TaxTMI Updates e-Newsletter
Dec 11,2025

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, notwithstanding the statutory bar on condonation of delay by the appellate authority under the Goods and Services Tax regime, the Court in exercise of writ jurisdiction can permit the assessee to avail the appellate remedy by directing that the appeal be heard on merits.

1.2 Whether, in the peculiar facts involving non-filing of returns during the COVID-19 period, alleged non-receipt of the show cause notice for cancellation of registration, and cascading consequences of retrospective cancellation, the rejection of the appeal as time-barred ought to be set aside and the appeal restored for consideration on merits.

1.3 To what extent the principles laid down in earlier decisions regarding (i) the inability of the appellate authority to condone delay, (ii) the High Court's power to extend time for filing an appeal, and (iii) the requirement to consider consequences of retrospective cancellation of registration, govern the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Writ jurisdiction vis-à-vis statutory bar on condonation of delay by appellate authority

Interpretation and reasoning

2.1 The Court noticed that earlier precedent has clearly held that the appellate authority under the GST law cannot condone delay beyond the statutorily prescribed period, and this position was not disputed. The rationale in such precedent is that where the statute fixes an outer limit for filing an appeal, the authority exercising appellate powers is bound by that limit and lacks jurisdiction to extend it.

2.2 The Court, however, contrasted this with another decision where, in exercise of writ jurisdiction, the High Court had granted additional time to the assessee to file an appeal under Section 107 of the Central Goods and Services Tax Act, 2017, and had directed that such appeal, if filed within the extended period, should not be dismissed as barred by limitation and be decided on merits.

2.3 The Court further noted that the said order of the High Court had been considered and the approach effectively endorsed by the Supreme Court, which granted a further window to file the statutory appeal and indicated that the issue of delay should be considered keeping in view that the assessee had been bona fide pursuing remedies before the High Court and the Supreme Court.

2.4 On this basis, the Court distinguished between (i) the lack of power of the appellate authority itself to condone delay beyond the statutory limit, and (ii) the constitutional power of the High Court, in appropriate cases, to issue directions enabling the assessee to avail the appellate remedy and securing a decision on merits despite the statutory limitation.

Conclusions

2.5 The Court held that, although the appellate authority cannot condone delay beyond the statutory period, the High Court in writ jurisdiction can, in suitable and exceptional circumstances, direct that the appeal be entertained and decided on merits, thereby permitting the assessee to avail the appellate remedy despite the delay.

Issue 2 - Justification for setting aside rejection of appeal as time-barred and directing decision on merits

Interpretation and reasoning

2.6 The Court took note that the petitioner's GST registration had been cancelled retrospectively from 01 July 2017 on account of non-filing of returns for six months during the COVID-19 period, and that this cancellation had led to cascading consequences, including notices for reversal of input tax credit received by the petitioner's clients.

2.7 The petitioner's explanation for delay in filing the appeal against the cancellation order was that it had not become aware of the show cause notice until its clients received notices, and that the failure to file returns itself was attributable to the COVID-19 pandemic. The Court considered these explanations as forming part of the factual matrix requiring examination on merits.

2.8 The Court also took cognizance of earlier precedent which held that retrospective cancellation of GST registration may not be tenable if the authority does not consider the unintended consequences, such as denial of input tax credit to customers, thereby indicating that such matters involve substantive issues that ought to be examined on merits rather than being shut out at the threshold of limitation.

2.9 In light of the Supreme Court's treatment of a similar situation, where the assessee was allowed further time to pursue the statutory appeal due to its bona fide pursuit of remedies in higher courts, the Court considered it appropriate to adopt a similar approach in the present case, confining the relief to the peculiar facts.

Conclusions

2.10 The Court concluded that the petitioner had furnished a reasonable explanation for the delayed appeal, linked to non-receipt of the show cause notice and COVID-related difficulties, and that the substantive consequences of the retrospective cancellation warranted adjudication on merits.

2.11 The appellate order rejecting the appeal solely on the ground of limitation was set aside. The petitioner was permitted to avail the appellate remedy, with a direction that the appeal shall be heard on merits and shall not be treated as barred by limitation.

2.12 The Court directed that the petitioner be afforded a personal hearing by the appellate authority, and that a reasoned order be passed on the merits of the cancellation of registration, clarifying that these directions were issued having regard to the peculiar facts of the case.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an ex parte adjudication order under Section 63 of the GST Act, passed against an unregistered person, is vitiated for violation of principles of natural justice due to non-effective service of show cause notice.

1.2 Whether the existence of an alternative statutory remedy bars exercise of writ jurisdiction when the assessee alleges deprivation of opportunity of hearing in the adjudication proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of ex parte adjudication under Section 63 of the GST Act in absence of effective service of show cause notice

Legal framework

2.1 The adjudication was initiated and concluded under Section 63 of the Central Goods and Services Tax Act / Odisha Goods and Services Tax Act, 2017 against a person treated as an "unregistered taxpayer".

Interpretation and reasoning

2.2 The Court noted from the record that the tax authority had acknowledged cancellation of the petitioner's GST registration with effect from 01.07.2017, thereby treating the petitioner as an unregistered taxpayer for the relevant period.

2.3 It was undisputed that the show cause notice dated 04.12.2021 was stated to have been served only via an e-mail address earlier furnished during the pre-GST (VAT) regime, when the petitioner was a registered dealer.

2.4 The petitioner's contention that such e-mail address had remained inactive and non-operational after 01.07.2017 was recorded, along with the assertion that the notice never actually reached him.

2.5 Without finally adjudicating on the factual controversy of the e-mail account's operational status, the Court focused on the consequence that the petitioner did not participate in the proceedings under Section 63 and remained unaware of the initiation of adjudication.

2.6 The Court held that, in these circumstances, it was incumbent upon the Adjudicating Authority to verify whether the show cause notice had in fact reached the addressee, particularly when the person was being proceeded against as an unregistered taxpayer and did not appear on the date fixed.

2.7 As the adjudicating authority proceeded ex parte and determined tax liability under Section 63 in the petitioner's absence, the Court found that the petitioner had been deprived of an opportunity of hearing and of producing materials before the authority.

Conclusions

2.8 The ex parte adjudication order dated 03.02.2022 passed under Section 63 of the GST Act was set aside on the ground of violation of principles of natural justice and absence of effective opportunity to respond to the show cause notice.

2.9 The matter was remitted to the Adjudicating Authority, with directions to permit the petitioner to appear, file explanation or reply to the show cause notice, raise all legally available contentions, and for the authority to conclude the proceedings within three months from the petitioner's appearance.

Issue 2: Effect of alternative remedy in the context of alleged denial of opportunity of hearing

Interpretation and reasoning

2.10 The State contended that the petitioner ought to have availed the alternative statutory remedy to challenge the adjudication order and could not invoke writ jurisdiction directly.

2.11 The petitioner asserted that he had not been served with the show cause notice in a meaningful or effective manner and remained in the dark about the adjudication proceedings, as the notice was sent to an inactive e-mail address used during an earlier tax regime.

2.12 The Court accepted that the petitioner had been deprived of a reasonable opportunity of hearing in the adjudication under Section 63, and therefore treated the matter as one involving violation of principles of natural justice.

Conclusions

2.13 The existence of an alternative remedy did not preclude exercise of writ jurisdiction in the given facts, since the adjudication order was passed ex parte in violation of natural justice, warranting interference and remand for fresh adjudication after hearing the petitioner.

1. ISSUES PRESENTED AND CONSIDERED

1. Whether a writ petition is maintainable to challenge an appellate order under the GST Act when the statutory appellate tribunal was previously non-functional but has since been constituted and made operational with notified timelines for filing appeals.

2. Whether the pre-deposit requirement under Section 112(8) of the GST Act must be complied with when approaching the Goods and Services Tax Appellate Tribunal, even where the petitioner had initially invoked writ jurisdiction citing non-constitution of the tribunal.

3. What directions are appropriate regarding redressal of the petitioner's grievance once the appellate tribunal is functional and extended, staggered timelines for filing appeals before the tribunal have been notified and operationalised.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of writ petition in light of subsequent constitution and functioning of the appellate tribunal under the GST Act

Legal framework:

4. The judgment proceeds on the basis of Section 112 of the Central Goods and Services Tax Act, 2017 / Odisha Goods and Services Tax Act, 2017, which provides for appeals to the Goods and Services Tax Appellate Tribunal against orders in appeal. The Court notices Notification S.O. No. 4220(E) dated 17 September 2025 issued by the Department of Revenue under Section 112(1) notifying 30 June 2026 as the outer date up to which appeals may be filed before the Appellate Tribunal in respect of specified orders, and thereafter within three months for orders communicated on or after 1 April 2026.

4.1. The Court also takes note of the "User Advisory for the GSTAT E-Filing Portal" prescribing a staggered filing period up to 31 December 2025, and the general window up to 30 June 2026 for filing appeals before the tribunal corresponding to the dates of APL-01/APL-03/RVN-01, including special provision for cases where ARN/CRN is not available in the GSTN system.

Interpretation and reasoning:

4.2. The Court records that it is no longer res integra that writ jurisdiction can be invoked to assail an order where a statutory appellate forum, though provided, is not constituted or not functional, as an aggrieved person cannot be rendered remediless.

4.3. At the same time, the Court emphasizes that once the statutory forum is available and functional, and the period for filing appeals is provided and extended through statutory notification and e-filing advisory, it would not be proper for the Writ Court to continue to entertain or keep pending writ petitions where such forum can adjudicate the dispute.

4.4. The Court notes that the grievance earlier urged-non-constitution and non-functionality of the Goods and Services Tax Appellate Tribunal-stands addressed by the subsequent notification making the tribunal functional and providing adequate and extended timelines for filing appeals.

Conclusions:

4.5. Writ petitions filed earlier on the ground of non-availability of the tribunal are not to be kept pending once the appellate tribunal has been made functional and concrete timelines for filing appeals have been notified.

4.6. The appropriate course is for the petitioner to avail the statutory appellate remedy before the Goods and Services Tax Appellate Tribunal within the notified timelines rather than pursuing the writ petition on merits.

Issue 2: Necessity of complying with the pre-deposit requirement under Section 112(8) of the GST Act when appealing to the tribunal after invoking writ jurisdiction

Legal framework:

5. The Court extracts and relies upon Section 112(8) of the GST Act, which mandates that no appeal shall be filed under Section 112(1) unless:

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

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

Interpretation and reasoning:

5.1. The Court reiterates that although writ jurisdiction can be invoked where the appellate forum is non-functional, that does not entitle a litigant to bypass or dilute the statutory conditions attached to the filing of an appeal once the forum is available.

5.2. The Court clearly states that even where writ jurisdiction had been properly invoked earlier due to non-constitution of the tribunal, a litigant cannot "steal a march" by seeking orders from the Writ Court in derogation of express statutory requirements such as the mandatory pre-deposit under Section 112(8).

5.3. The Court underscores that when a statute prescribes conditions for filing an appeal, the Writ Court, while directing recourse to the appellate forum, must ensure strict compliance with such statutory preconditions.

Conclusions:

5.4. Compliance with the pre-deposit requirements stipulated in Section 112(8) is mandatory for filing an appeal before the Goods and Services Tax Appellate Tribunal.

5.5. The fact that the tribunal was earlier non-functional and the petitioner had approached the Writ Court does not absolve the petitioner from fulfilling the statutory pre-deposit condition when now availing the appellate remedy.

Issue 3: Appropriate directions following availability of the appellate remedy and notified timelines

Interpretation and reasoning:

6. The Court observes that the statutory forum-Goods and Services Tax Appellate Tribunal-has been made functional and that comprehensive timelines for filing appeals (including staggered filing periods and a long-stop date of 30 June 2026) have been notified through the central government notification and the "User Advisory for the GSTAT E-Filing Portal."

6.1. In view of such arrangements, the Court holds that the petitioner's dispute can and should be adjudicated by the tribunal rather than in writ proceedings.

6.2. The Court therefore declines to go into the merits of the first appellate order and confines itself to ensuring that the petitioner is directed to properly channel the grievance through the statutory appeal mechanism, with due compliance of statutory preconditions.

Conclusions and directions:

6.3. The writ petition is disposed of with the following operative directions:

(i) The petitioner is directed to deposit, if not already deposited, the amount required under Section 112(8) of the GST Act and to file an appeal before the Goods and Services Tax Appellate Tribunal within the period specified in the timelines contained in the notification and the "User Advisory for the GSTAT E-Filing Portal."

(ii) The petitioner shall file the appeal in accordance with the staggered and overall timelines prescribed in the said User Advisory.

(iii) In the event the appeal is filed and is found to be in order as per the requirements of Section 112 of the GST Act and the relevant Rules, the same shall be entertained by the Goods and Services Tax Appellate Tribunal.

6.4. The Court clarifies that it has expressed no opinion on the merits of the first appellate order and that pending interlocutory applications stand disposed of as a consequence of the disposal of the writ petition.

Issues: Whether failure to intimate the date, time and venue of personal hearing before passing the adjudication order vitiated the order under the Gujarat Goods and Services Tax Act, 2017.

Analysis: Section 75(4) mandates an opportunity of hearing where a request is received or where an adverse decision is contemplated, and Section 75(5) contemplates adjournment for sufficient cause, subject to the prescribed limit. On the facts, the proceedings reflected that the details of personal hearing were not duly conveyed to the assessee before the adverse order was passed. The absence of such intimation amounted to a breach of the procedural safeguard attached to adjudication and therefore offended natural justice.

Conclusion: Yes. The adjudication order and the appellate order were liable to be set aside for breach of the requirement of hearing.

Final Conclusion: The matter was remitted for fresh adjudication after due intimation of hearing, while leaving the remaining contentions open.

Ratio Decidendi: Where an adverse tax order is contemplated, the statutory requirement of hearing must be meaningfully complied with by intimating the assessee the hearing particulars, and failure to do so vitiates the adjudication.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether Rule 86A of the Central Goods and Services Tax Rules, 2017 permits blocking of a registered person's Electronic Credit Ledger by an amount exceeding the Input Tax Credit actually available therein at the time of the blocking order, resulting in a negative balance ("negative blocking").

1.2 Whether, in the context of Rule 86A, the absence of prior notice or hearing before blocking the Electronic Credit Ledger violates principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope of power under Rule 86A to block Electronic Credit Ledger and permissibility of "negative blocking"

Legal framework

2.1 The Court considered Rule 86A of the Central Goods and Services Tax Rules, 2017, which empowers the Commissioner or authorised officer, upon having "reasons to believe" that Input Tax Credit has been fraudulently availed or is ineligible, to disallow debit from the Electronic Credit Ledger for discharge of liability or claim of refund "for an amount equivalent to such credit".

Interpretation and reasoning

2.2 The Court, following and adopting its earlier decision rendered on 04.11.2025, reiterated that: (i) the right to avail and utilise Input Tax Credit is a statutory right, subject to conditions prescribed in the statute; and (ii) the availability of credit in the Electronic Credit Ledger is a condition precedent for exercise of power under Rule 86A.

2.3 The Court endorsed the reasoning of other High Courts (inter alia Gujarat, Delhi, Telangana and Bombay) that:

(a) Rule 86A can be invoked only when credit of input tax is actually available in the Electronic Credit Ledger on the date of invocation;

(b) where no Input Tax Credit is available, or it has already been utilised, the power under Rule 86A cannot be exercised;

(c) Rule 86A authorises only a temporary disallowance of debit of the existing credit; it does not authorise insertion of debit entries by the officer or permanent recovery through the mechanism of the Electronic Credit Ledger;

(d) the rule is divided into: (i) conditions for invocation, and (ii) consequences once validly invoked; non-fulfilment of the conditions renders the consequences inapplicable;

(e) the expression "an amount equivalent" in Rule 86A relates to restricting debit of an equivalent quantum of credit that exists in the Electronic Credit Ledger; it presupposes existence of such credit and does not permit creation of a negative balance.

2.4 The Court noted that permitting "negative blocking" (i.e., blocking in excess of the credit available, resulting in a negative balance) would travel beyond the plain language and underlying intent of Rule 86A and would effectively amount to permanent recovery, which is governed by statutory provisions such as Sections 73 and 74 of the Central Goods and Services Tax Act, 2017.

2.5 The Court also took note that, even if there is concern of persistent fraudulent availment and utilisation of credit, the statute provides other remedies to the authorities, including proceedings under Sections 73 or 74, cancellation of registration under Section 29, and provisional attachment under Section 83; such concerns cannot justify invoking Rule 86A in a manner not supported by its text.

2.6 The Court characterised the power to restrict debit from the Electronic Credit Ledger as "extremely harsh", operating at a stage anterior to final assessment or demand, and therefore to be exercised strictly in conformity with the specific statutory language and conditions.

2.7 The Court expressly agreed with the interpretation of the High Courts that have disallowed "negative blocking" and respectfully disagreed with contrary views taken by other High Courts which had upheld such negative blocking. It also noted that the view denying negative blocking has been left undisturbed in challenges before the Supreme Court.

Conclusions

2.8 Rule 86A does not permit blocking of the Electronic Credit Ledger beyond the amount of Input Tax Credit actually available therein at the time of invocation of the rule.

2.9 Creation of an artificial negative balance in the Electronic Credit Ledger by blocking Input Tax Credit in excess of the existing balance is without jurisdiction, contrary to the plain language of Rule 86A, and unsustainable in law.

2.10 The impugned blocking entries were quashed and set aside to the extent they disallowed debit from the Electronic Credit Ledger beyond the Input Tax Credit available in the ledger at the relevant time.

2.11 The authorities were left at liberty to resort to other statutory measures for determination and recovery of wrongly availed or utilised Input Tax Credit, including proceedings under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 and other available remedies, in accordance with law.

Issue 2: Requirement of prior notice and principles of natural justice in invoking Rule 86A

Legal framework

2.12 The Court examined Rule 86A in the context of whether prior notice or a show cause notice is required before blocking the Electronic Credit Ledger.

Interpretation and reasoning

2.13 Relying on its earlier detailed analysis (04.11.2025 decision) and the views of other High Courts it endorsed, the Court held that Rule 86A is a preventive and emergent measure intended to meet urgent situations of suspected fraudulent or ineligible credit.

2.14 The Court held that, given the nature and purpose of Rule 86A, the provision does not contemplate or require issuance of a prior show cause notice before temporary blocking of the Electronic Credit Ledger, and such absence does not, by itself, render the action violative of principles of natural justice.

Conclusions

2.15 Prior notice or show cause notice is not a prerequisite for valid invocation of Rule 86A; non-issuance of such prior notice does not invalidate the blocking order, provided the statutory conditions under Rule 86A are otherwise satisfied.

2.16 In the present case, the Court allowed the petition not on the ground of want of prior notice, but solely because the blocking exceeded the Input Tax Credit actually available in the Electronic Credit Ledger and thereby amounted to impermissible "negative blocking".

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of GST registration with retrospective effect is legally sustainable when the show cause notice for cancellation does not contemplate retrospective cancellation and no reasons are recorded for such retrospective operation.

1.2 Consequences of failure by the appellate authority to consider the illegality of retrospective cancellation and dismissal of the appeal as barred by limitation.

1.3 Appropriate reliefs and consequential directions regarding restoration of GST registration, filing of returns, and liberty of the Department to conduct fresh verification and take action in accordance with law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of retrospective cancellation of GST registration

Legal framework

2.1 The Court considered Section 29(2) of the Central/Delhi Goods and Services Tax enactment as interpreted in earlier decisions, holding that although the proper officer has the power to cancel GST registration from any date including a retrospective date, such power must be exercised with reasons, due application of mind, and based on objective criteria.

2.2 The Court relied on the principles laid down in earlier decisions, holding that: (i) the order cancelling registration with retrospective effect must itself reflect reasons justifying retrospective operation; (ii) such power cannot be exercised mechanically or routinely; (iii) the show cause notice should put the taxpayer to notice if retrospective cancellation is proposed; and (iv) consequences such as denial of input tax credit to customers must be borne in mind while ordering retrospective cancellation.

Interpretation and reasoning

2.3 The show cause notice dated 11 November 2021 was issued only on the ground that the petitioner was allegedly non-functioning/non-existent at the principal place of business; the notice did not state that cancellation would be with retrospective effect.

2.4 The cancellation order dated 17 August 2023, however, cancelled the registration from 21 July 2020, thereby giving it retrospective effect, without the show cause notice having contemplated such retrospective period and without recording reasons to justify retroactivity.

2.5 Applying the settled position of law, the Court held that where the show cause notice does not contemplate retrospective cancellation, an order directing cancellation retrospectively is not tenable, particularly in view of the serious consequences, including jeopardising input tax credit.

2.6 The Court noted also that no separate show cause notice had been issued to the petitioner in relation to availment of input tax credit, reinforcing that the foundation for retrospective cancellation and its consequences had not been properly laid.

Conclusions

2.7 The order cancelling the petitioner's GST registration with retrospective effect from 21 July 2020 was held to be legally unsustainable and not tenable in law.

Issue 2 - Effect of appellate dismissal on limitation and sustainability of cancellation

Interpretation and reasoning

2.8 The appellate authority had dismissed the petitioner's appeal against the cancellation order as barred by limitation, without addressing the illegality in ordering retrospective cancellation.

2.9 In view of the Court's finding that the underlying cancellation order itself was unsustainable in law, the appellate order, which merely dismissed the appeal on limitation and upheld such cancellation indirectly, could not be sustained.

Conclusions

2.10 Both the cancellation order dated 17 August 2023 and the appellate order dated 11 March 2025 were set aside.

Issue 3 - Consequential reliefs, restoration, and future action

Interpretation and reasoning

2.11 Since the order of cancellation was held to be untenable, and the petitioner expressed willingness to continue business and comply with statutory requirements, the Court considered it appropriate to restore the GST registration subject to conditions.

2.12 The Court also balanced the Department's interest by reserving liberty to conduct fresh inspection to verify the petitioner's existence and compliance and to proceed in accordance with law in case any violation is found.

Conclusions

2.13 The GST registration of the petitioner was restored.

2.14 The Department was directed to grant access to the GST portal to the petitioner within one week.

2.15 Upon restoration of access, the petitioner was directed to file all previous returns on the portal along with late payment and penalty, if any.

