TMI Tax Updates e-Newsletter
May 12,2025

The core legal questions considered by the Court in this matter are:

• Whether the impugned order dated 16.12.2023, passed by the Deputy Commissioner, State Tax, was validly served upon the petitioner when it was uploaded under the tab 'Additional Notices & Orders' of the GST portal instead of the designated 'Notices & Orders' tab;
• Whether the presumption of deemed service of the order dated 16.12.2023 applies in the present case;
• Whether the appellate authority had the power under section 107 of the CGST Act to condone the delay in filing the appeal against the impugned order;
• The legality of dismissal of the appeal by the Additional Commissioner on the ground of delay without condonation;
• The procedural correctness and compliance with principles of natural justice in issuing notices and passing orders under the CGST Act in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Service of the Impugned Order (16.12.2023) via GST Portal Upload

Relevant Legal Framework and Precedents: The CGST Act mandates issuance and service of notices and orders in a prescribed manner. The GST portal is the designated platform for communication; however, the specific tab or section where orders are uploaded is crucial for effective notice. The Court relied heavily on the Division Bench rulings in Ola Fleet Technologies Private Limited and Tasneef Ahmad Mirza, which held that uploading an order under an incorrect tab on the GST portal does not constitute valid service.

Court's Interpretation and Reasoning: The Court noted that the impugned order was uploaded under the 'Additional Notices & Orders' tab rather than the 'Notices & Orders' tab, which is the recognized section for such communications. This misplacement resulted in non-communication of the order to the petitioner. The Court emphasized that mere uploading on the portal cannot be equated with valid service unless it is done in the prescribed manner that ensures the recipient's awareness.

Key Evidence and Findings: The petitioner's uncontested submission that notices and show cause notices issued under sections 61 and 73(1) of the CGST Act were not served was accepted. The petitioner was unaware of the impugned order until much later, confirming the lack of effective communication.

Application of Law to Facts: The Court applied the principle that service by electronic means must be effective and must reasonably bring the order to the knowledge of the party. Uploading under an incorrect tab failed this test, and thus the limitation period for appeal could not start from the date of such uploading.

Treatment of Competing Arguments: The State's contention that uploading on the portal amounts to deemed service was rejected based on binding precedents and the facts of the case.

Conclusion: The Court held that the order dated 16.12.2023 was not validly served on the petitioner by uploading it under the wrong tab, and the presumption of deemed service did not apply.

Issue 2: Power of the Appellate Authority to Condone Delay under Section 107 of the CGST Act

Relevant Legal Framework: Section 107 of the CGST Act deals with appeals to the appellate authority and the conditions for filing such appeals, including limitation periods and condonation of delay.

Court's Interpretation and Reasoning: The appellate authority rejected the petitioner's appeal on the ground of delay and stated it had no power to condone the delay under section 107. The Court did not specifically delve into the statutory interpretation of section 107 but implicitly accepted that the rejection was premised on the non-availability of condonation power to the authority.

Key Evidence and Findings: The petitioner filed an appeal along with an application for condonation of delay upon becoming aware of the order. The appellate authority dismissed the appeal solely on the ground of delay.

Application of Law to Facts: Since the initial order was not validly served, the limitation period for filing appeal had not commenced, and the petitioner's delay was not attributable to any negligence on its part. Therefore, the appellate authority's refusal to condone delay was unjustified in the circumstances.

Treatment of Competing Arguments: The State's reliance on the absence of condonation power was overridden by the fundamental principle of fair notice and natural justice.

Conclusion: The dismissal of the appeal on the ground of delay without condonation was improper given the invalidity of the original service.

Issue 3: Procedural Compliance and Adherence to Principles of Natural Justice

Relevant Legal Framework: The CGST Act and allied procedural rules require that notices and orders be served in a manner that affords the affected party a reasonable opportunity to be heard.

Court's Interpretation and Reasoning: The Court underscored that the petitioner was deprived of the opportunity to respond to the show cause notices and impugned order due to failure in proper service. This violated the principles of natural justice and procedural fairness.

Key Evidence and Findings: Multiple notices issued under sections 61 and 73(1) were not served. The petitioner was unaware of the order until much later, precluding meaningful participation in the proceedings.

Application of Law to Facts: The Court held that the impugned orders could not stand as the petitioner was denied the opportunity to present its case, necessitating remand for fresh adjudication with proper service and notice.

Treatment of Competing Arguments: The State did not dispute the non-service but maintained the validity of the orders. The Court rejected this stance in favor of procedural propriety.

Conclusion: The Court directed fresh adjudication with proper notice and opportunity to the petitioner, ensuring compliance with natural justice.

3. SIGNIFICANT HOLDINGS

The Court quashed both the impugned order dated 16.12.2023 and the appellate order dated 18.11.2024, holding:

"It is not in dispute that the proceedings were initiated and the order dated16.12.2023 was uploaded under the tab 'Additional Notices & Orders' of the GST portal, instead of 'Notices & Orders' tab."

"The issue in hand is no more res integra and the same has already been decided by the Division Bench of this Court in Ola Fleet Technologies Private Limited (supra) and Tasneef Ahmad Mirza (supra)."

"In view of the aforesaid facts & circumstances of the case as well as the law laid down by this Court in the cases cited above, the impugned order dated 18.11.2024 passed by the Additional Commissioner, Grade - 2 (Appeal) - 3, Saharanpur as well as the impugned order dated 16.12.2023 passed by the Deputy Commissioner, State Tax, Saharanpur are hereby quashed."

Core principles established include:

• Valid service of notices and orders under the CGST Act via the GST portal requires uploading under the correct designated tab to ensure effective

The primary legal question considered is whether Goods and Services Tax (GST) can be levied on transactions involving the execution of release deeds in favor of occupants or encroachers of lands originally granted under a 999-year lease indenture dating back to 1870. Specifically, the Court examined if such release deeds amount to an assignment of leasehold rights, thereby attracting GST under the relevant provisions of the GST law.

Secondary issues include the applicability of precedents, notably a Division Bench decision of the Gujarat High Court, which held that assignment or transfer of leasehold rights of industrial plots allotted by a government agency does not constitute a supply liable to GST. The Court also considered procedural aspects concerning the issuance of adjudication orders and Show Cause Notices by State Authorities for various financial years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether execution of release deeds in favor of occupants/encroachers constitutes assignment of leasehold rights liable to GST

Relevant legal framework and precedents: The GST Act, specifically Section 7(1)(a) defining the scope of supply, Section 9 relating to levy of GST, and Schedule II and Schedule III clauses governing treatment of immovable property transactions, form the statutory backdrop. The Gujarat High Court's Division Bench ruling in Gujarat Chambers of Commerce and Industry v. Union of India is a pivotal precedent. That ruling clarified that assignment by sale or transfer of leasehold rights of land allotted by a government agency to a third party for consideration does not amount to supply under GST and hence is not taxable.

Court's interpretation and reasoning: The Court recognized that the State treated the release deeds as assignments of leasehold rights, thereby attracting GST. However, the Petitioners contended that release deeds cannot be construed as assignments. Even if construed as assignments, the Gujarat High Court decision squarely covers such transactions as exempt from GST. The Court noted no contrary judicial authority was placed before it, thereby lending weight to the Petitioners' argument.

Key evidence and findings: The Petitioners relied on the historical 999-year lease indenture and the nature of release deeds executed. The State's adjudication order and Show Cause Notices for multiple years were examined. The Court observed that the Gujarat High Court had already addressed a similar issue in the context of leasehold rights granted by a government agency.

Application of law to facts: Applying the Gujarat High Court precedent and the statutory provisions, the Court found that the release deeds in question, even if treated as assignments, would not fall within the taxable supply under GST. The Court emphasized that the nature of the transaction and the identity of the lessor (government agency) are critical factors in determining GST applicability.

Treatment of competing arguments: The State argued for GST levy treating release deeds as assignments. The Petitioners countered with the legal distinction between release deeds and assignments and relied on binding precedent exempting such transactions from GST. The Court favored the Petitioners' position due to the absence of any conflicting authority and the persuasive reasoning of the Gujarat High Court.

Conclusions: The Court indicated that GST cannot be levied on the release deeds treated as assignments of leasehold rights granted under the historical lease indenture, aligning with the Gujarat High Court's interpretation.

Issue 2: Interim relief and procedural status of adjudication orders and Show Cause Notices

Relevant legal framework: Principles governing interim relief in writ petitions and stay of tax proceedings pending adjudication were considered. The Court's inherent powers to grant injunctions to prevent irreparable harm pending final disposal were relevant.

Court's interpretation and reasoning: Given the ongoing litigation on similar issues in other writ petitions, including one involving a major corporate entity, the Court found it appropriate to grant ad-interim relief to the Petitioner. This was to stay the operation of the impugned adjudication order dated 22nd January 2025 and the Show Cause Notices issued for subsequent years.

Key evidence and findings: The existence of multiple pending writ petitions on the same issue and the prior stay granted in a similar case were significant. The Court noted that the adjudication order and notices pertain to different financial years but arise from the same legal question.

Application of law to facts: The Court applied the principle of consistency and fairness in tax adjudication, granting interim protection to prevent enforcement of disputed tax demands until the issue is conclusively decided.

Treatment of competing arguments: The State's interest in revenue collection was balanced against the Petitioner's right to challenge the tax demand. The Court favored preserving status quo pending final adjudication.

Conclusions: The Court granted an interim injunction staying the implementation and operation of the impugned order and Show Cause Notices until further orders.

Issue 3: Coordination of related pending matters and future directions

Relevant legal framework: Judicial case management principles and consolidation of related matters for efficient adjudication were considered.

Court's interpretation and reasoning: Recognizing the multiplicity of writ petitions raising identical or similar issues, the Court directed that the present petition be heard along with other connected petitions, including the one involving Siemens Limited.

Key evidence and findings: The Court noted the pendency of several petitions on the same question of law and the existence of prior interim orders in related cases.

Application of law to facts: To avoid conflicting rulings and duplication of effort, the Court scheduled a joint hearing and final disposal of all connected matters on a fixed date.

Conclusions: The Court posted the matter for directions and eventual hearing on 10th June 2025, ensuring coordinated adjudication.

3. SIGNIFICANT HOLDINGS

"The assignment by sale or transfer of leasehold rights of the plot of land allotted by the Gujarat Industrial Development Corporation (GIDC) to the lessee or its successor (assignor) in favour of a 3rd party (assignee) for consideration, shall be an assignment/sale/transfer of benefits arising out of 'immovable property' by the lessee-assignor in favour of a 3rd party who would then become a lessee of GIDC in place of the original allottee-lessee. In such circumstances, the provisions of Section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and clause 5 of Schedule III would not be applicable to such a transaction and the same would not be subject to levy of GST as provided under Section 9 of the GST Act."

1. Whether the summary demand order dated 12.09.2019 issued under Section 62(1) was valid and properly served upon the petitioner.

2. Whether the assessment order under Section 62(1) stood valid or was deemed withdrawn under Section 62(2) due to the petitioner filing a valid GSTR 3B return and paying the due tax within 30 days.

3. Whether the recovery of tax amount from the petitioner's credit and cash ledger on 24.08.2023 was lawful, given the purported withdrawal of the assessment order.

4. Whether the rejection of the petitioner's appeal by the Additional Commissioner of State Tax (Appeals) on the ground of limitation was justified, particularly in light of Circular No. 53/2023 CT and the Court's prior judgment in SIS Cash Services.

5. Whether the respondents violated principles of natural justice by conducting recovery without providing the petitioner an opportunity of hearing.

Issue 1: Validity and Service of the Summary Demand Order under Section 62(1)

The BGST/CGST Act empowers the proper officer to assess and issue a demand order against a registered person who fails to furnish returns after notice under Section 46. The petitioner contended that no demand order in Form GST ASMT-13 was ever served, which is a prerequisite for valid proceedings under Section 62(1). The respondents denied this, asserting service via email.

The Court scrutinized the record and found the counter affidavit's claim of service to be unsubstantiated and apparently a result of "cut, copy and paste," lacking annexures proving service. Two emails were produced, but the attachment corresponding to the assessment order was unclear. The petitioner's challenge to service was thus accepted as credible.

The Court emphasized that proper service is essential for invoking Section 62(1), and failure to serve the assessment order vitiates the entire proceeding. This issue was critical because it set the foundation for the subsequent recovery and appeal processes.

Issue 2: Deemed Withdrawal of Assessment Order under Section 62(2) upon Filing of Return

Section 62(2) provides that if a registered person furnishes a valid return within 30 days of service of the assessment order under Section 62(1), the assessment order shall be deemed to have been withdrawn, though interest and late fees may still be payable.

It was undisputed that the petitioner filed the GSTR 3B return on 19.09.2019 and paid the due tax, which was within 30 days of the demand order dated 12.09.2019. The respondents conceded this fact during the hearing and acknowledged that the assessment order should be deemed withdrawn by operation of law.

The Court held that once the assessment order is deemed withdrawn, it loses all legal efficacy and cannot be the basis for recovery. This legal fiction under Section 62(2) protects taxpayers who cure their default promptly by filing returns and paying taxes.

Issue 3: Lawfulness of Recovery Action on 24.08.2023

Despite the deemed withdrawal, Respondent No. 5 proceeded to recover Rs. 1,11,87,352 from the petitioner's credit ledger and Rs. 28,592 from the cash ledger on 24.08.2023. The petitioner challenged this recovery as unlawful and without application of mind, pointing out that the authority failed to verify the return filing status before recovery.

The Court examined the recovery order and found that the Assistant Commissioner of State Tax (ACST) did not consider the fact that the return was filed and tax paid within the stipulated time. The recovery was initiated without issuing any notice or opportunity to the petitioner, violating procedural fairness and natural justice.

The Court observed that the ACST's order was passed after nearly five years from the demand date, without proper recording of facts or consideration of available electronic records (ARN of return filing). This constituted misuse of power and was held to be illegal and liable to be quashed.

Issue 4: Rejection of Appeal on Ground of Limitation

The petitioner's appeal before the Additional Commissioner of State Tax (Appeals) was rejected on limitation grounds. The petitioner contended that the appeal was filed within the extended time limit prescribed under Circular No. 53/2023 CT dated 02.11.2023 and that the rejection ignored the Court's recent judgment in SIS Cash Services, which held that appeals against orders under Sections 62, 73, or 74 could be entertained even if filed with delay, provided they were pending before the authority as of 31.01.2024.

The Court noted that the appellate order was passed six months after the SIS Cash Services judgment but disregarded it, amounting to willful disobedience and prima facie contempt. The Court expressed dissatisfaction with the respondent's justification based on another coordinate Bench's judgment and indicated the possibility of contempt proceedings.

Issue 5: Violation of Natural Justice Principles

The petitioner argued that recovery was effected without any prior notice or opportunity to be heard, violating the principles of natural justice. The Court agreed, noting that the recovery order was passed without any show cause notice or hearing, which is contrary to established legal norms and statutory requirements.

The Court emphasized that such unilateral action by the tax authorities amounted to harassment and misuse of power, warranting intervention and remedial orders.

Significant Holdings and Legal Reasoning

The Court unequivocally held that:

"Where the registered person furnishes a valid return within thirty days of the service of the assessment order under subsection (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under subsection (1) of section 50 or for payment of late fee under section 47 shall continue."

This legal fiction under Section 62(2) was central to the Court's reasoning, rendering the demand order and subsequent recovery invalid once the return was filed and tax paid timely.

The Court further stated:

"Once, the assessment order lost its existence and efficacy in the eye of law, there was no reason for the Respondent No. 5 to go for recovery of demand dated 12.09.2019."

On service, the Court observed that the respondents' failure to prove proper service of the assessment order vitiated the proceedings and that the counter affidavit's assertion was "a result of cut, copy and paste" without supporting evidence.

Regarding the appeal, the Court quoted from the SIS Cash Services judgment:

"Hence an appeal against an order under Section 73 or 74 has to be filed on or before 31.01.2024, and any appeal filed which is pending before the authority could also be considered as properly filed, even if there is delay in such filing. This will also apply to an order passed under Section 62 which provision is not withstanding anything contrary in Section 73 or 74."

The Court concluded that the appellate authority's rejection was "prima facie contemptuous" and warranted explanation.

The Court set aside the impugned recovery order dated 24.08.2023 and the appellate order dated 11.07.2024, directing the authorities to show cause why interest and costs should not be awarded against them and why contempt proceedings should not be initiated.

The core legal questions considered by the Court are:

(a) Whether the Respondent JBVNL's action in withholding the GST impact amount of Rs. 19,86,44,336/- from payments due to the petitioner under the Ranchi and Medininagar Projects, initiated under the Integrated Power Development Scheme (IPDS), is arbitrary and unreasonable, particularly in light of circulars issued by the Rural Electrification Corporation and Power Finance Corporation mandating payment of GST impact to contractors for the entire contract, including bought-out transactions and sales in transit.

(b) Whether the liability to pay GST, introduced during the continuance of the ongoing contract, lies with the Respondent Employer (JBVNL) given that under the GST regime, the liability arises upon supply of goods by the contractor to the employer.

(c) Whether the petitioner is entitled to a writ of mandamus directing the Respondent JBVNL to release the withheld GST amount of Rs. 19,86,44,336/- along with any applicable statutory interest.

(d) The applicability of the amended clause 10.7 of the General Conditions of Contract (GCC), introduced post-GST implementation, to contracts awarded prior to 01.07.2017, specifically whether contractors under such pre-GST contracts are entitled to reimbursement of GST impact on indirect transactions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Legitimacy of withholding GST impact and liability to pay GST under contracts executed pre-GST regime

The legal framework revolves around the contractual terms, particularly the General Conditions of Contract (GCC), and the statutory regime introduced by the Goods and Services Tax (GST) Act, 2017. The GST regime came into effect on 01.07.2017, altering the tax liability landscape for supply of goods and services.

Pre-GST contracts did not explicitly provide for GST reimbursement. However, post-GST, the Rural Electrification Corporation and Power Finance Corporation issued circulars mandating reimbursement of GST impact, including indirect transactions such as bought-out items and sales in transit, to contractors under the IPDS.

The Court referred extensively to a recent Division Bench judgment in a similar matter involving Sri Gopikrishna Infrastructure Pvt. Ltd., where the issue of GST reimbursement under pre-GST contracts was squarely addressed. The Division Bench held that the introduction of GST during the performance of ongoing contracts necessitated application of the amended clause 10.7 of the GCC, which mandates reimbursement of GST impact, including indirect transactions.

The Court emphasized the principle of fair play and equality enshrined under Article 14 of the Constitution of India, citing the Supreme Court's decision in ABL International Ltd. and Another. It was held that denying GST reimbursement to contractors who entered into contracts before GST implementation, but whose contracts were ongoing at the time of GST introduction, violates the norms of justice, equity, and fair play.

The Court rejected the Respondent's argument that contracts executed prior to GST implementation cannot benefit from the amended clause 10.7. It reasoned that the nature of work and contractual obligations remained the same, and the GST regime's imposition during contract performance triggered the Respondent's liability to reimburse GST impact.

Key evidence included the Letters of Award (LOAs) issued prior to 01.07.2017, the circulars issued by the Rural Electrification Corporation and Power Finance Corporation, and the pre-bid clarifications dated 30.06.2016 clarifying statutory tax valuations post-GST introduction.

The Court applied the law to the facts by holding that the Respondent JBVNL's withholding of the GST impact amount was arbitrary and unreasonable, contrary to the binding circulars and the amended contractual provisions. The Court mandated reimbursement including statutory interest, as per the GST Act and Rules.

Competing arguments by the Respondent, including the distinction based on dates of NIT issuance and contract execution, were dismissed as lacking merit. The Court underscored that the benefit of the amended clause 10.7 cannot be denied merely on the basis of contract date when the GST regime was introduced mid-performance.

Issue (c): Entitlement to mandamus for payment of withheld GST amount

Given the Court's findings on the illegitimacy of withholding the GST impact amount, it naturally followed that the petitioner was entitled to a writ of mandamus directing the Respondent to release the withheld amount.

The Court relied on the principle that statutory interest accrues on delayed payments under the GST Act, and delay in reimbursement would attract further liability. Hence, the Court ordered prompt calculation and release of the GST component along with statutory interest within six weeks.

The Court also imposed a cost of Rs. 50,000/- on the Respondent to be paid to the petitioner, reinforcing the seriousness of the Respondent's failure to comply with contractual and statutory obligations.

Issue (d): Applicability of amended clause 10.7 of GCC to contracts awarded prior to GST implementation

The amended clause 10.7 of the GCC, introduced following pre-bid clarifications, explicitly provided for reimbursement of GST impact on indirect transactions, including bought-out items and sales in transit.

The Court held that this amendment applies to contracts awarded prior to 01.07.2017, where the contract performance was ongoing at the time of GST introduction. The rationale was that denying such reimbursement would be unjust and discriminatory, especially when similar benefits were extended to other contractors under the same projects.

The Court's reasoning was supported by the principle of equality under Article 14, which prohibits arbitrary distinctions between similarly situated parties.

The Court noted that the Respondent's stand that the amended clause 10.7 and related contractual provisions do not apply to pre-GST contracts was contrary to the principles of justice and fair play, and was therefore rejected.

3. SIGNIFICANT HOLDINGS

"It is not disputed that the nature of the work awarded to the petitioner-Firms in both phases is the same and the execution of the work under the previous contracts was in progress when the amendment in clause 10.7 of the GCC was made. We think that no distinction can be drawn on the basis of the date of execution of the Agreement and the benefit of the amended clause 10.7 of the GCC cannot be denied to the petitioner-Firms if the GST regime was brought into force in the course of the performance of the contract."

"The stand taken by the JBVNL that the pre-bid clarification which resulted in amendment in clause 10.7 and subsequent incorporation of clause 28 in the GCC shall not be available to the petitioner-Firms violates the basic norm of justice, equity and fair play."

"The writ petitions are allowed to the extent that the JBVNL shall calculate and reimburse the petitioner-Firms the GST component paid by them and it shall release the withheld amount from the bills of the petitioner-Firms, if any. As held by co-ordinate Bench, the petitioner-Firms are entitled for reimbursement of the GST along with statutory interest in terms of the GST Act, 2017 read with the Rules framed thereunder."

Core principles established include:

• The liability to reimburse GST impact introduced during contract performance lies with the Employer, even if the contract was awarded prior to GST implementation.
• Amended contractual provisions mandating GST reimbursement apply retrospectively to ongoing contracts to ensure fairness and equity.
• State instrumentalities must act fairly and equally under Article 14, especially in contractual matters involving tax regime changes.
• Statutory interest is payable on delayed GST reimbursements.

Final determinations:

• The Respondent JBVNL's withholding of GST impact amount was arbitrary, unreasonable, and contrary to binding circulars and amended contractual provisions.
• The petitioner is entitled to reimbursement of the GST impact amount of Rs. 19,86,44,336/- along with statutory interest.
• The Respondent is directed to release the withheld amount within six weeks and pay costs of Rs. 50,000/- to the petitioner.
• The judgment in the analogous case of Sri Gopikrishna Infrastructure Pvt. Ltd. applies, and the Respondent's objections are rejected.

The primary legal question considered by the Court was whether the Petitioners qualify as an "intermediary" under Section 13(8) read with Section 2(13) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act"). This determination was pivotal because it affected the entitlement of the Petitioners to claim refunds of Integrated GST (IGST) paid on services supplied to a foreign entity, IDP Australia, which were treated as exports of services under Section 2(6) of the IGST Act. The petitions challenged the rejection of refund claims for IGST paid during two distinct periods: March 2019 to April 2020 and April 2020 to March 2021.

Additional related issues included:

• Whether the services rendered by the Petitioners to IDP Australia constituted principal-to-principal transactions or intermediary services.
• The applicability and interpretation of the CBIC Circular No. 159/15/2021-GST dated 20.09.2021, which clarified the scope of "intermediary" under the GST regime vis-`a-vis the erstwhile Service Tax regime.
• The effect of prior adjudications, specifically a CESTAT order dated 28th October 2021, which had previously ruled on the same issue for an earlier period under similar facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Whether the Petitioners qualify as "intermediary" under the IGST Act.

Relevant legal framework and precedents: The definition of "intermediary" under Section 2(13) of the IGST Act is central to the analysis. The term is defined as a person who arranges or facilitates the supply of goods or services between two or more persons but does not include a person who supplies such goods or services on his own account. The CBIC Circular No. 159/15/2021-GST explicitly states that the concept of "intermediary" under GST is broadly the same as under the Service Tax regime, thereby invoking precedents and interpretations from the earlier tax regime.

The CESTAT's Final Order dated 28th October 2021, which considered the same factual matrix for the period April 2014 to September 2015, held that the Petitioner was not an intermediary. This order attained finality after the challenge before the Delhi High Court was dismissed for delay.

Court's interpretation and reasoning: The Court examined the nature of the contractual relationship between the Petitioners and IDP Australia. The Petitioner was found to have no direct contractual obligation with either the foreign universities or the students. Instead, the Petitioner provided support services to IDP Australia under a Support Services Agreement, receiving a percentage of fees from IDP Australia. The Court noted that the Petitioner rendered services on a principal-to-principal basis under a bipartite contract.

The Court also considered the CBIC Circular clarifying that the scope of "intermediary" under GST remains consistent with the Service Tax regime, under which the CESTAT had ruled in favor of the Petitioner. The Court rejected the Respondents' attempt to distinguish the CESTAT order on the basis of a different agreement, observing that the differences were only due to periodic renewal of the agreement, with the scope of services remaining unchanged.

Key evidence and findings: The contractual documents, the nature of services rendered, the absence of any direct contractual relationship with the universities or students, and the prior CESTAT order were critical pieces of evidence. The CBIC Circular provided authoritative guidance on the interpretation of "intermediary."

Application of law to facts: Applying the legal definitions and precedents to the facts, the Court concluded that the Petitioners did not fall within the definition of "intermediary." The services rendered were not facilitative or arranging in nature but were principal-to-principal support services. Therefore, the Petitioners' claim for refund of IGST paid on export of services was valid.

Treatment of competing arguments: The Respondents argued that the Petitioners were intermediaries based on findings in the impugned order. However, the Court found these arguments unpersuasive, given the binding nature of the CESTAT order and the CBIC Circular. The Respondents' attempt to differentiate the agreements was dismissed as a mere technicality without substantive impact on the nature of services.

Conclusions: The Court held that the Petitioners are not intermediaries under the IGST Act and are entitled to the refund claimed. The matter was remanded to the adjudicating authority for processing the refund claim with applicable interest within four weeks.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning included the following verbatim observation:

"Since the CESTAT order has now attained finality, we see no reason to take a different view in the present case. Also, we find force in the submissions of the counsel for the Petitioner that the issue is squarely covered by the CBIC Circular dated 20.09.2021, in as much as it is clarified that the provisions of law for intermediary under the service tax regime and the GST regime broadly remain the same. In view of the above, the Respondents cannot be now allowed to take a different view."

The core principles established are:

• The definition of "intermediary" under the IGST Act is consistent with that under the Service Tax regime, as clarified by the CBIC Circular.
• A party providing support services on a principal-to-principal basis without direct contractual obligations with the ultimate service recipients does not qualify as an intermediary.
• Finality of prior adjudications (such as the CESTAT order) on identical facts is binding and precludes re-litigation on the same issue.

Final determinations on the issue were:

• The Petitioners do not qualify as intermediaries under the IGST Act.
• The rejection of the Petitioners' refund claims on the basis that they were intermediaries was incorrect.
• The Petitioners are entitled to refunds of IGST paid on export of services, along with applicable interest.
• The matter was remanded to the adjudicating authority for expeditious processing of the refund claims.

The core legal questions considered by the Court are:

• Whether the writ petition challenging the show cause notice dated 2nd July 2024 and the subsequent order dated 21st November 2024 under Section 74 of the WBGST/CGST Act, 2017 is maintainable before the High Court under Article 226 of the Constitution of India.
• Whether the show cause notice is flawed on the ground that it improperly combines multiple tax periods into a single notice.
• Whether the petitioners are entitled to bypass the statutory appellate remedy provided under the said Act and seek direct judicial intervention.
• The applicability and effect of precedents relied upon by the petitioners, particularly judgments from other High Courts regarding the validity of consolidated show cause notices under GST law.
• The significance of delay and the timing of judicial challenge to the show cause notice and final order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of the writ petition under Article 226 in view of statutory remedies

Relevant legal framework and precedents: The WBGST/CGST Act, 2017, provides a multi-tiered adjudicatory mechanism including the issuance of show cause notices under Section 74 and the right to appeal against orders passed thereunder. Article 226 of the Constitution allows High Courts to issue writs for enforcement of fundamental rights and for any other purpose, but judicial intervention is generally restrained where efficacious alternative remedies exist.

Court's interpretation and reasoning: The Court emphasized that the Act contains an efficacious alternative remedy in the form of appeals against orders passed under Section 74/73. The Court held that ordinarily, the writ petition is not maintainable when such statutory remedies are available and effective. The petitioners' failure to challenge the show cause notice at the initial stage further militates against entertaining the writ petition at this juncture.

Key findings: The Court noted that the petitioners did not approach the Court immediately after the show cause notice was issued but waited until after the final order was passed, which is not appropriate. The Court found no exceptional circumstances warranting bypassing the statutory appellate process.

Application of law to facts: Given the availability of an alternative remedy and the petitioners' delay, the Court concluded that the writ petition was not maintainable and that the petitioners cannot be permitted to circumvent the statutory adjudicatory process.

Treatment of competing arguments: The petitioners argued that the writ petition was maintainable based on precedents from other High Courts that entertained writ petitions challenging consolidated show cause notices. The Court distinguished these precedents by noting that in those cases the issue of alternative remedy was not raised or considered.

Conclusion: The writ petition is barred for non-availability of exceptional circumstances and the existence of an efficacious alternative remedy.

Issue 2: Validity of the show cause notice combining multiple tax periods

Relevant legal framework and precedents: The petitioners relied on judgments from the Hon'ble High Courts of Madras and Karnataka, which held that issuing a single consolidated show cause notice for multiple tax periods contravenes the GST Act and established legal precedents. The Karnataka High Court judgment also relied on the Supreme Court decision in State of Jammu and Kashmir vs. Caltex (India) Ltd., AIR 1966 SC 1350, to support the proposition that such practice is fundamentally flawed.

Court's interpretation and reasoning: While acknowledging these precedents, the Court observed that they were decided under Section 73 of the GST Act and did not consider the issue of alternative remedy. The Court did not express an opinion on the correctness of the legal proposition itself but focused on procedural propriety and the availability of statutory remedies.

Key evidence and findings: The Court noted the petitioners' contention that the show cause notice improperly combined multiple tax periods but found that this issue could be effectively raised and adjudicated before the appellate authority.

Application of law to facts: The Court held that the petitioners' grievance regarding the bundling of tax periods in the show cause notice is a matter for the appellate forum and does not justify bypassing the statutory mechanism.

Treatment of competing arguments: The petitioners' reliance on judgments from other High Courts was acknowledged but distinguished on procedural grounds and the presence of alternative remedies.

Conclusion: The Court declined to interfere with the show cause notice on this ground at the writ stage.

Issue 3: Delay and procedural propriety in challenging the show cause notice

Relevant legal framework: Principles of judicial discipline require that challenges to administrative or quasi-judicial orders be made promptly, particularly when alternative remedies exist.

Court's reasoning: The Court noted the absence of any explanation for the delay in approaching the Court only after the final order was passed. The Court viewed this as an attempt to stall the multi-tiered adjudicatory process under the Act.

Application of law to facts: The petitioners' belated approach was held to be improper and not deserving of judicial interference.

Conclusion: Delay and lack of explanation for not challenging the show cause notice earlier contributed to dismissal of the writ petition.

3. SIGNIFICANT HOLDINGS

"Having regard to the efficacious alternative remedy available, the petitioners cannot be permitted to bypass the statutory remedy provided for."

"Although the petitioners have relied on the judgment delivered by the Hon'ble High Court of Madras in the case of Titan Company Ltd (supra) to, inter alia, contend that the respondents cannot be permitted to bunch the show cause notices for consecutive tax period and on such ground the Hon'ble High Court of Madras had entertained the writ petition and had quashed the same, I find that the Hon'ble Court in the aforesaid judgment has not considered the issue of alternative remedy."

"The belated attempt made by the petitioners to challenge the show cause along with the final order appear to be an attempt made by the petitioners to abruptly stall the multi-tiered adjudicatory process provided for in the scheme of the said Act. No exceptional case for interference has been made out."

Core principles established include:

• The availability of an efficacious alternative remedy under the GST Act bars entertaining writ petitions under Article 226, except in exceptional circumstances.
• Challenges to show cause notices should be made promptly and before the designated appellate authorities, not delayed until after final orders.
• Precedents holding consolidated show cause notices invalid do not automatically justify bypassing statutory remedies, especially when such precedents did not consider alternative remedy issues.

Final determinations:

• The writ petition challenging the show cause notice and the final order under Section 74 of the WBGST/CGST Act, 2017 is not maintainable.
• The petitioners' contention regarding the impropriety of combining multiple tax periods in a single show cause notice is to be adjudicated in the appellate proceedings and does not warrant writ relief.
• The writ petition is dismissed without costs due to the absence of exceptional circumstances and unexplained delay.

The core legal questions considered by the Court include:

- Whether the impugned order dated 26.12.2024, which confirmed reversal of Input Tax Credit (ITC) based on discrepancies between the petitioner's GSTR-3B returns and the auto-populated GSTR-2A, was passed without proper consideration of the petitioner's reply and supporting documents, including credit notes.

- Whether the failure of the assessing authority to appreciate the petitioner's submissions and documentary evidence, particularly credit notes and Chartered Accountant certificates, amounted to a jurisdictional error warranting quashing of the impugned order.

- Whether the principles laid down by the Madras High Court in a similar case concerning non-consideration of credit notes and Chartered Accountant certificates apply to the present case, thereby necessitating interference with the impugned order.

- Whether the petitioner was denied a fair opportunity of hearing and proper adjudication in violation of principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order in Light of Petitioner's Reply and Credit Notes

Relevant Legal Framework and Precedents:

The GST framework mandates reconciliation between GSTR-3B and GSTR-2A returns. Discrepancies must be addressed with due regard to documentary evidence submitted by the taxpayer. The Madras High Court judgment in a case involving M/S. OASYS CYBERNETICS PRIVATE LIMITED (W.P. No. 9624/2024) is pivotal, where the Court held that failure to consider credit notes and Chartered Accountant certificates in assessing ITC discrepancies was a ground for interference.

Court's Interpretation and Reasoning:

The Court observed that the petitioner had submitted a detailed reply to the show cause notice dated 26.11.2024, including specific responses to observation No. 2 regarding inward supplies as per GSTR-2A. The petitioner also produced credit notes and other documents to substantiate the claim that the ITC reversal was erroneous.

However, the impugned order dated 26.12.2024 did not consider these submissions or documents. The Court noted that the assessing authority merely confirmed the ITC reversal on the ground that credit notes were not reflected in GSTR-1 or GSTR-2A, without examining whether the value of credit notes matched the ITC claimed or whether there was any actual revenue loss.

Key Evidence and Findings:

The petitioner's reply dated 24.12.2024 and attached credit notes were critical evidence. The Madras High Court judgment highlighted that credit notes were erroneously reported under B2C instead of the appropriate heading in GSTR-1, but this did not result in revenue loss. The impugned order in the present case similarly failed to assess such nuances.

Application of Law to Facts:

The Court applied the principle that an order passed without proper consideration of relevant submissions and documents is liable to be set aside. The petitioner's explanation and documentary proof should have been examined to determine the correctness of the ITC reversal.

Treatment of Competing Arguments:

The respondent contended that the petitioner's failure to report credit notes correctly in GSTR-1 justified the ITC reversal. However, the Court found this argument insufficient because the assessing authority did not analyze whether the discrepancy caused actual revenue loss or whether the petitioner's explanation was plausible.

Conclusion:

The Court concluded that the impugned order was passed without due appreciation of the petitioner's reply and documents, rendering it unsustainable.

Issue 2: Rejection of Chartered Accountant's Certificate Without Reasons

Relevant Legal Framework and Precedents:

Under GST procedural law, certificates issued by Chartered Accountants explaining discrepancies are admissible and must be considered unless cogent reasons are recorded for rejection.

Court's Interpretation and Reasoning:

The impugned order rejected the Chartered Accountant's certificate submitted by the petitioner without assigning any reasons. The Court observed that such rejection without explanation violates principles of reasoned decision-making and natural justice.

Key Evidence and Findings:

The petitioner produced a Chartered Accountant certificate dated 24.12.2024 explaining the discrepancy amounting to approximately Rs. 53,18,913/-. The impugned order merely stated the certificate was not accepted, without elaboration.

Application of Law to Facts:

The Court emphasized that the assessing authority must provide reasons for rejecting such evidence to enable meaningful judicial review. The absence of reasons rendered the rejection arbitrary.

Treatment of Competing Arguments:

The respondent did not provide substantive justification for rejecting the certificate. The Court found this lack of reasoning untenable.

Conclusion:

The Court held that the rejection of the Chartered Accountant's certificate without reasons was improper and contributed to the necessity of setting aside the impugned order.

Issue 3: Applicability of Madras High Court Precedent and Remand for Reconsideration

Relevant Legal Framework and Precedents:

The Madras High Court's judgment in M/S. OASYS CYBERNETICS PRIVATE LIMITED vs. STATE TAX OFFICER was considered authoritative on the issue of non-consideration of credit notes and Chartered Accountant certificates leading to erroneous ITC reversals.

Court's Interpretation and Reasoning:

The Court found the facts in the present case analogous to the Madras High Court case. In both instances, the assessing authority failed to appreciate the petitioner's submissions and documents, particularly credit notes, leading to confirmation of tax demand without adequate scrutiny.

Key Evidence and Findings:

The Court noted the similarity in procedural lapses and lack of reasoned consideration in both cases.

Application of Law to Facts:

Relying on the precedent, the Court determined that the impugned order must be set aside and the matter remanded for fresh consideration in accordance with law, ensuring that the petitioner's contentions and evidence are duly considered.

Treatment of Competing Arguments:

The respondent's submission that the petitioner's failure to report credit notes correctly justified the order was rejected due to absence of detailed examination and reasoned findings.

Conclusion:

The Court remanded the matter to the assessing authority with directions to provide the petitioner a reasonable opportunity, including personal hearing, and to pass a fresh order after considering all contentions and documents.

Issue 4: Fair Opportunity and Procedural Compliance

Relevant Legal Framework and Precedents:

Principles of natural justice require that a party be given a fair opportunity to present its case and that the authority must consider all relevant submissions before passing an order.

Court's Interpretation and Reasoning:

The Court found that the petitioner was not afforded a proper opportunity as the impugned order ignored the detailed reply and documents submitted. The petitioner was also directed to appear on a specified date without awaiting further notice, ensuring procedural compliance going forward.

Key Evidence and Findings:

The petitioner's reply and supporting documents were evidence of the attempt to engage with the process. The absence of their consideration indicated procedural infirmity.

Application of Law to Facts:

The Court emphasized the need for the assessing authority to provide reasonable opportunity and to consider additional pleadings or documents filed by the petitioner.

Treatment of Competing Arguments:

No substantial counter-argument was accepted against the petitioner's claim of procedural lapse.

Conclusion:

The Court mandated fresh proceedings with full opportunity to the petitioner, ensuring compliance with natural justice.

3. SIGNIFICANT HOLDINGS

- "The explanation of the petitioner was not duly examined from the perspective of ascertaining whether the amount reflected as ITC tallies with the value of credit notes issued by the petitioner. If such exercise had been carried out, it would become clear as to whether there was revenue loss by way of excess availment of ITC. Since such exercise was not carried out and findings were recorded confirming the tax demand merely because credit notes were not duly reported in GSTR-1 or in the auto populated GSTR 2A, the impugned order calls for interference on this issue."

- "The impugned order merely records that the certificate issued by the Chartered Accountant and the petitioner's reply are not accepted. It is unclear as to why the certificate was rejected because no reasons are discernible from the impugned order."

- "Non consideration/non appreciation of the credit note has been held to be a circumstance... to set aside the order impugned therein and remit the matter back to the respondent therein for reconsideration afresh in accordance with law."

- The impugned orders dated 26.12.2024 are set aside and the matter remanded for fresh consideration with directions to provide reasonable opportunity, including personal hearing, and to consider additional pleadings or documents.

- The petitioner is directed to appear before the respondent authority on a specified date without awaiting notice, and liberty is reserved to file additional documents.

1. Whether the Notifications extending the time for adjudication of the Show Cause Notice under the Central Goods and Services Tax Act, 2017 (CGST Act) are valid, given that they were not issued on the recommendation of the GST Council as required under Section 168-A of the CGST Act.

2. Whether the impugned adjudicating order passed beyond the limitation period prescribed under Section 73(10) of the CGST Act is valid.

3. Whether the Show Cause Notice issued under Section 73(1) of the CGST Act was properly issued at least three months prior to the limitation period as mandated under Section 73(2) of the CGST Act.

4. Whether the adjudicating officer's involvement in both the audit and issuance of the Show Cause Notice and adjudicating order constitutes a conflict of interest and bias affecting the validity of the order.

5. Whether the recovery of tax already paid by the Petitioner, amounting to approximately Rs. 18.78 Crores, is permissible under the adjudicating order.

Issue 1: Validity of Notifications Extending Time for Adjudication

The legal framework centers on Section 168-A of the CGST Act, which empowers the Central Government to extend the time limit for adjudication of Show Cause Notices, but only on the recommendation of the GST Council. The Petitioner contends that the impugned Notifications No. 56/2023-Central Tax and No. 56/2023-State Tax were issued without such recommendation, rendering them void ab initio.

The Court considered the statutory requirement that the GST Council's recommendation is a pre-condition for valid issuance of such Notifications. The Petitioner argued that absence of this procedural compliance invalidates the Notifications and consequently, any adjudication based on extended time limits is barred by limitation under Section 73(10) of the CGST Act.

The Court acknowledged the Petitioner's contention as a substantial legal question, noting that the Notifications' validity is pivotal to the limitation period applicable to the adjudicating order. However, the judgment does not conclusively decide the issue at this stage but recognizes it as a prima facie strong ground warranting further examination.

Issue 2: Validity of Adjudicating Order Passed Beyond Limitation

Section 73(10) of the CGST Act prescribes a limitation period within which adjudication orders must be passed following issuance of a Show Cause Notice. The Petitioner submits that if the Notifications extending the limitation period are invalid, the order passed on 29th August, 2024 is beyond the permissible period and hence void.

The Court noted that the limitation period is linked to the validity of the Notifications extending the time. If the Notifications are invalid, the adjudicating order would be barred by limitation. This issue is intrinsically connected to Issue 1 and remains under consideration pending further pleadings and evidence.

Issue 3: Timeliness of Show Cause Notice Issuance

Section 73(2) of the CGST Act requires that a Show Cause Notice must be issued at least three months prior to the expiry of the limitation period for passing the adjudicating order. The Petitioner contends that the Show Cause Notice was issued on 31st May, 2024, which is the same date as the three-month threshold, thus violating the requirement and invalidating the notice and subsequent order.

The Court recognized the importance of this procedural safeguard to ensure adequate time for response and fair adjudication. It found the Petitioner's argument to raise a serious question about the procedural validity of the Show Cause Notice. However, the Court deferred final determination pending further submissions.

Issue 4: Conflict of Interest and Bias of the Adjudicating Officer

The Petitioner alleged that the same officer who conducted the audit also issued the Show Cause Notice and passed the adjudicating order, constituting a conflict of interest and inherent bias. The legal principle is that adjudication must be free from bias and the appearance of bias to maintain fairness and impartiality.

The Court acknowledged this contention as a relevant issue affecting the integrity of the adjudicatory process. It recognized that the presence of conflict of interest could vitiate the order. However, the Court did not make a final finding on this issue at the interlocutory stage, leaving it open for detailed consideration.

Issue 5: Recovery of Tax Already Paid

The Petitioner contended that a sum of approximately Rs. 18.78 Crores had already been paid towards the tax liability, yet the adjudicating order seeks to recover this amount again, which is impermissible.

The Court noted this factual contention as a significant point of dispute regarding the quantum of recovery. It did not elaborate on the legal principles governing such recovery in the present order but acknowledged the need to examine this issue in due course.

Additional Procedural Observations

The Court recorded that Respondent Nos. 1 and 2 sought time to file an affidavit in reply, which was granted with directions for timelines for filing and rejoinder. Respondent No. 3, though served, did not appear but was given the opportunity to file an affidavit.

Regarding interim relief, the Court noted that similar issues are pending in other writ petitions, specifically referencing a related case where ad-interim relief was granted. Finding a strong prima facie case in favor of the Petitioner, the Court granted ad-interim relief by staying the operation and execution of the impugned adjudicating order dated 29th August, 2024 until further orders.

The matter was posted for further hearing along with the related writ petition.

Significant Holdings

The Court held that the Notifications extending the time for adjudication under Section 168-A of the CGST Act must be issued on the recommendation of the GST Council, underscoring the mandatory nature of this procedural requirement.

It was observed that failure to comply with this requirement potentially renders the Notifications void ab initio, thereby affecting the limitation period for adjudication under Section 73(10).

The Court emphasized the necessity of issuing the Show Cause Notice at least three months prior to the limitation expiry date as prescribed under Section 73(2), highlighting the procedural safeguard for fair adjudication.

Regarding conflict of interest, the Court recognized that the same officer conducting audit and adjudication raises serious questions about impartiality and bias, which could invalidate the adjudicating order.

In granting ad-interim relief, the Court stated: "A strong prima facie case is made out for granting of ad-interim relief," and accordingly stayed the effect, operation, and execution of the impugned order pending final disposal.

The judgment thus preserves the core principles of statutory compliance with procedural safeguards, adherence to limitation periods, and impartiality in adjudication under the CGST Act.

- Whether the petitioner's representation dated 05.02.2025 regarding the disputed G.S.T. claim of the respondents Nos.3 and 4 should be considered and decided on merits within a stipulated time frame;

- Whether the petitioner is entitled to recover the sum of Rs. 18,54,81,197/- allegedly due from the second respondent Department of School Education for coaching Government School students for NEET preparation;

- The validity and implications of the tax liability and penalty imposed by the third respondent (Joint Commissioner of Central GST and Central Excise) amounting to Rs. 2,82,93,742/- plus 100% penalty, especially in light of the School Education Department's contention that the petitioner provided services free of cost;

- The procedural and substantive rights of the petitioner in the context of prior judicial decisions, including the dismissal of earlier writ petitions and appeals, and the scope of recourse available to the petitioner;

- The extent to which the tax authorities can proceed coercively in the matter pending the decision of the second respondent on the petitioner's dues;

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Consideration of Petitioner's Representation on G.S.T. Claim

Relevant legal framework and precedents: The petitioner's right to have its representation considered arises from principles of administrative law mandating fair and timely consideration of representations. The Court relied on its earlier judgment dated 01.08.2022 in W.A.Nos.263 and 108 of 2022, where the petitioner was granted liberty to approach the Government for settlement of dues and, if not resolved, to seek remedy through Civil Court.

Court's interpretation and reasoning: The Court emphasized that the second respondent (Department of School Education) must consider the petitioner's representation dated 05.02.2025 and pass orders in accordance with law within eight weeks of receipt of the Court's order. This direction enforces procedural fairness and expedites resolution.

Key evidence and findings: The petitioner submitted that it had undertaken coaching services upon request of the Department of School Education, with an accepted amount due of Rs. 18,54,81,197/-. The Department has not responded to the representation.

Application of law to facts: The Court applied the principle that administrative authorities must act on pending representations within a reasonable time. It also reaffirmed the petitioner's right to pursue civil remedies if the Government refuses payment.

Treatment of competing arguments: The Department's silence was noted, and the Court did not accept any justification for delay, directing expeditious disposal. The petitioner's prior undertaking to withdraw writ petitions and appeals to seek settlement was respected.

Conclusions: The second respondent is mandated to decide on the representation within eight weeks, failing which the petitioner's grievance remains unresolved and civil remedies become available.

Issue 2: Entitlement to Payment of Rs. 18,54,81,197/- for Coaching Services

Relevant legal framework and precedents: Contractual obligations and Governmental liability principles govern entitlement to payment. The earlier Division Bench judgment allowed the petitioner to seek Government settlement or civil suit, indicating no immediate judicial determination of entitlement.

Court's interpretation and reasoning: The Court did not adjudicate the substantive claim but recognized the contractual background and the petitioner's claim of accepted dues. It deferred substantive determination to the Government's decision or civil courts.

Key evidence and findings: The petitioner's claim is based on coaching services rendered at the Department's request, with an accepted contract value. The Department disputes payment, asserting the exercise was free of cost.

Application of law to facts: The Court's approach respects separation of powers and procedural propriety, leaving the factual and contractual disputes to be resolved by the Government or civil litigation.

Treatment of competing arguments: The Department's contention of free-of-cost services contrasts with the petitioner's claim of accepted dues. The Court refrained from resolving this conflict at this stage.

Conclusions: The petitioner's entitlement remains subject to Government decision or civil suit; no immediate payment order is issued.

Issue 3: Validity of Tax Liability and Penalty Imposed by the Third Respondent

Relevant legal framework and precedents: The Central Goods and Services Tax Act and related procedural norms govern imposition of tax and penalties. Tax liability is generally based on invoice issuance and payment liability.

Court's interpretation and reasoning: The Court noted that the third respondent's tax demand and penalty are disputed by the Department of School Education, which claims the petitioner's services were free of cost. The Court observed that normally tax authorities act on invoices raised by the petitioner but here the ultimate liability lies with the Government Department, which has not yet decided the payment issue.

Key evidence and findings: The third respondent imposed a tax liability of Rs. 2,82,93,742/- plus 100% penalty on 17.01.2025, based on the contract value. The Department disputes the tax demand, asserting no payment liability.

Application of law to facts: The Court directed that the third respondent shall not take any coercive steps until the second respondent decides on the petitioner's representation. This safeguards the petitioner from premature enforcement actions.

Treatment of competing arguments: The Court balanced the tax authority's statutory powers with the need to avoid prejudice to the petitioner pending Government decision. It preserved the petitioner's right to challenge the tax order subsequently.

Conclusions: Coercive tax enforcement is stayed pending Government decision; petitioner may challenge tax orders after such decision.

Issue 4: Procedural Rights and Remedies for the Petitioner

Relevant legal framework and precedents: The Court's earlier judgment granted liberty to the petitioner to withdraw writ proceedings and seek Government settlement or civil remedies. Principles of natural justice and administrative law support such procedural rights.

Court's interpretation and reasoning: The Court reiterated that the petitioner's grievance is to be resolved by the Government or through civil suit if refused. The petitioner's undertaking to withdraw writ petitions was honored, and the Court emphasized procedural pathways available.

Key evidence and findings: The petitioner had earlier withdrawn writ petitions and appeals with liberty to approach the Government and civil courts.

Application of law to facts: The Court enforced the procedural framework established in prior rulings, ensuring orderly resolution of disputes.

Treatment of competing arguments: The Court did not entertain further writ remedies but preserved civil remedies and the right to challenge tax orders.

Conclusions: The petitioner must pursue Government settlement or civil suit; no further writ relief is granted.

Issue 5: Stay on Coercive Action by Tax Authorities Pending Government Decision

Relevant legal framework and precedents: Tax authorities possess statutory powers to enforce tax demands, but courts may grant interim relief to prevent irreparable harm pending final adjudication.

Court's interpretation and reasoning: The Court held that the third respondent shall refrain from coercive steps until the second respondent decides on the representation. This interim relief protects the petitioner from enforcement actions in a disputed matter.

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The core legal questions considered by the Court in this matter are:

(a) Whether the assignment or transfer of long-term leasehold rights in an industrial plot allotted by the Gujarat Industrial Development Corporation (GIDC) constitutes a taxable supply under the Goods and Services Tax (GST) regime;

(b) Whether GST can be levied on the consideration received for transfer of leasehold rights in immovable property under the relevant provisions of the GST Act, 2017;

(c) Whether the amendment introduced by Notification 28/2019 dated 31.12.2019, which exempts subsequent leases from GST, is clarificatory and applies retrospectively;

(d) Legality and jurisdictional validity of the show-cause notice issued under Section 74 of the GST Act demanding GST, interest, and penalty on the transfer fees for assignment of leasehold rights;

(e) Whether interim relief restraining further proceedings pursuant to the show-cause notice is warranted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Taxability of Assignment of Leasehold Rights under GST

Relevant Legal Framework and Precedents:

The GST Act, 2017, defines "supply" in Section 7(1)(a) and provides the scope of taxable supplies. Schedule II and Schedule III of the Act distinguish between goods and services and specify activities considered as supply or exempt. Clause 5(b) of Schedule II and Clause 5 of Schedule III are particularly relevant in determining whether transfer of leasehold rights amounts to supply of goods or services. Section 9 of the GST Act deals with levy of GST on taxable supplies.

