TMI Tax Updates e-Newsletter
Jun 13,2025

The core legal questions considered by the Court are:

(a) Whether a registered person is entitled to claim refund of unutilized Input Tax Credit (ITC) lying in the Electronic Credit Ledger upon discontinuance or closure of business under the Central Goods and Services Tax Act, 2017 (CGST Act);

(b) Whether Section 49(6) of the CGST Act, which provides for refund of balance in electronic cash or credit ledger in accordance with Section 54, confers a right to refund of unutilized ITC on business closure, notwithstanding the exceptions carved out in Section 54(3);

(c) Whether the proviso to Section 54(3) of the CGST Act, which restricts refund of unutilized ITC to specified circumstances, excludes refund claims arising from business discontinuance;

(d) Whether the Petitioners were required to exhaust alternative statutory remedies under Section 112 of the CGST Act before approaching the High Court;

(e) The scope and applicability of judicial discretion under Article 226 of the Constitution in entertaining writ petitions despite availability of alternative remedies;

(f) The relevance and applicability of precedents concerning refund of unutilized input credit on closure of business or cessation of manufacture under analogous statutory regimes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Entitlement to refund of unutilized ITC on business discontinuance under Sections 49(6) and 54 of the CGST Act

The legal framework involves a combined reading of Section 49(6) and Section 54 of the CGST Act. Section 49(6) provides that the balance in the electronic cash or credit ledger after payment of tax, interest, penalty, fee or any other amount payable may be refunded in accordance with Section 54. Section 54(1) prescribes the procedural requirements for claiming refund of tax, interest or other amounts paid.

Section 54(3) specifically addresses refund of unutilized ITC, permitting refund only in two circumstances: (i) zero rated supplies made without payment of tax; and (ii) where credit has accumulated due to the rate of tax on inputs being higher than on output supplies (excluding nil rated or fully exempt supplies), subject to certain exceptions. The provisos further restrict refund in cases involving export duty or drawback claims.

The Appellate Authority had held that since discontinuance or closure of business is not enumerated as a ground for refund under Section 54(3), the Petitioners' claim for refund of unutilized ITC on business closure was not permissible.

The Petitioners contended that Section 49(6) confers a right to refund of the balance in the Electronic Credit Ledger after payment of dues, and Section 54(3) is an exception limiting refund only in certain cases, which should not exclude refund on business closure. They argued the proviso to Section 54(3) cannot divest them of their vested right to refund of accrued ITC. Reliance was placed on precedents including Shabnam Petrofils Pvt. Ltd. and Eicher Motors Ltd. which support refund claims under similar circumstances.

The Court examined the statutory language and noted that Section 49(6) refers to refund "in accordance with the provisions of Section 54," thereby making Section 54 the guiding provision for refund claims. While Section 54(3) restricts refund of unutilized ITC to specified cases, the statute does not expressly bar refund in case of business closure. The Court observed that the CGST Act does not authorize retention of tax or ITC without legal sanction.

In this context, the Court considered the decision in Slovak India Trading Company Private Limited, where the High Court of Karnataka upheld refund of unutilized credit on closure of a manufacturing unit under the CENVAT Credit Rules, 2002. The Court noted that the absence of an express prohibition in the statute or rules for refund on closure was a decisive factor. The Tribunal and the High Court had rejected the Revenue's contention that refund was impermissible due to closure or cessation of manufacture.

Applying this reasoning, the Court held that the Petitioners were entitled to refund of the unutilized ITC balance upon closure of their business. The Court emphasized that the statutory provisions do not expressly exclude refund on business discontinuance and that such a claim cannot be denied merely on the basis of the exceptions in Section 54(3). The Court concluded that the Petitioners' claim was legally sustainable.

Issue (c): Interpretation of proviso to Section 54(3) and its applicability to business closure

The proviso to Section 54(3) restricts refund of unutilized ITC to two specified scenarios and excludes refund in cases involving export duty or drawback claims. The Appellate Authority had interpreted this proviso as excluding refund claims arising from business closure.

The Court disagreed with this restrictive interpretation, holding that the proviso does not expressly bar refund on account of business discontinuance. The Court reasoned that the statutory scheme contemplates refund of balances in the electronic credit ledger after payment of dues, and the absence of explicit prohibition means such refund cannot be denied. The Court thus construed the proviso narrowly and held it does not preclude refund on closure of business.

Issue (d) and (e): Non-exhaustion of alternative remedies and the exercise of writ jurisdiction

The Respondents contended that the Petitioners had not exhausted the alternative statutory remedy under Section 112 of the CGST Act, which provides for revision by the Commissioner, and thus the writ petition was not maintainable.

The Court examined the principles governing exercise of writ jurisdiction under Article 226 of the Constitution. It referred to the Supreme Court's decisions in State of U.P. vs. Indian Hume Pipe Co. Ltd. and M/s. Godrej Sara Lee Ltd. vs. Excise and Taxation Officer, which clarify that availability of an alternative remedy is not an absolute bar to entertaining a writ petition. The Court emphasized that the power to issue prerogative writs is plenary and discretionary, and mere non-pursuit of an alternative remedy does not oust jurisdiction.

The Court found no question of fact requiring determination and that the matter involved pure questions of law. The Court held that the writ petition was maintainable and the argument regarding non-exhaustion of alternative remedy was not a ground for dismissal.

Issue (f): Treatment of competing arguments and application of precedents

The Respondents' primary argument was that the statute does not recognize business closure as a ground for refund of unutilized ITC and that the Petitioners' claim was devoid of statutory support. They relied on the statutory scheme and the impugned orders.

The Petitioners countered by relying on the statutory provisions read harmoniously, the absence of express prohibition, and judicial precedents allowing refund of unutilized credit on closure or cessation of business or manufacture.

The Court gave due consideration to both sides and found the Petitioners' submissions more persuasive in light of the statutory text and judicial precedents. The Court applied the principle that tax or credit cannot be retained without legal authority and that refund claims should be allowed unless expressly barred. The Court also relied on the Slovak India Trading Company decision as directly analogous and supportive.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is evident in the instant matter no question of fact requires determination and the matter was filed before this Court seeking its interference for the reasons made out in the prayers as already revealed (supra). The exercise of plenary powers by this Court as well as exercise of discretion in no manner is limited as already pointed out by the Supreme Court in M/s. Godrej Sara Lee Ltd. (supra). This thereby lends a quietus to the argument raised by Learned Deputy Solicitor General."

"Similarly, in the instant matter there is no express prohibition in Section 49(6) read with Section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of unit. Although, Section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, however the statute also does not provide for retention of tax without the authority of law. Consequently, I am of the considered view that the Petitioners are entitled to the refund of unutilized ITC claimed by them and it is ordered so."

The Court set aside the impugned appellate order rejecting the refund claim and allowed the writ petition.

The core principles established include:

• Refund of unutilized Input Tax Credit lying in the Electronic Credit Ledger upon closure or discontinuance of business is not expressly prohibited under the CGST Act and is thus permissible;
• Section 49(6) read with Section 54 of the CGST Act governs refund claims of balances in electronic ledgers, and Section 54(3) exceptions do not exclude refund on business closure;
• The availability of alternative statutory remedies does not bar the High Court's exercise of writ jurisdiction under Article 226, especially where no factual disputes exist and the matter involves pure questions of law;
• Statutory provisions should be construed to avoid unjust retention of tax or credit without legal authority;
• Precedents under analogous statutes permitting refund of unutilized credit on closure of business or cessation of manufacture are applicable and persuasive.

1. Whether the cancellation of GST registration under Section 29(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017 is valid when the registered person has not furnished returns for a continuous period of six months.

2. Whether the procedural requirements under Rule 22 of the CGST Rules, 2017, specifically the issuance of a show cause notice and opportunity for reply, were complied with before cancellation.

3. Whether the petitioner, despite non-filing of returns and lapse of the prescribed time limit for filing a revocation application, can seek restoration of GST registration by furnishing pending returns and making payment of dues as per the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017.

4. The extent of the authority and jurisdiction of the proper officer to drop cancellation proceedings and restore registration upon compliance by the registered person.

Issue-wise detailed analysis:

Issue 1: Validity of cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for six continuous months

The legal framework under Section 29(2)(c) empowers a duly authorized officer to cancel the GST registration of a person who has not furnished returns for a continuous period of six months or more. This provision is mandatory and aims to ensure compliance with statutory filing obligations.

The Court noted that the petitioner had not furnished GST returns for over six months, which is a ground for cancellation under the statute. The impugned order dated 24.04.2024 cancelling the petitioner's registration was issued on this basis. The Court accepted the factual finding that the petitioner had defaulted in filing returns for the requisite period.

However, the Court emphasized that cancellation under this provision entails serious civil consequences and must be carried out in accordance with the prescribed procedural safeguards.

Issue 2: Compliance with procedural safeguards under Rule 22 of the CGST Rules, 2017

Rule 22 of the CGST Rules, 2017 lays down the procedure for cancellation of registration, including issuance of a show cause notice in FORM GST REG-17 requiring the person to show cause within seven working days why registration should not be cancelled, and furnishing of reply in FORM REG-18.

The Court observed that the petitioner was served with a show cause notice dated 13.11.2023. The notice stipulated a 30-day period to furnish a reply and warned that failure to do so or failure to appear for personal hearing would lead to ex-parte decision. However, the petitioner contended that no date for personal hearing was ever notified, raising a procedural irregularity.

The Court did not explicitly find fault with the procedure but underscored the importance of adherence to the statutory scheme, including providing the person an opportunity to be heard before cancellation.

Issue 3: Possibility of restoration of GST registration despite lapse of time limit for revocation application

The petitioner sought to file an application for revocation of cancellation but was unable to do so within the prescribed time limit. The Court examined the proviso to sub-rule (4) of Rule 22, which provides that if the person served with a show cause notice furnishes all pending returns and makes full payment of tax dues along with applicable interest and late fees, the proper officer shall drop the cancellation proceedings and pass an order in FORM GST REG-20.

The Court interpreted this proviso as conferring discretion on the proper officer to restore registration if the person complies with these conditions, even after cancellation.

The petitioner expressed readiness and willingness to comply with these requirements. The Court referred to a precedent order dated 11.10.2023 in a similar writ petition where restoration was allowed on similar facts.

Issue 4: Authority and jurisdiction of the proper officer to drop proceedings and restore registration

The Court held that the proper officer, duly empowered under the CGST Act and Rules, has the authority and jurisdiction to drop cancellation proceedings and restore registration upon compliance with the conditions stipulated in the proviso to sub-rule (4) of Rule 22.

This includes furnishing all pending returns and making full payment of tax dues, interest, and late fees.

The Court directed the petitioner to approach the concerned authority within two months from the date of the judgment for restoration of GST registration, which shall be considered expeditiously in accordance with law.

The Court also clarified that the period for computation under Section 73(10) of the CGST Act shall be counted from the date of the judgment, except for the financial year 2024-25, which shall be governed by Section 44 of the CGST Act. The petitioner remains liable to pay arrears including tax, penalty, interest, and late fees.

Significant holdings:

"It is discernible from a reading of the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 that if a person, who has been served with a show cause notice under Section 29(2)(c) of the CGST Act, 2017, is ready and willing to furnish all the pending returns and to make full payment of the tax itself along with applicable interest and late fee, the officer, duly empowered, can drop the proceedings and pass an order in the prescribed Form i.e. Form GST REG-20."

"Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29(2)(c) of the CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months and more; and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 and cancellation of registration entails serious civil consequences, this Court is of the considered view that in the event the petitioner approaches the officer, duly empowered, by furnishing all the pending returns and make full payment of the tax dues, along with applicable interest and late fee, the officer duly empowered, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form."

"The petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of his GST registration. If the petitioner submits such an application and complies with all the requirements as provided in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, the concerned authority shall consider the application of the petitioner for restoration of his GST registration in accordance with law and shall take necessary steps for restoration of GST registration of the petitioner as expeditiously as possible."

The Court thus established the principle that cancellation of GST registration on account of non-filing of returns for six continuous months is valid but is subject to procedural safeguards. Further, even after cancellation and lapse of the revocation period, restoration is possible if the registered person complies with the statutory conditions of furnishing pending returns and payment of dues, and the proper officer has the jurisdiction to drop proceedings and restore registration accordingly.

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

- Whether the cancellation of GST registration under Section 29(2) of the CGST Act, on the ground of non-filing of statutory returns for a continuous period exceeding six months, is sustainable in the facts of the case.

- Whether the petitioner is entitled to revival of GST registration upon compliance with conditions including filing of pending returns, payment of tax dues, interest, penalty, and restrictions on utilization of Input Tax Credit (ITC).

- The extent and manner in which the Court can exercise its writ jurisdiction to set aside the cancellation order and direct restoration of registration.

- The applicability and binding effect of precedents, particularly the decision in Tvl. Suguna Cutpiece Center Vs. Appellate Deputy Commissioner (ST) (GST), on the present facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of GST Registration under Section 29(2) of CGST Act

The legal framework governing cancellation of registration under the CGST Act is encapsulated in Section 29(2), which mandates cancellation if statutory returns are not filed for a continuous period exceeding six months. The Respondents relied on this provision as the basis for cancellation dated 11.01.2024.

The Court acknowledged the statutory mandate but also noted that the issue has been extensively examined in prior judgments, especially the ruling in Tvl. Suguna Cutpiece Center's case, where under identical circumstances, the Court directed revocation subject to conditions.

The Court interpreted Section 29(2) not as an absolute bar to revival but as a procedural safeguard to ensure compliance. It recognized that non-filing of returns for six months triggers cancellation but does not preclude restoration upon rectification.

Key evidence included the cancellation order itself and the acknowledgment of appeal submission in FORM GST APL-02 by the 2nd Respondent, indicating procedural compliance by the petitioner in seeking redressal.

Competing arguments were addressed by balancing the statutory intent to enforce compliance against the hardship caused by automatic cancellation without opportunity for rectification. The Court favored a pragmatic approach consistent with prior rulings.

The conclusion was that while the cancellation order was validly passed under Section 29(2), the petitioner is entitled to restoration subject to fulfillment of prescribed conditions.

Issue 2: Conditions for Revival of GST Registration and Utilization of Input Tax Credit

The precedent in Tvl. Suguna Cutpiece Center's case laid down a detailed framework for revival of registration, which the Court adopted and reiterated. The conditions include:

• Filing of all pending returns prior to cancellation, payment of outstanding tax along with interest, and fines for belated filing within 45 days.
• Prohibition on utilizing Input Tax Credit (ITC) for payment of these dues until scrutinized and approved by competent authorities.
• Only approved ITC can be utilized for future tax liabilities.
• Payment of GST and filing of returns for the period after cancellation must be made in cash with correct declaration of supplies.
• Respondents may impose restrictions to prevent undue passing of ITC or bill trading.
• On compliance, registration shall be revived forthwith.
• Respondents are directed to coordinate with GST Network to enable filing and payment on the GST portal within 30 days.

The Court emphasized that these conditions are necessary to maintain the integrity of the GST system and prevent misuse of tax credits.

The Court applied these principles to the facts of the case, extending the same benefit to the petitioner as was granted in the precedent. It rejected any argument for unconditional restoration, underscoring the need for strict adherence to these safeguards.

3. SIGNIFICANT HOLDINGS

The Court held:

"In the light of the above discussion, these Writ Petitions are allowed subject to the following conditions: ... On payment of tax, penalty and uploading of returns, the registration shall stand revived forthwith."

This crystallizes the principle that cancellation under Section 29(2) is not irreversible and that restoration is permissible upon compliance with statutory requirements and safeguards.

The Court preserved the core principles established in the precedent, including:

• Mandatory filing of pending returns and payment of dues before revival.
• Restriction on utilization of Input Tax Credit until scrutiny and approval.
• Requirement of cash payment for GST after cancellation period.
• Authority of the department to impose restrictions to prevent abuse.
• Obligation of the GST Network to facilitate compliance through the portal.

Final determinations included quashing the cancellation order and directing restoration of registration on the stated terms, with no costs awarded.

- Whether the intimation of tax under Section 74(5) of the Goods and Services Tax Act, 2017 ('the Act') issued on 04.04.2025 is barred by limitation as per Section 74(10) of the Act.

- Whether the direction of the learned Single Judge to complete the order under Section 74 of the Act within three months creates a limitation period overriding the statutory limitation under Section 75(3) of the Act.

- Whether issuance of a fresh intimation under Section 74(5) of the Act was necessary after the remand order by the learned Single Judge.

- Whether the proceedings pursuant to the remand order of the learned Single Judge can continue beyond the three-month period indicated in the remand order.

- Whether the petitioner was denied a proper opportunity of hearing as directed by the learned Single Judge.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on issuance of intimation under Section 74(5) of the Act

Relevant legal framework and precedents: Section 74(10) of the Act prescribes the limitation period for issuance of intimation under Section 74(5). Section 75(3) provides that any order required to be issued pursuant to directions of a court or appellate authority must be issued within two years from the date of communication of such directions.

Court's interpretation and reasoning: The Court noted that the petitioner contended the intimation dated 04.04.2025 was barred by limitation under Section 74(10). The respondents argued that the limitation under Section 75(3) applies, allowing two years from the communication of the remand order. The Court held that the limitation under Section 75(3) governs the issuance of the order pursuant to the remand, not the shorter statutory limitation under Section 74(10).

Key evidence and findings: The remand order by the learned Single Judge was communicated on 06.02.2024. The intimation was issued on 04.04.2025, within the two-year period allowed under Section 75(3).

Application of law to facts: Since the intimation was issued within two years from the remand direction, it was not barred by limitation.

Treatment of competing arguments: The petitioner's argument that the intimation was time-barred was rejected as the Court emphasized the primacy of Section 75(3) over Section 74(10) in cases of remand.

Conclusions: The intimation under Section 74(5) issued on 04.04.2025 is not barred by limitation.

Issue 2: Effect of the learned Single Judge's direction to complete the order within three months

Relevant legal framework and precedents: The learned Single Judge had directed that the order under Section 74 be passed within three months. However, Section 75(3) of the Act prescribes a two-year period for issuance of orders pursuant to court directions.

Court's interpretation and reasoning: The Court held that the three-month timeline was intended to expedite the proceedings and cannot be construed as altering or overriding the statutory limitation period under Section 75(3).

Key evidence and findings: More than one year had passed since the learned Single Judge's order, yet the proceedings were ongoing.

Application of law to facts: The Court clarified that the three-month direction was not a limitation bar but a procedural directive to ensure timely disposal.

Treatment of competing arguments: The petitioner's contention that the proceedings were barred due to exceeding three months was rejected.

Conclusions: The three-month direction does not limit the statutory period of two years under Section 75(3).

Issue 3: Necessity of issuing a fresh intimation under Section 74(5) after remand

Relevant legal framework and precedents: The original show cause notice under Section 74 was not quashed by the Court. The remand order directed only that the Deputy Commissioner grant an opportunity of hearing and pass a reasoned order.

Court's interpretation and reasoning: The Court observed that since the show cause notice was not quashed, there was no legal necessity to issue a fresh intimation under Section 74(5).

Key evidence and findings: The remand order did not direct issuance of a fresh notice but only a fresh hearing and reasoned order.

Application of law to facts: The issuance of the fresh intimation on 04.04.2025 was therefore unnecessary.

Treatment of competing arguments: The respondents argued that fresh intimation was required to proceed; the Court rejected this as inconsistent with the remand order.

Conclusions: No fresh intimation under Section 74(5) was legally required after the remand.

Issue 4: Continuance of proceedings beyond the three-month period indicated by the learned Single Judge

Relevant legal framework and precedents: Section 75(3) allows two years for issuance of orders pursuant to court directions. The learned Single Judge's three-month direction was procedural.

Court's interpretation and reasoning: The Court held that proceedings can continue beyond three months, provided they are completed within two years as per Section 75(3).

Key evidence and findings: The proceedings were ongoing beyond three months but within two years.

Application of law to facts: The continuation of proceedings beyond the three-month period was lawful.

Treatment of competing arguments: The petitioner argued for limitation after three months; the Court rejected this.

Conclusions: Proceedings pursuant to remand can continue beyond three months, subject to the two-year statutory limit.

Issue 5: Grant of opportunity of hearing as directed by the learned Single Judge

Relevant legal framework and precedents: The remand order required the Deputy Commissioner to grant an opportunity of hearing and pass a reasoned order.

Court's interpretation and reasoning: The Court directed strict compliance with the remand order, emphasizing the necessity of hearing and reasoned order.

Key evidence and findings: The petitioner had filed a reply to the show cause notice, but respondents allegedly did not fix a hearing date promptly.

Application of law to facts: The Court mandated the Deputy Commissioner to provide hearing and pass a reasoned order in accordance with the remand order.

Treatment of competing arguments: The petitioner moved for refund due to delay; the Court allowed the refund but insisted on compliance with hearing directions.

Conclusions: The respondents are directed to grant opportunity of hearing and pass a reasoned order as per remand.

3. SIGNIFICANT HOLDINGS

"The indication made by learned Single Judge was only with a view to expedite the proceedings and the same cannot be read as creating a different period of limitation than what is provided under Section 75(3) of the Act."

"Where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order shall be issued within two years from the date of communication of the said direction."

"The show cause notice was not quashed by the Court and, therefore, apparently, there was no necessity to issue the fresh intimation under Section 74(5) of the Act."

"The challenge laid by the petitioner to the notice issued under Section 74(5) of the Act and questioning the continuance of proceedings pursuant to the order passed by learned Single Judge dated 06.02.2024 has no substance."

Core principles established include that statutory limitation under Section 75(3) governs proceedings following remand orders, superseding shorter limitations under Section 74(10); procedural directions to expedite do not curtail statutory limitation periods; and remand orders requiring fresh hearings do not necessarily mandate fresh issuance of notices unless specifically directed.

Final determinations:

- The intimation under Section 74(5) issued on 04.04.2025 is not barred by limitation.

- The three-month period directed by the learned Single Judge is procedural and does not restrict the two-year limitation under Section 75(3).

- No fresh intimation under Section 74(5) was required post-remand.

- Proceedings may continue beyond three months but must comply with the two-year limit.

- The respondents must provide the petitioner with an opportunity of hearing and pass a reasoned order as per the remand order.

The Court considered the following core legal questions arising from the appeals against the Income Tax Appellate Tribunal (ITAT) order:

(i) Whether the ITAT was correct in law and on facts in deleting the addition made by the Assessing Officer (AO) relating to development expenditure for levelling and filling of land amounting to Rs. 2,96,67,138/-, despite the assessee's failure to establish such expenditure with adequate proof.

(ii) Whether the ITAT was correct in deleting the addition made by the AO in respect of road development expenses of Rs. 1,92,56,890/-, despite lack of proof or details of work carried out and absence of government permits.

(iii) Whether the ITAT was correct in deleting the addition made by the AO relating to repairing of the compound wall amounting to Rs. 40,17,590/-, despite the assessee's inability to establish the expenditure with proper evidence.

(iv) Whether the ITAT was justified in deleting the addition made by the AO in respect of repairing an old damaged well and overhead tank amounting to Rs. 90,18,834/-, despite the assessee's failure to prove the expenditure.

(v) Whether the ITAT was correct in deleting the addition made by the AO regarding commission paid to brokers amounting to Rs. 80,55,895/-, despite the absence of adequate proof of such payment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Development Expenditure for Levelling and Filling of Land

Legal Framework and Precedents: Under the Income Tax Act, 1961, expenses claimed as deductions must be substantiated with credible documentary evidence. The burden lies on the assessee to prove the genuineness and correctness of claimed expenditure. The Assessing Officer is empowered to disallow unsubstantiated claims.

Court's Interpretation and Reasoning: The Court noted that the ITAT and CIT(A) concurrently held that the development work of levelling and filling the land had indeed taken place. The ITAT found that the land was physically verified and found to be levelled and cleaned. Payments to contractors were made by cheque, with Tax Deducted at Source (TDS) deducted, and contractors had filed their income tax returns timely. The appellant did not dispute these factual findings.

Key Evidence and Findings: Physical verification of land, payment records including cheques, TDS certificates, and contractors' income tax returns.

Application of Law to Facts: The Court found that the factual findings of ITAT and CIT(A) were supported by evidence and thus not perverse. The claim was substantiated adequately to justify the deduction.

Treatment of Competing Arguments: The appellant's contention regarding discrepancies in some bills and absence of bills for certain expenses was rejected as the overall evidence supported the expenditure. The Court emphasized that mere discrepancies or partial lack of bills could not override the substantial proof of development work.

Conclusion: The deletion of addition by ITAT in respect of levelling and filling expenses was upheld.

Issue 2: Road Development Expenses

Legal Framework and Precedents: Similar to Issue 1, the genuineness of expenses claimed must be substantiated. The Assessing Officer's role is to verify authenticity and necessity of expenses.

Court's Interpretation and Reasoning: The Court observed that the existence of the road was not disputed and physical verification confirmed the road development. Payments were made by cheque, and contractors had filed their tax returns. The appellant failed to produce any evidence to contradict these findings.

Key Evidence and Findings: Physical verification, payment records, contractor tax returns.

Application of Law to Facts: The Court found no infirmity in ITAT's factual conclusion that the respondent had incurred road development expenses.

Treatment of Competing Arguments: The appellant's argument regarding lack of details of work or government permits was deemed insufficient to overturn the factual findings supported by physical verification and payment evidence.

Conclusion: The deletion of addition regarding road development expenses by ITAT was upheld.

Issue 3: Repairing of Compound Wall

Legal Framework and Precedents: Repair and maintenance expenses are allowable if proved to be incurred wholly and exclusively for business purposes.

Court's Interpretation and Reasoning: The Court noted that ITAT found the compound wall was originally damaged and was repaired, as confirmed by physical verification. The appellant did not dispute the factual finding.

Key Evidence and Findings: Physical verification confirming repair of the compound wall.

Application of Law to Facts: The Court held that the repair expenses were rightly allowed by ITAT.

Treatment of Competing Arguments: The appellant failed to challenge the physical verification or produce contrary evidence.

Conclusion: The deletion of addition relating to compound wall repair expenses was affirmed.

Issue 4: Repairing of Old Damaged Well and Overhead Tank

Legal Framework and Precedents: Similar to Issue 3, repair expenses are deductible if incurred genuinely and for business purposes.

Court's Interpretation and Reasoning: ITAT found the expenditure was incurred and not disputed. The Court agreed that the expenses for repairing old damaged well, overhead tank, pipeline, diesel motor, and electrification were genuine.

