TaxTMI Updates e-Newsletter
Dec 27,2021

Violation of principle of natural justice - scope of 'hearing' under Section 75(4) of the GST Act - written representation as compliance with hearing requirement - inherent lack of jurisdiction versus irregular exercise of jurisdiction - availability of statutory alternative remedy by way of appeal

Violation of principle of natural justice - scope of 'hearing' under Section 75(4) of the GST Act - written representation as compliance with hearing requirement - Whether non-grant of a personal hearing amounted to violation of the principles of natural justice. - HELD THAT: - The Court found that a show-cause notice was issued and the petitioners filed detailed written representations in response. The statutory provision cited requires that a hearing be afforded but does not mandate a personal hearing. The authority had accepted written submissions from the petitioners and the petitioners did not request a personal hearing in their reply. The Court applied the settled principle that opportunity of hearing may be satisfied either by permitting written representations or by allowing a personal hearing; where written representation is provided and no statutory requirement for personal hearing exists, absence of a personal hearing does not constitute a breach of natural justice.

Non-grant of a personal hearing did not violate the principles of natural justice where the petitioners had submitted written representations and no provision mandated a personal hearing.

Inherent lack of jurisdiction versus irregular exercise of jurisdiction - availability of statutory alternative remedy by way of appeal - Whether the adjudicating authority lacked jurisdiction to pass the impugned order. - HELD THAT: - The petitioners failed to demonstrate that the adjudicating authority was inherently without jurisdiction under the statute. The Court distinguished between an authority acting irregularly in the exercise of jurisdiction and an authority having no jurisdiction at all; the record did not establish the latter. The Court recorded that disagreements with the reasons or manner of exercise of jurisdiction are matters for statutory appellate remedy rather than grounds for writ relief under Article 226 when no inherent lack of jurisdiction is shown.

No inherent lack of jurisdiction was found; jurisdictional objections amounted, if at all, to irregularity or dissatisfaction addressable by appeal.

Availability of statutory alternative remedy by way of appeal - Whether the petitioners were entitled to invoke writ jurisdiction despite the availability of a statutory appeal. - HELD THAT: - The Court held that where a statutory forum for redress (appeal) is available and the challenge is essentially to the merits or sufficiency of reasons in the adjudication order, constitutional writ jurisdiction is not the appropriate remedy. The petitioners were not shown to be remediless; therefore invoking Article 226 was inappropriate in the circumstances.

Writ jurisdiction was not appropriate; the petitioners' remedy lay in the statutory appeal process.

Final Conclusion: Writ petition dismissed: the adjudicating authority complied with the hearing requirement by considering written representations, no inherent lack of jurisdiction was shown, and the petitioners have the statutory remedy of appeal.

Mandatory pre-deposit for filing appeal under Section 107(6)(b) of the Central Goods and Services Tax Act, 2017 - rejection of appeal for non-compliance with pre-deposit condition - maintainability of writ petition in presence of alternative statutory remedy under Section 112

Mandatory pre-deposit for filing appeal under Section 107(6)(b) of the Central Goods and Services Tax Act, 2017 - rejection of appeal for non-compliance with pre-deposit condition - Validity of the order rejecting the appeal for failure to deposit 10% of the remaining tax in dispute as required under Section 107(6)(b) of the CGST Act, 2017. - HELD THAT: - The Appellant Authority rejected the appeal on the ground that the petitioner had not deposited a sum equal to ten percent of the remaining amount of tax in dispute, as mandated by clause (b) of sub-section (6) of Section 107 of the Act of 2017. The Court examined the statutory requirement and the admitted non-compliance by the petitioner. Given the clear obligation to make the specified pre-deposit before filing an appeal under Section 107, the Court found no infirmity in the impugned order rejecting the appeal for failure to comply with the pre-deposit condition. The order of the Appellant Authority was therefore sustained on this point.

Order rejecting the appeal for non-deposit of 10% of the remaining tax was upheld; no fault found with the impugned order.

Maintainability of writ petition in presence of alternative statutory remedy under Section 112 - Whether the writ petition challenging the Appellant Authority's order is maintainable despite the availability of a statutory appeal under Section 112. - HELD THAT: - The Court noted that the impugned order is appealable to the Appellate Tribunal under Section 112 of the Act of 2017. In view of the existence of this alternative, efficacious statutory remedy, the High Court considered the present petition premature. The petition was therefore not entertained at this stage. The Court, however, granted the petitioner liberty to make an appropriate application before the appellate authority seeking permission to deposit the prescribed 10% in strict compliance with the statutory provision, leaving the appellate authority to decide that application in accordance with law.

Writ petition held premature and not entertained; petitioner given liberty to approach the appellate authority under the statutory remedy.

Final Conclusion: The petition is disposed of as premature: the order rejecting the appeal for non-deposit of the statutory pre-deposit is sustained, and the petitioner is granted liberty to apply to the appellate authority for compliance with the deposit condition; no costs.

Exercise of discretion under Section 80 of the Central Goods and Services Tax Act, 2017 - rejection of application for consideration under Section 80 - payment of tax demand by instalments - quantification of penalty and interest - restoration of GST registration - consequence of default-cancellation of registration

Payment of tax demand by instalments - restoration of GST registration - consequence of default-cancellation of registration - Petitioner permitted to repay the quantified demand in installments and registration ordered to be restored subject to compliance and default consequences. - HELD THAT: - Balancing equities and in view of public interest in enabling the industry to resume so as to satisfy the demand, meet future tax liabilities and provide employment, the Court allowed the petitioner to pay the amount as quantified by the authorities in ten equal monthly instalments. The instalments are to be paid on or before the 5th day of each month commencing from 15.01.2022. Authorities were directed to restore the petitioner's registration within two weeks of receipt of the order. The Court expressly provided that any default in the instalment schedule would permit the respondents to pursue legally available recovery measures and would also automatically result in cancellation of registration. [Paras 8, 9, 10]

Petitioner allowed to pay the quantified demand in ten equal monthly instalments commencing 15.01.2022; registration to be restored within two weeks; default entitles respondents to recover the amount and will result in cancellation of registration.

Quantification of penalty and interest - rejection of application for consideration under Section 80 - Amount of liability (penalty and interest) to be quantified by the tax authority and communicated to the petitioner for repayment in instalments. - HELD THAT: - The Court did not adjudicate the correctness of the computation of penalty and interest on the merits but directed respondent no.2 to compute and indicate the actual amount payable by the petitioner within two weeks so that the instalment mechanism ordered by the Court can operate. This requirement is procedural and for computation and disclosure; the authority's quantified figure will form the basis for repayment under the schedule set by the Court. [Paras 6, 9]

Respondent no.2 to quantify and communicate the amount of penalty and interest within two weeks; repayment to follow the ten-instalment schedule thereafter.

Final Conclusion: Writ petition disposed by permitting repayment of the quantified GST demand for the period December, 2017 to December, 2018 in ten equal monthly instalments (commencing 15.01.2022), directing restoration of registration within two weeks, and directing respondent no.2 to quantify penalty and interest within two weeks; defaults permit recovery and will lead to cancellation of registration.

Writ under Article 226 - Maintainability of writ petition against assessment order - Remedial route to Appellate Authority - Principles of natural justice - Duty to pass reasoned order on facts and law - Independence of Appellate Authority

Writ under Article 226 - Maintainability of writ petition against assessment order - Remedial route to Appellate Authority - Whether the High Court should entertain the writ petition challenging the assessment order or remit the matter to the Appellate Authority for factual and legal adjudication. - HELD THAT: - The Court declined to exercise its extraordinary jurisdiction under Article 226 in the present proceedings because the core contentions raised by the petitioner related to factual matters that were not admitted or proved and required initial consideration and adjudication by the statutory appellate forum. The Court accepted the respondent's submission that the Appellate Authority is better placed to examine documents, summon and examine witnesses if necessary, and consider the issues on facts and law after giving the petitioner full opportunity of hearing. The Court further observed that the Appellate Authority must apply its independent mind and not be influenced by directions issued to subordinate authorities. Having found that the disputes are essentially factual and capable of being resolved by the appellate process, the High Court refused to entertain the writ petition and granted liberty to the petitioner to pursue the statutory appeal, directing the Appellate Authority to consider all points raised and to pass a reasoned order dealing with facts and law. The Court expressly refrained from expressing any opinion on the merits. [Paras 6, 7, 8, 9, 10]

Writ petition not entertained; petitioner granted liberty to approach the Appellate Authority which shall give hearing, consider all points on facts and law, and pass a reasoned and independent order; Court expressed no opinion on merits.

Final Conclusion: Writ petition disposed of for want of factual adjudication in writ forum; petitioner permitted to pursue statutory appeal and Appellate Authority directed to decide afresh on the merits after hearing, applying independent mind; no opinion expressed by this Court on merits.

Reason to believe that income chargeable to tax has escaped assessment - reopening under Section 148 - sanction under Section 151 - non-application of mind - correctness of facts in reasons for reopening - order on objections must deal with factual assertions - obligation to verify failure to disclose full and true material facts

Reason to believe that income chargeable to tax has escaped assessment - correctness of facts in reasons for reopening - non-application of mind - sanction under Section 151 - Validity of the notice issued under Section 148 and the sanction/order impugned, in view of factual errors in the reasons and alleged non-application of mind by the sanctioning authority and Assessing Officer. - HELD THAT: - The court applied the settled principle that the Assessing Officer acquires jurisdiction to issue a reopening notice only upon a reason to believe that income chargeable to tax has escaped assessment, and that such reason must be founded on correct facts. The reasons for reopening filed in this case contained demonstrable factual errors - inter alia, inconsistent dates suggesting the return was filed and a scrutiny assessment completed on the same date, an assertion that the company held shares in itself, and an incorrect account of shareholding changes. These errors show that the sanction under Section 151 was granted without application of mind. Further, where an assessee points out such incorrect facts in objections, the order disposing of those objections must deal with and prima facie establish the correctness of the facts as recorded by the Revenue; failure to do so allows an adverse inference against the Revenue. The Division Bench's precedents were applied to hold that proceeding on fundamentally wrong facts deprives the Assessing Officer of jurisdiction to reopen the assessment. The court also relied on the obligation of the sanctioning authority to verify whether there was any failure by the assessee to disclose full and true relevant facts before granting approval. For these reasons the impugned notice and the order disposing of objections were held unsustainable. [Paras 4, 6]

The reopening notice under Section 148 and the order rejecting objections are quashed on the ground that the reasons and sanction suffer from non-application of mind and are founded on incorrect facts.

Final Conclusion: Petition allowed; the notice dated 31.03.2019 issued under Section 148 for A.Y. 2014-15 and the order dated 14.10.2019 rejecting objections are quashed and set aside.

Section 197 certificate - Tax deduction at source under section 195 - Equalisation Levy vis-a -vis income chargeability under section 10(50) - Characterisation as Royalty or Fees for Technical Services under the DTAA - Permanent Establishment - Requirement of a reasoned order and de novo adjudication

Section 197 certificate - Tax deduction at source under section 195 - Requirement of a reasoned order and de novo adjudication - Equalisation Levy vis-a -vis income chargeability under section 10(50) - Characterisation as Royalty or Fees for Technical Services under the DTAA - Validity of the order refusing a NIL certificate under section 197 and directing TDS at a specified rate on the petitioner's receipts; and whether the Assessing Officer must reconsider the application in a reasoned manner taking into account the amendment to section 10(50) and relevant DTAA provisions. - HELD THAT: - The Court found that the impugned order recorded a preliminary view but ultimately directed TDS at 10% without any reasoning as to how that rate was arrived at, and without addressing the effect of the amendment to section 10(50) which delineates amounts chargeable to equalisation levy and excludes amounts chargeable as royalty/FTS under the Act read with the DTAA. The order also failed to discuss the applicability of sub-articles of Article 12 of the India-USA DTAA (including the petitioner's alternate characterisation as an educational/university entity under Article 12(5)(c)) or to explain whether and to what extent apportionment between amounts taxable as royalty/FTS and amounts subject to equalisation levy was required. For these reasons the impugned order was set aside and the matter remitted to Respondent No.1 for a de novo, reasoned decision after affording the petitioner an opportunity of being heard. The petitioner is directed to supply information the Assessing Officer requires, and the reassessment is to be completed within four weeks. The Court expressly refrained from expressing any opinion on the substantive merits of characterization or tax liability. [Paras 7, 8, 9, 10, 11]

Impugned order dated 27.09.2021 set aside; Respondent No.1 directed to pass a de novo reasoned order considering the amendment to section 10(50) and relevant DTAA provisions, after hearing the petitioner and on petitioner furnishing requisite information, within four weeks; no expression of opinion on merits.

Final Conclusion: Writ petition allowed to the extent of setting aside the impugned order; the matter is remitted for fresh, reasoned consideration by the Assessing Officer in conformity with the directions above, with all substantive contentions left open.