The Court relied heavily on its prior decision in Gujarat Chamber of Commerce and Industry Vs. Union of India, where it was held that the assignment or transfer of leasehold rights in land allotted by GIDC does not amount to a taxable supply under GST. The Court held that such transaction is essentially a transfer of benefits arising out of immovable property and thus outside the ambit of GST levy.

Court's Interpretation and Reasoning:

The Court examined the nature of the transaction-the transfer of leasehold rights in an industrial plot. It emphasized that the lessee-assignor transfers its benefits as a lessee to a third party-assignee who steps into the shoes of the original lessee. The Court interpreted the provisions of Section 7(1)(a) read with Schedule II and III to conclude that such assignment is not a supply liable to GST.

Key Evidence and Findings:

It was undisputed that the petitioner transferred the leasehold rights by an agreement dated 08.01.2008 and the transfer was registered with GIDC only in October 2017. The transfer order issued by GIDC in favor of the purchaser further substantiated the factual position of assignment of leasehold rights.

Application of Law to Facts:

Applying the legal framework and precedent, the Court found that the transaction falls outside the scope of GST levy. The consideration received for transfer of leasehold rights cannot be subjected to GST as per the Court's earlier ruling and the statutory provisions.

Treatment of Competing Arguments:

The petitioner's counsel argued that GST is not leviable on such transactions as per the binding precedent. The respondents' counsel did not controvert this submission, effectively conceding the position. The Court noted the absence of any substantive contrary argument from the respondents.

Conclusion:

The Court concluded that the assignment of leasehold rights in the GIDC plot does not constitute a taxable supply under GST and hence, GST cannot be levied on the transaction.

Issue (c): Applicability and Retrospective Effect of Notification 28/2019

Relevant Legal Framework:

Notification 28/2019 dated 31.12.2019 amended Entry no. 41 of Notification 12/2017 dated 28.06.2017 to exempt subsequent leases from GST. The question was whether this amendment is clarificatory and applies retrospectively.

Court's Interpretation and Reasoning:

The petitioner sought a declaration that the amendment is clarificatory and retrospective in effect. Although the Court did not extensively elaborate on this point in the oral judgment, it implicitly accepted the petitioner's contention by relying on the precedent and the exemption notification to hold that GST is not leviable on subsequent assignment of leasehold rights.

Application of Law to Facts:

The petitioner transferred the leasehold rights prior to the issuance of the show-cause notice, and the amendment notification supports exemption on such subsequent leases. Therefore, the amendment applies to the petitioner's transaction.

Conclusion:

The amendment notification is applicable retrospectively and exempts the petitioner's transaction from GST liability.

Issue (d): Legality and Jurisdiction of Show-Cause Notice

Relevant Legal Framework:

Section 74 of the GST Act empowers authorities to issue show-cause notices for recovery of tax, interest, and penalty in cases of tax evasion or non-compliance. The petitioner challenged the jurisdiction and legality of the show-cause notice dated 18.07.2024 demanding GST on the transfer fees.

Court's Interpretation and Reasoning:

Since the Court held that the transaction does not attract GST liability, the issuance of the show-cause notice demanding GST and allied charges was held to be without jurisdiction and ex-facie illegal.

Key Evidence and Findings:

The show-cause notice was based on the transfer fees of Rs. 15,49,600/-, with GST demand of Rs. 2,78,928/-. The factual record showed the transfer was completed and registered with GIDC, and the petitioner had surrendered its GST registration effective 17.07.2023.

Application of Law to Facts:

Given the absence of taxable supply, the show-cause notice lacked a legal foundation and was liable to be quashed.

Treatment of Competing Arguments:

The respondents failed to provide any substantive legal basis to sustain the show-cause notice once the precedent and statutory provisions were applied.

Conclusion:

The show-cause notice dated 18.07.2024 was quashed and set aside.

Issue (e): Interim Relief

The petitioner sought interim relief restraining the respondents from proceeding pursuant to the show-cause notice. The Court granted this relief pending final disposal of the petition, effectively staying further action on the GST demand.

3. SIGNIFICANT HOLDINGS

The Court's key legal reasoning is encapsulated in the following verbatim excerpt from the Gujarat Chamber of Commerce and Industry decision, which was applied herein:

"83. In view of foregoing reasons, assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of "immovable property" by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act.

84. In view of above, question of utilisation of input tax credit to discharge the liability of GST on such transaction of assignment would not arise."

The core principles established are:

- Assignment or transfer of long-term leasehold rights in immovable property allotted by a government authority is not a taxable supply under GST.

- GST cannot be levied on consideration received for such transfer under the GST Act, 2017.

- Amendments exempting subsequent leases from GST are clarificatory and apply retrospectively.

- Show-cause notices demanding GST on such transactions are without jurisdiction and liable to be quashed.

The Court's final determination was to quash the impugned show-cause notice and uphold that no GST liability arises from the assignment of leasehold rights in the facts of this case. The petition was allowed accordingly, and no costs were imposed.

Issue-wise detailed analysis is as follows:

1. Legality and Time-Bar of Reassessment Notice under Section 148

The legal framework involves the substituted Sections 147 to 151 of the IT Act effective from 1 April 2021, the TOLA which extended various time limits due to the COVID-19 pandemic, and the principles laid down by the Supreme Court in Ashish Agarwal and Rajeev Bansal. The Court examined whether the reassessment notice dated 29 July 2022 was issued within the permissible time under the amended law.

The Supreme Court in Ashish Agarwal held that notices issued under the pre-substituted Section 148 between 1 April 2021 and 30 June 2021 were illegal but, as a one-time measure under Article 142, were to be treated as notices under Section 148A(b) of the new regime. The Court also clarified that the time allowed to the assessee to respond to such notices is excluded from the limitation period under the third proviso to Section 149. Rajeev Bansal further clarified that the time limit for reassessment notices is governed by the combination of the IT Act and TOLA, with the surviving time limit being the balance period after excluding the stay and response periods.

Applying these precedents, the Court noted that the initial notice dated 29 June 2021 fell within the extended time limit under TOLA (extended to 30 June 2021). The period during which the notices were stayed and the time allowed to the Petitioner to respond (including extensions) were excluded from the limitation calculation. After all exclusions, only two days remained for the Assessing Officer to complete the reassessment procedure and issue the notice under Section 148. However, the impugned notice and order dated 29 July 2022 were issued beyond this surviving period, rendering them time-barred.

The Respondents argued that the order under Section 148A(d) passed on 29 July 2022 was within one month from the end of the month in which the last reply was received (28 June 2022), thus within the permissible timeline. The Court rejected this contention, clarifying that Section 148A(d) prescribes the timeline for passing the order but does not extend or affect the overall limitation under Section 149(1). The entire reassessment process, including issuance of notice under Section 148, must be completed within the time limit prescribed by Section 149(1). Therefore, the order and notice dated 29 July 2022 were invalid for being beyond the statutory limitation.

2. Compliance with Procedural Requirements under Sections 148A and 149

The Court considered whether the procedural safeguards introduced by the substituted Sections 148A and 149 were complied with, including the issuance of reasons for reopening, supply of relevant material, opportunity to the assessee to reply, and passing of the order under Section 148A(d) before issuance of notice under Section 148.

The Petitioner contended that the order under Section 148A(d) was passed without proper application of mind, without considering objections, and violated principles of natural justice. Additionally, objections were raised regarding non-supply of documents, absence of prior approval under Section 151, and non-grant of personal hearing. The Respondents countered that all procedural requirements were met, including prior approval by the Principal Commissioner of Income Tax, supply of material, and opportunity to reply, supported by the affidavits and notices issued.

The Court, however, emphasized that procedural compliance cannot cure the fundamental defect of time-bar. Since the reassessment notice was issued beyond the surviving limitation period, the procedural compliance became immaterial. The Court did not delve deeply into the merits of procedural objections given the primary finding on limitation.

3. Effect of Supreme Court Decisions and TOLA Notifications

The Court extensively analyzed the impact of the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal, and the various notifications issued under TOLA extending timelines for completion of assessment proceedings due to the COVID-19 pandemic. It was clarified that TOLA's extensions apply only to the extent that the original limitation period falls within the specified period (20 March 2020 to 31 March 2021). The surviving time for reassessment notices is calculated after excluding the stay period and response time allowed to the assessee.

The Court also noted that several High Court decisions quashing reassessment notices on similar grounds were upheld by the Supreme Court, reinforcing the principle that reassessment notices issued beyond the surviving limitation period are invalid.

4. Treatment of Conflicting Judicial Opinions

The Respondents referred to judgments such as Hexaware Technologies Ltd. and others which took a different view on limitation. The Court observed that these decisions were either rendered before the Supreme Court's ruling in Rajeev Bansal or were under challenge before the Supreme Court. Consequently, the Court declined to follow these conflicting precedents and relied on the binding Supreme Court rulings.

5. Conclusion on Validity of Assessment Order

Since the reassessment notice dated 29 July 2022 was held to be time-barred, the consequent assessment order dated 29 May 2023 passed under Section 147 was also invalid and without jurisdiction. The Court quashed both the notice and the assessment order.

Significant holdings include the following verbatim excerpts from the judgment:

"A notice issued under Section 148 of the IT Act which is beyond the time line stipulated under Section 149 (1) is non-compliant and invalid."

"Section 148A (d) does not govern the computation of time as contemplated in terms of Section 149 of the IT Act... to suggest that Section 148A (d) extends the time limit under Section 149 (1) and/or has a bearing on the time under Section 149 (1) is a submission which is misconceived and lacks legal sanctity."

"Applying the ratio of the decisions in Ashish Agarwal and Rajeev Bansal... the notice under Section 148 dated 29/07/2022 is time barred."

Core principles established are:

• The substituted provisions of the IT Act, post 1 April 2021, govern reassessment proceedings and must be read in conjunction with TOLA extensions.
• The limitation period for issuance of reassessment notices is to be computed after excluding periods during which notices were stayed and time allowed to the assessee to respond, per the third proviso to Section 149.
• Procedural compliance under Sections 148A and 149 cannot cure the defect of issuance of notice beyond the prescribed limitation period.
• Notices issued under pre-substituted Section 148 after 1 April 2021 are to be treated as notices under Section 148A(b), with the reassessment process governed by the substituted provisions.
• Judicial precedents inconsistent with the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal are not to be followed.

Final determinations on the issues are:

• The reassessment notice dated 29 July 2022 under Section 148 of the IT Act is time-barred and invalid.
• The assessment order dated 29 May 2023 passed pursuant to the said notice is quashed and set aside.
• Procedural objections raised by the Petitioner need not be examined in detail due to the fundamental defect of limitation.

The Court considered three core legal issues arising from the petition challenging the communication dated 16 June 2022, which denied the petitioner's refund claim based on an earlier communication dated 29 November 2018. These issues are:

(i) The validity and legal effect of the impugned communication dated 16 June 2022 rejecting the refund claim;

(ii) The legal status and character of the communication dated 29 November 2018-whether it constitutes a statutory order under the Income Tax Act, 1961 (IT Act) or merely a preliminary/ interlocutory communication;

(iii) Whether the petitioner is entitled to a writ of mandamus directing the respondents to grant the refund of Rs. 20,73,06,062/- solely based on the communication dated 29 November 2018.

2. ISSUE-WISE DETAILED ANALYSIS

(i) Validity of the impugned communication dated 16 June 2022

Relevant legal framework and precedents: The communication was issued by the Assessing Officer (AO) rejecting the refund claim on procedural grounds, stating that the earlier communication dated 29 November 2018 was not a statutory order under any section of the IT Act and directing the petitioner to file a rectification application under Section 154 or claim refund under Section 237 of the IT Act. The respondents also relied on Sections 237, 239, and Rule 41 of the Income Tax Rules to argue that refund claims must be made in the statutory return of income.

Court's interpretation and reasoning: The Court found that the impugned communication primarily rejected the refund claim on the ground that the earlier communication was not a statutory order and that the petitioner had not complied with procedural requirements for claiming refund. However, the Court noted that the impugned communication did not independently decide on the merits of the refund claim or conclusively deny entitlement. Furthermore, the Court observed that principles of natural justice were violated as the petitioner was not heard prior to issuance of the impugned communication, nor were the tentative grounds disclosed for effective response.

Key findings and application of law to facts: The Court held that the impugned communication was vulnerable and liable to be set aside for non-compliance with natural justice and for being based on incomplete grounds. It emphasized that judicial review concerns the decision-making process rather than merits, and here the process was flawed. The communication did not constitute a final adjudication on entitlement.

Treatment of competing arguments: While the respondents argued procedural non-compliance and merit-based disentitlement, the Court restricted its review to the grounds stated in the impugned communication and found them insufficient to sustain rejection. The Court declined to entertain additional grounds urged by the respondents outside the communication.

Conclusion: The impugned communication dated 16 June 2022 was quashed and set aside due to procedural infirmities and lack of finality on merits.

(ii) Legal status of the communication dated 29 November 2018

Relevant legal framework and precedents: Sections 237, 240, and 246A(1)(i) of the IT Act were central to this issue. Section 237 mandates that if the AO is satisfied that excess tax has been paid, the assessee is entitled to refund. Section 246A(1)(i) provides for appeal against orders under Section 237, implying such orders must be final and written. Article 265 of the Constitution of India prohibits levy or collection of tax without authority of law.

Court's interpretation and reasoning: The Court examined the communication dated 29 November 2018 and noted the absence of any mention of the statutory section under which it was issued. However, it held that mere non-mention of a section does not preclude a communication from being an order if it conclusively determines rights. The Court analyzed the language of the communication and found it to be tentative and interlocutory, stating that the refund was determined on "preliminary verification" and would be taken up for "processing" after adjustments. This indicated a lack of finality and conclusiveness required of an order under Section 237.

Key evidence and findings: The communication acknowledged the petitioner's claim under the India-Mauritius Tax Treaty and found the claim correct on preliminary verification but did not issue a final order granting refund. There was no final adjudication or satisfaction recorded by the AO as mandated by Section 237.

Application of law to facts: The Court emphasized that "satisfaction" under Section 237 must be unequivocal, final, and supported by reasons in writing to enable appeal and legal certainty. A preliminary or interlocutory communication cannot be elevated to a statutory order. The petitioner's entitlement under Article 265 cannot be founded on a non-final communication.

Treatment of competing arguments: The petitioner argued that the communication was a statutory order and that procedural formalities could not fetter the right to refund under Article 265. The respondents contended it was not an order and that refund claims must be made in statutory returns. The Court found the communication non-final and interlocutory, thus not qualifying as an order for refund.

Conclusion: The communication dated 29 November 2018 cannot be treated or elevated to the status of a final and conclusive statutory order under Section 237 of the IT Act. It was a preliminary/interlocutory communication and not a final adjudication of refund entitlement.

(iii) Entitlement to writ of mandamus for refund solely based on the communication dated 29 November 2018

Relevant legal framework and precedents: The writ of mandamus is an extraordinary remedy compelling performance of a public duty where there is a clear legal right and no alternative remedy. The petitioner sought mandamus directing refund solely on the basis of the 29 November 2018 communication.

Court's interpretation and reasoning: Since the 29 November 2018 communication was held to be interlocutory and not a final order, no conclusive entitlement to refund was established. The Court held that mandamus cannot issue without a final determination of eligibility and entitlement by the competent authority after due process and hearing.

Key findings and application of law to facts: The Court directed the revenue to pass a final speaking order within eight weeks after hearing the petitioner and considering all relevant material, including treaty provisions and transactions. Interest would be payable if refund was found due. The Court declined to decide merits or entitlement at this stage.

Treatment of competing arguments: The petitioner urged immediate refund based on the earlier communication, while the respondents opposed on grounds of procedural non-compliance and merit. The Court balanced equitable discretion and legal principles, refusing to grant mandamus without final adjudication.

Conclusion: No writ of mandamus can be issued solely on the basis of the communication dated 29 November 2018. The petitioner's claim requires final adjudication by the competent authority.

3. SIGNIFICANT HOLDINGS

"The impugned communication dated 16 June 2022 must be set aside as the principles of natural justice and fair play were not complied with before its issuance."

"The communication dated 29 November 2018 is not a final and conclusive determination of the entitlement of the Petitioner to the refund. It is a preliminary, interlocutory communication based on preliminary verification and subject to further processing."

"Section 237 of the IT Act requires an unequivocal and final satisfaction of the Assessing Officer in writing constituting an appealable order. The communication dated 29 November 2018 does not meet these criteria."

"No writ of mandamus can be issued directing refund solely based on the communication dated 29 November 2018 without a final order by the competent authority after hearing the petitioner."

"The first Respondent is directed to pass a final order determining the refund claim within eight weeks, after giving the petitioner an opportunity of hearing and passing a speaking order. Interest must be granted if refund is found due."

The core legal questions considered by the Court in this matter were:

• Whether the issuance of a show cause notice, assessment order, and recovery notice against a non-existent entity (the Transferor Entity post-amalgamation) is valid or constitutes a nullity.
• Whether the amalgamation scheme, which took effect on 22.10.2013, legally extinguished the Transferor Entity, thereby rendering subsequent proceedings against it invalid.
• Whether the Petitioner (the Amalgamated Entity) was required to participate in or appeal against the impugned orders issued to the Transferor Entity.
• The procedural propriety regarding service of notices and orders on the Petitioner or Transferor Entity after amalgamation.
• The scope of relief available in quashing the impugned orders and the possibility of initiating fresh proceedings against the Petitioner.

Issue-wise Detailed Analysis

1. Validity of Proceedings Against a Non-Existent Entity Post-Amalgamation

Relevant Legal Framework and Precedents: The Court relied heavily on the precedent set by the Hon'ble Supreme Court in Principal Commissioner of Income Tax vs Maruti Suzuki India Ltd, which establishes that proceedings initiated against a non-existent entity post-amalgamation are without jurisdiction and void ab initio. This principle has been consistently followed by Coordinate Benches of the Bombay High Court and other High Courts, including in City Corporation Ltd v. ACIT and Thermax Babcock and Wilcox Ltd v. Assistant Commissioner.

Court's Interpretation and Reasoning: The Court held that once a scheme of amalgamation has been sanctioned and taken effect, the Transferor Entity ceases to exist as a legal entity. Therefore, any notices, orders, or recovery actions issued against such an entity post-cessation are invalid. The Court noted that the Transferor Entity ceased to exist from 22.10.2013, the date on which the amalgamation scheme was filed with the Registrar of Companies as per the Court's earlier order dated 16.08.2013.

Key Evidence and Findings: The Petitioner submitted documentary evidence including the Court's amalgamation order, correspondence informing the Respondents of the amalgamation, and the Transferor Entity's application for surrender of its service tax registration dated 19.09.2013 and a letter dated 01.01.2014. Despite this, the Respondents issued a show cause notice and an assessment order in the name of the Transferor Entity in 2021 and 2022 respectively.

Application of Law to Facts: The Court applied the principle from Maruti Suzuki and related cases to the facts, concluding that the Respondents erred in issuing notices and orders to the Transferor Entity, which had ceased to exist for nearly eight years. This rendered the impugned orders and recovery notice void.

Treatment of Competing Arguments: The Respondents argued that the Petitioner, as the amalgamated entity continuing the business, should have engaged with the proceedings or appealed before the CESTAT. The Court rejected this, holding that since the proceedings were initiated against a non-existent entity, the Petitioner was not obliged to participate or appeal. The Court emphasized that jurisdictional competence is a threshold issue and cannot be waived by participation.

Conclusion: The issuance of notices and orders against the non-existent Transferor Entity was without jurisdiction and void ab initio. The impugned order and recovery notice were set aside accordingly.

2. Service of Notices and Procedural Compliance

Relevant Legal Framework and Precedents: Proper service of notices is a fundamental procedural requirement. The Court referenced the fact that the Transferor Entity had vacated the address on which the impugned order was dispatched, indicating defective service.

Court's Interpretation and Reasoning: The Court noted that the Petitioner was never served with any show cause notice, hearing notices, or the impugned order. This lack of service further invalidated the proceedings.

Key Evidence and Findings: The Petitioner pointed out that the address used for dispatch of the impugned order was that of the Transferor Entity, which had ceased to exist and vacated the premises.

Application of Law to Facts: Since the Transferor Entity was non-existent and the Petitioner was not served, the Court found the issuance and dispatch of notices defective and without jurisdiction.

Treatment of Competing Arguments: The Respondents did not specifically dispute the service issue but argued on merits of continuation of proceedings. The Court emphasized that jurisdictional defects cannot be cured by substantive arguments.

Conclusion: Defective service on a non-existent entity further contributed to the invalidity of the impugned proceedings.

3. Scope of Relief and Future Proceedings

Relevant Legal Framework: The Court recognized the principle that quashing of orders on jurisdictional grounds does not preclude initiation of fresh proceedings in accordance with law.

Court's Interpretation and Reasoning: The Court clarified that its order quashing the impugned order and recovery notice was strictly on jurisdictional grounds due to issuance against a non-existing entity. It did not comment on or decide the substantive merits of the underlying tax or service tax liability.

Key Evidence and Findings: The Court noted the Respondents' knowledge of the amalgamation and non-existence of the Transferor Entity.

Application of Law to Facts: The Court allowed the possibility for the Respondents to initiate fresh proceedings against the Petitioner, the amalgamated entity, if warranted and permitted by law.

Treatment of Competing Arguments: The Petitioner sought complete dismissal of proceedings, but the Court limited relief to quashing the invalid orders, preserving the Respondents' right to proceed lawfully.

Conclusion: The impugned orders were quashed; however, fresh proceedings against the Petitioner may be initiated in accordance with law.

Significant Holdings

The Court held:

"Issuance of notice or the assessment order against a non-existing entity is without jurisdiction, a nullity and void ab initio."

"The Transferor Entity ceased to exist from 22.10.2013 and any proceedings initiated thereafter against it are invalid."

"Nothing in this order would preclude the Respondent from initiating fresh proceedings against the Petitioner, as may be permitted in law."

Core principles established include the inviolability of jurisdictional competence in tax proceedings and the legal consequence of amalgamation extinguishing the identity of the Transferor Entity. The Court reaffirmed that procedural compliance, including proper service and issuance of notices to the correct legal entity, is mandatory.

Final determinations on each issue were:

• The impugned order and recovery notice issued against the Transferor Entity post-amalgamation are quashed as void ab initio.
• Service of notices on a non-existent entity is invalid.
• The Petitioner was not obligated to participate in or appeal against proceedings initiated against a non-existent entity.
• The Respondents retain the right to initiate fresh proceedings against the Petitioner, the amalgamated entity, in accordance with law.

The core legal questions considered by the Court are:

- Whether the notice dated 28 March 2024 issued under Section 148 of the Income Tax Act, 1961 ("the IT Act") is liable to be quashed on the ground that it is based on erroneous information, specifically due to alleged duplication of certain transactions in the information on which the notice is predicated.

- Whether the issuance of the notice without considering the detailed explanations provided by the Petitioner violates principles of natural justice, thereby rendering the assumption of jurisdiction wrongful.

- Whether the provisions of Section 135A of the IT Act, which pertain to the verification scheme and dispense with the normal procedure of providing an opportunity to contest the reasons for reopening, are unconstitutional for not complying with principles of natural justice.

- Whether the Court should entertain a challenge to the constitutional validity of Section 135A in the absence of any prayer or pleadings to that effect in the petition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the notice under Section 148 based on alleged erroneous and duplicated information

Relevant legal framework and precedents: Section 148 of the IT Act empowers the Assessing Officer (AO) to issue a notice for reassessment if there is reason to believe that income has escaped assessment. The validity of such notice depends on the existence of credible information or reasons justifying reopening. The Court generally refrains from adjudicating disputed questions of fact at the threshold under Article 226 of the Constitution.

Court's interpretation and reasoning: The Court observed that the Petitioner's challenge to the notice is premised on the assertion that the information underlying the notice contains errors due to duplication of certain transactions and mismatch allegations. The Petitioner claims to have submitted detailed explanations addressing these points, yet the notice was issued without considering these explanations. However, the Respondent-Revenue has filed an affidavit denying any factual errors or duplication.

Key evidence and findings: The affidavit-in-reply from the Revenue denies the alleged errors and duplication. The Court noted that the determination of whether the statements in the notice are factually erroneous involves disputed questions of fact, which require an elaborate inquiry by the AO during reassessment proceedings.

Application of law to facts: The Court held that it is not the appropriate forum to resolve factual disputes at the notice stage. The Petitioner will have a full opportunity to present evidence and contest the allegations during the reassessment proceedings. Thus, the issuance of the notice cannot be quashed merely on the basis of alleged factual errors at this stage.

Treatment of competing arguments: The Petitioner argued that the notice was issued without considering explanations and hence violated natural justice. The Respondent countered that natural justice is not violated at the notice stage since the Petitioner will be given full opportunity during reassessment. The Court agreed with the Respondent's position.

Conclusions: No jurisdictional error or wrongful assumption of jurisdiction was found in issuing the notice. The petition challenging the notice on the ground of factual errors and duplication was dismissed.

Issue 2: Alleged violation of principles of natural justice in issuing the notice without considering explanations

Relevant legal framework and precedents: Principles of natural justice require that a person affected by a proceeding be given a reasonable opportunity to be heard. However, at the stage of issuance of a notice under Section 148, the law does not mandate a detailed hearing or consideration of explanations before issuing the notice. The substantive opportunity arises during reassessment proceedings.

Court's interpretation and reasoning: The Court noted that the Petitioner's contention of violation of natural justice is unfounded since the reassessment proceedings will afford full opportunity to contest the allegations and demonstrate any errors. The issuance of the notice itself does not constitute a breach of natural justice.

Key evidence and findings: The Respondent assured that the Petitioner will be given full opportunity to present his case during reassessment. The Court relied on this assurance and the procedural framework established under the IT Act.

Application of law to facts: Since the Petitioner is not deprived of the opportunity to make his defense, the issuance of the notice without prior consideration of explanations does not violate natural justice.

Treatment of competing arguments: The Petitioner's argument that the notice was issued arbitrarily was rejected as premature and not supported by the law.

Conclusions: No breach of natural justice occurred at the notice stage.

Issue 3: Constitutional validity of Section 135A of the IT Act

Relevant legal framework and precedents: Section 135A pertains to the verification scheme notified under the IT Act, which modifies the procedural requirements for reopening assessments. The Petitioner contended that this section is unconstitutional for dispensing with the normal procedure of providing an opportunity to contest reasons for reopening, thereby violating natural justice.

Court's interpretation and reasoning: The Court observed that the petition contains no prayer or pleadings challenging the constitutional validity of Section 135A. It emphasized that constitutional challenges must be expressly pleaded and supported by appropriate prayers. The Court declined to entertain the constitutional challenge raised for the first time in submissions.

Key evidence and findings: The Court referred to a precedent where a coordinate Bench left the constitutional validity of Section 135A open because the factual matrix warranted interference with the impugned notice on other grounds.

Application of law to facts: Since no formal challenge was raised and no grounds disclosed ex facie invalidity, the Court refused to adjudicate the constitutional issue in the present petition.

Treatment of competing arguments: The Respondent pointed out the absence of any prayer on constitutional validity and the impropriety of raising such issues without proper pleadings.

Conclusions: The Court declined to consider the constitutional validity of Section 135A in this petition.

Issue 4: Whether the Court should interfere with the impugned notice at the threshold

Relevant legal framework and precedents: The Court is generally reluctant to interfere with notices issued under Section 148 unless there is a clear jurisdictional error or patent illegality. The factual disputes are to be resolved during reassessment proceedings.

Court's interpretation and reasoning: The Court found no jurisdictional error or assumption of jurisdiction not vested in the authority. The Petitioner will be given full opportunity to contest the allegations during reassessment. The Court distinguished the present case from the precedent where interference was warranted due to admitted errors in the notice.

Key evidence and findings: The Court noted that in the precedent case, the Revenue had admitted errors in the notice, which is not the case here.

Application of law to facts: Since no ex facie error is disclosed and the Petitioner's grievances can be addressed during reassessment, the Court declined to interfere with the notice.

Treatment of competing arguments: The Petitioner's reliance on the precedent was found inapposite due to factual distinctions.

Conclusions: The petition was dismissed and the interim relief vacated.

3. SIGNIFICANT HOLDINGS

- "The adjudication of whether the statements or allegations in the impugned notice are erroneous in the sense that they contain factual errors or not would involve adjudication of disputed questions of fact. This would involve an elaborate process best undertaken by the AO. This Court does not normally undertake such an exercise under Article 226 of the Constitution of India."

- "This is also not a case where the Petitioner is deprived of an opportunity to make his defence good. Full opportunity is contemplated in the reassessment proceedings."

- "At the outset, we note that the petition contains no prayer for declaring Section 135A of the IT Act as unconstitutional or ultra vires. Therefore, there is no question of adjudicating this issue in this petition. In any event, constitutional challenges must be supported by appropriate pleadings and prayers."

- "Based on the arguments raised, we fail to detect any jurisdictional error or assumption of jurisdiction not vested in the authority that issued the impugned notice."

- "Nothing in this order is intended to influence the reassessment proceedings. The observations in this order, if any, are only in the context of entertaining the challenge to the impugned notice at the threshold. All contentions of all parties on the merits are therefore left open."

Core principles established include the limited scope of judicial interference at the notice stage under Section 148, the requirement of proper pleadings for constitutional challenges, and the preservation of procedural rights during reassessment proceedings rather than at the notice issuance stage.

Final determinations:

- The impugned notice under Section 148 is not liable to be quashed on the grounds raised.

- No violation of natural justice occurred at the notice stage.

- The constitutional validity of Section 135A is not decided due to lack of pleadings.

- The petition is dismissed and interim relief vacated.

The core legal questions considered by the Court in this matter are:

(a) Whether the application filed by the petitioner under Section 119(2)(b) of the Income Tax Act, 1961 for condonation of delay in filing Form 10BB for Assessment Year 2020-21, which was rejected on the ground of delay beyond three years, was rightly dismissed;

(b) Whether the petitioner's earlier application dated 13.03.2024 for condonation of delay, filed within the three-year period, requires adjudication;

(c) Whether the respondents are obliged to consider and pass appropriate orders on the petitioner's pending application for condonation of delay;

(d) Whether any proceedings under the Income Tax Act should be stayed or restrained pending adjudication of the condonation application.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of rejection of the condonation application dated 19.12.2024 on grounds of delay beyond three years

Relevant legal framework and precedents: Section 119(2)(b) of the Income Tax Act empowers the tax authorities to condone delay in compliance with any procedural requirement where sufficient cause is shown. The limitation period for such condonation applications is generally within three years from the end of the relevant assessment year. The Central Board of Direct Taxes (CBDT) Circular dated 18.11.2024 provides procedural guidance on condonation of delay in filing Form 10BB.

Court's interpretation and reasoning: The impugned order dated 29.01.2025 dismissed the petitioner's application dated 19.12.2024 on the ground that it was filed beyond the three-year period from the end of the assessment year 2020-21. The Court noted that the petitioner had filed an earlier application dated 13.03.2024 within the three-year period, which had not been decided by the authorities.

Key evidence and findings: The petitioner's delay in filing Form 10BB was 31 days beyond the prescribed timeline, attributed to mitigating circumstances arising from the Covid-19 pandemic. The petitioner had consistently filed returns and claimed exemption under Section 10(23C) of the Act. The initial application for condonation was timely filed but remained undecided.

Application of law to facts: The Court observed that the rejection of the later application on grounds of limitation was premature and that the earlier application, filed within time, deserved adjudication. The Court emphasized that procedural delays caused by unprecedented circumstances such as the pandemic warranted consideration of sufficient cause under Section 119(2)(b).

Treatment of competing arguments: The Revenue did not dispute the existence of the earlier application or its pendency but relied on the limitation bar for rejecting the later application. The Court balanced the procedural requirements with the equities involved, especially the petitioner's status as a charitable trust and the absence of prejudice to the Revenue.

Conclusions: The Court found that the impugned order dismissing the 19.12.2024 application was not sustainable without deciding the earlier timely application. The limitation objection would not hold if the earlier application was considered on merits.

Issue (b) and (c): Obligation of authorities to decide the pending application dated 13.03.2024

Relevant legal framework: Section 119(2)(b) mandates the authorities to exercise discretion to condone delay if sufficient cause is shown. Judicial precedents require that such applications be decided expeditiously and on merits, especially where delay is due to exceptional circumstances.

Court's interpretation and reasoning: The Court noted that the petitioner's earlier application for condonation remained undecided despite being filed within the prescribed period. The Revenue counsel conceded that there was no objection to the petitioner's prayer for a direction to decide the pending application.

Key evidence and findings: The petitioner's consistent compliance history, the mitigating Covid-19 circumstances, and the lack of prejudice to the Revenue were relevant factors. The Court emphasized the need for timely adjudication to avoid prolonged uncertainty and potential prejudice to the petitioner's rights.

Application of law to facts: The Court directed the respondents to decide the pending application dated 13.03.2024 within eight weeks, underscoring the statutory duty to consider condonation applications fairly and promptly.

Treatment of competing arguments: The Court reserved all rights and contentions of the parties, indicating that the merits of the condonation application would be decided by the authorities in due course.

Conclusions: The Court mandated expeditious disposal of the pending application, thereby ensuring adherence to principles of natural justice and procedural fairness.

Issue (d): Stay of proceedings under the Income Tax Act pending adjudication of condonation application

Relevant legal framework: While the petitioner sought a writ restraining initiation of proceedings under the Income Tax Act pending decision on condonation, such relief is discretionary and depends on the balance of convenience and potential prejudice.

Court's interpretation and reasoning: The Court did not expressly grant any stay but indicated that if the petitioner secures a favourable order on condonation, the other reliefs would not survive. This implies that the petitioner's rights would be protected upon successful condonation.

Key evidence and findings: No specific prejudice to the Revenue was demonstrated by delay in adjudication, and the petitioner's status as a charitable trust was a relevant consideration.

Application of law to facts: The Court's direction to decide the condonation application expeditiously implicitly safeguards the petitioner's interests without the need for an interim stay.

Treatment of competing arguments: The Revenue did not oppose the direction to decide the application but did not concede to stay of proceedings.

Conclusions: No stay was granted; however, the petitioner's rights would be protected upon decision on condonation.

3. SIGNIFICANT HOLDINGS

"The impugned order dated 29.01.2025 dismissing the application dated 19.12.2024 on the ground of delay beyond three years is not sustainable in the absence of adjudication of the earlier application dated 13.03.2024 filed within the period of limitation."

"The respondents are directed to decide the petitioner's application for condonation of delay in filing Form 10BB for Assessment Year 2020-21, filed on 13.03.2024, as expeditiously as possible and in any event within eight weeks from the date of this order."

"All rights and contentions of the parties are reserved."

Core principles established include the obligation of tax authorities to consider condonation applications filed within the prescribed limitation period on merits, especially where delay is caused by exceptional circumstances such as the Covid-19 pandemic, and the necessity of expeditious disposal of such applications to ensure procedural fairness.

The final determination was that the petitioner's later application was rightly rejected for delay beyond limitation only if the earlier application remained undecided; since the earlier application was pending, the authorities must decide it within a stipulated timeframe. No stay of proceedings was granted, but the petitioner's rights were safeguarded pending decision on condonation.

• Whether the delay of one month in filing Form 10B for AY 2022-23 constitutes "genuine hardship" warranting condonation under Section 119(2)(b) of the Act;
• The scope and exercise of discretion vested in the Commissioner of Income Tax (Exemption) [CIT(E)] in condoning delay in statutory compliance;
• The applicability and interpretation of the requirement to file Form 10B at least one month prior to filing the income tax return under Sections 11, 12, 12A, and 44AB of the Act;
• The consequences of non-compliance with the prescribed timeline for filing Form 10B, including denial of exemption under Section 11 of the Act and subsequent scrutiny assessment;
• The evidentiary standard and nature of proof required to establish "genuine hardship" for condonation of delay;
• The reasonableness and correctness of the CIT(E)'s rejection of the petitioner's application for condonation of delay.

Regarding the delay and "genuine hardship" under Section 119(2)(b) of the Act, the Court examined the statutory framework and relevant precedents. Section 119(2)(b) empowers the tax authorities to condone delay in compliance where "genuine hardship" is demonstrated. The Court relied heavily on the Bombay High Court's decision in Sitaldas K. Motwani v. Director-General of Income Tax, which adopts a liberal interpretation of "genuine hardship." This precedent emphasizes that the power to condone delay must be exercised to advance substantial justice rather than be defeated by technicalities. The Court quoted the decision extensively, highlighting that:

"The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on merit... There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides... The approach of the authorities should be justice oriented so as to advance cause of justice."

The Court noted that the petitioner is a charitable organization regularly availing exemption under Sections 11, 12, and 12A, and there was no dispute regarding the charitable nature of its activities. The statutory requirement under Section 12A(1)(b)(ii) read with Section 44AB mandates filing of Form 10B, an audit report, at least one month prior to filing the return under Section 139(1). The petitioner filed the return on 07.11.2022 within the prescribed extended timeline but filed Form 10B on the same date, thus delayed by one month beyond the due date of 07.10.2022.

The delay was attributed to the unavailability of the petitioner's accountant due to medical reasons-specifically, the illness of the accountant's son with dengue in September 2022, which delayed the audit process. The petitioner furnished medical reports, prescriptions, blood reports, and hospital records to substantiate this claim. Although there was some initial confusion regarding the identity of the patient (two names appearing in the medical documents), the petitioner clarified that both names referred to the same individual. The Court found no reason to disbelieve the petitioner's explanation and accepted that the delay was caused by genuine hardship.

The CIT(E), while acknowledging the documents and explanations, rejected the condonation application on the ground that the delay was "without reasonable cause." The Court observed that the CIT(E) had issued notices seeking clarifications, which the petitioner duly responded to, but the rejection was still made. The Court found this conclusion erroneous and inconsistent with the principles established in the precedent, which require a liberal and justice-oriented approach to condonation of delay.

Applying the law to the facts, the Court emphasized that the delay was neither deliberate nor due to negligence but arose from unforeseen medical hardship affecting the petitioner's accountant. The petitioner had otherwise complied with statutory requirements and had a prima facie entitlement to exemption under Section 11. The Court underscored that refusal to condone delay in such circumstances would defeat the cause of substantial justice and result in penalizing the petitioner for a non-deliberate delay.

The Court also addressed the competing arguments implicitly raised by the CIT(E) and the tax authorities, who contended that strict compliance with the timeline is necessary to maintain the integrity of the tax regime and that delay without reasonable cause should not be condoned. The Court balanced this against the petitioner's right to exemption and the principle that technicalities should not override substantive justice. It held that the authorities must exercise discretion judicially and not reject applications for condonation without proper appreciation of the facts and hardship involved.

In conclusion, the Court allowed the petition and directed the CIT(E) to issue an order condoning the thirty-day delay in filing Form 10B for AY 2022-23. The Court's reasoning establishes that:

• The expression "genuine hardship" under Section 119(2)(b) must be given a liberal and justice-oriented interpretation;
• Medical hardship affecting key personnel responsible for compliance can constitute sufficient cause for delay;
• The tax authorities have a duty to exercise discretion judicially and not reject condonation applications arbitrarily;
• Substantial justice and merit-based adjudication should prevail over mere technical non-compliance;
• Prima facie entitlement to exemption and bona fide compliance efforts weigh heavily in favor of condonation of delay.

The significant holding includes the verbatim adoption of the Bombay High Court's reasoning on "genuine hardship," which the Court found directly applicable and instructive. The Court explicitly stated that "there is no ground to disbelieve that the petitioner that its accountant was unavailable during the said period for the aforesaid reason," affirming the factual basis for hardship.

Ultimately, the final determination was that the delay of one month in filing Form 10B was justified by genuine hardship and the CIT(E)'s rejection of the condonation application was erroneous. The Court's order mandates condonation of the delay, thereby preserving the petitioner's entitlement to exemption under the Income Tax Act for the relevant assessment year.

The core legal question considered by the Court was whether the Tribunal was correct in law in setting aside the order passed under section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT), on the ground that the said order was not within the purview of section 263, despite the assessment order being rendered without a valuation report from the District Valuation Officer (DVO), which the Revenue contended rendered the assessment erroneous and prejudicial to its interests. The substantial question of law raised was whether the absence of the DVO's valuation report in the assessment order automatically rendered the order erroneous and subject to revision under section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Whether the Tribunal correctly held that the order under section 263 was not sustainable merely because the assessment order lacked the DVO's valuation report, and whether this constitutes a substantial question of law.

Relevant Legal Framework and Precedents: The Court examined the appellate jurisdiction under section 260A of the Income Tax Act, which permits appeal to the High Court only if a substantial question of law is involved. The Court referred extensively to the principles governing what constitutes a "substantial question of law" as elucidated in prior judgments and authoritative texts. It noted that the phrase "substantial question of law" is not defined in the Act or in the Code of Civil Procedure (CPC), but judicial pronouncements have clarified that such a question must be real, essential, and have a material bearing on the rights of the parties, being debatable and not settled conclusively by precedent.

The Court cited the Kerala High Court's observations on the archaic nature of the previous regime and the insertion of sections 260A and 260B to provide for appeals on substantial questions of law. It also referenced the Apex Court's ruling in Santosh Hazari vs. Purushottam, which emphasized that a substantial question of law is one that is debatable and affects the parties' rights materially. The Court further relied on the treatise by Kanga & Palkhivala which enumerates illustrative criteria for such questions, including whether legal principles have been misapplied or evidence misread.

Court's Interpretation and Reasoning: The Court observed that the question framed by the Revenue did not qualify as a substantial question of law. It was neither a pure question of law nor a mixed question of law and fact. The issue primarily revolved around the factual circumstance of the Assessee's non-cooperation in furnishing the valuation report from the DVO. The Tribunal's approach, which upheld the use of best judgment valuation principles in the absence of cooperation from the Assessee, was found to be a reasonable exercise of discretion and fact-based determination rather than an error of law.

The Court reasoned that the absence of the DVO's valuation report due to non-cooperation by the Assessee does not ipso facto render the assessment order erroneous or prejudicial to the Revenue's interest. The Tribunal's decision to set aside the revision under section 263 was thus justified. The Court emphasized that the Revenue's contention was essentially a factual dispute about the valuation process and the Assessee's conduct, which does not constitute a substantial question of law.

Key Evidence and Findings: The critical factual finding was that the Assessee did not cooperate in providing the valuation report, which led the assessing authority to rely on best judgment valuation. The Tribunal accepted this approach as reasonable and lawful. The Revenue failed to demonstrate any legal error or misapplication of principles that would warrant interference under section 263.

Application of Law to Facts: Applying the legal standards for substantial questions of law to the facts, the Court found that the Revenue's appeal did not raise any debatable or unsettled legal question. The issue was essentially a factual one concerning procedural compliance and the exercise of discretion in valuation. The Tribunal's order was therefore not liable to be set aside on the ground urged by the Revenue.

Treatment of Competing Arguments: The Revenue argued that the absence of the DVO's valuation report rendered the assessment order erroneous and prejudicial, justifying revision under section 263. The Assessee contended that this was a question of fact and that the Tribunal's order was correct. The Court sided with the Assessee, holding that the Revenue's argument did not raise a substantial question of law and that the Tribunal's factual and discretionary findings were unimpeachable in law.

Conclusions: The Court concluded that the question framed by the Revenue was not a substantial question of law and that the Tribunal was correct in setting aside the revision order under section 263. Consequently, the appeal was dismissed as unmeritorious.

3. SIGNIFICANT HOLDINGS

"Appeal lies only if the case involves a substantial question of law, which the memorandum of appeal, ideally speaking, has to precisely state. However, if the High Court is satisfied that a substantial question of law is otherwise involved, it may itself formulate such question and admit the appeal."

"The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be 'substantial', a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned."

"Ordinarily, when the owner or occupier of the property does not co-operate in the process of valuation, the exercise should be undertaken by adopting best judgment valuation principle."

"The question framed is neither a question of law, nor a mixed question of law & facts, more particularly when it related to non-furnishing of valuation report of a particular property allegedly because the Assessee did not co-operate."

"The appeal being unmeritorious is liable to be rejected and accordingly it is."

The core legal questions considered by the Court are:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 (the Act) for reassessment after the assessment under Section 143(3) had been finalized is valid, particularly in light of the limitation period prescribed under the proviso to Section 147 of the Act.
• Whether the reassessment proceedings constitute a mere change of opinion by the assessing authority, which is impermissible, or are justified by the discovery of escapement of income chargeable to tax due to failure on the part of the assessee to disclose fully and truly all material facts.
• Whether the objections filed by the petitioner against the reassessment notice and consequent proceedings were rightly rejected.
• Whether the reassessment notice was barred by limitation, and if so, whether this question can be adjudicated in writ jurisdiction at this stage.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the reassessment notice under Section 148 of the Act in light of the limitation period under proviso to Section 147

Relevant legal framework and precedents: The proviso to Section 147 of the Act restricts the initiation of reassessment proceedings beyond four years from the end of the relevant assessment year where the assessment has been finalized under Section 143(3), unless income chargeable to tax has escaped assessment due to failure by the assessee to make a proper return or to disclose fully and truly all material facts necessary for assessment. The proviso also exempts reassessment in cases involving undisclosed income related to assets outside India.

Court's interpretation and reasoning: The Court noted that the limitation period of four years is subject to the exception where income has escaped assessment due to non-disclosure of material facts by the assessee. The Court rejected the petitioner's contention that the reassessment was barred by limitation, holding that the proviso allows reassessment beyond four years if escapement of income is established.

Key evidence and findings: The assessment order under Section 143(3) was cryptic, did not deal with deductions claimed, and simply accepted the return income. The reassessment notice was issued after four years from the end of the relevant assessment year, but the assessing officer had reasons to believe that income chargeable to tax had escaped assessment due to failure of disclosure by the petitioner.

Application of law to facts: Since the assessing officer found that the petitioner failed to fully and truly disclose material facts-specifically, non-disclosure of the denial of exemption under Section 115JB(2)(ii) relating to Minimum Alternative Tax (MAT)-the reassessment notice issued beyond four years was valid under the proviso to Section 147.

Treatment of competing arguments: The petitioner argued that the reassessment was a mere change of opinion and that all material was before the assessing officer at the time of original assessment, thus barring reassessment. The Court rejected this, observing that the original assessment order was cryptic and did not deal with the relevant deductions or material facts, and that the reassessment was based on independent application of mind by the assessing officer.

Conclusions: The reassessment notice under Section 148 was validly issued beyond the four-year limitation period because the assessing officer had reason to believe that income had escaped assessment due to failure to disclose material facts.

Issue 2: Whether the reassessment proceedings constitute impermissible change of opinion

Relevant legal framework and precedents: It is well settled that reassessment proceedings cannot be initiated merely because of a change of opinion by the assessing authority. There must be tangible material or evidence indicating escapement of income.

Court's interpretation and reasoning: The Court examined the original assessment order and found it to be cryptic and non-comprehensive, indicating that the assessing officer did not consider or deal with the deductions claimed by the petitioner. The reassessment was initiated after the assessing officer formed a reasoned belief, based on enquiry, that the petitioner had failed to disclose the denial of exemption under the BIFR scheme, resulting in escapement of MAT liability.

Key evidence and findings: The petitioner had availed deduction of Rs.1,64,51,540/- under the head "Profit of Sick Industrial Company till net worth is equal to or exceeds accumulated losses" despite the CBDT not sanctioning exemption from MAT under Section 115JB(2)(ii). This non-disclosure was the basis for reassessment.

Application of law to facts: Since the reassessment was based on the assessing officer's independent application of mind and discovery of non-disclosure of material facts, it was not a mere change of opinion but a justified exercise of reassessment powers.

Treatment of competing arguments: The petitioner contended that the reassessment was initiated on suspicion and was a change of opinion. The Court held that suspicion alone is insufficient, but here the assessing officer had conducted enquiry and formed a reasoned belief, which is permissible.

Conclusions: The reassessment proceedings do not amount to a mere change of opinion and are validly initiated on the basis of escapement of income due to non-disclosure.

Issue 3: Rejection of objections filed by the petitioner against reassessment proceedings

Relevant legal framework and precedents: The assessee is entitled to file objections against reassessment notices, which the assessing officer must consider in accordance with law before proceeding.

Court's interpretation and reasoning: The Court noted that the assessing officer had dealt with the objections and rejected them after applying mind and conducting enquiry. The Court did not find any illegality or infirmity in the rejection of objections.

Key evidence and findings: The objections raised were considered and rejected on the ground that the petitioner failed to disclose material facts necessary for assessment, leading to escapement of income.

Application of law to facts: The rejection of objections was in accordance with law and based on the factual findings of non-disclosure.

Treatment of competing arguments: The petitioner argued that the objections should have been accepted as the reassessment was barred. The Court held that the limitation issue involves mixed questions of fact and law and cannot be decided at writ stage.

Conclusions: The rejection of objections was valid and sustainable.

Issue 4: Whether limitation and validity of reassessment notice can be adjudicated in writ jurisdiction at this stage

Relevant legal framework and precedents: Questions involving mixed facts and law, especially regarding limitation and escapement of income, are generally not adjudicated in writ jurisdiction but are left to be decided by the assessing authority and appellate forums.

Court's interpretation and reasoning: The Court held that the contention of limitation being time-barred involves mixed questions of fact and law and cannot be determined at the writ petition stage.

Key evidence and findings: The assessing officer had reasons to believe escapement of income and had conducted enquiry, which is a factual determination.

Application of law to facts: The Court declined to interfere with the reassessment notice in writ jurisdiction and left the petitioner free to raise all issues before the assessing authority and appellate fora.

Conclusions: The limitation and validity issues are not amenable to adjudication in writ jurisdiction at this stage.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The proviso to Section 147 of the Act as is existed at the relevant time ... provides that reassessment proceedings cannot be initiated after four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment."

The Court further observed:

"From perusal of the assessment order passed under Section 143 (3) it is evident that the order is cryptic, discusses no issue and even the deductions claimed have not been dealt with... The Assessing Officer had come to the conclusion that on failure to fully and truly disclose the necessary material, there is an escapement of assessment."

Core principles established include:

• Reassessment beyond the four-year limitation period is permissible if there is escapement of income due to failure to disclose material facts.
• A cryptic or non-comprehensive assessment order does not preclude reassessment if material facts were not fully disclosed.

1. Whether the penalty imposed under section 270A of the Income Tax Act for underreporting of income due to misreporting is justified in law.

2. Whether the explanation offered by the assessee attributing the underreporting to the wrongful actions of a tax consultant, supported by evidence including a complaint filed with the Economic Offence Wing, rebuts the presumption of misreporting and negates the liability for penalty under section 270A.

3. Whether the bona fide nature of the assessee's conduct, given his technical background and complete reliance on the tax consultant, exempts him from penalty under section 270A despite the underreporting of income.

4. Whether voluntary payment of the tax and interest prior to issuance of notice under section 148, but after the original due date for filing return, negates the applicability of penalty under section 270A.

Issue-wise detailed analysis:

1. Justification for levy of penalty under section 270A for underreporting of income due to misreporting

The relevant legal framework is section 270A of the Income Tax Act, which provides for levy of penalty in cases of underreporting or misreporting of income. The penalty is discretionary but must be justified by the facts and circumstances, including whether the underreporting was deliberate or due to bona fide error.

The Tribunal noted that the Assessing Officer levied penalty of Rs. 1,46,760/- under section 270A(8) on the ground that the assessee had underreported income by misreporting. This was confirmed by the Commissioner of Income Tax (Appeals)/NFAC.

However, the Tribunal analyzed the factual matrix and found that the underreporting was not due to any deliberate act by the assessee but due to the wrongful actions of the tax consultant who filed the return without the assessee's knowledge of the excess deductions claimed. The Tribunal emphasized that the assessee was a salaried employee from a technical background, lacking knowledge of tax matters, and had completely relied on the tax consultant.