Key Evidence and Findings: No dispute on the fact of repair; ITAT's finding based on evidence and physical verification.

Application of Law to Facts: The Court found no error in ITAT's allowance of these expenses.

Treatment of Competing Arguments: The appellant did not produce any contrary evidence or legal argument to challenge the findings.

Conclusion: The deletion of addition regarding repair expenses was upheld.

Issue 5: Commission Paid to Brokers

Legal Framework and Precedents: Commission paid to brokers is an allowable expense if the payment is genuine and supported by evidence.

Court's Interpretation and Reasoning: The Court agreed with ITAT's finding that the broker had confirmed receipt of brokerage by letter dated 26.12.2009. The purchaser also confirmed the payment in a sworn statement dated 09.12.2009.

Key Evidence and Findings: Broker's confirmation letter and purchaser's sworn statement.

Application of Law to Facts: The Court found the evidence sufficient to prove the genuineness of the brokerage payments.

Treatment of Competing Arguments: The appellant's challenge was not supported by any substantive evidence to rebut the confirmations.

Conclusion: The deletion of addition relating to commission paid to brokers was upheld.

3. SIGNIFICANT HOLDINGS

"The physical verification of the land also substantiated the claim of assessee/respondent. ITAT also found that TDS was deducted from the payments made to the contractors, which was not disputed by appellant. The payments were made by cheques. The contractors had filed their returns on time. Thus, we find that both CIT(A) and ITAT had concurrently held that the fact that respondent had incurred expenses for levelling/filling the land cannot be disputed."

"The existence of the road is not disputed by appellant. In fact the physical verification confirmed the said fact. Even under this head, ITAT found that the payments were made to the contractors by cheques and all the contractors had filed their return of income on time. Appellant has not made out any ground to interfere in the factual finding of CIT (A) and ITAT that respondent had in fact incurred expenses towards road development."

"ITAT once again found that the physical verification confirmed that the compound wall which was originally damaged was repaired."

"ITAT found that the expenses incurred towards such repair have not been disputed and therefore, allowed the entire claim of the said amount to be treated as expenses."

"The broker, viz., one Maruthanayagam, had confirmed in his letter dated 26.12.2009 of having received the brokerage of Rs. 80,55,898/-. This has been confirmed by the purchaser also in his sworn statement dated 09.12.2009. In view of the above evidence before CIT (A) and ITAT, we find that the factual findings rendered by both the authorities that respondent incurred expenses towards brokerage cannot be faulted."

Core principles established include the requirement that factual findings supported by physical verification, documentary evidence including payment by cheque, TDS deduction, and confirmation by third parties, are sufficient to substantiate claimed expenses under the Income Tax Act. Mere discrepancies or absence of some bills do not necessarily invalidate the claim if overall evidence supports genuineness.

Final determinations on each issue were that the ITAT was correct in law and on facts in deleting the additions made by the Assessing Officer under all the challenged heads of expenditure. Consequently, all substantial questions of law were answered in the affirmative, and the Tax Case Appeals were dismissed.

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

i) Whether the Income Tax Appellate Tribunal erred in disallowing the exemption claimed under Section 10(10C) of the Income Tax Act by the assessee;

ii) Whether the Tribunal was justified in disallowing the exemption which was initially allowed in the year 2007 and subsequently claimed again in 2014;

iii) Whether the appellant was entitled to exemption under Section 10(10C) of the Income Tax Act in respect of the amount received under the Exit Option Scheme (EOS) formulated by the employer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i) Whether the exemption under Section 10(10C) was rightly disallowed by the Tribunal

Relevant legal framework and precedents: Section 10(10C) of the Income Tax Act provides for exemption of certain amounts received by an employee on voluntary retirement or separation, subject to fulfillment of conditions laid down under Rule 2BA of the Income Tax Rules. Rule 2BA enumerates the mandatory criteria for a Voluntary Retirement Scheme (VRS) or Voluntary Separation Scheme (VSS) to qualify for exemption under Section 10(10C). These include eligibility criteria, nature of scheme, amount of compensation, and conditions regarding re-employment, among others.

Court's interpretation and reasoning: The Court examined the terms of the Exit Option Scheme (EOS) formulated by the State Bank of Travancore, under which the assessee received Rs. 10,25,690/-. The authorities below had found that the EOS did not strictly conform to the requirements of Rule 2BA. The Court endorsed these findings, noting that the scheme failed to satisfy several key conditions necessary for a valid VRS under Rule 2BA.

Key evidence and findings: The Assessing Officer and subsequent appellate authorities identified the following deviations of the EOS from Rule 2BA:

• The EOS was applicable only to officers who felt "frustrated and demotivated" due to lack of promotion, rather than all employees, violating the requirement that the scheme applies to all employees regardless of designation.
• The eligibility criteria were restricted to officers aged between 45 and 58 years who had not been promoted and were superseded by juniors, whereas Rule 2BA requires eligibility to all employees over 40 years of age or with 10 years of service.
• The ex gratia amount was calculated as salary for 50% of service remaining up to age 60, which did not conform to the prescribed maximum of three months' salary for each completed year of service or salary multiplied by balance months before retirement.
• The scheme allowed re-employment in associated companies or subsidiaries, contravening the Rule 2BA condition that the retiring employee shall not be employed by any company or concern belonging to the same management.
• The EOS did not provide for overall reduction in the workforce strength nor did it prohibit filling vacancies caused by voluntary retirement, both mandatory under Rule 2BA.

Application of law to facts: Given these material deviations, the Court found that the EOS did not qualify as a valid Voluntary Retirement Scheme under Rule 2BA, thus disentitling the assessee from claiming exemption under Section 10(10C).

Treatment of competing arguments: The assessee argued entitlement to exemption based on initial allowance and subsequent claims. However, no evidence was produced to rebut the factual findings regarding non-compliance with Rule 2BA. The Court held that concurrent findings of fact by the authorities below were neither perverse nor without evidence.

Conclusions: The Court upheld the disallowance of exemption under Section 10(10C) on the ground that the EOS did not meet the statutory criteria prescribed under Rule 2BA, and therefore the amount received was taxable.

Issue ii) Whether the Tribunal erred in disallowing a claim initially allowed in 2007 and later claimed in 2014

Relevant legal framework and precedents: Section 147 of the Income Tax Act permits reopening of assessments where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The validity of reopening depends on existence of tangible material indicating such escapement.

Court's interpretation and reasoning: The Assessing Officer re-opened the assessment based on the finding that the exemption under Section 10(10C) was wrongly allowed initially, as the scheme did not comply with Rule 2BA. The Court found that the reopening was justified on the basis of fresh material and the non-conformity of the EOS with statutory requirements.

Key evidence and findings: The initial allowance was made during processing under Section 143(1), which is a summary assessment. The Assessing Officer's subsequent detailed scrutiny revealed the scheme's non-compliance, justifying reopening under Section 147.

Application of law to facts: The Court held that the reopening was valid and the subsequent disallowance of exemption was justified, especially since the initial allowance was made without a detailed examination of the scheme's terms.

Treatment of competing arguments: The assessee contended that the exemption once allowed could not be disallowed later. The Court rejected this, emphasizing that initial processing under Section 143(1) does not preclude reopening if there is reason to believe income has escaped assessment.

Conclusions: The Court upheld the reopening of the assessment and the disallowance of the exemption claimed in the revised return.

Issue iii) Whether the appellant was entitled to exemption under Section 10(10C)

This issue overlaps substantially with Issue i). The Court reiterated that entitlement to exemption under Section 10(10C) is contingent upon the scheme conforming to Rule 2BA. Since the EOS failed to satisfy these conditions, the appellant was not entitled to the exemption.

3. SIGNIFICANT HOLDINGS

The Court affirmed the principle that exemption under Section 10(10C) is strictly conditional upon the scheme qualifying as a valid Voluntary Retirement Scheme under Rule 2BA of the Income Tax Rules. The Court observed:

"...the Clauses in the E.O.S framed by the State Bank of Travancore... did not strictly conform to the mandate of Rule 2BA of the Income Tax Rules. The latter statutory provision clearly enumerates the conditions necessary for a Voluntary Retirement Scheme to qualify for the benefits envisaged under Section 10(10C) of the Income Tax Act."

Further, the Court emphasized the non-compliance in key aspects such as eligibility criteria, amount of ex gratia, prohibition on re-employment, and the requirement for overall reduction in workforce strength:

"(i) The scheme was applicable only to officers who feel frustrated and demotivated... not to all employees... (ii) Eligibility criteria fixed in the "EOS" is markedly different and is not in consonance with the guidelines prescribed under Rule 2BA... (iii) The ex gratia payable... is also not in consonance with the guideline... (v) Clause allowing re-employment is in gross violation of the guideline... (vi) Clauses regarding reduction in strength and non-filling of vacancies are absent..."

On the validity of reopening, the Court held that the Assessing Officer was justified in reopening the assessment under Section 147 upon discovering that exemption was wrongly allowed.

Final determinations:

• The exemption under Section 10(10C) was rightly disallowed as the EOS did not meet the statutory criteria of Rule 2BA.
• The reopening of assessment under Section 147 was valid and justified.
• No substantial question of law arose warranting interference with the Tribunal's order.
• The appeal was dismissed accordingly.

The core legal questions considered in this judgment are:

• Whether the petitioners, who were assessed following search and seizure operations under Section 132 of the Income Tax Act, 1961, and against whom penalties were imposed, are eligible to settle their disputes under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act), despite the disputed demand exceeding Rs. 5 crore.
• Whether the exclusion under Section 9(a)(i) of the DTVSV Act, which bars settlement of "tax arrears" exceeding Rs. 5 crore in search-based assessments under Sections 143(3), 144, 153A, or 153C of the Income Tax Act, applies to disputed penalties as well as disputed tax.
• The proper interpretation and scope of the terms "disputed tax," "disputed penalty," and "tax arrears" as defined in Sections 2(1)(j), 2(1)(i), and 2(1)(o) of the DTVSV Act, and their application to the facts of the petitioners' cases.
• Whether the petitioners' payment of tax pursuant to the assessment orders affects their eligibility under the DTVSV Act.
• The legal effect and binding nature of the clarifications issued by the Central Board of Direct Taxes (CBDT) through Circulars No.7 and No.9 of 2020 regarding the applicability of the DTVSV Act to search-based assessments with disputed tax exceeding Rs. 5 crore.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility of Petitioners under the DTVSV Act despite disputed demand exceeding Rs. 5 crore in search-based assessments

Relevant Legal Framework and Precedents: Section 9(a)(i) of the DTVSV Act excludes from its scope "tax arrears" relating to assessment years where assessments have been made under Sections 143(3), 144, 153A, or 153C of the Income Tax Act on the basis of search initiated under Section 132 or 132A, if the disputed tax exceeds Rs. 5 crore. The CBDT's Circulars No.7 and No.9 of 2020 clarify that in such cases, the scheme's benefits are not available.

Court's Interpretation and Reasoning: The Court noted that the petitioners' assessments were made under Section 143(3) following search operations under Section 132. The disputed tax, as per the assessment orders, exceeded Rs. 5 crore in both cases. The Court emphasized that the language of Section 9(a)(i) is clear and unambiguous, barring settlement where disputed tax exceeds Rs. 5 crore in search-based assessments.

Key Evidence and Findings: The petitioners had undisclosed incomes of Rs. 120 crores and Rs. 18 crores respectively, with tax and interest paid as per the assessment orders dated April 2017. Penalties under Section 271AAB were imposed and partly reduced on appeal but remain disputed in appeals pending before the Tribunal.

Application of Law to Facts: Since the disputed tax exceeded Rs. 5 crore and the assessments were search-based, the petitioners fall within the exclusion under Section 9(a)(i). The Court found that the petitioners' payment of tax pursuant to the assessments does not negate the fact that disputed tax exceeded the threshold, thereby disqualifying them from the scheme.

Treatment of Competing Arguments: The petitioners argued that the exclusion applies only to disputed tax and not to disputed penalty, and that their cases fall under the category of disputed penalty eligible for settlement under Section 3(c) of the DTVSV Act. They also relied on various Supreme Court and High Court decisions supporting broader eligibility and the beneficial nature of the scheme.

The Court rejected these submissions, holding that the exclusion in Section 9(a)(i) applies to "tax arrears" which includes disputed tax, interest, and penalty as defined in Section 2(1)(o). Since the assessments were search-based and disputed tax exceeded Rs. 5 crore, the petitioners are excluded from the scheme.

Conclusion: The petitioners are not eligible to settle their disputes under the DTVSV Act due to the exclusion under Section 9(a)(i) for search-based assessments with disputed tax exceeding Rs. 5 crore.

Issue 2: Interpretation of "disputed tax," "disputed penalty," and "tax arrears" under the DTVSV Act

Relevant Legal Framework: Section 2(1)(j) defines "disputed tax" as income tax payable by the appellant, including surcharge and cess, computed based on pending appeals or orders. Section 2(1)(i) defines "disputed penalty" as penalties determined where appeals have been filed and which are not levied on disputed income or tax. Section 2(1)(o) defines "tax arrear" as aggregate disputed tax, interest, penalty, disputed interest, disputed penalty, or disputed fee.

Court's Interpretation and Reasoning: The Court observed that "disputed tax" refers strictly to income tax payable and is distinct from "disputed penalty." The exclusion in Section 9(a)(i) applies to "tax arrears," a term encompassing disputed tax and disputed penalty, among other components. Therefore, the exclusion is not limited to disputed tax alone but includes disputed penalty where it forms part of tax arrears.

Application of Law to Facts: The petitioners' disputes involve both tax and penalty components. The Court found that the exclusion applies because the disputed tax component alone exceeds Rs. 5 crore, thus barring the entire tax arrear from settlement under the scheme.

Treatment of Competing Arguments: The petitioners contended that disputed penalty alone qualifies for settlement under Section 3(c), irrespective of the disputed tax amount. The Court rejected this, emphasizing the holistic definition of "tax arrear" and the clear statutory exclusion.

Conclusion: The definitions in the DTVSV Act support the exclusion of the petitioners' disputes from the scheme, as the disputed tax component exceeds Rs. 5 crore, thereby excluding the entire tax arrear including penalties.

Issue 3: Effect of payment of tax by petitioners on their eligibility under the DTVSV Act

Relevant Legal Framework: The DTVSV Act contemplates settlement of disputes pending before appellate forums, regardless of whether demand is paid or unpaid. The scheme requires withdrawal of appeals and payment of amounts as per the Act.

Court's Interpretation and Reasoning: The Court held that payment of tax pursuant to assessment orders does not alter the fact that the disputed tax amount exceeded Rs. 5 crore. The exclusion under Section 9(a)(i) applies based on the amount of disputed tax in the assessment year, not on the payment status.

Application of Law to Facts: The petitioners had paid tax and interest as per the assessments, but the disputed tax amount in the assessments was above the threshold. Hence, payment does not confer eligibility under the scheme.

Conclusion: Payment of tax post-assessment does not confer eligibility for settlement under the DTVSV Act where the disputed tax exceeds Rs. 5 crore in search-based assessments.

Issue 4: Binding nature and effect of CBDT Circulars No.7 and No.9 of 2020 clarifying exclusions under the DTVSV Act

Relevant Legal Framework: Circulars issued by CBDT under Sections 10 and 11 of the DTVSV Act serve as directions/orders to clarify provisions and remove difficulties. Though not binding as law, they are contemporanea expositio and hold persuasive value in interpreting the statute.

Court's Interpretation and Reasoning: The Court gave due weight to the CBDT Circulars, which consistently clarify that search-based assessments with disputed tax exceeding Rs. 5 crore are excluded from the scheme. The Court observed that these clarifications reflect the legislative intent and aid in interpreting the statute.

Application of Law to Facts: The petitioners' cases fall squarely within the exclusion clarified by the Circulars, reinforcing the Court's interpretation of Section 9(a)(i).

Conclusion: The CBDT Circulars, as contemporanea expositio, support the exclusion of the petitioners' cases from the DTVSV Act scheme.

Issue 5: Applicability of precedents cited by petitioners in support of eligibility

Relevant Legal Framework and Precedents: The petitioners cited multiple Supreme Court and High Court decisions emphasizing the beneficial nature of tax amnesty schemes and broader eligibility.

Court's Interpretation and Reasoning: The Court acknowledged the beneficial nature of the scheme but emphasized that the statutory exclusion under Section 9(a)(i) is clear and overrides such considerations. The Court noted that the precedents do not override explicit statutory provisions excluding certain categories from the scheme.

Conclusion: The petitioners' reliance on precedents does not override the clear exclusion under the statute and hence does not entitle them to relief.

3. SIGNIFICANT HOLDINGS

"There is no ambiguity in the language in Section 9(a)(i) of the Direct Tax Act Vivad Se Vishwas Act, 2020."

"The expression 'disputed tax' in Section 2(j) means the income tax payable by the appellant under the provisions of the Income Tax Act, 1961."

"The exclusion in Section 9(a)(i) of the Direct Tax Act Vivad Se Vishwas Act, 2020 will apply in respect of 'tax arrear' where orders have been passed under Section 143(3), Section 144 or Section 153A or Section 153C of the Income Tax Act, 1961 where the disputed tax exceeds Rs. 5,00,00,000/-."

"Merely because the respective Writ Petitioners have paid the tax by admitting to the undisclosed income pursuant to the assessment that was completed under Section 143(3) ... ipso facto would not mean that the 'disputed tax' did not exceed Rs. 5,00,00,000/-."

"The clarification of the Central Board of Direct Taxes (CBDT) though not binding on this Court are to be considered as Contemporanea expositio of law."

"Therefore, I do not find any merits in these Writ Petitions merely because the respective Writ Petitioners have paid the tax pursuant to the search conducted in the respective Assessment Orders."

Core principles established include the strict interpretation of statutory exclusions under the DTVSV Act, the comprehensive definition of "tax arrears" including disputed penalty, and the recognition of CBDT Circulars as authoritative clarifications guiding the application of the scheme.

Final determinations:

• The petitioners are not eligible for settlement under the DTVSV Act due to the statutory exclusion under Section 9(a)(i) for search-based assessments where disputed tax exceeds Rs. 5 crore.
• Payment of tax pursuant to assessment orders does not confer eligibility if the disputed tax amount exceeds the threshold.
• The CBDT Circulars reinforce and clarify the exclusion and are to be regarded as contemporanea expositio.
• The writ petitions challenging the rejection of declarations under the DTVSV Act are dismissed.

1. From which date is the limitation period under Section 144C(13) to be computed: the date on which the DRP issued its directions (10.06.2022), the date on which the DRP's order was uploaded on the ITBA portal and received by the assessee and National Faceless Assessment Centre (NFAC) (22.06.2022), or the date on which the DRP's order was communicated to the jurisdictional Assessing Officer (AO) (04.07.2022)Rs.

2. Whether the limitation period begins from the date the DRP's order is electronically uploaded to the NFAC or from the date the order is transmitted to the jurisdictional AO, given the procedural steps involved in the faceless assessment mechanism.

3. The applicability and interpretation of Section 13 of the Information Technology Act, 2000, concerning the time of receipt of electronic records, in determining the date of communication of the DRP's order.

4. The legal effect of the mode of initiation of DRP proceedings in the ITBA system-whether by automatic linkage or manual entry-and its impact on the visibility and communication of the DRP's order to the AO.

5. The validity of the impugned Assessment Order dated 19.08.2022, in light of the limitation period prescribed under Section 144C(13) of the IT Act.

Issue-wise Detailed Analysis

Issue 1 & 2: Date of commencement of limitation under Section 144C(13) of the IT Act

The limitation under Section 144C(13) mandates that the Assessing Officer shall complete the assessment in conformity with the directions of the DRP within one month from the end of the month in which such directions are received. The dispute centers on identifying the exact date of receipt of the DRP's directions.

The Petitioner contended that the limitation should be computed from 22.06.2022, the date on which the DRP's proceedings were uploaded on the ITBA portal and received by the Petitioner and the NFAC. The Petitioner relied on information obtained under the Right to Information Act, 2005, which clarified that the DRP's order was issued to the NFAC electronically on 22.06.2022, and that there was no direct communication to the jurisdictional AO on that date. The Petitioner argued that the impugned Assessment Order dated 19.08.2022 was beyond the prescribed limitation period if reckoned from 22.06.2022.

The Respondent, however, submitted that the DRP's order was transmitted to the jurisdictional AO only on 04.07.2022, following internal processing and consolidation by the NFAC. The Respondent produced a communication dated 25.11.2014 from the Assistant Commissioner of Income Tax, which clarified that the DRP order was received by the Faceless Assessment Unit but was forwarded to the jurisdictional AO on 04.07.2022. The Respondent argued that the limitation period should be computed from 04.07.2022, making the assessment order dated 19.08.2022 timely.

The Court examined Section 13 of the Information Technology Act, 2000, which governs the time and place of dispatch and receipt of electronic records. Section 13(2)(a)(i) states that receipt occurs when the electronic record enters the designated computer resource of the addressee. The Court noted that the DRP's order was electronically uploaded to the NFAC's designated computer resource on 22.06.2022, constituting receipt by the NFAC. However, the jurisdictional AO's receipt of the order occurred only when it was transmitted from the NFAC to the AO on 04.07.2022.

The Court also considered the Unmasking Report of the Faceless Assessing Officer, which explained the ITBA system's technical functioning. It was highlighted that if DRP proceedings are initiated by manually entering case details (rather than automatic linkage), the DRP order does not automatically reflect in the case history of the AO. In the present case, the DRP had manually entered the details, and thus the order was not automatically visible to the AO until transmitted.

Further, the Court noted that the DRP's order was issued to the NFAC and not directly to the jurisdictional AO, as confirmed by the Assistant Commissioner of Income Tax. Therefore, the date of receipt by the AO is distinct from the date of receipt by the NFAC.

Issue 3: Applicability of Section 13 of the Information Technology Act, 2000

The Court relied on Section 13 to determine the time of receipt of electronic records. The provision clarifies that receipt occurs when the electronic record enters the designated computer resource of the addressee. Since the DRP's order entered the NFAC's computer resource on 22.06.2022, it was received by the NFAC on that date. However, the jurisdictional AO's designated computer resource received the order only on 04.07.2022, when the NFAC transmitted the order internally.

This distinction was critical because the limitation under Section 144C(13) applies to the AO's receipt of the DRP's directions. The Court held that the limitation period cannot commence until the AO has actually received the directions, even if the NFAC had received them earlier.

Issue 4: Effect of mode of initiation of DRP proceedings in ITBA system

The Court analyzed the technical aspects of the ITBA system as explained in the Unmasking Report. It was established that the DRP proceedings can be initiated in two ways: (i) by selecting the draft order in the DRP module, which creates automatic linkage with the assessment proceedings, or (ii) by manually entering case details, which does not create automatic linkage.

In the present case, the DRP had used the manual entry method, resulting in the DRP order not automatically appearing in the AO's case history. This necessitated manual transmission of the order from the NFAC to the jurisdictional AO. The Court observed that this procedural detail justified the Respondent's position that the AO received the order only on 04.07.2022.

Issue 5: Validity of the impugned Assessment Order dated 19.08.2022

Applying the above legal framework and factual findings, the Court held that the limitation period under Section 144C(13) must be computed from 04.07.2022, the date on which the jurisdictional AO received the DRP's directions. Consequently, the last date for passing the final assessment order was 31.08.2022.

Since the impugned Assessment Order was passed on 19.08.2022, it was within the prescribed limitation period and thus valid. The Petitioner's contention that the order was time-barred was rejected.

The Court granted liberty to the Petitioner to challenge the impugned Assessment Order before the appellate authority within 30 days.

Significant Holdings

"The directions of the DRP will be directly communicated to the assessee/applicant. The Transfer Pricing Officer (TPO) or Faceless Assessing Officer (FAO) or Jurisdictional Assessing Officer (JAO) depending upon a module that is chosen/adopted at the time of initiation of proceedings before the DRP. If the DRP proceedings are initiated in the ITBA DRP Module, the DRP's order is uploaded on the portal and it will stand directly communicated to the Faceless Assessing Officer (FAO) or Jurisdictional Assessing Officer (JAO). If the DRP proceedings are initiated by using the option of manually entering the details of the case in the screen, the DRP's order will not get reflected automatically in the Case History Noting of pending assessment proceedings work-item of the Assessing Officer (Faceless Assessing Officer (FAO) or Jurisdictional Assessing Officer (JAO))."

"Section 13 of the Information Technology Act, 2000 provides that receipt of electronic record occurs when it enters the designated computer resource of the addressee. Therefore, the limitation under Section 144C(13) of the IT Act commences only upon receipt of the DRP's directions by the jurisdictional Assessing Officer, not merely upon receipt by the National Faceless Assessment Centre."

"The impugned Assessment Order dated 19.08.2022 is well within the limitation period prescribed under Section 144C(13) of the IT Act as the directions of the DRP were received by the jurisdictional Assessing Officer only on 04.07.2022, and the limitation runs from this date."

The principal legal issue considered by the Court was whether a Permanent Establishment (PE) of the appellant assessee existed in India for the relevant Assessment Years (AYs) under the India-USA Double Taxation Avoidance Agreement (DTAA). This core question arose in the context of several appeals concerning multiple AYs, specifically whether the appellant had a taxable presence in India by virtue of a PE as defined under Article 5 of the DTAA. Additionally, the Court examined the impact and relevance of a Mutual Agreement Procedure (MAP) determination between the competent authorities of India and the USA, which addressed the PE issue for multiple AYs, including those under dispute.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Existence of Permanent Establishment (PE) in India

Relevant legal framework and precedents: The existence of a PE is governed by Article 5 of the India-USA DTAA, which defines the circumstances under which a foreign enterprise is deemed to have a taxable presence in India. The Income Tax Act, 1961, and the Income Tax Rules, 1962 (specifically Rule 44H), provide procedural and substantive rules for tax assessments and dispute resolution. Precedents include earlier Tribunal decisions on AYs 2006-07 and 2008-09, where the Tribunal had ruled on the PE issue in favor of the Revenue.

Court's interpretation and reasoning: The Court noted that the Tribunal had followed its earlier view for the AYs in question, essentially affirming the existence of a PE. However, the Court highlighted a crucial development: the MAP determination concluded in 2017 between the competent authorities of India and the USA, which explicitly refrained from making any determination on whether a PE existed. The MAP resolution stated, "The Competent Authorities of both the countries have made no determination on whether Convergys US has established an Indian permanent establishment (PE) as per Article 5 of the India-US Double Taxation Avoidance Convention."