Vagueness in show cause notice - concealment of particulars of income - furnishing inaccurate particulars of income - penalty under Section 271(1)(c) - vitiation of penalty proceedings due to defective notice - jurisdictional issue going to the root of the lis - strict construction of penal provisions

Vagueness in show cause notice - concealment of particulars of income - furnishing inaccurate particulars of income - penalty under Section 271(1)(c) - vitiation of penalty proceedings due to defective notice - Validity of the show cause notice dated 12.02.2008 issued under Section 271(1)(c) where the notice did not specify whether the assessee had concealed particulars of income or furnished inaccurate particulars. - HELD THAT: - The Court held that a penalty proceeding under Section 271(1)(c) must be founded on a statutory notice that informs the assessee of the specific ground or grounds relied upon. Relying on the Full Bench decision in Mohd. Farhan, the Court concluded that an omnibus or vague notice which fails to indicate whether penalty is sought for concealment of particulars of income or for furnishing inaccurate particulars (or both) suffers from the vice of vagueness and vitiates the penalty proceedings. The Court observed that even where satisfaction is recorded in the assessment proceedings, the penalty proceedings must stand on their own and the assessee must be apprised of the precise basis of the proposed penalty through the statutory notice. The Full Bench reasoning that ambiguity must be resolved in the assessee's favour and that Kaushalya's approach was not correct was treated as binding. Applying that principle to the present notice (which merely stated that the assessee "has concealed the particulars of your income or furnished inaccurate particulars of such income" without specifying which), the Court found the notice legally defective and the consequent penalty proceedings vitiated. Because the validity of the notice was a jurisdictional matter going to the root of the lis, the Court declined to decide the merits of the penalty adjudication and set aside the tribunal's order. [Paras 10, 11, 12]

The show cause notice dated 12.02.2008 is vitiated for failing to specify whether penalty was for concealment of particulars or for furnishing inaccurate particulars, and the penalty proceedings initiated thereon stand quashed.

Final Conclusion: The Tribunal's order upholding penalty is set aside; the appeal is allowed on the ground that the show cause notice dated 12.02.2008 was vague and vitiated the penalty proceedings, rendering further adjudication on merits unnecessary.

Re-opening of assessment - notice under Section 148 - proviso to Section 147 - failure to truly and fully disclose all material facts - change of opinion - speculative transaction / speculation loss - reasons recorded

Affidavit-in-reply - withdrawal of affidavit - delay in filing - Respondents' application to withdraw the Affidavit-in-Reply and to file a fresh Affidavit - HELD THAT: - The Court observed that the affidavit filed by an officer who had not issued the impugned notice contained incorrect statements as to disposal of objections and formation of independent belief. Counsel for Revenue sought leave to withdraw that Affidavit and to file a fresh one. The Court granted permission to withdraw the defective Affidavit but declined permission to file any fresh Affidavit because the Respondents had been given a two week period by the Court's earlier order dated 12/12/2019 to file their reply and the Affidavit now tendered was affirmed only after an inordinate delay of nearly two years. On this basis the Court proceeded on the footing that there was no reply filed by the Respondents. [Paras 1, 2, 3]

Permission granted to withdraw the defective Affidavit; permission refused to file any fresh Affidavit and the Court proceeded as if no reply had been filed.

Re-opening of assessment - proviso to Section 147 - failure to truly and fully disclose all material facts - change of opinion - speculative transaction / speculation loss - reasons recorded - Validity of the notice dated 27/03/2019 under Section 148 and the order rejecting the assessee's objections dated 24/09/2019 - HELD THAT: - The petitioner had filed original and revised returns and the assessment for AY 2012-13 was completed under Section 143(3). The impugned reopening notice and reasons relied on characterization of a disclosed item in the financial statements - a 'net loss of cancellation of forward contract' disclosed in Schedule 31 and Note 40 - as a speculative loss which, the Assessing Officer contended, should not have been allowed against regular business income. The Court found that these facts and disclosures were available before the original assessment and that nothing new had occurred between the assessment order and the formation of the Assessing Officer's later opinion. The Court applied the principle that where primary facts necessary for assessment were fully and truly disclosed, the Assessing Officer cannot reopen assessment merely because a different officer prefers a contrary view or forms a fresh opinion; a mere change of opinion does not justify reopening. Consequently, the reasons recorded amounted to a change of opinion on the same material and did not demonstrate failure to truly and fully disclose material facts as required by the proviso to Section 147. [Paras 4, 5, 6, 7, 8]

The notice under Section 148 and the order rejecting objections are quashed and set aside.

Final Conclusion: The Court refused permission to file a fresh reply affidavit, treated the record as containing no reply, and, on the merits, quashed the reassessment notice and the order rejecting objections for AY 2012-13 on the ground that the reopening represented a mere change of opinion and there was no failure to truly and fully disclose material facts.

Reopening of assessment - change of opinion - reason to believe - reassessment under Section 147/148 - primary facts fully and truly disclosed - reasons for reopening - recording date and time of sanction

Reopening of assessment - change of opinion - reason to believe - primary facts fully and truly disclosed - Validity of the notice issued under Section 148 seeking reopening of assessment for AY 2014-15. - HELD THAT: - The Court found that the reasons relied upon to re-open the assessment were founded on the same material that was available to the Assessing Officer at the time of the original assessment and that no new material or information had emerged between the date of the assessment order and the formation of the later opinion. The statutory power to reopen under Section 147/148 cannot be exercised as a device to review or re-assess an order merely because a different officer forms a different view; a mere change of opinion on the same materials is not a valid basis for reassessment. Where the primary facts necessary for assessment were fully and truly disclosed and considered, the Assessing Officer is not entitled to reopen proceedings on the ground of an opinion formed afresh from the same record. Applying these principles to the present facts, including the availability during original assessment proceedings of particulars about the overseas loan and depreciation on goodwill, the Court concluded that the reopening amounted to impermissible change of opinion.

Notice under Section 148 and the subsequent order rejecting objections are quashed insofar as they seek to reopen assessment for AY 2014-15.

Reasons for reopening - recording date and time of sanction - Adequacy and formal completeness of the reasons and sanction records provided for initiating proceedings under Section 148. - HELD THAT: - The Court observed discrepancies between the undated reasons form annexed to the petition and the reasons form annexed to the reply, including omissions of whole paragraphs and absence of dates in several instances. To ensure transparency and accountability, the Court directed that all reasons and forms recording approval or sanction must expressly mention the date and the date/time of signature; the authority granting sanction must write the date and time digitally beneath the signature. The respondent's counsel was directed to communicate this requirement to the Principal Chief CIT and CIT(Judicial) for compliance by all officers in the Income Tax Department.

Respondents directed to ensure that reasons and sanction records are dated and that the date/time of signing is digitally recorded beneath the signature; compliance to be conveyed by respondent's counsel to the appropriate departmental authorities.

Final Conclusion: The petition is allowed: the notice dated 26th March 2019 under Section 148 and the order dated 24th October 2019 rejecting objections are quashed in so far as they seek reassessment for AY 2014-15 on the ground of change of opinion; respondents are directed to comply with the Court's procedural directions regarding dating and digital recording of sanction/signature time.

Prior sanction under Section 151 of the Income tax Act - reopening assessment under Section 148 of the Income tax Act - jurisdictional condition for issuance of notice - application of mind by sanctioning authority - protection against arbitrary reopening and taxpayer harassment

Prior sanction under Section 151 of the Income tax Act - reopening assessment under Section 148 of the Income tax Act - application of mind by sanctioning authority - jurisdictional condition for issuance of notice - Validity of the notice under Section 148 in the absence of prior and bona fide sanction under Section 151. - HELD THAT: - The Court held that prior approval under Section 151 is a mandatory, jurisdictional pre condition to issuance of a notice under Section 148 and cannot be treated as a post facto endorsement. The statutory phrase 'No notice shall be issued' mandates that the superior officer apply his mind and record reasons, however brief, before a notice is issued so as to prevent arbitrary reopening and taxpayer harassment (paras. 11-12). Factual material on the record showed the notice was digitally signed at 2:40 p.m. on 31/03/2019 while the sanction was digitally signed at 2:55 p.m. on the same day (para. 5). The explanation that physical approval had earlier been granted was unsupported by cogent material; the timing and absence of supporting material rendered that explanation unacceptable (para. 13). Reliance on precedent established that a perfunctory remark of 'Yes, I am satisfied' without objective application of mind is insufficient (paras. 14-15). On these findings the Court concluded there was non application of mind by the Joint CIT and thus no valid prior sanction under Section 151, causing the Assessing Officer to act without jurisdiction in issuing the Section 148 notice (para. 16). [Paras 5, 11, 12, 13, 16]

Notice under Section 148 and consequential proceedings were void for want of the mandatory prior sanction under Section 151 and subject to quashing.

Final Conclusion: Writ petition allowed; the notice under Section 148, the related notice under Section 143(2)/142(1), and the order disposing objections are quashed for lack of valid prior sanction under Section 151.

Reopening of assessment - Validity of notice under Section 148 - Failure to disclose fully and truly all material facts - Proviso to Section 147 - jurisdictional restraint - Application of Section 14A and Rule 8D - Change of opinion

Validity of notice under Section 148 - Failure to disclose fully and truly all material facts - Proviso to Section 147 - jurisdictional restraint - Application of Section 14A and Rule 8D - Notice dated 11.03.2019 issued under Section 148 for Assessment Year 2012-2013 was invalid for want of jurisdiction. - HELD THAT: - The Court examined whether the proviso to Section 147 - which requires that reopening after completion of scrutiny assessment be predicated on failure to truly and fully disclose material facts - was satisfied. The reasons recorded for reopening consisted of bald averments that the assessee had failed to disclose material facts concerning applicability of Section 14A and Rule 8D in respect of dividend income. The record, however, showed that the assessee had filed a revised return and, during scrutiny proceedings, was specifically queried under Section 142(1) about dividend income and the computation under Rule 8D; the assessee replied explaining that dividend was exempt and that, being under the tonnage tax scheme, it was not claiming any expenditure against exempt income. The original assessment under Section 143(3) was framed after considering these submissions. In these circumstances the reasons did not cogently or clearly indicate any failure to disclose material facts and therefore did not satisfy the jurisdictional threshold in the first proviso to Section 147. Reliance on the decision in Crompton Greaves Ltd. was noted: while omission need not be spelled out in express words, the reasons must nonetheless disclose a clear case of non disclosure; here they did not. Consequently the assumption of jurisdiction under Sections 147/148 was ultra vires. [Paras 2, 3, 4, 5]

Impugned notice under Section 148 for AY 2012-2013 and rejection of objections quashed for want of jurisdiction.

Change of opinion - Revenue could not be permitted to change its opinion on the same set of facts to justify reopening. - HELD THAT: - The Court held that respondents cannot validly reopen assessment by adopting a different opinion based on the same material which was before the assessing officer when the scrutiny assessment under Section 143(3) was completed. Because the assessing officer had already applied his mind to the issue of dividend income and Rule 8D in framing the original assessment, a subsequent contrary view without fresh material or a demonstrable failure to disclose could not sustain a reopening under Sections 147/148. [Paras 4, 6]

Reopening cannot be upheld where it merely reflects a change of opinion on the same facts considered in the original assessment.

Final Conclusion: Writ petition allowed; notice dated 11.03.2019 issued under Section 148 for Assessment Year 2012-2013 and the order rejecting objections thereto are quashed on jurisdictional grounds; court confined its decision to the legality of reopening and did not adjudicate merits of assessment.

Rejection of declaration under the Direct Tax Vivad Se Vishwas Act, 2020 - locus standi of legal heir for filing declaration - authority's power to adjudicate maintainability or time bar of appeals under the DTVSV Act - timing for filing appeal vis a vis the 'specified date' in Section 2(1)(a)(ii) of the DTVSV Act - verification, computation and issuance of Form No.3 under the DTVSV Act

Locus standi of legal heir for filing declaration - rejection of declaration under the Direct Tax Vivad Se Vishwas Act, 2020 - Whether rejection of the declarations on the ground that petitioner's legal heir status lacked clarity was a valid basis for refusing the Form 1 declarations. - HELD THAT: - The Court held that Revenue's refusal to accept declarations solely on the ground that the petitioner's legal heir status was not clear in departmental records was not a valid reason for rejecting the declarations. Acceptance of a declaration under the DTVSV Act would not operate as a certification of entitlement to the deceased's estate and does not confer on the petitioner any proprietary entitlement; it merely enables resolution of tax disputes. Accordingly, rejection on the legal heir ground was incorrect and could not stand. [Paras 6, 7, 21, 23]

Rejection of the declarations on the ground of unclear legal heir status set aside; that ground is not a valid basis for refusing the declarations.

Authority's power to adjudicate maintainability or time bar of appeals under the DTVSV Act - timing for filing appeal vis a vis the 'specified date' in Section 2(1)(a)(ii) of the DTVSV Act - rejection of declaration on time bar grounds - Whether the officer considering declarations under the DTVSV Act is empowered to adjudicate maintainability or to hold that appeals were filed beyond time, and whether on the facts the time for filing appeals had expired as on the date of the declarations. - HELD THAT: - The Court observed that the officer who reviews declarations under the DTVSV Act is not empowered to decide the maintainability of appeals pending before the ITAT and cannot adjudicate whether appeals were time barred. On the facts of this case the petitioner showed that certified copies and necessary papers required to file appeals were received only on 17th December, 2020 after various departmental reorganisations, task force enquiries and delays in obtaining complete records; the declarations were filed on 13th January, 2021. Taking these facts into account, the Court found that the time for filing appeals had not expired as on the date of filing the declarations and therefore rejection on time bar grounds was incorrect. The Court also noted that Revenue's contention that documents could have been procured earlier did not negate the factual findings regarding delay and coordination difficulties in the departmental records. [Paras 15, 16, 18, 19, 20]

The reviewer/officer cannot determine maintainability/time bar of appeals under the DTVSV Act; on the facts the time for filing appeals had not expired on the date of the declarations and rejection on time bar grounds was incorrect.