The Tribunal also considered that the assessee promptly paid the tax and interest as soon as the discrepancy was discovered, even before the issuance of notice under section 148. The revised return declaring correct income was filed in response to the notice under section 148.

Applying the law to these facts, the Tribunal held that the penalty under section 270A was not justified because the underreporting was not voluntary or deliberate but caused by the tax consultant's fraudulent actions. The Tribunal rejected the Revenue's contention that the return was not voluntarily revised and penalty was inevitable.

2. Explanation attributing underreporting to tax consultant's wrongdoing and evidentiary support

The assessee explained that the tax consultant, who filed returns for many employees of the company, had fraudulently claimed excess deductions under Chapter VI-A without informing the assessee or others. The assessee supported this explanation by filing a complaint against the tax consultant with the Economic Offence Wing of the Police Department. Additionally, a survey under section 133A revealed the consultant's misconduct, which was also reported in the local press.

The Tribunal found that the assessee's explanation was credible and bona fide. The evidence of complaints filed and the investigation against the tax consultant corroborated the assessee's claim that the underreporting was caused by the consultant's fraud, not by the assessee's own misrepresentation.

The Tribunal thus held that the explanation offered by the assessee was sufficient to rebut the presumption of misreporting under section 270A and negated the liability for penalty.

3. Bona fide conduct of the assessee and reliance on tax consultant

The Tribunal highlighted that the assessee, being from a technical background and a salaried employee, was not equipped to understand the complexities of income tax law and had relied entirely on the tax consultant for filing returns. The Tribunal accepted that the assessee was unaware of the excess deductions claimed by the consultant and believed the returns to be legally compliant.

This reliance and lack of knowledge were significant in determining the absence of any willful attempt to evade tax or misreport income. The Tribunal emphasized that the assessee's conduct was bona fide, as demonstrated by the immediate payment of tax and interest upon discovery of the error.

Therefore, the Tribunal concluded that the bona fide nature of the assessee's conduct disentitled the Revenue from imposing penalty under section 270A.

4. Effect of voluntary payment of tax and interest prior to issuance of notice under section 148

The assessee paid the tax and interest on 28-05-2019, well before the notice under section 148 was issued on 25-02-2020. However, the revised return could not be filed voluntarily before the due date as it had already expired.

The Tribunal noted that the penalty under section 270A is generally imposed when the correct income is not disclosed voluntarily. However, the Tribunal found merit in the assessee's argument that the payment of tax and interest before the notice was a voluntary compliance and demonstrated the absence of any intention to conceal income.

The Tribunal rejected the Revenue's argument that since the revised return was filed only after the notice, the penalty was inevitable. It held that the voluntary payment of tax and interest prior to notice issuance negated the applicability of penalty under section 270A.

Conclusions on issues:

The Tribunal concluded that the penalty under section 270A was not justified in the facts and circumstances of the case. The underreporting was caused by the tax consultant's fraudulent actions, not by any willful misreporting by the assessee. The assessee's bona fide conduct, reliance on the consultant, and voluntary payment of tax and interest before notice issuance negated the applicability of penalty.

Significant holdings and core principles established:

The Tribunal held:

"Considering the totality of the facts of the case, we are of the considered opinion that this is not a fit case to impose penalty u/s 270(A) of the IT Act."

"We cannot accept the contention of Ld. DR that the revised return was not voluntary therefore the penalty u/s 270(A) of the Act is inevitable."

"The amount of tax & interest was deposited voluntarily much prior to the issue of notice u/s 148 of the IT Act."

These statements affirm the principle that penalty under section 270A cannot be imposed where the underreporting is due to the fraudulent act of a third party (tax consultant), the assessee acts bona fide, and correct tax along with interest is paid voluntarily before the initiation of reassessment proceedings.

The Tribunal's final determination was to set aside the penalty order and direct the Assessing Officer to delete the penalty of Rs. 1,46,760/- imposed under section 270A of the Income Tax Act, thereby allowing the appeal of the assessee.

The primary issues can be summarized as follows:

• Whether the assessee is entitled to benefits under the India-Singapore DTAA, particularly the exclusion of income from maintenance and training services from FTS classification due to absence of PE in India.
• Whether the receipts from maintenance and training services qualify as Fees for Technical Services under Article 12 of the DTAA and are taxable under section 9(1) of the Income Tax Act.

The Tribunal's detailed analysis on these issues is as follows:

Legal Framework and Precedents: The Tribunal examined the provisions of Articles 5, 7, and 12 of the India-Singapore DTAA. Article 5 defines the concept of Permanent Establishment, Article 7 deals with business profits attributable to PE, and Article 12 defines Fees for Technical Services, focusing on whether technical knowledge, experience, or skill is made available to the service recipient. The Tribunal also relied heavily on a coordinate bench decision in the assessee's own case for the assessment year 2018-19, which dealt with identical facts and legal issues.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee is a Singapore-based company engaged in sub-licensing software and providing maintenance and training services to Indian clients. The services included telephone and email assistance, remote login support, basic training on software usage, and software updates related to error corrections and improvements. The Tribunal emphasized that the assistance was limited to troubleshooting and support without transferring any proprietary technology or know-how to the Indian clients.

The Tribunal interpreted Article 12 of the DTAA strictly, focusing on whether the services rendered made available any technical knowledge or expertise enabling the Indian customers to apply the technology independently. It was found that the maintenance and training services were support-oriented, with Indian clients having their own in-house IT teams who coordinated with the assessee. The services did not confer any transferable technical skill or knowledge to the clients.

Key Evidence and Findings: The Tribunal scrutinized the agreements between the assessee and Indian customers, the nature of services rendered, and the operational facts such as absence of any onsite maintenance team or PE in India. It was noted that the Indian customers had their own internal IT support teams, and the assessee's role was limited to assisting these teams in troubleshooting software issues. Training was limited to basic usage instructions rather than imparting technical expertise. Software updates were standard and did not involve customization or enhancement of functionalities.

Application of Law to Facts: Applying the DTAA provisions, the Tribunal concluded that the maintenance and training services did not amount to FTS as per Article 12 because the services did not make available any technical knowledge or expertise to the Indian clients. Consequently, the income from these services could not be taxed as FTS in India. Further, since no PE existed in India under Article 5, the income was not taxable as business profits under Article 7. The Tribunal thus upheld the CIT(A)'s deletion of the addition made by the Assessing Officer treating such income as taxable FTS.

Treatment of Competing Arguments: The Revenue contended that the services were technical in nature and made available technical knowledge to Indian clients, thus attracting tax as FTS. The Assessing Officer emphasized onsite training and technical expertise involved. However, the Tribunal found these arguments unconvincing in light of the evidence and the coordinate bench's precedent. The Tribunal observed that the services were routine support and training related to software usage, not the transfer of technical know-how or expertise, and no PE existed in India. The Tribunal respectfully followed the coordinate bench ruling, finding no change in facts or law to warrant deviation.

Conclusions: The Tribunal concluded that the income from maintenance and training services does not constitute Fees for Technical Services under the India-Singapore DTAA and is not taxable in India in the absence of a PE. The deletion of the addition made by the Assessing Officer was upheld. This conclusion was uniformly applied to the assessment years 2015-16, 2016-17, and 2017-18.

Significant holdings from the Tribunal include the following verbatim excerpts and principles:

"Such assistance is by responding to reasonable questions communicated by the in-house support team concerning the use of software programme and resolving the discovery of bug in respect of software supplied by the assessee... The in-house support team of the Indian customers is mainly a centralized point of contact for purpose of co-ordination... Since, the role of in-house support team involves coordinating... the personnel in such In-House support team / IT team need to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same."

"The assessee company provides training to the end users and in-house team members of the Indian customers only with respect to the proper usage of the program... Apart from that, as a part of maintenance services, assessee also provides updates... There is no addition in the functionalities through such update which are only standard updates and not customization."

"If it is of recurring annual fees, there is no question that assessee was making available any technology or knowhow of the Indian customers on year to year basis... If there is any bug or problem faced by the customers while using the software, assessee provides trouble shooting to fix those bugs... This does not mean that assessee had made available any technology in software."

"Such maintenance support services and training services do not fall in the ambit and nature of FTS within Article 12(4) of India-Singapore DTAA, as these services do not make available any technical skill knowledge or expertise etc., which can enable Indian customer to apply the technology content therein."

The Tribunal established the core principle that routine maintenance and basic training services that do not transfer technical knowledge or expertise enabling the application of technology by the service recipient do not constitute Fees for Technical Services under the India-Singapore DTAA. Furthermore, the absence of a Permanent Establishment in India precludes taxation of such income as business profits under the DTAA.

In final determinations, the Tribunal dismissed the Revenue's appeals for the assessment years 2015-16, 2016-17, and 2017-18, upholding the CIT(A)'s orders deleting the additions made on account of treating receipts from maintenance and training services as taxable FTS. The Tribunal's decision is grounded on consistent application of the DTAA provisions, factual matrix, and binding coordinate bench precedent in the assessee's own case.

The core legal questions considered by the Tribunal in this appeal are:

• Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961 for concealment or misreporting of income is justified where the assessee's underreporting was attributable to the wrongful actions of a tax consultant without the assessee's knowledge or intent.
• Whether the explanation offered by the assessee, supported by evidence including complaints filed against the tax consultant, suffices to negate the imposition of penalty under section 271(1)(c).
• Whether the bona fide reliance by a technically unversed salaried employee on a tax consultant absolves the assessee from penalty liability under section 271(1)(c) for incorrect returns filed through such consultant.
• Whether the penalty can be sustained when the assessee voluntarily paid the due tax along with interest prior to the issuance of notice under section 148, but the revised return could not be filed voluntarily due to expiry of the filing period.
• Whether the Assessing Officer's passing of order under section 250 without providing further opportunity to the assessee to produce explanation or documentary evidence violates principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of penalty under section 271(1)(c) for concealment or misreporting of income

Legal framework and precedents: Section 271(1)(c) imposes penalty for concealment of particulars of income or furnishing inaccurate particulars. The imposition of penalty requires satisfaction of willful concealment or misreporting. Judicial precedents emphasize mens rea and voluntary nature of concealment as essential elements.

Court's interpretation and reasoning: The Tribunal noted that the assessee was a salaried employee from a technical background, lacking knowledge of tax laws, and fully relied on a tax consultant for filing returns. The consultant fraudulently claimed excess deductions without the assessee's knowledge or consent. The Tribunal held that the concealment was not willful or deliberate on the part of the assessee.

Key evidence and findings: Evidence included complaints filed against the tax consultant before the Economic Offence Wing of Police, media reports exposing the consultant's fraudulent activities, and the fact that multiple employees were similarly affected. The assessee promptly paid the correct tax and interest as soon as the fraud was discovered.

Application of law to facts: The Tribunal applied the principle that penalty under section 271(1)(c) cannot be levied where the assessee's underreporting is due to actions of a third party without the assessee's knowledge and the assessee acts in good faith upon discovery.

Treatment of competing arguments: The Revenue argued that the assessee did not file the correct return voluntarily and thus penalty was justified. The Tribunal rejected this, emphasizing that the assessee paid tax voluntarily before notice under section 148 and could not file revised return voluntarily due to time lapse.

Conclusions: The Tribunal concluded that the penalty was not justified as the concealment was not willful and the assessee had taken remedial steps promptly.

Issue 2: Sufficiency of explanation and evidence provided by the assessee

Legal framework and precedents: Explanation by the assessee supported by credible evidence can rebut presumption of concealment under section 271(1)(c). The burden lies on the Revenue to disprove bona fide explanation.

Court's interpretation and reasoning: The Tribunal found the explanation credible and supported by documentary evidence, including complaints lodged against the tax consultant and media reports. The Tribunal observed that the assessee's explanation was not rebutted by the Revenue with any contrary evidence.

Key evidence and findings: Complaints to Economic Offence Wing, survey under section 133A at the tax consultant's premises, and widespread media coverage of the fraud.

Application of law to facts: The Tribunal applied the principle that bona fide explanation backed by evidence exempts the assessee from penalty liability.

Treatment of competing arguments: Revenue's failure to rebut the explanation was noted, undermining the justification for penalty.

Conclusions: The explanation was accepted as sufficient to negate penalty.

Issue 3: Effect of bona fide reliance on tax consultant by a technically unversed salaried employee

Legal framework and precedents: Courts have recognized that bona fide reliance on tax consultants by laypersons, especially salaried employees unfamiliar with tax laws, can negate mens rea required for penalty under section 271(1)(c).

Court's interpretation and reasoning: The Tribunal emphasized the assessee's technical background and lack of tax knowledge, highlighting complete reliance on the tax consultant. The consultant's fraudulent acts were unknown to the assessee.

Key evidence and findings: Testimony regarding reliance, common practice among employees, and absence of any knowledge or complicity by the assessee.

Application of law to facts: The Tribunal applied the principle that absence of knowledge and reliance on expert advice absolves the assessee from penalty.

Treatment of competing arguments: Revenue's argument that the return was not correct was countered by the assessee's lack of knowledge and prompt rectification.

Conclusions: Reliance on the tax consultant was bona fide and negated penalty liability.

Issue 4: Voluntariness of payment of tax and filing of revised return prior to issuance of notice under section 148

Legal framework and precedents: Voluntary payment of tax and filing of correct return prior to notice under section 148 is a mitigating factor against penalty under section 271(1)(c). However, if the return cannot be filed voluntarily due to expiry of time limits, payment of tax and interest alone may suffice to negate penalty.

Court's interpretation and reasoning: The Tribunal noted that the assessee paid the due tax and interest on 27-05-2019, well before the notice under section 148 dated 03-03-2020. The revised return could not be filed voluntarily as the due date had passed.

Key evidence and findings: Payment records showing tax and interest paid prior to notice issuance; timing of notice under section 148.

Application of law to facts: The Tribunal held that voluntary payment of tax and interest before notice issuance demonstrated bona fide conduct, despite inability to file revised return voluntarily.

Treatment of competing arguments: Revenue's contention that revised return was not filed voluntarily was rejected as the assessee was prevented by law from filing after due date.

Conclusions: Voluntary payment of tax and interest prior to notice negated penalty liability.

Issue 5: Procedural fairness in passing order under section 250 without further opportunity to produce explanation or evidence

Legal framework and precedents: Principles of natural justice require that an assessee be given adequate opportunity to present explanation and evidence before adverse orders are passed.

Court's interpretation and reasoning: The Tribunal noted the assessee's grievance that the order under section 250 was passed without granting further opportunity to produce explanation or documentary evidence.

Key evidence and findings: Record of proceedings and submissions indicating lack of opportunity to supplement explanation.

Application of law to facts: Although not extensively elaborated, the Tribunal implicitly acknowledged procedural infirmity by setting aside penalty imposed by the Assessing Officer and CIT(A).

Treatment of competing arguments: No explicit counter-argument from Revenue recorded on this procedural aspect.

Conclusions: Procedural fairness was compromised, contributing to the Tribunal's decision to set aside penalty.

3. SIGNIFICANT HOLDINGS

"Considering the totality of the facts of the case, we are of the considered opinion that this is not a fit case to impose penalty u/s 271(1)(c) of the IT Act."

"The assessee, being from technical background, does not understand ABCD of Income Tax & therefore completely relied on the above named tax consultant, who without informing him & others, claimed excess deduction in their returns without informing them for his own benefit."

"As soon as the fact of excess deduction claimed, came to the knowledge of the assessee he immediately paid the due tax with interest, even before the issue of notice u/s 148 of the IT Act."

"We cannot accept the contention of Ld. DR that the revised return was not voluntary therefore the penalty u/s 271(1)(c) of the Act is inevitable."

"The amount of tax & interest was deposited voluntarily much prior to the issue of notice u/s 148 of the IT Act."

"The order passed by Ld. CIT(A)/NFAC is set-aside & the Assessing Officer is directed to delete the penalty of Rs. 56,350/- imposed u/s 271(1)(c) of the IT Act."

Core principles established include:

• Penalty under section 271(1)(c) requires willful concealment or misreporting by the assessee, which cannot be imputed where the error arises due to fraudulent acts of a tax consultant unknown to the assessee.
• Bona fide reliance on a tax consultant by a technically unversed salaried employee negates mens rea for penalty.
• Voluntary payment of tax and interest prior to issuance of notice under section 148 is a significant mitigating factor against penalty.
• Procedural fairness and opportunity to present explanation are essential before imposing penalty.

The final determination was to allow the appeal, set aside the penalty order, and direct deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act.

The core legal questions considered by the Appellate Tribunal in these connected appeals for the Assessment Year 2010-11 are:

• Whether the addition made under section 68 of the Income Tax Act, 1961 (hereinafter 'the Act') on account of unproved loans received from specified parties is justified;
• Whether the identity, creditworthiness, and genuineness of the creditors and the transactions involving loans can be established to rebut the presumption under section 68;
• Whether the lower authorities erred in confirming additions under section 68 where the assessee had explained the nature and source of the loans;
• Whether the findings of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] regarding the additions under section 68 are sustainable in law and on facts.

Other issues initially raised, including deemed dividend under section 2(22)(e), addition on account of household expenses, and notional interest, were not pressed by the appellants and thus excluded from substantive consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under Section 68 on account of unproved loan of Rs. 12,50,000/- received from M/s. Jay Maharashtra Consumer Pvt. Ltd. (JMCPL)

Relevant Legal Framework and Precedents: Section 68 of the Act mandates that when an assessee receives any sum as a loan or deposit, the identity, creditworthiness of the lender, and genuineness of the transaction must be satisfactorily established. The burden lies on the assessee to prove these elements to avoid addition. Precedents establish that mere assertion without credible documentary evidence or explanation can lead to addition under section 68.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had longstanding transactions with JMCPL, with an opening credit balance of Rs. 60,64,394/-. The transactions during the year were routed through banking channels and supported by detailed documentary evidence, including cheque numbers, dates, amounts, and sources of payments. The assessee also held equity shares in JMCPL, indicating a close connection and transparency in dealings.

Key Evidence and Findings: The Tribunal examined the ledger details showing receipt of loan amounts from JMCPL, supported by sale proceeds of machinery and advances from third parties. The source of funds for JMCPL was traced to advances and sales transactions, establishing the creditworthiness and identity of the creditor. The genuineness of the loan transaction was thus satisfactorily demonstrated.

Application of Law to Facts: Given the documentary evidence and the explanation provided, the Tribunal found that the primary onus cast on the assessee under section 68 was discharged. The invocation of section 68 by the AO was therefore erroneous.

Treatment of Competing Arguments: The Departmental Representative supported the lower authorities' orders; however, the Tribunal found the evidence in favour of the assessee more cogent and credible.

Conclusion: The addition of Rs. 12,50,000/- under section 68 was deleted, reversing the CIT(A)'s confirmation of the addition.

Issue 2: Addition under Section 68 on account of unproved loan of Rs. 15,40,000/- received from Sunil K. Gidwani

Relevant Legal Framework and Precedents: Similar to the first issue, section 68 requires proof of identity, creditworthiness, and genuineness of loan transactions. The Tribunal also relied on prior decisions of Coordinate Benches where the genuineness of the turmeric trading business of Sunil K. Gidwani was upheld.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee and Sunil K. Gidwani were related persons, part of the same family. Sunil K. Gidwani had declared an income of Rs. 13,19,928/- for the relevant assessment year and had undergone scrutiny assessment proceedings. The balance sheet of Sunil K. Gidwani showed capital and other funds sufficient to explain the loan amount given to the assessee.

Key Evidence and Findings: The Tribunal took note of the income tax returns, balance sheet, ledger accounts, and bank statements of Sunil K. Gidwani. It also referenced the earlier Tribunal order dated 02.03.2022, which had accepted the genuineness of Sunil K. Gidwani's turmeric trading business and profits declared therein.

Application of Law to Facts: The evidence established the identity and creditworthiness of Sunil K. Gidwani as a creditor and the genuineness of the loan transaction. The addition under section 68 was therefore unwarranted.

Treatment of Competing Arguments: The Departmental Representative supported the lower authorities' findings, but the Tribunal gave greater weight to the documentary evidence and prior judicial findings favouring the assessee.

Conclusion: The addition of Rs. 15,40,000/- under section 68 was deleted, reversing the CIT(A)'s confirmation of the addition.

Other Issues: Additions relating to deemed dividend under section 2(22)(e), household expenses, and notional interest were initially raised but were not pressed by the appellants during the hearing and hence dismissed as 'not pressed'.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"Considering the overall facts and circumstances of the case, we find that ld. AO erred in invoking section 68 of the Act as the assessee has discharged primary onus by explaining the nature and source of the alleged sum received from JMCPL."

"All these facts collectively demonstrate that the Identity and Creditworthiness of alleged cash creditor and genuineness of the alleged transaction are proved and the same has been duly demonstrated by the assessee with the help of various documents including income-tax return, balance sheet, ledger account and bank statement of Sunil K. Gidwani."

Core principles established include:

• The burden under section 68 lies on the assessee to prove the identity, creditworthiness, and genuineness of the loan transaction.
• Documentary evidence such as bank statements, ledger accounts, income tax returns, and balance sheets are critical to discharge this burden.
• Prior judicial findings and scrutiny assessments of the creditor's business and income enhance the credibility of the explanation.
• Where the assessee satisfactorily explains the source and nature of the loan, additions under section 68 are unwarranted and must be deleted.

Final determinations on each issue were that the additions under section 68 on account of unproved loans from JMCPL and Sunil K. Gidwani were deleted, reversing the confirmations by the CIT(A), and the appeals were partly allowed accordingly.

(1) Whether the Assessing Officer (AO) was justified in reopening the assessment under section 147 of the Income Tax Act, 1961;

(2) Whether the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the addition of Rs. 3,53,884/- to the assessee's income on account of unexplained cash deposits under section 68 of the Act.

Issue 1: Validity of Reopening under Section 147

The reopening of the assessment was premised on information received by the AO that the assessee had made cash deposits of Rs. 5,87,678/- in bank accounts, particularly with Himachal Mitra Mandal Co-op Credit Society, which was allegedly unexplained and not disclosed in the original return. The AO issued notice under section 148 and proceeded with reassessment after the assessee failed to satisfactorily explain the source of these deposits.

The legal framework governing reopening under section 147 requires that the AO must have "reason to believe" that income chargeable to tax has escaped assessment. The AO recorded reasons for reopening based on credible information received from another ITO and the unexplained cash deposits.

The assessee did not object to reopening at the time nor file a return in response to the section 148 notice, and even offered the amount of cash credit for taxation.

The Tribunal, applying settled principles, held that the AO had sufficient material to form a belief that income had escaped assessment, and the reopening was therefore valid. The assessee's conduct of not objecting and offering income further weakened any challenge to reopening.

Consequently, the reopening under section 147 was upheld, and the ground challenging reopening was dismissed.

Issue 2: Addition of Rs. 3,53,884/- on Account of Unexplained Cash Deposits

The AO made an addition of Rs. 3,53,884/- by comparing the total receipts of Rs. 5,45,234/- (comprising cash deposits in various accounts including Rs. 3,80,445/- in Himachal Mitra Mandal Co-op Credit Society, interest income, and rental income) with the income declared by the assessee of Rs. 1,91,350/-. The AO treated the excess as unexplained cash credit under section 68.

The assessee contended that the addition was made without considering his business receipts and that the cash deposits were part of his business income from "Raju Auto Garage," engaged in repairing and maintenance of autos and two-wheelers. The assessee submitted a revised computation of income showing gross receipts of Rs. 8,42,400/-, expenses of Rs. 5,84,160/-, and net business income of Rs. 2,58,240/-, along with income from house property and other sources, totaling Rs. 3,03,353/-. The assessee also claimed to have paid self-assessment tax of Rs. 16,240/- based on this revised computation.

The CIT(A) rejected the revised computation on the ground that no evidence was furnished to substantiate the gross business income of Rs. 8,42,400/- and no cash flow statement explaining the cash deposits was filed. Therefore, the CIT(A) upheld the addition made by the AO.

The Tribunal noted that while the AO and CIT(A) did not reject the gross receipts declared by the assessee, they did not accept the revised computation due to lack of supporting evidence. However, the Tribunal observed that the assessee had produced a trade license issued by the Municipal Corporation, indicating a legitimate business activity. The Tribunal emphasized that the AO has no authority to accept a revised computation without a revised return, but the appellate authorities have discretion to consider such documents.

Given the nature of the business, the Tribunal found merit in the assessee's submission that the cash deposits were part of gross receipts. The Tribunal held that once the gross receipts are included and tax paid thereon, no addition under section 68 is sustainable merely on the basis of cash deposits. The Tribunal concluded that the CIT(A) erred in sustaining the addition without properly considering the revised gross receipts and tax payment.

Significant Holdings and Legal Reasoning

The Tribunal held:

"The Assessing Officer has no authority to accept revised computation of income without filing revised return by the assessee, however, such restriction is not applicable on the discretion and power of appellate authorities."

"Given the nature of business of the assessee there is merit in the submission that the cash deposited is out of the gross receipts and that once gross receipts are disputed then no addition is sustainable under section 68 of the Act."

On the reopening issue, the Tribunal held that the AO had sufficient reasons to believe income had escaped assessment and the reopening was valid.

On delay in filing the appeal, the Tribunal applied the principle that substantial justice should prevail over technicalities, and condoned the delay, noting the assessee's bonafide conduct and lack of mala fide intention.

Application of Law to Facts

The AO's reopening was based on credible information and unexplained cash deposits, satisfying the threshold for reopening under section 147. The assessee's failure to object or file return in response to reopening notice further supported validity of reopening.

The addition under section 68 was premised on unexplained cash credits. However, the assessee's revised computation, supported by documentary evidence of business activity (trade license) and payment of tax on declared income, negated the presumption of unexplained deposits. The appellate authorities should have exercised discretion to consider the revised computation and evidence, rather than mechanically confirming addition.

The Tribunal's approach balanced the strict legal requirements with equitable considerations, ensuring that the assessee was not penalized for cash deposits legitimately arising from business receipts.

Treatment of Competing Arguments

The revenue relied on the absence of documentary evidence substantiating the revised gross receipts and the principle that revised computation without a revised return cannot be accepted by the AO. The revenue also contended that the delay in filing appeal was inordinate and the assessee's explanation was self-serving.

The assessee argued that the cash deposits were genuine business receipts, tax was paid on revised income, and delay in appeal filing was unintentional and should be condoned in interest of justice.

The Tribunal accepted the assessee's explanation on delay and emphasized the discretionary power of appellate authorities to consider revised computations. The Tribunal rejected the revenue's mechanical approach and upheld the principle that additions under section 68 require unexplained credit not accounted for by business receipts duly declared and taxed.

Final Determinations

(1) The reopening of assessment under section 147 was valid and justified on the basis of information received and unexplained cash deposits.

(2) The addition of Rs. 3,53,884/- was not sustainable as the cash deposits were part of business receipts duly declared in revised computation and taxed accordingly. The CIT(A) erred in confirming the addition without considering the revised computation and payment of tax.

(3) The delay in filing appeal before the Tribunal was condoned in the interest of substantial justice.

(4) The appeal was partly allowed - reopening challenge dismissed, addition challenge allowed.

1. Whether the reopening of the assessment for A.Y. 2011-12 under section 147 was valid and justified.

2. Whether the additions made under section 69 of the Income Tax Act, 1961, on account of unexplained investments in immovable property were sustainable.

3. Whether the nature of the land transactions for A.Y. 2011-12 and 2013-14 was agricultural or constituted a business activity (adventure in the nature of trade), thereby affecting the taxability of the surplus arising from such transactions.

4. Whether the exemption claimed under section 10(1) for agricultural income was rightly denied.

5. Whether the Assessing Officer was justified in treating the land as stock-in-trade and consequently treating the surplus as business income.

6. Whether the assessee was under a statutory obligation to maintain books of account and get the accounts audited under section 44AB, considering the nature and volume of transactions.

7. Whether penalties under sections 271(1)(c) and 271B were rightly imposed for furnishing inaccurate particulars and failure to comply with audit requirements.

8. Whether interest under sections 234A/B/C was rightly levied.

9. Whether the ex parte dismissal of appeals by the CIT(A) was appropriate given the circumstances.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147

The reopening of the assessment for A.Y. 2011-12 was triggered by information obtained during the assessment proceedings for A.Y. 2013-14, revealing substantial land purchases not disclosed in the original return. The legal framework mandates that reopening under section 147 must be based on tangible information indicating income escaping assessment.

The Tribunal noted that the AO relied on registered sale deeds to establish the purchases totaling over Rs. 1.10 crore, which were not reflected in the original return or books of account. The assessee failed to provide any explanation or evidence to counter this. The reopening was therefore found to be based on credible material and within jurisdiction.

The assessee contested the reopening as without jurisdiction, but the Tribunal found no merit in this contention, as the AO had sufficient material to justify reassessment.

2. Addition under Section 69 for Unexplained Investment

Section 69 empowers the AO to add unexplained investments to income if the assessee fails to satisfactorily explain the source. The AO noted that the land purchases were neither disclosed nor explained, and no books of account were maintained.

The assessee claimed the lands were agricultural and exempt, but failed to produce competent certification or evidence to support this. The AO's addition was upheld by the CIT(A) and challenged by the assessee as based on presumptions.

The Tribunal observed that the AO's addition was supported by documentary evidence (sale deeds) and the assessee's failure to substantiate the agricultural nature or source of funds. The addition under section 69 was thus sustainable.

3. Nature of Land Transactions: Agricultural Income vs Business Activity

The assessee claimed the lands were rural agricultural lands held as capital assets, and the surplus from sale was exempt under section 10(1). The AO, however, treated the transactions as an adventure in the nature of trade, assessing the surplus as business income.

Relevant precedents establish that the characterisation of land transactions depends on factors such as frequency, motive, holding period, and treatment in books. The AO relied on circumstantial evidence-multiple transactions, joint ownership with unrelated persons, and pattern of purchase and sale-to conclude a profit motive.

The CIT(A) confirmed this view, but dismissed the appeals ex parte without considering the assessee's evidence. The Tribunal noted that the question of whether the transactions constitute business or capital receipts requires detailed factual examination.

Given the assessee's consistent claim and lack of opportunity to produce evidence, the Tribunal found it appropriate to remit the matter for fresh adjudication, directing the AO to consider all relevant factors and evidence afresh.

4. Denial of Exemption under Section 10(1)

The exemption under section 10(1) applies to agricultural income. The AO denied exemption on the ground that the lands were not agricultural in nature or used for agriculture, but were held for commercial purposes.

The Tribunal emphasized that such denial must be based on concrete evidence and not on guesswork or presumptions. Since the CIT(A) dismissed the appeals ex parte without examining the evidence, the Tribunal found the denial of exemption premature and remanded the issue for reconsideration.

5. Treatment of Land as Stock-in-Trade

The AO treated the land as stock-in-trade, which has implications for income characterization and audit obligations. The assessee contended that the land was an investment and not stock-in-trade.

The Tribunal acknowledged that the classification depends on the facts and circumstances, including intention and treatment in books. Given the disputed nature and lack of detailed inquiry, the Tribunal directed fresh consideration of this issue.

6. Obligation to Maintain Books and Audit under Section 44AB

Section 44AB mandates audit of accounts if turnover exceeds prescribed limits. The AO held that since the land transactions were business receipts, the turnover threshold was crossed, triggering audit and penalty provisions.

The assessee argued that no business activity existed and hence no audit was required. The Tribunal noted that the applicability of section 44AB hinges on the nature of transactions (business or capital). Since this was under dispute, the Tribunal ordered fresh examination of audit applicability after determining the nature of transactions.

7. Penalties under Sections 271(1)(c) and 271B

Penalties were imposed for furnishing inaccurate particulars (section 271(1)(c)) and failure to get accounts audited (section 271B). The AO issued show cause notices, but the assessee did not respond, leading to ex parte penalty orders.

The CIT(A) confirmed penalties relying on judicial precedents that non-compliance justifies penalty. The assessee challenged the penalties as unjustified due to absence of business activity and audit requirement.

The Tribunal observed that penalty proceedings must be fair and based on proper determination of underlying facts. Since the nature of transactions and audit obligation were yet to be conclusively decided, the Tribunal remanded penalty issues for fresh adjudication after proper opportunity to the assessee.

8. Levy of Interest under Sections 234A/B/C

The assessee contended that interest levies were erroneous. The Tribunal did not elaborate extensively on this issue but included it among grounds to be reconsidered in fresh proceedings, as interest depends on correctness of assessment and compliance.

9. Ex Parte Dismissal of Appeals by CIT(A)

The CIT(A) dismissed the appeals ex parte due to non-compliance with notice requirements and failure to file evidence. The assessee claimed inability to upload evidence in the faceless appeal system.

The Tribunal recognized the procedural difficulties and the importance of fair opportunity to present evidence. It held that dismissal without considering the merits or evidence was inappropriate and warranted remand for fresh adjudication.

Significant Holdings:

The Tribunal held that reopening under section 147 was valid, additions under section 69 were sustainable based on unexplained investments, and that the nature of land transactions (business or agricultural) is a critical factual issue requiring detailed inquiry.

The Tribunal emphasized that the denial of exemption under section 10(1) and classification of land as stock-in-trade must be based on evidence rather than presumptions or guesswork. It stated:

"Such denial must be based on concrete evidence and not on guesswork or presumptions."

Regarding penalties and audit obligations, the Tribunal held that these depend on the proper determination of the nature of transactions and turnover, and hence must be reconsidered after fresh factual examination.

The Tribunal also underscored the necessity of affording the assessee reasonable opportunity to present evidence, noting that ex parte dismissal of appeals was improper in the circumstances.

Accordingly, the Tribunal set aside the impugned orders of the CIT(A) and restored all four appeals to the file of the Assessing Officer for de novo adjudication in accordance with law, directing the AO to consider all relevant issues afresh and grant adequate opportunity to the assessee.

As a measure to ensure future diligence, the Tribunal imposed a cost of Rs. 5,000 per quantum appeal on the assessee, totaling Rs. 10,000, payable within 30 days.

The appeals were allowed for statistical purposes, indicating that the substantive issues remain open for fresh consideration.

The core legal questions considered by the Appellate Tribunal (AT) in these appeals are:

(a) Whether the cancellation of provisional registration granted under section 12AB of the Income Tax Act, 1961 (the Act) to the trust was valid, particularly in light of the trust's claim of engaging in charitable activities and maintaining proper accounts.

(b) Whether the rejection and cancellation of provisional recognition under section 80G(5)(iv) of the Act was justified, given the trust's assertions regarding its charitable objectives and compliance with audit and accounting requirements.

(c) Whether the principles of natural justice were violated by the Commissioner of Income Tax (Exemption) in cancelling the provisional registrations without granting an opportunity of hearing to the assessee.

(d) Whether the assessee's delay in filing appeals should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of Cancellation of Provisional Registration under Sections 12AB and 80G

Relevant Legal Framework and Precedents: Section 12AB of the Act governs the registration of charitable trusts and institutions, which is a prerequisite for claiming exemption under the Act. Provisional registration may be granted initially, subject to fulfillment of conditions and submission of requisite documents. Section 80G provides for approval of donations made to charitable institutions, enabling donors to claim deductions. Both provisions empower the Commissioner of Income Tax (Exemption) to cancel provisional registration or approval if the applicant fails to satisfy the conditions or comply with procedural requirements.

Further, the second proviso to section 80G(5) and section 12AB(1)(b)(ii)(B) stipulate that if the Commissioner is not satisfied with the applicant's activities or compliance, he shall reject the application and cancel any provisional registration granted.

Court's Interpretation and Reasoning: The ld. CIT (Exemption) rejected the trust's application for registration under section 12AB and approval under section 80G on the ground that the assessee failed to furnish replies to notices issued, thereby failing to prove the genuineness of its activities. Consequently, the provisional registrations granted under these sections were cancelled.

The Tribunal noted that the trust had submitted grounds of appeal asserting that it was engaged in charitable activities such as creating spiritual awareness, conducting bhandaras, maintaining gaushalas, and running yoga centers. The trust also claimed to maintain regular books of accounts and get them audited, with financials submitted on the income tax portal. It contended that the cancellation was unjust, arbitrary, and violative of natural justice as no opportunity of hearing was granted before cancellation.

However, during the hearing, the assessee failed to appear and did not produce any evidence to counter the rejection. The Tribunal observed that only two notices had been issued by the ld. CIT (Exemption) and that the assessee had not responded to these notices, leading to the rejection of the applications.

Key Evidence and Findings: The primary evidence relied upon by the CIT (Exemption) was the absence of any reply or documentation from the assessee in response to notices dated 06.09.2024 and 23.10.2024. The assessee's submissions in the appeal papers claimed compliance and cooperation but were not substantiated by any documentary proof at the hearing.

Application of Law to Facts: The Tribunal recognized that non-furnishing of requisite information and failure to respond to notices justified the rejection and cancellation under the statutory provisions. However, the Tribunal also acknowledged the assessee's claim of charitable objectives and maintenance of accounts, as well as the fact that the assessee was not heard before cancellation, raising concerns about adherence to natural justice.

Treatment of Competing Arguments: The Revenue relied on the order of the CIT (Exemption) and the absence of any response from the assessee to notices as grounds for upholding the cancellation. The assessee argued that the cancellation was unjust, arbitrary, and violative of natural justice principles due to lack of opportunity to be heard and that the trust's activities were bona fide and charitable in nature.

Conclusions: Balancing these considerations, the Tribunal adopted a lenient approach. It held that since the assessee was given only two notices and no opportunity for a detailed hearing before cancellation, the matter should be restored to the file of the CIT (Exemption) for fresh adjudication. The assessee was directed to submit the required documents and was to be given an adequate opportunity to be heard. The appeals were thus allowed for statistical purposes, with the matter remanded for reconsideration.

Issue (c): Violation of Principles of Natural Justice

Relevant Legal Framework: The principles of natural justice require that no person should be condemned unheard and that an opportunity of hearing must be granted before adverse action is taken. This principle applies in administrative and quasi-judicial proceedings, including cancellation of registrations under the Income Tax Act.

Court's Interpretation and Reasoning: The Tribunal noted the assessee's contention that no opportunity of hearing was granted before cancellation of provisional registration under sections 12AB and 80G. The CIT (Exemption) had proceeded to cancel the registrations solely on the basis of non-response to notices without providing a personal hearing.

Application of Law to Facts: The Tribunal found merit in the assessee's contention regarding violation of natural justice. It reasoned that before cancelling the registrations, the assessee should have been given a fair opportunity to explain and submit documents. This deficiency warranted restoration of the matter to the CIT (Exemption) for fresh adjudication with proper opportunity of hearing.

Conclusions: The Tribunal held that the principle of natural justice was not complied with and directed that the assessee be granted adequate opportunity of hearing in the remand proceedings.

Issue (d): Condonation of Delay in Filing Appeals

Relevant Legal Framework: Delay in filing appeals can be condoned if sufficient cause is shown under the relevant procedural rules. Courts have discretion to condone delay if the reasons are genuine and the delay is not deliberate or inordinate.

Court's Interpretation and Reasoning: The Tribunal noted a delay of 36 days in filing both appeals. The Chairman of the Trust filed applications for condonation of delay, citing medical reasons and absence of managing trustees and authorized representatives from the State during the relevant period.

Treatment of Competing Arguments: The Revenue opposed condonation but left the decision to the discretion of the Tribunal.

Conclusions: The Tribunal found merit in the explanation and condoned the delay of 36 days in filing the appeals.

3. SIGNIFICANT HOLDINGS

"In view of all the facts and circumstances of the case, the matter is restored to the file of the ld CIT(E) for afresh adjudication by providing adequate opportunity of being heard and the assessee is also required to submit the documents as demanded by the ld. CIT(E) with regard to registration of the Trust u/s 12AB of the Act. Thus, this appeal of the assessee is allowed for statistical purposes."

"Since we have restored the appeal of the assessee with regard to the registration u/s 12AB of the Act to the file of the ld. CIT(E) for afresh adjudication, therefore, the outcome of appeal of the assessee u/s 80G of the Act is consequential in nature and is also restored to the file of the ld. CIT(E)."

Core principles established include:

• Cancellation of provisional registration under sections 12AB and 80G without providing an opportunity of hearing violates the principles of natural justice.
• Non-furnishing of requisite information and failure to respond to notices can justify rejection of registration applications, but procedural fairness must be ensured.
• The appellate authority has discretion to condone delay in filing appeals if sufficient cause is shown.
• Where procedural lapses occur, the matter should be remanded for fresh consideration rather than outright dismissal.

Final determinations:

• The appeals were allowed for statistical purposes and remanded to the Commissioner of Income Tax (Exemption) for fresh adjudication on both issues of registration under section 12AB and approval under section 80G.
• The assessee was directed to be provided adequate opportunity of hearing and to submit all requisite documents.
• The delay in filing appeals was condoned.

This issue arose from the PCIT's contention that the assessment order of the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue, specifically on the ground that the AO had accepted the assessee's declaration of income without adequately verifying the payment of Rs. 31,58,36,000 made to M/s DLF Commercial Projects Corporation (DCPC) out of the total sale consideration of Rs. 66,92,00,000 received on sale of agricultural land. The PCIT argued that since DCPC did not carry out any development activities or obtain the township license as per the development agreement, the entire sale consideration should have been declared by the assessee, and the amount paid to DCPC should have been disallowed as expenditure.

Hence, the Tribunal's analysis focused on whether the AO had conducted necessary enquiries and applied his mind properly before accepting the income declared by the assessee and disallowing the PCIT's revision under section 263.

Issue-wise Detailed Analysis:

1. Scope and validity of revisionary jurisdiction under section 263 of the Act

The Tribunal referred extensively to the legal framework governing the exercise of revisionary powers under section 263. It cited the Supreme Court's decision in Malabar Industrial Company Ltd. v. CIT, which clarified that the PCIT can invoke section 263 only if the AO's order is both erroneous and prejudicial to the interests of the revenue. The Court emphasized the twin conditions: (i) the order must be erroneous, and (ii) the error must cause prejudice to revenue. If either condition is absent, revision cannot be invoked. Furthermore, the Court held that the provision is not intended to correct every mistake but only those errors that result in loss of tax lawfully payable.

The Tribunal also referred to several decisions of the Delhi High Court which held that if the AO had made enquiries and was satisfied with the assessee's submissions, mere non-mention of such enquiries in the assessment order does not justify invoking revision under section 263.

2. Examination of the AO's enquiries and findings

The Tribunal scrutinized the assessment proceedings and noted that the AO had issued detailed notices under section 142(1), including queries specifically relating to the sale of land, sale consideration, sale deeds, and development agreements. The assessee had responded with comprehensive submissions and documentary evidence, including copies of sale deeds, development agreements, and financial statements.

The AO accepted the assessee's claim after examining the documents on a test check basis and framed the assessment under section 143(3) without raising any adverse comments on the veracity of the documents or the transaction.

The Tribunal highlighted that the AO was aware of the payment made to DCPC and that DCPC had declared its share of income in its tax return. The AO also had before him confirmations from DCPC acknowledging receipt of the amounts and their tax filings, as well as the bank statements evidencing receipt of funds by DCPC.

Therefore, the Tribunal concluded that the AO had made adequate enquiries and applied his mind before accepting the assessee's return and that there was no lack or inadequacy of enquiry.

3. Nature of the transaction and accounting of income

The assessee's case was that it entered into a development agreement with DCPC, under which DCPC was to carry out development activities on the land. Clause 2.6 of the original agreement gave DCPC a right (but not obligation) to purchase the land at a fixed price if it failed to obtain the township license within the stipulated time. The supplementary agreement modified the consideration to "cost of land plus Rs. 5 lakhs per acre."

The assessee sold the land directly to a third party and paid DCPC its agreed share of the sale consideration, which was duly reflected in the sale deed and accounted for in the books of both parties. The assessee declared its share of income in its profit and loss account, including a component disclosed as "compensation received" under other income. DCPC declared its share of income net of this compensation.

The Tribunal found that the transaction was consistent with the agreements and that the amounts received by DCPC were offered to tax in its hands, thereby negating any claim of revenue loss.

4. Application of Explanation 2 to section 263

The Revenue argued that Explanation 2 to section 263, which deems an order erroneous if the AO has not made any enquiry or verification, applied. However, the Tribunal observed that this Explanation was not mentioned in the show cause notice issued under section 263 but was invoked only in the revision order. The Tribunal relied on a Gujarat High Court decision holding that invoking Explanation 2 without giving the assessee an opportunity to be heard is not sustainable in law.

Given the extensive enquiries made by the AO and the evidence on record, the Tribunal held that Explanation 2 was inapplicable.

5. Consideration of competing arguments

The PCIT contended that since DCPC did not perform development activities or obtain the township license, the payment to DCPC should be disallowed. The Tribunal rejected this argument, noting that the AO had considered the development agreement, the supplementary agreement, and the sale deed, and found no evidence that the payment was not in accordance with the agreements or that it was not an expenditure wholly and exclusively for business purposes.

The Tribunal further observed that the PCIT failed to specify any concrete error in the AO's order or how the enquiry was inadequate. The PCIT's conclusion was a bald assertion unsupported by facts or legal reasoning.

6. Conclusion on the exercise of revisionary jurisdiction

Based on the above analysis, the Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interests of the revenue. The AO had conducted necessary enquiries, examined the evidence, and accepted the income declared by the assessee and DCPC, who had also offered the income to tax. Therefore, the PCIT's invocation of revisionary jurisdiction under section 263 was unjustified and amounted to a revenue-neutral exercise, which is impermissible.

The Tribunal relied on the Supreme Court's decision in CIT v. Excel Industries Ltd., which held that revision under section 263 cannot be invoked for revenue-neutral matters.

Significant Holdings:

"A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent ... recourse cannot be had to section 263(1) of the Act."

"Every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law."

"If the Assessing Officer during the scrutiny assessment proceedings raised a query which was answered by the Assessee to the satisfaction of the Assessing Officer but the same was not reflected in the Assessment Order by him, a conclusion cannot be drawn by the Commissioner that no proper enquiry with respect to the issue was made by the Assessing Officer, and enable him to assume jurisdiction under Section 263 of the Act."

"The proceedings in question have no alternative but to be dropped under intimation to the assessee company."

"Revision jurisdiction u/s 263 of the Act could not be invoked for carrying out a revenue neutral exercise."

Accordingly, the Tribunal quashed the revision order passed under section 263 and allowed the appeal of the assessee, holding that the PCIT's assumption of revisionary jurisdiction was erroneous and unjustified in the facts and circumstances of the case.

- Whether the excise duty refund, sales tax/VAT input tax refund, and sales tax remission received by the assessee under the Incentive Scheme 2001 for Economic Development of Kutch District constitute capital receipts not chargeable to income tax, despite being offered as revenue receipts in the return of income.

- Whether the Commissioner of Income Tax (Appeals) erred in dismissing the additional ground raised by the assessee seeking to treat the aforesaid receipts as capital receipts.

- Whether disallowance of expenses under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962, was correctly computed and restricted by the appellate authorities in respect of exempt dividend income.

- Whether the disallowance under section 40(a)(ia) of the Act for alleged short deduction of tax at source on wharfage and hire charges was justified.

- Miscellaneous grounds including general and unpressed grounds.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Characterization of Excise Duty Refund, Sales Tax/VAT Input Tax Refund, and Sales Tax Remission as Capital Receipt

Relevant Legal Framework and Precedents: The Income-tax Act, 1961 governs the taxation of receipts. The distinction between capital receipts and revenue receipts is fundamental in taxation. The Hon'ble Supreme Court's decision in Goetze (India) Ltd. vs CIT (284 ITR 323) was applied by the CIT(A) to dismiss the assessee's additional ground. However, the Tribunal noted that the restriction in Goetze applies only to the Assessing Officer and not to appellate authorities under section 254 of the Act, who can admit fresh claims if legally tenable. The Hon'ble Supreme Court in CIT vs Ponni Sugars and Chemicals Ltd (306 ITR 392) emphasized the 'purpose test' to determine the nature of receipts under incentive schemes.

Court's Interpretation and Reasoning: The Tribunal analyzed the Incentive Scheme 2001 and related Notifications issued by the Central and State Governments, which aimed to promote industrial development in the Kutch District after the earthquake devastation. The scheme provided excise duty exemption, sales tax exemption/deferment, and remission to new industrial units set up within specified periods, with the underlying purpose of incentivizing capital investment and employment generation. The assessee's units were certified as eligible under the scheme, and the receipts were received pursuant to these incentives.

The Tribunal observed that the assessee had included these receipts as income in the return but subsequently claimed before the CIT(A) that they were capital receipts. The CIT(A) dismissed this claim relying on Goetze. However, the Tribunal held that the CIT(A) ought to have admitted the additional ground, as the claim was legal in nature and did not require fresh facts. It was further noted that the CIT(A) had admitted and allowed similar claims in earlier years for the assessee, and no logical reason existed for divergent treatment.

Key Evidence and Findings: The scheme documents, Notifications Nos. 39/2001 (Central Excise) and subsequent extensions, the Incentive Scheme 2001 by the Government of Gujarat, certificates issued by Customs and Central Excise authorities, and clarifications by the Department of Revenue, Ministry of Finance, were examined. The Tribunal relied on a prior decision in the assessee's own case for AY 2005-06, where the same issue was adjudicated in favor of the assessee, treating the incentives as capital receipts not chargeable to tax.

Application of Law to Facts: The Tribunal applied the 'purpose test' to the Incentive Scheme and concluded that the receipts were granted to promote capital investment and industrial development, thus constituting capital receipts. The manner of receipt or inclusion in the return as income did not alter their nature.

Treatment of Competing Arguments: The revenue argued that the receipts were taxable as revenue income since offered in the return and relied on Goetze. The Tribunal distinguished Goetze's applicability and emphasized the appellate authority's power to admit fresh legal claims. The revenue's objection was dismissed, following judicial precedents including Taparia Tools Ltd vs JCIT (372 ITR 605).

Conclusions: The Tribunal directed the Assessing Officer to treat the excise duty refund, sales tax remission, and sales/VAT input tax refund as capital receipts not chargeable to tax for AYs 2007-08 and 2008-09, allowing the assessee's grounds on this issue.

Issue 2: Disallowance of Expenses under Section 14A read with Rule 8D

Relevant Legal Framework and Precedents: Section 14A of the Act disallows expenditure incurred to earn exempt income. Rule 8D prescribes the method for computing such disallowance. The Hon'ble Supreme Court in South Indian Bank Ltd vs CIT (283 Taxman 178) clarified that disallowance under Rule 8D(2)(ii) is not required if the assessee has sufficient interest-free funds to cover investments yielding exempt income. The Hon'ble Calcutta High Court in CIT vs R.R. Sen & Brothers P Ltd upheld the Tribunal's restriction of disallowance to 1% of exempt dividend income.

Court's Interpretation and Reasoning: The Assessing Officer disregarded the assessee's suo moto disallowance of actual expenses incurred (salary of investment handling staff) and applied Rule 8D mechanistically, resulting in a large disallowance. The CIT(A) restricted disallowance to 1% of exempt income and allowed deduction of the suo moto disallowance made by the assessee.

For AY 2008-09, the Tribunal noted that the assessee had sufficient interest-free funds, negating the need for disallowance under Rule 8D(2)(ii). The Tribunal also found that the Assessing Officer failed to record objective satisfaction with cogent reasons before applying Rule 8D(2)(iii), violating the mandate of section 14A(2) and Rule 8D(1). The CIT(A)'s reliance on the Delhi High Court's decision in CIT vs Taikisha Engineering India Ltd (2014-TIOL-2239-HC-DEL-IT) was upheld.

Key Evidence and Findings: The Tribunal examined the assessee's financial statements showing interest-free funds, details of expenses incurred for earning exempt income, and the Assessing Officer's lack of satisfaction recording. The suo moto disallowance computations were scrutinized and accepted.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling on interest-free funds and the requirement for AO's satisfaction to restrict disallowance to actual expenses incurred (suo moto disallowance), rejecting the Assessing Officer's higher disallowance.

Treatment of Competing Arguments: The revenue contended for full disallowance as per Rule 8D. The Tribunal rejected this, relying on binding precedents and the facts showing no need for higher disallowance.

Conclusions: The Tribunal directed the Assessing Officer to restrict disallowance under section 14A to the amount of actual expenses incurred by the assessee for earning exempt income, dismissing the revenue's grounds on this issue.