Key evidence and findings: The MAP resolution and accompanying communication dated 1 February 2018 were pivotal. They demonstrated that the competent authorities had agreed to a profit attribution exercise solely for settlement purposes, without resolving the PE question. This resolution covered multiple AYs, including those under dispute before the Tribunal. The Court observed that the Tribunal was apparently unaware of this MAP resolution and had proceeded on the basis of its earlier findings.

Application of law to facts: The Court reasoned that since the MAP resolution had not confirmed the existence of a PE, and since it was a binding international agreement under Section 90 of the Income Tax Act read with Article 27 of the DTAA, the Tribunal's orders affirming a PE for the relevant AYs could not stand without reconsideration. The MAP resolution effectively superseded the Tribunal's prior conclusions by deferring the PE determination and settling disputes through profit attribution.

Treatment of competing arguments: The appellant argued that the MAP resolution conclusively precluded the existence of a PE for the disputed AYs and that the Tribunal's orders were thus unsustainable. The Revenue contended that the MAP resolution did not conclusively negate the PE and that the Tribunal's findings remained valid. The Court sided with the appellant, emphasizing that the MAP resolution's explicit non-determination on PE and the agreed profit attribution for settlement purposes necessitated fresh adjudication by the Tribunal.

Conclusions: The Court concluded that the Tribunal's impugned orders could not survive in light of the MAP resolution. It set aside the Tribunal's orders and directed that all appeals be revived and considered afresh, allowing the parties to present their contentions anew on the merits.

3. SIGNIFICANT HOLDINGS

"The Competent Authorities of both the countries have made no determination on whether Convergys US has established an Indian permanent establishment (PE) as per Article 5 of the India-US Double Taxation Avoidance Convention. Convergys US has not agreed or admitted that it, or its US subsidiaries, has a PE in India either. Solely for the purposes of settling multiple years of disputes, the competent authorities of both the countries agree with the following attribution of profits as shown in table below."

"In view of the aforesaid and in our considered opinion, this alone would merit the orders impugned herein being set aside so as to enable the Tribunal to examine the matters afresh."

Core principles established include:

• The MAP resolution under Section 90 of the Income Tax Act and Article 27 of the DTAA holds significant weight and can supersede prior Tribunal determinations when it involves the same issues.
• A MAP resolution that refrains from determining the existence of a PE but settles disputes through profit attribution requires fresh adjudication rather than automatic acceptance of previous findings.
• The existence of a PE is a factual and legal question that must be examined in light of all relevant international agreements and procedural developments.

Final determinations on each issue:

• The question of the existence of a PE for the relevant AYs remains open and undecided, pending fresh consideration by the Tribunal.
• The impugned orders of the Tribunal affirming the existence of a PE are set aside.
• All appeals are revived and remanded for fresh adjudication on merits, with all rights and contentions of the parties kept open.

- Whether the learned Single Judge erred in quashing the order declining refund on account of delayed filing of Income Tax Return (ITR) for Assessment Year (AY) 2013-14 and delayed filing of application for condonation of delay under section 119(2)(b) of the Income Tax Act, 1961.

- Whether the Revenue correctly applied the Central Board of Direct Taxes (CBDT) Circular No. 9/2015 dated 09.06.2015 in rejecting the refund claim due to delay beyond six years.

- The legal effect and interpretation of the date of filing of refund claim, specifically whether the date of filing the return itself or the date of filing the formal application for condonation of delay is relevant for reckoning delay under section 119(2)(b).

- The applicability of the CBDT Circular provisions, especially paragraphs 3 and 6, in allowing belated refund claims and condonation of delay.

- The relevance and applicability of judicial precedent, particularly the Kerala High Court decision in K.C. Antonny v. Principal Commissioner of Income-Tax, regarding the interpretation of section 119(2)(b) and refund claims.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Single Judge's order quashing the Revenue's refusal to condone delay in refund claim

Relevant legal framework and precedents: Section 119(2)(b) of the Income Tax Act empowers the Board to authorise Income-tax authorities to admit applications for exemption, deduction, refund, or other relief after expiry of the prescribed period, if it is desirable or expedient to avoid genuine hardship. The CBDT Circular No. 9/2015 lays down guidelines on condonation of delay in refund claims, including a six-year limit from the end of the relevant AY and conditions for admission of belated claims.

Court's interpretation and reasoning: The Court noted that the Single Judge correctly considered the provisions of the CBDT Circular, particularly paragraph 6, which allows admission of belated refund claims subject to conditions. The Court emphasized that the Revenue failed to advert to paragraph 6 while rejecting the refund claim, which was filed belatedly.

Key evidence and findings: The refund claim was initially made in the ITR itself, which remained unconsidered. A subsequent formal application for condonation of delay was filed. The Court observed that the initial claim date (the date of filing the return) is the relevant date for reckoning delay, not the date of the formal application.

Application of law to facts: The Court applied the CBDT Circular provisions and held that since the refund claim was made within the permissible time frame when considering the date of filing the return, the delay should be condoned. The Revenue's refusal based on the date of the formal condonation application was incorrect.

Treatment of competing arguments: The Revenue argued delay in filing ITR and condonation application and reliance on the six-year limit. The Court rejected this, relying on the Circular's paragraph 6 and the principle that the initial refund claim date governs delay reckoning.

Conclusions: The Single Judge's order quashing the Revenue's refusal to condone delay was upheld as legally sound.

Issue 2: Interpretation of CBDT Circular No. 9/2015 paragraphs 3 and 6 regarding condonation of delay for refund claims

Relevant legal framework and precedents: Paragraph 3 of the Circular prescribes a six-year limit for condonation applications for refund claims. Paragraph 6 permits admission of belated supplementary refund claims subject to conditions including no interest admissibility and that the refund arises from excess tax payments.

Court's interpretation and reasoning: The Court highlighted that paragraph 6 allows admission of belated refund claims even after assessment completion, provided conditions are met. The Court found that the Revenue ignored paragraph 6 in declining the refund claim.

Key evidence and findings: The refund arose from excess tax deducted at source or excess advance tax payment, satisfying paragraph 6 conditions. The initial refund claim was made in the return, and the formal condonation application was subsequent.

Application of law to facts: The Court applied paragraph 6 to hold that the belated refund claim should be admitted for condonation, subject to conditions, which were met in this case.

Treatment of competing arguments: The Revenue's strict reliance on paragraph 3's six-year limit without considering paragraph 6 was rejected.

Conclusions: The Circular's provisions support condonation and admission of the refund claim despite belated filing.

Issue 3: Relevance of the date of filing of return versus date of filing formal condonation application for reckoning delay under section 119(2)(b)

Relevant legal framework and precedents: Section 119(2)(b) allows condonation of delay in filing applications for refund beyond the prescribed period. The Kerala High Court decision in K.C. Antonny clarified that the delay to be condoned is the delay in making the refund application, which includes the return itself if it contains the refund claim.

Court's interpretation and reasoning: The Court relied heavily on the Kerala High Court's reasoning that the date of the refund claim is the date of filing the return containing the refund request, not the subsequent date of filing the condonation application. Therefore, the delay should be measured from the due date of filing the return to the date the return was actually filed.

Key evidence and findings: The petitioner had filed the return beyond the due date, but within the six-year period prescribed by the Circular. The formal condonation application was filed later, but this date is not relevant for reckoning delay.

Application of law to facts: The Court applied the principle that the refund claim date governs the delay period and condonation consideration. The formal application date is irrelevant for limitation purposes under section 119(2)(b).

Treatment of competing arguments: The Revenue argued that the condonation application was filed beyond six years and hence barred. The Court rejected this, following the precedent that the refund claim date is determinative.

Conclusions: The delay to be condoned is the delay in filing the return containing the refund claim, not the delay in filing the condonation application.

Issue 4: Applicability of interest on belated refund claims

Relevant legal framework and precedents: Section 244A of the Income Tax Act provides for payment of interest on delayed refunds. However, the CBDT Circular and judicial decisions clarify that no interest is payable on belated refund claims admitted under paragraph 6 of the Circular.

Court's interpretation and reasoning: The Court noted that since the petitioner delayed pursuing the refund claim for nearly eight years after filing the return, no interest under section 244A would be payable on the belated refund. However, if the refund is not paid within six weeks after eligibility is determined, interest would be payable from that date.

Key evidence and findings: The petitioner's delay in following up on the refund claim was significant, justifying denial of interest for the entire period.

Application of law to facts: The Court applied the principle that interest is not payable on belated claims admitted under the Circular but is payable if the refund is delayed after eligibility is established.

Treatment of competing arguments: No contrary arguments were accepted regarding interest entitlement.

Conclusions: No interest on the belated refund claim is payable for the period of petitioner's inaction, but interest is payable if refund is delayed beyond six weeks after eligibility.

3. SIGNIFICANT HOLDINGS

"One thing to be noted is that a request was made for refund in the very ITR itself that had remained unconsidered. Subsequently, a formal application has also been made. In such a case, what is to be seen is the claim for refund, regardless of the form in which it is put forth. In other words, when the request is made, that date has to be kept in mind for reckoning the delay and while considering its condonation. The subsequent date on which formal application is made thus pales into insignificance."

"The provisions of section 119(2)(b) of the Act read as under :

'(b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any Income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law ;'

A careful reading of the aforesaid provision indicates that the delay, which can be condoned in exercise of the jurisdiction under the aforesaid section, is the delay in filing the application 'for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law'."

"Section 119(2)(b) does not impose any limitation for the purposes of filing an application for condonation of delay. Therefore, it was completely wrong on the part of the 1st respondent to treat the date of filing of application for condonation of delay as the relevant date for the purpose of considering whether it was filed within 6 years or not. The application for refund, by filing return of income, was admittedly made on 13.7.2012. Therefore, the delay in filing ought to be with reference to the last date for filing of return of income for the year 2010-11, till 13.7.2012."

Core principles established include:

• The date of filing the return containing the refund claim is the operative date for reckoning delay under section 119(2)(b), not the date of filing a formal condonation application.
• The CBDT Circular No. 9/2015 paragraphs 3 and 6 must be read harmoniously, allowing admission of belated refund claims subject to conditions.
• The Revenue must consider paragraph 6 of the Circular when rejecting belated refund claims; failure to do so amounts to misdirection.
• No interest under section 244A is payable on belated refund claims admitted under the Circular if the claimant delayed pursuing the refund, but interest is payable if refund is delayed after eligibility is established.
• Section 119(2)(b) confers broad discretionary power to condone delay to avoid genuine hardship without imposing a strict limitation period for condonation applications themselves.

Final determinations:

• The impugned order quashing the Revenue's refusal to condone delay and directing reconsideration of the refund claim was upheld.
• The refund claim made in the belated return is to be considered on merits, with delay condoned under section 119(2)(b).
• The Revenue's strict application of the six-year limit based on date of condonation application filing was held incorrect.
• The petitioner is not entitled to interest on the belated refund for the period of delay in pursuing the claim but is entitled to interest if refund is delayed beyond six weeks after eligibility.

Firstly, the question arose whether the notice issued under section 148 and the subsequent reassessment order were valid, given the contention that the reassessment was initiated without independent satisfaction by the Assessing Officer (AO) and was based solely on inputs from other authorities. Secondly, the legitimacy of the addition under section 68, which treats the entire sale proceeds of shares of Banas Finance Limited (BFL) as unexplained income, was challenged on grounds that the transactions were genuine, supported by documentary evidence including contract notes, demat account statements, banking channels, and brokerage records. Thirdly, the appellant contended that exemption under section 10(38) for long-term capital gains was wrongly denied despite compliance with all conditions. Fourthly, the imposition of interest under section 234B and penalty under section 271(1)(c) were disputed. Finally, the appellant raised procedural objections regarding non-furnishing of statements or information relied upon during reassessment and the failure of the Commissioner of Income-tax (Appeals) (CIT(A)) to adjudicate certain grounds or consider relevant judicial precedents.

Regarding the validity of reassessment under section 148, the appellant argued that the AO did not independently evaluate the material before issuing the notice and that the reassessment was initiated at the instance of other authorities without independent satisfaction, rendering the proceedings void ab initio. However, since the Tribunal ultimately deleted the addition under section 68 on merits, it left the challenge to the reopening open and did not decide on the validity of the reassessment notice.

The principal issue concerning the addition under section 68 was whether the sum of Rs. 3,72,18,541/- received on sale of shares of BFL constituted unexplained cash credits or bogus capital gains. The AO, relying heavily on an investigation wing report, concluded that the scrip was manipulated to generate bogus capital gains and treated the entire amount as unexplained income. The CIT(A) upheld this addition without detailed reasoning, merely echoing the AO's findings.

The appellant countered by producing extensive documentary evidence demonstrating the genuineness of transactions: contract notes, demat account statements showing shares were acquired through preferential allotment and private placement, bank statements evidencing payments and receipts through banking channels, and brokerage records confirming trades executed on the stock exchange. It was also highlighted that BFL was exonerated by SEBI from charges of irregularities related to preferential allotment, and that the appellant's broker and name were not mentioned in any investigation report alleging manipulation. The appellant further relied on coordinate bench decisions where similar additions involving the same scrip and identical facts were deleted on merits, emphasizing that the AO failed to conduct any enquiry or examine brokers or third parties, and disregarded the evidentiary burden on the revenue to disprove the genuineness of the transactions.

The Tribunal examined the AO's reliance on the investigation report and noted the absence of any direct link between the appellant and alleged price rigging or manipulation. The Tribunal referred to binding judicial precedents, including decisions of the Bombay High Court and coordinate benches of the Tribunal, which consistently held that transactions in shares cannot be treated as bogus merely on suspicion when the assessee furnishes credible documentary evidence establishing the genuineness of the transactions. Specifically, the Tribunal cited a High Court ruling where the Tribunal's finding that shares were transacted through stock exchange and banking channels, with payment of securities transaction tax, was upheld and the addition under section 68 was deleted. The Tribunal distinguished the present facts from cases relied upon by the revenue where purchases were made off-market or through private placements without proper documentation or where brokers admitted to price manipulation.

On the issue of exemption under section 10(38), the appellant contended that the long-term capital gains from sale of BFL shares were wrongly denied exemption despite fulfillment of all statutory conditions. The CIT(A) dismissed this ground without discussion or reasoning. The Tribunal observed this omission and implicitly supported the claim for exemption by deleting the addition under section 68, thereby recognizing the genuineness of the capital gains.

Regarding the levy of interest under section 234B and penalty under section 271(1)(c), these were consequential to the addition under section 68. Since the addition was deleted, these grounds became infructuous and were not separately adjudicated.

Procedural objections raised by the appellant included failure to provide copies of statements or information on which the reassessment notice was based, and denial of opportunity for cross-examination or verification of third-party records. The Tribunal noted these contentions but did not explicitly decide on them, focusing instead on the merits of the addition and the evidentiary record.

The Tribunal criticized the CIT(A) for a cryptic appellate order that merely reproduced the AO's findings without independent application of mind or consideration of the appellant's detailed submissions and annexures. The appellate order was described as preconceived and merely echoing the assessment order. The Tribunal emphasized the necessity of adjudicating grounds with adequate reasoning and respecting judicial precedents, which the CIT(A) failed to do.

In conclusion, the Tribunal held that the addition under section 68 was not sustainable on the facts and law. The appellant had discharged the onus by furnishing credible documentary evidence proving the nature and source of the amount received from sale of shares of BFL. The AO failed to rebut this evidence or conduct any meaningful enquiry. The Tribunal stated: "We hold that the impugned appellate order has been passed in a preconceived manner, dittoing the assessment order rather than by way of independent application of mind." The addition was therefore deleted. The challenge to the reopening notice under section 148 was left open. The appeal was allowed accordingly.

Significant holdings include the principle that when an assessee furnishes credible documentary evidence of purchase, sale, payment through banking channels, and demat transactions executed on the stock exchange, such transactions cannot be treated as bogus or unexplained income under section 68 merely on suspicion or on the basis of investigation reports implicating other parties. The burden lies on the AO to disprove the genuineness by independent enquiry or evidence, which was absent in this case. The Tribunal reaffirmed binding precedents from the Bombay High Court and coordinate benches of the Tribunal holding that mere suspicion, surmises, or reliance on third-party investigation reports without direct evidence against the assessee do not justify additions under section 68.

The Tribunal also underscored the requirement for appellate authorities to independently consider and adjudicate grounds raised by the assessee with proper reasoning, rather than mechanically upholding assessment orders. Failure to do so amounts to a breach of judicial discipline and undermines the principles of fair adjudication.

Ultimately, the Tribunal's order sets a precedent reinforcing that genuine transactions supported by documentary evidence and conducted through proper channels cannot be treated as accommodation entries or bogus income without cogent proof. It also highlights the importance of procedural fairness and adherence to judicial precedents in income tax appellate proceedings.

The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:

• Whether the Assessing Officer (AO) and subsequently the Central Processing Centre (CPC) were justified in restricting the claim of Tax Deducted at Source (TDS) credit filed by the assessee in the income tax return for Assessment Year 2021-22Rs.
• Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in partially confirming the denial of TDS credit by the AO/CPC despite the assessee's submissions and documentary evidence, including Form 26AS and additional evidence proposed to be filedRs.
• Whether the additional evidence submitted by the assessee under Rule 29 of the ITAT Rules should be admitted and the matter remanded to the CIT(A) for fresh adjudication on meritsRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Restriction of TDS Credit by AO/CPC

Relevant legal framework and precedents: The claim of TDS credit is governed by provisions under the Income Tax Act, particularly the mechanism of credit allowed as per Form 26AS and the processing of returns under section 143(1). Rule 37BA of the Income Tax Rules is relevant as it prescribes the procedure for claiming and allowing TDS credit. Precedents emphasize that TDS credit can be denied if the transactions are not supported by adequate documentary evidence or if the income is not offered to tax in the hands of the assessee claiming credit.

Court's interpretation and reasoning: The AO initially restricted the TDS credit from Rs. 2,72,534/- claimed by the assessee to Rs. 47,105/-, on the ground that the transactions lacked documentary support and explanations. The CPC, through rectification orders under section 154, alternately allowed and then again restricted the TDS credit. The CIT(A) upheld the action of the AO/CPC partly, relying on Rule 37BA and the absence of sufficient documentary support.

Key evidence and findings: The primary evidence was the Form 26AS and the return of income filed by the assessee. The AO and CIT(A) found that the transactions for which TDS credit was claimed were not adequately substantiated with documentary evidence, and the income related to these TDS credits was offered in the hands of a partnership firm and Hindu Undivided Family (HUF), not the assessee individually.

Application of law to facts: The denial of TDS credit was premised on the principle that TDS credit can only be allowed if the income is offered to tax in the hands of the claimant and the claim is supported by adequate documentation. Since the assessee could not furnish sufficient evidence at the initial stages, the AO and CIT(A) were justified in restricting the credit.

Treatment of competing arguments: The assessee argued that the TDS credit should be allowed based on Form 26AS and submitted that the income was declared, albeit in the hands of partnership firm and HUF. The Revenue contended that the lower authorities had rightly disallowed the claim due to lack of documentary evidence and non-examination of the additional evidence by the authorities.

Conclusions: The Tribunal found that the lower authorities' denial was based on incomplete evidence and that the assessee had not been given full opportunity to submit relevant material.

Issue 2: Admission of Additional Evidence under Rule 29 of ITAT Rules and Remand for Fresh Adjudication

Relevant legal framework and precedents: Rule 29 of the ITAT Rules permits the Tribunal to admit additional evidence if it is satisfied that such evidence is relevant and could not be produced before the lower authorities for sufficient reasons. The principle is that justice should not be defeated due to procedural lapses or non-availability of evidence earlier.

Court's interpretation and reasoning: The Tribunal observed that the additional evidence proposed by the assessee, which included detailed information substantiating the TDS credit claims (items numbered 19 to 83 in the paper book), was crucial for a fair adjudication. The Tribunal emphasized that such evidence plays an important role in decision-making and that the assessee should not suffer for non-filing of material information at the earlier stage.

Key evidence and findings: The additional evidence comprised documentary proofs and details that were not submitted before the AO or CIT(A) but were relevant to substantiate the TDS credit claims. The Tribunal noted that the return of income was processed under section 143(1) without detailed scrutiny, which may have contributed to the dispute.

Application of law to facts: Applying Rule 29, the Tribunal admitted the additional evidence and directed that the matter be restored to the file of the CIT(A) for fresh adjudication on merits. The assessee was to be given adequate opportunity to be heard and to cooperate in submitting information.

Treatment of competing arguments: The Revenue opposed admission of additional evidence on the ground that it was not examined earlier and that the lower authorities had rightly rejected the claim. The Tribunal, however, prioritized the ends of justice and the importance of a fair hearing over procedural objections.

Conclusions: The Tribunal allowed the application for admission of additional evidence and remanded the matter to CIT(A) for fresh decision, ensuring procedural fairness and comprehensive consideration of all relevant facts and documents.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Considering the facts, circumstances and additional evidences, the assessee should not suffer for non filing of material information, as the evidences play a vital role in decision making and we admit the additional evidence."

"Accordingly, to meet the ends of justice, we restore the disputed issue along with the additional evidence to the file of the CIT(A) to adjudicate afresh on merits and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information."

Core principles established include:

• The importance of substantive evidence and procedural fairness in allowing TDS credit claims.
• The Tribunal's discretion under Rule

The core legal questions considered by the Appellate Tribunal in these consolidated appeals are:

• Whether the additions made by the Assessing Officer (AO) on account of alleged bogus and non-genuine purchase bills amounting to Rs. 50,86,050/- and Rs. 73,15,444/- for AYs 2009-10 and 2010-11 respectively were justified.
• Whether the CIT(A) erred in sustaining additions of Rs. 4,06,884/- and Rs. 6,17,235/- by applying a gross profit (G.P.) rate of 8% on the alleged bogus purchases instead of deleting the additions altogether.
• Whether the AO and CIT(A) failed to provide proper evidentiary material such as copies of information/reports from Maharashtra Sales Tax Department or opportunity to cross-examine the impugned suppliers, thereby violating principles of natural justice.
• Whether the CIT(A) erred in not granting rebate for the gross profit and indirect expenses already reflected in the assessee's audited accounts, leading to double taxation.
• Whether delivery challans and transportation receipts were produced by the assessee to establish genuineness of purchases and whether the AO and CIT(A) properly considered these documents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Additions on Account of Bogus Purchases

Relevant Legal Framework and Precedents: The AO initiated reassessment proceedings under section 147 read with section 143(3) of the Income-tax Act, 1961, based on information received from internal wings of the Income-tax Department and Maharashtra Sales Tax Department indicating that certain suppliers were bogus and the purchases shown from them were not genuine. The principle that additions can be made if purchases are found to be bogus is well settled in tax jurisprudence. However, the burden lies on the revenue to establish the non-genuineness of transactions beyond doubt.

Court's Interpretation and Reasoning: The AO rejected the documents filed by the assessee to prove genuineness and made 100% disallowance of purchases. The CIT(A) partially agreed with the AO but restricted the disallowance to the gross profit element at 8% of the bogus purchases, relying on judicial precedents that disallowing entire purchase value is harsh and only the profit element should be added back.

Key Evidence and Findings: The AO relied on reports from sales tax authorities and internal information, but did not provide copies of these reports or opportunity for cross-examination of suppliers. The assessee submitted delivery challans and transportation receipts, but the AO was not satisfied.

Application of Law to Facts: The Tribunal noted that the CIT(A) had already granted substantial relief by restricting addition to 8% gross profit, deleting the excessive additions. The Tribunal found no reason to interfere with this approach as it balanced the revenue's claim and assessee's rights.

Treatment of Competing Arguments: The assessee challenged the additions as excessive and based on unverified information. The revenue did not appeal against the CIT(A) order, indicating tacit acceptance of the reduced additions. The Tribunal considered the assessee's submissions but upheld the CIT(A)'s approach.

Conclusion: The additions were justified to the extent of gross profit element at 8% of the alleged bogus purchases. The CIT(A)'s order reducing the addition from 100% to 8% was upheld.

Issue 2: Failure to Provide Copies of Information/Reports and Opportunity to Cross-Examine

Relevant Legal Framework: Principles of natural justice require that an assessee be given opportunity to examine evidence relied upon by the revenue and cross-examine witnesses or persons whose statements form the basis of additions.

Court's Interpretation and Reasoning: The assessee contended that copies of reports from Maharashtra Sales Tax Department and opportunity to cross-examine suppliers were not provided, rendering the assessment and appellate orders unlawful. The Tribunal noted this contention but the record did not reveal any specific procedural violation that vitiated the assessment.

Key Findings: The Tribunal observed that the CIT(A) and AO relied on information from sales tax authorities but did not produce copies of such reports in the record. However, since the CIT(A) had already restricted the addition significantly, and the revenue did not contest the appellate order, the Tribunal did not find it necessary to quash the assessment on this ground.

Conclusion: No interference was made on this ground as the substantial relief was already granted and no procedural irregularity was found to have caused prejudice to the assessee.

Issue 3: Whether Delivery Challans and Transportation Receipts Were Produced and Considered

Relevant Legal Framework: Delivery challans and transportation receipts are relevant documents to establish the genuineness of goods purchased and received.

Court's Interpretation and Reasoning: The CIT(A) held that the assessee failed to produce delivery challans and transportation receipts during assessment proceedings, which contributed to the conclusion that purchases were not genuine. The assessee disputed this finding.

Key Evidence: The record showed that the assessee did file some documents, but the AO was not satisfied with their authenticity or completeness.

Application of Law to Facts: The Tribunal noted that mere production of documents does not conclusively establish genuineness if the AO has reason to doubt their authenticity. Given the information about bogus suppliers, the AO's skepticism was not unreasonable.

Conclusion: The Tribunal did not find sufficient grounds to disturb the CIT(A)'s finding that delivery challans and transportation receipts were either not produced or not satisfactory to establish genuineness.

Issue 4: Application of Gross Profit Rate and Grant of Credit for Gross Profit and Indirect Expenses Already Declared

Relevant Legal Framework: When additions are made on account of bogus purchases, the addition should be limited to the profit element, as the cost of purchases is not to be taxed again. The gross profit rate applied should be consistent with the assessee's declared gross profit rate in audited accounts.

Court's Interpretation and Reasoning: The CIT(A) applied a flat gross profit rate of 8% on the bogus purchases to arrive at the addition. The assessee contended that their audited accounts and audit report (Form 3CD) showed gross profit rates of 4.8522% and 7.6318% for AYs 2009-10 and 2010-11 respectively, which were lower than 8%. Therefore, applying 8% without adjusting for the declared gross profit resulted in double taxation.

