TaxTMI Updates e-Newsletter
Dec 10,2025

Issues: Whether the petitioner was entitled to release of the sanctioned refund amount together with statutory interest where the refund order was silent on interest.

Analysis: The refund application related to unutilised input tax credit under the GST regime. The refund had subsequently been sanctioned, but the refund order did not address the interest component. In these circumstances, the direction was issued to credit the refund amount to the petitioner together with statutory interest in accordance with law.

Conclusion: The petitioner was held entitled to payment of the sanctioned refund along with statutory applicable interest.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of registration on the ground of violation of Rule 10A read with Rule 21(d) of the Central Goods and Services Tax Rules, 2017, was vitiated for non-compliance with the procedure prescribed in Rule 21A(2A).

1.2 Whether denial of the statutory period of thirty days to reply to the show-cause notice and use of an incorrect prescribed form violated principles of natural justice and rendered the cancellation order unsustainable.

1.3 Consequential relief upon invalidation of the show-cause notice and cancellation order, including restoration of registration.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Procedural validity of show-cause notice and cancellation under Rule 10A, Rule 21(d) and Rule 21A(2A)

Legal framework:

2.1.1 Rule 10A mandates that, within thirty days from the date of grant of registration and assignment of GSTIN, the registered person must furnish bank account details on the common portal.

2.1.2 Rule 21(d) provides that registration is liable to be cancelled if a person violates Rule 10A.

2.1.3 Rule 21A(2A) prescribes that, on contravention of Rule 10A, registration shall be suspended and the person shall be intimated in Form GST REG-31, electronically or on the common portal or by email, highlighting non-compliance and calling upon the person to explain, within thirty days, why registration should not be cancelled. The show-cause notice under Rule 10A is specifically required to be in Form GST REG-31.

Interpretation and reasoning:

2.1.4 The Court examined the impugned show-cause notice and found that it was issued in Form GST REG-17 instead of the statutorily prescribed Form GST REG-31 for proceedings arising out of contravention of Rule 10A.

2.1.5 The show-cause notice granted only seven days' time to reply, whereas Rule 21A(2A) expressly contemplates a period of thirty days to explain non-compliance and to show cause why registration should not be cancelled.

2.1.6 The Court noted that suspension of registration was effected from the date of the show-cause notice and that the cancellation order was passed on 04.07.2024, i.e., even before expiry of thirty days from the date of the show-cause notice dated 10.06.2024.

2.1.7 Applying the settled principle that where a statute prescribes that a thing is to be done in a particular manner, it must be done in that manner and in no other manner, the Court held that deviation from the prescribed form (REG-31) and the mandated thirty-day period constituted non-compliance with the statutory procedure.

Conclusions:

2.1.8 The show-cause notice dated 10.06.2024 was held to be procedurally defective for: (i) being issued in Form GST REG-17 instead of Form GST REG-31; and (ii) granting only seven days to respond instead of the statutorily mandated thirty days under Rule 21A(2A).

2.1.9 The cancellation order dated 04.07.2024, having been founded on a defective show-cause notice and passed before the expiry of the statutory thirty-day period, was held to be unsustainable in law.

2.2 Violation of principles of natural justice and effect on cancellation order

Interpretation and reasoning:

2.2.1 The Court observed that by not affording the full thirty days' time contemplated in Rule 21A(2A), the authorities failed to provide a proper and reasonable opportunity of being heard to the noticee.

2.2.2 The denial of the statutorily prescribed response period and the use of an incorrect form were seen as a breach of both the mandatory procedure and the principles of natural justice embedded in that procedure.

Conclusions:

2.2.3 The proceedings culminating in the order of cancellation were vitiated by violation of the principles of natural justice and non-compliance with the mandatory statutory scheme, rendering the order of cancellation liable to be set aside.

2.3 Consequential relief and restoration of registration

Interpretation and reasoning:

2.3.1 In view of the irregularities in issuance of the show-cause notice and in passing the cancellation order, the Court held that both the notice and the order could not be sustained.

Conclusions:

2.3.2 The show-cause notice dated 10.06.2024 and the cancellation order dated 04.07.2024 were set aside and quashed.

2.3.3 As a consequence, the respondent authorities were directed to restore the petitioner's GST registration granted on 13.06.2023.

2.3.4 The writ petition was allowed to the extent indicated, with no order as to costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the issuance and service of the show cause notice and consequential order through the GST portal, including the "Additional Notices Tab", resulted in denial of opportunity of hearing and violation of principles of natural justice.

1.2 Whether, in view of the pendency before the Supreme Court of the challenge to the relevant GST notification(s) extending limitation, the Court should adjudicate the vires of such notifications or confine itself to granting procedural relief by remanding the matter.

1.3 Whether the ex parte adjudication order passed without any reply or effective participation by the taxpayer ought to be set aside and the matter remanded with conditions, including imposition of costs and directions for fresh adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Effect of service via GST portal and "Additional Notices Tab"; denial of natural justice

Interpretation and reasoning

2.1 The show cause notice was issued on 29 May 2024 and the consequential order was passed on 17 August 2024, both after 16 January 2024, when changes were made to the GST portal making the "Additional Notices Tab" visible.

2.2 The taxpayer contended that the show cause notice and order were uploaded only on the "Additional Notices Tab" and therefore were not effectively brought to its knowledge, and that it came to know of them only during a statutory audit in September 2025.

2.3 The Court held that, in the given factual matrix, the objection based on the "Additional Notices Tab" was not tenable because the relevant documents were issued and uploaded after the portal changes of 16 January 2024, when such tab had already been made visible.

2.4 Notwithstanding the above, the Court noted that no reply had been filed to the show cause notice and no personal hearing had been availed by the taxpayer, and that the adjudication order had been passed without the taxpayer's case being examined on merits.

2.5 Relying on its earlier decision in a similar matter where no reply had been filed and an ex parte order had been passed, the Court reiterated that an assessee ought to be afforded a proper opportunity to contest the matter on merits, and that lack of an effective hearing rendered the order liable to be interfered with.

Conclusions

2.6 The contention that service through the "Additional Notices Tab" vitiated the proceedings was rejected as untenable on the facts.

2.7 However, since the taxpayer did not get a proper opportunity to be heard and no reply was filed to the show cause notice prior to the ex parte order, the principles of natural justice warranted remand for fresh adjudication.

Issue 2: Approach to challenge to GST notifications extending limitation, in light of pending proceedings before the Supreme Court

Legal framework discussed

2.8 The Court referred to batches of writ petitions where notifications extending limitation under Section 168A of the Central Goods and Services Tax Act, 2017 and corresponding State enactments had been challenged, and noted divergent views of several High Courts and the pendency of these issues before the Supreme Court in a special leave petition.

2.9 The Court took note that another High Court had, in deference to judicial discipline, refrained from deciding the vires of Section 168A and the notifications, and had directed that the cases be governed by the Supreme Court's eventual decision.

Interpretation and reasoning

2.10 The Court observed that the validity of the key central notification (No. 56/2023-Central Tax) and related issues were squarely pending before the Supreme Court, and that several of its own earlier writ petitions had been disposed of by remanding matters or relegating parties to appellate remedies, with all such orders made subject to the outcome of the Supreme Court proceedings.

2.11 It noted that in some petitions involving parallel State notifications, matters had been retained for independent consideration, with a designated lead matter identified for that batch.

2.12 In the present case, the Court considered that the immediate grievance could be addressed by restoring an opportunity of hearing before the adjudicating authority, without deciding the constitutional or legal validity of the impugned notifications at this stage.

Conclusions

2.13 The Court refrained from adjudicating upon the validity or vires of the impugned notifications and left that issue open.

2.14 It directed that any fresh order passed on remand would be expressly subject to the outcome of the pending proceedings before the Supreme Court and the decision of the Court in the identified lead writ petition concerning State notifications.

Issue 3: Setting aside of ex parte order; remand with costs and directions for fresh adjudication

Interpretation and reasoning

2.15 Considering that the taxpayer had not filed any reply to the show cause notice, had not appeared for personal hearing, and that the impugned order had been passed without examining the taxpayer's case on merits, the Court held that an opportunity should now be afforded to contest the matter substantively.

2.16 Following its earlier approach in a comparable case, the Court found it appropriate to set aside the ex parte order and remand the matter to the adjudicating authority, while imposing costs on the taxpayer for the remand.

2.17 To ensure effective participation and communication, the Court directed that the notice of personal hearing be specifically communicated to the taxpayer on the email address and mobile number recorded in the order.

2.18 The Court further directed that access to the GST portal be provided within a specified period to enable the taxpayer to upload its reply and to access notices and related documents, thereby facilitating substantive adjudication.

Conclusions

2.19 The ex parte adjudication order was set aside, subject to the taxpayer paying costs of Rs. 20,000/- to the Delhi High Court Legal Services Committee.

2.20 The taxpayer was granted time up to a fixed date to file a reply to the show cause notice.

2.21 Upon filing of the reply, the adjudicating authority is required to issue a notice for personal hearing, communicate it via the specified email and mobile number, consider the reply and submissions made during the hearing, and pass a fresh, reasoned order on the show cause notice.

2.22 The fresh order to be passed on remand will be subject to the final decision of the Supreme Court on the validity of the relevant notifications and to the Court's decision in the identified lead case concerning State notifications, with all rights and remedies of the parties kept open.

Issues: Whether the appellate authority was justified in rejecting the appeal on merits despite the appellant's absence, and whether the order rejecting the appeal deserved to be set aside with the appeal restored for fresh hearing.

Analysis: The appeal had been listed twice before the appellate authority, but the appellant did not appear. In such a situation, the proper course was to dismiss the appeal for non-prosecution rather than decide the matter on merits. A merits-based rejection in the absence of the appellant deprived the appellant of an effective opportunity to seek recall or explain the default. The Court also treated the statutory limit on adjournments under the Uttar Pradesh Goods and Services Tax Act, 2017 as supporting the view that adequate opportunity should be afforded before final disposal.

Conclusion: The rejection order was unsustainable and was set aside. The appeal was restored to its original number for fresh consideration and hearing.

Final Conclusion: The assessee obtained restoration of the appellate proceedings, and the matter was remitted to the appellate authority for a fresh decision on merits.

Ratio Decidendi: Where an appellant does not appear before the appellate authority, the appeal should ordinarily be dealt with for non-prosecution rather than being rejected on merits without affording a meaningful opportunity of hearing.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the writ petition under Article 226 was maintainable against an Order-in-Original involving allegations of fraudulent availment of Input Tax Credit, in view of the statutory appellate remedy under Section 107 of the Central Goods and Services Tax Act, 2017.

1.2 Whether there was any violation of principles of natural justice on account of (i) alleged absence of proper hearing, and (ii) a typographical error in the show cause notice mentioning an incorrect due date for filing reply.

1.3 Whether, and on what terms, the petitioner should be relegated to the appellate remedy, and whether any general directions were warranted to the tax department regarding accuracy in show cause notices and orders.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Maintainability of writ petition in presence of appellate remedy under Section 107 CGST Act in cases of alleged fraudulent ITC

Legal framework (as discussed by the Court)

2.1.1 The Court referred to Section 107 of the Central Goods and Services Tax Act, 2017, providing a statutory appellate remedy against orders such as the impugned Order-in-Original.

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

2.1.3 The Court also relied on earlier decisions of the same Court dealing with fraudulent ITC cases, including "Mukesh Kumar Garg v. Union of India & Ors.", "M/s Sheetal and Sons & Ors. v. Union of India & Anr.", and "M/s MHJ Metal Techs v. Central Goods and Services Tax Delhi South", where parties were relegated to the appellate remedy under Section 107.

2.1.4 The Court reiterated the legal position, as previously discussed in those cases, that Input Tax Credit under Section 16 of the CGST Act is a key business-friendly feature of the GST regime meant to avoid cascading of taxes, but is susceptible to misuse by non-existent firms and sham transactions; and that allegations of fraudulent ITC often involve a "complex maze of transactions" and voluminous factual analysis not suited to writ adjudication.

Interpretation and reasoning

2.1.5 The impugned order arose from a large investigation by CGST Delhi North Commissionerate into alleged fraudulent availment of ITC, involving 16 taxpayers and 79 allegedly fake entities, with ITC exceeding Rs. 122 crores passed on to 1155 taxpayers. The petitioner was one of these 1155 recipients, with a quantified liability of Rs. 23,20,171/- under the impugned order.

2.1.6 The Court noted its consistent view that in matters involving fraudulent availment of ITC and complex factual matrices, writ jurisdiction ordinarily should not be exercised, considering: (i) the need for detailed factual and evidentiary analysis; (ii) the burden on the exchequer; and (iii) the systemic impact on the GST regime.

2.1.7 The Court observed that such issues-such as the role of a particular noticee, justification or proportionality of penalties, and the applicability of penalty provisions-are best adjudicated by the appellate authority under Section 107 rather than in writ jurisdiction.

2.1.8 The Court also considered that in a prior writ petition challenging the same impugned order, a similarly placed noticee had already been relegated to the appellate remedy, with a direction that the appeal be entertained on merits and not dismissed as time-barred if filed within the stipulated period.

2.1.9 Applying the principles from the Supreme Court in "Commercial Steel" and its own earlier decisions (including "MHJ Metal Techs"), the Court held that none of the recognised exceptions to the rule of alternate remedy were made out in the present case to warrant exercise of writ jurisdiction.

Conclusions

2.1.10 The Court held that the writ petition challenging the Order-in-Original was not maintainable in view of the efficacious statutory appellate remedy under Section 107 of the CGST Act, particularly given the nature of allegations of fraudulent availment of ITC and the complex factual issues involved.

2.1.11 The petitioner was relegated to avail of the appellate remedy under Section 107 of the CGST Act, in accordance with law.

2.2 Alleged violation of principles of natural justice: absence of hearing and typographical error in due date

Interpretation and reasoning

2.2.1 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 filing reply as "28th August, 2025" instead of "28th August, 2024", amounting to violation of principles of natural justice.

2.2.2 The Court noted that the show cause notice had been properly uploaded on the GST portal, and that even if the erroneous date "28th August, 2025" were to be taken at face value, there was nothing on record to show that the petitioner had ever filed any reply pursuant to the notice.

2.2.3 The Court characterised the mis-mentioning of the due date as a "mere error" and held that such a typographical error could not be taken advantage of by the petitioner's counsel, particularly when there was no material demonstrating any attempt by the petitioner to respond substantively or to participate in the proceedings.

2.2.4 The Court observed that the petitioner's stand was limited to seeking documents, and that in similar matters arising out of the same investigation, the Court had already refused to entertain writ petitions and directed parties to pursue statutory appeals.

2.2.5 In the overall conspectus, the Court found no sufficient basis to conclude that there had been a violation of the principles of natural justice warranting interference in writ jurisdiction.

Conclusions

2.2.6 The Court held that there was no violation of principles of natural justice merely due to the typographical error in the due date or the petitioner's allegation of lack of proper hearing, especially in the absence of any reply on record.

2.2.7 The typographical error in the due date in the show cause notice did not vitiate the proceedings or justify invocation of writ jurisdiction.

2.3 Terms for relegation to appellate remedy and administrative directions to tax authorities

Interpretation and reasoning

2.3.1 Having decided to not entertain the writ petition, the Court followed its earlier approach in similar cases, particularly the order in the connected matter where another noticee to the same impugned order had been allowed to file an appeal with protection against dismissal on limitation grounds.

2.3.2 The Court considered it appropriate to extend a similar facilitation to the present petitioner, balancing the interest of revenue with the petitioner's right to appellate adjudication on merits.

2.3.3 At the same time, noting the typographical and similar errors seen in show cause notices and orders (including mis-mentioning of financial years and due dates), the Court considered it necessary to issue advisory directions to the CGST Department to ensure greater accuracy and supervision in drafting such documents.

Conclusions

2.3.4 The Court directed that if the petitioner files an appeal under Section 107 of the CGST Act by 15th January, 2026, along with the requisite pre-deposit, the appeal shall be entertained on merits and shall not be dismissed on the ground of limitation.

2.3.5 The Court advised the CGST Department to exercise caution in future while mentioning financial years, due dates for replies and other material particulars in show cause notices and orders.

2.3.6 The Court directed that a copy of its order be communicated to the Chief Commissioner of Central Tax, CGST, Delhi Zone, and further circulated to all Commissionerates, highlighting the prevalence of errors in orders and show cause notices so that these can be properly supervised and rectified.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the activities of a State Electricity Regulatory Commission, including levy and collection of regulatory fees, constitute "supply" in the course or furtherance of "business" so as to attract liability to tax under the CGST/SGST enactments.

1.2 Whether a State Electricity Regulatory Commission is a "tribunal" whose services are excluded from the ambit of "supply" by virtue of Schedule III to the CGST Act.

1.3 Whether the show cause notice and demand/order of assessment demanding GST from a State Electricity Regulatory Commission are sustainable in law in light of the binding precedent of another High Court, affirmed by the Supreme Court, on an identical issue concerning Electricity Regulatory Commissions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Taxability of functions/fees of an Electricity Regulatory Commission under CGST/SGST and applicability of Schedule III exclusion

Legal framework (as noticed and applied by the Court through the Delhi High Court judgment):

2.1 The charging provision (Section 9 of the CGST Act) levies central goods and services tax on all intra-State "supplies" of goods or services or both, to be paid by the taxable person.

2.2 Section 7 of the CGST Act defines "scope of supply", including: (a) all forms of supply of goods or services or both for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration; and (c) certain specified activities in Schedule I even without consideration. Sub-section (2) excludes from "supply" activities specified in Schedule III and notified public-authority activities of Government and local authorities.

2.3 Schedule II specifies activities treated as supply of goods or services (e.g., transfer of title in goods, renting of immovable property, certain construction, IPR licensing, IT software services, specified composite supplies).

2.4 Schedule III lists activities treated neither as supply of goods nor as supply of services. It expressly includes "services by any court or Tribunal established under any law for the time being in force".

2.5 The decision in PTC India Ltd. v. Central Electricity Regulatory Commission, as quoted and relied upon in the Delhi High Court judgment, characterises Electricity Regulatory Commissions as quasi-judicial bodies performing decision-making, adjudicatory, and regulation-making functions, having the trappings of a tribunal.

2.6 Section 2(17) of the CGST Act defines "business" expansively to include trade, commerce, manufacture, profession, vocation, adventure, wager or similar activity, ancillary or connected activities, and specified club, admission, and Government public-authority activities, but not activities of bodies such as Electricity Regulatory Commissions.

2.7 Section 2(31) defines "consideration" to mean payments or monetary value of acts/forbearances in respect of, in response to, or for the inducement of, a supply of goods or services or both, excluding Government subsidies.

2.8 Section 2(102) defines "services" as anything other than goods, money, and securities, which definition is to be read with Schedule III exclusions.

2.9 A GST rate notification dated 28 June 2017 classifies certain services, including "Support services to electricity, gas and water distribution" under Group Heading 99863, but such notification operates within, and cannot expand or curtail, the statutory scheme and exemptions in the CGST Act and its Schedules.

Interpretation and reasoning (as adopted by the Court):

2.10 The Court, relying on and following the detailed analysis of the Division Bench of the Delhi High Court in respect of Central and Delhi Electricity Regulatory Commissions, treats State Electricity Regulatory Commissions as analogous quasi-judicial regulatory bodies with all the trappings of a tribunal.

2.11 On the concept of "supply": the regulatory and adjudicatory functions discharged by an Electricity Regulatory Commission (tariff regulation, licensing, regulation of transmission, etc.) are not any of the activities listed in Schedule II, nor shown to fall under the specific categories of supply identified by Section 7(1)(a), (aa), (b), or under Schedule I.

2.12 The attempt by the tax authorities to bifurcate the Commission's functions into "adjudicatory" (claimed to be excluded) and "regulatory" (claimed to be taxable) is rejected. Schedule III excludes "services by any court or Tribunal" in broad and unqualified terms, and the Electricity Regulatory Commission, being a quasi-judicial tribunal as recognised in binding precedent, falls within this exclusion for all its functions.

2.13 On "business": the statutory power to regulate under the Electricity Act, exercised by such Commissions, cannot be characterised as "trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity" as enumerated in Section 2(17)(a). Nor do the other clauses of Section 2(17) apply, as they address different kinds of entities and activities (e.g., clubs, admission to premises, race clubs, or Government/local authority public-authority activities).

2.14 A Commission constituted under the Electricity Act is not the Central Government, State Government, or a "local authority" within Section 2(69), and therefore does not fall under Section 2(17)(i). Accordingly, its regulatory functions are not "business" within the meaning of the Act.

2.15 On "consideration": even if the fees received by the Commission are assumed to be "payments", they are not shown to be in respect of, in response to, or for the inducement of any commercial "supply" of goods or services in the course or furtherance of business. They are statutory fees linked to the discharge of quasi-judicial/regulatory functions, not to an underlying taxable "supply" as contemplated by Section 7 read with Sections 2(17) and 2(31).

2.16 The broad statutory definition of "services" as "anything other than goods" (Section 2(102)) must be read subject to Schedule III, which is an integral part of the principal legislation. Hence, services rendered by a court or tribunal, including Electricity Regulatory Commissions, remain outside the scope of taxable "supply" notwithstanding the wide wording of "services".

2.17 Notifications under the GST regime, including the 28 June 2017 classification of "Support services to electricity, gas and water distribution" under Heading 99863, cannot expand the scope of the parent Act or nullify the express exclusion of "services by any court or Tribunal" in Schedule III. Such notifications operate within, not beyond, the statutory boundaries.

Conclusions on Issues 1 & 2:

2.18 The regulatory and adjudicatory functions of a State Electricity Regulatory Commission, including receipt of statutory fees in connection therewith, do not constitute "supply" in the course or furtherance of "business" under Section 7 read with Section 2(17) and 2(31) of the CGST Act.

2.19 A State Electricity Regulatory Commission, having the trappings of a tribunal, falls within the exclusion for "services by any court or Tribunal" under Schedule III to the CGST Act; its functions, including regulatory activities and licensing, are therefore outside the ambit of GST.

2.20 The assumption of jurisdiction by the tax authorities to subject such regulatory fees to GST is ex facie unsustainable, arbitrary, and contrary to the statutory scheme and Schedule III exclusion.

Issue 3: Sustainability of the show cause notice and demand/order in light of binding precedent

Legal framework and context:

3.1 The Delhi High Court, in writ petitions concerning Central and Delhi Electricity Regulatory Commissions, had quashed comparable show cause notices and an Order-in-Original seeking to levy GST on their regulatory activities and fees, on the above reasoning under the CGST Act and the Electricity Act.

3.2 The Supreme Court, in Special Leave Petition (Civil) Diary No. 32626/2025 filed by the Revenue against the Delhi High Court's decision, condoned delay but dismissed the Special Leave Petitions, thereby leaving the Delhi High Court's judgment undisturbed.

Interpretation and reasoning:

3.3 The Court notes that the factual and legal matrix governing the Karnataka Electricity Regulatory Commission is "similar and identical" to that of the Commissions considered by the Delhi High Court: same statutory framework under the GST laws; similar nature of regulatory and adjudicatory functions; similar basis of demand of GST on regulatory fees.

3.4 In view of the Delhi High Court's detailed exposition of the CGST Act, Schedule II, Schedule III, definitions of "supply", "business", "consideration", and the status of Electricity Regulatory Commissions as tribunals, and the Supreme Court's refusal to interfere, the Court treats that reasoning as directly applicable and binding in substance to the present controversy.

3.5 On parity of reasoning and in order to maintain consistency in the interpretation and application of the CGST/SGST enactments, the impugned show cause notice and post-decisional order demanding GST from the State Commission cannot be sustained.

Conclusions on Issue 3:

3.6 In light of the Delhi High Court's judgment, affirmed by the Supreme Court, on an identical issue concerning Electricity Regulatory Commissions, the impugned show cause notice and consequential demand/order against the State Electricity Regulatory Commission are illegal and without jurisdiction.

3.7 The writ petition is allowed; the impugned show cause notice and the impugned order demanding GST from the Commission are quashed.

1. ISSUES PRESENTED AND CONSIDERED

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

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope of power under Rule 86A to block Electronic Credit Ledger and legality of "negative blocking" in excess of available credit

Legal framework

2.1 Rule 86A of the Goods and Services Tax Rules, 2017 empowers the Commissioner or an authorised officer to disallow debit of input tax credit from the Electronic Credit Ledger when there is "reason to believe" that such credit has been fraudulently availed or is ineligible, subject to conditions in the Rule. Sections 73 and 74 of the Central/State Goods and Services Tax Acts govern determination and recovery of wrongly availed or utilised input tax credit. Section 83 provides for provisional attachment and Section 29 for cancellation of registration.

Interpretation and reasoning

2.2 The Court proceeds on the admitted factual position that the petitioner's Electronic Credit Ledger was blocked on specified dates resulting in a negative balance, i.e., blocking in excess of the input tax credit then available.

2.3 Referring to and adopting its prior detailed decision on Rule 86A, the Court reiterates that the right to avail and utilise input tax credit is a statutory right, subject to conditions prescribed in the statute and Rules.

2.4 The Court endorses the interpretation that availability of credit in the Electronic Credit Ledger is a condition precedent for exercise of power under Rule 86A. Where no input tax credit is available in the ledger, invocation of Rule 86A and insertion of a negative balance is without jurisdiction and illegal.

2.5 The conditions for invoking Rule 86A are identified as: (i) credit of input tax should be available in the Electronic Credit Ledger; (ii) the Commissioner or authorised officer must have reason to believe that such credit has been fraudulently availed or is ineligible; and (iii) such reasons must be recorded in writing. Only upon satisfaction of these cumulative conditions can the officer disallow debit from the Electronic Credit Ledger, and such restriction must be for an amount equivalent to the amount of credit allegedly fraudulently availed or ineligible.

2.6 The Court adopts the distinction that Rule 86A is divided into: (a) the opening part prescribing conditions for its invocation; and (b) the later part prescribing consequences once validly invoked. If the preconditions are not met, the Rule cannot be invoked and its consequences are inapplicable.

2.7 It is emphasised that Rule 86A presupposes existence of input tax credit in the Electronic Credit Ledger. Once credit is entered, it forms a fungible pool, and the Rule provides for restriction of an "equivalent amount" rather than identification of specific credit. This phrase cannot be used to override the basic precondition that credit must actually be available.

2.8 The Court notes and accepts the reasoning that Rule 86A is not a provision authorising the officer to make debit entries or effect permanent recovery of input tax credit in the Electronic Credit Ledger. It only authorises temporary disallowance of debit as a preventive measure, anterior to final assessment or demand. Permanent recovery is governed by Sections 73 and 74 and cannot be achieved indirectly through Rule 86A.

2.9 The argument that a strict interpretation would defeat the preventive purpose of Rule 86A in cases of continuous fraudulent availment and utilisation of credit is rejected. The Court observes that other statutory mechanisms-proceedings under Sections 73/74, cancellation of registration under Section 29, and provisional attachment under Section 83-remain available to the authorities. The possibility of persistent misuse cannot justify stretching Rule 86A beyond its plain language.

2.10 The Court holds that the power to restrict debit from the Electronic Credit Ledger is harsh and overrides the detailed statutory scheme for adjudication and recovery. Therefore, it must be strictly confined to the specific statutory language and preconditions in Rule 86A and cannot be expanded on the basis of supposed legislative intendment.

2.11 The Court confirms that there is no ambiguity in the plain language of Rule 86A and that its literal construction does not lead to absurdity. The Rule only enables temporary withholding of "available" input tax credit in the Electronic Credit Ledger where there is reason to believe the credit is fraudulently availed or ineligible.

2.12 The Court further reiterates that, being an emergent preventive provision, Rule 86A does not require prior notice or show cause notice before its invocation. However, this absence of prior notice does not authorise blocking beyond the credit actually available, nor creation of a negative balance.

2.13 The Court expressly endorses the view that there cannot be "negative blocking" under Rule 86A. Where there is no or insufficient input tax credit standing in the Electronic Credit Ledger, Rule 86A cannot be invoked to block any amount in excess of the then available balance.

2.14 The Court aligns itself with the interpretation that contrary views allowing negative blocking are not acceptable, and reiterates that if the department seeks recovery beyond available credit, it must follow the appropriate statutory procedures for adjudication and recovery.

Conclusions

2.15 Rule 86A can be invoked only when input tax credit is actually available in the Electronic Credit Ledger at the time of the blocking order; availability of such credit is a mandatory precondition.

2.16 Blocking of the Electronic Credit Ledger beyond the amount of input tax credit available therein, resulting in a negative balance, is beyond the jurisdiction conferred by Rule 86A and is illegal.

2.17 The impugned blocking entries are unsustainable to the extent they disallow debit from the Electronic Credit Ledger in excess of the input tax credit available at the time of such blocking, and stand set aside to that extent.

2.18 Authorities remain at liberty to initiate and pursue appropriate statutory remedies for determination and recovery of any wrongly availed or utilised input tax credit in accordance with law, including proceedings under Sections 73 and 74 and other applicable provisions.