2.16 The Department was granted liberty to conduct fresh inspection to verify the existence of the petitioner and, in case of any violation, to take action in accordance with law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether input tax credit in the electronic credit ledger can be blocked or re-blocked under Rule 86A of the CGST/HGST Rules beyond the statutory period of one year on the same grounds.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Power to block / re-block ITC under Rule 86A beyond one year on the same grounds

Legal framework

2.1 Rule 86A of the CGST/HGST Rules was extracted, particularly:

(i) Sub-rule (1) - empowering the Commissioner or authorised officer, having "reasons to believe" that ITC has been fraudulently availed or is ineligible in specified situations, to disallow debit of an equivalent amount in the electronic credit ledger.

(ii) Sub-rule (2) - permitting lifting of such restriction once the conditions for disallowing debit no longer exist.

(iii) Sub-rule (3) - providing that "such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction."

2.2 Section 83 of the CGST/HGST Act was also reproduced, particularly sub-section (2), which provides that any provisional attachment "shall cease to have effect after the expiry of a period of one year from the date of the order."

2.3 The Court referred to and relied upon the Supreme Court's interpretation of Section 83 in the decision in Kesari Nandan Mobile, where the question considered was whether a second provisional attachment order under Section 83(1) can be issued after the initial attachment ceases by efflux of one year under Section 83(2).

Interpretation and reasoning

2.4 The Court noted that Rule 86A(3) and Section 83(2) are pari materia in structure and purpose, both embodying a legislative policy that a coercive, pre-emptive measure to protect revenue ceases to have effect after one year.

2.5 Relying on the reasoning of the Supreme Court in construing Section 83, the Court emphasized:

(i) Provisional attachment (under Section 83) is a draconian, pre-emptive power to protect revenue, not a measure of recovery.

(ii) Sub-section (2) of Section 83 cannot be rendered otiose by permitting renewal or repeated re-attachment on substantially the same grounds after lapse of one year.

(iii) The maxim "an act which cannot be done directly cannot be done indirectly" applies; repeated orders in the guise of renewal, without change in circumstances, would be an abuse of law and contrary to legislative intent.

(iv) One year is considered sufficient for the revenue to complete investigation; if the legislature intended renewal or extension, it would have so provided, as in other tax statutes.

2.6 The Court held that the same underlying principles apply to Rule 86A:

(i) Both provisions are framed to protect government revenue through temporary, pre-emptive restraints.

(ii) Rule 86A(3), like Section 83(2), contains an express time limit of one year after which the restriction ceases.

(iii) Rule 159(5)-(6) and Rule 86A(2) both confer power to release attachment/blocking when grounds no longer subsist, reinforcing the temporary nature of such measures.

2.7 On facts, the Court observed that:

(i) ITC was originally blocked on 21.11.2023 under Rule 86A on the ground that the supplier M/s M.S. Trading Company was non-existent/non-operational and had passed on ITC.

(ii) Part of the ITC was later unblocked upon representation, but the balance remained blocked; subsequently, ITC was again blocked on 05.12.2023 for the same reason, i.e., investigation concerning the same supplier.

(iii) It was specifically noted that no further proceedings had been initiated against the petitioner and no fresh or different ground was asserted for the renewed blocking.

2.8 Applying the above principles, the Court treated "blocking of ITC beyond period of one year on the same very ground" as analogous to impermissible "renewal" or re-issuance of a lapsed provisional attachment order, which the Supreme Court had disallowed under Section 83.

Conclusions

2.9 The Court held that, in the absence of any fresh ground or changed circumstances, ITC blocked under Rule 86A cannot be continued or re-blocked beyond the statutory period of one year on the same grounds.

2.10 Blocking of the petitioner's ITC by the respondent after the expiry of one year from the initial blocking (i.e., after 21.11.2024) on the same basis was held to be unsustainable and was set aside.

2.11 The writ petition was allowed to the above extent, while reserving liberty to the authorities to take further steps against the petitioner strictly in accordance with law, and clarifying that no opinion was expressed on the merits of the underlying allegations concerning the supplier or the petitioner's ITC entitlement.

Issues: Whether, while considering registration of a trust under Section 12AA, the Commissioner could refuse registration solely because the trust had not yet commenced activities and was not shown to be genuine on that ground.

Analysis: The Trust was in existence, its deed was registered, and the application for registration had been made under Section 12AA. The refusal was founded on the absence of commenced charitable activity and doubts about genuineness. The decision was tested against the Supreme Court rulings on the scope of Section 12AA, which clarify that the enquiry at the registration stage is whether the trust's objects are charitable and whether the activities, if any, are shown to be contrary to those objects. Mere non-commencement of activities, by itself, does not establish lack of genuineness of the trust's activities for registration purposes.

Conclusion: The refusal of registration on the stated ground was not justified, and the substantial question of law was answered in favour of the assessee.

Final Conclusion: The order under challenge was upheld and the tax appeal did not succeed.

Ratio Decidendi: At the stage of registration under Section 12AA, the Commissioner must examine the charitable nature of the objects and whether any existing activities are contrary to those objects; absence of commenced activity, by itself, is not a sufficient ground to deny registration on the basis of lack of genuineness.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether payment made by a closely held company for purchase of a motor car, recorded and depreciated as a fixed asset in its books but registered in the name of a substantial shareholder, constitutes "payment on behalf of, or for the individual benefit of, such shareholder" so as to be taxed as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.

1.2 Whether, for invoking section 2(22)(e), it is sufficient that the asset is registered in the shareholder's name, or it is further necessary to establish that, during the relevant previous year, a personal or individual benefit actually accrued to the shareholder.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Character of company's payment for motor car registered in shareholder's name under section 2(22)(e)

(a) Legal framework (as discussed)

2.1 The Tribunal considered the language of section 2(22)(e), specifically the part which covers "any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company ... possesses accumulated profits."

2.2 The provision was recognised as a deeming provision, expanding the ordinary meaning of "dividend" to include certain payments/advances/loans or payments on behalf of, or for the individual benefit of, a specified shareholder of a closely held company having accumulated profits.

(b) Interpretation and reasoning

2.3 It was undisputed that the company was a closely held company, that the assessee was a beneficial owner of 11.95% shares (more than 10% voting power), and that the company had accumulated profits at the time of purchase of the car.

2.4 The Tribunal found that the motor car was purchased out of company funds, recorded as part of the company's fixed assets, and that depreciation on the car had been claimed and allowed in the company's assessment. The allowance of depreciation was based on the premise, accepted by the appellate authority in the company's case, that the car was used for the purposes of the company's business.

2.5 The Tribunal noted that, while depreciation had initially been disallowed by the Assessing Officer in the company's case on the ground that the car was registered in the shareholder's name, the appellate authority had reversed that disallowance relying, inter alia, on judicial precedent holding that depreciation is allowable to a company even if the vehicle is registered in the name of a director, provided it is used for the company's business and income is accounted in the company's hands.

2.6 On the factual matrix, the Tribunal observed that there was no material on record to show that the car was used for the personal benefit of the shareholder. The Revenue did not dispute the assertion that the car was used for the company's business, nor was any evidence produced to indicate personal or family use by the shareholder.

2.7 The Tribunal emphasised that, where a shareholder also holds managerial or administrative responsibilities, the use of a vehicle for discharge of official duties cannot, without more, be treated as a personal or individual benefit. Only where the vehicle is used for personal leisure or purely personal/family purposes can it be said that personal benefit accrues.

2.8 The Tribunal held that the mere fact that the car was registered in the shareholder's name is not, by itself, sufficient to conclude that the company's payment for the car was "for the individual benefit" of the shareholder. The substance of the transaction, including ownership and use as reflected in the company's books and assessments, must be examined.

(c) Conclusions

2.9 The payment made by the company for purchase of the motor car, which was capitalised and depreciated in the company's books and used for the company's business, did not, on the facts, constitute a payment "on behalf of, or for the individual benefit of" the shareholder within the meaning of section 2(22)(e).

2.10 In the absence of evidence of personal or individual benefit to the shareholder in the relevant year, the conditions for treating the payment as deemed dividend under section 2(22)(e) were not satisfied, and the addition made as deemed dividend was not sustainable.

Issue 2: Necessity to establish actual personal benefit during the relevant year for invoking deeming fiction under section 2(22)(e)

(a) Legal framework (as discussed)

2.11 The Tribunal reiterated that section 2(22)(e) is a deeming provision and must be applied strictly, with all statutory conditions being satisfied, including the requirement that the payment be on behalf of, or for the individual benefit of, the shareholder.

(b) Interpretation and reasoning

2.12 The Tribunal held that when the provision refers to a "payment made by the company" and to a "benefit" to the shareholder, both events must be examined in the context of the same relevant previous year. It is not enough to rely on speculative or future possibilities of benefit; actual or at least demonstrable personal benefit in that year must be shown.

2.13 The Tribunal rejected the approach of treating the transaction as deemed dividend purely on apprehensions about potential future misuse (e.g., the shareholder being able, as registered owner, to sell the car and appropriate the proceeds). Such hypothetical future events do not establish that a benefit accrued to the shareholder during the year in which the payment was made.

2.14 The Tribunal, therefore, confined its enquiry to whether, during the relevant previous year, the shareholder derived or was shown to have derived any individual benefit from the payment for the car, separate from and in excess of his capacity as an office bearer or employee using a company asset for official purposes.

(c) Conclusions

2.15 For invoking the deeming fiction in section 2(22)(e), it is necessary to establish, with reference to the relevant previous year, that the payment resulted in an actual or clearly demonstrable personal/individual benefit to the shareholder.

2.16 As no material existed to prove any such personal benefit in the relevant year, and the car stood treated and allowed as a business asset of the company, the deeming provisions of section 2(22)(e) could not be validly applied, and the addition was directed to be deleted.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Allowability of deduction of Rs. 10,00,000/- claimed as "Legal & Professional fees" in the year under appeal, where the amount is stated to have been paid as advance in an earlier year, including compliance with section 194J and disallowance under section 40(a)(ia).

1.2 Justification for disallowance of 20% of "Motor car expenses & depreciation" on the ground of possible personal use in absence of log book or other evidence.

1.3 Justification for disallowance of 20% of "Telephone expenses" in absence of specific evidence of non-business use.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction of Rs. 10,00,000/- as "Legal & Professional fees" - prior period payment, year of allowability, and TDS compliance under section 194J / disallowance under section 40(a)(ia)

Legal framework (as discussed)

2.1 The Tribunal noted the application of section 194J to fees for professional services and the consequential disallowance under section 40(a)(ia) where tax is deductible but not deducted. It also relied on the settled principle that expenditure is normally allowable in the year in which it is incurred or the liability crystallizes, and that the onus lies on the assessee to substantiate a claim of prior period expenditure claimed in a later year.

Interpretation and reasoning

2.2 The assessee claimed that Rs. 10,00,000/- was paid as advance to a consultant in financial year 2001-02 and was debited to the Profit & Loss Account only in the year under consideration (previous year 2005-06) on completion of the assignment and on assessment of benefit derived. It was contended that TDS provisions were not applicable in the year of payment and that the debit in the relevant year was a mere book adjustment.

2.3 The appellate authority earlier held that the assessee, following mercantile system, was required to demonstrate that the liability crystallized in the year under consideration if it related to an earlier period, and that the services and impact on revenue pertained up to financial year 2003-04, such that the effect, if any, was confined to earlier years and not to the assessment year under consideration. The assessee failed to establish that the liability actually crystallized during the instant year.

2.4 Before the Tribunal, the Department argued that the assessee had not produced any evidence of payment in financial year 2001-02; that section 194J was applicable when the payment was made; and that no TDS was deducted either at the time of alleged payment or when the expense was debited, thus attracting section 40(a)(ia).

2.5 On examination of the record, the Tribunal found that no material had been produced to show that tax was deducted under section 194J, either in the earlier year when the payment was allegedly made or in the year when the expenditure was booked, and that there was no substantiation of the assessee's stand on these factual aspects.

Conclusions

2.6 The Tribunal held that the factual matrix regarding actual payment, year of payment, completion of services, crystallization of liability, and applicability/compliance of TDS provisions under section 194J required verification. In the interest of justice, the issue relating to the deduction of Rs. 10,00,000/- and the applicability of section 40(a)(ia) was restored to the file of the Assessing Officer for fresh adjudication after verifying the facts and granting adequate opportunity to the assessee. The ground was allowed for statistical purposes.

Issue 2: Disallowance of 20% of "Telephone expenses"

Interpretation and reasoning

2.7 The Assessing Officer and the first appellate authority had disallowed 20% of telephone expenses on the ground of possible non-business or personal use, without recording specific findings or bringing any concrete material to justify the extent of disallowance.

2.8 The Tribunal noted that there was no specific allegation, evidence, or material brought on record by the revenue authorities to support the estimated disallowance of 20% of telephone expenses.

Conclusions

2.9 In absence of specific material to support the ad hoc disallowance, the Tribunal directed deletion of the disallowance under the head "telephone expenses", allowing the corresponding ground of appeal.

Issue 3: Disallowance of 20% of "Motor car expenses & depreciation"

Interpretation and reasoning

2.10 The revenue authorities had disallowed 20% of motor car expenses and depreciation on the ground that the assessee did not maintain a log book to establish exclusive business use of the vehicle and that some element of personal use could not be ruled out.

2.11 Before the Tribunal, the assessee could not produce any evidence to demonstrate that the motor car was used wholly and exclusively for business purposes or to rebut the presumption of some personal use.

2.12 Considering the absence of a log book, the possibility of mixed use, and the overall facts and submissions, the Tribunal accepted that some disallowance was warranted but found the 20% disallowance on the higher side.

Conclusions

2.13 The Tribunal restricted the disallowance on account of "Motor car expenses & depreciation" to 10% of the claimed amount, in place of 20% sustained by the first appellate authority, thereby partly allowing the relevant ground.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether penalty proceedings under Section 270A of the Act were vitiated due to vague and non-specific notices issued under Section 274 read with Section 270A, lacking a specific charge and quantified under-reported income.

1.2 Whether, on the facts, there was any under-reporting of income by reason of discrepancy between turnover as per audited books and turnover as per service tax return, so as to justify levy of penalty under Section 270A.

1.3 Whether findings in the quantum assessment proceedings could, by themselves, constitute a sufficient and conclusive basis for levy of penalty under Section 270A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notices under Section 274 read with Section 270A

Interpretation and reasoning

2.1 The Court examined multiple notices issued under Section 274 read with Section 270A dated 19.11.2019, 08.05.2020, 31.07.2021, 05.09.2021, 28.02.2022 and 23.02.2023, as placed in the paper book.

2.2 It was noticed that none of the notices specified the precise charge or basis on which penalty was proposed, in particular:

(a) no indication was given as to under which clause of Section 270A(2) the assessee was alleged to have under-reported income; and

(b) the amount of alleged under-reported income was neither specified nor determined in the notices.

2.3 The Court further noted that the conditions contemplated in sub-sections (3) to (5) of Section 270A were also not shown to have been complied with in the initiation process, as per the assessee's uncontroverted submissions.

2.4 On these facts, the Court held that the notices were "vague and illegal" and did not communicate any specific charge to the assessee, thereby rendering the very foundation of the penalty proceedings defective.

Conclusions

2.5 The penalty proceedings initiated on the basis of such vague and non-specific notices were held to be vitiated in law.

2.6 On this ground alone, the entire penalty proceeding was held to be void ab initio and not sustainable.

Issue 2: Existence of under-reported income and effect of discrepancy in service tax return

Legal framework (as discussed)

3.1 Penalty was levied under Section 270A(2)(a) on the footing that the assessee had under-reported income by failing to record actual turnover in the books of account, the income assessed being greater than the income declared in the return.

Interpretation and reasoning

3.2 The addition in quantum arose from a difference of Rs. 5,43,930/- between turnover from construction business services as per audited books and turnover as per service tax return (Form ST-3), which the Assessing Officer treated as under-reported turnover.

3.3 The Court examined the assessee's replies dated 14.09.2019 and 06.11.2019, including detailed monthly reconciliation of construction turnover as per books and service tax returns, demonstrating that:

(a) turnover in one month (May) was mistakenly shown less and correspondingly shown more in a later month (October) to neutralise the impact; and

(b) in March, turnover of Rs. 5,43,930/- was mistakenly shown higher in the service tax return than in the audited books.

3.4 The Court noted that the audited financial statements and audited turnover figures had been accepted by the Assessing Officer in the assessment order, and no specific defect or discrepancy in those audited books was pointed out, nor were the books rejected under Section 145(3).

3.5 The Court accepted the assessee's stand that the alleged discrepancy originated from an inadvertent error in the service tax return and not from any failure to record turnover in the books of account, and that there was no independent material brought by the Revenue to show actual under-reporting of income.

3.6 The Court further held that the penalty proceedings cannot rest merely on the quantum addition, as penalty and assessment proceedings are independent; findings in assessment, though relevant, are not conclusive or determinative for the purpose of penalty.

3.7 On an overall appreciation of the material, the Court found that the Revenue had not established that the assessee had, in fact, under-reported income for the relevant year so as to attract Section 270A.

Conclusions

3.8 The Court held that no sustainable case of under-reporting of income under Section 270A was made out from the mere mismatch between audited turnover and the turnover reflected in the service tax return, especially when the audited books were accepted and not discredited.

3.9 The levy of penalty under Section 270A on the alleged under-reported income of Rs. 5,43,930/- was, therefore, held to be unjustified on merits as well.

Issue 3: Independence of penalty proceedings from quantum assessment

Interpretation and reasoning

4.1 The Court recorded the assessee's contention that the Assessing Officer had initiated and imposed penalty solely by relying upon the addition made in the assessment proceedings, without undertaking an independent examination for the purposes of penalty.

4.2 The Court agreed with the principle that penalty proceedings and quantum proceedings are distinct and independent; while the findings in quantum assessment may be relevant, they are neither conclusive nor determinative for levy of penalty.

4.3 The Court found, in the present case, that the Revenue had not gone beyond the quantum addition to establish any deliberate or factual under-reporting in terms of Section 270A.

Conclusions

4.4 The mere existence of an addition in assessment, based on a mismatch with service tax data, was held insufficient to sustain penalty under Section 270A in the absence of independent satisfaction and proof of under-reporting.

Overall disposition

5.1 In view of the vagueness and invalidity of the penalty notices and the failure of the Revenue to establish under-reporting of income, the Court held that the entire penalty proceeding was void ab initio.

5.2 The penalty of Rs. 94,122/- imposed under Section 270A was quashed, and the appeal of the assessee was allowed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether long term capital gain arising from sale of listed shares, supported by documentary evidence and claimed exempt under section 10(38), could be treated as bogus and added as unexplained income under section 68 on the ground that the scrip was a penny stock.

1.2 Whether, on the facts of the case, the assessee had discharged the onus under section 68 to establish the genuineness of the share transactions, and whether the revenue brought any material to rebut such evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Treatment of long term capital gain on listed shares as bogus; onus under section 68

Legal framework (as discussed)

2.1 The Court examined the matter in the context of sections 10(38) and 68 of the Income Tax Act, 1961. The discussion proceeded on the basis that where an assessee furnishes primary evidence to explain a credit/receipt, the onus under section 68 is initially on the assessee, and may shift to the revenue upon satisfactory discharge of that onus.

2.2 The Court relied on the judgment of the jurisdictional High Court in "Principal Commissioner of Income-tax vs. Indravadan Jain, HUF", where addition under section 68 in respect of long term capital gain on alleged "penny stock" was deleted after finding that the assessee had effected purchase and sale of shares on the stock exchange through a registered broker, taken and given delivery through demat, and received/paid consideration through banking channels.

Interpretation and reasoning

2.3 The assessee had sold 20,500 shares of a company through the Bombay Stock Exchange's online platform on 01.02.2018, declared long term capital gain of Rs. 12,87,180 and claimed exemption under section 10(38). The Assessing Officer treated the gain as bogus, characterizing the scrip as a penny stock, and made addition under section 68, which was affirmed by the appellate authority.

2.4 The Court noted that the assessee had furnished, before both authorities below, documentary evidence including: profit and loss account, balance sheet, sale/contract notes for sale of shares, demat account statements, and bank statements, all in support of the purchase and sale of the shares and the flow of consideration.

2.5 It was specifically observed that the authorities below did not doubt the genuineness or authenticity of these documents. This non-dispute was treated as indicating that the assessee had, at least prima facie, established the factual matrix of the transactions and accordingly discharged the initial burden under section 68.

2.6 The Court further recorded that there were no allegations against the assessee by SEBI or any other investigating agency, and no investigation had been carried out against the assessee in relation to the transactions in question.

2.7 The timeline of holding was also considered material: the assessee had purchased the shares on 17.09.2013 and sold them on 01.02.2018 through the Bombay Stock Exchange, thus holding the shares for about five years. This long holding period was treated as consistent with a genuine investment and inconsistent with a mere accommodation entry.

2.8 Applying the ratio of the jurisdictional High Court in "Indravadan Jain, HUF", the Court reasoned that where shares are purchased and sold on the floor of a recognized stock exchange through a registered broker, with contract notes, demat delivery, and banking channel payments, and where the revenue does not produce cogent evidence to show that the particular assessee's transactions are sham, mere branding of the scrip as a "penny stock" or reliance on general investigations is insufficient to justify addition under section 68.

2.9 The Court therefore found that, on the admitted and undisputed documentary record, the assessee had satisfactorily demonstrated the genuineness of the share transactions and the resultant long term capital gain, and the revenue had not brought on record any specific material to rebut this or to establish that the assessee's claim was an accommodation entry.

Conclusions

2.10 The addition made by the Assessing Officer by treating the long term capital gain of Rs. 12,87,180 as bogus and undisclosed income under section 68, and affirmed by the appellate authority, was held to be unsustainable.

2.11 The exemption claimed under section 10(38) in respect of the long term capital gain arising from the sale of the shares was effectively allowed, and the impugned addition was deleted.

2.12 The appeal of the assessee was allowed in full.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the approval granted under section 153D of the Income-tax Act, 1961, for the assessment framed under section 153C/143(3), was mechanical and without application of mind, thereby vitiating the assessment.

1.2 Whether the reliance on electronic/digital evidence, without proper verification and without adherence to the CBDT Digital Evidence Investigation Manual, impacted the legality and validity of the approval under section 153D.

1.3 Consequentially, whether the impugned assessment order and the additions made therein, including the addition towards alleged unrecorded investment in land, could stand in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and nature of approval under section 153D

Legal framework

2.1 The Tribunal noted that the assessment for the relevant year was framed under section 153C/143(3) pursuant to search action, and that prior approval under section 153D from the Range Head (Additional Commissioner of Income Tax) was mandatory. The first appellate authority treated such approval as an administrative act which did not adjudicate upon the rights and obligations of the assessee, relying on a High Court decision rendered in the context of section 158BG.