Key Evidence: The auditors' report in Form 3CD was filed and showed the gross profit rates declared by the assessee. The assessee's trading account and profit & loss account reflected gross profit and indirect expenses.

Application of Law to Facts: The Tribunal agreed with the assessee that the CIT(A) should have given credit for the gross profit already declared and allowed in the books. It directed the AO to modify the assessment orders accordingly and compute the addition after giving credit for the declared gross profit, thereby avoiding double taxation.

Treatment of Competing Arguments: The revenue did not object to this limited relief sought by the assessee.

Conclusion: The Tribunal directed that the assessments be modified to grant credit for the gross profit already declared by the assessee, and the additions be computed accordingly.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The CIT(A), relying upon certain judicial rulings, restricted disallowances to gross-profit element @ G.P. rate of 8% of bogus purchases and thereby reduced disallowances... The Tribunal found no reason to interfere with this approach as it balanced the revenue's claim and assessee's rights."

"The assessee has declared G.P. Rate of 4.8522% and 7.6318% in books of accounts of AY 2009-10 and 2010-11 respectively. Therefore, when the CIT(A) has applied G.P. Rate of 8%, the CIT(A) ought to have granted a credit/relief of 4.8522% and 7.6318% already declared by assessee and sustained only differential addition."

"Accordingly direct the AO to modify respective assessment-orders by giving credit to the extent of gross-profit already declared by assessee. Necessary computation shall be made by AO. The assessee shall get relief accordingly."

The Tribunal's core principles established include:

• Additions on account of bogus purchases should be restricted to the gross profit element rather than the full purchase value.
• The gross profit rate applied for additions should be consistent with the gross profit declared by the assessee in audited accounts to avoid double taxation.
• Procedural fairness requires opportunity to cross-examine and production of relevant reports, but absence of such may not vitiate assessment if substantial relief is granted and no prejudice is caused.
• Production of delivery challans and transportation receipts is necessary but not conclusive proof of genuineness if other evidence suggests otherwise.

Final determinations:

• The Tribunal partly allowed the appeals by directing modification of assessment orders to grant credit for gross profit already declared.
• The additions on account of bogus purchases were upheld to the extent of gross profit element after adjustment.
• No interference was made on grounds relating to procedural lapses or production of delivery documents as the CIT(A) had already granted substantial relief and revenue did not appeal.

1. Whether the delay in filing Form 10B, which is a procedural requirement, can justify denial of exemption under Section 11 of the Act.

2. Whether the condonation of delay in filing Form 10B by the competent authority (CIT(Exemptions)) has retrospective effect, thereby validating the exemption claim as if the form was timely filed.

3. Whether the Assessing Officer and Commissioner of Income Tax (Appeals) erred in dismissing the rectification application and appeal respectively, by holding that there was no mistake apparent from the record in processing the return without granting exemption under Section 11.

4. Whether expenses incurred for receipt of income should be allowed and adjusted before determination of total income irrespective of the availability of exemption under the Act.

Issue-wise Detailed Analysis:

1. Delay in Filing Form 10B and Its Impact on Exemption under Section 11

The legal framework mandates that charitable trusts seeking exemption under Section 11 must file an audit report in Form 10B along with the return of income. However, the question arises whether delay in filing this form is a substantive bar or merely a procedural default.

The Tribunal referred to authoritative precedents, notably the Gujarat High Court's decision in Sarvodaya Charitable Trust vs. ITO(E), which held that delay in furnishing Form 10B is a procedural default and should not disentitle a trust from exemption if substantive conditions are met. The Court emphasized that the provision is directory in nature and substantial compliance suffices. The High Court observed that a public charitable trust substantially satisfying exemption conditions should not be denied exemption merely on limitation grounds, especially given the discretionary power of authorities to condone delay.

Similarly, in Association of Indian Panelboard Manufacturing vs. DCIT, the Gujarat High Court clarified that the substantive requirement is the availability of the audit report to the Assessing Officer before completion of assessment proceedings, irrespective of the timing of filing. The mandatory electronic filing introduced by the Finance Act, 2015, does not alter this substantive legal position.

The Tribunal noted that in the instant case, the delay in filing Form 10B was four years, which led to denial of exemption by the CPC and Assessing Officer. However, the assessee subsequently obtained condonation of delay from the jurisdictional CIT(Exemptions).

2. Retrospective Effect of Condonation of Delay

The Tribunal examined the effect of the condonation order passed under Section 119(2)(b) of the Act by the CIT(Exemptions). It held that such condonation has retrospective effect, curing the procedural defect ab initio. This principle is supported by the Latin maxim ratihabitio mandato aequiparatur, meaning a subsequent ratification is equivalent to prior authority, thereby retrospectively validating the act.

The Tribunal relied on the Supreme Court's exposition in National Institute of Technology vs. Pannalal Choudhary, which explained that ratification retrospectively validates an invalid act. Applying this principle, the condonation of delay in filing Form 10B effectively treats the delay as if it never occurred, restoring the exemption claim from the original date of filing.

Therefore, the Tribunal concluded that once the delay was condoned, the Assessing Officer's and CIT(A)'s denial of exemption based on non-filing of Form 10B within the due date was erroneous.

3. Assessment and Rectification Proceedings under Sections 143(1) and 154 of the Act

The Assessing Officer processed the return under Section 143(1) denying exemption due to non-filing of Form 10B. The assessee filed a rectification application under Section 154, which was dismissed on the ground that no mistake was apparent from the record. The CIT(A) upheld this dismissal, noting that at the time of rectification, condonation of delay had not been granted.

The Tribunal found this approach flawed. It reasoned that the denial of exemption was based on a procedural lapse which was subsequently condoned. The CIT(A) should have taken a judicial and equitable approach considering the condonation order and the assessee's consistent grant of exemption in subsequent years. The Tribunal emphasized that the rectification order could be revisited once the procedural defect was cured, and the exemption claim should not be denied on mere procedural grounds.

4. Allowance of Expenses Incurred for Receipt of Income

The assessee contended that expenses incurred for receipt of income should be allowed and adjusted before determination of total income, regardless of exemption availability. However, the Tribunal's order primarily focused on the exemption issue and did not elaborate on this ground in detail. The absence of adverse remarks or rejection of this ground suggests that it was either not pressed or was subsumed within the broader issue of exemption denial.

Treatment of Competing Arguments

The Revenue relied on the initial denial of exemption due to late filing and the absence of condonation at the time of assessment and rectification. The Tribunal acknowledged these facts but rejected the Revenue's rigid stance, emphasizing the discretionary power of CIT(Exemptions) to condone delay and the principle that procedural defaults should not defeat substantive rights.

The assessee's arguments were supported by judicial precedents and the condonation order, which the Tribunal found decisive in allowing the appeals.

Significant Holdings:

"It is a well settled law that delay in filing of Form 10B is a procedural default and if other conditions have been met, then mere delay in filing of Form 10B should not disentitle the assessee from claiming exemption under Section 11 of the Act."

"Once delay in filing a statutory form is condoned under Section 119(2)(b) by the appropriate authority, such condonation relates back to the original date of filing of the return and cures the technical defect ab initio by giving it retroactive effect."

"The act of condoning the delay in Form 10B, shall for all the matters, aspects and respects, result into effect of having committed no delay."

"The denial of exemption under Section 11 of the Act on the ground of delay in filing Form 10B, when such delay has been condoned, is erroneous and deserves to be set aside."

"The provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice."

"An assessee, a public charitable trust past 30 years who substantially satisfies the condition for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned."

The Tribunal's final determination was to allow the appeals for both assessment years 2013-14 and 2014-15, setting aside the orders denying exemption under Section 11 of the Act. The Tribunal directed that the exemption be granted in view of the condonation of delay and the substantive compliance by the assessee trust.

The core legal questions considered by the Tribunal are:

• Whether the delay of 63 days in filing the appeal before the Commissioner of Income Tax (Appeals) was liable to be condoned.
• Whether the delay in electronically filing the audit report in Form No. 10B, despite timely completion of the audit, can be condoned.
• Whether the denial of exemption under sections 11 and 12 of the Income Tax Act, 1961 solely on account of belated filing of Form No. 10B is legally sustainable.
• Whether the Assessing Officer was justified in treating corpus donations as taxable income instead of capital receipts.
• Whether the statutory deduction of 15% under section 11(1)(a) was rightly denied.
• Whether the appeal ought to have been adjudicated on merits by the CIT(A) despite the delay in filing.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal before CIT(A)

Relevant Legal Framework and Precedents: The Income Tax Act and judicial precedents emphasize a justice-oriented approach in condoning delay in filing appeals, especially when the cause is bona fide and absence of malafide or deliberate inaction is evident.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee's explanation for delay-an inadvertent mistake by the consultant's assistant-was not found to be false or lacking in bonafides. The CIT(A) erred in dismissing the appeal in limine without considering the explanation in a liberal manner.

Key Evidence and Findings: The explanation was supported by an affidavit and there was no adverse finding against the assessee's bona fide conduct.

Application of Law to Facts: Given the absence of malafide and the nature of the explanation, the Tribunal held that the delay deserved condonation in the interest of substantial justice.

Treatment of Competing Arguments: The Revenue contended that no sufficient cause was shown, but the Tribunal found the explanation reasonable and supported by judicial principles favoring liberal construction in such cases.

Conclusion: The delay of 63 days in filing the appeal before CIT(A) was condoned.

Delay in Filing Form No. 10B Audit Report

Relevant Legal Framework and Precedents: Section 12A(1)(b) requires filing of audit report in Form No. 10B along with the return. However, the Hon'ble Gujarat High Court in Association of Indian Panelboard Manufacturers v. DCIT and Anjana Foundation v. CIT (Exemptions) held that the requirement is directory and not mandatory. The CBDT Circular No. 2/2020 empowers Commissioners of Income-tax to condone delay in filing Form 10B under section 119(2)(b) subject to reasonable cause.

Court's Interpretation and Reasoning: The Tribunal relied on these precedents and circular to hold that when audit is completed in time, mere procedural delay in e-filing Form 10B should not defeat substantive exemption rights under section 11.

Key Evidence and Findings: The audit was completed on 29.07.2019, and the audit report was signed on 27.07.2019, well before the assessment order dated 24.12.2019. The delay in uploading the report electronically until 07.12.2019 was due to inadvertent error and procedural oversight.

Application of Law to Facts: Since the AO did not dispute the genuineness of the trust's activities, nor found misapplication of income or violation of conditions, denial of exemption solely due to delayed filing of Form 10B was held to be unjustified.

Treatment of Competing Arguments: The Revenue argued that no application for condonation under section 119(2)(b) was filed and that scrutiny assessment under section 143(3) requires stricter compliance. The Tribunal distinguished this by emphasizing the absence of malafide and reliance on binding judicial precedents allowing condonation in such circumstances.

Conclusion: The delay in filing Form No. 10B was condoned, and denial of exemption on this ground was set aside.

Denial of Exemption under Sections 11 and 12

Relevant Legal Framework and Precedents: Sections 11 and 12 provide exemption to charitable trusts subject to conditions including filing of audit report. The legal position, as clarified by the Gujarat High Court and CBDT Circular, is that substantial compliance suffices and technical delays should not defeat exemption.

Court's Interpretation and Reasoning: The Tribunal observed that the AO did not dispute the charitable nature of activities, nor found any misapplication of income. The denial of exemption was solely on procedural non-compliance, which the Tribunal held to be insufficient ground to deny exemption.

Key Evidence and Findings: The trust was registered under section 12A since 1984, engaged in bona fide charitable activities in medical relief and education, and filed return declaring NIL income. The audit was completed timely.

Application of Law to Facts: The Tribunal applied the principle of substantial compliance and held that exemption under sections 11 and 12 must be granted.

Treatment of Competing Arguments: The Revenue's reliance on procedural non-compliance was rejected in light of precedents and absence of adverse findings on merits.

Conclusion: Exemption under sections 11 and 12 was to be granted.

Treatment of Corpus Donations

Relevant Legal Framework and Precedents: Corpus donations are generally treated as capital receipts and not taxable income unless received without specific direction.

Court's Interpretation and Reasoning: The AO treated corpus donations aggregating Rs. 71,38,000/- as income without examining whether they were received with specific directions. The Tribunal found this approach incorrect.

Key Evidence and Findings: No adverse finding was recorded on the nature of corpus donations.

Application of Law to Facts: The Tribunal directed the AO to treat corpus donations as capital receipts.

Treatment of Competing Arguments: The Revenue had no substantive basis for treating corpus donations as income.

Conclusion: Corpus donations were to be treated as capital receipts, not income.

Claim of Deduction under Section 11(1)(a)

Relevant Legal Framework and Precedents: Section 11(1)(a) allows a deduction of 15% of income of the trust for administrative expenses.

Court's Interpretation and Reasoning: The Tribunal noted that the AO denied this deduction without proper adjudication.

Key Evidence and Findings: The assessee claimed the deduction as per law.

Application of Law to Facts: The Tribunal directed the AO to allow the statutory deduction under section 11(1)(a).

Treatment of Competing Arguments: No valid reason was found to deny the deduction.

Conclusion: Deduction under section 11(1)(a) was to be granted.

Adjudication on Merits by CIT(A)

Relevant Legal Framework and Precedents: Appeals should be adjudicated on merits unless delay is inordinate and explanation is unacceptable.

Court's Interpretation and Reasoning: The CIT(A) dismissed the appeal without considering merits due to delay, which the Tribunal found erroneous given the reasonable cause explained.

Key Evidence and Findings: The explanation for delay was supported by affidavit and no malafide was found.

Application of Law to Facts: The Tribunal held that the appeal deserved admission and adjudication on merits.

Treatment of Competing Arguments: Revenue's insistence on strict compliance was rejected in the context of justice-oriented approach.

Conclusion: The appeal was to be admitted and decided on merits.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The requirement of filing the audit report along with return is directory and not mandatory, and that the claim of exemption under section 11 should not be denied when there is substantial compliance with the law."

"Delay in uploading Form No. 10B, if not attributable to malafide intent and the audit is completed in time, ought not to disentitle a trust from exemption."

"The explanation tendered by the assessee, which is not found to be false or lacking in bonafides, deserves liberal interpretation in light of various judicial precedents where it is held that justice-oriented approach should be adopted while considering condonation of delay."

Core principles established include:

• Substantial compliance with procedural requirements suffices for claiming exemption under section 11.
• Technical or procedural delays in filing Form No. 10B can be condoned if audit is completed timely and no malafide is found.
• Appeals should be admitted and decided on merits if reasonable cause for delay is shown.
• Corpus donations must be treated as capital receipts unless facts indicate otherwise.
• Statutory deductions under section 11(1)(a) must be allowed unless valid reasons exist for denial.

Final determinations on each issue were in favour of the assessee, with directions to condone delays, admit the appeal, grant exemption under sections 11 and 12, treat corpus donations as capital receipts, allow the 15% deduction under section 11(1)(a), and remit the matter to the Assessing Officer for fresh computation accordingly.

The core legal questions considered by the Tribunal in these appeals are:

• Whether the rejection of the assessee trust's applications for registration under section 12A(1)(ac)(iii) and approval under section 80G(5)(iii) of the Income-tax Act, 1961, by the Commissioner of Income Tax (Exemption) [CIT(Exemption)] on grounds of non-response to statutory notices and consequent cancellation of provisional approvals was legally sustainable.
• Whether the assessee was afforded adequate opportunity of hearing in compliance with the principles of natural justice before passing the impugned orders.
• Whether the delay in filing the appeals before the Tribunal was justified and deserving of condonation under section 253(5) of the Act.
• Whether the procedural grounds cited by the CIT(Exemption) for rejection and cancellation could override substantive compliance and bona fide efforts made by the assessee trust, especially in light of the CBDT Circular permitting reapplication.
• Whether the facts and evidence on record, including prior submissions of audited financial statements and foundational documents, were duly considered by the CIT(Exemption) in the impugned orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of rejection of applications under sections 12A(1)(ac)(iii) and 80G(5)(iii) and cancellation of provisional approvals

Relevant legal framework and precedents: Sections 12A and 80G of the Income-tax Act provide for registration and approval of charitable trusts to enable them to claim exemption and confer tax benefits to donors. Rule 17A(2) and Rule 11AA(2) prescribe procedural requirements for furnishing details and documents to verify eligibility. The principles of natural justice require that an assessee be given adequate opportunity to respond to notices before adverse orders are passed. CBDT Circular No. 7/2024 permits reapplication within prescribed timelines after earlier rejection.

Court's interpretation and reasoning: The Tribunal noted that the CIT(Exemption) rejected the applications solely on procedural grounds, i.e., non-response to notices issued for furnishing details and documents, leading to cancellation of provisional registrations/approvals. However, the assessee explained that non-compliance was due to genuine constraints arising from its remote rural location and lack of access to digital infrastructure, which impeded timely communication and response.

Key evidence and findings: The assessee trust is registered under the Gujarat Public Trust Act since 2016, with objects wholly charitable in nature, maintaining audited accounts and records. The trust had submitted foundational documents and audited financial statements in prior proceedings, which were available on record. The assessee relied on CBDT Circular No. 7/2024 to file fresh applications within the permitted period. The Tribunal found no indication that the non-response was willful or contumacious.

Application of law to facts: The Tribunal applied the principles of natural justice and procedural fairness, observing that rejection without considering the bona fide explanation and without granting effective hearing was unjust. The mere procedural lapse, caused by logistical difficulties, could not justify cancellation of registration/approval when substantive compliance and genuine intent were demonstrated.

Treatment of competing arguments: The Revenue's reliance on non-response to notices as a ground for rejection was not contested on merits but accepted as a procedural fact. The Tribunal gave weight to the assessee's explanation and absence of wilful default, and also noted the Departmental Representative's non-objection to restoration for fresh adjudication.

Conclusions: The Tribunal held that the impugned orders were unsustainable as they violated natural justice and failed to appreciate the assessee's bona fide compliance and circumstances. The orders were set aside, and the matters were restored for de novo adjudication after affording effective opportunity of hearing.

Issue 2: Adequacy of opportunity of hearing and compliance with principles of natural justice

Relevant legal framework and precedents: The principles of natural justice mandate that no order affecting rights or interests be passed without giving the affected party a reasonable opportunity to be heard. This is a fundamental procedural safeguard in administrative and quasi-judicial proceedings.

Court's interpretation and reasoning: The Tribunal found that the CIT(Exemption) passed the orders rejecting the applications and cancelling provisional approvals without granting an effective opportunity to the assessee to respond to the notices or to be heard on the merits. The notices issued were not responded to due to genuine constraints, but no further efforts to engage with the assessee or to provide an extended hearing opportunity were made by the CIT(Exemption).

Key evidence and findings: The assessee's affidavits, explanation of rural location, dependence on external consultants, and lack of technological access were accepted as credible. The Tribunal noted the absence of any communication from the CIT(Exemption) indicating an opportunity to explain or remedy the non-compliance.

Application of law to facts: The Tribunal emphasized that procedural fairness requires the authorities to ensure that parties are not deprived of rights without adequate notice and hearing. The failure to provide such opportunity constituted violation of natural justice.

Treatment of competing arguments: The Revenue did not dispute the lack of opportunity or oppose restoration for fresh consideration, implicitly conceding the procedural lapse.

Conclusions: The Tribunal concluded that the principles of natural justice were violated, warranting setting aside of the impugned orders and restoration for fresh adjudication after due hearing.

Issue 3: Condonation of delay in filing appeals before the Tribunal

Relevant legal framework: Section 253(5) of the Income-tax Act permits the Tribunal to condone delay in filing appeals if sufficient cause is shown. The test is whether the delay was bona fide and for reasons beyond the appellant's control.

Court's interpretation and reasoning: The Tribunal accepted the assessee's explanation that the trust's remote rural location, limited internet connectivity, and reliance on a tax consultant in a distant urban center caused delay in awareness and filing of appeals. The delay was not deliberate but due to genuine difficulties.

Key evidence and findings: The assessee filed notarized affidavits affirming the facts surrounding the delay and promptly filed appeals upon discovery of adverse orders. The Departmental Representative raised no objection to condonation.

Application of law to facts: The Tribunal applied the principle that technical delays caused by genuine constraints should not defeat substantive rights and that justice should not be denied on mere procedural lapses.

Conclusions: The delay in filing both appeals was condoned as arising from sufficient and bona fide cause.

Issue 4: Consideration of substantive compliance and evidence on record

Relevant legal framework: Registration and approval under sections 12A and 80G require compliance with substantive conditions, including charitable objects, maintenance of accounts, and genuineness of activities. Authorities must consider material on record before rejecting applications.

Court's interpretation and reasoning: The Tribunal noted that the assessee had submitted audited financial statements and foundational documents in earlier proceedings, which were available with the CIT(Exemption) at the time of passing the impugned orders. Despite this, the CIT(Exemption) rejected the applications without considering such material, focusing solely on procedural non-compliance.

Key evidence and findings: The trust's registration under the Gujarat Public Trust Act, audited accounts, and charitable objectives were undisputed and documented. The CBDT Circular allowing reapplication was duly complied with.

Application of law to facts: The Tribunal held that rejection based purely on procedural grounds without appreciating substantive compliance and evidence on record was arbitrary and unjust.

Treatment of competing arguments: The Revenue did not challenge the substantive compliance but relied on procedural defaults.

Conclusions: The Tribunal concluded that the CIT(Exemption) erred in ignoring the evidence and failed to consider the merits, necessitating fresh adjudication.

3. SIGNIFICANT HOLDINGS

"The rejection of the applications by the CIT(Exemption) in both cases is founded solely on procedural grounds- namely, the assessee's failure to respond to the statutory notices issued for furnishing requisite details and documents. However, the assessee has offered a credible and reasonable explanation for such non-compliance, citing genuine constraints owing to its rural location and lack of access to digital infrastructure. The delay and default, as demonstrated, were neither deliberate nor contumacious."

"Considering the overall circumstances and in the interest of substantial justice, we are of the considered view that the assessee deserves an effective opportunity of hearing. Accordingly, both impugned orders dated 03.09.2024 (under section 12A) and 14.10.2024 (under section 80G) passed by the CIT(Exemption), Ahmedabad, are hereby set aside. The matters are restored to the file of the CIT(Exemption) for de novo adjudication in accordance with law, after affording a reasonable and effective opportunity of being heard to the assessee trust."

Core principles established include:

• Procedural non-compliance caused by genuine logistical constraints, especially in rural contexts, should not lead to harsh consequences without due opportunity of hearing.
• Authorities must consider substantive compliance and evidence on record before rejecting applications for registration or approval under charitable trust provisions.
• Principles of natural justice require effective opportunity to respond before cancellation of provisional registrations or approvals.
• Delays in filing appeals caused by bona fide reasons should be condoned to prevent injustice.

Final determinations on each issue were:

• Delay in filing appeals was condoned.
• Impugned orders rejecting applications under sections 12A(1)(ac)(iii) and 80G(5)(iii) and cancelling provisional approvals were set aside.
• Matters were restored to the CIT(Exemption) for fresh adjudication on merits after affording reasonable and effective opportunity of hearing to the assessee trust.

1. Whether the rejection of the assessee's application for registration under section 12AB was justified, particularly considering the invocation of clause (vi)(B) of section 12A(1)(ac) based on claimed exemptions in prior years.

2. Whether the application for approval under section 80G(5) was properly adjudicated independently or was impermissibly rejected consequentially without due examination.

3. Whether the assessee was accorded sufficient opportunity to comply with procedural requirements and furnish necessary details before rejection, thereby engaging principles of natural justice.

4. Whether the second set of applications filed by the assessee, following rejection of the first, was maintainable under the provisions of CBDT Circular No. 07/2024 dated 25.04.2024, or whether such applications were barred.

5. Whether the delay in filing appeals against the rejection orders was liable to be condoned in light of the assessee's bona fide belief in the remedial provisions of the Circular and the nature of the assessee as a charitable entity.

Issue 1: Justification for Rejection under Section 12AB invoking Clause (vi)(B) of Section 12A(1)(ac)

The legal framework requires that for an application for registration under section 12AB to be rejected under clause (vi)(B) of section 12A(1)(ac), the assessee must have claimed exemption in the Income Tax Returns under section 11, 12, or clause (23C) of section 10 prior to registration. The bar applies if such exemption was claimed without registration, making the application non-maintainable.

The Court noted that the CIT(E) rejected the application under this clause primarily on the ground that the assessee had claimed exemption amounts of Rs. 85,30,550 and Rs. 2,11,82,097 for the financial years 2021-22 and 2022-23 respectively. However, the CIT(E) failed to conclusively determine whether these exemptions were claimed under the relevant statutory provisions (section 11, 12, or 10(23C)) that would trigger the bar under clause (vi)(B). The rejection was based on an inferential and unverified assumption without examining the legal nature of the claimed exemption.

The Tribunal emphasized that mere reflection of exempt income in the ITRs, without a finding on the legal basis of exemption, is insufficient to invoke the statutory bar. Furthermore, the assessee had provisional registration granted earlier and had applied for regular registration in continuity. There was no allegation or evidence of misstatement, suppression, or misuse of exemption provisions.

Accordingly, the Court found the rejection on this ground to be procedurally and substantively flawed.

Issue 2: Independent Adjudication of Section 80G Approval Application

Section 80G approval is a distinct statutory function requiring separate satisfaction of eligibility conditions under section 80G(5). The Tribunal observed that the CIT(E) rejected the 80G applications merely consequential to the rejection under section 12AB without any independent examination or recording of satisfaction under section 80G(5).

No specific notice was issued, nor were any findings recorded on whether the assessee complied with the statutory requirements for 80G approval. The mechanical and non-speaking rejection was held to be contrary to law and unsustainable.

Issue 3: Sufficiency of Opportunity and Principles of Natural Justice

The assessee contended that only one opportunity was granted to furnish requisite details, which was insufficient and violated principles of natural justice. The CIT(E) did not allow the assessee to cure procedural defects, particularly regarding the activity report and other documentation.

The Tribunal recognized the assessee's status as a non-profit charitable organization with limited administrative resources and held that strict procedural defaults should not defeat substantive rights. The lack of adequate opportunity and failure to clarify or support procedural compliance was a significant procedural impropriety.

Issue 4: Maintainability of Second Set of Applications under CBDT Circular No. 07/2024

The assessee filed a second set of applications under section 12AB and 80G, relying on CBDT Circular No. 07/2024 dated 25.04.2024, which purportedly permitted fresh applications in cases of delayed filing or selection of wrong section codes.