Issues: Whether, in proceedings initiated under Section 61 of the Central Goods and Services Tax Act, 2017, a notice under Rule 142(1A) of the Central Goods and Services Tax Rules, 2017 is required before proceeding to assessment under Section 73 of the Central Goods and Services Tax Act, 2017, and whether assessments made without such notice are sustainable.

Analysis: Section 61 provides for scrutiny of returns and contemplates further action where the explanation offered by the dealer is not accepted. Rule 142(1A) operates as a prior procedural notice before proceedings under Section 73(1), Section 74(1) or Section 74A(1) are taken. The Court held that proceedings under Section 61, if not satisfactorily explained, culminate in proceedings under the demand provisions and therefore the notice under Rule 142(1A) should be issued after scrutiny is completed and before assessment action is taken. The Court also confined the ruling to assessments relating to periods prior to the amendment of Rule 142(1A) on 15.10.2020.

Conclusion: The assessment orders passed without issuing notice under Rule 142(1A) were held unsustainable and were set aside, with the matters remanded to the proper officer for fresh action after issuing the required notice.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the services supplied by the petitioner to its foreign group entities qualify as "export of services" under Section 2(6) of the IGST Act, 2017, including determination of place of supply under Section 13.

(2) Whether the petitioner and the foreign recipient entities are "merely establishments of a distinct person" under Explanation 1 to Section 8 of the IGST Act, so as to deny export status and treat the supplies as domestic.

(3) Whether Notification No. 4/2019 - Integrated Tax dated 30.09.2019 (R&D services in pharmaceutical sector) and related circulars are applicable to the petitioner's engineering/software services and affect the place of supply/export character.

(4) Whether cross-charged expenses (employee education, training, compensation and benefits, etc.) and the description "Non-INR cross charge" alter the nature of the supply or prevent it from being treated as export of services, including characterization as composite supply.

(5) Whether the refund rejection orders dated 13.03.2023 and the subsequent show cause notices dated 01.01.2024 and 31.05.2024, which seek to reclassify exports as domestic supply, deny/recall refunds, and proceed on an assumption of a "Goa branch", are without jurisdiction, arbitrary or contrary to the statutory scheme, warranting quashing in writ jurisdiction and a direction to grant refund of accumulated ITC.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Qualification of petitioner's services as "export of services" under Section 2(6) IGST Act

Legal framework discussed

(a) Section 2(6) of the IGST Act - conditions for "export of services": (i) supplier in India; (ii) recipient outside India; (iii) place of supply outside India; (iv) payment in convertible foreign exchange/INR as permitted; (v) supplier and recipient not merely establishments of a distinct person as per Explanation 1 to Section 8.

(b) Sections 13(1)-(2) of the IGST Act - determination of place of supply where location of supplier or recipient is outside India; default rule: place of supply is the location of the recipient for services not covered in Section 13(3)-(13).

(c) Sections 16 IGST Act and 54 CGST Act, read with Rule 89 of the CGST Rules - zero rated supplies and refund of accumulated input tax credit.

Interpretation and reasoning

(d) The Court found on the record that the petitioner (supplier) is located in India and the service recipients are group entities located outside India. The incorporation documents and agreements establish supplier in India and recipients outside India.

(e) The services consist of contract-based engineering and software development/support for medical systems, including development of new software features, enhancements, workflow improvements and quality fixes, performed in Bengaluru and integrated with the global code, which is then reviewed, verified and deployed by foreign entities abroad.

(f) The Court held that these services do not fall under any of the specific categories in Section 13(3)-(13) IGST Act. Accordingly, Section 13(2) applies and the place of supply is the location of the service recipient, i.e., the foreign entities outside India.

(g) Circular No. 309/1/2018-ST dated 04.05.2018 and Circular No. 118/37/2019-GST dated 11.10.2019 were noted as clarifying that, in software/software-testing and similar composite arrangements where work is performed in India for foreign customers (even using sample hardware/test kits), the place of supply is the location of the overseas service recipient.

(h) The Court recorded that payment for the services is received by the petitioner in convertible foreign exchange, evidenced by EBRCs filed with refund applications.

(i) On these facts, the Court held that all four positive conditions in Section 2(6)(i)-(iv) are satisfied and, subject to Issue (2), the supplies qualify as export of services.

Conclusions

(j) The services supplied by the petitioner to its foreign group entities are "export of services" within the meaning of Section 2(6) of the IGST Act, as the supplier is in India, the recipients and place of supply are outside India, and consideration is received in convertible foreign exchange.

(k) Consequently, such supplies constitute zero rated supplies under Section 16 IGST Act and entitle the petitioner to refund of accumulated ITC under Section 54 CGST Act read with Rule 89 of the CGST Rules.

Issue (2): Whether petitioner and foreign entities are "establishments of a distinct person" and effect of alleged "Goa branch"

Legal framework discussed

(a) Section 2(6)(v) IGST Act - for export of services, supplier and recipient must not be "merely establishments of a distinct person" as per Explanation 1 to Section 8 IGST Act.

(b) Circular No. 161/17/2021-GST dated 20.09.2021 - clarifies that a company incorporated in India and a foreign company incorporated outside India are distinct legal persons and not "establishments of a distinct person" of the same legal entity; supplies between them can qualify as export of services.

(c) The Court also referred to the reasoning in Linde Engineering India Pvt. Ltd. (service tax regime, Rule 6A of Service Tax Rules and Section 65B(44) Finance Act, 1994) holding that an Indian subsidiary and its foreign parent are separate legal entities and not the same "establishment".

Interpretation and reasoning

(d) The Court held that the "establishment of distinct person" exclusion applies only where the same legal person has one establishment in India and another establishment outside India. It does not apply where the supplier and recipient are separate incorporated entities.

(e) The petitioner and the foreign recipient entities are separate legal persons incorporated in different jurisdictions. On this basis, the Court held that they are not "merely establishments of a distinct person" under Section 2(6)(v) read with Explanation 1 to Section 8.

(f) The description "Non-INR cross charge" on certain invoices and the fact that certain expenses were cross-charged was held not to alter the distinct legal personality of the entities, nor to convert the relationship into that of branches of the same person.

(g) In the show cause notices for 2018-19 and 2019-20, the respondent alleged that services were rendered to the petitioner's "branch" in Goa and hence constituted local/domestic supply. The Court examined the material on record, including documents relating to place of business, and found that the petitioner has no branch in Goa and does not provide services to any entity in Goa.

(h) The allegation of a Goa branch recipient was held to be factually unsubstantiated and contrary to the record. On that foundation being incorrect, the classification of the services as domestic/local supplies failed.

Conclusions

(i) The petitioner and its foreign group companies are distinct legal entities and are not "establishments of a distinct person"; the exclusion in Section 2(6)(v) does not apply.

(j) The alleged provision of services to a "branch in Goa" is unsupported by the record; there is no such branch or domestic recipient. The finding that services are domestic/local supplies on that basis is arbitrary and unsustainable.

(k) The fifth condition for "export of services" under Section 2(6)(v) IGST Act is satisfied; there is no legal bar to treating the impugned supplies as exports.

Issue (3): Applicability and interpretation of Notification No. 4/2019 - IGST (pharmaceutical R&D) and related concepts of effective use and enjoyment

Legal framework discussed

(a) Notification No. 4/2019 - Integrated Tax dated 30.09.2019, particularly Table A, Sl. No. 1, prescribing that for specified research and development services "related to pharmaceutical sector" enumerated in Table B, place of supply shall be the location of recipient of services, subject to conditions and effective use/enjoyment outside India.

(b) Entry No. 1 of Table B - "Integrated discovery and development" for pharmaceutical sector, described as involving discovery and development of molecules for medicinal use, including compound design, drug metabolism evaluation, biological activity, manufacture of target compounds, stability and toxicology studies.

(c) Section 13(13) IGST Act - power of Government to notify services/circumstances where place of supply is place of effective use and enjoyment.

Interpretation and reasoning

(d) The respondent relied on Notification No. 4/2019 in the show cause notices to contend that the petitioner's activities are research and development services falling within the notified category and that the place of supply is in India, thereby denying export status.

(e) The Court compared the notified pharmaceutical R&D description with the petitioner's services, which are development of new features and enhancements of software programs installed in medical equipment, aimed at improving workflow, productivity and quality fixes, integrated into medical devices used by foreign entities.

(f) The Court held that the petitioner's engineering/software services are fundamentally different from "discovery and development of molecules by pharmaceutical sector for medicinal use" and related toxicology and drug development activities. The Notification is sector-specific to pharmaceuticals and not applicable to software/engineering services for medical equipment.

(g) The Revisionary Notice (GST RVN-01 dated 05.10.2023) was noted as having denied the benefit of this Notification on the premise that the place of supply was within India and the conditions of Section 2(6) were not satisfied, while the respondent's objections in these proceedings simultaneously stated that the Notification applies only to the pharmaceutical industry and not to the petitioner. The Court characterized this as a contradictory stance employed to deny refunds.

(h) The Court observed that, conceptually, the Notification is based on "place of effective use and enjoyment" of services. In the petitioner's case, the services are effectively used and enjoyed outside India by the foreign entities (through integration of software into their equipment abroad). Therefore, even on the underlying principle, the location of the recipient abroad is the place of supply.

Conclusions

(i) Notification No. 4/2019 - IGST applies to R&D services in the pharmaceutical sector and does not cover the petitioner's engineering/software services for medical equipment.

(j) The respondent's reliance on the Notification to reclassify the petitioner's export services as domestic supply is misconceived and internally inconsistent with its own pleadings.

(k) The principle reflected in the Notification - that place of supply follows effective use and enjoyment abroad - in fact supports the petitioner's position that the place of supply is outside India.

Issue (4): Effect of "Non-INR cross charge" and ancillary expenses; characterization as composite supply

Legal framework and clarifications discussed

(a) Section 13(2) IGST Act - default rule that place of supply is location of recipient, for services not covered by specific sub-sections (3)-(13).

(b) Concept of composite supply and principal/ancillary supplies, as addressed in Circular No. 118/37/2019-GST dated 11.10.2019 (in context of ESDM sector and software development/testing on hardware kits).

Interpretation and reasoning

(c) During adjudication, sample invoices for October-December 2021 bore the description "Non-INR cross charge". The petitioner clarified that these referred to employee education, training, and compensation & benefits expenses incurred as part of R&D services provided to foreign affiliates. An excel sheet was provided describing most invoices as "service export".

(d) The respondent treated all services, based on some such descriptions, as services rendered in India, and inferred that parties were "establishments of a distinct person".

(e) The Court accepted the petitioner's contention that the primary activity is provision of R&D/engineering services to foreign entities and that employee training, C&B and related expenses are ancillary to the principal supply. This constitutes a composite supply where research/engineering services are the principal supply and ancillary expenses form part of that supply.

(f) Applying the "substance over form" test, including the express terms of the collaboration agreement (which states that funding from the foreign entity is reimbursement for design, development and implementation of new technology), the Court held that, irrespective of invoice nomenclature or cross-charge terminology, the true nature is export of services.

(g) The Court also relied on Circular No. 118/37/2019-GST, which clarifies that, in composite contracts involving software development and testing on prototype hardware supplied by foreign recipients, testing is ancillary and the overall supply is software development, with place of supply at the recipient's location.

(h) On that reasoning, the Court held that the place of supply for the composite services in question is determined by Section 13(2), i.e., the location of the foreign service recipient, and not by any isolated reference to cross-charged ancillary elements.

Conclusions

(i) Descriptions such as "Non-INR cross charge" and cross-charged employee-related expenses do not alter the nature of the main supply, which remains export of engineering/R&D services.

(j) The services constitute a composite supply with research/engineering as the principal supply and employee-training/C&B and other costs as ancillary; the place of supply for the composite supply is the location of the foreign recipient under Section 13(2).

(k) The respondent's inference that such cross-charges converted the relationship into "establishments of distinct person" or domestic supply is erroneous and contrary to the substance of the transactions and the collaboration agreement.

Issue (5): Validity and jurisdiction of refund rejection orders and subsequent show cause notices; entitlement to refund of accumulated ITC

Legal framework and precedents discussed

(a) Sections 16 IGST Act and 54 CGST Act - zero rated supplies and refund of unutilised input tax credit.

(b) Rule 89 of the CGST Rules - application for refund.

(c) Linde Engineering India Pvt. Ltd. (Gujarat High Court) - held that services by an Indian subsidiary to a foreign holding company are export of services; show cause notice treating them as services between "establishments of distinct person" was issued on misinterpretation and was therefore without jurisdiction, warranting quashing in writ jurisdiction.

(d) Whirlpool and related Supreme Court decisions - jurisdiction of High Court under Article 226 to interfere despite alternative remedy where proceedings are without jurisdiction or based on misinterpretation leading to lack of authority.

(e) Genpact India (P&H High Court, Genpact (1) and Genpact (2)) - held that similar BPO services rendered to foreign entities were exports and not "intermediary" services; refunds of ITC for zero rated supplies were allowed; subsequent show cause notice for recovery of refunds was quashed, with the Department consciously deciding not to challenge the earlier judgment.

Interpretation and reasoning

(f) The Court noted that under the erstwhile service tax regime (Finance Act, 1994) the petitioner's services had been treated as export of services and refunds were sanctioned by a detailed Order-in-Original. Under the GST regime, refunds had been consistently granted from July 2017 up to September 2021, recognizing the services as exports.

(g) The impugned refund rejection orders dated 13.03.2023 for October-December 2021 partially rejected refund on the basis that the services did not qualify as export of services and that the place of supply was in India; refunds for export of goods were adjusted against a demand created treating the services as local supply at 18% GST.

(h) During pendency of the first writ petition, show cause notices dated 01.01.2024 and 31.05.2024 were issued for FY 2018-19 and 2019-20, proposing to (i) reject refunds already granted for export of services; and (ii) create outward tax liability with interest and penalty on the footing that services were domestic (including on the erroneous basis of a "Goa branch"), and by misapplying Notification No. 4/2019-IGST.

(i) Having held on Issues (1)-(4) that the petitioner's services are exports, that the place of supply and effective use are outside India, that there is no Goa branch recipient, and that the "establishment of distinct person" and pharmaceutical R&D arguments are unsustainable, the Court concluded that the impugned orders and show cause notices proceed on clear misinterpretation of the law and incorrect facts.

(j) In line with Linde Engineering, the Court treated such misinterpretation - converting an export of service between distinct legal entities into a domestic service between "establishments of a distinct person" - as an assumption of jurisdiction on an erroneous legal foundation, rendering the show cause notices and consequential orders without jurisdiction and amenable to interference under Article 226 despite availability of statutory remedies.

(k) The Court also took note that, similar to Genpact, refunds had been routinely granted treating the services as exports; in absence of any change in operations or law, the Revenue's abrupt reclassification of the same services as domestic supply was held to be arbitrary and inconsistent.

(l) The contention that the petitioner had misclassified domestic supplies as exports, or suppressed material facts, was rejected, particularly in light of the consistent prior treatment and the clarity of legal position on separate legal entities and export of services.

Conclusions

(m) The refund rejection orders dated 13.03.2023, to the extent they deny refund of ITC on export of services and reclassify such export as local supply, are contrary to Sections 2(6), 13 and 16 of the IGST Act and Section 54 of the CGST Act, and based on erroneous factual and legal premises. They are liable to be quashed.

(n) The show cause notices dated 01.01.2024 and 31.05.2024, issued to deny previously sanctioned refunds and to create fresh tax demands by re-characterizing exports as domestic supplies (including on the incorrect assumption of a Goa branch and misapplication of Notification No. 4/2019-IGST), are without jurisdiction, arbitrary and unsustainable, and are liable to be quashed in writ jurisdiction.

(o) The services rendered by the petitioner are export of services; corresponding supplies are zero rated; the petitioner is entitled to refund of accumulated input tax credit in terms of Section 16 IGST Act read with Section 54 CGST Act.

(p) The Court accordingly allowed all three writ petitions, quashed the impugned orders and show cause notices, and directed the respondents to grant and sanction the due refund along with applicable interest to the petitioner within six weeks.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Classification of Badla / imitation jari / metallic yarn manufactured from micro-slitting of plain polyester film, metallised polyester film or metallised & lacquered film under Heading 5605 of the Customs Tariff.

1.2 Applicable GST rate and time-period for supplies of such imitation zari thread or yarn in light of Notification No. 1/2017-CT (Rate), Notification No. 9/2023-CT (Rate), Circular No. 205/17/2023-GST and Notification No. 9/2025-CT (Rate).

1.3 Maintainability of certain questions on distinction between "metalized yarn" and "metallic yarn", refund eligibility, and alternate classification attracting 12% GST, within the scope of Section 97(2) of the CGST Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Classification of Badla / imitation jari / metallic yarn under Heading 5605

(a) Legal framework discussed

2.1 The Court examined Heading 56.05 of the Customs Tariff Act, 1975 and its HSN Explanatory Notes describing "metallised yarn, whether or not gimped, being textile yarn, or strip or the like of heading 54.04 or 54.05, combined with metal in the form of thread, strip or powder or covered with metal", including products consisting of a core of plastic film coated with metal dust and sandwiched between plastic films.

2.2 The specific tariff lines under Heading 5605 were noted:

(i) 5605 00 10 - Real zari thread (gold) and silver thread combined with textile thread.

(ii) 5605 00 20 - Imitation zari thread.

(iii) 5605 00 90 - Other.

2.3 Notification No. 1/2017-CT (Rate), Sr. No. 137 (Schedule II) was considered, covering "Metallised yarn ... such as Real zari thread ... Imitation zari thread" at 12% GST.

2.4 Notification No. 9/2023-CT (Rate) inserting Entry 218AA in Schedule I was examined, specifying tariff item 56050020 as "Imitation zari thread or yarn known by any name in trade parlance" at 5%, and simultaneously amending Sr. No. 137 so as to exclude real zari and imitation zari thread or yarn therefrom.

2.5 Circular No. 205/17/2023-GST dated 31.10.2023 was relied on, clarifying that imitation zari thread or yarn made from metallised polyester film/plastic film falling under HS 5605 are covered by Sl. No. 218AA of Schedule I (5% GST).

2.6 The Court also referred to the minutes of the 15th and 52nd GST Council Meetings, which recorded that:

(i) Embroidery or zari articles like imi, zari, kasab, saima, dabka, chumki, gota, sitara, naqsi, kora, glass beads, badla, gizal are to be taxed at 5%.

(ii) Imitation zari thread or yarn made from metallised polyester film/plastic film is covered by Heading 5605 and leviable to 5% GST.

(b) Interpretation and reasoning

2.7 The Court differentiated three broad categories in trade: real zari, imitation zari and metallic zari. Metallic zari was found to be made of slitted polyester metallised film and is the prevalent, lighter, cheaper and more durable form, used in place of traditional real or imitation (copper-based) zari.

2.8 On a conjoint reading of:

(i) Heading 5605 and its explanatory notes;

(ii) The structure of tariff sub-headings 5605 00 10, 5605 00 20 and 5605 00 90;

(iii) Notification No. 1/2017-CT (Rate) and its amendment by Notification No. 9/2023-CT (Rate);

(iv) Circular No. 205/17/2023-GST; and

(v) The GST Council minutes dealing with zari and imitation zari;

the Court concluded that metallic zari thread or yarn made from metallised polyester film/plastic film is nothing but imitation zari thread or yarn for tariff and GST purposes.

2.9 The Court noted that Entry 218AA specifically ties "Imitation zari thread or yarn known by any name in trade parlance" to tariff item 56050020. Having regard to the trade parlance names (including badla, kasab, etc.) and the Council's intention to cover imitation zari made from metallised polyester/plastic film, the Court held that the subject goods fall within 5605 00 20.

2.10 The Court explicitly found that the supply of Badla / Imitation Jari / Metallic Yarn made from micro-slitting of plain polyester film, metallised polyester film or metallised & lacquered film is classifiable as "Imitation zari thread" under tariff item 5605 00 20 and not under the residual 5605 00 90.

(c) Conclusion on Issue 1

2.11 The Court held that the supply of Badla / Imitation Jari / Metallic Yarn made from micro-slitting of plain polyester film, metallised polyester film or metallised & lacquered film falls under HSN 5605 00 20 as imitation zari thread or yarn known by any name in trade parlance.

Issue 2 - Applicable GST rate and time-period for such goods

(a) Legal framework discussed

2.12 The Court analysed the rate structure under Notification No. 1/2017-CT (Rate) and its amendment:

(i) Prior to 26.07.2023, Sr. No. 137 of Schedule II covered "Metallised yarn ... such as Real zari thread ... Imitation zari thread" at 12% GST.

(ii) Notification No. 9/2023-CT (Rate) dated 26.07.2023:

* Inserted Sr. No. 218AA in Schedule I specifying 56050020 - "Imitation zari thread or yarn known by any name in trade parlance" at 2.5% CGST (i.e., 5% total GST);

* Amended Sr. No. 137 in Schedule II to expressly exclude: (i) real zari thread (gold) and silver thread combined with textile thread and (ii) imitation zari thread or yarn known by any name in trade parlance.

2.13 Circular No. 205/17/2023-GST clarified that imitation zari thread or yarn made from metallised polyester film/plastic film falling under HS 5605 is covered under Sl. No. 218AA attracting 5% GST, and that no refund would be permitted on polyester film (metallised)/plastic film on account of inverted duty.

2.14 The Court further noted that Notification No. 1/2017-CT (Rate) has been superseded by Notification No. 9/2025-CT (Rate) dated 17.09.2025, effective from 22.09.2025, wherein "Metallised yarn ... including real zari thread (gold) and silver thread combined with textile thread, imitation zari thread or yarn known by any name in trade parlance" is placed at Sr. No. 353 of Schedule I, attracting 5% GST.

(b) Interpretation and reasoning

2.15 Having held that the goods are classifiable under 5605 00 20 as imitation zari thread or yarn, the Court applied Entry 218AA to such goods for the relevant period under Notification No. 1/2017-CT (Rate).

2.16 For the period after the supersession of Notification No. 1/2017-CT (Rate), the Court noted that Notification No. 9/2025-CT (Rate) continues to place metallised yarn including imitation zari thread or yarn in Schedule I at 5%, thereby preserving the concessional rate for the same goods from 22.09.2025 onwards.

(c) Conclusions on Issue 2

2.17 For supplies of Badla / Imitation Jari / Metallic Yarn classifiable under 5605 00 20, the Court held:

(i) GST rate is 5% (Schedule I, Sr. No. 218AA of Notification No. 1/2017-CT (Rate) as amended by Notification No. 9/2023-CT (Rate)) for the period from 27.07.2023 to 21.09.2025; and

(ii) GST rate continues to be 5% (Schedule I, Sr. No. 353 of Notification No. 9/2025-CT (Rate)) with effect from 22.09.2025.

Issue 3 - Maintainability and scope under Section 97(2) of the CGST Act

(a) Legal framework discussed

2.18 Section 97(1) and 97(2) of the CGST Act, 2017 were reproduced, listing the permissible questions on which advance ruling can be sought, namely: classification of goods/services, applicability of notifications, determination of time and value of supply, admissibility of input tax credit, determination of liability to pay tax, requirement of registration, and whether a particular activity amounts to supply.

(b) Interpretation and reasoning

2.19 The Court examined each of the applicant's questions against the scope of Section 97(2) and concluded:

(i) The general question as to whether any significant difference exists between "Metalized Yarn" and "Metallic Yarn" and what their classification would be, as posed, did not fall within the specific heads enumerated in Section 97(2), and therefore was not required to be answered.

(ii) Questions seeking rulings on eligibility for refund of input tax on inputs such as polyester yarn, lacquered film, chemicals, packing material and coal, and questions contingent on an alternate classification (5605 00 90, 12% GST) were outside the scope of Section 97(2), which does not include adjudication on refund entitlement.

(iii) Once classification under 5605 00 20 and the applicable rate of 5% were determined, the question premised on classification under 5605 00 90 and liability to 12% GST became infructuous.

(c) Conclusions on Issue 3

2.20 The Court held:

(i) The question relating to distinction between "Metalized Yarn" and "Metallic Yarn" and their classification, as framed, was not answered as it did not fall within the ambit of Section 97(2).

(ii) Questions seeking advance ruling on refund of input tax credit on various inputs were not answered as they do not fall within any clause of Section 97(2).

(iii) The question presupposing classification under 5605 00 90 and application of 12% GST was rendered infructuous in view of the finding that the goods fall under 5605 00 20 at 5% GST.

Issues: Whether imitation zari thread or yarn made from plastic film or lacquered coated polyester film with aluminium metal is classifiable under HSN 56050020 and liable to GST at 5%.

Analysis: The applicable tariff entry and GST notifications, read with the explanatory notes and the GST Council clarification, show that metallised yarn or imitation zari thread known by any name in trade parlance, including products made from metallised polyester film or plastic film, falls within heading 5605. After the 2023 amendment, such goods were carved out of the higher-rate entry and placed in the 5% entry. The later notification effective from 22.09.2025 also continues the same treatment for imitation zari thread or yarn in trade parlance.

Conclusion: The product is classifiable under HSN 56050020 and is leviable to GST at 5% from 27.07.2023 to 21.09.2025 and thereafter under the corresponding 5% entry effective from 22.09.2025.

Ratio Decidendi: Imitation zari thread or yarn made from metallised polyester film or plastic film, when understood in trade parlance and supported by the tariff notes and GST clarification, is to be classified as metallised yarn under heading 5605 and taxed at the applicable 5% rate.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether questions relating to requirement or generation of e-way bill fall within the permissible scope of advance ruling under Section 97(2) of the CGST Act.

1.2 Whether the provisions regarding e-way bill, introduced through notifications and rules (including Rule 138 and related rules and state notifications), can be treated as questions on "applicability of a notification issued under the provisions of this Act" under Section 97(2)(b) of the CGST Act so as to confer jurisdiction on the Authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Scope of advance ruling under Section 97(2) and questions on e-way bill

Legal framework

2.1 The Court referred to Section 97(2) of the CGST Act, which exhaustively specifies the questions in respect of which an advance ruling may be sought, namely: (a) classification of goods or services; (b) applicability of a notification issued under the Act; (c) determination of time and value of supply; (d) admissibility of input tax credit; (e) determination of liability to pay tax; (f) whether the applicant is required to be registered; and (g) whether a particular activity amounts to "supply".

2.2 The Court noted that "matters related to e-way bill" are not enumerated in any of the clauses (a) to (g) of Section 97(2).

Interpretation and reasoning

2.3 The Court observed that the applicant sought rulings on: (i) whether it is compulsory to generate e-way bill for movement of goods between own godowns within the same State by an unregistered person; and (ii) whether it is compulsory to generate e-way bill when an unregistered person sells goods from his godown to an unregistered person within the State.

2.4 Examining Section 97(2), the Court found no express entry permitting advance ruling on compliance requirements relating to e-way bill. Since e-way bill provisions are not covered by any of the specified subject-matters, questions confined to e-way bill requirements fall outside the statutory jurisdiction of the Authority.

2.5 The Court also relied on its earlier decision in "Re: Jitendra Equipment", where it had already taken the view that e-way bill does not find mention in Section 97(2)(a) to (g) and that, consequently, the Authority should refrain from answering questions relating to e-way bill.

Conclusions

2.6 Questions relating to requirement or generation of e-way bill do not fall within any of the categories specified in Section 97(2) of the CGST Act.

2.7 The Authority lacks jurisdiction to answer questions solely pertaining to e-way bill compliance, and therefore refrains from answering both questions posed by the applicant.

Issue 2 - Whether e-way bill provisions fall under "applicability of a notification" in Section 97(2)(b)

Legal framework

2.8 The applicant relied on Notification No. 27/2017-CT dated 30.08.2017 (introducing e-way bill provisions, including Rules 138 and 138A-138F, made effective from 01.02.2018) and Notification No. 74/2017-CT dated 29.12.2017, as well as a State notification (Notification No. GSL/GST/Rule-138(14)/B.19 dated 19.09.2018) concerning e-way bill exemptions, to contend that their case falls under Section 97(2)(b) - "applicability of a notification issued under the provisions of this Act".

Interpretation and reasoning

2.9 The Court rejected the contention that, merely because e-way bill rules were introduced by notification, any question about e-way bill automatically becomes a question on "applicability of a notification" under Section 97(2)(b).

2.10 The Court pointed out that all CGST Rules, 2017, have been introduced through notifications issued under Section 164 of the CGST Act (for example, initial rules via Notification No. 3/2017-CT dated 19.06.2017, and subsequent rules through further notifications). Accepting the applicant's argument would mean that any matter governed by any rule, and by extension most matters under the Act, could be brought within the ambit of advance ruling merely because the rule originated from a notification.

2.11 The Court held that such an expansive reading of Section 97(2)(b) would defeat the legislative intent of restricting advance ruling to the specific categories enumerated in clauses (a) to (g) of Section 97(2).