Interpretation and reasoning

2.2 The Tribunal examined the approval letter dated 04.03.2021 which covered multiple assessment years (AY 2012-13 to AY 2018-19) and contained the expression that approval was granted to draft assessment orders "as amended". It found that this phrase was ambiguous, and there was nothing on record to show any communication or process indicating when or how such amendments were made or examined by the approving authority.

2.3 The Tribunal noted that the approval letter also recorded that the Assessing Officer had certified having perused and verified data seized in electronic format and working copies having certified hash values, and that the approving authority had accepted this certification without any indication of independent verification or scrutiny.

2.4 Referring to a coordinate bench decision in a similar factual situation, the Tribunal adopted the reasoning that the use of the term "as amended" without explanation, coupled with absence of material indicating independent consideration of the draft orders, showed that the approval lacked demonstrable application of mind.

2.5 The Tribunal further referred to judicial precedents which held that: (i) approval under section 153D is mandatory for each assessment year separately; (ii) such approval, although internal, cannot be a mere formality; (iii) the approving authority must apply an independent mind to the material for "each assessment year" and "each assessee"; and (iv) mechanical approval vitiates the assessment.

2.6 The Tribunal clarified that the decision relied upon by the first appellate authority, which characterized such approval as administrative, was in the context of the requirement of granting hearing before approval, and did not dispense with the requirement of real and demonstrable application of mind by the approving authority under section 153D.

Conclusions

2.7 The Tribunal held that the approval granted under section 153D in the present case was not in accordance with law, as it was accorded in a mechanical manner without adequate indication of independent examination or thought process by the approving authority. Consequently, ground no. 2 of the assessee was sustained.

Issue 2: Reliance on electronic/digital evidence and adherence to CBDT Digital Evidence Investigation Manual

Legal framework

2.8 The Tribunal drew upon a coordinate bench decision which had elaborated on the necessity to comply with the CBDT Digital Evidence Investigation Manual, 2014, particularly when assessments are substantially based on electronic/digital evidences seized during search.

2.9 It noted that the Manual contained directions regarding handling, verification, and annexing of digital evidence to assessment orders, and that such directions, though debated as to whether they strictly fall under section 119, could not be ignored by the Assessing Officer or by the approving authority when granting approval under section 153D.

Interpretation and reasoning

2.10 The Tribunal observed that in cases involving multiple electronic evidences from multiple digital devices, the approving authority, before granting approval, must ensure that search and post-search procedures and the assessment process comply with the Board's directions in the Manual.

2.11 In the present matter, the approval letter explicitly relied on the Assessing Officer's certification regarding electronic data and hash values and did not state that the approving authority had itself examined the electronic evidence or tested its relevancy and admissibility in accordance with law and the Manual.

2.12 Relying on earlier judicial pronouncements, the Tribunal emphasized that mere acceptance of the Assessing Officer's certification, without independent verification or recording of any thought process about the handling and legal sufficiency of digital evidence, leads to the conclusion that the approval was mechanical.

Conclusions

2.13 The Tribunal held that the excessive and uncritical reliance by the approving authority on the Assessing Officer's certification regarding electronic evidence, without demonstrable adherence to the CBDT Digital Evidence Investigation Manual or independent scrutiny, further corroborated that the approval under section 153D suffered from non-application of mind.

Issue 3: Effect of invalid approval under section 153D on assessment and additions

Interpretation and reasoning

2.14 The Tribunal, following higher judicial authority and coordinate bench decisions, reiterated that compliance with section 153D is not a mere procedural formality and that mechanical or invalid approval vitiates the assessment order itself.

2.15 Since the approval under section 153D was found to be not in accordance with law, the foundation of the assessment under section 153C/143(3) stood invalidated. As a result, the additions made, including the disputed addition relating to alleged unrecorded investment in land, could not survive.

Conclusions

2.16 The Tribunal allowed the assessee's appeal by holding the assessment to be bad in law due to invalid approval under section 153D and, as a corollary, dismissed the Revenue's appeal on the additions made in the impugned assessment.

Issues: Whether interest income received from investments with a co-operative bank registered as a co-operative society is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The assessment disallowed the claim on the footing that interest from a co-operative bank was not interest from another co-operative society. The appellate authority and the Tribunal relied on binding jurisdictional precedent and the assessee's own earlier years to hold that a co-operative bank registered under the State Co-operative Societies Act retains the character of a co-operative society for the purpose of section 80P(2)(d). The Tribunal further noted that the bank's registration as a co-operative central bank supported the conclusion that the interest earned on such deposits fell within the statutory expression used in section 80P(2)(d). The issue was treated as covered by precedent and no contrary legal distinction was accepted.

Conclusion: The interest income from deposits with the co-operative bank was held eligible for deduction under section 80P(2)(d), and the assessee succeeded on the issue.

Ratio Decidendi: A co-operative bank that is registered as a co-operative society under the relevant co-operative societies law is to be treated as a co-operative society for the purpose of section 80P(2)(d) of the Income-tax Act, 1961, and interest income earned from deposits with such entity is deductible.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, on a proper construction of CBDT Circular No. 24/2019 dated 09.09.2019 and Circular No. 5/2020 dated 23.01.2020, prosecution under Section 276C(1) of the Income-tax Act, 1961, where the tax sought to be evaded exceeds Rs. 25 lakhs, can be initiated by the Principal Commissioner of Income Tax without (a) prior administrative approval of a collegium of two CCIT/DGIT rank officers and (b) prior imposition and confirmation of penalty by the Income Tax Appellate Tribunal.

1.2 Whether Circular No. 5/2020 dated 23.01.2020 is manifestly arbitrary and violative of Article 14 of the Constitution of India on the ground that it vests unguided and unbridled discretion in the sanctioning authority for launching prosecution.

1.3 Whether pendency of appeals before the Commissioner of Income Tax (Appeals), and the assessee's challenges to the validity and merits of assessment (including additions under Sections 69 and 69A, the legality of proceedings under Section 153C, ex parte assessments, and alleged lack of DIN on transfer order under Section 127), constitute grounds to quash the sanction for prosecution under Sections 276C and 278E.

1.4 Whether, in the facts, the impugned sanction notices issued under Section 279(1) authorising initiation of prosecution under Sections 276C and 278E suffer from non-application of mind or absence of reasons so as to be liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Interpretation of CBDT Circulars 24/2019 and 5/2020; requirement of collegium approval and prior ITAT-confirmed penalty for tax evasion above Rs. 25 lakhs

2.1.1 Legal framework as discussed

(a) The Court examined CBDT Circular No. 24/2019 dated 09.09.2019, particularly paragraphs 2, 3 and 4 and its Annexure, dealing with offences under Section 276C(1) ("wilful attempt to evade tax, etc.").

(b) Under the Circular of 09.09.2019, for offences under Section 276C(1):

- Cases where the amount sought to be evaded or tax on under-reported income is Rs. 25 lakhs or below "shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers"; and

- It further provides that "prosecution under this section shall be launched only after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal."

(c) Paragraph 3 of the Circular defines the "Collegium of two CCIT/DGIT rank officers" and clarifies that the sanctioning authority under Section 279(1) (Principal Commissioner or Commissioner or Commissioner (Appeals) or appropriate authority) shall seek the prior administrative approval of such collegium only for "cases below the threshold limit as prescribed in Annexure".

(d) Paragraph 4 and the Annexure set out the "list of prosecutable offences under the Act specifying the approving authority". For Section 276C(1), the Annexure provides:

- Where tax which would have been evaded exceeds Rs. 25 lakhs: approving authority - "Sanctioning Authority";

- In other cases: "Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers."

(e) Circular No. 5/2020 dated 23.01.2020 clarifies Circular No. 24/2019 in relation to Section 276C(1), stating that:

- Prosecution "shall be launched ordinarily after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal"; and

- "Prosecution in other cases, including cases covered u/s 132/132A/133A, may be launched at any stage of the proceedings before an Income-tax Authority, with the previous approval of the Collegium of two CCIT/DGIT rank officers as mentioned in para 3 of the Circular."

- The Circular applies only to cases "where the prosecution complaint is to be filed after the date of issuance of the Circular, i.e. 09.09.2019".

2.1.2 Interpretation and reasoning

(a) The Court noted that there is no dispute that in the present case the "amount sought to be evaded or tax on under-reported income is more than Rs. 25 lakhs", in fact, the aggregate demand exceeds Rs. 348 crores.

(b) On a conjoint reading of Circular 24/2019 and its Annexure, the Court concluded:

- The special requirement of prior administrative approval of a collegium of two CCIT/DGIT rank officers applies only to cases "where the amount sought to be evaded or tax on under-reported income is Rs. 25 lakhs or below";

- In such below-threshold cases alone, prosecution under Section 276C(1) is to be launched only after confirmation of penalty by the ITAT.

(c) The Court held that the Annexure clearly demarcates two categories for Section 276C(1):

- Where tax which would have been evaded exceeds Rs. 25 lakhs: the "approving authority" is only the "Sanctioning Authority" (PCIT etc.), without any additional pre-condition; and

- For other (below-threshold) cases: the sanctioning authority must obtain previous administrative approval of the collegium of two CCIT/DGIT rank officers.

(d) As to Circular 5/2020, the Court treated it as a "clarification" to be read as part of Circular 24/2019, and not as altering the basic scheme of the Annexure. The expression that prosecution "shall be launched ordinarily after the confirmation of the order imposing penalty by the ITAT" was read as:

- Prescribing an ordinary rule of timing, not an absolute or mandatory precondition; and

- To be understood in the context of the Circular's primary object of not launching prosecution in small cases and controlling initiation in cases where the amount is Rs. 25 lakhs or below.

(e) The clarification that prosecution "in other cases, including cases covered u/s 132/132A/133A, may be launched at any stage of the proceedings... with the previous approval of the Collegium of two CCIT/DGIT rank officers" was construed as "primarily relat[ing] to the offences where amount sought to be evaded is less than Rs. 25 lakhs". The Court held that Circular 5/2020 "does not make any amendment to paragraph No. 4 and the annexure thereof."

(f) The Court held that "no pre-conditions have been attached while taking action in cases where the evasion is more than Rs. 25 lakhs" and that "the intent behind Circular No. 24/2019... as amended by Circular No. 5/2020" is essentially to avoid prosecution in small cases and to require collegium approval only in such below-threshold cases.

(g) In the present case, since the amount alleged to be evaded is more than Rs. 25 lakhs (indeed, over Rs. 348 crores), "the approval of the sanctioning authority would be adequate" and "in other words, the decision of the Sanctioning Authority granting approval would suffice the requirement, which in this case is PCIT."

2.1.3 Conclusions

(a) In cases under Section 276C(1) where the tax sought to be evaded exceeds Rs. 25 lakhs, the only approving authority required under CBDT Circular No. 24/2019 (as clarified by Circular No. 5/2020) is the "Sanctioning Authority" under Section 279(1), i.e., the Principal Commissioner/Commissioner etc.; prior approval of a collegium of two CCIT/DGIT rank officers is not required.

(b) The requirement that prosecution "shall be launched... after confirmation of penalty by the ITAT" and the requirement of collegium approval apply only to small (below Rs. 25 lakhs) cases and do not constitute preconditions in cases where the amount sought to be evaded exceeds Rs. 25 lakhs.

(c) The impugned sanction notices issued by the PCIT under Section 279(1) in the present case, where the alleged evasion far exceeds Rs. 25 lakhs, are in conformity with Circulars 24/2019 and 5/2020 and are not vitiated for want of collegium approval or for want of prior ITAT-confirmed penalty.

2.2 Challenge to constitutional validity of Circular No. 5/2020 under Article 14

2.2.1 Legal framework as discussed

(a) The petitioner contended that Circular No. 5/2020 is "manifestly arbitrary" as it vests the sanctioning authority with "unbridled and absolute discretion" to decide when prosecution may be launched in cases above Rs. 25 lakhs without any guidelines, and thus offends Article 14.

(b) Reliance was placed on Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India for the proposition that delegated legislation can be struck down as manifestly arbitrary, and on State of Punjab v. Khan Chand to emphasise that unguided discretion affecting personal liberty is unconstitutional.

2.2.2 Interpretation and reasoning

(a) The Court rejected the submission that Circular No. 5/2020 conferred unguided and unbridled power, holding that there is "a clear demarcation contemplated in terms of circular dated 09.09.2019 as followed by circular dated 23.01.2020."

(b) The Court characterised Circular 5/2020 as "a clarification to be read as part of the circular dated 09.09.2019." When so read, the scheme clearly:

- Draws an objective threshold at Rs. 25 lakhs; and

- Restricts prosecution in small cases by requiring collegium approval and tying it ordinarily to confirmation of penalty by the ITAT.

(c) Since in the present case the alleged evasion is far above the threshold (more than Rs. 348 crores), the Court held that the argument of unguided discretion is inapposite; the scheme clearly entrusts such major-evasion cases to the sanctioning authority alone.

(d) The Court observed that "it is precisely for this reason that an attempt has been made by the petitioner to challenge the very circular dated 23.01.2020", noting that the challenge was driven by the petitioner's inability to derive benefit from the small-amount safeguards in the Circular.

(e) The Court distinguished the reliance on Indian Express Newspapers and State of Punjab v. Khan Chand as inapplicable in the factual and statutory context at hand, particularly given the magnitude of tax alleged to be evaded and the structured differentiation embedded in the Circulars.

2.2.3 Conclusions

(a) Circular No. 5/2020 dated 23.01.2020, read with Circular No. 24/2019 dated 09.09.2019, is not manifestly arbitrary and does not offend Article 14 of the Constitution.

(b) The classification and demarcation between cases where the amount sought to be evaded is Rs. 25 lakhs or below and those where it exceeds that threshold is rational and guided; the power vested in the sanctioning authority in cases above Rs. 25 lakhs is not unguided or unbridled in a constitutional sense.

(c) The challenge to the constitutional validity of Circular No. 5/2020 was rejected.

2.3 Effect of pendency of appeals and assessee's objections to assessment on validity of prosecution sanction

2.3.1 Legal and factual contentions as noted

(a) The petitioner argued that since appeals against the assessment orders are pending before the CIT(A) under Section 246A, and numerous objections-jurisdictional and on merits-have been raised (including that proceedings ought to have been under Section 153A rather than 153C; that additions under Sections 69 and 69A are based on loose papers/diaries and alleged benami investments; that assessment orders are ex parte and violate principles of natural justice; and that the transfer order under Section 127 is allegedly non est for want of DIN), prosecution should not be initiated.

(b) It was also contended that under Section 275, and as per certain decisions referred to, there is an embargo on passing penalty orders during pendency of appeals, and by extension, prosecution should be deferred.

2.3.2 Interpretation and reasoning

(a) The Court accepted the respondent's contention that neither Section 275 nor Section 276C(1) imposes any bar on initiation of prosecution proceedings during pendency of assessment appeals, nor any statutory precondition that penalty must first be imposed and confirmed.

(b) In relation to the various factual and jurisdictional objections (additions under Sections 69/69A based on loose papers, legality of 153C proceedings as opposed to 153A, ex parte assessments, DIN issues under Section 127, etc.), the Court held:

- These are "questions of fact" to be decided by the competent authority in appropriate appellate/assessment proceedings; and

- They do not constitute grounds at this stage to interfere with or quash the sanction for prosecution.

(c) The Court specifically stated that:

- The challenge to additions under Sections 69 and 69A being based on loose papers is factual and "needs to be decided by the competent authority", and reliance on CIT v. Ravi Kumar does not assist the petitioner at the sanction stage.

- Reliance on Vijay Krishnaswami (quashing prosecution where no attempt to evade tax was made and procedural requirements for criminal prosecution were not followed) is distinguishable; in the present case, the prosecution is premised on large-scale alleged evasion and the sanctioning procedure has been followed.

- Reliance on Karnataka High Court decisions in BS Uday Shetty and Anjanadari Fuel Station (relating to validity of appeal in penalty proceedings and timing of penalty orders) and on UCO Bank is distinguishable and does not bar prosecution in the present context.

- Reliance on Kamlesh Kumar Jha and Brandix Mauritius Holdings Ltd. to challenge the order under Section 127 for want of DIN raises factual questions not to be decided at this stage.

2.3.3 Conclusions

(a) Pendency of appeals before the CIT(A) against assessment orders, and alleged infirmities in assessment (including jurisdiction under Sections 153A/153C, evidentiary basis of additions under Sections 69/69A, ex parte nature of orders, and DIN-related objections), do not create a legal bar to initiation of prosecution under Sections 276C and 278E.

(b) Issues concerning merits or legality of assessment orders are to be adjudicated by the appropriate appellate/assessment authorities and cannot be used at the threshold to invalidate prosecution sanction in a case where the amount of alleged evasion exceeds Rs. 25 lakhs.

2.4 Alleged non-application of mind and insufficiency of reasons in sanction orders

2.4.1 Contentions as noted

(a) The petitioner contended that the impugned sanction orders under Section 279(1) were passed mechanically, without proper application of mind, and are "bereft of reasons" as to why the present case is a "deserving case" for initiation of prosecution despite pendency of appeals and absence of confirmed penalty by the ITAT.

2.4.2 Interpretation and reasoning

(a) The Court proceeded on the premise that the sanctioning authority (PCIT) has in fact granted approval and that the requirement of collegium approval or prior ITAT-confirmed penalty does not apply for cases involving evasion exceeding Rs. 25 lakhs.

(b) It was noted that the petitioner did not dispute:

- That the alleged amount under investigation is above Rs. 25 lakhs (indeed, above Rs. 348 crores); or

- That the competent sanctioning authority (PCIT) had granted the sanction.

(c) In light of the Court's interpretation of the Circulars and the magnitude of alleged tax evasion, the grievance of absence of detailed reasoning to categorise this as a "deserving case" for pre-penalty/ pre-ITAT prosecution was rendered untenable, as those preconditions were held inapplicable to such large cases.

(d) The Court did not find any established procedural infirmity or legal defect in the grant of sanction sufficient to warrant quashing; instead, it accepted the respondent's position that the PCIT was the appropriate authority and had duly sanctioned prosecution in accordance with the Circulars.

2.4.3 Conclusions

(a) The sanction orders issued by the PCIT under Section 279(1) authorising prosecution under Sections 276C and 278E in a case where alleged tax evasion far exceeds Rs. 25 lakhs are not vitiated for want of collegium approval, for lack of ITAT-confirmed penalty, or for alleged non-application of mind.

(b) No grounds were made out to quash the impugned sanction notices on the basis of procedural or substantive defects in the sanction.

2.5 Overall disposition

2.5.1 For the reasons recorded on the interpretation of CBDT Circulars 24/2019 and 5/2020, the rejection of the Article 14 challenge to Circular 5/2020, the finding that pendency of appeals and assessment objections do not bar prosecution, and the acceptance that the PCIT was the competent sanctioning authority in a case involving alleged evasion exceeding Rs. 25 lakhs, the Court held that the impugned sanction notices and Circular No. 5/2020 are not unconstitutional, non-est, or otherwise liable to be quashed.

2.5.2 The petition was dismissed and pending applications were dismissed as infructuous.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings initiated under Section 148 for a later assessment year, on the same material and identical issue already examined in the assessment of a connected assessee, are vitiated as an impermissible "change of opinion" and hence without jurisdiction.

1.2 Whether, in the facts of the case, the writ petition challenging the notice under Section 148 was maintainable at the pre-assessment stage in view of alleged lack of jurisdiction and arbitrariness in reopening.

1.3 Whether the prior assessment/reassessment orders, said to be "cryptic" or non-speaking, could be treated as not involving any formation of opinion, thereby negating the plea of "change of opinion".

1.4 Whether the contention that reopening was bad for not being initiated under the faceless scheme in terms of Section 151A required adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment under Section 148 on the ground of "change of opinion"

Legal framework (as discussed):

2.1 The Court referred to the settled distinction between the Assessing Officer's power to "reassess" and the absence of any power to "review", and to the doctrine that reassessment cannot be based on a mere "change of opinion" on the same material. Reliance was placed on the principle laid down in Commissioner of Income Tax v. Kelvinator of India Ltd., that if "change of opinion" is removed, reassessment becomes a vehicle for review, which is impermissible.

Interpretation and reasoning:

2.2 The Court noted that reassessment proceedings for the transporter's income for AY 2019-20 were initiated on two issues, one being alleged "cash return" of Rs. 80,62,000/- to the petitioner, based on material impounded during survey/search on 09.04.2021. A notice under Section 142(1) was issued to the transporter, and a notice under Section 133(6) to the petitioner on the same issue; both assessees denied any cash return.

2.3 After considering replies of both the transporter and the petitioner, the Assessing Officer passed an order dated 26.08.2022 for AY 2019-20 in the transporter's case, making addition only under Section 40A(3) and making no addition on account of alleged cash return or under Section 68. The Court treated this as an acceptance of the genuineness of transactions and of the denial of any cash return.

2.4 Separately, reassessment of the petitioner's income for AY 2018-19 had also been initiated on the same "cash return" theme, based on the same material from the 09.04.2021 search/survey. Notices under Sections 148, 143(2) and 142(1) were issued, specific queries regarding dealings with the same transporter were raised, and the petitioner filed detailed replies denying any cash return. The reassessment order dated 26.08.2022 for AY 2018-19 adopted the same income as originally assessed and made no addition on the alleged cash return.

2.5 The Court highlighted that both assessment/reassessment orders dated 26.08.2022-(i) the transporter's assessment for AY 2019-20, and (ii) the petitioner's reassessment for AY 2018-19-were passed by the same Assessing Officer, on the same day, on the same material obtained from the 09.04.2021 search/survey, and after considering the replies of both parties on the same allegation of cash return.

2.6 The impugned reopening notice under Section 148 and order under Section 148A(3) for AY 2019-20 against the petitioner again relied on the very same survey/search material (impounded data with identical ID marks), alleged identical cash return of Rs. 80,62,000/-, and the same pattern of purported bogus bills and return of cheque amounts in cash. A comparative reading of (a) the Section 142(1) notice to the transporter, (b) the Section 133(6) notice to the petitioner, and (c) the Section 148/148A materials in the petitioner's case revealed that the very same transaction, figures and basis were being re-agitated.