Verification, computation and issuance of Form No.3 under the DTVSV Act - rejection of declaration under the Direct Tax Vivad Se Vishwas Act, 2020 - Direction to the authorities on further proceedings after setting aside the rejection of the declarations. - HELD THAT: - Having found the rejections to be unsustainable, the Court directed respondents to verify the declarations filed by the petitioner under Section 4(1) of the DTVSV Act and to determine the tax payable by issuing Form No.3 under Section 3 of the Act. The Court emphasised the object of the DTVSV Act to provide closure of disputed tax and ordered the departmental authorities to proceed with verification and determination in accordance with law. The order was not to be used to adjudicate or affect any estate related disputes between the petitioner and other legal heirs. [Paras 20, 21, 22, 23]

Respondents directed to verify petitioner's declarations and issue Form No.3 determining tax payable; rejection set aside and declarations to be considered afresh.

Final Conclusion: The writ petitions are allowed: the departmental rejection dated 9 April 2021 is quashed, the declarations filed on 13 January 2021 are to be verified and the respondents are directed to determine the tax payable and issue Form No.3 under the DTVSV Act; the order does not affect any claim to the deceased's estate.

Interest under Section 220(2) of the Income Tax Act - proviso to Section 220(2) - order of the Settlement Commission under section 245D(4) - conclusive effect of Settlement Commission order - extinguishment of liability by appellate order - discretionary jurisdiction under Article 226 - preference for substantial justice over technicality

Interest under Section 220(2) of the Income Tax Act - proviso to Section 220(2) - extinguishment of liability by appellate order - order of the Settlement Commission under section 245D(4) - Whether respondent's liability to pay interest under Section 220(2) on the amount represented by set off of brought forward investment allowance survives after that principal liability was extinguished by an appellate order and whether the High Court should interfere under Article 226 to revive such interest liability. - HELD THAT: - The Court examined the language of sub section (2) of Section 220 and its proviso, holding that when an appellate order or an order under section 245D(4) reduces or extinguishes the amount on which interest was payable, the interest must be reduced accordingly. In the present facts the ITAT allowed the assessee's appeal (ITA No.5416/BOM/95 etc.), resulting in extinguishment of the principal liability on which interest under Section 220(2) was charged. Consequently the statutory proviso operated to reduce (or eliminate) the interest liability. The petitioners' contention that the Settlement Commission lacked power to modify its order under Section 245(I) was noted but the Court found it unnecessary to decide that point because interference by writ would have the practical effect of reviving an extinguished liability. Exercising its discretionary jurisdiction under Article 226, the Court declined to issue relief which would produce a miscarriage of justice by directing payment of interest on an amount already extinguished by appellate process. The Court relied on established principles that discretion under extraordinary remedies may be withheld where quashing or interference would revive another illegality and that substantial justice may prevail over technical or formal objections. [Paras 17, 18, 21, 25, 26]

Writ petition dismissed; no interference under Article 226 as interest liability stood extinguished by appellate order and the proviso to Section 220(2) required reduction of interest.

Final Conclusion: The High Court dismissed the petition and refused to exercise its discretionary writ jurisdiction to compel payment of interest under Section 220(2) where the underlying tax liability had been extinguished by an appellate order, holding that the proviso to Section 220(2) necessitates reduction of interest and that interference would result in miscarriage of justice.

Current repairs under Section 31 - revenue versus capital expenditure - replacement of dies and moulds as part of machinery - enduring advantage test - deduction under Section 37 when not covered under Sections 30-36

Current repairs under Section 31 - replacement of dies and moulds as part of machinery - revenue versus capital expenditure - Expenditure on replacement of dies and moulds is allowable as current repairs under Section 31 for the assessment year under consideration. - HELD THAT: - The Court applied the settled tests from the cited precedents to determine whether replacement of dies and moulds amounts to current repairs or capital expenditure. The determinative inquiry is whether the expenditure preserves and maintains an existing asset without bringing into existence a new asset or conferring a new or enduring advantage. Moulds and dies, being attached to and functioning as parts of the machines, cease to enable the machine to produce to required specifications once worn out; replacement restores the existing machinery to its operational condition rather than creating a new asset. Reliance on authorities including decisions construing the distinction between replacement and current repairs led the Court to conclude that such replacement expenditures fall within the etymological and legal meaning of "current repairs" under Section 31, notwithstanding that depreciation had been claimed in earlier years. The Court also observed that expenditures deductible under Section 37 are those not allowable under Sections 30-36, but that does not alter the classification where Section 31 applies. On these grounds the Tribunal's order allowing the expenditure as revenue in nature and under Section 31 was upheld and modified as necessary in favour of the assessee. [Paras 29, 30, 31, 32]

Held that the expenditure on replacement of dies and moulds qualifies as current repairs under Section 31 and is allowable for the assessment year 2001-02.

Final Conclusion: The substantial question of law is answered against the Revenue; the Tax Case Appeal is dismissed and the Tribunal's order permitting the claim as current repairs under Section 31 is affirmed. No costs.

Bogus business transactions - acceptance of transactions recorded in books in regular course unless rebutted - burden of proof regarding genuineness of transactions - addition under Section 68 for unexplained cash receipt - speculative transactions and set-off of trading losses - appellate interference in findings of fact - requirement of clinching adverse evidence to treat transactions as bogus

Bogus business transactions - acceptance of transactions recorded in books in regular course unless rebutted - requirement of clinching adverse evidence to treat transactions as bogus - Deletion of addition of Rs. 2,43,59,629/- treating transactions with M/s Swift Tie Up Pvt. Ltd. as bogus - HELD THAT: - The appellate authorities accepted that the transactions were recorded in the assessee's books in the regular course of business, that M/s Swift Tie Up Pvt. Ltd. existed, filed its return, confirmed the transactions and effected payments by cheque, and that the assessee declared income arising from the transactions. The Assessing Officer made the addition on assumptions and presumptions without bringing any adverse or clinching evidence to rebut the recorded transactions. The ITAT and CIT(A) therefore concluded that there was no basis to treat the transactions as bogus and correctly reversed the addition. In the absence of any decisive contrary material, the factual finding accepting the genuineness of the transactions was not open to interference on appeal.

Addition treated as bogus was rightly deleted; finding of genuineness upheld.

Addition under Section 68 for unexplained cash receipt - burden of proof regarding genuineness of transactions - requirement of clinching adverse evidence to treat transactions as bogus - Deletion of addition of Rs. 75,00,000/- made under Section 68 as unexplained cash received from M/s Swift Tie Up Pvt. Ltd. - HELD THAT: - The appellate authorities examined the documentary evidence produced by the assessee and found the transaction between the assessee and M/s Swift Tie Up Pvt. Ltd. to be established. The Assessing Officer's conclusion that the amount was routed through non-operational entities and thus unexplained was not supported by conclusive adverse evidence. Given the evidence on record accepting the transaction, the CIT(A) and ITAT were justified in deleting the addition under Section 68.

Addition under Section 68 was rightly deleted.

Speculative transactions and set-off of trading losses - appellate interference in findings of fact - Allowance of loss of Rs. 11,75,857/- arising from trading in NCDEX/MCX (hedging) which the AO had disallowed - HELD THAT: - The ITAT and CIT(A) concluded on the facts that the loss from NCDEX/MCX trading was allowable and that the Assessing Officer erred in disallowing it. They treated the activity and the factual matrix as not attracting the prohibition on set-off as pleaded by the Revenue. These determinations were factual conclusions based on appreciation of evidence and record, and in the absence of compelling contrary material, were not disturbed by the High Court.

NCDEX/MCX loss was rightly allowed by the appellate authorities.

Appellate interference in findings of fact - acceptance of transactions recorded in books in regular course unless rebutted - Deletion of disallowance of donation expenses and certain expenses claimed in the profit and loss account - HELD THAT: - The CIT(A) reduced or deleted the disallowances after considering the assessee's evidence and accounts. The ITAT upheld those deletions. The High Court found that the appellate authorities had properly appreciated the materials and that there was no clinching adverse evidence to sustain the Assessing Officer's disallowances. These were findings of fact which the court declined to disturb.

Disallowances of donation and P&L expenses were correctly deleted or reduced by the appellate authorities.

Final Conclusion: The High Court found no substantial question of law and declined to interfere with the factual findings recorded by the CIT(A) and the ITAT; the Revenue's appeal was dismissed.

Certificate under Section 197 - withholding tax certificate - Rule 28AA - double taxation avoidance agreement - operating lease versus finance lease distinction - no concept of group liability - remand for fresh consideration - interim grant of Nil withholding

Certificate under Section 197 - Rule 28AA - withholding tax certificate - Validity of the order dated 07.09.2021 refusing a 'Nil' withholding tax certificate and granting TDS @10% without applying the statutory criteria under Rule 28AA. - HELD THAT: - The Assessing Officer's order was quashed because the reasons recorded do not reflect application of the criteria mandated by Rule 28AA - namely, consideration of tax payable on the estimated income for the year, tax payable on assessed/returned/estimated income of the preceding years, existing liabilities and advance tax/TDS position. Instead, the impugned order rested solely on reassessment proceedings pending against a group company and on facts relating to that other company. The Court held that reliance on liability of another group company cannot substitute for the statutory enquiry required under Rule 28AA and that there is no concept of group liability which would justify denying the petitioner relief without the requisite application of the Rule's factors. The respondents were also precluded from relying on reasons not recorded in the impugned order to validate it. The matter was remanded to the Assessing Officer to pass a fresh decision within four weeks after considering the information and applying the statutory factors; the petitioner was directed to furnish relevant information without delay. The Court afforded interim relief by permitting the petitioner to continue to avail 'Nil' withholding as in prior years, observing that the Revenue's interest is adequately protected given the long-term lease. [Paras 17, 18, 19]

Impugned order dated 07.09.2021 quashed; matter remanded to Assessing Officer for fresh decision in four weeks after applying Rule 28AA; interim entitlement to 'Nil' withholding granted.

Final Conclusion: The writ petition is allowed: the order refusing 'Nil' withholding was set aside and remitted for fresh consideration in accordance with Rule 28AA within four weeks; petitioner permitted to continue to avail 'Nil' withholding in the interim.

Deduction under Section 80P(2)(a)(i) - deduction under Section 80P(2)(d) - profits and gains of business versus income from other sources - interest on investments of surplus funds - eligibility of registered co-operative society for section 80P benefits - distinction between co-operative societies and cooperative banks for deduction under section 80P

Eligibility of registered co-operative society for section 80P benefits - deduction under Section 80P(2)(a)(i) - Whether a registered co-operative society is prima facie entitled to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act. - HELD THAT: - The Court accepted that the earlier decision of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. covers the substantial questions numbered 1 to 4 and thereby establishes that a society which is registered as a co-operative society satisfies the threshold eligibility for deduction under Section 80P(2)(a)(i). The court recorded that where an assessee is a registered co-operative society and earns interest from loans to members or from recognised activities of providing credit, the threshold entitlement to claim deduction under Section 80P(2)(a)(i) is attracted. On that basis the substantial questions 1 to 4 were answered in favour of the assessee and against the Revenue. [Paras 4]

Substantial questions 1 to 4 answered in favour of the assessee: a registered co-operative society meets the threshold eligibility to claim deduction under Section 80P(2)(a)(i).

Interest on investments of surplus funds - profits and gains of business versus income from other sources - deduction under Section 80P(2)(d) - Whether interest earned by the co-operative society from deposits with District/State Co-operative Banks and Treasury constitutes business income deductible under Section 80P(2)(a)(i) or is income from other sources and, if the latter, the extent to which Section 80P(2)(d) applies. - HELD THAT: - The Court examined the nature of interest earned on surplus funds invested in banks and treasury in the light of precedents including M/s. The Totgar's Co-operative Sale Society Ltd and Nawanshahar Central Co-operative Bank Ltd. The Court emphasised that Section 80P(2)(a)(i) permits deduction of the whole of profits and gains of the business of banking or providing credit facilities to members, but such deduction is limited to income actually attributable to those specified activities. Interest arising from surplus funds invested (including retained proceeds shown as liabilities) is not straightaway profits of the business and may be income from other sources. Consequently, interest earned from Treasury is not eligible for deduction under Section 80P(2)(a)(i) and is includible in income under the head 'Income from Other Sources'. As to investments in District/State Co-operative Banks, the Court held that where those institutions are Co-operative Societies registered under the Kerala Co-operative Societies Act, interest received from them falls within clause (d) of Section 80P(2) and hence is eligible for deduction to the extent provided by clause (d). The Court therefore modified the view of the lower authorities: the interest income does not fall within Section 80P(2)(a)(i) as a matter of course and permissible deduction for interest is confined to interest from co-operative societies (clause (d)); interest from Treasury is not deductible under Section 80P. [Paras 8, 9, 10, 11, 12]

Interest on surplus funds invested in Treasury is income from other sources and not deductible under Section 80P(2)(a)(i); interest received from District/State Co-operative Banks registered under the Kerala Co-operative Societies Act is deductible under Section 80P(2)(d).

Interest on investments of surplus funds - profits and gains of business versus income from other sources - Whether the interest income credited by the assessee for Assessment Years 2011-12 and 2013-14 arising from deposits with various institutions should be taxed as income from other sources and the permissible extent of deduction. - HELD THAT: - In the connected assessment years the Court applied the same legal principles: interest earned by the assessee on surplus funds invested in various institutions is prima facie includible under the head 'Income from Other Sources' unless it qualifies as income attributable to carrying on the business of banking or providing credit to members. Deduction under Section 80P(2)(d) is available only for interest/dividend derived from investments with other co-operative societies. The Court therefore held that the Assessing Officer should allow deduction only to the extent authorised by Section 80P(2)(d) (i.e., interest from recognised co-operative societies/banks registered under the Co-operative Societies Act) and treat interest from Treasury and investments not satisfying clause (d) as taxable under 'Other Sources'. Effect orders were to be drawn accordingly for the cited assessment years. [Paras 13, 14, 15]

For AY 2011-12 and AY 2013-14 the interest on deposits is taxable as income from other sources except to the extent it is interest from co-operative societies registered under the Co-operative Societies Act, which is deductible under Section 80P(2)(d).