2.12 Regarding the State notification specifying cases where no e-way bill is to be generated, the Court held that once e-way bill matters are found to be outside the ambit of Section 97(2), any notification concerning applicability or non-applicability of e-way bill also cannot be brought within the scope of Section 97(2)(b).

Conclusions

2.13 The introduction or regulation of e-way bill provisions through notifications and rules does not, by itself, render questions on e-way bill as questions on "applicability of a notification" under Section 97(2)(b).

2.14 Notifications and rules relating to e-way bill do not confer jurisdiction on the Authority to entertain advance ruling applications on e-way bill requirements.

2.15 Consequently, the Authority declined to answer both questions regarding the compulsory generation of e-way bill for (i) intra-State movement between own godowns, and (ii) sales to unregistered persons within the State, and recorded them as "Not answered, for the reasons mentioned aforesaid."

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether an advance ruling can be given on the question whether receipt of consideration in the form of non-voting, irredeemable preference shares satisfies the requirement of "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, 2017.

(2) Consequentially, whether the Authority can determine the liability to pay GST on the supply of services (customization and licensing of a proprietary platform to an overseas client) when such determination is predicated upon the above question of mode of receipt of consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Maintainability of question on mode and form of export consideration under Section 97(2) of the CGST Act, 2017

Interpretation and reasoning

(1) The applicant's core query was whether export proceeds received in the form of non-voting, irredeemable preference shares of a foreign entity would qualify as "receipt of consideration in convertible foreign exchange" as required under Section 2(6)(iv) of the IGST Act, 2017.

(2) The Authority noted that Rule 96A of the CGST Rules, 2017 permits export of services without payment of IGST under bond or Letter of Undertaking, subject to receipt of payment in convertible foreign currency within the prescribed period; failure to receive such payment results in liability to pay tax with interest.

(3) The Authority found that, for purposes of Rule 96A and Section 2(6)(iv) of the IGST Act, the primary question is whether preference shares received from the foreign entity can be treated as the requisite "convertible foreign exchange" consideration for export of services.

(4) The Authority examined Section 97(2) of the CGST Act, 2017, which exhaustively lists the questions on which advance ruling may be sought, namely: (a) classification; (b) applicability of notifications; (c) determination of time and value of supply; (d) admissibility of input tax credit; (e) determination of liability to pay tax; (f) requirement of registration; and (g) whether any activity amounts to supply.

(5) The Authority held that the applicant's primary question, concerning whether preference shares received from a foreign entity constitute "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, does not fall within any of the categories specified in Section 97(2).

(6) The Authority observed that, although the applicant attempted to bring the question within Section 97(2)(e) by framing it as one of determination of liability to pay tax, the true and primary issue remained the characterization of the mode of receipt of export proceeds, which is outside the statutorily permitted scope of advance ruling.

Conclusion

(7) The Authority concluded that it lacks jurisdiction under Section 97(2) of the CGST Act, 2017 to pronounce an advance ruling on whether receipt of non-voting, irredeemable preference shares satisfies the requirement of "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, 2017.

Issue (2): Ability to determine GST liability on export of services when the foundational question is outside Section 97(2)

Interpretation and reasoning

(8) The applicant also sought, as an ancillary aspect, a ruling that if such receipt of preference shares is treated as receipt of consideration under Section 2(6)(iv) of the IGST Act, there would be no liability to pay GST on the export of the said services.

(9) The Authority held that determination of liability to pay GST in this case is contingent upon a prior finding that the receipt of preference shares constitutes the requisite consideration in convertible foreign exchange.

(10) As the primary question on characterization of consideration is itself beyond the scope of Section 97(2) and cannot be answered, the Authority reasoned that it cannot proceed to answer the consequential question on tax liability.

Conclusion

(11) The Authority declined to answer the question regarding liability to pay GST on the supply of services (customization and licensing of the proprietary platform to the overseas client), since it is corollary to and dependent on a primary question that lies outside the statutory scope of questions permissible for advance ruling under Section 97(2) of the CGST Act, 2017.

Issues: (i) Whether PVC/plastic raincoats are classifiable under Chapter 39 as articles of plastics or under Chapter 62 as articles of apparel and clothing accessories; (ii) what rate of GST is leviable on PVC/plastic raincoats.

Issue (i): Whether PVC/plastic raincoats are classifiable under Chapter 39 as articles of plastics or under Chapter 62 as articles of apparel and clothing accessories.

Analysis: Chapter 39 expressly covers articles of plastics and the explanatory notes to heading 3926 include articles of apparel and clothing accessories made by sewing or sealing sheets of plastics, including raincoats. The product in question is manufactured from PVC sheets and the parts are heat-welded or chemically bonded, so it is not a woven textile fabric. Chapter 62 applies only to made up articles of textile fabric, and the claim that PVC raincoats are man-made fibre textile material was not accepted.

Conclusion: PVC/plastic raincoats are classifiable under HSN 3926 in Chapter 39 and fall under Entry No. 127 of Notification No. 9/2025-CT (R) dated 17.09.2025.

Issue (ii): What rate of GST is leviable on PVC/plastic raincoats.

Analysis: Once the goods are classified under Chapter 39, the applicable rate follows the entry prescribed for other articles of plastics rather than the concessional rate applicable to Chapter 62 apparel. On that classification, the product attracts GST at the rate prescribed for the relevant Chapter 39 entry.

Conclusion: The GST rate leviable on PVC/plastic raincoats is 18%.

Final Conclusion: The ruling rejects the applicant's claimed Chapter 62 classification and confirms taxability under Chapter 39 with the corresponding higher rate of GST.

Ratio Decidendi: PVC raincoats made from sealed or welded plastic sheets are classifiable as articles of plastics under Chapter 39 because Chapter 62 applies only to made up articles of textile fabric.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an assessee engaged in developing and constructing a housing project is entitled to deduction under Section 80-IB(10) of the Income-tax Act, 1961, despite not being the legal owner of the land and being alleged to have executed only a works contract.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to deduction under Section 80-IB(10) where assessee is not the legal owner of the land

Legal framework (as discussed)

2.1 The Court considered Section 80-IB(10) of the Income-tax Act, 1961, relating to deduction in respect of profits and gains from developing and building housing projects.

2.2 The Court referred to decisions of the Supreme Court in CIT v. Podar Cement Ltd. and Mysore Minerals Ltd. v. CIT, on the concept of "beneficial owner" even in the absence of formal conveyance.

2.3 The Court relied on a Division Bench decision holding that, for claiming deduction under Section 80-IB(10), it is not necessary that the assessee engaged in developing and construction of a housing project should be the owner of the land.

Interpretation and reasoning

2.4 The Assessing Officer had disallowed deduction under Section 80-IB(10) on the grounds that the assessee was not the owner of the land, had not developed the property, and had merely executed a works contract.

2.5 The appellate authority held that ownership of land is not a criterion for claiming deduction under Section 80-IB(10) and that the assessee was entitled to deduction as it had developed the land.

2.6 The Tribunal, after examining the construction agreement and relying on the Supreme Court decisions on beneficial ownership, found that the assessee was not only a builder but also a developer of the property and thus satisfied the conditions in Section 80-IB(10).

2.7 The Court noted the factual assertion that the assessee had obtained development rights through a power of attorney after paying full consideration for the land, undertook all activities connected with development (including demolition, approvals, scheme drawings, and submission of plans) and carried out all activities related to sale of flats, while the landowner did not incur any developmental expenditure.

2.8 The Court accepted that the character and substance of the transaction, and the assessee's role as developer and beneficial owner, were determinative, rather than the mere absence of legal title in the assessee's name.

2.9 The Court followed the Division Bench precedent which held that for claiming deduction under Section 80-IB(10), it is not necessary that the assessee should be the owner of the land, provided the assessee is engaged in developing and constructing the housing project.

Conclusions

2.10 The Court held that ownership of land is not a mandatory requirement for claiming deduction under Section 80-IB(10) where the assessee is engaged in the business of developing and constructing a housing project.

2.11 On the facts, the assessee was rightly treated as a developer and builder, and as a beneficial owner for purposes of Section 80-IB(10), and was therefore entitled to the deduction claimed.

2.12 The substantial question of law was answered in favour of the assessee, and the appeal was dismissed, affirming the Tribunal's decision granting deduction under Section 80-IB(10).

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the rectification application under Section 254(2) of the Income Tax Act, 1961 was barred by limitation, and when the period of limitation commences for such an application.

1.2 Whether, upon holding that the rectification application was within limitation, the matter should be remanded to the Tribunal to hear the rectification application, or the petitioner's interests are adequately protected by permitting all grounds to be urged in the pending statutory appeal against the original Tribunal order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation for rectification application under Section 254(2)

Legal framework

2.1 The Court considered Section 254(2) and Section 254(3) of the Income Tax Act, 1961, and Rules 34A and 9 of the Income Tax (Appellate Tribunal) Rules, 1963.

2.2 Section 254(2) provides that the Appellate Tribunal may, at any time within six months from the end of the month in which the order is passed, rectify any mistake apparent from the record, including on an application by the assessee or the Assessing Officer.

2.3 Section 254(3) mandates that the Appellate Tribunal shall send a copy of any orders passed under Section 254 to the assessee and to the Principal Commissioner or Commissioner.

2.4 Rule 34A(2) stipulates that applications under Section 254(2) shall follow, mutatis mutandis, the procedure for filing appeals under the Rules.

2.5 Rule 9(1), dealing with filing of appeals, requires the memorandum of appeal to be accompanied by two copies (at least one certified copy) of the order appealed against and related documents.

Interpretation and reasoning

2.6 The Court read Rule 34A with Rule 9 and held that an application for rectification under Section 254(2) must be accompanied by two copies of the order sought to be rectified, at least one being a certified copy. Therefore, an applicant cannot meaningfully approach the Tribunal under Section 254(2) without being supplied with a copy of the order.

2.7 On these provisions being read together with Section 254(3), the Court held that limitation for filing a rectification application must logically commence from the date the order is served on, or becomes known (actually or constructively) to, the assessee, because until then the assessee cannot comply with the procedural requirements of filing.

2.8 The Court relied on the reasoning of the Delhi High Court in the decisions in Golden Times Services (P) Ltd and Pacific Projects Ltd, which emphasized that:

- Taking the mere date of passing/signing of the order as the starting point for limitation could lead to absurd and anomalous results, where a party might lose its remedy by limitation without knowledge of the order.

- Section 254(2) comprises two parts: (i) suo motu rectification by the Tribunal within the stipulated time, and (ii) rectification on an application by the assessee or Assessing Officer. For the latter, the date of communication or knowledge of the order is critical for commencement of limitation.

- Section 254(3) and the corresponding rule mandate communication of the order, making such communication central to any meaningful exercise of the right of rectification.

2.9 Applying this reasoning, the Court noted that in the present case the Tribunal's order was dated 10 December 2024 and was received by the petitioner only on 24 March 2025. The rectification application filed on 16 July 2025 was within six months from the date of receipt of the order.

2.10 The Court held that the Tribunal misdirected itself in treating the application as time-barred solely on a literal reading of "six months from the end of the month in which the order is passed", without considering the statutory and rule-based requirement of communication and the necessity of an order copy for filing the application.

2.11 The Tribunal had relied on a prior decision of the same Court in Leena Power Tech Engineers (P) Ltd. The Court held that such reliance was misplaced because:

- The issue in that case was confined to whether the period excluded by the Supreme Court's suo motu COVID-19 limitation orders applied to Section 254(2) applications.

- There was no argument in that case that limitation should be computed from the date of communication of the order; hence that decision did not address or decide the present question.

Conclusions

2.12 The Court held that limitation for a rectification application under Section 254(2) runs from the date on which the order sought to be rectified is served upon, or comes to the knowledge of, the assessee, in light of Section 254(3) and Rules 34A and 9.

2.13 On the facts, the rectification application filed by the petitioner was within time, and the Tribunal erred in rejecting it as barred by limitation.

Issue 2: Appropriate relief after holding rectification application within limitation

Interpretation and reasoning

2.14 After holding that the Tribunal had erred on limitation, the Court considered whether it should remand the matter to the Tribunal to hear the rectification application afresh.

2.15 The Court noted that the petitioner had already filed a statutory income tax appeal challenging the original Tribunal order dated 10 December 2024, and that such appeal was pending.

2.16 The Court found that the petitioner's interests would be adequately protected if the petitioner were allowed to canvass all grounds on the merits, as raised in the present writ petition, in the pending appeal against the original order, rather than remanding the rectification application.

Conclusions

2.17 While holding that the Tribunal's rejection of the rectification application on limitation grounds was erroneous, the Court declined to remand the rectification application to the Tribunal.

2.18 The writ petition was disposed of by clarifying that all grounds raised therein on the merits of the matter were kept open to be agitated by the petitioner in the pending income tax appeal challenging the order dated 10 December 2024, with no order as to costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, during pendency of a first appeal, the Income Tax authorities can recover or adjust, from refunds of other assessment years, any amount in excess of 20% of the disputed demand pertaining to the relevant assessment year.

1.2 Whether the discretion under Section 220(6) of the Income Tax Act, 1961, read with the CBDT Office Memoranda dated 29.02.2016 and 31.07.2017, permits such recovery in the absence of the situations contemplated in paragraph 4B of the Office Memorandum dated 29.02.2016.

1.3 Whether reliance placed by the Revenue on the decision of another High Court regarding permissibility of full recovery in the absence of a 20% deposit is applicable to the present case.

1.4 What consequential directions are warranted regarding refund of amounts recovered in excess of 20% of the disputed demand and expeditious disposal of the pending appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Recovery/adjustment beyond 20% of disputed demand during pendency of appeal; scope of Section 220(6) and CBDT Office Memoranda

Legal framework (as discussed)

2.1 The Court considered Section 220(6) of the Income Tax Act, 1961, which vests discretion in the Assessing Officer not to treat the assessee as in default in respect of disputed tax demand ('stay of demand') while an appeal is pending before the first appellate authority.

2.2 The Court referred to the CBDT Office Memorandum dated 29.02.2016, as partially modified by Office Memorandum dated 31.07.2017, which instructs that where outstanding demand is disputed before the first appellate authority, the Assessing Officer shall grant stay of demand till disposal of the first appeal on payment of 20% of the disputed demand, except in situations covered by paragraph 4B of the Office Memorandum dated 29.02.2016.

2.3 The Court relied on earlier co-ordinate Bench decisions which held that recovery of any amount in excess of 20% of the disputed demand, by way of adjustment from admitted refunds of other assessment years, while an appeal against the relevant assessment order is pending, is unsustainable in law.

Interpretation and reasoning

2.4 The Court held that, given the CBDT instructions, the Assessing Officer is obliged to stay recovery of the balance demand upon payment of 20% of the disputed demand, save in the exceptional situations specified in paragraph 4B of the Office Memorandum dated 29.02.2016.

2.5 The Court reasoned that, if the Assessing Officer is so obliged to grant stay on such terms, it would be unfair for the Income Tax authorities to recover, during pendency of the appeal, any sum in excess of 20% of the disputed demand by adjusting refunds for other assessment years, in the absence of a demonstrated case falling within paragraph 4B.

2.6 The Court noted that the Revenue had not shown to its satisfaction that any of the situations mentioned in paragraph 4B of the Office Memorandum dated 29.02.2016 (as amended on 31.07.2017) existed in the present case.

2.7 The Court rejected the Revenue's contention that, unless the assessee deposits 20% of the disputed demand, recovery of the entire outstanding demand is per se permissible, in the face of the binding CBDT instructions and the earlier co-ordinate Bench decisions.

2.8 The Court expressly agreed with and followed the view taken by the co-ordinate Bench that adjustment of more than 20% of the disputed demand from refunds of other years, during pendency of appeal for the relevant year, cannot be sustained.

Conclusions

2.9 The Court concluded that the action of the Income Tax authorities in recovering/adjusting amounts in excess of 20% of the disputed demand, from refunds pertaining to other assessment years, while the appeal against the relevant assessment order was pending, is not sustainable in law in the absence of circumstances falling within paragraph 4B of the Office Memorandum dated 29.02.2016 (as amended).

Issue 3: Applicability of the decision of another High Court relied on by the Revenue

Interpretation and reasoning

2.10 The Court examined the cited decision of another High Court and noted that it was rendered in peculiar facts where: (i) a notice under Section 245 of the Income Tax Act, 1961 had been issued; (ii) the Assessing Officer had found that grant of stay was not permissible; and (iii) that Court had held, on those facts, that the adjustment made was not contrary to the Office Memorandum dated 31.07.2017.

2.11 The Court found that the factual matrix in the cited decision was materially different from the present case, since here there was no demonstration that the case fell within the exceptional situations under paragraph 4B of the Office Memorandum dated 29.02.2016 (as amended), and the Revenue's stand was instead premised on a general entitlement to recover the full demand absent a 20% deposit.

Conclusions

2.12 The Court held that the decision relied upon by the Revenue was not applicable to the facts of the present case and did not justify the impugned recovery in excess of 20% of the disputed demand.

Issue 4: Consequential relief and directions

Interpretation and reasoning

2.13 Having held the recovery beyond 20% to be unsustainable, the Court considered appropriate relief consistent with the approach adopted in the earlier co-ordinate Bench decision on the same legal issue.

2.14 The Court also took note that the first appeal against the assessment order had been pending since 2021, and deemed it appropriate to request expeditious disposal by the appellate authority.

Conclusions

2.15 The Court directed the Income Tax authorities to refund to the assessee the amount recovered in excess of 20% of the disputed demand (arising from the impugned notice of demand), which had been adjusted against refunds for assessment years 2020-21 to 2023-24, within eight weeks from the date of communication of the order, upon due verification of the actual amount recovered, and after affording an opportunity of hearing to the assessee for clarification, if required.

2.16 The Court requested the first appellate authority to expedite hearing and dispose of the pending appeal at the earliest possible.

Issues: Whether the receipts from temporary letting out of the sugar factory and allied charges were assessable as business income or income from other sources, and whether the brought forward business loss could be set off against the current year income.

Analysis: The arrangement with the other concern was found to be a collaboration agreement for temporary use of the factory premises and assets to carry on manufacturing activity, without any clause for sharing of profits or losses. The factory remained a commercial asset, and the arrangement was entered into to tide over financial , reconstruct the business, and exploit the full potential of the undertaking. On these facts, the receipts were held to be part of the business receipts and not passive income from other sources. Once the income was treated as business income, the set-off of brought forward business loss was also admissible.

Conclusion: The receipts were taxable as business income and not as income from other sources, and the set-off of brought forward business loss was allowable, in favour of the assessee.

Issues: Whether capital gains arose on execution of the joint development agreement and whether the addition made on that basis was sustainable.

Analysis: The dispute turned on whether the execution of the joint development agreement amounted to a "transfer" within the meaning of section 2(47) of the Income-tax Act, 1961 so as to trigger chargeability under section 45(1). The Tribunal followed the binding view that, where no consideration is received or accrues and possession is given only for the limited purpose of development, the arrangement does not satisfy the conditions of transfer contemplated by section 53A of the Transfer of Property Act, 1882. On the facts, the Revenue did not establish receipt of consideration or delivery of possession in the manner required for a taxable transfer.

Conclusion: No capital gains arose in the year of execution of the development agreement, and the addition made towards long-term capital gains was unsustainable.

Ratio Decidendi: A development agreement does not give rise to taxable capital gains unless it results in a transfer within section 2(47) of the Income-tax Act, 1961, supported by receipt or accrual of consideration and possession of the kind contemplated by section 53A of the Transfer of Property Act, 1882.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the final assessment orders passed under section 143(3) read with section 144C(13) were barred by limitation prescribed under section 144C(13) of the Income-tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Limitation for passing final assessment order under section 144C(13)

Legal framework (as discussed)

2.1.1 The Court examined section 144C(13), which mandates that upon receipt of directions issued under section 144C(5) by the Dispute Resolution Panel, the Assessing Officer shall, in conformity with such directions, complete the assessment within one month from the end of the month in which such direction is received. The provision operates notwithstanding anything to the contrary contained in sections 153 or 153B and does not contemplate any further opportunity of being heard to the assessee before such completion.

Interpretation and reasoning

2.1.2 It was the assessee's contention that the directions of the Dispute Resolution Panel in both assessment years were received in March 2022, and hence, by operation of section 144C(13), the final assessment orders had to be completed on or before 30.04.2022 (i.e., within one month from the end of the month in which such directions were received).

2.1.3 The Court noted that, in fact, the final assessment orders were passed on 15.05.2022 and 18.05.2022 for the two assessment years, respectively, which fell beyond the statutory time limit prescribed in section 144C(13).

2.1.4 The Court referred to and relied upon the judgment of the jurisdictional High Court holding that an assessment order made beyond the period of one month from the end of the month in which the Dispute Resolution Panel's directions are received constitutes failure to comply with the mandatory timelines in section 144C(13), and such an assessment order is liable to be set aside. The Court also noted that a similar view had been consistently taken by various High Courts and the Tribunal in other decisions cited.

2.1.5 The Department contended that the assessee should not escape its tax liability on technical grounds and that the orders were otherwise passed in accordance with law on merits. The Court, however, treated the time prescription in section 144C(13) as mandatory and determinative, and did not accept that tax liability can be enforced through an order passed beyond limitation.

Conclusions

2.1.6 The Court held that, as per section 144C(13), the Assessing Officer was required to pass the final assessment orders on or before 30.04.2022 for both years under consideration.

2.1.7 Since the final assessment orders were actually passed on 15.05.2022 and 18.05.2022, they were beyond the period of limitation prescribed under section 144C(13).

2.1.8 The Court concluded that both impugned final assessment orders were invalid being time-barred and accordingly set them aside, allowing the assessee's appeals.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether exemption under sections 11 and 12 was admissible for the relevant assessment year despite non-mention of registration/approval details under section 12AB in the return of income.

1.2 Whether, in view of the transitional scheme from sections 12A/12AA to section 12AB, the assessee's existing registration under section 12A and subsequent re-registration in Form 10AC entitled it to continuity of exemption for the relevant assessment year.

1.3 Whether denial of exemption under sections 11 and 12 while processing the return under section 143(1)(a) and reiterating it in rectification under section 154 was legally sustainable on the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Entitlement to exemption under sections 11 and 12 in the transitional regime from section 12A/12AA to section 12AB

Legal framework (as discussed): The Court examined section 12A, particularly sub-section (2) and its proviso, governing eligibility to exemption under sections 11 and 12. It noted that section 12A continues to apply post-amendment and that the proviso to section 12A(2) provides that once registration is obtained, exemption shall be available for any assessment year for which an application for registration was made, provided the objects and activities remain the same, and that exemption cannot be denied merely because registration was granted after the due date.

Interpretation and reasoning: The Court found as undisputed that the assessee held valid registration under section 12A since 2011, which had neither been withdrawn, suspended nor cancelled. It noted that due to the statutory transition to section 12AB, all existing charitable institutions were required to seek re-registration, and that CBDT, by successive circulars under section 119, extended the time for filing Form 10A. The assessee applied for re-registration in Form 10A on 06.01.2022 within the extended period and was granted registration in Form 10AC on 13.01.2022. The Court held that this statutory and administrative scheme was intended to be non-disruptive and that the earlier registration under section 12A validly continued for the relevant previous year. It reasoned that the subsequent registration under section 12AB did not extinguish the earlier registration for prior years; rather, it affirmed continuity of charitable status. The Court further held that, in light of the proviso to section 12A(2), exemption cannot be denied for an assessment year merely because the re-registration was granted later, so long as the trust's objects and activities remained unchanged. The Court concluded that the absence of the new 12AB registration number in the ITR resulted from timing-since the return had been filed before the grant of Form 10AC-and was a mere technical mismatch, not a substantive defect affecting eligibility.

Conclusions: The Court concluded that the assessee had a subsisting and valid registration under section 12A throughout the previous year relevant to the assessment year in question, had applied for re-registration within the extended time, and had obtained registration under section 12AB thereafter. The assessee therefore fulfilled the foundational requirement for exemption under sections 11 and 12. The technical non-mention of the new registration number in the return could not be a valid ground to deny exemption. The reasoning of the lower authorities that the exemption was not allowable because Form 10AC mentioned validity from a later assessment year and because new registration details were not filled in the ITR was held to be unsustainable.

Issue 3: Legality of denial of exemption under sections 11 and 12 in processing under section 143(1)(a) and in rectification under section 154

Interpretation and reasoning: The Court observed that the CPC and the appellate authority had denied exemption solely on the basis that the assessee had not furnished registration/approval details under the new section 12AB regime in the return, and on the view that Form 10AC was effective only from a subsequent assessment year. It held that, given the continuing validity of the original registration under section 12A and the protective effect of the proviso to section 12A(2), such denial ignored the substantive statutory position. Since registration under section 12A was undisputedly in force for the relevant year and re-registration had been duly sought and granted, there was no legal basis to treat the assessee as unregistered for that year. Consequently, the denial of exemption in the intimation under section 143(1)(a), as well as its reiteration in the rectification order under section 154, was contrary to the statutory scheme and could not be sustained.

Conclusions: The Court held that the CPC was not justified in denying exemption under sections 11 and 12 while processing the return under section 143(1)(a) or in reiterating that denial in the order under section 154. The disallowance of application of income and accumulation under section 11 was directed to be deleted, and the Assessing Officer was directed to allow exemption under sections 11 and 12 as claimed in the return.

Issues: (i) Whether the addition of Rs. 3,49,00,000 made under section 68 by treating cash deposits during the demonetisation period as unexplained income is sustainable where the assessee has recorded the amounts as cash sales in books, produced sales/purchase registers, stock records and paid tax on such sales.

Analysis: The Tribunal examined whether section 68 can be invoked to treat bank cash deposits as unexplained cash credits when the assessee had recorded the amounts as sales in its books of account, filed returns including those sales, furnished cash book, sales invoices, stock statements and audited accounts, and shown corresponding purchases. The Tribunal applied the legal principle that where books of account are relied upon and sales are reflected and taxed, the initial onus on the assessee to explain the nature and source of deposits stands discharged and the burden shifts to the revenue to prove that the deposits represent undisclosed income. The Tribunal also considered the effect of rejecting books under section 145(3) and the settled position that additions cannot be made by selectively relying on entries in books after rejecting them; similarly, where the evidence shows sufficient stock and corroborative documentation, deposits during demonetisation need not be treated as unexplained. Relevant precedents on demonetisation-period deposits, rejection of books, requirement to identify cash customers (PAN) and principles against double taxation were applied to the facts, including authorities holding that trade advances or cash sales subsequently recorded as sales are not amenable to section 68 treatment and that cash sales below statutory limits do not mandate PAN collection.

Conclusion: The Tribunal concluded that the assessee discharged the onus of proving that the cash deposits represented bona fide sales already recorded and taxed; the addition under section 68 (and consequential invocation of section 115BBE) is not sustainable. The appeal is allowed in favour of the assessee and the AO is directed to delete the addition.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the addition under section 69 of the Income-tax Act, 1961, towards alleged unexplained investment of Rs. 5,07,690/-, based solely on an excel sheet seized from a third party during search, was justified in the facts of the case.

1.2 Whether, in light of the assessee's documentary evidence (bank statements and vendor confirmation), the burden of proof under section 69 stood discharged and the presumption of cash payment could be sustained.

1.3 Whether the first appellate authority erred in upholding the addition without proper enquiry or independent application of mind, contrary to section 250(4) and (6) of the Act.

1.4 Incidentally, whether, where incriminating material relating to the assessee is found in search on a third party, the correct assessment provision is section 153C rather than section 147, and whether it was necessary to adjudicate this legal issue in the present appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Justification of addition under section 69 based on third-party excel sheet vis-à-vis assessee's evidence

Legal framework (as discussed):

2.1 The Tribunal noted the application of section 69 of the Income-tax Act, 1961, which permits treating an investment as deemed income where (i) such investment is not recorded in the books of account, and (ii) the assessee either offers no explanation about the nature and source of the investment, or the explanation is not satisfactory to the Assessing Officer. The first appellate authority reproduced and relied upon this provision.

Interpretation and reasoning:

2.2 The assessment and the first appellate order were based on an excel sheet (WH 2020 NOT REG.xlsx) seized during a search in the case of a third-party group, indicating alleged cash components in sale consideration for flats, along with a statement under section 132(4) of a director of that group admitting receipt of 10-15% sale consideration in cash.

2.3 The Tribunal observed that the alleged cash figure of Rs. 5,07,690/- attributed to the assessee in the excel sheet exactly matched an RTGS transaction of Rs. 5,07,690/- (plus RTGS charges, totaling Rs. 5,07,748.42) made by the assessee on 22.07.2019 from her UCO Bank account to the vendor, Chhattisgarh Project (India) Pvt. Ltd., as evidenced by the bank statement.

2.4 The Tribunal found that the total transaction amount of Rs. 80,22,190/- mentioned in the excel sheet tallied exactly with the amount paid by the assessee through banking channels and reflected in the registered sale deed, establishing that the entire consideration was through accounted, non-cash modes.

