt" under section 36(1)(vii). It is allowable as a deduction even though project income was not recognized in the year. The disallowance and characterization as capital loss were set aside, and deduction was directed to be allowed.
Issue 2: Deductibility of interest paid on refund of booking advances and apportionment across projects
Interpretation and reasoning
2.8 The assessee had received booking advances for a flat in a project and, due to failure to deliver the flat in time, refunded the advance together with interest. The Assessing Officer treated this interest as relating exclusively to a particular project from which no income was recognized during the year and held that the amount should be added to that project's work-in-progress rather than treated as current expenditure. On that basis, a part of the overall interest expenditure, earlier apportioned by the assessee across projects, was disallowed.
2.9 The Tribunal found that the interest liability arose directly out of the assessee's contractual and business relationship with the purchaser, being compensation for delayed delivery and consequent refund of booking advance. Such interest was therefore in the nature of a normal business expenditure incurred wholly and exclusively for the purposes of business.
2.10 The fact that the related project's revenue had not been recognized in the same year, or that the assessee had adopted an apportionment method for interest across projects, was held not to alter the character of the payment as a revenue expenditure. The Tribunal emphasized the underlying commercial expediency of paying interest to maintain business credibility and to discharge contractual obligations.
Conclusions
2.11 Interest paid to purchasers on booking advances refunded due to non-delivery of flats is a deductible business expenditure, allowable in the year of accrual/payment, irrespective of whether revenue from the related project is recognized in that year. The disallowance of the specific interest amount, including the portion disallowed on account of apportionment across projects, was directed to be deleted.
Issue 3: Disallowance of interest on unsecured loans to directors as excessive/unreasonable
Interpretation and reasoning
2.12 The Assessing Officer noted that the assessee paid interest at 18% to directors on unsecured loans while earning only 9% interest on loans advanced to another group company and treated the differential as excessive, disallowing a part of the interest.
2.13 The Tribunal observed that the dealings with directors were routed through current accounts involving frequent day-to-day transactions, with borrowings and repayments occurring at short intervals, sometimes as short as one day. In such current account arrangements, higher interest rates are commercially justifiable compared to fixed, long-term borrowings.
2.14 The Tribunal further noted that the assessee paid interest at 15% to other parties, and supporting documents such as account copies and confirmations were placed on record. It also took into account that similar interest payments had been allowed in earlier years without disallowance, indicating consistency in the accepted rate structure.
2.15 On these facts, the Tribunal found no cogent basis to hold the interest rate of 18% to directors as excessive or unreasonable, particularly when compared to general rates paid to other parties and given the nature of the current account transactions.
Conclusions
2.16 The interest paid at 18% to directors on unsecured current account balances was held to be commercially reasonable and not excessive. The disallowance of interest on this ground was unsustainable, and deletion of the addition was directed.
Issue 4: Addition to closing stock on account of alleged stock/area difference in a real estate project
Legal framework (as discussed)
2.17 The Tribunal considered the principle that closing stock of one year becomes opening stock of the next year and that, where the net tax effect over time is neutral, revenue should not insist on additions resulting in revenue-neutral adjustments, relying on decisions of the Supreme Court in analogous contexts.
Interpretation and reasoning
2.18 The Assessing Officer had computed closing stock of finished goods for a project by adopting an area of 1,04,657 sq. ft. to determine the cost per sq. ft., resulting in an increased closing stock valuation and a corresponding addition.
2.19 The assessee, however, demonstrated that the total project area was 1,11,717 sq. ft., out of which 7,060 sq. ft. represented the landowner's share, leaving 1,04,657 sq. ft. as the assessee's share. For determining the cost per sq. ft., the assessee used the total project cost divided by the total project area (1,11,717 sq. ft.), resulting in a lower per sq. ft. cost and closing stock very close to, and not materially different from, that computed by the Assessing Officer.
2.20 The Tribunal accepted the assessee's computation method as correct, holding that cost per sq. ft. should be based on total project area, not merely the assessee's share. The difference arising in the Assessing Officer's computation was attributable to using an incorrect base area and did not reflect any real undervaluation of closing stock.
2.21 Additionally, the Tribunal observed that any adjustment to closing stock in one year would correspondingly affect opening stock of the subsequent year, making the overall effect revenue neutral. In such circumstances, following the ratio of the Supreme Court decisions cited, the dispute should not give rise to a sustained addition when there is ultimately no revenue impact.
Conclusions
2.22 The alleged understatement of closing stock was based on an erroneous area figure and did not result in any real undervaluation. Given the correct computation and the revenue-neutral nature of the adjustment, the addition to closing stock was held to be unsustainable and ordered to be deleted.
Issue 5: Disallowance under section 43B of outstanding service tax and professional tax not debited to profit and loss account
Legal framework (as discussed)
2.23 The Tribunal examined the scope of section 43B, which restricts deduction for specified statutory liabilities to the year of actual payment, but only in respect of sums "otherwise allowable as a deduction" in computing income.
Interpretation and reasoning
2.24 The Assessing Officer had disallowed outstanding amounts of service tax and professional tax under section 43B on the basis that they were unpaid at year-end. The Tribunal found as a matter of fact that these liabilities were reflected in the balance sheet as outstanding dues and had not been debited to the profit and loss account in the relevant year; no deduction in respect of these amounts had been claimed.
2.25 Since section 43B operates only to defer or deny deduction otherwise claimed in the computation of income until payment is made, the Tribunal held that where no deduction has been claimed at all in the profit and loss account, there is no scope for invoking section 43B to make a further disallowance.
2.26 The Tribunal noted that this view is in line with several coordinate bench decisions which have held that mere reflection of a statutory liability in the balance sheet, without claiming it as expenditure, does not attract section 43B disallowance.
Conclusions
2.27 Outstanding service tax and professional tax amounts not debited to the profit and loss account and in respect of which no deduction was claimed cannot be disallowed under section 43B. The additions made on this account were directed to be deleted.
Disallowing the business loss claimed - HELD THAT:- Advance given became bad. The assessee treated the said loss as revenue in nature by charging the same to the profit and loss account which was not allowed by the ld. AO on the ground that the revenue was not recognized during the year from the said project whereas as matter of fact we observed that the assessee has already booked the commercial spaces and amount received from the customers were shown against sale of commercial spaces in the balance sheet as liability.
Assessee has shown income from the said project in the subsequent years as the assessee following project competition method. Under the said method, expenses are accumulated under the work-In-Progress and the corresponding advances received from the customers are also shown as liability and only when the project is completed, the expenses are shown against the revenue receipt from the said project which may be in the earlier or subsequent year. Accordingly, we are not in agreement with the conclusion drawn by the ld. CIT (A) on this issue.
Advance given is in the ordinary course of business is a trading loss even if the income from the corresponding income for project for which it was given has not been recognized in the profit and loss account. Consequently, we are inclined to set aside the order of ld. CIT (A) on this issue and direct the ld. AO to allow the amount as business loss. The ground no. 1 is allowed.
Disallowances of interest paid on refund of advances to the customers on cancellation and agreements for sale - AO disallowed this on the ground that the amount of ₹ 6,36,432/- should be added to Omni Lake View Project, Kolkata and cannot be apportioned on all the purchases. However the AO disallowed Rs. 3,13,530/- only. Apparently, the interest was paid to the purchaser of the flat when the amount received as booking advance was refunded to the purchaser along with interest upon assessee failing to deliver the flat as promised. Therefore, the same is admissible as business expenses and has to be allowed. The ground no. is allowed.
Addition in respect of interest on unsecured loans which are carrying over from the earlier years on the ground that the interest paid is excessive and unreasonable - We find that the assessee has current account with the directors of the assessee company on day-to-day transactions basis meaning thereby that the loans were taken and repaid as and when the funds are available. Sometime, the period ranges from one day to few days. Therefore, we find merit in the contention of the assessee that in case of current account the interest is normally higher than the interest paid on the fixed amount of loan. We note that interest paid to other parties by the assessee was at the rate of 15% and the copies of account of the parties as well as confirmation letters are available in the paper book. Therefore, we find merit in the contentions of the assessee especially on the ground that in the earlier years similar interest has been allowed to the assessee. Accordingly, we set aside the order of the ld. CIT (A) and direct the ld. AO to delete the addition.
Addition in the closing stock on account of stock difference - There is no under valuation stock(very negligible difference) by the assessee as the ld. AO has calculated the stock by taking our wrong figures of area which has resulted into this mistake. Accordingly, the order of ld. CIT (A) is set aside and AO is directed to delete the addition. Before parting, we would like to mention that these is a Revenue neutral addition as the closing stock of one year becomes the opening stock of the next year as has been in the case of V.K.J Builders and Contractors Pvt. ltd. [2009 (8) TMI 101 - SUPREME COURT] Further, when there is no revenue effect the mater and the addition is revenue neutral, no addition should be made and should not be disputed by revenue as has been held in the case of CIT vs. Excel Industries Ltd. [2013 (10) TMI 324 - SUPREME COURT (LB)] Appeal of the assessee is allowed.
Addition on account of service tax and on account of professional tax, which was outstanding when the same was not disallowable as per the Provisions of the Act as not debited into the profit and loss account - We find that so far as the disallowances of serve tax is concerned, undisputedly the same was shown as liability in the balance sheet and no deduction was ever claimed in the profit and loss account. The same is position with regard to the other disallowance . Therefore, the same is beyond the ambit of Provisions of Section 43B of the Act.
Appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether addition under section 68 on account of unsecured loan received from a company treated as a "shell/Jamakarchi company" was justified when the assessee had furnished primary evidences establishing the loan transaction.
1.2 Whether disallowance of interest paid on the aforesaid loan was sustainable when the principal addition under section 68 was deleted.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Addition under section 68 in respect of unsecured loan from Eiffel Agencies Pvt. Ltd.
(a) Legal framework (as discussed)
2.1 The addition was made under section 68 treating the unsecured loan received by the amalgamating company (subsequently merged with the assessee) from Eiffel Agencies Pvt. Ltd. as unexplained cash credit, on the basis that the lender was a "Jamakarchi"/shell company and the case arose out of search proceedings under section 132.
2.2 The Tribunal referred to the principle that when an assessee furnishes all primary evidences regarding a loan transaction, no addition can be made under section 68 without the Assessing Officer conducting further enquiry or pointing out defects, as recognized in binding precedent of the jurisdictional High Court.
(b) Interpretation and reasoning
2.3 The Tribunal recorded that the assessee had furnished all relevant documentary evidences in support of the loan from Eiffel Agencies Pvt. Ltd. both before the Assessing Officer and the Commissioner (Appeals), and that neither authority pointed out any defect or discrepancy in such evidences.
2.4 It was noted that the authorities relied mainly on the report of the search team alleging that the assessee received accommodation entries through such companies and on the financial profile of the lender, namely low operating income, absence of fixed assets, low expenses and profit figures.
2.5 The Commissioner (Appeals) had confirmed the addition primarily on the ground that the lender had a net worth of about Rs. 10 crores but had shown very low profits from operations in the immediately preceding years.
2.6 The Tribunal held that mere low income, low operating profit, absence of fixed assets or low expenses in the lender's accounts cannot by themselves be determinative to treat the loan as unexplained, when documentary evidences of the loan are on record and remain uncontroverted.
2.7 Relying on the ratio that, where the assessee has furnished evidences and the Assessing Officer does not carry out proper enquiry or record any adverse finding on such evidences, addition under section 68 is not sustainable, the Tribunal found that the authorities had failed to conduct meaningful enquiry beyond relying on generalized allegations in the search report.
(c) Conclusions
2.8 The Tribunal concluded that the conditions for invoking section 68 were not satisfied, as the assessee had discharged its onus by furnishing all relevant evidences, and the revenue had neither disproved those evidences nor conducted further enquiry.
2.9 The order of the Commissioner (Appeals) confirming the addition of Rs. 15,00,000/- as unexplained cash credit under section 68 was set aside, and the Assessing Officer was directed to delete the said addition.
Issue 2: Disallowance of interest paid on loan from Eiffel Agencies Pvt. Ltd.
(a) Interpretation and reasoning
2.10 The disallowance of interest amounting to Rs. 13,315/- paid to Eiffel Agencies Pvt. Ltd. was made by the Assessing Officer and confirmed by the Commissioner (Appeals) solely as a corollary to the addition of the principal loan under section 68.
2.11 The Tribunal observed that this issue was purely consequential to the principal addition; once the loan itself was held to be genuine and the section 68 addition deleted, there remained no basis to sustain the disallowance of interest on such loan.
(b) Conclusions
2.12 Following the deletion of the section 68 addition, the Tribunal set aside the order of the Commissioner (Appeals) on this issue and directed the Assessing Officer to delete the disallowance of interest of Rs. 13,315/-.
Unexplained cash credit u/s. 68 - loan taken from the EAPL - HELD THAT:- We find that the assessee filed all the evidences before the learned AO as well as before the CIT (A). The documents qua the loan raised from Eiffel Agencies Pvt. Ltd. and the authorities have failed to point out any defect or discrepancy in the same and mainly relied on the report of the search team that the assessee has received accommodation entries through these companies.
Mere fact that the loan creditors company had low income in the form of operating profit or no fixed assets or incurred very low expenses is not the criteria as has been held in the case of CIT vs. Ms. Mayawati [2011 (8) TMI 12 - DELHI HIGH COURT] Also, in case of PCIT vs. Sreeleathers [2022 (7) TMI 747 - CALCUTTA HIGH COURT] has held that where the assessee has furnished all the evidences with the AO and then no addition can be made if AO has not done any enquiry.
We are inclined to set aside the order of learned CIT (A) and direct the AO to delete the addition. The appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Validity of initiation of proceedings under section 153C of the Act for AYs 2018-19 and 2019-20 based on seized material found in the case of a third party and the satisfaction note recorded by the Assessing Officer.
1.2 Whether additions on account of alleged bogus purchases of old bottles were to be made by disallowing the entire purchase value or by rejecting the books of account under section 145(3) and estimating profits, and the appropriateness of estimating net profit at 10% of turnover.
1.3 Whether, after rejection of books and estimation of income, separate disallowances under section 14A and in respect of sales promotion expenses could be sustained.
1.4 Whether disallowance of deduction under section 80G in respect of donations made to two registered charitable institutions was justified on the basis of search statements without corroborative material.
1.5 Whether the assessee was entitled to deduction under section 80GGB for AY 2018-19.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Validity of proceedings under section 153C
2.1.1 Legal framework (as discussed): The Tribunal reiterated that recording of a proper satisfaction note is a jurisdictional pre-condition for issuance of notice under section 153C. The Assessing Officer of the "other person" must reach a satisfaction that the seized material handed over by the Assessing Officer of the searched person belongs to/pertains to/relates to such other person and is incriminating in nature, having a bearing on determination of total income. The satisfaction must be contemporaneously recorded and demonstrate a live nexus between seized material and the other person's income, in line with the principles laid down by the Supreme Court in the decision cited in the order (Singhad Technical Education Society).
2.1.2 Interpretation and reasoning: The Tribunal examined the satisfaction note for AYs 2018-19 and 2019-20 and found that the Assessing Officer (i) linked specific seized documents from the premises of the third-party concern with the assessee, (ii) correlated documents year-wise with the relevant assessment years, and (iii) quantified amounts believed to have escaped assessment for each year. The note referred to loose sheets, excel sheets, ledgers and statements under section 132(4) of the key person of the third-party entity, evidencing bogus purchases of old bottles on behalf of the assessee. It held that the Assessing Officer had objectively analysed and compartmentalised the material, and the common satisfaction note still contained year-specific correlation and quantification. The Tribunal rejected the argument that the seized material was not incriminating or that the satisfaction was vague or mechanical. It further held that the later direct search on the assessee and subsequent reliance primarily on material found therein for making additions did not vitiate the earlier jurisdictional satisfaction already validly formed on the basis of material received from the third-party search.
2.1.3 Conclusions: The Tribunal held that the statutory pre-conditions for assumption of jurisdiction under section 153C were satisfied. The satisfaction note was valid and in conformity with the principles laid down by the Supreme Court; the proceedings under section 153C for AYs 2018-19 and 2019-20 were therefore upheld and the assessee's legal challenge was dismissed.
2.2 Treatment of alleged bogus old bottle purchases; rejection of books and estimation of profit
2.2.1 Legal framework (as discussed): The Tribunal proceeded on the basis of section 145(3) empowering rejection of books of account where they do not reflect true income and correct profits cannot be deduced, and consequent best-judgment assessment under section 144. It noted the statutory scheme under sections 29 and 30-43D and relied upon the jurisdictional High Court's decision in Empee Distilleries Ltd. on similar allegations of inflation of old bottle purchases in the same line of business, where disallowance of 10% of such purchases was approved as a reasonable estimate. Reference was also made (through the Commissioner (Appeals)'s reasoning adopted by the Tribunal) to various High Court decisions justifying rejection of books and estimation where stock/accounting records are defective or unreliable.
2.2.2 Interpretation and reasoning: On facts, the Tribunal noted that the pattern of reasoning by the Assessing Officer and the Commissioner (Appeals) in the present years was identical to that in the assessee's own case for AYs 2020-21 to 2022-23, already adjudicated by the Tribunal. The Assessing Officer had relied on seized electronic data (excel sheets describing old bottle purchases, "Others" column indicating commission, "Total" indicating cash to be returned), SAP records, absence of GRNs for certain purchases, and statements of key employees and suppliers, to treat all purchases without GRNs as bogus and to add the entire amounts. The Commissioner (Appeals) accepted that there were significant accounting discrepancies, particularly in handling SAP entries, offset accounts and documentation, and that the books did not reliably reflect true income. However, considering that (i) vendors were regular suppliers of genuine bottles, (ii) both regular and "emergency" purchases were debited to stock and reflected in production, (iii) no unaccounted assets or applications corresponding to the alleged bogus purchases had been found in extensive search operations, and (iv) the assessee's profit ratios were broadly in line with industry norms, the Commissioner (Appeals) rejected the books under section 145(3) and estimated profits at 10% of turnover instead of sustaining 100% disallowance of purchases. In the earlier order for AYs 2020-21 to 2022-23, the Tribunal had already held that accounting deficiencies and corroborated search statements may justify rejection of books and estimation but do not by themselves establish falsification of entries warranting addition of the entire purchase value. It also relied on Empee Distilleries Ltd. to approve a 10% disallowance/profit estimate in this industry.
2.2.3 Conclusions: Finding no change in facts or legal position from those considered for AYs 2020-21 to 2022-23, the Tribunal followed its earlier decision in the assessee's own case and upheld the Commissioner (Appeals)'s action in (i) rejecting the books of account under section 145(3) and (ii) estimating net profit at 10% of turnover for AYs 2018-19 and 2019-20. The separate grounds of both the assessee and the Revenue on the issue of bogus old bottle purchases were dismissed.
2.3 Effect of estimation after rejection of books on separate disallowances under section 14A and sales promotion expenses
2.3.1 Legal framework (as discussed): The Tribunal referred to section 29 read with sections 30-43D, and to the principle that where income is estimated after rejection of books, such estimate substitutes the computation of business income under the normal provisions. Reliance was placed on the decisions of the Andhra Pradesh High Court in Indwell Constructions and the Allahabad High Court in Banwari Lal Banshidhar, which hold that once net profit is estimated, separate disallowances of individual expenditure items ordinarily cannot be made as all such items are deemed to have been taken into account in the estimation.
2.3.2 Interpretation and reasoning: The Revenue argued that, notwithstanding rejection of books and estimation of income, disallowances under section 14A and in respect of sales promotion expenses should be separately adjudicated and added over and above the estimated income. The Tribunal held that, once the books are rejected under section 145 and income is determined on an estimated basis under section 144, this estimated figure represents the business income after considering all underlying expenditure governed by sections 30-43D. It therefore considered that any further separate disallowance of particular expenditure heads would amount to double taxation of the same income and would be inconsistent with the case law cited.
2.3.3 Conclusions: The Tribunal upheld the Commissioner (Appeals)'s deletion of disallowances under section 14A and of sales promotion expenses, holding that such separate additions were impermissible after rejection of books and estimation of profits. The Revenue's grounds on these issues were dismissed.
2.4 Disallowance of deduction under section 80G in respect of donations
2.4.1 Legal framework (as discussed): The Tribunal proceeded on general principles governing allowability of deduction under section 80G for donations to institutions approved under that provision, and on the settled rule that additions/disallowances cannot be based solely on uncorroborated statements recorded during search. It referred to CBDT's Instruction (F. No. 286/2/2003-IT(Inv) dated 10.03.2003) and judicial precedents (Best Infrastructure (I) Pvt. Ltd., Harjeev Aggarwal) which hold that statements under section 132(4) without supporting evidence are insufficient to sustain additions.
2.4.2 Interpretation and reasoning: The Assessing Officer had disallowed deduction of Rs. 62,50,000 under section 80G in respect of donations aggregating Rs. 1,25,00,000 paid to two registered charitable entities, treating them as bogus solely on the basis of one employee's statement that (i) in the case of one donee, he "understood" that the donation might have been received back in cash, and (ii) in respect of the other, he merely confirmed payment by cheque for educational/CSR purposes. The Tribunal observed that (a) no incriminating documents or WhatsApp chats relating to these two specific donations were found in the search on the third party (from whom evidence of other bogus CSR contributions had been obtained), (b) no material was seized from the assessee suggesting that these donations had been routed back in cash, and (c) the relevant employee did not clearly admit that any part of these donations was actually received back in cash, and in respect of one donee his answers positively indicated that the payment was genuine and for educational purposes. The Tribunal held that the inference of bogus donation was drawn purely on assumption, without corroborative material, and that mere suspicion or tentative expression of "understanding" by an employee could not displace the legal effect of donation paid by cheque to institutions duly approved under section 80G.
2.4.3 Conclusions: The Tribunal affirmed the Commissioner (Appeals)'s deletion of the disallowance of Rs. 62,50,000 under section 80G, holding that both donations, made to registered institutions holding valid section 80G approval, were not shown by any cogent material to be bogus or to have been received back in cash. The Revenue's grounds on this issue were dismissed.
2.5 Deduction under section 80GGB
2.5.1 Interpretation and reasoning: The only issue was the assessee's eligibility for deduction under section 80GGB for AY 2018-19. At the hearing, the assessee's authorised representative expressly stated that this ground was not being pressed, given the smallness of the amount involved.
2.5.2 Conclusions: The Tribunal treated the ground challenging disallowance of deduction under section 80GGB as not pressed and dismissed it accordingly.
Validity of the notice issued u/s 153C - Mandation to record valid satisfaction note - rejecting the books of accounts and estimating the profit at 10% - HELD THAT:- There is no doubt that the material in possession of the AO sufficiently demonstrated the impact on the determination of the income of the assessee for the impugned AYs before us. The argument of the assessee to the effect of the satisfaction recorded being vague and that the seized material received from the AO of the searched person [M/s Crystal Bottles, in the present case] was not ultimately relied upon to make the addition(s) in the assessment order(s) are, we find, of no consequence in the light of our finding that, the satisfaction recorded was to be considered in light of the seized material and statements in the possession of the AO, which admittedly prima facie were adverse to the assessee.
The fact that, later on a direct search was conducted upon the assessee which led to discovery of additional material & evidence basis which the AO primarily justified the addition, cannot be fatal to the recording of satisfaction note. According to us, there is no doubt that the AO was in possession of material which could have led to no other satisfaction but that of the material impacting the determination of income of the assessee. No merit in the legal grounds raised by the assessee challenging the validity of jurisdiction assumed by the AO u/s 153C of the Act and therefore dismiss the same.
Addition of bogus old bottle purchases - AO, had ultimately rejected the books of accounts of the assessee and estimated the profits at 10% of the turnover - CIT(A) had rightly followed the ratio decidendi laid down in the above decision (supra) for rejecting the books of accounts and estimating the profits of the assessee at 10%. We therefore see no reason to interfere with the same. Since the facts involved in the lead case of AY 2020-21 is common in AYs 2021-22 & 2022-23, our foregoing findings shall be followed mutatis mutandis in the appeals for AYs 2021-22 & 2022-23 as well.
Disallowance of expenses u/s 14A and sales promotion expenses - Once the books of account are rejected by invoking the provisions of section 145 of the Act and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution of the business income that is to be computed in accordance with the provisions contained in sections 30 to 43D as laid down in section 29 of the Act. Consequently, all the deductions which are referred to in sections 30 to 43D of the Act are deemed to have been taken into account while making such an estimate. Useful reference in this regard may be made to the decision of Indwell Constructions [1998 (3) TMI 121 - ANDHRA PRADESH HIGH COURT] and Banwari Lal Banshidhar [1997 (5) TMI 37 - ALLAHABAD HIGH COURT] we do not agree with this plea of the Revenue. We thus do not see any infirmity in the order of the Ld. CIT(A) in deleting these separate additions, as the total income of the assessee had been estimated upon rejection of the books of accounts.
Disallowance of deduction claimed by the assessee u/s 80G - Disallowance was solely based on the statement of Shri Augustine Paulraj - Having perused his statement, it is seen that nowhere had Shri Augustine Paulraj stated that the donation made to M/s Radiant Institute of Technology was bogus or that it was returned back in cash. Rather, it is observed that in his answers to Q Nos. 25 & 26, he had categorically stated that, the assessee had paid donation to M/s Radiant Institute of Technology by cheque and that the donation was for educational purpose under their corporate social responsibility. There was nothing incriminating whatsoever contained in the statement of Shri Augustine Paulraj basis which any prudent person could construe the donation made by the assessee to M/s Radiant Institute of Technology to be not genuine. In fact, we find that, his statement supports the veracity of the impugned donation. AR further brought to our notice that, M/s Radiant Institute of Technology was approved by the competent authority at the time of the donation had been made, and they held valid registration u/s 80G - CIT(A) had rightly allowed the deduction claimed by the assessee in relation to the donation given to M/s Radiant Institute of Technology and deleted the disallowance made by the AO u/s 80G of the Act.
Allowability of the donation made to M/s Prerna Foundation - CIT(A) Allowed deduction - CIT(A) has rightly observed that, the conclusion drawn by the AO was not supported by any clear statement(s) and that in absence of any corroborative evidence, the impugned disallowance was unjustified. It is also not in dispute that M/s Prerna Foundation is a registered charitable trust holding valid registration u/s 80G of the Act and therefore, in our considered view, the deduction claimed by the assessee u/s 80G of the Act qua the donation made to this trust cannot be held to be unjustified. No reason to interfere with the order of the Ld. CIT(A) deleting the disallowance of deduction claimed u/s 80G.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, for the purposes of section 56(2)(viib) of the Income-tax Act, the Assessing Officer was justified in rejecting a valuation of equity shares prepared by an approved valuer using the Discounted Cash Flow (DCF) method prescribed under Rule 11UA, on the grounds that (i) the projected figures in the valuation were not achieved in subsequent years, and (ii) the valuation report contained a standard disclaimer.
1.2 Whether, after rejecting the DCF-based valuation report, the Assessing Officer was justified in unilaterally adopting the Net Asset Value (NAV) method under Rule 11UA and making an addition of the difference as "consideration received over and above fair market value" under section 56(2)(viib).
1.3 Whether, in case of doubt regarding a valuation report obtained from an approved valuer using a recognized method, the Assessing Officer is required to refer the matter to a Valuation Officer rather than discarding the report and substituting his own valuation.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Rejection of DCF valuation report and substitution with NAV method; validity of addition under section 56(2)(viib)
Legal framework (as discussed)
2.1 The Court examined section 56(2)(viib) of the Income-tax Act, which permits taxation of consideration received for issue of shares to the extent it exceeds the fair market value of such shares. Rule 11UA of the Income Tax Rules was considered, which recognizes multiple methods of valuation, including the DCF method and NAV method, for determining the fair market value of unquoted equity shares.
2.2 The Court noted that DCF methodology is specifically prescribed in Rule 11UA(2)(b) and is a globally accepted standard valuation methodology, commonly used for high-growth companies and by venture capital/private equity investors. The Court also took note of the jurisdictional High Court decisions, particularly one where the reversal of a Tribunal decision on similar facts was reported, and another decision in which the approach to DCF valuations under section 56(2)(viib) was laid down.
Interpretation and reasoning
2.3 It was undisputed that the assessee had obtained a valuation report from a qualified chartered accountant, an approved valuer, who valued the shares using the DCF method, as recognized under Rule 11UA. The valuer's appearance under summons, confirmation on oath of having prepared the valuation on the basis of projections and management data, and justification of the discounting rate used, were all placed on record.
2.4 The Assessing Officer rejected this DCF valuation primarily on two grounds: (i) the projections used did not match the actual subsequent turnover figures; and (ii) the valuation report contained a disclaimer that the valuer was not certifying the accuracy or completeness of financial information and had relied on management assumptions.
2.5 The Court held that the non-achievement of projected turnover in subsequent years cannot by itself justify the rejection of a DCF valuation, since projections are, by their nature, estimates based on assumptions about future business performance, and variation between projected and actual results is inherent and depends on industry, company-specific, and economic factors.
2.6 As regards the disclaimer, the Court held that such disclaimers are standard in valuation reports prepared by consultants, chartered accountants, and merchant bankers. They merely record that the valuer has relied on management-provided data without conducting an audit or certifying the underlying financial statements. The Court found that this type of disclaimer does not undermine the legitimacy of the valuation or provide a legally sustainable ground for outright rejection of the report.
2.7 The Court emphasized that, once the assessee chooses a recognized method (DCF) under Rule 11UA and obtains a valuation from an approved valuer, the Assessing Officer cannot disregard that method merely because he considers the projections to be optimistic or because the results subsequently differed. If the Assessing Officer had doubts about the reasonableness of the assumptions or the computation, the proper course was to examine the valuer's workings, seek clarifications, or refer the valuation to a Valuation Officer, not to substitute a different method (NAV) of his own choice.
2.8 The Court noted that the Assessing Officer directly compared projected turnover to actual turnover and, on that basis, discarded the DCF approach and adopted NAV, which, although also recognized by Rule 11UA, was not the method chosen by the assessee or its investors. The Court found this approach inconsistent with the statutory scheme, which allows the assessee to adopt a prescribed method, and with the judicial guidance laid down by the jurisdictional High Court.
2.9 The Court also recorded that a merchant banker's valuation report, filed before the appellate authority, endorsed the chartered accountant's DCF valuation. This supported the reasonableness and bona fides of the assessee's valuation exercise and undermined the justification for the Assessing Officer's substitution of NAV.
2.10 The Tribunal distinguished and declined reliance on a prior coordinate bench decision cited by the Assessing Officer, in view of its subsequent reversal by the jurisdictional High Court. It instead followed the binding decisions of the jurisdictional High Court, including a case directly dealing with section 56(2)(viib) and DCF-based valuations.
Conclusions
2.11 The Court concluded that the Assessing Officer was not justified in rejecting the DCF-based valuation report solely on the grounds that projections were not subsequently achieved and that the report contained a standard disclaimer. These grounds were held to be legally untenable.
2.12 The unilateral adoption of the NAV method by the Assessing Officer in place of the DCF method chosen by the assessee and recognized under Rule 11UA was held to be contrary to law, particularly in the absence of any reference to a Valuation Officer despite the availability of that recourse.
2.13 Following the jurisdictional High Court's precedents, the Court held that the fair market value determined under the DCF method by an approved valuer could not be disregarded in the manner done by the Assessing Officer. Consequently, the addition of Rs. 8,39,55,840/- made under section 56(2)(viib) as consideration received in excess of fair market value was directed to be deleted.
2.14 The appeal was allowed, and all grounds of the assessee relating to the addition under section 56(2)(viib) were decided in its favour.
Addition u/s 56(2)(viib) - difference in share premium charged from different persons and also to file the basis of share premium charged for all the persons - AO rejected the valuation report submitted by the assessee and proceeded to adopt the valuation in accordance with Net Asset Value (NAV) method which is also one of the recognized method under Rule 11UA of the Income Tax Rules and arrived at the fair market value of Rs 200 per share.
HELD THAT:- It is not in dispute that the assessee had valued the shares from an approved valuer using DCF method, which is also one of the recognized methods prescribed under Rule 11UA of the Income Tax Rules.
AO was not justified in rejecting the DCF method merely because the projected turnover in the DCF valuation had not been achieved by the using DCF method in reality. It is also pertinent to note that in response to the summons issued u/s 131 of the Act, the valuer had appeared before the Learned AO and given his statement on oath by duly confirming the fact of furnishing of valuation report to the assessee based on the projections and estimates provided by the management and that the fair market value has been arrived by him using DCF method which is one of the recognized method prescribed under Rule 11UA of the Income Tax Rules.
AO ought not to have rejected the valuation report submitted by the assessee merely because the valuer had provided a disclaimer in the valuation report stating that he is not giving any opinion with regard to the authenticity and accuracy of the figures provided therein. This disclaimer is normally provided in every valuation report given by every consultant or merchant banker as the concerned expert does not do in-depth verification of financial statements or conduct any audit thereon.
Hence rejecting the valuation report merely based on the disclaimer clause provided in the valuation report is not sustainable in the eyes of law.
AO had any doubt in the valuation report provided by the assessee, then he ought to have referred the matter to the Valuation Officer for determination of fair market value which in the instant case has not been done.
Assessee had filed a valuation report issued by a merchant banker before the Learned CITA who had also endorsed the valuation report submitted by the chartered accountant.
AO had relied on the co-ordinate bench decision of Agra Portfolio Private Limited [2018 (5) TMI 1088 - ITAT DELHI] in support of the contentions of the learned AO. But it is pertinent to note that the said decision has been reversed in [2024 (4) TMI 318 - DELHI HIGH COURT]. We further find that the issue in dispute is squarely covered by the decision of Cinestaan Entertainment Private Limited [2021 (3) TMI 239 - DELHI HIGH COURT] Addition made in the sum u/s 56(2)(viib) - Appeal of assessee allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether an addition under Section 69C in respect of a donation could be sustained when based solely on third-party statements recorded under Section 132(4), without any seized material, corroborative evidence, or opportunity of cross-examination to the assessee.
1.2 Whether a donation made by a registered charitable trust to another registered charitable trust, through accounted banking channels and duly recorded in the books, could be treated as unexplained expenditure under Section 69C in view of the statutory scheme and CBDT Circular No. 1132.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sustainability of addition under Section 69C based solely on uncorroborated third-party statements without cross-examination
Legal framework (as discussed)
2.1 The Tribunal examined the evidentiary value of statements recorded under Section 132(4) in the absence of supporting incriminating material, relying on judicial precedents holding that such uncorroborated statements cannot, by themselves, form the sole basis for addition and that denial of cross-examination vitiates reliance on such statements.
Interpretation and reasoning
2.2 The addition of Rs. 10,00,000 was made and sustained solely on the basis of statements of office-bearers of the donee trust recorded during search, wherein they admitted to providing accommodation entries and returning donations in cash after deducting commission.
2.3 The Tribunal noted that: (i) no seized documents or material evidencing "cash back" or accommodation entries were brought on record; (ii) no bank trail or independent corroborative evidence was shown to demonstrate that the impugned donation was returned to the assessee; and (iii) despite specific request, the assessee was never confronted with the said statements nor afforded opportunity of cross-examination.
2.4 It was held, relying on the cited decisions, that a statement recorded under Section 132(4), without supporting evidence, has no independent evidentiary value and that uncorroborated statements cannot validly form the basis of an addition. The Tribunal also reiterated that suspicion, however strong, cannot take the place of proof.
Conclusions
2.5 The Tribunal concluded that, in the absence of seized material, corroborative evidence, or opportunity of cross-examination, the addition under Section 69C based solely on third-party search statements was bad in law and unsustainable.
Issue 2: Characterisation of inter-trust donation as unexplained expenditure under Section 69C and effect of CBDT Circular No. 1132
Legal framework (as discussed)
2.6 The Tribunal considered Section 69C, holding that it applies only where the source of expenditure is unexplained, and referred to CBDT Circular No. 1132 dated 05.01.1978 clarifying that donation by one charitable trust to another registered charitable trust constitutes proper application of income for charitable purposes under Section 11.
Interpretation and reasoning
2.7 It was undisputed that: (i) the donee trust was a registered charitable trust holding valid Section 12A and Section 80G certificates; (ii) the donation of Rs. 10,00,000 was made through banking channels; (iii) the transaction was duly recorded in the assessee's books of account; and (iv) the donation was supported by a receipt.
2.8 On these facts, the Tribunal held that the assessee had discharged its onus by furnishing primary evidence demonstrating the genuineness of the transaction. The burden therefore shifted to the Revenue to prove that the transaction was not genuine. No material was brought on record by the Revenue to discharge this burden.
2.9 The Tribunal further held that, since the funds used for the donation were from accounted bank sources, the condition for invoking Section 69C-that the source of expenditure be unexplained-was not satisfied, and hence Section 69C could not be applied.
2.10 Referring to CBDT Circular No. 1132, which is binding on the Department, the Tribunal observed that an inter-trust donation between registered charitable trusts is to be treated as application of income under Section 11. As the donation in question fell squarely within this category, it was to be regarded as a valid application of income and not as unexplained expenditure.
Conclusions
2.11 The Tribunal held that the donation by the assessee trust to another registered charitable trust, being through banking channels, duly recorded, and supported by documentary evidence, constituted a genuine transaction and a valid application of income under Section 11 in terms of CBDT Circular No. 1132.
2.12 The invocation of Section 69C was held to be legally untenable, as the source of expenditure was explained and accounted. The addition of Rs. 10,00,000 under Section 69C was therefore directed to be deleted.
2.13 In view of the deletion of the addition on merits, the challenge to the validity of the reassessment proceedings was treated as academic and was not adjudicated.
Assessment of trust - Addition u/s 69C - seized material or documents have been relied upon - HELD THAT:- As undisputed fact that addition in the present case were sustained solely on the basis of statements of third person made during the search and in this regard “no seized material or documents have been relied upon”. There is nothing on record in the shape of bank trail or corroborative evidence to the effect that the donation made by assessee was returned back by the donor after deducting commission thereon. It would not be out of place to mentioned here that throughout assessment proceedings assessee was never confronted with any such statement of alleged Ram Bhawan Ojha and Tribhawan Ram Kalp Ojha despite specific request made by the assessee. It is a settled law that a statement recorded during the search, without supporting evidence has no independent evidentiary value.
There is no seized documents on record evidencing any “cash back” or any accommodation entry has been brought on record thus in this way the additions were sustained only on the basis of suspicion without any independent corroborative evidences. Whereas it is a settled law that suspicion how so ever strong may be, but cannot take place of proof beyond reasonable doubt.
After evaluation the evidences placed on record, we also found that the donation in this case was made undisputedly to registered charitable trust holding valid 12A and 80G certificates, and the entire donation was paid through banking channels which has been duly recorded in books of accounts. All above mentioned documents had already been submitted during the course of assessment proceedings thus in our view the assessee had already discharged his onus by furnishing primary evidences therefore the burden shifts upon the department to prove that the transactions were not genuine but in this case nothing has been placed on record to prove that the transaction was not genuine. Reliance in this regard is bring placed upon the decision in the case of CIT Vs. Chotatingrai Tea [2002 (10) TMI 3 - SUPREME COURT] CIT Vs. Stellar Investment [1991 (4) TMI 100 - DELHI HIGH COURT] and PCIT Vs. Abhisar Buildwell [2023 (4) TMI 1056 - SUPREME COURT]
Provisions of Sec. 69C of the Act are attracted only when the source of the expenditure is unexplained whereas on the contrary as per the facts of the present case the source in this case is accounted bank funds Therefore Sec. 69C has no application. Lastly we have also considered the CBDT Circular No. 1132 dated 05.1.1998 which clarifies that donation by one charitable trust to another registered charitable trust is a valid application of money u/s 11 of the Act since the said circular is binding on the department and admittedly in the present case the donation was inter trust which has to considered as application of income. Thus no additions were warranted. In this regard reliance is being placed upon the decision in the case titled DCIT Vs. Divya Yog Mandir Trust [2019 (5) TMI 410 - ITAT DELHI]
Additions made by the AO and sustained by Ld. CIT(A) are bad in law and not sustainable. Decided in favour of assessee.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether income from sale of cut Silver Oak trees grown as shade trees in a tea estate is "agricultural income" exempt from tax, or taxable as income from capital gains.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Characterisation of income from sale of Silver Oak shade trees as agricultural income or capital gains
Legal framework (as discussed)
2.1 The Tribunal examined the judicial tests for what constitutes "agriculture" and "agricultural produce" as laid down by the Supreme Court and the High Court, particularly:
2.1.1 The principle that "some basic operation prior to germination involving application of human effort on the land itself" is necessary to constitute agriculture (CIT v. Raja Benoy Kumar Sahas Roy).