Final Conclusion: The petitions are allowed in part. The Court held that registration as a co-operative society satisfies the threshold eligibility to claim deduction under Section 80P(2)(a)(i) but interest arising from surplus funds invested does not automatically form part of business income deductible under Section 80P(2)(a)(i). Deduction for interest/dividend on investments is confined to clause (d) of Section 80P(2) where such interest is derived from other co-operative societies registered under the Co-operative Societies Act; interest from Treasury is not deductible and must be taxed as income from other sources. Effect orders to be passed in accordance with these conclusions for the assessment years before the Court.

Reopening of assessment under Section 148 - change of opinion - validity of reopening - first consideration by appellate authority

Reopening of assessment under Section 148 - change of opinion - validity of reopening - Whether the validity of the reopening of assessment can be finally adjudicated by the High Court in the writ petition or requires fresh consideration by the appellate authority. - HELD THAT: - The learned Single Bench had recorded a prima facie view that the reopening was in order but did not reach a conclusive finding on the appellant's contention that the reopening amounted to a change of opinion. The High Court observed that there was no specific conclusive finding on the core plea challenging the validity of the reopening. Rather than adjudicating the validity on merits, the Court vacated the Single Bench's observations and findings touching upon validity, on the basis that the matter was more suitably examined by the statutory appellate authority in the appeal against the assessment order. The Court therefore refrained from deciding the substantive question of whether the reopening constituted a change of opinion and required fresh consideration before the Commissioner (Appeals). [Paras 10, 11, 12, 13]

Observations and findings of the learned Single Bench on the validity of reopening are vacated and the substantive question of validity is remitted for consideration by the Commissioner of Income Tax (Appeals).

First consideration by appellate authority - appeal against assessment order - Whether the assessee is entitled to raise the validity of the reopening before the Commissioner of Income Tax (Appeals) and the order in which issues must be considered by that authority. - HELD THAT: - The High Court recognised that the assessment order dated 01.10.2021 is challengeable before the CIT(A). To avoid prejudice to the assessee, the Court granted liberty to file an appeal before the CIT(A) canvassing all factual and legal grounds, expressly including the validity of the reopening. The Court directed that, if the appellant files such an appeal, the CIT(A) shall consider the issue relating to the validity of the reopening as the first among the several issues raised. This procedural direction leaves the merits for the appellate authority to determine in the first instance. [Paras 11, 12, 13]

Appellant is granted liberty to appeal to the CIT(A) raising all grounds including validity of reopening; the CIT(A) shall consider the validity of the reopening as the first issue.

Final Conclusion: Writ appeal partly allowed; the Single Bench's observations on the validity of the reopening are vacated. Liberty granted to the assessee to appeal to the Commissioner of Income Tax (Appeals) raising all grounds including the validity of the reopening, which the CIT(A) shall treat as the first issue to be considered. No costs.

Waiver or reduction of interest under Section 220(2A) of the Income tax Act - obligation to furnish material relied upon to the person affected - audi alteram partem in administrative decision making - judicial review of administrative orders limited to established grounds

Waiver or reduction of interest under Section 220(2A) of the Income tax Act - obligation to furnish material relied upon to the person affected - audi alteram partem in administrative decision making - Whether the second respondent's rejection of the appellant's applications under Section 220(2A) was vitiated by failing to furnish the Assessing Officer's report which was relied upon in the order, thereby prejudicing the appellant's right to effective hearing. - HELD THAT: - The Court found that the second respondent had principally relied upon the Assessing Officer's report in recording reasons for rejecting the appellant's request for waiver or reduction of interest under Section 220(2A). Where a decision maker relies on a report or material prepared by another officer and that material constitutes the basis for adverse findings, fairness requires that the affected person be given a copy of that material so that effective submissions can be made. The absence of service of the Assessing Officer's report meant that the appellant and his representative could not meaningfully meet the specific reasons and evidence said to justify rejection; accordingly the opportunity of being heard afforded by the proviso to sub section (2A) was rendered ineffective. For this reason alone the impugned orders could not stand and had to be set aside and remitted for fresh consideration in accordance with law. The Court directed that the Assessing Officer's report be furnished to the assessee, permitted a time bound opportunity to file submissions on that report, and required fresh disposal within a stipulated period. The Court did not, in the present order, purport to re examine the merits of the waiver requests; rather it remitted the matter for re consideration after compliance with the requirement to furnish the relied upon material and to afford an effective hearing. [Paras 7]

Orders in Ext.P11 series set aside; matter remitted to the second respondent with directions to furnish the Assessing Officer's report to the assessee, permit time limited submissions thereon, and dispose of the applications afresh within the prescribed time.

Final Conclusion: Writ appeal allowed; impugned orders setting aside applications for waiver/reduction of interest under Section 220(2A) quashed and remitted for fresh consideration after furnishing the Assessing Officer's report to the assessee and affording a time limited opportunity to file submissions, with fresh disposal directed within specified time limits.

Provisional release of seized goods - limitation under Section 110(2) of the Customs Act, 1962 - absolute confiscation - prohibited goods and import prohibition under Plant Quarantine (Regulation of Import into India) Order, 2003 - perishable goods - fitness for human consumption - waiver of demurrage and detention charges - jurisdiction of Single Member Bench to decide provisional release

Provisional release of seized goods - limitation under Section 110(2) of the Customs Act, 1962 - absolute confiscation - perishable goods - fitness for human consumption - waiver of demurrage and detention charges - Whether the show cause notice for absolute confiscation issued after seizure of goods in Appeal No. C/60421/2021 was time barred and whether the seized perishable goods must be released provisionally with waiver of demurrage and detention charges. - HELD THAT: - The Tribunal found that the goods in Appeal No. C/60421/2021 were seized on 02.07.2020 and, since no provisional release under Section 110A had been granted, the time limit in Section 110(2) for issuing a show cause notice applied. The show cause notice impugned was issued after the six month period and no order recording reasons for an extension to a further six months was placed on record. Statutory extensions relied upon by Revenue did not validate issuance beyond the unextended six month period. Consequently the show cause notice for absolute confiscation was held to be barred by limitation. In view of the limitation bar the Tribunal directed release of the goods after examination to ascertain fitness for human consumption and ordered waiver of demurrage and detention charges. The Tribunal also noted that a separate show cause notice demanding duty was not the subject matter of the appeal and that parallel proceedings could not be pursued in respect of absolute confiscation already found time barred; the Revenue remained free to adjudicate the other show cause notice in accordance with law. [Paras 11, 12]

Show cause notice dated 30.06.2021 held time barred; goods to be released after examination for fitness for human consumption and demurrage and detention charges waived.

Provisional release of seized goods - limitation under Section 110(2) of the Customs Act, 1962 - absolute confiscation - perishable goods - fitness for human consumption - waiver of demurrage and detention charges - Whether the show cause notice for absolute confiscation issued after seizure of goods in Appeal No. C/60420/2021 was time barred and whether the seized perishable goods must be released provisionally with waiver of demurrage and detention charges. - HELD THAT: - The Tribunal applied the same legal test as in the co ordinate appeal and observed that the goods were seized on 19.05.2020 but the show cause notice impugned was issued on 30.06.2021. No order recording reasons for extension under Section 110(2) was produced. As no provisional release had been granted, the statutory six month period for issuance of the show cause notice was applicable and had expired; the notice issued thereafter was therefore not sustainable. In consequence the Tribunal directed release of the goods after examination for fitness for human consumption and ordered waiver of demurrage and detention charges. [Paras 13, 14]

Show cause notice dated 30.06.2021 held time barred; goods to be released after examination for fitness for human consumption and demurrage and detention charges waived.

Final Conclusion: Both appeals disposed: show cause notices dated 30.06.2021 for absolute confiscation were held barred by limitation under Section 110(2) of the Customs Act, 1962; the seized perishable goods are to be released after examination for fitness for human consumption and demurrage and detention charges are waived. The Revenue may proceed on the separate show cause notice not under challenge in the appeals in accordance with law.

Dispensation of meetings under Section 230 - Power to dispense with meeting of unsecured creditors - Requirement of 90% creditor consent for dispensation - Antedated appointed date and MCA Circular No.09/2019 - Tribunal's supervisory power to direct convening of meetings and procedural compliance

Dispensation of meetings under Section 230 - Requirement of 90% creditor consent for dispensation - Meetings of members and secured creditors of the Transferor and Transferee companies may be dispensed with where requisite consents by affidavit meeting statutory thresholds have been produced. - HELD THAT: - The Tribunal noted that Section 230(9) permits dispensing with calling of meetings of creditors or a class of creditors where such creditors representing at least 90% in value agree and confirm the scheme by affidavit. In the present case affidavits demonstrating consent of above 95% of shareholders and above 90% of secured creditors were on record. Applying the statutory threshold and having regard to those affidavits, the Tribunal concluded that calling meetings of the equity shareholders and secured creditors would not serve any purpose and therefore dispensed with those meetings for both the Transferor and the Transferee companies. [Paras 18, 19, 20]

Meetings of equity shareholders and secured creditors dispensed with as specified in the order.

Power to dispense with meeting of unsecured creditors - Tribunal's supervisory power to direct convening of meetings and procedural compliance - Prayer to dispense with meetings of unsecured creditors was refused and meetings of unsecured creditors were directed to be convened. - HELD THAT: - The applicants sought dispensation of meetings of unsecured creditors relying on precedent and on the contention that the scheme did not alter or restructure debts. The Tribunal examined the Valuation Report and the companies' statements of unsecured liabilities and observed that post-scheme net worth would not be positive with respect to liabilities to unsecured creditors. In the interest of unsecured creditors and other stakeholders the Tribunal found the case law relied upon insufficient to justify dispensation and directed that meetings of unsecured creditors be convened. Detailed directions were issued as to time, place, chairman, notice, publication, voting modes and preservation of records, including provision for virtual meeting if required by pandemic restrictions. [Paras 21, 24, 25]

Dispensation of meetings of unsecured creditors refused; meetings to be convened with specified procedural directions.

Antedated appointed date and MCA Circular No.09/2019 - Amendment of the Company Applications was permitted despite the appointed date being significantly antedated, after applicants justified delay in filing in light of the pandemic and MCA Circular No.09/2019. - HELD THAT: - The Tribunal considered the MCA Circular which requires specific justification where the appointed date is antedated beyond a year from filing. The applicants explained commencement of scheme procedures prior to the pandemic and delay in approaching the Tribunal due to COVID-19, and relied on exclusion of limitation period for 15.03.2020-14.03.2021 from the suo motu writ order. Upon hearing and examining the clarifications the Tribunal allowed amendment of the applications and permitted filing of the amended CA(CAA)s. [Paras 2]

Amendment of the CA(CAA)s allowed; applications as amended were admitted for further proceedings.

Tribunal's supervisory power to direct convening of meetings and procedural compliance - The Tribunal directed parties to comply with procedural formalities-service on specified authorities, publication, notices, chairman appointment, voting procedures and filing of compliance-before the sanction petition is presented. - HELD THAT: - In the exercise of its supervisory jurisdiction under the Companies Act and relevant rules the Tribunal issued specific directions: service of notice on Regional Director, RoC, Income Tax Department, Official Liquidator and specified authorities; appointment and remuneration of the meeting chairman; timelines for issuing notices and publications; modes of voting; preservation of meeting recordings if held virtually; supply of scheme copies to unsecured creditors; and filing of an affidavit of compliance and a petition in Form CAA-5 for sanction. The Tribunal made compliance with statutory forms and rules a condition precedent to the sanction petition. [Paras 25, 26, 27, 28, 29]

Applicants directed to comply with detailed procedural requirements and to present Form CAA-5 after compliance.

Final Conclusion: The Tribunal permitted amendment of the applications despite an antedated appointed date after pandemic-related justification; dispensed with meetings of equity shareholders and secured creditors where statutory consents by affidavit met the thresholds; refused dispensation for unsecured creditors and directed convening of their meetings with detailed procedural directions; and required service on statutory authorities and filing of compliance and a sanction petition in Form CAA-5.

Valuation of shares - buy-out option/exit by purchase of shares - appointment of independent auditor for valuation - enforcement of appellate modification of valuation date - continuance of personal guarantees/security for company loan

Valuation of shares - buy-out option/exit by purchase of shares - appointment of independent auditor for valuation - enforcement of appellate modification of valuation date - Selection of valuation and consequent direction for purchase of shares pursuant to earlier NCLT/NCLAT orders - HELD THAT: - The Tribunal recorded that two independent valuation reports were obtained pursuant to its appointment of auditors and the NCLT/NCLAT directions, both valuing shares as on 07.12.2017 but at materially different per-share values. The applicants (Respondents 1-3 in the application) expressed unconditional willingness to accept the higher valuation reported by one valuer and to buy 60,000 shares at that rate if the opposite group did not exercise their first option. Applying the prior NCLT/NCLAT orders (which gave the first opportunity to the respondent/petitioner group to purchase), and having regard to the deadlock between shareholders and the need for a permanent solution, the Tribunal concluded that the group quoting the higher price should purchase the shares of the other group. On that basis the Tribunal directed the applicants/respondents K.J. Paul, Bindu Paul and K.A. Mathai to purchase 60,000 shares at the higher per-share valuation and to file compliance within one month. The Tribunal thereby accepted the practical solution offered by the applicants to resolve the impasse rather than re-open valuation disputes, while preserving the process ordered earlier for valuation by independent auditors as the basis for negotiation. [Paras 17, 18, 19]

Applicants/Respondents K.J. Paul, Bindu Paul and K.A. Mathai are directed to purchase 60,000 shares of P.M. Johny and K.P. Augustine at the rate of Rs. 1941 per share within one month and file a compliance memo.