Issue 3: Disallowance under Section 40(a)(ia) for Alleged Short Deduction of Tax at Source

Relevant Legal Framework and Precedents: Section 40(a)(ia) disallows expenses if tax is not deducted or deducted at lower rates as per the provisions of the Act. The TDS provisions under sections 194C and 194I apply to different categories of payments. The Tribunal's earlier decision in the assessee's own case for AY 2009-10 and the Hon'ble Calcutta High Court's ruling in CIT vs S.K Tekriwal (361 ITR 432) held that section 40(a)(ia) cannot be invoked for short deduction of TDS where the deduction was made under a different but applicable section.

Court's Interpretation and Reasoning: The Assessing Officer made disallowance on the ground that TDS should have been deducted under section 194I instead of 194C on wharfage and hire charges. However, the TDS proceedings under section 201(1) were quashed by the Tribunal in the assessee's own case, confirming the correctness of deduction under section 194C.

Key Evidence and Findings: The Tribunal relied on the quashing of TDS demand and the factual position that tax was deducted under section 194C, which was held to be proper.

Application of Law to Facts: The Tribunal applied the legal principle that section 40(a)(ia) disallowance is not sustainable where tax has been deducted under a valid provision, even if the Assessing Officer believed another section was applicable.

Treatment of Competing Arguments: The revenue's contention was rejected based on the Tribunal's prior decision and judicial precedents.

Conclusions: The Tribunal dismissed the revenue's appeal on this issue, upholding the deletion of disallowance under section 40(a)(ia).

3. SIGNIFICANT HOLDINGS

"The taxation of excise duty refund pursuant to incentive scheme is to be determined by the purpose for which the same is granted and not the form / mode / manner in which it is determined or disbursed. 'Purpose Test' qua the incentive scheme is the relevant consideration and not the manner of determining the incentive."

"The intention behind the exemption scheme was to attract fresh investment so as to generate employment and for industrial development of the region. The excise duty refund received is clearly in the nature of capital receipt not chargeable to income tax."

"The appellate authorities are duly entitled to admit the additional ground if it is legal in nature and goes to the root of the matter and not requiring verification of fresh facts."

"No disallowance of interest need to be made under Rule 8D(2)(ii) of the Income Tax Rules if the assessee has sufficient interest-free funds to cover investments yielding exempt income."

"The Assessing Officer must record objective satisfaction with cogent reasons before applying Rule 8D(2)(iii) for disallowance under section 14A."

"Section 40(a)(ia) of the Act cannot be invoked for short deduction of tax at source where tax has been deducted under a valid provision of the Act."

Final determinations:

• The excise duty refund, sales tax remission, and sales/VAT input tax refund received under the Incentive Scheme 2001 are capital receipts not chargeable to tax.
• The CIT(A) erred in dismissing the additional ground; appellate authorities have power to admit such claims.
• The disallowance under section 14A is to be restricted to actual expenses incurred by the assessee for earning exempt income, subject to the assessee having sufficient interest-free funds.
• The disallowance under section 40(a)(ia) on account of alleged short deduction of TDS was not justified and rightly deleted.
• Other general and unpressed grounds were dismissed or not adjudicated.

The core legal questions considered by the Tribunal in this appeal are:

• Whether the assessment order framed under section 144 of the Income Tax Act, 1961, without issuance of a notice under section 143(2) of the Act, is valid and sustainable in law.
• Whether the Assessing Officer (AO) was justified in proceeding with the assessment on the presumption that the assessee had not filed the return of income, despite the assessee's repeated intimation and filing of return before the AO.
• Whether the additions made under section 69A read with section 115BBE of the Act can be sustained when the foundational assessment order itself is challenged as void for non-compliance with mandatory procedural requirements.
• Whether penalty proceedings initiated under section 271F of the Act based on the alleged non-filing of return of income stand on a sound legal footing in the backdrop of the above procedural infirmities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of assessment framed under section 144 without notice under section 143(2)

Relevant legal framework and precedents: Section 143(2) of the Income Tax Act mandates issuance of a notice to the assessee before making an assessment or reassessment, providing an opportunity to be heard. Section 144 allows the AO to make an assessment based on best judgment if the assessee fails to comply with statutory requirements. However, the procedural requirement of issuing notice under section 143(2) remains crucial for the validity of the assessment.

Judicial precedents cited include a recent ruling of the Hon'ble Delhi High Court in Pr.CIT-1, Delhi vs M/s. Dart Infrabuild (P) Ltd. [2024], which held that issuance of notice under section 143(2) is mandatory even when assessment is framed under section 144, and irrespective of whether the return was belatedly filed before completion of assessment. Other supporting precedents are CIT vs Kalyan Samiti, Shaily Juneja vs ACIT, and Primary Real Estate Investments vs Dy CIT, all reinforcing the mandatory nature of section 143(2) notice for valid assessment.

The Supreme Court's ruling in Laxman Das Khandelwal (2019) further clarifies that failure to issue notice under section 143(2) renders the assessment order void. Section 292BB, which seeks to validate defective service of notice, does not apply where there is a complete absence of notice. The notice must emanate from the Department for section 292BB to operate.

Court's interpretation and reasoning: The Tribunal examined the facts and found that the AO proceeded to frame the assessment under section 144 without issuing a notice under section 143(2), despite the assessee having filed the return of income electronically and repeatedly intimating the AO of such filing. The AO's premise that no return was filed was based on an erroneous belief.

The Tribunal emphasized that the procedural safeguard of issuing notice under section 143(2) is mandatory and non-negotiable. The absence of such notice vitiates the assessment order. The Tribunal relied heavily on the authoritative judicial pronouncements cited above to conclude that the assessment framed without notice under section 143(2) is bad in law and non-est.

Key evidence and findings: The assessee produced acknowledgments from the Department's e-filing portal confirming filing of return on 15.10.2019, and proof of communication to the AO on 18.10.2019. Despite this, the AO issued a show cause notice alleging non-filing and proceeded to frame assessment under section 144.

The paper book before the Tribunal demonstrated repeated intimation and filing of return, negating the AO's assumption of non-filing. This factual matrix supported the legal contention that the AO's action was based on an incorrect premise.

Application of law to facts: Applying the settled law requiring mandatory issuance of notice under section 143(2), the Tribunal found that the AO's failure to issue such notice, despite knowledge of return filing, rendered the assessment order void. The procedural lapse could not be cured by section 292BB as there was no notice at all.

Treatment of competing arguments: The Department's stance, implicit in the AO's actions, was that the assessment could be framed under section 144 without prior notice under section 143(2) due to non-filing of return. The Tribunal rejected this, holding that the AO's mistaken belief did not justify bypassing mandatory procedural safeguards. The Tribunal did not find any merit in the Department's approach and dismissed the penalty proceedings initiated on the same flawed premise.

Conclusions: The assessment order dated 26.12.2019 framed under section 144 without issuing notice under section 143(2) is void and non-est. Consequently, all additions made pursuant to this order, including under section 69A read with section 115BBE, stand nullified.

Issue 2: Validity of additions under section 69A r.w.s. 115BBE and penalty under section 271F

Relevant legal framework and precedents: Section 69A deals with unexplained investments, and section 115BBE prescribes tax on income from undisclosed sources. Section 271F penalizes failure to file return within prescribed time. However, these provisions operate only if the underlying assessment process is valid.

Court's interpretation and reasoning: Since the foundational assessment order was quashed for non-compliance with mandatory procedural requirements, the additions and penalty flowing from the same order cannot survive. The Tribunal held that these additions and penalties are a nullity in law and do not require separate adjudication.

Key evidence and findings: The Tribunal noted that the additions under challenge were made solely on the basis of the assessment order found void. No independent or valid assessment process underpinned these additions.

Application of law to facts: The procedural infirmity in framing the assessment order invalidates all consequential additions and penalties. The law does not permit sustaining such additions when the assessment itself is void.

Treatment of competing arguments: The Department's reliance on the additions and penalty was dismissed as they were contingent on the flawed assessment order. No separate justification was provided for sustaining these charges independently.

Conclusions: The additions under section 69A r.w.s. 115BBE and penalty under section 271F are quashed as they emanate from an invalid assessment order.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly held: "The impugned assessment order passed without issuance of notice under section 143(2) of the Act is bad in law and thus quashed. This being so, the additions under challenge are a nullity in law and thus do not call for any adjudication

- Whether the confiscation order passed by the Customs Department under the Customs Act, 1962, vesting ownership of the gold in the Central Government, overrides any claims of first charge by MMTC or Indian Bank over the gold.

- Whether MMTC, having deposited the Customs duty, penalty, and interest, is entitled to restoration of the confiscated gold.

- The priority of charge over the gold between MMTC and Indian Bank, particularly in light of the orders passed by the Debt Recovery Tribunal (DRT), Debt Recovery Appellate Tribunal (DRAT), and the High Court.

- The legal effect of the confiscation order on the rights and claims of the parties involved, including MMTC, Indian Bank, and the Customs Department.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Effect of the Confiscation Order under the Customs Act, 1962

Relevant Legal Framework and Precedents: The Customs Act, 1962, particularly Sections 110(o), 124, 125, and 126, govern the seizure, confiscation, and vesting of goods in the Central Government. Section 124 empowers confiscation of goods liable to confiscation, and Section 126 provides that confiscated goods vest absolutely in the Central Government. The finality of confiscation orders, unless challenged within the statutory framework, is well established in customs jurisprudence.

Court's Interpretation and Reasoning: The Court noted that the Customs Department conducted stock verification and seized gold from the premises of Mr. Kanda, who had pledged the gold in breach of conditions. The Department confiscated the gold by an order dated 20.06.2000 under Sections 124 read with 125 of the Customs Act. The Department contended that the confiscation order vested ownership of the gold in the Central Government under Section 126 of the Act.

Key Evidence and Findings: The confiscation order was not challenged under Section 126 of the Customs Act and attained finality. The Department's seizure and confiscation preceded the orders of the DRT, DRAT, and the High Court. The Court observed that the confiscation order was binding and superseded subsequent claims.

Application of Law to Facts: Since the confiscation order was final and unchallenged, the gold legally vested in the Central Government. This extinguished any prior claims or charges over the gold by MMTC or Indian Bank.

Treatment of Competing Arguments: The Department argued that the confiscation order rendered the question of first charge irrelevant. MMTC and Indian Bank contested this, relying on their respective charges and recovery certificates. The Court found the Department's argument persuasive, emphasizing the supremacy of the confiscation order.

Conclusions: The Court held that the confiscation order was valid, final, and vested ownership of the gold in the Central Government, thereby nullifying any prior claims or charges.

Issue 2: Entitlement of MMTC to Restoration of Confiscated Gold Following Payment of Customs Duty, Penalty, and Interest

Relevant Legal Framework and Precedents: Customs law permits restoration of confiscated goods upon payment of applicable duties, penalties, and interest, especially where the confiscation relates to breach of conditions under exemption notifications. The principle of restoration upon compliance is recognized to balance revenue interests and commercial fairness.

Court's Interpretation and Reasoning: MMTC was permitted to import gold duty-free on the condition that it be converted into jewellery and exported. Mr. Kanda breached this condition by pledging gold and failing to export the entire consignment. MMTC deposited Customs duty, penalty, and interest amounting to INR 2,27,85,293 on 19.08.2005. The Court reasoned that since MMTC had discharged the financial liability, the confiscated gold should be restored to it.

Key Evidence and Findings: The payment by MMTC was undisputed, and the Court acknowledged that this payment extinguished the basis for confiscation. The Department did not dispute MMTC's entitlement upon such payment.

Application of Law to Facts: The Court applied the principle that confiscated goods may be restored upon payment of dues, thereby validating MMTC's claim to the gold.

Treatment of Competing Arguments: The Department did not challenge the payment but contended for ownership based on confiscation. The Court balanced these views by recognizing the effect of payment on restoration rights.

Conclusions: MMTC was entitled to restoration of the confiscated gold upon payment of Customs duty, penalty, and interest.

Issue 3: Priority of Charge Over the Gold Between MMTC and Indian Bank

Relevant Legal Framework and Precedents: The principle of first charge is relevant in recovery proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The DRT and DRAT have jurisdiction to adjudicate priority of charges. However, such charges are subject to overriding statutory provisions such as confiscation under the Customs Act.

Court's Interpretation and Reasoning: The DRT initially held MMTC had the first charge over the 19 kgs of gold. The DRAT reversed this, holding Indian Bank had first charge. The High Court restored the DRT's order favoring MMTC. The Court observed that these findings on charge priority became immaterial since the entire consignment was confiscated by the Customs Department prior to these orders.

Key Evidence and Findings: The confiscation order dated 20.06.2000 preceded the recovery and appellate orders. The Court found that the confiscation extinguished any prior charges or security interests.

Application of Law to Facts: The Court applied the principle that statutory confiscation overrides private claims or charges. Consequently, the competing claims of MMTC and Indian Bank on the gold were rendered moot.

Treatment of Competing Arguments: Both MMTC and Indian Bank asserted priority of charge. The Court acknowledged these claims but held that the confiscation order superseded them.

Conclusions: The claims of Indian Bank and MMTC on the basis of first charge over the gold failed in light of the confiscation order.

3. SIGNIFICANT HOLDINGS

"The entire consignment of gold stood confiscated way back on 20.06.2000 by the Department."

"It is not in dispute that the Customs Duty along with penalty and interest to the tune of INR 2,27,85,293 came to be deposited by MMTC with the Department on 19.08.2005. In such circumstances, the confiscated gold must be restored to MMTC."

"The claim of the banks on the principle of first charge over the gold should fail on the simple ground that the entire consignment of gold stood confiscated."

The Court established the core principle that a valid and final confiscation order under the Customs Act vests absolute ownership in the Central Government, overriding any prior charges or claims. However, restoration of confiscated goods is permissible upon payment of applicable duties, penalties, and interest by the aggrieved party.

Final determinations include the dismissal of the Union of India's appeals and the direction

The primary issue is the classification of the impugned goods, which affects the applicable IGST rate and consequent demands. The appellants contend that the product is a reconstituted lemon juice concentrate under Tariff Item 2009 31 00, attracting IGST at 12%, whereas the Revenue asserts it is a soft drink concentrate under Tariff Item 2106 90 19, liable to IGST at 18%. The correctness of classification determines the legitimacy of the demand for differential tax, penalties, and confiscation.

Issue-wise detailed analysis:

1. Classification of the Impugned Goods:

Relevant legal framework and precedents: The classification is governed by the Customs Tariff Act, 1975, and the Harmonized System of Nomenclature (HSN) Explanatory Notes (EN) approved by the World Customs Organization (WCO). The relevant tariff headings are:

• CTH 2009: Fruit or nut juices and vegetable juices, unfermented and not containing added spirit.
• CTH 2106: Food preparations not elsewhere specified, including soft drink concentrates.

Precedents cited include judgments distinguishing beverages from fruit juices and the principle that classification depends on composition and manufacturing process rather than end use.

Court's interpretation and reasoning: The Court observed that the impugned product 'Lemoneez' consists of 22.6% frozen lemon concentrate, 77.4% treated water, and 0.28% potassium meta bisulphate preservative. The appellants submitted that the water content does not exceed that in natural lemon juice, and the product undergoes pasteurization, which is a permitted process under HSN EN for fruit juices. The product is marketed as a substitute for real lemon juice, used in culinary preparations rather than consumed as a ready-to-drink beverage.

The Court emphasized that classification under CTH 2009 or 2106 depends on the product's composition and manufacturing process, not on its end use. It rejected the Revenue's argument that usage in salads, curries, or marinades transforms the product into a miscellaneous edible preparation under CTH 2106, noting that fresh lemons themselves are used similarly but are classified under different headings.

The Court also addressed the Revenue's contention that the product is a 'soft drink concentrate' under CTH 2106 90 19. It referred to Supplementary Note 5 to Chapter 21 and the HSN EN to CTH 2106, which indicate that soft drink concentrates typically contain citric acid, essential oils, synthetic sweeteners, and are intended for dilution into beverages. Since the impugned goods contain none of these additives and are essentially reconstituted lemon juice, the Court found the Revenue's classification untenable.

Key evidence and findings: The product's composition, manufacturing process (pasteurization), and marketing materials were critical. The appellants' detailed analysis demonstrated compliance with conditions for classification under CTH 2009, including permissible addition of preservatives and water content not exceeding natural juice levels. The Court found the Revenue's selective reading of the HSN EN incomplete and inconsistent with statutory interpretation principles.

Application of law to facts: The Court applied the tariff classification rules and HSN EN to the facts, concluding that the impugned goods are fruit juice under CTH 2009 31 00. The Revenue's classification under CTH 2106 90 19 as a soft drink concentrate was rejected as factually and legally incorrect.

Treatment of competing arguments: The Court rejected the Revenue's reliance on end use and the narrow interpretation of 'reconstituted juices' that would exclude blending with water. It held that such interpretation would render parts of the explanatory notes redundant and violate cardinal rules of statutory interpretation. The appellants' argument that inadvertent misclassification under Tariff Item 2202 99 20 did not cause revenue loss was accepted.

Conclusions: The impugned goods are correctly classifiable under Tariff Item 2009 31 00 as fruit juice of a single citrus fruit. The demand based on classification under CTH 2106 90 19 is unsustainable.

2. Demand for Differential IGST and Penalties:

Relevant legal framework: Sections 114A and 114AA of the Customs Act, 1962, relate to penalties for misclassification and short payment of duty. Section 117 imposes penalties on Custom House Agents for failure to comply with provisions.

Court's interpretation and reasoning: Since the classification under CTH 2009 31 00 was upheld, the demand for differential IGST under CTH 2106 90 19 fell away. The Court observed that mere misclassification without suppression or incorrect description does not constitute mens rea or suppression of facts. The appellants operated under self-assessment, but this alone does not imply wrongdoing.

Key evidence and findings: No evidence of incorrect description or suppression was found. The appellants' mistake in classification was inadvertent and did not cause revenue loss.

Application of law to facts: The Court applied the principle that penalties require mens rea or willful suppression, which was absent here. Therefore, penalties under Sections 114A, 114AA, and 117 were not justified.

Treatment of competing arguments: The Revenue's contention that misclassification amounted to suppression was rejected. The penalty on the CHA for allegedly failing to advise correctly was also set aside due to the absence of infirmity in classification.

Conclusions: The penalties imposed on the appellants and the CHA are set aside as unsustainable.

3. Confiscation of Goods and Redemption Fine:

Relevant legal framework and precedents: Section 125 of the Customs Act empowers confiscation and imposition of redemption fine if goods are available for seizure. The Court relied on precedent where confiscation and redemption fine were held unwarranted if goods had already been cleared for home consumption.

Court's interpretation and reasoning: Since the impugned goods were cleared for home consumption, confiscation and redemption fine were inappropriate. The Court cited the decision of the Hon'ble High Court and Supreme Court affirming that redemption fine applies only when goods are available for redemption.

Key evidence and findings: The goods were not physically available for confiscation at the time of the order.

Application of law to facts: The Court applied the legal principle that confiscation and redemption fine presuppose availability of goods, which was not the case here.

Treatment of competing arguments: The Revenue's order for confiscation and fine was not supported by facts or law.

Conclusions: The order of confiscation and redemption fine is set aside.

Significant holdings include the following verbatim legal reasoning:

"Classification under CTH 2009 and/or 2106 is determined on the basis the composition of the product and the methodology involved in preparing or extracting the same. The classification is not based on end usage of the products."

"Mere misclassification of goods cannot be held to be suppression more so when there is no allegation of incorrect description of goods and other material particulars in the Bills of Entry filed by the appellant no. 1."

"The term 'soft drink' is per se different from the fruit juices inasmuch as the soft drinks are commonly understood to be aerated beverages/ preparations containing merely essences or flavours with no actual juice content. Thus, treating the lemon juice concentrate as soft drink concentrate is factually as well as legally untenable."

"The concept of redemption fine arises in the event the goods are available and are to be redeemed. If the goods are not available, there is no question of redemption of the goods."

The core principles established are:

• Classification depends on product composition and manufacturing process, not on end use.
• Reconstituted juices obtained by adding water up to natural juice levels remain classifiable under fruit juice headings.
• Soft drink concentrates differ fundamentally from fruit juices and include additives like citric acid and sweeteners.
• Mere misclassification without suppression or incorrect description does not attract penalties.
• Confiscation and redemption fine require physical availability of goods.

Final determinations on each issue are:

• The impugned goods are rightly classifiable under Tariff Item 2009 31 00 as fruit juice of a single citrus fruit.
• The demand for differential IGST under Tariff Item 2106 90 19 is set aside as unsustainable.
• Penalties imposed on the importer and the Custom House Agent are quashed.
• The order of confiscation and redemption fine is set aside.
• The appeals are allowed with consequential relief.

The core legal questions considered by the Tribunal include:

• Whether the seized goods, declared as Sodium Nitrate but found to be Muriate of Potash (MoP), were liable for confiscation under the Customs Act, 1962, given that MoP is a restricted item for export under the Foreign Trade Policy, 2009-2014.
• Whether the mis-declaration of goods constituted an attempt to export illicitly and attracted penalties under Sections 113(d), 113(i), 111(o), 114, and 114AA of the Customs Act, 1962.
• The validity and quantum of redemption fines imposed under Section 125 of the Customs Act, 1962, in respect of the seized goods.
• Whether the penalties imposed on various appellants, including Customs House Agents (CHAs), transporters, and other noticees, were justified based on their involvement or complicity in the alleged mis-declaration and illegal export attempt.
• The liability of individual appellants, particularly those accused of sample substitution and those alleged as masterminds behind the mis-declaration.
• The effect of the death of certain appellants on the continuation of appeals and penalties imposed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Confiscation of Goods and Illicit Export Attempt

Relevant Legal Framework and Precedents: The Tribunal considered Sections 111(o), 113(d), and 113(i) of the Customs Act, 1962, which provide for confiscation of goods involved in illegal export or mis-declaration. The Foreign Trade Policy, 2009-2014, restricts the export of MoP, and the Customs Tariff Heading 31042000 applies to MoP, which enjoys duty exemption only when used as fertilizer or in manufacture of complex fertilizers.

Court's Interpretation and Reasoning: The Tribunal examined the evidence from the Directorate of Revenue Intelligence (DRI) investigation, which revealed that 81 MT of goods declared as Sodium Nitrate were in fact MoP, a restricted export item. Further, 135 MT of similar goods were found stored in a godown for export under mis-declaration. The Tribunal relied on chemical analysis reports from the Regional Fertilizer Control Laboratory and Customs House Chemical Laboratory, which were contradictory but ultimately supported the finding that the goods were MoP.

Key Evidence and Findings: The seizure of goods under Section 110 of the Customs Act, 1962, the contradictory but ultimately conclusive laboratory reports, and the statements recorded under Section 108 from various persons involved, including the CHA and godown caretaker, established prima facie evidence of mis-declaration and attempted illicit export.

Application of Law to Facts: Given the mis-declaration and the restricted nature of MoP export, the Tribunal upheld confiscation under the relevant sections of the Customs Act. Redemption fines were imposed as per Section 125, allowing the owner an option to redeem the goods.

Treatment of Competing Arguments: The appellants contended that the goods were Sodium Nitrate and not MoP, and challenged the confiscation and penalties. However, the Tribunal found the evidence of mis-declaration and seizure compelling, rejecting the appellants' contentions.

Conclusions: The Tribunal confirmed the confiscation of the seized goods but allowed redemption on payment of fines.

Issue 2: Penalties Imposed on Various Appellants

Relevant Legal Framework and Precedents: Penalties under Sections 114 and 114AA of the Customs Act, 1962, were invoked against the appellants for abetment and involvement in illegal export and mis-declaration.

Court's Interpretation and Reasoning: The Tribunal analyzed the role of each appellant, including CHAs, transporters, exporters, and other noticees. It was found that some appellants, including certain CHAs and transporters, were allegedly involved in sample substitution and logistics, indicating malafide intent.

Key Evidence and Findings: Statements under Section 108 and investigation reports indicated sample substitution by some appellants. However, for certain appellants such as Shri Santosh Kumar Jha, M/s Overland Agency, Shri Probhat Kumar Ghosh, and Shri Kanulal Sarkar, the charge of knowing involvement was unproven.

Application of Law to Facts: The Tribunal applied the principle that penalties require proof of culpability. Where the charge was unproven, penalties were set aside. Conversely, where active involvement was established, penalties were confirmed.

Treatment of Competing Arguments: Appellants argued lack of knowledge or involvement. The Tribunal distinguished between those with proven complicity and those without, thereby tailoring penalty imposition accordingly.

Conclusions: Penalties on appellants with unproven involvement were dropped, while penalties on those with active roles, such as Shri Kailash Khanna, were confirmed.

Issue 3: Effect of Death of Certain Appellants on Appeals

Relevant Legal Framework: The procedural aspect of abatement of appeals upon death of appellants was considered.

Court's Interpretation and Reasoning: Since Shri Samir Bhattacharya and Shri Lakshman Kumar Mishra, key appellants, had expired, their appeals were held to be abated. Consequently, the Revenue's appeal against M/s Agrani International, whose proprietor had expired, was also abated.

Conclusions: Appeals against deceased appellants were abated in accordance with procedural norms.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The goods declared as Sodium Nitrate but found to be Muriate of Potash (MoP), a restricted export item, are liable for confiscation under Sections 111(o), 113(d), and 113(i) of the Customs Act, 1962."

"Redemption of confiscated goods is permissible on payment of redemption fines under Section 125 of the Customs Act, 1962."

"Penalties under Sections 114 and 114AA require clear proof of involvement; where such proof is absent, penalties must be set aside."

"The appellant who acted as mastermind in mis-declaration and failed to prove the source of goods is liable for penalty, which is confirmed."

"Appeals filed by deceased appellants are abated, and consequentially, appeals filed by Revenue against such appellants also stand abated."

Final determinations included confirmation of confiscation and penalties on proven parties, setting aside penalties on unproven parties, and abatement of appeals due to death of appellants.

The core legal questions considered by the Tribunal include:

1. Whether the Commissioner of Customs was correct in dropping the proceedings against the respondent who claimed exemption from Customs Duty on imported plastic granules under the Target Plus Scheme (TPS) when the imported goods did not have a direct nexus with the exported products (rice and spices).

2. Whether the imported plastic granules used for manufacturing packaging materials (plastic bags) for exported rice and spices could be considered as inputs having a 'broad nexus' with the exported goods under the relevant provisions of the Foreign Trade Policy (FTP) and Customs Notifications.

3. Whether the Customs Department could challenge the eligibility of the respondent for TPS benefits, which is a scheme administered by the Directorate General of Foreign Trade (DGFT), or whether such authority exclusively rests with the DGFT.

4. The interpretation and applicability of paragraph 3.2.5 of the Handbook of Procedures (HBP), the concept of 'broad nexus' between imported inputs and exported products, and the impact of amendments and judicial pronouncements on this interpretation.

5. The scope and meaning of 'use' and 'actual user condition' in relation to imported inputs sent to job workers for processing before export.

Issue-wise Detailed Analysis

Issue 1: Validity of the Commissioner's Order Dropping Proceedings

Legal Framework and Precedents: The Commissioner's order relied on the scope of the 'actual user condition' under Customs law and the TPS notifications (No. 32/2005-Cus. and No. 73/2006-Cus.), which exempted duty on imports made under TPS licenses. The Commissioner found that the imported plastic granules were sent to job workers for conversion into plastic bags used for packing exported rice and spices and that there was no evidence of sale of granules as such before conversion.

Relevant precedents include the Bombay High Court decision in Essel Mining & Industries Ltd., which clarified that the 'broad nexus' requirement under paragraph 3.2.5 of the FTP Handbook does not mandate physical incorporation of imported goods into exported products. The Tribunal's decisions in Gimpex Ltd. and MMTC Ltd. further supported a liberal interpretation of 'broad nexus' and emphasized the role of DGFT as the competent authority for TPS administration.

Court's Reasoning and Application: The Tribunal upheld the Commissioner's finding that the imported granules were used by the importer or their job workers for manufacturing packing materials necessary for export. The Tribunal found no evidence of violation or unauthorized sale of imported goods and held that the Commissioner correctly dropped the proceedings.

Treatment of Arguments: The Revenue contended that the imported plastic granules had no nexus with the exported rice and spices and that the licensing conditions under the TPS and Customs notifications were violated, especially since the name of the supporting manufacturer/job worker was not endorsed on the license. The Tribunal rejected these contentions, noting the absence of evidence and reliance on DGFT's authorization.

Conclusion: The Commissioner's order dropping the show cause notice was held to be legally sound and factually justified.

Issue 2: Interpretation of 'Broad Nexus' and Use of Imported Inputs

Legal Framework and Precedents: Paragraph 3.2.5 of the HBP (pre-amendment) defined 'broad nexus' as goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate. The public notice dated 21.06.2007, which deleted this definition, was quashed by the Delhi High Court, restoring the original definition.

Judicial pronouncements from the Bombay and Delhi High Courts and various Tribunal benches clarified that:

• The imported goods under TPS need not be physically incorporated into the exported goods.
• The 'broad nexus' can be with any product group of the exported goods, not necessarily the specific exported item.
• Packaging materials or inputs used in packing exported goods can satisfy the nexus requirement.
• The imported goods must be for the importer's own use or that of a supporting manufacturer/job worker.

Court's Interpretation and Reasoning: The Tribunal emphasized that the exported goods are rice and spices (food product group), while the imported plastic granules belong to a different product group. However, since the granules were converted into plastic bags used as packing materials for export, a broad nexus existed. The Tribunal accepted the reasoning that packaging materials, though not the exported goods themselves, are integrally linked and thus satisfy the nexus requirement.

Application of Law to Facts: The imported plastic granules were inputs for manufacturing packing materials used in the export of rice and spices. The Tribunal found that the use of job workers to convert granules into bags did not violate TPS conditions or Customs notifications.

Treatment of Competing Arguments: The Revenue's argument that the imported goods had no nexus with the exported products was rejected based on the accepted interpretation of 'broad nexus' and the evidence of use in packing exported goods.

Conclusion: The imported plastic granules satisfy the 'broad nexus' requirement under paragraph 3.2.5 of the HBP and related FTP provisions.

Issue 3: Authority of Customs vs. DGFT in Granting and Challenging TPS Benefits

Legal Framework: The TPS is a scheme formulated and administered by the DGFT under the Foreign Trade (Development and Regulation) Act, 1992. Customs Act, 1962 governs Customs duty and notifications. Both statutes operate in distinct spheres.

Court's Reasoning: The Tribunal held that the DGFT is the competent authority to grant, amend, or cancel TPS licenses and to determine eligibility. Customs authorities cannot independently deny TPS benefits based on their interpretation of the scheme conditions or notifications. Customs can only act on valid authorizations issued by DGFT. If Customs has concerns about compliance, the proper recourse is to approach DGFT for cancellation of the license.

Application to Facts: The respondent had a valid TPS authorization from DGFT for importing plastic granules. The Customs Department's attempt to deny exemption was beyond its jurisdiction. The Commissioner's order reflected this understanding.

Competing Arguments: Revenue argued that Customs Notifications imposed conditions that were not met. The Tribunal rejected this, emphasizing the primacy of DGFT's scheme administration.

Conclusion: Customs authorities cannot override DGFT's grant of TPS benefits; challenges to eligibility must be addressed by DGFT.

Issue 4: Scope of 'Use' and 'Actual User Condition' in TPS and Customs Notifications

Legal Framework: The 'actual user condition' under Customs notifications requires that imported goods be used by the importer or supporting manufacturer. The DGFT circulars and FTP provisions clarify that use includes processing by job workers.

Court's Reasoning and Findings: The Tribunal noted that the imported granules were sent to job workers for conversion into plastic bags used as packing materials for exported rice and spices. The Customs notifications do not prohibit such processing by job workers. The Commissioner found no evidence that the granules were sold as such before conversion, satisfying the 'actual user' condition.

Application of Law to Facts: Use by job workers was accepted as 'use' by the importer under the scheme. The imported plastic granules were inputs utilized in the export process.

Competing Arguments: Revenue contended that the absence of endorsement of job workers on the license and the multiple applications of granules violated the scheme. The Tribunal found no material to support these contentions.

Conclusion: The use of imported inputs through job workers satisfies the 'actual user' condition under the TPS and Customs notifications.

Significant Holdings

"Paragraph 3.2.5 of the Handbook of Procedures, as it stood prior to its amendment by Public Notice dated 21.06.2007, states that goods allowed to be imported under the Target Plus Scheme shall have a broad nexus with the products exported, meaning goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate."

"The Customs Department cannot find fault with the policies prescribed by the DGFT. The benefit of the Customs notification cannot be denied so long as the authorization under the Target Plus Scheme remains valid. The proper course is for Customs to approach DGFT for cancellation of the authorization if conditions are not met."

"The 'actual user condition' does not contemplate compulsory physical incorporation of imported inputs into exported products nor prohibit processing of imported goods by job workers. Use by job workers is recognized as use by the importer under the scheme."

"Packaging materials manufactured from imported inputs and used for packing exported goods satisfy the 'broad nexus' requirement under the FTP and TPS."

"The 'broad nexus' requirement under paragraph 3.2.5 and paragraph 3.7.6 of the FTP must be interpreted liberally to cover inputs related to any product group of the exported goods, not restricted to the exact exported item."

Final determinations:

• The Commissioner was correct in dropping the proceedings against the respondent.
• The imported plastic granules used for manufacturing packing materials have a broad nexus with the exported rice and spices.
• The Customs Department cannot independently deny TPS benefits; the DGFT is the competent authority for eligibility and enforcement.
• The 'actual user condition' includes use by job workers, and no violation of Customs notifications was established.
• The appeals filed by the Revenue were dismissed.

Regarding the first issue, the relevant legal framework involves the Customs Act, 1962, particularly provisions relating to assessment and refund claims, and judicial precedents on the finality of orders when not challenged by the Revenue. The Tribunal noted that the adjudicating authority initially rejected the refund claims because the appellant had not challenged the self-assessed Bills of Entry. However, the Commissioner (Appeals) overruled this, holding that the appellant was entitled to file refund claims against self-assessed Bills of Entry without resorting to appeals or amendments under Section 149 of the Customs Act. This finding was not challenged by the Revenue before the Tribunal or any higher forum, thus attaining finality. The Tribunal relied on authoritative Supreme Court and Tribunal decisions, including Birla Corporation Ltd., Steel Authority of India, MTR Foods Ltd., and Akshar Telecom Pvt. Ltd., which affirm that an unchallenged finding of the adjudicating authority becomes final and cannot be reopened at a higher forum. The Tribunal further emphasized that the Revenue's attempt to raise this issue at the appellate stage was impermissible, as the principle of finality precludes re-agitation of settled matters, even if framed as legal issues. Consequently, the Tribunal held that the refund claims were maintainable despite the absence of challenge to the Bills of Entry.

On the second issue of unjust enrichment, the legal framework includes Sections 28C and 28D of the Customs Act, which require the claimant to establish that the duty burden has not been passed on to others, to prevent unjust enrichment. The appellant produced a Chartered Accountant's certificate affirming that the incidence of the duty was not passed on to customers. The Tribunal noted that identical certificates had been accepted by various Benches of the Tribunal (Delhi, Hyderabad, Ahmedabad) in similar cases involving the same appellant and goods, and that the Deputy Commissioner, Ahmedabad, after remand, also accepted the certificate and held that the duty burden was not passed on. The Tribunal observed that the Revenue's contention that corroborative evidence beyond the Chartered Accountant's certificate was necessary was untenable, given the consistent acceptance of such certificates by multiple Benches and authorities. This uniform approach reinforced the credibility of the certificate and the appellant's claim. Thus, the Tribunal concluded that the appellant had satisfied the unjust enrichment condition, entitling them to the refund.

The third issue concerned limitation under Section 27 of the Customs Act, 1962, which prescribes a one-year period for filing refund claims from the date of payment of duty. The appellant's refund claims were filed exactly one year after payment. The Tribunal examined the computation of limitation period in light of Section 12 of the Limitation Act, 1963, which mandates exclusion of the day from which the limitation period is reckoned. Additionally, Section 9 of the General Clauses Act, 1897, clarifies the inclusion and exclusion of days in computing time periods. Applying these provisions, the Tribunal held that the date of payment of duty must be excluded in calculating the one-year limitation period. Therefore, the refund claims filed on the one-year anniversary were within time and not barred by limitation. The Tribunal supported this reasoning with precedents including Punjab Breweries Ltd. and a recent Supreme Court civil appeal, which endorse the exclusion of the initial day in limitation calculations.

In applying the law to the facts, the Tribunal gave due regard to the binding effect of unchallenged orders, the consistent acceptance of the Chartered Accountant's certificate across multiple forums, and the statutory provisions governing limitation. The Tribunal rejected the Revenue's arguments that the refund claims were inadmissible due to failure to challenge Bills of Entry, failure to prove non-passing of duty burden, and delay in filing refund claims. The Tribunal's reasoning emphasized the principle that once an issue attains finality, it cannot be reopened, and that the appellant's evidence on unjust enrichment was sufficient. The limitation period was correctly computed excluding the day of payment, making the refund claims timely.

The Tribunal's treatment of competing arguments was thorough. It acknowledged the Revenue's reliance on the adjudicating authority's findings but underscored that those findings were overturned by the Commissioner (Appeals) and not challenged further, thus binding on the Revenue. On unjust enrichment, the Tribunal distinguished the Revenue's demand for additional corroboration from the consistent acceptance of the Chartered Accountant's certificate by various Benches and authorities, finding no basis to reject it. On limitation, the Tribunal applied established principles of exclusion of the initial day, overruling the Revenue's contention that the claims were time-barred.

The Tribunal's conclusions were that (i) refund claims filed without challenging self-assessed Bills of Entry are maintainable where the Revenue has not challenged such claims at the appropriate stage; (ii) the appellant satisfied the unjust enrichment condition by producing a credible Chartered Accountant's certificate accepted by multiple forums; and (iii) the refund claims were filed within the statutory limitation period when computed correctly by excluding the date of payment.

The significant holdings include the Tribunal's clear articulation of the principle of finality: "if the department does not challenge a finding of the adjudicating authority by filing an appeal before the Commissioner (Appeals), than that finding of the adjudicating authority attains finality and the department cannot be permitted to subsequently raise this issue in a higher forum." This principle was reinforced by reference to Supreme Court and High Court decisions, underscoring that "an order which has attained finality between the parties can only be assailed in a manner known to law and mere over-ruling of the principles followed in the said order by a subsequent judgment cannot dilute the binding effect of the decision."

On unjust enrichment, the Tribunal held: "It is, therefore, not possible to accept the contention raised by the learned authorized representatives appearing for the department that the certificate of the chartered accountant produced by the appellant to substantiate the incidence of duty had not passed on to the buyers should not be accepted because the appellant did not produce any other corroborative evidence as required under sections 28C and 28D of the Customs Act." The Tribunal accepted the certificate as sufficient evidence to establish non-passing of the duty burden.

Regarding limitation, the Tribunal's determination was grounded in statutory interpretation: "In view of the Section 12 of the Limitation Act, 1963 read with Section 9 of the General Clauses Act, 1897, the day from which such period is to be reckoned ought to be excluded... Thus, the refund claims are not barred by limitation." This clarified the correct computation of limitation for refund claims under the Customs Act.

In final determination, the Tribunal set aside the impugned orders rejecting the refund claims and allowed the appeals with consequential relief as per law, thereby granting the appellant the refund of the differential duty paid under Notification No.12/2012-CE, consistent with the Supreme Court's earlier ruling in SRF Limited.

1. Whether the seized betel nuts were of foreign origin and smuggled into India without payment of applicable customs duties, thereby attracting confiscation under Section 111(b) & (d) of the Customs Act, 1962.

2. Whether the Report of the Arecanut Research and Development Foundation (ARDF), Mangalore, relied upon by the Revenue, is a credible and legally admissible piece of evidence to establish the foreign origin of the goods.

3. The burden of proof on the Revenue in cases involving non-notified goods like betel nuts, specifically whether the Revenue discharged its obligation to prove smuggling and foreign origin.

4. Whether the imposition of penalty under Section 112(b) of the Customs Act, 1962 is justified when confiscation is not sustained.

Issue 1: Determination of Foreign Origin and Smuggling of Betel Nuts

The legal framework requires that for confiscation under Section 111(b) & (d) of the Customs Act, the Revenue must establish that the goods are imported illegally and smuggled without payment of customs duties. The goods in question, betel nuts, are non-notified under Section 123 of the Customs Act, which places a heavier burden on the Revenue to prove foreign origin and smuggling beyond reasonable doubt.

The Court noted that the seized goods were transported under tax invoices and railway receipts, indicating a transaction in the normal course of business. The seizure was based on a reasonable belief by Customs Officers that the goods were smuggled. However, the Revenue failed to produce any substantial evidence apart from the ARDF report to establish the foreign origin of the betel nuts.

Judicial precedents, including the decisions of the Hon'ble High Courts of Allahabad and Calcutta, and this Tribunal, have consistently held that for non-notified goods, the Revenue must first establish the foreign origin of the goods and then prove smuggling. The absence of such proof precludes confiscation. The Court relied on authoritative pronouncements that the burden of proof remains on the Revenue throughout and cannot be shifted.

Applying these principles, the Court held that without credible evidence to establish foreign origin, confiscation under Section 111(b) & (d) cannot be sustained.

Issue 2: Credibility and Admissibility of ARDF Report

The ARDF report was the sole piece of evidence presented by the Revenue to establish the foreign origin of the betel nuts. The appellant challenged the reliability of this report, contending that it is not an accredited laboratory report and thus cannot form the basis for legal liability.

The Tribunal examined prior rulings, including those of the Hon'ble High Court of Patna and this Tribunal, which have held that the ARDF is not an accredited institution under any relevant Act or Rules, and its reports lack the necessary legal sanctity to be relied upon for determining the origin of goods.

Further, the Tribunal noted that the ARDF itself admitted that the country of origin of betel nuts cannot be conclusively determined through laboratory testing. The Court also referenced RTI responses from the Directorate of Arecanut and Spice Development, Ministry of Agriculture, confirming this limitation.

Given these factors, the Tribunal concluded that the ARDF report is not a reliable or admissible piece of evidence to establish foreign origin and smuggling.

Issue 3: Burden of Proof on the Revenue for Non-Notified Goods

The Court emphasized that betel nuts are non-notified goods, and the burden of proof lies heavily on the Revenue to establish both foreign origin and smuggling before confiscation can be ordered. The Hon'ble High Court of Calcutta in Ritu Kumar and Raj Kumar Jaiswal cases clarified that this burden cannot be shifted at any stage.

The Tribunal observed that the Revenue failed to produce any positive, cogent, and corroborative evidence apart from the ARDF report, which itself is unreliable. The appellant produced market receipts and invoices indicating indigenous procurement, which were not effectively challenged by the Revenue.

Consequently, the Tribunal held that the Revenue did not discharge its burden of proof, and the presumption of innocence in favor of the appellant must prevail.

Issue 4: Penalty under Section 112(b) of the Customs Act, 1962

Since the confiscation of goods under Section 111(b) & (d) was not sustained, the Tribunal held that the imposition of penalty under Section 112(b) could not stand. The penalty is contingent on the confiscation order, and without a valid confiscation, penalty imposition is unsustainable.

The Court's reasoning incorporated the following key findings and applications of law:

- The seized betel nuts were transported with proper invoices and receipts, indicating legitimate trade.

- The Revenue's sole reliance on the ARDF report to establish foreign origin is misplaced, as the report lacks accreditation and legal validity.

- Judicial precedents uniformly require the Revenue to prove foreign origin and smuggling for non-notified goods before confiscation.

- The appellant's evidence of indigenous procurement was not rebutted by credible evidence from the Revenue.

- The penalty imposed is invalid in the absence of a confirmed confiscation order.

The Tribunal treated the appellant's arguments with due consideration, particularly the reliance on judicial pronouncements that discredit the ARDF report and emphasize the burden of proof on the Revenue. The Tribunal also rejected the Revenue's reliance on the ARDF report and upheld the principle that no legal liability can flow from a non-accredited laboratory's report.

In conclusion, the Tribunal set aside the Order-in-Appeal and the Order-in-Original insofar as they ordered confiscation of the seized betel nuts and imposed penalty on the appellant. The Tribunal granted consequential relief in favor of the appellant, consistent with the law and facts.

Significant holdings include the following verbatim excerpt from the Tribunal's reasoning:

"We observe that the foreign origination of betel nut cannot be determined on the basis of the ARDF report. We find that this view has been taken by the Hon'ble High Court at Allahabad in the case of Maa Gauri Traders and in the case of M/s. Maa Kali Traders."

"In the present case, we find that if the report of ARDF is taken out of record, then there is no other evidence available on record to suggest that the goods were foreign origin. In such circumstances, we hold that the confiscation of the goods under Section 111(b) & (d) of the Customs Act, 1962 does not arise and accordingly, we set aside the same."

"Since confiscation of the goods is not sustained, imposition of penalty upon the appellant under Section 112 (b) of the Customs Act, 1962 does not arise and hence we set aside the same."

Core principles established:

- The burden of proof to establish smuggling and foreign origin for non-notified goods lies squarely on the Revenue and cannot be shifted.

- Reports from non-accredited laboratories such as ARDF cannot be relied upon to determine the origin of goods for legal purposes.

- Confiscation and penalty under the Customs Act require cogent and positive evidence; mere suspicion or uncorroborated laboratory reports are insufficient.

- Proper documentation indicating indigenous procurement can rebut allegations of smuggling if not effectively challenged.

Final determinations:

- The confiscation order under Section 111(b) & (d) of the Customs Act, 1962 was quashed due to lack of evidence of foreign origin and smuggling.

- The penalty imposed under Section 112(b) was set aside as it was contingent on the confiscation order.

- The appellant was entitled to consequential relief as per law.

1. Whether the revocation of the Customs Broker license of the appellant for alleged involvement in fraudulent export declarations and GST evasion was justified under the Customs Broker Licensing Regulations (CBLR) 2018, particularly under Regulation 10(d) and 10(e).

2. Whether the appellant's contention that the revocation action was invalid because the exports in question occurred prior to the enforcement of CBLR 2018 is legally tenable.

3. Whether the procedural requirements, including the timeline for inquiry under Regulation 17(5) of CBLR 2018, were complied with in the revocation process.

4. Whether the evidence on record sufficiently establishes the Customs Broker's complicity or negligence in the fraudulent export and GST evasion scheme.

5. Whether the penalty imposed and the revocation of license are proportionate and justified given the facts and circumstances.

Issue 1: Justification for revocation of Customs Broker license under CBLR 2018 for alleged violation of Regulations 10(d) and 10(e)

The relevant legal framework comprises the Customs Broker Licensing Regulations, 2018, specifically:

- Regulation 10(d): Obligates the Customs Broker to advise clients to comply with the Customs Act and allied Acts, and to report non-compliance to the Deputy or Assistant Commissioner of Customs.

- Regulation 10(e): Requires the Customs Broker to exercise due diligence in ascertaining the correctness of information imparted to clients regarding clearance of cargo or baggage.

- Regulation 18: Provides for imposition of penalties for violations of the Regulations.

The Court examined the enquiry report and supporting evidence, including seized shipping bills and import data from Bhutan Customs, which revealed significant discrepancies in quantity, description, value, and dates between declared exports and actual imports. The enquiry officer's report highlighted that the goods were not physically exported as declared, and that the Customs Broker's representative admitted to no physical exports having occurred. Further, no Bank Realisation Certificates were produced to substantiate receipt of export proceeds.

The department's case was that the Customs Broker prepared fake shipping bills facilitating GST evasion by the exporter, and failed to advise the exporter to comply with legal provisions or report the wrongdoing, thus violating Regulations 10(d) and 10(e).

The appellant's defense, including affidavits and statements by its employee, was found to be inconsistent and partly retracted earlier admissions. The appellant also failed to produce corroborative evidence such as cross-examination of key witnesses or proof of genuine export and remittance.

The Tribunal noted that the Customs Broker had acknowledged the fraud as a GST evasion matter but contended it was not a Customs Act violation. The Tribunal rejected this, holding that violations of allied Acts are covered under CBLR 2018 and that the Customs Broker's failure to ensure compliance and report non-compliance constituted a breach of Regulations 10(d) and 10(e).

The Court applied the principles established by the Apex Court in precedent, emphasizing the high degree of trust and responsibility placed on Customs Brokers to safeguard the interests of both the government and the trade community. Any contravention of obligations, even absent intent, attracts punishment under the Regulations.

Issue 2: Validity of revocation action given the timing of exports vis-`a-vis enforcement of CBLR 2018

The appellant argued that the exports occurred in April 2018, prior to the enforcement of CBLR 2018 on 14 May 2018, and therefore the revocation under these Regulations was impermissible.

The Tribunal observed that the violations pertained not only to the act of export but also to the ongoing failure of the Customs Broker to comply with regulatory obligations and report non-compliance, which extended beyond the date of export. The investigation and inquiry occurred after the Regulations came into force, and the Customs Broker's license was suspended and revoked pursuant to these Regulations.

The Tribunal implicitly held that the continuous obligations of the Customs Broker under the Regulations and the timing of inquiry and enforcement justified application of CBLR 2018 notwithstanding the date of the underlying exports.

Issue 3: Compliance with procedural requirements, including inquiry timeline under Regulation 17(5)

The appellant contended that the enquiry officer exceeded the stipulated 90-day period for completion of inquiry, taking six months instead.

The Tribunal noted that this plea was addressed in the impugned order, which recorded that the delay was due to repeated adjournments sought by the appellant or his employee. Thus, the procedural delay was attributable to the appellant's conduct, negating any procedural impropriety by the authorities.

Issue 4: Sufficiency of evidence to establish Customs Broker's complicity or negligence

The Tribunal undertook a detailed comparison of export declarations (Table A) and Bhutan import data (Table B), finding material mismatches in quantity, description, value, and dates. The absence of Bank Realisation Certificates further undermined the claim of genuine exports.

The statements of the Customs Broker's employee initially admitted involvement but were later retracted under apparent pressure, which the Tribunal found not to be voluntary or credible. Statements by other key persons admitted to commission payments linked to the fraudulent scheme and did not deny GST evasion.

The Customs Broker failed to produce evidence to rebut these findings or to cross-examine key witnesses. The Tribunal found the cumulative evidence sufficient to establish the Customs Broker's culpability, either by direct involvement or failure to exercise due diligence and report non-compliance.

Issue 5: Proportionality and justification of penalty and revocation of license

The Tribunal acknowledged that revocation of a Customs Broker license is a grave penalty, depriving the individual of livelihood and employment opportunities. It cited precedent emphasizing that such punishment should be reserved for extremely grave and serious matters.

Given that the license had been revoked for over two years and the appellant was deprived of business, the Tribunal exercised discretion to mitigate the penalty. It ordered revival of the Customs Broker license forthwith, subject to the appellant furnishing fresh security deposit, and reduced the penalty from Rs. 50,000 to Rs. 10,000.

Significant holdings and core principles established:

"The Customs Broker is supposed to safeguard the interest of both the importers and the customs. A lot of trust is kept in the CHA both by the import-export community as well as by government agencies. To ensure appropriate discharge of such trust, the relevant regulations are prescribed... Any contravention of such obligation, even without intent would be sufficient to invite upon the CHA/CB punishment as listed in the Regulations."

"The Customs Broker has not been able to prove his innocence. His culpability is evident."

"Revocation of a license is a grave punishment as it deprives the person concerned of his means of a living and therefore, such revocation can only be justified in extremely grave and serious matters."

"In the circumstances of the present case... we feel it would not be in the fitness of things to continue any further with the revocation of the license."

The Tribunal ultimately concluded that while the Customs Broker was culpable for violations of Regulations 10(d) and 10(e) of CBLR 2018, the revocation of license was disproportionate under the circumstances. The license was ordered to be revived with conditions, and the penalty was moderated accordingly.

Additional related issues include the interpretation of section 129-EE of the Customs Act concerning payment of interest on pre-deposits, the applicability of relevant Supreme Court precedents on interest payable on penalty refunds, and the responsibility for bearing interest liability arising from delayed refunds.