2.1.2 The principle that "irrespective of the nature of the produce or the product of the land whatever is grown on land aided by human labour and effort, whatever does not grow wild or spontaneously on soil without human labour or effort, would constitute 'agricultural produce'" (CIT v. Sundara Mudaliyar).
2.2 The Tribunal relied on the decision of the High Court which held that Silver Oak trees grown as shade trees in tea estates, requiring planting, periodic attention and human labour, and not growing wild or spontaneously, constitute "agricultural produce", and income from their sale constitutes "agricultural income".
Interpretation and reasoning
2.3 The Tribunal noted that the assessee had grown Silver Oak trees as shade trees in a tea estate and realised income from their cut and sale.
2.4 The Assessing Officer treated the sale proceeds as taxable long-term capital gains, and this view was confirmed by the first appellate authority.
2.5 Referring to the High Court decision regarding Silver Oak shade trees in tea estates, the Tribunal highlighted the following aspects accepted there:
2.5.1 Silver Oak is an exotic plant variety, used as shade trees in tea estates.
2.5.2 These trees are not of wild or spontaneous growth; they are planted at specific intervals/distances and require periodic attention, human effort and labour.
2.5.3 On these facts, such trees constitute "agricultural produce" because they are grown on land aided by human labour and do not grow spontaneously.
2.6 The Tribunal observed that the Revenue had not controverted the factual premise that the assessee's Silver Oak trees were planted, nurtured and maintained as shade trees and were not of spontaneous growth.
2.7 Applying the tests laid down in the cited judgments, the Tribunal held that income derived from the sale of Silver Oak trees in such circumstances is "undoubtedly an agricultural income".
Conclusions
2.8 Income derived from the sale of Silver Oak trees grown as shade trees in a tea estate, which are planted and nurtured by human effort and are not of spontaneous growth, constitutes "agricultural income" and is not taxable as capital gains.
2.9 The addition made by treating such income as long-term capital gains was unsustainable and was deleted, with a direction to treat the sale proceeds from Silver Oak trees as agricultural income.
Income from capital gains denying the claim of agricultural income - Agricultural income out of sale from cutting of the oak trees - HELD THAT:- We note that whether the sales of cut/sized Silver Oak trees grown as shade trees in the Tea Estate would constitute “agricultural produce was subject matter in appeal in the case of United Nilgiri Tea Estates Company Ltd. v. The Tamil Nadu Sales Tax Appellate Tribunal & Ors [2022 (8) TMI 280 - MADRAS HIGH COURT] wherein, the Hon’ble High Court was pleased to hold the cut/sized shade trees would constitute “agricultural produce".
Income derived by sale of Silver Oak Trees which are “agricultural produce” is undoubtedly an “agricultural income”. The ld. DR could not controvert the above decision of the Hon’ble High Court of Madras. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the assumption of revisionary jurisdiction under section 263 was valid when the Principal Commissioner alleged lack of enquiry by the Assessing Officer regarding sales promotion and packing expenses.
1.2 Whether, on the facts, the assessment order could be treated as "erroneous in so far as it is prejudicial to the interests of the Revenue" in terms of section 263, in the absence of any independent enquiry or verification undertaken by the Principal Commissioner.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Validity of assumption of jurisdiction under section 263 and requirement of enquiry by the Principal Commissioner
Legal framework (as discussed)
2.1 The Court noted that section 263 mandates that the Principal Commissioner may revise an order "after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary". The second limb, relating to making necessary enquiry, was treated as a mandatory safeguard against arbitrary revision.
Interpretation and reasoning
2.2 The Court found from the impugned order that the Principal Commissioner had not conducted any enquiry whatsoever: no independent verification was carried out, no third-party enquiry was initiated, no books of account were called for, and no evidence was examined beyond what was already on record. The order merely reproduced the show cause notice issued by the Assessing Officer and inferred lack of enquiry.
2.3 The assessee had specifically asserted, and the Principal Commissioner had reproduced in the revisionary order, that detailed submissions with over 100 pages of documentary evidence (including ledger accounts, sales invoices, bank statements and GST returns) were filed before the Assessing Officer in response to the show cause notice. The Principal Commissioner nonetheless concluded that no credible evidence was produced, without examining or objectively dealing with such materials or giving reasons for discarding them.
2.4 The Court held that a mere allegation that the Assessing Officer did not conduct adequate enquiry cannot justify exercise of section 263 powers unless the Principal Commissioner himself undertakes an enquiry and brings material on record to demonstrate an error rendering the order erroneous and prejudicial to the interests of the Revenue.
2.5 The Court further observed that it is well-settled that where the Assessing Officer has taken a possible view after conducting certain enquiries, the Principal Commissioner cannot substitute his own standard or degree of enquiry unless the view taken is shown to be perverse or unsustainable in law. In this case, the assessment order was passed with the prior approval of the Additional CIT, and no specific legal error or perversity in the Assessing Officer's approach was identified by the Principal Commissioner.
Conclusions
2.6 The Court concluded that the Principal Commissioner did not satisfy the statutory requirement of making or causing to be made such enquiry as he deemed necessary under section 263, and had proceeded only on a general assumption of inadequacy of enquiry by the Assessing Officer.
2.7 In the absence of any independent enquiry or demonstrated legal error, the assessment order could not be held to be "erroneous in so far as it is prejudicial to the interests of the Revenue".
2.8 Consequently, the assumption of jurisdiction under section 263 was held to be not sustainable in law, and the revisionary order was quashed. The appeal was allowed.
Revision u/s 263 - assessment order be treated as "erroneous in so far as it is prejudicial to the interests of the Revenue" - HELD THAT:- On a plain reading of the impugned order, it is evident that the PCIT has not conducted any inquiry whatsoever. No independent verification has been carried out, no third- party inquiry was initiated, no books were called for, and no evidence was examined beyond what was already on record. The order merely reproduces the show cause notice issued by the Assessing Officer and proceeds to infer lack of inquiry.
Assessee has placed on record that it had filed detailed submissions before the Assessing Officer in response to the show cause notice dated 11.03.2023. PCIT has reproduced portions of the assessee’s reply dated 20.02.2025, acknowledging that the assessee asserted having filed all supporting documents. The Principal Commissioner, however, has not examined these materials nor assigned any reason for discarding them.
A mere allegation that the Assessing Officer did not conduct adequate inquiry cannot, in law, justify revision unless the PCIT himself undertakes an inquiry that establishes the error.
It is well-settled that where the AO has taken a possible view after conducting certain inquiries, the PCIT cannot substitute his subjective standard of inquiry unless the view is demonstrably unsustainable in law. Here, the assessment order was passed with prior approval of the Additional CIT and nothing has been brought on record to show that the view adopted by the Assessing Officer was perverse or contrary to law. PCIT has proceeded on a general assumption of inadequacy of inquiry without identifying any specific legal error.
Assumption of jurisdiction under section 263 is not sustainable in law. Appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether continued detention of the seized gold chain is permissible in the absence of issuance of a show cause notice within the time prescribed under Section 110(2) of the Customs Act, 1962, or any valid extension thereof.
1.2 Consequential directions and conditions, if any, for release of the seized gold chain upon holding the continued detention to be impermissible.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legality of continued detention of the seized gold chain in absence of show cause notice within the statutory period
Legal framework
2.1 The Court considered Section 110(2) of the Customs Act, 1962, which prescribes a six-month period from the date of seizure for issuance of notice under clause (a) of Section 124, extendable by the Principal Commissioner/Commissioner for a further period not exceeding six months, with reasons recorded in writing and intimation to the person from whom goods were seized.
2.2 The Court relied on the dictum of the Supreme Court in Civil Appeal No. 3489/2024, which held that: (i) the only power to extend the time period is as per the first proviso to Section 110(2); (ii) release under Section 110A is merely interim and does not affect the mandatory consequence flowing from non-issuance of notice within the period under Section 110(2); and (iii) if no notice is issued within the original or validly extended period, the consequence is that the goods shall be returned to the person from whose possession they were seized.
Interpretation and reasoning
2.3 The Court noted that the gold chain was detained on 17 January 2024 and that no show cause notice had been issued till the date of decision.
2.4 It was observed that there was also no material before the Court to show that the period under Section 110(2) had been validly extended by the competent authority in the manner prescribed, i.e., by recording reasons in writing and informing the person concerned before expiry of the initial six-month period.
2.5 The Court held that in view of the Supreme Court's interpretation, the time period to issue notice under clause (a) of Section 124 is governed by Section 110(2), and that this time prescription is mandatory in relation to the consequence of seizure and continued detention, irrespective of the distinct field in which Section 124 operates.
2.6 The Court found that more than one year had elapsed from the date of seizure; consequently, even the maximum extendable period under the first proviso to Section 110(2) stood exhausted, and no show cause notice could be issued at that stage for purposes of sustaining the seizure.
2.7 Applying the binding precedent, the Court held that continued detention of the seized gold chain in such circumstances is impermissible and that the goods are liable to be released to the person from whose possession they were seized.
Conclusions
2.8 The Court concluded that, as no show cause notice was issued within six months of seizure nor any valid extension granted within the statutory framework of Section 110(2), and the one-year outer limit had elapsed, the seized gold chain must be released to the petitioner.
Issue 2: Conditions and modalities for release of the seized gold chain
Interpretation and reasoning
2.9 Having held that the continued detention was illegal and that the gold chain must be released, the Court proceeded to structure the terms on which such release should occur, ensuring compliance with applicable revenue requirements.
2.10 The Court directed that release would be subject to payment of applicable customs duty and warehousing charges calculated as on the date of detention, thereby balancing the petitioner's right to release of goods with the statutory dues of the Customs Department.
2.11 The Court also prescribed the procedural modality for implementation by directing the petitioner to appear before the Customs Department on a specified date, personally or through an authorised representative, with verification of authorisation through appropriate communication.
Conclusions
2.12 The Court directed the Customs Department to release the seized gold chain to the petitioner upon:
(a) Payment of applicable customs duty; and
(b) Payment of warehousing charges based on the rates applicable on the date of detention.
2.13 The Court further directed that, upon such payments being made and appearance being facilitated through the designated nodal officer, the gold items shall be released and the petition stood disposed of on these terms.
Seeking release of the gold chain of the Petitioner, weighing 152 grams seized by the Customs Department - no SCN issued to the petitioner - violation of principles of natural justice - HELD THAT:- The decision in Union of India & Anr. v. Jatin Ahuja [2025 (10) TMI 1285 - SC ORDER] is clear to the effect that if no SCN is issued within the time prescribed under Section 110 of the Act, the seized goods are liable to be released. The time prescribed under Section 110 of the Act, is a period of six months and subject to reasons recorded in writing, the same may be extended for a maximum period of six months. In this case, the one year period itself has elapsed, thus no SCN can be issued at this stage. The continued detention of seized gold chain is, therefore, impermissible and the same are liable to be released to the Petitioner.
It is directed that the Customs Department shall release the seized gold chain to the Petitioner, subject to fulfilment of conditions imposed - petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether continued detention of seized gold items is lawful when no show cause notice has been issued within the time limits prescribed under Section 110(2) of the Customs Act, 1962.
1.2 Whether, in the facts of the case, the seized gold items are liable to be released to the petitioners and, if so, on what terms and conditions.
1.3 Whether costs are liable to be imposed on the petitioners for having misrepresented the nature of the seized jewellery as "old jewellery".
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Legality of continued detention in absence of show cause notice under Section 110(2)
Legal framework
2.1 The Court referred to Section 110(2) of the Customs Act, 1962, which prescribes that if no notice under clause (a) of Section 124 is given within six months of seizure, the seized goods shall be returned, with a further possible extension of up to six months by the Principal Commissioner/Commissioner for reasons recorded in writing and communicated before expiry of the initial period.
2.2 The Court relied on the decision of the Supreme Court in Union of India & Anr. v. Jatin Ahuja, which held that: (i) the only power to extend time for issuance of notice is under the first proviso to Section 110(2); (ii) Section 110A, being an interim power to release goods, does not affect or dilute the mandatory operation of Section 110(2); and (iii) failure to issue notice under Section 124(a) within the prescribed/extended period results in an obligation to return the seized goods.
Interpretation and reasoning
2.3 It was undisputed before the Court that no show cause notice had been issued in respect of the seized gold items.
2.4 The Court noted, following the Supreme Court, that the time period to issue notice under clause (a) of Section 124 is governed solely by Section 110(2), and that this time prescription is mandatory and distinct from the general power to issue a show cause notice under Section 124.
2.5 The Court observed that the statutory period of six months from seizure, even if extended by a further maximum period of six months under the proviso to Section 110(2), had in any event expired; hence, the outer limit of one year had elapsed without issuance of any show cause notice.
2.6 On these facts, the Court held that continuation of detention of the gold items after expiry of the maximum permissible period, in the absence of a show cause notice or a valid extension under Section 110(2), is impermissible in law and attracts the statutory consequence of release.
Conclusions
2.7 The seized gold items could not be lawfully detained beyond the statutory period in Section 110(2) of the Customs Act, 1962, as no show cause notice had been issued within that period or its permissible extension.
2.8 The gold items were, therefore, liable to be released to the petitioners.
Issue 2 - Direction for release and conditions imposed
Interpretation and reasoning
2.9 The Court recorded, upon physical inspection, that the seized items were "absolutely brand new jewellery" and not used or old jewellery as claimed by the petitioners.
2.10 Nonetheless, applying the binding ratio of the Supreme Court decision, the Court held that the character of the jewellery (old vs new) did not alter the statutory consequence under Section 110(2) once no show cause notice was issued within the prescribed time.
2.11 Considering the statutory position and the factual matrix, the Court directed that the release of the seized gold items would be subject to compliance by the petitioners with fiscal and procedural requirements.
Conclusions
2.12 The Customs Department was directed to release the seized gold items to the petitioners, subject to:
* Payment of the entire applicable customs duty by the petitioners; and
* Payment of full warehousing charges as applicable on the date of detention.
2.13 The petitioners were directed to appear (personally or through an authorised representative, with due verification of authorisation) before the Customs Department on the specified date to complete the formalities, whereupon the goods would be released on proof of compliance with the Court's conditions.
Issue 3 - Imposition of costs for misrepresentation regarding the nature of jewellery
Interpretation and reasoning
2.14 The petitioners had stated that the detained gold items were their "old jewellery" being worn by them; however, upon production and perusal of the jewellery in Court, it was found that the items were not old jewellery but clearly brand new pieces purchased in Dubai.
2.15 The Court held that the petitioners had given an incorrect impression to the Court as to the nature of the seized jewellery, warranting imposition of costs.
Conclusions
2.16 Costs of Rs. 10,000/- in each petition were imposed on the petitioners, directed to be deposited with the Delhi High Court Bar Clerk Association by a specified date.
2.17 Production of proof of such deposit before the Customs Authority on the date fixed for appearance was made a condition precedent to effecting release of the gold items.
Challebge to detention of the personal effects consisting of one gold chain and one gold kada weighing a total of 200 grams - used gold jewellery or not - no SCN issued to the petitioner - violation of principles of natural justice - HELD THAT:- Upon a perusal of the gold items, it is clear that the gold items are not used gold jewellery of the Petitioners, and the same are absolutely brand new jewellery, which is stated to have been purchased by the Petitioners in Dubai and were being brought to India.
Recently, the Supreme Court in Union of India & Anr. v. Jatin Ahuja, [2025 (10) TMI 1285 - SC ORDER] held that 'the time period to issue notice under Clause (a) of Section 124 is prescribed only in sub-section (2) of Section 110 of the Act, 1962. This time period has nothing to do ultimately with the issuance of show-cause notice under Section 124 of the Act, 1962. The two provisions are distinct and they operate in a different field.'
The above decision is clear to the effect that if no SCN is issued within the time prescribed under Section 110 of the Customs Act, 1962, the seized goods are liable to be released. The time prescribed under Section 110 of the Act, is a period of six months and subject to reasons recorded in writing, the same may be extended for a maximum period of six months. In this case, the one year period itself has elapsed, thus no SCN can be issued at this stage. The continued detention of seized gold items is, therefore, impermissible and the same are liable to be released to the Petitioners.
Cnsidering the above decision as also the facts of the case, since no SCN has been issued to the Petitioner, it is directed that the Customs Department shall release the seized gold items to the Petitioner, subject to fulfilment of conditions imposed - petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the second show cause notice, issued in respect of the same 16 bills of entry already covered by the first show cause notice, could validly invoke the extended period of limitation under Section 28(4) of the Customs Act, 1962.
1.2 Whether mere misclassification of imported goods in a situation involving interpretational dispute, without misdeclaration of description or other material facts, constitutes "wilful suppression" or "misstatement" justifying invocation of the extended period of limitation.
1.3 Consequentially, whether the demand of duty, interest and penalty confirmed under the second show cause notice, and upheld in appeal, is sustainable in law.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the second show cause notice and invocation of the extended period of limitation
Legal framework (as discussed)
2.1 The Court proceeded on the basis of Section 28 of the Customs Act, 1962, distinguishing between demands within the normal period and those invoking the extended period under Section 28(4). Reliance was placed on the law laid down by the Supreme Court in Nizam Sugar Factory, holding that where all relevant facts were already within the knowledge of the Department at the time of an earlier show cause notice, the same facts cannot later be treated as "suppression" to justify an extended period in subsequent notices.
Interpretation and reasoning
2.2 The appellant had consistently declared the product as "Lauric Acid" and claimed classification under tariff item 2915 7090 with benefit of the notification. All 23 bills of entry and the classification claimed were fully disclosed and specifically taken note of in the first show cause notice.
2.3 The first show cause notice, though covering 23 bills of entry (including the 16 in dispute), did not allege wilful suppression or misstatement, nor did it invoke Section 28(4) to extend the limitation period. It was confined to the normal period of limitation.
2.4 After the appellant, in its reply to the first show cause notice, specifically pointed out the bar of limitation in respect of 16 bills of entry, the Department did not amend or act on that notice, but after more than a year issued a second show cause notice covering the same 16 bills of entry, this time alleging deliberate misclassification, suppression and invoking the extended period, citing a Tribunal decision to support such invocation.
2.5 The Court held that when all relevant facts were already in the knowledge of the Department at the time of issuance of the first show cause notice, the same facts could not subsequently be relied upon as "suppression of facts" for the purpose of invoking the extended period in a second show cause notice. This position was found to be squarely covered by the ratio in Nizam Sugar Factory.
2.6 The Court, therefore, found that the extended period had been improperly invoked only to overcome the Department's own omission in the first show cause notice, which is impermissible in law.
Conclusions
2.7 The second show cause notice, seeking to invoke the extended period of limitation in respect of the same 16 bills of entry already covered by the first show cause notice, was held to be wholly barred by limitation.
2.8 The impugned order, in so far as it upheld the demand of duty, interest and penalty on the basis of the second show cause notice, was held to be untenable and liable to be set aside.
Issue 2: Effect of interpretational classification dispute on "suppression" and extended limitation
Legal framework (as discussed)
2.9 The Court applied the principles laid down by the Supreme Court in Ishaan Research Lab (P) Ltd. and Ameya Foods, that mere classification of goods under a tariff heading which the assessee bona fide believes to be correct does not, by itself, amount to misstatement or wilful suppression so as to justify invocation of the extended period of limitation.
Interpretation and reasoning
2.10 The product description "Lauric Acid" was correctly and consistently declared in the bills of entry and invoices; the dispute related only to the appropriate tariff classification and the consequent eligibility to exemption.
2.11 The findings of the adjudicating and appellate authorities themselves showed that the dispute involved interpretation, based on chemical composition and comparative properties, using HSN notes and chemical dictionaries. This, in the Court's view, demonstrated that the matter was interpretational and debatable in nature, rather than a case of clandestine or deliberate misdeclaration.
2.12 In these circumstances, the Court held that the assessee's act of classifying the goods under a particular tariff item, which it believed to be applicable, could not be treated as wilful suppression or misstatement of facts.
Conclusions
2.13 The allegation of wilful suppression or misstatement was held unsustainable; therefore, the legal precondition for invoking the extended period under Section 28(4) was absent.
2.14 On this ground also, the second show cause notice and the resulting demand, interest and penalty were held to be vitiated by limitation.
Issue 3: Consequences of finding in favour of the assessee on limitation
Interpretation and reasoning
2.15 Having decided in favour of the appellant on the issue of limitation, the Court relied on decisions of higher judicial fora (including B.V. Jewels, Monsanto Manufacturer Pvt. Ltd., Rochem Separations (I) Pvt. Ltd., and E.T.A. General Pvt. Ltd.) to hold that it would be outside its jurisdiction to proceed into the merits of classification or other substantive issues once the demand is found to be time-barred.
Conclusions
2.16 The Court refrained from adjudicating the remaining contentions on the merits of classification, validity of reliance on dictionaries/HSN, confiscation and penalty, as they became academic.
2.17 The impugned appellate order was set aside and the appeal was allowed, with consequential reliefs in accordance with law.
Tenability of the impugned order - whether the second SCN could have invoked the extended period of limitation? - HELD THAT:- Admittedly, the appellant has been clearing these products declaring them as “Lauric Acid” and classifying them under the tariff item 29157090 and the fact that the first SCN lists all the 23 bills as well as the classification claimed by the appellant attests to this fact. While the earliest bill of entry that was sought to be covered in the first SCN is dated 31.03.2012, the said SCN has neither raised any allegation about wilful suppression or misstatement of facts on the part of the appellant nor invoked the provisions of Section 28(4) of the Customs Act, 1962 to cover the demand beyond the normal period of limitation.
Even after the first SCN dated 08.08.2013 has been replied to by the appellant vide their reply dated 21.08.2013 pointing out that the demand in respect of 16 bills of entry were barred by limitation, it took more than a year for the Revenue to realise its mistake in not invoking the extended period of limitation, which was sought to be overcome by issuing the second show cause notice dated 18-08-2014 citing the decision of the Tribunal in Saraswathi Air Products, to secure a legal backing.
In the instant case the allegation of wilful suppression and misstatement of facts would not sustain against the appellant and the second SCN itself being wholly barred by limitation, the impugned order upholding the demand as confirmed by the adjudicating authority, is wholly untenable and liable to be set aside. The decision relied upon by the Ld. Appellate Authority also misconceived in the light of the Apex Court decision in Nizam Sugars [2006 (4) TMI 127 - SUPREME COURT]. In such circumstances, nothing turns on the decision relied upon by the Ld. A.R wherein the issue of limitation on which present decision has been made, was not under consideration.
Having found in favour of the appellant on the issue of limitation, it is refrained from entering any finding on the other contentions of the Appellant - the impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether cold rolled stainless steel strips/coils of Grade J3 are classifiable as "Nickel Chromium Austenitic Steel" under sub-heading 7220 9022 or under an alternative tariff sub-heading, including 7220 9090.
1.2 Whether the benefit of preferential/concessional duty under Notification No. 50/2018-Cus, read with the Asia-Pacific Trade Agreement Rules of Origin and Notification No. 94/2006-Cus (NT), is admissible in view of discrepancies between the exporter's name in the certificates of origin and in the commercial invoices.
1.3 Whether the extended period under Section 28(4) of the Customs Act, 1962, is invocable for demand of differential duty in the facts of these imports.
1.4 Whether penalties on the importing entities and their directors/proprietors under Sections 114A, 114AA, 117 and 112(a)(ii) of the Customs Act, 1962, are sustainable in the circumstances of the case.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Classification of cold rolled stainless steel strips/coils of Grade J3
Legal framework (as discussed)
2.1 The Court examined Chapter 72 of the Customs Tariff, specifically heading 7220 (flat-rolled products of stainless steel of a width of less than 600 mm) and sub-heading 7220 9022 ("Nickel Chromium Austenitic Steel"), along with competing classification under 7220 9090 ("Others").
2.2 The Court considered the cross-referential structure of the Harmonized System Explanatory Notes (HSEN), noting that heading 7220 borrows and applies the Explanatory Notes of headings 72.11, 72.12 and 72.10, which themselves borrow the Explanatory Notes of headings 72.08 and 72.09 mutatis mutandis. These notes collectively describe permitted "subsequent manufacture and finishing" processes (e.g., hot flattening, annealing, hardening, tempering, case-hardening, nitriding, descaling, pickling, scraping, surface finishing, coatings and claddings).
2.3 The Court referred to Indian Standard IS 15997:2012 (as amended), which prescribes composition and finish norms for "Low Nickel Austenitic Stainless-Steel Sheet and Strip for Utensils and Kitchen Appliances," and to its reaffirmations/amendments introducing grades N1, N2, N3 and later N5, N6, N7 with very low nickel content.
2.4 The Court also noted Ministry of Steel Quality Control Orders (S.O. 1673(E) dated 27.05.2020 and S.O. 574(E) dated 05.02.2024) which map certain ITC(HS) codes, including 7220 9090, to IS 15997:2012 for purposes of compulsory BIS certification.
Interpretation and reasoning
2.5 The appellants claimed classification under 7220 9022 as "Nickel Chromium Austenitic Steel" on the basis that:
(a) "Nickel Chromium Austenitic Steel" is not defined in the Customs Tariff or BIS standards;
(b) IS 6911 and IS 15997 recognise austenitic stainless steels with low nickel content; and
(c) once it is established that the steel is austenitic and contains both nickel and chromium, it should fall within "Nickel Chromium Austenitic Steel" under 7220 9022.
2.6 The appellants relied on a prior Tribunal decision (involving similar goods) which had:
(a) rejected departmental reliance on foreign technical websites (Aalco Metals, ASM International);
(b) relied on IS 15997:2012 (with amendments) and industry communication to accept low nickel grades (nickel as low as 0.2%) as falling within nickel-chromium austenitic steel; and
(c) held that a classification adopted by the adjudicating authority different from that proposed in the show cause notice was not sustainable; and that extended limitation was not invocable.
2.7 The Revenue contended that:
(a) on the basis of technical literature (including websites of Aalco Metals Ltd. and ASM International), austenitic stainless steels normally require chromium 16-19% and nickel 4.5-12%, whereas the appellants' imported goods had about 13% chromium and about 1% nickel and thus could not be considered austenitic stainless steel of nickel-chromium type;
(b) not all austenitic steels are nickel-chromium austenitic; "low nickel" austenitic steel forms a distinct subcategory, for which IS 15997:2012 and the Ministry of Steel Orders link the relevant products to ITC(HS) codes including 7220 9090 and not 7220 9022; and
(c) therefore, classification under 7220 9090 is appropriate.
2.8 The Court took note that, contrary to the earlier decision relied upon by the appellants, further technical material and statutory instruments (IS 15997:2012, its reaffirmations/amendments, and the Ministry of Steel's Quality Control Orders) were now placed on record by the Revenue to support the proposition that "Low Nickel Austenitic Stainless Steel" is a specifically recognised category linked to specified ITC(HS) codes, including 7220 9090.
2.9 The Court analysed IS 15997:2012 as to surface finish (Table 4) and noted that, for cold-rolled stainless-steel sheets, the surface finish grades (e.g., 2D, 2B) are linked to processes such as annealing, descaling (pickling) and skin passing, and that the sample commercial invoices described the goods with surface grade "2B", indicating cold rolling plus annealing, descaling and skin passing.
2.10 The Court emphasised that the HSEN for Chapter 72 recognise that "not further worked" products may still undergo multiple permitted finishing processes (including those reflected in the appellants' 2B finish) without exiting the relevant heading; therefore, classification must consider not merely chemical composition but also the nature and extent of processing within the chain of permitted operations mapped across headings 72.08-72.12 and 72.20.
2.11 The Court held that, in light of:
(a) the technical complexity of steel classification;
(b) the multiple applicable standards (BIS standards and HSEN) and governmental orders; and
(c) the need to reconcile chemical composition, surface finish, and permitted manufacturing processes with the tariff structure;
a detailed, fact-specific re-examination of the precise nature, grade, composition and processing of the imported goods is necessary by the adjudicating authority.
2.12 The Court further clarified that, once the exact nature of the goods is determined, the adjudicating authority is not constrained to choose only between the specific headings suggested by the parties or in the show cause notice; the "most appropriate heading" may, if warranted by the established facts and legal framework, lie beyond either of the specific alternatives initially proposed.
Conclusions
2.13 The Court did not finally decide the correct tariff classification. It remanded the matter to the adjudicating authority to:
(a) determine the proper classification of the cold rolled stainless steel strips in coils with the indicated grades, by:
* considering the full chain of permitted processes as per the HSEN borrowing structure across Chapter 72; and
* correlating the actual composition, grade and processing (including surface finish) of the imported goods with the applicable tariff headings and sub-headings; and
(b) arrive at the most appropriate tariff heading, even if it differs from headings proposed by either party or in the show cause notice.
Issue 2 - Validity of certificates of origin and entitlement to preferential/concessional duty under APTA and Notification No. 50/2018-Cus
Legal framework (as discussed)
2.14 The Court referred to Notification No. 94/2006-Cus (NT) dated 31.08.2006, which prescribes the "Rules of Determination of Origin of Goods under Asia-Pacific Trade Agreement Rules, 2006" and Annexure-A (sample form of Certificate of Origin).
2.15 Box 1 ("Exporter's business name, address, country") in the sample CO form and Note II thereto require that the name typed in Box 1 must be the same as the exporter described in the invoice.
2.16 The Court also took note that the preferential rate of duty under Notification No. 50/2018-Cus, as applicable in these imports, is contingent on valid certificates of origin issued under the APTA framework.
Interpretation and reasoning
2.17 The Revenue's objection was that, in several cases, the exporter named in the certificates of origin (e.g., Chinese manufacturer/exporters) did not match the exporter named in the corresponding commercial invoices (e.g., Hong Kong suppliers), contrary to the specific requirement that the exporter's name in Box 1 of the Certificate should be the same as that in the invoice.
2.18 The appellants argued that:
(a) the certificates correctly reflected the manufacturer/exporter in favour of whom the COO was issued, whereas the commercial invoices were issued by intermediary suppliers (non-party operators);
(b) in many consignments, the names in the COO and invoices did match; and
(c) if any doubt existed about the authenticity of the COO, the importing State was obliged, under Clause 5 of Annexure B to the APTA Rules of Origin, to seek verification or consultation with the designated authority of the exporting Member State, which was not done.
2.19 The Court verified on record that, in at least some certificates, the exporter named in Box 1 did not correspond with the exporter in the invoices, contrary to the express requirement in the APTA CO form and notes.
2.20 At the same time, the Court characterised Notification No. 94/2006-Cus (NT) and the APTA Rules as embodying trade-promotional, preferential arrangements intended to foster increased trade between treaty partners, and therefore as "beneficial" provisions that should be "liberally construed and applied" by Customs authorities.
2.21 The Court held that, in assessing discrepancies between the CO and invoices, a distinction must be drawn between:
(a) a procedural infraction (a formal defect without impact on the substantive satisfaction of origin criteria); and
(b) a substantive lapse that undermines the authenticity, reliability or applicability of the CO and thereby justifies denial of the concessional duty benefit.
2.22 The Court indicated that the departmental approach must evaluate whether the mismatch in names is merely procedural or whether it affects the substantive entitlement to APTA preferences, keeping in view the liberal and trade-facilitative character of the Rules of Origin framework.
Conclusions
2.23 The Court did not make a final determination on the validity of the certificates of origin or on entitlement to the preferential/concessional rate of duty. It remanded the matter to the adjudicating authority to:
(a) examine, in each relevant case, whether the discrepancies between the exporter's name in the CO and the commercial invoice:
* amount only to procedural non-compliance with the CO format and notes; or
* constitute substantive non-compliance affecting the genuineness or applicability of the CO; and
(b) decide, in light of this assessment and the liberal interpretation appropriate to a trade-promotional regime, whether concessional duty benefits under the APTA framework and Notification No. 50/2018-Cus are to be granted or denied.
Issue 3 - Invocation of extended period of limitation under Section 28(4) of the Customs Act, 1962
Legal framework (as discussed)
2.24 The demands in the show cause notices were raised under Section 28(4) of the Customs Act, 1962 alleging willful misclassification and wrongful availment of exemption with intent to evade payment of duty.
Interpretation and reasoning
2.25 The Revenue contended that the importers had:
(a) changed the classification of the imported goods after issuance of Notification No. 50/2018-Cus to avail concessional duty on certain tariff items;
(b) done so without any change in the quality of the imported goods and without any engagement with Customs authorities; and
(c) thereby willfully misclassified the goods with intent to evade duty, justifying invocation of Section 28(4).
2.26 The appellants argued that:
(a) all relevant facts, including composition, technical specifications, mill test certificates, invoices and COOs, were fully and truly declared at the time of import;
(b) the dispute is purely on classification and interpretation of the tariff and exemption notification in the context of technical standards; and
(c) in such interpretational disputes, absent specific evidence of suppression, fraud or collusion, the extended period is not invocable.
2.27 The Court observed that:
(a) the entire case of the department was built on documents (mill test certificates, COOs, invoices, etc.) produced by the appellants themselves;
(b) classification of the goods involved complicated technical and legal considerations, including reconciliation of tariff descriptions, HSEN, BIS standards and multiple processes undergone by the goods; and
(c) in such a context, the case rested on interpretation rather than on concealment of facts.
Conclusions
2.28 The Court held that the extended period under Section 28(4) is not available in the facts of the case. The adjudicating authority, upon remand, has been directed to:
(a) determine differential duty and interest, if any, without invoking the extended period; and
(b) confine the determination to the normal limitation period applicable under the Act.
Issue 4 - Sustainability of penalties under Sections 114A, 114AA, 117 and 112(a)(ii)
Legal framework (as discussed)
2.29 Penalties were imposed on the importing entities under Sections 114A (penalty for duty short-levied or not levied by reason of collusion etc.), 114AA (penalty for use of false declaration, statement or document) and 117 (residuary penalty), and on directors/proprietors under Section 112(a)(ii) (improper importation of goods, abetment, etc.).
Interpretation and reasoning
2.30 The appellants contended that:
(a) there was no suppression, willful mis-statement, collusion, or intent to evade duty; the entire dispute is one of classification/interpretation;
(b) no false declaration or forged document was used; all documents were genuine and fully disclosed;
(c) statements recorded under Section 108 related to a technical classification issue on which the deponents were not experts and could not override BIS standards and statutory interpretative materials; and
(d) in such circumstances, penal provisions under Sections 114A, 114AA and 117 were not attracted.
2.31 The Court, having already held that the extended period is not invocable and that the dispute raises complex interpretational and technical issues, indicated that the factual and legal foundation for imposing penal consequences requires fresh scrutiny alongside the re-determination of classification and eligibility to exemption.
Conclusions
2.32 The Court did not finally affirm or set aside the penalties. It remanded the matter to the adjudicating authority to:
(a) re-examine the role, if any, of the importing entities and the concerned directors/individuals in light of the Court's findings on limitation and the interpretational nature of the dispute; and
(b) decide afresh the imposition (or otherwise) of penalties under Sections 114A, 114AA, 117 and 112(a)(ii), consistent with the re-determined classification, duty liability (within normal limitation), and the presence or absence of requisite mens rea or culpable conduct.
Overall disposition
2.33 The appeals were allowed by way of remand with directions to the adjudicating authority to:
(a) re-determine the correct tariff classification of the imported cold rolled stainless steel strips/coils, taking into account the full HSEN borrowing structure and the actual processes/grades involved;
(b) re-examine the validity and effect of the certificates of origin and decide whether discrepancies between COOs and invoices are procedural or substantive, in the context of the beneficial, trade-promotional character of the APTA Rules of Origin;
(c) recompute any differential duty and interest, strictly without invoking the extended period under Section 28(4); and
(d) reconsider, afresh, the imposition of penalties on the importing entities and concerned directors/individuals in light of the above findings.
Classification of cold rolled stainless steel under Chapter subheading 7220 9022 versus 7220 9090 - interpretation of tariff entries by reference to Indian Standards and Explanatory Notes - application of Rules of Determination of Origin under AsiaPacific Trade Agreement and validity of Certificate of Origin - invocation of extended period of limitation in customs adjudication - confiscation and imposition of penalty for alleged misclassification and denial of preferential concession - remand for fresh adjudication on classification, origin, duty, interest and penal liability
Classification of cold rolled stainless steel under Chapter subheading 7220 9022 versus 7220 9090 - interpretation of tariff entries by reference to Indian Standards and Explanatory Notes - Whether the imported cold rolled stainless steel coils are correctly classifiable as "Nickel Chromium Austenitic type" under Chapter subheading 7220 9022 or under other subheadings such as 7220 9090. - HELD THAT: - The Tribunal found that classification is a contentious question involving composition, grade, surface finish and the permissible subsequent processes under the Chapter and borrowed Explanatory Notes. The Tribunal noted competing reliance on BIS standards (including IS 15997:2012 and its amendments), technical literature and earlier Tribunal decisions (including Shah Foils), and observed that the precise nature of the imported goods (grade, composition and processes undergone) requires closer scrutiny. Given that Chapter 72 and its Explanatory Notes permit certain finishing and heat treatments and that the product descriptions and mill/test certificates require detailed examination, the Tribunal concluded that it was appropriate to remit the matter for fresh determination by the adjudicating authority with directions to examine the processes undergone, applicable BIS grades and the correct tariff heading in light of the explanatory material and classification scheme. [Paras 6]
Classification not finally adjudicated by the Tribunal; matter remanded to the adjudicating authority for fresh determination of correct classification considering grade, composition and permissible finishing processes.
Application of Rules of Determination of Origin under AsiaPacific Trade Agreement and validity of Certificate of Origin - procedural versus substantive discrepancy in Certificates of Origin - Whether discrepancies between the Commercial Invoice and the Certificate of Origin justify denial of preferential concession under the APTA rules. - HELD THAT: - The Tribunal observed that Annexure A to the Rules of Determination of Origin prescribes that the exporter's name in the certificate must match the exporter described in the invoice and recorded infractions in the COO samples. At the same time, the Tribunal emphasised that the APTA preferential scheme is tradepromotional and should be liberally construed; therefore any infraction must be assessed to determine whether it is a mere procedural lapse or a substantive discrepancy warranting denial of concession. The Tribunal did not decide the validity of COO conclusively but formulated the standard for assessment and directed remand to determine whether the noted discrepancies are procedural or substantive. [Paras 6]
COO discrepancies to be examined by the adjudicating authority on remand to decide whether they are procedural infractions or substantive defects justifying denial of preferential benefits.
Invocation of extended period of limitation in customs adjudication - timebar and reliance on documents produced by the importer - Whether the department is entitled to invoke the extended period of limitation in adjudicating the show cause notices. - HELD THAT: - The Tribunal examined the factual matrix and legal considerations, noting that the SCNs were based on documents and information produced by the appellants. It observed that both factual and legal issues are involved in classification and that the department's case arose from documents available on record. In that context the Tribunal declined to permit invocation of the extended period and directed that differential duty and interest be determined without invoking the extended period. [Paras 6]
Extended period of limitation not to be invoked; adjudicating authority to determine differential duty and interest without invoking extended period.
Confiscation and imposition of penalty for alleged misclassification and denial of preferential concession - role and penal liability of directors and other persons - Whether penalties and confiscation as imposed should be sustained and what is the liability of directors/other persons. - HELD THAT: - The Tribunal observed that penal consequences depend on the ultimate classification, the genuineness and effect of any defect in the Certificate of Origin, and the facts as to suppression, collusion or willful misstatement. Because these matters are interlinked with the remanded factual and classification inquiries, the Tribunal directed that the adjudicating authority redetermine the role and liability of directors and other individuals and reassess confiscation and penalties in light of the fresh classification and findings on origin and culpability. [Paras 1, 6]
Penal and confiscation aspects not finally adjudicated; matter remanded for fresh consideration of liability of directors and others and imposition or confirmation of penalties and confiscation in accordance with findings on classification and origin.
Final Conclusion: The Tribunal disposed of the appeals by remanding the matters to the adjudicating authority to (i) determine the correct classification of the imported cold rolled stainless steel coils after examining grade, composition and permissible finishing processes; (ii) reassess whether discrepancies in Certificates of Origin are procedural or substantive and whether preferential treatment should be denied; (iii) compute differential duty and interest without invoking the extended period; and (iv) redetermine penal liability of directors and others in the light of the above findings.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the period spent by the importer in bona fide pursuing a refund application before the Refund-Sanctioning Authority can be excluded, under principles akin to Section 14 of the Limitation Act, 1963, while computing limitation for filing appeals under Section 128 of the Customs Act, 1962.
1.2 Whether the appeals before the Commissioner (Appeals) were rightly rejected as time-barred in the facts of the case.
1.3 Whether the order of the Commissioner (Appeals) rejecting the appeals on limitation is vitiated as a non-speaking and cryptic order, passed in violation of principles of natural justice.