2.7 The Court reasoned that in the reassessment of the transporter for AY 2019-20 the Assessing Officer had already formed an opinion, on the same material, that no addition was warranted on the allegation of cash return of Rs. 80,62,000/- to the petitioner. Initiating reassessment of the petitioner for AY 2019-20 on the identical issue and material necessarily meant revisiting and reviewing that opinion, which the Assessing Officer was not empowered to do.

2.8 The Court extended the "change of opinion" doctrine to these facts even though the assessees and/or assessment years differed, holding that where the same Assessing Officer, on the same material and in respect of the same alleged transaction between the same parties for the same assessment year (AY 2019-20), had already taken a view in one assessment (the transporter's), reopening another assessment (the petitioner's) on the identical ground is in substance a review of that earlier decision.

2.9 The Court also emphasized that when, on 26.08.2022, the Assessing Officer reassessed the petitioner for AY 2018-19 and the transporter for AY 2019-20, he had all relevant information about transactions between the petitioner and the transporter pertaining to AY 2019-20 yet did not initiate reopening of the petitioner for AY 2019-20 at that time, which further indicated that he had accepted that there was no issue of cash return.

Conclusions:

2.10 The Court held that the impugned reassessment proceedings against the petitioner for AY 2019-20 were clearly based on a prohibited "change of opinion", amounting to an impermissible review of an earlier decision on the same material and same transaction, and thus without jurisdiction.

2.11 On this ground, the notice under Section 148 and the consequential reassessment proceedings were held unsustainable and were set aside.

Issue 2: Maintainability of writ petition at the notice stage under Section 148

Legal framework (as discussed):

2.12 The Court referred to the principle that while ordinarily writ courts do not interfere at the stage of notice where statutory remedies exist, they may intervene in exceptional cases, particularly where there is a wrongful assumption of jurisdiction, arbitrary reopening, or violation of settled legal limits on reassessment. Reference was made to Calcutta Discount Co. and Jeans Knit (P) Ltd. v. CIT, where the Supreme Court recognized maintainability of writs challenging reassessment notices based on lack of jurisdiction.

Interpretation and reasoning:

2.13 The revenue contended, with reliance on Anshul Jain and other decisions, that the writ petition was premature and that the matter should proceed through the statutory assessment and appellate hierarchy, arguing that this case did not fall within the exceptions warranting writ interference.

2.14 The Court held that where reassessment is initiated not on "fresh material" but on the same material that had earlier been considered, the Assessing Officer lacks jurisdiction to reopen; such a case is one of wrongful assumption of jurisdiction, constituting an "exceptional circumstance" justifying writ intervention at the notice stage.

2.15 The Court reasoned that reassessment based on a mere change of opinion is itself an abuse of process and that, in such situations, Article 226 jurisdiction can and should be invoked without insisting upon exhaustion of alternate statutory remedies.

2.16 The Court distinguished the authorities cited by the revenue:

(a) The decision in Shri Shyam Sundar Dhanuka was said to involve a factual controversy requiring "deeper probe" and not a pure change-of-opinion issue; therefore, it did not govern the present situation.

(b) In M/s. Britannia Industries Limited, interference was declined because no exceptional circumstances were shown; by contrast, the present case involved clear jurisdictional error based on change of opinion.

(c) In Principal Commissioner of Income Tax, Kolkata-III, the original assessment order contained no formation of opinion, being entirely silent on the relevant liability; here, by contrast, the Assessing Officer had clearly dealt with the issue and dropped it.

(d) Anshul Jain was held inapplicable as the present case involved a direct challenge to the very assumption of jurisdiction in reopening on the same material.

Conclusions:

2.17 The Court concluded that the writ petition was maintainable at the stage of notice under Section 148 because the reassessment was initiated without jurisdiction, being founded on an impermissible change of opinion on the same material, and thus fell within the recognized exceptions permitting writ interference.

Issue 3: Effect of alleged "cryptic" prior assessment orders on the plea of change of opinion

Legal framework (as discussed):

2.18 The Court considered the nature of assessment proceedings as administrative/quasi-judicial rather than strictly judicial, with reference to S.S. Gadgil v. Lal & Co., which clarified that income tax authorities are administrative authorities tasked with estimating income under statutory machinery, and that assessment proceedings are not equivalent to a civil suit between the citizen and the State.

Interpretation and reasoning:

2.19 The revenue argued that the assessment/reassessment orders dated 26.08.2022 were "cryptic" and did not disclose how the replies of the transporter or the petitioner had been dealt with, and therefore no real opinion could be said to have been formed; on that premise, the bar of change of opinion would not apply.

2.20 The Court observed that both assessment orders specifically referred to the assessees' replies (even if briefly) and that the Assessing Officer, after issuing detailed notices and receiving detailed responses, chose not to make any addition on the issue of alleged cash return. This necessarily implied that the Assessing Officer had accepted the explanation and had formed an opinion that no addition was warranted on that ground.

2.21 The Court held that an assessment order need not elaborate reasons for every point accepted in favour of the assessee; where a query has been raised and answered and no addition is made on that point, the formation of an opinion is implicit. The brevity of the order, by itself, does not negate the existence of such opinion.

Conclusions:

2.22 The Court rejected the contention that the prior assessment orders were too cryptic to evidence any opinion. It found that an opinion had in fact been formed and the issue of cash return had been consciously dropped; hence, reopening on the same material and issue was barred as a change of opinion.

Issue 4: Challenge on ground of non-faceless reassessment (Section 151A)

Interpretation and reasoning:

2.23 The petitioner had also challenged the reassessment proceedings on the ground that the impugned notice was issued by the jurisdictional Assessing Officer instead of being issued in a faceless manner as contemplated by the scheme notified under Section 151A of the 1961 Act.

2.24 The Court expressly recorded that since the writ petition was being allowed on the ground of change of opinion and consequent lack of jurisdiction to reopen, the other ground of challenge, namely non-faceless issuance of notice, was not examined.

Conclusions:

2.25 No decision was rendered on the validity of the reassessment notice on the ground of alleged violation of the faceless regime under Section 151A; that issue was left open.

Overall Disposition

2.26 The Court held that the reopening notice under Section 148 and the reassessment proceedings initiated on that basis were unsustainable as they amounted to a prohibited change of opinion and a wrongful assumption of jurisdiction. The notice and proceedings were set aside, and the writ petition was allowed, without any order as to costs.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal under Section 260A of the Income Tax Act, the Tribunal was justified in rejecting additional evidence in the form of confirmation letters of partners and related documents without further enquiry.

1.2 Whether the Tribunal was justified in sustaining addition of Rs. 33,00,000/- as unexplained cash deposits under Section 69A of the Income Tax Act on the ground that the assessee failed to establish the genuineness and source of alleged capital contribution from partners.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Justification for rejecting additional evidence and sustaining addition under Section 69A

Legal framework (as discussed)

2.1 The appeal was filed under Section 260A of the Income Tax Act, raising a substantial question of law as to whether the Tribunal was justified in rejecting additional evidence (confirmation letters of partners of a firm) and consequently in sustaining the addition of Rs. 33,00,000/- made under Section 69A towards unexplained cash deposits.

Interpretation and reasoning

2.2 The assessee claimed that cash deposits of Rs. 33,00,000/- were received as capital contribution from partners of a partnership firm and were deposited into his bank account.

2.3 The Tribunal noted that the partnership deed did not contain any recital regarding capital contribution by the partners, despite the assessee's claim that an amount of Rs. 35,40,000/- was introduced as capital of the firm.

2.4 The Tribunal further observed that there was no explanation why the alleged capital contribution of partners to the firm was deposited into the individual bank account of the assessee instead of the bank account of the partnership firm.

2.5 In dealing with the additional evidence, the Tribunal considered the confirmation letters of the partners and the claim that the funds came from agricultural income. It held that:

(a) Creditworthiness of the partners was not established.

(b) Agricultural income of the partners was not substantiated.

(c) The deposits were in the assessee's personal account and not in the firm's account.

2.6 The Court found that the contention that the Tribunal had "overlooked" the additional evidence was incorrect. It held that the Tribunal had in fact addressed the sufficiency and credibility of the confirmation letters and related material, and gave reasons for not accepting them.

2.7 The Court characterised the issue as a mixed question of fact and law and examined the Tribunal's reasoning with reference to:

(a) Absence of any clause on capital contribution in the partnership deed.

(b) Unexplained routing of alleged capital contribution through the assessee's personal bank account rather than the firm's bank account.

2.8 On this basis, the Court held that the Tribunal had "properly addressed" and appreciated the additional evidence and its rejection was supported by reasons that were germane to the issue of genuineness of the source of funds.

Conclusions

2.9 The substantial question of law was answered against the assessee. The Tribunal was held to be justified in:

(a) Rejecting the additional evidence (confirmation letters and related documents) as insufficient to prove the partners' creditworthiness and the genuineness of the alleged capital contribution.

(b) Sustaining the addition of Rs. 33,00,000/- as unexplained cash deposits under Section 69A of the Income Tax Act.

2.10 The Court held that the Tribunal's appreciation of the additional evidence was in accordance with law and that the impugned order did not warrant interference. The appeal was dismissed without costs.

Issues: Whether dividend distribution tax paid by a domestic company on dividends paid to a United Kingdom resident shareholder is governed by Article 11 of the India-UK tax treaty so as to restrict the tax rate to 10% instead of the rate under section 115-O of the Income-tax Act, 1961.

Analysis: The dividend paid by the domestic company was held to remain dividend income notwithstanding the shift of the incidence of collection of tax from the shareholder to the company. The legislative history of section 115-O showed that the levy was introduced and reintroduced as a mode of collection for administrative convenience, but the nature of the underlying receipt as dividend did not change. Since section 2(24) of the Income-tax Act, 1961 treats dividend as income and section 90 gives effect to a more beneficial treaty provision, the India-UK treaty was required to be applied on its own terms. Article 1 extends the convention to residents of one or both contracting states, Article 2 covers income-tax and substantially similar taxes, and Article 11 specifically governs dividends. The treaty language was found to apply to dividend paid by a resident of India to a resident and beneficial owner in the United Kingdom, with the source state's taxing right capped at 10% under Article 11(2)(b). The authority below erred in treating DDT as outside the treaty merely because it was collected from the domestic company.

Conclusion: The tax on dividends paid to the United Kingdom resident shareholder is restricted by Article 11 of the India-UK treaty, and the company is entitled to the 10% treaty rate.

Ratio Decidendi: Where a domestic levy is in substance tax on dividend income and the applicable tax treaty specifically regulates dividend taxation, section 90 requires the treaty cap to prevail over the higher domestic rate to the extent it is more beneficial to the assessee.

Issues: Whether the exemption under Section 10(23BBA) of the Income-tax Act, 1961 applies to the income of temples and religious endowments administered by statutory bodies, or only to the income of the bodies or authorities constituted under the relevant enactment.

Analysis: Section 10(23BBA) exempts only the income of a body or authority established, constituted or appointed under a Central, State or Provincial Act for administering public religious or charitable trusts or endowments. The proviso clarifies that the income of the trust, endowment or society itself is not exempt. The scheme of the Madras Hindu Religious and Charitable Endowments Act, 1951 shows that the temple properties and resulting income belong to the deity or the temple, while the administrative body functions only as the manager. The exemption under Section 10(23BBA) is therefore confined to the statutory body's own income and does not extend to the income of the temple or endowment merely because it is administered by such body. The availability of exemption under Sections 11, 12 and 12A of the Income-tax Act, 1961 for religious and charitable institutions reinforces this construction.

Conclusion: The exemption under Section 10(23BBA) is not available to the income of temples or religious endowments administered by statutory bodies, though the statutory body itself may claim the exemption if its own income and the statutory conditions are established.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings under sections 147/144/144B are vitiated for non-issuance of mandatory notice under section 143(2) of the Act after filing/consideration of the return in response to notice under section 148.

1.2 Whether the objection regarding non-issuance of notice under section 143(2), not raised before the Assessing Officer or the first appellate authority, can be entertained as a jurisdictional ground before the Tribunal.

1.3 Consequential effect on the additions made under section 69C and on account of difference between receipts as per Form 26AS and income declared in the return, once the reassessment order is held invalid for want of notice under section 143(2).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment for non-issuance of notice under section 143(2)

(a) Legal framework (as discussed)

2.1 The Tribunal noted that under the law, a notice under section 143(2) is required to be issued even in reassessment proceedings initiated under section 147, and failure to issue such notice vitiates the reassessment proceedings and renders the reassessment order invalid.

2.2 Reliance was placed on the decision of the jurisdictional High Court which held that absence of notice under section 143(2) creates a jurisdictional defect, not cured by section 292BB, and that the requirement of such notice is mandatory even in reassessment.

(b) Interpretation and reasoning

2.3 The Tribunal examined the assessment records and found that the Assessing Officer had issued notice under section 142(1) and treated the assessee's reply thereto as a response to notice under section 148. The assessment was framed under sections 147/144/144B.

2.4 It was the specific case of the assessee that no notice under section 143(2) was ever issued during the reassessment proceedings. To substantiate this, the assessee produced the e-filing portal records, which did not reflect issuance or communication of any notice under section 143(2).

2.5 The Department failed to produce any document to show that a notice under section 143(2) had been issued or served on the assessee.

2.6 Referring to the jurisdictional High Court judgment, the Tribunal endorsed the following propositions extracted therein:

(i) Absence of notice under section 143(2) in reassessment proceedings is a jurisdictional defect rendering the proceedings invalid.

(ii) After a return is filed or treated as filed in response to notice under section 148, it is mandatory for the Assessing Officer to issue notice under section 143(2); failure to do so invalidates the reassessment.

(iii) Section 292BB cures only defects in "service" of a notice that has been issued; it does not cure a complete "failure to issue" notice under section 143(2).

(iv) The requirement to issue notice under section 143(2) cannot be viewed as a mere procedural irregularity and is not dispensable.

2.7 Applying these principles, the Tribunal held that, in the absence of any evidence of issuance or service of notice under section 143(2), the reassessment order was hit by a jurisdictional defect.

(c) Conclusions

2.8 The Tribunal held that non-issuance of mandatory notice under section 143(2) in reassessment proceedings under section 147 vitiated the entire reassessment and rendered the assessment order invalid in law.

2.9 On this ground alone, the reassessment order and the order of the first appellate authority were set aside.

2.10 The Tribunal, however, reserved liberty to the Revenue to file an appropriate application for recall of this order if it is subsequently able to produce tangible material demonstrating that a mandatory notice under section 143(2) was indeed issued and served on the assessee.

Issue 2: Entertaining jurisdictional ground not raised before lower authorities

(a) Interpretation and reasoning

2.11 The Departmental Representative argued that the ground regarding non-issuance of notice under section 143(2) was raised for the first time before the Tribunal and was not taken before the Assessing Officer or the first appellate authority, and therefore should not be entertained.

2.12 The Tribunal proceeded to examine and decide the ground on merits, treating the requirement of notice under section 143(2) as a jurisdictional condition going to the root of the validity of the reassessment.

2.13 By adjudicating the issue and setting aside the assessment on this ground, the Tribunal implicitly accepted that such a jurisdictional objection can be raised and considered even if taken for the first time before the Tribunal.

(b) Conclusions

2.14 The Tribunal entertained the assessee's objection regarding non-issuance of notice under section 143(2) as a pure question of law affecting jurisdiction, notwithstanding the fact that it had not been raised before the Assessing Officer or the first appellate authority.

Issue 3: Consequential effect on additions made in reassessment

(a) Interpretation and reasoning

2.15 The Revenue's appeal challenged deletion of additions made (i) under section 69C on account of alleged bogus purchases from a shell entity, and (ii) on account of difference between receipts as per Form 26AS and turnover declared in the return.

2.16 Since the reassessment order itself was held to be invalid for want of mandatory notice under section 143(2), the foundation for all additions made therein stood vitiated.

(b) Conclusions

2.17 The Cross Objection was allowed, the reassessment order and the order of the first appellate authority were set aside as invalid.

2.18 As a consequence, the Revenue's appeal against the deletions of additions became infructuous and was dismissed accordingly.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings under section 147 for Assessment Year 2011-12, initiated on the basis of an unsigned notice issued under section 148, were valid in law.

1.2 Whether, for Assessment Year 2011-12, additions made under sections 68 and 69 towards alleged unexplained cash credits and unexplained investments were sustainable where the assessee had furnished confirmations, financials, bank statements of the lender and had repaid the loan through banking channels.

1.3 Whether reassessment proceedings under section 147 for Assessment Year 2012-13 were vitiated when the notice under section 143(2) was issued before the recorded reasons for reopening were supplied/communicated to the assessee, thereby denying an effective opportunity to challenge the assumption of jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reassessment based on unsigned notice under section 148 (A.Y. 2011-12)

Legal framework (as discussed)

2.1 The Court examined the requirement that a notice under section 148 must bear the signature (manual or digital) of the issuing officer, and relied on the decision of the Bombay High Court which held that absence of any such signature renders the notice invalid and non est, and consequently vitiates all subsequent proceedings.

Interpretation and reasoning

2.2 The assessee produced the impugned notice under section 148 dated 31/03/2018, placed in the paper book, showing that it did not bear any digital or manual signature of the Assessing Officer.

2.3 The Court noted that the notice was completely unsigned and, following the Bombay High Court precedent, held that such an unsigned notice does not confer any jurisdiction on the officer to proceed with reassessment and is invalid in law.

Conclusions

2.4 The notice issued under section 148 being unsigned was held to be non est and invalid; consequently, the reassessment order passed under section 147 read with section 144 for Assessment Year 2011-12 was liable to be quashed. Ground relating to this objection was allowed.

Issue 2 - Sustainability of additions under sections 68 and 69 where loan documentation and repayment established (A.Y. 2011-12)

Legal framework (as discussed)

2.5 The Court proceeded on the settled requirement under section 68 that the assessee must establish identity of the creditor, creditworthiness and genuineness of the transaction. It relied on a co-ordinate Bench decision which held that where loan transactions are supported by cogent evidence, and especially where the loans have been repaid, additions under sections 68 and related additions (including under section 69/69C) are not justified.

Interpretation and reasoning

2.6 The assessee had furnished before the Assessing Officer and again before the Court:

(i) confirmation of accounts of the lender,

(ii) income-tax return acknowledgments of the lender,

(iii) bank statements of the lender, and

(iv) audited financial statements of the lender,

to establish identity, creditworthiness and genuineness of the loan transaction.

2.7 The assessee also produced a chart and supporting bank records showing receipt of loan and its repayment through banking channels, including repayment of Rs. 2.75 crores within the same financial year.

2.8 The Court recorded that these documents were on record and that repayment of the loan had in fact taken place, thereby discharging the primary onus cast on the assessee under section 68.

2.9 Relying on the co-ordinate Bench ruling in a similar factual situation, the Court held that:

(a) no further obligation existed on the assessee to prove "source of source" for loan transactions for the relevant year; and

(b) the factum of full repayment, backed by bank trail and returns of the lender, dispelled any presumption of accommodation entry or unexplained cash credit, and rendered additions under sections 68 and 69 unsustainable.

Conclusions

2.10 Since the assessee had produced cogent evidence to establish identity, creditworthiness, genuineness, and had repaid the loan through banking channels, the additions made under sections 68 (unexplained cash credit of Rs. 2.75 crores) and 69 (unexplained investment of Rs. 7,20,34,392/-) and sustained by the first appellate authority were deleted in full. Grounds on merits relating to these additions were allowed.

2.11 In view of the deletion of the additions and the setting aside of the assessment, the remaining jurisdictional and other grounds for Assessment Year 2011-12 were held to be academic and were not adjudicated.

Issue 3 - Validity of reassessment where notice under section 143(2) was issued before supply of recorded reasons (A.Y. 2012-13)

Legal framework (as discussed)

2.12 The Court considered the procedural requirement that, after issuance of notice under section 148, the assessee is entitled to be furnished with the reasons recorded for reopening, so as to enable the assessee to object to the assumption of jurisdiction. Issuance of notice under section 143(2) and further assessment proceedings prior to supplying such reasons undermines this safeguard and vitiates the reassessment.

Interpretation and reasoning

2.13 The assessee requested the Assessing Officer, by letter dated 03/06/2019, to provide the reasons recorded for initiating proceedings under section 147.

2.14 The notice under section 143(2) was issued on 20/09/2019, i.e., prior to the date on which the Assessing Officer claimed in the assessment order to have provided the reasons (05/12/2019 along with notice under section 142(1)).

2.15 The assessee specifically denied receipt of any such reasons or notice on 05/12/2019; however, even assuming reasons were supplied on that date, they were admittedly furnished after issuance of the notice under section 143(2).

2.16 The Court held that issuing notice under section 143(2) before communicating the recorded reasons deprived the assessee of the right to challenge the very assumption of jurisdiction under section 147 and constituted a blatant violation of the procedural safeguards built into the Act.

Conclusions

2.17 The reassessment proceedings for Assessment Year 2012-13, having been conducted with a notice under section 143(2) issued prior to supply of the recorded reasons, were held to be invalid. The assessment order under section 147 and the order of the first appellate authority were set aside. Ground on this jurisdictional defect was allowed.

2.18 Consequent to the setting aside of the reassessment on this ground, all other grounds on merits and on other jurisdictional issues for Assessment Year 2012-13 were treated as infructuous and were not adjudicated.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the Principal Commissioner was competent to invoke revisional jurisdiction under section 263 in respect of additions arising from alleged bogus purchases and accommodation entries when the same matter was already the subject of a pending appeal before the appellate authority, in view of Explanation 1(c) to section 263.

1.2 Whether the assessment order restricting the addition on bogus purchase and sale transactions to commission income at 0.5% of the transaction value, based on incriminating material and statement of the director, was "erroneous and prejudicial to the interests of the Revenue" so as to justify revision under section 263.

1.3 Whether failure by the Assessing Officer to levy or compute interest under section 234A on delayed filing of the return in response to notice under section 153C could be revised under section 263, where this issue was not the subject matter of appeal and had not been examined in the assessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Scope of section 263 when same issue is pending in appeal; nature of AO's order on bogus purchases and commission addition

Legal framework (as discussed)

2.1 The judgment refers to section 263(1) and Explanation 1(c), which provides that where an order of the Assessing Officer "has been the subject matter of any appeal ... the powers of the Principal Commissioner or Commissioner under this sub-section shall extend ... to such matters as had not been considered and decided in such appeal."