The CIT(E) rejected these applications on the ground that the earlier rejection was on merits, not due to technical defects, and thus the Circular's provisions did not apply. Consequently, the second applications were held non-maintainable.

The Tribunal held that the second applications were not independent claims but remedial measures taken in good faith to address procedural rejections of the first applications. Since the first set of orders suffered from procedural and legal infirmities, the second applications' rejection was rendered infructuous. The proper course was to restore the first applications for fresh adjudication, making the second applications unnecessary.

Issue 5: Condonation of Delay in Filing Appeals

The appeals against the CIT(E) orders dated 10.07.2024 and 15.07.2024 were filed with delays of 156 and 151 days respectively, beyond the statutory 60-day period.

The assessee explained the delay as a bona fide error arising from a mistaken but genuine belief, based on the CBDT Circular, that fresh applications could be filed instead of immediate appeals. The delay was supported by an affidavit and was not deliberate or contumacious.

The Tribunal found the explanation sufficient under section 253(5) of the Act, condoned the delay in the interest of substantial justice, and noted the charitable nature of the assessee's activities.

Conclusions and Application of Law to Facts

The Tribunal concluded that the CIT(E)'s rejection of the first set of applications under section 12AB was based on an unverified and inferential application of clause (vi)(B), lacking conclusive findings on the nature of exemption claimed. The rejection of the section 80G applications was mechanical and non-speaking, lacking independent adjudication. The assessee was not afforded adequate opportunity to comply with procedural requirements, violating principles of natural justice.

The second set of applications filed pursuant to the CBDT Circular were not maintainable as independent claims but were remedial attempts to cure procedural defects. Since the first set of applications were improperly rejected, the second applications became infructuous.

In view of these findings, the Tribunal set aside the orders dated 10.07.2024 and 15.07.2024 and restored the matters to the CIT(E) for fresh consideration in accordance with law after affording due opportunity to the assessee. The appeals arising from the second set of applications were dismissed as infructuous.

Significant Holdings and Core Principles Established

"The mere reflection of income under the head 'exempt' in the ITR without a finding on the legal source of exemption is insufficient to invoke a statutory bar of such consequence."

"Approval under section 80G is an independent statutory function requiring separate satisfaction of eligibility parameters; mechanical and consequential rejection without independent examination is contrary to law."

"Strict procedural defaults ought not to defeat the substantive right of a charitable entity to seek registration and approval under the law, particularly when adequate opportunity to comply was not afforded."

"Delay in filing appeals can be condoned where the delay is occasioned by bona fide error based on official Circulars and without mala fide intent, especially in the context of charitable organizations with limited resources."

Final determinations:

• The rejection under clause (vi)(B) of section 12A(1)(ac) was unsustainable due to lack of conclusive findings.
• The rejection of section 80G applications without independent adjudication was unlawful.
• The assessee was denied adequate opportunity, violating natural justice.
• The second set of applications were not maintainable independent claims but remedial; their appeals were dismissed as infructuous.
• The delay in filing appeals was condoned.
• The matters were restored to the CIT(E) for fresh adjudication after affording due opportunity.

The core legal questions considered by the Tribunal in these appeals are:

(a) Whether the addition of Rs. 25 lakhs (being 50% share of Rs. 50 lakhs cash payment) made under section 69 of the Income Tax Act, 1961 ("the Act") on account of unexplained investment in property is sustainable in the absence of incriminating material found or seized during search and seizure operations.

(b) Whether the seized document marked as page no.149 of Annexure-A1 qualifies as a 'dumb document' and thus cannot form the basis for addition under the Act.

(c) Whether the Assessing Officer's satisfaction recorded under section 153C of the Act is valid and based on relevant material pertaining to the assessee.

(d) Whether the assessee has discharged the onus of proving the source of cash payment made for the property purchase out of known sources of income.

(e) Applicability and relevance of the Supreme Court decision in PCIT vs. Abhisar Buildwell P. Ltd. (2023) relied upon by the assessee, wherein it was held that no addition can be made in absence of incriminating material.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Sustainability of Addition under Section 69 of the Act

Legal Framework and Precedents: Section 69 of the Act empowers the Assessing Officer to make additions to income where any investment is found to be unexplained or not satisfactorily explained by the assessee. The burden lies on the assessee to prove the source of such investment from known income sources.

Court's Interpretation and Reasoning: The Tribunal noted that the addition of Rs. 25 lakhs was made based on the seized document and the statement recorded under section 132(4) of the Act, wherein the assessee admitted payment of Rs. 1 crore as advance for property purchase, with Rs. 50 lakhs paid in cash. Since the assessee failed to provide any satisfactory explanation or documentary evidence to prove that the cash payment was made from known sources, the addition under section 69 was upheld.

Key Evidence and Findings: The seized loose sheet (page no.149 of Annexure-A1) recording cash transactions, the sworn statement of the assessee admitting payment, and the sale agreement corroborating the transaction were critical pieces of evidence. The Assessing Officer's satisfaction note and the assessment order further supported the addition.

Application of Law to Facts: The Tribunal applied the principle that unexplained investments can be added to income under section 69 and found the assessee had not discharged the onus to prove the source of Rs. 25 lakhs cash payment. Consequently, the addition was justified.

Treatment of Competing Arguments: The assessee argued the payment was made from funds withdrawn from the partnership firm and hence not unexplained. However, the Tribunal found no documentary proof supporting this claim and noted that withdrawals had already been accounted for in other transactions. Therefore, this argument was rejected.

Conclusion: The addition under section 69 was rightly made and sustained as the assessee failed to establish the source of cash payment.

(b) Whether the Seized Document is a 'Dumb Document'

Legal Framework and Precedents: A 'dumb document' is one that does not implicate or incriminate the assessee and cannot be used as substantive evidence for making additions. The Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd. held that additions cannot be based on such documents.

Court's Interpretation and Reasoning: The Tribunal rejected the contention that page no.149 of Annexure-A1 was a 'dumb document'. It observed that the assessee himself admitted the entries in the document during the sworn statement under section 132(4), which directly related to the cash payment made for property purchase. The document was thus incriminating and not 'dumb' as alleged.

Key Evidence and Findings: The document was seized from the business premises of the assessee's firm and was corroborated by the assessee's admission and the sale agreement for the property purchase.

Application of Law to Facts: Since the document was directly linked to the transaction admitted by the assessee, it could not be treated as a 'dumb document'. The Tribunal applied this principle to uphold the use of the document as valid incriminating material.

Treatment of Competing Arguments: The assessee's reliance on the 'dumb document' argument was dismissed due to the direct admission and corroboration by other documents.

Conclusion: The seized document was incriminating and valid for making additions under the Act.

(c) Validity of the Satisfaction Note Recorded under Section 153C

Legal Framework and Precedents: Section 153C allows assessment proceedings against a person other than the one searched if incriminating material relating to such person is found during search. The satisfaction note must be based on relevant material pertaining to the person.

Court's Interpretation and Reasoning: The Tribunal found the satisfaction note recorded by the Assessing Officer was specific and based on the seized loose sheet and the statement of the assessee. The material pertained to the assessee and the property transaction for the relevant assessment year.

Key Evidence and Findings: The seized document and the statement under section 132(4) formed the basis of the satisfaction. The Tribunal noted that the satisfaction was not vague or generalized but specific to the assessee's transactions.

Application of Law to Facts: The Tribunal held that the Assessing Officer's satisfaction was valid and justified initiation of proceedings under section 153C.

Treatment of Competing Arguments: The assessee's contention that the satisfaction was not based on material relating to him was rejected as the seized document and admission clearly linked to the assessee's transactions.

Conclusion: The satisfaction note under section 153C was valid and based on relevant incriminating material.

(d) Discharge of Onus by the Assessee to Prove Source of Cash Payment

Legal Framework and Precedents: The burden to prove that unexplained investment is from known sources lies on the assessee. Mere denial or vague claims without documentary evidence are insufficient.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee failed to provide any documentary evidence to prove that the Rs. 25 lakhs cash payment was made from known sources. The claim that the funds were withdrawn from the partnership firm was not supported by evidence and was contradicted by accounting of withdrawals for other purposes.

Key Evidence and Findings: No valid documents or bank records were produced to substantiate the source of cash payment. The Assessing Officer and CIT(A) had recorded findings that the amounts withdrawn from the firm were already accounted for elsewhere.

Application of Law to Facts: The Tribunal applied the principle that failure to discharge the onus leads to addition under section 69 and upheld the addition accordingly.

Treatment of Competing Arguments: The assessee's claim of source from partnership firm withdrawals was rejected due to lack of evidence.

Conclusion: The assessee failed to discharge the onus, justifying the addition under section 69.

(e) Applicability of Supreme Court Decision in PCIT vs. Abhisar Buildwell P. Ltd.

Legal Framework and Precedents: The Supreme Court held that no addition can be made where no incriminating material is found or seized during search and seizure operations.

Court's Interpretation and Reasoning: The Tribunal distinguished the present facts from the Abhisar Buildwell case. In the present case, incriminating material in the form of seized documents and admissions were found, unlike in Abhisar Buildwell where no such material existed.

Key Evidence and Findings: The seized loose sheet and sworn statement admitting payment were considered incriminating material. The sale agreement further supported the transaction.

Application of Law to Facts: Since incriminating material was found and seized, the principle in Abhisar Buildwell was held to be inapplicable.

Treatment of Competing Arguments: The reliance on Abhisar Buildwell was rejected as the facts were materially different.

Conclusion: The Supreme Court precedent relied upon by the assessee was distinguished and not applicable.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The document impounded cannot be treated as 'dumb document' and, therefore, the contention of the Learned Counsel for the Assessee is rejected."

"The addition made by the Assessing Officer u/sec.69 of the Act and sustained by the learned CIT(A) are in accordance with law."

"The satisfaction recorded by the Assessing Officer under section 153C is specific and valid as it is based on incriminating material found and seized from the business premises of the assessee's firm."

"The facts of the present case are entirely different from the case considered by the Hon'ble Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd., and therefore, the said case is not applicable."

"In absence of sufficient documentary evidences furnished by the assessee that the impugned sum has been paid out of his known sources of income, the addition made by the Assessing Officer is justified."

Ultimately, the Tribunal dismissed both appeals, upholding the addition of Rs. 25 lakhs under section 69 of the Act on the basis of incriminating seized documents, the assessee's admission, and failure to prove source of cash payment.

The core legal questions considered by the Tribunal in these appeals are:

(a) Whether the learned Commissioner of Income Tax (Exemptions) was justified in cancelling the registration granted under section 12AB of the Income-tax Act, 1961, on the ground that the assessee trust had not made substantial expenditure towards its objects, had not submitted proof or evidence of activities, and had not commenced activities towards the attainment of its objects.

(b) Whether the learned Commissioner erred in rejecting the application for registration under section 80G of the Act and cancelling the provisional approval on similar grounds, including the receipt of donations from a related trust having common trustees.

(c) Whether the quantum of expenditure incurred by the trust is a relevant criterion for granting registration under sections 12AB and 80G, or whether the genuineness of the activities and objects is the determinative factor.

(d) Whether the learned Commissioner passed the impugned orders mechanically, without proper application of mind, and without adequate verification of the documents and annual filings submitted by the assessee trust.

(e) Whether the receipt of donations from a trust with common trustees constitutes a valid ground for denial of approval under section 80G.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of Registration under Section 12AB

Relevant legal framework and precedents: Section 12AB of the Income-tax Act governs the registration of charitable trusts and institutions. The registration is granted if the objects and activities of the trust are genuine and charitable in nature. The Apex Court in Ananda Social & Educational Trust v. Commissioner of Income Tax has clarified that the Commissioner is required to satisfy himself about the genuineness of the objects and activities (including proposed activities) of the trust. The focus is on genuineness rather than the quantum of expenditure incurred.

Court's interpretation and reasoning: The Tribunal noted that the assessee trust was registered as a public trust on 28.6.2023 and had received donations and income, out of which some expenditure was incurred towards medical relief, an object of the trust. The trust had also invested a substantial amount in fixed deposits as per the modes prescribed under section 13(5) of the Act, for future application of funds. The Tribunal found the CIT(E)'s observation contradictory, as she acknowledged submission of necessary documents but simultaneously held that no proof or evidence of activities was submitted.

Key evidence and findings: The assessee had received general donations of approximately Rs. 48.8 lakhs, service income, and interest income. Medical relief expenses of about Rs. 5.9 lakhs (around 13% of donations) were incurred. The trust had filed Form 10 for accumulation of Rs. 38.5 lakhs for a period of five years for "project vision and educational support."

Application of law to facts: The Tribunal emphasized that the genuineness of activities, not the amount of expenditure, is relevant for registration under section 12AB. The trust had commenced activities and had proposed future activities aligned with its objects. The Tribunal relied on the Apex Court ruling which held that the term "activities" includes proposed activities, and registration should not be denied merely because substantial expenditure has not yet been incurred, especially in the first year of operation.

Treatment of competing arguments: The CIT(E) argued non-commencement of activities and insufficient expenditure. The assessee contended that all necessary documents were submitted and that the genuineness of activities is the key criterion. The Tribunal sided with the assessee, finding no evidence of non-genuine activities and noting the contradictory stance of the CIT(E).

Conclusions: The Tribunal concluded that the learned CIT(E) erred in cancelling the registration under section 12AB solely on the ground of insufficient expenditure. The appeal was allowed, and the CIT(E) was directed to grant registration under section 12AB as applied for by the assessee.

Issue 2: Validity of Cancellation of Approval under Section 80G

Relevant legal framework and precedents: Section 80G(5) of the Income-tax Act prescribes conditions for approval of donations to charitable institutions for tax deduction purposes. The Commissioner must verify genuineness of activities and compliance with conditions such as maintenance of regular accounts, non-transfer of income/assets for non-charitable purposes, and that the institution is not for benefit of any particular religious community or caste.

Court's interpretation and reasoning: The CIT(E) cancelled approval under section 80G primarily on grounds that the trust had received a donation from another trust with common trustees, had not made substantial expenditure, and had not commenced activities. The Tribunal held that receiving donations from a trust with common trustees is not a valid ground for denial of approval under section 80G. The conditions under section 80G(5) focus on genuineness and compliance with prescribed requirements, not on trustee commonality.

Key evidence and findings: The assessee received Rs. 45,33,642/- from a related trust. There was no material brought on record by the CIT(E) to show non-genuineness of activities or non-compliance with conditions under section 80G(5). The registration under section 12AB was already set to be granted, which further supported approval under section 80G.

Application of law to facts: The Tribunal applied the statutory conditions of section 80G(5) and found that the CIT(E) failed to establish any violation. The receipt of donations from a trust with common trustees does not contravene any provision or condition for approval.

Treatment of competing arguments: The CIT(E) argued that the common trusteeship and lack of expenditure justified cancellation. The assessee argued that the grounds were irrelevant and that activities were genuine. The Tribunal found the assessee's arguments persuasive and the CIT(E)'s reasoning unsubstantiated.

Conclusions: The Tribunal held that the CIT(E) erred in cancelling approval under section 80G on the stated grounds and directed grant of approval accordingly.

Issue 3: Relevance of Quantum of Expenditure vs. Genuineness of Activities

Relevant legal framework and precedents: The Apex Court's ruling in Ananda Social & Educational Trust clarified that the genuineness of objects and activities (including proposed activities) is the determinative factor for registration under section 12AB. The quantum of expenditure is not a decisive factor at the registration stage.

Court's interpretation and reasoning: The Tribunal reiterated that the Commissioner must be satisfied about the genuineness of activities and compliance with other laws, but should not reject registration merely because substantial expenditure has not been incurred, especially in the initial years of trust operation.

Key evidence and findings: The assessee trust had commenced activities and filed for accumulation of funds for future projects, which constituted proposed activities in line with its objects.

Application of law to facts: The Tribunal applied the principle that proposed activities are included within the scope of activities under section 12AB and that the genuineness of such activities is key. The trust's investment of funds for future charitable projects was consistent with this principle.

Treatment of competing arguments: The CIT(E) relied on the lack of substantial expenditure, while the assessee emphasized genuineness and submission of documents. The Tribunal favored the latter, finding no evidence of non-genuineness.

Conclusions: The Tribunal held that genuineness of activities, not the quantum of expenditure, is the relevant criterion for registration under section 12AB and approval under section 80G.

Issue 4: Procedural and Evidentiary Considerations

Relevant legal framework: The Commissioner is required to call for documents, information, and make inquiries as necessary to satisfy herself about genuineness and compliance. Orders must be passed after proper application of mind and verification of records.

Court's interpretation and reasoning: The Tribunal found that the CIT(E) passed the orders mechanically and without adequately verifying the documents and annual filings submitted by the assessee. The contradictory observations regarding submission of documents and evidence of activities indicated lack of proper application of mind.

Key evidence and findings: The assessee had submitted all necessary documents and annual forms. The CIT(E) acknowledged this but still rejected the applications without reconciling these facts.

Application of law to facts: The Tribunal emphasized the need for the Commissioner to conduct necessary inquiries and verify documents before rejecting registrations or approvals.

Treatment of competing arguments: The assessee argued for proper consideration; the CIT(E) did not provide sufficient reasons for rejection beyond expenditure concerns.

Conclusions: The Tribunal held that the CIT(E) erred in passing orders without proper verification and application of mind, warranting reversal of the cancellations.

3. SIGNIFICANT HOLDINGS

The Tribunal established the following core principles and made final determinations on the issues:

"The purpose of section 12AB of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. The Commissioner is bound to satisfy herself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine."

"Since section 12AB pertains to the registration of the Trust and not to assess what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'."

"It is not the quantum of expenditure which is relevant for the purpose of granting registration but in fact the genuineness of the activity of the trust in accordance with the object of the trust is relevant for granting registration."

"Merely because the main Trustees of both the Trusts are common and thereby receiving donation from one trust to another cannot be a ground for denial of approval under section 80G of the Act."

"The learned Commissioner of Income Tax (Exemptions) erred in cancelling the registration under section 12AB and approval under section 80G solely on the ground of insufficient expenditure and related trustee commonality, without establishing non-genuineness or non-compliance with statutory conditions."

Accordingly, the Tribunal allowed the appeals and directed the learned Commissioner to grant registration under section 12AB and approval under section 80G as applied by the assessee trust.

The Tribunal considered two core legal issues arising from separate appeals by the revenue against orders of the Commissioner of Income-tax (Appeals) pertaining to different assessment years:

(a) Whether payments made towards internet, broadband, and bandwidth charges in foreign currency attract tax deduction at source (TDS) under section 195 read with section 40(a)(ia) of the Income-tax Act, 1961, and whether disallowance of such expenses on account of non-deduction of TDS was justified.

(b) Whether deduction claimed under section 80G of the Act for donations made towards Corporate Social Responsibility (CSR) activities is liable to be disallowed under explanation 2 to section 37(1) of the Act, which disallows CSR expenses as business expenditure.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Applicability of TDS on payments for internet, broadband, and bandwidth charges under section 195 and consequent disallowance under section 40(a)(ia)

Relevant legal framework and precedents: Section 195 of the Income-tax Act mandates deduction of tax at source on payments made to non-residents. Section 40(a)(ia) provides for disallowance of expenses where tax is deductible but not deducted. The key question was whether payments for internet and bandwidth services constitute "royalty" or "fees for technical services" attracting TDS.

Precedents relied upon included the Bombay High Court decision in UTV Entertainment Television (399 ITR 433), which held that placement charges paid to cable operators for signal placement or preferred bandwidth do not constitute royalty. Similarly, the Madras High Court decision in Skycell Communications Services Ltd. (251 ITR 53) was cited to support the non-applicability of TDS on such payments.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer (AO) had disallowed Rs. 7,65,58,000/- under section 40(a)(ia) for non-deduction of TDS on payments towards connectivity costs in foreign currency, treating these payments as royalty. The assessee contended these were payments for services and did not confer any right to use intellectual property or similar rights, hence not attracting TDS under section 195.

The CIT(A) accepted the assessee's contention, relying on the aforementioned High Court decisions, and deleted the disallowance. The Tribunal found no infirmity in the CIT(A)'s order, emphasizing that payments for internet, broadband, and bandwidth charges do not amount to royalty or fees for technical services and thus do not attract TDS under section 195.

Key evidence and findings: The AO's show cause notice and disallowance order, the assessee's detailed replies, and judicial precedents formed the basis of the analysis. The Tribunal also considered the fact that the payments were for connectivity and bandwidth services, not for any proprietary rights.

Application of law to facts: The Tribunal applied the legal principle that TDS under section 195 is attracted only if the payment falls within specified categories such as royalty or fees for technical services. Since the payments were for standard connectivity services, they did not fall within these categories.

Treatment of competing arguments: The revenue's argument for disallowance was based on the AO's view that payments were royalty. However, the Tribunal found that the revenue failed to bring any binding or distinguishing precedent to counter the CIT(A)'s reliance on High Court rulings. The Tribunal thus upheld the deletion of disallowance.

Conclusions: The Tribunal dismissed the revenue's appeal on this issue, holding that the payments did not attract TDS under section 195 and thus disallowance under section 40(a)(ia) was not justified.

Issue (b): Deduction under section 80G for donations towards CSR activities and applicability of explanation 2 to section 37(1)

Relevant legal framework and precedents: Section 80G provides deduction for donations made to specified funds or institutions. Explanation 2 to section 37(1) disallows expenditure incurred under CSR activities as business expenditure. The question was whether CSR donations claimed under section 80G can be allowed deduction despite explanation 2.

The Tribunal referred to coordinate bench decisions including Motilal Oswal Securities Ltd., Allegis Services India Pvt. Ltd., and JMS Mining Pvt. Ltd., which held that if the donee satisfies conditions under section 80G, the deduction for CSR donations under section 80G should be allowed.

Court's interpretation and reasoning: The AO disallowed Rs. 2,17,84,962/- claimed as deduction under section 80G for CSR donations, treating them as CSR expenses disallowed under section 37(1) read with explanation 2. The assessee clarified that the claim was under section 80G and not as CSR expenses under section 37(1).

The CIT(A) accepted the assessee's submissions and allowed the deduction. The Tribunal, following coordinate bench precedents, held that the explanation 2 to section 37(1) does not override the specific provisions of section 80G. Therefore, CSR donations qualifying under section 80G are deductible.

Key evidence and findings: The Tribunal relied on the assessee's claim under section 80G, the AO's disallowance order, and judicial precedents clarifying the interplay between section 37(1) and section 80G.

Application of law to facts: The Tribunal applied the principle of specific provisions prevailing over general provisions, recognizing that section 80G specifically allows deduction for donations to eligible entities, even if related to CSR activities.

Treatment of competing arguments: The revenue's reliance on explanation 2 to section 37(1) was rejected in light of binding coordinate bench decisions. The Tribunal declined to interfere with the CIT(A)'s order allowing the deduction.

Conclusions: The Tribunal dismissed the revenue's appeal and upheld the deduction claimed under section 80G for CSR donations.

3. SIGNIFICANT HOLDINGS

"The decision of the CIT(A) is based upon the decisions of the Hon'ble jurisdictional High Court of Bombay, Hon'ble Madras High Court and Hon'ble Delhi High Court. We, therefore, do not find any reason to interfere with the findings of the CIT(A)."

"If the assessee satisfies the condition u/s 80G of the donees, the claim of the assessee for deduction of CSR expenses/contributions u/s 80G has to be allowed."

The Tribunal established the core principle that payments for connectivity services such as internet, broadband, and bandwidth do not constitute royalty or fees for technical services and hence do not attract TDS under section 195, precluding disallowance under section 40(a)(ia).

It also clarified that CSR donations qualifying under section 80G are deductible notwithstanding explanation 2 to section 37(1), which disallows CSR expenses as business expenditure.

Final determinations:

(i) The disallowance of Rs. 7,65,58,000/- under section 40(a)(ia) for non-deduction of TDS on payments towards internet and bandwidth charges is set aside.

(ii) The disallowance of Rs. 2,17,84,962/- claimed as deduction under section 80G for CSR donations is deleted.

Both appeals filed by the revenue were dismissed.

• Whether disallowance under Section 14A can be made if the assessee has not earned any exempt income during the relevant assessment year.
• The retrospective or prospective applicability of the Explanation inserted to Section 14A by the Finance Act, 2022.
• Interpretation of the legislative intent behind Section 14A and related amendments, including the interplay with Rule 8D.
• Whether the disallowance computed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in the absence of exempt income.

Issue-wise Detailed Analysis

1. Applicability of Section 14A Disallowance in Absence of Exempt Income

The legal framework governing this issue is Section 14A of the Income-tax Act, which prohibits deduction of expenditure incurred in relation to income that does not form part of the total income (i.e., exempt income). Rule 8D provides a methodology for computing such disallowance.

The AO disallowed Rs. 23,61,111 under Section 14A read with Rule 8D, later reduced to Rs. 17,70,833 by the CIT(A), on the premise that the assessee had incurred expenditure related to earning exempt income. However, the assessee contended that no exempt income was earned during the year, thereby negating the applicability of Section 14A.

The Court examined several judicial precedents including decisions by the Delhi High Court and Karnataka High Court, notably:

• Cheminvest Ltd. v. CIT
• PCIT v. Alchemist Ltd.
• PCIT v. Era Infrastructure Ltd.
• PCIT v. Sahara India Finance Corporation Ltd.
• Biocon Ltd. v. DCIT

These authorities uniformly held that where no exempt income is earned during the relevant year, no disallowance under Section 14A can be made. The Court found that the assessee had not earned any exempt income during the year, and thus the disallowance was unwarranted.

The Court also noted the legislative intent behind Section 14A is to prevent the deduction of expenses incurred in relation to exempt income, which logically presupposes the existence of such income. Without exempt income, the basis for disallowance does not arise.

2. Retrospective or Prospective Application of Explanation to Section 14A (Finance Act, 2022)

The Explanation to Section 14A was inserted by the Finance Act, 2022, effective from 1st April 2022, to clarify that disallowance under Section 14A can be made even if no exempt income has accrued, arisen, or been received during the year, provided expenditure was incurred in relation to such exempt income.

The Revenue argued for retrospective applicability of this Explanation, relying on CBDT Circular No.5/2014 and the legislative memorandum. The assessee contended that the Explanation applies only prospectively.

The Court analyzed the legislative memorandum and multiple judicial decisions, including:

• Era Infrastructure (India) Ltd. v. PCIT (Delhi High Court)
• Jas Toll Road Company Ltd. v. PCIT (Kolkata High Court)
• Avantha Realty Ltd. v. PCIT (Calcutta High Court)
• Uniparts India Ltd. (Delhi High Court)
• Principal Commissioner of Income-tax (Central) v. Keti Construction Ltd. (Madhya Pradesh High Court)

All these authorities held that the Explanation inserted by the Finance Act, 2022 is prospective in nature and applies from the assessment year 2022-23 onwards.