1.4 Consequential issue: scope and manner of remand, including directions regarding examination of eligibility to exemption under the relevant customs notification, subsequent claim of FTA benefit, reassessment in the context of payment without protest, and verification of Certificates of Origin.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Exclusion of time spent before the Refund-Sanctioning Authority for computation of limitation (Issues 1.1 and 1.2)
Legal framework discussed
2.1.1 The Court referred to Section 128(1) of the Customs Act, 1962 prescribing a 60-day period, extendable by a further 30 days, for filing appeals before the Commissioner (Appeals).
2.1.2 Section 17(5) of the Customs Act, 1962 was noted as the provision governing speaking orders in cases where re-assessment is contrary to self-assessment.
2.1.3 Principles under Section 14(1) of the Limitation Act, 1963 were expressly invoked: time spent in bona fide prosecution of a proceeding before a forum that is unable to entertain it for want of jurisdiction or like cause is excludable for limitation.
Interpretation and reasoning
2.1.4 The Court noted that the Bills of Entry were filed in March 2018; the importer, upon subsequently obtaining Certificates of Origin, addressed a refund request on 02.05.2018 to the Refund-Sanctioning Authority, who took around two years to respond.
2.1.5 The response dated 06.02.2020 merely informed that reassessment could not be allowed without modification of the assessment by way of appeal, relying on a Supreme Court decision and a Public Notice that did not exist when the refund claim was originally filed.
2.1.6 The Court recorded that the importer had actively and diligently pursued the refund remedy, including through reminders and CPGRAMS, while the Department remained inactive and failed to dispose of the request within a reasonable time.
2.1.7 This prolonged administrative inaction was held to have rendered the refund route practically ineffectual and placed the importer at a disadvantage through no fault of its own. The Court emphasized that a litigant should not suffer due to administrative delays beyond its control.
2.1.8 Applying Section 14 principles, the Court found that: (a) the importer bona fide prosecuted its claim before the refund authority; (b) the authority, in view of the subsequent legal position, was effectively incapable of granting the intended relief; and (c) the time spent in that proceeding was therefore liable to be excluded while computing the appeal limitation period.
2.1.9 The Court relied on earlier decisions, including one of the same Tribunal, where time spent before a wrong or ineffectual forum was excluded under Section 14, and limitation was computed by ignoring that interval.
Conclusions
2.1.10 The Court held that the approximately two-year period spent by the importer in prosecuting the refund claim before the Refund-Sanctioning Authority must be excluded for purposes of Section 128 limitation.
2.1.11 Upon such exclusion, the appeals before the Commissioner (Appeals) were to be treated as filed within time; the finding of the Commissioner (Appeals) that the appeals were time-barred was set aside.
2.1.12 The Court directed that the appeals be treated as within limitation and be decided on merits.
2.2 Nature of the order of the Commissioner (Appeals): non-speaking order and violation of natural justice (Issue 1.3)
Legal framework discussed
2.2.1 The Court referred to established jurisprudence that appellate and quasi-judicial orders must be reasoned and must deal with the material submissions and legal pleas advanced by parties; non-speaking and cryptic orders are legally unsustainable and violative of principles of natural justice.
Interpretation and reasoning
2.2.2 The importer had specifically contended before the Commissioner (Appeals) that the time spent before the wrong forum (refund authority) should be excluded in terms of Section 14 of the Limitation Act, 1963, and relied on case law to that effect.
2.2.3 On examining the impugned order, the Court found that the Commissioner (Appeals) rejected the appeals solely on limitation, without adverting to, discussing, or answering the importer's core submissions on exclusion of time, Section 14 principles, or the factual matrix of diligent prosecution before the refund authority.
2.2.4 The Court observed that the impugned order was vague and cryptic, did not contain detailed reasoning on the key contentions, and failed to show proper application of mind to the issues raised.
2.2.5 In light of the cited jurisprudence on the requirement of reasoned orders, the Court held that such omission rendered the order non-speaking and legally infirm.
Conclusions
2.2.6 The Court held that the impugned order suffered from serious legal infirmity as a non-speaking, cryptic order passed in violation of principles of natural justice.
2.2.7 On this ground also, the impugned order was set aside and the matter remanded to the Commissioner (Appeals) for fresh, reasoned adjudication.
2.3 Reassessment, protest, and merits of exemption / FTA benefit - scope of remand (Issue 1.4)
Legal framework and context discussed
2.3.1 Section 17(5) of the Customs Act, 1962 was noted by the Commissioner (Appeals) to hold that where reassessment is contrary to self-assessment, a speaking order is required, and that acceptance of assessment without protest may preclude reassessment.
2.3.2 The exemption under Notification No. 53/2011-Customs, as applicable to goods imported from Malaysia when accompanied by valid Certificates of Origin, and the possibility of claiming FTA benefits and exemption subsequently, were adverted to as issues raised by the importer.
Interpretation and reasoning
2.3.3 The Commissioner (Appeals) had reasoned that, as duty was paid on merit rate without protest and goods were cleared, the importer had accepted the assessment, and hence subsequent reassessment to grant exemption lacked merit.
2.3.4 Before the Tribunal, the importer sought to contend that duty was paid under protest; however, the Court found no documentary evidence of protest-no endorsed challan/Bill of Entry reflecting "paid under protest" and no protest letter on record.
2.3.5 In the absence of supporting documents in the appeal paper book or during hearing, the Court declined to accept the bare plea of payment under protest.
2.3.6 The Court, however, noted that, irrespective of the protest aspect, once the limitation objection was overcome and the impugned order was found non-speaking, the proper course was to remand the matter to the Commissioner (Appeals) to examine all issues on merits, including:
* verification of Certificates of Origin and their correlation with the Bills of Entry and invoices;
* eligibility for exemption under the notification and availment of FTA benefit at a subsequent stage; and
* any allied issues such as unjust enrichment and the effect of payment without protest on reassessment/refund.
Conclusions
2.3.7 The Court did not finally decide the questions of reassessment eligibility, protest, or substantive entitlement to exemption / FTA benefit; these issues were left open for the Commissioner (Appeals) to decide afresh.
2.3.8 The appeals were allowed by way of remand with specific directions to the Commissioner (Appeals):
(i) to treat the appeals as filed within time by excluding the approximately two-year period spent before the Refund-Sanctioning Authority;
(ii) to grant reasonable opportunity of personal hearing and permit additional submissions and documents;
(iii) to verify Certificates of Origin and match all relevant particulars with the Bills of Entry and invoices, recording the verification process and results; and
(iv) to examine, on merits, the claim that no basic customs duty is payable due to eligibility for exemption and that FTA benefits can be claimed subsequently, including consideration of unjust enrichment and all other open issues.
Exclusion of time spent by the appellant pursuing a refund claim before the Refund-Sanctioning Officer - Re-assessment in the absence of any protest lodged by the Appellant/Importer in view of the provisions of Section 17(5) of Customs Act - HELD THAT:- The Bills of Entry covered in the Impugned order are dated 07.03.2018, 29.03.2018 and 03.03.2018. The goods imported from Malaysia are exempted from payment of basic customs duty under Sl. No. 696 of Notification No. 53/2011-Customs dated 01.07.2011 if accompanied by relevant COO Certificates. As the appellants were not in possession of Certificates of Origin (COO) at the time of filing the Bills of Entry supra, they cleared the goods by paying merit rate of duty. Subsequently, on receipt of the said COOs, the appellants requested the Dy. Commissioner of Customs (Refunds)[RSA] vide their letter dated 02.05.2018 to grant them the refund of Duty paid by them as they were eligible for Preferential Duty rate in view of the COO certificates now available with the Appellant.
It is important to note here that the practical incapacity of the Refund-Sanctioning Officer to render an effective, reasoned decision within a reasonable time rendered that remedy ineffectual for timely redress. The prolonged inaction on the part of the Department constitutes a “sufficient cause” for excluding the period under Section 14 of the Limitation Act, 1963 as pleaded by the Appellant.
It is also found that it is a settled principle under Section 14(1) of the Limitation Act 1963 that the period spent honestly and diligently by a litigant prosecuting a proceeding before a wrong forum is to be excluded while computing limitation, provided the prior proceeding was bona fide and prosecuted with due diligence and the prior forum was unable to entertain the matter.
The appeals are remanded to the Commissioner (Appeals) for fresh consideration, with a direction to pass a reasoned, speaking order after granting an opportunity to the Appellant and the appellant to submit his defence with the directions imposed - appeal allowed by way of remand.
Issues: (i) Whether the imported face recognition access controller was classifiable under CTH 8471 as an automatic data processing machine or under CTH 8543 as electrical machinery; (ii) whether the allegation of misdeclaration and the demand for duty for the extended period were sustainable; and (iii) whether confiscation, redemption fine and penalties could survive.
Issue (i): Whether the imported face recognition access controller was classifiable under CTH 8471 as an automatic data processing machine or under CTH 8543 as electrical machinery
Analysis: The device was examined in light of Chapter Note 6(A) to Chapter 84 and the technical material placed on record. The reports showed that the equipment had memory, processing capability, configurable operating functions, camera-based capture, and automatic execution without human intervention. The device was found to perform the functions required of an automatic data processing machine and to be functionally distinct from electrical machinery of Chapter 85.
Conclusion: The goods were held classifiable under CTH 8471 and not under CTH 8543, in favour of the assessee.
Issue (ii): Whether the allegation of misdeclaration and the demand for duty for the extended period were sustainable
Analysis: The excess items found in one consignment were supported by documentary evidence showing that they had been earlier sent for repair and were packed back by the overseas supplier. On the classification dispute, the matter turned on interpretation of tariff headings and was already covered by existing decisions. In those circumstances, suppression was not established and the basis for invoking the extended period was not made out.
Conclusion: The allegation of misdeclaration failed and the extended-period duty demand was set aside in favour of the assessee.
Issue (iii): Whether confiscation, redemption fine and penalties could survive
Analysis: Once the goods were found classifiable under CTH 8471 and the duty demand was set aside, the foundation for confiscation and ancillary penal consequences ceased to exist. The penalty orders against the importing entities and other noticees were therefore unsustainable.
Conclusion: Confiscation, redemption fine and penalties were set aside in favour of the assessee.
Final Conclusion: The appeals were allowed on merits and the impugned orders did not survive, with consequential relief granted as permissible in law.
Ratio Decidendi: A device that stores, processes and automatically executes programmed functions without human intervention, and is used for data capture and authentication, is classifiable as an automatic data processing machine under Chapter 84 rather than as electrical machinery under Chapter 85.
Classification of imported goods - Access Controller Face Recognition System - classifiable under heading 8471 as an automatic data processing machine or under heading 8543 as electrical machinery and apparatus having individual functions? - eligibility for NIL duty benefit under N/N. 024/2005 – Customs dated: 01.03.2005 - invocation of extended period of limitation - HELD THAT:- A careful and harmonious reading of the observation given in the Test Report shows that the machine has read and write memory, has 4 GB RAM, 64 GB nano flash, is capable of processing program, can read from camera, card and QR code and there is embedded Linux Operating System. It is capable for automatic face detection even with mask. The configuration and functions show that there cannot be any doubt that the device has all the functions qualifying to be classified as Automatic Data Processing Machine.
The Report of STQCII, read with the Report from the Professor of Jadhavpur University, clarifies that without doubt the goods in question are Automatic Data Processing Machines only. On the other hand, the Chapter 85 deals with Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts and accessories of such articles ITC HS Code Classification - it is not found that the same can be classified as Electrical Machinery. The Access Controller Face Recognition System is not like any Television, which is not capable of storing the data, having RAM, or any process or Linux Operating System.
The device is clearly Automatic Data Processing machinery falling under CTH 8471 - The device is definitely not any Electrical Machinery or Equipment or part thereof - the Revenue’s claim that the product is classifiable under 8543 is rejected and it is held that the machine is classifiable under 8471.
In respect of excess items found in the live consignment imported by FACE IT, the appellant has satisfactorily provided the documentary evidence to the effect that these goods were imported earlier, had been sent for repairs, and subsequently were packed in the live consignment by the overseas exporter. Therefore, there are no substance in the allegation of the Revenue on this issue - the goods are classifiable under CTH 8471 only and not under CTH 8543. Hence, the confiscation and consequent Redemption fine imposed does not survive in respect of both the appellant companies.
In respect of FACE IT, it is observed that the SCN has been issued for the past period in respect of 48 consignments, by invoking the extended period. The issue is that of interpretation about the correct classification of the imported goods. At the relevant period of time, the appellants were also covered by the cited decision of Delhi and Ahmedabad Bench. Therefore, the allegation of suppression does not survive. Accordingly, the confirmed demand in respect of extended period in the case of FACE IT, is legally not sustainable. Accordingly, the extended period confirmed demand is also being set aside on account to time bar.
Since the appeals of the importers stands allowed, the penalties imposed on the other notice/s does not survive.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether customs duty foregone on imports made under transferred DFIA licences can be demanded from the transferee-importer by invoking the extended period of limitation under Section 28(4) of the Customs Act, 1962, when the allegation of misrepresentation/suppression relates only to the original exporter-licensee and not to the transferee.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Demand of duty from transferee-importer under extended period of limitation on the ground that DFIA licences were initially obtained by misrepresentation by the exporter
Legal framework
2.1 The Court examined Section 28(4) of the Customs Act, 1962 (as applicable during the relevant period), which permits invocation of a five-year extended limitation only where non-levy/short-levy of duty or erroneous refund arises "by reason of" (a) collusion, (b) any wilful misstatement, or (c) suppression of facts "by the importer or the exporter or the agent or employee of the importer or exporter".
2.2 Explanation 1 to Section 28 defining "relevant date" was also noticed, particularly clause (a) regarding cases where duty is not levied and clause (d) for "any other case".
Interpretation and reasoning
2.3 The Court noted that the sole basis in the show cause notice for invoking the extended period was the alleged wilful suppression and misrepresentation by the "Exporters" in obtaining DFIA licences, through nondisclosure of technical characteristics, quality and specifications of essential oils in shipping bills and DGFT applications, thereby securing transferable DFIA licences used for "undue and unlawful importation".
2.4 It was specifically observed that the show cause notice did not allege any fraud, forgery, wilful misstatement or suppression of facts by the appellant-importer, nor did it attribute any collusion or intent to evade duty to the appellant.
2.5 The Court emphasised that there was no material placed to demonstrate that the DGFT proceedings against the exporters had culminated in final findings of fraud or in cancellation of the DFIA licences ab initio; the allegations remained at the stage of show cause notices without proof of final cancellation.
2.6 On a plain reading of Section 28(4), the Court held that the extended period can be invoked only when the requisite ingredients (collusion, wilful misstatement, suppression of facts) are present in relation to the "person chargeable with duty" - here, the transferee-importer - and that such ingredients must be both alleged and established.
2.7 Since the show cause notice contained no allegation of any positive act of misrepresentation, collusion, or suppression by the appellant, the statutory preconditions for resorting to Section 28(4) were held not to be satisfied; mere allegation of fraud by the exporter could not, by itself, extend limitation against the transferee-importer.
2.8 The Court relied on the decision of the High Court of Punjab & Haryana in Commissioner of Customs, Amritsar v. Vallabh Design Products, which held that where the transferee of a DEPB scrip is not a party to the fraud, has purchased the scrip bona fide, and no misrepresentation, collusion or suppression is alleged against such transferee, the extended period under Section 28 cannot be invoked once the normal limitation has expired; this view having been affirmed by the Supreme Court.
2.9 The Court further relied on the Tribunal's decision in Commissioner of Customs, Amritsar v. Gopi Chand Krishna Kumar Bhatia, which distinguished between void and voidable licences and held that where (i) the scrip/licence was actually issued by DGFT (though obtained by misrepresentation or forged documents by the exporter), (ii) there is no allegation or evidence that the transferee was aware of the exporter's fraud, and (iii) the scrip was valid at the time of use and cancelled only later, the licence is voidable, not void, and remains valid till cancelled; in such circumstances, the principle "fraud vitiates everything" does not apply against the bona fide transferee.
2.10 In Gopi Chand Krishna Kumar Bhatia, it was noted that such cases are to be governed by the principles under the Contract Act and Sale of Goods Act, under which a bona fide transferee of a licence/scrip issued by the competent authority obtains a good title where there is no knowledge of the transferor's fraud; this approach was held consistent with the Supreme Court rulings in East India Commercial Co. and Sneha Sales Corporation.
2.11 The Court observed that the present case falls within the category recognised in Gopi Chand Krishna Kumar Bhatia - DFIA scrips actually issued by DGFT and valid at the time of import, alleged to have been obtained by the exporter by suppression/misrepresentation, but utilised by a transferee against whom there is no allegation of fraud and whose imports took place prior to any demonstrated cancellation.
2.12 The Court distinguished the authorities relied upon by the department, noting that those decisions pertained either to forged/fake scrips not issued at all by the licensing authority, or to situations where different factual or legal elements were present; in such cases the principle that fraud nullifies all acts could apply, whereas in the present case the licences were at best voidable and valid till cancelled, and the transferee acted bona fide.
2.13 The Court also noted that the impugned appellate order had merely relied upon the Tribunal's decision in Eastern Silk Industries without independently analysing the statutory requirements for invoking the extended limitation under Section 28(4) with reference to the specific allegations (or their absence) against the appellant.
Conclusions
2.14 Since imports were made during November 2012, December 2012 and May 2013 and the show cause notice dated 03/05.12.2014 was admittedly issued beyond the normal limitation period, and in the absence of any allegation or proof of collusion, wilful misstatement or suppression of facts by the appellant-importer, the pre-conditions for invoking the extended period under Section 28(4) of the Customs Act, 1962 were held not to be satisfied.
2.15 The demand of duty and interest raised against the transferee-importer on the basis of alleged misrepresentation by the original exporter in obtaining DFIA licences was held to be unsustainable in law.
2.16 The impugned order-in-appeal confirming the duty demand with interest was set aside, and the appeal of the transferee-importer was allowed with consequential reliefs as admissible in law.
Extended period of limitation - customs duty foregone on imports made under transferred DFIA licences - demand of duty made on the appellant consequent to utilisation of DFIA scrips transferred to the appellant -HELD THAT:- It is evident that extended period of five years can be invoked only in the cases of collusion, wilful misstatement and suppression of facts by the person who is liable to pay the duty i.e. the Importer/Noticee. Since the SCN does not have any such allegation as against the appellant, much less evidence let in of any such positive act on the part of the appellant that would constitute the ingredients required to invoke the said provisions for demand of duty, sans any such allegation and proof of any of the ingredients of collusion, or any wilful misstatement or suppression of facts by the importer, put to the notice of the importer, recourse to the said provisions of Section 28(4) of the Customs Act, 1962 cannot be taken by the Revenue to demand the duty foregone consequent to the utilisation of the transferred DFIA licence by the appellant.
It is also found that in a decision in Commissioner of Cus., Amritsar v. Gopi Chand Krishna Kumar Bhatia [2013 (6) TMI 637 - CESTAT NEW DELHI], a coordinate bench of this Tribunal, has noticed the difference between void and voidable licences and after examining a number of decisions, including some of those relied upon by the Ld. A.R, has held in favour of the respondent therein.
The impugned order in appeal is unsustainable and is liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the statutory ingredients for imposition of penalty under Section 112(a)(iii) of the Customs Act, 1962 were satisfied in relation to the appellant's valuation of imported stones.
(ii) Whether the statutory ingredients for imposition of penalty under Section 114AA of the Customs Act, 1962 were satisfied on the allegation that the appellant, as a Government approved valuer, knowingly issued false or incorrect valuation certificates.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Applicability of Section 112(a)(iii) - penalty for acts rendering goods liable to confiscation
Legal framework
The Court extracted Section 112(a)(iii) of the Customs Act, 1962 and noted that: (a) the person must do or omit to do an act in relation to goods which renders them liable to confiscation under Section 111, or abet such act/omission; and (b) liability to penalty arises only when these foundational ingredients are established.
Interpretation and reasoning
(a) The allegation was that the appellant, a Government approved valuer, connived with importers and custom broker and falsely certified highly inflated values and wrong description ("precious/semi-precious rough stones") of imported stones, thereby facilitating overvaluation and rendering the goods liable to confiscation.
(b) The Court noted that samples from consignments examined by the appellant were drawn by the Department but were not sent either to Geological Survey of India (GSI) or to the Government approved valuer, Sri Sunil Kumar Verma, for verification or revaluation.
(c) The investigation, as recorded in the Order-in-Original, was based on "stones thrown on the roadside" later recovered and seized by DRI, from which fresh samples were drawn and tested. These stones, and the samples examined by GSI and Sri Sunil Verma, were not shown to be the same as the consignments or samples earlier examined by the appellant.
(d) Neither the show cause notice nor the orders explained why the samples preserved from consignments valued by the appellant were not subjected to examination by GSI or by Sri Sunil Verma, nor was any linkage established between those consignments and the stones later recovered by DRI.
(e) The Court found from the tabulated data in the Order-in-Original that the samples examined by GSI and Sri Sunil Verma pertained to specific importers and Bills of Entry, none of which had been valued by the appellant; the goods examined by the appellant and those forming the basis of the investigation were, therefore, not shown to be the same.
(f) It was further noted that the Customs authorities assessed and cleared the goods on their own valuation and not on the valuation given by the appellant; his valuation was not used for determining duty liability or for assessment purposes.
(g) The Court observed that there was no evidence that the appellant derived, or intended to derive, any benefit from the imports, nor any evidence of extra monetary consideration for his valuation. The allegation that he had admitted overvaluation in his statement under Section 108 was specifically denied by him and was not corroborated by any independent evidence.
(h) There was nothing on record to show that the appellant had prior knowledge of any fraudulent intent of the importers, or that he connived with them, or that his act or omission had, in fact, rendered the goods liable to confiscation under Section 111.
Conclusions
(a) The essential ingredients of Section 112(a)(iii) - namely, that the appellant's act or omission rendered the goods liable to confiscation or that he abetted such act - were not established.
(b) The valuation done by the appellant was not acted upon by the assessing officers, there was no proved linkage between the consignments he valued and those subjected to investigation, and no evidence of intentional abetment or benefit.
(c) The penalty imposed on the appellant under Section 112(a)(iii) of the Customs Act, 1962 was held unsustainable and was set aside.
Issue (ii): Applicability of Section 114AA - penalty for use of false or incorrect material
Legal framework
The Court extracted Section 114AA of the Customs Act, 1962 and noted that liability arises only if a person knowingly or intentionally makes, signs, uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular in the transaction of any business for the purposes of the Act.
Interpretation and reasoning
(a) The allegation was that the appellant certified highly over-invoiced values and gave incorrect certificates as to the nature of the goods as "precious rough-semi precious stones", whereas the goods were allegedly inferior, low-value stones.
(b) The Court found that samples from the consignments examined by the appellant were never sent to GSI nor to Sri Sunil Verma for verification. The reports relied upon by the Department related to other consignments linked to other importers, not shown to be the same as those valued by the appellant.
(c) In the absence of any corroborative evidence linking the goods examined by the appellant to the goods that were the subject of the investigation and revaluation, it could not be concluded that the appellant's certificates pertained to the same goods that were found to be inferior stones.
(d) The Department itself assessed and cleared the goods on its own valuation; the appellant's valuation was neither adopted for assessment nor used as the basis for clearance.
(e) The Court further noted that the appellant had not issued any certificate that was in fact used by Customs as the operative document for assessment and clearance, and there was no material to show that he knowingly or intentionally made or used any declaration or document that was false or incorrect in a material particular.
Conclusions
(a) The necessary mental element ("knowingly or intentionally") and the factual element of a false or incorrect declaration, statement or document used for the purposes of the Act, as required under Section 114AA, were not proved against the appellant.
(b) In the absence of any concrete linkage between the appellant's valuation and the goods found to be of inferior quality, and given that his valuation was not used for assessment, the preconditions for penalty under Section 114AA did not exist.
(c) The penalty imposed on the appellant under Section 114AA of the Customs Act, 1962 was held unsustainable and was set aside.
Overall result
The Court held that the penalties imposed under Sections 112(a)(iii) and 114AA of the Customs Act, 1962 were not legally sustainable for want of requisite ingredients and evidentiary linkage, and accordingly allowed the appeals with consequential relief as per law.
Levy of penalties u/s 112(a)(iii), and 114AA of the Customs Act, 1962 - smuggling - goods of inferior quality, having no value in the market, are being declared before the Indian Customs with a high value, with a view to send illegal money out of India - HELD THAT:- For imposition of penalty under Section 112(a)(iii), it must be established that the actions of the appellant rendered the goods liable for confiscation under the Customs Act while for imposition of penalty under Section 114AA, the appellant must have intentionally made some false statement or submitted incorrect documents.
In the present case, the allegation against the appellant is that he has connived with the importers and intentionally, incorrectly and falsely certified the values of the goods imported under the impugned bills of entry to help the importers. It is noted that the appellant is a Government approved valuer, who was called by the importer for valuation of certain consignment of precious/ semi-precious stones. As a valuer, he certified the goods as precious / semi-precious rough stones whereas, allegedly, the goods were actually of inferior quality stones whose value is Rs.8,000/- to Rs.15,000/- per kg. Reliance has been placed by the Revenue on the statement recorded from the appellant under Section 108 of the Customs Act, 1962. However, the appellant categorically stated that he has not given any statement admitting his offence.
The appellant acted as a valuer in his professional capacity. There is nothing on record to show that he derived any benefit from the impugned imports or intended to derive any such benefit. The evidences available on record indicate that he gave his valuation as per the invoice of the Overseas Supplier. It is on record that the value which was given by the appellant was never acted upon or accepted by the Department. It is also found that there is no evidence available on record to indicate that the appellant has done the valuation on receipt of extra monetary consideration - such allegation and finding is baseless, incorrect and not supported by any evidence. There is nothing on record to show that the appellant had prior knowledge about the impugned import or that he knowingly or intentionally gave the over-invoiced value to the goods examined by him or that he connived or abetted the offence. Accordingly, the ingredients required for imposing penalty under Section 112(a)(iii) of the Customs Act, 1962 do not exist in this case. Thus, the penalty imposed on the appellant under section 112(a)(iii) of the Customs Act is not sustainable and hence, the same is set aside.
For imposition of penalty under Section 114AA, the appellant must have intentionally made some false statement or submitted incorrect documents. In the present case, it is observed that the allegation against the appellant is that as a Govt. Approved valuer, he has certified the highly over-invoiced values of the imported stones and given incorrect certificates with regard to the nature of the goods as "precious rough-semi precious stones", whereas, the goods were actually inferior quality stones and whose values were much lower than that declared. However, from a perusal of the records, it is clear that the samples drawn from the consignment examined by the appellant were not sent for examination by GSI and Govt. appointed valuer Sri Sunil K. Verma. In the absence of any corroborative evidence linking the goods examined by the appellant with those involved in the investigation conducted, it cannot be said that these goods were one and the same - the penalty imposed on the appellant under Section 114AA of the Customs Act is also not sustainable.
The penalties are set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1. Whether the seizure and confiscation of gold recovered in a town area, without foreign markings and with purity below 99.5%, were legally sustainable under Sections 110 and 123 of the Customs Act, 1962.
1.2. Whether the burden of proof under Section 123 of the Customs Act, 1962 shifted to the person from whose possession the gold was recovered in the facts of the present case.
1.3. Whether penalties under Section 112(b) of the Customs Act, 1962 were imposable on any of the appellants in the absence of proof of smuggled character of the gold and, in the case of Appellant Nos. 2 and 3, where the sole incriminating material was an untested third-party statement not subjected to cross-examination under Section 138B.
1.4. Whether the Indian currency recovered from Appellant No. 1 was liable to confiscation as sale proceeds of smuggled gold and whether the appellant was entitled to interest on its return.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2 - Legality of seizure/confiscation of gold in town seizure and applicability of burden under Section 123
Legal framework (as discussed)
2.1. The Court examined Sections 110 and 123 of the Customs Act, 1962, and considered the concept of "reasonable belief" for seizure and the statutory presumption and burden-shifting under Section 123.
2.2. The Court referred to the principles laid down by the Hon'ble Supreme Court in Ganesh Das v. Collector of Central Excise and Commissioner of Customs v. Abdul Gani, and to Tribunal decisions including Balanagu Naga Venkata Raghavendra v. Commissioner of Customs, Vijayawada and Sarvendra Kumar Mishra & Anr. v. Commissioner of Customs, on the evidentiary threshold for invoking Section 123 in town seizures of gold without foreign markings.
Interpretation and reasoning
2.3. The Court found that the gold was seized in the midst of the town of Kolkata, not at an airport, seaport, or upon arrival from abroad, and that gold with foreign markings is freely available in the local market.
2.4. It was noted that: (i) there was no evidence on record establishing who imported the gold, when and how it was imported, or by whom it was handed over to the person from whose possession it was seized; (ii) the investigation did not produce any evidence of foreign origin or of contravention of import conditions; and (iii) the purity of the gold was below 99.5% and there were no foreign markings.
2.5. The Court accepted the contention that mere absence of purchase documents and mere possession of gold in a town area, without more, cannot be treated as sufficient to characterise the gold as "smuggled" or to found a "reasonable belief" of smuggling under Section 110.
2.6. The Court held that to shift the burden of proof under Section 123 to the person from whose possession the gold was seized, the Customs authorities must first establish: (a) that the gold is of foreign origin; and (b) that the seizure was effected under a reasonable belief that the goods were smuggled. Only upon satisfaction of these preconditions can the burden shift to the person claiming ownership.
2.7. The Court observed that, in the present case, the investigation failed to prove the foreign origin or smuggled nature of the gold; consequently, the burden under Section 123 never shifted to any appellant. It was further noted that the primary appellant had not claimed ownership of the gold, which also negatived the application of Section 123 in the manner assumed by the Department.
2.8. On these facts, the Court concluded that the seizure of the gold was not based on a legally tenable "reasonable belief" of smuggling, and that the requirements for invoking Section 123 were not met.
Conclusions
2.9. The Court held that the seizure of gold under Section 110 was legally unsustainable, that the presumption under Section 123 did not arise and the burden of proof did not shift to the appellants, and that the Department failed to discharge its onus to establish the foreign and smuggled character of the gold. Consequently, the gold was held not liable to confiscation.
Issue 3 - Validity of penalties under Section 112(b) on all appellants; evidentiary value of untested third-party statements
Legal framework (as discussed)
3.1. The Court considered Section 112(b) of the Customs Act, 1962, relating to penalties for acts or omissions rendering goods liable to confiscation or for abetment thereof, and Section 138B concerning the use of statements and the right to cross-examination.
Interpretation and reasoning (Appellant No. 1)
3.2. In view of the finding that the Department had not established that the gold was smuggled or liable to confiscation, the Court held that the foundational requirement for imposing penalty under Section 112(b) was missing in respect of Appellant No. 1.
3.3. As there was no legally sustainable confiscation and no cogent evidence of any act or omission on his part in relation to smuggled goods, the ingredients of Section 112(b) were held not to be satisfied.
Interpretation and reasoning (Appellant Nos. 2 and 3)
3.4. The Court found that Appellant Nos. 2 and 3 were not present at the place of interception, no gold was recovered from their possession, and there was no independent evidence linking them to the seized gold.
3.5. The entire case against them rested solely on the statement of one Girish Bhosale, alleged to be a gold melting shop operator, who purportedly stated that the seized gold belonged to these appellants. The person from whose possession the gold was seized did not implicate them as owners or participants.
3.6. During adjudication, Appellant Nos. 2 and 3 specifically sought an opportunity to cross-examine Girish Bhosale under Section 138B, but such opportunity was not granted.
3.7. The Court held that where the sole incriminating material is a statement of a third party, denial of cross-examination is contrary to the requirements of Section 138B and principles of natural justice. In such circumstances, the untested statement cannot safely be relied upon to fasten penal consequences.
3.8. As there was no other corroborative evidence on record to connect Appellant Nos. 2 and 3 with the alleged smuggling or with the seized gold, the Court concluded that the allegations of their involvement or abetment were unsustainable.
Conclusions
3.9. The Court held that, since the gold was not proved to be smuggled or liable to confiscation, and there was no reliable evidence of acts or omissions attracting Section 112(b), no penalty was imposable on any of the appellants. The penalties on all appellants under Section 112(b) were therefore set aside.
Issue 4 - Confiscation of Indian currency as sale proceeds of smuggled gold and entitlement to interest
Interpretation and reasoning
4.1. The Court noted that Indian currency of Rs. 2,00,000/- was seized from Appellant No. 1 on the allegation that it represented sale proceeds of smuggled gold.
4.2. It was found that the Department failed to adduce any evidence to prove that the seized currency was derived from sale of gold of foreign origin or from any smuggling activity.
4.3. On the contrary, Appellant No. 1 produced a photocopy of his ITR-V for Assessment Year 2017-18, showing that he possessed more than Rs. 2,00,000/- under "cash and bank", which the Court accepted as sufficient to substantiate licit possession of the seized currency.
4.4. In light of the finding that the gold itself was not proved to be smuggled, and in the absence of any specific evidence linking the currency to proceeds of smuggling, the Court held that the basis for treating the Indian currency as sale proceeds of smuggled goods was not made out.
4.5. On the appellant's claim for interest on the amount to be returned, the Court relied on its own finding that the confiscation of the currency was illegal and that the appellant had been deprived of his licit property for the duration of the seizure.
Conclusions
4.6. The Court held that the Indian currency of Rs. 2,00,000/- was not liable to confiscation, ordered its return to Appellant No. 1, and further held that he was entitled to interest at the applicable rate from the date of seizure until the date of actual return.
Town seizure - Gold recovered/seized is in absence of evidence of any foreign marking, and the purity of the gold is below 99.5% - onus on the department to first establish the foreign origin and smuggled nature of the gold - interest and penalties - HELD THAT:- The gold in question was seized in the midst of the town of Kolkata, where gold with foreign markings is freely available in the market. The seizure was effected not at the airport or sea port and the person in possession of the gold was not intercepted in any port while arriving from abroad. Further, it is observed that the root of import of the gold i.e. who imported the gold, when it was imported, who handed it over to the Appellant etc. are not made known before or even after seizure. There is no evidence available on record to prove that the gold was imported from a foreign country in contravention of the provisions violating the conditions prescribed for importation of gold - the argument of the appellant is agreed upon that the onus is on the department to first establish the foreign origin and smuggled nature of the gold. In the present case, the department has not brought in any evidence to establish the smuggled nature of the gold.
It is a fact that in the present case, the investigation has not brought in any evidence to prove foreign origin of the gold or smuggled nature of the gold. Hence, in the facts and circumstances of the case, it is observed that the burden of proof under Section 123 of the Customs Act does not shift to the Appellants. The Customs authorities must first establish the foreign origin of the gold before invoking the presumption of smuggling. So, the responsibility was on the Department to show that the gold in question was smuggled into the country without payment of appropriate duties of Customs thereon, which the Department has failed to discharge in this case - the issue has been examined by this Tribunal at Hyderabad in the case of Balanagu Naga Venkata Raghavendra vs CC Vijayawada [2021 (2) TMI 612 - CESTAT HYDERABAD], wherein it has been held that the burden under Section 123 ibid. will not shift on the appellants when the seizure of gold without foreign markings are seized from city - the burden of proof under Section 123 of the Customs Act does not shift to the appellant in this case.
Regarding the penalties imposed on the Appellant No. 2 and 3, it is found that he was no way connected with the gold. He was not available at the place of interception of the gold and no gold was recovered from his possession. The entire case against him is based on the statement of one Girish Bhosale, who purportedly runs a gold melting shop. Relying on his statement, the department has alleged that the seized gold belonged to him. It is found that even the person from whose possession the gold was recovered, did not indicate or allege anything about the involvement of the appellant as the owner of the recovered gold - the adjudicating authority should have given an opportunity to cross examine him. As the opportunity to cross examine Girish Bhosale was not given, the said statements of Girish Bhosale, cannot be relied upon in this proceedings against the appellant. As there is no other evidence other than the statement available on record to implicate the Appellant in the alleged offence, the allegation against the Appellants are not sustainable.
Regarding the imposition of penalties on the appellants under Section 112(b) of the Customs Act, the fact noted is that in view of the discussions in the preceding paras, it has been held that the gold in question is not liable for confiscation. In the absence of any cogent evidence establishing the smuggled character of the gold, the appellants cannot be held liable for abetting any offence under the Customs act, 1962. In these circumstances, the ingredients enshrined in Section 112(b) of the Customs Act, 1962 are not applicable to the present case for imposition of penalties on the appellants. Accordingly, the penalties imposed on the appellants are not sustainable and hence set aside.
Claim of interest made by the Appellant No.1 for illegal seizure and subsequent confiscation of the Indian currency - HELD THAT:- It is observed that it has been established that the Indian currency was not liable for confiscation and the confiscation has been set aside. As the appellant has been deprived of the licit property owned by him, it is agreed with the claim of interest made by the Appellant. Accordingly, the appellant is liable fo payment of interest at the applicable rate from the date of seizure of the Indian currency till the date of it's return.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether non-return of the seized laptop and non-relied upon documents, coupled with ex parte adjudication, amounted to violation of principles of natural justice.
1.2 Whether failure to supply/return non-relied upon documents can be justified by the department on the ground that relied-upon documents were already supplied with the show cause notice.
1.3 Whether, in the circumstances, the matter required remand for de novo adjudication rather than adjudication on merits by the Tribunal.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Non-return of seized laptop and non-relied upon documents; ex parte adjudication; violation of natural justice
Legal framework (as discussed)
2.1 Principles of natural justice and fair hearing: The Tribunal examined the requirement of fair opportunity to defend, as recognized in judicial precedent, including the obligation to disclose and provide access to material necessary for effective rebuttal of the case set up in the show cause notice.
2.2 Administrative instructions: Reference was made to a CBEC Circular (F. No. 224/37/2005-CX.6 dated 24.12.2008) directing that after issue of show cause notice, all un-relied upon documents must be returned to the person from whom they were seized, within 15 days of issue of the show cause notice.
Interpretation and reasoning
2.3 The Tribunal noted that the entire case of undervaluation and overvaluation was substantially built on data retrieved from the appellant's laptop, part of which was relied upon in the show cause notice, while other data and documents in the same laptop and other seized records were not returned to the appellant despite repeated written requests.
2.4 The adjudicating authority proceeded to decide the matter ex parte, even though:
(i) The appellant had, on multiple occasions, sought return of the laptop and non-relied upon documents to prepare an effective reply.
(ii) The DRI itself had, by letter, acknowledged that pages retrieved from the laptop were relied upon in the show cause notice and stated that the laptop and non-relied upon documents would be returned "shortly".
(iii) Even after the High Court specifically observed that, if a request for return of the seized records/laptop was made, the Department may consider it on merits and in accordance with procedure, the laptop and documents were still not returned.
2.5 Relying on a coordinate bench decision, the Tribunal reiterated that non-return of documents, even if categorized as "non-relied upon" by the department, constitutes non-observance of principles of natural justice, since:
(i) It is for the assessee, and not for the department, to decide how such documents and data are to be used for defence.
(ii) The right to be heard meaningfully includes the right to know and effectively counter the case based on materials seized from the assessee.
2.6 The Tribunal also referred to judicial pronouncements which emphasize:
(i) The duty of "adequate disclosure" and fairness in quasi-judicial proceedings, and
(ii) That even un-relied upon documents may be necessary for an assessee to construct its defence, and their delayed or denied return can vitiate the adjudicatory process.
2.7 In light of the CBEC circular mandating return of all un-relied upon documents within 15 days of issue of the show cause notice, the Tribunal held that the department cannot argue contrary to its own binding circulars.
2.8 On the facts, the Tribunal concluded that the non-return of the laptop and non-relied upon documents, combined with the passing of an ex parte order, prejudicially impaired the appellant's ability to contest valuation, duty, penalty, anti-dumping duty and other factual/legal issues, thereby amounting to a clear breach of principles of natural justice.
Conclusions
2.9 The Tribunal held that there was serious violation of principles of natural justice, as:
(i) The laptop and non-relied upon documents, seized from the appellant and acknowledged as such by the department, were not returned despite repeated requests and a High Court's observations.
(ii) The order-in-original was passed ex parte without ensuring that the appellant had effective access to all relevant material necessary to mount a proper defence.
2.10 On this ground alone, the impugned order was found unsustainable and liable to be set aside.
Issue 2 - Justification based on supply of relied-upon documents alone; duty to return non-relied upon documents
Legal framework (as discussed)
2.11 The Tribunal relied on:
(i) Judicial precedent holding that supply of relied-upon documents is mandatory, and that fair procedure may, depending upon the facts, require access even to material not expressly relied upon, where such material is seized from the assessee and may be necessary for defence.
(ii) The CBEC circular directing timely return of all un-relied upon documents after issue of a show cause notice.