2.5 The Tribunal relied on a written confirmation from the vendor company stating that it had received Rs. 5,07,690/- from the assessee in its bank account and had not received any cash from the assessee in respect of this transaction. The Tribunal held that this confirmation, coupled with the bank statement, clearly disproved the allegation of cash payment.

2.6 The Tribunal noted that no direct evidence had been brought on record by the Revenue to show that the assessee had in fact paid any cash to the vendor, or that the assessee derived any benefit from such alleged cash payment. The addition was based solely on the excel sheet found in third-party premises and on general disclosures of the searched group, without any specific, corroborative material against the assessee.

2.7 The Tribunal emphasised that all evidence produced by the assessee (registered sale deed, agreement, bank statements, and vendor confirmation) demonstrated that the relevant amount was paid through banking channels and duly recorded in the books, thereby negating the foundational factual premise for invoking section 69.

Conclusions:

2.8 The Tribunal held that, in the presence of clear documentary evidence establishing RTGS payment and absence of any contrary, cogent evidence of cash payment by the assessee, the conditions of section 69 were not satisfied.

2.9 The belief that there was an unexplained cash investment of Rs. 5,07,690/- was held to be erroneous, as the amount was in fact paid through bank and recorded; therefore, the addition under section 69 was unsustainable in law and on facts.

2.10 The Tribunal directed deletion of the addition of Rs. 5,07,690/- made under section 69.

Issue 3: Propriety of the first appellate authority's approach under section 250(4) and (6)

Legal framework (as discussed):

3.1 The Tribunal referred to section 250(4) and (6) of the Act, which mandate the first appellate authority to make or cause to be made further enquiry, where necessary, and to pass a speaking order containing points for determination, the decision thereon, and reasons.

Interpretation and reasoning:

3.2 The Tribunal observed that the assessee had furnished before the first appellate authority all material including bank statements and the vendor's confirmation categorically stating that no cash was received, yet the authority upheld the addition without undertaking any independent enquiry or verification.

3.3 It was held that the first appellate authority merely carried forward the error of the Assessing Officer, resting solely on the excel sheet and general disclosure of the searched group, without addressing or rebutting the specific evidences filed by the assessee.

3.4 The Tribunal characterised the order of the first appellate authority as summary, arbitrary, and lacking independent application of mind, contrary to the statutory duty under section 250(4) and (6) to conduct proper enquiry and render a reasoned, speaking order, particularly when the assessee had placed on record prima facie exculpatory evidence.

Conclusions:

3.5 The Tribunal set aside the order of the first appellate authority on the ground that it was perverse and bad in law, having upheld an addition without enquiry and without dealing with the assessee's documentary evidence.

Issue 4: Correct assessment provision (section 153C vs. section 147) in search-related third-party information

Legal framework and observation (as discussed):

4.1 The Tribunal observed that the search in which the incriminating excel sheet was found was conducted in the premises of a third party (Wallfort Group), and that the information regarding the assessee emerged from that search.

4.2 The Tribunal noted that, in such a situation, the issue of applicability of the correct provision-section 153C (assessment of income of any other person) rather than section 147 (reassessment)-was "no more res integra", implying that the proper course, in principle, would be to proceed under section 153C when incriminating material relating to a non-searched person is found in search on another person.

Reasoning and conclusion:

4.3 The Tribunal recorded that, in the present case, the assessment had been framed under section 147, but since the appeal was being allowed on merits and the addition itself was being deleted, it found no justification to "travel further" on this legal issue.

4.4 The Tribunal thus treated the issue of applicability of section 153C versus section 147 as an academic or incidental point in the context of this appeal and expressly refrained from adjudicating upon it, resting its decision entirely on the merits of the addition.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the amounts disclosed as agricultural income and tuition income were rightly treated by the assessment authorities as income from undisclosed sources.

1.2 Whether, in the facts and circumstances and on the evidences produced, the entire additions on account of agricultural income and tuition income were justified, or only an estimated/ad hoc addition was warranted.

1.3 Whether the adoption of a net profit rate of 10% on the aggregate of agricultural and tuition income additions, as an ad hoc disallowance agreed by both parties, was appropriate and confined to the peculiar facts of the case without setting a precedent.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Treatment of agricultural income and tuition income as income from undisclosed sources

Interpretation and reasoning

2.1.1 The assessee had disclosed agricultural income and tuition income in the return and, during assessment, furnished copy of accounts, bank statement, cash book, details of business, and confirmations, along with copies of 7/12 and 8A extracts and an income and expenditure account for agricultural operations.

2.1.2 The assessment authorities treated the entire agricultural receipts and tuition receipts as income from undisclosed sources on the ground that no sale bills for agricultural produce and no bills/vouchers for agricultural expenses (such as dava, khatar, labour, biyaran, etc.) were produced, and that for tuition income only a ledger for about two months was furnished without class-wise details, fee structure, qualification of tutor, and mode of payment.

2.1.3 The Tribunal noted that the assessee is a small farmer and had submitted all "possible" evidences such as 7/12 and 8A extracts proving holding of agricultural land and an income and expenditure account. It observed that the Assessing Officer had not specifically identified any specific defects in the evidences produced, nor held such evidences to be bogus.

2.1.4 As regards tuition income, the Tribunal recorded that explanations and supporting material, to the extent available, were filed and were ignored in toto in the assessment, resulting in full addition of the receipts as undisclosed income.

Conclusions

2.1.5 The Tribunal held that there was merit in the assessee's contention that complete disallowance of agricultural income and tuition income as income from undisclosed sources was not justified, as the evidences produced were neither disproved nor found to be bogus by the Assessing Officer.

2.2 Extent and manner of sustaining additions - adoption of estimated/net profit rate on aggregate receipts

Interpretation and reasoning

2.2.1 The aggregate of the additions made by the Assessing Officer on account of agricultural income (Rs. 8,15,200) and tuition income (Rs. 5,75,800) totalled Rs. 13,91,000.

2.2.2 The assessee, while maintaining that all possible evidences had been produced, alternatively suggested that an ad hoc addition of 10% may be made. The Revenue did not object to an estimated addition, suggesting that 15% would suffice in view of the smallness of the amount and to protect the interest of the Revenue.

2.2.3 The Tribunal, having found that the evidences were not specifically discredited but that there existed inconsistencies and deficiencies in documentation and corroboration, held that some addition was still warranted to plug possible leakage of revenue.

2.2.4 Balancing these considerations, and taking into account the smallness of the assessee's status as a small farmer and the stands of both parties, the Tribunal considered that applying a net profit rate of 10% on the aggregate of Rs. 13,91,000 would adequately take care of the inconsistencies in the documents and evidences submitted before the lower authorities.

Conclusions

2.2.5 The Tribunal directed the Assessing Officer to restrict the addition to 10% of Rs. 13,91,000, i.e. Rs. 1,39,100, in place of the entire additions originally made, thereby partly allowing the appeal.

2.3 Nature and precedential value of the ad hoc determination

Interpretation and reasoning

2.3.1 The Tribunal explicitly recorded that the instant adjudication was made having regard to the smallness of the amount involved and the fact that both parties agreed to an ad hoc disallowance.

2.3.2 It emphasized that the estimation and rate adopted were based on the peculiar factual matrix of this case, particularly the nature of the assessee's activities and the evidence placed on record.

Conclusions

2.3.3 The Tribunal clarified that the decision and the 10% ad hoc addition directed herein shall not be treated as a precedent in any preceding or succeeding assessment year.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether disallowance of interest paid on loans, claimed as deduction under section 57(iii) against interest income assessable under the head "Income from other sources," was justified when no fresh loans were borrowed or advanced during the year and nexus had been accepted in earlier and subsequent years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of interest paid on loans as deduction under section 57(iii)

Legal framework (as discussed)

2.1 The Court proceeded on the basis that interest expenditure incurred on borrowed funds is allowable as deduction under section 57(iii) of the Act if there exists a nexus between the borrowed funds and the funds advanced which generate taxable interest income under the head "Income from other sources."

Interpretation and reasoning

2.2 It was undisputed that: (i) the assessee had taken loans from various persons in earlier years and paid interest thereon; (ii) the assessee had, in earlier years, advanced loans to various persons and earned interest income therefrom; (iii) no fresh borrowings or fresh advances were made during the year under consideration; and (iv) the interest income on such advances was offered to tax under the head "Income from other sources."

2.3 The Court noted that in scrutiny assessments for earlier assessment years, the Assessing Officer had accepted and allowed deduction of interest paid on loans under the head "Income from other sources" after the assessee had established the nexus between borrowed funds and funds advanced.

2.4 For subsequent assessment years, though the Assessing Officer had disallowed the interest expenditure, the appellate authority had, in detailed findings, categorically held that the assessee had established the nexus between the interest expenses claimed and the interest income received, and accordingly allowed deduction under section 57(iii).

2.5 The lower authorities in the year under consideration disallowed the deduction on the ground that the assessee had not provided a one-to-one nexus between specific interest paid and specific interest received.

2.6 The Court held that, in circumstances where all borrowings and advances were carried forward from earlier years and no fresh loans were either borrowed or granted during the relevant year, there was no requirement to again prove nexus for the year under appeal, as the nexus had already been accepted in earlier scrutiny proceedings and in subsequent years.

2.7 The Court observed that the assessee had nevertheless furnished complete details of opening balances of loans borrowed and interest paid thereon, as well as details of opening balances of loans and advances and interest income earned thereon, before the Assessing Officer, and that the disallowance was made despite these details.

Conclusions

2.8 The Court concluded that, given the admitted position that no fresh loans were borrowed or granted during the year and that the nexus between borrowed funds and advances had been accepted in earlier and subsequent years, the disallowance of interest expenditure under section 57(iii) was not justified.

2.9 The Assessing Officer was directed to allow deduction of the interest paid on loans under section 57(iii) under the head "Income from other sources" in the amount claimed, and the grounds of appeal were allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether addition under section 69C on account of alleged unexplained expenditure for construction of a plant could be sustained solely on the basis of unsigned, undated loose sheets/WhatsApp chats seized during search.

1.2 Whether such loose sheets, whose figures do not reconcile with third-party records (bank and holding company ledgers) and which lack clear linkage to the assessee or to the relevant assessment year, can constitute reliable incriminating material or are to be treated as "dumb documents".

1.3 Whether, in absence of commencement of business and any revenue generation by the assessee during the relevant previous year, unexplained expenditure in the nature alleged can be attributed and taxed in the assessee's hands.

1.4 Whether the assessee's holding company having surrendered a certain amount in its own hands in respect of the same project, and no adverse inference being drawn in that company's assessment, affects the justification for addition in the hands of the assessee.

1.5 Whether the Assessing Officer, in a search assessment, discharged the burden of making addition based on cogent, corroborated material rather than on mere presumptions or rough notings, as per the CBDT's instructions governing search assessments.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Sustainability of addition u/s 69C based on seized loose sheets / WhatsApp chats ("dumb documents")

Legal framework (as discussed)

2.1 The Tribunal considered section 69C (unexplained expenditure) in the context of a search assessment based on seized loose papers and WhatsApp chats. The order also referred to CBDT Instruction F. No. 286/161/2006-IT (Inv. II) dated 22.12.2006, which mandates that search assessments be based on marshalling facts, establishing preponderance of probability through investigation, and not on mere presumptions or "multiplication formula".

2.2 The appellate authority's reasoning, endorsed by the Tribunal, relied on settled judicial principles that unsigned, undated, uncorroborated loose sheets, inconsistent with authenticated records and not clearly relatable to the assessee or the relevant year, are "dumb documents" with no evidentiary value unless supported by cogent corroborative material.

Interpretation and reasoning

2.3 The Assessing Officer treated a loose paper and certain WhatsApp chats as the basis to infer total expenditure of Rs. 129,15,55,494/- up to 31.03.2022 on the Mewat plant, of which Rs. 39,22,83,307/- was stated as through banking channels and the balance Rs. 89,92,72,187/- as alleged unexplained cash expenditure. After giving credit for funds from the holding company (including surrendered amount), the AO added Rs. 43,71,37,934/- u/s 69C.

2.4 The CIT(A), on a detailed examination of the seized material reproduced in the assessment order, found:

(a) One excel sheet was related to an individual (with items such as Vibhav Nagar plot, Delhi Kitchen, etc.) and did not pertain to the assessee's plant at Mewat.

(b) Payment slips relied upon by the AO related to financial year 2022-23 (AY 2023-24), not to the year under consideration (AY 2022-23).

(c) A third excel sheet clearly mentioned the entity name as "HMA Agro" for financial years 2021-22 and 2022-23; entries specifically mentioning the assessee related to AY 2023-24, not to AY 2022-23.

(d) WhatsApp chats referred to (with "Miswa, Bhulu Unnao") were either not clearly linked to the assessee or not related to the relevant year and, therefore, had no evidentiary value.

2.5 The crucial loose paper on which the AO based the cash expenditure inference was held to be:

(a) Undated, unsigned, with no indication of its author or purpose.

(b) Not specifying who allegedly incurred the expenditure.

(c) Not linked by the AO to any corroborative evidence or to the assessee's regular books.

2.6 The assessee produced third-party documentation (Yes Bank term loan statement and holding company ledger). The CIT(A) compared the figures in the loose sheet, AO's inference, and the actual records, and found that none of the critical figures reconciled:

(a) Amount from holding company for March 2022 in loose sheet (Rs. 12,47,19,850/-) vs. actual amount received (Rs. 6,80,00,000/-).

(b) Bank loan disbursement for March 2022 in loose sheet (Rs. 3,62,63,899/-) vs. actual Yes Bank disbursement (Rs. 5,80,48,427/-).

(c) Total investment by holding company up to 31.03.2022 in loose sheet (Rs. 129,15,55,494/-) vs. actual ledger balance (Rs. 44,03,81,860/-).

(d) Total loan amount from Yes Bank up to 31.03.2022 in loose sheet (Rs. 59,73,27,808/-) vs. actual bank outstanding balance (Rs. 61,91,02,337/-).

2.7 On this unreconciled comparison, the CIT(A) held that the loose sheet figures were not authentic or reliable; when none of its figures matched independent third-party records, it could not be treated as evidence of actual transactions. The paper was, at most, a rough jotting/estimate and therefore a classic "dumb document".

2.8 It was further observed that:

(a) The AO did not establish that the notings had materialised into real transactions yielding undisclosed income or real unexplained expenditure.

(b) The AO brought no corroborative material from banks, independent parties or valuation of the plant to support or validate the figures on the loose sheet.

(c) The AO did not even specify which component of alleged investment (building, plant and machinery, other fixed assets) the loose sheet figures related to.

2.9 Applying the CBDT Instruction, the CIT(A) concluded that the AO proceeded on presumption rather than investigation, contrary to the mandate that seized papers be corroborated by independent enquiries and not be used merely with a "multiplication formula".

2.10 The Tribunal noted and accepted the CIT(A)'s factual findings that:

(a) None of the figures in the loose sheet matched the Yes Bank statement or the holding company's ledger.

(b) The loose sheet was unsigned, undated, with unknown authorship and purpose.

(c) The AO failed to correlate the entries either with the assessee's books or with any reliable external evidence.

(d) Even the entity named in significant parts of the seized material was the holding company ("HMA Agro"), not the assessee, and where the assessee's name appeared, the period largely related to the subsequent assessment year.

2.11 On these facts, the Tribunal agreed that the loose sheet and connected material constituted a "dumb document" with no evidentiary value for making an addition, and that the AO's inference of unexplained cash expenditure was unwarranted, speculative, and unsupported.

Conclusions

2.12 The addition under section 69C was based solely on an undated, unsigned loose paper and ancillary material that neither matched third-party authenticated records nor was clearly relatable to the assessee or the relevant year.

2.13 Such loose sheets, being uncorroborated, internally inconsistent and not supported by independent enquiries, were rightly characterised as "dumb documents", incapable of forming a valid basis for addition.

2.14 The Revenue failed to discharge the burden of proof required in search assessments to establish unexplained expenditure by cogent and corroborated material. The deletion of the addition by the appellate authority was therefore upheld.

Issue 3: Absence of business commencement and capacity to incur unexplained expenditure

Legal framework (as discussed)

2.15 The appellate authority, whose reasoning was accepted by the Tribunal, referred to judicial precedents (including the principle from decisions such as CIT v. Bharat Engineering & Construction Co.) that, particularly in an initial or pre-commencement period, unexplained credits or alleged investments are not easily inferable as undisclosed income of the assessee when business operations have not started and no revenue has arisen.

Interpretation and reasoning

2.16 It was an undisputed fact that:

(a) The assessee was only in the process of establishing its plant at Mewat during the year relevant to AY 2022-23.

(b) Commercial production commenced only in December 2022, and an APEDA certificate was issued from 10.02.2023, demonstrating that there was no business activity during the relevant financial year 2021-22.

(c) No business revenue was earned by the assessee during the year under consideration.

2.17 On this factual matrix, the CIT(A) reasoned, and the Tribunal agreed, that:

(a) There was no material to show that the assessee had any source of income during the period which could fund unexplained cash expenditure of the magnitude alleged.

(b) Allegations of large-scale unexplained expenditure presuppose a source which, in the absence of business operations and revenue, was neither established nor even identified by the AO.

(c) In such pre-commencement circumstances, it is not proper to presume that substantial unexplained expenditure was incurred by the assessee out of undisclosed income in its own hands.

2.18 The Tribunal, referring also to analogous reasoning in cases like Khanna Infrabuild Pvt. Ltd. and Burma Electro Corporation (as cited before it), accepted that where business has not commenced and the construction is financed by capital/borrowed funds, treating alleged cash expenditure as unexplained income in the hands of the assessee company is not justified without concrete evidence of such income.

Conclusions

2.19 In the absence of any business activity or revenue during the year, and with the project financed through identifiable bank loans and holding company funds, it was untenable to attribute the alleged cash expenditure to undisclosed income of the assessee.

2.20 The alleged unexplained expenditure under section 69C could not be sustained against an entity whose business had not commenced and for which no source of such alleged undisclosed income was established.

Issue 4: Effect of holding company's surrender and its assessment outcome

Interpretation and reasoning

2.21 The AO's working implicitly treated a part of the project investment as funded by the holding company, including Rs. 41,40,35,700/- surrendered by the holding company, and gave credit for a total of Rs. 85,44,17,560/- (comprising the holding company's ledger balance and surrendered amount), while attributing the balance as unexplained expenditure of the assessee.

2.22 The CIT(A) noted, and the Tribunal accepted, that:

(a) The same AO who framed the assessee's assessment also completed the assessment of the holding company (HMA Agro Industries Ltd.).

(b) Despite the AO's contention that the investment was made by the holding company in cash, no adverse inference or addition on this issue was made in the holding company's assessment for the same assessment year.

2.23 This inconsistency underscored the lack of clarity and evidentiary support as to which entity, if any, had actually incurred the alleged cash expenditure, and militated against fastening such liability on the assessee on a presumptive basis.

Conclusions

2.24 The holding company's own surrender and the absence of any parallel addition in its assessment highlighted that the AO had not consistently or convincingly established that unexplained expenditure belonged to the assessee.

2.25 Given this lack of clarity and the AO's inconsistent approach, the attempt to tax the alleged unexplained expenditure in the assessee's hands was unsustainable.

Issue 5: Compliance with CBDT instructions and evidentiary standards in search assessments

Legal framework (as discussed)

2.26 The CIT(A) relied on CBDT Instruction F. No. 286/161/2006-IT (Inv. II) dated 22.12.2006, particularly para 2.4, which directs Assessing Officers in search cases to:

(a) Marshal facts and place them in chronological sequence.

(b) Focus on establishing preponderance of probability regarding undisclosed income by investigation.

(c) Reach logical conclusions on periods not directly covered by seized evidence through investigation, not mere presumptions or multiplication formula.

(d) Carry out independent enquiries from banks, financial institutions, independent parties, and Government departments.

Interpretation and reasoning

2.27 The CIT(A) found, and the Tribunal concurred, that the AO:

(a) Relied exclusively on a single loose paper and unsubstantiated inferences from chats, without any independent verification with banks (beyond what the assessee itself produced), contractors, or valuation of the plant.

(b) Did not demonstrate the modus operandi or the actual flow of alleged unaccounted cash.

(c) Applied a purely arithmetic difference between a rough total expenditure figure and identifiable bank/holding company funds to infer unexplained cash spending, which amounted to the kind of "presumption or multiplication formula" specifically deprecated by the CBDT.

2.28 On this basis, the appellate findings were that the search assessment was not in conformity with the evidentiary and investigative standards mandated by the CBDT for search cases, and that the addition was made on conjectures, not on properly established facts.

Conclusions

2.29 The AO failed to adhere to CBDT's search assessment guidelines requiring investigation-based conclusions and corroborated evidence. The addition under section 69C, resting on an unverified loose sheet and unsupported inferences, did not meet the requisite standard.

2.30 The Tribunal, therefore, upheld the appellate deletion of the entire addition of Rs. 43,71,37,934/- u/s 69C and dismissed the Revenue's appeal.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 846 days in filing the appeal by the revenue deserved condonation.

1.2 Whether the assessment order passed under sections 144/147 by the Jurisdictional Assessing Officer was non est for want of compliance with section 144B and the CBDT Instruction dated 31-03-2021.

1.3 Whether the subsequent CBDT Order dated 17-03-2022 under section 119 created a valid exception permitting completion of the assessment by the Jurisdictional Assessing Officer without following the faceless assessment procedure.

1.4 Consequentially, whether the matter required remand to the appellate authority for adjudication of remaining grounds on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing the appeal

Interpretation and reasoning

2.1 The Tribunal noted that there was a delay of 846 days in filing the revenue's appeal. Reasons for delay were set out in a condonation petition. Considering these reasons, the Tribunal applied the principle of substantial justice.

Conclusions

2.2 The delay of 846 days was condoned and the appeal was admitted for adjudication.

Issue 2 and 3: Validity of assessment by Jurisdictional Assessing Officer in light of section 144B, CBDT Instruction dated 31-03-2021, and CBDT Order dated 17-03-2022

Legal framework as discussed

2.3 The appellate authority had relied on CBDT Instruction F. No. 187/3/2020-ITA-I dated 31-03-2021, issued under section 144B(2), which mandated that all assessment proceedings pending as on 31-03-2021 and initiated on or after 01-04-2021 (other than specified exclusions) shall be completed in a faceless manner under section 144B, including cases where the assessee had not furnished returns in response to notices under sections 142(1) or 148(1). It had also taken note of sub-section (8) of section 144B regarding transfer of cases from faceless assessment to jurisdictional Assessing Officer with prior approval of the Board.

2.4 The Tribunal considered the CBDT Order F. No. 187/3/2020-ITA-1 dated 17-03-2022 issued under section 119, which, in partial modification of the earlier orders, added an exception that assessment orders in all cases for which the time limit for completion expires on 31-03-2022, and which were pending with the jurisdictional Assessing Officer as on 15-03-2022 or thereafter, and which could not be completed as per the procedure under section 144B due to technical/procedural constraints, shall be completed by the jurisdictional Assessing Officer. This exception was stated to apply only to cases where the time limit expired on 31-03-2022.

Findings of the appellate authority (NFAC) as noticed by the Tribunal

2.5 The appellate authority held that the reassessment was pending as on 01-04-2021 and therefore mandatorily had to be completed under the faceless assessment system in terms of section 144B and the CBDT Instruction dated 31-03-2021. It observed that the assessment had instead been completed by the Jurisdictional Assessing Officer (ITO, Ashok Nagar), there was no material to show transfer from faceless assessment to the Jurisdictional Assessing Officer with prior Board approval under section 144B(8), and no response was received from the Assessing Officer despite remand being called for on the jurisdiction issue. It therefore treated the assessment order dated 30-03-2022 as non est and void ab initio for gross violation of CBDT instructions and the mandate of section 144B, and did not adjudicate other grounds as academic.

Tribunal's interpretation and reasoning

2.6 The Tribunal recorded the factual sequence that notice under section 148 was issued and served on 30-03-2021, no return was filed, information was gathered under section 133(6), a show-cause notice with draft order was issued on 24-03-2022, reply was filed on 26-03-2022, and the reassessment under section 144 read with section 147 was completed by the Jurisdictional Assessing Officer on 30-03-2022.

2.7 The Tribunal took note of the CBDT Order dated 17-03-2022 and held that by virtue of this later order, the Board had granted relaxation in respect of reassessments to be completed by 31-03-2022, by specifically providing an exception from following the procedure laid down in section 144B for such cases and authorizing completion by the Jurisdictional Assessing Officer.

2.8 On this basis, the Tribunal concluded that the appellate authority's view that the assessment was non est for not having been carried out under section 144B was inconsistent with the subsequent CBDT relaxation which squarely covered assessments whose limitation period expired on 31-03-2022 and which were pending with the Jurisdictional Assessing Officer.

Conclusions

2.9 The Tribunal held that the declaration of the assessment as non est by the appellate authority on the ground of non-compliance with section 144B and the earlier Instruction dated 31-03-2021 was not in order in view of the CBDT Order dated 17-03-2022. The finding of non est and void ab initio assessment was set aside.

Issue 4: Remand for adjudication of remaining grounds on merits

Interpretation and reasoning

2.10 Since the appellate authority had quashed the assessment on jurisdiction/validity grounds and had not adjudicated the other grounds raised by the assessee on merits, the Tribunal considered it appropriate, in the interest of justice and fair play, to remit the matter back for fresh adjudication of those remaining issues.

2.11 The Tribunal directed that the remand was for a limited purpose: adjudication of other grounds and issues raised by the assessee, including any additional grounds or additional evidence that may be filed, but excluding reconsideration of the specific ground on which the assessment had earlier been held non est. It clarified that the appellate authority would be free to entertain and decide any other legal issues raised by the assessee.

Conclusions

2.12 The appeal was allowed for statistical purposes. The matter was restored to the file of the appellate authority for denovo adjudication, confined to grounds other than the validity of the assessment on the basis of section 144B non-compliance, with a direction to the assessee to cooperate and avoid unwarranted adjournments.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether addition on account of alleged bogus purchases of "Raw Boneless Meat" could be sustained in the hands of the assessee when no such purchases were recorded in its books and the related business operations were carried out by another entity operating the assessee's plant on rent.

1.2 Whether the findings for the assessment year 2020-21 regarding the nature of operations and absence of such purchases in the assessee's books apply identically to subsequent assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Sustainability of addition for alleged bogus purchases of "Raw Boneless Meat"

Interpretation and reasoning

2.1 The Assessing Officer treated purchases of "Raw Boneless Meat" as bogus on the basis of (a) enquiries under section 133(6) from certain suppliers, who allegedly denied having supplied such goods to the assessee, and (b) findings and material relating to another assessee in earlier assessment years, including allegations of round tripping of funds.

2.2 The assessee's consistent case before the Assessing Officer and the first appellate authority was that it had not made any purchases of "Raw Boneless Meat"; the plant at the relevant premises was being run by another company under a rental arrangement, and all such purchases were recorded in the books of that other company.

2.3 The assessee produced material showing that the factory premises were given on rent and that rent income from the other company had been recorded; it was also shown that the suppliers in question were appearing as creditors in the books of the other company, not in the assessee's books.

2.4 The first appellate authority accepted these factual submissions, recorded that no purchases of "Raw Boneless Meat" were booked in the assessee's books of account, and held that the Assessing Officer had wrongly applied data and findings pertaining to another entity to the assessee.

2.5 The Tribunal found that the assessee had not carried out business activities in the leased facility, that the factory had been given on rent, and that the addition was made on an incorrect factual premise arising from a wrong understanding of the assessee's operations.

2.6 The Tribunal agreed with the factual appreciation of the first appellate authority that, in the absence of any such purchases in the assessee's books, the question of treating them as bogus in the assessee's hands did not arise.

Conclusions

2.7 The addition on account of alleged bogus purchases of "Raw Boneless Meat" in the assessee's hands was unsustainable and was rightly deleted by the first appellate authority.

2.8 The Tribunal upheld the deletion and dismissed the revenue's appeals on this issue.

Issue 2 - Applicability of findings for one assessment year to other years

Interpretation and reasoning

2.9 The Tribunal noted that the factual matrix and grounds in the revenue's appeals for the subsequent assessment years were exactly similar to those in the lead assessment year, particularly regarding the rented nature of the plant and absence of purchases of "Raw Boneless Meat" in the assessee's books.

2.10 On this basis, the Tribunal applied its findings for the lead assessment year mutatis mutandis to the subsequent years.

Conclusions

2.11 The additions on account of alleged bogus purchases in the subsequent assessment years were also unsustainable for the same reasons, and the revenue's appeals for those years were likewise dismissed.

Issues: Whether the imported PVC suspension resin was classifiable under the specific tariff entry for poly(vinyl chloride) resins or under the residuary entry, and consequently whether the benefit of the customs exemption notification was available.

Analysis: The dispute turned on tariff classification of PVC suspension grade resin. The material had already been examined in earlier Tribunal and appellate decisions involving identical or substantially similar goods, where the specific heading for non-plasticized PVC resins was preferred over the general or residuary entry. Applying Rule 3(a) of the General Rules for the Interpretation of Import Tariff Schedule, the specific description was held to prevail over the more general description. Since the imported goods answered to the specific entry, the denial of exemption and the resultant demand could not be sustained.