2.2 The assessee relied on Explanation 1(c) and judicial precedents to contend that matters forming the subject matter of appeal cannot be revised under section 263, and that section 263 can apply only to issues not considered and decided (or pending consideration) in such appeal.

Interpretation and reasoning

2.3 The assessment was framed under section 153C on the basis of incriminating material found during search in another case and the statement of the assessee's director, who admitted that purchases and sales through entities controlled by a third party were bogus and that the assessee earned commission @ 0.5% of the transaction value.

2.4 The Assessing Officer, after enquiry, accepted that both purchases and sales were bogus accommodation entries, and made an addition only of 0.5% of the value of the non-genuine transactions as commission income under section 69C.

2.5 The assessee filed an appeal before the appellate authority challenging the assessment order, specifically on the issue of addition on account of commission on bogus purchases and the underlying transactions with the concerned entities.

2.6 The Principal Commissioner, on examining the record, formed the view that the Assessing Officer ought to have added the entire value of bogus purchases as unexplained expenditure under section 69C and taxed it under section 115BBE, instead of restricting the addition to commission income. On this basis, proceedings under section 263 were initiated and the addition was enhanced to the full purchase value.

2.7 The Tribunal noted, on the basis of the paper book and appeal documents, that:

(a) the issue of bogus purchases and corresponding sales, and the quantum/nature of addition thereon, were already under challenge before the appellate authority;

(b) the very same issue of treatment and quantum of addition in respect of bogus purchases and accommodation entries was the foundation for the Principal Commissioner's exercise of jurisdiction under section 263.

2.8 Applying Explanation 1(c) to section 263, the Tribunal held that once an order of the Assessing Officer has become the subject matter of appeal, the revisional powers can extend only to matters "not considered and decided in such appeal", and cannot be invoked on issues which are already part of the appeal proceedings.

2.9 The Tribunal further observed that the incriminating material and the director's statement indicated both bogus purchases and bogus sales. The Assessing Officer had accepted the director's disclosure that only commission at 0.5% was actually earned on these paper transactions, and made an addition accordingly. The Principal Commissioner, however, sought to treat the entire purchase value as unexplained expenditure without addressing the fact that bogus sales were also recorded, which were part of the same pattern of accommodation entries.

2.10 In this backdrop, the Tribunal treated the Assessing Officer's approach-of taxing only the commission income arising from the accommodation entries-as a possible and plausible view taken after enquiry, and considered the Principal Commissioner's attempt to substitute his own conclusion on the same issue (already in appeal) as going beyond the permissible ambit of section 263.

Conclusions

2.11 The Tribunal concluded that, in terms of Explanation 1(c) to section 263, the Principal Commissioner could not invoke revisional jurisdiction on the issue of bogus purchases/accommodation entries and the related quantum of addition, since that very issue was already the subject matter of a pending appeal before the appellate authority.

2.12 The exercise of jurisdiction under section 263 to enhance the addition from 0.5% commission to the entire amount of purchases under section 69C was held to be bad in law and unsustainable.

2.13 Consequently, the revisional order under section 263 was quashed to the extent it related to enhancement of income on account of bogus purchases and commission/addition under section 69C and section 115BBE for the relevant assessment years.

Issue 3: Revisional jurisdiction under section 263 in respect of non-levy / non-computation of interest under section 234A

Legal framework (as discussed)

3.1 The Principal Commissioner, while examining the assessment record, also noted that notice under section 153C required the assessee to file a return within 10 days; however, the assessee filed the return after about two months' delay and no interest under section 234A was charged in the assessment.

3.2 The assessee contended that non-levy or wrong computation of interest under section 234A was at most a "mistake apparent from record" rectifiable under section 154 and did not constitute an "erroneous" order in the jurisdictional sense required for section 263. It argued that conflating rectification under section 154 with revision under section 263 would render the distinction between the two provisions otiose.

Interpretation and reasoning

3.3 The Tribunal noted that, unlike the issue of bogus purchases and accommodation entries, the Assessing Officer had not dealt with the levy of interest under section 234A in the assessment order, and this question was not raised in the grounds of appeal before the appellate authority.

3.4 It held that, being a distinct and new issue, not forming part of the appeal and not previously examined by the Assessing Officer, it fell within the residual field open to the Principal Commissioner under Explanation 1(c) to section 263.

3.5 On this reasoning, the Tribunal differentiated between the barred field (issues already the subject matter of appeal) and the open field (issues not considered or decided in appeal). The non-levy/non-computation of interest under section 234A was treated as falling in the latter category.

Conclusions

3.6 The Tribunal held that, to the extent the Principal Commissioner invoked section 263 on the issue of interest under section 234A-an issue not before the appellate authority and not dealt with in the assessment order-such initiation of revisional proceedings could be sustained.

3.7 Accordingly, while the revisional order was quashed in respect of enhancement on bogus purchases and commission, the Tribunal upheld (and allowed to proceed) the direction of the Principal Commissioner requiring recomputation/levy of interest under section 234A.

3.8 The assessee's appeals were thus partly allowed: revision under section 263 was set aside on the additions relating to bogus purchases/accommodation entries, but sustained on the distinct issue of interest under section 234A for all three assessment years, applying the same reasoning mutatis mutandis.

Issues: (i) Whether cement imported and sold exclusively to industrial or institutional consumers is eligible for Sl. No. 1C benefit under Notification No. 4/2006-CE irrespective of packaging and printed retail sale price; (ii) whether Revenue can adopt the contemporaneous retail sale price of domestic cement to re-fix the retail sale price of imported cement; (iii) whether the extended period under proviso to Section 28 of the Customs Act, 1962 is invokable; and (iv) whether equal penalty under Section 114A of the Customs Act, 1962 is sustainable.

Issue (i): Whether cement imported and sold exclusively to industrial or institutional consumers is eligible for Sl. No. 1C benefit under Notification No. 4/2006-CE irrespective of packaging and printed retail sale price.

Analysis: The benefit under Sl. No. 1C turned on the nature of the clearances and the class of buyers, not on packaging alone. The record did not show any retail sale, distributor sale, or sale to non-industrial buyers. The mere fact that the cement was imported in 50 kg bags or carried a printed retail sale price did not convert bulk industrial or institutional supplies into retail sales. In the absence of evidence of retail marketability, the denial of the concessional entry only on the basis of packaging was unsustainable.

Conclusion: The issue is answered in favour of the assessee. Eligibility under Sl. No. 1C was available.

Issue (ii): Whether Revenue can adopt the contemporaneous retail sale price of domestic cement to re-fix the retail sale price of imported cement.

Analysis: The retail sale price relevant for valuation had to be the retail sale price of the imported goods, not that of domestically manufactured cement. No material was produced to show that the importer actually sold the goods at a higher retail sale price than declared. The attempt to substitute the declared price of imported goods with the domestic market price lacked factual foundation and legal basis.

Conclusion: The issue is answered in favour of the assessee. Revenue could not re-fix the retail sale price by reference to domestic cement.

Issue (iii): Whether the extended period under proviso to Section 28 of the Customs Act, 1962 is invokable.

Analysis: The import documents were disclosed, the printed price particulars were available, the buyers were declared, and clearance had been granted after customs verification. The dispute was one of interpretation of the notification and valuation entry, and no deliberate suppression, fraud, or wilful misstatement was established. In these circumstances, the extended limitation could not be applied.

Conclusion: The issue is answered in favour of the assessee. The extended period was not invokable.

Issue (iv): Whether equal penalty under Section 114A of the Customs Act, 1962 is sustainable.

Analysis: The penalty provision was invoked on the footing of the duty demand and the alleged extended-period case. Once the demand failed on merits and limitation, the foundation for equal penalty disappeared. No mens rea or deliberate suppression was established to independently support the penalty.

Conclusion: The issue is answered in favour of the assessee. Equal penalty under Section 114A was unsustainable.

Final Conclusion: The impugned order confirming differential duty, interest, and penalty was set aside, and the appeal was allowed with consequential reliefs.

Ratio Decidendi: For concessional customs duty valuation under a notification entry governed by buyer category, the decisive factor is the actual nature of the supply and buyer class, not packaging alone; in the absence of evidence of retail sale or suppression, the extended period and consequential penalty cannot be sustained.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the imposition of penalty under Section 112(a) and (b) of the Customs Act, 1962 on a Customs Broker, for alleged involvement in clearance of goods under forged DFRC licences, is sustainable in the absence of proof of knowledge, common design, or intentional aiding/abetting of the fraud.

1.2 Whether alleged violations of the Custom House Agents Licensing Regulations, 2004 (CHALR 2004), by themselves, justify the imposition of penalties under the Customs Act, 1962 on a Customs Broker.

1.3 Whether the departmental appeal seeking enhancement of penalty under Section 114A of the Customs Act, 1962 survives once the penalty against the Customs Broker is set aside and the order against the main noticee has attained finality.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Penalty on Customs Broker under Sections 112(a)/(b) based on alleged DFRC fraud and CHALR violations

Legal framework (as discussed)

2.1 The charge against the Customs Broker was that he had "knowingly aided, abetted and colluded" with another individual in using forged DFRC licences for monetary consideration, thereby rendering himself liable to penalty under Section 112(a) and 112(b) of the Customs Act, 1962, in addition to separate proceedings under CHALR 2004 (Rule 13(a), (d) and (e).

2.2 The Tribunal referred to a coordinate Bench decision in M/s. Meticulous Forwarders v. Commissioner of Customs, which held that even if omissions/commissions of a Customs Broker facilitate clandestine clearance, a penalty under the Customs Act requires proof that the act was done with common intention to commit an illegal act, or that the Customs Broker had a stake in the outcome of the illegality; mere breach of Regulations is not sufficient.

Interpretation and reasoning

2.3 The Court noted that the factual allegations against the Customs Broker included: processing eight consignments under the DFRC scheme for an importer; interaction with an intermediary (Deepak Bajaj) rather than the actual proprietor; acceptance of documents, DFRC licences, TRAs, and payments from the intermediary; receipt of substantial amounts in cash and through bank deposits arranged by the intermediary; doubts regarding the genuineness of the licence holder; failure to verify the importer's address despite having staff in Mumbai; and arranging hotel accommodation under fictitious names for persons connected with the intermediary.

2.4 The Court held that, despite these circumstances, there was no material in the impugned order establishing that the Customs Broker had knowledge of the forged nature of the DFRC licences, or that there was a meeting of minds or a common design with the intermediary to commit a blameworthy act.

2.5 The Court emphasised that where the allegation is that a person has "knowingly done a blameworthy act", the department must prove: (i) knowledge that the act is illegal or that a legal act is being done by illegal means; and (ii) in cases of alleged collusion, a meeting of minds with the other participant(s). These elements were not proved.

2.6 Acts such as meeting individuals, accepting money into bank accounts, not depositing cheques, dealing with an importer's intermediary, transmitting documents via the intermediary, and arranging shipment as per the intermediary's instructions were held insufficient, by themselves, to constitute evidence of aiding, abetting, or conspiring in the illegal use of forged DFRC licences.

2.7 The Court also noted that the Show Cause Notice, in substance, limited the allegations against the Customs Broker to violations of CHALR 2004, specifically Rule 13(a), (d) and (e), thereby underscoring that the core charge was regulatory non-compliance rather than proven participation in fraud.

2.8 Applying the coordinate Bench ruling in M/s. Meticulous Forwarders, the Court held that where the legislature has made a special law in the form of Regulations for Customs Brokers, mere failure to comply with those Regulations, even if others make unlawful use of such failure, does not automatically attract penal provisions under the Customs Act. For such penalty, it must be shown that the Customs Broker acted with common intention to commit an illegal act or had a stake in the illicit outcome, which was not established in this case.

2.9 The Court reiterated the "presumption of innocence" as a background assumption of the legal system and held that findings based merely on assumptions and presumptions, without concrete proof of knowledge and intentional participation, are not sustainable in law.

Conclusions on Issue 1 & 2

2.10 The Court concluded that there was no substantiated evidence that the Customs Broker knowingly aided, abetted, or colluded in the use of forged DFRC licences, or that there was a common design with the intermediary.

2.11 The Court further held that alleged breaches of CHALR 2004, by themselves, cannot sustain a penalty under Section 112 of the Customs Act, 1962, in the absence of proof of common intention or stake in the illegality.

2.12 Consequently, the penalty imposed on the Customs Broker under Section 112(a) and (b) was held unsustainable and the portion of the impugned order relating to him was set aside, with consequential relief as per law.

Issue 3: Survival of departmental appeal for enhancement of penalty under Section 114A

Interpretation and reasoning

2.13 The Court recorded that the main noticee had not appealed against the impugned order, which had therefore attained finality in its case. The departmental appeal was confined to enhancement of penalty under Section 114A of the Customs Act, 1962 to an amount equal to the customs duty and interest.

2.14 The Court held that once the penalty against the Customs Broker was found not sustainable and was set aside, the departmental appeal for enhancement of penalty under Section 114A "does not survive".

Conclusions on Issue 3

2.15 The departmental appeal seeking enhancement of penalty under Section 114A was rejected as not surviving in view of the setting aside of penalty against the Customs Broker and the finality of the order against the main noticee.

2.16 Both appeals were disposed of accordingly: the Customs Broker's appeal was allowed, and the Revenue's appeal was rejected.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the application for advance ruling was maintainable under Sections 28E and 28I of the Customs Act, 1962, and not hit by the bar relating to pending proceedings.

1.2 What is the correct tariff classification of "Rotor-Gene Q 5plex HRM Platform" and "QIAquant 96 5plex (230 V)" under Heading 9027 of the Customs Tariff Act, 1975, specifically whether they fall under sub-heading 9027 30 10 as "spectrometers" or under sub-heading 9027 50 90 as "other instruments and apparatus using optical radiations (UV, visible, IR)".

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Maintainability of the application for advance ruling

2.1 Legal framework

2.1.1 The Court referred to Section 28E(c) of the Customs Act, 1962, defining "applicant" as including a person holding a valid Importer-Exporter Code under Section 7 of the Foreign Trade (Development and Regulation) Act, 1992.

2.1.2 The Court also considered Section 28H regarding the permissible questions for advance ruling, and Section 28I(2) proviso which bars admission where the same question is pending or already decided in the applicant's case by customs authorities, the Appellate Tribunal or any Court.

2.2 Interpretation and reasoning

2.2.1 The Court noted that the applicant held a valid IEC and thus satisfied the definition of "applicant" under Section 28E(c)(i).

2.2.2 It was observed that the question raised concerned classification of imported goods, which falls squarely within Section 28H(2)(b).

2.2.3 On examination of the records and the comments of the jurisdictional Commissionerate, the Court found that no dispute or proceeding on the same question was pending before any customs officer, Tribunal, or Court, nor had the same question been adjudicated earlier in the applicant's case.

2.3 Conclusions

2.3.1 The application fulfilled the statutory conditions under Sections 28E and 28H and was not hit by the bar under Section 28I(2). The Court therefore held the application to be valid and proceeded to decide the question of classification on merits.

Issue 2 - Correct classification of Rotor-Gene Q 5plex HRM Platform and QIAquant 96 5plex (230 V)

2.4 Legal framework

2.4.1 The Court applied the General Rules for the Interpretation of the First Schedule to the Customs Tariff (GRI), in particular:

(a) Rule 1: classification to be determined according to the terms of the headings and any relevant Section or Chapter Notes;

(b) Rule 3(a): when goods are prima facie classifiable under two or more headings, the most specific description is preferred;

(c) Rule 3(b) and 3(c): dealing with composite goods and fallback classification when specific description does not resolve the issue.

2.4.2 The Court referred to Heading 9027, covering "Instruments and apparatus for physical or chemical analysis ... instruments and apparatus for measuring or checking quantities of heat, sound or light (including exposure meters); microtomes". Within this heading, the competing sub-headings considered were:

(a) 9027 30 - "Spectrometers, spectrophotometers and spectrographs using optical radiations (UV, visible, IR)";

9027 30 10 - Spectrometers;

(b) 9027 50 - "Other instruments and apparatus using optical radiations (UV, visible, IR)";

9027 50 90 - Other.

2.4.3 The Court noted the interpretative value of the HSN Explanatory Notes to Heading 9027 as a recognised guide, consistently approved by the Supreme Court.

2.4.4 The Court also referred to the principle governing use of residuary entries, as laid down in Commissioner of Commercial Tax, U.P. v. A.R. Thermosets Pvt. Ltd., that a residuary heading can be applied only when the goods clearly fall outside any specific entry and revenue must establish that the goods cannot be brought under any specific tariff item.

2.5 Interpretation and reasoning

A. Nature and principal function of the imported devices

2.5.1 From technical literature and submissions, the Court found that "Rotor-Gene Q 5plex HRM Platform" is a rotary-based real-time PCR cycler intended for high-precision molecular biology applications such as HRM analysis, FRET, genotyping, pathogen detection and quantitative methylation analysis. It incorporates:

(a) a rotary mechanism where tubes spin in a chamber of moving air to ensure precise and uniform temperature for thermal cycling;

(b) a temperature-controlled chamber enabling denaturation, annealing and extension cycles of nucleic acids;

(c) LED excitation sources and optical detection components which excite fluorophores and collect emitted fluorescence through filters and a photomultiplier; and

(d) analytical software for PCR data analysis, quantification and assay interpretation.

2.5.2 The Court held that the rotational and thermal-cycling systems are integral processing functions, not incidental features; the device performs complete PCR amplification workflows, with spectral detection being only one part of a broader analytical process.

2.5.3 As regards "QIAquant 96 5plex (230 V)", the Court recorded that it is a block-based real-time PCR cycler with up to 384 wells, designed for gene expression analysis, genotyping, pathogen detection, DNA methylation analysis and gene scanning. It includes:

(a) a thermal block supporting gradient PCR;

(b) a patented fibre-optic shuttle system that scans above samples, providing homogeneous excitation and recording emitted fluorescence;

(c) multi-colour LED excitation (blue, green, white, red, far-red) transmitted via optical fibres and filters; and

(d) software (Q-Rex) for absolute quantification, melt-curve analysis and endpoint detection.

2.5.4 The Court noted that in both devices, optical radiation (UV/visible) is used to excite fluorescent dyes and measure emitted signals, but the instruments do not primarily perform spectral decomposition in the classical spectrometer sense; the optical subsystem is embedded within a comprehensive PCR amplification and analytical platform.

B. Whether the devices are "spectrometers" under 9027 30 10

2.5.5 Referring to the HSN Explanatory Notes, the Court noted that spectrometers under Heading 9027 are instruments used to measure wavelengths of emission and absorption spectra, typically comprising adjustable slit collimators, prisms or diffraction gratings, telescopes and prism tables, whose essential function is to resolve and measure spectral components of light.

2.5.6 The Court observed that, in the impugned devices, the light sources (LEDs) serve only as excitation tools to activate fluorophores in PCR reaction mixtures; the emitted light is detected through filters and photomultipliers to derive fluorescence intensity data. The instruments do not isolate, scan and resolve wavelengths in the manner of dedicated spectrometers; rather, the optical detection is subordinate to, and integrated within, a PCR amplification and quantitative analysis workflow.

2.5.7 On this basis, the Court found that description of these devices as "spectrometers" in some product or party literature is merely generic and does not align with the technical and tariff-specific meaning of "spectrometers" in sub-heading 9027 30 10.

C. Applicability of sub-heading 9027 50 90 - "Other instruments and apparatus using optical radiations"

2.5.8 The Court held that Heading 9027, read with sub-heading 9027 50, clearly covers instruments and apparatus which use optical radiations (UV, visible, IR) as part of their functioning, even where optical measurement is not the sole or principal function but forms an integral component of a more complex analytical instrument.

2.5.9 It was specifically found that:

(a) both Rotor-Gene Q and QIAquant 96 use optical radiation to excite dyes and detect emitted fluorescence;

(b) the fluorescence detection is one of several coordinated subsystems (thermal, mechanical, optical, software-based) that together carry out real-time PCR amplification and analysis; and

(c) the dominant character of the goods is that of "multi-functional analytical apparatus for molecular biology, employing optical radiation in the process", and not that of standalone spectrometers.

2.5.10 Applying GRI Rule 1, the Court concluded that the goods cannot be wholly and exclusively covered by the sub-heading for spectrometers (9027 30 10). The more accurate heading is the one that describes "other instruments and apparatus using optical radiations", viz. 9027 50.

2.5.11 Applying GRI Rule 3(a), where there is prima facie competition between 9027 30 and 9027 50, the Court held that, given the composite and multi-functional nature of the goods and the subservient role of spectral detection, sub-heading 9027 50 90 provides the more appropriate and specific legal description for these devices than 9027 30 10.

D. Use of residuary sub-heading 9027 50 90

2.5.12 The Court recognised that 9027 50 90 is a residuary sub-heading within the group "other instruments and apparatus using optical radiations". Relying on the principle set out in A.R. Thermosets, the Court examined whether the goods genuinely fall outside the specific spectrometer entry (9027 30 10).

2.5.13 In light of the technical features and principal function of the devices, the Court found that they do not conform to the narrow, specific scope of spectrometers under 9027 30 10; instead, they clearly belong to the broader class of other optical-using analytical instruments envisaged by 9027 50.

2.5.14 The Court therefore held that resort to the residuary sub-heading 9027 50 90 is justified, as the specific spectrometer sub-heading does not accurately cover the imported goods.

2.6 Conclusions

2.6.1 Rotor-Gene Q 5plex HRM Platform and QIAquant 96 5plex (230 V) are real-time PCR cyclers integrating thermal, mechanical, optical and software subsystems for molecular analytical workflows; their optical detection modules are not standalone spectrometers, but components of broader analytical instruments.

2.6.2 The devices do not fall within the strict spectrometer category under sub-heading 9027 30 10; instead, they are more appropriately classified as "other instruments and apparatus using optical radiations (UV, visible, IR)" under sub-heading 9027 50.

2.6.3 Specifically, both Rotor-Gene Q 5plex HRM Platform and QIAquant 96 5plex (230 V) are classifiable under Tariff Item 9027 50 90 of the Customs Tariff Act, 1975.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the advance ruling application was maintainable in view of a prior investigation by the Directorate of Revenue Intelligence concerning the applicant's imports.

(2) What is the correct tariff classification, under the First Schedule to the Customs Tariff Act, 1975, of cathode coated foils used in the manufacture of lithium-ion cells.

(3) What is the correct tariff classification of anode coated foils used in the manufacture of lithium-ion cells.

(4) What is the correct tariff classification of separator (microporous polymer film) used in the manufacture of lithium-ion cells.