Continuance of personal guarantees/security for company loan - protection of company interest pending repayment of loan - Treatment of outstanding company loan and personal guarantees in the event of exit - HELD THAT: - The Tribunal noted that the first respondent company had an outstanding loan from LIC HFL for which the first and second applicants had furnished personal guarantees. Observing the interest of the company in ensuring continuity of security until the loan is repaid, the Tribunal held that the loan and the guarantees would continue until full repayment. In view of the settlement direction that one group purchase the other's shares, the Tribunal maintained the guarantees for the time being to safeguard the company's position and required continuation of the loan security rather than immediate release of the guarantors. [Paras 19]

The outstanding loan and the personal guarantees furnished by the first and second applicants shall continue until full repayment; the guarantees are to remain in place to safeguard the company's interest.

Final Conclusion: Upon the parties' long-standing deadlock and pursuant to earlier NCLT/NCLAT directions and the valuation exercise, the Tribunal directed the group offering the higher price to buy out the other group by purchasing 60,000 shares at the higher per-share valuation and ordered that the existing loan security and personal guarantees remain in force until the loan is repaid.

Transmission of shares by operation of law - Refusal of registration under Section 58 - Limitation for appeal under Section 58(3) - Requirement of legal succession certificate for transmission - Articles of Association discretion to refuse transfer - Locus standi of transferee

Transmission of shares by operation of law - Requirement of legal succession certificate for transmission - The application for transmission of shares produced by the appellant was defective and not in proper form for want of required particulars including a legal succession certificate. - HELD THAT: - The Tribunal examined the Exhibit P-8 (the application dated 19.03.2020) produced by the appellant and found that the application was not in proper form and was defective due to non-fulfilment of the appropriate columns. The Tribunal emphasised that transmission by operation of law requires appropriate documentation to be presented to the company for registration and that the application on record did not meet those statutory and procedural requisites. [Paras 17]

Application for transmission filed before the company was defective and not in proper form.

Locus standi of transferee - Articles of Association discretion to refuse transfer - The appellant did not have locus to maintain the appeal as he had not produced the mandatory legal succession certificate before the company and the Articles empowered the Board to refuse registration in such circumstances. - HELD THAT: - The Tribunal noted that the appellant had not produced a legal succession certificate before the respondent company as required for transmission of shares. The Articles of Association (Article 11) permit the Board to refuse registration where it is not satisfied as to the proposed transferee being a responsible person or where the transfer documentation is not in order. In view of the defective application and absence of the succession certificate, the Tribunal concluded that the appellant lacked locus to prefer the present appeal. [Paras 18]

Appellant lacked locus to file the appeal in the absence of the legal succession certificate and given the Articles empowering refusal.

Refusal of registration under Section 58 - Limitation for appeal under Section 58(3) - The appeal was barred by limitation as it was filed after the statutory period prescribed by Section 58(3). - HELD THAT: - The Tribunal considered Section 58(3) and the reply letter dated 06.07.2020 which communicated the respondents' refusal. The present appeal was filed on 01.10.2020, which the Tribunal found to be 93 days from the date of rejection and therefore beyond the period allowed for appeal under Section 58(3). Consequently, the appeal was held to be time-barred. [Paras 19]

Appeal is barred by limitation under Section 58(3) of the Companies Act, 2013.

Final Conclusion: The appeal is rejected. Liberty granted to the appellant to submit a proper application for transmission of the shares to the respondent company with requisite documents, which the company has undertaken to consider if in order.

Voluntary winding up by Tribunal pursuant to a special resolution - declarations of solvency and approval of creditors holding at least two-thirds in value of debts - appointment of a provisional liquidator from IBBI panel where no insolvency professional is nominated - powers of the Tribunal under Section 273 of the Companies Act, 2013 - duties and functions of a provisional liquidator under Section 290 of the Companies Act, 2013

Voluntary winding up by Tribunal pursuant to a special resolution - declarations of solvency and approval of creditors holding at least two-thirds in value of debts - Petition for winding up the company under Section 271(a) based on a special resolution authorising voluntary winding up - HELD THAT: - The Tribunal considered the minutes of the Extra Ordinary General Meeting dated 23.02.2021 in which the members resolved for voluntary winding up, subject to declarations of solvency and approval of creditors as required. The petition filed under Section 271(a) was founded on that special resolution and the company's prolonged inactivity and inability to carry on business. Having examined the records and the resolution placed before it, the Tribunal exercised its jurisdiction to proceed with winding up under the statutory provision invoked. [Paras 3, 4, 6]

Petition under Section 271(a) is admitted and the Tribunal proceeded to wind up the company in exercise of its powers.

Appointment of a provisional liquidator from IBBI panel where no insolvency professional is nominated - duties and functions of a provisional liquidator under Section 290 of the Companies Act, 2013 - powers of the Tribunal under Section 273 of the Companies Act, 2013 - Appointment and directions regarding the provisional liquidator where the company had not nominated an insolvency professional - HELD THAT: - The company had not nominated an Insolvency Professional to act as provisional liquidator. The Tribunal accordingly selected an Insolvency Professional from the IBBI-approved panel for the relevant period and appointed him as Provisional Liquidator. The Tribunal directed the Provisional Liquidator to file the prescribed declaration of independence or conflict within seven days, to take custody and preservation measures of company assets as permissible under the Act, to adhere to statutory duties under Section 290, to submit periodical reports to the Tribunal and to file a final winding up report within two months so the Tribunal may pass the final winding up order. [Paras 5, 6]

Mr. Rajmohan R is appointed as Provisional Liquidator with directions to comply with statutory duties, disclose any conflict, protect company assets, submit periodical reports and file the final report within two months.

Final Conclusion: The Tribunal admitted the petition for voluntary winding up under Section 271(a) on the basis of the special resolution, appointed a provisional liquidator from the IBBI panel in the absence of a nominated insolvency professional, and issued directions for disclosure, custody of assets, reporting and submission of the final winding up report to enable the Tribunal to pass the final order.

Scheme of arrangement - demerger - convening of shareholders' meeting - convening of secured creditors' meeting - dispensing with meeting of unsecured creditors - service of notice under section 230(3) - e voting facility - quorum under section 103 - chairperson's report to the Tribunal - appointment of scrutinizer

Scheme of arrangement - demerger - convening of shareholders' meeting - Convene and hold separate meetings of equity shareholders of the first and second applicant companies for approval of the proposed scheme of arrangement (demerger). - HELD THAT: - The Tribunal directed that meetings of the equity shareholders of the first applicant company and the second applicant company be convened and held on December 27, 2021 at the specified venues and times for consideration and, if thought fit, approval of the scheme. Notices, proxy forms, copy of the scheme and explanatory statements are to be sent at least 30 clear days prior to the meetings and advertised once in the Financial Express (Mumbai edition) and Navshakti (Mumbai edition), with option for online publication considering the covid 19 lockdown. The chairpersons for the respective meetings were appointed, and the chairpersons were vested with powers to determine disputed entries in share registers for meeting purposes and to report the meeting results to the Tribunal within 30 days, verified by affidavit as required under the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. [Paras 22, 27, 28, 51, 52]

Meetings of equity shareholders of both applicant companies are ordered to be convened on the specified dates with prescribed notice, advertisement, chairpersonial powers and reporting requirements.

Convening of secured creditors' meeting - appointment of scrutinizer - Convene meetings of secured creditors of the first and second applicant companies and appoint scrutinizers for those meetings. - HELD THAT: - The Tribunal ordered separate meetings of secured creditors of the first and second applicant companies to be held on December 30, 2021 at the specified venue and times for consideration of the proposed scheme. At least 30 clear days' prior notice, together with proxy forms, scheme copy and explanatory statement, must be served. Scrutinizers (M/s. D. M. and Associates Company Secretaries LLP, failing them M/s. SGGS and Associates) were appointed for each meeting with remuneration fixed. The value of secured creditors' claims for meeting purposes is to be as per books as on June 30, 2021, and where entries are disputed the chairperson shall determine the value for the meeting. [Paras 43, 44, 46, 47, 48]

Meetings of secured creditors of both applicant companies are ordered with prescribed notice, appointment of scrutinizers, valuation rule for creditors' claims and reporting obligations.

Dispensing with meeting of unsecured creditors - service of notice under section 230(3) - Dispense with calling meetings of unsecured creditors and direct issuance of individual notices to unsecured creditors allowing representations to the Tribunal within thirty days. - HELD THAT: - The Tribunal accepted the applicants' submission that the scheme is an arrangement between shareholders under section 230(1)(b) and not a compromise with unsecured creditors under section 230(1)(a), as unsecured creditors are being paid in the ordinary course and are not adversely affected. Consequently, the meeting of unsecured creditors is dispensed with. However, the applicant companies are directed to issue individual notices to all unsecured creditors as on June 30, 2021, together with a copy of the scheme and explanatory statement, and to allow such creditors thirty days from receipt to submit representations to the Tribunal (with simultaneous filing upon the applicant companies). [Paras 49]

Meeting of unsecured creditors dispensed with; individual notices to unsecured creditors ordered and representations invited within thirty days.

E voting facility - quorum under section 103 - Provide e voting facility for equity shareholders of the second applicant company and prescribe quorum and proxy rules for all convened meetings. - HELD THAT: - The Tribunal directed that the second applicant company shall provide remote e voting and in meeting e voting facilities for its equity shareholders in compliance with section 230(4) read with section 108 and applicable rules and Secretarial Standards. For all meetings (equity shareholders and secured creditors), the quorum is to be as prescribed under section 103 of the Companies Act, 2013; in default the meeting shall be adjourned by 30 minutes and the persons then present shall be deemed quorum. Valid proxies and authorizations must be filed at least 48 hours before the meetings at the designated email addresses. [Paras 25, 34, 35, 44, 45]

E voting facility for the second applicant company ordered; quorum and proxy filing requirements for all meetings prescribed.

Service of notice under section 230(3) - chairperson's report to the Tribunal - Direct service of notice of meetings upon statutory authorities and require filing of compliance proof and chairpersons' reports to the Tribunal within thirty days. - HELD THAT: - The Tribunal directed that notices of the meetings be served upon the Central Government (through the Regional Director, Western Region), the concerned Income tax Authority (naming the relevant circle and addresses as per the order) and the Registrar of Companies, Pune, with a 30 day period to submit representations to the Tribunal; failure to do so would be deemed absence of representations. Additionally, the chairpersons of the respective meetings must report results to the Tribunal within thirty days of conclusion, verified by affidavit under the relevant rules. The applicant companies are also directed to host the notices on their websites, if any, and to file proof of compliance electronically with the Tribunal. [Paras 38, 48, 50, 51, 52]

Service of meeting notices upon statutory authorities ordered and chairpersons' reporting and electronic proof of compliance directed within thirty days.

Final Conclusion: The Tribunal ordered convening of specified meetings of equity shareholders and secured creditors of the two applicant companies with prescribed notice, advertisement, proxy, e voting, scrutinizer and quorum arrangements; dispensed with unsecured creditors' meetings while directing individual notices and an opportunity to submit representations; required service of notices on statutory authorities and directed chairpersons' reports and filing of compliance within thirty days.

Binding effect of an approved resolution plan - Fair and equitable distribution under Section 30(2)(b) of the Insolvency and Bankruptcy Code - Entitlement of dissenting financial creditors to not less than liquidation value - Commercial decisions of the Committee of Creditors - Bank guarantee invocation treated as additional fund based debt under the resolution plan

Binding effect of an approved resolution plan - Commercial decisions of the Committee of Creditors - Whether the Adjudicating Authority can modify the approved resolution plan as sought by dissenting/abstaining secured financial creditors. - HELD THAT: - The Tribunal held that once a resolution plan is approved by the Adjudicating Authority it 'stands frozen' and is binding on all stakeholders, including financial creditors. Reliance was placed on the principle that an approved plan fixes the claims and distribution mechanism; consequent commercial decisions recorded in the plan cannot be reopened by the Adjudicating Authority in proceedings brought by dissenting or abstaining financial creditors. The applications filed after approval seeking modification of the payment mechanism were therefore not maintainable as a means to vary the approved plan. [Paras 8, 9]

Applications seeking modification of the approved resolution plan were dismissed as the plan is binding and not amenable to modification by the Adjudicating Authority in the present proceedings.

Fair and equitable distribution under Section 30(2)(b) of the Insolvency and Bankruptcy Code - Entitlement of dissenting financial creditors to not less than liquidation value - Whether the differential payment to assenting and dissenting/abstaining secured financial creditors amounted to unlawful discrimination in contravention of Section 30(2)(b). - HELD THAT: - The Tribunal examined Section 30(2)(b) and its explanations and observed that the provision requires payment to dissenting financial creditors not to be less than the amount payable under Section 53(1) on liquidation and that distributions under the clause must be 'fair and equitable'. The Tribunal found that the Resolution Plan provides for payment to dissenting financial creditors at not less than liquidation value and that Explanation 1 contemplates fairness and equity but does not automatically forbid commercial differentiation within a class where the plan, as approved, prescribes such treatment. Accordingly, the mere fact of a difference in quantum between assenting and dissenting creditors did not, on the material before the Tribunal, amount to a successful challenge to the approved plan. [Paras 5, 6]

Claim of unlawful discrimination was rejected because the dissenting financial creditors were being paid not less than liquidation value and the approved plan's distribution was within the statutory framework of Section 30(2)(b).