Regarding the primary issue of entitlement to interest on pre-deposit refunds, the Tribunal examined the statutory framework under sections 129-E and 129-EE of the Customs Act. Section 129-E mandates pre-deposit of a specified amount to file an appeal against an order imposing penalty or confiscation. Section 129-EE, introduced by the Finance Act (No. 2) 2014 effective from 01.10.2014, provides for payment of interest on the amount deposited under section 129-E if refunded after disposal of the appeal. The proviso to section 129-EE clarifies that pre-deposits made before 01.10.2014 are governed by the earlier version of the section, which directs payment of interest after three months from communication of the appellate order until payment is made.

The Tribunal reasoned that the statutory language of section 129-EE uses the phrase "amount deposited under section 129-E" without distinction between duty, penalty, or other components. Hence, pre-deposit of penalty alone falls within the scope of section 129-EE, entitling the appellant to interest on the refunded amount after the prescribed period.

In support, the Tribunal analyzed the Supreme Court decision in Commissioner of Customs (Port) Kolkata v. Coronation Spinning India, which was relied upon by the Department and the Commissioner (Appeals) to deny interest. The Supreme Court had held that interest is not payable on penalty refunds under section 11B of the Central Excise Act, which corresponds to sections 27 and 27A of the Customs Act. However, the Tribunal distinguished that case on facts and law, noting that the Supreme Court's ruling dealt with refund of duty, interest, and penalty deposited on protest under section 11B, whereas the present case concerns a statutory pre-deposit under section 129-E, which is neither duty nor penalty but a separate statutory mechanism. The Tribunal further referred to the CBEC Circular No. 984/08/2014-CX dated 16.09.2014, which clarifies that pre-deposit for filing an appeal is not a payment of duty and is not governed by section 11B of the Central Excise Act. The circular mandates refund of pre-deposit with interest within 15 days of receipt of refund application unless a stay is granted by the appellate authority.

The Tribunal concluded that the Department is legally obligated to pay interest on the refunded pre-deposit amount after expiry of three months from the date of the appellate order (28.02.2006), as per the provisions of section 129-EE applicable before the 2014 amendment.

Regarding the question of who bears the interest liability, the Tribunal relied on CBEC Circular No. 802/35/2004-CX dated 08.12.2004, which provides that any delay beyond three months in refunding amounts will be viewed adversely, and the interest liability arising due to such delay may be recovered from the concerned defaulting officers. The Tribunal emphasized that while the Department must pay the interest to the appellant, it may recover the amount from the responsible officials who caused the delay.

The Tribunal addressed the competing arguments by the appellant's counsel, who stressed the statutory mandate for interest payment on refund of pre-deposit, and the Department's reliance on the Supreme Court decision denying interest on penalty refunds. The Tribunal reconciled these positions by distinguishing the legal and factual contexts, highlighting the specific statutory scheme governing pre-deposits under section 129-E and interest under section 129-EE, and the clarifications issued by the CBEC circulars.

In conclusion, the Tribunal held that the appellant is entitled to interest on the refunded pre-deposit amount of Rs. 1,50,000/- from three months after the appellate order dated 28.02.2006 until payment, as per the provisions of section 129-EE of the Customs Act, 1962, prior to the 2014 amendment. The Tribunal set aside the Commissioner (Appeals) order denying interest and directed the Department to pay the interest within two months of the order. It also directed that the Department may recover the interest amount from the defaulting officers responsible for the delay.

Significant holdings include the following verbatim legal reasoning:

"What is required to be noted here is that without reference to the terms duty, interest, penalty etc., the statute had used the word 'amount deposited u/s. 129-E' that would naturally cover also the penalty aspect. Therefore, there is no denying of the fact that if pre-deposit is made while challenging the penalty alone, interest is payable."

"The said paragraph reads as follows; Delay beyond this period of three months in such cases will be viewed adversely and appropriate disciplinary action will be initiated against the concerned defaulting officers. All concerned are requested to note that default will entail an interest liability, if such liability accrues by reason of any orders of the CESTAT/Court, such orders will have to be complied with and it may be recoverable from the concerned officers."

Core principles established are that pre-deposit under section 129-E, even if relating solely to penalty, attracts statutory interest on refund under section 129-EE, and that the Department's delay in refunding such amounts with interest may result in disciplinary action and recovery of interest from responsible officials. The Tribunal's final determination mandates payment of interest on pre-deposit refunds made before the 2014 amendment, overruling reliance on Supreme Court decisions concerning penalty refunds under different statutory provisions.

1. Whether penalty under Section 112(a) of the Customs Act, 1962 can be imposed on the Customs Broker appellant for alleged abetment of misdeclaration and undervaluation of imported goods.

2. Whether penalty under Section 114AA of the Customs Act, 1962 for use of false or incorrect material can be imposed on the Customs Broker appellant in the absence of evidence of collusion or wilful misstatement.

3. Whether the Customs Broker appellant complied with the due diligence and authorization requirements under the Customs Broker Licensing Regulations, 2013 (CBLR 2013) and related KYC norms.

4. The scope and interpretation of "abetment" under Section 112(a) in the context of Customs violations and the necessary mens rea for imposition of penalty.

5. The applicability of precedent case law regarding the obligations of Customs Brokers to physically verify clients and the liability of Customs Brokers for acts committed by clients or third parties using their IEC.

Issue-wise Detailed Analysis:

1. Imposition of penalty under Section 112(a) of the Customs Act, 1962:

The relevant legal framework includes Section 112(a), which penalizes any person who either commits an act or omission rendering goods liable to confiscation under Section 111 or abets such act or omission. The Tribunal emphasized that Section 112(a) covers two categories: direct perpetrators and abettors. The term "abet" is interpreted with reference to Section 107 of the Penal Code and the General Clauses Act, requiring intentional aiding or facilitation with knowledge of the wrongful act.

The Court relied on the Supreme Court ruling in Shree Ram v. State of U.P., which clarified that mere facilitation without intent or knowledge does not constitute abetment. The Bombay High Court's Full Bench decision in Amrit Lakshmi Machine Works further reinforced that "mere facilitation without knowledge would not amount to abetting an offence."

In the present facts, the appellant had regularly filed Bills of Entry for the importer, which were accepted by Customs without objection. There was no evidence that the appellant had knowledge of misdeclaration or undervaluation or that he intentionally abetted such acts. The appellant had obtained the necessary KYC documents and authorization letters, which were not found to be forged or false. The importer's proprietor disowned ownership of the goods, alleging misuse of his IEC by a third party, but no direct link was established implicating the appellant in wrongdoing.

The Tribunal found that the penalty under Section 112(a) could not be sustained because the essential element of mens rea-knowledge or intent to abet-was not established against the appellant. The appellant's role was limited to facilitating customs clearance based on documents provided by the importer or third party, without evidence of active complicity in the misdeclaration.

2. Imposition of penalty under Section 114AA of the Customs Act, 1962:

Section 114AA penalizes knowingly or intentionally making, signing, or using false or incorrect declarations or documents in customs transactions. The penalty can be up to five times the value of the goods. The Tribunal noted that this provision requires proof of deliberate or wilful misstatement or suppression of facts.

In the instant case, the appellant possessed valid KYC documents which were not found to be false or forged. The appellant had cleared multiple consignments for the importer previously without incident. There was no evidence of collusion, malafide intent, or deliberate falsification by the appellant. The appellant's failure to physically verify the importer's premises or identity was not sufficient to impose penalty under Section 114AA, as physical verification is not mandated by CBLR 2013 or KYC circulars, and previous judicial precedents held that Customs Brokers are not obliged to undertake physical verification of clients.

The Tribunal also referred to the fact that the appellant's Customs Broker license revocation order based on alleged violations of Regulations 11(a), 11(d), and 11(e) of CBLR 2013 was set aside by the Tribunal in a separate proceeding. The Tribunal held that the appellant had complied with the requirement to obtain authorization and KYC documents and had no conscious lapse or malafide conduct. Hence, penalty under Section 114AA was not justified.

3. Compliance with Customs Broker Licensing Regulations and KYC norms:

The appellant held a valid Customs House Agent (CHA) license and had obtained IEC copies, authorization letters, and identity proofs from the importer or their representative. The Tribunal examined the relevant provisions of CBLR 2013, particularly Regulation 11(a) requiring authorization from clients and Regulations 11(d) and 11(e) requiring Customs Brokers to advise clients on compliance and exercise due diligence.

The Tribunal found that the appellant had complied with these requirements by obtaining proper authorization and KYC documents and had produced these during investigation. The appellant had cleared multiple consignments for the importer without objection, indicating ongoing compliance. The Tribunal relied on precedent decisions from the Tribunal and High Courts which held that physical verification of clients is not mandatory for Customs Brokers and that mere failure to physically verify does not constitute violation.

The appellant's argument that the importer's IEC was misused by a third party was accepted as plausible, and the appellant was not held liable for acts of the importer or third parties beyond his knowledge or control. The Tribunal emphasized that imposing penalty on a Customs Broker without evidence of knowledge or intent to abet would be unjust and contrary to established legal principles.

4. Interpretation of "abetment" and mens rea requirement:

The Tribunal extensively analyzed the concept of abetment under Section 112(a) with reference to Section 107 of the Penal Code and relevant judicial precedents. It underscored that abetment requires intentional aiding or facilitation of the wrongful act with knowledge, not mere facilitation or passive involvement.

The Tribunal rejected the Revenue's contention that the appellant's mere involvement in filing Bills of Entry amounted to abetment. It held that without proof of knowledge or intent, penalty under Section 112(a) cannot be imposed. This principle protects innocent facilitators from disproportionate penalties and ensures that only culpable persons are penalized.

5. Precedent case law on Customs Broker obligations and liability:

The Tribunal relied on several decisions to support its conclusions:

• The Tribunal's own decisions in M/s Setwin Shipping Agency and M/s Him Logistics Pvt. Ltd. held that Customs Brokers are not required to physically verify clients.
• The Delhi High Court in Commissioner of Customs v. Yogesh Kumar reiterated that physical verification is not mandatory for Customs Brokers.
• The Bombay High Court in Hamid Fahim Ansari held that use of an IEC by another person does not constitute an offence if customs duty is paid.
• The Kerala High Court in Proprietor, Carmel Exports & Imports held that being a "name lender" importer is not an offence under Customs Act.
• The Gujarat High Court in Commissioner of Customs v. VAZ Forwarding Ltd. held that penalty cannot be imposed on Customs Broker without evidence of knowledge of wrongdoing.
• The Tribunal in R.P. Sethi v. Commissioner of Customs held that penalties under Section 112 cannot be imposed for violations of CHA licensing regulations; separate proceedings are required for such breaches.
• The Supreme Court decision in K.I. Pavunny v. Assistant Collector emphasized the importance of due diligence by Customs Brokers and their liability for acts of authorized representatives.
• The Tribunal in Skytrain Services v. Commissioner of Customs held that Customs Brokers are liable for violations committed by their authorized representatives if due diligence is not exercised.

These precedents collectively establish that Customs Brokers have a duty to exercise due diligence and obtain proper authorization and KYC documents but are not required to physically verify clients. Penalties under Section 112(a) and 114AA require proof of knowledge, intent, or wilful misconduct.

Conclusions:

The Tribunal concluded that the penalty imposed under Section 112(a) could not be sustained as the appellant did not abet the misdeclaration or undervaluation with knowledge or intent. The appellant's role was limited to facilitation based on documents provided by the importer or their representative.

Similarly, the penalty under Section 114AA was not justified as there was no evidence of the appellant knowingly or intentionally using false or incorrect documents. The appellant had complied with the KYC and authorization requirements and had no conscious or deliberate lapse.

The Tribunal also found that the appellant had complied with the Customs Broker Licensing Regulations and that physical verification of clients is not mandatory. The appellant was not liable for misuse of the importer's IEC by third parties beyond his knowledge.

Accordingly, the impugned order imposing penalties under Sections 112(a) and 114AA was set aside, and the appeal was allowed.

Significant Holdings:

"Section 112(a) of the Customs Act includes two categories of persons liable for penalty: those who commit acts rendering goods liable to confiscation and those who abet such acts. The essential element for abetment is knowledge or intent to aid the wrongful act. Mere facilitation without knowledge does not constitute abetment."

"Penalty under Section 114AA requires proof of knowing or intentional use of false or incorrect documents. Absence of collusion or wilful misstatement precludes imposition of penalty."

"Customs Brokers are required to obtain authorization and KYC documents but are not mandated to physically verify the premises or identity of clients. Failure to physically verify does not attract penalty under the Customs Act or Customs Broker Licensing Regulations."

"Imposing penalty on a Customs Broker without evidence of mens rea or conscious involvement in wrongdoing is unsustainable in law."

"Where a Customs Broker has complied with the due diligence requirements and obtained proper authorization and KYC documents, penalties under Sections 112(a) and 114AA cannot be imposed merely on the basis of acts of third parties or misuse of IEC by others."

1. Whether the appellants can be held liable for mis-declaration of goods under Bill of Entry No. 5405619 dated 11th September 2021, given that the foreign seller communicated a recall of the cargo due to erroneous loading prior to examination of the goods, and the appellants relinquished their ownership rights accordingly under Section 23 of the Customs Act, 1962.

2. Whether the appellants are liable for duty demand, confiscation, and penalties on a past import under Bill of Entry No. 5257900 dated 31st August 2021, where the allegation of mis-declaration is based solely on assumption and presumption without substantive evidence.

3. The validity and sustainability of the proceedings initiated against the appellants for alleged mis-declaration and consequent penalties and confiscation.

Issue 1: Liability for Mis-declaration under Bill of Entry No. 5405619 dated 11th September 2021

Relevant Legal Framework and Precedents: The Customs Act, 1962 governs import procedures, including filing of Bills of Entry and the consequences of mis-declaration of imported goods. Section 23 of the Customs Act allows relinquishment of ownership rights by the importer, which can impact liability for goods imported.

Court's Interpretation and Reasoning: The Tribunal carefully examined the timeline and facts surrounding the filing of the Bill of Entry and the subsequent communication from the foreign seller. The appellants filed the Bill of Entry on 11th September 2021 declaring the goods as white wood powder. On 18th September 2021, before the physical examination of the goods, the appellants received an email from the foreign seller stating that the container was wrongly loaded due to a mistake and the cargo was recalled. The appellants promptly informed the Deputy Commissioner of Customs and relinquished their rights over the goods under Section 23 of the Customs Act, indicating they did not claim ownership of the mis-shipped consignment.

The Tribunal noted that the customs broker was instructed to conduct 100% examination, but the goods were not available for inspection initially due to the recall. Subsequent physical examination revealed the actual contents as 50 bags of white wood powder and 650 bags of white pepper, indicating mis-declaration. However, the Tribunal emphasized that the appellants had no prior knowledge of the mis-declaration at the time of filing the Bill of Entry and had acted in good faith upon receiving the foreign seller's communication.

Key Evidence and Findings: The critical evidence was the foreign seller's email admitting the loading error and recalling the cargo, and the appellants' immediate communication to customs authorities relinquishing ownership rights. The Tribunal found no credible evidence that the appellants had knowledge or intent to mis-declare.

Application of Law to Facts: Since the appellants relinquished their ownership rights before examination and without any knowledge of mis-declaration, the Tribunal held that they cannot be held liable for mis-declaration or penalized under the Customs Act for the consignment under Bill of Entry No. 5405619.

Treatment of Competing Arguments: The Revenue argued that the appellants should be liable as the goods were mis-declared and penalties imposed were justified. The Tribunal rejected this on the ground that the appellants acted in good faith and the mis-declaration was due to the foreign seller's error, not the appellants' willful act.

Conclusion: The Tribunal concluded that no penalties or duty demands are sustainable against the appellants for Bill of Entry No. 5405619 dated 11th September 2021, and the benefit of doubt must be given to the appellants.

Issue 2: Alleged Mis-declaration in Past Import under Bill of Entry No. 5257900 dated 31st August 2021

Relevant Legal Framework and Precedents: The Customs Act requires that mis-declaration be established by evidence before demanding duty, confiscation, or penalties. Mere assumptions or presumptions without supporting evidence cannot sustain such demands.

Court's Interpretation and Reasoning: The Tribunal observed that the Revenue's allegation of mis-declaration in the past import was based solely on assumption and presumption, without any documentary or substantive proof. No evidence was brought on record to establish that the goods imported under Bill of Entry No. 5257900 were mis-declared.

Key Evidence and Findings: The absence of any evidence or material to substantiate the claim of mis-declaration was pivotal. The Tribunal noted that the Revenue failed to discharge the burden of proof required to justify confiscation or penalty.

Application of Law to Facts: Given the lack of evidence, the Tribunal held that the consignment under Bill of Entry No. 5257900 is not liable for confiscation, and the demand for duty and penalties cannot be sustained.

Treatment of Competing Arguments: The appellants contended that the allegations were baseless and founded on mere conjecture. The Tribunal agreed, emphasizing the requirement of proof in such matters.

Conclusion: The Tribunal set aside the demand of duty, confiscation, and penalties against the appellants for Bill of Entry No. 5257900 dated 31st August 2021.

Issue 3: Sustainability of Proceedings Against the Appellants

Relevant Legal Framework and Precedents: Proceedings under the Customs Act must be founded on credible evidence and proper application of law. The principles of natural justice and burden of proof are paramount.

Court's Interpretation and Reasoning: The Tribunal analyzed the entire factual matrix and procedural history. It found that the appellants had acted in good faith and that the mis-declaration in one consignment was attributable to the foreign seller's error, while the other consignment's mis-declaration was unproven. Therefore, the proceedings initiated against the appellants for duty demand, confiscation, and penalties were not sustainable.

Key Evidence and Findings: The prompt communication by the appellants to customs authorities, the foreign seller's admission of error, and the lack of evidence for past mis-declaration were critical factors.

Application of Law to Facts: The Tribunal applied the principles of Section 23 of the Customs Act and evidentiary standards to conclude that the appellants are not liable for penalties or confiscation.

Treatment of Competing Arguments: The Revenue's insistence on penalties was rejected due to lack of proof and the appellants' bona fide conduct.

Conclusion: The Tribunal held that no proceedings are sustainable against the appellants and allowed the appeals with consequential relief.

Significant Holdings:

"It cannot be held that the appellants were having prior knowledge of mis declaration of the goods as the foreign supplier admitted his mistake and the appellant is not claiming the ownership of the said consignment."

"Benefit of doubt comes in favour of the appellant. Therefore, the appellant is not at fault for mis-declaration found in bill of entry no. 5405619 dated 11th September, 2021."

"Such allegation has been made against the appellant by the Revenue without any evidence brought in record... The said allegation is only on assumption and presumption basis."

"We hold that the consignment covering bill of entry no. 5257900 dated 31st August, 2021 is not liable for confiscation as the mis-declaration has not been proved by the Revenue."

"No penalties can be imposed on the appellant having act of mis declaration in bill of entry no. 5405619 dated 11th September, 2021."

"No proceedings are sustainable against the appellants."

The Tribunal established the core principle that an importer who relinquishes ownership rights upon timely communication of a foreign seller's error and without knowledge of mis-declaration cannot be held liable for penalties or duty demands under the Customs Act. Further, allegations of mis-declaration must be supported by evidence and cannot rest on assumptions or presumptions. The burden of proof lies with the Revenue to establish mis-declaration for confiscation and penalties.

Accordingly, the Tribunal set aside the impugned orders demanding duty, confiscating goods, and imposing penalties on the appellants for both the consignments in question and allowed the appeals with consequential relief.

- Whether the appellant can be held liable for penalty under Section 112(a) and 112(b) of the Customs Act, 1962 for alleged involvement in smuggling of foreign origin gold bars.

- Whether the statement of Shri Ashish Lakhotia, implicating the appellant as the intended purchaser of the smuggled gold bars, is admissible and reliable evidence.

- Whether there exists any corroborative evidence beyond the statement of Shri Ashish Lakhotia to implicate the appellant in the smuggling offence.

- Whether the penalty imposed on the appellant by the adjudicating authority and upheld by the Commissioner (Appeals) is sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of the appellant under Section 112(a) and 112(b) of the Customs Act, 1962

The relevant legal framework comprises Section 112 of the Customs Act, 1962, which prescribes penalties for improper importation of goods. Specifically, Section 112(a) penalizes any person who does or omits to do any act rendering goods liable to confiscation under Section 111, or abets such act. Section 112(b) penalizes any person who acquires possession of or is concerned in dealing with goods liable to confiscation.

The Court examined whether the appellant committed any act or omission or was involved in dealing with the smuggled gold bars. The gold bars weighing 1000 grams each were seized from Shri Rajesh Bhagat, and the appellant was alleged to be the intended purchaser.

However, the Court found no direct evidence that the appellant possessed or dealt with the seized gold bars, nor that he committed any act rendering the goods liable to confiscation. The appellant denied ownership or possession, and no other incriminating evidence was found against him.

Therefore, the Court held that the essential elements to invoke Section 112(a) and 112(b) were not established against the appellant.

Issue 2: Admissibility and reliability of the statement of Shri Ashish Lakhotia

The statement of Shri Ashish Lakhotia was the primary evidence implicating the appellant as the intended purchaser of the smuggled gold bars. Initially, Lakhotia stated that the gold bars were meant for delivery to the appellant.

However, during cross-examination before the adjudicating authority, Lakhotia retracted his statement, declaring it involuntary and thereby losing its evidentiary value. The Court emphasized that such a retraction undermines the reliability of the statement.

Given the retraction and absence of other corroborative evidence, the Court held that Lakhotia's statement could not be relied upon to implicate the appellant.

Issue 3: Existence of corroborative evidence against the appellant

Besides the statement of Shri Ashish Lakhotia, the investigation and records contained no other evidence linking the appellant to the smuggled gold bars. The appellant was not found in possession of the gold, nor was there documentary or material evidence to indicate his involvement.

The Court noted that a previous smuggling case involving the appellant was not relevant to the instant penalty proceedings. The absence of corroborative evidence was a critical factor in the Court's decision.

Issue 4: Sustainability of the penalty imposed on the appellant

The adjudicating authority imposed a penalty of Rs.10,00,000/- under Section 112(a) and 112(b) of the Customs Act, 1962, which was upheld by the Commissioner (Appeals). The appellant challenged the penalty on grounds of lack of evidence and unreliability of the key statement against him.

The Court referred to a precedent decision of the Tribunal in a similar matter, where penalties were set aside due to reliance solely on statements of co-accused without adequate opportunity for cross-examination and absence of corroborative evidence. The relevant excerpts were reproduced to emphasize the settled legal position:

"It is a settled position of law that in such circumstances, when statements recorded from the co-accused are the only evidence to implicate another person in that offence, the said statements cannot be relied upon against the person ... without giving an opportunity for cross-examining the persons who have given the statements implicating the appellant."

The Court observed that in the present case, the appellant was not afforded adequate opportunity to test the veracity of the statement, and the statement itself was retracted. Consequently, the penalty imposed was not sustainable.

3. SIGNIFICANT HOLDINGS

- "We find that the said statement cannot be relied upon against the appellant."

- "There is no other corroborative evidence available on record to implicate the appellant in the alleged offence of smuggling gold bars of foreign origin into the country."

- "Penalty can be imposed under this section only when a person commits an act which renders the goods liable for confiscation. In the present case ... the elements as mentioned in Section 112 of the Act are not available to impose penalty on the appellant."

- "The penalty imposed on the Appellant by invoking the provisions of Section 112(a) and (b) of the Act is not sustainable and hence we set aside the same."

- The Court reaffirmed the principle that statements of co-accused or co-noticees, when uncorroborated and not subjected to cross-examination, cannot form the sole basis for penalty imposition.

- Final determination: The penalty of Rs.10,00,000/- imposed under Section 112(a) and 112(b) of the Customs Act, 1962 on the appellant is set aside, and the appeal is allowed.

(i) What is the correct classification of the imported water meters - whether under Customs Tariff Item (CTI) 9026 1010 (flow meters) as claimed by the appellants, or CTI 9028 2000 (liquid supply meters) as held by the department in the impugned orderRs.

(ii) If the classification under CTI 9028 2000 is correct, whether the demand for differential customs duty was validly raised invoking the extended period of limitation under section 28(4) of the Customs Act, 1962Rs.

(iii) Whether the demand of interest under section 28AA was correctly invokedRs.

(iv) Whether the imported goods were rightly confiscated or held liable to confiscation under section 111(m) of the Customs ActRs.

(v) Whether penalties under sections 112, 114A, 114AA, and 117 were correctly imposed on the appellantsRs.

Issue-wise Detailed Analysis

(i) Classification of the Imported Goods

The legal framework for classification is governed by the Customs Tariff Act and the General Rules of Interpretation, with reliance on the Harmonized System of Nomenclature (HSN) and its explanatory notes, which are internationally accepted and preferred over conflicting national standards. The Supreme Court has held that tariff classification disputes should be resolved with reference to HSN explanatory notes.

The relevant tariff headings are:

• CTI 9026 1010: Instruments for measuring or checking the flow or level of liquids, specifically flow meters that measure the rate of flow (volume or weight per unit time).
• CTI 9028 2000: Liquid meters, including household supply meters, which measure the total volume of liquid delivered over a period.

The HSN explanatory notes clarify that flow meters (CTI 9026) measure the rate of flow, while supply meters (CTI 9028) measure the total quantity of liquid delivered. The heading 9026 excludes apparatus which merely indicate the total amount delivered, which fall under 9028.

In the facts of this case, the imported meters were supplied under a contract with the Delhi Jal Board for installation at domestic premises to measure water consumption for revenue billing. The contract specified compliance with IS 779:1994 or ISO 4064:1993 standards, which pertain to water meters measuring volume of water flow. The contract and related documents did not describe the goods as flow meters but as water meters for domestic consumption.

The appellants argued that the meters measured flow rate and thus fell under CTI 9026 1010, relying on the supplier's catalogue and a recent CESTAT Kolkata decision. However, the department and the Tribunal emphasized the purpose and use of the meters as volumetric measurement devices for billing domestic water supply, fitting the description of liquid meters under CTI 9028 2000.

The Tribunal also noted that the imported goods were identical to previously imported samples classified under CTI 9028 2000, and that the change in classification to CTI 9026 1010 coincided with a change in customs broker and instructions from the appellants, despite the country of origin certificates continuing to mention CTI 9028.

Applying the law to the facts and the HSN explanatory notes, the Tribunal concluded that the meters are correctly classifiable under CTI 9028 2000 as liquid supply meters measuring volume, not flow meters measuring rate of flow.

(ii) Validity of Demand under Extended Period of Limitation (Section 28(4))

The appellants contended that the Bills of Entry were self-assessed and accepted by customs officers at three different ports, and that the department could not issue a Show Cause Notice (SCN) demanding differential duty under section 28 without first challenging the self-assessment through an appeal under section 128. They relied on a Supreme Court decision holding that self-assessment orders are appealable and that refunds cannot be sanctioned unless the assessment is modified.

The department argued that section 28 allows reassessment and demand of duty within the prescribed period, including extended period where there is collusion, wilful misstatement, or suppression of facts. The Tribunal distinguished the Supreme Court decision cited by the appellants, noting it pertained to refund claims under section 27 and not to demands under section 28. The Tribunal held that the department can issue a notice under section 28 without first assailing the self-assessment before Commissioner (Appeals).

Regarding invocation of extended period, the Tribunal examined whether there was suppression, wilful misstatement, or collusion. It found that the appellants deliberately changed classification from CTI 9028 2000 to CTI 9026 1010, engaged a new customs broker, and gave written instructions to misclassify the goods to evade customs duty. This was supported by documentary evidence including invoices, country of origin certificates, and statements of company officials and customs brokers.

The Tribunal relied on a recent Supreme Court judgment which held that deliberate misclassification with intent to evade duty justifies invocation of extended period of limitation. The Supreme Court emphasized that suppression means failure to disclose full information with intent to evade duty, and that wilful misstatement or suppression must be established to invoke extended limitation.

Applying this precedent and the facts, the Tribunal held that the extended period was rightly invoked as the misclassification was deliberate and intended to evade customs duty.

(iii) Demand of Interest under Section 28AA

Since the Tribunal upheld the demand under section 28 invoking extended period of limitation, the consequential demand of interest under section 28AA was also correctly invoked. The interest is payable on the differential duty determined due to the misclassification and short payment.

(iv) Confiscation of Imported Goods under Section 111(m)

Section 111(m) provides for confiscation of goods which do not correspond with the particulars declared under the Act, including value or classification. Normally, mere misclassification is a matter of opinion and does not attract confiscation.

However, the Tribunal found that in this case, the misclassification was deliberate and part of a scheme to evade duty. The appellants changed customs brokers and gave explicit instructions to misclassify the goods. Given these peculiar facts, the Tribunal held that the imported goods were liable to confiscation under section 111(m). Where goods were physically available, they were confiscated; where not available, they were held liable to confiscation.

(v) Imposition of Penalties under Sections 112, 114A, 114AA, and 117

The Tribunal considered the relevant penalty provisions:

• Section 112: Penalty for improper importation of goods liable to confiscation.
• Section 114A: Penalty for short levy or non-levy of duty due to collusion, wilful misstatement or suppression of facts.
• Section 114AA: Penalty for knowingly using false or incorrect documents.
• Section 117: Residual penalty for contraventions not covered elsewhere.

The Tribunal upheld penalties under sections 112, 114A, and 114AA, as the facts established deliberate misclassification, wilful misstatement, and use of false classification in Bills of Entry and invoices. The appellants knowingly caused incorrect CTI to be declared and instructed the customs broker accordingly.

However, penalty under section 117 was set aside as it is a residual provision and penalties were already imposed under specific sections.

Significant Holdings

"It is evident from the above text of the order that the imported meters were supplied to Delhi Jal Board for measuring the volume of domestic supply of water and thus the product is water meter clearly covered under CTH 9028."

"The appellants deliberately changed the classification of the goods from CTI 9028 2000 to CTI 9026 1010 and hired a new Customs Broker and gave him instructions accordingly in order to evade duty; therefore, extended period of limitation under section 28 was correctly invoked."

"Given the peculiar facts of this case, where the importer had deliberately changed the classification of the goods and engaged a new Customs Broker and gave written instructions to classify the goods under CTI 9026 1010, we find that Section 111(m) squarely applies to the imported goods and they were liable confiscation."

"Penalty under section 112 can be imposed for acts which render the goods liable to confiscation. Since we have upheld the confiscation of the goods/holding that the goods were liable to confiscation, section 112 squarely applies."

"The submission of the learned Chartered Accountant that unless the self-assessed Bills of Entry are assailed before Commissioner (Appeals) under section 128, no SCN demanding duty under section 28 can be issued is not correct and the reliance placed by him on ITC Ltd. is misplaced."

The Tribunal's final determinations were:

• The imported goods are water meters measuring volume, correctly classifiable under CTI 9028 2000, not flow meters under CTI 9026 1010.
• The benefit of nil basic customs duty under Notification No. 24/2005 applies only to flow meters under CTI 9026; water meters under CTI 9028 attract 7.5% duty.
• The extended period of limitation under section 28 was rightly invoked due to deliberate misclassification with intent to evade duty.
• The demand of interest under section 28AA was correctly imposed.
• The imported goods were correctly confiscated or held liable to confiscation under section 111(m).
• Penalties under sections 112, 114A, and 114AA were correctly imposed; penalty under section 117 was set aside.
• The appeals were partly allowed only to the extent of setting aside penalty under section 117; the rest of the impugned order was upheld.

(i) Whether the appeal filed by Respondent No. 1 was within the prescribed limitation period of thirty days, along with the additional condonable period of fifteen days as provided under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 ("IBC"); and

(ii) If not, whether the National Company Law Appellate Tribunal ("NCLAT") has the power to condone the delay beyond the said prescribed and condonable period under the IBC.

Issue 1: Computation of Limitation Period for Filing Appeal under Section 61(2) IBC

The legal framework governing this issue is Section 61(2) IBC, which mandates that every appeal to the NCLAT must be filed within thirty days from the date of the order of the Adjudicating Authority, with a proviso allowing condonation of delay for a further period not exceeding fifteen days upon sufficient cause being shown. Thus, the maximum permissible period to file an appeal is forty-five days.

Section 238A of the IBC incorporates the Limitation Act, 1963 ("Limitation Act") into insolvency proceedings "as far as may be." Relevant provisions of the Limitation Act include Section 2(j), defining "period of limitation" and "prescribed period," and Section 4, which provides that if the prescribed period expires on a day when the court or tribunal is closed, the limitation period extends to the next working day. Rule 3 of the NCLAT Rules, 2016, similarly provides for exclusion of days when the tribunal office is closed in computing limitation.

Precedents clarify the meaning of "prescribed period" and the limited applicability of Section 4 of the Limitation Act. The Supreme Court in Assam Urban Water Supply & Sewerage Board v. M/s. Subash Projects & Mktg. Ltd. held that Section 4 applies only to the "prescribed period" (the strict limitation period) and not to any extended or condonable period granted by the court or tribunal. This principle was reiterated in Sagufa Ahmed v. Upper Assam Plywood Products and Bhimashankar Sahakari Sakkare Karkhane Niyamita v. Walchandnagar Industries Ltd., emphasizing that the benefit of extension due to court closure is not available for condonable periods beyond the prescribed limitation.

In the context of IBC, the Court referred to V. Nagarajan v. SKS Ispat Powers Ltd., which clarified that the limitation period under Section 61(2) IBC commences from the date of pronouncement of the order by the NCLT, not from the date the order is received or made available to the aggrieved party. The Court emphasized that the IBC is a complete code with strict timelines, and litigants must act diligently. The time taken to obtain a certified copy of the order can be excluded under Section 12(2) of the Limitation Act, but the time before applying for the certified copy cannot be excluded. The requirement to file a certified copy with the appeal under Rule 22(2) of the NCLAT Rules is mandatory, though discretionary waivers may be granted in the interest of substantial justice.

Applying these principles to the facts, the appellant's resolution plan was approved by the NCLT on 07.04.2022. The Company Secretary of the Corporate Debtor informed the stock exchanges within 30 minutes of the order on the same date, thereby making the order publicly available. Respondent No. 1 was not a party to the original proceedings but became aware of the order on 07.04.2022 itself. The limitation period of thirty days thus expired on 07.05.2022, which was a Saturday. The Court noted that the first Saturday of the month is a working day for the NCLAT Registry; therefore, Section 4 of the Limitation Act does not extend the limitation period. The additional condonable period of fifteen days expired on 22.05.2022. Respondent No. 1 filed the appeal physically on 24.05.2022, beyond the maximum permissible period of forty-five days.

The Court rejected the Respondent's argument that the limitation period commenced on 08.04.2022, the date of disclosure to the stock exchanges, and that the limitation period was extended due to the last day falling on a Sunday. The Court found that the disclosure was timely made on 07.04.2022 and that the Respondent's right to appeal accrued from that date. The Court also rejected the contention that the Resolution Professional failed to comply with SEBI disclosure obligations, holding that the Company Secretary's letter of 07.04.2022 sufficed to trigger limitation.

Thus, the Court concluded that the appeal was filed beyond the statutory maximum period of forty-five days prescribed under Section 61(2) IBC and was therefore barred by limitation.

Issue 2: Power of NCLAT to Condon Delay Beyond Statutory Limit

The IBC prescribes strict timelines for filing appeals to ensure timely resolution of insolvency proceedings and to prevent misuse of the process for recovery of stale debts. The proviso to Section 61(2) IBC expressly limits the NCLAT's power to condone delay to a maximum of fifteen days beyond the initial thirty-day period. The Court emphasized that the NCLAT is a statutory tribunal and can exercise only those powers conferred by the statute; it lacks inherent jurisdiction to extend time on equitable grounds.

The Court relied on the judgment in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., which underscored that only applications strictly conforming to statutory requirements can be entertained under the IBC. Similarly, in Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., it was held that the NCLAT cannot condone delay beyond the fifteen-day extension permitted under Section 61(2) IBC.

Accordingly, once the prescribed and condonable periods expire, the NCLAT has no jurisdiction to entertain appeals, regardless of the reasons for delay. The Court held that the impugned order of the NCLAT condoning delay beyond the statutory maximum period was ultra vires and liable to be set aside.

Significant Holdings and Core Principles

"The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal..." (Section 238A IBC)

"Section 4 of the Limitation Act applies only to the prescribed period of limitation and not to any condonable or extended period granted by the court or tribunal." (Assam Urban Water Supply & Sewerage Board v. M/s. Subash Projects & Mktg. Ltd.)

"Under Section 61(2) IBC, the limitation period for filing an appeal before the NCLAT commences from the date of pronouncement of the order by the NCLT, not from the date when the order is received or made available to the aggrieved party." (V. Nagarajan v. SKS Ispat Powers Ltd.)

"The NCLAT has no power to condone delay beyond the fifteen days permitted under the proviso to Section 61(2) IBC; any appeal filed beyond this period is barred and not maintainable." (Kalpraj Dharamshi v. Kotak Investment Advisors Ltd.)

"The first Saturday of the month is a working day for the Registry of the NCLAT and therefore, the benefit of Section 4 of the Limitation Act cannot be invoked for extending limitation when the last day falls on such a Saturday."

The Court's final determinations are:

(i) The appeal filed by Respondent No. 1 was beyond the maximum permissible period of forty-five days (thirty days limitation plus fifteen days condonable delay) prescribed under Section 61(2) IBC, and is therefore barred by limitation;

(ii) The NCLAT erred in condoning delay beyond the statutory maximum period and thus acted without jurisdiction in allowing the interlocutory application for condonation of delay;

(iii) The order of the NCLAT dated 14.12.2022 allowing condonation of delay is set aside, and the appeal is dismissed on limitation grounds;

(iv) Strict adherence to the limitation period under Section 61(2) IBC is essential to maintain the efficacy and finality of insolvency proceedings, and no extension beyond the statutory limit can be granted.

The core legal questions considered by the Court include:

- Whether the electricity consumption dues of the first respondent towards the appellant, which were not submitted or included in the Corporate Insolvency Resolution Plan (CIRP) approved under the Insolvency and Bankruptcy Code, 2016 (the "Code"), stand extinguished as per the provisions and judicial precedents relating to CIRP.

- Whether the first respondent has locus standi to challenge a demand notice issued by the appellant to a third-party group company, which was not the consumer of electricity but was threatened with disconnection for dues allegedly owed by the first respondent.

- The validity and finality of the CIRP resolution plan approved by the adjudicating authority (NCLT) in light of the Supreme Court's decision in State Tax Officer v. Rainbow Papers Limited, which mandates that all debts must be included in the resolution plan or else the plan may be invalid.

- The scope and exercise of writ jurisdiction by the High Court in matters where alternative remedies exist under the Code, specifically Sections 60, 61, and 62.

- The procedural correctness regarding the cause title in the writ petition and the appellant's preliminary objections concerning locus and alternative remedies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Extinguishment of Debts Not Included in the CIRP Resolution Plan

Relevant Legal Framework and Precedents: The Insolvency and Bankruptcy Code, 2016 governs the CIRP process. Sections 5, 6, 7, 12, 13, 16-31, 60-62 of the Code outline the initiation, claims submission, resolution plan preparation, approval, and appeal mechanisms. Landmark Supreme Court decisions in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. have established that once a resolution plan is approved by the adjudicating authority, all debts not included in the plan prior to its effective date stand extinguished and no further claims can be entertained.

Court's Interpretation and Reasoning: The Court recognized that the appellant did not submit its claim for electricity dues during the CIRP process, and these dues were not reflected in the resolution plan approved by the NCLT. Following the binding precedents, the Court held that such debts prior to the effective date (22nd December, 2022) of the resolution plan are deemed extinguished. The Court emphasized the finality and sanctity of the resolution plan to ensure certainty for the successful resolution applicant and stakeholders.

Key Evidence and Findings: The resolution plan was approved on 3rd December, 2020, effective from 22nd December, 2022. The appellant's electricity dues were not submitted as claims to the resolution professional and were absent from the plan and accompanying financial statements. The appellant issued a demand notice in June 2023 for dues allegedly outstanding before the effective date.

Application of Law to Facts: Applying the Code and Supreme Court rulings, the Court found that the appellant's claims for dues prior to the effective date were extinguished by operation of law, as they were not included in the approved resolution plan.

Treatment of Competing Arguments: The appellant argued that the demand notice was valid and challenged the extinguishment. The Court rejected this, citing the binding nature of the resolution plan and the Code's provisions. However, the Court acknowledged the Supreme Court's decision in State Tax Officer v. Rainbow Papers Limited, which requires that all debts must be included in the plan or it may be invalid. The Court held that unless a competent authority declares the plan invalid, it remains valid and binding.

Conclusions: The debts not included in the approved resolution plan stand extinguished, and the appellant cannot enforce claims for such dues prior to the effective date of the plan.

Issue 2: Locus Standi of the First Respondent to Challenge Demand Notice to Third Party

Relevant Legal Framework: The writ petition was filed by the first respondent challenging a demand notice issued to the third respondent (a group company). The appellant contended that the first respondent lacked locus standi as the notice was not addressed to it.

Court's Interpretation and Reasoning: The Court observed that the third respondent was not the consumer of electricity but a group company closely connected to the first respondent. The appellant had threatened disconnection of electricity supply to the third respondent's towers on account of dues owed by the first respondent. The Court held that the appellant cannot take inconsistent positions by claiming the third respondent is independent for some purposes but connected for others (such as liability for dues). Therefore, the first respondent was entitled to seek a declaration regarding its liability and challenge the demand notice to protect its group companies.

Application of Law to Facts: The first respondent's locus was recognized because the demand notice affected its group companies and was connected to its alleged debts.

Treatment of Competing Arguments: The appellant's objection on locus standi was rejected on the basis of the interconnected nature of the respondents and the claim.

Conclusions: The first respondent has locus standi to maintain the writ petition challenging the demand notice addressed to the third respondent.

Issue 3: Validity and Finality of the CIRP Resolution Plan in Light of the Rainbow Papers Decision

Relevant Legal Framework and Precedents: The Supreme Court in State Tax Officer v. Rainbow Papers Limited held that the resolution professional, committee of creditors, and adjudicating authority have a concurrent duty to ensure the resolution plan includes all debts of the corporate debtor. If debts are omitted without justification, the plan is invalid and void ab initio.

Court's Interpretation and Reasoning: The Court acknowledged the Rainbow Papers decision as an important qualification to the earlier rulings. It emphasized that if the plan is invalid for omission of debts, then extinguishment of such debts cannot be upheld. However, the Court held that until a competent authority declares the plan invalid, it must be presumed valid and binding on all stakeholders.

Application of Law to Facts: No competent authority had declared the resolution plan invalid in the instant case. Therefore, the plan's approval by the NCLT stands and the debts not included are deemed extinguished.

Treatment of Competing Arguments: The appellant relied on the finality of the plan, while the respondents invoked Rainbow Papers to argue invalidity. The Court balanced these positions by deferring to the statutory appeal and review mechanisms under the Code.

Conclusions: The resolution plan remains valid and binding unless set aside by a competent authority. The extinguishment of debts not included in the plan is upheld subject to this condition.

Issue 4: Exercise of Writ Jurisdiction Versus Availability of Alternative Remedies

Relevant Legal Framework: Sections 60, 61, and 62 of the Code provide for adjudication of insolvency-related disputes before the NCLT and appellate tribunals, including appeals to the Supreme Court. The appellant contended that the writ jurisdiction of the High Court should not be invoked when adequate alternative remedies exist.

Court's Interpretation and Reasoning: The Court recognized that the Code provides a comprehensive mechanism for dispute resolution and appeals. It held that while the first respondent is entitled to seek declarations, the High Court should ordinarily refrain from exercising writ jurisdiction in matters where the Code prescribes specific forums and procedures.

Application of Law to Facts: The Court restrained the appellant from enforcing the demand notice but declined to grant the declaration sought by the first respondent, advising that such declarations be sought through the Code's statutory remedies.

Treatment of Competing Arguments: The Court balanced the need for judicial intervention against respect for the specialized insolvency framework, emphasizing adherence to the statutory scheme.

Conclusions: The writ jurisdiction is exercised sparingly, and alternative remedies under the Code should be preferred for declarations regarding insolvency resolution plans.

Issue 5: Procedural Errors and Cause Title

Relevant Legal Framework: The writ petition was filed against the State of Meghalaya and the Meghalaya Power Distribution Corporation Limited, but the appellant in the appeal was only the latter. The Court noted this procedural irregularity.

Court's Interpretation and Reasoning: The Court observed that the cause title cannot be changed and that this was a procedural error. However, this did not affect the substantive adjudication of the issues.

Conclusions: The procedural error in cause title was noted but did not impact the outcome.

3. SIGNIFICANT HOLDINGS

"All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate." (Essar Steel)

"Once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan." (Ghanashyam Mishra & Sons)

"If the resolution plan does not include all the debts, it is invalid. Furthermore, the resolution professional, the committee of creditors and the adjudicating authority have concurrent duties and responsibilities to check up the plan and satisfy itself that inter alia all the debts of the corporate debtors have been included irrespective of the fact whether a creditor has lodged a claim. If it is so, it would be invalid or void ab initio." (Rainbow Papers)

"Unless any contrary order is brought from a competent jurisdiction declaring invalidity of the resolution plan, the plan as approved by NCLT is valid and binding on all stakeholders." (This Court)

"The appellant cannot change its stand and now say that the said group companies are independent corporate entities. If that be so then the third respondent is deemed to have no connection with the first respondent and for the dues of the first respondent, the electricity connection of the third respondent cannot be cut off." (This Court)

"Any person is entitled to seek a declaration whether it has any liability towards any other person." (This Court)

Final determinations:

- The debts of the first respondent towards the appellant not included in the approved CIRP resolution plan before the effective date stand extinguished.

- The first respondent has locus standi to challenge the demand notice issued to its group company.

- The CIRP resolution plan remains valid and binding unless set aside by a competent authority under the Code.

- The High Court will exercise writ jurisdiction sparingly in insolvency matters where alternative remedies exist.

- The impugned demand notice dated 12th June, 2023 is set aside, and the appellant is restrained from enforcing it.

The core legal questions considered by the Court are:

(a) Whether the moratorium and protection against suits or proceedings imposed under the Insolvency and Bankruptcy Code, 2016 (IBC), specifically Sections 14, 33(5), and 32A, override the provisions of the Foreign Exchange Management Act, 1999 (FEMA) with respect to attachment, seizure, or other legal proceedings against the corporate debtor's assets during the Corporate Insolvency Resolution Process (CIRP) and liquidation;

(b) Whether the issuance of provisional seizure orders and notices under FEMA against the corporate debtor's assets during liquidation violates the moratorium under the IBC;

(c) Whether the initiation or continuation of proceedings under FEMA that commenced prior to the CIRP/liquidation order are barred by the moratorium under the IBC;

(d) Whether the liquidator has locus to challenge seizure orders and notices issued under FEMA;

(e) The applicability and interpretation of Section 32A of the IBC concerning protection of property covered under resolution plans or liquidation sales from attachment or seizure;

(f) The effect of the non-obstante clause in Section 238 of the IBC on conflicting provisions in other laws such as FEMA;

(g) Whether the Enforcement Directorate (ED) can proceed against directors or officers individually liable for offences committed prior to CIRP notwithstanding the moratorium;

(h) The procedural propriety and jurisdiction of the ED in issuing seizure orders and notices under FEMA during the liquidation process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Moratorium under IBC vis-`a-vis FEMA proceedings and seizure orders

Legal Framework and Precedents: Sections 14 and 33(5) of the IBC prohibit initiation or continuation of suits or proceedings against the corporate debtor once CIRP or liquidation commences, respectively. Section 32A(2) further protects the property of the corporate debtor from attachment or seizure if covered under an approved resolution plan or liquidation sale to a person not connected with the debtor or involved in the offence. Section 238 of the IBC contains a non-obstante clause stating that its provisions prevail over inconsistent laws. FEMA, lacking such a clause, regulates foreign exchange violations, including attachment and seizure under Section 37A.

Supreme Court precedents (Paschimanchal Viduyt Vitran Nigam Ltd., Sundaresh Bhatt Liquidator of ABG Shipyard, Duncans Industries Limited, Innovative Industries Limited, Principal CIT v. Monet Ispat and Energy Limited) have consistently held that the IBC's provisions override conflicting laws due to Section 238.

Ramsarup Industries Limited judgment recognized that confirmatory orders issued during pendency of writ petitions challenging provisional attachment under FEMA do not render the writ petitions infructuous, and the moratorium under IBC applies to FEMA proceedings.

Court's Interpretation and Reasoning: The Court emphasized that once CIRP commenced on 12.02.2018 and liquidation was ordered on 14.09.2018, the moratorium under Sections 14 and 33(5) of the IBC applied. This moratorium prohibits seizure or attachment of the corporate debtor's assets, which are to be managed and sold only through CIRP or liquidation processes. The issuance of the provisional seizure order dated 30.11.2022 and the subsequent notice dated 30.01.2023 under FEMA, therefore, violated this moratorium.

The Court noted that FEMA proceedings initiated on 15.11.2016 (prior to CIRP) do not override the moratorium because Section 14 prohibits continuation of pending suits or proceedings. Hence, the moratorium applies not only to new proceedings but also to continuation of existing ones.

Key Evidence and Findings: The seizure order related to 39 immovable properties and bank accounts of the corporate debtor. The petitioner, acting as liquidator, challenged these orders as infringing the moratorium. The ED contended that these proceedings under FEMA predated CIRP and were thus valid, but the Court found the moratorium applicable regardless of initiation date.

Application of Law to Facts: The Court applied Section 33(5) to hold that no legal proceedings, including seizure, could be instituted against the corporate debtor's assets after the liquidation order without prior approval of the Adjudicating Authority. The seizure and notice under FEMA were thus impermissible.

Treatment of Competing Arguments: The ED argued that the seizure was part of ongoing FEMA proceedings and that Section 32A(2) of the IBC did not bar such action as the liquidator was not a third party purchaser of liquidation assets. The Court rejected this, stating that Section 32A protects assets from seizure once CIRP/liquidation commences, and the liquidator cannot be treated as a 'person' acquiring assets through sale. The ED's reliance on the initiation date of FEMA proceedings was also rejected.

Conclusion: The moratorium under the IBC overrides FEMA provisions; seizure and notices issued under FEMA during liquidation without Adjudicating Authority's approval violate the moratorium and are liable to be quashed.

Issue (c): Continuation of FEMA proceedings initiated prior to CIRP/liquidation

Legal Framework: Section 14 of the IBC prohibits continuation of pending suits or proceedings against the corporate debtor after CIRP commencement. Section 33(5) extends this moratorium during liquidation.

Court's Reasoning: The Court held that the initiation date of FEMA proceedings (15.11.2016) is irrelevant because Section 14 prohibits continuation of pending proceedings post-CIRP. Therefore, the moratorium applies to ongoing FEMA proceedings as well.

Conclusion: Continuation of FEMA proceedings against the corporate debtor during CIRP/liquidation is barred by the moratorium.

Issue (d): Locus of the liquidator to challenge seizure orders and notices

Arguments: The ED contended that the liquidator had no jurisdiction to challenge seizure orders under FEMA, especially those involving properties not belonging to the corporate debtor.

Court's Analysis: The liquidator, as an officer appointed by the NCLT to manage and realize the corporate debtor's assets, has the duty and locus to protect the assets from unauthorized attachment or seizure. The Court accepted the liquidator's standing to file the writ petition challenging the seizure and notices.

Conclusion: The liquidator has the locus to challenge seizure orders and notices issued against the corporate debtor's assets during liquidation.

Issue (e): Interpretation of Section 32A of the IBC

Legal Framework: Section 32A(2) prohibits action against property of the corporate debtor in relation to offences committed prior to CIRP commencement where such property is covered under an approved resolution plan or sold as liquidation assets to persons not connected with the debtor or involved in the offence.

Court's Reasoning: The Court noted that Section 32A is disjunctive and applies either when a resolution plan is approved or liquidation assets are sold to a third party. In the present case, no sale of liquidation assets had occurred to a third party; the petitioner was the liquidator, not a purchaser. Therefore, Section 32A did not bar the seizure order on this ground, but the moratorium under Sections 14 and 33(5) did.

Conclusion: Section 32A does not apply to seizure during liquidation before sale of assets; however, moratorium provisions under the IBC prohibit such seizure.

Issue (f): Effect of Section 238 of the IBC (non-obstante clause)

Legal Framework: Section 238 states that the IBC's provisions prevail notwithstanding anything inconsistent in other laws.