Conclusion: The goods were correctly classifiable under the specific tariff entry, and the impugned order denying the exemption and confirming duty was unsustainable.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the imposition of penalty on the appellant under Section 114AA of the Customs Act, 1962 is legally sustainable on the basis of the allegations and evidence on record.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Sustainability of penalty under Section 114AA of the Customs Act, 1962

2.1.1 Legal framework as discussed

2.1.1.1 The Court reproduced and analysed Section 114AA of the Customs Act, 1962, noting that it applies where a person "knowingly or intentionally makes, signs or 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 this Act", and that the penalty may extend to five times the value of the goods.

2.1.1.2 Relying on its earlier decision in J. Uthaman v. Commissioner of Customs, the Court reiterated that for imposition of penalty under Section 114AA, the following must be specifically established: (a) the person proceeded against; (b) the precise act alleged (making, signing, using or causing to be made, signed or used); (c) the nature of the document (declaration, statement or document); (d) that such document was false or incorrect in any material particular; and (e) that the acts were done knowingly or intentionally (mens rea) in the course of business under the Act.

2.1.1.3 The Court further held that, given the severity of the potential penalty, the show cause notice must clearly specify: the exact act complained of under Section 114AA, the particular declaration/statement/document involved, and the precise particulars alleged to be false or incorrect, so as to enable the noticee to effectively defend against the charge.

2.1.2 Interpretation and reasoning

2.1.2.1 The show cause notice alleged that the appellant, as CHA and managing person of two CHA entities, was obliged to verify IEC details and client identity, and that he "knowingly" undertook CHA work for fraudulent importers after knowing that IEC holders were not the real importers, thereby abetting the commission of offences and rendering himself liable for penalty under Section 114AA.

2.1.2.2 The Court noted from the records that the appellant had submitted KYC documents of the importers to the investigating agency under acknowledgment, and the Revenue had produced no contrary evidence rebutting this submission.

2.1.2.3 It was observed that the appellant had requested cross-examination of certain persons whose statements were relied upon, but such cross-examination was not granted. Consequently, the statements remained contested and untested.

2.1.2.4 The Court held that, in light of the requirements articulated in the earlier decision in J. Uthaman, the show cause notice and the adjudication did not clearly spell out which specific declarations, statements or documents the appellant was alleged to have made, signed, used, or caused to be made, signed or used, which of their particulars were false or incorrect, or how the appellant's acts fulfilled the element of "knowingly or intentionally" under Section 114AA.

2.1.2.5 The Court found that the adjudicating authority's conclusion that the appellant had "knowingly and intentionally used the declarations and fabricated documents containing false information regarding the actual importers, value and quantity" was not supported by cogent evidence, particularly in the absence of proved material showing fabrication, falsification, or conscious use of false documents by the appellant.

2.1.2.6 The Court emphasised that mens rea (deliberate and conscious knowledge of falsity or incorrectness) is an express requirement under Section 114AA, and the burden to establish such mens rea rests heavily on the Department. In the instant case, the Department had failed to discharge this burden as against the appellant.

2.1.2.7 Given that the statements relied upon by the Department were not tested by cross-examination and remained contested, the Court held that they could not be safely relied upon as evidence of any overt act or requisite mens rea on the part of the appellant for the purpose of Section 114AA.

2.1.2.8 The Court also noted that the judicial precedents cited by the appellant supported the requirement of specific pleading, clear attribution of acts, and proof of knowledge/intent for invoking Section 114AA, and found these authorities consistent with its own analysis. In view of its core findings on lack of proof of the statutory ingredients, the Court considered it unnecessary to examine the appellant's additional contentions.

2.1.3 Conclusions

2.1.3.1 The Court concluded that the Department failed to establish the statutory ingredients of Section 114AA against the appellant, namely: (a) specific acts of making, signing, using, or causing to be made, signed or used any particular declaration, statement, or document; (b) falsity or material incorrectness of such document; and (c) knowledge or intention on the part of the appellant regarding such falsity or incorrectness.

2.1.3.2 The Court held that, in the absence of adequate pleading in the show cause notice and in the absence of reliable, tested evidence demonstrating mens rea and overt acts by the appellant, the penalty imposed under Section 114AA was unsustainable in law.

2.1.3.3 The portion of the impugned order imposing a penalty of Rs. 25,00,000/- on the appellant under Section 114AA of the Customs Act, 1962 was set aside, and the appeal was allowed to that extent, with consequential relief, if any, to follow in accordance with law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the seized 12 gold bars were established to be "smuggled" and hence liable to confiscation under section 111 of the Customs Act, 1962.

1.2 Whether statements recorded under section 108 of the Customs Act could be relied upon, in the absence of compliance with section 138B and in the face of retraction, to prove smuggling and ownership of the seized gold bars.

1.3 Whether, in the facts of the case, the statutory burden under section 123 of the Customs Act was discharged by the appellants and whether the burden could be shifted back to the department to prove smuggling.

1.4 Whether penalty under section 112(b)(i) of the Customs Act could be imposed on the appellants when liability of the gold to confiscation under section 111 was not established.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of the seized gold bars to confiscation under section 111

Legal framework (as discussed)

2.1 The Court examined sections 111(a)/(b)/(d), 120 and 123 of the Customs Act. Section 111 applies to goods "brought from a place outside India" and liable to confiscation if imported contrary to prohibitions or restrictions. Section 123 reverses the burden of proof in respect of certain notified goods (including gold) on the "person from whose possession" such goods are seized or the "person who claims to be the owner". Section 120 concerns confiscation of goods made from, or derived from, smuggled goods.

Interpretation and reasoning

2.2 The impugned order had proceeded on the premise that the seized gold bars were owned by a particular person and that they were smuggled, relying mainly on statements recorded under section 108 and on the foreign markings on the gold.

2.3 In a connected appeal decided on the same date, the Court had already held that this alleged owner was not proved to be the owner of the 12 gold bars, as the section 108 statements (of that person and of the present appellants) could not be relied upon.

2.4 The appellants' specific explanation was that the 12 gold bars and Rs. 2,40,000/- were part of a documented job-work transaction originating from a jeweller at Jaipur (via a will and instructions to return the gold and cash), and that they were merely transporting those bars and cash to the legatee. This explanation, supported by reference to job-work issue orders, ledger entries and a will, directly addressed the question of licit possession.

2.5 The Court noted that this explanation was not examined in the impugned order. Further, the department did not examine or even attempt to examine the person (Rinkesh Kumar alias Prem Singh) who, according to the appellants, had handed over the gold and documents in Chennai, and whose testimony was crucial to test the veracity of the appellants' explanation.

2.6 The Court relied upon its own prior decisions and the Supreme Court's judgment in holding that for an inference of smuggling, the evidence must relate to "unauthorized importation" and not merely to "unauthorized possession" of gold. A mere finding that a person was in possession of smuggled goods does not justify the conclusion that such person was "concerned in the commission of the offence of illegal importation"; circumstances connecting such person with importation prior to the actual import must be established.

2.7 Applying this principle, the Court observed that neither the show cause notice nor the impugned order alleged or established any circumstances connecting the appellants with the importation of the gold prior to actual import. It was not even the department's case that the appellants were importers of the gold.

2.8 The Court further observed that, in the connected appeal, section 123 was held inapplicable to fasten the burden upon the alleged owner because he was not established as owner of the gold; consequently, section 123 could not be invoked to treat the gold as smuggled. The obligation thus lay on the department to establish smuggling without improperly relying on reversed burden.

2.9 Section 120 had not been invoked and, in any event, could not have been invoked in the absence of evidence that the appellants or the alleged owner had smuggled the gold bars. The Court referred to precedent clarifying that section 120 applies when goods are made from smuggled goods and the underlying smuggling is established.

2.10 The Court held that mere foreign markings on gold, absence of import documents from the alleged owner, and non-acceptance of appellants' documents, without proper investigation or testing of their explanation, could not by themselves establish that the bars were "brought from a place outside India" by way of smuggling for purposes of section 111.

Conclusions

2.11 The department failed to establish that the seized 12 gold bars were smuggled goods or that they had been imported in violation of prohibitions or restrictions under the Customs Act or allied laws.

2.12 Section 123 could not validly be used against the appellants in the circumstances of the case to presume smuggling; the primary burden remained on the department and was not discharged.

2.13 Section 120 was neither invoked nor factually attracted.

2.14 The seized 12 gold bars were not shown to be "goods brought from a place outside India" in contravention of law and, therefore, were not liable to confiscation under section 111 of the Customs Act.

Issue 2: Admissibility and evidentiary value of statements under section 108

Legal framework (as discussed)

2.15 The Court considered section 108 (power to summon persons to give evidence and produce documents) and section 138B (conditions for use of statements made and signed before customs officers) of the Customs Act. It also noted that the appellants had retracted their earlier statements made under section 108.

Interpretation and reasoning

2.16 The department's case regarding smuggling, ownership of the gold, and the role of the appellants as carriers was primarily rested on statements recorded under section 108 from the appellants and the alleged owner.

2.17 The appellants specifically contended that their section 108 statements had been extracted under threat and coercion and were retracted while in judicial custody, with an alternate factual narrative then furnished.

2.18 The Court noted that the statutory safeguards contained in section 138B, which govern the admissibility and use of such statements, were not shown to have been complied with by the department.

2.19 In the connected appeal, the Court had already held that, in the absence of compliance with section 138B, no reliance could be placed upon statements recorded under section 108 for purposes of proving either ownership or smuggling in respect of the same gold bars.

2.20 Applying that reasoning, the Court held in the present appeals that such section 108 statements, especially when retracted and not tested in accordance with section 138B, could not form the legal basis for concluding that the gold was smuggled or that the appellants were knowingly acting as carriers of smuggled gold.

Conclusions

2.21 Statements recorded under section 108, in the absence of due compliance with section 138B and in view of their retraction, could not validly be relied upon to establish that the seized gold bars were smuggled, to fix ownership on the alleged owner, or to establish the appellants' conscious involvement in smuggling.

2.22 The department's reliance on such statements, without satisfying the statutory preconditions, rendered the foundation of the confiscation and penalty unsustainable.

Issue 3: Sustainability of penalty under section 112(b)(i)

Legal framework (as discussed)

2.23 Section 112(b)(i) of the Customs Act provides for imposition of penalty on any person who acquires possession of, or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling, purchasing or dealing with any goods "which he knows or has reason to believe are liable to confiscation under section 111".

Interpretation and reasoning

2.24 The Court emphasized that liability under section 112(b)(i) is contingent upon the foundational fact that the goods in question are "liable to confiscation under section 111". Knowledge or reason to believe on the part of the person penalized must relate to this confiscability.

2.25 Since, for the reasons recorded under Issue 1, the seized 12 gold bars were held not to have been established as smuggled goods and not liable to confiscation under section 111, the basic condition for the applicability of section 112(b)(i) itself failed.

2.26 Moreover, in the absence of admissible and reliable evidence (other than the inadmissible section 108 statements) linking the appellants with importation or with any prior stage of smuggling, the requirement that the appellants "knew or had reason to believe" that the goods were liable to confiscation was also not satisfied.

2.27 The impugned order treated the appellants as "carriers of smuggled gold" solely on the basis of the rejected evidentiary foundation and without independent evidence of their knowledge of smuggled character of the goods.

Conclusions

2.28 As the seized gold bars were not shown to be liable to confiscation under section 111, the essential jurisdictional precondition for imposing penalty under section 112(b)(i) was absent.

2.29 The department did not establish that the appellants knew or had reason to believe that the gold was liable to confiscation.

2.30 The penalties imposed on the appellants under section 112(b)(i) of the Customs Act were unsustainable and were therefore set aside.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether gold jewellery/gold ornaments weighing 4440.840 grams, claimed by the appellant out of a larger seized quantity, were liable to confiscation under section 119 of the Customs Act, 1962.

1.2 Whether, on the materials produced by the appellant, the burden of proof under section 123 of the Customs Act regarding non-smuggled origin of the gold stood discharged.

1.3 Whether statements recorded under section 108 of the Customs Act could be relied upon in the absence of compliance with the procedure prescribed in section 138B of the Customs Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Confiscation of 4440.840 grams under section 119 of the Customs Act

Legal framework (as discussed)

2.1 The Court examined whether the conditions of section 119 of the Customs Act were met so as to justify confiscation of the appellant's gold jewellery/gold ornaments on the ground that they were used for concealment or as a cover for smuggled goods.

Interpretation and reasoning

2.2 The Court confined itself to jewellery weighing 4440.840 grams out of the total 20,756.3 grams recovered from an employee of another person, which quantity the appellant specifically claimed as its own.

2.3 The appellant furnished details of the seized jewellery, including:

(i) Three GST invoices bearing numbers SG-460 dated 17.01.2023, SG-465 dated 18.01.2023 and SG-466 dated 18.01.2023 covering 1975.790 gms, 741.510 gms and 1427.890 gms respectively; and

(ii) Approval Voucher No. IA-26 dated 12.01.2023 covering 295.650 gms sent on approval basis.

2.4 The appellant asserted that the goods under these documents were manufactured from legitimately purchased gold, supported by stock registers, bills of gold bars, and ledger accounts, and that the transactions were duly reflected on the GSTN portal and in regular books of account.

2.5 The Commissioner, while confiscating the entire 20,756.3 gms including the appellant's 4440.840 gms, only observed that the invoices had been raised "to cover up" the full quantity of jewellery given to the carrier, and inferred that the appellant was "hand in glove" with another person in dealing in jewellery made from smuggled foreign-origin gold bars.

2.6 The Court noted that the adjudicating authority did not examine or discuss the specific documents and records furnished by the appellant, nor did it record any finding that the GST invoices were false, fabricated, or not reflected on the GSTN portal.

2.7 The Court held that in the absence of any finding that the jewellery covered by the appellant's invoices and approval voucher was prepared out of smuggled gold, and in view of the documentary trail produced, the mere suspicion that invoices were raised "to cover up" other jewellery was insufficient to attract section 119.

Conclusions

2.8 The statutory requirements of section 119 of the Customs Act were not fulfilled in respect of the 4440.840 gms of jewellery claimed by the appellant.

2.9 The confiscation of this quantity of gold jewellery/gold ornaments under section 119 could not be sustained and was set aside to that extent.

Issue 2: Discharge of burden under section 123 of the Customs Act

Legal framework (as discussed)

2.10 The Court considered the application of section 123 of the Customs Act, which places a burden on the person from whose possession or ownership gold is seized to prove that it is not smuggled.

Interpretation and reasoning

2.11 The appellant, as the claimed owner of 4440.840 gms, had produced purchase invoices of gold, stock registers of gold bars, bills relating to gold bars, and ledger accounts of bullion suppliers, as well as GST invoices and approval documents for the jewellery in question.

2.12 The Court found that these materials constituted sufficient evidence that the seized jewellery belonging to the appellant was manufactured from legally procured gold and was duly accounted for in the appellant's books.

2.13 The Court further observed that the department had not produced any contrary evidence to show that the jewellery belonging to the appellant was manufactured from smuggled gold bars.

Conclusions

2.14 The burden of proof under section 123 of the Customs Act stood discharged by the appellant in respect of the 4440.840 gms of seized jewellery.

2.15 In the absence of evidence from the department to rebut this, the jewellery could not be treated as made from smuggled gold.

Issue 3: Admissibility and relevance of statements under section 108 without compliance with section 138B

Legal framework (as discussed)

2.16 The Court examined the evidentiary value of statements recorded under section 108 of the Customs Act in light of the mandatory procedure prescribed under section 138B of the Act.

Interpretation and reasoning

2.17 The adjudicating authority had relied, inter alia, on the statements of the carrier and another person recorded under section 108 of the Customs Act.

2.18 The Court held that the procedure contemplated under section 138B had not been followed in relation to these statements.

2.19 Relying on a prior Division Bench decision of the Tribunal in M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur, the Court held that statements recorded under section 108 cannot be treated as relevant or relied upon unless the requirements of section 138B are complied with.

Conclusions

2.20 The statements of the carrier and the other individual recorded under section 108 of the Customs Act were not legally admissible or relevant for sustaining confiscation in the absence of compliance with section 138B.

2.21 Without such valid evidentiary support, the inference that the appellant's jewellery was involved in smuggling or used as a cover for smuggled goods could not be maintained.

Issues: Whether dispatch of imported goods obtained under Target Plus duty credit scrip to a job worker for manufacture of the final products violated condition 3 of Notification No. 73/2006-Cus and, if not, whether the demand of duty, interest, confiscation, redemption fine and penalty could survive.

Analysis: Condition 3 of Notification No. 73/2006-Cus prohibits transfer or sale of the imported goods, while its proviso deals with utilisation by a supporting manufacturer in the case of a merchant exporter. The relevant Foreign Trade Policy provisions and the DGFT public notice indicate that imports for own use may be converted through job workers and that own use is not confined to direct physical use in the importer's own premises. The imported goods remained with the appellant and were sent for manufacture of the resultant products; there was no finding of sale or transfer of the goods to the job worker. The cited precedent on the same Target Plus scheme and similar condition also supports the view that use through job workers does not amount to prohibited transfer.

Conclusion: Dispatch of the imported goods to a job worker for manufacture did not violate the exemption condition. The denial of the notification benefit, the duty demand, interest, confiscation, redemption fine and penalty were unsustainable.

Issues: Whether the petitioner, facing prosecution under the Customs Act, 1962, was entitled to bail in view of the period of custody and the likely time required for trial.

Analysis: The petitioner had been in custody for more than seven and a half months. The Court considered the stage of the proceedings and the likelihood that the trial would take time to conclude. Without expressing any opinion on the merits, the Court treated the prolonged custody and expected delay in trial as sufficient grounds to grant bail, subject to suitable bonds, sureties, and conditions imposed by the trial court.

Conclusion: Bail was granted to the petitioner.

Ratio Decidendi: Prolonged pre-trial custody, when coupled with anticipated delay in conclusion of trial and without any assessment of the merits, can justify grant of bail on appropriate terms.

Outcome: The petition was disposed of by granting liberty to avail the alternate appellate remedy before CESTAT, with all contentions kept open.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether statements recorded under section 108 of the Customs Act could be relied upon to impose penalty under section 112(b)(i) when the procedure under section 138B was not followed.

1.2 Whether, in the absence of incriminating recovery from the appellant or his premises and in the absence of independent corroborative evidence, the statutory precondition of "knowledge or reason to believe" under section 112(b)(i) read with section 111 was satisfied so as to justify imposition of penalty.

1.3 Whether, on the facts, the burden of proof under section 123 of the Customs Act could be cast upon the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Reliance on statements under section 108 without compliance with section 138B

Legal framework:

2.1 The judgment considers sections 108 and 138B of the Customs Act. Section 108 empowers recording of statements, while section 138B prescribes the conditions and procedure for treating such statements as relevant and admissible in evidence.

Interpretation and reasoning:

2.2 The Court records that the statements of the appellant, Manish Kumar and Naresh Kumar were recorded under section 108 of the Customs Act and were subsequently retracted.

2.3 Referring to a Division Bench decision in M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur, the Court holds that statements recorded under section 108 cannot be treated as relevant unless the procedure contemplated under section 138B is duly followed.

2.4 The Court notes that the Commissioner, in the impugned order, had "merely relied upon" these section 108 statements for imposing penalty on the appellant, without demonstrating compliance with section 138B.

Conclusions:

2.5 The statements recorded under section 108, in the absence of compliance with section 138B, could not be considered as relevant evidence.

2.6 As the penalty under section 112(b)(i) was founded solely on such statements, the imposition of penalty was unsustainable.

Issue 2 - Absence of incriminating recovery, lack of corroboration, and the requirement of "knowledge or reason to believe" under section 112(b)(i)

Legal framework:

2.7 The Court examines section 112(b)(i) of the Customs Act, which requires that a person, in order to be penalised, must knowingly or having reason to believe, deal with goods liable to confiscation under section 111.

Interpretation and reasoning:

2.8 The Court notes that no incriminating goods were recovered from the appellant or during the search at his residence conducted by the DRI.

2.9 The Court further notes that apart from the inadmissible section 108 statements, no independent or corroborative evidence was produced by the department to show that the appellant had knowingly and intentionally transported, carried or dealt with smuggled gold liable to confiscation under section 111.

2.10 The Court emphasises that the "pre-requisite condition" for imposition of penalty under section 112(b)(i) is proof that the person concerned had knowledge, or at least reason to believe, that the goods in question were liable to confiscation under section 111.

2.11 In the present case, the department failed to lead any evidence, apart from the inadmissible statements, to substantiate this essential element of mens rea.

2.12 The Court also notes that co-noticees, against whom similar penalties under section 112(b)(i) were imposed on the same factual matrix, had their penalties set aside in separate appeals decided on the same date.

Conclusions:

2.13 In view of the absence of incriminating recovery from the appellant or his premises, and the absence of any reliable and corroborative evidence of his conscious involvement or knowledge, the statutory requirement under section 112(b)(i) was not fulfilled.

2.14 Penalty under section 112(b)(i) could not be imposed on the appellant merely on the basis of uncorroborated, inadmissible statements.

2.15 The penalty of Rs. 5,00,000/- imposed on the appellant under section 112(b)(i) was therefore liable to be, and was, set aside.

Issue 3 - Applicability of burden of proof under section 123 of the Customs Act

Interpretation and reasoning:

2.16 The appellant argued that the burden under section 123 cannot be cast upon him since no gold or incriminating goods were recovered from his possession or premises.

2.17 The Court notes that, on the facts, there was indeed no such recovery from the appellant and that the department did not produce any independent evidence of his possession of, or direct dealing with, the seized gold.

Conclusions:

2.18 In the absence of any recovery from the appellant or his premises, the burden of proof under section 123 could not be shifted to him.

2.19 With no statutory presumption under section 123 operating against the appellant, and with no independent evidence led by the department, the foundation for penal action against the appellant was lacking.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether penalty under section 112(b)(i) of the Customs Act, 1962 could be imposed on the appellant when no incriminating goods were found in his possession and the condition of liability to confiscation under section 111 was not met.

1.2 Whether statements recorded under section 108 of the Customs Act, 1962 could be relied upon to impose penalty when the requirements of section 138B were not complied with.

1.3 Whether the burden of proof under section 123 of the Customs Act, 1962 could be shifted to the appellant in the absence of recovery of incriminating goods from his possession.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of penalty under section 112(b)(i) in absence of incriminating goods and non-fulfilment of section 111 pre-condition

Legal framework (as discussed)

2.1 The Tribunal recorded that the pre-requisite condition for imposition of penalty under section 112(b)(i) of the Customs Act is that the goods in question must be liable to confiscation under section 111 of the Customs Act.

Interpretation and reasoning

2.2 The Tribunal noted that, during the personal search of the appellant, only 19 notes of one-rupee denomination were found, which were voluntarily submitted by him, and that no incriminating gold or other goods were recovered from his possession.

2.3 On this factual basis, the Tribunal held that the essential requirement for invoking section 112(b)(i)-namely, that goods liable to confiscation under section 111 should be involved-was not satisfied in the case of the appellant.

2.4 The Tribunal therefore rejected the reasoning of the adjudicating authority that the appellant had "intentionally and knowingly" involved himself in dealing in gold jewellery/articles made from smuggled foreign-origin gold for monetary consideration, in the absence of any incriminating recovery from him.

Conclusions

2.5 The Tribunal concluded that, as nothing incriminating was recovered from the appellant and the statutory pre-condition of liability to confiscation under section 111 was not met, the penalty imposed under section 112(b)(i) could not be sustained and was liable to be set aside.

Issue 2 - Reliance on statements under section 108 without compliance with section 138B

Legal framework (as discussed)

2.6 The Tribunal examined the evidentiary value of statements recorded under section 108 of the Customs Act in light of the procedural safeguards contained in section 138B of the Customs Act.

Interpretation and reasoning

2.7 The Tribunal found that the penalty on the appellant had been imposed "merely on the basis of the statements" made by the appellant and by a co-noticee under section 108.

2.8 It held that such statements could not be treated as relevant and relied upon because the procedure mandated under section 138B had not been followed by the department.

2.9 In support of this view, the Tribunal referred to and followed the ratio of a Division Bench decision holding that statements under section 108, in the absence of compliance with section 138B, could not form the basis for adverse findings.

Conclusions

2.10 The Tribunal held that, since the department had not complied with section 138B, the statements under section 108 could not be considered relevant evidence for imposing penalty, and consequently the penalty order could not stand on that basis.

Issue 3 - Applicability of burden of proof under section 123

Interpretation and reasoning

2.11 The Tribunal took note of the appellant's contention that the burden of proof under section 123 could not be placed on him because no incriminating gold or goods were recovered from his possession.

2.12 It accepted, in substance, that in the absence of recovery from the appellant, the statutory presumption and corresponding burden under section 123 could not be invoked against him.

Conclusions

2.13 The Tribunal proceeded on the footing that section 123 did not operate against the appellant in the facts of the case, reinforcing its conclusion that the penalty under section 112(b)(i) was unsustainable.

Related consideration - Effect of setting aside penalty on co-noticee

Interpretation and reasoning

2.14 The Tribunal noted that, in a connected appeal, the penalty imposed on the co-noticee under section 112(b)(i) arising from the same transaction had been set aside by order of the same date.

2.15 This was treated as an additional supporting circumstance for not sustaining the penalty on the appellant.

Conclusions

2.16 Taking into account the absence of incriminating recovery, the inadmissibility of section 108 statements without section 138B compliance, the inapplicability of section 123, and the setting aside of the co-noticee's penalty, the Tribunal set aside the penalty imposed on the appellant under section 112(b)(i) and allowed the appeal.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the penalty imposed on the appellant under section 112(b)(i) of the Customs Act, 1962 could be sustained when, in connected appeals, the entire seized jewellery was held not liable to confiscation and the penalties on the alleged owners were set aside.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of penalty under section 112(b)(i) of the Customs Act

Legal framework (as discussed or applied)

2.1 Section 112(b)(i) of the Customs Act provides for penalty on any person who acquires possession of, is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with goods which he knows or has reason to believe are liable to confiscation under section 111.

2.2 The Commissioner had earlier invoked sections 111(a), 111(b), 111(d) and 119 of the Customs Act to confiscate the jewellery weighing 20,756.3 gms recovered from the appellant and to support the penalty on him under section 112(b)(i), relying also on section 123 (burden of proof regarding smuggled gold) and statements recorded under section 108 without following section 138B.

2.3 In connected appeals relating to the same seizure, the Tribunal examined the application of sections 111, 112(b)(i), 114AA, 119, 123 and 138B, and the evidentiary standard for establishing smuggling, including reliance on precedent such as Radha Kishan Bhatia vs. Union of India and decisions on the requirement of proof of unauthorized importation as distinct from mere possession.

Interpretation and reasoning

2.4 The Commissioner's finding against the appellant was that he collected gold jewellery allegedly manufactured from smuggled foreign-origin gold bars from the shop of another person, transported it from Mumbai to Delhi, assisted in its sale without licit documents, and did so knowingly, thereby rendering himself liable under section 112(b)(i).

2.5 The Tribunal noted that the entire seized quantity of 20,756.3 gms of gold jewellery recovered from the appellant's possession was already the subject-matter of two connected appeals: one by the alleged main owner of 18,035.26 gms (plus the quantity covered by certain invoices), and another by the alleged owner of 4,440.84 gms.

2.6 In the connected appeal concerning 18,035.26 gms, the Tribunal held that:

- The jewellery carried by the appellant was brought to Delhi on approval basis for marketing, and invoices (SG-160, SG-460, SG-465 and SG-466) covering substantial portions of the seized jewellery were produced.

- These invoices were rejected by the adjudicating authority only on assumptions and presumptions, without verification of authenticity, despite being available for departmental scrutiny.

- For drawing an inference of smuggling, evidence must relate to unauthorized importation and not merely unauthorized possession; mere possession of smuggled goods does not, by itself, establish involvement in illegal importation without other connecting circumstances.

- Neither the show cause notice nor the impugned order in that case established any connection of the owner with importation of gold prior to its entry into India, and the burden of proving that the jewellery was manufactured from smuggled gold was not discharged by the department.

- Statements recorded under section 108 could not be treated as relevant evidence as the procedure under section 138B had not been followed.

- Consequently, the penalty on that owner under sections 112(b)(i) and 114AA was set aside.

2.7 In the other connected appeal concerning 4,440.84 gms, the Tribunal held that:

- The claimant-owner had provided detailed records of the jewellery, corresponding GST invoices (SG-460, SG-465 and SG-466) and an approval voucher, and details of the gold from which the jewellery had been prepared, and asserted that the invoices were reflected on the GSTN portal.

- The adjudicating authority did not dispute the genuineness of the invoices or their reflection in GST records, and only asserted that they had been issued "to cover up" the full jewellery, without any supporting finding that the jewellery was made from smuggled gold.