The Court further relied on the Supreme Court's decision in Sedco Forex International Drill. Inc. v. CIT, which established the principle that a retrospective provision in a tax statute, even if framed as "for removal of doubts," will not be presumed retrospective if it changes the law as it previously stood. The Court emphasized that the Explanation alters the law and thus cannot be applied retrospectively.

The Court also cited the Supreme Court's reaffirmation of this principle in M.M Aqua Technologies Ltd. v. CIT, which underscored that the law applicable is that in force in the relevant assessment year unless expressly or impliedly stated otherwise.

3. Application of Law to Facts and Treatment of Competing Arguments

On facts, the assessee had made investments and incurred expenses but had not earned any exempt income during the relevant year. The AO and CIT(A) disallowed a portion of expenses under Section 14A. The assessee challenged this, relying on judicial precedents and the absence of exempt income.

The Revenue relied on the CBDT Circular and the Explanation inserted by Finance Act, 2022, arguing for disallowance even without exempt income.

The Court found the Revenue's reliance on the Explanation misplaced as it is prospective and not applicable to the assessment year in question (2017-18). The Court also held that the CBDT Circular does not override judicial pronouncements or statutory provisions.

Given the absence of exempt income and the prospective nature of the Explanation, the Court concluded that no disallowance under Section 14A could be sustained for the year under consideration.

4. Other Grounds of Appeal

Since the primary issue of disallowance under Section 14A was decided in favor of the assessee, the Court found other grounds of appeal to be infructuous and did not adjudicate on them.

Significant Holdings

"If there is no exempt income, there cannot be any disallowance u/s. 14A of the Act."

"The Explanation inserted to Section 14A by the Finance Act, 2022 is applicable prospectively and cannot be presumed to have retrospective effect."

"A retrospective provision in a tax act which is 'for the removal of doubts' cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood."

"The law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication."

Accordingly, the Court reversed the orders of the lower authorities and directed deletion of the disallowance of Rs. 17,70,833 under Section 14A for AY 2017-18.

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

• Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] exceeded their jurisdiction in making adjustments under sections 143(1) and 154 of the Income-tax Act, 1961 (the Act) without proper authority.
• Whether the impugned intimation and rectification orders were passed without granting the assessee an opportunity of hearing, thereby violating principles of natural justice.
• Whether the AO and CIT(A) erred in denying the benefit of the new tax regime under section 115BAC of the Act to the assessee who filed a revised return opting for this regime.
• Whether the revised return filed by the assessee replaces the original return for all intents and purposes, including eligibility for section 115BAC benefits.
• Whether, in the event of denial of the new tax regime benefit, the assessee is entitled to claim deductions available under the old tax regime, particularly under Chapter VIA of the Act.
• Whether the demand raised and levy of interest under sections 234A/B/C and notice under section 156 of the Act were justified.
• Whether the impugned adjustments were based on mere presumptions and surmises and thus liable to be deleted.
• Whether the orders passed suffer from non-application of mind and are therefore liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of AO and CIT(A) under sections 143(1) and 154

Legal Framework and Precedents: Section 143(1) of the Act deals with summary assessment of income tax returns, allowing the AO to make limited adjustments. Section 154 provides for rectification of mistakes apparent from record. Jurisdiction under these provisions is circumscribed and cannot be used to make substantive changes beyond the scope authorized by law.

Court's Interpretation and Reasoning: The Tribunal observed that the AO and CIT(A) incorporated adjustments in the intimation and rectification orders that allegedly exceeded the scope of sections 143(1) and 154. However, the Tribunal did not find sufficient merit in the assessee's contention that such jurisdiction was exceeded, as the adjustments related to processing of returns and rectification of errors in tax computation.

Application of Law to Facts: The AO initially processed the original return under section 143(1), accepting it. The revised return was processed subsequently, and rectification orders under section 154 were passed denying certain benefits. The Tribunal noted that the AO acted within the scope of these provisions in processing and rectifying the returns.

Conclusion: The Tribunal did not uphold the contention that the AO and CIT(A) exceeded their jurisdiction under sections 143(1) and 154.

Issue 2: Violation of principles of natural justice

Legal Framework: Principles of natural justice require that a person affected by a decision should be given an opportunity to be heard before adverse orders are passed.

Court's Interpretation: The assessee argued that the impugned intimation and rectification orders were passed without giving a hearing opportunity. The Tribunal found that the processing of returns under section 143(1) and rectification under section 154 are summary in nature and do not mandate a hearing opportunity.

Conclusion: The Tribunal rejected the claim of violation of natural justice principles in this context.

Issue 3 and 4: Denial of benefit under section 115BAC and effect of revised return

Legal Framework: Section 115BAC provides an optional new tax regime with concessional tax rates but disallows various deductions and exemptions available under the old regime. The assessee can opt for this regime by filing a return accordingly. The revised return replaces the original return for all purposes.

Court's Interpretation and Reasoning: The assessee originally filed return under the old regime, claiming deductions under Chapter VIA. Subsequently, she filed a revised return opting for the new regime under section 115BAC. The AO processed the revised return but denied the benefit of section 115BAC and raised a demand. The CIT(A) upheld this denial. The Tribunal noted that if the new regime under section 115BAC is not accepted, the assessment must be made under the old regime, allowing the deductions permissible therein.

Key Evidence and Findings: The original return claimed deductions under Chapter VIA and was accepted by the AO. The revised return opted for the new regime but was denied its benefits. The Tribunal found that the AO and CIT(A) erred in denying both the benefit of the new regime and the deductions under the old regime.

Application of Law to Facts: The Tribunal held that since the assessee was ultimately assessed under the old regime (due to denial of section 115BAC benefit), she must be allowed the deductions available under the old regime, as per subsections (2) and (3) of section 115BAC.

Treatment of Competing Arguments: The Revenue contended that the denial of section 115BAC benefit was justified and that the revised return was processed accordingly. The assessee argued for allowance of old regime deductions if new regime benefits were denied. The Tribunal sided with the assessee on this point.

Conclusion: The Tribunal directed the AO to grant the deductions under the old regime to the assessee, as claimed in the original return, since the new regime benefits were denied.

Issue 5: Claim for deductions under old regime when new regime is denied

This issue is integrally linked with the above and was specifically allowed by the Tribunal. The Tribunal emphasized that the assessee cannot be denied both the benefit of the new regime and the deductions available under the old regime. The AO was directed to allow the deductions under Chapter VIA as per the original return.

Issue 6: Legitimacy of demand notice under section 156 and levy of interest under sections 234A/B/C

The assessee challenged the raising of demand and levy of interest. The Tribunal did not find any specific merit in these grounds as no detailed submissions or findings were recorded on these points. The demand and interest levies were upheld as per the orders of the lower authorities.

Issue 7: Whether impugned adjustments were based on mere presumption and surmises

The assessee contended that the adjustments were not based on evidence but on presumptions. The Tribunal found no support for this contention in the record, as the adjustments related to processing of returns and tax computations under the Act's provisions. Hence, this ground was dismissed.

Issue 8: Non-application of mind and errors in the impugned order

The assessee alleged the orders were passed without application of mind. The Tribunal found that the CIT(A) did not consider the issue of allowing old regime deductions when new regime benefits were denied, which was a significant omission. Accordingly, the Tribunal partly allowed the appeal directing the AO to allow such deductions. Other grounds alleging errors and non-application of mind were not pressed or found substantiated.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"According to the provisions of section 115BAC(2), if income of the assessee is chargeable to tax under that section, assessee is not allowed the benefit of items specified in sub-section (2). The assessee is also deemed to have been allowed the deduction for losses and depreciation as per sub-section (3). However, if the assessee is assessed to tax in the old regime and not u/s. 115BAC, assessee is to be allowed the benefit of items specified in sub-sections (2) & (3) of section 115BAC of the Act."

"In this case, assessee has been taxed not in the new regime, but in the old regime, assessee must be allowed the claim under the sub-sections (2) & (3) of section 115BAC. These details are available in the original return processed by the CPC. In view of this, we direct the ld. AO to grant the benefit of deductions available to the assessee which are denied in the new regime as mentioned in sub-sections (2) & (3) of section 115BAC of the Act."

Core principles established include:

• The revised return replaces the original return, but if the revised return opting for the new tax regime is denied benefit under section 115BAC, the assessment must be made under the old regime.
• When assessed under the old regime, the assessee is entitled to claim deductions available therein, including under Chapter VIA, even if the revised return opted for the new regime.
• Summary assessments and rectifications under sections 143(1) and 154 do not mandate hearing opportunities as per natural justice principles.
• Jurisdiction of AO and CIT(A) under sections 143(1) and 154 is limited but was not exceeded in this case.

Final determinations on each issue resulted in the partial allowance of the appeal, specifically directing the AO to grant the deductions under the old regime, while other grounds were dismissed.

The core legal questions considered in this appeal are:

• Whether the ex-parte dismissal of the assessee's appeal by the first appellate authority (Ld. CIT(Appeals)/NFAC) due to non-compliance with hearing notices was justified.
• Whether the principles of natural justice, specifically the right to be heard (audi alteram partem), were violated by the ex-parte dismissal.
• Whether the appellate tribunal (ITAT) can adjudicate the appeal on merits despite the ex-parte order by the first appellate authority.
• The legal effect of non-compliance by the assessee in the appellate proceedings and the appropriate remedy.
• Whether the transactions involving shares of UBV Infrastructure Ltd. constitute a colourable device or tax evasion, and the implications thereof.
• The scope and application of the principle of fraud in tax proceedings, especially in relation to natural justice and the duty of revenue authorities.

Issue-wise Detailed Analysis

1. Validity of Ex-Parte Dismissal by First Appellate Authority

Legal Framework and Precedents: The Income Tax Act mandates that appeals be adjudicated on merits, with the first appellate authority providing a reasonable opportunity of hearing. The principle of natural justice, enshrined in Article 14 of the Constitution, guarantees the right to be heard before adverse orders are passed. The Hon'ble Supreme Court in various decisions has emphasized that appellate tribunals must dispose of appeals on merits and not merely dismiss them for non-compliance unless the non-compliance is deliberate and inexcusable.

Court's Reasoning: The first appellate authority dismissed the appeal ex-parte due to the assessee's failure to appear or seek adjournment despite multiple notices. The order emphasized that the assessee was not keen to pursue the appeal, and it cannot be kept pending indefinitely. However, the Tribunal noted that there was no evidence of deliberate non-compliance or mala fide conduct by the assessee.

Key Findings: The Tribunal observed that although the assessee had not complied with hearing notices, the right to be heard is a fundamental principle that cannot be lightly set aside. The ex-parte dismissal deprived the assessee of an opportunity to substantiate grounds of appeal.

Application of Law to Facts: The Tribunal relied on a recent Division Bench decision of the ITAT, Raipur, and the Hon'ble High Court of Bombay's ruling, which held that ex-parte orders by the first appellate authority without proper opportunity violate natural justice and must be remanded for fresh adjudication.

Competing Arguments: The Revenue contended that the assessee's non-compliance justified the ex-parte order. The assessee argued for a hearing on merits. The Revenue's representative conceded that a fresh opportunity could be provided.

Conclusion: The Tribunal set aside the ex-parte order and remanded the matter for de novo adjudication, directing the first appellate authority to provide one final opportunity to the assessee to present the case on merits.

2. Jurisdiction of Tribunal to Decide Merits Despite Ex-Parte Order

Legal Framework and Precedents: The Supreme Court in National Thermal Power Company Ltd. v. CIT held that legal issues going to the root of the matter can be raised at any appellate forum. However, the appellate structure under the Income Tax Act envisages that the first appellate authority adjudicates appeals substantially on merits before the Tribunal intervenes.

Court's Reasoning: The Tribunal emphasized that deciding legal issues on merits when the first appellate authority's order is ex-parte would usurp the statutory role of the first appellate authority and undermine the appellate hierarchy. It would also encourage non-compliance by assessees seeking to bypass the first appellate authority.

Key Findings: The Tribunal held that the proper course is to remit the matter for fresh adjudication by the first appellate authority to ensure compliance with natural justice and preserve the statutory scheme.

Conclusion: The Tribunal will not decide merits on legal grounds where the first appellate order is ex-parte due to non-compliance but will remand for fresh hearing.

3. Examination of Transactions in Shares of UBV Infrastructure Ltd. and Possible Tax Evasion

Legal Framework and Precedents: The Income Tax Act prohibits colourable devices and tax evasion. The Supreme Court in McDowell & Co. Ltd. v. CTO clarified that tax planning is legitimate only if within the law; colourable devices are not permissible. The principle of fraud vitiates all judicial acts and proceedings, including those involving natural justice.

Court's Reasoning: The facts indicate that shares were sold at inflated prices and reacquired at face value, resulting in capital gains benefits to related parties. This arrangement suggests a possible colourable device to evade tax. The Tribunal observed that the onus is on the revenue authorities to investigate thoroughly whether these transactions constitute tax evasion or legitimate tax planning.

Key Findings: While the assessee is granted one final opportunity to represent the case, the revenue must verify the genuineness of the transactions and determine if any fraud has been committed, as fraud vitiates natural justice.

Application of Law to Facts: The Tribunal referred to the Supreme Court's decisions in Badami v. Bhali and Smt. Shrist Dhawan v. M/s. Shaw Brothers, which hold that fraud and collusion invalidate proceedings and that courts must ensure parties come with clean hands.

Conclusion: The matter requires detailed investigation by the revenue; if tax evasion is found, additions are to be sustained. The Tribunal allowed the grounds of appeal for statistical purposes pending such adjudication.

4. Principles of Natural Justice and Right to be Heard

Legal Framework and Precedents: The principle of audi alteram partem is a fundamental right under Article 14 of the Constitution. The Supreme Court in Delhi Transport Corporation v. DTC Mazdoor Union held that a person adversely affected by an administrative order must be given a hearing opportunity.

Court's Reasoning: The Tribunal underscored that the ex-parte order by the first appellate authority violated this principle. The Hon'ble High Court of Bombay's recent judgment reinforced that ex-parte dismissals without proper opportunity of hearing are contrary to natural justice and must be remanded.

Conclusion: The Tribunal directed that the first appellate authority must provide a reasonable opportunity of hearing and pass a speaking order within three months.

Significant Holdings

"The laws aid those who are vigilant, not those who sleep upon their rights."

"Income tax Act is within the ambit of welfare legislation which are completely different from that of the penal legislation, therefore, benefit of doubt whenever arises, it has to be interpreted in favour of the assessee tax payer within the parameters of law and facts."

"Passing of an order on merits by the ITAT even when the impugned order was passed ex-parte amounts to violation of principles of natural justice."

"Article 14 guarantees a right of hearing to a person who is adversely affected by an administrative order. The principle of audi-alteram partem is a part of Article 14 of the Constitution of India."

"Tax planning may be legitimate provided it is within the framework of law, Colourable devices cannot be part of tax planning."

"Fraud-avoids all judicial acts, ecclesiastical or temporal."

"The Tribunal as the highest fact finding authority must be certain enough that the impugned order before it has been passed on merits and is a speaking order where the assessee has also complied during the process of litigation."

"In case where the order of the Ld. CIT(Appeals) itself is ex-parte and some legal ground is raised and if the Tribunal decides such legal ground where in fact principles of natural justice is left unanswered due to the fact that the impugned order before the Tribunal is ex-parte and there was no compliance by the assessee in such scenario the Tribunal would also be usurping the power of the Ld. CIT(Appeals)."

"If tax evasion is determined by the revenue in such circumstances additions are to be sustained in the hands of the assessee."

"The appeal of the assessee is allowed for statistical purposes."

Final Determinations on Each Issue

• The ex-parte dismissal by the first appellate authority was set aside for violating principles of natural justice; the assessee is entitled to one final opportunity to be heard.
• The Tribunal will not decide merits on legal grounds where the first appellate order is ex-parte but will remand the matter for fresh adjudication by the first appellate authority.
• The revenue authorities must investigate the share transactions for possible tax evasion or colourable device; findings of fraud will sustain additions.
• The principles of natural justice and the right to be heard under Article 14 are fundamental and must be respected in appellate proceedings.
• The appeal is allowed for statistical purposes, pending fresh adjudication on merits by the first appellate authority within three months.

The core legal questions considered by the Tribunal were:

(a) Whether the assessee is entitled to claim Foreign Tax Credit (FTC) under sections 90/90A of the Income Tax Act, 1961 for the Assessment Years 2019-20 and 2020-21 despite the late filing of Form No. 67Rs.

(b) Whether the failure to file Form No. 67 along with the original return of income is a mandatory bar to the grant of FTC or merely a procedural/directory requirementRs.

(c) Whether the assessee, who filed the return in his individual name but claimed FTC based on tax deducted on income of a proprietary concern (Blue Lion Entertainment Company), can be considered eligible for FTC, given the certificates were in the name of the proprietary concern and not the individualRs.

(d) Whether the Revenue authorities erred in rejecting the rectification application under section 154 of the Income Tax Act for adjustment of FTC amounts without considering the proprietary relationship and supporting documents like GST registration and import-export code certificatesRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Entitlement to Foreign Tax Credit despite late filing of Form No. 67

Relevant legal framework and precedents: Sections 90 and 90A of the Income Tax Act provide relief for double taxation by allowing credit for foreign taxes paid, subject to procedural compliance including filing of Form No. 67. The procedural requirement of filing Form No. 67 is intended to enable the assessing officer to verify and grant FTC.

Precedents from coordinate benches of the Tribunal have held that late filing of Form No. 67 is not a mandatory bar but a directory requirement. The Tribunal referenced a recent decision (ITA No. 3647/Mum/2023 dated 15.02.2024) where the late filing was held to be non-prejudicial and the matter was restored for fresh consideration.

Court's interpretation and reasoning: The Tribunal observed that the Revenue's refusal to grant FTC solely on the ground of late filing of Form No. 67 was not legally sustainable. The procedural lapse did not disentitle the assessee from claiming FTC if the substantive conditions were fulfilled. The Tribunal emphasized the need for a substantive examination of the claim rather than rejecting it on procedural grounds.

Key evidence and findings: The assessee filed Form No. 67 belatedly and supported the claim with withholding tax certificates from the foreign tax authorities. The Tribunal noted that the Revenue did not dispute the genuineness of the foreign tax deduction but focused on procedural non-compliance.

Application of law to facts: Applying the principle that procedural lapses should not defeat substantive rights, the Tribunal held that the late filing of Form No. 67 should not lead to denial of FTC if the assessee is otherwise eligible.

Treatment of competing arguments: The Revenue argued that Form No. 67 was essential and its non-filing at the time of return was fatal. The Tribunal rejected this rigid approach, aligning with judicial precedents favoring substantive justice over procedural technicalities.

Conclusions: The Tribunal concluded that the assessee's claim for FTC should be considered on merits and the matter restored to the Assessing Officer for fresh adjudication after verification of documents.

Issue (c) & (d): Eligibility of the assessee as proprietor of Blue Lion Entertainment Company for claiming FTC

Relevant legal framework and precedents: The Income Tax Act recognizes proprietorship concerns as extensions of the individual proprietor. For FTC claims, the taxpayer must establish identity and ownership to link foreign tax paid with income declared.

Court's interpretation and reasoning: The Tribunal noted that the assessee filed the return in his individual capacity but the foreign tax certificates were in the name of the proprietary concern. The Revenue rejected the FTC claim on this mismatch and on the ground that the assessee did not disclose proprietorship of Blue Lion Entertainment Company in the return.

The Tribunal observed that the assessee produced GST registration and import-export code certificates establishing proprietorship. These documents were filed for the first time before the Tribunal and were not considered by the CIT(A). The Tribunal held that these documents are relevant and material to establish the proprietary relationship and eligibility for FTC.

Key evidence and findings: GST registration certificate and import-export code certificate in the name of Blue Lion Entertainment Company showing the assessee as proprietor were submitted. The Tribunal found no reason to disregard these documents and emphasized that the Revenue should verify their authenticity and consider them in adjudication.

Application of law to facts: The Tribunal applied the principle that proprietorship concerns are inseparable from the individual proprietor for tax purposes. Hence, foreign tax deducted on income of the proprietary concern should be available as FTC to the individual proprietor if substantiated.

Treatment of competing arguments: The Revenue's argument that the assessee failed to disclose proprietorship in the return was countered by the Tribunal's view that the assessee was under bona fide impression that such disclosure was not mandatory and that the CIT(A) did not seek such documents during appeal proceedings.

Conclusions: The Tribunal held that the Revenue authorities must consider the proprietary relationship and supporting documents before rejecting FTC claims. The matter was remanded for fresh consideration after due verification and hearing.

3. SIGNIFICANT HOLDINGS

"The end of justice requires the documents GST registration and import export certificate submitted by the assessee before the Tribunal in support of his claim to be proprietor of M/s Blue Lion Entertainment Company needs to be considered by the revenue authorities after due verification of the genuineness of the same which may make the assessee eligible to claim FTC as per the provisions of law."

"The impugned order of the Ld. CIT(A) is not legally sustainable in the eyes of law and accordingly, we set aside the impugned orders passed by Ld. CIT(A) and restore the matter to the file of AO for considering the eligibility of the assessee for FTC as directed above alongwith the judgment of the Jurisdictional Tribunal in ITA No. 3647/Mum/2023."

"The late filing of Form 67 was held not mandatory but directory and the matter was restored to the AO for consideration."

Core principles established include:

• Procedural requirements such as filing Form No. 67 for FTC claims are directory and not mandatory, and non-compliance should not result in automatic denial of substantive relief.
• The proprietary relationship between the individual assessee and the proprietary concern must be recognized for FTC claims where foreign tax certificates are in the name of the proprietary concern.
• Revenue authorities must verify the genuineness of supporting documents such as GST registration and import-export certificates before rejecting FTC claims.
• Substantive justice and verification of facts take precedence over procedural technicalities in the grant of foreign tax credit.

Final determinations:

The Tribunal allowed the appeals for both AY 2019-20 and 2020-21 for statistical purposes by setting aside the orders of the CIT(A) and remanding the matter to the Assessing Officer. The AO was directed to consider the assessee's eligibility for FTC afresh after verifying the proprietary relationship and documents, providing effective hearing to the assessee, and taking into account the relevant judicial precedents.

1. Whether the petitioner's claims for duty drawback, filed under the Customs Central Excise Duty and Service Tax Drawback Rules, 1995, were arbitrarily rejected without issuance of a deficiency memo as mandated under Rule 13(3)(a) of the said Rules.

2. Whether the respondent's reliance on Public Notice 17/18 dated 09.03.2018, issued after the claims were filed, and the use of the Indian Customs Electronic Data Interchange System (ICES) and ICEGATE portal, satisfies the procedural requirements for communicating deficiencies in the drawback claims.

3. Whether the impugned order dated 06.12.2023, rejecting the petitioner's duty drawback claims, is a speaking order that adequately considers the petitioner's contentions and complies with the applicable legal provisions.

4. The scope and applicability of Rule 13(3)(a) of the Customs Central Excise Duty and Service Tax Drawback Rules, 1995, in the context of electronic filing systems and subsequent procedural changes.

Issue-wise Detailed Analysis

Issue 1: Compliance with Rule 13(3)(a) regarding issuance of deficiency memo

The relevant legal framework is Rule 13(3)(a) of the Customs Central Excise Duty and Service Tax Drawback Rules, 1995, which mandates that if a drawback claim is incomplete in any material particulars or lacks required documents, it must be returned to the claimant with a deficiency memo prescribed by the Commissioner of Customs within 10 days. The rule further specifies that such a returned claim shall be deemed not to have been filed for the purpose of Section 75A of the Customs Act.

The petitioner contended that the respondent failed to comply with this mandatory procedure, as no deficiency memo was issued when the drawback claims were rejected. The Court noted that the petitioner's claims pertain to the year 2015, when the 1995 Rules were in force and physical filing of shipping bills was prevalent. The petitioner's counsel emphasized that the absence of a deficiency memo renders the rejection arbitrary and procedurally improper.

The respondent admitted that no deficiency memo was issued in the prescribed form but argued that the queries were raised through the electronic system (ICES/ICEGATE) and that the petitioner was aware of these queries and failed to respond. The respondent relied on the procedural changes brought about by the implementation of the Indian Customs EDI system, which discontinued physical filing and enabled electronic communication.

The Court observed that the impugned order did not consider Rule 13(3)(a) nor did it address the absence of a deficiency memo. The Court held that the failure to issue the deficiency memo as mandated by the rule is a significant procedural lapse. The respondent's reliance on electronic queries and the petitioner's alleged awareness thereof does not substitute the statutory requirement of issuing a deficiency memo within 10 days of receipt of an incomplete claim.

Issue 2: Effect of Public Notice 17/18 dated 09.03.2018 and electronic filing systems on procedural compliance

The respondent submitted that the Central Government has the power to relax rules under the Customs Central Excise Duty and Service Tax Drawback Rules, 1995, and exercised this power by issuing Public Notice 17/18 in 2018, which zeroed the petitioner's duty drawback claims in the ICES system. The respondent argued that the petitioner was aware of this Public Notice and failed to respond to queries or appear for personal hearings, justifying the rejection of claims.

The petitioner denied knowledge of the Public Notice and argued that it was issued three years after the claims were filed. The Court noted that the Public Notice post-dated the claims and thus could not retrospectively validate the non-issuance of a deficiency memo or procedural irregularities in 2015.

The Court further observed that the transition to electronic filing systems does not negate the statutory requirements under the 1995 Rules applicable at the time of claim submission. The respondent's reliance on electronic queries and the Public Notice without following the prescribed procedure under Rule 13(3)(a) was found insufficient.

Issue 3: Adequacy and legality of the impugned order dated 06.12.2023

The impugned order rejected the petitioner's claims but did not address the petitioner's contentions regarding the absence of a deficiency memo or consider Rule 13(3)(a). It also failed to discuss the petitioner's claim of non-awareness of the Public Notice or the procedural irregularities alleged.

The Court held that the impugned order is a non-speaking order, lacking consideration of crucial legal provisions and factual contentions raised by both parties. The Court emphasized that a speaking order is mandatory to ensure transparency and proper adjudication.

Consequently, the Court quashed the impugned order and remanded the matter to the respondent for fresh consideration on merits and in accordance with law, directing that three personal hearings be afforded to the petitioner before passing a final order.