Interpretation and reasoning
2.12 The department's position, as recorded, was that relied-upon documents had been supplied with the show cause notice and that the adjudication could proceed on that basis.
2.13 The Tribunal, however, approved and applied the reasoning of earlier decisions that:
(i) Non-relied upon documents, though not used by the department to build its case, may nonetheless be crucial to the assessee's defence.
(ii) The authority cannot unilaterally decide that such documents are "not necessary" for the assessee's reply; the assessee is entitled to determine their relevance.
(iii) Administrative instructions require proactive return of such non-relied upon documents within a fixed period.
2.14 The Tribunal held that, in this case, merely supplying relied-upon pages from the laptop, while retaining the laptop itself and other seized records, did not satisfy the requirement of fairness, particularly when the core allegations were founded on electronic data retrieved from the appellant's own device.
Conclusions
2.15 The Tribunal concluded that:
(i) The department's reliance on the fact that relied-upon documents were supplied was insufficient to cure the breach of natural justice.
(ii) Failure to return the non-relied upon documents and the laptop, in disregard of both judicial standards of fairness and the CBEC circular, constituted a procedural infirmity vitiating the adjudication.
Issue 3 - Need for remand and scope of Tribunal's examination of merits
Legal framework (as discussed)
2.16 The Tribunal proceeded on the general principles governing appellate review in quasi-judicial tax/customs matters, distinguishing between:
(i) Issues of procedural fairness/natural justice, and
(ii) Determination of disputed facts and application of substantive law (e.g., valuation rules, admissibility of statements and electronic evidence, anti-dumping notifications, rate of duty, etc.), which are first to be evaluated by the adjudicating authority.
Interpretation and reasoning
2.17 The appellant had raised several additional and substantive grounds before the Tribunal, including:
(i) Validity and methodology of valuation under the Customs Valuation Rules, 1988.
(ii) Admissibility and evidentiary value of laptop data under Section 138C of the Customs Act.
(iii) Admissibility of statements under Sections 108 and 138B of the Customs Act.
(iv) Applicability and effect of anti-dumping duty notifications and Rules, including Rule 21 of the 1995 Anti-dumping Rules and Section 159A of the Customs Act.
(v) Questions relating to CVD liability, exemption notifications, and consequences for confiscation, interest and penalty on CVD components.
2.18 The Tribunal recorded that many of these factual and legal contentions-both on merits and on procedural infirmities (such as non-examination of persons whose statements were relied upon and lack of certification for electronic evidence)-had not been raised or examined at all before the adjudicating authority, largely because the appellant claimed its defence was hampered by deprivation of the laptop and documents.
2.19 The Tribunal held that it was not appropriate, in such circumstances, to enter into a first-instance factual examination of:
(i) The correctness of the evidence retrieved from the laptop,
(ii) The factual matrix underlying valuation and anti-dumping duty calculations, or
(iii) The precise applicability of notifications, exemptions and judicial precedents to each set of transactions.
Such evaluative and fact-intensive determinations were held to be the function of the adjudicating authority upon a full and fair consideration of all evidence.
2.20 The Tribunal therefore considered that the interests of justice would be best served by:
(i) Setting aside the impugned order solely on the ground of violation of principles of natural justice; and
(ii) Remitting the matter to the jurisdictional adjudicating authority for a de novo adjudication after ensuring that the appellant has access to the seized laptop and non-relied upon documents.
2.21 The Tribunal also directed that, in the de novo proceedings, the adjudicating authority must follow the adjudicatory process as outlined in a coordinate bench decision, particularly in relation to procedural safeguards such as treatment of statements under Section 138B and handling of evidence.
Conclusions
2.22 The Tribunal set aside the impugned order and remanded the matter for de novo adjudication, with the following specific directions:
(i) The authorities shall return the non-relied upon documents and the seized laptop to the appellant within thirty days of receipt of the Tribunal's order, retaining, if required, a secure copy of the data as per applicable guidelines.
(ii) The appellant shall file its detailed written reply and evidence within sixty days of receipt of the laptop and documents.
(iii) The adjudicating authority shall complete de novo adjudication preferably within ninety days from receipt of the appellant's reply.
(iv) All issues on facts and law, including valuation, admissibility of evidence, anti-dumping duty, CVD and related notifications, remain open to be urged and decided afresh.
(v) The appellant is required to cooperate and avoid delay in the de novo proceedings.
2.23 The appeal was allowed by way of remand, exclusively on the ground of violation of natural justice, without any adjudication by the Tribunal on the substantive merits of the demands, penalties or other liabilities.
Rejecion of transaction value declared by the appellant and consequent to re-determination under Customs Valuation (determination of price of imported goods) Rules 1988 - data retrieved from the laptop can be considered as admissible evidence or not - admissibility of computer printouts as documents and evidence - principles of natural justice - HELD THAT:- The Hon’ble High Court in Mr. Francis Goel Proprietor M/s. Tek Chand International v. Commissioner of Customs (Port-Export) & Customs, Excise and Service Tax, [2015 (5) TMI 284 - MADRAS HIGH COURT], while noting the submissions of the appellant that the appellant had suffered great prejudice at the time of adjudication since most of the seized records including the laptop which contains relevant documents were not returned, pointed out that if the appellant makes a request for return of the seized records or the laptop, as the case may be, the Department may consider such a request on its own merits and in accordance with the procedure. Pursuant to the said directions, after a year and a half, the appellant again requested for return of the laptop and documents, which is yet again seen forwarded to the Additional Director General, DRI, New Delhi vide the letter dated 30.09.2016 of the Commissioner of Customs (Chennai IV), Custom House, Chennai. The appellant has stated that they are yet to receive these documents and laptop. Revenue too has not contended or shown otherwise.
A coordinate bench of this Tribunal, in its decision in M/s. Rashmi Metaliks Limited, Unit-I v Commissioner of CGST & Cx. Haldia, [2021 (1) TMI 752 - CESTAT KOLKATA] has held that non return of documents even though non-relied upon constitutes non observance of the principles of natural justice.
It is settled that the Department cannot argue against its own circulars. In any event, it is entirely upto the assessee as to how, or in what manner, it seeks to utilise the non-relied upon documents as well as the evidence in the laptop, to construct its defence. Therefore, in the instant case there has been a violation of principles of natural justice to the detriment of the appellant impinging on the appellant’s right to set up an effective and appropriate defence.
The matter remitted back to the jurisdictional Adjudicating Authority for denovo adjudication - appeal allowed by way of remand.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the imported product "Zinc-EDTA" is classifiable under Customs Tariff Heading 3105 9090 ("other fertilizers") or under Heading 2922 4990 ("salts of amino-acids").
1.2 Whether the Department discharged its burden of proof for re-classifying the goods, particularly in the absence of proper chemical tests and product-specific examination.
1.3 Whether a coordinate Bench's prior final decision classifying the same product for the same assessee under Heading 3105 9090 binds the Department and lower authorities, and the extent to which judicial discipline and consistency in classification are required.
1.4 Whether reliance on the decision in "Meghmani Organics" for classification under Chapter 29 is apposite in the facts of the present case.
1.5 Whether, in case of competing classifications, the more beneficial entry could be preferred.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Correct classification of Zinc-EDTA - CTH 3105 9090 vs. 2922 4990
Legal framework discussed
2.1 The Court examined Note 1(b) and Note 6 to Chapter 31 and Note 1(a) to Chapter 29 of the Customs Tariff, as well as the HSN Explanatory Notes to Chapter 29 and Chapter 31, particularly regarding "separate chemically defined compounds" and "other fertilizers".
2.2 Note 6 to Chapter 31 provides that, for Heading 3105, "other fertilizers" applies only to products of a kind used as fertilizers and containing, as an essential constituent, at least one of the fertilizing elements nitrogen, phosphorus or potassium, without prescribing any minimum quantitative content.
2.3 HSN Explanatory Notes to Chapter 29 state that Chapter 29 covers separate chemically defined organic compounds consisting of one molecular species with a constant elemental ratio and excludes compounds to which other substances are deliberately added during or after manufacture.
Interpretation and reasoning
2.4 The Court noted that the Department's case was that Zinc-EDTA is an organo-metallic coordination compound, a separate chemically defined compound classifiable under Heading 2922, and that any nitrogen present is insignificant and not an "essential constituent" for fertilizer purposes.
2.5 The appellate and original authorities themselves recorded that certificates from the manufacturers indicate deliberate addition of nitrogen in the production process, and that the product contains nitrogen along with zinc; these facts were not disputed by Revenue.
2.6 The Court considered that, as per the HSN Notes to Chapter 29, a product to which substances are deliberately added (such as zinc and nitrogen) stands excluded from Chapter 29 and, therefore, cannot be treated as a "separate chemically defined compound" falling under Heading 2922.
2.7 Relying on the reasoning in a coordinate Bench decision involving the same assessee and the same product, the Court observed that nitrogen is deliberately added in the manufacturing process of Zinc-EDTA, remains in the final product, and is present in substantial proportion; thus, nitrogen is an "essential constituent" of the product within the meaning of Note 6 to Chapter 31, regardless of whether the product is the primary source of nitrogen for soil.
2.8 The Court emphasized that Note 6 to Chapter 31 does not prescribe a minimum concentration for a fertilizing element to qualify as an "essential constituent"; the mere fact of its deliberate and continued presence suffices.
2.9 The Court observed that the product is of a kind used as a micronutrient fertilizer and is treated under the Fertilizer (Control) Order as a micronutrient fertilizer (chelated zinc) and, when coupled with the presence of nitrogen, is more appropriately classifiable under Heading 3105 9090 as "other fertilizers".
Conclusions
2.10 The Court held that Zinc-EDTA, containing deliberately added nitrogen and used as a micronutrient fertilizer, does not fit within Chapter 29 as a separate chemically defined compound and is correctly classifiable under Heading 3105 9090 as "other fertilizers", and not under Heading 2922 4990.
Issue 2: Burden of proof and failure to conduct proper testing
Legal framework discussed
2.11 The Court relied on settled Supreme Court law that in classification disputes, which pertain to chargeability, the burden lies squarely on the Revenue when it seeks to reclassify goods differently from the assessee's declaration; mere assertion is insufficient and must be supported by evidence such as test reports (citing HPL Chemicals, British Machines Supplies, and Hewlett Packard India Sales).
Interpretation and reasoning
2.12 For the consignments covered by the first show cause notice (SCN-A), the Court noted that the Department did not draw or test samples of the imported goods at all.
2.13 For the consignments under the second show cause notice (SCN-B), although the DRI requested RFCL to draw samples and test for fertilizing elements (N, P, K), RFCL clarified that it had drawn samples under the Fertilizer Control Order and was only competent to test specific FCO parameters (Zn, Pb and pH), not full composition or classification-related aspects.
2.14 The Court highlighted that no test from the Central Revenue Control Laboratory or any equivalent authoritative analysis of the product's chemical composition was produced; the Department instead relied on:
(i) A single-line opinion of an academic expert (Dr. K. Vidyasagar) based solely on information supplied by DRI from internet sources, not on any actual test of the imported goods.
(ii) A prior RFCL letter (from 2006) addressing cost-effectiveness of nitrogenous fertilizers, unrelated to the consignments in dispute and not determinative of classification.
2.15 The Court found the expert opinion unreliable because the expert was neither provided with the actual product, nor with its full constituents nor with the manufacturing process; the opinion was not grounded in product-specific testing.
2.16 The Court contrasted this with the assessee's evidence (manufacturer certificates and independent test reports indicating deliberate presence of nitrogen), and held that the Department failed to rebut or outweigh such evidence.
Conclusions
2.17 The Court held that the Department had not discharged its burden to justify reclassification from Heading 3105 9090 to Heading 2922 4990, due to the absence of reliable chemical analysis or cogent evidence, and that classification could not be altered merely on assertions or generic expert opinion disconnected from the actual imported goods.
Issue 3: Effect of prior coordinate Bench decision in the same assessee's case and requirement of judicial discipline
Legal framework discussed
2.18 The Court examined principles from Supreme Court decisions on:
(i) Binding nature of appellate orders on subordinate authorities and necessity of judicial discipline (Union of India v. Kamalakshi Finance Corporation Ltd.).
(ii) Prohibition on Revenue taking a contrary stand in subsequent periods where an earlier order between the same parties on the same facts has attained finality (Bigen Industries, Birla Corporation, Tata Engineering, Berger Paints, Jayaswals Neco).
(iii) Requirement that Benches of coordinate jurisdiction must not disregard prior decisions on identical questions, to preserve consistency in classification (Jayaswals Neco).
2.19 The Court also referred to administrative instructions issued by the Board emphasizing adherence to judicial discipline and the National Litigation Policy objective that Government should not be a "compulsive litigant".
Interpretation and reasoning
2.20 The Court noted that a coordinate Bench (Hyderabad) had, in the same assessee's case, already classified imported Zinc-EDTA under Heading 3105 9090, after detailed analysis of Chapters 29 and 31, the manufacturing process, expert opinion, and the presence of nitrogen as an essential constituent, and had held that the product is "other fertilizer".
2.21 The Court recorded that, as per an RTI response on record, that earlier final order had been accepted by the Department on merits and no further appeal was contemplated; thus, the prior decision had attained finality.
2.22 Despite being specifically cited before the Commissioner (Appeals) in the impugned proceedings, the prior final order was not followed, nor distinguished on facts or law; the appellate authority simply proceeded to maintain classification under Heading 2922.
2.23 The Court strongly deprecated this conduct as a "scant disregard" for binding precedent, reiterating that decisions of higher and coordinate Benches must be followed unless stayed, and that failure to do so results in harassment to assessees and proliferation of litigation.
2.24 The Court held that, once the prior classification of the same product for the same assessee had been upheld by the Tribunal and accepted by the Department, Revenue was precluded from contending otherwise for the subsequent period on identical facts.
Conclusions
2.25 The Court concluded that:
(i) The prior coordinate Bench decision classifying Zinc-EDTA under Heading 3105 9090 is binding and has attained finality.
(ii) The Department cannot take a contrary classification stand for the same product and assessee in subsequent imports on the same factual footing.
(iii) The impugned orders are vitiated by disregard of judicial discipline and must be set aside on this ground as well.
Issue 4: Applicability of the decision in "Meghmani Organics" to the present case
Interpretation and reasoning
2.26 Revenue relied on a later decision in "Meghmani Organics" which, after considering coordination compounds, classified similar EDTA-based products under Chapter 29 and overruled an earlier decision based on Ciba India.
2.27 The Court accepted the assessee's distinction of that decision on the following grounds:
(i) In "Meghmani Organics", multiple chemical examination reports (Central Excise Laboratory and CRCL) specifically tested product samples and concluded that the products were coordination compounds without any NPK content; in the present case, no such product-specific testing was done by Revenue.
(ii) The presence of nitrogen was disputed and found absent in "Meghmani Organics", whereas here the presence of nitrogen is accepted and supported by test reports and manufacturer certificates, and is asserted to be a deliberate addition.
(iii) The ratio in "Meghmani Organics" was founded on a materially different factual matrix (no nitrogen, detailed test reports, and clear identification as coordination compounds), which is absent in the present matter.
(iv) A coordinate Bench (Chennai) in "P.R. Agro Nutri" had already treated Ciba India as more factually aligned than "Meghmani Organics" for similar products.
Conclusions
2.28 The Court held that the decision in "Meghmani Organics" is distinguishable on facts and legal context, and therefore has no application to the present case.
Issue 5: Preference for beneficial classification where doubt exists
Legal framework discussed
2.29 The Court referred to the Supreme Court's observation in Minwool Rock Fibres that in classification disputes, where there is doubt, the entry beneficial to the assessee requires to be applied.
Interpretation and reasoning
2.30 Having already found that the product is appropriately classifiable under Heading 3105 9090 based on substantive evidence and precedent, the Court nevertheless noted that if any residual ambiguity remained, the principle that a beneficial entry should be preferred would reinforce classification under Heading 3105 9090.
Conclusions
2.31 The Court held that, even in case of competing plausible headings, the more beneficial classification under Heading 3105 9090 would support the assessee, further militating against the Department's attempt to apply Heading 2922 4990.
Overall disposition
2.32 On the combined grounds of (i) substantive tariff interpretation and HSN Notes, (ii) failure of Revenue to discharge its burden of proof, (iii) binding effect and finality of the prior coordinate Bench decision in the same assessee's case, (iv) inapplicability of "Meghmani Organics", and (v) preference for a beneficial classification where any doubt exists, the Court set aside the impugned orders and allowed the appeals with consequential relief, expressly leaving issues like limitation and levy of interest/penalty on CVD/SAD demands unexamined in view of the decision on merits.
Classification of imported Zinc-EDTA - to be classified under Customs Tariff Item 3105 0000 or under CTI 2922 4990? - chargeability and the burden of proof on Revenue or not - HELD THAT:- Indisputably, the fact remains that the Department has not drawn samples from the imported goods under dispute in this case and subjected them to test as to their composition from Central Revenues Control Laboratory. This also assumes significance in light of the adjudicating authority in Order-in-Original No. 21/2023 dated 13.03.2023 noting that the certificate issued by one of the manufacturers SBSIECL, Sichuan, China and Akzo Nobel, Netherlands also indicates the presence of Nitrogen in the product which is deliberate addition in the production process and not arising as impurities during the course of manufacturing process - HSN explanatory notes to Chapter 29 clearly state that separately chemically defined compounds containing other substances deliberately added during or after their manufacture are excluded from Chapter 29 and further that since there has been a deliberate addition of Zinc and Nitrogen, the subject goods viz. EDTA Zinc 12% stand excluded from chapter 29 and merit classification under CTI 31059090.
The single line opinion of Dr. K. Vidyasagar, Department of Chemistry, relied upon by the Department, have been rightly discredited by the appellant contending that the constituents of the subject goods or the manufacturing process of the subject goods were never submitted to Dr. K. Vidyasagar and therefore, the opinion issued by Dr. K. Vidyasagar is not applicable to the present case. It is also seen from the letter of DRI that the opinion has been sought on inputs provided by DRI as downloaded from the Internet and not on the basis of any test results of the imported goods.
It is a settled position in law that classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue. If the Department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the Department has to adduce proper evidence and discharge the burden of proof - mere assertion by the department is of no avail as heavy burden was on the department to lay evidence by way of test reports and consequent opinion premised on such test reports to substantiate the Department’s proposed classification - the Department has failed to discharge its burden that would warrant effectuating a change in the classification adopted by the appellant for the subject imported goods.
Indisputably, while in the present case it is the contention of the Department that the presence of small quantity of nitrogen in the subject goods is incidental and does not make it a primary source of nitrogen, the fact remains that the presence of nitrogen is uncontested. Further, as per Note 6 to Chapter 31, for the purposes of CTH 3105, the term “other fertilizers” applies only to products of a kind used as fertilizers and containing, as an essential constituent, at least one of the fertilizing elements nitrogen, phosphorus, or potassium. The said chapter note does not specify the minimum content of the fertilizing element to be present to make it an essential constituent.
The impugned orders in appeal are untenable and are therefore set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether a demand of Safeguard Duty under Section 28 of the Customs Act, 1962 is legally sustainable when earlier re-assessed Bills of Entry, allowing exemption, were not challenged by the Revenue under the statutory appeal/review mechanism and had attained finality.
1.2 Whether a demand of Safeguard Duty is maintainable in respect of subsequent self-assessed Bills of Entry, when the Revenue did not file appeals against such self-assessment despite the law requiring appeal even against self-assessment.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of invoking Section 28 where reassessment orders granting exemption attained finality
Legal framework (as discussed in the judgment)
2.1 The Tribunal relied on its own earlier decision which had, in turn, examined the scheme of Sections 11A, 11B and 35E of the Central Excise Act, 1944 and the judgment of the High Court in "Eveready Industries India Ltd. v. CESTAT, Chennai". That judgment held, inter alia:
(a) Orders granting refund under Section 11B are orders of adjudication and are appealable. (b) Section 11B is a complete code for refund, involving adjudication by the Assistant/Deputy Commissioner. (c) Once an order under Section 11B attains finality (no appeal/review under Section 35E), the Department cannot subsequently invoke Section 11A to treat the refund as "erroneous refund" and recover it. (d) Sections 11A and 35E operate in different fields and must be read harmoniously; what cannot be done directly by appeal/review cannot be done indirectly by invoking the demand provision. (e) One authority cannot, in collateral proceedings, declare erroneous what another adjudicating authority has already decided, when that earlier order has not been appealed against.
2.2 The Tribunal applied the above ratio, mutatis mutandis, to the Customs context, in relation to reassessment of Bills of Entry and subsequent attempts to raise demand under Section 28 of the Customs Act, 1962 without first challenging the reassessment orders by appeal.
Interpretation and reasoning
2.3 The Tribunal found that the case did not involve mere self-assessment. In the first four Bills of Entry:
(a) The Customs electronic system itself had flagged non-eligibility to Safeguard Duty exemption on the ground that imports were from "Taiwan". (b) The appellant and CHA appeared before the reassessing authority, submitted documents and arguments on eligibility to exemption. (c) The competent Customs authorities, after considering the material, formally re-assessed the Bills of Entry and allowed clearance without payment of Safeguard Duty.
2.4 The Tribunal treated this re-assessment as a conscious adjudicatory decision of the proper officer on the very issue now sought to be reopened. The Revenue did not challenge these reassessment orders before the Commissioner (Appeals). Thus, the reassessments attained finality.
2.5 The Tribunal noted that, after such reassessment and removal of the relevant "flag" in the electronic system, subsequent imports passed through without objection on Safeguard Duty, evidencing that the Department itself treated the exemption position as settled.
2.6 Applying the ratio of the earlier relied-upon judgment (following "Eveready Industries India Ltd.") the Tribunal held that, once an adjudicatory order has been passed and has not been appealed or reviewed under the statutory mechanism, the Department cannot subsequently invoke the demand provision (here, Section 28 of the Customs Act) to indirectly undo or overturn that final order.
2.7 It was held that, as in the excise context where an unchallenged refund order under Section 11B cannot later be treated as "erroneous refund" under Section 11A, an unchallenged reassessment order under the Customs law cannot be collaterally attacked by a demand under Section 28.
Conclusions
2.8 The Tribunal concluded that, in the absence of any appeal against the reassessed Bills of Entry, the issue of Safeguard Duty exemption for the relevant imports had reached finality and the Department could not lawfully invoke Section 28 to raise a demand contrary to such final reassessments.
2.9 On this ground, the proceedings initiated through the Show Cause Notice and the consequent demand pertaining to the reassessed Bills of Entry were held to be legally unsustainable.
Issue 2 - Maintainability of demand on subsequently self-assessed Bills of Entry without Revenue appeal against self-assessment
Legal framework (as discussed in the judgment)
2.10 The Tribunal relied on the Supreme Court decision in "ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV", which held that even in the case of self-assessed Bills of Entry, if any issue arises regarding value, rate of duty, etc., such self-assessed Bills of Entry must be challenged by way of appeal; they cannot be collaterally questioned without recourse to the appellate mechanism.
2.11 The Tribunal applied the principle that what is applicable to the assessee, in terms of the requirement to challenge self-assessment by appeal, is equally applicable to the Revenue.
Interpretation and reasoning
2.12 For the subsequent 30 consignments, the Tribunal found:
(a) The Bills of Entry were self-assessed by the appellant. (b) The Customs electronic system did not raise any query or objection regarding Safeguard Duty. (c) The Revenue, if aggrieved by such self-assessment or by the system's non-flagging of Safeguard Duty, was required to file appeals before the Commissioner (Appeals) to challenge these self-assessments.
2.13 The Tribunal held that, following the principle laid down in "ITC Ltd.", self-assessed Bills of Entry, once accepted and not appealed, also attain finality. The Revenue cannot bypass the appellate remedy and instead initiate proceedings under Section 28 to dispute aspects of the self-assessment that could and should have been agitated in appeal.
Conclusions
2.14 Since the Revenue did not file any appeal against the 30 self-assessed Bills of Entry, the Tribunal held that the confirmed demand of Safeguard Duty in respect of those consignments is not legally sustainable.
2.15 The Tribunal explicitly declined to examine or decide the substantive question whether "Taiwan" is a part of "China" for the purpose of the Safeguard Duty exemption notification, holding that the appeal could be allowed on the ground of finality of reassessment/self-assessment and failure of the Revenue to pursue the prescribed appellate remedies.
2.16 On the combined reasoning that (i) the reassessment orders and (ii) the accepted self-assessments had attained finality without appeal, the Tribunal set aside the impugned order and allowed the appeal, granting consequential relief as per law.
Eligibility for exemption claimed towards Safeguard Duty - Taiwan is a different country and the country’s name is not specifically mentioned in the N/N. 19/2016-Customs (N.T.) - HELD THAT:- It is found that not only were the re-assessments completed, but the authorities themselves had also removed this particular flag from the system so that after this date, all imports went through without any hindrance and without any issue being raised by the website on account of Safeguard Duty. These two instances make us come to the conclusion that the issue had reached finality. In case, the Revenue had any grievance in respect of the re-assessed Bills of Entry or non-flagging of the issue thereof in the subsequent imports, it was for the Revenue to file an appeal before the Commissioner (Appeals) to overturn the decision of the lower authorities. This was not done by them.
The issue is squarely covered by the decision of this Bench in the case of Sun Pharma Laboratories Ltd. v. Commissioner of C.G.S.T. and Central Excise, Siliguri [2025 (11) TMI 300 - CESTAT KOLKATA] wherein reliance has been placed on the judgement of the Hon’ble Madras High Court in the case of Eveready Industries India Ltd. v. CESTAT, Chennai [2016 (4) TMI 688 - MADRAS HIGH COURT].
Hon’ble Supreme Court, in the case of ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV [2019 (9) TMI 802 - SUPREME COURT (LB)] has held that even in case of self-assessed Bills of Entry, if any issue is raised by the importer towards value adopted, rate of duty, etc., appeal is required to be filed against the self-assessed Bills of Entry. What is applicable for the assessee is equally applicable for the Revenue also. In the case of 30 self-assessed Bills of Entry, it was for the Revenue to file their Appeals before the Commissioner (Appeals) to overturn the self-assessment done by the appellant. In the present case, this procedure was not followed. Therefore, even on this ground, the confirmed demand is not legally sustainable.
It is not required to go into the details of as to whether Taiwan is a part of China or not. Based on the fact that the earlier re-assessments / self-assessments have reached finality and the Revenue has failed to file any appeal against such orders.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the declared transaction value of the imported goods was liable to be rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determined under Rule 7, and consequential demand of differential duty confirmed.
1.2 Whether the misclassification of quilted "Bed Spread" and undervaluation of all imported goods warranted confiscation under Section 111(m) read with Section 118 of the Customs Act, 1962 and imposition of penalty under Section 112(a), and to what extent redemption fine was justified.
1.3 Whether penalty under Section 114AA of the Customs Act, 1962 was sustainable in the facts where the Bill of Entry was filed on the basis of supplier's documents and there was no allegation of the importer having used false or incorrect documents in the transaction.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Rejection and re-determination of value under Customs Valuation Rules, 2007; confirmation of differential duty
Legal framework (as discussed by the Court)
2.1 The Court proceeded on the basis of Rule 3, Rule 7 and Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and Sections 17 and 108 of the Customs Act, 1962, as referred to in the impugned orders.
Interpretation and reasoning
2.2 The goods were 100% examined by SIIB; the "Bed Spread" declared under heading 63041990 was found to be quilted and correctly classifiable under heading 94049019, and the prices of all goods were found "considerably low" compared to contemporaneous values.
2.3 Market enquiry was conducted by SIIB with drawal of samples and verification at wholesale shops. Values were based on copies of sale invoices of identical/similar goods; valuation of socks was done on the basis of Directorate General of Valuation alerts. A duty chart based on such enquiries and DGOV alerts was prepared and signed by the importer's proprietor.
2.4 In his statement under Section 108, the proprietor expressly:
(a) Admitted he had placed only an oral order with the foreign supplier and kept no record of specifications, description, quantity, or value;
(b) Confirmed market enquiry was done in his presence, unequivocally accepted the valuation chart and revised assessable values "without any reservation" and "in toto";
(c) Admitted that all the goods were undervalued;
(d) Accepted the duty chart based on market enquiries and DGOV alerts and agreed to pay the differential duty and any fine/penalty.
2.5 The Court rejected the appellant's plea that any mis-valuation was attributable to the foreign supplier and that the Bill of Entry was merely based on supplier's invoice, holding that in international trade there would ordinarily be written trade inquiries, purchase orders, and shipping/commercial documents, and the contention of a purely oral order without records was not credible.
2.6 Relying on the principle that "what is admitted need not be proved", as laid down in the Supreme Court decision in Systems & Components Pvt. Ltd., and followed in Sodagar Knitwears and Jai Shiv Trading Company, the Court held that once the importer has admitted misdeclaration/undervaluation and accepted the re-determined value, he cannot subsequently challenge the same.
2.7 The Court also relied on precedent (including Naresh J. Shukawani and Surjeet Singh Chhabra, as cited in Rakesh Luthra) that statements recorded under Section 108 are material evidence and confessional admissions therein can be substantive evidence connecting the person to the contravention.
2.8 In light of the admitted misdeclaration, undervaluation, and acceptance of the revised values, the Court held that the declared value did not represent the "true and correct transaction value" under Rule 3, was rightly rejected under Rule 12, and the re-determination under Rule 7 was proper.
Conclusions
2.9 Rejection of the declared value under Rule 12 and re-determination of assessable value under Rule 7 were upheld.
2.10 The confirmation of differential customs duty on the basis of the re-determined value under Section 17 was sustained.
Issue 2 - Misclassification, undervaluation, confiscation, penalty under Section 112(a) and quantum of redemption fine
Interpretation and reasoning
2.11 The Court noted that on examination the "Bed Spread" was found quilted and classifiable under heading 94049019 and not under 63041990 as declared. The proprietor, in his Section 108 statement, specifically accepted that the bedspread, being quilted, should be classified under CTH 94049019 and that it had been misclassified due to his "erroneous impression".
2.12 He further agreed that all goods were undervalued and accepted the reworked duty chart. The Court held that such clear admissions of misclassification and undervaluation established misdeclaration.
2.13 Applying the principle that admitted facts require no further proof, the Court rejected the appellant's reliance on case law to argue absence of culpability in classification, holding that those precedents were inapplicable in the face of categorical admissions.
2.14 On this basis, the Court held that the goods had been "mis-declared, mis-classified & undervalued", satisfying the conditions for confiscation under Section 111(m) read with Section 118 of the Customs Act.
2.15 As to quantum of redemption fine, while upholding the confiscability, the Court considered that the imposed fine of Rs. 5,00,000/- was on the "very higher side" and required reduction.
Conclusions
2.16 Confiscation of the goods under Section 111(m) read with Section 118 was upheld.
2.17 Penalty under Section 112(a) on the importer was sustained.
2.18 Redemption fine was reduced from Rs. 5,00,000/- to Rs. 2,50,000/- under Section 125, treating the original fine as excessive.
Issue 3 - Sustainability of penalty under Section 114AA of the Customs Act, 1962
Legal framework (as discussed by the Court)
2.19 Section 114AA provides that a person who knowingly or intentionally makes, signs, uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of the Customs Act, is liable to penalty up to five times the value of the goods.
2.20 The Court referred to the reasoning of the Delhi Bench in Prestige Polymers Pvt. Ltd., and of the Mumbai Bench in A.V. Global Corporation Pvt. Ltd., which emphasize that Section 114AA targets knowing or intentional use/making of false or incorrect declarations, statements or documents, and requires specific determination of such false material particulars.
Interpretation and reasoning
2.21 The Court observed that the Bills of Entry had been filed on the basis of documents received from the foreign supplier. It was "not even the case of the Revenue" that the appellant was responsible for filing any manipulated documents in the transaction of customs business.
2.22 Following Prestige Polymers, the Court reiterated that Section 114AA does not turn on "suppression of facts" or "misstatement" as such, but on knowingly or intentionally making/using a declaration, statement or document that is false or incorrect in any material particular. In Prestige Polymers, penalty under Section 114AA was set aside where the allegation was only of wrong claim of exemption and not factual misdeclaration in the Bill of Entry.
2.23 Referring to A.V. Global Corporation, the Court reiterated that for penalty under Section 114AA, the adjudicating authority must:
(a) Identify the specific declaration, statement or document alleged to be false/incorrect in material particulars; and
(b) Establish the connection of such document with the person proceeded against.
In the absence of such determination, imposition of penalty is unsustainable.
2.24 Applying these principles, the Court found that there was no finding that the appellant had knowingly or intentionally made, signed or used any declaration, statement or document which was false or incorrect in any material particular; nor was there an allegation of manipulated documents by the importer. Thus the essential statutory ingredients of Section 114AA were not met.
Conclusions
2.25 Penalty imposed on the appellant under Section 114AA was held to be unjustified and was set aside in toto.
2.26 Except for (i) setting aside the Section 114AA penalty and (ii) reducing redemption fine to Rs. 2,50,000/-, all other findings of misdeclaration, re-determined value, demand of duty, confiscation and penalty under Section 112(a) were upheld, and the appeal was only partly allowed to this limited extent.
Rejection of the declared value of the imported goods - quilted Bed Spread - misdeclaration of classification of the Bed Spread and the value of all the goods in the self assessed Bill of Entry - HELD THAT:- In the present case, it is found that the claim of the Appellant that mis-declaration and misclassification have happened for the reason that the order placed are oral orders on the foreign suppliers and have got no details in respect of the order placed. Further, he had filed the Bills of Entry on the basis of the invoices received. These submissions do not merit any acceptance for the simple reason that the case is of importation of goods and is in case of international trade.
It is found that the appellant has in his statement admitted that the Bed Spreads in the Bill of Entry were mis-classified. He also admitted that bed spreads and other goods imported under the said bill of entry were undervalued. He agreed with the value determined. In view of the specific admission made by the appellant in respect of mis-classification and undervaluation, there are no merits in the reliance placed by the appellant on various decisions in this respect.
The Hon’ble Supreme Court in the case of Systems & Components Pvt. Ltd. [2004 (2) TMI 65 - SUPREME COURT] has held that 'Once it is an admitted position by the party itself, that these are parts of a Chilling Plant and the concerned party does not even dispute that they have no independent use there is no need for the Department to prove the same. It is a basic and settled law that what is admitted need not be proved.'
As it is found that the goods have been mis-declared, mis-classified & undervalued the goods have been rightly held to be confiscable under Section 111(m) read with Section 118 of the Customs Act, 1962. However, the redemption fine of Rs.5 lakhs imposed upon the Appellant is on the very higher side and the same reduced to Rs.2.5 lakhs.
The Appellants have filed the Bill of Entry on the basis of the documents received by him from the foreign supplier. As such it is not even the case of the Revenue that Appellant was responsible for filing any manipulated documents in transaction of the business of the customs. Accordingly, the penalty imposed under the Section 114AA of the Customs Act, 1962 cannot be justified.
Appeal allowed in part.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, in view of repeated non-appearance of the appellant and statutory limits on adjournments, the Tribunal could refuse further adjournment and proceed to decide the appeals.
1.2 Whether reassessment of bills of entry under Section 17(4) of the Customs Act, 1962, based on written "acceptance letters" of value enhancement by the importer, required the proper officer to pass a speaking order under Section 17(5).
1.3 Whether, after having given unconditional written acceptance to enhancement of value and reassessment, the importer could subsequently challenge such reassessment on grounds of coercion, lack of speaking order, improper rejection of declared value, or violation of principles of natural justice.
1.4 How the Tribunal should proceed when there are conflicting views of different High Courts on the legal effect of written consent/acceptance to reassessment and the requirement of a speaking order under Section 17(5), particularly in light of the jurisdictional High Court's decision.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Refusal of further adjournment and proceeding to hear ex parte
Interpretation and reasoning
2.1 The Tribunal recorded that the appeals had been listed on multiple earlier dates and that neither the appellant nor its counsel appeared or sought adjournment. It noted that Section 129D(1A) (referred to for statutory limit) provides that not more than three adjournments can be granted by the Tribunal.
2.2 Referring to the Supreme Court's censure of mechanical adjournments in Ishwar Lal Mali Rathod, the Tribunal held that there was no justification for granting adjournment beyond the statutorily permitted three occasions.
2.3 At the same time, relying on the Supreme Court's decision in Balaji Steel Re-Rolling Mills, the Tribunal noted that it has no power to dispose of an appeal merely for default or want of prosecution; it is required to decide the matter on merits even in the absence of the appellant. The Tribunal reproduced the ratio that an appeal properly filed cannot be dismissed only for non-appearance; it must be disposed of on merits under the governing provision equivalent to Section 35C(1).
Conclusions
2.4 The Tribunal held that no further adjournment could be granted beyond three, but that the appeals must nevertheless be taken up and decided on merits on the basis of the record, despite non-appearance of the appellant. The appeals were thus heard ex parte and decided on both non-prosecution and merits.
Issue 2 - Requirement of speaking order under Section 17(5) when reassessment accepted in writing
Legal framework discussed
2.5 The Tribunal reproduced and relied upon Section 17 of the Customs Act, 1962, particularly sub-sections (4) and (5), as discussed by the Commissioner (Appeals) and by the jurisdictional High Court:
- Section 17(4): provides for reassessment of duty by the proper officer where self-assessment is found incorrect.
- Section 17(5): mandates that the proper officer "shall pass a speaking order on the reassessment" in cases "other than those where the importer or exporter... confirms his acceptance of the said reassessment in writing".
2.6 The Commissioner (Appeals) also referred to CBEC Circular No. 91/2003-Cus., dated 14.10.2003, and Instruction No. 7/2018-Cus., dated 05.04.2018, which clarify that where enhancement of value is resorted to with written consent of the importer, a speaking order is not required under Section 17(5).
Interpretation and reasoning
2.7 The Commissioner (Appeals) found, on examination of the record, that the importer had filed explicit "acceptance letters" in response to EDI queries regarding enhancement of value for each relevant bill of entry. In those letters, the importer:
(a) acknowledged having gone through the assessing officer's details and grounds for rejection of declared value;
(b) acknowledged having gone through contemporaneous data of similar/identical goods and accepted that declared value was significantly lower;
(c) agreed that the declared value was liable to rejection and value to redetermination with enhancement of duty;
(d) agreed to the proposed enhancement of value/duty;
(e) expressly stated that no show cause notice or speaking order was required; and
(f) requested reassessment of value and duty in accordance with the proposed enhancement.
2.8 The subsequent plea by the importer that duty was paid under protest due to demurrage/detention pressure and that no speaking order was issued, was examined. The Commissioner (Appeals) found no evidence that the department had compelled or forced the importer to submit such acceptance letters; instead, they were filed after departmental queries and with full awareness of the proposed basis of valuation.
2.9 The Commissioner (Appeals) distinguished the Supreme Court's judgment in Century Metal Recycling Pvt. Ltd. v. Union of India [2019 (367) E.L.T. 3 (S.C.)] on the ground that, in that case, the Court had found that authorities had compelled/forced the importer to furnish acceptance letters, thereby unlawfully avoiding the statutory scheme, whereas in the present case the importer had given voluntary, unconditional and unreserved written acceptance with full knowledge of the proposed grounds and contemporaneous data.
2.10 The Commissioner (Appeals) emphasised para 26 of Century Metal Recycling (Supreme Court), where the Court clarified that it was not issuing any general direction that transaction value must invariably be accepted, and that cases must be assessed individually.
2.11 Relying on Section 17(5) and the Board circulars/instructions, the Commissioner (Appeals) held that, once the importer confirms acceptance of reassessment in writing, the proper officer is statutorily exempted from issuing a speaking order on reassessment. On facts, the reassessment was held to have been carried out after disclosing proposed valuation, grounds of rejection of declared value, and contemporaneous/similar/identical import data; principles of natural justice were held to have been followed to the extent required by law.
2.12 The Tribunal then referred to the decision of the jurisdictional High Court in S.S. Overseas v. Union of India [2022 (382) E.L.T. 26 (All.)], which analysed Section 17, including sub-section (5), and held that where the importer has confirmed in writing his acceptance of reassessment, "there exists no occasion to pass a speaking order on the reassessment". The High Court therefore dismissed writ petitions challenging reassessments accepted in writing.
Conclusions
2.13 In light of Section 17(5), the Board's circulars and instructions, the findings of the Commissioner (Appeals) on the content and voluntariness of the written acceptance, and the binding judgment of the jurisdictional High Court in S.S. Overseas, the Tribunal concluded that no speaking order was required in these reassessments. The reassessed values were held to be legal and binding on the appellant.