Precedents: The Court relied on several Supreme Court decisions holding that IBC overrides other statutes including Electricity Act, Customs Act, Tea Act, Maharashtra Relief Undertaking Act, and Income Tax Act due to Section 238.

Court's Interpretation: Since FEMA does not contain a non-obstante clause, the moratorium and other provisions of the IBC override FEMA provisions to the extent of inconsistency.

Conclusion: Section 238 of the IBC ensures that the moratorium and protections under the IBC prevail over FEMA provisions.

Issue (g): Proceedings against directors or officers individually liable

Legal Framework and Precedents: The NCLT in Assistant Director, ED v. Raj Kumar Ralhan held that while moratorium applies to the corporate debtor, proceedings can continue against directors or officers individually liable for pre-CIRP offences.

Court's Reasoning: The Court noted that while the moratorium protects the corporate debtor's assets, it does not bar proceedings against individuals responsible for offences prior to CIRP.

Conclusion: Proceedings may be initiated or continued against directors or officers individually liable notwithstanding the moratorium.

Issue (h): Procedural propriety and jurisdiction of ED in issuing seizure orders during liquidation

Arguments: The ED argued that seizure orders and notices under Section 37A of FEMA were issued in compliance with statutory provisions and were intermediate actions in ongoing proceedings.

Court's Analysis: The Court held that issuance of seizure orders and notices during liquidation without prior approval of the Adjudicating Authority under the IBC moratorium was impermissible. The existence of ongoing appeal proceedings and status quo orders before the Appellate Tribunal did not validate the seizure.

Conclusion: The seizure orders and notices issued by the ED during liquidation without compliance with the moratorium and without prior approval are invalid and liable to be quashed.

3. SIGNIFICANT HOLDINGS

"The provisions of the IBC would override the provisions of the FEMA. Therefore, the moratorium under the IBC would override the provisions of the FEMA."

"Section 14 of the IBC prohibits the initiation of suits or continuation of pending suits or proceedings against the corporate debtor following the initiation of CIRP."

"Subject to Section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor."

"Section 238 of the IBC clearly stated that 'The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of such law.'"

"The issuance of the provisional seizure order was in complete disregard of the moratorium prescribed by Section 33(5) of the IBC."

"A proceeding can fairly be initiated against the erstwhile Director and the Officer of the corporate debtor, if they are found to be individually liable."

The Court quashed the impugned provisional seizure order and notices issued under FEMA during liquidation, holding them to be in violation of the moratorium under the IBC.

The Court established the core principle that the IBC's moratorium provisions prevail over other laws lacking a non-obstante clause, including FEMA, thereby protecting the corporate debtor's assets during CIRP and liquidation from seizure or attachment except with prior approval of the Adjudicating Authority.

Finally, the Court allowed the writ petition, quashing the seizure and notice, but clarified that proceedings against individual directors or officers may continue if liability is established.

1. Whether the Corporate Insolvency Resolution Process ("CIRP") can be initiated solely on the basis of an unpaid interest component of an operational debt, after the principal amount has been fully paid by the Corporate Debtor.

2. Whether the interest claimed on delayed payments forms part of the operational debt under the IBC and whether it can be aggregated with the principal amount to meet the threshold limit prescribed under Section 4 of the IBC.

3. Whether unilateral invoices containing interest clauses, not incorporated in the underlying Supply Agreement and not acknowledged or accepted by the Corporate Debtor, can create a binding obligation to pay interest on delayed payments.

4. Whether the provisions of other statutes such as the Micro, Small and Medium Enterprises Development Act, 2006 ("MSME Act") or the Interest Act, 1978, can be invoked before the Adjudicating Authority or Appellate Tribunal to enforce interest claims in CIRP proceedings.

5. Whether pursuing CIRP proceedings solely for recovery of disputed interest amounts, after payment of principal, constitutes an abuse or misuse of the IBC process.

Issue-wise Detailed Analysis:

Issue 1 & 2: Maintainability of CIRP Petition Solely on Interest Component and Aggregation of Interest with Principal for Threshold under IBC

The legal framework under Section 4 of the IBC requires that the operational debt must meet a minimum threshold (Rs. 1 crore in this case) for initiating CIRP. Section 3(6) defines "operational debt" to include any debt in respect of the provision of goods or services including interest payable thereon. The Appellant argued that the total operational debt must be computed by aggregating both principal and interest components, relying on precedents where interest stipulated in invoices was held to be part of operational debt. Regulation 7(2)(b)(ii) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") recognizes invoices as sufficient proof of operational debt.

The Appellant relied on judgments of this Tribunal which held that interest stipulated in invoices forms part of operational debt and cannot be bifurcated from principal for the purpose of determining maintainability of Section 9 petitions.

However, the Tribunal examined the underlying Supply Agreement dated 09.10.2018 governing the parties' relationship. The relevant clauses on payment terms and Schedule-D did not provide for payment of interest on delayed payments. There was no evidence of any amendment or mutual consent to include interest payment terms in the contract. The reconciliation statements also did not mention interest. The Tribunal held that in absence of a contractual provision or mutual consent, unilateral invoices containing interest claims, not acknowledged or accepted by the Corporate Debtor, cannot override the terms of a bi-partite agreement.

The Tribunal referred to a prior decision of the Tribunal which held that if no interest is payable under the contract, only the principal amount constitutes the operational debt for Section 9 proceedings. The interest claim, if disputed, must be pursued before a competent civil court and cannot form the basis for initiating CIRP.

Further, the Tribunal noted that the principal amount was paid after reconciliation and the Appellant's insistence on the same interest amount despite reduction in principal lacked credible explanation, suggesting an artificial inflation of the claim to meet the threshold.

Thus, the Tribunal concluded that the Section 9 petition was rightly dismissed as non-maintainable since the principal was paid and the interest claim was unsubstantiated and disputed.

Issue 3: Binding Nature of Unilateral Invoices Containing Interest Clauses

The Appellant contended that the interest clause in invoices, regularly issued and acted upon by the Respondent without protest, constituted a valid contractual term under Regulation 7(2)(b)(ii) of CIRP Regulations and relevant case law. The Respondent denied any contractual basis for interest, emphasizing the absence of any clause in the Supply Agreement and lack of mutual acceptance of interest terms.

The Tribunal emphasized that invoices, while relevant, cannot override the terms of a written contract unless there is evidence of mutual consent or conduct indicating acceptance of new terms. The absence of any prior payment or acknowledgment of interest by the Respondent and the absence of counter-signature on invoices negated the unilateral imposition of interest. The Tribunal relied on the principle that contractual terms prevail over unilateral documents and that mutual consent is essential to create binding obligations.

Issue 4: Applicability of MSME Act and Interest Act in CIRP Proceedings

The Appellant invoked Sections 15 and 16 of the MSME Act which mandate payment of interest on delayed payments to MSMEs and also relied on the Interest Act, 1978, to justify the interest claim. The Tribunal observed that while these statutes may provide substantive rights, the Adjudicating Authority and the Appellate Tribunal under the IBC are not the appropriate forums to adjudicate such claims. The IBC process is focused on insolvency resolution and not on determination of contractual or statutory interest claims which are to be adjudicated by civil courts or other competent forums.

Issue 5: Abuse of IBC Process by Pursuing CIRP Solely for Interest Recovery

The Respondent argued that the appeal was a misuse of the IBC provisions since the principal amount was fully paid and only a disputed interest claim remained. The Tribunal agreed that IBC is not a debt recovery mechanism but a tool for insolvency resolution. Initiating CIRP solely for recovery of disputed interest amounts, especially after full payment of principal, amounts to abuse of process and malafide intent. The Tribunal relied on prior decisions holding that once undisputed principal is paid, Section 9 petitions based solely on disputed interest claims are not maintainable and should be pursued before civil courts.

Significant Holdings:

"If in terms of any agreement interest is payable to the Operational or Financial Creditor then debt will include interest, otherwise, the principal amount is to be treated as the debt which is the liability in respect of the claim which can be made from the Corporate Debtor."

"In the absence of any Agreement, no such amount [interest] can be claimed."

"Unilaterally generated invoices signed by only one party cannot overrun or recast the terms of bi-partite agreements and create binding obligations on the other party to pay interest."

"The provisions of IBC cannot be turned into a debt recovery proceeding."

"Initiation of Corporate Insolvency Resolution Process is not the answer for disputed interest claims after payment of principal."

The Tribunal established the core principle that operational debt under IBC includes interest only if it is contractually agreed or mutually accepted. Mere unilateral invoices containing interest claims without contractual basis or acceptance do not constitute operational debt for triggering CIRP. Once the undisputed principal is paid, CIRP cannot be initiated solely on the basis of disputed interest claims. The IBC process is not a substitute for civil recovery proceedings and cannot be misused for enforcing disputed monetary claims.

Accordingly, the Tribunal upheld the Adjudicating Authority's dismissal of the Section 9 petition, finding no legally enforceable unpaid operational debt to trigger CIRP. The appeal was dismissed with no costs.

1. Whether the filing of an application by the Resolution Professional (RP) under Section 12A of the Insolvency and Bankruptcy Code (IBC), seeking withdrawal of the Corporate Insolvency Resolution Process (CIRP) without payment of CIRP costs and fees, amounts to contempt of the Tribunal's order dated 13.01.2021.

2. Whether the order dated 13.01.2021, which set aside the appointment of the Applicant as RP but protected the CIRP costs and fees incurred by him, was violated by the Respondents in pursuing withdrawal of CIRP without settling the Applicant's fees.

3. The interpretation and application of Section 12A of the IBC and Regulation 30A of the CIRP Regulations regarding withdrawal of CIRP applications and the requirement of bank guarantees for CIRP expenses.

4. The scope and threshold for initiating contempt proceedings for alleged violation of judicial orders, particularly the element of wilful disobedience under the Contempt of Courts Act, 1971.

5. The effect of Committee of Creditors' (CoC) decisions, including rejection of CIRP expenses and fees, on the rights and remedies of the erstwhile RP.

6. The applicability of various Supreme Court precedents cited by the Applicant in support of contempt proceedings.

Issue-wise Detailed Analysis

Issue 1 & 2: Whether filing of Section 12A application for withdrawal of CIRP without payment of fees amounts to contempt of Tribunal's order dated 13.01.2021

The Tribunal first examined the factual background. The CIRP was initiated by NCLT Bengaluru against the Corporate Debtor (CD) based on an application by homebuyers. The Applicant was initially appointed as Interim Resolution Professional (IRP) but was replaced by Respondent No.1 as RP by the CoC. The Tribunal's order dated 13.01.2021 set aside the appointment of the Applicant as RP but expressly protected the CIRP costs and fees incurred by him and the actions taken during his tenure.

The Applicant contended that the Respondents' filing of an application under Section 12A seeking withdrawal of CIRP without payment of CIRP costs and fees violated this protective order and amounted to contempt.

The Tribunal analyzed the application filed by the RP under Section 12A, which was supported by CoC resolutions rejecting the payment of CIRP expenses of both the former RP (Applicant) and current RP. The CoC, consisting of homebuyers with modest financial means, unanimously decided not to approve the CIRP expenses and voted overwhelmingly to withdraw the CIRP and not proceed with liquidation.

The Tribunal noted that Section 12A, inserted by Act 26 of 2018, permits withdrawal of an admitted application under Sections 7, 9, or 10 of the IBC with the approval of 90% voting share of the CoC. Regulation 30A of the CIRP Regulations prescribes the procedure for such withdrawal applications, including the requirement of a bank guarantee for estimated expenses incurred.

However, the CoC requested waiver of the bank guarantee requirement due to their inability to bear expenses, which was supported by 99% vote share. The RP filed the withdrawal application accordingly, seeking waiver of the bank guarantee and approval of withdrawal.

The Tribunal held that the RP was statutorily obliged to file the withdrawal application once the CoC approved it with the requisite voting share. The filing of the application was in compliance with the IBC and CIRP Regulations and did not amount to wilful disobedience of the Tribunal's order dated 13.01.2021. The order had protected the fees and expenses of the Applicant but did not impose an obligation on the RP or CoC to pay those fees when the CoC had refused to approve them.

Issue 3: Interpretation of Section 12A and Regulation 30A of CIRP Regulations

Section 12A allows the Adjudicating Authority to permit withdrawal of an admitted application with 90% CoC approval. Regulation 30A outlines the procedure, including the filing of Form FA and submission of a bank guarantee for estimated expenses incurred. The Tribunal emphasized that the RP must file the withdrawal application after CoC approval, and the Adjudicating Authority may approve it subject to conditions including deposit of expenses or invocation of bank guarantee.

In the present case, the CoC, composed of financially constrained homebuyers, unanimously rejected payment of expenses and requested waiver of bank guarantee. The Tribunal found this to be a legitimate commercial decision of the CoC and not a violation of any order. The RP's filing of the withdrawal application was thus proper and in accordance with law.

Issue 4: Threshold for initiating contempt proceedings and element of wilful disobedience

The Tribunal extensively relied on Supreme Court precedents to elucidate the principles governing civil contempt proceedings. The Contempt of Courts Act, 1971 defines civil contempt as wilful disobedience of a court order. The mental element of wilfulness requires deliberate, conscious, and intentional violation beyond mere negligence or inadvertence.

The Tribunal cited authoritative judgments emphasizing that contempt proceedings are quasi-criminal and require proof beyond reasonable doubt. Mere non-compliance or disputed factual issues do not suffice. The court must consider the entire order and the context, and if two reasonable interpretations exist, contempt cannot be presumed.

The Tribunal also highlighted that contempt jurisdiction cannot be used as a substitute for regular legal remedies and that the court should not conduct a roving inquiry into disputed facts in contempt proceedings.

Applying these principles, the Tribunal found no evidence of wilful disobedience by the Respondents. The RP acted pursuant to CoC decisions and statutory provisions. The Applicant's grievance related to non-payment of fees, which is a matter for adjudication under appropriate legal proceedings, not contempt.

Issue 5: Effect of CoC decisions rejecting CIRP expenses and fees

The Tribunal noted that the CoC unanimously rejected the CIRP expenses of both the former RP and the current RP, citing their inability to bear the costs. The CoC also voted overwhelmingly to withdraw the CIRP and not proceed with liquidation.

The Tribunal observed that the order dated 13.01.2021 protected the fees and expenses incurred but did not create an enforceable obligation on the CoC or RP to pay those fees if the CoC refused approval. The CoC's commercial wisdom in rejecting expenses is binding, and the RP cannot be held liable for non-payment.

The Tribunal further noted that the Applicant's remedy lies in appropriate proceedings for recovery of fees and not in contempt proceedings against the RP or CoC.

Issue 6: Applicability of Supreme Court precedents relied upon by the Applicant

The Tribunal examined the judgments cited by the Applicant, including a recent Supreme Court decision on contempt jurisdiction and other decisions relating to payment of fees and salaries in CIRP contexts.

The Tribunal distinguished the facts of those cases from the present matter, noting that none supported the initiation of contempt proceedings against the Respondents for filing a withdrawal application under Section 12A in compliance with CoC decisions and statutory provisions.

The Tribunal emphasized that the present case involved no deliberate attempt to frustrate or circumvent the Tribunal's order but rather a bona fide exercise of statutory rights by the RP and CoC.

Conclusions

The Tribunal concluded that the filing of the withdrawal application by the RP under Section 12A, with CoC approval and waiver of bank guarantee, did not violate the order dated 13.01.2021. There was no wilful disobedience or contumacious conduct warranting contempt proceedings.

The Tribunal rejected the contempt application, holding that the Applicant's grievance regarding non-payment of fees must be pursued through appropriate legal remedies and not by way of contempt.

Significant Holdings

"The filing of the Application by the RP was statutory obligation of the RP. We have further noticed that CoC, who has to pay the fee and expenses has disapproved the payment of CIRP and fee and expenses to both the former RP (Applicant) and the present RP (Respondent No.1) as noticed above. The CoC having not approved CIRP fee and expenses, no action can be initiated on Respondent Nos.1 and 2."

"The law for initiating proceedings of civil contempt are well settled. Willful violation of order passed by Court can give cause for initiating contempt proceedings against the delinquent."

"The Contempt of Courts Act, 1971 explains a civil contempt to mean a wilful disobedience of a decision of the Court. Therefore, what is relevant is the 'wilful' disobedience. Knowledge acquires substantial importance qua a contempt order."

"If two views are possible, the element of wilfulness vanishes as it involves a mental element. It is a deliberate, conscious and intentional act. What is required is a proof beyond reasonable doubt since the proceedings are quasi-criminal in nature."

"The order dated 13.01.2021 only protected the fee and expenses of the Applicant, who was erstwhile RP. When the CoC, who is to make the payment of the CIRP fee and expenses is unable to bear the fee and expenses and they have decided to withdraw the CIRP... filing of the Application by RP for withdrawal, cannot amount to contempt of order of this Tribunal dated 13.01.2021."

"The contempt jurisdiction of this court cannot be construed by any formulaic or rigid approach... The authority of courts must be respected not only in the letter of their orders but also in the broader spirit of the proceedings before them."

"Any contumacious conduct of the parties to bypass or nullify the decision of the court or render it ineffective, or to frustrate the proceedings of the court, or to enure any undue advantage therefrom would amount to contempt."

"We are satisfied that no case has been made out for initiating any contempt proceedings against Respondent Nos.1 and 2 for alleged violation of order dated 13.01.2021 passed by this Tribunal."

The Tribunal considered the following core legal questions:

(a) Whether the Applicant, as an unsuccessful Resolution Applicant, has locus to challenge the approval of the Resolution Plan of Respondent No. 3 by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 ("Code").

(b) Whether the principles of natural justice were violated in the process of approval of the Resolution Plan, particularly regarding the Applicant's claim that ongoing discussions indicated that resolution plans would not be put to vote.

(c) Whether the revised financial proposal submitted by the Applicant after the approval of Respondent No. 3's Resolution Plan should be considered by the CoC in the interest of value maximization of the Corporate Debtor.

(d) Whether Respondent No. 3 is an eligible Resolution Applicant under Section 29A of the Code, specifically concerning:

(i) The classification of Indrajit Power Private Limited (IPPL) as a Non-Performing Asset (NPA) and its relationship with Respondent No. 3;

(ii) The applicability of Explanation II to Section 29A(c) granting immunity;

(iii) The interpretation of "connected person" under Section 29A(j) and whether IPPL qualifies as such;

(iv) The implications of shareholding, control, and management relationships between Respondent No. 3, its subsidiaries, and IPPL;

(e) Whether the Committee of Creditors' commercial wisdom, including the methodology of bid evaluation and negotiation process, is subject to judicial review.

(f) Whether any delay or failure in implementation of other resolution plans connected to Respondent No. 3 impacts its eligibility under Regulation 38(1B) of the CIRP Regulations, 2016.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Locus of the Applicant to challenge the Resolution Plan approval

Relevant legal framework includes the non-justiciability principle of CoC's commercial wisdom as established in the Supreme Court judgment in K. Sashidhar v. Indian Overseas Bank. The Court emphasized that the decision of the CoC to approve or reject a resolution plan is not ordinarily subject to judicial interference.

The Tribunal acknowledged the Applicant's lack of locus as an unsuccessful bidder but allowed the Applicant to raise the eligibility issue of the successful Resolution Applicant under Section 29A, which is a matter the Tribunal is duty-bound to examine under Section 31 of the Code.

The Applicant's challenge to the process and value maximization was rejected on grounds that the Applicant had ample opportunity to participate and improve its bid within stipulated timelines and did not request extension beyond the permitted period.

The Tribunal found no violation of natural justice or discrimination against the Applicant during the negotiation and bidding process. The Applicant's attempt to submit a superior financial offer post-closure of bidding was held impermissible.

(b) Alleged violation of natural justice and process fairness

The Applicant contended that ongoing discussions gave rise to a belief that resolution plans would not be put to vote and that its revised financial proposal was not considered.

The Tribunal reviewed the negotiation rounds, noting that the Applicant was granted extensions due to personal reasons and was given fair opportunity to improve bids. The Applicant failed to meet the minimum bid requirements in the final rounds and was disqualified accordingly.

The Tribunal held that the CIRP is a time-bound process and cannot be extended indefinitely under the guise of value maximization. The commercial wisdom of the CoC in conducting negotiations and bid evaluation is non-justiciable.

(c) Consideration of revised financial proposal by the Applicant post-approval

The Applicant submitted a revised financial proposal after the CoC had approved Respondent No. 3's plan and sought its consideration to maximize value for stakeholders.

The Tribunal rejected this plea on the basis that the Applicant did not seek extension or permission to submit revised bids within the prescribed timelines, and the CoC is not obligated to consider bids submitted after closure of the process. The Applicant's claim was held to be an attempt to delay the CIRP.

(d) Eligibility of Respondent No. 3 under Section 29A of the Code

The Tribunal undertook a detailed examination of the eligibility criteria under Section 29A, focusing on subsections (c) and (j) and the related Explanation II.

(i) NPA classification and timing

Section 29A(c) disqualifies a person if an account under their control has been classified as NPA for over one year prior to the insolvency commencement date. IPPL was classified as NPA on 12.01.2022, and the CIRP for the Corporate Debtor commenced on 12.08.2022, less than one year later.

The Tribunal relied on precedent where similar facts led to the conclusion that the one-year disqualification period had not elapsed, thus Respondent No. 3 was eligible on the date of resolution plan submission.

Explanation II grants immunity to a resolution applicant who acquired the account through an approved resolution plan within the last three years, which further supports Respondent No. 3's eligibility.

(ii) Connected person and associate company analysis

The Applicant argued that IPPL is a connected person of Respondent No. 3 due to shareholding by its subsidiaries (EML and EVSL) and common beneficial ownership.

The Tribunal examined the definitions under Section 29A(j), Explanation I, and the Companies Act, 2013, including the concepts of "associate company," "control," and "related party."

It was noted that:

• IPPL is not a holding, subsidiary, associate company, or related party of Respondent No. 3 as per statutory definitions.
• Respondent No. 3 is a foreign company not incorporated under the Companies Act, but the Tribunal rejected the argument that this excludes it from being considered a company for associate company purposes.
• EML and EVSL hold shares in IPPL but do not exercise control or management over IPPL as required to establish association or related party status.
• There is no evidence that any director or promoter of Respondent No. 3 is a director or exercises control over IPPL.
• Control under Section 2(27) of the Companies Act requires de facto or de jure control over management or policy decisions, which was not demonstrated.

Accordingly, IPPL does not qualify as a connected person under Section 29A(j), and Respondent No. 3 is not disqualified on this ground.

(iii) Alleged delay in implementation of other resolution plans

The Applicant alleged that NCRAL delayed implementation of a resolution plan for Crest Steel and Power Private Limited, which could impact Respondent No. 3's eligibility under Regulation 38(1B) of the CIRP Regulations.

The Tribunal found no evidence of failure in implementation; delay alone does not trigger disqualification. Thus, Regulation 38(1B) was not applicable.

(e) Commercial wisdom of the Committee of Creditors

The Tribunal reaffirmed the settled legal position that the CoC's commercial wisdom, including evaluation methodology and negotiation process, is not subject to judicial interference unless there is a violation of law or procedure.

The Applicant's challenge to the CoC's evaluation matrix and decision was dismissed as the Applicant had actively participated without objection during the process and raised issues only post facto.

3. SIGNIFICANT HOLDINGS

On the locus of unsuccessful Resolution Applicants:

"Though, the Applicant, being an unsuccessful Resolution Applicant, does not have locus to intervene the approved Resolution Plan, the Counsel for the Applicant raised the issue of the eligibility of the Successful Resolution Applicant in terms of section 29A of the IB Code, apart from other issues. Since this Tribunal is duty bound to examine that the Resolution Plan placed before it for approval in terms of Section 31 of the IB Code is in compliance with the provisions of Code, this Tribunal considered it appropriate to grant opportunity to the Applicant to advance its arguments."

On time-bound nature of CIRP and bid submission:

"The CIRP is a time bound process and it has to be concluded at certain point of time. In the garb of value maximisation, the process could not be carried for an infinite time. It is not in dispute that the financial bids placed by each of Resolution Applicant were evaluated in terms of approved evaluation matrix and the financial bid of the Applicant was not superior to the bid of Respondent No. 3. The Applicant cannot be allowed to counter the bid of Respondent No. 3 after the closure of timelines in the garb of value maximisation."

On eligibility under Section 29A(c):

"Applying the ratio of decision in case of Avantha Holdings Ltd., the period of one year from the date of classification of account of IPPL as NPA i.e. 12.01.2022 has not elapsed on the commencement of CIRP in case of Corporate Debtor i.e. 12.08.2022, accordingly, it cannot be said that Respondent No. 3... was not qualified in terms of Section 29A(c). Further, Explanation II to Section 29A(c) only makes the provisions contained in clause (c) inapplicable if the conditions specified therein are satisfied."

On definition of connected person and associate company:

"The word 'Control' is defined in Section 2(27) of Companies Act, 2013 as... 'control' shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert... The expression 'control', in Section 29A(c), denotes only positive control... mere power to block special resolutions of a company cannot amount to control."

"IPPL is not a connected person of Respondent No. 3, accordingly, disqualification in terms of Section 29A(j) is not applicable in the present case."

On non-interference with CoC's commercial wisdom:

"The commercial wisdom of the CoC is not to be interfered with by the Tribunal... the methodology of calculation of NPV or conduct of the Negotiation process which lies within the ambit of the financial wisdom of the CoC is not commented upon by this Tribunal in the present application."

Final determination:

The Tribunal dismissed the application challenging the approval of the Resolution Plan of Respondent No. 3, holding that:

• The Applicant had no locus to challenge the plan approval except on eligibility grounds;
• The Applicant was given fair opportunity and failed to submit a superior bid within timelines;
• The revised financial proposal submitted post-approval could not be considered;
• Respondent No. 3 is eligible under Section 29A of the Code, as the NPA classification period had not elapsed and IPPL is not a connected person;
• The CoC's commercial wisdom and negotiation process are non-justiciable;
• No violation of natural justice or procedural irregularity was established.

1. Whether the applicant is prima facie guilty of the offence of money laundering under Section 3 read with Section 70 and punishable under Section 4 of the Prevention of Money Laundering Act, 2002 (PMLA), based on the allegations and evidence presented by the Enforcement Directorate (ED).

2. Whether the twin conditions mandated under Section 45 of the PMLA for grant of bail have been satisfied by the applicant, i.e., whether there are reasonable grounds to believe that the applicant is guilty of the offence and whether the applicant is not likely to commit any offence while on bail.

3. The legality and propriety of the applicant's arrest, including whether the grounds of arrest were properly communicated as required under Section 19 of the PMLA and constitutional mandates under Article 22 of the Constitution of India.

4. The relevance and impact of the pendency and stage of trial in the predicate/scheduled offence registered under the Indian Penal Code (IPC) and Prevention of Corruption Act (PC Act) on the proceedings under the PMLA.

5. Whether the applicant's role as alleged, particularly in connection with sham transactions and diversion of proceeds of crime through various entities including M/s Shivakriti Agro Pvt. Ltd. and Umaiza Infracon LLP, is established sufficiently to deny bail.

6. The applicability of judicial precedents regarding the grant of bail in PMLA cases, especially in light of the right to speedy trial and liberty under Article 21 of the Constitution of India.

7. The effect of setting aside of the fraud declaration by Punjab National Bank (PNB) on the legitimacy of the FIR and ongoing criminal investigation.

Issue-wise Detailed Analysis

1. Prima Facie Guilt and Role of the Applicant in Money Laundering

The relevant legal framework includes Sections 3, 4, and 70 of the PMLA, which criminalize money laundering and prescribe punishment for the offence. The predicate offence under IPC Sections 120B, 406, 409, 420 and PC Act Section 13(2) read with 13(1)(d) forms the basis for the money laundering charge.

The ED's case alleges that the applicant, initially an employee and later COO, director, and shareholder of M/s Shivakriti Agro Pvt. Ltd., was instrumental in diverting proceeds of crime through sham transactions involving various entities controlled by ex-directors/promoters of the accused company, M/s Sunstar Overseas Ltd. The applicant is said to have facilitated concealment, diversion, and projection of proceeds of crime as untainted property, including involvement in job work agreements that allowed use of accused company's assets to siphon funds.

The Court noted the statements recorded under Section 50 of the PMLA from the applicant and co-accused, which implicated the applicant as a key managerial person and confidante of the main beneficiary, Rohit Aggarwal. However, the applicant contended that these statements lack corroborative evidence and are inadmissible without a money trail directly linking him to proceeds of crime.

The Court observed that while the allegations are serious, the main beneficiaries and promoters named in the predicate offence have not been arrested, and some co-accused remain at large or are on bail, which raises questions about selective arrests.

2. Applicability of Section 45 of the PMLA and Bail Conditions

Section 45 of the PMLA imposes stringent conditions for grant of bail, requiring satisfaction of twin conditions: reasonable grounds to believe the accused is guilty and no likelihood of committing further offences while on bail.

The Court examined whether these conditions were met. The applicant argued that he has cooperated with investigation, is not a flight risk, and has roots in society. The ED countered that the applicant's involvement in diversion of funds and sham transactions warranted denial of bail.

The Court referred extensively to recent Supreme Court precedents, particularly V. Senthil Balaji and Vijay Nair, which emphasize that while PMLA imposes a higher threshold for bail, Constitutional Courts retain the power to grant bail on grounds of violation of Article 21, especially where trial is unlikely to conclude in reasonable time and incarceration has already been prolonged.

The Court noted that the applicant has been in custody for over 10 months, the trial in the predicate offence is at a preliminary stage with 98 witnesses cited, and the trial in the PMLA case has not commenced. The Court held that continued incarceration under such circumstances would violate the right to liberty and speedy trial.

3. Legality of Arrest and Communication of Grounds

The arrest of the applicant was challenged on the ground that the ED failed to provide written grounds of arrest as mandated under Section 19 of the PMLA and Articles 22(1) and 22(5) of the Constitution, which require that the arrested person be informed of the grounds of arrest to enable defense and bail application.

The Court relied on the judgment in Prabir Purakayastha, which distinguishes between general reasons for arrest and specific grounds of arrest, emphasizing that the latter must be personal and detailed. It was found that the arrest memo did not adequately communicate the grounds, rendering the arrest arbitrary and illegal.

4. Impact of Fraud Declaration Set Aside on FIR and Investigation

The applicant relied on an order setting aside the fraud declaration by PNB, arguing that the predicate offence's foundation is doubtful.

The Court referred to a Coordinate Bench judgment holding that procedural irregularities in fraud classification do not vitiate criminal investigations unless the FIR is malicious or lacks legal foundation. The criminal investigation can proceed independently of civil or administrative orders on fraud classification. Thus, the setting aside of the fraud declaration does not nullify the FIR or impede investigation.

5. Reliance on Statements under Section 50 of PMLA and Evidence

The applicant contended that the ED's case rests heavily on statements under Section 50 of the PMLA by co-accused, which are not substantive evidence and cannot alone justify arrest or denial of bail.

The Court acknowledged that such statements require corroboration and cannot be the sole basis for establishing guilt. The absence of direct money trail or material evidence linking the applicant to proceeds of crime weakens the case against him.

6. Trial Stage and Right to Speedy Trial

The Court emphasized the significance of the trial stage in the predicate offence and PMLA case. With the trial yet to commence and no likelihood of early conclusion, prolonged detention would infringe Article 21 rights.

Judicial precedents were cited to underscore that stringent bail provisions cannot override constitutional rights, and bail should be granted where trial delays are excessive and detention disproportionate.

7. Treatment of Competing Arguments and Parity

The applicant argued selective arrest and lack of parity with other accused who have not been arrested or have been granted bail. The Court noted this disparity and referred to Supreme Court observations that bail may be granted where the mastermind or main beneficiary remains at large, to prevent miscarriage of justice.

The ED maintained that the applicant's role was distinct and active, justifying arrest and denial of bail. However, the Court found that the absence of a money trail and the ongoing investigation militate against prolonged custody.

Conclusions

The Court concluded that the twin conditions under Section 45 of the PMLA do not operate to deny bail when the trial is unlikely to conclude in a reasonable time and the applicant has undergone substantial incarceration. The failure to provide grounds of arrest in writing rendered the arrest illegal. The absence of direct evidence linking the applicant to proceeds of crime and the pendency of trial further support bail.

The Court granted bail subject to stringent conditions including personal bond, informing change of address, restrictions on travel abroad, maintaining mobile connectivity, and prohibition on tampering with evidence or influencing witnesses, with liberty to the prosecution to seek cancellation if conditions are violated.

Significant Holdings

"The Constitutional Courts cannot allow provisions like Section 45 (1) (ii) to become instruments in the hands of the ED to continue incarceration for a long time when there is no possibility of a trial of the scheduled offence and the PMLA offence concluding within a reasonable time. If the Constitutional Courts do not exercise their jurisdiction in such cases, the rights of the undertrials under Article 21 of the Constitution of India will be defeated."

"The procedural irregularities in the fraud classification process do not ipso facto vitiate the criminal investigation unless it is shown that the FIR is malicious or lacks legal foundation altogether."

"There is a significant difference in the phrase 'reasons for arrest' and 'grounds of arrest'. The 'grounds of arrest' must convey all basic facts on which the accused is being arrested so as to provide an opportunity of defending himself."

"Bail is the rule, and jail is the exception."

"The stringent provisions for grant of bail under the PMLA do not take away the power of Constitutional Courts to grant bail on grounds of violation of Part III of the Constitution."

"The absence of a money trail or evidence linking the accused to proceeds of crime weakens the case for denial of bail."

(a) Whether the applicant, a Chartered Accountant and external statutory auditor of the accused company and related entities, is prima facie guilty of the offence of money laundering under Section 3/4 of the Prevention of Money Laundering Act, 2002 (PMLA), read with Section 45 of the PMLA and Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS)Rs.

(b) Whether the applicant's role as an external auditor, without managerial control or key personnel status, amounts to active involvement in the generation, acquisition, concealment, and projection of proceeds of crimeRs.

(c) Whether the twin conditions under Section 45 of the PMLA for grant of bail-absence of reasonable grounds to believe the accused is guilty and that the accused is not likely to commit any offence while on bail-are satisfied in the applicant's caseRs.

(d) Whether the prolonged incarceration of the applicant without trial violates the right to personal liberty under Article 21 of the Constitution of India, especially given the pendency and anticipated delay in trial of both the predicate offence and the PMLA complaintRs.

(e) Whether the applicant is a flight risk or likely to tamper with evidence or influence witnesses if enlarged on bailRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Prima facie guilt and role of the applicant as external auditor

The legal framework involves Section 3 and 4 of the PMLA, which criminalize money laundering activities including generation, acquisition, possession, concealment, or use of proceeds of crime. Section 45 of the PMLA imposes stringent conditions for grant of bail, requiring the accused to satisfy twin conditions relating to absence of reasonable grounds for believing guilt and no likelihood of committing offences while on bail.

The prosecution case, based on investigation by the Enforcement Directorate (ED), alleges that the applicant, as Chartered Accountant and auditor of the accused company and related entities such as M/s Shivakriti Agro Pvt. Ltd. and M/s Star Global Multi Ventures Pvt. Ltd., knowingly assisted in the diversion and siphoning off of funds amounting to approximately Rs. 539 Crores, which constituted proceeds of crime. The applicant is alleged to have acted beyond professional capacity by facilitating sham transactions, controlling dummy entities, and enabling the acquisition of the accused company through a resolution plan during the Corporate Insolvency Resolution Process (CIRP).

Key evidence includes statements under Section 50 of the PMLA by Ajay Soni, ex-director and shareholder of Shivakriti Agro Pvt. Ltd., who stated that the applicant directed operational control of the company to others and signed documents without knowledge of their contents. Email correspondence also implicates the applicant as a "deal maker" involved in fraudulent activities. Further, statements by other witnesses and seized digital records suggest the applicant's active role in arranging meetings and facilitating diversion of funds to entities such as Kalptaru Fincap Ltd. and Umaiza Infracon LLP.

The applicant's defense emphasizes his role as an external statutory auditor without managerial control or key personnel status under Section 2(51) of the Companies Act, 2013. He contends that he was not involved in day-to-day affairs or decision-making and that no direct evidence exists showing his involvement beyond professional auditing duties. The applicant also highlights that he ceased to be auditor of the accused company and related entities in 2017, prior to the alleged money laundering activities.

The Court noted reliance on precedents such as Manish Kothari v. Director of Enforcement, where bail was granted to an external auditor accused under similar circumstances. The Court recognized that at the bail stage, only a preponderance of probability is to be considered, not a final determination of guilt. The Court acknowledged that professional persons generally act on client instructions, and whether the applicant exceeded professional limits requires trial scrutiny.

Issue (c): Satisfaction of twin conditions under Section 45 of the PMLA for bail

The Court examined whether the respondent/ED had demonstrated reasonable grounds to believe the applicant guilty and whether the applicant was likely to commit offences if released on bail. The prosecution argued the applicant's involvement was central to the conspiracy and that he misused his professional knowledge to facilitate money laundering.

Conversely, the applicant demonstrated that he was not a beneficiary of the proceeds of crime, had only received professional fees, and cooperated with the investigation prior to arrest. The Court noted that key accused had not been arrested and that the applicant was not shown to have influence over internal affairs. No evidence was presented of tampering with evidence or influencing witnesses.

The Court also considered the absence of any provisional attachment of property belonging to the applicant and the fact that the chargesheet in the predicate offence had not named the applicant as accused but only as a witness. The Court found that the twin conditions were not sufficiently satisfied to deny bail.

Issue (d): Right to personal liberty and delay in trial

The Court referred extensively to the Supreme Court's decision in V. Senthil Balaji v. Deputy Director, Directorate of Enforcement, which held that the existence of the predicate offence is a sine qua non for the PMLA offence and that prolonged incarceration without trial violates Article 21. The Court emphasized the principle that "bail is the rule and jail is the exception," and that stringent bail conditions under PMLA cannot be used to incarcerate accused indefinitely.

The Court noted that the trial in the predicate offence was at an early stage (Section 207 CrPC), with 98 witnesses cited and thousands of documents involved, making expeditious trial completion unlikely. The PMLA complaint trial had also not commenced, with 26 witnesses cited and ongoing investigation. The Court observed that the applicant had been in custody for over 10 months and that continued detention would infringe the right to speedy trial and personal liberty.

The Court also relied on other Supreme Court pronouncements, including Vijay Nair v. Directorate of Enforcement and Udhaw Singh v. Enforcement Directorate, reinforcing the principle that constitutional courts can grant bail despite stringent statutory provisions when trial delays are unreasonable.

Issue (e): Flight risk and tampering with evidence

The Court found no evidence that the applicant was a flight risk or likely to tamper with evidence or influence witnesses. The applicant had furnished personal details, cooperated with investigation, and no adverse incidents were reported. The Court imposed conditions on bail to prevent tampering or absconding, including furnishing personal bond and sureties, informing the Court of any change of address, not leaving India without permission, keeping mobile numbers operational, and refraining from interfering with evidence or witnesses.

3. SIGNIFICANT HOLDINGS

"The Court at this stage is not required to record the positive finding of acquittal. Such finding can be recorded only after recording and appreciation of the evidence by the learned trial court. The case of the petitioner that Anubrata Mondal is shifting his blame on the petitioner only to save himself has to be tested during the course of the trial. Generally speaking, the professional would act on the instructions of his client. However, whether he has gone beyond his professional duty is something which is required to be seen and examined during the trial."

"The existence of scheduled offence is a sine qua non for alleging existence of proceeds of crime. The said existence of proceeds of crime at the time of trial of offence punishable under Sections 3 of the PMLA can be proved only if the predicate/scheduled offence is established in the prosecution of said offence."

"Bail is the rule, and jail is the exception. These stringent provisions regarding the grant of bail, such as Section 45 (1) (iii) of the PMLA, cannot become a tool which can be used to incarcerate the accused without trial for an unreasonably long time."

"The Constitutional Courts cannot allow provisions like Section 45 (1) (ii) to become instruments in the hands of the ED to continue incarceration for a long time when there is no possibility of a trial of the scheduled offence and the PMLA offence concluding within a reasonable time."

"The right of liberty and speedy trial guaranteed under Article 21 is a sacrosanct right which needs to be protected and duly enforced even in cases where stringent provisions have been made applicable by way of special legislation."

Final determinations:

(i) The applicant, as external statutory auditor, is not prima facie shown to have gone beyond professional capacity to the extent required to deny bail at this stage.

(ii) The twin conditions under Section 45 of the PMLA for denial of bail are not satisfied on the material before the Court.

(iii) Prolonged incarceration without trial would violate Article 21, given the early stage and anticipated delay in trial of both the predicate offence and PMLA complaint.

(iv) The applicant is not a flight risk nor likely to tamper with evidence, subject to conditions imposed by the Court.

Accordingly, the application for regular bail is allowed on furnishing personal bond and sureties with conditions to safeguard the investigation and trial process. The observations are confined to the bail application and are without prejudice to the merits of the case pending trial.

1. Whether the Enforcement Directorate (ED) had lawful authority to seize the BMW car owned by the petitioner-company and freeze its bank account under Section 17 of the PMLA Act.

2. Whether there exists a sufficient nexus or link between the petitioner-company and the alleged proceeds of crime connected to other accused persons involved in scheduled offences under the PMLA Act.

3. Whether the procedural safeguards and mandatory requirements prescribed under Section 17 of the PMLA Act were complied with by the Enforcement Directorate at the time of seizure and freezing.

4. Whether mere familial relationship between a director of the petitioner-company and an accused under the PMLA Act can justify the invocation of powers against the company itself.

5. The applicability of judicial guidelines concerning the release of seized properties and defreezing of bank accounts in the context of PMLA investigations.

Issue 1: Lawful Authority for Seizure and Freezing under Section 17 of PMLA Act

The legal framework governing the seizure of property and freezing of accounts under the PMLA Act is primarily Section 17. Sub-section (1) empowers an authorized officer to seize any property or record if he has reason to believe that a person has committed money laundering offences. Sub-section (1A) allows freezing of property where seizure is not practicable. Sub-section (2) mandates that the reasons for seizure or freezing, along with supporting material, be forwarded to the Adjudicating Authority in a sealed envelope. Sub-section (4) requires the officer to file an application within 30 days for retention of the seized or frozen property.

In interpreting these provisions, the Court referred extensively to a precedent from the Supreme Court, which emphasized that the belief of the authorized officer must be recorded in writing and that the procedural safeguards must be strictly followed to ensure fairness and legality. The freezing of bank accounts is also encompassed within the definitions of "property" and "records" under Section 2(v) and 2(w) of the PMLA Act, thus subject to the same procedural rigour.

In the present case, the Court found that the Enforcement Directorate did not comply with these procedural requirements. The impugned communication to the bank lacked any recorded belief or reasons justifying the freezing, and there was no evidence of forwarding such reasons to the Adjudicating Authority as mandated. The Court held that the seizure and freezing were therefore without authority of law and unsustainable.

Issue 2: Nexus Between the Petitioner-Company and Alleged Proceeds of Crime

The Enforcement Directorate's case was predicated on the investigation of an individual, Ratikant Rout, involved in scheduled offences such as extortion and illegal mining, and his alleged nexus with Chandra Sekhar Samal, a director of another company, M/s. Shree Constructions. The petitioner's company's director, Subhashree Priyadarsini, is the daughter of Chandra Sekhar Samal.

The Court scrutinized the evidence and found no material establishing any connection between the petitioner-company and the alleged proceeds of crime. The BMW car was purchased through a 100% bank loan from BMW Finance Group, and the petitioner-company had availed a substantial cash credit loan from Canara Bank for business operations. No link was demonstrated between these financial transactions and the criminal activities of the accused persons.

The Court emphasized that a juristic person such as the petitioner-company cannot be implicated merely on the basis of a familial relationship of one of its directors with an accused. The absence of any incriminating material or nexus rendered the seizure and freezing arbitrary and misconceived.

Issue 3: Compliance with Procedural Safeguards under PMLA Act

The Court highlighted the mandatory procedural steps under Section 17 of the PMLA Act, which include recording the officer's belief, forwarding the reasons and material to the Adjudicating Authority, and filing an application for retention of seized property within stipulated timelines. These safeguards are designed to balance the objectives of the PMLA with the protection of rights of persons or entities affected.

In the instant matter, the Enforcement Directorate failed to demonstrate adherence to these procedures. The seizure of the BMW car and freezing of the bank account was conducted mechanically without proper application of mind or compliance with statutory requirements. The absence of documented belief and failure to involve the Adjudicating Authority rendered the actions invalid.

Issue 4: Impact of Familial Relationship on Liability of the Company

The Court rejected the contention that the petitioner-company could be implicated solely based on the fact that one of its directors is the daughter of an accused person. It underscored the principle that a company is a separate legal entity and cannot be held liable for the acts or alleged crimes of its directors or their relatives without concrete evidence linking the company itself to the offence.

This principle safeguards against arbitrary extension of liability and ensures that investigations and enforcement actions are targeted and justified.

Issue 5: Judicial Guidelines on Release of Seized Property and Defreezing of Accounts

The petitioner relied on a recent judgment of the same High Court which formulated guidelines for the release of seized articles and bank accounts during PMLA investigations. The Court considered these guidelines relevant and applicable to the present case, reinforcing the view that seized properties and frozen accounts must be released if no material links or nexus are established and procedural requirements are not met.

Significant Holdings:

"A perusal of the above provision would indicate that the prerequisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering and there is need to seize any record or property found in the search. Such belief of the officer should be recorded in writing."

"The freezing or the continuation thereof is without due compliance of the legal requirement and, therefore, not sustainable."

"Merely because one of the Directors of the petitioner's company happens to be a daughter of one of the alleged accused in the PMLA Act, the company which is a juristic person cannot be roped in to the alleged crime under the PMLA Act."

"The seizure of the BMW car and freezing of the account of the petitioner's company maintained in ICICI Bank, Cuttack is without authority of law."

"The Seizing Authority has absolutely not applied his mind rather mechanically went ahead and seized the BMW car which appears to have been purchased by availing bank loan by the petitioner's company."

"No materials have been brought on record by the Enforcement Directorate to show that the acquisition of car is through the proceeds of crime."

"Since there is no material brought on record by the Enforcement Directorate against the petitioner's company showing its complicity, hence, the petitioner's company is entitled to the relief claim in this petition."

In conclusion, the Court determined that the seizure of the BMW car and freezing of the petitioner-company's bank account were illegal and without authority of law due to lack of nexus with proceeds of crime, absence of recorded belief by the authorized officer, non-compliance with procedural safeguards under Section 17 of the PMLA Act, and the improper extension of liability based on familial relations. The Court ordered immediate release of the seized vehicle and defreezing of the bank account, while clarifying that the Enforcement Directorate is not precluded from initiating lawful proceedings against the petitioner-company if future material evidence emerges during investigation.

The core legal questions considered by the Court are:

• Whether the transfer of development rights is liable for service tax under the applicable laws.
• The maintainability of the present appeal filed under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, in view of Sections 35G and 35L of the Central Excise Act, 1944, particularly concerning service tax matters.
• The applicability of limitation provisions to the appeal and whether the appeal can be entertained by the High Court or lies exclusively before the Supreme Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Transfer of Development Rights for Service Tax

The original order (Order-in-Original no. 27/PP/COMMR./CGST/AUDIT-II/2017-18 dated 28th March 2018) held that the transfer of development rights does not attract service tax. This finding was challenged by the Revenue Department but was rejected on the ground of limitation. The present appeal does not directly re-examine this substantive question but is premised on challenging the limitation ruling.

The Court did not delve into the substantive merits of whether transfer of development rights is taxable, as the impugned order primarily concerned limitation. However, the background indicates that the original authority had ruled against service tax liability on such transfer, and the Revenue's challenge was time-barred.

Issue 2: Maintainability of the Appeal under Section 35G and 35L of the Central Excise Act, 1944

The Court examined the provisions of Section 35G and 35L of the Central Excise Act, which govern the appellate jurisdiction in service tax matters. Section 35G provides for appeals to the High Court from orders of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), while Section 35L restricts appeals in certain cases to the Supreme Court.

The Respondent contended that the appeal was not maintainable before the High Court because the impugned order involved issues already decided or falling within the exclusive jurisdiction of the Supreme Court under Section 35L.

The Court relied heavily on its earlier decision in a similar matter (SERTA 2/2024), where it had analyzed the scope of appeals under these provisions. The Court referred to precedents including:

• Commissioner of Service Tax v. Ernst & Young Pvt. Ltd.
• Commissioner of Service Tax v. Delhi Gymkhana Club Ltd.
• Commissioner of Service Tax, Delhi v. Bharti Airtel Ltd.
• Commissioner of Service Tax v. Intertoll ICS CE Cons O & MPvt. Ltd.

In those decisions, the Court emphasized that where the impugned order deals with issues such as CENVAT credit, penalty imposition, or other substantive service tax questions, appeals lie only before the Supreme Court and not the High Court. Even if the CESTAT's order primarily addresses limitation, the nature of the original order must be considered to determine the correct appellate forum.

Applying this reasoning, the Court held that the present appeal was not maintainable before it, since the impugned order arose from a substantive order passed by the Commissioner concerning service tax liability and related issues. The appeal against such an order lies before the Supreme Court under Section 35L, not the High Court under Section 35G.

Issue 3: Application of Limitation and Extension of Time

The impugned order was challenged on the ground that the Revenue's appeal was barred by limitation. The Court noted that the CESTAT had rejected the Revenue's appeal on limitation grounds.

While dismissing the present appeal as not maintainable, the Court clarified that the dismissal would not preclude the Revenue from seeking remedies available under law, including invoking Section 14 of the Limitation Act, 1963, to condone delay for the period during which the appeal was pending before the High Court.

Further, the Court granted an extension of time to file the appeal before the Supreme Court till 15th July 2025, recognizing the request made by the Revenue's counsel.

3. SIGNIFICANT HOLDINGS

The Court held:

"Even in the present case, though CESTAT has only considered the issue of limitation and the said issue was framed for consideration vide order dated 23rd January, 2024, the nature of the order, which is appealed, has to be considered."

"Merely because CESTAT has only considered the issue of limitation, the present appeal cannot be filed in the High Court."

"In view of the above decisions and considering the nature of issues that have been decided vide the order dated 31st March, 2016, passed by the Commissioner of Service Tax as also the impugned order of the CESTAT dated 3rd July, 2023, this Court is of the opinion that an appeal against the said impugned order would lie, in terms of Section 35L of the Central Excise Act, 1944, to the Hon'ble Supreme Court."

"Therefore, the present appeal is dismissed as not maintainable."

"Needless to state that the dismissal of the present appeal would not preclude the Appellant from availing such remedies as may be available in accordance with law and seeking benefit under Section 14 of the Limitation Act, 1963, for the period during which the present appeal was pending before this Court."

Core principles established include:

• The appellate jurisdiction in service tax matters is governed strictly by Sections 35G and 35L of the Central Excise Act, 1944, with the Supreme Court having exclusive jurisdiction over certain substantive issues.
• The maintainability of an appeal before the High Court depends on the nature of the original order and the issues decided, not merely on the limited scope of the CESTAT's order (such as limitation alone).
• Limitation issues decided by CESTAT do not automatically confer jurisdiction on the High Court if the substantive order falls within the Supreme Court's exclusive appellate jurisdiction.
• The Revenue may seek extension of limitation under the Limitation Act even after dismissal of an appeal on maintainability grounds.

Final determinations:

• The appeal filed before the High Court under Section 35G of the Central Excise Act, 1944, challenging the CESTAT order on limitation, is not maintainable.
• The appropriate forum for appeal against the impugned order is the Supreme Court under Section 35L of the Central Excise Act.

The core legal questions considered by the Court in this matter are:

- Whether the show cause notice (SCN) issued under proviso to sub-section (1) of Section 73 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017, demanding service tax for the period April 2016 to June 2017, was time-barred under the statutory limitation prescribed in Section 73(1) of the Finance Act, 1994.

- Whether the Order-in-Original demanding service tax and imposing penalty and interest, passed after more than two years and seven months from the issuance of the SCN, violated the statutory time limit of one year prescribed under sub-section (4B) of Section 73 of the Finance Act, 1994.

- Whether the delay in adjudicating the demand order beyond the one-year period without sufficient explanation renders the order without jurisdiction and liable to be quashed.