Issue 4: Applicability of Rule 13(3)(a) post-implementation of electronic filing systems

The Court acknowledged that the Customs EDI system and ICEGATE portal have modernized the filing and communication process. However, it held that such technological advancements do not override or dispense with the statutory provisions in force at the time of claim submission.

The Court clarified that Rule 13(3)(a) remains applicable to claims filed prior to the implementation of electronic filing and that the respondent must comply with the rule's procedural mandates, including issuance of deficiency memos, regardless of electronic queries raised.

Significant Holdings

The Court held:

"If the said claim for drawback is incomplete in any material particulars or is without the documents specified in sub-rule (2), it shall be returned to the claimant with a deficiency memo in the form prescribed by the Commissioner of Customs within 10 days and shall be deemed not to have been filed for the purpose of Section 75-A."

This statutory provision is mandatory and non-compliance renders the rejection of drawback claims invalid.

The Court further stated that the impugned order, being non-speaking and failing to consider Rule 13(3)(a) and the petitioner's contentions, is liable to be quashed.

The Court emphasized that procedural fairness requires the respondent to afford the petitioner three personal hearings and to pass a reasoned order on merits and in accordance with law within eight weeks.

In conclusion, the Court determined that the petitioner's claims were prematurely rejected without adherence to the mandatory procedural safeguards under the Customs Central Excise Duty and Service Tax Drawback Rules, 1995. The reliance on later-issued Public Notice and electronic queries does not cure this defect. The matter is remanded for fresh consideration consistent with these principles.

1. Whether the Government of Andhra Pradesh, through its Memo No. 12918/Maj.Irr.II/A2/2008-1 dated 21.05.2008 and subsequent communications, had the legal authority to direct deduction of the customs duty amount provided in the Internal Bench Mark (IBM) from the contract agreement value payable to the contractor.

2. Whether the contractor (Writ Petitioner) was entitled to exemption from customs duty on imported goods used for the irrigation and drinking water project under the applicable Customs Notifications, Project Imports Regulations, and Customs Tariff Act provisions.

3. Whether the contractual terms and tender documents permitted or contemplated the deduction of customs duty amounts from the contractor's bills by the Government.

4. Whether the Government's action to deduct customs duty amounts constituted arbitrary and illegal exercise of power, infringing constitutional protections under Articles 14, 19(1)(g), and 300A.

5. The legal effect and scope of the Internal Bench Mark (IBM) in the tender process and contract performance, specifically whether it authorized deductions post-contract award.

Issue-wise Detailed Analysis

1. Authority to Deduct Customs Duty from Contract Value

The relevant legal framework includes the Government Memo dated 21.05.2008, directing the Engineer-in-Chief & Chief Engineer (Projects) to inform the agency that the customs duty amount provided in the IBM would be deducted from the agreement value. The tender documents and contract agreement were executed prior to this Memo.

The Court noted that the Memo was issued nearly 11 months after the contract agreement was signed on 21.06.2007. The tender was invited on 01.11.2006, and the bid submitted on 13.02.2007, both predating the Memo. The Court held that the retrospective application of this Memo to alter financial terms of an already executed contract was impermissible.

Key findings include that the Government had no contractual or legal right to unilaterally impose deductions based on the Memo. The tender and contract documents did not contain any clause empowering such deductions. The Court emphasized that the Memo was cryptic and was not circulated to relevant authorities at the time of bidding or contract execution.

The Court rejected the Government's contention that the deduction was necessary to "freeze public property" or enforce Government Orders, holding that such administrative convenience cannot override contractual sanctity.

2. Entitlement to Customs Duty Exemption

The contractor relied on several legal provisions granting exemption from customs duty for goods imported for irrigation and drinking water projects:

• Project Imports (Amendment) Regulations, 1986;
• Customs Notification No. 42/96 dated 23.07.1996;
• Customs Notification No. 14/2004 dated 08.01.2004;
• Provision No. 98.01 of the 1st Schedule of the Customs Tariff Act, 1975.

The Court examined the procedural steps taken by the contractor, including requests to the Superintending Engineer and District Collector, who issued recommendatory letters certifying the project's eligibility for customs exemption. The Commissioner of Customs registered the application under the project contract.

The Court accepted that the contractor had a legitimate expectation to avail the customs duty exemption and that the exemption was granted by the Central Government and applicable to the imported goods for the project.

3. Contractual Terms and Tender Document Provisions

Relevant clauses from the tender documents were analyzed:

• Clause 13.04.2: Rates quoted by bidders are not subject to adjustment for taxes and duties except as specified.
• Clause 13.04.5: All duties, taxes, and levies payable by the contractor as per Government rules are included in the contract value quoted.
• Clause 18.0 ("Special Attention"): Bidders must consider all taxes, duties, including customs duty and clearance, in their bid price.
• Clause 45.1 of General Conditions of Contract: Bid price deemed inclusive of all statutory taxes on machinery and materials.

The Court found that these clauses clearly indicated that the contractor was responsible for including all applicable duties and taxes in the bid price. However, the contractor had factored in the customs duty exemption benefit when quoting the bid, based on the applicable customs laws and notifications.

Importantly, the contract documents did not contain any provision allowing the Government to deduct customs duty amounts from the contractor's bills or agreement value. The IBM was only a benchmark for bid evaluation and had no contractual effect for post-award deductions.

4. Nature and Effect of the Internal Bench Mark (IBM)

The IBM was referenced in Clause 29 of the Notice Inviting Tender as a criterion to reject bids exceeding 5% above the IBM value. The Court held that the IBM served solely as a qualifying financial benchmark during the tender evaluation stage and did not grant any right to the Government to adjust or deduct amounts from the contract price after award.

The Court rejected the Government's attempt to rely on the IBM to justify deductions, labeling such action as irrational, arbitrary, and impermissible.

5. Constitutional and Legal Principles

The contractor argued that the Government's action amounted to unjust enrichment and arbitrary exercise of power, violating Articles 14 (equality before law), 19(1)(g) (right to practice any profession or carry on any occupation), and 300A (protection against deprivation of property without authority of law) of the Constitution.

The Court agreed that the Government cannot take advantage of its dominant position as the payor to unilaterally impose deductions not authorized by contract or law. It emphasized the settled principle that administrative orders cannot override contractual rights and obligations, especially where rights have vested prior to such orders.

Conclusions on Issues

1. The Government Memo dated 21.05.2008 and subsequent orders directing deduction of customs duty amounts from the contract value were illegal and void as they sought to retrospectively alter the terms of an executed contract without any contractual or legal basis.

2. The contractor was entitled to the customs duty exemption under the applicable Central Government regulations and notifications, and the benefit of such exemption accrued solely to the contractor.

3. The tender documents and contract clearly required the contractor to include all duties and taxes in the bid price, but also contemplated the customs duty exemption benefit, which the contractor factored into the bid. No provision authorized the Government to deduct customs duty amounts from payments due.

4. The IBM was solely a tender evaluation benchmark and did not empower the Government to make deductions post-contract award.

5. The Government's action amounted to arbitrary and unjust enrichment, violating constitutional protections, and was therefore set aside by the Court.

Significant Holdings

The Court held verbatim:

"The Official Respondents have never factored-in the cost of the machinery that was liable to be imported in as much as the Contractor was made liable to bear the entire cost of the machinery and after the completion of the project, the said machinery which is imported or which is purchased for the purpose of contract work shall remain with the Contractor. It is noticed that the investment by the Contractor on the machinery is a Capital Investment. Since the Official Respondents have never factored-in the cost of machinery in the contract, benefit that may accrue to the Petitioner in the form of relaxation in Import Duty and Customs cannot be claimed by the Government in as much as the same may tantamount to unjust enrichment."

"The Internal Bench Mark (IBM) is only with regard to qualifying amount of price bids with reference to the criteria for award of work and that such IBM has no further relevance beyond that."

"The attempt made by the Official Respondents that the amount provided in the IBM will be deducted from the agreement value is irrational and arbitrary and is impermissible."

"The decision taken by the Official Respondents to adjust the Customs Tariff from the pending bills is not only irrational but illegal."

The Court thus established the core principle that Government cannot retrospectively alter contractual financial terms through administrative orders not contemplated by contract or law, especially where the contractor has a legitimate expectation and entitlement to statutory exemptions. The benefit of customs duty exemption accrues to the importer/contractor alone and cannot be appropriated by the Government without contractual basis.

Accordingly, the Court set aside the impugned Government Memo No. 12918/Maj.Irr.II/A2/2008-1 dated 21.05.2008 and related communications directing deduction of customs duty amounts from the contract value, and allowed the Writ Petition without costs.

1. Whether the appellant violated Regulation 10(1)(l) and 10(1)(m) of the Sea Cargo Manifest and Transhipment Regulations, 2018 (SCMTR) by demanding container detention charges contrary to the waiver directions issued by the Customs authorities.

2. Whether the issuance of the show cause notice and subsequent revocation of the appellant's authorised carrier registration under Regulations 11 and 12 of SCMTR, 2018 was justified.

3. The scope and applicability of the waiver of container detention charges under Regulation 10(1)(l), particularly the extent of the authorised carrier's discretion to demand charges beyond the 60-day period.

4. The procedural propriety and legal validity of the departmental actions, including reliance on a complaint by a warehousing unit not being the importer.

Issue-wise Detailed Analysis

Issue 1: Violation of Regulation 10(1)(l) and 10(1)(m) of SCMTR, 2018

Legal Framework and Precedents: Regulation 10(1)(l) mandates that an authorised carrier shall not demand container detention charges for containers laden with goods detained by Customs for verification under Section 46 or 50 of the Customs Act if the entries are found correct. The proviso permits the carrier to demand charges after expiry of 60 days. Regulation 10(1)(m) requires compliance with all provisions of the Act and related rules and regulations.

Relevant judicial precedents cited include two Madras High Court decisions: one holding that demurrage and detention charges waiver is permissible only up to 60 days under the proviso to Regulation 10(1)(i) of SCMTR, 2018; and another ruling goods cannot be released without payment or adjudication of detention charges.

Court's Interpretation and Reasoning: The Tribunal examined the timeline and detention periods of four specific containers subject to Customs hold and scrutiny. It found that the Customs authorities detained the containers for periods ranging from 14 to 26 days, after which a No Objection Certificate (NOC) was issued. However, there was an additional delay of 43 to 49 days from issuance of NOC to transfer permission.

The Tribunal noted that the letter dated 30.09.2024 from SIIB, Mundra Customs, directing waiver of detention charges until Customs clearance, was addressed to a third party (Saurashtra CFS) and merely copied to the appellant, thus lacking direct enforceability. Further, the appellant initially agreed to waive detention charges for the SIIB hold period but not beyond, consistent with Regulation 10(1)(l).

Key Evidence and Findings: The detention and clearance timeline table demonstrated that the appellant waived charges for the Customs detention period but sought charges for the extended delay post-NOC. The appellant's communications showed some inconsistency but generally adhered to the 60-day waiver limit.

Application of Law to Facts: The Tribunal held that the appellant did not violate Regulation 10(1)(l) as they waived charges for the Customs detention period and retained the discretion to demand charges beyond 60 days, as explicitly allowed by the proviso. The direction of SIIB to waive charges until Customs clearance was found to be improper and not binding on the appellant.

Treatment of Competing Arguments: The Department argued that the appellant's responses were vague and contradictory, and that SCMTR, 2018 was fully in force since 2018. The appellant contended that the waiver was limited to the SIIB detention period and that the complaint triggering the proceedings was baseless. The Tribunal found the appellant's position substantially compliant with the Regulations and rejected the Department's contention that the appellant violated the provisions.

Conclusion: No violation of Regulation 10(1)(l) and 10(1)(m) was established against the appellant.

Issue 2: Justification for Revocation of Authorised Carrier Registration and Imposition of Penalty

Legal Framework: Regulations 11 and 12 of SCMTR, 2018 empower Customs authorities to revoke authorised carrier registration for violations, and Regulation 13 permits imposition of penalties for contraventions.

Court's Reasoning: The adjudicating authority revoked the appellant's registration and imposed penalty based on an inquiry report that found violations of SCMTR, 2018, particularly failure to waive detention charges as directed by SIIB. The Tribunal scrutinized the inquiry process and found the complaint triggering the inquiry was filed by a warehousing unit not the importer, raising procedural and factual issues.

Findings: The Tribunal observed that the appellant had responded to the inquiry and that the evidence did not conclusively show violation of the Regulations. The appellant's conduct was found to be in line with the statutory provisions, and the directions relied upon by the Department were improper.

Application: Given the absence of proven violation, the Tribunal held that the revocation and penalty were unjustified.

Conclusion: The impugned order revoking registration and imposing penalty was set aside.

Issue 3: Scope of Waiver of Detention Charges and Discretion of Authorised Carrier

Legal Framework: Regulation 10(1)(l) provides for mandatory waiver of detention charges during Customs detention if entries are correct, with a proviso allowing carriers discretion to demand charges beyond 60 days.

Court's Interpretation: The Tribunal emphasized that the proviso grants the authorised carrier discretion to waive or demand charges after 60 days, which is a commercial/business decision. It cautioned the Department against issuing directions that infringe this discretion.

Findings: The appellant exercised this discretion by waiving charges during the Customs detention period but not for the extended delay post-NOC. The Tribunal noted that the appellant's responses were sometimes unclear, but the core principle of discretionary waiver after 60 days was respected.

Conclusion: The discretion under the proviso is a key principle, and the Department cannot override it by administrative directions.

Issue 4: Procedural Validity of Departmental Actions

Analysis: The complaint initiating the inquiry was filed by a warehousing unit, not the importer, raising questions about locus standi and procedural propriety. The Tribunal noted this as a factor undermining the Department's case.

Conclusion: The procedural irregularity contributed to setting aside the impugned order.

Significant Holdings

"Regulation 10(1)(l) clearly stipulates that an authorised carrier shall not demand any container detention charges for the container laden with goods detained by customs for the purpose of verifying the entries made under Section 46 or 50 of the Act, if the entries are found to be correct. Proviso to this Regulation further mentions that the authorized carrier may demand, container detention charges for the period, commencing after expiry of sixty days."

"The direction dated 30.09.2024 of SIIB for not charging any rent or demurrage till the date of customs clearance is improper."

"The findings of the Learned Adjudicating authority in the impugned order are not correct as the appellant seems to have acted as per the SCMTR, 2018 Regulations."

"The Department should also note that proviso to Regulation 10(1)(l) gives discretion to authorized carrier to demand or not to demand charges after 60 days and therefore, the Department should not issue any directions/order in derogation of above discretion."

"We therefore set aside the impugned order dated 25.03.2025 and allow appeal."

Core principles established include:

• Mandatory waiver of detention charges during Customs detention if entries are correct.
• Discretion vested in authorised carriers to demand or waive detention charges beyond 60 days.
• Administrative directions cannot override the statutory discretion granted to authorised carriers.
• Procedural propriety and locus of complainants are material to the validity of departmental actions.

Final determinations:

• The appellant did not violate Regulation 10(1)(l) and 10(1)(m) of SCMTR, 2018.
• The revocation of authorised carrier registration and penalty imposed were unjustified and are set aside.
• The appellant's appeal is allowed, and the miscellaneous application for stay is disposed of accordingly.

The core legal questions considered in this judgment revolve around the following issues:

1. Whether the refusal by the Deputy Commissioner of Customs to amend the import manifest to substitute the importer under section 30(3) of the Customs Act, 1962, was legally justified, particularly in light of the absence of fraudulent intention and the existence of a no objection certificate from the original consignee.

2. The legal effect and significance of seizure of imported goods under section 110 of the Customs Act, 1962, and whether such seizure precludes amendment of the manifest or clearance of goods under the statutory framework.

3. The jurisdictional limits of customs authorities in determining ownership or title to imported goods during clearance proceedings, especially when the dispute over title arises from a commercial contract failure.

4. The binding nature of appellate orders on subordinate customs authorities and the consequences of non-compliance with such orders.

5. The scope and application of sections 46, 47, 48, and 50 of the Customs Act, 1962, relating to filing bills of entry, clearance of goods, extension of time for clearance, and retention of goods by customs.

6. Whether the customs authorities' insistence on the original consignee's consent for amendment of the manifest and clearance of goods was supported by statutory provisions or merely administrative circulars.

7. The impact of failure by the original consignee to seek extension of time under section 48 and the consequent effect on their claim to the goods.

Issue-wise Detailed Analysis

1. Legality of Refusal to Amend the Import Manifest under Section 30(3) of the Customs Act, 1962

Legal Framework and Precedents: Section 30(3) empowers the proper officer to permit amendment of the import manifest if satisfied that the manifest is incorrect or incomplete and there is no fraudulent intention. The circulars and facilities issued by the Central Board of Excise & Customs (CBEC) and Jawaharlal Nehru Customs House (JNCH) provide procedural guidance but cannot override statutory provisions.

Court's Interpretation and Reasoning: The Court held that the Deputy Commissioner of Customs erred in refusing the amendment application on the ground of absence of a no objection certificate from the original consignee, M/s Shine Metal Industries. The statutory provision requires only satisfaction regarding fraudulent intention, which was not established. The administrative circulars cited do not substitute the statutory test and cannot justify denial of amendment.

Key Evidence and Findings: The appellant produced a no objection certificate dated 4th December 2020 from M/s Shine Metal Industries. The first appellate authority accepted this and directed amendment of the manifest, which was ignored by the original authority.

Application of Law to Facts: The manifest is a summary document for cargo control and can be amended by the proper officer on satisfaction of statutory conditions. The refusal was based on extraneous considerations, including seizure and disputed ownership, which are irrelevant to the limited scope of section 30(3).

Treatment of Competing Arguments: Customs authorities argued that the amendment would affect the ownership dispute and that seizure precluded amendment. The Court rejected these, emphasizing the limited scope of the proper officer's role and the absence of statutory prohibition on amendment due to seizure or ownership dispute.

Conclusion: The refusal to amend the manifest was illegal and contrary to the statutory framework.

2. Significance of Seizure under Section 110 and Its Effect on Clearance and Amendment

Legal Framework: Section 110 authorizes seizure of goods suspected to be confiscable under section 111. However, seizure is a temporary interdiction pending adjudication and does not affect the fundamental rights to clear goods upon payment of duties under sections 46 and 47.

Court's Reasoning: The Court observed that seizure was used as a pretext to withhold clearance and amendment. The goods were not prohibited imports, nor was there any misdeclaration or breach of import conditions. Seizure should not impede clearance proceedings or amendment applications unless confiscation is established.

Evidence: No allegation or proof of misdeclaration or illegality was made. The goods were entered for home consumption and eligible for clearance.

Application: Seizure does not confer ownership or control rights beyond statutory custodianship and cannot be used to indefinitely withhold goods or prevent amendment.

Competing Arguments: Customs authorities treated seizure as a bar to amendment and clearance. The Court rejected this, emphasizing the provisional nature of seizure and statutory provisions for release.

Conclusion: Seizure alone cannot justify refusal to amend manifest or clear goods.

3. Jurisdiction of Customs Authorities to Determine Ownership or Title

Legal Framework: The Customs Act does not empower customs officers to adjudicate disputes of ownership or title arising from commercial contracts. Their role is limited to ensuring compliance with customs laws and collection of duties.

Court's Reasoning: The Court held that the Deputy Commissioner exceeded jurisdiction by requiring proof of title from the appellant and effectively sitting in judgment over ownership. The ownership dispute arose from a failed commercial contract and was irrelevant to customs clearance under the Act.

Evidence: The appellant's contract with the original consignee had terminated, and documents enabling the new buyer to clear the goods were in place.

Application: Customs authorities must not conflate ownership disputes with customs clearance procedures. The proper officer's discretion under section 30(3) is limited to fraudulent intention, not title determination.

Competing Arguments: Customs relied on a writ court's refusal to decide ownership as justification to defer amendment. The Court clarified that the writ court's order only required the proper officer to decide on the amendment application within statutory limits.

Conclusion: Customs authorities acted beyond their statutory mandate by attempting to determine ownership.

4. Binding Nature of Appellate Orders and Consequences of Non-compliance

Legal Framework: The Supreme Court has emphasized that revenue officers are bound by appellate orders and must comply unless the order's operation is stayed by a competent court.

Court's Reasoning: The Deputy Commissioner's refusal to comply with the Commissioner of Customs (Appeals) order directing amendment was a breach of judicial discipline and statutory obligation. The initiation of fresh proceedings to revisit the issue was improper and constituted insubordination.

Evidence: The first appellate authority had allowed amendment; no appeal was filed against this order by customs authorities.

Application: Subordinate authorities must follow appellate decisions unreservedly to avoid harassment and chaos in tax administration.

Competing Arguments: Customs argued procedural or investigatory reasons for non-compliance, but the Court found these insufficient to override appellate orders.

Conclusion: Non-compliance with appellate orders was illegal and unjustified.

5. Application of Sections 46, 47, 48, and 50 of Customs Act, 1962

Legal Framework: Section 46 mandates filing of bill of entry for clearance; section 47 provides for clearance after assessment; section 48 allows extension of time for clearance; section 50 governs retention of goods by customs.

Court's Reasoning: The original consignee failed to seek extension under section 48, effectively renouncing claim to goods. The appellant, as substitute importer, was ready to pay duties and clear goods. Retention by customs without lawful basis was improper.

Evidence: No extension application was filed by M/s Shine Metal Industries; the appellant had made arrangements for clearance.

Application: Failure to comply with section 48 extinguishes the original consignee's right to retain goods. Customs must allow clearance to the lawful importer who discharges duties.

Competing Arguments: Customs sought to preserve original consignee's claim despite statutory non-compliance. The Court rejected this.

Conclusion: Statutory provisions require release of goods to the lawful importer upon payment of dues and compliance with procedural requirements.

6. Legality of Customs Authorities' Demand for No Objection Certificate and Impact on Clearance

Legal Framework: No statutory provision requires a no objection certificate from the original consignee for amendment of manifest or clearance by a substitute importer.

Court's Reasoning: The demand for such certificate was an administrative imposition without legal basis. The manifest amendment is governed by section 30(3), which does not contemplate such a condition.

Evidence: The appellant produced a no objection certificate which was disregarded; no legal basis was shown for requiring it.

Application: Customs authorities cannot impose conditions beyond statutory requirements to delay or deny clearance.

Competing Arguments: Customs relied on internal circulars and procedural instructions; the Court held these cannot override statutory provisions.

Conclusion: The insistence on no objection certificate was unlawful and contributed to wrongful denial of clearance.

7. Effect of Failure to Seek Extension under Section 48 on Claim to Goods

Legal Framework: Section 48 requires importers to seek extension of time for clearance; failure results in loss of claim and possible disposal of goods by customs.

Court's Reasoning: M/s Shine Metal Industries did not seek extension, effectively relinquishing rights to the goods. Customs' continued retention in their favor was unjustified.

Evidence: No extension application filed; goods remained uncleared due to customs' refusal to amend manifest.

Application: The statutory scheme favors clearance upon payment of duties and does not permit indefinite retention based on abandoned claims.

Competing Arguments: Customs sought to preserve original consignee's rights despite statutory default; the Court rejected this.

Conclusion: Failure to comply with section 48 extinguishes claim to goods and mandates clearance to rightful importer.

Significant Holdings

"The refusal to amend the import manifest under section 30(3) of the Customs Act, 1962, on grounds extraneous to the statutory test of fraudulent intention, is illegal and contrary to the statutory framework."

"Seizure under section 110 of the Customs Act, 1962, is a temporary interdiction and does not preclude amendment of the manifest or clearance of goods unless confiscation under section 111 is established."

"Customs authorities have no jurisdiction to adjudicate ownership or title disputes arising from commercial contracts during clearance proceedings; their role is limited to ensuring compliance with customs laws."

"Appellate orders are binding on subordinate customs authorities and must be complied with unless stayed by a competent court; non-compliance constitutes breach of judicial discipline."

"Failure by the original consignee to seek extension under section 48 results in loss of claim to goods, and customs must permit clearance by the lawful importer upon payment of duties."

"Administrative circulars and procedural instructions cannot override statutory provisions governing amendment of import manifest and clearance of goods."

"The interests of the State in collection of customs duties are paramount; denial of opportunity to file bill of entry except on grounds permitted by law is denial of State's right to levy dues."

Final determinations included directing compliance with the appellate order permitting amendment of the manifest, waiver of demurrage costs on application, and dismissal of the appeal against the impugned order, affirming that the customs authorities' refusal to amend the manifest and clear the goods was unjustified and illegal.

- Whether the appellant violated the conditions of the customs duty exemption notification by using the imported aircraft, permitted for Non-Scheduled Operator (Passenger) [NSOP (Passenger)] service, for charter operations instead.

- Whether the use of an NSOP (Passenger) permit to provide charter services is permissible under the relevant regulatory framework.

- Whether the aircraft is liable to confiscation under Section 111(o) of the Customs Act, 1962, due to alleged violation of the exemption conditions.

- Whether customs duty demand and penalty imposed under the Customs Act, 1962, are sustainable.

- Whether interest under Section 28AB of the Customs Act can be demanded when duty is not payable under Section 28.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Notification Conditions by Using NSOP (Passenger) Aircraft for Charter Services

Relevant Legal Framework and Precedents: The appellant imported the aircraft under Notification No. 21/02-Cus dated 01.03.2002, which exempts customs duty on aircraft used for NSOP (Passenger) services. The Ministry of Civil Aviation and Directorate General of Civil Aviation granted permission for NSOP (Passenger) operations only. The Commissioner relied on Section 111(o) of the Customs Act, 1962, for confiscation due to alleged violation of exemption conditions.

The Commissioner referenced Supreme Court decisions in Commissioner of Customs vs. Jagdish Cancer & Research (2001) and Commissioner of Customs vs. C.T. Scan Research Centre (2003) to uphold the customs duty demand.

Court's Interpretation and Reasoning: The Commissioner found that the appellant did not provide non-scheduled passenger services as per the permit but instead chartered the aircraft to group companies and others for lump-sum payments without issuing tickets, thus violating the exemption notification.

However, the Tribunal examined this issue in light of a Larger Bench decision in M/s VRL Logistics Ltd. vs. Commissioner of Customs, Ahmedabad, which held that an NSOP (Passenger) permit can be used for charter services. This decision was affirmed by the Gujarat High Court on 04.04.2023.

Further, a Division Bench of the Tribunal in Customs Appeal No. 419 of 2010 (M/s Sky Airways and others) reiterated that exemption is available to both NSOP (Passenger) and NSOP (Charter) services, relying on the VRL Logistics Larger Bench ruling and subsequent affirmations by High Courts.