Issue 3 - Effect of importer's written acceptance on ability to challenge reassessment and valuation
Interpretation and reasoning
2.14 The Commissioner (Appeals) held that the importer had given absolute/unreserved written acceptance of reassessment after being informed of:
- proposed valuation,
- grounds for rejection of declared value, and
- details and prices of contemporaneous/similar/identical imports.
On this basis, he rejected the contention that the reassessment lacked basis or violated natural justice.
2.15 The Tribunal further relied on a later Tribunal decision in Century Metal Recycling Pvt. Ltd. [(2024) 23 Centax 30 (Tri.-Del)], where, in circumstances of written consent/acceptance letters:
- it was held that allegations of coercion were not acceptable when letters themselves expressly recorded voluntary acceptance;
- it was held that, after having accepted enhancement values based on contemporaneous data, importers could not subsequently insist that valuation must be redone strictly under the Valuation Rules, 2007; and
- the Tribunal invoked the principle that admitted facts need not be proved by the department, as recognised by the Supreme Court in Systems & Components.
2.16 That decision also held that, although the statutory right of appeal under Section 128 remains, an importer who has expressly rejected the originally declared value and accepted the redetermined value cannot later challenge the enhancement on the ground that it was not properly determined under the valuation rules or that natural justice was violated.
2.17 The present Tribunal adopted this reasoning, noting that the importer had, in very categorical terms, accepted the enhanced values and waived the requirement of show cause notice or speaking order. In absence of any substantiated plea or evidence of coercion or compulsion, the importer was held to be estopped from challenging the reassessment methodology or alleging breach of natural justice.
Conclusions
2.18 The Tribunal concluded that, given the importer's voluntary and unconditional written acceptance of the enhanced values and reassessment, the assessee could not subsequently assail those reassessments on grounds of lack of basis, improper application of valuation rules, absence of speaking order, or violation of principles of natural justice. The reassessment and enhanced values were upheld.
Issue 4 - Approach in face of conflicting High Court decisions; binding nature of jurisdictional High Court
Interpretation and reasoning
2.19 It was brought to the Tribunal's notice that the Delhi High Court, in Hanuman Prasad & Sons (CUSAA No. 27 of 2022, order dated 27.11.2024), had taken a contrary view to that of the Allahabad High Court on related questions. The Tribunal noted this contrary view but declined to follow it.
2.20 Relying on the Larger Bench decision in Kashmir Conductors [1997 (96) E.L.T. 257 (T-LB)] and subsequent Tribunal decisions (including Phil Corporation Ltd. [2002 (144) E.L.T. 585 (Tri.-Mum)] and J.K. Tyre & Industries Ltd. [2016 (340) E.L.T. 193 (Tri.-LB)]), the Tribunal summarised the settled position:
- The law laid down by the High Court having territorial jurisdiction over both the assessee and the adjudicating authority (the "jurisdictional High Court") is binding on all authorities and tribunals within that jurisdiction.
- Where the jurisdictional High Court has pronounced on a question of interpretation or law, its view must be followed in all cases within its territory, even if other High Courts have taken a different view.
- Only where the jurisdictional High Court has not expressed any view on a given legal issue, and there are divergent views of other High Courts, does the Tribunal have the freedom to consider and adopt the view it finds more appropriate (Atma Steels principle), subject to the overarching guidance of the Supreme Court in East India Commercial Co. Ltd.
2.21 The Tribunal observed that the jurisdictional High Court (Allahabad High Court) has, in S.S. Overseas, specifically held that where the importer has confirmed in writing his acceptance of reassessment under Section 17(5), there is no requirement to pass a speaking order. That pronouncement squarely covered the issue before the Tribunal.
2.22 The Tribunal therefore held that, in light of the binding precedent of the jurisdictional High Court, it could not place reliance on a contrary view of a non-jurisdictional High Court (Delhi High Court in Hanuman Prasad & Sons), and must follow the law as declared by the Allahabad High Court.
Conclusions
2.23 The Tribunal concluded that the question raised was squarely covered by the jurisdictional High Court's decision in S.S. Overseas. Applying the doctrine of jurisdictional discipline and precedential binding force, it held that no merit remained in the appeals. The appeals were accordingly dismissed, both for non-prosecution and on merits.
Adjournment of matter beyond three times which is the maximum number statutorily provided - repeated non-appearance of the appellant - reassessment of bills of entry under Section 17(4) of the Customs Act, 1962 - HELD THAT:- Hon’ble Supreme Court in the case of M/s Ishwar lal Mali Rathod [2021 (9) TMI 1301 - SUPREME COURT] condemned the practice of adjournments sought mechanically allowed by the Courts/Tribunal’s. They have categorical condemned the practice wherein adjournments were allowed in routine and mechanical manner. In the present case we observe that the matter was adjourned on at least three occasions for the reason that Appellant/ Appellant Counsel did not caused appearance in the matter. Though Section 129 D (1A), specifically provides that no adjournment beyond three times could be granted by the tribunal - there are no justification for adjourning the matter beyond three times which is the maximum number statutorily provided.
It is found that the similar issue has been decided by the Hon’ble Allahabad High Court which is the jurisdictional High Court in the case of S. S. Overseas V/s Union of India [2022 (8) TMI 344 - ALLAHABAD HIGH COURT]. The Hon’ble High Court has held that 'From the facts as stated in afore quoted Paragraph 2 and its sub-paragraphs of the counter affidavit, and the own documents of the petitioner filed as Annexure-1 to the counter affidavit, leave no manner of doubt that the petitioner himself has confirmed in writing his acceptance of reassessment. Therefore, there exists no occasion to pass a speaking order on the reassessment.'
There are no merits in these appeals filed by the Appellant - Appeals are dismissed for non-prosecution and on merits also.
Issues: (i) whether a writ petition under Articles 226 and 227 of the Constitution of India could be entertained to direct consolidation and expeditious disposal of applications pending before the Debts Recovery Tribunals and to stay personal insolvency proceedings pending before the National Company Law Tribunal; (ii) whether the petitioner's conduct justified dismissal with costs on the ground of abuse of process and forum shopping.
Issue (i): Whether a writ petition under Articles 226 and 227 of the Constitution of India could be entertained to direct consolidation and expeditious disposal of applications pending before the Debts Recovery Tribunals and to stay personal insolvency proceedings pending before the National Company Law Tribunal.
Analysis: The availability of efficacious statutory remedies before the DRT, the DRAT and the NCLT, together with the self-contained scheme of the RDB Act and the IBC, required judicial restraint in the exercise of writ jurisdiction. The petition did not challenge any specific order of the tribunals and instead sought directions that properly belonged to the statutory forums. The apprehension of conflicting adjudications was held to be unfounded in view of the distinct statutory framework governing insolvency proceedings and the remedies available within those forums.
Conclusion: The request to intervene in the pending tribunal proceedings was rejected and the writ relief was held not to be maintainable in the circumstances.
Issue (ii): Whether the petitioner's conduct justified dismissal with costs on the ground of abuse of process and forum shopping.
Analysis: The Court found that the petitioner had not shown diligence before the concerned tribunal forums, had attempted to bypass the statutory scheme, and had also moved a transfer request without any legal basis. This conduct was treated as a calculated attempt to select a more favourable forum rather than to pursue a legitimate jurisdictional grievance.
Conclusion: The petition was dismissed with costs, and the conduct was characterised as an abuse of process.
Final Conclusion: The extraordinary writ jurisdiction was declined in favour of allowing the statutory proceedings to continue before the competent tribunals, and the petitioner was saddled with costs for misuse of process.
Ratio Decidendi: High Courts should ordinarily not interfere under Articles 226 and 227 where effective statutory remedies exist before specialised tribunals, especially in recovery and insolvency matters, and such jurisdiction cannot be used to bypass the statutory scheme or to secure reliefs that fall within the domain of those tribunals.
Invocation of supervisory jurisdiction of this Court, seeking directions for the expeditious adjudication and, preferably, after consolidation, of two Interim Applications - Petitioner would contend that the Petitioner is being compelled to face parallel and overlapping proceedings before two independent judicial fora - HELD THAT:- With regard to the general scope and limits of the High Court’s powers and discretion under Articles 226 and 227 of the Constitution in relation to proceedings arising out of the DRT and DRAT, the Hon’ble Supreme Court, in M.S. Sanjay v. Indian Bank [2025 (1) TMI 1676 - SUPREME COURT], summarized the governing principles for the exercise of such jurisdiction.
A three-Judge Bench of the Hon’ble Supreme Court in PHR Invent Educational Society v. UCO Bank [2024 (4) TMI 466 - SUPREME COURT (LB)] emphatically reiterated that the High Courts should ordinarily refrain from entertaining petitions arising from the proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI] and the Recovery of Debts and Bankruptcy Act, 1993 [RDB Act], since both statutes constitute self-contained codes providing efficacious alternative remedies. The Apex Court clarified that the writ jurisdiction may be invoked only in exceptional contingencies such as lack of jurisdiction, violation of fundamental judicial procedure, reliance on repealed provisions, or breach of natural justice.
The Hon’ble Supreme Court in Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. [2023 (10) TMI 48 - SUPREME COURT]. reiterated that the High Courts should ordinarily refrain from exercising their writ jurisdiction where effective and efficacious statutory remedies exist, particularly under specialized legislations such as the SARFAESI Act and the RDB Act. Entertaining writ petitions without exhaustion of such remedies not only frustrates the legislative intent but also adversely impacts the recovery rights of banks and financial institutions.
Proceedings under the SARFAESI Act or the RDB Act and those under the IBC operate within distinct statutory frameworks, each serving separate purposes, being governed by independent procedural mechanisms. Once proceedings under the IBC are admitted by the Adjudicating Authority against an entity or individual, a statutory moratorium automatically comes into effect, during which proceedings before other fora cannot continue. Accordingly, the apprehension of conflicting findings or parallel adjudication is wholly unfounded - If the IBC proceedings against the Petitioner have been duly admitted by the NCLT in accordance with law, they shall necessarily proceed in terms of the statutory mandate. Conversely, if the Petitioner’s contentions bear merit and the said proceedings are found to be in violation of the statutory scheme, the Petitioner is well within his right to raise appropriate objections before the NCLT and, if aggrieved, to avail of the appellate remedies as provided under the IBC. In such an eventuality, and subject to the outcome thereof, only the proceedings before the DRT would ultimately survive in accordance with law.
The Petitioner has failed to demonstrate any violation of fundamental rights, statutory mandate, or principles of natural justice that would warrant the invocation of the extraordinary jurisdiction of this Court under Articles 226 and 227 of the Constitution - The conduct of the Petitioner in filing the present Petition, followed by a frivolous application seeking transfer of the matter from a duly constituted Division Bench to a Single Bench, is a blatant abuse of the process of law. It reflects not only procedural impropriety but also an attempt to manipulate the forum of adjudication. Such practice cannot be countenanced, for it undermines the integrity of the judicial process. The Petition, therefore, deserves to be dismissed with costs.
Petition dismissed with costs of Rs. 1,00,000/- upon the Petitioner, to be deposited in favour of the Poor Patients’ Fund under the aegis of All India Institute of Medical Sciences (AIIMS), New Delhi, within two weeks from today. In case of default, the Registry is directed to list the matter before this Court after the expiry of two weeks for passing appropriate orders in this regard.
Issues: (i) Whether the IPO could be faulted as impermissible under the regulatory framework governing public issues. (ii) Whether the disclosures in the offer documents concerning criminal proceedings, complaints, and brand-related risks were materially inadequate or misleading. (iii) Whether the petitions were liable to be rejected on grounds of delay, lack of bona fides, and suppression of material facts.
Issue (i): Whether the IPO could be faulted as impermissible under the regulatory framework governing public issues.
Analysis: The applicable framework was the SEBI issue and disclosure regime, under which eligibility for an IPO may be satisfied even where the issuer does not meet the primary financial thresholds, if the issue is made through the book-building process and the prescribed QIB allocation condition is met. The Court also noted that an offer for sale by shareholders is permitted by the Companies Act, and that the regulatory scheme does not require application of the fit and proper test urged by the petitioners. The older SEBI rejection order was treated as directory and superseded in the relevant field by the later ICDR Regulations.
Conclusion: The challenge to the very permissibility of the IPO was rejected.
Issue (ii): Whether the disclosures in the offer documents concerning criminal proceedings, complaints, and brand-related risks were materially inadequate or misleading.
Analysis: The offer documents disclosed the pending proceedings, the risk factors, the complaints received, and the corresponding responses, and also made the relevant material available for inspection. The Court held that the law requires material and adequate disclosure, not a recital of every allegation or every statutory detail, and that the primary responsibility for due diligence and accuracy of disclosures rests on the lead managers, with SEBI playing a supervisory role. The brand-license risk and possible consequences of adverse proceedings were also found to have been disclosed sufficiently.
Conclusion: The allegation of material non-disclosure or misleading disclosure was not accepted.
Issue (iii): Whether the petitions were liable to be rejected on grounds of delay, lack of bona fides, and suppression of material facts.
Analysis: The Court found that the petitioners had not satisfactorily explained the timing of their complaints after the draft offer document had been published and that the record raised doubts about bona fides. In the case of one petitioner, the Court found deliberate suppression of the replies received from WeWork India and the BRLMs, and held that withholding material documents disentitled him to relief. The Court nevertheless proceeded to decide the controversy on merits as well.
Conclusion: The petitions were liable to be dismissed on equitable grounds, and one petition was dismissed with costs for suppression.
Final Conclusion: The writ petitions failed, the regulatory process behind the IPO was upheld, and no interference was warranted with the offer documents or the IPO process.
Ratio Decidendi: In challenges to securities offer documents, courts will defer to the expert regulator and the lead managers where the documents disclose the material risks and proceedings, because the law requires true and adequate disclosure rather than exhaustive narration of every allegation or statutory detail.
Lack of proper disclosure in the Draft Red Herring Prospectus (DRHP) and Red Herring Prospectus (RHP) for the Initial Public Offering (IPO) - contents of General Order issued by SEBI u/s 11A - directory and not mandatory - non-disclosures/misleading disclosures - compliance with the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, the Companies Act, 2013 and all other applicable laws - seek interim reliefs that the proposed public issue and/or listing of securities of Respondent No. 2 on any recognized Stock Exchange in India be kept in abeyance -Delay or laches - HELD THAT:- In the present case, the Offer Documents clearly reveal that the WeWork India IPO is being made through the book-building process. This position is clearly disclosed in the RHP which states that: “The Offer is being made through the Book Building Process, in compliance with Regulation 6(2) and Regulation 31 of the SEBI ICDR Regulations”. The other requirement of the Issuer undertaking to allot at least seventy-five percent of the net offer to QIBs is also satisfied from the statements made in the RHP. Hence, it is evident that the WeWork India IPO is in compliance with Regulation 6(2) of ICDR Regulations and is therefore permissible. There is no infirmity on the part of SEBI in permitting WeWork India in making this IPO, contrary to what has contended by Mr. Seervai. Accordingly, we are not inclined to accept the arguments of Mr. Seervai that WeWork India, on account of making losses in F.Y. 2022, 2023 and 2024 and having a negative net worth as on 31st March 2024, is disentitled from coming out with the said IPO.
There is also no merit in the submission made by Mr. Seervai that SEBI ought to apply the ‘fit and proper’ criteria prescribed under Schedule II of the SEBI (Intermediaries) Regulations, 2008 since no such requirements are prescribed in the ICDR Regulations which exhaustively deal with the requirements to be complied with by an issuer coming out with an IPO.
The disclosures in the DRHP and RHP being incomplete and/or misleading and, as a result thereof, inadequate for the public to make an informed decision on whether to invest in the IPO. In this regard, the Petitioner’s grievances are two-fold: firstly, that there is no complete disclosure of all the sections of the relevant statutes under which chargesheets have been filed against the Promoters of WeWork India, and secondly, that the effect and consequence of any conviction pursuant to such chargesheets on the ‘WeWork’ brand held by WeWork India has not been adequately disclosed.
Upon a detailed perusal of all the disclosures, we find that the same clearly reveal the chargesheets filed against the Promoter/s of WeWork India, both by CBI as well as, the ED. Moreover, we also note that even though one charge sheet was filed under Section 120B, 420, 409, 477A of the IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988, there is reference to only Sections 120B and 420 in the RHP whilst the other sections are not mentioned.
Thus, upon going through the RHP and reading about the chargesheet(s) filed against the promoter(s) of WeWork India, to an investor, who is otherwise not familiar with the provisions of the IPC, the mere filing of chargesheet against the Promoter (of the Issuer) would be enough to deter him from investing in the IPO. On the other hand, where an investor is familiar with the provisions of the IPC, he will be put to notice that in addition to Sections 120B and 420 (that are disclosed in the RHP), charges have also been framed under other provisions of the IPC – in which case, such investor could make further inquiries in that regard, if he so desires.
In our view, there is no need or requirement for the Offer Document to specifically disclose all or any of the grounds under which such license could be terminated by WeWork International, one of which includes disqualification of the promoters as Key Managerial Personnel (KMP) in the event of facing conviction in any criminal proceedings preferred against them.
We are of the considered view that the (contents of the) RHP is in compliance with the ICDR Regulations and the allegations to the contrary, made by both the Petitioners have no merit and are accordingly, not accepted by this Court.
Role of SEBI, as prescribed under the ICDR Regulations - Upon careful perusal of the ICDR Regulations and in particular those referred to above, it is clear that the primary obligation to ensure that the Offer Documents contain all material disclosures that are true and adequate so as to enable the public/investor to make an informed investment decision of whether to subscribe to the proposed issue, rests on the Lead Manager/(s).
In the present case, admittedly, WeWork India has appointed Respondent Nos. 3 to 7 as the BRLMs of the IPO and therefore, the primary responsibility in that regard would rest with them. Hence, the BRLMs are required to exercise due diligence and satisfy themselves about all the aspects of the WeWork India IPO, including the veracity and adequacy of the disclosures in the DRHP and RHP. The role of SEBI in this regard would only be supervisory in nature.
In the circumstances, we are satisfied that SEBI has indeed exercised due care and caution and complied with the legal requirements, including those prescribed under the ICDR Regulations, in connection with the WeWork India IPO and the submissions to the contrary made by the Petitioners have no merit.
Our finding is also fortified by the decision of the Delhi High Court in Ashok Kumar Saxena [2021 (10) TMI 1482 - DELHI HIGH COURT] which holds that the RHP is required to contain only a summary of the allegations (and not each and every allegation) so as to enable a potential investor to be aware of the material risks which the issuer/company faces.
Delay or laches - Admittedly, the RHP was published only on 27th September 2025 and filed before SEBI before the very next day, whilst the issue opened for Anchor Investors on 1st October 2025 and subsequently, to RIIs, on 3rd October 2025. Both the Petitioners have approached this Court and filed their respective Writ Petitions on 30th September 2025 and hence it cannot be said that they are guilty of inordinate delay in approaching the Court. However, a perusal of the grievances made by them would reveal that the cause of action to make these grievances to WeWork India, BRLMs and/or SEBI would arise, immediately on the issuance of the DRHP viz. on/about 31st January 2025. Whilst we accept that the DRHP was in fact kept in abeyance during the period from February till July 2025, there is no justifiable reason disclosed in both Writ Petitions as to why, after the DRHP was removed from the abeyance list in July 2025, Hemant Kulkshetra addressed his first complaint only on 25th September 2025, whilst Vinay Bansal addressed his first complaint only on 25th August 2025. Notwithstanding the same, we have proceeded to decide both Writ Petitions on merits.
Locus of the Petitioners in maintaining the present Writ Petition - Neither Petitioner has disclosed the exact nature of inquiry undertaken by him and/or the source of such other assertions and allegations. This casts some doubt on the bona fides of the Petitioners.
Writ Petition is hereby dismissed.
Outcome: The appeal was dismissed, with no interference called for in the impugned judgment dismissing the appeal as barred by limitation.
Condonation of delay in filing of the appeal - sufficient cause for delay or not - computation of limitation for filing the appeal shall commence from date of pronouncement or not - it was held by NCLAT that 'The limitation for filing the appeal under Section 61(2) commences from the date of pronouncement of the judgement and is not dependent on the knowledge of the order to the appellant/applicant.'
HELD THAT:- There are no good ground and reason to interfere with the impugned judgment dated 08.07.2025 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, dismissing the appeal filed by the appellant, on the ground that it was barred by limitation as per the provisions of Section 61 of the Insolvency and Bankruptcy Code, 2016.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, in view of the Corporate Insolvency Resolution Process and the approved Resolution Plan under the Insolvency and Bankruptcy Code, 2016, the High Court could interfere under Article 226 with the State Government's consent and the decision of the Empowered Committee relating to the project and the SPV.
1.2 Whether the decision of the Empowered Committee dated 22.09.2025, granting consent and "No Objection Certificate" to the successful Resolution Applicant, was arbitrary, violative of Articles 14 and 300A of the Constitution, or contrary to the petitioner's alleged accrued contractual and proprietary rights.
1.3 Whether the selection/continuation of the technical member/operator and the substitution of the petitioner as lead developer pursuant to the Resolution Plan amounted to hostile discrimination or arbitrary treatment under Article 14.
1.4 Whether alleged non-compliance with, or violation of, the Consolidated FDI Policy of India concerning 100% FDI in an already developed hotel project could be a ground, in writ jurisdiction, to invalidate the Empowered Committee's decision.
1.5 Whether the writ petition was an impermissible attempt to re-litigate issues already decided in earlier proceedings before the NCLT, NCLAT, this Court and the Supreme Court, warranting dismissal with costs.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Interference with State consent and Empowered Committee decision in the backdrop of IBC proceedings
Legal framework discussed
2.1 The Court noted that: (i) a Resolution Plan in respect of the project company was approved by the NCLT under Sections 29, 30 and 31 of the Insolvency and Bankruptcy Code, 2016; (ii) under Section 31(1) of the IBC, an approved Resolution Plan is binding on all stakeholders including shareholders; (iii) under Section 60(5)(c), the NCLT has jurisdiction over questions of law and fact arising out of, or in relation to, the insolvency resolution process; and (iv) under Section 238, the IBC has overriding effect over any inconsistent law or instrument.
2.2 The Court also recorded that in earlier litigation it had already been conclusively held that provisions of the IBC override the Telangana Infrastructure Development Enabling Act, 2001 to the extent of inconsistency, and that only the NCLT/NCLAT had jurisdiction over challenges to the CIRP and Resolution Plan.
Interpretation and reasoning
2.3 The Court found that the project company (SPV) was the corporate debtor under IBC and entered CIRP, and that the State Government's consent, now impugned, was a condition expressly required in the approved Resolution Plan to enable change of shareholding in the SPV.
2.4 Once the Resolution Plan had been approved under the IBC and sustained in appeal up to the Supreme Court, its terms, including the mechanism for transfer of shareholding and substitution, were binding on all parties, including the petitioner as shareholder/lead developer. Any dispute arising from or relating to the Plan and its implementation fell within the statutory jurisdiction of NCLT/NCLAT.
2.5 The Court viewed the State's consent and the Empowered Committee's decision as an act in furtherance of, and in conformity with, the approved Resolution Plan and the insolvency framework, and not as an independent, free-standing executive allocation of the project.
2.6 The Court held that in the face of the comprehensive and overriding IBC scheme, and the binding nature of the approved Resolution Plan, the High Court's interference under Article 226 would be contrary to the statutory design and the settled position laid down in prior decisions, including those upholding the lack of writ jurisdiction in this very dispute post-CIRP.
Conclusions
2.7 The Court concluded that the decision of the Empowered Committee and the State's consent were integrally connected with, and governed by, the approved Resolution Plan under the IBC. Interference under Article 226 was not warranted, as the proper forum for any challenge related to the Plan or its implementation lay before the NCLT/NCLAT, in view of Sections 31, 60(5)(c) and 238 of the IBC and prior binding decisions.
Issue 2 - Alleged arbitrariness, violation of Articles 14 and 300A, and extinguishment of petitioner's rights without notice or compensation
Interpretation and reasoning
2.8 The Court accepted that petitioner's claimed rights were rooted in its position as lead member/shareholder in the SPV and in the project agreements. However, it held that such contractual and derivative proprietary interests were necessarily subject to consequences flowing from insolvency of the SPV and the approved Resolution Plan.
2.9 The Court observed that the supervening operation of the IBC and the Resolution Plan lawfully altered the corporate and contractual landscape, including shareholding and project control. Any alleged extinguishment or modification of petitioner's rights occurred within the statutory insolvency framework and pursuant to judicial orders, not by arbitrary State action.
2.10 The argument that the State could not give consent/No Objection without issuing notice or paying compensation to the petitioner was rejected on the basis that the petitioner was already heard, and its objections to the Resolution Plan had been considered and rejected by the NCLT/NCLAT and the Supreme Court. The impugned act was an implementation step under a binding Plan, not an independent deprivation invoking Article 300A in isolation.
2.11 The Court emphasized that disputes regarding contractual breaches, valuation, or compensation, including any claim that the petitioner should be compensated for loss of its interests, are within the specialized domain of the NCLT and related fora under the IBC, where relevant proceedings are pending.
Conclusions
2.12 The Court held that no independent constitutional infirmity under Articles 14 or 300A was made out against the Empowered Committee's decision. The State's consent was neither arbitrary nor unconstitutional, but a necessary and lawful step in implementing the approved Resolution Plan; any residual grievances must be agitated within the IBC forum, not in writ proceedings.
Issue 3 - Alleged discrimination and arbitrariness in favour of the technical member/operator
Interpretation and reasoning
2.13 The petitioner alleged that retention of the technical member/operator (EIH Ltd.) in the project, while petitioner's role as lead member was effectively extinguished, amounted to discrimination under Article 14.
2.14 The Court held that post-CIRP, the legal and commercial position of the technical member/operator and the lead member/shareholder were not similarly situated. The continuation of the operator and the structuring of operating arrangements were part of the commercial and operational choices recognized and embedded in the Resolution Plan.
2.15 As the differentiation arose from the statutory insolvency process and the commercial wisdom reflected in the Plan, and because the roles and obligations of the technical member and the petitioner were materially distinct, the Court found no element of "hostile discrimination" or unequal treatment in a constitutional sense.
Conclusions
2.16 The Court concluded that the alleged preferential treatment to the technical member/operator did not violate Article 14, as the differentiation was founded on distinct legal and factual positions under the Resolution Plan and the insolvency framework, and not on arbitrary or invidious classification.
Issue 4 - Alleged violation of the Consolidated FDI Policy and challenge to 100% FDI in the project
Interpretation and reasoning
2.17 The petitioner contended that allowing 100% FDI in an already developed infrastructure/hotel project was impermissible under the Consolidated FDI Policy and contrary to fundamental public policy of India, and therefore the impugned decision should be invalidated.
2.18 The Court held that questions of FDI compliance and grant of approvals fall within the remit of competent central authorities such as the Reserve Bank of India and the Department for Promotion of Industry and Internal Trade. Writ interference is justified only where clear and gross illegality in such regulatory sphere is demonstrated.
2.19 On the materials placed, the Court found no such clear illegality or violation of the FDI Policy attributable to the Empowered Committee's decision. The challenge was characterized as speculative and not supported by any concrete regulatory finding of breach.
Conclusions
2.20 The Court concluded that alleged violations of FDI Policy, in the absence of demonstrable illegality and in view of the jurisdiction of central regulatory authorities, could not be a valid ground in writ jurisdiction to set aside the Empowered Committee's decision.
Issue 5 - Re-litigation, finality of prior adjudications and imposition of costs
Interpretation and reasoning
2.21 The Court recorded that earlier writ proceedings challenging substitution of the petitioner and related decisions (W.P. No. 17129 of 2020 and Writ Appeal No. 1135 of 2023) had been dismissed, and the Supreme Court had declined to interfere. Likewise, objections to the Resolution Plan had failed before the NCLT, NCLAT and Supreme Court.
2.22 The present writ petition, challenging the Empowered Committee's consent which was merely a step towards implementation of the same Resolution Plan, was viewed as an indirect attempt to reopen and reargue issues already adjudicated or necessarily concluded by those earlier decisions.
2.23 The Court held that such re-litigation of settled issues, under the guise of a fresh challenge to the Empowered Committee's minutes, was impermissible and contrary to the principles of finality and judicial discipline, especially within the structured IBC regime.
2.24 To deter such conduct and to discourage frivolous or obstructive litigation aimed at derailing implementation of an approved Resolution Plan, the Court deemed it appropriate to impose exemplary costs.
Conclusions
2.25 The Court dismissed the writ petition as devoid of merit and as an impermissible attempt to re-agitate settled issues, and directed the petitioner to pay costs of Rs. 10 lakhs to the Prime Minister's National Relief Fund.
Constitutional validity of decision taken by Empowered Committee (Tourism) of the State of Telangana - taking away accrued right of Petitioner without following procedure established by law and without compensating for the same - violation of the Consolidated FDI Policy of India - HELD THAT:- This Court is of the opinion that the project company, Golden Jubilee Hotels Pvt. Ltd. entered insolvency resolution under the IBC and the approved Resolution Plan expressly required State Government's consent, an exercise of contractual and statutory discretion. Petitioner's challenges to transfer and restructuring of project responsibilities have already failed before this Court in M/S. MAHA HOTEL PROJECTS PRIVATE LIMITED. [2023 (4) TMI 1454 - TELANGANA HIGH COURT] and M/S. MAHA HOTEL PROJECTS PVT. LTD [2024 (6) TMI 1523 - TELANGANA HIGH COURT] and before the Hon'ble Apex Court in M/S. MAHA HOTEL PROJECTS PVT. LTD. [2024 (9) TMI 1846 - SC ORDER], conclusively holding that the provisions of the Insolvency and Bankruptcy Code, 2016 override the Telangana Infrastructure Development Enabling Act, 2001 to the extent of inconsistency.
Further, once the NCLT-approved plan is in operation, its terms, including permissible changes in shareholding, are binding unless set aside in accordance with the Code. The State's consent to Respondent No. 4 is in line with the Plan and the rights of petitioner, if any, arise out of contract and are subject to the terms, including consequences of insolvency and changes arising from judicial orders. The argument that no notice was given or compensation was paid ignores the supervening effect of the IBC and the scheme approved thereunder. Proceedings regarding alleged contract breaches or compensation are pending before the NCLT and the petitioner's remedies lie therein.
The FDI approvals and compliance with national policy are the subject matter of competent central authorities and not this Court's writ jurisdiction, unless a clear and gross illegality is shown and none is established by petitioner. The opportunity to represent concerns was part of the extensive proceedings before NCLT, High Court and the Hon’ble Supreme Court in related litigation. Re-litigation of settled issues is not permissible. Further, petitioner has availed remedies before multiple forums, lost on the core issues and now sought to be reopened. The relief, if any, with respect to valuation, compensation or contract enforcement would lie before the specialized adjudicating authorities, but not in writ proceedings.
This Court finds no merit in the Writ Petition. The impugned decision of the Empowered Committee dated 22.09.2025 does not suffer from any constitutional or legal infirmity. Hence, the Writ Petition is liable to be dismissed, however, to discourage this kind of frivolous litigation, with costs - Petition dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether a Section 7 application under the Insolvency and Bankruptcy Code, 2016 can be restored and corporate insolvency resolution process commenced when the entire debt claimed in Part IV of the application (principal and interest) has been discharged.
1.2 Whether non-payment or disputed computation of pendente lite interest, after satisfaction of the Part IV claim, justifies restoration of a dismissed Section 7 application.
1.3 Whether the Adjudicating Authority, while dealing with a Section 7 application, can act as a forum for recovery or adjudication of disputed interest claims beyond the admitted and discharged default.
1.4 Consequences, under Section 7 proceedings, of the Corporate Debtor depositing/ paying the entire defaulted amount during the pendency of the insolvency application.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Restoration and initiation of CIRP after discharge of entire Part IV claim
Interpretation and reasoning
2.1 The Court noted that, as recorded in the earlier order dated 18.03.2025, there was no subsisting default regarding the amount mentioned in Part IV of the Section 7 petition, as the principal and interest claimed therein had been paid.
2.2 It was emphasised that for admission under Section 7, the relevant default is the one existing as on the date of filing of the petition, and if the debt referred to in Part IV stands fully discharged, it cannot be said that the Corporate Debtor needs rescue or that an order is required to put it back on its feet.
2.3 Relying on the principle that proceedings under Section 7 are for resolution of insolvency and not for pursuing a debtor who has already paid the defaulted amount, the Court approved the approach that, once the entire defaulted amount is paid, "no purpose and occasion shall survive" to proceed with insolvency resolution.
Conclusions
2.4 Restoration of the Section 7 application was held impermissible where the entire Part IV amount, including interest, had been paid; consequently, corporate insolvency resolution process could not be commenced against the Corporate Debtor in such circumstances.
Issue 2: Effect of dispute regarding pendente lite interest on restoration of Section 7 application
Interpretation and reasoning
2.5 The earlier order recorded that, although the Corporate Debtor and Financial Creditor were at variance regarding pendente lite interest, the Corporate Debtor had agreed that interest at 8% per annum for the period of pendency of the petition was payable.
2.6 After dismissal of the Section 7 petition, the Corporate Debtor paid Rs. 46,93,907/- towards pendente lite interest, and the Financial Creditor issued an acknowledgment of receipt dated 03.05.2025.
2.7 The Restoration Application was filed more than one and a half months after receipt of this amount. The Court noted that the Adjudicating Authority had treated the acknowledgment of payment of pendente lite interest as demonstrating that there was no surviving ground to restore the Section 7 application.
2.8 The Appellant's contention that a higher amount (more than Rs. 1 crore) was due as pendente lite interest was treated as a dispute over quantum of interest, not as a subsisting "default" justifying insolvency proceedings, once the Part IV debt and agreed pendente lite interest had been paid.
Conclusions
2.9 A dispute regarding quantum of pendente lite interest, after discharge of the Part IV amount and payment of pendente lite interest as per the Corporate Debtor's calculation, does not constitute a basis to revive or restore a Section 7 application.
2.10 Any further claim to additional interest, if asserted by the creditor, must be pursued in appropriate proceedings available in law, not through revival of insolvency proceedings.
Issue 3: Scope of the Adjudicating Authority under Section 7 and its inability to function as a debt recovery forum
Legal framework (as discussed)
2.11 The Court referred to the spirit of the judgments of the Supreme Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited and The Transport Corporation of India Ltd. vs. State of Andhra Pradesh & Ors., to emphasise that the Adjudicating Authority under the Insolvency and Bankruptcy Code cannot function as a Debt Recovery Tribunal.
Interpretation and reasoning
2.12 The Court endorsed the reasoning of the Adjudicating Authority that it cannot adjudicate detailed disputes over interest computation or act solely as a mechanism to recover money, and that its role is confined to assessing existence of default warranting initiation of CIRP.
2.13 Once it is found that there is no subsisting default concerning the debt in Part IV, and the Corporate Debtor has also paid pendente lite interest as per its admitted liability, the insolvency forum cannot be used to test or enforce additional recovery claims.
Conclusions
2.14 The Adjudicating Authority, while dealing with a Section 7 application, is not to be used as a debt recovery forum for disputed interest; it is confined to determining whether an insolvency-triggering default exists.
Issue 4: Consequences of payment of the entire defaulted amount during pendency of Section 7 proceedings
Legal framework (as discussed)
2.15 The Court referred to its earlier decision in Reliance Commercial Finance Limited vs. Darode Jog Builder Pvt. Ltd., where it was held that if, in consequence of an order of the Adjudicating Authority, the Corporate Debtor deposits the entire defaulted amount of the Financial Creditor, the Adjudicating Authority is not required to necessarily admit the Section 7 application.
Interpretation and reasoning
2.16 Applying the above principle, the Court held that once the Corporate Debtor has complied with payment of the entire defaulted amount claimed in Part IV, there remains no purpose or occasion to proceed with insolvency resolution.
2.17 The Court found no error in the Adjudicating Authority's approach of ascertaining whether the Corporate Debtor could and did deposit the entire defaulted amount and, upon such payment, declining to initiate or revive CIRP.
Conclusions
2.18 Payment of the entire defaulted amount (principal and interest) during pendency of Section 7 proceedings extinguishes the basis for initiating or continuing insolvency resolution against the Corporate Debtor.
2.19 The appeal challenging rejection of the Restoration Application was dismissed, with liberty to the creditor to pursue any claim for additional interest in other appropriate legal proceedings.
Restoration of section 7 application - commencement of CIRP - entire debt claimed stood discharged - HELD THAT:- From the facts which have been brought on the record, it is clear that entire Part IV amount including interest was paid to the Financial Creditor, which fact is recorded in the order dated 18.03.2025. The Corporate Debtor also agreed to resolve their dispute regarding amount of pendente lite interest and amount towards pendente lite interest of Rs. 46,93,907/- was also paid, for which acknowledgement was issued on 03.05.2025. The said acknowledgement obviously reflect amount of Rs. 46,93,907/-. It is submitted by learned counsel for the Respondent that the Restoration Application was filed on 17 June, 2025 after more than one and a half month after receiving the amount.
The Adjudicating Authority in the impugned order has noticed the payment of entire Part IV amount as well as interest of Rs. 46 Lakhs and took the view that present is not a case for reviving Section 7 application and Restoration Application was rejected. In the facts of the present case, we are of the view that under Section 7 proceeding, the Corporate Debtor having paid entire amount in Part IV, principal and interest as clearly recorded, insolvency proceeding cannot be initiated against the Corporate Debtor, as sought by the Appellant by filing Restoration Application. As per the statement recorded on 18.03.2025, the Corporate Debtor, according to its calculation has paid amount of Rs. 46,93,907/- towards pendente lite interest also.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether, upon expiry of the maximum period of 330 days of the corporate insolvency resolution process without approval of any resolution plan, the Adjudicating Authority was justified in directing liquidation under Section 33 of the Insolvency and Bankruptcy Code.
(2) Whether a post-CIRP, post-liquidation-decision "higher offer" or settlement proposal, routed through the suspended director claiming to have an investor, obliged the Adjudicating Authority to defer or decline liquidation.
(3) Whether precedents concerning (a) consideration of higher offers during CIRP, and (b) Section 12A withdrawal even at or after the liquidation stage, required interference with the liquidation order in the present factual matrix.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Validity of liquidation order after expiry of 330 days of CIRP without an approved resolution plan
Legal framework (as discussed): The Court proceeds on the basis of the statutory maximum period of 330 days for completion of CIRP and the scheme of Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC) mandating liquidation where no resolution plan is approved within the prescribed period. The CoC minutes and the application under Section 33(1) form the basis for liquidation.
Interpretation and reasoning: The Court notes that the rebooted CIRP concluded upon expiry of the extended period on 22 December 2024, thereby exhausting the maximum 330 days. No resolution plan was received or approved within this period. Minutes of the CoC meeting in February 2025 recorded that the CIRP period had ended in December 2024 with no plan under consideration, leaving liquidation under Section 33(1) as the "only option" for the Resolution Professional. The Resolution Professional accordingly filed an application for liquidation, which was later ratified by the CoC, with the main financial creditor expressly approving liquidation. In these circumstances, the Adjudicating Authority's direction for liquidation is treated as a necessary and proper consequence of the statutory scheme once the maximum CIRP period has ended without a resolution plan.
Conclusions: The Court upholds the liquidation order, holding that upon expiry of 330 days of CIRP without approval of any resolution plan, the Adjudicating Authority rightly directed liquidation under Section 33 IBC and no legal error is disclosed.
Issue (2): Effect of a post-liquidation-decision "higher offer"/settlement proposal received through the suspended director
Interpretation and reasoning: The Appellant, a suspended director, asserted that in March 2025 he received a concrete offer from an investor to settle dues for Rs. 8 crore and filed an application on 15 May 2025 requesting that such higher offer be considered in the interest of value maximisation. The Court notes that: (i) this offer surfaced only after the CoC had, in February 2025, decided that liquidation should proceed following the expiry of the CIRP period; (ii) no resolution plan had been submitted by the Appellant during the CIRP; and (iii) the Appellant is not a "Resolution Applicant" whose plan was under consideration in the concluded CIRP. The Court rejects the contention that pendency of the Appellant's application compelled the Adjudicating Authority to halt or postpone liquidation proceedings, emphasizing that the statutory trigger for liquidation had already occurred and the process could not be re-opened on the basis of a belated, third-party-backed offer made after the CIRP period ended and after the CoC had resolved to liquidate.
Conclusions: The Court holds that a post-CIRP, post-liquidation-decision offer, routed through the suspended director and not forming part of any resolution plan during the CIRP, does not invalidate or inhibit the liquidation order. No interference with the liquidation order is warranted on that ground.
Issue (3): Applicability of precedents on higher offers and Section 12A withdrawal
Legal framework (as discussed): The Court examines: (a) a prior decision where higher offers of resolution applicants were directed to be considered while halting liquidation, and (b) a decision recognizing that even during liquidation, a proposal under Section 12A IBC may be considered, subject to Section 29A and 90% CoC approval. The Court also notes Regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, enabling submission of schemes during liquidation.