- Whether the respondents should be prohibited from taking coercive action against the petitioner in light of the above time-barred proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the show cause notice was time-barred under Section 73(1) of the Finance Act, 1994

Relevant legal framework and precedents: Section 73(1) of the Finance Act, 1994 prescribes a time limit of 30 months for issuance of a show cause notice for recovery of service tax. The extended period of limitation is applicable only in cases involving willful suppression or misrepresentation of facts. The proviso to sub-section (1) allows invocation of an extended limitation period of five years in such cases.

Court's interpretation and reasoning: The SCN in question was issued on 11.10.2021 for the period April 2016 to June 2017. The respondents invoked the extended limitation period on the ground of willful suppression and misrepresentation. However, the petitioner challenged the validity of the SCN on the ground that it was time-barred as the extended period was not applicable.

Key evidence and findings: The Court noted the issuance date of the SCN and the period covered. The petitioner's submissions and replies were on record. The Court observed that the SCN was issued after the statutory period prescribed under Section 73(1) unless the extended period was validly invoked.

Application of law to facts: The Court considered whether the extended period was properly invoked. However, the primary focus shifted to the delay in adjudication rather than the issuance of the SCN itself.

Treatment of competing arguments: The petitioner argued strict adherence to limitation periods, while the respondents justified the extended period invocation due to alleged suppression. The Court acknowledged the invocation but emphasized procedural compliance thereafter.

Conclusion: The Court did not quash the SCN on limitation grounds alone but examined the subsequent delay in adjudication as more critical.

Issue 2: Whether the Order-in-Original passed after more than two years and seven months from the SCN violated the one-year adjudication period under Section 73(4B) of the Finance Act, 1994

Relevant legal framework and precedents: Sub-section (4B) of Section 73, inserted by Finance Act No. 2 of 2014, mandates that the adjudicating authority should complete proceedings within one year from the date of issuance of the SCN. The purpose is to ensure expeditious determination of tax liabilities, benefiting both revenue and taxpayers.

Several judgments of coordinate Benches of this Court, including M/s Kanak Automobiles Pvt. Ltd., Pawan Kumar Upmanyu, and M/s Power Spectrum, have interpreted this provision. The Hon'ble Delhi High Court judgments in L.R. Sharma & Co. and Sunder System Pvt. Ltd. were also cited, which emphasize that the limitation period is not absolute but requires the authority to take all possible steps to conclude proceedings within the stipulated time "where it is possible to do so."

Court's interpretation and reasoning: The Court examined the timeline of proceedings. The SCN was issued on 11.10.2021, and the petitioner's reply was received on 20.10.2021. However, no further action was taken by the department for over two years until the Order-in-Original was passed on 13.05.2024. The Court found that the file remained stagnant with no movement or recorded steps to adjudicate within the prescribed one-year period.

Key evidence and findings: The departmental records showed a draft SCN approval on 08.10.2021, SCN issuance on 11.10.2021, receipt of reply on 02.11.2021, and then no recorded activity until the order dated 13.05.2024. No reasons were furnished by the respondents for the delay or the failure to hold personal hearings or take steps within the statutory period.

Application of law to facts: The Court applied the principle from Siddhi Vinayak Syntex Pvt. Ltd. that where the legislature prescribes a time limit "where it is possible to do so," the authority must endeavor to adjudicate within that time unless genuine reasons prevent it. Keeping the matter in cold storage without action is impermissible.

Treatment of competing arguments: The respondents failed to justify the delay or show that it was not possible to adjudicate within one year. The Court rejected any implicit extension of time based on awaiting other decisions or administrative delays.

Conclusion: The delay of over two years without reasons was held to be unreasonable and violative of the statutory mandate under Section 73(4B). The adjudication order passed beyond the one-year period was thus without jurisdiction and liable to be quashed.

Issue 3: Whether the demand order passed without jurisdiction should be quashed and coercive steps restrained

Relevant legal framework and precedents: The principle of natural justice and statutory compliance requires that adjudication be completed within prescribed time limits. Failure to do so renders the order void or without jurisdiction. The Court relied on precedents emphasizing the need to protect taxpayers from undue delay and uncertainty.

Court's interpretation and reasoning: Given the delay and lack of justification, the Court held that the order was passed without jurisdiction. Consequently, the demand and penalty imposed could not be sustained.

Key evidence and findings: The absence of any departmental action for over two years and the lack of explanation in the counter affidavit were critical in this finding.

Application of law to facts: The Court applied the principle that delay caused by the department cannot be used to the detriment of the taxpayer and that the statutory time limit is mandatory in the absence of valid reasons.

Treatment of competing arguments: The respondents did not produce any valid explanation for the delay, and thus the Court found no merit in their defense.

Conclusion: The Court quashed the demand order and restrained the department from taking coercive action against the petitioner based on the invalid order.

Issue 4: Administrative oversight and departmental accountability

Consideration: The Court expressed concern over the departmental failure to act diligently and the pendency of the matter for more than two years without progress.

Conclusion: The Court directed the Chief Commissioner of CGST and CX to investigate the reasons for this failure and take appropriate action to prevent recurrence of such delays in other cases.

3. SIGNIFICANT HOLDINGS

- "No steps were taken in the entire one year period, which results in the frustration of the goal of expediency as required statutorily. We hence find that the proceedings cannot be continued."

- "When the legislature has used the expression 'where it is possible to do so', it means that if in the ordinary course it is possible to determine the amount of duty within the specified time frame, it should be so done... when a matter is consigned to the call book and kept in cold storage for years together, it is not on account of it not being possible for the authority to decide the case, but on grounds which are extraneous to the proceedings."

- "The adjudicatory authority is required to decide each case as it comes, unless restrained by an order of a higher forum."

- The Court held that the statutory limitation under sub-section (4B) of Section 73 of the Finance Act, 1994 is mandatory and requires the authority to complete adjudication within one year from issuance of the SCN, unless valid reasons exist.

- The demand order passed after more than two years without any recorded action or explanation is without jurisdiction and liable to be quashed.

- The Court emphasized the need for departmental accountability and directed the Chief Commissioner to examine the departmental failure in this case.

- The writ petition was allowed, quashing the impugned order and demand, and prohibiting coercive steps against the petitioner.

The core legal questions considered by the Court in this matter are:

• Whether service tax is leviable on the distribution of pre-paid and post-paid cellular connections (SIM cards) by a telecom service provider.
• Whether SIM cards and related items such as rechargeable coupons, fixed monthly charges, and value-added services constitute "goods" or "services" for the purpose of levy of sales tax and service tax.
• The applicability of precedents and statutory provisions, particularly under the Finance Act, 1994, and relevant sales tax laws, to the levy of tax on telecom-related transactions.
• The scope and effect of prior judicial decisions, including those of the Supreme Court and this High Court, on the taxability of SIM cards and associated telecom services.
• The procedural question of allowing the petitioner to respond to the show cause notice and the manner of adjudication of the tax demand.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Levy of Service Tax on Distribution of SIM Cards

Relevant legal framework and precedents: The Finance Act, 1994, particularly Section 65(105)(zzzx), defines "telecom services" and subjects them to service tax. The Court referred extensively to prior orders of this High Court and appellate authorities, as well as to the Supreme Court's rulings in cases such as "Idea Mobile Communication Ltd. vs. CCE & Customs" and "Bharat Sanchar Nigam Ltd. vs. The State of Andhra Pradesh Revenue Department." These precedents clarify the classification of telecom services and related goods for tax purposes.

Court's interpretation and reasoning: The Court observed that the issue has been consistently addressed in a series of orders by this Court and appellate authorities, which have held that the services provided by telecom operators, including the distribution of SIM cards, fall within the ambit of taxable services under the Finance Act. The Court noted that SIM cards, while physical items, are integrally connected to the service provided and are not to be treated merely as goods for sales tax purposes.

Key evidence and findings: The petitioner's challenge was to a show cause notice proposing service tax on SIM card distribution. The Court took note of the extensive prior adjudications and statutory interpretations that support the levy of service tax on such activities. The Court also considered the petitioner's submissions and the respondents' position.

Application of law to facts: Applying the settled legal principles, the Court found that the distribution of SIM cards is a taxable service activity and that service tax is leviable. The Court relied on the statutory definition of telecom services and the established jurisprudence that SIM cards are part of the service package rather than standalone goods.

Treatment of competing arguments: The petitioner argued against the levy, contending that SIM cards should be treated as goods subject to sales tax, not service tax. The Court, however, relying on authoritative precedents, rejected this contention, emphasizing the integrated nature of SIM cards with telecom services and the legislative intent reflected in the Finance Act.

Conclusions: The Court concluded that the show cause notice proposing service tax on SIM card distribution is legally sustainable and that the petitioner is entitled to file a reply and be heard before any final order is passed.

Issue 2: Classification of SIM Cards and Related Items as Goods or Services

Relevant legal framework and precedents: The distinction between goods and services is critical for determining the applicable tax regime. The Court referred to the Supreme Court's judgment in "Tata Consultancy Services vs. State of A.P.", which held that physical media embedding software are goods, and to "Idea Mobile Communication Ltd. vs. CCE & Customs," which clarified that telecom services are taxable services. The Court also cited the Andhra Pradesh High Court's decision analyzed by the Supreme Court, which held that SIM cards, recharge coupons, fixed monthly charges, and value-added services are not goods but services.

Court's interpretation and reasoning: The Court adopted the reasoning that SIM cards and associated telecom services do not qualify as goods for sales tax but are services under the Finance Act. The Court highlighted that the physical SIM card is inseparable from the telecom service it enables, and therefore, the transaction is essentially a service provision.

Key evidence and findings: The Court reviewed the factual matrix and prior judicial findings that distinguished between physical goods like telephone handsets (which attract sales tax) and SIM cards (which do not). The Court noted that deposits and equipment like telephone sets are taxable under sales tax laws, whereas SIM cards and value-added services are not.

Application of law to facts: The Court applied the legal principles to the facts, confirming that SIM cards and related telecom services fall under the service tax net and are exempt from sales tax classification.

Treatment of competing arguments: The petitioner's reliance on the argument that SIM cards are goods was addressed by the Court through reference to binding precedents, which favored the classification as services. The Court also considered the revenue's position that sales tax applies to physical telecom equipment but not to SIM cards.

Conclusions: The Court upheld the classification of SIM cards and related telecom services as services liable to service tax, not as goods subject to sales tax.

Issue 3: Procedural Direction Regarding Show Cause Notice

Relevant legal framework and precedents: Principles of natural justice and statutory procedure require that the petitioner be given an opportunity to respond to the show cause notice before any final adjudication.

Court's interpretation and reasoning: The Court directed the petitioner to file a reply to the show cause notice within four weeks and mandated the respondents to pass orders after considering the petitioner's objections and affording a reasonable opportunity of hearing.

Key evidence and findings: The Court noted that the petitioner had not yet filed a reply and that the respondents had not passed any final order.

Application of law to facts: The Court ensured procedural fairness by ordering compliance with due process before any tax demand is finalized.

Treatment of competing arguments: No significant dispute arose regarding procedural fairness; the Court's direction was in line with established principles.

Conclusions: The petitioner was granted the opportunity to respond, and the respondents were directed to decide the matter in accordance with law and relevant precedents.

3. SIGNIFICANT HOLDINGS

"The issue stands covered by a series of orders of this Court... wherein it was held that SIM Cards, Rechargeable Coupons, Fixed Monthly Charges and Value-Added Services... are not 'goods'."

"Services provided by 'Telecom Service Provider' are subjected to levy under the Finance Act, 1994 [Section 65(105)(zzzx)]."

"No interference is called for especially in view of the fact that the High Court has taken note of all the decisions on the point."

"The petitioner would submit his reply to show cause notice within four weeks... Respondents shall pass orders taking into account the objections filed and after affording the petitioner a reasonable opportunity of hearing, in accordance with law and bearing in mind the above judgments."

Core principles established include:

• SIM cards and associated telecom services are to be treated as services for tax purposes under the Finance Act, 1994, and not as goods subject to sales tax.
• Service tax is leviable on the distribution of pre-paid and post-paid cellular connections by telecom service providers.
• Physical telecom equipment such as telephone handsets and modems remain subject to sales tax.
• Procedural fairness mandates that the taxpayer be given an opportunity to respond to show cause notices before final orders are passed.

Final determinations:

• The show cause notice proposing service tax levy on SIM card distribution is legally valid.
• The petitioner must file a reply within the stipulated time.
• The respondents must adjudicate the matter in accordance with law and relevant precedents, ensuring a fair hearing.
• The writ petition challenging the show cause notice is disposed of accordingly, without costs.

1. Whether the show cause notice (SCN) issued to the appellant was validly served, particularly given that it was sent by e-mail during the COVID-19 pandemic, and whether such service complies with the statutory requirements.

2. Whether the demand for service tax raised on the appellant based on third-party data from the Income Tax Department is sustainable, including the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994.

3. Whether the penalties under Sections 77(1) and 78 of the Finance Act, 1994 are rightly imposed on the appellant for alleged suppression and short payment of service tax.

4. The applicability and interpretation of Sections 73A and 73B of the Finance Act, 1994 regarding the recovery of service tax collected from customers but not deposited with the government, including interest liability.

Issue 1: Validity of Service of Show Cause Notice by E-mail

The appellant challenged the validity of the SCN on the ground that it was served by e-mail and not in the manner prescribed by law, contending that this rendered the proceedings void. The appellant relied on several precedents emphasizing strict adherence to prescribed modes of service to uphold the validity of proceedings.

The Tribunal examined the context of the COVID-19 pandemic and the lockdown restrictions prevailing at the time of service. It referred to the Supreme Court's suo-motu order dated 10.07.2020 in Writ Petition (C) No. 3/2020, which recognized the impossibility of physical service during the lockdown and permitted service of notices, summons, and pleadings by electronic means such as e-mail, fax, and instant messaging services, provided that e-mail service is simultaneously effected.

Given that the SCN was sent by e-mail, and the appellant responded to the notice and participated in personal hearings, the Tribunal held that the service was valid and in compliance with the law as modified by the extraordinary circumstances of the pandemic. It emphasized the binding nature of Supreme Court decisions under Article 141 of the Constitution of India, thereby rejecting the appellant's contention.

Issue 2: Sustainability of Service Tax Demand Based on Third-Party Data and Invocation of Extended Limitation Period

The demand arose from a significant discrepancy between the value of services declared in the appellant's Income Tax Returns (Rs. 20,34,42,788) and the value declared in their ST-3 service tax returns (Rs. 4,96,50,393) for the financial year 2014-15, resulting in a short payment of service tax amounting to Rs. 1,90,08,740.

The Department issued the SCN invoking the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, on the basis that the short payment was deliberate and willful suppression of facts, which came to light only through third-party data shared by the Income Tax Department under an approved Memorandum of Understanding (MOU) between CBDT and CBIC.

The appellant argued that since the value was declared in Income Tax Returns, the extended period could not be invoked, and the demand was vague.

The Tribunal analyzed the statutory provisions and relevant case law, including the following key points:

• Section 73(1) allows invoking the extended period of limitation where there is suppression of facts or misstatement with intent to evade tax.
• Third-party data from the Income Tax Department is a recognized and lawful source for detecting tax evasion, supported by MOUs signed in 2015 and 2020 between CBDT and CBIC.
• Precedents such as Inox Leisure Ltd. v. Commissioner of Service Tax (upheld by the Supreme Court), Cairn Energy India Pvt. Ltd., and Lakhan Singh & Co. establish that suppression of facts can be inferred from conduct and discrepancies, and that the extended limitation period is invocable in such cases.
• The onus is on the assessee to disclose correct details under the self-assessment scheme; failure to do so attracts extended limitation and penalties.

The Tribunal concluded that the appellant deliberately and willfully suppressed the taxable value in their ST-3 returns despite declaring higher values in Income Tax Returns, thereby justifying the invocation of the extended limitation period and confirming the demand.

Issue 3: Imposition of Penalties under Sections 77(1) and 78 of the Finance Act, 1994

The appellant contended that penalties were not imposable given the circumstances and the mode of service of the SCN.

The Tribunal held that once suppression of facts with intent to evade tax is established, penalties under Section 78 are mandatory and the discretion to reduce or waive penalty does not arise. It relied on authoritative decisions, including:

• R S Joshi v. Ajit Mills: mens rea is not essential for penalty in economic crimes.
• UOI v. Dharamendra Textile Processors: mandatory penalty provisions and absence of discretion in quantum.
• CCE & C v. Padmashri V.V. Patil S.S.K. Ltd.: mandatory imposition of penalty equal to duty in cases of evasion.
• UOI v. Rajasthan Spinning & Weaving Mills: clarification that mandatory penalty applies only when conditions are met, but once applicable, no discretion in quantum.

The Tribunal found that the appellant's conduct attracted the penal provisions and upheld the penalties imposed.

Issue 4: Applicability of Sections 73A and 73B Regarding Service Tax Collected but Not Deposited

The appellant challenged the demand of Rs. 2,13,981 for the period April 2014 to September 2014 on the ground that it was barred by limitation and that the demand under Section 73A was wrongly confirmed under Section 73.

The Tribunal analyzed Sections 73A and 73B, which mandate that any service tax collected from customers, whether legally payable or not, must be deposited with the government forthwith, and that interest is payable on such amounts.

The Tribunal referred to Board's Circular No. 334/4/2006-TRU dated 28.02.2006 clarifying these provisions, and relied on precedents such as Gurbani Security Pvt. Ltd., Chankakya Mandal Pariwar, Executive Engineer Nagpur, and Commissioner of Service Tax v. Silverline Estates, which confirm the mandatory nature of deposit and recovery of service tax collected but not deposited, irrespective of taxability of services.

The Tribunal held that the demand for the said amount was sustainable despite limitation, as the appellant had collected the amount from customers but failed to deposit it with the government, thereby attracting interest and liability under Section 73A and 73B.

Significant Holdings and Core Principles Established

"Service of notices, summons and pleadings etc. have not been possible during the period of lockdown because this involves visits to post offices, courier companies or physical delivery of notices, summons and pleadings. We, therefore, consider it appropriate to direct that such services of all the above may be effected by e-mail, FAX, commonly used instant messaging services, such as WhatsApp, Telegram, Signal etc. However, if a party intends to effect service by means of said instant messaging services, we direct that in addition thereto, the party must also effect service of the same document/documents by e-mail, simultaneously on the same date." (Supreme Court suo-motu order dated 10.07.2020)

"Any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government." (Section 73A(2), Finance Act, 1994)

"Where it is established that ingredients to attract operation of Section 78 of the Finance Act, 1994 are present in a case, the discretion to quantify the amount of penalty ends." (Tribunal reasoning)

"Under self-assessment scheme, onus of assessee to disclose information to department has become more important - Demand - Limitation - Suppression." (Lakhan Singh & Co.)

"In economic crimes and departmental penalties, 'mens rea' is not essential for imposing penalty." (R S Joshi v. Ajit Mills)

The Tribunal upheld the demand of service tax including interest and penalties, confirming that the appellant had willfully suppressed taxable value, invoked the extended period of limitation appropriately, and that penalties under Sections 77(1) and 78 were rightly imposed. It also confirmed the validity of electronic service of notices during the pandemic period. The appeal was dismissed in its entirety.

The core legal questions considered by the Tribunal in the present appeal are:

• Whether the additional amounts received by the appellant towards transportation and insurance, booked under "Other Operational Income and Freight and Insurance Income," constitute taxable services under the Finance Act, 1994, specifically under the ambit of service tax on Goods Transport Agency (GTA) or Insurance Services.
• Whether the appellant, not being a Goods Transport Agency or Insurance Service Provider, is liable to pay service tax on facilitation of freight and insurance amounts received from clients.
• The applicability of the provisions of Section 66B and Section 66D (p) of the Finance Act, 1994 (as amended), concerning the levy of service tax on transportation and insurance services in the context of the appellant's business activities.
• Whether the demand of service tax, interest, and penalty confirmed by the Commissioner, CGST, Dehradun, under the impugned order is sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of amounts received towards facilitation of freight and insurance

Relevant legal framework and precedents: The Finance Act, 1994, as amended, governs the levy of service tax. Section 66B imposes service tax on taxable services, while Section 66D enumerates services exempted from tax, including sub-clause (p) which excludes transportation of goods by road services rendered by entities other than Goods Transport Agencies (GTA) and Courier Agencies. The CENVAT Credit Rules, 2004, regulate input credit mechanisms. The appellant's case was previously adjudicated in respect of their Bhopal unit by Final Order No.57972 of 2024 dated 27.11.2024, which held that no service tax is leviable on facilitation of freight and insurance amounts received.

Court's interpretation and reasoning: The Tribunal noted that the appellant is not a GTA or an Insurance Service Provider but facilitates transportation and insurance through contractors/vendors who discharge service tax on those services. The Tribunal emphasized that post the Finance Act amendment effective 1st July 2012, the nomenclature of services was abolished, and every activity was made taxable except those specifically exempted under Section 66D.

The Tribunal relied heavily on the interpretation of Section 66D(p), which excludes services by way of transportation of goods by road except when provided by a GTA or Courier Agency. Since the appellant is neither, the facilitation of freight and insurance income received by them does not attract service tax.

Key evidence and findings: The appellant submitted financial records showing amounts received as freight and insurance income for the years 2015-16, 2016-17, and 2017-18. They also provided the Work Contract dated 27.12.2014 and sample invoices. The Department's audit findings indicated that the appellant had not paid service tax on these amounts, leading to issuance of a show cause notice demanding Rs.26,93,70,551/- along with interest and penalties.

Application of law to facts: The Tribunal applied the statutory provisions to the factual matrix, noting that the appellant's role was limited to facilitation and not direct provision of transportation or insurance services. The contractors/vendors discharged the applicable service tax. Therefore, the amounts received by the appellant were not subject to service tax under the Finance Act.

Treatment of competing arguments: The Department argued that the appellant's activities fell within taxable services under Section 65B(44) and Section 66B, warranting service tax on the facilitation amounts. The appellant contended that they were not GTA or insurance providers and that the amounts were part of operational income, not taxable service fees. The Tribunal favored the appellant's interpretation, relying on the prior final order and statutory exemptions.

Conclusions: The Tribunal concluded that the demand of service tax on facilitation of freight and insurance income was not sustainable. The impugned order confirming the demand was set aside and quashed.

Issue 2: Liability for interest and penalty under Sections 75, 76, and 78 of the Finance Act

Relevant legal framework: Section 75 provides for interest on delayed payment of service tax; Sections 76 and 78 prescribe penalties for non-payment or short payment of service tax.

Court's interpretation and reasoning: Since the Tribunal held that no service tax was payable on the amounts in question, the consequent imposition of interest and penalties was also unwarranted. The liability for interest and penalty flows from the tax demand; with the tax demand quashed, these ancillary charges cannot survive.

Application of law to facts: The appellant's non-payment of service tax on facilitation amounts was not a default because the amounts were not taxable. Therefore, no interest or penalty can be imposed.

Conclusions: The Tribunal quashed the demand for interest and penalty along with the principal tax demand.

Issue 3: Applicability of prior adjudication to the present case

The Tribunal explicitly relied on the final order passed in respect of the appellant's Bhopal unit, wherein the identical issue was decided in favor of the appellant. The Tribunal held that the facts and legal questions in the present appeal were identical, warranting the same conclusion.

This reliance on precedent within the same factual and legal context underscores the principle of consistency and avoids conflicting decisions on identical issues.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the prior final order relied upon:

"However, with respect to the activity of transportation of goods by the appellant themselves, we observe that the appellant admittedly is not a Goods Transport Agency. We also observe that with effect from 1st July, 2012 the concept of nomenclature of services has been done away and every activity has been made taxable except those which are mentioned in section 66D of the Finance Act (Amendment Act of 2012). The period in question is post said amendment. Hence in light of the above facts section 66D is perused. We observe that sub-clause (p) of Section 66 D records the services by way of transportation of goods by road except the services of : (i) A Goods Transport Agency (ii) A Courier Agency. Since admittedly the appellant is neither the GTA, nor the Courier agency hence, the activity of transportation of goods by road by them is well covered under the aforesaid provision. The amount in question is an amount towards facilitation of freight and insurance by the appellants themselves. The said perusal of section 66 D (p) in itself is sufficient to hold that the service tax on the said amount has wrongly been demanded. The order to that extent is therefore liable to be set aside."

Core principles established include:

• Service tax liability under the Finance Act is contingent on the nature of service provider and the specific service rendered, with statutory exemptions playing a critical role.
• Facilitation charges for freight and insurance, when not provided directly by the appellant as GTA or insurance provider, do not attract service tax.
• Prior adjudications on identical issues are binding and must be followed to ensure consistency.
• Interest and penalty provisions are contingent upon the existence of a valid tax demand.

Final determinations on each issue are:

• The demand of service tax on facilitation of freight and insurance income is unsustainable and quashed.
• The consequent interest and penalty imposed are also quashed.
• The impugned order confirming the demand is set aside, and the appeal is allowed.

- Whether the Appellate Authority was legally justified in rejecting the appellant's cross objections on the ground that neither Section 84 nor Section 85 of the Finance Act empowers the filing of such cross objections before the Commissioner of Service Tax (Appeals).

- Whether the demand for ineligible Cenvat credit confirmed by the Original Adjudicating Authority was sustainable on merits.

- Whether the invocation of the extended period of limitation for confirming the demand was valid, in the absence of evidence of wilful misstatement or suppression of facts by the appellant.

- Whether the imposition of penalty under Section 78 of the Finance Act by the Appellate Authority was sustainable, particularly when the Original Adjudicating Authority had exercised discretion under Section 80 to refrain from imposing penalty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Cross Objections under Sections 84 and 85 of the Finance Act

The legal framework involves the provisions of Sections 84 and 85 of the Finance Act which govern appeals to the Commissioner of Service Tax (Appeals). The Appellate Authority rejected the appellant's cross objections on the basis that these sections do not contain provisions analogous to Section 35E(4) of the Central Excise Act or Section 86(4) of the Finance Act, which expressly empower filing of cross objections by a party not filing an appeal.

The appellant argued that a conjoint reading of sub-section (3) of Section 84 and sub-sections (4) and (5) of Section 85 should allow filing of cross objections, especially when invited by the Commissioner (Appeals). The appellant contended that the Appellate Authority erred in negating this right, particularly as the cross objections challenged the correctness of the demand and limitation issues on merits.

The Tribunal referred to its earlier decision in Eveready Industries India Ltd v CCE, where it was held that cross objections are maintainable in light of the High Court's declaration in Southern Auto Products. The Tribunal emphasized that since the Appellate Authority had invited the appellant to file cross objections, it was legally impermissible to dismiss them without consideration.

The Tribunal concluded that the Appellate Authority committed an egregious error by not adjudicating the cross objections on merits, thereby violating procedural fairness and the appellant's substantive rights.

Issue 2: Merits of the Demand for Ineligible Cenvat Credit

The appellant was registered as a provider of works contract service and had availed Cenvat credit on various input services such as rent-a-cab, housekeeping, chartered accountant services, and business promotion services. The department during audit alleged that the appellant took ineligible Cenvat credit amounting to Rs.4,39,857/- and issued a Show Cause Notice demanding service tax on the same along with interest and penalty.

The adjudicating authority confined the demand to Rs.72,150/- and refrained from imposing penalty under Section 80. The appellant paid the differential tax and interest to give quietus to the dispute but did not concede the matter on merits.

The Tribunal noted that the services on which credit was availed have been repeatedly held by this Tribunal to be input services eligible for Cenvat credit as they relate to business activities. The Tribunal referred to the Bombay High Court decision in CCE Nagpur v Ultratech Cement Ltd., which supports the eligibility of such input services for credit.

Further, the Tribunal observed that the department failed to specify why the documents submitted by the appellant were insufficient or what additional evidence was required to deny credit. The absence of any cogent reason or evidence to negate the appellant's entitlement to credit led the Tribunal to hold that the appellant was entitled to the Cenvat credit denied by the Original Adjudicating Authority.

Issue 3: Validity of Invoking Extended Period of Limitation

The Show Cause Notice invoked the extended period of limitation on the ground of suppression or wilful misstatement by the appellant. The Tribunal found that the notice merely stated an allegation of suppression with intent to evade duty but did not furnish any evidence or particulars to substantiate this claim.

It is a settled legal principle that invoking the extended period requires clear evidence of a positive or deliberate act of suppression or misstatement with intent to evade duty, which must be disclosed in the notice. The Tribunal held that the absence of such evidence rendered the invocation of the extended period untenable.

Accordingly, the demand confirmed under the extended period was barred by limitation and unsustainable.

Issue 4: Imposition of Penalty under Section 78 of the Finance Act

The Original Adjudicating Authority, exercising discretion under Section 80, refrained from imposing penalty on the appellant. The department appealed this decision, and the Commissioner (Appeals) set aside the discretion and imposed penalty under Rule 15(4) of the Cenvat Credit Rules read with Section 78.

The Tribunal referred to the Karnataka High Court decision in CST v. Motor World, which held that once the assessing authority has exercised discretion not to impose penalty under Section 80, the revisional or appellate authority cannot impose penalty for the first time.

Applying this principle, the Tribunal held that the imposition of penalty by the Commissioner (Appeals) was unsustainable and beyond the scope of appellate jurisdiction.

3. SIGNIFICANT HOLDINGS

"The Appellate Authority, having invited the appellant to file cross-objection, then could not have decided the matter without looking into the cross objections so filed upon its invitation."

"The cross-objections filed by the appellants are maintainable in the light of the declaration of law by the Hon'ble High Court in the judgment of Southern Auto Products."

"The Show Cause Notice itself is barred by limitation. Apart from merely stating that the appellant had suppressed facts with intention to evade payment of duty, no evidence of wilful misstatement or suppression with intent to evade payment of duty has been let in in the show cause notice."

"The services on which the appellant has availed Cenvat credit such as rent-a cab service, house keeping service, chartered accountant's service, business promotion service etc have come up for consideration many a time before this Tribunal and in umpteen orders these services have been held to be input services on which an assessee can avail cenvat credit, being activities relating to business."

"When the assessing authority, in its discretion has held that no penalty is leviable, by virtue of Section 80 of the Act, the revisional authority cannot invoke its jurisdiction and impose penalty for the first time."

The Tribunal set aside the impugned Order-in-Appeal, allowed the appeal in its entirety, and granted consequential relief. The core principles established include the maintainability of cross objections when invited by the Appellate Authority, the necessity of evidentiary support for invoking extended limitation, the entitlement to Cenvat credit on bona fide input services, and the finality of the Original Adjudicating Authority's discretion not to impose penalty under Section 80.

1. Whether the 2% financing and service charge collected over and above the electricity charges reimbursed by the appellant from its tenant constitutes part of the taxable value of the maintenance service under Section 67 of the Finance Act, 1994 and Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.

2. Whether Rule 5(1) of the Service Tax Valuation Rules, 2006, which mandates inclusion of expenditures or costs incurred by the service provider in the taxable value, is valid and can be relied upon for demand of service tax.

3. Whether electricity charges reimbursed by the appellant to the tenant can be treated as a supply of service liable to service tax or as a sale of goods exempt from service tax.

4. The correctness of the demand of service tax, interest, and penalty under Section 76 of the Finance Act, 1994 imposed on the appellant for the period December 2009 to June 2010.

Issue-wise Detailed Analysis

Issue 1: Inclusion of 2% additional charges in taxable value under Section 67 and Rule 5(1)

The relevant legal framework includes Section 67 of the Finance Act, 1994, which defines the valuation of taxable services, and Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which required inclusion of all expenditures or costs incurred by the service provider in the value of taxable services. The Department relied on these provisions to include the 2% extra charged over electricity reimbursement in the taxable value.

The appellate authority upheld the demand based on Rule 5(1), treating the 2% charge as part of the service value. However, the appellant challenged the validity of Rule 5(1), citing judicial pronouncements.

The Court referred to the landmark decision of the Supreme Court in Union of India vs Intercontinental Consultants and Technocrats Pvt. Ltd., which affirmed the Delhi High Court's ruling that Rule 5(1) was ultra vires Sections 66 and 67 of the Finance Act, 1994. The rule was held to exceed the statutory mandate by mandating inclusion of costs and expenditures beyond the scope of the Act's valuation provisions.

Thus, the statutory foundation for including the 2% charge in the taxable value was demolished. Consequently, the impugned order relying on Rule 5(1) was found unsustainable.

Issue 2: Validity of Rule 5(1) of the Service Tax Valuation Rules

The Court's reasoning centered on the constitutional and statutory limits of delegated legislation. Rule 5(1) attempted to broaden the taxable value by including all costs and expenditures incurred by the service provider, which the Supreme Court held was beyond the scope of Sections 66 and 67.

The Supreme Court's judgment was binding and authoritative, rendering Rule 5(1) invalid for valuation purposes. The Court therefore rejected the Department's reliance on this rule to justify the service tax demand.

Issue 3: Nature of electricity charges reimbursed - service or sale of goods

The appellant contended that the electricity charges reimbursed, including the 2% additional amount, did not constitute a taxable service but rather a reimbursement of goods supplied (electricity), which is outside the service tax net.

The Tribunal referred to its own prior decision in the appellant's case (Final Order No.42639/2018) and to the Mumbai Bench's ruling in M/s. ICC Reality (India) Pvt. Ltd., which held that electricity supplied by the State Electricity Board is a 'sale of goods' under Tariff Heading 27 of the Central Excise Tariff Act and is exempt from service tax under Notification No. 12/2003-ST.

Electricity being goods and not a service, the reimbursement of electricity charges could not be treated as a taxable service. The 2% additional charge was also considered part of this reimbursement and thus not liable to service tax.

Issue 4: Legitimacy of demand of service tax, interest, and penalty

Since the foundational valuation rule (Rule 5(1)) was struck down and the electricity charges reimbursement was held not to be a taxable service, the demand of service tax, interest, and penalty under Section 76 lacked merit.

The Court found that the impugned orders confirming the demand were unsustainable and liable to be set aside, granting relief to the appellant.

Significant Holdings

The Court held: "Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections."

Further, the Tribunal reiterated its earlier ruling: "The electricity charges paid by the appellant - assessee on behalf of its tenants could only tantamount to 'service' which cannot be brought under the purview of service tax... electricity is goods chargeable to duty under Central Excise Tariff as well as under the State Value Added Tax Act... electricity therefore would amount to 'sale of goods' and not 'supply of service'."

Accordingly, the Court concluded that the impugned order in appeal was "not sustainable" and "liable to be set aside." The appeal was allowed with consequential relief.

The core legal questions considered by the Tribunal are:

(i) Whether the refund claim filed by the appellant under Section 104 of the Finance Act, 1994, for service tax paid on development charges collected by SIPCOT, is barred by the prescribed time limit under Section 104(3) of the Act;

(ii) Whether the refund claim should have been filed by SIPCOT, the entity that deposited the service tax with the Government, or whether the appellant, as the ultimate consumer who bore the incidence of the tax, has locus standi to file the refund;

(iii) Whether the delay in filing the refund claim by the appellant was caused by administrative delay on the part of SIPCOT, and if so, whether such delay should be excluded in computing the limitation period;

(iv) Whether the amount paid as development charges or premium is exigible to service tax under the relevant provisions of the Finance Act;

(v) Whether the Limitation Act, 1963, particularly Section 17(1)(c), can be invoked to condone the delay in filing the refund claim;

(vi) Whether amounts collected without authority of law are entitled to automatic refund without adherence to statutory limitation provisions;

(vii) The applicability of the principle of unjust enrichment in the context of the refund claim.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Time Bar under Section 104(3) of the Finance Act, 1994

The appellant filed a refund claim on 31.10.2017 for service tax paid on development charges collected by SIPCOT during 1.6.2007 to 21.9.2016. Section 104(3) prescribes a six-month time limit for filing such refund claims from the date the Finance Bill, 2017 received presidential assent, i.e., 01.04.2017. Hence, the last date was 30.09.2017. The claim was filed 31 days late.

The Original Authority and Commissioner (Appeals) rejected the claim as time barred. The Tribunal upheld this view, emphasizing the mandatory nature of the limitation period under Section 104(3), which contains a non obstante clause overriding other provisions.

The Tribunal relied on the Supreme Court ruling in Chief Commissioner of Central Goods and Service Tax & Ors. Vs. M/s Safari Retreats Private Ltd. & Ors., which mandates strict interpretation of taxing statutes, disallowing additions or subtractions based on legislative intent or equitable considerations. The Tribunal noted that even if the delay was caused by administrative reasons, such as SIPCOT's delay in instructing the appellant to file the claim, such delay cannot be excluded unless specifically provided by statute.

Precedent decisions cited by the appellant involving exclusion of delay due to third-party or official delays were distinguished on facts, as those cases involved statutory requirements for certificates or documents before filing refund claims, which are absent here.

The Tribunal also noted that some Single Member orders cited by the appellant lacked detailed legal reasoning and were not binding.

Issue (ii): Locus Standi of the Appellant to File Refund Claim

The appellant contended that SIPCOT, having deposited the service tax, should have filed the refund claim. The Tribunal examined this issue with reference to Section 11B(1) of the Central Excise Act, 1944, as applicable, and relevant judicial precedents.

The Tribunal referred to a prior decision in K. Ramani Vs Commissioner of GST & Central Excise, which held that the term "any person" in Section 11B(1) is broad and does not restrict refund claims only to the person who deposited the tax with the Government.

Section 12B of the Central Excise Act presumes that the incidence of duty has been passed on to the buyer, but this presumption can be rebutted by evidence. The appellant demonstrated that they bore the ultimate incidence of the tax and did not pass it on, thus having locus standi to claim refund.

The Tribunal also cited the Supreme Court's ruling in Commissioner, Central Excise, Madras Vs M/S. Adison & Co. Ltd., which confirmed that consumers who bear the incidence of tax are entitled to claim refunds and that the burden of proof lies on the claimant to show no unjust enrichment.

Issue (iii): Administrative Delay by SIPCOT and Exclusion of Delay

The appellant argued that the delay in filing the refund claim was caused by SIPCOT's administrative delay in advising them to file the claim and that such delay should be excluded in computing limitation.

The Tribunal found no evidence of official or statutory delay by SIPCOT amounting to an impediment recognized by law. The Tribunal rejected the appellant's characterization of the delay as 'administrative' without documentary proof of correspondence or official impediments.

The Tribunal held that accepting such an argument would render the statutory limitation meaningless and open the door to indolence or strategic delay by applicants.

The Tribunal distinguished the appellant's reliance on the JSW Dharmatar Port case, where the High Court excluded time taken by a Government Ministry to issue a mandatory certificate required by statute before filing refund claims. Here, no such statutory requirement exists.

Issue (iv): Exigibility of Development Charges or Premium to Service Tax

The appellant contended that the one-time upfront development charges or premium paid for long-term lease allotted by SIPCOT were not exigible to service tax, and hence the amounts collected as service tax were erroneous and should be refunded without limitation.

The Tribunal noted that the Show Cause Notice and lower authorities did not adjudicate on the merits of the levy. The appellant's plea on this issue was raised for the first time in a miscellaneous application and was rejected as beyond the scope of the proceedings.

The Tribunal referred to a Larger Bench decision in Rajasthan State Industrial Development & Investment Corporation Ltd. Vs CCE & ST, which held that such premiums are exigible to service tax under the category of "renting of immovable property" for the relevant period.

The Tribunal emphasized judicial discipline, noting that a Bench of lesser strength must follow the view of a Larger Bench on the same issue.

Issue (v): Applicability of the Limitation Act, 1963

The appellant invoked Section 17(1)(c) of the Limitation Act, which provides that limitation begins from the time the mistake is discovered.

The Tribunal examined Supreme Court precedents, including Sakuru Vs Tanaji and Commissioner of Customs and Central Excise Vs M/s Hongo India (P) Ltd., which establish that the Limitation Act does not apply to proceedings before quasi-judicial authorities or tribunals unless expressly provided.

The Finance Act, 1994, is a self-contained code with specific limitation provisions, excluding the applicability of the Limitation Act for condonation of delay.

The Tribunal also distinguished cases cited by the appellant where delay was caused by bona fide prosecution of wrong proceedings before wrong authorities, which is not the case here.

Issue (vi): Automatic Refund of Amounts Collected Without Authority of Law

The appellant contended that since the service tax on development charges was retrospectively exempted, the amounts collected without authority of law should be refunded automatically without filing a refund claim.

The Tribunal extensively analyzed the Supreme Court's nine-judge judgment in Mafatlal Industries Ltd. & Ors. v. Union of India & Ors., which clarified that:

• Taxes collected without authority of law must be refunded, but the refund must be claimed and adjudicated under the statutory provisions unless the charging provision is declared unconstitutional;
• Claims for refund outside statutory provisions are maintainable only if the charging provision is unconstitutional;
• The Central Excise Act and Rules constitute "law" under Article 265 of the Constitution, and refund claims must comply with these provisions;
• Section 72 of the Contract Act cannot be invoked to claim refund when statutory provisions provide a complete code for refund;
• Refund is not automatic even if the levy is invalid; it must be claimed and adjudicated through prescribed procedures.

The Tribunal also referred to Section 73A of the Finance Act, 1994, which mandates that any amount collected as service tax must be deposited with the Central Government forthwith, reinforcing that refund claims must follow statutory processes.

Issue (vii): Unjust Enrichment

The Show Cause Notice raised the issue of unjust enrichment, requiring the appellant to prove that the tax paid was not passed on to any other person.

The Tribunal found that the Original Authority accepted that unjust enrichment did not apply as the appellant bore the incidence of the tax and did not pass it on.

This finding supported the appellant's locus standi to claim refund.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In terms of Section 104(3) a separate period of limitation has been prescribed and it is a special provision providing for a relief to the persons who have allotted industrial plots either on long term lease or otherwise. Section 104(3) provides that an application of claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2017 receives the assent of the President. The Finance Bill, 2017 was passed on 01.04.2017 hence the last date for filing the refund claim was 30.09.2017. As the appellant filed the refund claim on 31.10.2017, which is beyond 6 months' time limit prescribed under Section 104(3) of the FA, 2017, it is hit by time bar and thus I find that the respondent has correctly rejected the refund claim as time barred and the impugned order is upheld."

"The appellant has borne the ultimate incidence of the tax, and not the Trust, who is the eligible claimant of the refund and is not barred from claiming the same. Further the question of unjust enrichment also does not arise as the amount has been paid from the appellant's own resources and has not been shown to have been passed on."

"The time taken by the Ministry in processing and granting certificate under Section 103 of the Act to enable the assessee to file refund claim must be ignored for the purpose of computing the limitation for making refund application. We find that there is no such requirement / condition for an applicant to file any certificate for the grant of refund and hence the facts are distinguished."

"A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise; If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity; While dealing with a taxing provision, the principle of strict interpretation should be applied; If two interpretations of a statutory provision are possible, the Court ordinarily would interpret the provision in favour of a taxpayer and against the revenue; In interpreting a taxing statute, equitable considerations are entirely out of place."

"No case for automatically refunding money collected as 'service tax' has been made out. Once the amount is collected as Service Tax and is deposited to Government any refund can be claimed only as per the provisions of the said Act."

"The Limitation Act is not applicable to the Finance Act 1994 and hence the appellants plea on this account fails."

"The plea of the appellant on the exigibility of the activity to service tax submitted in the miscellaneous application filed by them is found to be beyond the SCN and is rejected as inadmissible at this stage as it would allow a totally new proceedings to be started."

The Tribunal concluded that the refund claim was barred by limitation under Section 104(3) of the Finance Act, 1994, and rejected the appeal and miscellaneous application accordingly.

The core legal questions considered by the Tribunal were:

(a) From which date is the appellant entitled to claim interest on the delayed refund of the amount deposited under protestRs.

(b) At what rate should the interest on the delayed refund be calculated-whether at the rate prescribed under Section 11BB of the Central Excise Act (6%) or at a higher rate of 12%Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Date from which interest is payable on delayed refund

Relevant legal framework and precedents: The determination of the date from which interest is payable on delayed refunds is governed by the provisions of the Central Excise Act, particularly Sections 11B and 11BB, and transitional provisions under Section 142. The Tribunal examined the applicability of these provisions in light of the nature of the amount deposited under protest. The Tribunal relied on its earlier decision in the case of Riba Textile Ltd. vs. Commissioner of CE & ST, Panchkula, where it was held that interest entitlement arises from the date of deposit of the amount. This position was further affirmed by the Punjab & Haryana High Court in 2022 (62) GSTL 136 (P & H).

Court's interpretation and reasoning: The Tribunal noted that the amount deposited by the appellant was under protest and was held to be a deposit in nature rather than payment of service tax or duty. Therefore, the provisions of Section 11B, which prescribe interest from the date of filing the refund claim, do not apply. Instead, the interest should accrue from the date of deposit itself.

Key evidence and findings: The appellant made the deposit on 19.01.2011 under protest. The Tribunal's earlier ruling dated 30.01.2023 clarified that such deposits are not payments of service tax but deposits pending adjudication. The refund claim was filed on 03.08.2016 but interest was allowed only from three months after the refund claim date, which was contested.

Application of law to facts: Since the amount was a deposit and not a tax payment, the Tribunal applied the principle that interest should be calculated from the date of deposit (19.01.2011) until realization. This approach aligns with the principle that the appellant should be compensated for the time value of money from when the government held the appellant's funds.

Treatment of competing arguments: The department argued that interest should be calculated only after three months from the date of filing the refund claim, relying on the Apex Court decision in Ranbaxy Laboratories Limited (2011) and the applicability of Section 11B. The Tribunal rejected this, holding that since the amount was not service tax, Section 11B does not apply, and the interest entitlement arises from the date of deposit.

Conclusions: The appellant is entitled to claim interest from the date of deposit, i.e., 19.01.2011, until the refund is realized.

Issue (b): Rate of interest payable on delayed refund

Relevant legal framework and precedents: Section 11BB of the Central Excise Act prescribes interest at 6% for delayed refunds of service tax or excise duty. However, where the amount deposited is not service tax or duty but a deposit, this provision may not apply. The Tribunal referred to its decision in Parle Agro Pvt. Ltd. vs. Commissioner of Central Goods & Service Tax, Noida, and the case of Gajendra Singh Sankhla & others, where it was held that in such cases, interest at the rate of 12% is payable.

Court's interpretation and reasoning: The Tribunal observed that since the amount was a deposit and not service tax or duty, the provisions of Section 11BB prescribing 6% interest are not applicable. Following the aforementioned precedents, the Tribunal held that the appellant is entitled to interest at the rate of 12% on the refund amount.

Key evidence and findings: The appellant deposited Rs. 1,26,59,954/- under protest. The refund claim was eventually allowed, but interest was granted at 6% from three months after the refund claim date. The appellant contended for 12% interest from the date of deposit.

Application of law to facts: The Tribunal applied the principle that deposits made under protest are not payments of tax and thus attract interest at the higher rate of 12%, as per the legal precedents cited.

Treatment of competing arguments: The department argued that the amount was paid as service tax after confirmation of demand, and hence the refund and interest should be governed by Section 11B and 11BB, entitling the appellant only to 6% interest. The Tribunal rejected this contention, emphasizing the nature of the amount as a deposit during the pendency of adjudication, not tax payment.

Conclusions: The appellant is entitled to interest at the rate of 12% on the amount deposited under protest.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"It is, therefore, clear from the aforesaid decisions of the High Courts and the Tribunal that any amount deposited during the pendency of adjudication or investigation is in the nature of a deposit and, therefore, cannot be considered to be towards payment of service tax or excise duty. The principles of unjust enrichments, therefore, would not apply if a refund is claimed for refund or this amount."

"Therefore, the amount paid by the appellant is in nature of deposit only for that the provisions of Section 11B of the Central Excise Act are not applicable. Consequently, interest prescribed under Section 11BB is also not applicable. In view of this following the decision in the case of Parle Agro Pvt. Ltd., I hold that appellant is entitled to claim interest at the rate of 12%."

"I hold that the appellant is entitled to claim interest from the date of deposit i.e, 19.01.2011 till its realization."

Core principles established include:

- Amounts deposited under protest during the pendency of adjudication are deposits, not payments of service tax or duty.

- The provisions of Section 11B (interest from refund claim date) and Section 11BB (interest at 6%) do not apply to such deposits.

- Interest on delayed refunds of such deposits is payable at the rate of 12% per annum.

- Interest entitlement arises from the date of deposit, not from the date of filing the refund claim.

Final determinations:

The appellant is entitled to refund of the amount deposited under protest along with interest at the rate of 12% per annum calculated from the date of deposit (19.01.2011) until realization. The appeal was disposed of accordingly.

1. Whether the educational courses offered by the appellant institute are exempt from service tax liability by virtue of being recognized and approved by the University Grants Commission (UGC) and affiliated universities, thereby qualifying as non-commercial educational services.

2. Whether the appellant institute, functioning under a non-profitable charitable trust, is liable to pay service tax under the category of "Commercial Training or Coaching Centre Service" for the period October 2007 to March 2013.

3. Whether the appellant's activities as a knowledge hub, training and placement centre for EIILM University, Sikkim, and as a learning centre for distance education programmes of Punjab Technical University (PTU) attract service tax liability.

4. The determination of the extent of liability between the appellant (EIILM Foundation) and the predecessor entity (M/s. Malvika Foundation) for the service tax demand raised for the period October 2007 to March 2013.

Issue-wise Detailed Analysis

Issue 1: Recognition and Approval of Courses by UGC and Affiliated Universities

The legal framework revolves around the exemption from service tax for educational services recognized by statutory educational bodies such as the UGC. The appellant contended that the courses offered were approved by UGC and affiliated universities, and hence, no service tax was payable. The relevant precedent and legal provisions exempt educational services recognized by law from service tax.

The Court noted that the appellant admitted having documentary evidence to substantiate the claim of UGC approval but failed to produce such evidence before the adjudicating authority. The impugned order confirmed the service tax demand on the basis that the courses were not approved by UGC or AICTE during the relevant period.

The Court observed that the issue of recognition and approval of courses is central to determining the taxability. Since the appellant had not previously furnished the documentary evidence, the matter was remanded to the adjudicating authority to examine the evidence afresh and conclude whether the courses and the degrees/certificates issued were recognized by UGC or approved universities.

The Court emphasized the need for a thorough examination of documentary proof to ascertain the legal status of the courses and the consequent tax liability or exemption.

Issue 2: Liability for Service Tax under "Commercial Training or Coaching Centre Service"

The Show Cause Notice alleged that the appellant's activities fell under taxable categories such as "Commercial Training or Coaching Centre Service," "Management Consultancy Service," and "Event Management Service," thereby attracting service tax for the period October 2007 to March 2013. The demand was based on the premise that the courses were not recognized by UGC or AICTE and that the appellant was engaged in commercial activities.

The Court noted that the appellant was a non-profitable charitable trust and contended that it was not engaged in commercial business. The adjudicating authority found that the appellant had initially admitted to the taxability during a search and seizure operation but later denied the allegations.

Given the unresolved question of recognition of the courses, the Court held that the issue of service tax liability under the category of commercial training required reconsideration in light of the documentary evidence regarding course recognition. The Court directed the adjudicating authority to reassess the taxability after examining the evidence.

Issue 3: Activities as Knowledge Hub and Distance Learning Centre

The appellant acted as a knowledge hub, training and placement centre for EIILM University, Sikkim, and as a learning centre for distance education programmes of Punjab Technical University (PTU). The Show Cause Notice alleged that such activities were unauthorized off-campus operations outside the territorial jurisdiction of the respective universities, thereby attracting service tax.

The Court observed that EIILM University, Sikkim, being a private university established by the state legislature, could not establish off-campus centres outside Sikkim as per UGC public notice. Similarly, PTU, a state university, did not have jurisdiction beyond Punjab. However, the Court did not make a definitive finding on this issue but implicitly linked it to the broader question of recognition and approval of courses and activities.

The Court's remand to the adjudicating authority implicitly includes examining the nature of these activities and their tax implications in light of the recognition status.

Issue 4: Apportionment of Service Tax Liability between Appellant and Malvika Foundation

The appellant submitted that the institute was under the control of M/s. Malvika Foundation until March 2012 and thereafter under EIILM Foundation from April 2012. It contended that the service tax demand for October 2007 to March 2012 should be borne by Malvika Foundation, and only the demand from April 2012 to March 2013 pertains to the appellant.

The impugned order confirmed a collective demand of approximately Rs. 11.74 crores without segregating the liability between the two entities. The Court noted the absence of any clear finding or break-up of the demand in the adjudicating order.