- On these facts, the requirements of section 119 for confiscation of goods "used to conceal" or "used as a means of transport" in relation to smuggled goods were not met, and it could not be concluded that the jewellery was made from smuggled gold.

- The burden of proof under section 123 stood discharged by the owner via documentary evidence, while the department led no evidence to establish that the jewellery was manufactured from smuggled gold bars.

- Statements under section 108 could not be relied upon as section 138B had not been complied with.

- Therefore, confiscation under section 119 could not be upheld.

2.8 The Tribunal observed in the present appeal that the findings in the two connected appeals fully covered the entire quantity of 20,756.3 gms of jewellery recovered from the appellant, and thus the legal foundation for treating that jewellery as smuggled or as liable to confiscation under sections 111 and 119 had been removed.

2.9 Since liability under section 112(b)(i) presupposes that the goods dealt with are "liable to confiscation" and that the person knew or had reason to believe this, once the Tribunal held in the connected matters that confiscation and related penalties were unsustainable for the whole quantity, the premise that the appellant was knowingly involved in dealing with confiscable or smuggled goods could not survive.

Conclusions

2.10 In view of the Tribunal's determinations in the connected appeals that:

- the entire seized jewellery was not proved to have been made from smuggled gold,

- confiscation under sections 111 and 119 and penalties on the alleged owners under sections 112(b)(i) and 114AA were unsustainable, and

- the burden of proof under section 123 had been discharged by the owners while the department failed to prove smuggling,

the penalty of Rs. 5,00,000/- imposed on the appellant under section 112(b)(i) had no surviving legal basis.

2.11 The Tribunal therefore set aside the penalty of Rs. 5,00,000/- imposed on the appellant under section 112(b)(i) of the Customs Act and allowed the appeal.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appellant established lawful ownership and licit possession of 12 gold bars and related currency, on the basis of the alleged job work transaction and will.

1.2 Whether, in light of the appellant's failure to establish ownership, the challenge to confiscation of the 12 gold bars and Rs. 2,40,000/- could be sustained.

1.3 Whether imposition of penalty on the appellant under section 114AA of the Customs Act, 1962 was justified on facts, and if so, whether the quantum required reduction.

1.4 Whether imposition of penalty on the appellant under section 117 of the Customs Act, 1962 was legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Ownership and licit possession of 12 gold bars and related currency

Legal framework (as discussed)

2.1 The Court examined the evidentiary basis of the appellant's claim of ownership, including the alleged job work order dated 02.11.2022, the gold ledger of M/s. B.S. Brothers and Industries, and the will dated 15.11.2022 said to have been executed by the appellant's brother.

Interpretation and reasoning

2.2 The adjudicating authority had rejected the job work narrative on the ground that the GSTIN of M/s. B.S. Brothers and Industries, Jaipur stood cancelled suo motu with effect from 27.04.2021, whereas the job work order was dated 02.11.2022, and that two other GSTINs linked to the same PAN had also been cancelled earlier. The Court accepted this finding and the consequential inference that the documents were forged to project licit possession.

2.3 The Court noted that the alleged will, which specifically referred only to the 12 kgs of gold, was unregistered and that the appellant had not led evidence to prove the will. On this basis, the Court held that no reliance could be placed on the will.

2.4 The Court also noted that there were contradictions in the statements of Manish Kumar and Naresh Kumar regarding the circumstances in which the 12 gold bars and cash were to be delivered, reinforcing the conclusion that the appellant's claim was not credible.

Conclusions

2.5 The Court upheld the finding that the documents relied upon by the appellant (job work order, will, and gold ledger) did not pass the test of legitimacy and were forged.

2.6 The Court concluded that the appellant failed to establish ownership or licit possession of the 12 gold bars or the related currency and upheld the adjudicating authority's conclusion that the appellant was not the owner of the 12 gold bars or Rs. 2,40,000/-.

Issue 2 - Challenge to confiscation of 12 gold bars and Rs. 2,40,000/-

Interpretation and reasoning

2.7 The Court observed that in a connected appeal it had already been held that the 12 gold bars did not belong to the person earlier alleged by the department to be the owner, and in the present proceedings the appellant also failed to establish ownership.

2.8 Proceeding on the basis that the appellant had no established title or lawful claim, the Court examined whether he could nonetheless assail the confiscation.

Conclusions

2.9 The Court held that once the appellant was found not to be the owner of the 12 gold bars, he could not maintain a challenge to the confiscation of the 12 gold bars and Rs. 2,40,000/-, and therefore his objections to confiscation were rejected.

Issue 3 - Justification and quantum of penalty under section 114AA of the Customs Act

Legal framework (as discussed)

2.10 Section 114AA of the Customs Act was reproduced and considered, providing that any person who knowingly or intentionally makes, signs, or uses any false or incorrect declaration, statement, or document in any material particular in the transaction of any business for the purposes of the Act is liable to penalty not exceeding five times the value of goods.

Interpretation and reasoning

2.11 The Court accepted the factual finding that the appellant had submitted forged documents to claim ownership of the seized 12 smuggled gold bars of foreign origin and had thereby attempted to mislead and delay the investigation and adjudication.

2.12 On this basis, the Court rejected the contention that no penalty under section 114AA could be imposed, holding that the conduct clearly attracted section 114AA.

2.13 As to quantum, the Court noted that the adjudicating authority had given no specific reasons for imposing a penalty of Rs. 1,00,00,000/-, and that paragraph 163.1 of the order merely recorded that penalty should be imposed, without justification for fixing such a high amount.

Conclusions

2.14 The Court upheld imposition of penalty under section 114AA on merits, finding that the ingredients of the provision were satisfied by the appellant's use of forged documents in customs proceedings.

2.15 Considering the absence of reasons for the high quantum and other relevant factors, the Court reduced the penalty under section 114AA from Rs. 1,00,00,000/- to Rs. 10,00,000/-.

Issue 4 - Sustainability of penalty under section 117 of the Customs Act

Legal framework (as discussed)

2.16 Section 117, as reproduced by the Court, provides for a residual penalty for contraventions, abetment, or failure to comply with provisions of the Act where no express penalty is elsewhere provided.

Interpretation and reasoning

2.17 The Court examined section 117 in light of the established facts and the already-invoked section 114AA, and considered whether there was any contravention for which no express penalty was otherwise provided.

2.18 On a plain reading of section 117, the Court held that the appellant's conduct, already punishable under section 114AA, did not disclose an additional contravention falling within the residual ambit of section 117.

Conclusions

2.19 The Court held that the conditions for imposition of penalty under section 117 were not satisfied.

2.20 The penalty of Rs. 2,00,000/- imposed on the appellant under section 117 was set aside.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether penalty under section 112(b)(i) of the Customs Act could be imposed on the appellant for allegedly handling gold jewellery and cut pieces manufactured from smuggled foreign-origin gold bars.

1.2 Whether the statutory requirement of knowledge or reason to believe that the goods were liable to confiscation under section 111 of the Customs Act was satisfied for invoking section 112(b)(i) against the appellant.

1.3 Whether, in view of the finding in the connected appeal that the seized gold jewellery and cut pieces were in licit possession and not proved to be smuggled, the allegation that the appellant handled goods manufactured from smuggled gold could be sustained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality of penalty under section 112(b)(i) and requirement of knowledge/mens rea

Legal framework (as discussed):

2.1 The show cause notice alleged that gold jewellery 11,224.4 gms and gold cut pieces 2,818.5 gms recovered from the premises of Bikaner Jewellers were manufactured from smuggled foreign-origin gold bars and were liable to confiscation under section 111 of the Customs Act, and that the appellant had indulged in handling such goods, rendering him liable to penalty under section 112(b)(i).

2.2 The Commissioner recorded that the appellant had "knowingly allowed" jewellery/articles/cut pieces made from foreign-origin gold to be kept at his premises without asking for documents and, on that basis, held him liable to penalty under section 112(b)(i).

2.3 The appellant, in reply and in argument, specifically invoked the settled position that for penalty under section 112(b)(i), it must be established that the person "knew or had reason to believe" that the goods were liable to confiscation under section 111 and asserted absence of such knowledge or intent.

Interpretation and reasoning:

2.4 The Court noted that the core factual premise was undisputed: gold jewellery weighing 11,224.4 gms and gold cut pieces weighing 2,818.5 gms were recovered from an almirah at the premises of Bikaner Jewellers; at the time of search and in his section 108 statement, the appellant consistently stated that these goods belonged to another person (Bharat Shantilal Shah), who had kept them there temporarily due to urgent travel to Mumbai, with an assurance to collect them after 4-5 days.

2.5 The Court further noted that the said version was fully corroborated by the statements of the alleged owner, recorded under section 108 of the Customs Act, including the assertion that the appellant was not aware of the contents of the bags.

2.6 On this evidentiary basis, the Court found that there was no material to substantiate the Commissioner's finding that the appellant knew the goods were manufactured from smuggled gold or that he had any knowledge of their illicit nature.

2.7 The Court held that, for imposition of penalty under section 112(b)(i), it is necessary that the person have knowledge of the fact that the goods are liable to confiscation (i.e., that they are smuggled or manufactured from smuggled goods). Mere consent to keep another's bag in the premises, without knowledge of its contents or their illicit character, does not satisfy the statutory requirement.

2.8 The Court characterized the Commissioner's inference that the appellant "knowingly" allowed foreign-origin smuggled gold to be kept in his premises as "perverse," since it was unsupported by any positive evidence and ran contrary to the consistent statements of both the appellant and the owner of the goods.

Conclusions:

2.9 The essential ingredient of section 112(b)(i)-knowledge or reason to believe that the goods were liable to confiscation-was not established against the appellant.

2.10 The finding that the appellant "knowingly" handled or allowed storage of goods manufactured from smuggled gold was held to be unsustainable in law and on facts.

2.11 Penalty imposed on the appellant under section 112(b)(i) of the Customs Act was consequently held to be invalid.

Issue 3: Effect of finding that the goods were in licit possession and not proved to be smuggled

Legal framework (as discussed):

3.1 The Commissioner had confiscated the gold jewellery and cut pieces recovered from the appellant's premises under sections 111(a), 111(b), and 111(d), proceeding on the premise that they were manufactured out of smuggled foreign-origin gold and that the persons concerned had failed to prove licit possession under section 123 of the Customs Act.

3.2 In a connected Customs Appeal filed by the owner of the goods (Bharat Shantilal Shah), the same seized gold jewellery and cut pieces were the subject matter of adjudication. In that appeal, the Court examined the invoices produced to support licit purchase/possession of the jewellery.

Interpretation and reasoning:

3.3 The Court recorded that, in the connected appeal, after considering the invoices and related documents, a categorical finding had been returned that licit possession of the goods was established.

3.4 On that basis, the Court held that penalty could not be imposed on the owner in the connected matter and, consequently, it could no longer be asserted that the jewellery and cut pieces recovered from Bikaner Jewellers were made out of smuggled gold.

3.5 The Court reasoned that once the principal allegation that the goods were of smuggled origin and liable to confiscation under section 111 stood negated, the foundational premise for alleging that the appellant handled "smuggled" goods or goods manufactured out of smuggled gold automatically failed.

Conclusions:

3.6 In light of the categorical finding in the connected appeal that the seized gold jewellery and gold cut pieces were in licit possession and not proved to be smuggled, the allegation that the appellant had handled goods manufactured from smuggled gold was held to be untenable.

3.7 With the very basis for invoking sections 111 and 112(b)(i) collapsing, no penalty could be sustained against the appellant.

3.8 The portion of the impugned order imposing a penalty of Rs. 5,00,000/- on the appellant under section 112(b)(i) of the Customs Act was set aside, and the appeal was allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether 19 gold coins/bars with foreign markings seized from the appellant's shop premises were liable to absolute confiscation under sections 111(a), 111(b) and 111(d) of the Customs Act, 1962.

1.2 Whether the appellant and its partners were liable to penalty under section 112(b)(i) of the Customs Act, 1962 in respect of the said 19 gold coins/bars.

1.3 Whether the appellant's plea that the seized gold coins/bars were old (15-20 years) and used for worshipping could rebut the statutory presumption under section 123 of the Customs Act, 1962 and prevent confiscation and penalty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 3: Confiscation of 19 foreign-marked gold coins/bars and effect of section 123 Customs Act

Legal framework (as discussed):

2.1 The Court noted that the Commissioner had ordered confiscation of 19 gold coins/bars having foreign markings under sections 111(a), 111(b) and 111(d) of the Customs Act, 1962.

2.2 The Court specifically referred to section 123 of the Customs Act, 1962, recording that the burden of proof lay on the person from whose possession the gold was seized when such goods are notified and bear foreign markings.

Interpretation and reasoning:

2.3 The gold coins/bars with foreign markings were recovered from the appellant's shop premises, which was not a designated customs port.

2.4 The Commissioner had found that the 19 gold coins/bars with foreign markings were "illegally imported/smuggled" and that the actual port of importation was not known, rendering them liable to confiscation under sections 111(a), 111(b) and 111(d).

2.5 Before the Court, the appellant did not dispute that the coins had foreign markings.

2.6 The sole contention advanced was that the coins were more than 15-20 years old and were used for worshipping, and therefore should not have been absolutely confiscated.

2.7 The Court held that, in view of section 123, the burden of proof that the goods were not smuggled lay on the appellant since the coins were seized from its possession.

2.8 The Court observed that nothing had been brought on record by the appellant to substantiate that this statutory burden had been discharged.

2.9 The plea that the coins were old and used for religious worship, without supporting documentation or evidence of licit acquisition or lawful import, was found insufficient to rebut the statutory presumption.

Conclusions:

2.10 The 19 gold coins/bars with foreign markings were held liable to absolute confiscation under sections 111(a), 111(b) and 111(d) of the Customs Act.

2.11 The appellant's plea based on age of the coins and their religious use was rejected as inadequate to discharge the burden under section 123 of the Customs Act.

2.12 No infirmity was found in the Commissioner's order directing absolute confiscation of the said 19 gold coins/bars.

Issue 2: Liability to penalty under section 112(b)(i) of the Customs Act

Legal framework (as discussed):

2.13 Penalties were imposed on the appellant-firm and its two partners under section 112(b)(i) of the Customs Act, 1962 on the basis that they dealt with smuggled gold coins/bars with foreign markings.

Interpretation and reasoning:

2.14 The Commissioner had found that during the DRI search at the appellant's office premises, 19 gold coins with foreign markings were recovered and later seized.

2.15 It was recorded that the appellant and its partners failed to produce any document in support of licit possession of the said 19 gold coins with foreign markings.

2.16 The Commissioner further found that they defended their possession under the "pretext" of using the coins for religious purposes, and concluded that they had knowingly and intentionally involved themselves in purchasing and dealing with smuggled gold coins/bars.

2.17 Before the Court, except for reiterating that the coins were old and used for worshipping, no other submission was advanced on behalf of the appellants against the imposition of penalty.

2.18 The Court, having already held that the burden under section 123 had not been discharged and that the coins were liable to confiscation as smuggled goods, found no basis to interfere with the penalty imposed under section 112(b)(i).

Conclusions:

2.19 The finding that the appellant and its partners had rendered themselves liable to penalty under section 112(b)(i) by dealing with smuggled gold coins/bars was upheld.

2.20 The penalties imposed on the appellant-firm and its two partners under section 112(b)(i) were sustained.

2.21 The Court found no infirmity in the impugned order insofar as it related to confiscation of the 19 gold coins/bars and the imposition of penalties, and all appeals were dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether departmental instructions on classification (Instruction No. 16/2018-Cus) could govern assessment of imports made prior to their issuance, and whether such instructions were determinative of classification in the present case.

1.2 Whether "One Time Seal with RFID" (bolt seals/one time locks with RFID tags) were correctly classifiable under Customs Tariff Item 8523 59 10 as "proximity cards and tags" or under Customs Tariff Item 8309 90 30 as "other seals", applying the General Rules for the Interpretation of the Import Tariff, particularly Rule 3(b) and 3(c).

1.3 Whether duty demand under Section 28(1) of the Customs Act, 1962 could be sustained on the basis of reclassification of the imported goods within the normal period of limitation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Relevance and applicability of Instruction No. 16/2018-Cus

Interpretation and reasoning

2.1 The appellant contended that Instruction No. 16/2018-Cus, being oppressive as it increased the duty liability, could operate only prospectively and could not be applied to imports made between December 2017 and September 2018. Reliance was placed on judicial precedents distinguishing facilitative (retrospective) and oppressive (prospective) circulars.

2.2 The Commissioner (Appeals) held that classification had been decided on merits and not solely on the basis of Instruction No. 16/2018-Cus; hence its retrospective or prospective applicability was inconsequential.

2.3 The Tribunal held that, since the imports preceded the issuance of the Instruction, the Instructions of CBIC must be ignored for purposes of deciding the present appeal. Classification was therefore to be determined purely on merits under the Tariff, without recourse to Instruction No. 16/2018-Cus.

Conclusions

2.4 The CBIC Instruction No. 16/2018-Cus was treated as inapplicable to the imports in question and was disregarded for deciding the appeal; the dispute was decided solely on merits of classification under the Tariff.

Issue 2 - Correct tariff classification of "One Time Seal with RFID"

Legal framework discussed

2.5 The Tribunal considered the competing Tariff Items:

(a) Heading 8309 and sub-heading 8309 90 30: "STOPPERS, CAPS AND LIDS ..., SEALS AND OTHER PACKING ACCESSORIES, OF BASE METAL - ... 8309 90 30 - Other seals."

(b) Heading 8523 and sub-heading 8523 59 10: "DISCS, TAPES, SOLID-STATE NON-VOLATILE STORAGE DEVICES, 'SMART CARDS' AND OTHER MEDIA FOR THE RECORDING OF SOUND OR OF OTHER PHENOMENA ... - 8523 59 - Other - 8523 59 10 - Proximity cards and tags."

2.6 The Tribunal expressly applied General Rules for the Interpretation of the Import Tariff, Rule 3, notably:

- Rule 3(b): composite goods shall be classified as if they consisted of the material or component which gives them their "essential character", where applicable.

- Rule 3(c): if goods cannot be classified by reference to Rule 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

Interpretation and reasoning

2.7 The goods were described and examined as "one time seals" / "bolt seals" used to seal container doors, consisting of two interlocking parts that cannot be separated without breaking, now embedded with RFID tags enabling electronic reading of serial numbers, container data, shipment details, tamper status and possible real-time tracking.

2.8 The appellant argued:

- The RFID component contributed the major cost difference (Rs. 60-90 per RFID seal versus Rs. 10-20 per traditional seal).

- The RFID functionality (data storage and tamper indication) constituted the "essential character" of the composite goods, warranting classification as "proximity cards and tags" under CTI 8523 59 10, applying Rule 3(b).

- Alternatively, if both entries were equally applicable, Rule 3(c) would favour the latter heading (8523) in numerical order.

2.9 The Revenue contended that commercial documents (invoice and bill of lading) described the goods as "bolt seals" and that, in trade and usage, the goods were purchased and used as seals for containers; RFID capability was an additional feature and not the essential character.

2.10 The Tribunal held that, to determine "essential character" under Rule 3(b), it is necessary to consider what the goods are intended to be and how they are known, sold and used in the market, rather than merely the presence or value of additional functionalities.

2.11 By analogy, the Tribunal observed that:

- A mobile phone, though capable of acting as calculator, mini-computer, video player, and camera, is classified as a mobile phone because its essential character remains that of a phone.

- A smart television, despite computer-like functions and internet capability, remains essentially a television and is classified accordingly.

2.12 Applying this reasoning, the Tribunal found that:

- The impugned goods are known as bolt seals/one-time locks with RFID tags.

- Buyers purchase them primarily to seal containers; the sealing function is their fundamental purpose.

- The RFID chip and related tracking or data storage functions are "additional functions" attached to the seal and do not transform the essential character of the goods into RFID tags as such.

- The higher value attributable to the RFID component alone does not alter the essential character where the goods' primary market identity and use remain those of seals.

2.13 Since the essential character was held to be that of a seal, Rule 3(b) directly resolved the classification in favour of the heading for seals, making it unnecessary to resort to Rule 3(c).

Conclusions

2.14 The goods "One Time Seal with RFID" are composite goods whose essential character is that of a seal/bolt seal used for sealing containers, with RFID providing only additional ancillary functionality.

2.15 Applying Rule 3(b) of the General Rules for Interpretation, the goods are correctly classifiable under Customs Tariff Item 8309 90 30 as "other seals" and not under CTI 8523 59 10 as "proximity cards and tags."

Issue 3 - Sustainability of duty demand under Section 28(1) of the Customs Act on reclassification

Legal framework discussed

2.16 The Tribunal referred to Section 28(1) of the Customs Act, 1962, which permits the issuance of show cause notices within the normal period of limitation for recovery of duties not levied, short-levied or erroneously refunded.

Interpretation and reasoning

2.17 The show cause notices in question were issued under Section 28(1) within the normal limitation period and proposed reclassification of the goods from the appellant's declared heading to CTI 8309 90 30, resulting in a differential duty demand.

2.18 The Tribunal observed that the adjudicating authority and the Commissioner (Appeals) had decided the issue of classification on merits of the Tariff headings and not merely by mechanical application of Instruction No. 16/2018-Cus.

2.19 Having independently affirmed the classification under CTI 8309 90 30 on merits, the Tribunal implicitly upheld the validity of the consequent duty demand raised under Section 28(1).

Conclusions

2.20 A show cause notice under Section 28(1) validly encompasses reclassification of goods and the resultant duty demand, provided it is issued within the normal limitation period.

2.21 Since the correct classification was found to be CTI 8309 90 30 and the notices were within limitation, the duty demand and the impugned order were upheld; the appeal was dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the Customs Broker violated Regulation 10(a) of the Customs Brokers Licensing Regulations, 2018 by failing to obtain and/or produce valid authorisation from the exporter.

1.2 Whether the Customs Broker violated Regulation 10(d) by failing to advise the exporter to comply with the Customs Act and allied laws, and by not bringing any non-compliance to the notice of the Customs authorities.

1.3 Whether the Customs Broker violated Regulation 10(e) by failing to exercise due diligence to ascertain the correctness of information imparted to the client in relation to clearance of cargo.

1.4 Whether the Customs Broker violated Regulation 10(n) by failing to verify the correctness of the IEC, GSTIN, identity and functioning of the exporter at the declared address by using reliable, independent, authentic documents, data or information.

1.5 Whether, in light of the above, revocation of the Customs Broker licence, forfeiture of security deposit and imposition of penalty were legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Alleged violation of Regulation 10(a) - authorisation from exporter

Legal framework

2.1.1 Regulation 10(a) obliges a Customs Broker to obtain authorisation from each client (company, firm or individual) and to produce such authorisation whenever required by the Deputy/Assistant Commissioner of Customs.

Interpretation and reasoning

2.1.2 The Show Cause Notice alleged violation solely on the basis that SIIB officials did not find any authorisation document during investigation, that the exporter and suppliers were not found at their declared business premises, and that the exporter's GST registration had been cancelled suo motu with effect from 07.02.2023, while shipping bills were filed on 11.12.2023; from this, a doubt was raised as to how authorisation could have been obtained from a "non-existing firm."

2.1.3 The Inquiry Officer and the Commissioner essentially reiterated this reasoning, inferring absence or invalidity of authorisation from (a) non-availability of the document during investigation, (b) non-existence of the exporter at the declared address, (c) retrospective cancellation of GST registration and (d) alleged discrepancy in signatures on KYC documents and subsequent request letters.

2.1.4 The Court noted that the Customs Broker had placed on record an authorisation letter dated 01.12.2023 and KYC documents, and that the shipping bills were filed on 11.12.2023 after the date of authorisation.

2.1.5 The Court found that the Show Cause Notice did not allege that SIIB officers had ever demanded production of the authorisation from the Customs Broker or that the Broker either denied its existence or failed to produce it. The allegation was confined to the officers not "finding" the document during investigation.

2.1.6 The Court held that mere failure of investigating officers to locate the document does not prove that it did not exist at the relevant time, especially in the absence of any request to the Customs Broker to produce it.

2.1.7 On the GST aspect, the Court observed that departmental practice includes cancellation of GST registrations with retrospective effect; thus, even if the effective date of cancellation was 07.02.2023, the registration could have been valid on the date of filing the shipping bills if the cancellation order was passed later.

2.1.8 The Court further held that, since the GST registration and other government-issued documents themselves recognised the exporter at the declared place of business, the department had, at least initially, proceeded on the belief that the exporter existed and functioned there. When Government authorities accept that address and issue registration, a Customs Broker cannot be faulted for acting on the same belief.

Conclusions

2.1.9 The Court concluded that the charge that the Customs Broker had not obtained authorisation from the exporter was unsustainable and that violation of Regulation 10(a) was not established.

2.2 Alleged violation of Regulation 10(d) - advising client and reporting non-compliance

Legal framework

2.2.1 Regulation 10(d) requires a Customs Broker to advise the client to comply with the Customs Act and allied laws, and, in case of non-compliance, to bring the matter to the notice of the Deputy/Assistant Commissioner of Customs.

Interpretation and reasoning

2.2.2 The Show Cause Notice, Inquiry Officer and Commissioner relied on the facts that (a) the garments were declared as "Men's knitted hoody with zip made of blended cotton and MMF" whereas tags indicated "100% polyester"; and (b) the declared value was substantially higher than the value ascertained by market enquiry (about 17.79% of declared FOB value). From this, they inferred that the Customs Broker had not advised the exporter properly and had instead assisted or at least failed to report misdeclaration.

2.2.3 The Court held that the reasoning was untenable, as it simply equated the exporter's misdeclaration with failure by the Customs Broker to discharge obligations under Regulation 10(d), without any direct evidence of what advice was in fact given or not given.

2.2.4 The Court noted that it was entirely possible that proper advice was given and yet the exporter misdeclared the goods. There was no material on record demonstrating that the Customs Broker had advised in favour of misdeclaration or failed to advise compliance.

2.2.5 The Court emphasised that a Customs Broker is essentially a processor and filer of documents. The Broker has no authority to examine goods, determine their actual description or value, or to participate in assessment; only the exporter and the assessing officers have that knowledge and authority. The Broker acts on the basis of documents supplied by the exporter.

2.2.6 The Court held that the proper expectation under Regulation 10(d) is that the Customs Broker should file declarations in accordance with documents provided and, where discrepancies are evident in such documents, bring them to the notice of the exporter and, if necessary, the Customs authorities. There was no evidence that the Broker failed in this respect.

Conclusions

2.2.7 The Court concluded that violation of Regulation 10(d) was not proved and the allegation based solely on the fact of misdeclaration by the exporter was without basis.

2.3 Alleged violation of Regulation 10(e) - due diligence in information imparted to client

Legal framework

2.3.1 Regulation 10(e) requires a Customs Broker to exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to work related to clearance of cargo or baggage.

Interpretation and reasoning

2.3.2 The Show Cause Notice and Inquiry Officer asserted that the Customs Broker was "well aware" that the goods and value were being misdeclared but did not inform the department and hence failed to exercise due diligence. They also relied on the fact that the Broker allegedly received no payment from the exporter yet did not raise any alarm.

2.3.3 The Commissioner proceeded on the premise that the Broker was "evidently aware" of incorrect description and value and nevertheless facilitated filing of the shipping bills, thus failing in due diligence.

2.3.4 The Court examined Regulation 10(e) and held that its focus is on the correctness of information imparted by the Customs Broker to the client; the obligation is to ensure that whatever information the Broker gives to the client is accurate and given after due diligence.

2.3.5 The Court found no material on record identifying any specific information that the Customs Broker had imparted to the exporter which was incorrect, nor any finding that the Broker failed to verify the correctness of such information before imparting it.

2.3.6 In the absence of any concrete instance of incorrect information given by the Broker to the client, the Court held that the allegation did not fit within the textual scope of Regulation 10(e).

Conclusions

2.3.7 The Court held that violation of Regulation 10(e) was not established and the findings under this Regulation could not be sustained.

2.4 Alleged violation of Regulation 10(n) - verification of IEC, GSTIN, identity and functioning of exporter

Legal framework

2.4.1 Regulation 10(n) requires a Customs Broker to verify the correctness of the IEC number, GSTIN, identity of the client and functioning of the client at the declared address by using reliable, independent, authentic documents, data or information.

Interpretation and reasoning

2.4.2 The Show Cause Notice and Inquiry Officer concluded that the Customs Broker had not verified the credentials of the exporter before filing the shipping bills because (a) exporter verification was initiated only on 13.12.2023 whereas shipping bills were filed on 11.12.2023, and (b) the exporter's GST registration had been cancelled suo motu with effect from 07.02.2023. It was further noted that the Broker failed to provide genuine contact details of the proprietor.

2.4.3 The Commissioner did not record an independent, detailed finding on Regulation 10(n) but broadly endorsed the Inquiry Officer's view and treated the above facts as constituting violation of Regulation 10(a), 10(d), 10(e) and 10(n).