Interpretation and reasoning:
(a) Precedent on higher offers during CIRP: The Appellant relied on a decision where the Tribunal directed consideration of higher offers of two Resolution Applicants and stopped liquidation. The Court distinguishes that precedent on two principal grounds: (i) there was no indication that the maximum period of 330 days of CIRP had elapsed in that case; and (ii) the higher offers there came from existing Resolution Applicants whose plans were accepted to be considered by the CoC. In contrast, here the 330-day period has expired, the CoC decided on liquidation, and the Appellant is not a Resolution Applicant but a suspended director putting forward an investor's offer after the liquidation decision. On these facts, the rationale of that precedent is held inapplicable.
(b) Precedent on Section 12A during or after liquidation: The Appellant relied on a decision where, after 180 days of CIRP and a liquidation decision, the Tribunal nevertheless clarified that under Section 12A, even during liquidation any person not barred under Section 29A could satisfy the CoC's demand and seek withdrawal of the Section 7 application, subject to 90% CoC voting. The Court notes that in the cited case a resolution plan had been filed on the 178th day and the liquidation followed immediately thereafter, prompting the Tribunal's clarification regarding potential Section 12A relief. The Court holds that the present case is distinct because: (i) the Appellant has not made any Section 12A proposal; (ii) no formal 12A settlement or withdrawal application is before the Adjudicating Authority; and (iii) the proposal is merely an offer said to be received from an investor after expiry of 330 days and after a CoC decision favouring liquidation. Hence, the conditions under which the earlier Tribunal permitted consideration of a 12A proposal are not met here.
At the same time, the Court reiterates that, consistent with the IBC framework, during liquidation any interested person may still submit a scheme under Regulation 2B of the Liquidation Process Regulations, 2016, which can then be considered in accordance with law.
Conclusions: The Court holds that the precedents relied upon do not compel reconsideration of liquidation in the present factual setting. The earlier decision on higher offers involved ongoing CIRP and CoC willingness to consider competing plans from Resolution Applicants, unlike here. The decision on Section 12A does not assist the Appellant since no 12A proposal has been made and the offer arose only after expiry of 330 days and decision for liquidation. The appeal is dismissed, with the clarification that interested persons may pursue a scheme under Regulation 2B during liquidation if so advised.
Liquidation of Corporate debtor - expiry of the maximum period of 330 days of the corporate insolvency resolution process without approval of any resolution plan - HELD THAT:- The Adjudicating Authority in the order has noted that period of 330 days of CIRP came to an end on December, 2024. In the CIRP, no resolution plan could be received, hence, decision was taken for liquidation and the Resolution Professional filed an application seeking direction for liquidation. Learned counsel for the Appellant himself has referred to the CoC minutes of February, 2025 where the CoC has noted that 330 days has come to end in December, 2024 and there being no resolution and maximum period of CIRP having come to an end, the process of liquidation need to be gone into.
Judgment of this Tribunal which has been relied by the Appellant in Gayatri Polyrub Pvt. Ltd. [2023 (10) TMI 68 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] does not indicate that maximum period of 330 days was over. Furthermore, two Resolution Applicants who had made higher offer were directed to be considered by this Tribunal after the CoC agreed to consider their plans. Present is a case where Appellant is not a Resolution Applicant and filed application claiming to receive an offer from a third party investor. At the instance of the Appellant no error could be found in the order of the Adjudicating Authority directing for liquidation. When 330 days of CIRP has expired and no resolution plan was approved, the Adjudicating Authority has rightly directed for liquidation.
Present is not a case where any 12A proposal for settlement has been given by the Appellant. Appellant claim to submit settlement proposal received from investor after decision was taken for liquidation and after expiry of 330 days. In the case which has been relied by the Appellant, after expiry of 178 days’ decision was taken for liquidation and in the said circumstances, the Court directed for considering the proposal. The said case is clearly distinguishable from the case of the Appellant. There are no error in the order of the Adjudicating Authority directing for liquidation.
Appeal dismissed.
Issues: Whether the appellant was entitled to regular bail under the Prevention of Money-Laundering Act, 2002 in view of parity with co-accused, the documentary nature of the record, the stage of trial, and the constitutional protection against prolonged incarceration.
Analysis: Bail under the PMLA cannot be refused mechanically where continued custody has become prolonged and the trial is not likely to commence or conclude within a reasonable time. The material in the case was largely documentary, a large volume of documents and witnesses remained to be dealt with, and the proceedings were still at the stage of supply of police report and documents. Several co-accused had already been granted bail. The appellant had remained in custody for over seven months, was of advanced age, had cooperated earlier, and no further recovery was expected. In such circumstances, the concerns of the prosecuting agency could be addressed by appropriate conditions, and the guarantees of personal liberty under Article 21 required intervention.
Conclusion: The appellant was entitled to be released on bail, and the conditions imposed by the Special Court were directed to govern the release.
Final Conclusion: The Court held that prolonged pre-trial incarceration in a document-heavy PMLA prosecution justified grant of bail where trial was not imminent and custody was no longer necessary for investigation or trial.
Ratio Decidendi: Where pre-trial detention under the PMLA becomes unduly prolonged and the trial is not likely to conclude within a reasonable time, constitutional courts may grant bail on Article 21 grounds notwithstanding the stringent bail conditions, especially where the case is largely documentary and appropriate conditions can secure the proceedings.
Seeking grant of regular bail - Money Laundering - forged IRCON certificates used in PHED tenders in 2022–2023 - serious economic offences or not - belated retraction of statements - HELD THAT:- In V. Senthil Balaji v. Deputy Director, Directorate of Enforcement [2024 (9) TMI 1497 - SUPREME COURT] this Court, particularly held that where a trial cannot be reasonably concluded and incarceration becomes prolonged, constitutional courts must intervene to safeguard the right to personal liberty under Article 21. The Court further emphasised that Section 45(1)(ii) of the PMLA cannot be interpreted to justify indefinite detention in cases involving voluminous, document-heavy material where trial is unlikely to begin promptly. The present case stands on a similar footing.
Upon considering the material placed, it is found that several co-accused, whose alleged roles will ultimately be evaluated at trial, have already been granted bail. The Appellant has remained in custody for over seven months. The record is entirely documentary, as of now there are 66 witnesses, 184 documents, and more than 14,600 pages are involved, and the proceedings are still at the stage of supply of copy of the police report and other documents under Section 207, CrPC. In these circumstances indicate that the commencement of trial is not imminent and that the trial itself is not likely to conclude once started in the near future. The continued detention of the Appellant requires closer scrutiny in light of constitutional considerations.
The Appellant deserves to be released on bail - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether delay in filing and re-filing the appeal ought to be condoned.
1.2 Whether, in view of the factual finding of change in business model from April 2009, the Respondent remained liable to service tax under "Commercial Training & Coaching service" and "Franchise service" for the period 2009-10 to 2012-13.
1.3 Whether the order of the Tribunal, restricting service tax liability to the period up to 2008-09 and setting aside the demand for 2009-10 to 2012-13, gave rise to any substantial question of law warranting interference in appeal.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Condonation of delay in filing and re-filing
Interpretation and reasoning
2.1 The Court noted the applications seeking condonation of delay in filing the affidavit of appeal and in re-filing the appeal, and examined the reasons stated therein.
Conclusions
2.2 Delay in filing the affidavit of appeal and in re-filing the appeal was condoned; the applications were disposed of. An exemption application was allowed subject to all just exceptions.
Issue 2 - Service tax liability post-April 2009 in light of changed business model
Legal framework (as discussed)
2.3 The Tribunal had proceeded on the basis that taxability of the relevant service per se was not in dispute, as recorded in para 6.1 of the impugned order. The discussion before the Court therefore narrowed to whether services were in fact rendered post-2009 so as to attract service tax, and to the correctness of the Tribunal's approach in that regard.
Interpretation and reasoning
2.4 The Tribunal recorded that up to 2008-09, the Respondent extended courses online and offline through self-owned and authorised training centres, involving online access to reading material, interaction with experts and students, and conducting tests. Invoices had separate components for online software lease, website space lease, online education and university fund, and service tax was collected and paid on "online education".
2.5 From April 2009, the Tribunal found a change in business model: the Respondent converted to supply of CDs, DVDs, e-books, power-point presentations, etc., with no interactive sessions and no courses conducted through authorised training centres; customers merely purchased course material as goods. On this basis, the Tribunal treated the post-2009 activity as sale of goods not involving provision of service.
2.6 The Tribunal further noted that for the period from April 2009 the Respondent stopped collecting and depositing service tax, and it considered balance sheets and relevant documents to verify this factual position. It also noticed that for subsequent periods 2013-14 and 2014-15, show cause notices on the same issue had been decided in favour of the Respondent and were not challenged by the Department, thereby attaining finality.
2.7 On this factual foundation, the Tribunal held that demand was sustainable only for 2007-08 and 2008-09, and that, in view of the changed business model with effect from April 2009, the service tax demand for 2009-10 to 2012-13 and the demand under "Franchise service" could not survive.
2.8 The Court noted that the Adjudicating Authority had confirmed service tax demands for 2007-08 to 2012-13, together with interest and penalties, but that the Tribunal had modified this by upholding the demand only for 2007-08 and 2008-09, remanding quantification on cum-duty basis for that period, and setting aside the remaining five show cause notices.
2.9 The Court observed that whether services were rendered post-2009 was a factual question turning on analysis of documents and conduct of the parties. It accepted that "obviously if the Respondent was not rendering any services post 2009, service tax would not be liable to be paid."
Conclusions
2.10 The Court accepted the Tribunal's factual assessment that, post-April 2009, the Respondent's activity comprised supply of study material (CDs, DVDs, e-books, presentations) without associated training services or authorised training centres, and that for that period the levy of service tax was not sustainable.
2.11 The Court did not disturb the Tribunal's decision to uphold the demand, with interest and penalty, only for 2007-08 and 2008-09, subject to re-quantification on cum-duty basis, and to set aside the service tax demands (including under "Franchise service") for 2009-10 to 2012-13.
Issue 3 - Existence of a substantial question of law in challenge to the Tribunal's order
Interpretation and reasoning
2.12 The Appellant argued that the Respondent continued to provide the same services even after 2009 and that customers receiving CDs/DVDs required support, thus making service tax payable. The Respondent maintained that, post-2009, no training was rendered through authorised training centres and only material/content was supplied, hence no service tax was leviable.
2.13 The Court noted that the Tribunal had "gone into the facts and details" and had considered balance sheets and other relevant documents. The Tribunal's findings on the nature of activity post-2009, including the absence of authorised training centres and the characterisation of the post-2009 activity as sale of goods, were treated as findings of fact.
2.14 The Court further relied on the Tribunal's observation that show cause notices for 2013-14 and 2014-15 on the same issue had been decided in favour of the Respondent and had not been challenged by the Department, indicating departmental acceptance of non-taxability of the post-2009 model in subsequent years.
2.15 The Court, referring to para 6.1 of the Tribunal's order, recorded that "the taxability of the service, as provided by the appellant, is not in dispute"; the remaining controversy turned on factual determination of whether any taxable service was provided after 2009 under the changed business model.
Conclusions
2.16 The Court held that the question of taxability in principle was not in dispute; the Tribunal's conclusion that no taxable service was rendered post-2009 was based on appreciation of facts and documents.
2.17 As the Tribunal's findings for the post-2009 period were purely factual, supported by material on record, and consistent with the Department's own acceptance for 2013-14 and 2014-15, the Court held that no substantial question of law arose from the Tribunal's order.
2.18 The appeal was dismissed and all pending applications were disposed of.
Levy of service tax - materials sold by the Respondent - accompanying services were also provided or not - HELD THAT:- Since the taxability is no longer an issue for consideration in this case, the question as to whether the Respondent provided services or not post the year 2009, would be a factual dispute based on the analysis of the documents. Obviously if the Respondent was not rendering any services post 2009, service tax would not be liable to be paid.
The CESTAT has also noted that for the subsequent years i.e., 2013-14 and 2014-15, the Department has in fact accepted and not challenged the decision that service charge would not be payable. This Court is therefore of the view that there is no substantial question of law that arises in the present appeal.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the writ petition under Article 226 challenging a service tax demand and penalty was maintainable in view of the statutory appellate remedy under Section 85 of the Finance Act, 1994.
1.2 Whether the grounds urged by the petitioner (bar of limitation, wrongful invocation of extended period under Section 73, and lack of jurisdiction) attracted any recognized exception to the rule of alternative remedy so as to justify exercise of writ jurisdiction.
1.3 Whether the Court should enter into the merits of the demand, including the validity of invoking the extended period of limitation and imposition of penalty under Sections 73 and 78 of the Finance Act, 1994, despite the availability of an appellate remedy.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Maintainability of writ petition in presence of alternative statutory remedy under Section 85 of the Finance Act, 1994 and applicability of exceptions
Legal framework
2.1 The Court extracted and analysed Section 85 of the Finance Act, 1994, which provides that:
(a) Any person aggrieved by any decision or order passed by an adjudicating authority subordinate to the Principal Commissioner or Commissioner of Central Excise may appeal to the Commissioner (Appeals);
(b) The appeal must be presented within the prescribed period (three months, with a further condonable period of three months / two months plus one month as per the specific sub-sections);
(c) The Commissioner (Appeals) shall hear and determine the appeal, with power to confirm, modify, or enhance service tax, interest or penalty.
2.2 The Court referred to the principles laid down in the decision in Whirlpool Corporation, reiterating that:
(a) Though the High Court has discretion under Article 226, it normally does not exercise writ jurisdiction where an effective and efficacious alternative remedy is available;
(b) Recognized exceptions are: (i) enforcement of fundamental rights, (ii) violation of principles of natural justice, (iii) orders wholly without jurisdiction or where vires of an Act is challenged.
Interpretation and reasoning
2.3 The Court noted that the impugned Order-in-Original was passed by the Additional Commissioner, CGST & CE, an adjudicating authority subordinate to the Principal Commissioner/Commissioner, and the statute expressly provided an appellate remedy to the Commissioner (Appeals) against such orders under Section 85.
2.4 The Court held that the core grievance of the petitioner-namely, that the Demand-cum-Show Cause Notice and consequent Order-in-Original were barred by limitation, and that the extended period under Section 73 had been wrongly invoked-fell squarely within the jurisdiction and competence of the appellate authority under Section 85.
2.5 On examining the pleadings, the Court observed that:
(a) The petitioner had raised limitation and jurisdictional objections in substance as grounds of challenge to the adjudication, not as a case of patent lack of jurisdiction in the authority itself;
(b) The petition was not genuinely one for enforcement of any specific fundamental right;
(c) No concrete plea of violation of principles of natural justice was made out beyond bald assertions;
(d) There was no challenge to the vires of the Finance Act, 1994 or any of its provisions.
2.6 The Court found that the petitioner's principal contention was that the proceedings were "time-barred" and that the extended period of limitation could not have been invoked in the facts, which is a matter that the appellate authority is statutorily empowered to examine and decide.
2.7 The Court, therefore, held that none of the recognized exceptions to the rule of alternative remedy was established so as to justify bypassing the statutory appellate mechanism under Section 85.
Conclusions
2.8 The Court concluded that an effective and efficacious statutory remedy by way of appeal under Section 85 of the Finance Act, 1994 was available to the petitioner against the impugned Order-in-Original.
2.9 It was held that the writ petition was not maintainable on account of the availability of such alternative remedy and the absence of any substantiated case falling within the recognized exceptions (fundamental rights, violation of natural justice, or complete lack of jurisdiction / vires challenge).
2.10 The Court held that the petitioner ought to have availed the appellate remedy before the Commissioner (Appeals); the writ petition was, therefore, liable to be rejected on that ground.
Issue 3: Whether the Court should examine the merits of limitation, extended period under Section 73 and penalty under Section 78
Legal framework
2.11 The Court briefly noticed the scheme of:
(a) Section 73 of the Finance Act, 1994, concerning recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded, including the extended limitation of five years in cases of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade payment of service tax;
(b) Section 78 of the Finance Act, 1994, providing for penalty where non-payment is by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade payment.
Interpretation and reasoning
2.12 The Court recorded the following factual aspects only to the extent necessary:
(a) The petitioner had already paid service tax for the financial year 2016-17 before issuance of the Demand-cum-Show Cause Notice;
(b) The demand was raised by invoking the extended period of five years under Section 73 on the ground of "suppression of facts" arising from non-furnishing of proof of filing ST-3 returns for 2016-17.
2.13 The Court expressly refrained from deciding:
(a) Whether non-providing of proof of filing ST-3 returns for the relevant period constituted "suppression of facts" within the meaning of the proviso to Section 73 so as to justify invoking the extended limitation period; or
(b) Whether, and to what extent, penalty under Section 78 was legally sustainable in the circumstances.
2.14 The Court reasoned that entering into such merits would trench upon matters that are squarely within the domain of the statutory appellate authority under Section 85 and might cause prejudice to either party in subsequent appellate proceedings.
Conclusions
2.15 The Court declined to adjudicate on the merits of:
(a) The validity of the invocation of the extended limitation under Section 73;
(b) The legality or quantum of penalty under Section 78;
(c) The correctness of the adjudicated demand, interest and appropriation.
2.16 It was held that all such merit-related issues should be urged and decided in the statutory appellate proceedings.
Final disposition and consequential directions
2.17 The writ petition was held to be not maintainable and was disposed of on that ground.
2.18 Liberty was reserved to the petitioner to avail such appropriate statutory remedy as may be permissible in law against the impugned Order-in-Original.
2.19 The Court directed that, in the event an appeal is filed by the petitioner, the period consumed in the present writ proceedings shall be excluded for the purpose of computing limitation for filing such appeal.
2.20 No order as to costs was made.
Maintainability of petition - availability of alternative remedy - Invocation of extended period of limitation for initiation of proceedings for recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded - suppression of actual value of services provided during the Financial Year 2016-17 - HELD THAT:- The maintainability of the writ petition having been raised by the learned Standing Counsel for the respondents to the effect that the provisions of the Finance Act, 1994 provides for an alternative remedy of appeal before the appropriate authority as it provides that any person aggrieved by any decision or order passed by an adjudicating authority subordinate to the Principal Commissioner of Central Excise or Commissioner of Central Excise may appeal to the Commissioner of Central Excise (Appeals), it would be appropriate to first consider the same.
Bare reading of Section 85 of the Finance act, 1994 shows, inter alia, that if any person is aggrieved by any decision or order passed by an adjudicating authority subordinate to the Principal Commissioner of Central Excise or Commissioner of Central Excise may appeal to the Commissioner of Central Excise (Appeals), within three months from the date of receipt of the decision or order of such adjudicating authority, relating to service tax, interest or penalty, provided that the Commissioner of Central Excise (Appeals) may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within a period of three months, allow it to be presented within a further period of three months. Thus, an alternative efficacious remedy is provided to the aggrieved person against any decision or order passed by the adjudicating authority.
In the present case, the case of the petitioner is that the Demand-cum-Show Cause Notice dated 22.10.2021 ought to have been issued within 30 (thirty) months of the relevant date. However, the same has been issued purportedly invoking the extended period of limitation of five years, which can be invoked only when there is fraud, collusion, willful misstatement, suppression of fact or contravention of any provisions of the Act with intent to evade payment of tax, which is contrary to the provisions of law. The entire amount of tax was paid before the issuance of the notice and therefore the extended period of limitation was not invocable and thereby the impugned Show Cause Notice dated 22.10.2021 was barred by limitation and consequently, the impugned Order-in-Original dated 05.07.2022 is also barred and is illegal.
In the present case, except for bald submissions of violation of fundamental rights and principle of natural justice or without jurisdiction, the petitioner has not filed the present petition for the enforcement of any of the fundamental rights or a violation of the principle of natural justice or the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged, but in actuality, questioning the proceedings of adjudicating authority being time barred, which, in my view, would be a subject matter to be decided by the appellate authority which would very well be within the jurisdiction of the appellate authority for which an alternative efficacious remedy is provided under the statute.
The petitioner admittedly had paid the service tax for the Financial Year 2016-17 before the issuance of the notice. The demand appears to have been made by extending the period of limitation of five years in terms of the proviso to Section 73 of the Finance Act, 1994, on the ground of suppression of facts, as the petitioner has failed to provide any proof of filing the periodical ST-3 returns for the Financial Year 2016-17. However, having concluded that the petitioner has an alternative efficacious remedy under the provisions of Section 85 of the Finance Act, 1994, this Court refrains from deciding as to whether such non-providing of the proof of filing of ST-3 returns for the Financial Year 2016-17 would constitute suppression of facts for invocation of the extended period of five years and for demanding the service tax, interest and penalty. For the reason that the petitioner has an alternative efficacious remedy, therefore, the writ petition would not be maintainable.
The writ petition is not maintainable in view of the fact that an appeal against the decision or order of the adjudicating authority lies before the appellate authority under Section 85 of the Finance Act, 1994, which the petitioner has failed to avail. It is held accordingly. However, the petitioner may avail the appropriate remedy that may be permissible under the law. In the event an appeal is filed by the petitioner, the time consumed in the present proceedings may be excluded for the purpose of limitation.
Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether services of unloading, handling and transportation of iron ore from railway sidings to ports for export are classifiable as "Clearing and Forwarding Agent Service" or as "Cargo Handling Service", and whether such services are taxable for the relevant period.
1.2 Whether service tax can be demanded under reverse charge on transportation (GTA) services where the transporter, as service provider, has already charged and paid service tax under forward charge on the same services.
1.3 Whether Cenvat credit of service tax paid on GTA services is admissible where tax has been paid by the transporter under forward charge, and the department disputes only the person liable, not the nature or use of the input service.
1.4 Whether transportation of excavated iron ore/overburden within and from the mining area is classifiable and chargeable as "Mining Service" or falls within "Goods Transport by Road Service" / other transport-related services, and on whom the liability to pay service tax lies.
1.5 Whether the extended period of limitation, interest and penalties are invocable in the facts where demands are based on audited accounts and returns and hinge on classification and technical issues.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Classification of unloading/handling/transportation of export iron ore and taxability
(a) Legal framework
2.1 The Court examined the definitions of "clearing and forwarding agent" under Sections 65(105)(j) and 65(25) and "cargo handling service" under Sections 65(105)(zr) and 65(23) of the Finance Act, 1994, along with:
(i) Trade Notice No. 87/97 dated 14.07.1997 (scope of Clearing & Forwarding Agent); and
(ii) CBEC Circular F.No.B11/1/2002-TRU dated 01.08.2002 (scope of Cargo Handling Service, including exclusion for export cargo).
(b) Interpretation and reasoning
2.2 On a conjoint reading of the statutory definitions and Trade Notice, the Court held that "Clearing and Forwarding Agent Service" contemplates an end-to-end logistics and distribution function on behalf of a principal, generally under a C&F agreement, which typically includes: receiving goods from the manufacturer, warehousing, receiving and acting on dispatch orders, arranging transport, maintaining records of stock/receipt/dispatch, preparing invoices, and liaison with transporters, customs and warehouses. It necessarily involves an agency function.
2.3 "Cargo Handling Service", as clarified by CBEC, covers loading, unloading, packing, unpacking and other physical/operational handling of cargo, including services by freight terminals and activities incidental to freight, but expressly excludes handling of export cargo and mere transportation of goods.
2.4 From the work orders with the relevant principals, the Court found that the scope of work was essentially: unloading and handling of iron ore at railway sidings, and transporting the same by road/rail to various ports (Haldia/Paradeep/Vizag/Kolkata) and unloading thereat. There was no obligation to warehouse, maintain stock or dispatch records, prepare invoices on behalf of the principal, or undertake documentation and compliance functions typical of a C&F agent; nor was there any agency element.
2.5 On these facts, the activity was held to be squarely within "Cargo Handling Service" (loading/unloading/handling plus transport as incidental) and not "Clearing and Forwarding Agent Service". The Court further found that the activity was in relation to export cargo, and that handling of export cargo stood specifically excluded from the definition of "cargo handling service" under Section 65(23) up to 30.06.2012.
2.6 It was noted that the service tax liability attributable to the period beyond 30.06.2012, as per the Show Cause Notice, was only Rs. 1,442/-, which had already been deposited with interest.
2.7 The Court followed Tribunal and Supreme Court precedents clarifying: (i) the wide ambit of "cargo handling services" subject to the explicit exclusions (including export cargo); and (ii) that C&F services encompass broader clearing, forwarding, warehousing, documentation and agency-related activities, not merely physical loading/unloading/transport (including the Larger Bench decision in L&T and its affirmation by the Supreme Court).
(c) Conclusion
2.8 The services were held correctly classifiable as "Cargo Handling Services". As they pertained to handling of export cargo for the period when export cargo was statutorily excluded from the scope of tax under Section 65(23), there was no service tax liability under "Clearing and Forwarding Agent Service", and the entire demand raised under that category was set aside, save for the already paid amount of Rs. 1,442/- post 30.06.2012.
Issue 2 - Reverse charge liability where service tax already paid by transporter (GTA)
(a) Legal framework
3.1 The demand was raised under Section 68(2) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994, on the premise that the recipient was liable under reverse charge for Goods Transport Agency (GTA) services.
3.2 The Court considered CBEC Circular No. 341/18/2004-TRU dated 17.12.2004, clarifying that once the transporter/service provider pays service tax, the same tax should not be demanded again from any other person in respect of the same service, to avoid double taxation.
(b) Interpretation and reasoning
3.3 It was undisputed that: (i) the transporters were registered service providers; (ii) their invoices charged service tax separately; (iii) the appellant reimbursed this tax; and (iv) documentary evidence (including a CA certificate and confirmation from the transporters) supported payment of the tax to the exchequer. The department did not contest these factual assertions.
3.4 The Adjudicating Authority's confirmation of demand rested solely on the technical position that the recipient, and not the provider, should have discharged tax under reverse charge. The Court held that where the very same service and value had already suffered service tax, demanding tax again from the recipient would amount to double taxation, which is impermissible.
3.5 Relying on the CBEC Circular and judicial precedents (including the Karnataka High Court and various Tribunal decisions), the Court held that once tax is admittedly paid by the transporter and accepted by the department, the same cannot again be demanded from the recipient merely because the statutory mechanism at the time contemplated reverse charge.
(c) Conclusion
3.6 The Court concluded that the service tax demand under reverse charge on GTA services, when the transporter had already paid tax under forward charge on the same services, was unsustainable and set aside the entire demand of Rs. 21,61,334/- on this issue.
Issue 3 - Admissibility of Cenvat credit of service tax on GTA services where tax paid by transporter
(a) Legal framework
4.1 The department denied Cenvat credit invoking Rule 4(7) of the Cenvat Credit Rules, 2004, on the premise that since the appellant had not discharged service tax under reverse charge, it could not avail credit of service tax on the GTA services.
(b) Interpretation and reasoning
4.2 It was undisputed that: (i) the GTA services from the transporters were input services used for providing taxable output services; (ii) the transporters had charged and paid service tax; and (iii) the appellant had taken credit on the basis of proper tax invoices issued by the providers.
4.3 The Court held that it is "immaterial who has paid the service tax" so long as service tax has been paid on the input service and the other conditions of credit are met. Once the tax on the service has been discharged by the provider and accepted by the department, the benefit of Cenvat credit cannot be denied to the recipient on mere technicalities about the mode/mechanism of payment.
4.4 Referring to settled law that procedural technicalities cannot override substantive entitlement to Cenvat credit, the Court relied on Tribunal decisions holding that: (i) where service tax on GTA is paid by the transporter and credited to the exchequer, credit to the recipient cannot be denied; and (ii) Rule 4(7) and its proviso relating to payment under reverse charge do not apply to deny credit when tax is already duly paid by the provider and the invoice is a valid document under Rule 9(1).
(c) Conclusion
4.5 The Court held that the appellant fulfilled all conditions for availing Cenvat credit, and that the technical objection regarding the person liable to pay tax was not a valid ground for denial. The demand of Rs. 21,61,334/- on account of alleged irregular availment of Cenvat credit was therefore held unsustainable and set aside.
Issue 4 - Classification and taxability of transportation of excavated iron ore/overburden within mining area as "Mining Service"
(a) Legal framework
5.1 The demand was confirmed under "mining of mineral, oil or gas" service as defined in Section 65(105)(zzzy) of the Finance Act, 1994 ("to any person, by any other person in relation to mining of mineral, oil or gas").
5.2 The Court considered CBEC Circular No. 232/2/2006-CX-4 dated 12.11.2007, particularly para 05, clarifying that handling and transportation of coal/minerals from pithead to a specified location within the mine/factory or for transportation outside the mine are post-mining activities, chargeable under "Cargo Handling Service" or "Goods Transport by Road Service," not under "Mining Service".
(b) Interpretation and reasoning
5.3 From the contracts with the mine operator, the Court found that the appellant's role was confined to transportation of excavated iron ore/overburden from one place to another, in and outside the Karampada iron ore mines, for which transport bills were raised. No mining operations per se were undertaken.
5.4 The Court held that such post-extraction transportation is in the nature of a transport activity, not "mining of mineral, oil or gas" within the meaning of Section 65(105)(zzzy). The Board's Circular explicitly classifies such handling/transport as taxable, if at all, under Goods Transport by Road and/or Cargo Handling Service, and specifically as post-mining activity distinct from mining operations.
5.5 Additionally, to the extent liability arose on transportation by road, the Court observed that under the prevailing reverse charge scheme, any service tax liability on such GTA services would fall on the service recipient (the mine operator), not on the appellant as transporter.
5.6 The Court placed reliance on the Supreme Court decision holding that transportation of minerals from pithead to railway sidings is a post-mining activity more appropriately classifiable under "transport of goods by road service" (Section 65(105)(zzp)) and not under "mining of mineral, oil or gas" (Section 65(105)(zzzy)), as well as consistent Tribunal decisions on similar facts.
(c) Conclusion
5.7 The Court concluded that the appellant's services were purely transportation of excavated ore/overburden, constituting post-mining activities, not "mining service". The classification under "Mining Service" and the resultant demand of Rs. 1,34,07,613/- were held unsustainable and set aside; further, any liability under GTA, if applicable, lay on the service recipient under reverse charge.
Issue 5 - Invocation of extended period, interest and penalties
(a) Interpretation and reasoning
6.1 The Court noted that the entire demand was based on the appellant's audited books of account and service tax returns, i.e., documents in the knowledge and possession of the department. There was no independent evidence of wilful suppression or intent to evade.
6.2 The principal disputes related to classification of services (C&F vs cargo handling; mining vs GTA), the proper person to discharge tax (forward vs reverse charge), and the technical entitlement to Cenvat credit in light of tax already discharged by the provider. On these facts, the Court found no element of fraud, collusion, wilful misstatement or suppression of facts with intent to evade tax.
(b) Conclusion
6.3 The Court held that the extended period of limitation had been wrongly invoked; consequently, the demands raised for the extended period, as well as related interest and penalties, were unsustainable. All demands, interest and penalties in the impugned order were set aside, and the appeal was allowed with consequential relief in accordance with law.
Applicability of service tax - loading/unloading, handling, transportation of goods services provided by the Appellant - Clearing and Forwarding Agent Services - transportation services under reverse charge mechanism when service tax payment made to the service provider (transporter) under forward charge for the F.Y. 2010-11 to F.Y. 2012-13 - transportation services provided within the mining area under the taxable category Mining Service - Irregular availment of Cenvat credit without making payment of service tax under reverse charge on transportation services for theF.Y. 2010-11 to F.Y. 2012-13 - Invocation of extended period of limitation - interest - penalties.
Applicability of service tax - loading/unloading, handling, transportation of goods services provided by the Appellant - Clearing and Forwarding Agent Services - HELD THAT:- Clearing & Forwarding Agent performs end to end logistics and distribution services on behalf of a principal wherein the activities undertaken by them inter alia includes receiving goods from manufacturer, stocking/warehousing goods, despatching goods to customers, maintaining records (i.e. stock register, invoices, despatch documents etc.), organizing transportation, liaison with transporters, customs and warehouses. It is found that Clearing & Forwarding Services are generally covered by a Clearing & Forwarding Agreement which is in the nature of composite services not only limited to physical handling but also covering logistics, distribution, documentation and coordination. Further, Clearing & Forwarding services involves agency function on behalf of principal. Thus, the Clearing & Forwarding services is much wider in scope involving various activities and not limited to pure loading/ unloading and simple transportation.
In the instant case, the Appellant has been awarded the contract by M/s Rungta Mines Ltd. and M/s Essel Mining & Industries Ltd. for unloading of iron ore fines at Nimpura and Panskura Railway siding and outward dispatch of the same to Haldia/Vizag/Paradeep/Kolkata port by road/railways respectively. We find that the above scope of work is squarely covered under the taxable category of ‘Cargo Handling Services’ and it would not be falling under the taxable category of Clearing and Forwarding services since the Appellant is neither acting as an agent of the Principal nor is involved into any logistics, documentation and maintaining records, distribution and coordination services etc. - the services would most appropriately classifiable as ‘Cargo Handling Services’ rather than “Clearing and Forwarding Services” - Since the said services were rendered by the Appellant in connection with export cargo, the Appellant is eligible for the exemption from service tax.
Service tax on transportation services under reverse charge mechanism - impugned order has confirmed the demand on the premise that the liability to pay service tax is on the service recipient under reverse charge mechanism in terms of Section 68(2) of the Finance Act read with Rule 2(1)(d) of the Service Tax Rules, 1994 - HELD THAT:- The Appellant had awarded a contract to M/s. Shiv Construction and M/s. Neel Enterprise for transportation of clinker from Railway siding to the MCL cement factory. As per the terms and conditions of such orders, service tax was required to be charged extra with the invoice value. Since, the transporters were separately registered under the provisions of the Finance Act, they raised bills on the Appellant for transportation charges and charged service tax thereon. The Appellant made payment to those transporters which included payment of service tax also. We find that the department has not contested these claims made by the appellant. It is found that in spite of the explanation offered by the Appellant that the service tax has already been paid on the said transportation services, the Adjudicating Authority has confirmed the demand on the premise that the liability to pay service tax on freight charges is upon the Appellant under reverse charge mechanism.
The amount of service tax payable on the transportation service was charged on the invoices and paid/reimbursed by the Appellant to the transporter. Thus, no further service tax was required to be paid by the Appellant, as demanding service tax on the same service and value from the Appellant as a recipient of GTA service under reverse charge would tantamount to double taxation, which is not tenable in the eyes of the law.
This issue has been clarified by CBEC vide Circular No.341/18/2004-TRU dated 17.12.04, wherein it has been inter alia clarified that once the transporter/service provider discharges service tax, it shall not be demanded from any other person to avoid double taxation. Accordingly, the demand of service tax confirmed on this issue in the impugned order is not sustainable.
Demand of service tax of 21,61,334/- on the ground of Irregular availment of Cenvat credit - Cenvat credit has been denied on the ground that the appellant has not made payment of service tax on freight charges under reverse charge mechanism and hence they are ineligible to claim Cenvat Credit of input services - HELD THAT:- It is found that the Appellant had availed GTA services from M/s. Shiv Construction and M/s. Neel Enterprise (as referred above) for providing taxable output service and availed Cenvat credit amounting to Rs. 21,61,334/- on the strength of invoices/bills issued by the said transporters. In the instant case, service tax has been paid by the provider of the service and apart from the technicalities, the benefit of credit which is otherwise admissible under the law cannot be denied, particularly when there is no dispute about the admissibility of service being an “input service”, used for providing taxable output service by the Appellant.
It is also found that Cenvat credit has been availed on the basis of invoice issued by a service provider which is a proper document for availing Cenvat Credit under Rule 9(1) of the Cenvat Credit Rules. Further, Cenvat Credit can be availed immediately after receipt of tax invoice in terms of Rule 4(7) of the Cenvat Credit Rules. Moreover, the first proviso to Rule 4(7) which states that credit can be availed only after making payment of service tax under reverse charge will not be applicable in the instant case.
As the Appellant fulfilled all the conditions required for availing the credit, the Appellant is eligible to avail the cenvat credit. Accordingly, we hold that the demand of service tax confirmed in the impugned order on this count is not sustainable and hence set aside.
Applicability of service tax on transportation services provided within the mining area under the taxable category “Mining Service” - HELD THAT:- The Appellant has not undertaken any mining activity as defined in section 65(105)(zzzy) of the Finance Act. The services provided by the Appellant were limited to transportation of excavated iron ore/overburden from one place to another place in and outside the Karampada iron ore mines. We are of the view that such activity is in the nature of transportation work and not mining activity. In support of this view, reliance placed on the CBEC Circular No. 232/2/2006-CX-4, dated12.11.2007, wherein it has been clarified that transportation of coal or minerals from the pithead to a specified location within the mine or for transportation outside the mine are post-mining activities and are chargeable to service tax under the relevant taxable services, i.e. ‘Cargo Handling Service’ and ‘Goods Transport by Road.’ - thus it is amply clear that transportation of mineral from pithead to a specified location within the mine or outside the mine are chargeable to service tax under relevant taxable service i.e. Goods Transport by Road Service and not Mining Service - the demand of service tax confirmed under the category of 'Mining Service is not sustainable and set aside.
Invocation of extended period of limitation - interest - penalties - HELD THAT:- There is no suppression with an intention to evade duty established in this case. The demand has been made on the basis of audited books of account and service tax return filed by the Appellant which is also a public document. As such, the charges for suppression on part of Appellant would not sustain. Thus, the demands confirmed by invoking the extended period of limitation is not sustainable and hence set aside - also, no interest or penalty imposable on the Appellant.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether receipts for job work of printing of textiles/fabrics, as reflected in Form-26AS, including receipts from a particular client, are exempt from service tax under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST dated 20.06.2012.
1.2 Whether the demand of service tax on receipts from a particular client could be sustained when supporting documentary evidence (certificate confirming nature of services) was produced at the appellate stage and the same nature of receipts from another client had already been accepted as exempt.
1.3 Whether penalty under Section 78 of the Finance Act, 1994 could survive when the underlying demand of service tax is held to be unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Exemption for job work of printing textiles under Notification No. 25/2012-ST and sustainability of demand on receipts from one client
Legal framework (as discussed):
2.1 The Adjudicating Authority recorded that "services of job work related to printing of textile are exempted from payment of service tax" as per Notification No. 25/2012-Service Tax dated 20.06.2012, specifically under Sr. No. 30(ii)(a), and applied this exemption to receipts from one client after verification of documents and certificate.
Interpretation and reasoning:
2.2 The proceedings were initiated solely on the basis of third-party data from the Income Tax Department, taking the gross receipts in Form-26AS as taxable value and proposing service tax on the entire amount.
2.3 On examination of documents, the Adjudicating Authority accepted that receipts from one client (amounting to Rs. 41,47,791/-) were on account of "job work related to printing of textile" and, based on delivery challans/invoices and a certificate from that client, held such services to be covered under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST and therefore exempt.
2.4 For the remaining receipts of Rs. 4,54,916/- from another client, the Adjudicating Authority denied exemption only on the ground of absence of contemporaneous documentary evidence regarding the nature of services; a few invoices were found insufficient as the "nature of transaction is not mentioned therein". On that basis, the amount was treated as taxable and service tax of Rs. 68,237/- was confirmed.
2.5 The Tribunal noted that a certificate dated 20.03.2024 issued by the second client for Rs. 4,54,916/- was subsequently produced, confirming that the receipts were on account of job work related to printing of textiles/fabrics. The Tribunal further recorded that this certificate had also been submitted before the first appellate authority but was not taken into cognizance.
2.6 The Tribunal observed that the entire receipts reflected in Form-26AS pertain to printing of textiles/fabrics on job work basis, and that "the majority of the demand was dropped on the basis of documents and certificate" from the first client. It reasoned that, once it is held that job work receipts on account of printing of textiles/fabrics received by the assessee are exempt under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST, there is no basis to take a different view for the similar receipts from the other client, particularly in the presence of a confirming certificate.
2.7 On this reasoning, the Tribunal held that the demand of service tax on Rs. 4,54,916/- from the second client, founded only on initial non-production of a certificate, could not be sustained after the certificate confirming the same nature of job work services was placed on record.
Conclusions:
2.8 Services of job work related to printing of textiles/fabrics rendered by the assessee fall within Sr. No. 30(ii)(a) of Notification No. 25/2012-ST and are exempt from service tax.
2.9 The receipts of Rs. 4,54,916/- from the second client, being of the same nature (job work of printing textiles/fabrics) and duly supported by a certificate, are also exempt; the demand of service tax of Rs. 68,237/- on this amount is unsustainable and is set aside.