Accordingly, the Court directed the adjudicating authority to separately ascertain and record the service tax liabilities of the appellant and Malvika Foundation. This includes determining the period-wise responsibility and the corresponding demand, ensuring clarity and fairness in recovery.

Significant Holdings

The Court remanded the matter to the adjudicating authority with clear directions:

"The adjudicating authority shall examine all the evidences submitted by the appellant so as to ascertain as to whether the courses offered are recognised by the UGC or not and whether the degrees/certificates issued are recognised by approved Universities or not."

"The Service Tax liabilities of the appellant (M/s. EIILM Foundation) and M/s. Malvika Foundation are to be categorically ascertained and the demand pertaining to each, if any, is to be determined separately."

The Court emphasized the principle that service tax liability in educational services hinges critically on statutory recognition and approval of courses by competent authorities, and that tax demands must be precisely attributed to the responsible entities for the relevant periods.

The final determination on each issue was deferred pending a fresh adjudication incorporating the appellant's documentary evidence and a clear demarcation of liability between the appellant and Malvika Foundation.

- Whether the appellant violated conditions of Notification No. 39/2001-CE dated 31.07.2001 by availing Cenvat Credit of rebate amounts after the exemption period had expired.

- Whether the appellant's delayed availment of Cenvat Credit was an attempt to enhance duty payment through PLA and thereby wrongfully obtain excess cash refund.

- Whether the show cause notice issued in October 2013 for availment of Cenvat Credit in March 2010 is barred by limitation and whether extended period of limitation can be invoked.

- Whether the department's demand for recovery of excess refund along with interest and imposition of penalty under Sections 11A(4) and 11AC of the Central Excise Act, 1944 is justified.

- Whether the appellant's failure to intimate the revision authority after taking Cenvat Credit in March 2010 affects the merits of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Notification Conditions by Delayed Availment of Cenvat Credit

The relevant legal framework comprises Notification No. 39/2001-CE dated 31.07.2001, which granted exemption to new units in Kutch District for a period of five years from commencement of commercial production. The appellant commenced production on 27.03.2005, making them eligible for exemption until 26.03.2010. Notification No. 16/2008 (NT) dated 27.03.2008 allowed refund at 39% of gross duty paid.

The department alleged that the appellant delayed taking Cenvat Credit of rebate amounts until 30/31 March 2010, after the exemption period expired, to maximize cash rebate. The department contended that had the credit been utilized timely, it would have reduced the duty paid in cash through PLA, thus reducing cash rebate entitlement.

The appellant argued that they did not violate any condition of the notification. They initially challenged the rebate orders before the Commissioner (Appeals) and then before the Joint Secretary (RA), who remanded the matter back to the adjudicating authority with directions that any excess duty paid should be returned in the manner it was paid. The appellant took Cenvat Credit only due to financial constraints and there was no evidence that they maintained unused Cenvat Credit balances or paid duty in cash to claim excess rebate.

The Court examined the facts and the order of the Joint Secretary, which emphasized that the rebate amount should be paid in the same mode as duty payment. No evidence was found from the department to prove that the appellant's delayed credit availment violated notification conditions or was done to wrongfully enhance cash rebate. The Court noted the appellant's bona fide challenge to the rebate orders and their financial difficulties during the pendency of revision proceedings.

Issue 2: Allegation of Wrongful Enhancement of Cash Rebate via Delayed Cenvat Credit

The department's case rested on the premise that delayed availment of Cenvat Credit allowed the appellant to pay more duty in cash through PLA, thus increasing cash rebate. The department sought recovery of Rs. 29.68 lakhs along with interest and penalty under Sections 11A(4) and 11AC of the Central Excise Act, 1944.

The appellant rebutted this by relying on a precedent from the Hon'ble Gujarat High Court, upheld by the Supreme Court, which held that if available credit is utilized first and remaining payment is made through PLA, the conditions of the notification are not violated, and the assessee remains eligible for refund. The appellant also contended that the Cenvat Credit was reflected in ER-1 returns filed regularly and there was no suppression of facts.

The Court found no material to support the department's allegation of wrongful enhancement of cash rebate. The appellant's conduct in taking credit after remand and financial difficulties was not shown to be mala fide or in violation of notification conditions. The Court observed that the appellant's failure to intimate the revision authority about credit availment was a procedural lapse but did not substantiate the department's claim of wrongful enrichment.

Issue 3: Limitation and Invocation of Extended Period

The show cause notice was issued on 07.10.2013, more than three years after the appellant took Cenvat Credit in March 2010. The department invoked the extended period of limitation on the ground that the appellant voluntarily availed the credit and the facts came to light only during audit of Cenvat Credit registers.

The appellant argued that since the Cenvat Credit was disclosed in ER-1 returns regularly filed with the department, the department was aware of the credit availment and could have raised objections within the normal limitation period. They relied on judgments which held that the extended period cannot be invoked if the facts were disclosed and no suppression occurred.

The Court concurred with the appellant's submissions, holding that the issue was disclosed in statutory returns and the department's failure to detect it earlier was not attributable to the appellant. The Court stated: "If they had already disclosed availment of credit in ER-1 returns which were in possession of the department, appellant cannot be blamed for non scrutiny of the said returns." The Court found the grounds for invoking extended period unsustainable and held the demand time barred.

Issue 4: Justification of Demand and Penalty under Sections 11A(4) and 11AC

The department confirmed the demand of Rs. 29.68 lakhs with interest and imposed an equal penalty under Section 11AC, alleging that the appellant delayed availment of Cenvat Credit to wrongfully obtain excess cash refund.

The appellant denied any wrongdoing and emphasized that the credit was taken in good faith during pendency of revision proceedings. The Court noted that the Joint Secretary's order directed that any excess duty paid should be returned in the manner it was paid, implying that the mode of payment should be respected in rebate refunds.

Given the absence of evidence of mala fide conduct or violation of notification conditions, and considering that the appellant disclosed credit availment in returns, the Court concluded that the demand and penalty were not justified.

Issue 5: Failure to Intimate Revision Authority

The appellant admitted that they did not inform the Joint Secretary about taking Cenvat Credit in March 2010. The Court observed this as a procedural lapse but did not treat it as a substantive violation affecting the merits. The Court's reasoning focused on whether the delayed credit availment violated substantive legal provisions or caused wrongful enrichment, which was not established.

3. SIGNIFICANT HOLDINGS

- "If they had already disclosed availment of credit in ER-1 returns which were in possession of the department, appellant cannot be blamed for non scrutiny of the said returns."

- The Court emphasized that "entire rebate amount should have been paid by the rebate sanctioning authority in the same mode of payment of Excise Duty," underscoring the principle that mode of duty payment and refund should correspond.

- The Court held that invocation of extended period of limitation is not sustainable where the facts were disclosed in statutory returns and no suppression or concealment occurred.

- The principle established is that delayed availment of Cenvat Credit during pendency of revision proceedings, without evidence of mala fide intent or violation of notification conditions, does not justify recovery of excess refund or penalty.

- The appeal was allowed both on merits and limitation grounds, with the only procedural fault being the appellant's failure to intimate the revision authority, which did not warrant adverse consequences.

1. Whether the goods manufactured by the appellant-company are correctly classifiable under Chapter 15 (Tariff Item 15180040) as animal or vegetable fats and oils and their chemically modified derivatives, or under Chapter 34 (Tariff Item 34039900) as lubricating preparations.

2. Whether the appellant is entitled to exemption notifications applicable to goods classified under Chapter 15.

3. Whether the extended period of limitation for demanding central excise duty can be invoked in the present case.

4. Whether separate demands and penalties can be imposed on the proprietor of the proprietorship concern and the proprietorship concern itself, given the legal identity between the two.

Regarding the classification issue, the relevant legal framework includes the Central Excise Tariff Act, 1985, which provides detailed tariff items and descriptions under various chapters, including Chapter 15 (animal or vegetable fats and oils and their chemically modified derivatives) and Chapter 34 (lubricating preparations). The interpretative rules for classification of goods under the Customs Tariff Act, which are applicable by analogy, mandate that when goods are classifiable under more than one heading, the more specific heading is preferred over the general one.

The appellants contended that their products, which include brown soap, anti-adhesive agents, lubricants for chain conveyors, and similar goods, are derivatives of vegetable oils and thus fall under Chapter 15, specifically Tariff Item 15180040. They argued that the manufacturing process involves sulphonation and chemical modification of vegetable oils and fats, and that the HSN code 15180040 assigned commercially to these products supports this classification. They relied on precedent from the Tribunal at Bangalore, which recognized classification under Chapter 15 for similar products.

The Department, however, reclassified the goods under Chapter 34, asserting that the products are lubricating preparations, which attract a higher rate of duty. The impugned order found that the finished products are not edible-grade vegetable oils or fats but are lubricating solutions used specifically for facilitating the movement of LPG cylinders, thus falling squarely within the scope of Chapter 34. The Court examined the manufacturing process and found that the final products emerge after chemical modifications and addition of additives and defoaming agents, resulting in goods that cannot be considered vegetable oils or fats of edible grade. The Court relied on the statement of the proprietor acknowledging the product as a lubricating soap solution used for movement of LPG cylinders, reinforcing the classification under Chapter 34.

Applying the interpretative rules, the Court held that the more specific classification under Chapter 34 should prevail over the broader Chapter 15 heading. Consequently, the Court concluded that the impugned goods are correctly classifiable under Tariff Item 34039900 of Chapter 34.

On the issue of exemption, the appellants claimed entitlement to benefit under Notification No. 3/2006-C.E. and Notification No. 12/2012-C.E., which exempt goods under Chapter 15 from central excise duty. However, since the goods were held to be classifiable under Chapter 34, these exemption notifications did not apply. The Court thus denied the benefit of these notifications to the appellants.

Regarding the invocation of the extended period of limitation for demanding duty, the Department alleged suppression of facts by the appellants. The appellants contended that there was no suppression as the Department was aware of their classification under Chapter 15 and the benefit of the exemption notifications availed. The Court found that the Department had approved the classification and the benefit availed, and no suppression or intention to evade duty was established. Therefore, the extended period of limitation could not be invoked, and the demand for duty was restricted to the normal limitation period.

On the question of penalties, the impugned order imposed penalties equivalent to the amount of duty demanded on both the appellant-company and its proprietor, Shri Aparesh Chandra Ghosh. The appellants argued that since the proprietor and the proprietorship concern are legally one and the same entity, separate penalties cannot be imposed on both. The Court relied on settled legal principles and precedents, including decisions from the Supreme Court and various Tribunals, which establish that the identity of a proprietor and the proprietorship concern are one and the same for the purpose of tax demands and penalties. Accordingly, the Court held that separate demands and penalties could not be sustained against the proprietor once they were imposed on the proprietorship concern. Consequently, the penalty imposed on the proprietor was set aside.

In conclusion, the Court held:

(a) The impugned goods are rightly classifiable under Tariff Item No. 3403 99 00 of the Central Excise Tariff Act, 1985, and not under Tariff Item 1518 00 40. Therefore, exemption notifications applicable to Chapter 15 goods do not apply.

(b) The demand for central excise duty confirmed by invoking the extended period of limitation is unsustainable, as there was no suppression of facts. The demand is restricted to the normal period of limitation and is payable with interest.

(c) Penalties imposed on the appellant-company and its proprietor are set aside, as no penalty is imposable on the proprietor separately from the proprietorship concern.

Crucial legal reasoning includes the Court's statement: "As per the interpretative rules for classification of goods, when a product is classifiable under more than one Chapter Heading, the Chapter Heading which is more specific is to be preferred over the general heading." This principle guided the classification decision.

Further, the Court emphasized the settled law that "the identity of a proprietor and its proprietorship concern are one and the same and hence, separate demands cannot be raised against both the proprietor and the proprietorship concern."

Specifically, the issues are:

• Whether the appellant is entitled to cenvat credit when the invoices are issued by second stage dealers allegedly based on invoices from non-existent manufacturers, and no actual receipt of goods is established.
• Whether the appellant can be penalized for wrongful availment of cenvat credit in the absence of concrete evidence proving non-receipt of goods or existence of fake invoices.
• The evidentiary value of statements relied upon by the revenue, especially third-party statements, and the necessity of corroborative evidence.
• The applicability of precedents regarding the burden on the purchaser to verify the payment of excise duty by suppliers and the reasonableness of such expectations.

Detailed analysis of these issues is as follows:

Entitlement to Cenvat Credit Based on Invoices from Second Stage Dealers Allegedly Linked to Non-Existent Manufacturers

The relevant legal framework includes Rule 9(2) and Rule 9(3) of the Cenvat Credit Rules, 2004, which govern the conditions under which cenvat credit can be availed, including the requirement of receipt of inputs and the duty having been paid by the supplier. The Court also referred to judicial precedents such as the judgment of the Allahabad High Court in Commissioner of Central Excise & Service Tax vs. Juhi Alloys Ltd., which clarified that a bona fide purchaser who has taken reasonable steps to ensure that excise duty has been paid on inputs is entitled to cenvat credit. The Court emphasized that it is not practical or expected for the purchaser to verify the supplier's payment of duty beyond the invoices and statutory records.

The investigation by DGCEI alleged that certain manufacturers had not paid duty, and that first stage dealers issued invoices without actual movement of goods, which were then used by second stage dealers to pass on cenvat credit to the appellant. However, the appellant contended that it had received the goods as reflected in statutory records, made payments through account payee cheques, and had cleared the final products on payment of duty.

The Court noted that while the revenue alleged non-receipt of inputs, there was no investigation or evidence from transporters or other corroborative sources to establish that the appellant did not receive the goods. The second stage dealer was found to be an existent entity, and the appellant maintained proper records. The Court held that in the absence of any evidence to the contrary, it must be presumed that the appellant received the inputs and was entitled to the cenvat credit.

The Court applied the principle that "once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs." This principle was supported by multiple precedents including the Jharkhand High Court and various Tribunal decisions.

Penalty Imposition and Evidentiary Requirements

The penalty was imposed on the appellant and other firms for alleged wrongful availment of cenvat credit. The appellant challenged this on grounds that the evidence relied upon by the revenue was insufficient, particularly pointing out that statements were third-party in nature and uncorroborated. The appellant further argued that no investigation reports or documents supported the allegations against certain first stage dealers or the appellant itself.

The Court agreed with the appellant's submissions, emphasizing that penalties cannot be imposed without tangible and corroborative evidence. The mere existence of show cause notices and allegations based on unverified statements were insufficient to sustain penalty. The Court referred to Tribunal decisions holding that cases cannot be booked merely on presumption or assumption and that there must be corroborative evidence to prove allegations.

Application of Law to Facts and Treatment of Competing Arguments

The Court carefully examined the facts and the evidence presented. It noted that the appellant had maintained statutory records showing receipt of goods, had made payments by cheque, and had cleared the final products on payment of duty. The revenue's case was based primarily on the investigation report alleging non-existence or non-payment of duty by manufacturers and first stage dealers, but no investigation was conducted at the level of transporters or to verify actual receipt of goods by the appellant.

The Court found that the revenue failed to produce any direct or corroborative evidence to prove that the appellant did not receive the inputs. The appellant's reliance on statutory records and payments was held to be sufficient to establish entitlement to cenvat credit. The Court rejected the revenue's argument that credit should be denied merely because the manufacturers had not paid duty or were non-existent, especially when the appellant was a bona fide purchaser who had taken reasonable steps to ensure compliance.

Conclusions

The Court concluded that the appellant was entitled to avail cenvat credit on the basis of invoices issued by the second stage dealers, accompanied by actual receipt of goods as reflected in statutory records and payments made. The absence of any investigation or evidence to prove non-receipt of goods by the appellant was a critical factor. The Court set aside the impugned order denying credit and imposing penalty, and held that no penalty was imposable on the appellants.

Significant holdings and core principles established include:

"Once a buyer of inputs receives invoices of excisable items, unless factually it is established to the contrary, it will be presumed that when payments have been made in respect of those inputs on the basis of invoices, the buyer is entitled to assume that the excise duty has been/will be paid by the supplier on the excisable inputs."

"The issue in each case is whether, within the meaning of Rule 9(3) of the Rules of 2004, the assessee has taken reasonable steps to ensure that the inputs in respect of which he has taken cenvat credit were goods on which appropriate duty of excise was paid. Once it is demonstrated that reasonable steps had been taken, which is a question of fact in each case, it would be contrary to the Rules to cast an impossible or impractical burden on the assessee."

"Cases cannot be booked merely on the presumption and assumption; there should be corroborative evidence to prove the allegation."

"In the absence of any corroborative evidence to show that the appellant has not received the goods, it cannot be alleged against the appellant that they have received the invoices and not the goods merely on the ground that there was no storage facility."

The final determination was that the appellant was entitled to cenvat credit on the invoices issued by second stage dealers, and the penalty imposed on the appellant and associated firms was set aside due to lack of evidence. The appeals were allowed with consequential relief.

The Tribunal considered the following core legal questions arising from the investigation and adjudication relating to alleged clandestine removal of goods:

• Whether the documents recovered from the premises of a third party, namely M/s Trikoot Iron & Steel Casting Ltd., can be relied upon as admissible evidence to demand duty from the appellants who were suppliers to M/s Trikoot.
• Whether statements recorded during the course of investigation, which were subsequently retracted by the appellants, are admissible and can be used to establish clandestine removal under Section 9D of the Central Excise Act, 1944.
• The applicability and interpretation of the legal principles regarding third party evidence and the evidentiary value of electronic and physical documents recovered during searches.
• The sufficiency of the evidence to establish clandestine removal and impose demand of duty, interest, and penalties on the appellants.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility and Reliance on Third Party Documents Recovered from M/s Trikoot

Legal Framework and Precedents: The Tribunal examined Section 36B(4) of the Central Excise Act, which sets conditions for admissibility of documents recovered during searches. The Tribunal also referred to several judicial precedents, including the decision of the Hon'ble Apex Court in L.K. Adwani vs. Central Bureau of Investigation, which lays down the principle that circumstantial evidence must form a complete chain, excluding every hypothesis except guilt. Additionally, the Tribunal considered the distinction between direct and third party evidence as discussed in RS Company vs. Commissioner and other cases.

Court's Interpretation and Reasoning: The Tribunal noted that in the case of M/s Trikoot, the Tribunal had earlier held that the electronic documents recovered were inadmissible due to non-compliance with Section 36B(4). The appellants' demand was based on printouts from these electronic documents recovered from M/s Trikoot's premises. Since no incriminating documents were found at the appellants' premises, the question arose whether third party evidence alone could sustain the demand.

The Tribunal distinguished the facts of RS Company, where corroborative evidence was found at multiple premises (supplier, transporter, buyer) and thus third party evidence was admissible. In contrast, in the present case, no corroborative evidence was recovered from the appellants' premises, and the Revenue relied solely on documents recovered from M/s Trikoot's premises.

The Tribunal emphasized the Apex Court's ruling in L.K. Adwani that circumstantial evidence must be complete and exclude any reasonable hypothesis of innocence. The documents from M/s Trikoot, without corroboration from the appellants' premises, failed this test.

Key Evidence and Findings: The investigation recovered physical and electronic documents from M/s Trikoot. However, electronic documents were held inadmissible. Physical documents were relied upon by the Revenue, but these were linked to statements by appellants which were later retracted.

Application of Law to Facts: The Tribunal concluded that third party documents cannot be the sole basis for demand of duty against appellants without corroborative evidence from appellants' premises or direct evidence linking appellants to clandestine removal.

Treatment of Competing Arguments: The Revenue argued that the relationship between M/s Trikoot and appellants as buyer and seller made the documents direct evidence rather than third party evidence. The Tribunal rejected this, holding that mere contractual relationship does not convert third party documents into direct evidence without corroboration.

Conclusion: The Tribunal held that third party evidence in the absence of corroboration is inadmissible and cannot sustain the demand of duty.

Issue 2: Admissibility of Statements Recorded During Investigation and Subsequently Retracted

Legal Framework and Precedents: Section 9D of the Central Excise Act governs the admissibility of statements recorded during investigation. The Tribunal referred to various decisions including P. Alavikutty vs. Director, Enforcement Directorate, Naresh J. Sukhawani vs. Union of India, and others, which emphasize the need to test such statements in chief and the adjudicating authority's discretion to admit or reject them.

Court's Interpretation and Reasoning: The Tribunal observed that statements recorded during investigation were retracted by the appellants. The adjudicating authority failed to conduct the mandatory examination in chief to determine the admissibility of these statements under Section 9D.

Key Evidence and Findings: The Revenue relied on confessional statements to establish clandestine removal. However, these statements were subsequently retracted and no further evidence corroborated them.

Application of Law to Facts: Since the procedural safeguards under Section 9D were not complied with, the statements could not be treated as admissible evidence against the appellants.

Treatment of Competing Arguments: The Revenue contended that retraction of statements should not absolve appellants, citing precedents supporting the admissibility of such statements despite retraction. The Tribunal held that without proper examination in chief and corroboration, such statements cannot be relied upon.

Conclusion: Statements recorded during investigation and later retracted are not admissible to establish clandestine removal in the absence of compliance with Section 9D.

Issue 3: Sufficiency of Evidence to Establish Clandestine Removal and Demand Duty

Legal Framework and Precedents: The Tribunal applied the principles of burden of proof and the requirement of a complete chain of evidence to establish clandestine removal. It referred to the Apex Court's ruling in L.K. Adwani emphasizing the necessity of excluding every reasonable hypothesis except guilt.

Court's Interpretation and Reasoning: The Tribunal found that the Revenue failed to produce admissible electronic evidence or corroborative physical evidence from the appellants' premises. The confessional statements were retracted and inadmissible. The evidence recovered from M/s Trikoot was held inadmissible as third party evidence without corroboration.

Key Evidence and Findings: The investigation revealed shortage and excess of goods at M/s Trikoot, but no such discrepancies were found at appellants' premises. No incriminating documents were recovered from appellants. The appellants admitted supply of goods but denied clandestine removal.

Application of Law to Facts: The Tribunal applied the legal standard that demands must be based on reliable and admissible evidence forming a complete chain. The absence of such evidence led to the conclusion that clandestine removal was not established.

Treatment of Competing Arguments: The Revenue argued that physical documents and confessional statements sufficed to establish clandestine removal. The Tribunal rejected this due to procedural lapses and lack of corroboration.

Conclusion: The charge of clandestine removal was not established; therefore, the demand of duty, interest, and penalties on appellants were unsustainable.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Documents recovered from third party to allege appellants clandestine removal should be corroborated by some positive evidence recovered from the appellant which Revenue has failed. In that circumstances, we hold that third party evidence is not admissible evidence in the absence of any corroboration."

"The statements recorded during the course of investigation which later on retracted by the appellants are not admissible to allege clandestine removal by the appellants."

"In view of the above discussion, we hold that the charge of clandestine removal which is a serious one has not been established by the Revenue with corroborative evidences, moreover, on the basis of the electronic evidence the case has been made out against main party M/s Trikoot has already been decided in favour of the appellant dropping the charge of clandestine manufacturing removal. Therefore, we hold that the charge of clandestine removal against the appellant are not sustainable."

The Tribunal established the core principles that:

• Third party evidence recovered during searches cannot be the sole basis for demand without corroboration from the accused's premises or direct evidence.
• Statements recorded during investigation must be examined in chief and admitted as per Section 9D to be relied upon; mere retracted statements are inadmissible.
• Demand of duty and penalties require a complete and unbroken chain of admissible evidence excluding reasonable hypotheses of innocence.

Accordingly, the Tribunal set aside the impugned order, allowed all appeals, and quashed the demand of duty and penalties imposed on the appellants.

Issue-wise Detailed Analysis:

1. Entitlement to Refund under Section 11B(2)(c) or (d) of the Central Excise Act

The relevant statutory provisions were examined in detail. Section 11B(1) requires any refund claim to be made within one year of the relevant date, in prescribed form, accompanied by documentary evidence including proof that the incidence of duty has not been passed on to any other person. Section 11B(2) stipulates that refund shall be granted only in specified cases enumerated in clauses (a) to (f) of the proviso, including clause (c) for refund of credit of duty paid on excisable goods used as inputs in accordance with rules or notifications, and clause (d) for refund of duty paid by the manufacturer if he has not passed on the incidence to any other person.

The Court interpreted clause (c) as allowing refund only in accordance with the Cenvat Credit Rules, 2004, which is a self-contained scheme governing credit, utilization, and refund. Clause (d) was interpreted as referring to refund of duty paid on manufactured goods where the manufacturer has not passed on the incidence of duty, which is distinct from refund of unutilized cenvat credit on inputs. The appellant's claim was for refund of accumulated cenvat credit due to closure of factory, not for duty on manufactured goods. Thus, the claim did not fall under clause (d).

The Court relied on the nine-judge Constitution Bench judgment in Mafatlal Industries Ltd v. Union of India, which emphasized that refund claims are subject to proof that the incidence of duty has not been passed on, and that refund is not an absolute right but conditional. The Court concluded that absence of an express provision in the statute for refund of accumulated cenvat credit on closure of factory precludes granting refund under Section 11B(2)(c) or (d).

2. Refund under Rule 5 of the Cenvat Credit Rules, 2004

Rule 5 of the CCR provides for refund of cenvat credit only in cases of export of final or intermediate products without payment of duty under bond or letter of undertaking. The appellant contended that Rule 5 does not expressly prohibit refund on closure of factory.

The Court examined Rule 5 and Notification No. 27/2012-CE(NT), which prescribe conditions for refund claims under Rule 5, including verification that goods cleared for export have actually been exported. The Court noted that the appellant's refund claim did not arise from export-related accumulated credit. The procedural safeguards and conditions under Rule 5 make it clear that refund is limited to export scenarios.

Further, the Court held that the CCR is a self-contained scheme regulating credit and refund, and Rule 5 cannot be read to allow refund of unutilized cenvat credit on closure of factory absent explicit provision. The appellant's contention that absence of prohibition implies permissibility was rejected as contrary to statutory interpretation principles governing taxing statutes.

3. Binding Precedent: Tribunal's ATV Projects Decision vs. Bombay High Court's Gauri Plasticulture Decision

The appellant relied on the Tribunal's decision in M/s. ATV Projects India Ltd, which held that the Supreme Court's order in Slovak India Trading Co. Pvt. Ltd. was a binding precedent under Article 141 of the Constitution, entitling refund of unutilized cenvat credit on closure of factory. The appellant urged this Tribunal to follow ATV Projects as a larger bench decision.

The department relied on the three-judge bench decision of the Bombay High Court in M/s. Gauri Plasticulture Pvt Ltd, which specifically examined whether the Supreme Court's order in Slovak India Trading Co. could be read as a binding precedent under Article 141 and answered in the negative. The High Court held that Slovak was a dismissal based on a concession and did not constitute a declaration of law binding on all courts. It further held that refund under Rule 5 is permissible only in export cases and not on closure of factory.

The Court undertook a comprehensive analysis of the doctrine of binding precedent, ratio decidendi, obiter dicta, and judicial discipline, referencing recent Supreme Court jurisprudence. It emphasized that only the ratio decidendi of a judgment is binding, and decisions based on concessions or non-speaking orders dismissing special leave petitions do not constitute binding precedents under Article 141.

The Court further explained the doctrine of merger and the difference between decision-making and precedent-making judgments. It noted that the Supreme Court in Slovak dismissed the special leave petition based on a concession without adjudicating the substantive question of law, leaving the question open.

In light of the binding precedents, including the larger bench decisions of the Tribunal and the Supreme Court, the Court held that the Tribunal cannot disregard the binding decision of the jurisdictional High Court. The Court found the ATV Projects decision to have overlooked the binding precedents and judicial discipline principles and held that the three-judge bench decision in Gauri Plasticulture is binding on this Tribunal.

4. Rebuttal of Presumption of Unjust Enrichment

Section 12B of the CEA presumes that the incidence of duty has been passed on to the buyer unless the contrary is proved. The appellant submitted a Chartered Accountant certificate asserting absence of unjust enrichment.

The Court noted that the certificate did not explain the reason for accumulation of credit nor the disposal of inputs or capital goods at the time of closure. The Court relied on the Supreme Court's decision in Commissioner of Central Excise, Chennai-III v. Grasim Industries, which held that the principle of unjust enrichment applies even to captive consumption and includes capital goods used in costing.

The Court held that without clear evidence on the nature of inputs and capital goods at closure and their treatment, the appellant failed to rebut the presumption of unjust enrichment.

5. Interpretation of Taxing Statutes and Policy Considerations

The Court reiterated the well-settled principle that taxing statutes must be strictly construed based on clear expressions in the statute. Equitable considerations, hardship, or moral views cannot be imported to supply deficiencies or extend benefits not expressly provided by law.

The Court cited the larger bench decision in Steel Strips v. CCE, which held that refund of unutilized credit on closure of factory is not permissible absent explicit statutory provision and that absence of prohibition does not imply a positive right to refund.

The Court emphasized that refund claims are not matters of right but depend on statutory mandate and conditions, including strict adherence to procedural requirements and proof against unjust enrichment.

Conclusions:

The Court concluded that:

• Section 11B(2)(c) and (d) do not provide for refund of unutilized accumulated cenvat credit on closure of factory.
• Rule 5 of the Cenvat Credit Rules, 2004 allows refund only in cases of export and does not permit refund on closure of manufacturing operations.
• The Supreme Court's order in Slovak India Trading Co. Pvt. Ltd. is not a binding precedent under Article 141 as it was a dismissal based on concession; thus, the Tribunal must follow the binding decision of the jurisdictional Bombay High Court in Gauri Plasticulture.
• The appellant failed to rebut the presumption of unjust enrichment due to lack of sufficient evidence regarding the treatment of inputs and capital goods at closure.
• Taxing statutes must be strictly construed, and equitable considerations cannot override clear statutory provisions.

Accordingly, the appeal was dismissed as devoid of merits, upholding the rejection of the refund claim.

Significant Holdings:

"Section 11B itself is a provision that mandates that a refund claim is subject to the proof of not passing on the burden of duty to others and clause (c) of proviso to sub-section (2) which stipulates 'refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act', when read with the said sub-section (2) and sub-section (1) of Section 11B, would only necessarily mean that such refund of credit of duty paid on inputs/input services are governed by the Cenvat Credit Rules, 2004 ... being a self-contained scheme."

"Refund of CENVAT credit in terms of Rule 5 is permissible only when there is a clearance of a final product of a manufacturer or of an intermediate product for export without payment of duty under a bond or letter of undertaking ... The refund under Rule 5 of CCR would arise only in respect of the unutilized cenvat credit accumulated in the course of engaging in export of goods and/or services."

"A decision is binding not because of its conclusion but with regard to its ratio and the principle laid down therein ... The only thing in a judge's decision binding a party is the principle upon which the case is decided ... A decision based on a concession cannot be considered a binding precedent."

"Taxing statutes are not subject to equitable considerations. One must interpret a taxing statute in the light of what is clearly expressed. The statute cannot import provisions so as to supply any assumed deficiency."

"The doctrine of unjust enrichment is a salutary doctrine. No person can seek to collect the duty from both ends ... The power of the Court is not meant to be exercised for unjustly enriching a person."

"In the absence of express provision to grant refund, that is difficult to entertain except in the case of export ... Absence of express grant is an implied bar for refund."

The core legal questions referred by the Commercial Tax Tribunal under Section 55(1) of the Chhattisgarh Value Added Tax Act, 2005, and considered by the High Court are as follows:

(a) Whether the Tribunal erred in law by holding that the assessment was done based on the guiding principles laid down in the Supreme Court judgment in M/s Gannon Dunkerley and Co. (1993) 1 SCC 364;

(b) Whether the Tribunal erred by reaching a perverse finding that the assessing authority properly levied tax and allowed deductions as per law;

(c) Whether the Tribunal erred by reaching a perverse finding that the assessing authority properly levied tax and allowed deduction on the Entry Tax (ET) paid on purchase of goods in accordance with law.

Subsequently, the High Court found that the Tribunal did not actually hold that the assessment was made following the Gannon Dunkerley principles and directed the Tribunal to reframe the substantial question of law to:

"Whether under the facts and circumstances of the case, the Tribunal was justified in upholding the assessment made without following the guiding principles laid down by the Supreme Court in M/s Gannon Dunkerley and Co. (supra) and consequently erred in determining the Value Added Tax and the Entry TaxRs."

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the assessment was done following the guiding principles of the Gannon Dunkerley judgment

Relevant Legal Framework and Precedents: The Supreme Court in M/s Gannon Dunkerley and Co. v. State of Rajasthan (1993) laid down detailed principles for determining the value of goods involved in works contracts for taxation purposes. Paragraph 51 of the judgment sets out that:

• The value of goods in a works contract can be ascertained by deducting expenses relatable to labour and services from the total contract value;
• Labour and services include labour charges, sub-contractor payments, machinery hire charges, architect fees, consumables, establishment costs related to labour, and profit attributable to labour and services;
• Where proper accounts are not maintained, the legislature may prescribe a formula for deduction based on percentages that approximate normal expenses for labour and services.

Court's Interpretation and Reasoning: The Tribunal and the first appellate authority rejected the application of the Gannon Dunkerley principles on the ground that the assessee did not produce proper and reliable accounts, specifically lacking entries for opening and closing work in progress and understated purchases. Consequently, the Tribunal held that the assessment was proper but did not explicitly find that the assessment was made following the Gannon Dunkerley principles.

The High Court scrutinized the Tribunal's order and found no express finding that the assessment was done in accordance with the Gannon Dunkerley guidelines. Instead, the Tribunal dismissed the appeal based on the unreliability of the accounts and upheld the assessment on that basis.

Key Evidence and Findings: The appellate authority and Tribunal relied heavily on the absence of critical accounting details such as closing and opening work in progress and the understatement of purchase entries, which rendered the accounts unreliable for applying the Gannon Dunkerley method.

Application of Law to Facts: Since the assessee failed to maintain or produce credible accounts as required under the Gannon Dunkerley framework, the assessing authority was justified in not applying those principles and instead levying tax based on the available evidence.

Treatment of Competing Arguments: The assessee argued that the assessment should have been made following the Gannon Dunkerley principles. However, the authorities and Tribunal found that the lack of proper documentation precluded this approach. The High Court agreed that the Tribunal did not err in this regard but noted that the Tribunal did not explicitly state that the assessment followed these principles, rendering the original substantial question of law unsuitable.

Conclusion: The Tribunal did not err in refusing to apply the Gannon Dunkerley principles due to unreliable accounts; however, the framing of the substantial question of law by the Tribunal was inaccurate as it assumed the assessment was made following those principles.

Issue 2: Whether the assessing authority properly levied tax and allowed deductions as per law

Relevant Legal Framework: The Chhattisgarh Value Added Tax Act, 2005 governs the levy and collection of VAT and Entry Tax. The assessing authority's power to levy tax and allow deductions is subject to proper application of the law and credible evidence.

Court's Interpretation and Reasoning: The appellate authority and Tribunal upheld the assessment order, finding the accounts unreliable and thus justifying the tax demand. The Tribunal held that the assessment was proper and that there was no reason to interfere with the findings of the assessing authority and first appellate authority.

Key Evidence and Findings: The crucial finding was the absence of proper accounting for work in progress and purchases, which undermined the assessee's claim for deductions. The Tribunal found no fault with the assessing authority's calculations and deductions.

Application of Law to Facts: Given the unreliable accounts, the assessing authority's levy of tax and allowance of deductions were justified and in accordance with the law. The Tribunal's affirmation of these findings was not perverse or erroneous.

Treatment of Competing Arguments: The assessee contended that deductions were wrongly denied or tax wrongly levied. The authorities countered that due to incomplete and unreliable records, the assessment was necessarily based on the available evidence, and the deductions allowed were as per law.

Conclusion: The Tribunal did not err in upholding the assessment and deductions made by the assessing authority.

Issue 3: Whether the assessing authority properly allowed deduction on Entry Tax paid on purchase of goods

Relevant Legal Framework: Entry Tax (ET) provisions under the Chhattisgarh VAT Act allow deductions for ET paid on purchases, subject to proper proof and compliance.

Court's Interpretation and Reasoning: The Tribunal found no error in the assessing authority's decision to allow deduction of ET paid on purchases, given the available records.

Key Evidence and Findings: The Tribunal did not find any irregularity or illegality in the allowance of ET deductions by the assessing authority.

Application of Law to Facts: The assessing authority's allowance of ET deduction was consistent with the statutory provisions and supported by the records.

Treatment of Competing Arguments: The assessee challenged the correctness of the ET deduction, but the Tribunal found the assessing authority's decision proper and lawful.

Conclusion: The Tribunal correctly upheld the assessing authority's allowance of ET deduction.

Additional Observations: The High Court invoked Section 55(4) of the Act, which empowers the Court to direct the Tribunal to amend the case stated if it is insufficient to determine the question of law. The Court exercised this power to direct the Tribunal to reframe the substantial question of law to accurately reflect the facts and findings, particularly clarifying that the Tribunal did not hold that the assessment was made following the Gannon Dunkerley principles.

3. SIGNIFICANT HOLDINGS

"The Tribunal did not hold that the assessment has been done following the guiding principles laid down in M/s Gannon Dunkerley and Co. (supra). In absence of any such finding, the questions referred by the learned Tribunal do not arise for determination by this Court."

"If the High Court is satisfied that the case stated is not sufficient to enable it to determine the question of law raised, it may call upon the Tribunal to make such additions or alterations as the Court may direct in that behalf." (Section 55(4) of the Act)

"Accordingly, the matters are referred to the Tribunal to suitably alter the question of law for determination of this Court in the following manner and refer the same to this Court:- 'Whether under the facts and circumstances of the case, the Tribunal was justified in upholding the assessment made without following the guiding principles laid down by the Supreme Court in M/s Gannon Dunkerley and Co. (supra) and consequently erred in determining the Value Added Tax and the Entry TaxRs.'"

Core principles established include:

• The necessity of proper and reliable accounts to apply the Gannon Dunkerley principles in works contract tax assessments;
• The legitimacy of the assessing authority to levy tax and allow deductions based on the credibility of accounts and evidence;
• The High Court's power under Section 55(4) of the Act to require the Tribunal to clarify or amend the substantial question of law to enable proper adjudication.

Final determinations on the issues are that the Tribunal did not err in upholding the assessment and deductions made by the assessing authority given the unreliable accounts, but the Tribunal's framing of the question of law was incorrect and required alteration to reflect that the assessment was upheld despite not following the Gannon Dunkerley principles.

1. Whether the amendment to the Assam Industries (Tax Reimbursement for Eligible Units) Scheme, 2017 by the Assam Industries (Tax Reimbursement for Eligible Units) (Amendment) Scheme, 2020, which withdrew the power of the Finance (Taxation) Department to extend the period of eligibility for tax exemption benefits, is arbitrary, illegal, and violative of Article 14 of the Constitution of India.

2. Whether the withdrawal of extension of the period of eligibility violates the doctrine of promissory estoppel and legitimate expectation, given the petitioners' investment decisions based on the Industrial Policy of Assam, 2008, and the Assam Industries (Tax Exemption) Scheme, 2009.

3. Whether the classification made by the Amendment Scheme, 2020, which allowed extension of eligibility only for units whose extension orders were passed prior to the amendment but rejected all pending applications, amounts to unreasonable classification and discrimination violating Article 14.

4. Whether the petitioners have any vested or accrued rights in the tax exemption benefits promised under the earlier Industrial Policy and Schemes which cannot be curtailed or withdrawn by subsequent amendments.

5. Whether the State's action in withdrawing the extension power is justified on grounds of public interest, fiscal constraints, and the introduction of the GST regime.

6. Whether the petitioners' applications for extension of eligibility were arbitrarily kept pending and subsequently deemed rejected by a delegated legislation without due consideration, thus violating principles of natural justice and constitutional guarantees.

Issue-wise Detailed Analysis:

Issue 1: Validity of the Amendment Scheme, 2020 withdrawing extension power and its compatibility with Article 14

The legal framework includes the Industrial Policy of Assam, 2008, the Assam Industries (Tax Exemption) Scheme, 2009, the Assam Industries (Tax Reimbursement for Eligible Units) Scheme, 2017, and the Amendment Scheme, 2020. The 2009 Scheme granted VAT exemption for 7 years subject to monetary ceilings. The 2017 Scheme was introduced post-GST to continue tax reimbursement limited to the State's share of GST and empowered the Finance Department to extend eligibility by up to 5 years if genuine reasons existed for underutilization.

The Amendment Scheme, 2020 omitted the proviso empowering extension and declared all pending applications as deemed rejected, while validating prior extension orders.

The petitioners argued this amendment is arbitrary and discriminatory, violating Article 14, as it treats similarly situated units differently without reasonable basis. The State contended that classification is valid, based on fiscal constraints and public interest, and that the amendment applies uniformly to all pending cases.

The Court examined the principles of reasonable classification under Article 14, requiring intelligible differentia and rational nexus to the object of the law. The State failed to demonstrate any rational basis or criteria for selectively granting extensions to some units while rejecting others with pending applications, especially when the petitioners' applications were filed prior to the amendment and similar to those granted extension.

The Court held that such unexplained differential treatment amounts to hostile discrimination and arbitrariness, violating Article 14.

Issue 2: Applicability of the Doctrine of Promissory Estoppel and Legitimate Expectation

The petitioners relied on the doctrine of promissory estoppel, asserting that they invested heavily relying on the clear promise of 7 years VAT exemption under the Industrial Policy of 2008 and the 2009 Scheme. They contended that the withdrawal of extension power and denial of benefits frustrates their legitimate expectations and is inequitable.

The Court considered the well-established legal principles from Apex Court precedents which require three conditions for promissory estoppel: (1) a clear and unequivocal promise by the Government, (2) reliance on the promise by the promisee altering their position, and (3) resulting prejudice if the promise is not honored.

The Court acknowledged that the petitioners had altered their position by investing in industrial units based on the promise. However, the Court also noted that the doctrine of promissory estoppel is subject to overriding public interest and cannot be invoked against a statute or where the Government acts within its legislative powers or changes policy in public interest.

The Court observed that the introduction of the GST regime was a statutory change subsuming VAT and other taxes, altering the tax structure fundamentally. The State continued to provide tax reimbursement limited to its share of GST under the 2017 Scheme, which was a reasonable adaptation to the new legal regime.

The withdrawal of extension power by the 2020 Amendment Scheme was a policy decision taken in public interest, considering fiscal constraints and the changed tax environment. The Court held that the State has not resiled from its promise but adapted its scheme to the changed statutory regime, and therefore, the doctrine of promissory estoppel does not apply to compel reimbursement beyond the State's share of GST or to extend eligibility beyond the prescribed limits.

Issue 3: Whether the petitioners have vested or accrued rights in the tax exemption benefits

The petitioners claimed vested or accrued rights to the exemption benefits based on the Industrial Policy of 2008 and the 2009 Scheme. The Court analyzed the concept of vested rights and legitimate expectation in the context of public policy and statutory changes.

The Court held that the benefits under the 2009 Scheme were expressly stated to be available only as long as the Assam VAT Act, 2003 remained in force. With the repeal of VAT and introduction of the GST regime by valid legislation, the earlier benefits ceased to operate in their original form.

The State's continuation of benefits under the 2017 Scheme, limited to the State's share of GST, was a substantial performance of its promise under the changed legal framework. Thus, the petitioners did not acquire vested rights to benefits beyond what the law now permits.

Issue 4: Whether the petitioners' applications for extension were arbitrarily kept pending and deemed rejected by delegated legislation

The petitioners submitted that their applications for extension were filed before the 2020 Amendment and ought to have been considered on merits, especially since other similarly situated units' applications were considered and granted extensions.

The State contended that the delay was due to the lengthy verification process and financial constraints, and the amendment was a policy decision effective from 30.12.2020.

The Court found that the petitioners' applications were not considered while other units were granted extensions, and the amendment's deeming provision rejected pending applications without any individual consideration or reasons. The State failed to justify the classification or provide reasons for differential treatment.

The Court held that such non-consideration and blanket rejection without due process violates principles of natural justice and Article 14, as it results in arbitrary and unfair treatment.

Issue 5: Whether the State's action is justified on grounds of public interest and fiscal constraints

The State argued that the amendment was necessitated by financial hardships, especially during the COVID-19 pandemic, and to safeguard public revenue. It also submitted that the 2009 Scheme did not provide for extension of eligibility and the petitioners had already availed benefits for the prescribed 7 years.

The Court recognized that public interest and fiscal considerations are legitimate grounds for policy changes and that courts generally do not interfere with such decisions unless malafide or irrationality is shown.

However, the Court emphasized that public interest does not justify arbitrary or discriminatory treatment and that the State must apply policies fairly and transparently.

Issue 6: Reasonableness of classification under Article 14

The Court analyzed the classification made by the Amendment Scheme, 2020, which validated extension orders passed before the amendment but rejected all pending applications. The State failed to demonstrate any intelligible differentia or rational nexus to justify this classification.

The Court applied the tests laid down in precedents that classification must be based on real and relevant differences and must not be arbitrary or hostile discrimination.

The Court held that the classification was unreasonable and violated Article 14, as it resulted in similarly situated units being treated unequally without justification.

Conclusions:

The Court concluded that while the State was entitled to adapt its tax exemption schemes to the new GST regime and public interest considerations, the Amendment Scheme, 2020's withdrawal of extension power was valid as a policy decision. However, the failure to consider the petitioners' pending applications for extension, while granting extensions to other similarly situated units, was arbitrary and violative of Article 14.

The doctrine of promissory estoppel did not apply to compel extension beyond the statutory limits or reimbursement beyond the State's share of GST, given the change in law and public interest.

The petitioners did not have vested rights to the benefits beyond the statutory and policy framework in force post-GST.

The Court directed the respondent authorities to consider the petitioners' applications for extension on merits, applying the same yardstick as used for other similarly situated units, within 60 days, and to pass reasoned orders.

Significant Holdings:

"The doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires. But it is only if the Court is satisfied, on proper and adequate material placed by the Government, that overriding public interest requires that the Government should not be held bound by the promise but should be free to act unfettered by it, that the Court would refuse to enforce the promise against the Government."

"Where the Government acts in 'public interest' and neither any fraud or lack of bona fides is alleged, much less established, it would not be appropriate for the court to interfere with the same."

"Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational relation to the object sought to be achieved by the statute in question."

"The State must apply policies fairly and transparently and non-consideration of claims of petitioners while granting similar benefits to similarly situated units without justification is arbitrary and violative of Article 14."

"The State cannot be compelled to reimburse the Central share of GST paid by industries merely because earlier VAT exemption was promised; the promise was limited to the State's tax regime then in force."

"The Court will not interfere with policy decisions of the Executive unless the policy decision can be faulted on grounds of malafide, unreasonableness or arbitrariness or unfairness."

"The petitioners' applications for extension of period of eligibility shall be considered by the respondent authorities applying the same yardstick as applied to other similarly situated units, and appropriate orders passed within 60 days."

1. Whether a partner of a partnership firm can be summoned and held liable under Section 138 of the Negotiable Instruments Act (NI Act) when the complaint was originally filed only against another partner who has since died.

2. Whether the complaint filed solely against the deceased partner can be revived or continued by impleading other partners or the firm itself under Section 319 of the Criminal Procedure Code (Cr.P.C.).

3. The applicability of the Indian Partnership Act, particularly Section 25, regarding joint and several liability of partners for acts of the firm, in the context of NI Act proceedings.

4. The necessity of specific allegations against partners or the firm in complaints under Section 138 NI Act to establish vicarious or joint liability.

5. The legal effect of abatement of a complaint due to the death of the sole accused and whether such abatement can be circumvented by adding other accused subsequently.

Issue-wise Detailed Analysis:

Issue 1: Can a partner be held liable under Section 138 NI Act if the complaint was filed only against another partner who has diedRs.

The relevant legal framework includes Section 138 and Section 141 of the NI Act, which provide for prosecution of persons responsible for dishonour of cheques, and Section 25 of the Indian Partnership Act, which imposes joint and several liability on partners for acts of the firm. The Court also considered precedents including the Supreme Court's rulings in Dilip Hariramani v. Bank of Baroda and Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd.

The Court noted that although the cheques were issued on behalf of the partnership firm and signed by the deceased partner, the complaint was filed solely against that partner and not against the firm or any other partner. The Supreme Court in Dilip Hariramani held that a partner cannot be held vicariously liable under the NI Act unless the firm itself is made a party to the complaint. Similarly, Aneeta Hada emphasized the necessity of arraigning the company (or firm) as an accused for maintaining prosecution under Section 141.

The Court reasoned that since the complaint did not include the partnership firm or other partners as accused at inception, the liability of other partners could not be fastened merely by virtue of Section 25 of the Indian Partnership Act. The complaint was thus "still born" in respect of other partners.

Issue 2: Whether the complaint can be revived or continued by impleading other partners or the firm under Section 319 Cr.P.C. after the death of the sole accusedRs.

Section 319 Cr.P.C. allows a Court to summon any person as an accused if sufficient grounds arise during trial. The petitioner sought to implead the surviving partner and the firm after the death of the sole accused partner.

The Court observed that the complaint had abated due to the death of the sole accused, and that the date of death was not clearly established to determine if the deceased partner died before or after the complaint was filed. The Court held that a complaint that is abated cannot be revived by adding new accused under Section 319 Cr.P.C. The Court relied on the principle that procedural safeguards and specific allegations are necessary to maintain a complaint under Section 138 NI Act, and that the absence of the firm or other partners as parties at the outset precluded such revival.

Further, the Court noted that no specific allegations were made against the surviving partner regarding control or responsibility for the dishonoured cheques, which is a prerequisite for vicarious liability under the NI Act as per the Supreme Court's rulings.

Issue 3: Applicability of Section 25 of the Indian Partnership Act in the context of NI Act proceedings.

Section 25 of the Indian Partnership Act states that every partner is liable jointly and severally for all acts of the firm done while he is a partner. The petitioner argued that this provision should render the surviving partner liable for the dishonoured cheques issued by the deceased partner on behalf of the firm.

The Court acknowledged the provision but clarified that such liability under the Partnership Act does not automatically translate into criminal liability under the NI Act unless the firm itself is made a party to the complaint. The Court emphasized that the NI Act requires specific procedural compliance and that the complaint must be maintainable against the firm or the individual partners specifically named and accused. Thus, Section 25 alone cannot override the procedural requirements of the NI Act.

Issue 4: Necessity of specific allegations against partners or the firm in complaints under Section 138 NI Act.

The Court referred to the Apex Court's decisions in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and N.K. Wahi v. Shekhar Singh, which held that mere designation as a director or partner is insufficient; there must be specific allegations demonstrating the accused's role in the transaction and control over the business.

Applying this principle, the Court found that the surviving partner was not specifically alleged to have control over the day-to-day affairs at the time of dishonour nor was he named in the complaint. The cheques were signed only by the deceased partner, and the legal notice was not served on the surviving partner. Therefore, the Court held that the complaint could not be sustained against the surviving partner.

Issue 5: Legal effect of abatement of complaint due to death of sole accused and whether such abatement can be circumvented.

The Court reaffirmed the settled legal position that a complaint under Section 138 NI Act abates upon the death of the sole accused. It rejected the petitioner's attempt to circumvent this abatement by impleading other partners or the firm after the complaint had abated.

The Court emphasized that procedural propriety and adherence to statutory requirements are essential to maintain the sanctity of the criminal process. The absence of the firm or other partners as parties at the complaint's inception precluded any subsequent addition under Section 319 Cr.P.C.

Significant Holdings:

"Partner cannot be held to be vicariously liable under NI Act, 1881 when Partnership Firm was not the primary accused."

"For maintaining the prosecution under Section 141 of the Act, arraigning of a Company as an accused is imperative."

"A still born Complaint, which also got abated on demise of Mr. Amreesh Sharma, could not have been infused with life after it got abated by impleading the Firm and Respondent No. 3, Shubham Sharma, as Respondents under Section 319 Cr.P.C."

"Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm."

"Mere designation as a Director or Partner is not sufficient; specific role and responsibility must be established in the Complaint under Section 138 NI Act."

The Court concluded that the complaint filed solely against the deceased partner was not maintainable against the surviving partner or the firm in the absence of their being made parties initially and specific allegations against them. The complaint abated on the death of the sole accused and could not be revived by impleading others under Section 319 Cr.P.C. The application to summon the surviving partner was rightly dismissed and the complaint was correctly held to have abated. The petition was dismissed accordingly.