(5) What is the correct tariff classification of LC breaker (cell-circuit protection device) used in lithium-ion cell applications.

(6) Whether the above goods, so classified, are eligible for exemption from basic customs duty as "parts, sub-parts, inputs or raw materials for use in manufacture of Lithium-ion cells" under the relevant customs exemption notification, subject to compliance with the prescribed end-use conditions and procedures.

2. ISSUE-WISE DETAILED ANALYSIS

(1) Maintainability in light of DRI investigation

Legal framework (as discussed)

The Court considered the second proviso to Section 28-I(2) of the Customs Act, 1962, which bars admission of an advance ruling application where the "same question" of law or fact is pending or has been decided in any proceeding in the applicant's own case under the Act.

Interpretation and reasoning

The DRI Hyderabad Zonal Unit had examined the applicant's imports of parts of lithium-ion batteries with reference to the applicable rate of IGST under Notification No. 01/2017-Integrated Tax (Rate), particularly as to the proper serial number and Schedule for levy of IGST under Section 3(7) of the Customs Tariff Act, 1975.

The Court noted that:

(a) The DRI correspondence and clarification from DRI HZU expressly confirmed that the investigation was "not about/against HSN classification of imported goods", but confined to verification of IGST rate and alleged short payment; the goods had already been treated as parts of accumulators under subheading 8507 90.

(b) The term "wrong classification" in the DRI communication was used in the context of misapplication of entries under the IGST rate notification, not as a dispute over tariff heading under the Customs Tariff Act, 1975.

(c) The applicant had voluntarily deposited the differential IGST and no show cause notice or adjudication on classification under the Customs Tariff Act had been initiated; no proceeding was pending on tariff classification or on customs exemption notification issues.

(d) The advance ruling application sought determination of: (i) tariff classification under the First Schedule to the Customs Tariff Act; and (ii) eligibility to customs exemption under a customs notification, which are distinct from determination of IGST rate entries under the GST rate notification.

On this basis, the Court distinguished between:

- "Classification" for purposes of selecting the correct HSN-based entry under the IGST rate notification (a rate issue); and

- Tariff classification under the Customs Tariff Act and eligibility to a customs exemption notification (a customs assessment/exemption issue).

As the questions before DRI and before the Authority were not identical in law or fact, the statutory bar in the second proviso to Section 28-I(2) was held inapplicable.

Conclusions

The application was held to be maintainable; no "same question" under Section 28-I(2) was pending or decided in DRI proceedings, and the Authority proceeded to rule on merits.

(2) Classification of cathode coated foil for lithium-ion cells

Legal framework (as discussed)

The Court applied General Rules for Interpretation (GRI), particularly Rule 1, and Section XVI Note 2 of the Customs Tariff Act, 1975:

- Heading 8507: "Electric accumulators, including separators therefor..."; subheading 8507 90: "Parts"; 8507 90 90: "Other".

- Section XVI Note 2(b): parts suitable for use solely or principally with a particular kind of machine are to be classified with that machine, where not specifically covered by another heading under Note 2(a).

Interpretation and reasoning

The goods were described as aluminium current-collector foils uniformly coated with cathode active material (with binder and additives), imported in roll/slit form and only slit to the required width before cell assembly. The films already possessed the electrochemical properties of a cathode and were exclusively used as cathodes in lithium-ion accumulators.

The Court found:

(a) No specific tariff heading existed in Chapters 84 or 85 for such "coated electrode films." Hence, Section XVI Note 2(a) (classification in a specific heading) did not apply.

(b) The goods were engineered and dedicated for sole/principal use as cathodes in lithium-ion cells, and thus were parts suitable for use solely or principally with accumulators of heading 8507.

(c) Under Section XVI Note 2(b), such parts must be classified along with the machine, i.e., under heading 8507, and specifically as "parts" under subheading 8507 90.

(d) Within subheading 8507 90, there was no more specific eight-digit entry for cathodes other than the residual category 8507 90 90 "Other".

Conclusions

Cathode coated foils are classifiable as parts of electric accumulators under tariff item 8507 90 90.

(3) Classification of anode coated foil for lithium-ion cells

Legal framework (as discussed)

The Court considered:

- Heading 8545: "Carbon electrodes, carbon brushes, lamp carbons, battery carbons and other articles of graphite or other carbon, with or without metal, of a kind used for electrical purposes"; subheading 8545 19 00 (other electrodes).

- Heading 8507 and Section XVI Note 2 (particularly Note 2(b)).

- HSN Explanatory Notes to headings 8507 and 8545, and the general principles that parts suitable solely/principally for a given machine are to be classified with that machine, where no specific heading under Note 2(a) exists.

Interpretation and reasoning

The goods were copper foils coated with graphite-based anode active material (about 74% graphite, 26% copper), imported in rolls, then only slit to required width and used exclusively as negative electrodes (anodes) in lithium-ion cells.

The applicant argued for classification under heading 8545 19 00 as graphite electrodes based on predominant graphite content and HSN Note descriptions of carbon electrodes.

The Court, considering both the applicant's submissions and the Commissionerate's view, reasoned that:

(a) Heading 8545 covers generic "articles of graphite or other carbon" of a kind used for electrical purposes, such as furnace electrodes, carbon brushes, lamp carbons, and conventional battery carbons, not highly specialised, machine-specific accumulator electrodes integrated on metal current collectors.

(b) The anode coated foil is a sophisticated copper foil carrying active anode material, designed and manufactured exclusively for use as the negative electrode in lithium-ion accumulators. It is not a mere generic carbon article of heading 8545.

(c) There is no dedicated tariff heading in Chapters 84 or 85 specifically covering such lithium-ion anode-coated foils; hence Note 2(a) is inapplicable.

(d) In substance and in use, the goods are parts suitable for use solely or principally with lithium-ion accumulators of heading 8507. Under Section XVI Note 2(b), they must be classified with that machine.

(e) HSN Explanatory Notes to heading 8507 also recognise electrodes as parts of accumulators, supporting classification as accumulator parts rather than generic carbon electrodes.

Conclusions

Anode coated foils are classifiable as parts of electric accumulators under tariff item 8507 90 90, and not under heading 8545.

(4) Classification of separator (microporous polymer film) for lithium-ion cells

Legal framework (as discussed)

The Court considered:

- Heading 8507, subheading 8507 90 10: "Accumulator cases made of hard rubber and separators".

- Possible competing heading 3921 for other plastic films.

- Section XVI Note 2(a) and (b).

- HSN Explanatory Notes to heading 8507, which recognise separators, including those in roll form merely cut into rectangles and meeting precise technical specifications, as accumulator parts.

Interpretation and reasoning

The goods were microporous separator films comprising polyethylene, boehmite and PVDF, imported in jumbo rolls, then slit to required width and used to separate anode and cathode in lithium-ion cells, allowing ion transport while preventing electrical short-circuits. They are purpose-built for accumulator use and critical for cell safety and function.

The Court found:

(a) The product is not a generic plastic film of heading 3921; its essential character lies in its specific electrochemical function as a separator in accumulators.

(b) No specific heading in Chapters 84 or 85, other than those for accumulator parts, covers such specialised separators; thus, Note 2(a) does not divert classification away from parts of accumulators.

(c) The goods are suitable for use solely/principally with lithium-ion accumulators of heading 8507; therefore, under Section XVI Note 2(b), they must be classified with the machine.

(d) The tariff itself provides a specific subheading 8507 90 10 for "Accumulator cases made of hard rubber and separators." The wording is broad; while "cases" are restricted to hard rubber, there is no material limitation for "separators". Hence, separators of other materials, including polymeric films, are covered.

(e) HSN Explanatory Notes and the cited tribunal decisions (Exide Industries Ltd.; Amara Raja Batteries Ltd.) support treating separators in roll form as accumulator parts under heading 8507, provided they meet technical specifications and are ready for use as separators after simple cutting/slitting.

Conclusions

Separator microporous films are classifiable as accumulator separators under tariff item 8507 90 10.

(5) Classification of LC breaker (cell-circuit protection device)

Legal framework (as discussed)

The Court considered:

- Heading 8536: "Electrical apparatus for switching or protecting electrical circuits... for a voltage not exceeding 1,000 volts"; subheading 8536 30 00: "Other apparatus for protecting electrical circuits".

- Heading 8507 (electric accumulators and parts thereof).

- HSN Explanatory Notes to heading 8536, which include circuit-protective apparatus (including thermal and over-current protection devices).

Interpretation and reasoning

The LC breaker was described as a protective electrical device used in secondary-cell circuits to interrupt current under abnormal thermal or over-current conditions. It is an active, independent apparatus operating in low-voltage circuits, providing safety protection.

The Court reasoned that:

(a) The essential function of the LC breaker is protection of electrical circuits, not electrochemical energy storage.

(b) Heading 8507 is confined to accumulators and their inherent electrochemical/mechanical parts (electrodes, separators, cases etc.) and does not extend to separate, active electrical-protection apparatus.

(c) The LC breaker is an electrical apparatus of the kind described in heading 8536: it protects circuits for voltages not exceeding 1,000 V.

(d) It is not specifically described under subheadings for "fuses" or "automatic circuit breakers"; it therefore falls under the residual protective category in 8536 30 00 "Other apparatus for protecting electrical circuits".

(e) By GRI 1 and the text of heading 8536, classification under 8536 30 00 best reflects the product's nature and function.

Conclusions

The LC breaker is classifiable under tariff item 8536 30 00 as "other apparatus for protecting electrical circuits" and not as a part of accumulators under heading 8507.

(6) Eligibility for exemption as parts/inputs for manufacture of lithium-ion cells

Legal framework (as discussed)

The Court examined:

- Earlier Serial No. 523A of Notification No. 50/2017-Cus. and its supersession by Notification No. 45/2025-Customs dated 24.10.2025.

- Serial No. 314 of Notification No. 45/2025-Customs: providing "NIL" BCD to "Parts, sub-parts, inputs or raw materials for use in the manufacture of Lithium-ion cells falling under tariff item 8507 60 00", applicable to goods "of any chapter", subject to:

* Compliance with Condition No. 3 - following the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCR, 2022); and

* A sunset clause that the exemption has no effect after 31 March 2026.

- The principle laid down in Commissioner of Customs v. Rupa & Co. Ltd., that while exemption notifications are to be construed strictly, interpretation should not defeat the object and purpose of the exemption.

Interpretation and reasoning

The Court noted that:

(a) All four products-cathode coated foils, anode coated foils, separator films, and LC breakers-are inputs/components directly used in the manufacture of lithium-ion cells classifiable under 8507 60 00.

(b) The first three items are core electrochemical parts of the cell architecture; the LC breaker forms part of the protection circuitry at cell level. All fall within the broad functional description "parts, sub-parts, inputs or raw materials for use in the manufacture of Lithium-ion cells".

(c) The exemption entry is chapter-neutral; tariff classification does not restrict eligibility so long as the goods are used in manufacturing lithium-ion cells of tariff item 8507 60 00 and IGCR procedural conditions are followed.

(d) Having classified the goods as 8507 90 90 (cathode coated foil), 8507 90 90 (anode coated foil), 8507 90 10 (separators), and 8536 30 00 (LC breaker), none is excluded by the wording of Serial No. 314, which explicitly extends to goods "of any chapter".

(e) In line with the principle in Rupa & Co. Ltd., an interpretation that recognises all functionally indispensable inputs in lithium-ion cell manufacture is consistent with the evident objective of incentivising domestic production of such cells.

(f) The exemption remains conditional: the importer must comply with IGCR, 2022 procedures and end-use must be verified to be in manufacture of lithium-ion cells (8507 60 00); further, the benefit is time-bound till 31 March 2026.

Conclusions

(a) Cathode coated foils (8507 90 90), anode coated foils (8507 90 90), separator films (8507 90 10), and LC breakers (8536 30 00) are all "parts, sub-parts, inputs or raw materials for use in manufacture of Lithium-ion cells falling under tariff item 8507 60 00" within the meaning of Serial No. 314 of Notification No. 45/2025-Customs.

(b) These goods are eligible for "NIL" basic customs duty under Serial No. 314, subject to:

* strict compliance with Condition No. 3 (IGCR Rules, 2022);

* verification of actual end-use in manufacture of lithium-ion cells classifiable under 8507 60 00; and

* the exemption being effective only up to 31 March 2026.

Issues: (i) Whether the imported diagnostic kits were classifiable under tariff item 38221990 of the Customs Tariff Act, 1975; (ii) whether the kits were entitled to exemption from basic customs duty under the relevant exemption entries for Bovine Albumin / Bovine Serum Albumin.

Issue (i): Whether the imported diagnostic kits were classifiable under tariff item 38221990 of the Customs Tariff Act, 1975.

Analysis: The goods were examined as laboratory reagents put up in kit form. Applying Rule 1 of the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975, the heading covering diagnostic or laboratory reagents put up as kits was found to be more specific than the residuary or other reference material heading. The materials on record also showed that the products were not certified reference materials, as the necessary certificate of reference and degree of certainty was absent. The earlier classification under the residuary heading was treated as an error and could be corrected prospectively.

Conclusion: The kits are classifiable under tariff item 38221990, in favour of the assessee.

Issue (ii): Whether the kits were entitled to exemption from basic customs duty under the relevant exemption entries for Bovine Albumin / Bovine Serum Albumin.

Analysis: The exemption entries were construed strictly. The relevant notification exempted the specified item of Bovine Albumin as such and did not extend the benefit to composite diagnostic kits merely because they contained Bovine Albumin as one of several constituents. The listing of particular diagnostic kits in the notification showed that only expressly enumerated goods were intended to receive exemption. The precedent relied upon by the applicant was held inapplicable because that case involved goods whose active and principal ingredient was the exempted substance itself.

Conclusion: The kits are not eligible for the exemption, in favour of the Revenue.

Final Conclusion: The ruling grants classification relief to the applicant but rejects the claimed customs duty exemption, so the substantive outcome is mixed.

Ratio Decidendi: For customs classification, the most specific tariff entry that directly describes the goods prevails over a residuary entry, and an exemption notification must be applied strictly to the exact item described, not extended by implication to a composite product that merely contains the named ingredient.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in writ petitions challenging orders-in-original on the ground of delayed adjudication, the Court should itself examine the delay or relegate the parties to the statutory appellate remedy in light of the order of the Supreme Court in relation to delayed adjudication.

1.2 Whether, where petitioners have bona fide pursued writ proceedings against orders-in-original, the statutory appeals filed thereafter should be entertained without being defeated on limitation.

1.3 What directions are appropriate in writ petitions where adjudication pursuant to show cause notices is still pending, in the context of the Supreme Court's order requiring deferment of consideration of the issue of delayed adjudication.

1.4 Whether the Court should examine the merits of the disputes or the contention of delayed adjudication in these petitions, or leave all such contentions open for adjudication by the statutory authorities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Course to be adopted where orders-in-original are challenged on the ground of delayed adjudication

Legal framework (as discussed)

2.1 The Court referred to its earlier disposition of a similar writ petition, where liberty had been granted to the petitioner to file an appeal against the order-in-original raising all permissible contentions, including delayed adjudication, and where the appellate authority was directed to act in accordance with law while taking cognisance of the Supreme Court's order dated 02 May 2025 in a pending special leave petition concerning delayed adjudication.

2.2 The Court noted that, by the Supreme Court's order dated 02 May 2025, courts have been required to defer consideration of the issue of delayed adjudication till disposal of the said special leave petition.

Interpretation and reasoning

2.3 The Court held that, given the Supreme Court's specific direction to defer consideration of the issue of delayed adjudication, it would not be appropriate for it, in writ jurisdiction, to adjudicate upon that issue at this stage.

2.4 The Court reasoned that, in cases where orders-in-original have already been passed, delayed adjudication is not the only ground of challenge; if that ground were to fail, petitioners would still wish to agitate other grounds on merits.

2.5 The Court observed that it may not be possible or appropriate, in writ jurisdiction, to examine all such additional grounds on merits, whereas the appellate authority would be better placed to consider all grounds, including delayed adjudication, subject to the outcome of the Supreme Court proceedings.

2.6 For consistency with its earlier order in a comparable matter, and to align with the Supreme Court's directions, the Court adopted the same course of relegating petitioners to the appellate remedy instead of deciding the issue of delay itself.

Conclusions

2.7 The petitions relating to cases where orders-in-original had been passed were disposed of by granting liberty to file statutory appeals against the orders-in-original, with express liberty to raise all permissible contentions, including delayed adjudication, before the appellate authority.

2.8 The Court itself did not decide the issue of delayed adjudication, leaving it to be considered by the appellate authority in accordance with law and in light of the Supreme Court's order dated 02 May 2025 and subsequent orders in the pending special leave petition.

Issue 2: Treatment of limitation where writ petitions were bona fide pursued instead of statutory appeals

Interpretation and reasoning

2.9 The Court recorded the petitioners' statement that they would file appeals within six weeks from the date of uploading of the order, complying with all prescribed formalities including pre-deposit.

2.10 Recognising that the petitioners had bona fide pursued writ remedies before the Court, the Court considered that penalising them on limitation for having taken that course would be inappropriate.

Conclusions

2.11 The Court directed that, if appeals are filed within six weeks from the date of the order, the appellate authority shall dispose of such appeals on their own merits without adverting to the issue of limitation.

2.12 The appellate authority was directed, while hearing such appeals, to take cognisance of the Supreme Court's order dated 02 May 2025 in respect of the issue of delayed adjudication.

Issue 3: Directions in cases where adjudication is still pending and orders-in-original are yet to be passed

Legal framework (as discussed)

2.13 The Court referred to the Supreme Court's order dated 02 May 2025 requiring that the issue of delayed adjudication be kept in abeyance until the special leave petition (concerning delayed adjudication) is decided.

2.14 The Court also referred to its own prior approach in similar matters where adjudication was pending, under which parties were relegated to seek deferment from the adjudicating authority in light of the Supreme Court's order.

Interpretation and reasoning

2.15 Given that final determinations on delayed adjudication are sub judice before the Supreme Court, the Court considered it appropriate not to interfere directly in the pending adjudication proceedings on that ground.

2.16 The Court held that the proper course is for the petitioners to apply to the adjudicating authority itself for deferment of proceedings, which authority must then decide such applications consistent with the Supreme Court's directions.

Conclusions

2.17 The petitions in which adjudication orders had not yet been issued were disposed of by granting liberty to the petitioners to apply to the adjudicating authority for deferment of adjudication proceedings on the ground of delayed adjudication.

2.18 The adjudicating authority was directed to consider such applications in the light of the Supreme Court's order dated 02 May 2025 and to take appropriate decisions thereon.

Issue 4: Scope of examination of merits and delayed adjudication by the Court

Interpretation and reasoning

2.19 The Court explicitly stated that it was not examining the merits of the parties' disputes or the contention regarding delayed adjudication, in view of the pending consideration of that issue before the Supreme Court and the availability of statutory forums competent to decide all issues.

2.20 The Court emphasised that all contentions, both on merits and regarding delayed adjudication, should remain open to be urged before the appellate authority (for completed adjudication) or the adjudicating authority (for pending adjudication), subject to the parameters set by the Supreme Court's order.

2.21 The Court also stressed the need for consistency with its earlier orders in similar matters and with the overarching directions of the Supreme Court, which guided its choice not to render any findings on the substantive disputes.

Conclusions

2.22 The Court declined to adjudicate on the merits of the disputes or to decide the issue of delayed adjudication, expressly leaving all such contentions open for consideration by the appropriate statutory authorities in accordance with law and subject to the Supreme Court's directions.

2.23 All interim applications were held to have become infructuous and were disposed of consequent upon the disposal of the writ petitions.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cost recovery charges could be validly demanded and recovered from the appellant under the Handling of Cargo in Customs Areas Regulations, 2009, read with the applicable circulars and public notice, in view of judicial pronouncements declaring the Regulations ultra vires the Customs Act, 1962.

1.2 Whether penalty under Regulation 12(8) of the Handling of Cargo in Customs Areas Regulations, 2009 could be sustained when the levy and recovery of cost recovery charges under the said Regulations is not legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of demand and recovery of cost recovery charges under the 2009 Regulations

Legal framework (as discussed)

2.1 The impugned order confirmed demand of cost recovery charges by relying on condition (iii) of a public notice, a Board circular of 1995, and Regulations 5(2) and 6(1)(o) of the Handling of Cargo in Customs Areas Regulations, 2009, and also ordered recovery with interest.

2.2 The Tribunal referred to the judgment of a High Court which examined Sections 141 and 157 of the Customs Act, 1962 and held that there is no express statutory provision authorising levy or recovery of cost recovery charges (being salaries of customs officers posted at custodians' premises) through the 2009 Regulations, and therefore declared the 2009 Regulations ultra vires the Customs Act.

2.3 The Tribunal further referred to its own Division Bench decisions which, following the said High Court judgment, had held that Regulation 5(2) of the 2009 Regulations is ultra vires and that cost recovery charges could not be recovered under those Regulations; and that, even prior to the 2009 Regulations, recovery based only on circulars/administrative instructions had no statutory backing.

Interpretation and reasoning

2.4 The Tribunal noted that the High Court had specifically concluded that, in the absence of any special statutory authorisation in Sections 141 or 157, the department had no authority to impose or recover cost recovery charges by means of the 2009 Regulations, rendering them ultra vires.

2.5 The Tribunal observed that, in earlier appeals involving similar demands under Regulation 5(2) of the 2009 Regulations, it had already followed this High Court view and set aside cost recovery demands, and treated that High Court decision as binding judicial authority.

2.6 Applying the same reasoning, the Tribunal held that, once the Regulations themselves are ultra vires, directions in the impugned order to pay cost recovery charges with interest, purportedly under Regulation 5(2), Regulation 6(1)(o), the Board circular and the public notice, cannot be sustained in law.

Conclusions

2.7 The Tribunal concluded that there is no valid legal authority to levy and recover cost recovery charges under the 2009 Regulations, and therefore the demand and recovery ordered in the impugned order are unsustainable and liable to be set aside.

Issue 2 - Sustainability of penalty under Regulation 12(8) of the 2009 Regulations

Legal framework (as discussed)

2.8 The impugned order imposed penalty on the appellant under Regulation 12(8) of the Handling of Cargo in Customs Areas Regulations, 2009, on the ground that the appellant had failed to fulfil its obligation to pay cost recovery charges in terms of Regulations 5(2) and 6(1)(o) and the public notice condition.