Issue 3: Sustainability of penalty under Section 78 of the Finance Act, 1994
Interpretation and reasoning:
2.10 The Adjudicating Authority had imposed penalty equal to the tax amount under Section 78 for alleged suppression of value of taxable services, and the first appellate authority had upheld this penalty while setting aside penalties under Section 77.
2.11 The Tribunal, having held that the receipts in question are exempt and that the service tax demand itself is not sustainable, concluded that the foundation for invoking Section 78 no longer exists.
Conclusions:
2.12 With the service tax demand set aside on merits, the penalty imposed under Section 78 is also unsustainable and is accordingly set aside.
Levy of service tax on total receipts as reflecting in Form-26AS - demand based on the third party data, as received from the Income Tax Department for the financial year 2016-17 - time limitation - levy of penalty - HELD THAT:- It is found that the entire proceedings were initiated on the basis of third party data received from the Income Tax Department and the gross amount as reflected in Form-26AS was taken as taxable value and Service Tax was proposed to be demanded on the same vide the issuance of SCN. The Adjudicating Authority on the basis of the documents submitted before him, accepted that the receipts are on account of job work related to printing of textile and also the certificate issued by M/s Zinnia India. However, in respect of M/s R.B. Industries, certificate was not filed before him and accordingly Rs.4,54,916/- was taken as the taxable value and Service Tax of Rs.68,237/- was demanded and penalties under various Sections were imposed.
The Appellant has assailed the impugned order on merits as well as on limitation. The entire receipts as reflected in Form-26AS are on account of printing of textile / fabrics on job work basis and the majority of the demand was dropped on the basis of documents and certificate from M/s Zinnia India and since the certificate from M/s R.B. Industries was not available at the time of making submission before the Adjudicating Authority, the amount was confirmed - the certificate as issued by M/s R.B. Industries was also submitted before the first Appellate Authority, however, the same was not taken into cognizance. It is my considered view that once it has been held that the job work receipts on account of printing of textile / fabrics as received by the Appellant assessee are considered to be exempt under Sr. No.30(ii)(a) of N/N.25/2012-ST dated 20.06.2012, there is no occasion to take a different view and the demand so confirmed cannot be sustained and is accordingly set aside. The penalty imposed under Section 78 is also set aside.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the value of free issue materials (diesel and explosives) supplied by the service recipient is includible in the "gross amount charged" for levy of service tax under section 67 of the Finance Act, 1994, read with the Service Tax (Determination of Value) Rules, 2006.
1.2 Whether "bonus" received by the service provider for economical use of such free issue materials constitutes additional consideration liable to service tax.
1.3 Consequent upon the above, whether the differential service tax demand, including treating value of free issue materials and bonus as cum-tax value, is sustainable.
1.4 In a separate appeal, whether activities such as collection, loading, unloading and transportation of materials, along with other allied work, are taxable under "Site Formation and Clearance, Excavation and Earthmoving and Demolition Service" and "Cargo Handling Service".
1.5 Whether a sub-contractor is relieved from service tax liability on its taxable services when the main contractor allegedly pays service tax on the entire contract value.
1.6 Whether extended period of limitation is invocable on the ground of suppression and deliberate non-payment of service tax by the sub-contractor.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Inclusion of value of free issue materials (diesel and explosives) in taxable value
Legal framework (as discussed)
2.1 The Court considered section 67 of the Finance Act, 1994 and the Service Tax (Determination of Value) Rules, 2006, which govern determination of taxable value as the "gross amount charged" by the service provider for provision of taxable service.
Interpretation and reasoning
2.2 The appellants had argued that materials supplied free of cost by the service recipient are not includible in the value of taxable services and cannot be regarded as additional consideration.
2.3 The Court noted that the issue stands settled by binding decisions of the Supreme Court which have held that value of free materials supplied by the service recipient is not includible in the assessable value for service tax under section 67.
2.4 It was further noted that Supreme Court authority has specifically held that value of free diesel and explosives supplied by the service recipient cannot be included in the value of taxable service for the purpose of service tax assessment.
Conclusions
2.5 The value of free issue materials (diesel and explosives) supplied by the service recipient is not includible in the taxable value of services under section 67 read with the Valuation Rules. The related demand is unsustainable.
Issue 2: Taxability of bonus for economical use of free issue materials
Interpretation and reasoning
2.6 The bonus was payable only if the free materials (diesel and explosives) supplied by the service recipient were used economically as per benchmarks.
2.7 The Court observed that the bonus amount was not known or determinable at the time of provision of service and was contingent upon post-facto performance in efficient use of free materials.
2.8 The Court held that such bonus has no direct nexus with the value of taxable service itself and therefore cannot be treated as additional consideration for the service.
2.9 The Court referred to consistent views of coordinate benches that similar performance-based bonus linked to efficient use of free materials is not includible in the taxable value of services.
Conclusions
2.10 Bonus received for efficient/economical use of free diesel and explosives does not constitute additional consideration for the taxable service and is not includible in the value for charging service tax. The demand on this account is unsustainable.
Issue 3: Sustainability of the demand and the competing appeals in the first set of proceedings
Interpretation and reasoning
2.11 As both components forming the basis of the demand-value of free issue materials and bonus-were held to be non-includible, the foundation of the impugned demand ceased to exist.
2.12 Consequently, the Court found the entire demand, including the computation treating such amounts as cum-tax value, to be without legal basis.
Conclusions
2.13 The impugned order confirming demand on inclusion of free materials and bonus is set aside in toto.
2.14 The appeal of the assessee is allowed.
2.15 As the entire impugned order has been set aside, the department's appeal seeking enhancement of demand does not survive and is dismissed.
Issue 4: Classification and taxability of services under "Site Formation and Clearance" and "Cargo Handling" (second appeal)
Legal framework (as discussed)
2.16 The Court considered the taxable categories of "Site Formation and Clearance, Excavation and Earthmoving and Demolition Service" and "Cargo Handling Service" as defined under the Finance Act, 1994.
Interpretation and reasoning
2.17 The appellants were engaged in activities such as collection, loading, unloading and transportation of rocks from yard to crusher and from crusher to various work sites, in addition to other works for the main contractor.
2.18 The adjudicating authority had, after detailed examination, classified the services under the aforesaid categories and confirmed tax liability.
2.19 The Court found no reason to differ with the adjudicating authority's findings on classification, holding that the activities performed squarely fall under the said taxable categories.
Conclusions
2.20 Service tax is correctly leviable on the activities under "Site Formation and Clearance, Excavation and Earthmoving and Demolition Service" and "Cargo Handling Service". The classification adopted and taxability confirmed by the adjudicating authority are upheld.
Issue 5: Liability of sub-contractor where main contractor pays service tax on entire contract value
Interpretation and reasoning
2.21 The appellants, acting as sub-contractor, contended that service tax on transportation was payable by the main contractor under a specific exemption/abatement notification relating to Goods Transport services, and further argued that since the main contractor was paying service tax on the entire contract, the sub-contractor had no separate liability.
2.22 The Court rejected this contention as legally untenable, observing that the settled position is that both main contractor and sub-contractor are independently liable to pay service tax on the value of taxable services provided by each of them.
2.23 The Court relied upon a recent decision of the Tribunal reiterating that service tax liability of a sub-contractor is independent and not extinguished merely because the main contractor may have discharged tax on its own contract value.
2.24 It was further noted that the services rendered by the sub-contractor fall under Site Formation services, whereas the main contractor's services are under Construction of Residential Complex Service, thus being distinct taxable services.
Conclusions
2.25 The sub-contractor is independently liable to discharge service tax on the taxable services provided by it, irrespective of service tax paid by the main contractor on its own contractual scope. The plea of non-liability as sub-contractor is rejected.
Issue 6: Invocation of extended period of limitation in the second appeal
Interpretation and reasoning
2.26 The records showed that the appellants were aware they were providing taxable services; they were collecting service tax on certain components (such as crushing charges, earth work and excavation, and other miscellaneous works) while not paying service tax on transportation.
2.27 It was noticed that there were undisclosed amounts received from the main contractor as reflected from scrutiny of ST-3 returns, income tax returns, and ledger accounts, indicating short payment and non-disclosure.
2.28 The fact that the appellants were receiving amounts towards service tax from the main contractor and yet not paying service tax on all taxable components supported the conclusion that there was deliberate non-payment and suppression of facts.
2.29 On these facts, the Court held that the conditions for invoking the extended period of limitation under the Finance Act were satisfied.
Conclusions
2.30 Invocation of extended period of limitation is valid and sustainable in law in the circumstances of the case.
2.31 The impugned order confirming demand with extended period and consequential liabilities is upheld.
2.32 The appeal of the assessee in the second proceedings is dismissed.
Calculation of service tax - cost of the free issued materials viz., Diesel and Explosives received by the appellant has to be included in the gross value of the service or not - cost of free issue materials and bonus treated as cum- tax value for the purpose of computation of differential amount of Service Tax - HELD THAT:- The issue in this regard is already settled by the Hon’ble Apex Court in the case of M/s Bhayana Builders (P) Ltd [2018 (2) TMI 1325 - SUPREME COURT] and therefore, the value of free material supplied by service recipient cannot be included.
It is also noted that in another judgment in the case of Intercontinental Consultants & Technocrats Pvt Ltd [2018 (3) TMI 357 - SUPREME COURT], it was held that value of free diesel and explosives supplied by service recipient cannot be included in the value of service rendered for the purpose of assessment of service tax under section 67.
Insofar as the issue of bonus received by the appellant for efficient use of diesel and explosives is concerned, obviously this amount was not known at the time of provision of service and this was only payable if the said free material supplied are used economically and therefore, has no direct nexus to the service provided and therefore, it cannot be treated as additional consideration. In this regard, it is found that Coordinate Bench at Bangalore in the case of AMR India Ltd [2016 (1) TMI 67 - CESTAT BANGALORE] and this Tribunal in the case of VPR Mining Infrastructure Pvt Ltd [2023 (9) TMI 1722 - CESTAT HYDERABAD] have held similar view.
The demand on account of inclusion of value of free material supplied cannot sustain nor on account of inclusion of bonus amount thereon. Therefore, the impugned order is liable to be set aside and is accordingly, set aside.
Appeal allowed.
Levy of service tax - Site Formation and Clearance Service (SFCS) - Cargo Handling Service (CHS) - extended period of limitation - HELD THAT:- On the issue of liability, there are no merit in the argument of the appellant that they being sub-contractor and the main contractor paying service tax on the entire amount, they need not discharge the service tax liability, as it is settled position that both sub-contractor and contractor are required to pay service tax to the extent applicable to them in respect of specified taxable service. In this regard, reliance placed on the judgment in the case of Akash Engineering Services Vs CCT, Visakhapatnam-I. Therefore, the demand has been rightly confirmed against the appellant.
Extended period of limitation - HELD THAT:- It is found that in this case, the grounds taken into account for invoking the extended period is tenable and therefore, there are no infirmity in invoking extended period by the adjudicating authority.
The impugned order passed by the adjudicating authority is liable to be upheld and is accordingly, upheld - Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether service tax liability for the financial year 2016-17 could be confirmed solely on the basis of income-tax records (ITR/26AS) and section 194J deductions, without identifying or establishing the specific taxable service provided under section 65B(44) read with section 66B of the Finance Act, 1994.
1.2 Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 was validly invoked for the demand raised vide show cause notice dated 27.09.2021, particularly when the only ground was non-filing/non-reflection in ST-3 returns and the appellant had stopped business activities earlier.
1.3 Consequential validity of the interest demand under section 75 and the penalties imposed under sections 78 and 77(1) of the Finance Act, 1994.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Demand based solely on income-tax data without identification of taxable service
(a) Legal framework as discussed
2.1 The Tribunal noted that the appellant was registered under the erstwhile service tax regime and that the demand was framed by reference to section 65B(44) (definition of "service") read with section 66B of the Finance Act, 1994. The adjudicating authority proceeded on the basis of amounts reflected in ITR/26AS under section 194J of the Income-tax Act, 1962, and treated them as consideration for taxable services.
2.2 The Tribunal referred to and relied upon the decision of the Kolkata Bench in "Maa Kalika Transport Pvt. Ltd.", which held that a demand cannot be raised merely on the basis of data received from the Income-tax Department without corroborative evidence that the amounts represent consideration for taxable services, and that there must be a finding linking the receipts to taxable services.
(b) Interpretation and reasoning
2.3 The Tribunal found that the entire demand in the present case was founded on the difference between gross receipts as per ITR (including 26AS data) and the nil/absent figures in ST-3 returns. The adjudicating authority simply inferred from section 194J deductions that the receipts were against services "covered under the ambit of section 65B(44)" and not in the negative list, and therefore taxable.
2.4 The Tribunal observed that the order-in-original did not specify which particular taxable service(s) were provided by the appellant, nor did it determine the nature of the underlying activities. The impugned order was "totally silent" on the determination of the nature and classification of the services.
2.5 The Tribunal held that, in the absence of any clear finding that the receipts were against provision of some specific taxable service covered by section 65B(44) read with section 66B, the demand had been raised only on the basis of presumption drawn from income-tax data. Such presumption, without corroborative evidence identifying the taxable service, could not form a legally sustainable basis for levy of service tax.
2.6 The Tribunal aligned its view with the principle laid down in "Maa Kalika Transport Pvt. Ltd." that income-tax data by itself, without further investigation or evidence establishing that the receipts are for taxable services, is insufficient to sustain a service tax demand.
(c) Conclusions
2.7 The Tribunal concluded that the demand of service tax on the basis of income-tax/26AS data alone, without identifying the specific taxable service or determining the nature of activity under section 65B(44) read with section 66B, was unsustainable in law. The demand was held to have been made without any legally tenable basis.
Issue 2 - Invocation of extended period of limitation under proviso to section 73(1)
(a) Legal framework as discussed
2.8 The demand for the financial year 2016-17 was raised by show cause notice dated 27.09.2021 invoking the proviso to section 73(1) of the Finance Act, 1994, which permits a longer limitation period where non-payment or short-payment is by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade payment of service tax.
2.9 The Tribunal referred to the reasoning adopted in earlier decisions including "Rangoli Division" and "G.D. Goenka Private Limited", wherein it was held that:
(i) Mere suppression of facts is not enough; there must be a deliberate and wilful attempt to evade payment of duty/tax.
(ii) Mens rea is built into the grounds in the proviso (fraud, collusion, wilful misstatement, suppression with intent, or contravention with intent), and cannot be presumed.
(iii) Mere non-disclosure/non-reflection of receipts in returns, or incorrect self-assessment, does not by itself amount to suppression with intent to evade so as to justify the extended period.
(b) Interpretation and reasoning
2.10 The Tribunal noted that, for the period 2016-17, the show cause notice was issued on 27.09.2021, entirely relying on the extended period. The only effective ground taken for invoking the extended period was that the appellant did not file ST-3 returns or did not reflect the gross receipts therein.
2.11 The Tribunal observed that the appellant had asserted that they had stopped their business activities in the name of "Jai Maa Traders" from 2014 and had surrendered their VAT TIN. The record did not disclose any independent material establishing any deliberate, wilful or fraudulent intent to evade service tax.
2.12 The Tribunal held that failure to file service tax returns, especially in a situation where business had been closed earlier, cannot by itself constitute a valid ground for invoking the extended period of limitation. It reiterated that non-filing or incorrect filing, without proof of intent to evade, does not satisfy the statutory requirement of "suppression of facts with intent to evade" under the proviso to section 73(1).
2.13 The Tribunal drew support from "Rangoli Division" and "G.D. Goenka Private Limited" to emphasize that extended limitation requires clear evidence of mens rea and cannot be assumed merely because the assessee operated under self-assessment or failed to disclose certain receipts.
(c) Conclusions
2.14 The Tribunal concluded that the extended period of limitation had been wrongly invoked. Since the show cause notice dated 27.09.2021 covered the financial year 2016-17 entirely under the extended period, and no valid ground under the proviso to section 73(1) was established, the entire demand was held to be time-barred.
2.15 As a result, the Tribunal held that there was "no reason for demand of service tax for the extended period of limitation" and that the "entire demand stands barred" by limitation.
Issue 3 - Consequential interest and penalties under sections 75, 78 and 77(1)
(a) Legal framework as discussed
2.16 The adjudicating authority had ordered recovery of interest on the confirmed service tax demand under section 75 of the Finance Act, 1994 read with section 174 of the CGST Act, 2017, and imposed penalty equal to the tax amount under section 78 along with a separate penalty under section 77(1).
(b) Interpretation and reasoning
2.17 The Tribunal found that since the principal demand of service tax itself was unsustainable both on merits (for want of any identification of a taxable service) and on limitation (being wholly time-barred), the consequential liabilities of interest and penalties could not survive.
2.18 Furthermore, in light of its finding that there was no valid basis for invoking the extended period and no established intent to evade, the preconditions for penalty under section 78, which also rests on elements of fraud, collusion, wilful misstatement or suppression with intent to evade, were not satisfied.
(c) Conclusions
2.19 With the principal demand set aside, the Tribunal held that the interest demand under section 75 and penalties imposed under sections 78 and 77(1) were unsustainable and stood annulled.
2.20 The Tribunal, therefore, set aside the impugned order in toto and allowed the appeal.
Recovery of short paid duty with interest and penalty - demand made on the basis of the difference in the figures of gross receipts reported in ST-3 return and ITR by the appellant - invocation of extended period of limitation - HELD THAT:- In absence of any finding that the amounts so received by the appellant were against providing of any specific service which is taxable as per Section 65 B (44) read with Section 66 B of the Finance Act, 1994, I find that the demand has been made without any legally sustainable basis just on basis of presumption that appellant was receiving these amounts against provision of some taxable service. Impugned order is also totally silent in respect of determination of the nature of the services provided by the appellant.
It is found that for the Financial Year 2016-17 demand has been issued vide show cause notice dated 27.09.2021 except for the reason that the appellant was not filing ST-3 return during the relevant period, no other ground has been taken for invoking the extended period of limitation. Failing to file service tax return cannot be a ground for invoking the extended period of limitation, specifically in the case where appellant shutdown the business in the year 2014. Hence, there is no reason for demand of service tax for the extended period of limitation. However, there are no merits for invocation of extended period of limitation for making this demand. Accordingly, entire demand stands barred.
The impugned order has no merit and the same is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether Central Excise duty could be demanded from one registered manufacturer for alleged manufacture and clandestine clearance of goods from the registered premises of another independent manufacturer, on the basis of seized documents and statements, in particular whether "Kalimati" and the other manufacturer's unit were the same concern.
(2) Whether computer printouts taken from a seized pen drive, not satisfying the requirements of Section 36B of the Central Excise Act, 1944, could be treated as admissible and reliable evidence for confirming demands of duty based on alleged clandestine clearances.
(3) Whether allegations of clandestine manufacture and removal could be sustained solely on preponderance of probability, circumstantial evidence and uncorroborated third-party statements, without independent corroboration and without allowing cross-examination of the persons whose statements are relied upon.
(4) Whether penalties could be imposed on the principal assessee, the other independent manufacturer, and its authorised representative under the Central Excise Act and Rule 26 of the Central Excise Rules, 2002, when the duty demand on alleged clandestine manufacture at that unit is unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Demand of Central Excise duty from one assessee on alleged manufacture at another independent unit; identity of "Kalimati" and the other unit
Legal framework (as discussed)
The Court noted that Central Excise duty is demandable from the "manufacturer" under Section 11A of the Central Excise Act, 1944, and that where several entities are separately registered as manufacturers, the burden to shift manufacturing liability from the registered premises of one assessee to another requires strong, cogent and corroborated evidence. The Court also noticed that the law on clandestine removal demands strict proof, with reference to factors such as excess production, procurement of raw materials, electricity consumption, transport and buyer evidence, as culled out from cited decisions (including Continental Cement Company and Nova Petrochemicals).
Interpretation and reasoning
(a) The Court recorded that the entire demand of Rs. 16,31,40,921/- was raised solely on the footing that the respondent-assessee (CHPL) was the real manufacturer of goods allegedly produced and cleared clandestinely not only from its own premises but also from the factories of KYS and another registered unit, RI.
(b) It was undisputed that CHPL, KYS and RI were independently registered with the Central Excise Department, had separate factories at different locations, separate VAT, Service Tax, PAN and other statutory registrations, and cleared goods under their own Central Excise invoices and returns.
(c) The Court held that, in this factual matrix, "irrefutable evidence" is required to treat CHPL as the manufacturer of goods physically produced in the independent factories of KYS and RI. Mere financial assistance or payments made by the director of CHPL to KYS or RI, without a rent agreement or any formal arrangement evidencing transfer of manufacturing operations, could not by itself convert CHPL into the manufacturer of those units' goods.
(d) As regards the alleged manufacture and clearance at the premises of RI:
* The Revenue's case rested mainly on interpreting the name "Kalimati/Kalimati Steel/KL" appearing in seized documents and pen-drive printouts as referring to RI, and thus imputing manufacture at RI to CHPL.
* The Adjudicating Authority had found, and the Court agreed, that there was no independent corroborative evidence to show that "Kalimati Steel" and RI were the same entity. The seized documents and printouts repeatedly used the term "Kalimati/Kalimati Steel/KL" and nowhere mentioned RI or "Ratangarva Industries".
* The authorised representative of RI, in his Section 14 statement and in defence reply, categorically denied that "Kalimati Steel" was his concern, denied any business relation between RI and CHPL/KSPL or their directors, and denied that RI's plant and machinery had been given on rent to CHPL. He maintained that RI was a separate proprietorship unit independently manufacturing goods.
* The Court noted that no document recovered during search linked RI's factory, production or clearances to the "Kalimati" entries or to CHPL's alleged clandestine removals; inward-outward reports and other seized documents referred only to "Kalimati/KL" and not to RI.
* Statements of Sunil Kumar Bajpai (Director of CHPL) and Bimlesh Kumar Ojha (employee of KSPL) asserting that RI and Kalimati were the same were treated as third-party statements lacking corroboration. These were contradicted by the direct statement of RI's authorised representative. On this basis, the Court held that such third-party assertions, without corroborative documentary or transactional evidence, could not be the sole foundation to equate RI with "Kalimati".
(e) The Court endorsed the Adjudicating Authority's detailed findings that:
* No daily inward-outward report or seized document contained any remark linking the entries to RI;
* The seized pen drive and printouts did not indicate that the dispatch/sale details were related to RI;
* Reliance solely on the third-party statements of CHPL's Director and a former employee of KSPL, in the face of categorical denial by RI's authorised representative and lack of documentary linkage, was impermissible.
Conclusions
(i) The Revenue failed to establish that "Kalimati/Kalimati Steel/KL" and RI were one and the same concern, or that CHPL was the manufacturer of goods allegedly produced and cleared from RI's factory.
(ii) In the absence of cogent, corroborated evidence that the goods attributed to "Kalimati" were in fact manufactured at RI by or on behalf of CHPL, Central Excise duty could not be demanded from CHPL in respect of the alleged clearances from RI.
(iii) The dropping of the demand of Rs. 2,49,70,691/- raised on CHPL for alleged goods manufactured at RI was upheld as legally correct and free from infirmity.
Issue (2): Admissibility and evidentiary value of computer printouts from a seized pen drive under Section 36B of the Central Excise Act
Legal framework (as discussed)
The Court examined Section 36B of the Central Excise Act, 1944, governing admissibility of computer printouts and electronic records as evidence, particularly the mandatory conditions under sub-section (2) for treating such printouts as evidence of the contents of the original electronic records.
Interpretation and reasoning
(a) The primary basis of the alleged clandestine production and clearance was a pen drive seized from CHPL's office. Data from the pen drive was connected to a computer and printouts taken in the presence of staff and officers.
(b) The Court noted that for such printouts to be admissible and reliable, the mandatory requirements of Section 36B(2) must be strictly complied with. It was on record that these requirements were not fulfilled in the present case.
(c) As the statutory preconditions were not met, the Court held that the computer printouts taken from the pen drive could not be treated as admissible evidence. Consequently, they could not be relied upon to sustain the allegations of clandestine manufacture and removal.
Conclusions
(i) Non-compliance with the mandatory requirements of Section 36B(2) rendered the computer printouts from the seized pen drive inadmissible as evidence.
(ii) The duty demand could not be sustained on the basis of such inadmissible electronic documents, and the Adjudicating Authority's refusal to rely on them was affirmed.
Issue (3): Proof of clandestine manufacture and removal; use of circumstantial evidence, third-party statements, and denial of cross-examination
Legal framework (as discussed)
The Court applied the established legal principles on proof of clandestine manufacture and clearance, as summarized in the cited judgments of Continental Cement Company (High Court) and Nova Petrochemicals (Tribunal). These authorities emphasize that clandestine removal is a serious charge and cannot be sustained on assumptions or probabilities alone; the Revenue must furnish clinching, corroborative evidence on several counts (including excess production, raw material purchases, electricity consumption, transportation, buyer statements, sale proceeds, and linkage of documents to actual manufacturing activity).
Interpretation and reasoning
(a) The Revenue's appeals asserted that the Adjudicating Authority should have proceeded on "preponderance of probability" and circumstantial evidence, relying heavily on statements of CHPL's Director, staff and certain other persons to connect CHPL with alleged manufacture at RI.
(b) The Court found that, apart from uncorroborated statements and entries in inadmissible pen-drive printouts, there was no evidence of:
* Excess procurement of raw materials;
* Excess electricity consumption;
* Transporters' records showing clandestine movements;
* Identified buyers' confirmations with supporting documents;
* Recovery of unaccounted cash or other financial trail evidencing clandestine sales;
* Discovery of unaccounted finished goods or any independent contemporaneous records linking CHPL's alleged clandestine clearances to RI's factory.
(c) The Court observed that the case rested mainly on third-party statements (such as of CHPL's Director and staff, and certain weighbridge personnel) which were not supported by independent documentary evidence and were contradicted by the direct statement of RI's authorised representative.
(d) The respondent-assessee had specifically requested cross-examination of the persons whose statements were relied upon. The Adjudicating Authority did not allow this request. The Court held that, in such circumstances, these statements could not be treated as admissible and reliable evidence against the assessee. Once these statements were excluded, the record lacked material to substantiate the allegations of CHPL's involvement in manufacture and clearance at RI.
(e) Relying on the legal standards laid down in Continental Cement and Nova Petrochemicals, the Court reiterated that clandestine removal cannot be established merely on inferences, assumptions or probabilities, and that the Revenue must bring on record concrete and corroborated evidence, which was absent in the present case.
Conclusions
(i) The Revenue's case, being founded essentially on inadmissible computer printouts and uncorroborated third-party statements-without cross-examination and without independent corroborative evidence-did not meet the legal standard required to prove clandestine manufacture and removal.
(ii) Demands of Central Excise duty cannot be upheld purely on "preponderance of probability" or circumstantial suspicion in the absence of tangible and corroborative evidence on production, raw materials, electricity, transportation, buyers and financial flow-back.
(iii) On this evidentiary deficiency, the allegation that CHPL had manufactured and clandestinely cleared goods from RI's factory failed and the dropped demand was correctly set aside.
Issue (4): Imposition of penalties on the principal assessee, the other unit, and its authorised representative
Legal framework (as discussed)
The Court considered the provisions relating to penalty under the Central Excise Act and under Rule 26 of the Central Excise Rules, 2002 (for persons who deal with excisable goods liable to confiscation), and proceeded on the principle that where the underlying duty demand itself is unsustainable, penal consequences cannot survive.
Interpretation and reasoning
(a) The Adjudicating Authority had dropped the demand of Rs. 2,49,70,691/- on CHPL relating to alleged goods manufactured at RI and, consequentially, refrained from imposing any penalty on CHPL in respect of that part of the case, and also from imposing any penalty on RI or its authorised representative, Shri Sudhir Kumar Singh.
(b) The Revenue appealed contending that CHPL and Shri Sudhir Kumar Singh were liable to penalty, particularly under Rule 26 of the Central Excise Rules, 2002, based on alleged involvement in clandestine clearances.
(c) The Court, having held that:
* The duty demand on CHPL in respect of alleged manufacture at RI was not sustainable;
* The allegation that RI and "Kalimati" were the same concern remained unsubstantiated; and
* There was no admissible and corroborated evidence of clandestine manufacture or clearance from RI by or on behalf of CHPL;
concluded that there was no factual or legal foundation for imposition of any penalty on CHPL, RI or its authorised representative for the dropped portion of the demand.
Conclusions
(i) With the failure of the Revenue to establish clandestine manufacture and clearance from RI by CHPL, the demand of duty of Rs. 2,49,70,691/- was unsustainable; accordingly, no penalty could be imposed on CHPL in respect of that allegation.
(ii) There being no established involvement of RI in any proved clandestine activity with CHPL, no penalty was imposable on RI.
(iii) For the same reason, no penalty under Rule 26 of the Central Excise Rules, 2002, could be imposed on Shri Sudhir Kumar Singh, authorised representative of RI; the non-imposition of penalty on him was upheld.
(iv) The Adjudicating Authority's decision not to impose penalties on CHPL, RI and Shri Sudhir Kumar Singh in relation to the dropped demand was affirmed, and the Revenue's appeals seeking such penalties were rejected.
Clandestine removal - demand on the allegation that CHPL manufactured the goods in the premises of KYS and RI and and hence CHPL has been made responsible for the alleged manufacture and clandestine clearance of goods from the factory premises of KYS and RI - no independent corroborative evidence to show that M/s. Kalimati Steel and M/s. RI are the same - maintainability of preponderance of probability on the basis of assumption - Levy of penalty u/r 26 on Authorised Representative of RI - HELD THAT:- The whole demand has been made on the basis of the Pen Drive recovered from the office premises of CHPL alleged to be in the presence of Annu Singh, Accountant, Sneha Kumari and Departmental officers. It is observed that subsequently the pen drive was connected to a computer and print outs were taken. In this regard, it is observed that the admissibility of Computer printouts as an evidence has to be strictly judged subject to compliance of Section 36B of the Central Excise Act. It is on record that the provisions of Section 36B are not complied with in this case. As the provisions of Sub Section 2 of Section 36B has not been satisfied, the hold that the printouts taken from the pen drive cannot be relied upon as admissible evidence in this case.
Regarding dropping of the demand raised in respect of the goods said to have been manufactured at RI and cleared by CHPL, it is observed that the Ld. Adjudicating Authority relied on the statement of Shri Sudhir Kumar Singh, authorized representative of RI, wherein he has categorically stated that they had not given M/s. RI on rent to M/s. CHPL and M/s. RI did not receive any charges from M/s. CHPL - The investigation officers concluded that RI and ‘Kalimati’ mentioned in the private documents are one and the same. On the basis of that conclusion all those clearances shown to be made in the name of ‘Kalimati’ has been construed to be manufacture and clearances made at RI and duty has been demanded from CHPL - the evidences available on record does not substantiate the conclusions drawn by the Revenue.
It is observed that demand of central excise duty cannot be made on the basis of assumptions and presumptions or preponderance of probabilities. It is a serious allegation which requires cogent corroborative evidences to substantiate the allegation of clandestine clearances, which are absent in this case. We observe that the said issue has been examined by the Hon’ble High Court of Allahabad in the case of Continental Cement Company v. Union of India [2014 (9) TMI 243 - ALLAHABAD HIGH COURT], wherein it has been held that 'there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material out side the books have been proved.'
Thus, there is no corroborative evidence available on record to substantiate the allegation of manufacture of the goods at RI and clandestine clearances of the same by CHPL.
Levy of penalty u/r 26 on Authorised Representative of RI - HELD THAT:- As the demand of Central Excise duty on CHPL on the goods said to have been manufactured at RI has not sustained, it is held that no penalty imposable either on CHPL (Noticee No 1) or on RI, with respect to the allegation of clandestinely manufacturing and clearing of the finished goods without payment of duty. Thus, the Ld. Adjudicating authority has rightly not imposed penalties on CHPL (Noticee No 1) or on RI, with respect to the dropped demand. For the same reason, no penalty imposable on Shri Sudhir Kumar Singh, Authorised Representative of RI, under Rule 26 of the Central Excise Rules, 2002. Accordingly, the penalty imposed on him set aside.
The appeals filed by the Revenue are rejected.
Issues: Whether the finding of clandestine removal of 68.996 MT of single ply yarn and the consequent demand and penalty could be interfered with in reference jurisdiction.
Analysis: The stock discrepancy was examined by the adjudicating authority, the appellate authority, and the Tribunal on the basis of the RG-1 register, invoices, and the manufacturing process. The authorities concurrently held that the shortage existed at the stage of single ply yarn and was not attributable to wastage arising from conversion into double ply yarn. The Court held that the question whether there was shortage on the date of search was a pure question of fact, and that it could not reappreciate evidence already considered by the fact-finding authorities. In the absence of any perversity, lack of evidence, or legal infirmity, the concurrent factual findings were not open to interference.
Conclusion: The finding of clandestine removal was upheld and the demand and penalty were sustained.
Final Conclusion: No referable question of law arose from the Tribunal's order, and the reference petition failed.
Ratio Decidendi: Concurrent findings of fact based on appreciation of evidence, including stock records and physical verification, are not interfered with in reference jurisdiction unless they are perverse, unsupported by evidence, or otherwise legally infirm.
Clandestine removal - 68.996MT of single yarn - liability of appellant to pay duty on off spindle stage - HELD THAT:- From the perusal of record, it is evident that matter was twice examined by Adjudicating Authority, Appellate Authority and thereafter Tribunal. All the authorities have concluded that there was shortage at the stage of single ply yarn.
The authorities have recorded reasons for holding that there was shortage of stock at single ply yarn stage. The findings recorded by authorities are pure findings of fact. The petitioner has placed on record invoices of single ply yarn to support its contentions that there was no clandestine removal of finished goods and every single kg yarn was duly accounted for. The authorities including Tribunal examined RG-1 register, invoices and manufacturing process and thereafter concluded that there was shortage of stock at single yarn stage. This Court while adjudicating reference petition cannot reappreciate evidence already appreciated by authorities. The Court cannot form an opinion other than formed by authorities/Tribunal unless order is passed without appreciating evidence on record or order is based upon no evidence.
In the instant case, there was search by authorities and during the course of search physical verification of stock was conducted. The material physically found was compared with recorded in RG-1 register. The question whether there was shortage on the date of search or not is a pure question of fact. The Tribunal has duly recorded reasons while upholding demand.
This Court is of the considered opinion that there is no factual or legal infirmity in the impugned order passed by appellate Tribunal - Petition dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether CENVAT credit could be availed on imported melting scrap on the basis of endorsed Bills of Entry and subsequent dealer invoices, when there was no physical movement of goods and the scrap was not an input for the manufacturer at the relevant time.
1.2 Whether the endorsement of Bills of Entry and reliance on dealer registrations and records were sufficient to validate the documents for CENVAT credit under Rule 9 of the CENVAT Credit Rules, 2004.
1.3 Whether the precedent permitting transfer of credit on the basis of endorsed Bills of Entry (Union of India v. Marmagoa Steel Ltd.) was applicable to the facts of the present case.
1.4 Whether the conduct of the appellants amounted to misuse of the CENVAT scheme, justifying invocation of the extended period and imposition of penalties under Rule 15(2) and Rule 15A of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Availment of CENVAT credit on imported melting scrap on the basis of endorsed Bills of Entry and dealer invoices; validity of documents under Rule 9 CCR, 2004
Legal framework (as discussed)
2.1 The Tribunal examined Rule 9 of the CENVAT Credit Rules, 2004 regarding authorized duty-paying documents and the manner in which manufacturers and registered dealers may avail and pass on credit. It was noted that a manufacturer may take credit on inputs received under a Bill of Entry, and on invoices issued by an importer/first stage dealer/second stage dealer, provided such dealers maintain proper records indicating that the inputs are from duty-paid stock of the producer/importer.
2.2 It was emphasized that Rule 9 does not prescribe an endorsed Bill of Entry as a permissible document for a registered dealer to receive inputs or to pass on CENVAT credit, and that physical receipt of goods is a precondition for availing credit.
Interpretation and reasoning
2.3 The Tribunal noted that the imported melting scrap was received and remained at the premises of the manufacturer throughout, and that the purported transfers between the two registered dealers and back to the manufacturer were only on paper, without any physical movement of goods or actual purchase/sale.
2.4 It was found that the imported scrap was melting scrap, which is a raw material for ingots/billets, whereas the manufacturer was admittedly engaged in manufacture of TMT bars, whose immediate inputs were ingots and billets. The manufacturer did not have an induction furnace in 2006 and therefore could not use melting scrap as input at the relevant time. On this basis, the Tribunal held that the scrap was not an "input" for the manufacturer when imported.
2.5 The Tribunal agreed with the original adjudicating authority that CENVAT credit cannot be transferred to a dealer on the basis of an endorsed Bill of Entry issued to a manufacturer where the goods are not the manufacturer's inputs, and that Rule 9 does not authorize endorsement as a valid mode for a registered dealer to receive or pass on credit.
2.6 It was further recorded that the first stage dealer had not "purchased" the imported scrap under cover of an invoice from the manufacturer/importer, nor had the dealers physically received the goods. The alleged receipts and issues by the dealers were only paper transactions, known to all three units, which shared common personnel and management, as evidenced by the statements of the authorized signatories who signed undated endorsements on the Bills of Entry.
2.7 The Tribunal stressed that mere existence of endorsed documents and internal records, without corroborated physical movement or possession of the goods, is insufficient to satisfy the basic conditions for availing CENVAT credit. The absence of any sale or purchase, and the creation of a paper trail solely to enable credit at a later date, were highlighted.
Conclusions
2.8 The Tribunal held that the imported melting scrap was not an eligible input for the manufacturer at the relevant time and that the use of endorsed Bills of Entry and dealer invoices, without physical receipt or proper procurement of goods, violated Rule 9 and Rule 4 of the CENVAT Credit Rules, 2004. Accordingly, the manufacturer was not entitled to CENVAT credit, and the demand for recovery of wrongly availed credit under Rule 14 read with Section 11A(1) was upheld.
Issue 3: Applicability of the decision in Union of India v. Marmagoa Steel Ltd. on endorsed Bills of Entry
Legal framework (as discussed)
2.9 The Tribunal referred to the decision of the Supreme Court in Union of India v. Marmagoa Steel Ltd., wherein it was held that CENVAT credit is admissible on imported consignments when the Bill of Entry is directly transferred by the importer to another unit of the assessee, without the goods being received by the importer's own manufacturing unit, provided duty has been paid and transfer of goods under the endorsed Bill of Entry is established.
Interpretation and reasoning
2.10 The Tribunal distinguished that precedent on facts. It observed that in Marmagoa Steel, transfer under endorsed Bills of Entry was accompanied by proof of receipt of goods by the recipient unit, and the duty payment and transfer were not in dispute.
2.11 In the present matter, the Tribunal found that the dealers (Appellants 2 and 3) had not procured the goods from the manufacturer/importer or from any other dealer under valid invoices, and there was no acceptable or corroborative evidence of actual receipt or procurement of the goods by them. It also noted that the importer-manufacturer itself could not have taken credit earlier because the imported scrap was not its input at the relevant time.
Conclusions
2.12 The Tribunal held that the ratio of Marmagoa Steel was not applicable in the absence of proof of physical movement/receipt of goods and in view of the ineligibility of the scrap as input at the relevant time. The reliance on that decision by the appellants was rejected.
Issue 4: Misuse of CENVAT scheme, invocation of extended period, and imposition of penalties under Rule 15(2), Rule 15A CCR and Rule 25 CER
Legal framework (as discussed)
2.13 The Tribunal considered Rule 14 and Rule 15(2) of the CENVAT Credit Rules, 2004 read with the proviso to Section 11A(1) and Section 11AC of the Central Excise Act, 1944, as well as penalties on registered dealers under Rule 15A of the CENVAT Credit Rules, 2004 and Rule 25 of the Central Excise Rules, 2002. It was noted that Rule 15A came into force with effect from 01.03.2008 and that its provisions, along with Rule 11 and Rule 25 of the Central Excise Rules, 2002, apply to registered dealers.
Interpretation and reasoning
2.14 The Tribunal endorsed the original authority's findings that the sequence of transfers-from importer-manufacturer to its dealer registration, then to the related dealer, and back to the manufacturing unit-was devised with a mala fide intention to misuse the CENVAT scheme. The aim was to convert otherwise ineligible credit on scrap (not an input in 2006) into apparently eligible input credit when the induction furnace was installed in 2008.
2.15 The Tribunal relied on the statements of common employees/authorized signatories who operated across all three units, signed undated endorsements, and were fully aware that the transactions were only on paper and that no physical movement or legal purchase/sale occurred. This common knowledge and coordinated conduct were treated as evidence of deliberate contravention.