Bank guarantee invocation treated as additional fund based debt under the resolution plan - Commercial decisions of the Committee of Creditors - Whether invocation of bank guarantees after approval of the resolution plan and the consequent addition to fund based debt (with resulting increase in amounts payable to assenting financial creditors) could be impugned as discriminatory by dissenting financial creditors. - HELD THAT: - The Tribunal noted that the Resolution Plan expressly provided for treatment of invoked bank guarantees: invoked amounts issued prior to approval would be added to fund based debt and their NPV added to the overall secured creditors' payable amount, while invoked BGs after approval would be payable on demand as per BG terms. The Tribunal held this treatment to be part of the commercial architecture of the approved plan and therefore not a valid ground for challenge by dissenting financial creditors. The decision to include invoked BG amounts as fund based debt was identified as a commercial decision of the Committee of Creditors reflected in the approved plan. [Paras 3, 7, 9]

Invocation of bank guarantees and the consequent revision of amounts payable to assenting financial creditors being in accordance with the approved plan could not be impugned; the challenge was rejected.

Final Conclusion: The applications by the dissenting and abstaining secured financial creditors seeking modification of the approved resolution plan were dismissed; the approved plan, including its treatment of invoked bank guarantees and the prescribed distributions, stands binding on all stakeholders.

Duties and powers of interim resolution professional - control and custody of corporate debtor's assets - constitution and reconstitution of Committee of Creditors - locus of member to move Section 27 for replacement of resolution professional - validity of CoC meeting convened in absence of resolution professional - liquidation following failure of resolution process - exclusion of time for computation under Section 12 - referral to Insolvency and Bankruptcy Board of India for misconduct of RP

Duties and powers of interim resolution professional - control and custody of corporate debtor's assets - Whether the Resolution Professional failed in his statutory duties by taking only symbolic possession and not effectively taking custody and control of the corporate debtor's assets. - HELD THAT: - The Tribunal examined Sections 17, 18 and 20 of the Code and held that while powers of the Board are suspended on appointment of an IRP/RP, the responsibility to manage affairs and preserve assets vests with the IRP/RP. A plain reading of Section 18(1)(f) and Section 20 requires active steps to take control and custody of assets and preserve value. On the record the RP had taken only symbolic possession and allowed suspended directors to retain effective control, which is contrary to the statutory scheme and the duty to preserve and protect assets and manage the corporate debtor as a going concern. [Paras 36, 37, 38]

Findings recorded that RP's symbolic possession was inadequate and contrary to the Code's mandate to take custody and preserve assets.

Constitution and reconstitution of Committee of Creditors - locus of member to move Section 27 for replacement of resolution professional - validity of CoC meeting convened in absence of resolution professional - Whether the Operational Creditor as erstwhile sole CoC member had locus to seek replacement of the RP after reconstitution of the CoC and whether meetings convened without the RP were valid. - HELD THAT: - The Tribunal noted that initially the CoC comprised the Operational Creditor alone but a Financial Creditor later filed a claim and the CoC was reconstituted with the Financial Creditor. Once reconstituted, the Operational Creditor had no voting rights and therefore no locus to invoke Section 27 to remove the RP. The Tribunal further held there are no provisions permitting a CoC member to unilaterally convene and conduct CoC meetings or to prepare an agenda in the absence of the RP; Regulation 24 and Section 24(3) indicate that in the RP's absence CoC meetings should not be conducted. Accordingly, resolutions purportedly passed without the RP were illegal. [Paras 23, 28, 39]

MA/15 by the Operational Creditor is not maintainable for want of locus; CoC meetings and resolutions convened/passed without the RP are not valid.

Liquidation following failure of resolution process - validity of CoC resolution for liquidation - Whether the application by the Resolution Professional for liquidation (MA/143) could be entertained where Form-G was not published and the RP accepted a CoC decision to liquidate without following mandated processes. - HELD THAT: - Section 33 permits liquidation only after a resolution fails to yield a resolution plan. The Tribunal observed that Form G publication and requisite steps under the Regulations had not been complied with due to non cooperation and procedural lapses. The CoC resolution to liquidate (voted after reconstitution) was taken without inviting expressions of interest and in contentious circumstances; RP hurriedly moved for liquidation. Given these procedural failures, the Tribunal held that the liquidation application cannot be entertained at this stage. The RP was directed to continue CIRP from the stage of CoC reconstitution and proceed in accordance with the Regulations, with his fee restricted during the period of litigation. [Paras 30, 41, 43]

Application for liquidation cannot be entertained presently; RP to continue CIRP from stage of CoC reconstitution and his fee to be restricted during ongoing litigation.

Referral to Insolvency and Bankruptcy Board of India for misconduct of RP - exclusion of time for computation under Section 12 - Whether allegations of misconduct by the RP should be prosecuted by this Tribunal and whether time spent before the Adjudicating Authority is to be excluded from computation under Section 12. - HELD THAT: - Relying on precedent, the Tribunal observed that if there is any lapse by the RP the appropriate course is to refer the matter to the IBBI for action rather than to initiate prosecution proceedings. In view of the directions to continue CIRP with the present RP and to follow the Regulations, the Tribunal declined to consider the RP's application for prosecution of the corporate debtor and its directors at that juncture and dismissed MA/144. Separately, the Tribunal held that the period consumed before the Adjudicating Authority from the 2nd CoC meeting until this order should be excluded for the purpose of computing the period under Section 12(1)-(3), so that parties are not prejudiced by time spent in litigation before the Tribunal. [Paras 40, 41, 46]

IA/144 seeking prosecution is dismissed without prejudice to appropriate referral to IBBI; time spent before the Adjudicating Authority is excluded from Section 12 computation.

Duties and powers of interim resolution professional - referral to Insolvency and Bankruptcy Board of India for misconduct of RP - Whether the Report No.28 filed by the RP and the reliefs sought therein should be accepted. - HELD THAT: - The Tribunal took Report No.28 on record but expressly declined to accept the allegations made against the Operational Creditor and the specific reliefs sought in the Report (including contempt and penalties against the Operational Creditor and its representatives). The Tribunal reiterated that grievances against an RP's conduct are to be addressed through IBBI and by appropriate proceedings, and that reliefs improperly sought in a report would not be granted. [Paras 4, 35]

Report No.28/KOB/2020 is taken on record except for the allegations against the Operational Creditor and the reliefs sought therein, which are rejected.

Final Conclusion: The Tribunal recorded a mix of findings: it took the RP's report on record but disallowed his allegations and reliefs against the Operational Creditor; held the Operational Creditor lacked locus to seek replacement of the RP after CoC reconstitution and that meetings/resolutions conducted without the RP were invalid; declined to entertain the RP's liquidation application given procedural non compliance and directed continuation of CIRP by the present RP (with restricted fees) from the stage of CoC reconstitution; dismissed the prosecution application while indicating IBBI is the proper forum for RP misconduct and excluded the period spent in litigation from computation under Section 12.

Suspension of initiation of corporate insolvency resolution process under Section 10A - Determination of date of default for applicability of Section 10A - Distinction between initiation date and insolvency commencement date - Abuse/misuse of process and rejection under Section 60(5) of the IBC

Determination of date of default for applicability of Section 10A - The true date of default in the transaction between the Operational Creditor and the Corporate Debtor is 28.07.2020 and not 21.03.2020. - HELD THAT: - The Tribunal examined the ledger entries, payment records and the amendment application by the Operational Creditor seeking to correct the date of first default to 21.03.2020. Although deliveries occurred on 21.03.2020, 23.03.2020 and 30.05.2020, the contemporaneous records and the last payment reflected in the ledgers show the final part payment on 27.07.2020 and the unpaid balance thereafter. On a holistic review of the evidence, the Tribunal found that the applicant had sought to amend the default date to an earlier date to avoid the statutory suspension; the material placed on record establishes 28.07.2020 as the date from which the Corporate Debtor failed to pay the balance amount. The Tribunal therefore treated the claimed earlier default date as not convincing and rejected the proposed correction as an attempt to place the cause of action outside the scope of Section 10A (paras. 16-19). [Paras 16, 17, 18, 19]

Date of default is held to be 28.07.2020.

Suspension of initiation of corporate insolvency resolution process under Section 10A - Distinction between initiation date and insolvency commencement date - Abuse/misuse of process and rejection under Section 60(5) of the IBC - Whether the petition under Section 9 could be maintained in view of Section 10A and whether the application constituted misuse warranting rejection under Section 60(5). - HELD THAT: - The Tribunal noted the effect and object of Section 10A, including the difference between the 'initiation date' (date of filing) and 'insolvency commencement date' (date of admission), and observed that Parliament inserted Section 10A to suspend filing of CIRP applications for defaults arising on or after 25.03.2020 to mitigate COVID-19 related distress. Given the finding that the true date of default is 28.07.2020 (which falls within the suspension period), the Tribunal concluded that the applicant's attempt to advance an earlier default date was a deliberate effort to evade the statutory bar. Considering the severity of consequences of initiating insolvency proceedings and the need to guard against exploitative use of the Code, the Tribunal found that the proceedings amounted to misuse/abuse and, invoking its powers under Section 60(5), rejected the Section 9 application (paras. 12-19, 20). [Paras 13, 15, 17, 19, 20]

Section 10A's suspension is engaged for defaults arising on or after 25.03.2020; the application was found to be an attempt to evade that suspension and was rejected under Section 60(5) of the IBC.

Final Conclusion: The Tribunal held that the actual date of default is 28.07.2020, that the statutory suspension under Section 10A covers defaults arising on or after 25.03.2020, and, finding the Operational Creditor's amendment and pleadings to be a deliberate attempt to circumvent Section 10A, rejected the Section 9 application as an abuse of process under Section 60(5) of the Insolvency and Bankruptcy Code, 2016.

Claims of workmen in liquidation - admission of claims based on audited records and actuarial valuer's report - requirement of statutory/controlling authority order for disputed liabilities such as interest on gratuity - non-inclusion of provident, pension and gratuity sums in the liquidation estate per Section 36(4)(a)(iii) - fiduciary duty of the liquidator to hold the liquidation estate for benefit of creditors under Section 36(2) - priority of workmen's dues under the distribution scheme in Section 53

Admission of claims based on audited records and actuarial valuer's report - claims of workmen in liquidation - The liquidator lawfully admitted only the gratuity component of the appellants' claims on the basis of audited books and the Registered Actuarial Valuer's report. - HELD THAT: - The Tribunal found that the respondent had partially admitted the appellants' claims to the extent of gratuity after perusal of corporate records and the actuarial valuer's valuation. The liquidator acted on crystallized liabilities supported by audited books and the actuarial report dated 10.02.2020 showing gratuity liability outstanding as on the liquidation commencement date. In absence of contrary documentary proof, the liquidator was entitled to admit claims only to the extent supported by the records placed before him and to communicate rejections in accordance with the Code. [Paras 5, 6]

The partial admission of gratuity claims by the liquidator was upheld and the appeals seeking further admission on other heads were dismissed on this ground.

Requirement of statutory/controlling authority order for disputed liabilities such as interest on gratuity - claims of workmen in liquidation - Claims for interest on gratuity and other disputed wage-related liabilities could not be allowed in the absence of an order from the appropriate labour/controlling authority directing payment. - HELD THAT: - The Tribunal noted that several appellants sought interest on gratuity but had not produced any order from the competent authority under the relevant labour statutes directing payment of such interest. The liquidator therefore could not unilaterally determine disputed liabilities; he can act only upon crystallized claims or on the basis of conclusive orders. Consequently, entitlement to interest or other wage components requires determination by statutorily constituted forums, and no such awards were on record in favour of the appellants. [Paras 6, 10]

Claims for interest on gratuity and other wage components were not admissible in the liquidation proceedings in absence of authoritative awards or orders.

Non-inclusion of provident, pension and gratuity sums in the liquidation estate per Section 36(4)(a)(iii) - fiduciary duty of the liquidator to hold the liquidation estate for benefit of creditors under Section 36(2) - priority of workmen's dues under the distribution scheme in Section 53 - Provident fund, pension fund and gratuity fund sums do not form part of the liquidation estate and cannot be utilised, attached or distributed by the liquidator to satisfy liquidation claims. - HELD THAT: - Relying on the statutory exclusion in sub Section (4)(a)(iii) of Section 36, the Tribunal observed that sums due to any workman from provident, pension and gratuity funds are assets of third parties and are not included in the liquidation estate. The liquidator's fiduciary role under Section 36(2) is therefore confined to assets that form part of the liquidation estate; he has no domain to appropriate or distribute assets which are excluded. The Tribunal also referenced the distribution priorities under Section 53 to underline that excluded funds cannot be treated as liquidation assets for satisfying claims. [Paras 8, 9]

The liquidator was correct in not treating provident/pension/gratuity fund sums as part of the liquidation estate and therefore not available for distribution in liquidation.

Claims of workmen in liquidation - Claims were liable to be disallowed or limited where appellants failed to prove employment or did not adequately respond to the liquidator's communications seeking supporting documents. - HELD THAT: - The Tribunal found that some appellants did not produce satisfactory proof of their employment with the corporate debtor or failed to respond appropriately to requests for documents under the Code. Entitlement to claimed dues therefore remained subject to the documents available on record; absent sufficient evidence or statutory determinations, the liquidator's decision to limit or reject parts of the claims was sustainable. [Paras 10]

Claims unsupported by proof of employment or by adequate documentary evidence were not allowed, and the appeals raising such claims failed.

Final Conclusion: The Tribunal dismissed the appeals, upholding the liquidator's partial admission of gratuity claims based on audited records and actuarial valuation, and rejecting claims for interest and other wage components in the absence of requisite orders or proof; it further affirmed that provident, pension and gratuity funds are excluded from the liquidation estate and not available for distribution by the liquidator.