Interpretation and reasoning

2.9 The Tribunal recalled its earlier reasoning (in the prior round of litigation) that penalty under Regulation 12(8) presupposes a contravention or failure to comply with a validly enforceable obligation created by the Regulations.

2.10 Since, following the binding High Court judgment and subsequent Tribunal decisions, the provisions of the 2009 Regulations relied upon for levy and recovery of cost recovery charges are ultra vires and cannot validly found such a demand, there can be no legally sustainable "contravention" in not paying those charges.

2.11 Consequently, the foundation for invoking Regulation 12(8) disappears once the demand of cost recovery charges under the 2009 Regulations is held to be without authority of law.

Conclusions

2.12 The Tribunal held that, as the direction to pay cost recovery charges cannot be sustained, the imposition of penalty under Regulation 12(8) is also unsustainable and must be set aside.

Overall disposition

2.13 On the above grounds, the Tribunal set aside the impugned order in toto, including the demand of cost recovery charges, interest, and penalty, and allowed the appeal. It found it unnecessary to examine the appellant's remaining contentions regarding exemptions/waivers, calculations, apportionment, transport allowance, or absence of specific recovery machinery.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the Liquidator acted in accordance with the Insolvency and Bankruptcy Code and the governing auction documents in cancelling the sale and forfeiting the Earnest Money Deposit after the successful bidder failed to pay the first instalment within the stipulated period.

(2) Whether the direction to refund the Earnest Money Deposit, based on application of Section 74 of the Indian Contract Act, 1872 and on alleged absence of loss or Letter of Intent, was legally sustainable in the context of a liquidation e-auction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Validity of cancellation of sale and forfeiture of Earnest Money Deposit

Legal framework

(a) The Tribunal examined the Sale Notice, the E-Auction Process Information Document issued under the Liquidation Process Regulations, and the bidder's affidavit/declaration as forming a single, binding statutory-contractual framework governing the liquidation auction.

(b) Clause 9 of the Sale Notice provided that default in deposit of the "balance amount" within the time mentioned in the email would entail forfeiture of the entire amount deposited ("EMD + any other amount").

(c) Clauses 12.1, 12.2.4 and 13.5.1(vii) of the E-Auction Process Information Document stipulated: (i) no right to withdraw/cancel/renegotiate the bid and express forfeiture of EMD and other amounts on non-payment within timelines; (ii) obligation of the successful bidder to submit the first instalment of 25% of the successful bid amount (less EMD) within 15 days from declaration as successful bidder; and (iii) specific authorisation to forfeit EMD if the successful bidder failed to make payment of the first instalment within 15 days of such declaration.

(d) Clause 6 of the bidder's affidavit expressly recorded the bidder's agreement that failure to complete the transaction within the specified time, or failure to fulfil any auction condition, would render the EMD and other monies liable to forfeiture, with any extension of timelines being at the sole discretion of the Liquidator.

Interpretation and reasoning

(e) The Tribunal held that liquidation auctions under the Code operate under a statutory scheme distinct from ordinary negotiated contracts, with pre-defined conditions and strict timelines; bidders voluntarily subject themselves to these terms and the Liquidator is obliged to enforce them to preserve value and certainty.

(f) The Tribunal found that the Sale Notice, E-Auction Process Document and the affidavit together constituted a comprehensive "code of conduct" binding the successful bidder, including an unequivocal acceptance of forfeiture of EMD on default in timely payment.

(g) Factually, the bidder was declared H1 on 26.04.2022, making the first instalment of 25% (after adjusting EMD) due on 11.05.2022. No difficulty about timelines or funding was raised prior to 09.05.2022.

(h) On 09.05.2022, in separate proceedings initiated by an unsuccessful bidder, the Liquidator gave a limited undertaking before the Adjudicating Authority not to proceed with the sale; this was treated as only suspending the running of the already agreed 15-day period and not as altering or restarting the payment structure.

(i) The bidder's own letter dated 11.05.2022 seeking postponement of the first instalment "till the issue is resolved" showed that it intended to proceed with the transaction after disposal of that application and was not disabled from arranging funds.

(j) On 15.06.2022, the intervening application was unconditionally withdrawn and the order of the Adjudicating Authority expressly vacated any interim order. The Tribunal held that, from this point, the temporary impediment stood completely removed and the balance of the original 15-day period (two days) recommenced.

(k) The Liquidator's email dated 16.06.2022 immediately informed the bidder of the withdrawal of the application, clarified that the undertaking stood vacated, reiterated the auction terms, and called upon the bidder to deposit the first instalment within two days, expressly linking the demand to Clause 12.2 of the E-Auction Process Document.

(l) The bidder's reply dated 18.06.2022 did not deny liability, did not offer payment, and instead sought time up to 30.06.2022, citing the need to "evaluate" the order. Even after receiving the certified copy of the 15.06.2022 order on 23.06.2022, the bidder neither made any payment (even partial) nor gave any definite date or unconditional commitment for payment, despite repeated reminders on 23.06.2022, 28.06.2022 and 29.06.2022.

(m) The Tribunal noted that even on the most favourable reckoning (treating 23.06.2022 as the trigger date), the bidder still had at least two days within the originally contemplated 15-day balance to pay, but did not avail that opportunity, did not request an extension under clause 6 of its affidavit, and instead continued only to seek time "to evaluate", reflecting reluctance to proceed, allegedly driven by fall in aluminium prices.

(n) It was held that the failure to pay within the balance period (or within the extended grace informally afforded up to 30.06.2022) constituted clear default under the auction terms, and that the Liquidator cannot permit open-ended uncertainty inconsistent with the time-bound nature of liquidation.

(o) On the factual and documentary record, the Tribunal rejected the contention that the bidder was "prevented" from performance by the Liquidator's conduct; the temporary pause was fully lifted on withdrawal of the intervening application, and adequate opportunity thereafter existed to comply.

Conclusions

(p) The bidder's non-payment of the first instalment within the contractually stipulated and extended time amounted to breach of the binding auction conditions.

(q) The Liquidator's cancellation of the sale and forfeiture of the EMD was in strict conformity with Clause 9 of the Sale Notice, Clauses 12.1, 12.2.4 and 13.5.1(vii) of the E-Auction Process Document, and Clause 6 of the bidder's affidavit, and was a valid exercise of statutory and contractual powers under the liquidation framework.

Issue (2): Sustainability of order directing refund of EMD and applicability of Section 74 of the Indian Contract Act

Legal framework

(a) The Tribunal considered the nature of forfeiture in liquidation auctions under the Insolvency and Bankruptcy Code and the Liquidation Process Regulations, as distinguished from penal clauses in private contracts governed by Sections 73-74 of the Indian Contract Act, 1872.

(b) It relied on its earlier decisions, as affirmed by the Supreme Court, holding that where forfeiture occurs under terms and conditions of a public auction conducted by a liquidator before a concluded agreement, Section 74 has no application.

Interpretation and reasoning

(c) The Tribunal held that the Insolvency and Bankruptcy Code is a complete code for the corporate insolvency and liquidation process; rights and obligations in liquidation sales arise from the statute, the Liquidation Regulations and the auction documents issued thereunder, not from individually negotiated contractual penalty clauses.

(d) Forfeiture of EMD in such auctions is a consequence expressly built into the statutory process documents framed under the authority of the Liquidation Regulations (including Schedule I), and is a legitimate contractual-statutory remedy for default rather than a "penalty" under Section 74.

(e) The Tribunal noted that the Adjudicating Authority erred in importing Section 74 into a statutory auction setting and in requiring proof of actual loss as a pre-condition to forfeiture, contrary to the binding view that Section 74 does not control forfeiture under liquidation auction terms.

(f) On the factual findings, the Tribunal further observed that the re-auction fetched a significantly lower value (Rs.103.40 crores as against Rs.124.60 crores), evidencing material financial prejudice to the liquidation estate; nonetheless, the law did not require separate adjudication of damages before forfeiture could be effected.

(g) The Tribunal also rejected the Adjudicating Authority's reasoning that absence of a Letter of Intent weakened the Liquidator's case, clarifying by reference to Clauses 14 and 15 of the E-Auction Process Document that issuance of Letter of Intent was contractually contingent upon prior payment of the first instalment, not a precondition to demand or to forfeiture.

(h) The Tribunal held that delay in communication of the withdrawal order did not exonerate the bidder because, even after receiving the order, the bidder neither complied nor took any concrete steps, and did not invoke any contractual mechanism for extension; hence the finding that the bidder "had no opportunity" to pay was factually incorrect.

Conclusions

(i) Section 74 of the Indian Contract Act, 1872 is inapplicable to forfeiture of EMD in liquidation e-auctions conducted under the Insolvency and Bankruptcy Code and the Liquidation Process Regulations.

(j) The Adjudicating Authority's reliance on Section 74, its requirement of proof of specific loss, and its inferences from non-issuance of Letter of Intent were contrary to the governing auction documents and to the settled legal position.

(k) The order directing refund of the forfeited EMD was unsustainable in law and based on misappreciation of both facts and the statutory scheme; it was liable to be set aside, and the Liquidator's action of forfeiture upheld.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the materials on record disclose a prima facie commission of offences of cheating and forgery under Sections 318(4), 336, 338 and 340(2) of the Bharatiya Nyaya Sanhita, 2023.

1.2 Whether, notwithstanding that gambling/online betting is not a scheduled offence under the Prevention of Money Laundering Act, 2002, the funds routed through the shell entities constitute "proceeds of crime" under Section 2(1)(u) PMLA.

1.3 Whether, on the basis of the above, a prima facie case of the offence of money-laundering under Section 3 PMLA is made out against the applicant.

1.4 Whether, having regard to the nature of accusations and material available, the applicant is entitled to bail under Section 483 BNSS read with Section 45 PMLA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Prima facie commission of offences under Sections 318(4), 336, 338 and 340(2) BNS

Legal framework

2.1 The Court considered the statutory definitions in Sections 2(7) "dishonestly", 2(9) "fraudulently", 2(14) "injury", 2(15) "illegal", 2(31) "valuable security", 2(36) "wrongful gain", 2(37) "wrongful loss", 2(38) "gaining wrongfully and losing wrongfully" of BNS, and the text of Sections 318 (cheating and its aggravated form under sub-section (4)), 335 (making a false document), 336 (forgery), 338 (forgery of valuable security, etc.) and 340(2) (using a forged document as genuine).

Interpretation and reasoning

2.2 On perusal of the FIR, statements and material, the Court found that the applicant and co-accused induced innocent individuals to part with their identity/KYC documents and to open bank accounts or shell entities on the false promise of employment in APMC. These documents and accounts were then used, without disclosure of the true purpose, to establish and operate shell entities (including M/s Hardik Enterprises and M/s Haresh Trading Co.).

2.3 The Court held that if such deception had not been practised, the concerned individuals would not have opened accounts nor handed over signed cheque-books and debit cards. Thus, there was clear "deception" and "dishonest" inducement within the meaning of Section 318 BNS.

2.4 Bank accounts were treated as "property" and the right to operate them as an asset, the wrongful transfer of control over which constituted "wrongful loss" to the account-holders and "wrongful gain" to the accused, within Sections 2(36)-(38) BNS. Reference was made to the Supreme Court's view that bank accounts are "property" in the context of seizure (State of Maharashtra v. Tapas D. Neogy).

2.5 The Court inferred that, for effecting withdrawals, the accused must have filled in their own names or beneficiaries' names as payees in blank, pre-signed cheques. Writing the payee's name without authority on such cheques amounted to making a "false document" and thereby "forgery" of a "valuable security" (cheques being bills of exchange and "valuable security"), attracting Sections 335, 336 and 338 BNS.

2.6 Use of those cheques and related documents for encashment and transfers, with knowledge that they were so created/altered, constituted "using as genuine" forged documents under Section 340(2) BNS. The deception extended to the banks, which were induced to honour such instruments as genuine.

2.7 The Court rejected the contention that the documents were "genuine" merely because they belonged to real persons. It held that the critical factor was the deceptive manner in which the documents and accounts were obtained and used, and the unauthorised completion and use of signed cheque-leaves, which satisfied the elements of cheating and forgery.

Conclusions

2.8 The Court concluded that there is a strong prima facie case that the applicant and co-accused cheated the individual account-holders and the banks, made false documents/forged valuable securities (cheques) and used them as genuine, thereby attracting Sections 318(4), 338 and 340(2) BNS (with the elements of forgery as per Section 336 being satisfied).

Issue 2: Whether the funds constitute "proceeds of crime" under Section 2(1)(u) PMLA, despite gambling not being a scheduled offence

Legal framework

2.9 The Court referred to Section 2(1)(u) PMLA, including its Explanation, defining "proceeds of crime" as any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, including property indirectly derived or obtained as a result of criminal activity "relatable" to such scheduled offence.

2.10 The Court noted the exposition of "proceeds of crime" in the Supreme Court decision in Vijay Madanlal Choudhary, emphasising: (i) strict construction; (ii) the requirement that property be derived/obtained "as a result of" criminal activity relating to a scheduled offence; and (iii) the clarificatory nature of the 2019 Explanation.

Interpretation and reasoning

2.11 The Court accepted that gambling or online betting per se is not a scheduled offence, and that mere proceeds of gambling would not, by themselves, constitute "proceeds of crime" under PMLA.

2.12 However, on facts, the Court found that the criminal scheme did not merely involve gambling proceeds, but a layered process whereby: (a) individuals were cheated and their identities and accounts were misused; (b) shell-company bank accounts were opened and operated through deception and forgery; and (c) large sums, allegedly generated from illegal business/online gambling, were routed through these forged/cheated channels and withdrawn in cash.

2.13 The Court held that associating funds (allegedly from gambling/illegal business) with shell accounts opened through cheating and forgery, and projecting them as legitimate APMC/business transactions, created a direct nexus between the funds and the scheduled offences (cheating/forgery). The "criminal overlay" of cheating/forgery turned the funds into property derived/obtained "as a result of" criminal activity relating to scheduled offences.

2.14 The Court reasoned that the Explanation to Section 2(1)(u) PMLA covers property indirectly derived or obtained as a result of criminal activity relatable to a scheduled offence. Here, the scheduled offences (Sections 318(4), 338 and 340(2) BNS) were integral to routing, disguising and withdrawing the funds; thus, the funds withdrawn became "tainted" as proceeds of those offences, even if they originally arose from non-scheduled gambling operations.

2.15 The Court distinguished the Supreme Court's illustration (in Vijay Madanlal Choudhary) concerning unaccounted property acquired by legal means, noting that the present case involves property associated with criminal activity of cheating and forgery (scheduled offences), not merely untaxed legal income. It observed that excluding such laundered funds from PMLA would defeat the Act's object and allow illegally accumulated money to be easily "legalised".

Conclusions

2.16 The Court concluded that the money credited into and ultimately withdrawn from the shell-company bank accounts, operated through deception and forged instruments, constituted "proceeds of crime" within Section 2(1)(u) PMLA, notwithstanding that gambling itself is not a scheduled offence.

Issue 3: Prima facie existence of the offence of money-laundering under Section 3 PMLA

Interpretation and reasoning

2.17 Having held that the funds routed through the shell accounts were "proceeds of crime" arising from or relatable to scheduled offences of cheating and forgery, the Court examined the applicant's role in dealing with such proceeds.

2.18 The material, including statements under Section 50 PMLA and witnesses' accounts, indicated that: (a) the applicant worked in close concert with co-accused; (b) he participated in establishing shell entities and opening/operating their bank accounts; (c) he, along with others, effected cash withdrawals and other transactions from those accounts; and (d) he received commission for facilitating these withdrawals.

2.19 The Court inferred that the applicant knowingly assisted in the processes and activities connected with the projection, layering and withdrawal of the crime proceeds, thereby facilitating laundering and the appearance of legitimate business income, consistent with the mischief targeted by Section 3 PMLA.

2.20 The Court noted the applicant's arguments that his statement under Section 50 PMLA lacked corroboration and that custodial statements are of limited evidentiary value, but, at the bail stage, found there was sufficient additional material (including bank records, witness statements and the modus operandi) to show prima facie involvement.

Conclusions

2.21 The Court held that a strong prima facie case exists that the applicant was actively involved in the process or activity connected with the proceeds of crime, thereby attracting Section 3 PMLA.

Issue 4: Entitlement of the applicant to bail under Section 483 BNSS read with Section 45 PMLA

Interpretation and reasoning

2.22 In light of the above findings, the Court assessed whether the twin conditions and the stringent standard under PMLA for grant of bail were satisfied.

2.23 The Court observed that the allegations involve a well-designed and sophisticated scheme of cheating and forgery, large-scale laundering of funds running into hundreds of crores, and exploitation of the vulnerabilities of APMC-related accounts and shell entities to disguise criminal proceeds.

2.24 Given the applicant's alleged central role in opening and operating the accounts, executing withdrawals, and receiving commission, the Court found there to be a "strong case" of his involvement in the scheduled offences and in money-laundering.

2.25 The Court further held that, considering the nature and scale of the offence and the applicant's position in the operation, there existed: (i) a strong possibility of the applicant causing disappearance of evidence if released; and (ii) no assurance that he would not commit further offences while on bail.

Conclusions

2.26 The Court concluded that the applicant failed to satisfy the requirements for bail under Section 45 PMLA and that the gravity of the offence, the strength of the material, and the likelihood of tampering and re-offending justified continued custody. The bail application was therefore rejected.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether any substantial question of law arose from the Tribunal's order allowing refund of service tax on services rendered and consumed outside India.

1.2 Whether service tax was leviable when the services were rendered, received, and consumed outside India and thus beyond the taxable territory.

1.3 Whether the refund claim could be treated as premature or incomplete on the ground that payment for the services had not yet been received in convertible foreign exchange.

1.4 Whether the authorities below acted within jurisdiction and in compliance with principles of natural justice while dealing with the refund claim.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Existence of substantial question of law in appeal against Tribunal's refund order

Interpretation and reasoning

2.1.1 The Court noted that the material facts recorded by the Tribunal, including the nature and place of provision and consumption of services, were admitted and not controverted by the appellant before the Tribunal or before the Court.

2.1.2 In light of these admitted facts, the Court held that the challenge to the Tribunal's order did not give rise to any "substantial question of law worth the name".

Conclusions

2.1.3 The appeal under the substantial question of law jurisdiction was held to be not maintainable, and the Tax Appeal was rejected on this ground.

2.2 Levy of service tax on services rendered and consumed outside India (territorial jurisdiction)

Legal framework (as discussed)

2.2.1 The Tribunal proceeded on the principle that taxability of services under the Finance Act, 1994 depends on their rendition and consumption within the taxable territory of India, and that there must be sufficient nexus between rendition of services and the territorial limits of India.

Interpretation and reasoning

2.2.2 It was found and not disputed that the "consulting engineering services" in question were rendered, received, and consumed outside India by the foreign recipient, and that the entire service element was provided and consumed abroad.

2.2.3 The Tribunal applied the principle that the essence of service tax is taxation in the jurisdiction of consumption and provision; where the whole service is rendered and consumed outside India, it falls beyond the taxable territory and outside the charging provisions of the Finance Act, 1994.

2.2.4 It was held that, in such circumstances, there was an absence of jurisdiction to levy service tax, and the amount paid could not be treated as "service tax" but only as a deposit without authority of law.

2.2.5 The Court accepted this reasoning and the finding that the service tax liability on such services was not sustainable "for want of jurisdiction".

Conclusions

2.2.6 Services rendered and consumed outside India in the manner found on record are not leviable to service tax under the Finance Act, 1994, being beyond the taxable territory and lacking territorial nexus.

2.2.7 The amount paid by the assessee in such a situation is not legally payable as service tax and is refundable.

2.3 Effect of non-receipt of payment in convertible foreign exchange on refund claim

Legal framework (as discussed)

2.3.1 The authorities had relied upon Rule 3(2)(b) of the Export of Services Rules, 2005, regarding receipt of consideration in convertible foreign exchange as a condition for treating services as export.

Interpretation and reasoning

2.3.2 The assessee had disclosed that payment for services would be received in foreign exchange at a future date by another group entity under a novation arrangement; at the time of refund claim, payment had not been received in convertible foreign exchange.

2.3.3 The Tribunal held that, where the tax itself is not leviable because the services are rendered and consumed outside India and lie beyond the taxable territory, it is immaterial whether the payment is received in Indian currency or foreign currency.

2.3.4 On this basis, the Tribunal concluded that the refund claim could not be treated as premature or incomplete simply on the ground that the payment was yet to be received in foreign exchange, once non-taxability was established for want of territorial jurisdiction.

2.3.5 The Court endorsed this view and treated the condition regarding receipt in foreign exchange as irrelevant when the underlying service is outside the tax net.

Conclusions

2.3.6 Non-receipt of payment in convertible foreign exchange cannot justify refusal or return of a refund claim where the service itself is not taxable for lack of territorial nexus.

2.3.7 The refund could not validly be denied or deferred on the ground of pending receipt of foreign exchange in such circumstances.

2.4 Validity of the Assistant Commissioner's communication and compliance with principles of natural justice

Interpretation and reasoning

2.4.1 The Assistant Commissioner, instead of deciding the refund claim on merits, issued a communication directing the assessee to file the refund claim "duly completed in all respects", treating the claim as premature due to non-receipt of foreign exchange.

2.4.2 The appellate authority characterized the Assistant Commissioner's communication as an interim and administrative letter and refused to entertain the appeal on the ground that no final order on the refund claim had been passed.

2.4.3 The Tribunal found "sheer violation of the principles of natural justice", as the authorities below neither considered the judgments relied upon by the assessee nor recorded any findings distinguishing them, and the question of jurisdiction and taxability was not properly adjudicated.

2.4.4 The Tribunal, therefore, examined the jurisdictional issue itself, determined that the tax was not leviable, and held the refund to be due.

2.4.5 The Court did not find any legal infirmity in the Tribunal's approach and reasoning, particularly in light of the admitted and undisputed facts.

Conclusions

2.4.6 Mere issuance of an interim or administrative communication without adjudicating the refund claim on jurisdictional and legal grounds, and without considering cited precedents, was held to be inconsistent with principles of natural justice.

2.4.7 The Tribunal was justified in addressing the core jurisdictional issue and granting refund, and no substantial question of law arose from its doing so.

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether service tax liability on royalty income arising from a know-how licensing agreement could be fastened on a manufacturing unit when such income was earned and accounted for by the corporate office holding a separate service tax registration.