2.16 Regarding the dealers, the Tribunal noted that the first dealer had not purchased the imported scrap under proper invoices and had passed on credit despite knowing the invalid nature of the transactions; similarly, the second dealer issued CENVATable invoices without ever receiving the goods, solely to enable the manufacturer to take credit. These acts post-01.03.2008 were held to fall squarely within Rule 15A and also to attract Rule 25 of the Central Excise Rules, 2002, as applied to registered dealers.
Conclusions
2.17 The Tribunal concluded that the appellants had intentionally contravened the CENVAT Credit Rules, 2004 and Central Excise Rules, 2002, by creating paper transactions and passing on credit without physical movement or valid procurement of goods. The extended period for recovery was implicitly justified on the basis of mala fides and suppression inherent in the scheme.
2.18 The denial and recovery of CENVAT credit, along with penalties on the manufacturer under Rule 15(2) read with Section 11AC, and on the dealers under Rule 15A of the CENVAT Credit Rules, 2004 and Rule 25 of the Central Excise Rules, 2002, were upheld. The appeals were dismissed in toto and the impugned appellate orders sustained.
Entitlement to avail cenvat credit on basis of endorsed bills of entry - allegation of suppression of facts alleged in the notice is sustainable so as to invoke the larger period of limitation provided under Rule 15 of Cenvat Credit Rules, 2004 read with proviso to Section 11 AC of Central Excise Act, 1944 or not - levy of penalty for the omissions/commissions alleged on the part of the notices - HELD THAT:- Admittedly in this case, the Appellant was a manufacturer of re-rollable materials viz. T.M.T bars which are their final products during the material period. The raw materials for such final products are ingots and billets. But what was imported and endorsed was melting scrap which are raw materials for the manufacture of ingots/billets and not for T.M.T. bars. For the production of ingots/billets one should have an induction furnace. The assessee herein did not have an induction furnace in the year 2006 and hence they were not in a position to produce ingots/billets at that point of time. Hence they are not entitled to take credit of duty paid on the melting scrap which was not their input. In so far as the melting scrap is concerned, they were merely acting as traders in a factory premises which is again impermissible. Rule 9 does not permit/authorize endorsement of a bill of entry for receiving materials by a registered dealer.
It was also observed therein that the first stage dealer is required to purchase the goods under cover of invoice from a manufacturer or from an importer. It is found that the Lower Adjudicating Authority has discussed all the issues raised by the Appellant. It is not disputed that the imported scrap has not been physically transferred from one party to another party which is a precondition for availing CENVAT credit facility.
There is violation of the provisions of CENVAT Credit Rules, 2004, making the appellant ineligible to avail of credit. It is also not clear how CENVAT credit has been availed or transferred without receipt of the goods involved physically. Further, it is failed to understand the motive behind import of the scrap which is not an input at that relevant time and to stock it in its own dealer’s premises and then transfer to the other dealer who is related to them and also further retransfers to the appellant’s main unit for its usage. All these transactions availing credit and transferring the same have been carried out without receipt or dispatch of the goods. There is no sale or purchase - Furthermore, there is no evidence to establish that any physical movement of goods actually took place. While endorsed documents may serve as evidence of duty payment, there must also be clear and credible proof of receipt of the goods under those documents and their subsequent use in manufacture / sale. Mere creation of paperwork or paper trial to indicate movement of goods, or mere endorsement of Bills of Entry, is not sufficient to establish eligibility for credit. The essential conditions required for availing credit have therefore not been fulfilled.
The Appellants have failed to substantiate, with clear proof or evidence, that the transactions in question actually took place, based on the records available - Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether, in the case of inter-unit transfers valued under Rule 8 of the Central Excise Valuation Rules, 2000 on the basis of CAS-4 costing, the duty short paid in some months and excess paid in other months of the same financial year can be adjusted on a net basis, so that only the differential duty for the year is payable, notwithstanding that the clearances were not under provisional assessment.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Adjustment of excess and short payment of duty under CAS-4 based valuation for inter-unit transfers
Legal framework (as discussed by the Tribunal)
(a) Rule 8 of the Central Excise Valuation Rules, 2000, requiring valuation on cost of production plus 10% where goods are captively consumed or transferred to a sister unit and there is no sale.
(b) CAS-4 (Cost Accounting Standard-4) methodology and ICAI/ICWAI guidelines on periodicity and annual cost determination, including the 2012 revised guidelines advising annual certification based on finalized books and payment of differential duty if actual costs differ from provisional costs.
(c) Sections 11A and 11B of the Central Excise Act, 1944, as examined in the context of whether refund provisions or unjust enrichment principles apply when computing final liability on an annual CAS-4 basis.
Interpretation and reasoning
(a) The Tribunal noted that the clearances were to a sister unit for captive consumption with no independent sale, and valuation was done under Rule 8 on the basis of CAS-4, initially using previous year's audited cost data, followed by reconciliation when current year figures became available.
(b) Relying extensively on the judgment of the High Court of Madhya Pradesh in the matter concerning Godrej Consumer Products, and the Tribunal's decisions in Essar Steel India Ltd. and Jindal Steel & Power Ltd., the Tribunal accepted that when CAS-4 based valuation is finalised on an annual basis, the "overall duty liability/short payment" must be computed after considering all duty already paid on such goods during that financial year.
(c) The Tribunal endorsed the reasoning that where annual CAS-4 costing is applied, it is legally untenable for the department to:
(i) Use full-year data to derive a uniform CAS-4 cost/assessable value, but
(ii) Confine the demand only to months where the earlier adopted value was below such cost, while ignoring months where duty was paid on a higher value than the CAS-4 figure.
(d) The Tribunal emphasized that, even in the absence of formal provisional assessment, once the valuation is based on annual CAS-4, the computation of demand must follow the same basis; hence, excess duty paid in some months and short duty in others must be netted out, and only the differential, if any, can be demanded.
(e) It was specifically held, in line with Essar Steel India Ltd., that Section 11B and the doctrine of unjust enrichment have "no application" in such a situation, because the adjustment of excess and short payment is part of the final determination of liability on an annualized CAS-4 basis, not a claim for refund of duty.
(f) The Tribunal further relied on Suzlon Energy Ltd., Devi Thread Processors Pvt. Ltd. and Bajaj Tempo Ltd. to hold that in inter-unit transfers without sale, and where credit is availed by the recipient unit, adjustment of excess duty with short-paid duty is permissible and insistence on separate payment and refund would be a meaningless and unnecessary exercise.
(g) The Tribunal distinguished the decisions cited by the Revenue-Mahindra & Mahindra Ltd., Krishna Electric Industries Ltd. and Sterlite Industries Ltd.-on the ground that:
(i) In Mahindra & Mahindra, short payment arose due to a wrong CAS-4 certificate detected by Revenue on audit and related to different factual circumstances.
(ii) In Krishna Electric Industries, the dispute concerned depot sales and Rule 7 valuation, with price variations over periods, not inter-unit transfers under Rule 8.
(iii) In Sterlite Industries, the issue was non-inclusion of certain cost elements in CAS-4, unlike the present case where the method and correctness of annual CAS-4 costing were not in dispute.
(h) Referring to ICWAI 2012 revised guidelines, the Tribunal agreed that where provisional costing is used during the year and annual CAS-4 is computed on finalized accounts, differential duty is to be worked out for the year and paid on a net basis, which supports the practice followed by the appellant.
Conclusions
(a) For inter-unit transfers valued under Rule 8 on CAS-4 basis, when the final assessable value is determined on annual CAS-4 costing, the department must compute the liability for the entire financial year by adjusting excess duty paid in certain months against short duty in others; only the net differential duty, if any, is recoverable.
(b) Automatic disallowance of such adjustment, and insistence that the assessee should pay gross short duty for some months and separately claim refund for excess paid in others, is contrary to the correct application of Rule 8, CAS-4 norms, and the binding judicial precedents relied upon.
(c) The denial of adjustment by the lower authorities was held to be legally unsustainable; accordingly, the impugned order was set aside and the appeal allowed, with the effect that only the already self-calculated net differential duty (if any) remains payable for the relevant financial year.
Recovery of short paid duty with interest and penalty - permissibility of adjustment of excess payment of excise duty against short payment of duty - liability of appellant to pay only the differential duty after making adjustment of excess paid duty during a period with short paid duty during the other period - HELD THAT:- It is found that the decision of Hon'ble High Court of Judicature of Madhya Pradesh at Gwalior in the case of Principal Commissioner of CGST & C. Ex., Headquarters Bhopal vs. Godrej Consumer products Limited [2019 (5) TMI 222 - MADHYA PRADESH HIGH COURT] has discussed this issue in detail. It held that overall duty liability/ short payment should be arrived at after considering the duty already paid during that year on such goods. It also held that adjustment of short/ excess paid duty is permissible against demand determined based on annual costing. It considered the decision of Tribunal in the case of Essar Steel India Limited [2016 (9) TMI 1175 - CESTAT NEW DELHI] and Jindal Steel and Power Limited [2016 (10) TMI 870 - CESTAT NEW DELHI].
It is also found that this Tribunal in the case of Suzlon Energy Limited vs. CCE, Cus. & ST, Vadodara [2015 (10) TMI 1242 - CESTAT AHMEDABAD] has held that in case of interunit transfer, valuation was adopted on the basis of CAS-4. As there is no sale of goods, adjustment of duty paid short with duty paid in excess is permissible.
The decision of lower authorities denying adjustment of excess paid duty for some month (due to adoption of assessable value higher than CAS-4 figures) with short payment in some months, is not proper. In this case, there is no sale to independent buyers and only interunit transfer of goods for captive consumption is involved. There seems nothing wrong in adopting previous financial year’s audit data to prepare CAS-4 and use the same for assessing duty on interunit transfer of goods and then reconcile duty payment figures as and when figures for the current year is available.
The impugned order passed by the Commissioner (Appeals) set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether recovery of duty under Section 11D of the Central Excise Act, 1944 was permissible when duty collected from the buyer had already been deposited with the Government.
(2) Whether allegations of clandestine manufacture and clearance of 2490.880 MT of finished goods, based primarily on investigation at the buyer's end and a third-party statement, were legally sustainable.
(3) Whether the statement of the buyer's director, recorded during investigation, could be relied upon without compliance with Section 9D of the Central Excise Act, 1944.
(4) Whether penalties on the appellant-company and on its director under Section 11AC of the Act read with Rule 26 of the Central Excise Rules, 2002 were sustainable in absence of a sustainable duty demand and corroborative evidence of involvement.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Recovery under Section 11D when duty already deposited
Legal framework (as discussed) - Section 11D enables recovery where an assessee collects any amount as duty of excise from buyers but does not deposit the same with the Central Government. Interest under Section 11DD was also invoked in the impugned order.
Interpretation and reasoning - The Tribunal recorded that there was no dispute that: (a) the appellant issued central excise invoices to the buyer for 2490.880 MT of M.S. Rounds and M.S. Flats; (b) the appellant collected duty from the buyer; and (c) the entire duty so collected was deposited in the Government account. The transactions were on an ex-factory basis and payments were received through account payee cheques. The Tribunal held that Section 11D applies only where amounts collected "as duty" from customers are retained by the assessee and not paid to the Government. Since, in the present case, duty had already been correctly paid into the Government account, there was no statutory basis to invoke Section 11D or to again demand the same amount under that provision. Consequently, appropriation of the already paid duty against the Section 11D demand was also held to be unwarranted.
Conclusions - (a) Section 11D was inapplicable as there was no retention of duty collected from the buyer; (b) the demand of Rs. 71,14,525/- under Section 11D and interest under Section 11DD were set aside; (c) appropriation of duty already paid against the Section 11D demand was held unsustainable and set aside; (d) the duty earlier paid in the normal course on the clearances, being correctly discharged, was not interfered with.
Issue (2): Alleged clandestine manufacture and clearance of finished goods
Legal framework (as discussed) - Duty on clandestine removals was demanded under Section 11A(4) with interest under Section 11AA and penalty under Section 11AC. The Tribunal applied settled principles that clandestine clearance is a serious charge requiring cogent, corroborative evidence, and that duty cannot be demanded on assumptions, presumptions, or mere preponderance of probabilities.
Interpretation and reasoning -
(a) The entire case of the Department against the appellant was based on an earlier investigation against the buyer, wherein it was alleged that the buyer availed irregular CENVAT credit on invoices without receipt of goods. The Tribunal noted that separate show cause proceedings against the buyer had culminated in disallowance of such CENVAT credit by an order-in-original, independent of the present proceedings.
(b) The Department's allegation in the present case was that the appellant issued invoices to the buyer without actually supplying the goods and instead clandestinely diverted 2490.880 MT of finished goods to other customers without payment of duty. The Tribunal examined the appellant's evidence and statements: (i) the appellant's authorised representative stated that the goods were sold on an ex-factory basis; (ii) transportation was arranged by the buyer; (iii) duty was paid on the clearances; and (iv) payments were received through account payee cheques. The Tribunal accepted that, on an ex-factory sale, responsibility for transportation and any discrepancy regarding vehicle numbers or infrastructure at the buyer's end cannot be fastened on the seller.
(c) The Tribunal observed that no independent evidence was produced by the Department to support the allegation that the appellant clandestinely manufactured and cleared the same quantity to unnamed other customers. There was no corroborative material such as evidence of excess raw material purchases, excess production, extra electricity consumption, transport documents indicating unaccounted removals, identification of actual clandestine buyers, realization of sale proceeds of alleged unaccounted clearances, or discovery of unaccounted finished goods outside the factory. Reference was made to judicial precedents which require tangible corroborative evidence in matters of clandestine removals and reject demands based merely on private records or uncorroborated statements.
(d) The Tribunal emphasized that charges of clandestine removal cannot be sustained solely on presumptions or on inferences drawn from the buyer's conduct or infrastructure, particularly when there is no evidence that the appellant diverted goods to other parties or received any unaccounted consideration.
Conclusions - (a) The allegation that the appellant clandestinely manufactured and cleared 2490.880 MT of finished goods to third parties was held unsubstantiated and unsupported by corroborative evidence; (b) the demand of Rs. 71,14,525/- under Section 11A(4) on account of alleged clandestine manufacture and clearance, along with consequential interest, was set aside.
Issue (3): Admissibility and evidentiary value of third-party statement under Section 9D
Legal framework (as discussed) - Section 9D of the Central Excise Act governs the relevancy and admissibility of statements made before gazetted Central Excise officers. It prescribes conditions under which such statements may be treated as relevant and the mandatory procedure for their use as evidence, including examination of the maker as a witness and opportunity for cross-examination, unless circumstances under Section 9D(1)(a) exist.
Interpretation and reasoning -
(a) The adjudicating authority had primarily relied upon the statement of the buyer's director, who had allegedly admitted that the buyer's transactions were only on paper and that invoices were received without corresponding physical receipt of goods. The Tribunal found that this statement, though recorded during investigation, had not been dealt with in accordance with Section 9D-there was no examination of the maker before the adjudicating authority, no recorded satisfaction for admitting the statement in evidence, and no opportunity for cross-examination.
(b) By referring to binding judicial precedents interpreting Section 9D, the Tribunal held that: (i) statements recorded during investigation cannot be treated as relevant evidence to prove the truth of their contents in adjudication proceedings unless Section 9D(1) is complied with; (ii) in absence of compliance, such statements lose their evidentiary value; and (iii) if the procedure under Section 9D is not followed, reliance on such statements amounts to reliance on irrelevant material, which vitiates the finding.
(c) The Tribunal applied these principles to the present case and held that the buyer's director's statement, being untested and admitted without compliance with Section 9D, had no evidentiary value and could not be used to sustain the demand or to prove that no goods were actually supplied by the appellant.
Conclusions - (a) The statement of the buyer's director, recorded during investigation, was held inadmissible and devoid of evidentiary value for want of compliance with Section 9D; (b) such untested statement could not be relied upon to support the allegations of non-supply of goods or clandestine diversion by the appellant.
Issue (4): Sustainability of penalties on the company and its director
Legal framework (as discussed) - Penalty equal to duty was imposed on the company under Section 11AC for alleged suppression and clandestine clearances. A separate penalty was imposed on the director under Rule 26(1) read with Rule 26(2)(ii) of the Central Excise Rules, 2002 for alleged involvement in the offence.
Interpretation and reasoning -
(a) The Tribunal held that once the substantive duty demands, both under Section 11D and under Section 11A(4) for clandestine clearances, were found unsustainable on merits, no question of penalty or interest could survive. With the main charge itself failing, penal provisions could not be independently invoked.
(b) As regards the director, the Tribunal found that the Department had not brought on record any corroborative evidence to establish his personal knowledge, participation, or conscious involvement in any act of issuing bogus invoices or diverting goods to undisclosed customers. In absence of specific evidence, mere designation as director could not justify penalty under Rule 26.
Conclusions - (a) Penalty on the company under Section 11AC, being consequential to an unsustainable demand, was set aside; (b) penalty on the director under Rule 26(1) read with Rule 26(2)(ii) was also set aside due to absence of corroborative evidence of his involvement; (c) with both demands having been quashed on merits, corresponding liabilities for interest and penalties did not survive.
Clandestine removal - recovery of duty u/s 11D of the Central Excise Act, 1944 when duty collected from the buyer had already been deposited with the Government - entire proceedings have been initiated against the appellants on the basis of another investigation initiated by the officers of Kolkata-III Commissionerate against the receiver of the goods supplied by the appellant-company - Penalty imposed on Director of the appellant-company - HELD THAT:- There is no dispute that the appellant has discharged duty on the sale of 2490.880 M.T of M.S Round & M.S. Flats and the duty collected from the customer M/s. Satabdi has been paid to the government account. Thus, it is observed that the provisions of Section 11D are not applicable for the facts and circumstances of this case. Section 11D can be invoked to recover the duty when the appellant has collected any amount as central excise duty’ from the customers and not deposited the same to the government account, which is not the case here.
In this case, the appellant has raised central excise duty in the invoices raised by them to their customer (M/s. Satabdi), collected the duty from the customer and deposited the same in the government account. Hence, there is no necessity to invoke the provisions of Section 11D to recover the duty again, as the same has already been deposited in the government account.
The Revenue has also alleged that the appellants have not actually supplied the 2490.880 M.T of M.S Round & M.S. Flats to M/s. Satabdi. The case of the Department is that the appellant had adopted the modus operandi of sending the goods to someone and cenvatable invoices were made available to M/s.Satabdi; on the strength of those illegal invoices M/s Satabdi had taken CENVAT credit without receiving the goods physically - the allegation against the appellant that they have clandestinely manufactured and cleared 2490.880 M.T. of M.S Round & M.S. Flats to some other customers other than M/s. Satabdi is not substantiated. Thus, it is also found that this allegation of clandestine manufacture and clearance of 2490.880 M.T. of M.S Rounds & M.S. Flats against the appellant is not supported by any evidence.
It is also observed that the demand on this score has been confirmed by the ld. adjudicating authority by relying on the statement of Director of M/s. Satabdi, wherein he has admitted that his company had resorted to paper transactions, i.e., received only invoices without actual receipt of goods. However, it is observed that his statement has not been tested as mandated under Section 9D of the Central Excise Act, 1944. Accordingly, the said statement has no evidentiary value and cannot be relied upon in the current proceedings against the appellants.
Reference made to the decision of the Hon'ble Punjab and Haryana High Court in the case of G-Tech Industries Vs. Union of India [2016 (6) TMI 957 - PUNJAB & HARYANA HIGH COURT], wherein it has been held that the Adjudicating Authority should first examine the person whose statement is to be relied upon to form an opinion whether the statement is to be admitted as an evidence. After that if that statement is to be admitted, then an opportunity is to be given for cross examination.
Thus, by relying on the decisions, it is held that the statements relied upon by the ld. adjudicating authority in this case have no evidentiary value, without any further corroborative evidence thereto - Moreover, it is well settled that central excise duty cannot be demanded on the basis of assumptions and presumptions or preponderance of probabilities. Clandestine clearance is a serious allegation, which requires cogent corroborative evidences to substantiate the allegations, which are absent in this case.
There is no corroborative evidence available on record to substantiate the allegation of manufacture and clandestine clearance of the goods in this case. Accordingly, the demand of central excise duty confirmed against the appellant in the impugned order is not sustainable and hence the same is set aside - As the demand of duty does not survive, the question of demanding interest or imposing penalty on the appellant-company does not arise. Accordingly, the same stand set aside.
Penalty imposed on Director of the appellant-company - HELD THAT:- The Department has failed to bring in any corroborative evidence to establish his involvement in the alleged offence. Therefore, on the basis of the documentary evidence available on record, the penalty imposed on him is liable to be set aside.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1. Whether failure to supply seized and relied-upon documents before passing the adjudication order, and deciding the matter ex parte, violated principles of natural justice and rendered the order unsustainable.
1.2. Whether central excise duty demand for alleged clandestine manufacture and clearance could be sustained when based solely on private "rough estimate" note books without corroborative evidence, and the consequent effect on eligibility to SSI exemption under Notification No. 8/2003-CE.
1.3. Whether duty demand and confiscation in respect of finished goods found in stock at the time of search were sustainable when the total value of clearances including such goods remained within the SSI exemption limit.
1.4. Whether imposition of interest and penalty on the manufacturer under Sections 11AB, 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 could survive when the substantive duty demands were set aside.
1.5. Whether penalties imposed on the Director and Supervisor under Rule 26 of the Central Excise Rules, 2002 were sustainable in the absence of evidence establishing their involvement in any offence.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Non-supply of relied-upon documents and violation of natural justice
Legal framework (as discussed):
2.1. The Tribunal considered the general principles of natural justice, particularly the requirement of furnishing relied-upon material to an affected party and affording adequate opportunity to rebut allegations and adduce evidence.
Interpretation and reasoning:
2.2. The appellants repeatedly requested, by multiple letters, supply of all seized and relied-upon documents referred to in the show cause notice.
2.3. From the record, the Tribunal found no evidence that such documents were ever supplied before the adjudicating authority proceeded to decide the matter ex parte.
2.4. The Tribunal held that, without access to the relied-upon documents, the appellants were effectively denied an opportunity to make "effective submissions" and to defend against the allegations, amounting to a breach of natural justice.
2.5. Relying on the principle that orders passed in violation of natural justice are void and not curable, the Tribunal held that an ex parte order passed without supplying the relied-upon documents is not sustainable in law.
Conclusions:
2.6. The impugned order, having been passed ex parte without supplying relied-upon documents, was held to be vitiated for violation of principles of natural justice. The Tribunal, however, proceeded to examine and decide the matter on merits as well.
Issue 2 - Sustainability of demand for clandestine clearances and effect on SSI exemption
Legal framework (as discussed):
2.7. The demand was raised under Section 11A of the Central Excise Act, 1944, on the ground that by suppressing production/clearances the assessee allegedly crossed the exemption threshold under Notification No. 8/2003-CE (SSI exemption).
2.8. The Tribunal discussed the settled legal position that clandestine clearance is a serious allegation requiring cogent, corroborative evidence and that duty cannot be demanded on mere assumptions, presumptions or preponderance of probabilities.
Interpretation and reasoning:
2.9. The department computed total clearances for the relevant financial year by adding: (a) recorded clearances of about Rs. 1,18,14,462/-, and (b) an additional value of Rs. 85,95,500/- derived solely from eight "Books containing Rough Estimates" seized from the premises.
2.10. The Tribunal noted that there was no investigation to establish that the quantities and values reflected in these rough estimate books corresponded to actual manufacture and clearance of excisable goods.
2.11. No verification was done at the alleged buyers'/receivers' end; no statements or confirmations from such buyers were produced.
2.12. No transporters were identified; no evidence of transportation of alleged unaccounted goods was brought on record.
2.13. There was no evidence of purchase of excess raw material, no proof of excess consumption of electricity, and no evidence of receipt of sale proceeds (cash or otherwise) relating to alleged clandestine removals.
2.14. The adjudicating authority had treated the private rough estimate books as if they were records of actual clearances without any corroborative material, contrary to the settled requirement that private/internal documents cannot, by themselves, form the sole basis of a clandestine removal demand.
2.15. Based on judicial precedents cited and extracted, the Tribunal reiterated that, in cases of alleged clandestine manufacture and removal, the Revenue must adduce tangible evidence such as excess raw material, proof of actual removal, statements of buyers, transport details, flow-back of funds, or other concrete corroboration. Such evidence was found to be wholly absent.
Conclusions:
2.16. The inclusion of Rs. 85,95,500/- based solely on rough estimate books to compute the total value of clearances was held to be legally unsustainable.
2.17. Consequently, the total clearance value of Rs. 2,04,09,926/- adopted by the department was held to be unsupported by evidence.
2.18. On exclusion of this unsupported component, the actual value of clearances remained Rs. 1,18,14,462/-, which is within the SSI exemption limit under Notification No. 8/2003-CE for the relevant year.
2.19. The demand of central excise duty of Rs. 16,65,594/- (with cess) relatable to alleged clandestine clearances, along with interest, was held unsustainable and was set aside.
Issue 3 - Duty demand and confiscation of goods found in stock at the time of search
Legal framework (as discussed):
2.20. Demand on the seized finished goods was confirmed under Section 11A, and confiscation ordered under Rule 25 of the Central Excise Rules, 2002, with an option of redemption fine.
2.21. The Tribunal examined this in the context of the SSI exemption limit under Notification No. 8/2003-CE.
Interpretation and reasoning:
2.22. Central excise duty of Rs. 2,56,000/- and education cess of Rs. 5,120/- had been demanded on the goods lying in stock in the factory on the date of search.
2.23. The Tribunal observed that, after excluding the unsupported alleged clandestine clearances, the total value of clearances for the financial year, even when the value of the seized in-stock goods is included, remained within the SSI exemption threshold.
2.24. Since the assessee's aggregate clearances (including the seized stock) did not exceed the SSI limit, no duty was payable on such goods under the relevant exemption Notification.
2.25. Once no duty liability on such stock existed by reason of SSI exemption, the basis for treating the finished goods as liable to confiscation under Rule 25 also failed.
Conclusions:
2.26. The duty demand of Rs. 2,56,000/- and cess of Rs. 5,120/- on the goods found in stock at the time of search was held unsustainable and set aside.
2.27. The order of confiscation of the finished goods and the associated redemption fine were held to be unjustified and were set aside.
Issue 4 - Interest and penalty on the manufacturer
Legal framework (as discussed):
2.28. Interest had been ordered under Section 11AB, and penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002, premised entirely on the confirmed duty demands.
Interpretation and reasoning:
2.29. The Tribunal found that all substantive duty demands (on alleged clandestine clearances and on stock in factory) were unsustainable and were being set aside.
2.30. In the absence of any surviving demand of duty, there remained no foundation in law for levy of interest or imposition of penalty upon the manufacturer under Section 11AC/Rule 25.
Conclusions:
2.31. With the duty demands set aside, the consequential interest liability and penalty imposed on the manufacturer were held to be unsustainable and were accordingly set aside.
Issue 5 - Penalties on Director and Supervisor under Rule 26
Legal framework (as discussed):
2.32. Penalties had been imposed on the Director and the Supervisor under Rule 26 of the Central Excise Rules, 2002, which requires evidence of their knowing involvement in dealing with excisable goods in a manner rendering them liable to confiscation.
Interpretation and reasoning:
2.33. The Tribunal examined the record and found no evidence establishing that the Director or Supervisor had knowingly participated in or facilitated any clandestine manufacture, clearance, or other contravention.
2.34. With the primary finding that clandestine removal and duty evasion were not established against the manufacturer, the prerequisite factual foundation for invoking Rule 26 against individuals was absent.
2.35. The Tribunal held that the necessary ingredients for imposition of penalty under Rule 26 had not been proved in the instant case.
Conclusions:
2.36. The penalties imposed on the Director and Supervisor under Rule 26 were held to be unsustainable and were set aside.
2.37. As a result, the entire impugned order was set aside and all appeals were allowed with consequential relief as per law.
Violation of principles of natural justice - ex-parte order - non-supply of relied upon documents - denial of opportunity to make effective submissions in respect of the allegations raised in the Show Cause Notice - suppression of production to avail SSI Exemption under Notification No.8/2003-CE dated 01.03.2003, as amended - HELD THAT:- It is observed that the appellant had requested the adjudicating authority to supply all the seized documents /documents relied upon in the Notice vide their letters dated 05.09.2007, 03.10.2007, 11.12.2007 and 19.12.2007. However, from the documents available on record, there are no evidence of supply of the relied upon documents by the Department. The ld. adjudicating authority has passed the Order-in-Original without supplying the relied upon documents. Thus, there are merit in the argument of the appellants that non-supply of relied upon documents denied them the opportunity to make effective submissions in respect of the allegations raised in the Notice. Thus, the impugned order passed ex-parte, without following the principles of natural justice, is not sustainable in the eyes of law.
The Department has not conducted any investigation to ascertain as to whether the appellant had actually manufactured those goods and supplied the same to the customers mentioned therein, or not. No verification has also been conducted at the receiver’s end. Further, no transporter transporting the goods has been identified and no evidence of receipt of money in cash for the clandestinely manufactured and cleared goods has been brought on record. Thus, the ld. adjudicating authority has confirmed the duty liability of Rs.16,65,594/- in the Order-in-Original, by considering the clearance value based on the private documents seized from the factory/office premises as actual clearances effected, without any evidence to support the claim.
A similar issue has also been dealt with by the Tribunal at Ahmedabad in the case of Arya Fibres Ltd. v Commissioner of C.Ex., Ahmedabad-II [2013 (11) TMI 626 - CESTAT AHMEDABAD] wherein the Bench has categorically opined that the allegation of clandestine removal is to be corroborated by supporting evidences.
There is no corroborative evidence available on record to substantiate the allegation of manufacture and clandestine clearance of the goods in this case. Thus, the inclusion of the value arrived at from the 8 Books containing Rough Estimates amounting to Rs.85,95,500/- to arrive at the total clearance value of the appellant-company for the Financial Year 200506, is not legally sustainable. Accordingly, there are no merit in the confirmation of the duty liability of Rs. 16,65,594/- in the Order-in-Original by the adjudicating authority, by considering the clearance value based on the private documents seized from the factory/office premises as actual clearances effected, without any evidence in support. Therefore, the total clearance value for the Financial Year 2005-06 arrived by the department as Rs.2,04,09,926/-, is not supported by any evidence.
As the demand of duty against the appellant-company does not survive, the question of demanding interest or imposing penalty against the appellant-company does not arise.
Penalty on Director and Supervisor - HELD THAT:- The Department has failed to bring in any evidence to establish their involvement in the alleged offence. Thus, the ingredients required for imposition of penalty on these appellants under Rule 26 of the Central Excise Rules, 2002, are absent in the instant case. Accordingly, the penalties imposed on these appellants are liable to be set aside and hence, the same is set aside.
The impugned order is set aside - appeal allowed.
Issues: (i) Whether statements recorded during investigation and computer printouts from a pen drive could be relied upon without compliance with the mandatory procedural requirements governing admissibility of statements and electronic records; (ii) Whether the allegation of clandestine removal was proved on the basis of the materials on record in the absence of corroborative evidence.
Issue (i): Whether statements recorded during investigation and computer printouts from a pen drive could be relied upon without compliance with the mandatory procedural requirements governing admissibility of statements and electronic records.
Analysis: The evidentiary value of statements recorded during investigation depends on compliance with the statutory procedure for admitting such statements in adjudication. In the same manner, computer printouts and other electronic material can be acted upon only when the requirements for proving electronic records are satisfied. Where the department relies on such material without following the prescribed procedure, the material cannot be treated as substantive evidence.
Conclusion: The statements and electronic printouts were not admissible as reliable evidence against the assessee.
Issue (ii): Whether the allegation of clandestine removal was proved on the basis of the materials on record in the absence of corroborative evidence.
Analysis: A charge of clandestine removal must be established by tangible and corroborative evidence. Private papers, wage sheets, or estimated production figures, without supporting proof of excess raw material purchase, electricity consumption, transport movement, buyers, cash flow, or other connecting evidence, are insufficient. In the absence of such corroboration, the demand and penalties cannot be sustained.
Conclusion: The allegation of clandestine removal was not proved and the demand and penalties could not survive.
Final Conclusion: The impugned demand, interest, and penalties were set aside, and the appeals succeeded with consequential relief.
Ratio Decidendi: A demand for clandestine removal cannot rest on untested statements or electronic material unless the statutory rules of admissibility are complied with, and it must be supported by independent corroborative evidence establishing the removal.
Clandestine removal - clearance of goods without issuing excise invoices or paying duty thereon, or without making any declaration in respect thereto in the ER1 returns filed by it before the concerned jurisdictional authorities - demands are founded entirely on some loose sheets and a register allegedly resumed from a pen drive purportedly recovered from the cashier of the company during the said period - onus to establish clandestine removal is on the Department - existence of corroborative evidences or not - HELD THAT:- There are force in the argument that statutory provisions are required to be followed, so as to ascertain as to whether the recorded statements and the computer prints outs would have evidentiary value or not. The High Courts and Tribunals have been consistently holding that if the specified procedure under statute are not followed, the computer print outs cannot be form part of Revenue’s evidence, if Section 36B is not followed. Similarly, if the procedure under Section 9D is not followed, then the recorded statements cannot have any evidentiary value.
The non-certified computer printouts taken computer and recorded statements without following the statutory provisions, cannot be used as an evidence by the Revenue. We hold that the computer printouts as well as the recorded statements would have not evidentiary value in the present case.
Coming to the corroborative evidence, it is found that the Revenue has not come out with any corroborative evidence with regard to consumption of other raw materials, excess electricity consumption, movement of vehicles, statement of purported buyers of finished goods on cash, private cash receipt records etc.. Even the quantification of manufacture is without any proper basis. The deployment of labour itself cannot make the Revenue arrive at the production details. No statements have been recorded from the vehicle owners/drivers. The stock taking conducted did not show any excess / short nor any demand was made on account of any deficiency noticed during the stock taking. Therefore, the allegation about removal of the goods clandestinely cannot be arrived at based on assumptions and presumptions.
Since the demand against the appellant company has been set aside, the penalty imposed on the appellant Director also does not survive.
The impugned order stands set aside - appeal allowed.
Issues: (i) Whether penalty under section 13-A(4) of the U.P. Trade Tax Act, 1948 could be sustained merely on the basis of seizure of goods and an inferred omission in the books of account; (ii) whether the findings of the authorities below could stand when the disclosure in the monthly return and absence of any contemporaneous survey or inspection were not considered.
Issue (i): Whether penalty under section 13-A(4) of the U.P. Trade Tax Act, 1948 could be sustained merely on the basis of seizure of goods and an inferred omission in the books of account.
Analysis: Penalty proceedings required a definite basis to show that the transaction had not been duly recorded with an intention to evade tax. The record showed that the relevant sale was disclosed in the monthly return, and no material was brought on record to show that, immediately after seizure, any survey, inspection, search, or verification was conducted at the business premises to test the genuineness of the transaction or the books of account. Seizure alone was held insufficient to justify an inference that entries were absent in the books.
Conclusion: The penalty could not be sustained on the basis of seizure and inference alone, and the issue was decided in favour of the revisionist.
Issue (ii): Whether the findings of the authorities below could stand when the disclosure in the monthly return and absence of any contemporaneous survey or inspection were not considered.
Analysis: The authorities below failed to deal with the specific plea that the invoice had already been disclosed in the monthly sales return and that the goods were claimed to be covered by an exemption notification. The absence of any inspection or survey after seizure meant that the adverse conclusion drawn by the authorities lacked supporting material, rendering the finding unsustainable and perverse.
Conclusion: The findings of the authorities below could not be sustained, and the issue was decided in favour of the revisionist.
Final Conclusion: The penalty order and the appellate affirmation were set aside, and the revision succeeded on the ground that the alleged non-recording in the books of account was not proved by reliable material.
Ratio Decidendi: A penalty for alleged non-recording of a transaction cannot be upheld on seizure alone unless the authority establishes, on reliable contemporaneous material, that the transaction was not entered in the books of account with an intention to evade tax.
Imposition of penalty u/s 13-A(4) of the U.P. Trade Tax Act, 1948 - transaction in question was duly disclosed in the monthly return and this fact was not rebutted or disputed by the lower authority - challan no. was hand written and not printed and by presuming that such challan cannot be verified whereas the law does not contemplate such a presumption - confirmation of quantum of penalty at maximum rate i.e. @ 40% of the value of goods, when maximum penalty requires justifiable reasons - HELD THAT:- While passing the penalty order dated 30.11.2005 the said fact has neither been noticed nor any order has been passed on the said basis that the monthly return in August 2004 was filed after disclosure of monthly sales. The record does not show that after detention or seizure of the goods, any inspection or survey was conducted at the business premises of the revisionist to verify the authenticity of the transaction in question. The State authorities are duly equipped with SIB, Flying Squad/Mobile Squad in every cities. When the seizure was made, the authorities ought to have inspected the business premises of the revisionist to verify the genuineness of the transaction as to whether the same were duly recorded in the books of account or not. In the case in hand, nothing has been brought on record to show any inspection/survey was conducted after the seizure of the goods. It is a matter of common knowledge that the books of account of the assessee are always verified at the time of assessment or the provisional assessment. In the case in hand, neither any provisional assessment proceedings were initiated, nor any survey or search was conducted at the business premises of the revisionist. Therefore, the inference drawn only on the basis of seizure of the goods that due entries were not made in the books of account cannot be justified.
This Court in the cases of M/s Randeep Singh Steel Private Limited [2025 (11) TMI 1332 - ALLAHABAD HIGH COURT] and M/s Sonu Metal Store [2025 (12) TMI 216 - ALLAHABAD HIGH COURT] has specifically held that no adverse inference can be drawn against the revisionist as nothing has been brought on record to show that immediately after seizure any survey or inspection was conducted at the business premises of the revisionist to verify as to whether due entries were made in the books of account or not.
For initiation of proceedings, the authority has to come to a definite conclusion that there was an intention to evade payment of tax and therefore, the transaction in question has not been duly recorded in the books of account. In absence thereof, the proceedings initiated against the revisionist cannot be justified - The Tribunal has recorded a perverse finding of fact without there being any material that the revisionist has not recorded the transaction in its books of account at the relevant time of its movement. Such finding can only be justified if the Department made a survey or search or even a provisional assessment order was passed immediately.
The impugned orders passed in these revisions cannot be sustained in the eyes of law. The same are hereby set aside - revision allowed.
Issues: Whether the writ court should interfere with a show cause notice issued for enquiry regarding the nature and title of land.
Analysis: The notice was treated as a show cause notice only. Although it contained reasons for initiation of proceedings, it did not record any final finding on title, ownership, or reversion of the land. The challenge was considered premature because the petitioner had been called upon to place its stand before the Collector. The Court found that the questions raised required adjudication in the pending proceedings and should first be examined by the authority issuing the notice.
Conclusion: Interference in the show cause notice was declined and the petition was not entertained on merits.
Show cause notice - preliminary enquiry into title - no final finding recorded - opportunity of hearing and filing reply - non-interference with administrative adjudication
Show cause notice - no final finding recorded - Impugned notice is a show cause notice and does not amount to a final adjudicatory order on title or ownership. - HELD THAT: - The Court examined the notice issued under the presumed authority of section 182 of the Madhya Pradesh Land Revenue Code, 1959, and observed that although reasons and observations are recorded in the notice, such observations cannot be treated as final findings on title or ownership. The Court clarified that any observations in the show cause notice will not be treated as conclusive or final adjudication of the matter and that the characterisation of the document as a show cause notice precludes immediate interference with the administrative process at this stage. [Paras 4]
The notice is a show cause notice and not a final order; observations therein are not to be treated as final findings.
Preliminary enquiry into title - opportunity of hearing and filing reply - non-interference with administrative adjudication - Questions of title, succession of the grant and whether the land has reverted to the State require adjudication by the Collector after hearing the petitioner; the Court will not interfere with the ongoing proceedings. - HELD THAT: - The Court noted contested factual and legal questions concerning the origin of title (whether the land belonged to the Maharani, the Holkar State, or otherwise), the effect of historical grants, and subsequent transfers. These matters necessitate enquiry and determination by the Collector, who has issued the show cause notice to conduct such enquiry. The petitioner was directed to appear before the Collector, file a reply and participate in the proceedings so that proper adjudication can be carried out. Given the preliminary nature of the proceedings, judicial interference was declined without expressing any opinion on the merits. [Paras 6, 7]
Matter to be adjudicated by the Collector after hearing; petitioner to file reply and participate; court declines to interfere at this stage.
Final Conclusion: Writ petition dismissed without adjudicating merits; impugned notice is treated as a show cause notice only, observations therein are not final, and the petitioner is directed to participate in the Collector's proceedings by filing a reply; no opinion expressed on substantive title issues.
TaxTMI 