Prospective operation of notification increasing minimum default threshold - minimum default threshold for initiation under the Insolvency and Bankruptcy Code - liberty to file fresh petition cannot override statutory threshold - applicability of Notification S. O. 1205(E) dated March 24, 2020 - maintainability of an application under Part II of the IBC based on pecuniary jurisdiction

Prospective operation of notification increasing minimum default threshold - liberty to file fresh petition cannot override statutory threshold - maintainability of an application under Part II of the IBC based on pecuniary jurisdiction - Liberty previously granted to operational creditor to file a fresh petition does not permit filing of a section 9 application that fails to meet the increased minimum default threshold introduced by Notification S. O. 1205(E) dated March 24, 2020. - HELD THAT: - The Tribunal held that a liberty to file a fresh application can be exercised only in conformity with the law prevailing at the time of exercise. The Central Government, by Notification S. O. 1205(E) dated March 24, 2020, increased the minimum threshold for initiating proceedings under sections 7, 9 and 10 of the IBC from Rs. 1 lakh to Rs. 1 crore. Applying the accepted view that the notification is prospective in operation (as explained by the NCLAT in Madhusudan Tantia v. Amit Choraria), the increased pecuniary threshold applies to applications filed on or after March 24, 2020. Consequently, a section 9 application presented on February 23, 2021 must satisfy the Rs. 1 crore threshold. The operational creditor's claim falls short of that threshold, and the earlier liberty recorded in I.B.A. No. 137 of 2019 cannot be construed so as to circumvent the statutory requirement now in force. [Paras 9, 11, 12]

The section 9 application filed on February 23, 2021 is not maintainable for failing to meet the Rs. 1 crore minimum default threshold prescribed by Notification S. O. 1205(E) dated March 24, 2020, and is dismissed.

Final Conclusion: The Tribunal dismissed the operational creditor's section 9 application for non compliance with the increased pecuniary threshold introduced by Notification S. O. 1205(E) dated March 24, 2020, holding that the notification operates prospectively and that the earlier liberty to file afresh cannot override the statutory requirement.

Status quo - restraint on coercive action - provisional attachment - Appellate Tribunal non-functionality for want of quorum - statutory appeal to Appellate Tribunal

Status quo - restraint on coercive action - statutory appeal to Appellate Tribunal - Interim relief in the form of status quo and restraint on coercive action was granted subject to conditions relating to filing of a statutory appeal. - HELD THAT: - The Court noted that the petitioners challenge the Adjudicating Authority's order confirming a provisional attachment and that the Appellate Tribunal is presently non-functional for want of quorum. In view of the Tribunal's non-functioning and the petitioners' stated intention to file a statutory appeal, the Court directed that, provided the petitioners file the appeal within two weeks, the parties shall maintain status quo in respect of the subject matter of the impugned order until the appeal and any stay application are taken up by the Tribunal when it becomes functional. Consequently, respondent no. 1 was restrained from taking any coercive action against the petitioners based on the impugned order. The Court expressly refrained from expressing any opinion on the merits and clarified that the order will merge with any orders the Tribunal may pass when functional. [Paras 3, 4, 5]

Petition partly allowed; status quo and restraint on coercive action granted until the Appellate Tribunal considers the appeal, subject to filing the statutory appeal within two weeks; no expression on merits and order to merge with future Tribunal orders.

Final Conclusion: Writ petition partly allowed by an interim order directing maintenance of status quo and restraining coercive action pending consideration of the petitioners' statutory appeal by the Appellate Tribunal, on condition that the appeal is filed within two weeks; Court made no adjudication on merits and the interim direction will yield to any subsequent orders of the Tribunal when it becomes functional.

Maintainability under Section 35G of the Central Excise Act, 1944 - Taxability of services and jurisdiction under Section 35L of the Central Excise Act, 1944 - Scope of High Court appellate jurisdiction in excise/service tax matters - Questions concerning assessment, classification and value of taxable services excluded from High Court jurisdiction

Maintainability under Section 35G of the Central Excise Act, 1944 - Taxability of services and jurisdiction under Section 35L of the Central Excise Act, 1944 - Scope of High Court appellate jurisdiction in excise/service tax matters - The appeal under Section 35G is not maintainable because the primary dispute relates to taxability of services, which falls for adjudication before the Apex Court under Section 35L. - HELD THAT: - The Court examined the nature of the dispute and concluded that the determinative questions raised by the revenue concern taxability, classification and valuation of services (including commission received in advance, debit card income, renting of immovable property, services by J&K branch and business auxiliary services) and the admissibility of CENVAT credit for the period 2007-2008. Following the reasoning in the co ordinate Bench decision cited, disputes as to whether services are taxable, their classification, value for assessment, and related exemption issues fall outside the High Court's appellate jurisdiction under Section 35G and are to be entertained by the Supreme Court under Section 35L. Consequently, the Court refrained from adjudicating the substantive taxability and CENVAT-credit questions and held that the proper forum for those substantial questions of law is the Apex Court. [Paras 4, 5]

Appeal dismissed as not maintainable under Section 35G with liberty to the revenue to agitate the substantial questions of law before the Supreme Court.

Final Conclusion: The High Court dismissed the revenue's appeal for want of jurisdiction under Section 35G, holding that the core dispute is one of taxability falling within the Supreme Court's jurisdiction under Section 35L, and granted liberty to the revenue to pursue the substantial questions of law before the Apex Court.

Time-barred assessment - extended period of limitation - non-filing of return and limitation extension - statutory alternative remedy - relegation to statutory appellate forum - interim protection from coercive action

Time-barred assessment - statutory alternative remedy - relegation to statutory appellate forum - Whether the writ petition challenging the assessment as time barred is maintainable in light of the statutory appeal remedy. - HELD THAT: - The Court held that a challenge to the assessment on the ground that it had become time barred, and that the extended period of limitation was not justified, did not furnish sufficient basis for invoking extraordinary writ jurisdiction under Article 226 where a statutory appellate remedy exists. The availability of an appeal under the statute displaces the exercise of writ jurisdiction in the present case. Consequently the petitioner was relegated to invoke the remedy of appeal under the Finance Act, 1994; the Court declined to adjudicate the merits of the limitation contention and expressed no opinion on the substantive merits of the assessment. [Paras 4]

Writ petition not entertained; petitioner directed to file statutory appeal and relegated to the appellate forum.

Interim protection from coercive action - Whether interim protection should be granted pending filing of appeal. - HELD THAT: - The Court granted limited interim protection by directing that no coercive action shall be taken against the petitioner for a period of three weeks to enable filing of the appeal. The stay granted is conditional and will automatically stand vacated if no appeal is filed within that period. If an appeal is filed, the Appellate Authority may in its discretion consider grant or refusal of stay; the High Court did not express any view on the merits. [Paras 4]

Conditional interim protection for three weeks; appellate authority to exercise its discretion on stay if appeal is filed.

Final Conclusion: Writ petition dismissed without adjudication on merits and petitioner relegated to statutory appeal; limited three week protection from coercive action granted to permit filing of the appeal, after which the protection lapses automatically if no appeal is filed.

Eligibility for CENVAT credit on capital goods supplied to consumers on rental/lease - interpretation of Rule 3(5) proviso of CENVAT Credit Rules, 2004 - inapplicability of Rule 3(5A) where capital goods remain at consumer premises for provision of output service - inapplicability of Rule 3(5B) where capital goods were put to use before write-off - reversal of CENVAT credit and recovery of duty, interest and penalty

Eligibility for CENVAT credit on capital goods supplied to consumers on rental/lease - interpretation of Rule 3(5) proviso of CENVAT Credit Rules, 2004 - inapplicability of Rule 3(5A) where capital goods remain at consumer premises for provision of output service - inapplicability of Rule 3(5B) where capital goods were put to use before write-off - reversal of CENVAT credit and recovery of duty, interest and penalty - Whether CENVAT credit availed on set-top boxes/CPEs supplied to subscribers on rental/lease during April 2015 to December 2016 was liable to be disallowed and recovered along with interest and penalty - HELD THAT: - The Tribunal examined the characterisation of the disputed CPEs and the statutory scheme of the CENVAT Credit Rules, 2004. The bench relied on the customer agreement, the affidavit and the Chartered Accountant certificate establishing that the majority of CPEs in issue were supplied on a rental/lease basis and were placed at subscriber premises for provision of the output service. Under Rule 3(5) read with its proviso, capital goods removed outside the premises of a provider for the purpose of providing the output service do not attract the payment/reversal envisaged by that rule. Rule 3(5A) addresses capital goods removed after being used from the provider's premises and thus is inapplicable where goods remain at subscriber premises to provide the service. Rule 3(5B) concerns write-off of capital goods before being put to use; the Tribunal found the CPEs had been put to use and therefore sub-rule (5B) did not apply. The Tribunal also followed earlier bench precedents (including decisions in Videocon D2H and Dish TV) and the Jurisdictional Commissioner's subsequent OIO dropping similar demands, concluding that the impugned disallowance, demand, interest and penalties were not sustainable on the facts and law. [Paras 4, 5]

Impugned order disallowing CENVAT credit and confirming demand, interest and penalties set aside; appeal allowed.

Final Conclusion: On the facts and in law the CENVAT credit on set-top boxes/CPEs provided to subscribers on rental/lease during April 2015 to December 2016 was held to be admissible and the order disallowing credit and imposing recovery, interest and penalties was set aside; appeal allowed.

Cenvat credit admissibility on invoices addressed to branch offices - Centralised billing or centralised accounting as basis for registration - Option to register premises for centralised systems - Reliance on binding coordinate bench precedent - Consequential setting aside of interest and penalties

Cenvat credit admissibility on invoices addressed to branch offices - Centralised billing or centralised accounting as basis for registration - Option to register premises for centralised systems - Reliance on binding coordinate bench precedent - The Cenvat credit availed on invoices issued to branch offices is admissible where the assessee is registered at premises from which centralised billing/accounting is carried out. - HELD THAT: - The Tribunal held that the issue is covered by its earlier decision in Kinetic Advertising (relying on Manipal Advertising Services) which applied Rule 4(2) of the Service Tax Rules and allied reasoning to Cenvat Credit Rules. Where an assessee has centralised billing or centralised accounting and has registered the premises from which such centralised systems operate, credit taken on invoices addressed to branch offices cannot be denied merely because invoices bear branch addresses. The Tribunal applied the coordinate-bench ratio that registration at the centralised premises validates availment of credit and accordingly set aside the disallowance made by the adjudicating authority. [Paras 3, 4]

Disallowance of Cenvat credit on invoices addressed to branch offices is set aside and the appeal is allowed on this ground.

Proof of actual credit availed (Cenvat register / ST-3) - Admission of utilization vs. availment in ST-3 returns - Consequential effect on interest and penalties - The appellant's claim that a portion of the alleged credit was not actually availed was unsubstantiated for want of production of Cenvat registers or corroborating ST-3 returns; however this matter became academic once the primary demand was set aside. - HELD THAT: - The adjudicating authority recorded that the appellant showed 'nil' in the 'Cenvat Credit Taken' column of ST-3 while showing utilisation, and failed to produce Cenvat credit registers to substantiate that part of the credit (around Rs. 88.99 lakhs) was not availed. The Tribunal observed that paragraph 41 of the impugned order correctly records the absence of supporting documents. Nevertheless, because the principal demand was set aside on the merit that credit on branch-addressed invoices was admissible, the question of proof of lesser availment became irrelevant, and interest and penalties imposed were consequently set aside. [Paras 3]

The finding on non-production of supporting registers is upheld but rendered academic; interest and penalties are set aside as consequential to allowing the appeal.

Final Conclusion: The Tribunal allowed the appeal, set aside the adjudicator's disallowance of Cenvat credit (availed on invoices addressed to branch offices) for the period 01.06.2006 to 31.12.2008, and consequently quashed the demand of service tax, interest and penalties (including those up to 09.05.2008).

Cenvat credit - reverse charge mechanism - remand for production of supporting certificate and invoice - suppression of turnover - reconciliation of turnover with ST-3 returns - extended period of limitation - penalty under Section 78 - clerical error / bona fide mistake

Cenvat credit - reverse charge mechanism - remand for production of supporting certificate and invoice - Allowance of cenvat credit claimed for input services received from D.P. Khandelwal & Co. and N.K. Buildcon. - HELD THAT: - The Tribunal found that service tax on the amount paid to D.P. Khandelwal & Co. was deposited by the appellant under the reverse charge mechanism and the related office order sanctioned the payment; accordingly the cenvat credit of the amount in issue was allowed. As to the credit claimed in respect of services from N.K. Buildcon, the appellant explained that the service provider had paid service tax and that an invoice supported the claim, but documents could not be produced before the Tribunal due to office shifting and misplacement. The Tribunal therefore did not decide the claim on merits but remanded that part of the claim to the Original Adjudicating Authority with a direction that, if the appellant produces from N.K. Buildcon a certificate supporting the amount with specific reference to the Bill and Invoice number, the Adjudicating Authority shall allow the credit accordingly. [Paras 6]

Cenvat credit of the amount received from D.P. Khandelwal & Co. is allowed; cenvat credit of the amount claimed from N.K. Buildcon (Rs. 55,282/-) is remanded to the Original Adjudicating Authority for verification on production of certificate and invoice.