2.4.4 The Court interpreted Regulation 10(n) as requiring verification of existence and functioning of the exporter "by using reliable, independent, authentic documents, data or information." It held that the Regulation does not mandate physical verification of the premises by the Customs Broker.

2.4.5 The Court observed that where IEC, GSTIN, PAN and other registrations are issued by competent Government authorities recognising the exporter at a particular address, these documents themselves are reliable, independent and authentic, and relying on them satisfies the requirement of Regulation 10(n).

2.4.6 The Court held that the Customs Broker is neither a supervisor nor an appellate authority over the officials who issue such registrations. The Broker cannot be required to question the "wisdom" of those authorities or to conduct independent physical verification beyond reliance on official documents.

2.4.7 The Court clarified that a different situation might arise if the exporter provided invalid or forged documents and the Broker failed to check their authenticity, but no such case was made out here.

Conclusions

2.4.8 The Court concluded that utilisation of government-issued documents (IEC, GSTIN, etc.) to verify the exporter's existence and address fulfils the requirement of Regulation 10(n), and the alleged violation of this Regulation was not proved.

2.5 Sustainability of revocation of licence, forfeiture of security deposit and penalty

Interpretation and reasoning

2.5.1 The impugned order had revoked the Customs Broker licence, forfeited the entire security deposit and imposed penalty, all premised on alleged violations of Regulations 10(a), 10(d), 10(e) and 10(n).

2.5.2 Having held that none of the alleged violations under Regulations 10(a), 10(d), 10(e) and 10(n) was established, the Court found that the foundational basis for invoking Regulation 14 and for imposing the punitive measures did not survive.

Conclusions

2.5.3 The Court held that the revocation of the Customs Broker licence, forfeiture of the security deposit and imposition of penalty were unsustainable and set aside the impugned order in toto.

2.5.4 The Court directed that the Customs Broker licence be restored forthwith upon receipt of the order.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appellate court was justified in disposing of the statutory company appeal solely on the basis of the appellant's statement agreeing to deposit the claimed amount, without adjudicating the appeal on merits.

1.2 Whether the order of the appellate court dated 06.11.2017 should be treated as a consent/concession order barring further challenge.

1.3 How the deposit made pursuant to the orders dated 06.11.2017 and 29.01.2018 is to be treated pending adjudication of the restored company appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Disposition of statutory appeal on the basis of deposit statement without decision on merits

Interpretation and reasoning

2.1 The Court examined the tenor and contents of the order dated 06.11.2017, noting that at first reading it might suggest that the appellant, after arguments, conceded to deposit the amount and that the appellate court was not inclined to accept the appellant's contentions on merits.

2.2 However, on a closer reading of paragraphs 5 and 6 of the order, the Court emphasized that: (i) withdrawal of the deposit by the respondent was made conditional on furnishing security to the satisfaction of the Registrar General; (ii) the appellate court expressly refrained from expressing any opinion on whether the amount was actually due and payable; and (iii) the statement of the appellant that it would invoke the arbitration clause under the agreement was specifically recorded, along with an observation that if arbitration was not initiated, the security would lapse.

2.3 These features, particularly the insistence on security for withdrawal and the express neutrality of the appellate court on the existence or extent of liability, were contrasted with the order of the Company Judge, in which no such security condition had been imposed.

2.4 The Court inferred from these elements that the appellant's intention was not to unconditionally admit liability but to demonstrate bona fides in contesting the winding up claim and to keep its disputes alive for adjudication (including by arbitration). The offer to deposit was therefore treated as a measure to show bona fides rather than an acceptance of the claim in satisfaction.

2.5 The Court also took into account that the special leave petition had been filed before expiry of the time allowed for deposit, reinforcing that the appellant did not intend final disposal of the appeal on the basis of the deposit alone.

Conclusions

2.6 The Court held that, in the circumstances, the appellant ought to have been given an opportunity to have its statutory appeal under Section 483 of the Companies Act, 1956 decided on merits.

2.7 The order dated 06.11.2017 was to be treated as an interim order permitting deposit for the purpose of enabling consideration of the appeal on merits, and the direction that "the appeal is disposed of" was ordered to be deleted.

2.8 The company appeal was directed to be restored to the file of the High Court for decision in accordance with law, with all contentions on merits left open.

Issue 2 - Character of the appellate court's order as a consent/concession order

Interpretation and reasoning

2.9 It was argued on behalf of the respondent that the appellate order should be treated as one based on concession or consent, arising from the appellant's offer to deposit the amount after the appellate court allegedly indicated disinclination to accept the appellant's arguments.

2.10 The Court rejected this characterisation by focusing on the express terms of the order: the conditional nature of withdrawal by the respondent, the requirement of security, the absence of any finding regarding the debt being indisputably due, and the express reservation of comments on the necessity of arbitration.

2.11 The presence of conditions inconsistent with an unconditional admission of liability, and the explicit reservation of the parties' rights and contentions, led the Court to hold that the order could not properly be treated as a final consent order embodying a concluded settlement or concession on liability.

Conclusions

2.12 The Court concluded that the order of 06.11.2017 could not be treated as a pure consent or concession order so as to bar challenge or preclude adjudication of the statutory appeal on merits.

Issue 3 - Treatment and disposition of the deposit pending final adjudication

Legal framework (as discussed)

2.13 The Court referred to its earlier interim order dated 29.01.2018, by which, while issuing notice, it allowed the appellant further time to deposit the amount mentioned in the impugned order with interest, stayed the winding up process including appointment of the Provisional Liquidator, and provided that failure to deposit within the extended time would result in dismissal of the special leave petition.

Interpretation and reasoning

2.14 It was recorded that the requisite deposit had been made pursuant to the order of 29.01.2018 and was presently held in a fixed deposit receipt.

2.15 Consequent upon the Court's decision to treat the High Court's order as interim and to restore the company appeal, it became necessary to direct how the deposited amount should be dealt with pending final adjudication.

Conclusions

2.16 The Court directed that:

(a) The amount deposited by the appellant in terms of the order dated 06.11.2017 read with the order dated 29.01.2018 shall abide the final decision in the restored company appeal.

(b) The fixed deposit amount, on maturity, shall be transmitted to the Registrar of the High Court, who shall deal with the amount in terms of the order dated 06.11.2017 as modified by the present order.

(c) If the respondent does not furnish security for withdrawal of the amount as stipulated, the said amount shall be invested in a fixed term deposit with a nationalised bank and shall abide further orders of the High Court in the appeal.

2.17 The Court clarified that it expressed no opinion on the merits of the company appeal or on the underlying dispute, and all contentions of the parties in that regard were left open for determination by the appellate forum.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether adverse and stigmatic observations recorded against the counsel and officials of the financial creditor, and consequent imposition of costs, could be sustained without affording them an effective opportunity of hearing.

1.2 Whether the directions of the adjudicating authority to communicate its order to senior officials of the financial creditor required modification, in light of the Appellate Tribunal's earlier judgment on identical facts.

1.3 Whether the impugned orders, including rejection of the recall application, should be interfered with and modified in accordance with the Appellate Tribunal's prior decision on the same issue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Adverse remarks and costs without opportunity of hearing

Interpretation and reasoning: The Tribunal noted that the adjudicating authority, while dealing with a proceeding under Section 95 of the Insolvency and Bankruptcy Code, 2016, had recorded findings that the counsel for the financial creditor and officials of the bank had acted negligently and casually, filed a defective petition without invocation of the bank guarantee and requisite supporting documents, and imposed costs of Rs. 50,000/-. Referring to its earlier judgment of 12.08.2025 in a factually identical matter, the Tribunal reiterated that before making any adverse or stigmatic remarks against professionals, including counsel or bank officials, which may affect their professional career or impede their future career progression, "ample opportunity" must be afforded to such affected persons to defend themselves and to explain the circumstances in which the alleged negligence occurred. In the absence of any exercise by the adjudicating authority to provide such effective opportunity of hearing, the stigmatic observations were held to be unwarranted. As the imposition of cost was founded on these adverse observations regarding the functioning of the bank officials, the justification for imposing cost could not be sustained.

Conclusions: The adverse and stigmatic observations made against the counsel and officials of the financial creditor in the impugned order, being made without affording them an effective opportunity of defence, were ordered to be expunged. The cost of Rs. 50,000/- imposed by the adjudicating authority, being directly linked to such observations, was also ordered to be expunged.

Issue 2 - Scope of directions to communicate the order to senior bank officials

Interpretation and reasoning: The adjudicating authority had directed that its order be communicated to the Chairman and Managing Director of the bank and the General Manager of the Stressed Asset Management Branch for ensuring proper supervision and compliance. Applying the reasoning and directions from the earlier decision dated 12.08.2025 on identical facts, the Tribunal considered it appropriate to modify, rather than completely set aside, the direction to communicate the order. The objective was confined to ensuring future diligence and prompt assistance to the adjudicating authority, without perpetuating the stigmatic character of the original observations.

Conclusions: The direction to communicate the adjudicating authority's order was modified such that a copy of the Appellate Tribunal's present order would be sent to the said senior officials, with the observation that they shall ensure that their subordinates diligently and promptly assist the adjudicating authority in future proceedings.

Issue 3 - Interference with the impugned orders and application of prior precedent

Interpretation and reasoning: The appeals challenged (i) the original order under Section 95 of the Code containing the adverse observations and costs, and (ii) the subsequent order refusing recall of that original order. The Tribunal observed that the issues involved in these appeals were factually the same as those already decided in the earlier judgment dated 12.08.2025 in the leading appeal. In that earlier matter, it was recorded that the adjudicating authority had already granted time to furnish documents relating to invocation of the guarantee and that, as per the counsel's statement, the directions regarding furnishing of relevant documents had been complied with; hence, no further time was required. The present appeals were therefore disposed of by applying, mutatis mutandis, the same reasoning and operative directions, including expunging the adverse remarks and costs and modifying the communication direction.

Conclusions: The impugned orders were interfered with only to the limited extent indicated in the earlier judgment: the adverse remarks against counsel and officials and the cost of Rs. 50,000/- were expunged; the communication direction was modified as above; and, save for these modifications, the appeals were treated as partially allowed and stood disposed of on the same terms, with all pending interlocutory applications closed.

Issues: Whether Section 160(1) of the Code of Criminal Procedure, 1973 applies to summons issued under Section 37 of the Foreign Exchange Management Act, 1999 read with Section 131 of the Income-tax Act, 1961, so as to entitle a assessee to avoid personal appearance before the Enforcement Directorate and have her statement recorded at her residence.

Analysis: Section 37 of the Foreign Exchange Management Act, 1999 confers powers for search, seizure and allied investigative steps. The Court distinguished the powers relating to discovery, production of evidence and attendance from the power of search and seizure, noting that the scheme of Section 131 and Section 132 of the Income-tax Act, 1961 shows that attendance and production are part of a civil inquiry framework, while search and seizure attract the criminal procedure code only to that limited extent. The Court held that proceedings under Section 37 of the Foreign Exchange Management Act, 1999 are regulatory and civil-administrative in nature and are not governed by the woman-protective venue restriction contained in Section 160(1) of the Code of Criminal Procedure, 1973. Reliance on the summons regime under the Prevention of Money Laundering Act, 2002 was found inapposite because that statute operates in a distinct criminal-investigative framework.

Conclusion: Section 160(1) of the Code of Criminal Procedure, 1973 does not apply to summons issued under Section 37 of the Foreign Exchange Management Act, 1999 read with Section 131 of the Income-tax Act, 1961, and the insistence on personal appearance was upheld.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether consultancy services provided by the appellant as a sub-contractor to a main contractor executing Government water supply and sewerage projects are exempt from service tax under Notification No. 25/2012-ST.

1.2 Whether the appellant's consultancy activities qualify as "works contract" services so as to fall under the sub-contractor exemption in Entry 29(h) of Notification No. 25/2012-ST.

1.3 Whether, in light of the clarificatory circular dated 10.07.2014, consultancy and designing services related to water supply and similar functions are covered by the exemption entries in Notification No. 25/2012-ST.

1.4 Whether the demand of service tax, interest, and penalties under Sections 73, 75, 77 and 78 of the Finance Act, 1994, including invocation of the extended period on the ground of suppression of facts, is sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Exemption under Notification No. 25/2012-ST for consultancy services of a sub-contractor

Legal framework

2.1.1 The Court examined Notification No. 25/2012-ST dated 20.06.2012, specifically Entries 12, 25 and 29(h), which exempt certain services provided to Government, local authority or governmental authority, and exempt sub-contractors providing services by way of works contract to another contractor whose works contract services are exempt.

Interpretation and reasoning

2.1.2 It was undisputed that the appellant provided consultancy services (including surveys, feasibility analysis, DPR preparation, etc.) to the main contractor engaged in construction of water and sewerage pipelines for Government projects.

2.1.3 The Court held that the notification exempts specified activities such as construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipelines, conduit or plant for water supply, water treatment or sewerage treatment or disposal, and certain services by way of water supply, public health, sanitation, etc., provided to Government or local authority.

2.1.4 The appellant's services were characterised as consultancy/advisory and not as direct provision of the exempted activities to Government or local authority. The benefit claimed solely on the ground that the main contractor's services to Government were exempt was rejected, as the exemption for sub-contractors under Entry 29(h) is confined to "services by way of works contract", which the appellant's activities did not constitute.

2.1.5 The Court distinguished the Patna High Court decision in the case relied upon by the appellant on the basis that in that case the sub-contractor provided works contract/construction activities, whereas in the present case the services were purely consultancy in nature.

Conclusions

2.1.6 Consultancy services provided by the appellant as sub-contractor are not covered by the exemption under Notification No. 25/2012-ST; exemption cannot be extended merely because the main contractor's works are exempt.

2.2 Whether the appellant's consultancy activities amount to "works contract" under Section 65B(54)

Legal framework

2.2.1 The Court relied on the statutory definition of "works contract" under Section 65B(54) of the Finance Act, 1994, which requires: (i) transfer of property in goods involved in the execution of the contract, leviable to tax as sale of goods; and (ii) that such contract be for construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property, or similar activity.

Interpretation and reasoning

2.2.2 The agreement between the main contractor and the appellant was found to be only for consultancy services for preparation of Detailed Project Reports for water supply projects.

2.2.3 The Court noted there was no transfer of property in goods in execution of the contract, a necessary ingredient of a works contract as per Section 65B(54).

2.2.4 On this basis, the Court held that the appellant's services cannot be classified as "works contract" services.

Conclusions

2.2.5 The appellant's consultancy activities do not qualify as "works contract" within the meaning of Section 65B(54); consequently, the sub-contractor exemption under Entry 29(h) of Notification No. 25/2012-ST is inapplicable.

2.3 Effect of TRU Circular dated 10.07.2014 on consultancy services related to municipal functions

Legal framework

2.3.1 The Court relied on Circular - Service Tax D.O.F. No. 334/15/2014-TRU dated 10.07.2014, which clarifies the scope of Entry 25 of Notification No. 25/2012-ST concerning services ordinarily provided by a municipality (water supply, public health, sanitation, solid waste management, slum improvement and upgradation).

Interpretation and reasoning

2.3.2 The circular explicitly clarifies that while services by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and upgradation remain exempt, "the exemption would not be extendable to other services such as consultancy, designing, etc., not directly connected with these specified services".

2.3.3 The Court applied this clarification to hold that consultancy and designing services, even if connected to Government water supply and related projects, do not fall within the exempt category, and cannot be treated at par with the core municipal functions mentioned in Entry 25.

Conclusions

2.3.4 In light of the TRU circular, consultancy and designing services rendered in relation to water supply and similar municipal functions are not covered by the exemption in Entry 25 of Notification No. 25/2012-ST.

2.4 Taxability of the appellant's consultancy services and reliance on precedent

Interpretation and reasoning

2.4.1 The Court noted that the admitted activity of the appellant is provision of advisory/consultancy services against consideration.

2.4.2 Relying on a co-ordinate Bench decision, the Court observed that consultancy/advisory services not covered by any negative list provision (Section 66D) or specific exemption would be taxable.

2.4.3 It was held that the appellant's services do not fall under any negative list entry and are not covered by the claimed exemptions; thus, they remain taxable.

Conclusions

2.4.4 The consultancy services provided by the appellant are taxable services; the demand of service tax on the differential turnover is legally sustainable.

2.5 Sustainability of demand, extended period, interest and penalties

Interpretation and reasoning

2.5.1 The Court observed a clear discrepancy between turnover declared in Income Tax Returns and ST-3 service tax returns, and noted that service tax was not paid on the full taxable value.

2.5.2 The Court recorded that no plea was taken by the appellant against the period of limitation, and, as per the memorandum of appeal itself, there was suppression of facts.

2.5.3 On this basis, the Court held that the lower authority rightly invoked the extended period under Section 73 for recovery of service tax.

2.5.4 Since the tax demand was upheld, the consequential demand of interest under Section 75 was also held to be in order.

2.5.5 Given the finding of suppression with intent to evade payment of service tax, the penalty under Section 78 was confirmed. The penalty under Section 77 for contraventions including failure to maintain records, furnish correct returns and pay tax, and the late fee under Section 70 read with Rule 7C for delayed filing of returns, were also upheld.

Conclusions

2.5.6 The invocation of the extended period, confirmation of service tax demand, levy of interest, imposition of penalties under Sections 77 and 78, and confirmation of late fee are valid and call for no interference; the appeal stands dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether charges collected towards reservation of facilities and rent for facilities at a sports complex are exigible to service tax under the category of "mandap keeper" service under Section 65(66), 65(67) read with Section 65(105)(m) of the Finance Act, 1994.

1.2 Whether lease of vacant land within a sports complex, partly for construction and operation of a hotel and partly for parking and landscape garden, is exigible to service tax under "renting of immovable property" service under Section 65(105)(zzzz) of the Finance Act, 1994 for the period 01.04.2008 to 31.03.2012.

1.3 Whether imposition of penalties under Sections 77 and 78 of the Finance Act, 1994 survives when the underlying service tax demands are held as not sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Taxability of reservation charges and rent for facilities as "mandap keeper" services

Legal framework

2.1 The Court referred to Section 65(66), 65(67) and 65(105)(m) of the Finance Act, 1994, defining "mandap", "mandap keeper" and the taxable service "to any person, by a mandap keeper in relation to the use of mandap in any manner including the facilities provided or to be provided to such person in relation to such use...". The definition limits "mandap" use to organising "any official, social or business function".

Interpretation and reasoning

2.2 The Court noted that the appellant is a Government-controlled sports stadium established and operated as a non-commercial project to promote sports, where facilities such as courts, swimming pool, gym, and hostel are provided to players, associations, schools, colleges etc. against charges.

2.3 The Commissioner had treated the following as "mandap keeper" services: (i) "reservation for facilities available in the stadium" (advance/booking deposits) and (ii) "rent for facility available at sports complex", and confirmed tax on the ground that the stadium and facilities were temporarily allowed to groups/individuals for commercial consideration and in a few cases were used for social/cultural/business functions.

2.4 The Court examined the statutory requirement that to fall within "mandap"/"mandap keeper", the letting must be for organising "official, social or business function", and held that "sports" or "sporting events" are conducted for promoting sport/athletics and cannot be equated with an "official, business or social function".

2.5 It found no specific or adequate evidence in the impugned order that the stadium had been let out for official, social or business functions on a commercial basis so as to alter the predominant character of the use, which remained sporting and non-commercial.

2.6 The Court also noted that the Commissioner himself had accepted that hostel-related receipts ("Niwas Shulk" and "Indian Camp Niwas Bhade") were not liable as mandap keeper services because they did not involve any social, official or business function, reinforcing that mere charging of user fees for accommodation or sports facilities did not convert the activity into a "mandap keeper" service.

2.7 On the nature of the stadium, the Court relied on earlier decisions, particularly the Tribunal decision in B.G. Shirke Construction Technology Private Limited, as affirmed by the High Court of Bombay, holding that the same sports complex is a public facility and a non-commercial construction; that charging some amount for use of a sports stadium does not by itself make it a commercial or industrial activity.

2.8 Applying this reasoning, the Court held that allowing use of sports facilities, even on payment, for conducting sporting activities cannot be brought within "mandap keeper" service, since the essential statutory condition of an "official, social or business function" is not fulfilled.

2.9 As regards "reservation" amounts treated as advances/deposits, the Commissioner had invoked Section 67(3) on the basis that amounts received towards services "to be provided" form part of the taxable gross amount. The Court, having held that the underlying activity is not taxable as "mandap keeper", found no basis for levy even on such advances or booking amounts, thereby negating the conclusion that these deposits could independently attract service tax under that category.

Conclusions

2.10 The Court concluded that the use of the stadium and its facilities for sporting activities does not constitute "official, social or business function" and therefore does not fall within "mandap keeper" service under Section 65(66), 65(67) read with Section 65(105)(m). Consequently, the demand of service tax of Rs.75,92,214/- on reservation charges and rent for facilities at the sports complex is unsustainable and liable to be set aside.

Issue 2 - Taxability of lease of vacant land under "renting of immovable property" service

Legal framework

2.11 The Court considered Section 65(105)(zzzz) defining the taxable service of "renting of immovable property... for use in the course of or for furtherance of, business or commerce", with Explanation 1 (including, from 01.07.2010, vacant land given on lease/licence for construction of a building/structure to be used for furtherance of business or commerce) and the specific exclusions for, inter alia, "land used for educational, sports, circus, entertainment and parking purposes" and "building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels...".

Interpretation and reasoning

2.12 The appellant had leased 24,685 sq. mtrs. of vacant land for construction, operation and maintenance of a 400-room hostel/hotel on BOT basis, and an additional 14,176 sq. mtrs. for parking and landscape gardens, for 60 years, for which substantial annual premium/rent was received. The Commissioner treated these receipts as taxable under "renting of immovable property" for business or commerce.

2.13 The Court first noted that the Commissioner had already accepted that hostel charges to players/employees were not taxable as "mandap keeper", but for the vacant land appurtenant to the complex he had applied "renting of immovable property" service.

2.14 The Court relied on the detailed statutory structure of Section 65(105)(zzzz), emphasising that taxability is confined to renting "for use in the course of or for furtherance of business or commerce", and that the Explanation explicitly excludes "land used for educational, sports... and parking purposes" and "buildings used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels...".

2.15 On similar sports-stadium land, the Court relied upon the Tribunal's decision in Jharkhand State Cricket Association, wherein it was held that: (a) letting of a cricket ground for playing matches aimed at promoting cricket is not "for furtherance of business or commerce"; (b) land used for sports is not a commercial activity; and (c) ground rent received for playing cricket is not taxable as "renting of immovable property" prior to 30.06.2012, and even post 01.07.2012, ground rent for non-business use is not taxable.

2.16 The Court also took guidance from B.G. Shirke Construction Technology Private Limited and the judgment of the High Court of Bombay affirming that the same sports complex is a non-commercial public facility, that its dominant user is non-commercial, and that mere partial commercial exploitation or levy of user charges does not satisfy the statutory requirement of being "used primarily for commerce or industry". The High Court had stressed that where predominant use is non-commercial, the construction/asset cannot be treated as commercial for service tax purposes.

2.17 Applying those principles, the Court found the following: (a) the land and stadium belong to the State Government and are meant primarily for public/sports use; (b) land for parking and landscape gardens directly serves sports and public-utility purposes which are specifically excluded from the ambit of "immovable property" for business/commerce under Explanation 1; and (c) land leased for construction of accommodation such as hotel/hostel, used for lodging players and others, falls within the exclusion for buildings used for accommodation, including hotels and hostels.

2.18 The Court further observed that for the pre-01.07.2010 period, "vacant land given on lease for construction of building... to be used for furtherance of business or commerce" was not even within the inclusive definition of "immovable property", and that, in any event, the dominant purpose remained linked to the sports complex and its functioning as a public facility, not to an independent commercial exploitation in furtherance of business or commerce.

2.19 On the overall factual matrix and the statutory exclusions, the Court held that the lease of vacant land in the sports complex, both for parking/landscaping and for construction/operation of accommodation facilities, does not attract service tax under "renting of immovable property" for the disputed period.

Conclusions

2.20 The Court concluded that the lease of vacant land within the sports complex, used for parking, landscape garden and for constructing accommodation facilities (hotel/hostel), is not taxable under Section 65(105)(zzzz) as "renting of immovable property" since: (i) the dominant purpose is sports/public facility, not business or commerce; and (ii) the specific statutory exclusions for land used for sports and parking, and for buildings used for accommodation, apply. The service tax demand on this count is unsustainable and stands set aside.

Issue 3 - Consequential penalties under Sections 77 and 78

Interpretation and reasoning

2.21 The penalties under Sections 77 and 78 were imposed solely as a consequence of the confirmation of service tax demands on "mandap keeper" and "renting of immovable property" services.

2.22 Having held that the underlying service tax demands are not maintainable in law, the very foundation for imposition of penalties ceased to exist.

Conclusions

2.23 With the entire tax demands set aside, the Court held that no penalties under Sections 77 and 78 of the Finance Act, 1994 are sustainable. All consequential penalties stand quashed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether construction of buildings for educational institutions such as schools and colleges during 2008-2012 is taxable under "Commercial or Industrial Construction Service" on the ground that such institutions charge fees and are thereby "commercial" within the meaning of Section 65(25b) of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of construction services provided to educational institutions under Commercial or Industrial Construction Service (CICS)

(a) Legal framework discussed

2.1 The Court examined the definition of "Commercial or Industrial Construction" in Section 65(25b) of the Finance Act, 1994, applicable for the period 01.04.2008 to 31.03.2012. It covers construction, completion/finishing, repair, alteration or renovation of buildings or civil structures "which is - (i) used, or to be used, primarily for; or (ii) occupied, or to be occupied, primarily with; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry," excluding specified infrastructure like roads, airports, railways, bridges, tunnels and dams.

2.2 The Court noted Notification No. 1/2006-ST dated 01.03.2006 providing 67% abatement for CICS, but this was only incidental and not determinative of taxability on merits.

2.3 Para 13.2 of CBEC Circular No. 80/10/2004-ST dated 17.09.2004 was discussed, which clarified that construction for organisations established solely for educational, religious, charitable, health or philanthropic purposes and not for profit would be "non-commercial" and therefore not liable to service tax under CICS.

2.4 The Court considered Master Circular No. 96/7/2007-ST dated 23.08.2007 and its effect on earlier clarifications, including Circular No. 80/10/2004-ST.

2.5 The Court relied on the Supreme Court decision in CCE v. Ratan Melting & Wire Industries, 2008 (231) E.L.T. 22 (S.C.), on the binding nature and limits of circulars vis-à-vis statutory provisions, and on Queen's Educational Society v. State of Uttarakhand, (2015) 16 SCC 749, regarding when an educational institution can be treated as commercial.

2.6 The Court also took note of the Explanation inserted by the Finance Act, 2010 in the definition of "Commercial Training or Coaching Service" and considered whether it could be imported into the definition of CICS.

2.7 Judicial precedents discussed and followed included the Karnataka High Court decision in CCE (A), Bangalore v. KVR Construction, 2012 (26) S.T.R. 195 (Kar.), and Tribunal decisions in Shree Mahalakshmi & Co. and RGP Construction, holding that construction of buildings for charitable educational institutions is not taxable under CICS.

(b) Interpretation and reasoning

2.8 The Court held that taxability must flow from the statutory definition in Section 65(25b) and the charging provisions, and cannot be expanded or altered solely by circulars or their withdrawal.

2.9 It found that the impugned order wrongly treated the withdrawal of Circular No. 80/10/2004-ST by the Master Circular as itself creating taxability. Relying on Ratan Melting & Wire Industries, the Court held that circulars contrary to the statute have no legal existence and that "withdrawal of a circular does not change the scope of the levy." Therefore, the withdrawal of Circular 80/10/2004-ST could not, by itself, render the construction services taxable.

2.10 The Court rejected the adjudicating authority's reliance on the Explanation inserted in Finance Bill, 2010 for "Commercial Training or Coaching Service" to interpret CICS. It held that the Explanation was legislated only for Section 65(105)(zzc) and there was no legislative amendment extending it to Section 65(25b). Each taxable service under the Finance Act, 1994 has a distinct, self-contained definition, and importing the Explanation meant for one category into another was beyond the statute.

2.11 The Court noted that the adjudicating authority had treated educational institutions as "commercial" merely because they collect fees. Applying Queen's Educational Society, the Court held that mere collection of fees or generation of surplus does not make an educational institution commercial, so long as surplus is ploughed back into the institution and not distributed for private profit.

2.12 It observed that the Department had not recorded any finding that any surplus of the concerned educational/charitable institutions was siphoned off or distributed to trustees or individuals, nor that these institutions were profit-distributing commercial ventures. The mere assertion that fees are collected was held to be insufficient to classify their buildings as "commercial" within the meaning of Section 65(25b).

2.13 The Court endorsed Para 13.2 of CBEC Circular No. 80/10/2004-ST as correctly capturing the statutory position that construction for organisations established solely for educational, religious, charitable, health or philanthropic purposes and not for profit is non-commercial and therefore outside CICS. It also noted, with reference to prior Tribunal decisions, that the Department itself had continued to treat the circular as in force and binding.