(2) Whether licensing of technical know-how under a Know-How Licensing Agreement is taxable under the category of "Intellectual Property Service".

(3) Whether service tax under reverse charge on "export sales expenses" is sustainable under "Business Auxiliary Service" in the absence of specification of the applicable sub-clause of Section 65(19) of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Service tax liability on royalty income earned by corporate office having separate registration

Interpretation and reasoning

(a) The Court noted that the know-how licensing agreement was entered into by the corporate office, which also raised invoices and directly received royalty remittances in its own bank account.

(b) The appellant unit was only one of several manufacturing units of the same legal entity, and the royalty figure appeared in the consolidated balance sheet of the corporate office.

(c) The appellant unit possessed a separate service tax registration distinct from that of the corporate office.

(d) Relying on precedent, the Court held that a commissionerate cannot fasten service tax liability on a unit in respect of services/income pertaining to another separately registered unit beyond its territorial and registration jurisdiction.

(e) The demand was based solely on data retrieved from the corporate office records and consolidated balance sheet, without establishing that the taxable service was rendered by, or consideration received by, the appellant unit.

Conclusions

(f) Where royalty income and the related taxable activity pertain to the corporate office holding a separate registration, service tax, if any, is payable by that registered unit alone and not by another unit with a different registration.

(g) The demand of service tax on royalty income against the appellant unit was held to be without jurisdiction and unsustainable, and was accordingly set aside.

Issue 2 - Taxability of licensing of know-how under "Intellectual Property Service"

Legal framework (as discussed)

(a) Section 65(55a) of the Finance Act, 1994 defines "intellectual property right" as any right to intangible property, namely trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, excluding copyright.

(b) Section 65(55b) defines "intellectual property service" as transferring or permitting the use or enjoyment of any intellectual property right.

(c) Section 65(105)(zzr) defines taxable service as any service provided or to be provided by the holder of intellectual property right in relation to intellectual property service.

(d) Tribunal precedent holds that, for a right to qualify as "intellectual property right" for service tax purposes, it must be recognized/registered under Indian law "for the time being in force".

Interpretation and reasoning

(e) The Court relied on earlier Tribunal decisions (including one affirmed by the Supreme Court) which held that technical know-how, designs, trademarks, and similar rights not registered/recognized in India do not qualify as "intellectual property right" within Section 65(55a).

(f) It was reiterated that only intellectual property rights covered by Indian law and duly registered (e.g. trademarks/patents with the competent Indian authorities) fall within the taxable ambit of "intellectual property service".

(g) In cases where the know-how or similar rights are not so registered/recognized in India, there can be no taxable "intellectual property service", and consequently no liability under reverse charge.

Conclusions

(h) Licensing of technical know-how under the concerned agreement did not constitute a taxable "Intellectual Property Service" within the meaning of Sections 65(55a), 65(55b) and 65(105)(zzr).

(i) No service tax was payable by the appellant under reverse charge on such know-how licensing; the related demand was set aside.

Issue 3 - Service tax under reverse charge on "export sales expenses" under Business Auxiliary Service

Interpretation and reasoning

(a) The demand on export sales expenses was raised under "Business Auxiliary Service" on reverse charge basis.

(b) The Court observed that the show cause notice and adjudication did not specify the particular sub-clause of Section 65(19) under which the impugned activities were sought to be classified as BAS.

(c) It was noted that liability had been mechanically computed from the figures of foreign currency expenses without analysis of the precise nature of services or correlation with any specific ingredient of BAS.

(d) The Court applied the settled principle that the burden lies on the Department to identify the exact taxable service and sub-clause and to demonstrate how the statutory ingredients are satisfied; failure to do so vitiates the demand.

Conclusions

(e) In the absence of invocation of a specific sub-clause of Section 65(19) and without proper classification and factual correlation, service tax demand under BAS on export sales expenses on reverse charge basis is not sustainable.

(f) The demand of service tax on export sales expenses under Business Auxiliary Service was set aside in entirety.

Overall disposition

(g) As the demands on royalty income and export sales expenses were held unsustainable on merits and jurisdiction/classification grounds, the impugned order was set aside and the appeal allowed with consequential relief.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether refund of the amount deposited during investigation could be denied as barred by limitation under Section 102(3) of the Finance Act, 1994, in the factual circumstances of the case.

1.2 Whether alleged procedural/documentary deficiencies and non-compliance with conditions under Section 102(1) and related notification could justify denial of refund where the services were found to be non-taxable and investigation was closed holding no service tax liability.

1.3 Whether retention of the amount deposited, after closure of investigation and acknowledgement of non-liability, is contrary to Article 265 of the Constitution and principles against unjust enrichment, thereby requiring refund with interest.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Limitation under Section 102(3) of the Finance Act, 1994

Legal framework (as discussed by the Court)

2.1 Section 102 of the Finance Act, 1994 grants a retrospective exemption for specified construction services provided to Government authorities for the period 01.04.2015 to 29.02.2016. Section 102(3) provides that refund of service tax in consequence of this retrospective exemption "shall be made within six months from the date on which the Finance Bill, 2016 receives the assent of the President", i.e., up to 14.11.2016.

2.2 The Department and the Tribunal proceeded on the footing that any refund beyond this period is barred, relying also on precedent wherein the time limit under Section 102(3) was treated as mandatory and non-relaxable.

Interpretation and reasoning

2.3 The Court noted that the deposit in question was made on 17.02.2016 during the pendency of investigation, and not pursuant to assessment, self-assessment, or any adjudication of service tax liability. Subsequently, on 15.12.2016, the Department issued a closure letter explicitly recording that no discrepancy relating to service tax liability was found and thereby dropped the investigation.

2.4 The Court emphasized that the appellant filed the refund application on 09.02.2017, i.e., promptly after the closure letter and after first acquiring certainty from the Department that no tax was legally payable. The amount had thus been paid under a mistaken belief during investigation, in a context where the Department itself later concluded that no liability existed.

2.5 Relying on decisions dealing with amounts collected during investigation without adjudication, the Court underscored that: (i) an assessee cannot be compelled to pay tax at the investigation stage without determination of liability; (ii) any amount so collected, without following statutory adjudication machinery or issuance of show-cause notice, is liable to be refunded; and (iii) such collections, if retained, offend Articles 265 and 300A of the Constitution.

2.6 The Court found that Section 102(3) and the associated time limit are framed in the context of refund of "service tax" lawfully levied or collected and thereafter rendered non-payable by a retrospective exemption. In the present case, once the Department itself accepted that no service tax liability existed at all, the amount paid did not partake the character of "service tax" legitimately due.

2.7 Drawing from the reasoning in decisions holding that amounts paid under mistake of law, or during investigation without adjudication, do not become valid tax by mere nomenclature, the Court held that such sums fall outside the regular charging and refund machinery and cannot be strictly controlled by the special limitation under Section 102(3), when that would result in retention of an amount never lawfully leviable.

2.8 The Court further noted that various precedents recognize the right to refund of amounts illegally or mistakenly paid, with limitation running from the date of discovery of mistake, and that limitation provisions should not be construed so rigidly as to defeat substantive rights where the tax itself is without authority of law.

2.9 In light of the closure letter confirming non-liability, the subsequent prompt filing of the refund claim, and the constitutional prohibition on retention of tax without authority of law, the Court held that the reliance on Section 102(3) to deny refund was misplaced and unsustainable. The special limitation could not be so applied as to negate the right to restitution in respect of an amount which the Department could not have lawfully demanded or retained.

Conclusions

2.10 The Court concluded that the refund claim could not be rejected as time-barred under Section 102(3) in the peculiar facts where (i) the payment was made during investigation, (ii) the Department later confirmed absence of service tax liability, and (iii) the refund was sought promptly after closure of investigation. The strict statutory cut-off under Section 102(3) was held inapplicable to defeat the appellant's substantive right to refund.

Issue 2 - Effect of procedural/documentary deficiencies and conditions under exemption/refund scheme

Legal framework (as discussed by the Court)

2.11 The authorities had rejected the refund on grounds including: non-furnishing of evidence of stamp duty on the contract as referred to in Section 102(1) and related notification, absence of work-order-wise breakup and ST-3 returns, and inability to verify the nature of services or establish non-passing of tax incidence.

Interpretation and reasoning

2.12 The Court observed that the Department itself, after detailed investigation and examination of documents, issued a closure letter dated 15.12.2016 clearly recording that no discrepancy in service tax liability was found. This departmental finding effectively acknowledged that the services in question were not taxable and that no service tax was leviable.

2.13 In this backdrop, the Court held that once the competent authority, after scrutiny, has accepted that no service tax was payable and closed the investigation, it is not open to subsequently deny refund on alleged insufficiencies in the same or similar documentation, or on technical deficiencies in forms and breakup statements.

2.14 The Court relied on judicial precedent stressing that where the Department lacks authority to demand tax due to exemption or non-taxability, any payment made under a mistaken notion cannot be treated as lawful tax; procedural conditions or technical requirements under refund provisions cannot be used to validate an otherwise unauthorized collection or to defeat the assessee's right to restitution.

2.15 It was also noted that in analogous cases, courts and tribunals have regarded amounts deposited during investigation as in the nature of pre-deposit, holding such sums not to be hit by statutory limitation or unjust enrichment when liability itself is negated and the depositor promptly claims refund.

2.16 The Court therefore reasoned that, where the substantive finding is that no service tax liability exists, and the payment was not legally due, the Department cannot shelter behind alleged documentary shortcomings or literal invocation of notification preconditions to retain the amount. Such an approach would elevate form over substance and condone retention of money without authority of law.

Conclusions

2.17 The Court held that the grounds of non-furnishing of certain documents, alleged non-compliance with notification conditions, and similar procedural lapses could not justify denial of refund when the investigation itself culminated in an express finding of no tax liability. These objections were found insufficient to defeat the appellant's right to refund of an amount not legally payable.

Issue 3 - Constitutional mandate under Article 265, unjust enrichment and entitlement to refund with interest

Legal framework (as discussed by the Court)

2.18 The Court considered the constitutional requirement under Article 265 that no tax shall be levied or collected except by authority of law, and the corresponding obligation of the State to refund amounts collected without such authority. The Court also adverted to jurisprudence under the Contract Act and Limitation Act recognizing the right to recover payments made under mistake of law and the duty of the State to investigate and refund when illegality is established.

Interpretation and reasoning

2.19 Citing multiple precedents, the Court reiterated that: (i) taxes illegally levied or collected must be refunded; (ii) mere acquiescence, mistake, or voluntary payment does not confer legality on a levy devoid of statutory basis; (iii) there can be no estoppel against statute in tax matters; and (iv) retention of such amounts, on technical or procedural grounds, amounts to unjust enrichment by the State.

2.20 The Court emphasized that, in the present case, the Department had conclusively accepted that there was no service tax liability on the services in question. Consequently, the amount deposited during investigation lacked statutory foundation and could not be treated as valid tax under the Finance Act.

2.21 The Court considered authorities holding that when the revenue retains amounts paid under mistake or without lawful authority, refusal to refund violates Article 265 and results in unauthorized enrichment, and that courts are bound to direct refund with interest once non-liability is established and the claim is pursued within a reasonable period.

2.22 The Court also recognized that the appellant had not abandoned its claim; instead, it had promptly filed a refund application after closure of investigation and pursued the statutory and appellate remedies diligently. In these circumstances, denial of refund solely on rigid application of special limitation or technical grounds was found inconsistent with constitutional norms and settled refund jurisprudence.

Conclusions

2.23 The Court held that retention of the deposited amount after the Department's own finding of non-liability infringes Article 265 and results in unjust enrichment of the State. The appellant is entitled to refund of the amount deposited during investigation, together with applicable interest, and such refund cannot be denied on the basis of Section 102(3) limitation or alleged procedural/documentary defects.

2.24 Consequently, the Court set aside the orders of the appellate authority and the Tribunal, declared the appellant entitled to refund of the amount towards service tax, and directed the respondents to sanction the refund within the stipulated timeframe along with interest, thereby allowing the appeal.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the statements recorded from various persons, subsequently retracted, and not subjected to the procedure under Section 9D of the Central Excise Act, 1944, could be relied upon as substantive evidence to link the appellant with the alleged factory premises and the alleged clandestine manufacture and clearance of gutkha and tobacco.

1.2 Whether there was sufficient admissible and corroborative evidence on record to establish that the appellant was the owner or controller of the premises at 105, Baldau Chowk, Orai and was engaged in manufacture and clandestine removal of excisable goods therefrom, so as to justify the demand of central excise duty, interest and penalties.

1.3 Whether the goods and currency seized from the appellant's residence and the goods and materials seized from the alleged factory premises were liable to confiscation, and whether any legal nexus was established between them and any alleged clandestine manufacturing activity.

1.4 Whether, in the facts found, mere presence of raw materials and finished pouches without any machinery for sealing could establish "manufacture" of marketable gutkha/tobacco pouches attracting duty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility and evidentiary value of statements (retractions and Section 9D)

Legal framework

2.1 The judgment considers Section 9D(1) of the Central Excise Act, 1944, which prescribes the conditions under which statements recorded before a gazetted Central Excise Officer become relevant for proving the truth of their contents, and mandates, where clause (a) is not attracted, that the maker be examined as a witness before the adjudicating authority before such statement can be admitted as evidence.

2.2 The Court refers to the principles laid down in decisions explaining that: (i) the burden lies on the department to establish that a confession/statement is voluntary; (ii) statements recorded under duress or coercion cannot be relied upon; and (iii) retracted statements, even if admissible, cannot be safely relied upon as substantive evidence without independent corroboration.

Interpretation and reasoning

2.3 The revenue's case primarily relied on the initial statement of Shri Ram Kumar Parihar recorded on 08.03.2017, the statement of the appellant's wife recorded on the same date, and the statements of Shri Ramesh Soni and Shri Manoj Chaurasiya, to link the appellant to the alleged factory and the brands in question.

2.4 Shri Ram Kumar Parihar, by letter dated 28.03.2017, categorically retracted his earlier statement, claiming it was recorded under pressure, and asserted that he himself had taken the premises at 105, Baldau Chowk, Orai on rent from the owners and was using it as a godown. He also explained the presence of empty pouches.

2.5 The appellant, by letter dated 26.03.2017, asserted that his wife was coerced during the search to sign blank papers and that her statement was recorded under pressure and coercion.

2.6 Shri Ramesh Soni also retracted his statement via letter dated 28.03.2017, alleging incorrect recording of facts. Shri Manoj Chaurasiya's first statement dated 03.04.2017 did not name the appellant, and his later statement dated 13.02.2020 merely relayed what agents allegedly told him, which the Court treated as hearsay.

2.7 Despite these retractions and allegations of coercion, the adjudicating authority treated the statements as voluntary without undertaking any examination or analysis to determine voluntariness or to address the allegations of pressure, contrary to the principles laid down by higher courts.

2.8 The Court finds that the adjudicating authority did not comply with Section 9D(1)(b). None of the persons whose statements were relied upon were examined as witnesses in adjudication proceedings; nor was clause (a) of Section 9D(1) invoked. In the absence of following the statutory procedure, such statements could not be treated as relevant for proving the truth of their contents.

2.9 The Court, relying on the interpretation of Section 9D, holds that failure to admit the statements in evidence in the prescribed manner renders reliance on them as substantive material legally impermissible and vitiates the adjudication.

2.10 Further, even as retracted statements, they required independent corroboration by reliable, independent material, which was absent in the present case.

Conclusions

2.11 The statements of Shri Ram Kumar Parihar, the appellant's wife, Shri Ramesh Soni and Shri Manoj Chaurasiya, being retracted and not admitted in evidence as mandated under Section 9D(1)(b), are held to be inadmissible as substantive evidence and are required to be eschewed from consideration.

2.12 In the absence of compliance with Section 9D and in view of retractions and allegations of coercion, the statements cannot be relied upon to link the appellant with the alleged factory premises or to establish clandestine manufacture or clearance.

Issue 2: Sufficiency of evidence linking appellant to alleged factory and clandestine manufacture/removal

Interpretation and reasoning

2.13 Once the statements are excluded, the remaining material relied on by the revenue comprised: (i) seizure of goods and raw materials at the alleged factory premises; (ii) seizure of goods, currency and loose papers from the appellant's residence; and (iii) certain test reports on samples.

2.14 The Court notes that the owner/co-owner of the premises at 105, Baldau Chowk, Orai confirmed, by letter dated 09.09.2017 and rent receipts, that the premises was rented to Shri Ram Kumar Parihar, not the appellant. This supported Parihar's own retracted statement that he had taken the premises on rent for storage.

2.15 No independent or admissible evidence was produced to show that the appellant had any proprietary, possessory, or managerial connection with the premises at 105, Baldau Chowk, Orai.

2.16 Regarding alleged clandestine manufacture and removal, the Court stresses that the charge of clandestine removal is a "serious charge" which must be established by "tangible and sufficient evidence".

2.17 The department did not establish, through admissible evidence, any: (i) records of purchase of raw materials by the appellant for the alleged factory; (ii) factory workforce under the appellant's control; (iii) transport or movement of material between the appellant's residence and the alleged factory; (iv) details of purchasers, recipients or buyers; or (v) corroborative documents evidencing manufacture and clandestine clearance.

2.18 The loose papers resumed from the appellant's residence were consistently disputed by the appellant as planted and not in his handwriting. Despite this, the department neither conducted any handwriting examination nor verified the details therein by tracing recipients or corroborating any alleged transactions.

2.19 Instead, the adjudicating authority presumed that the entries in the loose papers represented clandestine clearances by the appellant and quantified duty solely on that basis, without corroboration.

2.20 The Court finds that this approach is contrary to the requirement that the department must prove the truth of the contents of such documents by independent evidence and investigation, particularly when their very recovery and authorship are disputed.

Conclusions

2.21 There is no admissible and corroborative material linking the appellant to the alleged factory premises at 105, Baldau Chowk, Orai.

2.22 The revenue has failed to establish, by tangible and sufficient evidence, any clandestine manufacture or removal of gutkha/tobacco by the appellant.

2.23 Consequently, the demand of duty of Rs.49,62,028/-, interest thereon, and the penalties imposed on the appellant and on Shri Ram Kumar Parihar, based on alleged clandestine manufacture/clearance, are unsustainable and are set aside.

Issue 3: Confiscation of goods and currency seized from residence and alleged factory premises

Interpretation and reasoning

2.24 Goods including raw materials and packing materials were seized from the alleged factory premises at 105, Baldau Chowk, Orai, and goods, raw materials and currency of Rs.16,72,000/- were seized from the appellant's residence.

2.25 The appellant's consistent plea was that the goods at his residence were procured for starting a trading business during Navratri. He could not produce purchase documents, but apart from the inadmissible statements, there was no evidence to show that these goods were intended for or were in fact transferred to or used at the alleged factory premises.

2.26 The Court observes that once the statements are excluded, there is "absolutely no material" to link the goods found at the appellant's residence with those at the alleged factory premises.

2.27 The department did not undertake any matching or comparative analysis between the goods found at the residence and those at the alleged factory to establish such linkage.

2.28 As regards the loose papers seized from the residence, since their recovery and authorship were specifically disputed, and no handwriting or other corroborative investigation was conducted, and no independent verification of the contents was made, the Court holds that they cannot be treated as reliable evidence of clandestine removal or of the nature of the currency seized.

2.29 In the absence of any proved connection between the appellant, the alleged factory, and the alleged clandestine manufacture, there is also no basis to treat the seized currency as sale proceeds of illicitly manufactured gutkha/tobacco.

Conclusions

2.30 In the absence of any legally acceptable evidence linking the goods and currency seized from the appellant's residence with any clandestine manufacture or with the alleged factory premises, confiscation of those goods and of the currency of Rs.16,72,000/- is unsustainable and is set aside.

2.31 The penalties imposed on the appellant in relation to such confiscation, including the penalty of Rs.1,50,000/- under Rule 25 of the Central Excise Rules, 2002, are also unsustainable and are set aside.

Issue 4: Existence of "manufacture" and marketability in absence of sealing machinery

Interpretation and reasoning

2.32 The revenue's case was that gutkha/tobacco products were manufactured at the alleged factory premises by mixing raw materials by hand.

2.33 The Court notes that neither the panchnama nor the show cause notice records presence of any sealing machine or even a hand sealer at the alleged factory premises.

2.34 The Court considers it a matter of common knowledge that merely mixing raw materials does not render gutkha/tobacco marketable; such mixture becomes marketable excisable goods only when filled into pouches and sealed.

2.35 In the absence of any evidence of machinery or equipment for sealing pouches at the alleged factory premises, the allegation of actual "manufacture" of marketable gutkha/tobacco pouches at that site is found to be doubtful and unsupported by necessary evidence.

Conclusions

2.36 The department has failed to prove existence of manufacturing activity at the alleged factory premises in the sense of producing marketable excisable goods in sealed pouches.

2.37 Even assuming the presence of mixture or intermediate material, this alone, without evidence of sealing/packaging facility, is insufficient to fasten excise duty liability on the appellant.

Issues: Whether the show cause notice and consequential demand for recovery of Cenvat credit were barred by limitation, the department having invoked the extended period under Section 11A(4) of the Central Excise Act, 1944.

Analysis: The assessee had informed the jurisdictional officers in November 2016 about completion of the exemption period, availment of Cenvat credit, and the details of credit reflected in returns. The record also contained the contemporaneous correspondence and a Chartered Accountant's certificate supporting the credit availment. In these circumstances, the facts giving rise to the dispute were already within the department's knowledge in November 2016. For invocation of the extended period, the department was required to establish the existence of fraud, wilful misstatement, collusion, or suppression with intent to evade duty. That burden was not discharged. Since issuance of notice within the normal period is the rule and invocation of the extended period is the exception, the demand could not be sustained.

Conclusion: The show cause notice was time-barred and the demand under the extended limitation period was unsustainable; the finding is in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded on the ground of limitation.

Ratio Decidendi: The extended period of limitation under Section 11A(4) cannot be invoked unless the department proves the requisite elements justifying such invocation, and prior knowledge of the material facts defeats a time-barred demand.

Issues: Whether the Tribunal could ignore limitation under the Maharashtra Value Added Tax Act, 2002, direct scrutiny of returns and refund processing beyond the prescribed period, hold that filing of Form 501 was not mandatory, reject the Revenue's rectification application, and whether an appeal lay against the rectification order.

Outcome: The appeal was admitted on substantial questions of law, the issues were kept open for final hearing, and no final adjudication was made on the merits.