Suppression of turnover - reconciliation of turnover with ST-3 returns - Allegation of suppression/non-disclosure of taxable turnover in Service Tax Returns for the stated financial years. - HELD THAT: - The appellant demonstrated reconciliation between turnover as per Profit & Loss Account and taxable turnover declared in ST-3 returns. For financial year 2007-2008 an apparent discrepancy was explained by reference to exempted turnover shown in the ST-3 returns for the two half-yearly returns; when exempted turnover is added to taxable turnover the total exceeds the Profit & Loss Account figure. For financial years 2008-2009, 2009-2010 and 2010-2011 no discrepancy was found. The Tribunal held that the Department had failed to take into account the returns on record and that the appellant had successfully reconciled its figures. [Paras 6, 7]

The allegation of suppression is rejected and the demand (tax allegedly short paid) is set aside.

Extended period of limitation - penalty under Section 78 - clerical error / bona fide mistake - Invocability of the extended period of limitation and imposition of penalty under Section 78. - HELD THAT: - The Tribunal noted that the appellant is a State Government undertaking with audited books, operating as a nodal agency and not a commercial organisation in the ordinary sense. The discrepancies were attributed to clerical error, misplacement of documents due to office shifting and lack of reconciliation rather than deliberate suppression or falsification. On these findings the Tribunal concluded that the facts do not warrant invocation of the extended period of limitation and that the circumstances do not justify imposition of penalty under Section 78. [Paras 8, 9]

Extended period of limitation is not invokable and the penalty under Section 78 is set aside.

Final Conclusion: The appeal is allowed: the cenvat credit in respect of D.P. Khandelwal & Co. is allowed; the claim in respect of N.K. Buildcon is remanded to the Original Adjudicating Authority for verification on production of certificate and invoice; the demand on account of alleged suppression of turnover is set aside and the extended period of limitation and penalty under Section 78 are not sustained.

Taxability of services provided by police as security services - sovereign/statutory function exclusion from service tax - definition of security agency - CBEC Circular No.89/7/2006-ST: conditions for non-taxability - deposit into government treasury as condition for exemption

Taxability of services provided by police as security services - sovereign/statutory function exclusion from service tax - CBEC Circular No.89/7/2006-ST: conditions for non-taxability - definition of security agency - Provision of armed security guards by the State police to public sector banks/undertakings and government departments is not taxable as 'security services' under the Finance Act, 1994. - HELD THAT: - The Tribunal held that the activities undertaken by the appellant (State police) are statutory and mandatory duties performed in the exercise of sovereign functions and the amounts collected are deposited into the Government treasury. Reliance was placed on CBEC Circular No.89/7/2006-ST which exempts charges collected by sovereign/public authorities for statutory functions where (a) the duties are statutory and mandatory, (b) fees are levied as per the relevant law, and (c) amounts are deposited into the government treasury. The Tribunal noted prior decisions concluding that a police department acting as an agency of the State cannot be treated as a person carrying on the business of a security agency and that such activity does not fall within the definition of 'security agency' for service tax purposes. Applying these principles to the facts, the Tribunal concluded that the collection of charges by the police for providing armed guards is not liable to service tax. [Paras 4, 5]

Appeals allowed; impugned order set aside and charges collected for police-provided armed security held not taxable as security services.

Final Conclusion: The Tribunal, following CBEC guidance and earlier decisions, held that charges collected by the State police for providing armed security as part of statutory/sovereign duties and deposited into the government treasury are not exigible to service tax; the impugned order was set aside.

Hardship in exercise of discretion - Pre-deposit requirement for interim relief - Exercise of discretionary jurisdiction under Article 136 - Judicial review of Tribunal's exercise of discretion

Judicial review of Tribunal's exercise of discretion - Exercise of discretionary jurisdiction under Article 136 - Whether this Court should entertain the petition under Article 136 challenging the Tribunal's order requiring additional deposit. - HELD THAT: - The Court examined the High Court's refusal to interfere with the Tribunal's discretionary order and the submissions on hardship made on behalf of the petitioner. After considering the matter in necessary detail, the Court found no reason to exercise its special leave jurisdiction to disturb the concurrent exercise of discretion by the Tribunal and the High Court. The petition was therefore not entertained on merits under Article 136.

Petition seeking special leave under Article 136 is dismissed.

Hardship in exercise of discretion - Pre-deposit requirement for interim relief - Whether any relief or relaxation should be granted to the petitioner in respect of the deposit requirement. - HELD THAT: - Although the contention as to hardship was raised and noted, the Court did not find it sufficient to overturn the orders below. However, in the interest of justice the Court granted a limited relaxation by permitting the petitioner to make the requisite deposit within four weeks from the date of the order. The Court also recorded that by its earlier order dated 06.11.2017 the operation of the impugned orders had been stayed to the extent of the deposit required by the order dated 22.06.2017.

Limited relaxation granted: petitioner permitted to make the requisite deposit within four weeks; otherwise petition dismissed.

Final Conclusion: The special leave petition is dismissed for want of merit, subject to a limited direction permitting the petitioner to make the requisite deposit within four weeks; earlier operative stay (06.11.2017) covered the extent of deposit required by the order dated 22.06.2017. Pending applications disposed of.

Definition of "input service" in Rule 2(1) of the Cenvat Credit Rules, 2004 - exclusion of services used primarily for personal use or consumption of any employee - rent-a-cab service exclusion - nexus between a service and manufacturing activity for entitlement to Cenvat Credit - exclusion under Section 65(105) of the Finance Act

Definition of "input service" in Rule 2(1) of the Cenvat Credit Rules, 2004 - exclusion of services used primarily for personal use or consumption of any employee - Whether transportation of employees by bus from designated pick-up points to the factory falls within the definition of "input service" after the amendment of Rule 2(1) w.e.f. 01.04.2011. - HELD THAT: - The court held that after the amendment with effect from 01.04.2011 the definition of "input service" excludes services that are primarily for personal use or consumption of employees. The Tribunal's conclusion that rent-a-cab or employee-transport services fall within the excluded category was endorsed. The court observed that the amended rule and the statutory exclusion in Section 65(105) of the Finance Act support treating such transportation as not forming part of "input service" where the service is essentially for enabling employees to reach the workplace rather than being integrally linked to the manufacturing process. [Paras 5]

Transportation of employees by bus from distant pick-up points is not an "input service" eligible for Cenvat Credit after 01.04.2011.

Nexus between a service and manufacturing activity for entitlement to Cenvat Credit - rent-a-cab service exclusion - Whether the bus transport provided by the manufacturer to its employees is a component of the manufacturing activity entitling the manufacturer to claim Cenvat Credit. - HELD THAT: - The court examined the factual matrix and concluded that the bus service was provided for the personal convenience of employees to enable them to reach the factory and was not an activity that forms part of the manufacturing process. The court distinguished precedents relied upon by the appellant where services were demonstrably consumed in various stages of manufacturing or were within the factory premises or related directly to production. On the facts of this case, the transport service lacked the requisite direct nexus to manufacturing and therefore could not be treated as input leading to production. [Paras 5, 6]

The employee-transport service is not a component leading to the manufacturing activity and does not qualify for Cenvat Credit.

Exclusion under Section 65(105) of the Finance Act - exclusion of services used primarily for personal use or consumption of any employee - Whether the Tribunal was justified in relying on the statutory exclusion (including the rent-a-cab exclusion) to deny Cenvat Credit and in upholding disallowance and recovery for the post-amendment period. - HELD THAT: - The court found the Tribunal's reliance on the amended Rule 2(1) and the statutory framework including Section 65(105) to be sound. It noted the Karnataka High Court decision in Toyota Kirloskar (upheld by the Supreme Court on SLP) as supportive of the principle that services primarily for employee personal use are excluded from input services. The court considered the decisions relied upon by the appellant to be distinguishable on facts or inapplicable where they dealt with pre-amendment periods or services demonstrably connected to business operations. [Paras 5, 6, 7]

The Tribunal was justified in disallowing Cenvat Credit for the post-amendment period by applying the statutory exclusion; the disallowance is upheld.

Definition of "input service" in Rule 2(1) of the Cenvat Credit Rules, 2004 - rent-a-cab service exclusion - Whether services provided to employees to enable attendance at the workplace amount to 'service for personal use or consumption' of employees within the meaning of the amended rules. - HELD THAT: - On the facts, the court treated the employee-transport facility as primarily for personal use or convenience of employees rather than a business input. The court observed that merely because the employer's provision facilitates the conduct of business (employees reaching work) does not automatically transform such services into eligible input services when the amended definition specifically excludes services for personal use or consumption. [Paras 5, 7]

The employee-transport service is a service for personal use or consumption of employees and is excluded from "input service" under the amended rules.

Final Conclusion: The appeal is dismissed; the Tribunal's disallowance of Cenvat Credit for employee-transport services for the period from 01.04.2011 to 31.12.2015 is upheld on the ground that such services fall within the exclusion from "input service" as being primarily for personal use or consumption of employees.

Priority to secured creditors - First charge under the Maharashtra Value Added Tax Act - Non obstante clause - Registration of security interest - Priority of Government revenues and taxes

Priority to secured creditors - First charge under the Maharashtra Value Added Tax Act - Non obstante clause - Priority between a secured creditor under Section 26-E of the SARFAESI Act and the State's first charge under Section 37 of the MVAT Act - HELD THAT: - The Court held that Section 26-E of the SARFAESI Act, enacted by Central legislation with effect from 01/09/2016, begins with a non obstante clause and accords priority to debts due to secured creditors over all other debts including taxes and revenues. Section 37 of the MVAT Act also begins with a non obstante clause but is expressly subject to any provision regarding creation of first charge in any Central Act for the time being in force. Therefore, on a harmonious reading, the first charge created by the MVAT Act is subject to the priority granted to secured creditors under Section 26-E of the SARFAESI Act. Reliance placed by the State on Section 37 cannot prevail where the Central provision confers priority to registered secured creditors. [Paras 6, 8, 9, 10]

Section 26-E of the SARFAESI Act prevails and the secured creditor's priority under that provision overrides the State's charge under Section 37 of the MVAT Act.

Registration of security interest - Priority to secured creditors - Whether the petitioner-Bank satisfied the condition of registration of security interest necessary to claim priority under Section 26-E - HELD THAT: - The Court found that one of the conditions to claim priority under Section 26-E is registration of the security interest with the appropriate Registry. The record shows that the petitioner-Bank registered the security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India on 30/03/2012, with separate registrations for the two properties in question. Having fulfilled the registration requirement, the petitioner-Bank was entitled to the statutory priority afforded by Section 26-E. [Paras 8, 9]

The petitioner-Bank fulfilled the registration requirement and is entitled to the priority under Section 26-E.

Priority of Government revenues and taxes - Priority to secured creditors - Validity of the State's attachment and charge dated 31/10/2017 over properties subject to the Bank's registered security interest - HELD THAT: - Although proceedings by the State were earlier initiated, those proceedings were set aside and a subsequent attachment order was passed on 31/10/2017, after Section 26-E came into force. Given that the bank's security interest had been registered and Section 26-E confers priority to secured creditors over taxes and other government dues, the attachment and charge created by the State as regards the specified secured assets could not be sustained. The Court relied on earlier decisions of the Court which have held that Section 26-E grants secured creditors priority over government dues. [Paras 9, 10]

The attachment and charge dated 31/10/2017 over the petitioner-Bank's secured assets cannot be sustained to the extent of the properties specified in the petition.

Final Conclusion: The writ petition is allowed. The State's action of attachment and creating a charge dated 31/10/2017 is set aside insofar as it affects the secured assets of the petitioner-Bank mentioned in the petition; Rule is made absolute accordingly.

Termination of contract for furnishing false information - Blacklisting of contractor as punitive administrative action - Proportionality and reasonableness in administrative punishment - Bonafide submission of cancelled GST number - Reconsideration/remand of administrative decision

Termination of contract for furnishing false information - Bonafide submission of cancelled GST number - The respondent's termination of the contract with the petitioner was upheld. - HELD THAT: - The Court examined the circumstances under which the petitioner submitted its bid with a GST number that had been cancelled and the respondent's subsequent notice and order. While the petitioner contended lack of knowledge, COVID-19 disruption and non-receipt of departmental notices through its former Chartered Accountant, the Court found that those explanations did not inspire full confidence. Having considered the commercial importance of a valid GST registration to the contractual relationship and the respondent's reliance on the authenticity of the information furnished, the Court saw no infirmity in the decision to terminate the contract. The determinative reasoning is that the validity of the GST registration was a material aspect of the contract and the respondent was entitled to terminate once it found the registration to be cancelled. [Paras 10]

Termination of the contract is sustained.

Blacklisting of contractor as punitive administrative action - Proportionality and reasonableness in administrative punishment - Reconsideration/remand of administrative decision - The respondent's decision to blacklist the petitioner for two years was set aside and remitted for fresh consideration. - HELD THAT: - Although the petitioner's conduct warranted scrutiny, the Court held that imposing a two year blacklist on a small sole proprietorship was excessive and disproportionate in the facts of the case. The Court took into account the wider economic impact of the COVID 19 pandemic on small businesses, and the subsequent decision of the Appellate Authority of the GST Department to restore the petitioner's GST registration w.e.f. 30.06.2021, which indicated that the departmental view had been compassionate and that the underlying grievance was effectively resolved. For these reasons the Court found the punitive duration and consequence of blacklisting to be unwarranted. The matter was therefore remitted to the respondent to reconsider blacklisting, taking into account the Court's observations and the GST Appellate Authority's restoration, and to pass an appropriate order within two weeks. [Paras 10, 11]

Blacklisting set aside; respondent directed to reconsider and pass a fresh order within two weeks.

Final Conclusion: Exemption application allowed. The contract termination is sustained, but the two year blacklisting is set aside and the respondent is directed to reconsider blacklisting in light of the GST restoration and proportionality within two weeks; petition disposed in these terms.