2.14 Referring to KVR Construction and subsequent Tribunal decisions (including Shree Mahalakshmi & Co. and RGP Construction), the Court observed that there is a consistent judicial view that construction of buildings for charitable educational institutions is not liable to service tax under CICS/Works Contract Service, as such buildings are not "used primarily for commerce or industry."

2.15 On this cumulative reasoning, the Court held that the adjudicating authority's conclusion that construction for educational institutions is "commercial" lacked statutory support, was contrary to binding jurisprudence, and was based on an impermissible importation of the CTCS Explanation into CICS. It found that the levy failed "at the threshold" as the essential requirement of primary use for "commerce or industry" was not satisfied.

(c) Conclusions

2.16 The Court concluded that construction services provided by the appellant to the educational institutions during 01.04.2008 to 31.03.2012 do not fall within the ambit of "Commercial or Industrial Construction Service" under Section 65(25b) of the Finance Act, 1994.

2.17 The proposed levy of service tax of Rs. 1,20,20,608/- (with interest and penalty) on such construction services was held to be unsustainable on merits and was set aside in toto.

2.18 Having allowed the appeal on merits, the Court expressly declined to record any findings on limitation, cum tax benefit, penalties under Sections 77 and 78, or waiver under Section 80 of the Finance Act, 1994.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the activity of granting affiliation to schools, for which Affiliation Fee is collected, constitutes a taxable "service" under section 65B(44) of the Finance Act, 1994.

(2) Whether school education Boards fall within the expression "educational institution" and whether "education" and related activities (including affiliation and examinations) fall within the ambit of section 66D(l) of the Finance Act, 1994.

(3) Whether, assuming affiliation is a "service", the Affiliation Fee collected by the Board from schools is exempt from service tax under Entry 9 of Notification No. 25/2012-ST for the entire period July 2012 to June 2017 (including after its amendment with effect from 01.04.2017).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Taxability of affiliation as a "service" under section 65B(44)

Legal framework (as discussed): The definition of "service" under section 65B(44) of the Finance Act hinges on "activities carried out by one person for another for consideration".

Interpretation and reasoning:

(a) The Board grants affiliation to schools which meet prescribed standards (teachers' qualifications, infrastructure, fee norms, manner of conducting examinations, curriculum, etc.), enabling their students to appear in examinations conducted by the Board.

(b) The Affiliation Fee is collected to enrol and identify institutions whose standards are at par with those of the Board and to permit their students to sit for examinations; the schools must first demonstrate compliance with the Board's standards to be affiliated.

(c) Relying on the decision of the Karnataka High Court in the case concerning a health sciences university, the Tribunal noted the holding that "affiliation creates a kind of umbilical cord between affiliating body and the affiliated entity" and is a public duty enjoined by law. The act of granting, renewing or withdrawing affiliation, and fees, fines, penalties levied in that regard, do not constitute "activities carried on for consideration" within the meaning of section 65B(44), and lack commercial elements.

(d) The Tribunal applied this reasoning to the Board, observing that affiliation is in discharge of statutory/public functions of standardising and regulating education and is not a commercial contractual service rendered to schools.

Conclusion: The act of granting affiliation, and the Affiliation Fee collected for that purpose, do not fall within "activity done for consideration" as envisaged in section 65B(44); hence, on this reasoning, the levy of service tax on Affiliation Fee is not justified.

Issue (2): Whether Boards and their functions fall within "education" and "educational institution" under section 66D(l)

Legal framework (as discussed):

(a) Section 66D(l) of the Finance Act provides a negative list entry covering "services by way of pre-school education and education up to higher secondary school or equivalent" and education as part of curriculum for obtaining a qualification recognised by law, etc.

(b) The term "educational institution" in the Exemption Notification is aligned with the types of education covered under section 66D(l).

Interpretation and reasoning:

(a) The Tribunal relied on the Gujarat High Court's decision which held that the word "education" cannot be narrowly confined to direct classroom teaching but must be given a wider meaning, covering the entire process of imparting and controlling education, including examination and grant of certificates or degrees.

(b) The Gujarat High Court reasoned that examinations are an essential and indispensable component of education; without Boards conducting examinations and issuing certificates, school education is incomplete. Therefore, Boards and universities are "educational institutions", and preparation of curriculum and conduct of examinations fall within section 66D(l).

(c) The Tribunal also noted supporting Tribunal precedent (including in the case concerning a university) where universities charging affiliation fees were held covered under the negative list as "services of education" including affiliation and other services provided in the course of education.

(d) Following these authorities, the Tribunal held that Boards qualify as "educational institutions" and their core functions-standard-setting, affiliation, curriculum, examinations, and certification-form part of "education" within the meaning of section 66D(l), rather than being independent taxable services.

Conclusion: Boards are "educational institutions", and their activities relating to curriculum, examinations, certification, and related regulatory functions (of which affiliation is a component) fall within the scope of "education" under section 66D(l); these activities are not to be taxed as independent services outside the negative list.

Issue (3): Applicability of exemption under Entry 9 of Notification No. 25/2012-ST (including post-01.04.2017)

Legal framework (as discussed):

(a) Entry 9 exempts services provided:

    (i) to an "educational institution"; and

    (ii) "relating to admission to, or conduct of examination by, such institution".

(b) With effect from 01.04.2017, a proviso restricted clause (b) to services provided to an educational institution imparting pre-school education and education up to higher secondary school or equivalent.

Interpretation and reasoning:

(a) The Tribunal identified two cumulative conditions under Entry 9:

    - Condition 1: Service must be provided to an "educational institution".

    - Condition 2: Service must relate to admission to, or conduct of examination by, such institution.

(b) On Condition 1, the Tribunal observed that the definition of "educational institution" for purposes of Entry 9 parallels the definition attached to the negative list in section 66D(l). Since the schools to which affiliation is granted impart school education up to higher secondary level, they are "educational institutions". Hence, Condition 1 is satisfied.

(c) On Condition 2, the Tribunal held that the affiliation granted by the Board is integrally and directly related to the conduct of examination: affiliation certifies that the school meets prescribed standards and permits its students to appear in examinations conducted under the Board's regime. Thus, affiliation is a service "relating to" the conduct of examinations by such institutions, satisfying Condition 2.

(d) For the period up to 31.03.2017, the Tribunal held that both conditions are met, so affiliation-related services are exempt under Entry 9.

(e) After 01.04.2017, the proviso confined the exemption to services to institutions providing pre-school education and education up to higher secondary school or equivalent. The Tribunal found that the affiliation granted by the Board is for institutions providing exactly such levels of education; therefore, the restriction does not exclude the Board's affiliations from the scope of Entry 9.

Conclusions:

(a) For the period up to 31.03.2017, affiliation services rendered by the Board to affiliated schools qualify for exemption under Entry 9, as services provided to educational institutions relating to conduct of examinations.

(b) For the period from 01.04.2017 onwards (within the period in dispute), even after the restrictive proviso, the exemption continues to apply because the affiliated schools provide pre-school and education up to higher secondary school or equivalent.

(c) Consequently, even assuming affiliation were a "service", the Affiliation Fee collected during the entire disputed period (July 2012 to June 2017) is exempt from service tax under Entry 9.

Overall result (arising from all issues)

The Tribunal held that the demand of service tax on Affiliation Fee was not sustainable in law, both because the act of affiliation is not an "activity done for consideration" within section 65B(44) and, in any case, the Affiliation Fee is covered by the negative list/exemption under section 66D(l) and Entry 9 of Notification No. 25/2012-ST. The impugned order confirming the demand was set aside and the appeal was allowed. Other contentions were not examined as unnecessary in view of this conclusion.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether subscription and redemption of units of Mutual Funds, undertaken as investment of surplus business profits, constitutes "trading of goods" and, therefore, an "exempted service" in terms of section 66D(e) of the Finance Act and rule 2(e)/rule 6 of the CENVAT Credit Rules, 2004, warranting reversal of CENVAT credit on common input services under rule 6(3).

(2) Consequent upon the answer to Issue (1), whether the appellant was required to reverse CENVAT credit under rule 6(3)(i) of the CENVAT Credit Rules, 2004, instead of applying proportionate reversal under rule 6(3)(ii) read with rule 6(3A).

(3) Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, was validly invoked for demanding reversal of CENVAT credit, interest and penalty in respect of the aforesaid activity.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Characterisation of subscription/redemption of Mutual Fund units as "trading of goods" / "exempted service" and applicability of rule 6 of the CENVAT Credit Rules, 2004

Legal framework (as discussed): The Tribunal examined section 66D(e) of the Finance Act (negative list entry relating to "trading of goods"), rule 6 of the CENVAT Credit Rules, 2004 (obligation to reverse credit on exempted services), and the concept of "trading" as analysed in earlier Tribunal decisions, including Siegwerk India and Ambuja Cements.

Interpretation and reasoning: The Tribunal adopted and applied the reasoning in Siegwerk India. It reiterated that: (i) "trading" requires two parties and a market to purchase and sell goods; (ii) there must be a transfer of right/title in the goods from seller to buyer; and (iii) there must be a fixed price known in advance for the purchase/sale. It held that, in the case of Mutual Funds, upon redemption the units cease to exist and are cancelled or relinquished; there is no transfer of the units to any third party and hence no sale or purchase of securities. Accordingly, the activity of subscription and redemption of Mutual Fund units is in the nature of management or deployment of investments, and not "trading in securities" or "trading of goods". Therefore, such activity does not fall within "trading of goods" in section 66D(e) and does not qualify as an "exempted service" attracting rule 6 reversal. The Tribunal distinguished cases involving actual trading of goods and relied on the clarification that buying and selling of units of Mutual Funds is not "service" itself.

Conclusions: The Tribunal held that the appellant's activity of subscription and redemption of units of Mutual Funds is not an activity of sale and purchase of securities, is not an activity relating to "trading" in securities or "trading of goods", and hence is not an "exempted service" under section 66D(e) read with the CENVAT Credit Rules. Consequently, CENVAT credit attributable to such activity was not liable to reversal under rule 6.

Issue (2): Necessity and mode of reversal of CENVAT credit under rule 6(3) of the CENVAT Credit Rules, 2004

Interpretation and reasoning: The demand was premised on treating redemption of Mutual Funds as an exempted service and invoking rule 6(3)(i) for reversal of CENVAT credit on common input services. The Tribunal, having found that the Mutual Fund investment activity is not an exempted service and is not covered by "trading of goods", held that the very foundation for application of rule 6(3), whether under clause (i) or (ii), was absent. Once the activity is not an exempted service, there is no obligation, either to pay an amount under rule 6(3)(i) or to undertake proportionate reversal under rule 6(3)(ii) read with rule 6(3A).

Conclusions: The Tribunal concluded that no reversal of CENVAT credit was warranted under rule 6(3) of the CENVAT Credit Rules, 2004, in respect of subscription/redemption of Mutual Fund units; consequently, the demand raised under rule 6(3)(i) read with rule 14, along with interest and penalty, was unsustainable.

Issue (3): Validity of invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994

Legal framework (as discussed): The Tribunal considered the proviso to section 73(1) of the Finance Act, 1994, relating to invocation of the extended period of limitation for recovery of service tax (and associated amounts) in cases of suppression, misstatement, fraud, etc.

Interpretation and reasoning: Relying on the Division Bench decision in Siegwerk India, the Tribunal noted that, in analogous circumstances involving the same legal issue (non-reversal of CENVAT credit on common input services used in relation to redemption of Mutual Funds), it had been held that the extended period of limitation could not be validly invoked. Applying that reasoning, the Tribunal held that the conditions for invoking the extended period were not satisfied in the present case.

Conclusions: The Tribunal held that the invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, was not justified. On this ground also, the confirmed demand, interest and penalties could not be sustained.

Overall disposition (consequential): The Tribunal set aside the impugned order confirming demand, interest and penalty, and allowed the appeal.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal under Section 35-G of the Central Excise Act, 1944, the High Court can stay the operation of an order of the Appellate Tribunal without first examining and formulating substantial questions of law.

1.2 What directions are appropriate for the High Court in dealing with the pending appeal under Section 35-G, including expeditious consideration of substantial questions of law and consequential reliefs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Power of the High Court to grant interim stay without formulating substantial questions of law in a Section 35-G appeal

Interpretation and reasoning

2.1 The Tribunal had directed payment of interest on refund sanctioned to the assessee, and the revenue challenged this order before the High Court under Section 35-G of the Central Excise Act, 1944, proposing certain substantial questions of law in the memorandum of appeal.

2.2 A preliminary objection was raised before the High Court that, in the absence of admission of the appeal on any formulated substantial question of law, the High Court could not have passed the impugned order staying the operation, implementation and execution of the Tribunal's directions regarding refund.

2.3 The Court accepted this contention to an extent, holding that the correct course for the High Court, before passing such an interim order, was first to examine the suggested substantial questions of law, satisfy itself, and frame such substantial questions of law if they arose, and only thereafter pass an order on interim relief.

Conclusions

2.4 The High Court ought not to have stayed the Tribunal's directions regarding refund without first looking into and formulating substantial questions of law; the proper sequence requires examination and framing of substantial questions of law prior to grant of such interim orders.

Issue 2: Directions to the High Court regarding consideration of the Section 35-G appeal and expeditious disposal

Interpretation and reasoning

2.5 The Court directed that the High Court should now take up the appeal filed by the revenue, examine the substantial questions of law suggested in the memorandum of appeal, and then decide whether to admit or dismiss the appeal.

2.6 If the High Court finds merit and admits the appeal and grants relief to the revenue, it will be open to the assessee to adopt appropriate future courses of action in accordance with law; conversely, if the High Court finds no merit in the suggested substantial questions of law and dismisses the appeal, the controversy will stand concluded.

2.7 Considering that a date had already been fixed by the High Court, the Court requested that all possible endeavours be made to hear the parties on the scheduled date and to pass appropriate orders within a period of one month.

Conclusions

2.8 The High Court is directed to: (i) examine and decide on the existence of substantial questions of law suggested by the revenue; (ii) admit or dismiss the appeal accordingly; and (iii) endeavour to hear the parties and pass appropriate orders within one month, preferably on the date already fixed.

2.9 The petition before the Court, along with all pending applications, stands disposed of in view of these directions, leaving the merits of the revenue's appeal to be determined by the High Court.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether exemption under Notification No. 67/95-CE is available on relays captively consumed in the manufacture of control panels, when such control panels are partly cleared on payment of duty, partly under Notification No. 12/2012-CE without payment of duty, and partly for export under LUT.

1.2 Whether the manufacturer has discharged the "obligation under Rule 6 of the CENVAT Credit Rules, 2004" so as to fall within proviso (vi) to Notification No. 67/95-CE and thereby preserve eligibility to captive exemption.

1.3 Consequentially, whether the demand of duty, interest under Section 11AA of the Central Excise Act, 1944, and penalty under Rule 25 of the Central Excise Rules, 2002 are legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Availability of exemption under Notification No. 67/95-CE on relays captively consumed in manufacture of control panels cleared partly on duty-paid basis, partly under exemption, and partly for export

Legal framework

2.1 The Court examined Notification No. 67/95-CE, which grants exemption to specified goods manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products, subject to a proviso denying exemption where the final products are exempted or chargeable to nil rate of duty, except in specified situations including proviso (vi) relating to manufacturers of dutiable and exempted final products who discharge obligations under Rule 6 of the CENVAT Credit Rules, 2004.

Interpretation and reasoning

2.2 It was found that relays are manufactured within the same factory and used captively in the manufacture of control panels, that they fall under the tariff coverage mentioned in column (1) of the table to Notification No. 67/95-CE, and that they are not among the excluded inputs listed in the notification. On a plain reading of the main body of the notification, the relays fulfill the basic conditions for captive-consumption exemption.

2.3 The only objection raised was based on the proviso to Notification No. 67/95-CE, on the ground that the control panels, being final products, are also cleared under an exemption (Notification No. 12/2012-CE), and hence the bar relating to exempted/nil-rated final products would apply.

2.4 The Court held that, on a harmonious reading, the bar in the proviso is not absolute because proviso (vi) specifically saves the benefit for a manufacturer of dutiable and exempted final products who discharges the obligation prescribed in Rule 6 of the CENVAT Credit Rules, 2004. Thus, where both dutiable and exempt clearances are made and Rule 6 obligations are complied with, captive exemption under Notification No. 67/95-CE is preserved.

2.5 The Court noted that captive exemption under Notification No. 67/95-CE is part of a scheme intended to avoid cascading of duty on in-house intermediates, and this scheme cannot be defeated merely because some final clearances avail a separate general exemption notification, when the saving clause in the proviso itself provides for coexistence of dutiable and exempt clearances.

2.6 It was also observed that, in earlier proceedings involving the same pattern of clearances, this Tribunal had already held that clearances under such project/specific exemptions do not by themselves deprive the manufacturer of the benefit under Notification No. 67/95-CE, and those decisions had been accepted by the Department.

Conclusions

2.7 The Court concluded that the relays captively consumed in the manufacture of control panels are, in principle, covered by the main body of Notification No. 67/95-CE. The only remaining question is whether the manufacturer satisfies proviso (vi) through compliance with Rule 6 of the CENVAT Credit Rules, 2004.

Issue 2 - Whether the obligation under Rule 6 of the CENVAT Credit Rules, 2004 has been discharged so as to fall within proviso (vi) to Notification No. 67/95-CE

Legal framework

2.8 The Court considered Rule 6 of the CENVAT Credit Rules, 2004, particularly the general requirement to reverse or proportionately pay back credit when common inputs are used for dutiable and exempted final products, and the exceptions enumerated under Rule 6(6), including clause (vii) which carves out specific supplies (such as to certain power projects) from the operation of Rule 6(2) and 6(3).

Interpretation and reasoning

2.9 The appellate authority had concluded that the manufacturer had not "discharged the obligation under Rule 6" because no 10% amount on the value of exempt goods was paid, separate accounts for dutiable and exempted final products were not maintained, and credit was not foregone on inputs used in exempt goods.

2.10 The Court held that this reasoning failed to consider Rule 6(6)(vii) of the CENVAT Credit Rules, 2004, which specifies scenarios in which the reversal/payment obligations under Rule 6(2) and 6(3) do not apply, including supplies to specified projects covered by Notification No. 12/2012-CE. In such cases, the requirement of payment of 10% or maintenance of separate accounts is expressly inapplicable.

2.11 It was noted that in earlier, identical disputes involving the same assessee and the same pattern of clearances, this Tribunal had already accepted that the assessee was within the Rule 6 framework, and that the specific exception under Rule 6(6)(vii) applied, thereby negating the contention that obligations under Rule 6 had not been met. Those earlier orders had been accepted by the Department.

2.12 Applying the doctrine of consistency and judicial discipline, the Court held that, in the absence of any new material or changed circumstances, it was not open to depart from the settled position already taken by the Tribunal in the assessee's own earlier cases.

Conclusions

2.13 The Court rejected the finding of the lower authority that the manufacturer had not discharged obligations under Rule 6 of the CENVAT Credit Rules, 2004. It held that, in view of Rule 6(6)(vii) and prior consistent Tribunal decisions, the manufacturer satisfies the requirement under proviso (vi) to Notification No. 67/95-CE.

2.14 Consequently, the manufacturer is entitled to the benefit of Notification No. 67/95-CE for relays captively consumed in the manufacture of control panels, notwithstanding that some final clearances are under Notification No. 12/2012-CE or for export under LUT.

Issue 3 - Sustainability of duty demand, interest and penalty

Interpretation and reasoning

2.15 Having held that the relays are eligible for captive exemption under Notification No. 67/95-CE, and that proviso (vi) read with Rule 6 of the CENVAT Credit Rules, 2004 stands satisfied, the Court held that the very basis of the demand raised on the relays captively consumed ceases to exist.

2.16 As the principal duty demand does not survive on merits, the consequential interest under Section 11AA of the Central Excise Act, 1944 automatically falls.

2.17 On penalty under Rule 25 of the Central Excise Rules, 2002, the Court noted that the dispute turned entirely on interpretation of overlapping notifications and the interplay with Rule 6 of the CENVAT Credit Rules, 2004; that all transactions were duly recorded in statutory records and returns; and that the pattern of clearances had previously been scrutinised and decided in favour of the assessee by the Tribunal. There was no evidence of fraud, suppression, wilful misstatement, or any contumacious conduct.

Conclusions

2.18 The Court held that the demand of duty is unsustainable on merits and is set aside.

2.19 The corresponding demand of interest under Section 11AA is unsustainable and is also set aside.

2.20 Penalty under Rule 25 of the Central Excise Rules, 2002 is held to be unwarranted in the facts and circumstances and is set aside.

2.21 In view of the Tribunal's consistent decisions on the same issue for earlier periods, and in adherence to judicial discipline, the impugned appellate order is set aside and the appeal is allowed with consequential reliefs as per law.

Issues: (i) Whether the bill discounting transaction was a commercial arrangement governed by the contractual terms, so as to exclude application of the Usurious Loans Act and the plea that the agreed interest and monthly rests were unenforceable as penalty or as opposed to public policy. (ii) Whether clause 4 of the sanction letters could be construed against the respondent on the principle of contra proferentem, or treated as requiring a separate notice before withdrawal of the concessional rate of interest.

Issue (i): Whether the bill discounting transaction was a commercial arrangement governed by the contractual terms, so as to exclude application of the Usurious Loans Act and the plea that the agreed interest and monthly rests were unenforceable as penalty or as opposed to public policy.

Analysis: The facility was held to be a commercial bill discounting arrangement and not a loan or debt transaction. The contractual documents expressly provided for joint and several liability, withdrawal of the concessional rate on default, and payment of the normal rate with monthly rests thereafter. On the construction of Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, party autonomy controls the tribunal's discretion where the parties have otherwise agreed on interest. The agreed interest was therefore not open to challenge as unconscionable, excessive, or contrary to public policy merely because the default rate was high. The Court also treated compounding in a commercial contract of this kind as permissible and not penal, especially where the borrower had voluntarily entered the arrangement and derived benefit from it.

Conclusion: The issue was decided against the appellant and in favour of the respondent; the contractual interest stipulation was held enforceable.

Issue (ii): Whether clause 4 of the sanction letters could be construed against the respondent on the principle of contra proferentem, or treated as requiring a separate notice before withdrawal of the concessional rate of interest.

Analysis: The clause was found to be clear and bilateral, forming part of a negotiated commercial contract between parties of comparable bargaining strength. The contra proferentem rule was held to be inapplicable because it operates only where ambiguity exists and is especially confined to standard form or unequal-bargaining situations. The contention that a separate notice was required before the concessional rate could be withdrawn was also rejected, since no such plea had been consistently raised earlier and, in any event, the contractual text itself specified the consequence of delay or default. The Court further held that a party that has knowingly accepted the contractual benefit cannot later avoid the agreed consequences by alleging unfairness.

Conclusion: The issue was decided against the appellant and in favour of the respondent; clause 4 was upheld as written.

Final Conclusion: The appeals failed because the award and the concurrent High Court orders were sustained on the basis that the parties' commercial bargain governed the interest stipulation and related consequences of default.

Ratio Decidendi: Where sophisticated parties to a commercial contract have expressly agreed to the rate and consequences of default interest, the arbitral tribunal is bound by that agreement under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, and the stipulated interest cannot be struck down as penal or unconscionable merely because it is high.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the Award Debtor's computation of the decretal amount, including the period for which future interest @ 12% per annum is payable under the arbitral award and additional award, correctly reflects the directions contained therein.

1.2 Whether tax was lawfully deductible at source (TDS) from the sums paid under the arbitral award and, if not, whether the Award Debtor is obliged to refund the deducted TDS amounts to the Award Holder.

1.3 Whether the Award Holder is entitled to interest on the amounts deducted as TDS and deposited with the Income Tax Department.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correct computation of decretal amount and future interest

Interpretation and reasoning

2.1 The Court examined the arbitral award dated 24.01.2024 and the additional award dated 28.03.2024, together with the rival computation statements filed by the parties.

2.2 The original award quantified: (i) unpaid rent, (ii) unpaid mesne profits, (iii) interest @ 10% per annum on those sums from 01.07.2021 until the date of the award, (iv) unpaid Service Tax/GST, (v) costs of arbitration, and (vi) future interest @ 12% per annum in the event of non-payment within four weeks from the date of the award.

2.3 The additional award only corrected a typographical error in paragraph 16 of the original award and did not alter the operative directions.

2.4 Comparing the rival calculations, the Court found that the Award Debtor's computation correctly implemented the award, especially regarding the period of liability for future interest.

2.5 The Court held that future interest @ 12% per annum is payable only from the date of the additional award, i.e., 29.03.2024, until the date of payment of the principal sum, i.e., 23.07.2025, and not beyond.

Conclusion

2.6 The computation furnished by the Award Debtor was accepted as correctly reflecting the directions in the arbitral award and additional award, including the period for which future interest @ 12% per annum is payable.

Issue 2: Legality of TDS deduction from arbitral award sums and obligation to refund

Legal framework

2.7 The Court referred to the settled legal principle that no tax is deductible at source from amounts payable under a decree or an arbitral award unless such deduction is expressly authorised by statute.

Interpretation and reasoning

2.8 It was admitted that the Award Debtor deducted TDS of Rs. 54,06,844/- and Rs. 8,56,800/- from payments made towards the decretal sum and deposited the same with the Income Tax Department.

2.9 Applying the above legal principle, the Court held that such deduction of TDS from sums payable under the arbitral award was erroneous, as there was no statutory authority permitting such deduction in the circumstances.

Conclusion

2.10 The Award Debtor is under an obligation to refund to the Award Holder the TDS amounts of Rs. 54,06,844/- and Rs. 8,56,800/-, without interest, within four weeks.

2.11 The Award Debtor is at liberty to approach the Income Tax Authorities to seek refund/recovery of the amounts deposited with them, in accordance with law and applicable principles.

Issue 3: Entitlement to interest on the TDS component

Interpretation and reasoning

2.12 The Award Holder claimed interest on the TDS component on the footing that the decretal amount stood reduced by the deduction.

2.13 The Court noted that the deduction of TDS was a bona fide mistake by the Award Debtor, made while releasing the decretal amount, despite the legal position that no TDS is deductible from arbitral award sums.

2.14 It was undisputed that the deducted amounts were deposited with the Income Tax Department, in compliance with statutory requirements, and were not retained by the Award Debtor, who derived no benefit therefrom.

2.15 The Court held that imposing an interest burden on the Award Debtor in such circumstances would be inequitable and inappropriate, as it would penalise a bona fide procedural error when the money is already lying with statutory authorities.

2.16 The Court further held that directing payment of interest on the TDS component would be contrary to principles of equity, fairness, and restitution, since the Award Debtor had not enjoyed or utilised the deducted sums.

Conclusion

2.17 The claim for interest on the TDS component was rejected. The Award Debtor is required only to refund the TDS amounts to the Award Holder, without any interest.

2.18 With these directions, the execution proceedings were disposed of.

Issues: (i) Whether the suit was within limitation on the basis of a running account and the last payment made by the defendants; (ii) Whether the defendants were liable for the principal amount under the invoices, the alleged hand loan, set-off, and interest.

Issue (i): Whether the suit was within limitation on the basis of a running account and the last payment made by the defendants.

Analysis: The transactions between the parties were found to be continuous and were reflected in a running account. The invoices were issued over a period of time and the ledger showed periodic payments, with the last admitted payment made on 01.09.2020. The Court applied the principle that where payments are made towards an outstanding running account, limitation is computed from the last payment, and also relied on the statutory effect of part-payment under the Limitation Act, 1963. Since the suit was filed within three years of the last payment, the claim was not time-barred.

Conclusion: The suit was held to be within limitation, against the appellants and in favour of the respondent.

Issue (ii): Whether the defendants were liable for the principal amount under the invoices, the alleged hand loan, set-off, and interest.

Analysis: The ledger and invoices established liability for the goods supplied under the running account. The alleged hand loan of Rs. 3 lakhs was not proved by the plaintiff through the pleadings, testimony, or bank records, and that component could not be sustained. The defendants failed to prove any legally acceptable set-off or reversal of input tax credit, and their objection regarding a separate loan transaction also failed for want of supporting material. The invoices contained a stipulation for interest at 18% in commercial transactions, which justified the award of interest on the proved liability. Accordingly, the decree required modification only to exclude the unproved hand-loan component.

Conclusion: The defendants were held liable for the invoice amount proved on record and interest thereon, but not for the alleged hand loan of Rs. 3 lakhs; the decree was modified accordingly, partly in favour of the appellants and substantially in favour of the respondent.

Final Conclusion: The appeal resulted in a limited reduction of the decretal amount, while the finding on limitation and the liability arising from the commercial running account was sustained.

Ratio Decidendi: In a continuous commercial running account with admitted part-payments, limitation runs from the last acknowledged payment, and a claimed money component not proved by evidence cannot be included in the decree.