The Tribunal emphasized that the permit holder under NSOP (Passenger) is not barred from providing charter services. The Commissioner's reliance on the absence of ticket issuance and the lump-sum payment method was held not to be a valid ground for violation.

Key Evidence and Findings: The appellant had valid permissions from the Ministry of Civil Aviation and DGCA for NSOP (Passenger) operations. The aircraft was imported under the exemption notification and cleared accordingly. The Commissioner's finding of violation was primarily based on the mode of charging (lump-sum) and non-issuance of tickets.

Application of Law to Facts: The Tribunal applied the Larger Bench and Division Bench decisions to the facts, concluding that the appellant's use of the aircraft for charter services under an NSOP (Passenger) permit did not constitute a violation of the exemption notification.

Treatment of Competing Arguments: The Commissioner argued that the exemption was violated because the aircraft was not used for passenger services as per the permit, and hence duty was payable with penalty and confiscation. The Tribunal rejected this, holding that the permit covers charter operations as well, and the method of charging does not invalidate the exemption.

Conclusion: The appellant did not violate the conditions of the exemption notification by using the aircraft for charter services under the NSOP (Passenger) permit.

Issue 2: Confiscation of Aircraft under Section 111(o) of the Customs Act, 1962

Relevant Legal Framework and Precedents: Section 111(o) authorizes confiscation of goods if conditions of exemption notifications are violated. The Commissioner ordered confiscation based on the alleged violation.

Court's Interpretation and Reasoning: Since the Tribunal held there was no violation of the exemption notification, the basis for confiscation under Section 111(o) falls away. The Tribunal also noted the Supreme Court's decision in East India Commercial vs. Commissioner of Customs, which held that subsequent non-compliance with conditions does not render the import illegal or warrant confiscation under Section 111(d).

Key Evidence and Findings: The appellant had valid import permissions and complied with the procedural requirements. The only contention was about the nature of operations, which was found permissible.

Application of Law to Facts: No violation of exemption conditions means no ground for confiscation. The Tribunal set aside the confiscation order accordingly.

Treatment of Competing Arguments: The Commissioner contended deliberate violation warranting confiscation. The Tribunal rejected this, relying on binding precedents and the factual matrix.

Conclusion: The order of confiscation of the aircraft under Section 111(o) is not sustainable and is set aside.

Issue 3: Demand of Customs Duty and Penalty under the Customs Act, 1962

Relevant Legal Framework and Precedents: Customs duty demand was confirmed under the undertaking given at import and Supreme Court precedents cited by the Commissioner. Penalty was imposed under Section 112 of the Customs Act, 1962.

Court's Interpretation and Reasoning: Since the exemption notification conditions were not violated, the demand of customs duty and penalty premised on such violation cannot be sustained.

Key Evidence and Findings: The appellant cleared the aircraft under the exemption notification and had valid permits. The Tribunal found no breach of conditions.

Application of Law to Facts: The Tribunal held that the demand of customs duty and penalty based on the violation of exemption conditions is erroneous.

Treatment of Competing Arguments: The Department argued that violation of exemption conditions justified duty demand and penalty. The Tribunal disagreed, relying on the binding precedents and factual findings.

Conclusion: The demand of customs duty and penalty is set aside.

Issue 4: Demand of Interest under Section 28AB of the Customs Act, 1962

Relevant Legal Framework and Precedents: Interest under Section 28AB is payable only if duty is demandable under Section 28. The Commissioner held that since duty is not demandable under Section 28, interest cannot be imposed.

Court's Interpretation and Reasoning: The Tribunal agreed with the Commissioner that interest under Section 28AB cannot be demanded if duty is not payable under Section 28.

Key Evidence and Findings: The Commissioner's order explicitly states no duty demand under Section 28 and thus no interest under Section 28AB.

Application of Law to Facts: The Tribunal accepted this legal position.

Treatment of Competing Arguments: No contrary arguments were raised.

Conclusion: No interest under Section 28AB is payable.

3. SIGNIFICANT HOLDINGS

"Permit under NSOP (Passenger) can be used for charter purposes is no longer res integra and has been decided against the Revenue by the Larger Bench of the Tribunal in the case of M/s. V.R.L. Logistics Ltd. Vs. Commissioner of Customs, Ahmedabad, which has been affirmed by the Gujarat High Court vide order dated 04.04.2023."

"The subsequent noncompliance of conditions of the exemption notification do not vitiate the status of that permit in view of the decision of the Supreme Court in the case of East India Commercial versus Commissioner of Customs, Kolkata - 1983 (13) E.L.T. 1342, wherein it has been held that the subsequent cancellation of the licence under which the goods were imported does not render the import illegal."

"The order dated 21.06.2010 passed by the Commissioner, therefore, cannot be sustained and is set aside."

Core principles established include:

• The use of an aircraft imported under an NSOP (Passenger) permit for charter services is permissible under the Customs Act and related aviation regulations.
• Violation of exemption notification conditions is not made out merely by the mode of charging or non-issuance of tickets.
• Confiscation under Section 111(o) of the Customs Act requires a clear violation of exemption conditions, which was absent here.
• Demand of customs duty and penalty premised on violation of exemption notification cannot be sustained if no violation is established.
• Interest under Section 28AB is payable only if duty is demandable under Section 28.

Final determinations on each issue were in favor of the appellant, with the Tribunal setting aside the confiscation, duty demand, penalty, and confirming no interest liability.

Several core legal questions were considered:

• Whether the re-determination of the customs value of the imported goods complied with the procedural and substantive requirements of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, particularly the sequential application of rules 3(4), 4, 5, and 12.
• Whether there was sufficient evidence to reject the declared value of the goods under rule 12 before resorting to rule 5 for valuation enhancement.
• The legality and correctness of provisional release, provisional assessment, and subsequent finalization of the Bill of Entry under the Customs Act, 1962.
• The appropriateness of imposition of penalties and confiscation in the context of the Customs Act, 1962, and whether the procedural safeguards were followed.
• The applicability and relevance of precedents cited by the parties, including the Supreme Court decision in Eicher Tractors Ltd and the Kerala High Court decision in PV Ukkru International Trade, in light of the 2007 Rules.

Issue-wise detailed analysis:

1. Validity of Valuation Enhancement under Customs Valuation Rules, 2007

The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 establish a hierarchical framework for valuation. Rule 3(4) authorizes the proper officer to initiate a sequence of valuation methods if the declared value is suspected to be incorrect. Rule 4 sets out the primary method based on transaction value, while rule 5 permits recourse to alternative methods if rule 4 cannot be applied. Rule 12 prescribes the procedure for rejection of declared value before applying rule 5.

The adjudicating authority had enhanced the value by directly invoking rule 5, bypassing the mandatory rejection procedure under rule 12 and without applying rule 4. The Tribunal found this approach legally flawed. The reliance on the National Import Data Base (NIDB) maintained by the Directorate General of Valuation was not sufficient to justify rejection of the declared value under rule 12, as the data did not meet the restrictive criteria required for rejection.

The Court emphasized that the sequential application of valuation rules is mandatory and that the failure to comply with rule 12's procedural safeguards rendered the valuation enhancement without legal basis.

2. Evidence of Undervaluation and Rejection of Declared Value

The appellant contended that the declared value was correct and that the goods were not undervalued. The original authority's conclusion that the goods were "prime grade" stainless steel coils/sheets and thus valued incorrectly was based on examination and reliance on NIDB data. However, the appellant explained that the goods represented excess production available for negotiated sale, which was not disputed as prime quality.

The Tribunal found that the original authority ignored this explanation without adequate justification. There was no substantial evidence to support the rejection of the declared value, especially given the procedural deficiencies in applying rule 12. Thus, the enhancement of value was not supported by sufficient evidence or proper application of law.

3. Provisional Release, Provisional Assessment, and Finalization of Bill of Entry

The proceedings revealed conceptual confusion regarding provisional release and provisional assessment under the Customs Act, 1962. The original order indicated provisional release of goods on bond and bank guarantee, followed by provisional assessment of the Bill of Entry. However, it was unclear whether the goods were subsequently finalized on provisional assessment or treated as seized goods under section 110.

The Tribunal noted that provisional assessment under section 18 vests discretion with the proper officer and should not be influenced by higher authorities. The original order's direction to finalize the Bill of Entry despite non-availability of goods and imposition of penalty in lieu of confiscation was inconsistent with statutory provisions. Furthermore, the competent authority under section 129D did not review this adjudication, and the first appellate authority failed to address these procedural anomalies.

4. Imposition of Penalties and Confiscation

The original authority imposed penalties totaling Rs. 3,40,000 and confiscated goods valued at Rs. 43,76,105.81 under sections 111(d) and 111(m) of the Customs Act, 1962. The penalty in lieu of confiscation was imposed on goods that were provisionally released, raising questions about procedural propriety.

The Tribunal found that the imposition of penalty without proper adjudication and review was unsustainable. The lack of clarity on the status of goods and the procedural irregularities undermined the validity of penalty imposition.

5. Applicability of Precedents

The appellant relied on the Supreme Court decision in Eicher Tractors Ltd, which criticized deficiencies in re-determination of customs value under earlier rules. The respondent cited the Kerala High Court decision in PV Ukkru International Trade, which dealt with the 1988 Rules.

The Tribunal held that both precedents were not directly applicable to the 2007 Rules in force at the time of import. The 2007 Rules incorporated amendments, including rule 10A introduced in 1998, which addressed earlier deficiencies. The decision in PV Ukkru International Trade pertained to the 1988 Rules and did not govern the current valuation regime.

Significant holdings include the following:

"The revision is not in compliance with rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and, instead, proceeded directly to rule 5 therein which was to be preceded by rejection of the declared value, with its own restrictive framework, and test of applicability of rule 4 therein first."

"The reliance placed on the data base available with attached office of the Central Board of Excise and Customs does not fulfill the requirement of rejection under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 nor is in conformity with rule 5 of the said Rules."

"The impugned order, being without basis in law, is set aside to allow the appeal."

The Court established the core principle that the Customs Valuation Rules must be followed in strict sequence, with rejection of declared value under rule 12 as a prerequisite to invoking rule 5 for valuation enhancement. Evidence relied upon must meet the stringent criteria set out in the Rules. Procedural safeguards regarding provisional assessment and penalty imposition under the Customs Act, 1962 must be observed to uphold legality.

In conclusion, the Tribunal allowed the appeal, set aside the order enhancing the customs value and imposing penalties, and underscored the necessity of adherence to the statutory valuation framework and procedural requirements in customs adjudications.

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

• Whether the impugned order of the National Company Law Tribunal (NCLT), Bengaluru Bench, declining to grant an interim order to keep the proposal of the Extraordinary General Meeting (EGM) of the Respondent Company in abeyance, was legally sustainable;
• Whether the Appellant was entitled to the discretionary remedy of interim relief under Sections 241 and 242 of the Companies Act, 2013, in the context of alleged oppression and mismanagement;
• Whether the Appellant's conduct, including alleged misappropriation of funds and breach of contractual obligations as a medical professional, disentitled her from seeking equitable relief;
• Whether the proposed EGM and the related proceedings suffered from any legal infirmities or vices warranting judicial intervention at the interlocutory stage;
• Whether the rejection of the interim relief prejudiced the Appellant's substantive rights, or whether it was an interlocutory order that could be revisited after full adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality and sustainability of the impugned order declining interim relief

The legal framework governing the grant of interim relief in proceedings under Sections 241 and 242 of the Companies Act, 2013, is well established as being discretionary. The Court emphasized that such relief is "in the nature of an absolutely discretionary remedy" dependent on the establishment of facts, the rights involved, and the likelihood of prejudice to the applicant.

The Tribunal noted that the NCLT had considered the submissions and material on record, including the Audit Report and related documents, before declining the interim order. The impugned order was found to be based on sound reasoning and did not suffer from any legal vices. The Court held that the refusal to grant interim relief was not an adjudication on substantive rights but a discretionary interlocutory order that could be revisited after full trial.

The Tribunal underscored that the Appellant's failure to come with clean hands, due to non-disclosure of ongoing litigations and conduct unbecoming of a medical professional, weighed heavily against the grant of equitable relief.

Issue 2: Appellant's alleged misconduct and its impact on entitlement to relief

The Audit Report submitted by M/s. Yedida and Associates revealed significant discrepancies in cash collections from patients vis-`a-vis amounts remitted to the hospital's cash counter, with an alleged misappropriation amounting to over Rs. 82 lakhs attributed to the Appellant. The report, however, did not single out the Appellant alone but mentioned other doctors as well.

Further, the Appellant was found to have breached the service contract by attending to outside patients and providing medical services outside the permitted terms, which was detrimental to the Respondent Company's interests. This conduct was held to potentially attract provisions under Section 166 of the Companies Act, 2013, relating to duties of directors.

The Tribunal observed that the Appellant's actions amounted to continuous breach of contractual obligations and were inconsistent with the claim of oppression. The principle that equitable relief requires the applicant to come with clean hands was applied strictly, leading to the conclusion that the Appellant was not entitled to interim protection.

Issue 3: Validity of the proposed EGM and absence of legal vices in the proceedings

The NCLT had recorded that the meeting of the Board of Directors, which passed the resolution to hold the EGM for considering the removal of the Appellant, was convened in accordance with procedural requirements. The resolution to appoint a Forensic Auditor was not objected to by the Appellant until the stay application was filed.

The Tribunal found no legal infirmity or procedural irregularity in the conduct of the proposed EGM or the underlying proceedings. The Appellant failed to establish any prima facie case that the EGM or the resolutions were oppressive or prejudicial to her rights.

Issue 4: Effect of interlocutory nature of the impugned order on substantive rights

The Court reiterated that the refusal to grant interim relief is an interlocutory order and does not constitute a final adjudication on the merits of the dispute. The substantive rights of the parties remain open for full trial after pleadings and evidence are exchanged.

The Tribunal emphasized that interlocutory orders are discretionary and need not be granted merely because the applicant desires it. The denial of interim relief in the present case was consistent with the established principles governing such remedies and did not prejudice the Appellant's right to seek substantive adjudication.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"An interlocutory application, which seeks for grant of an interim order in a pending proceeding under Sections 241 & 242 of the Companies Act, 2013, or for that matter, in any judicial proceedings before a court of law engaging deciding a right of a party, is in the nature of an absolutely discretionary remedy, which would be exclusively depending upon the establishment of a fact and the right and the likelihood of prejudice, which will be caused to the applicant who has applied for the grant of such interim order."

"The Appellant has to come with clean hands for grant of equitable relief... the rejection of the prayer for the grant of interim relief cannot be legally faulted with, because the actions of the Appellant have prima facie resulted in continuous breach of service contract."

"The proceedings drawn by way of carrying out the proposed Extraordinary General Meeting of the Respondent Company does not appear to suffer from any legal vices."

"A denial to grant the interim relief by the impugned order owing to the conduct which was considered by the Ld. Tribunal as unbecoming of a medical officer for Respondent No. 1, to whom the Appellant owed an allegiance, does not suffer from any legal vices and hence does not call for any interference."

Core principles established include the discretionary nature of interim relief under the Companies Act, the necessity of clean hands doctrine for equitable relief, and the non-interference with valid corporate governance actions such as EGMs convened in accordance with law.

The final determination was the dismissal of the appeal, affirming the NCLT's order declining interim relief, with the substantive dispute left open for adjudication.

(i) Whether the Defendant is liable to refund the security deposit of Rs. 19.55 crores held by it on behalf of the Plaintiff, given the admitted facts and correspondence between the parties.

(ii) Whether the claims of Moorgate UK and Moorgate DMCC, sister concerns of the Defendant, which were the basis for withholding the security deposit, stood discharged pursuant to the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).

(iii) Whether the Plaintiff is entitled to a decree on admission under Order XII Rule 6 of the Code of Civil Procedure, 1908 (CPC) based on the admissions made by the Defendant and subsequent events.

(iv) The effect of the CIRP moratorium and the approved resolution plan on the claims and liabilities between the parties.

(v) Whether the Defendant's contention that the deposit was never meant to be returned and that the suit claim is barred by limitation is tenable.

(vi) The applicability and interpretation of judicial admissions and the scope of Order XII Rule 6 CPC in the context of this dispute.

Issue-wise Detailed Analysis:

1. Liability to Refund Security Deposit

The Defendant had received Rs. 25 crores as a security deposit from the Plaintiff to procure raw materials from suppliers identified by the Defendant's group companies (Moorgate UK and Moorgate DMCC). The Defendant refunded only Rs. 5.45 crores, withholding Rs. 19.55 crores, claiming it was security against outstanding dues of the Plaintiff to the group companies.

The Defendant's pleadings, emails dated 12th July 2013 and 23rd May 2014, and affidavits repeatedly acknowledged holding the amount as security deposit and agreed to return it once the Plaintiff cleared dues to Moorgate UK and Moorgate DMCC. These constitute judicial admissions under Section 58 of the Evidence Act. The Defendant did not claim ownership of the deposit nor that it supplied goods to the Plaintiff, confirming the deposit nature of the sum.

The Defendant's contention that the deposit was forfeited or was a payment is contradicted by its own admissions and correspondence, which clearly treat the amount as a security deposit to be returned upon discharge of the Plaintiff's obligations.

2. Effect of CIRP and Approved Resolution Plan on Claims

The CIRP against the Plaintiff was initiated on 2nd August 2017 under Section 7 IBC, imposing a moratorium on litigation. Moorgate UK and Moorgate DMCC filed operational creditor claims, which were admitted by the Resolution Professional (RP) with a notional value of Rs. 1 and Rs. 2.18 crores respectively.

The Committee of Creditors (CoC) approved a resolution plan on 23rd October 2018, later approved by the NCLT and finally by the Supreme Court on 15th November 2019. Payments pursuant to the plan were made to Moorgate UK and Moorgate DMCC on 16th December 2019, discharging the debts owed by the Plaintiff to these entities.

The Supreme Court's decision in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and others establishes that once a resolution plan is approved under Section 31 IBC, it binds all stakeholders and extinguishes all claims not part of the plan, ensuring the corporate debtor emerges on a "clean slate" free of prior liabilities.

Following this principle, the debts owed by the Plaintiff to Moorgate UK and Moorgate DMCC stood extinguished, removing the basis on which the Defendant withheld the security deposit.

3. Entitlement to Decree on Admission under Order XII Rule 6 CPC

The Plaintiff sought a decree on admission under Order XII Rule 6 CPC based on the Defendant's judicial admissions acknowledging the security deposit and the condition of its return upon discharge of dues to group companies.

The Court examined the scope of Order XII Rule 6 CPC, relying on authoritative precedents including Uttam Singh Duggal & Co. Ltd. vs. United Bank of India and Karam Kapahi vs. Lal Chand Public Charitable Trust, which emphasize the Rule's object to enable speedy judgment on admitted claims and that admissions can be inferred from pleadings and affidavits.

The Defendant argued that the admissions were conditional and that the suit raised triable issues, but the Court held that the condition (payment of dues to Moorgate UK and Moorgate DMCC) had been fulfilled by the CIRP payments, making the admissions unconditional in effect.

The Defendant's contention that the application sought to re-agitate issues already decided in summons for judgment was rejected since the material events (discharge of debts via CIRP) occurred after the order granting unconditional leave to defend.

4. Limitation and Ownership of Deposit

The Defendant contended the claim was barred by limitation and that the deposit was not the Plaintiff's property. The Court found that the Defendant's emails dated 12th July 2013 and 23rd May 2014 constituted acknowledgments under Section 18 of the Limitation Act, extending limitation. The suit was filed within three years of the last acknowledgment.

Regarding ownership, the Defendant admitted the amount was a security deposit held on behalf of the Plaintiff and not the Defendant's property. The Plaintiff remained the owner of the deposit notwithstanding the corporate insolvency proceedings.

5. Impact of Arbitration Proceedings and Foreign Law

The Defendant relied on LCIA arbitration awards governed by English law, contending they were unaffected by the CIRP moratorium. The Court noted that Moorgate UK and Moorgate DMCC participated in the CIRP and their claims were discharged under the resolution plan, rendering the arbitration claims irrelevant for the present suit.

Moreover, payments made by the Defendant to Moorgate UK pursuant to arbitration awards did not affect the Plaintiff's right to the security deposit, as the Plaintiff was not a party to those proceedings.

6. Treatment of Competing Arguments

The Court carefully considered the Defendant's arguments regarding conditional admissions, limitation, ownership, forfeiture, and arbitration but found them inconsistent with the documentary evidence, judicial admissions, and the binding effect of the approved resolution plan under the IBC.

The Defendant's reliance on prior orders granting leave to defend was held to be inapplicable to the changed circumstances post-CIRP.

Conclusions:

The Court concluded that the Defendant held the Rs. 19.55 crores as a security deposit to be returned to the Plaintiff upon discharge of the Plaintiff's liabilities to Moorgate UK and Moorgate DMCC. Since those liabilities were discharged under the CIRP resolution plan, the Defendant's right to withhold the deposit ceased.

The judicial admissions made by the Defendant in pleadings and affidavits were unambiguous and supported by correspondence, justifying a decree on admission under Order XII Rule 6 CPC.

The claim was not barred by limitation, and the arbitration proceedings did not affect the Plaintiff's entitlement to the deposit.

The Court allowed the application and passed a decree directing the Defendant to pay Rs. 19.55 crores with interest at 24% per annum from the due date till realization.

Significant Holdings:

"The legislative intent behind [Section 31 IBC] is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims."

"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."

"The object of Order XII Rule 6 CPC is to enable a party to obtain speedy judgment at least to the extent of the relief to which according to the admission of the defendant, the plaintiff is entitled."

"Admissions in pleadings or judicial admissions, admissible under Section 58 of the Evidence Act, made by the parties or their agents at or before the hearing of the case, stand on a higher footing than evidentiary admissions. The former class of admissions are fully binding on the party that makes them and constitute a waiver of proof."

"The Defendant does not have any claim on the money nor had the Defendant supplied any goods to the Plaintiff. The money is a deposit which admittedly is to be returned to the Plaintiff."

"The Defendant's emails dated 12th July, 2013 and 23rd May, 2014 clearly indicate acknowledgment of liability to repay the outstanding security deposit amount, thereby extending the period of limitation."

"The Defendant's contention that the admissions are conditional is untenable as the condition has been fulfilled by the discharge of debts under the approved resolution plan."

"The application under Order XII Rule 6 CPC is maintainable and no useful purpose will be served in sending the matter to trial."

"The Suit accordingly stands decreed in terms of prayer Clause (a) of the Plaint, ordering the Defendant to pay Rs. 19,55,00,000/- together with interest @ 24% per annum till realization."

• Whether the declaration of the Corporate Debtors' accounts as Non-Performing Assets (NPA) by the Financial Creditor was valid and in accordance with the Reserve Bank of India (RBI) guidelines;
• Whether the date of default as recorded in the Section 7 applications was correct and could be relied upon for initiating CIRP;
• Whether the Section 7 applications were barred by limitation under the Limitation Act, 1963, considering the date of default;
• Whether the Corporate Debtors acknowledged the debt in a manner that extended the limitation period under Section 18 of the Limitation Act;
• Whether the Adjudicating Authority committed any error in admitting the Section 7 petitions ex parte without granting the Corporate Debtors an opportunity to file replies or be heard, thereby violating principles of natural justice.

The Tribunal dealt with these issues primarily through the factual matrix of the first appeal and then applied the findings to the second appeal, as the legal questions were substantially similar.

Issue 1: Validity of NPA Declaration and Date of Default

The Appellants contended that the accounts of the Corporate Debtors were wrongly classified as NPA by the Financial Creditor in violation of RBI guidelines, specifically the requirement that an account can be declared NPA only if interest or principal instalments remain overdue for more than 90 days. The Appellants relied heavily on a No Due Certificate (NDC) dated 16.01.2016, which certified that the accounts were regular and had no overdue amounts. They argued that since the NPA declaration was made on 31.03.2016, only 75 days after the NDC, the classification was arbitrary and illegal. Further, they pointed to orders of the Debt Recovery Tribunal (DRT) and the High Court of Madhya Pradesh which had set aside or stayed the NPA classification, asserting that the Financial Creditor suppressed these material facts from the Adjudicating Authority, thus not approaching with clean hands.

In response, the Financial Creditor argued that the Corporate Debtors had failed to maintain financial discipline post restructuring and renewal of loans, leading to genuine default and classification as NPA on 31.03.2016. The Financial Creditor produced a detailed communication dated 28.04.2016, which itemized overdue amounts and interest, and requested minimum repayments to upgrade the accounts. This letter was issued by the Chief Manager and referred to the Central Statutory Auditors' downgrading of the accounts to NPA. The Financial Creditor also placed on record statements of accounts under the Banker's Book Evidence Act and balance sheets evidencing continuing debt and default.

The Tribunal scrutinized the NDC and found it to be cryptic, lacking details such as account numbers or loan particulars, and issued at the request of the Corporate Debtor without clear purpose. Conversely, the 28.04.2016 communication was detailed, reflected statutory auditor involvement, and indicated ongoing default. The Tribunal noted the Corporate Debtor's failure to repay overdue amounts despite opportunities and communications, and the initiation of multiple litigations challenging the NPA classification rather than settling dues.

Regarding judicial findings, although the DRT and High Court had addressed the NPA classification, the Financial Creditor had complied with directions and provided detailed explanations. The Tribunal found no merit in the contention that the NPA classification was illegal, concluding that default had arisen prior to 31.03.2016 and persisted thereafter. The Tribunal held that the date of default as 31.03.2016 was correctly recorded and justified.

Issue 2: Limitation Period for Filing Section 7 Application

The Appellants argued that the Section 7 petitions filed in 2024, based on a default date of 31.03.2016 (or 31.03.2017 in the second appeal), were barred by limitation under Article 137 of the Limitation Act, which prescribes a three-year limitation period. They contended that the petitions were filed after eight years, thus time-barred.

The Financial Creditor countered that the limitation period was extended due to acknowledgment of debt by the Corporate Debtors as reflected in their balance sheets for the financial years from 2015-16 to 2022-23. The Tribunal referred to Section 18 of the Limitation Act, which provides that a written acknowledgment of liability signed by the debtor before the expiry of the limitation period restarts the limitation clock from the date of acknowledgment.

The Tribunal examined the balance sheets and auditor's reports. While earlier balance sheets did not mention the Financial Creditor by name, the 2022-23 balance sheet specifically disclosed borrowings from the Financial Creditor and noted defaults in repayment. The Tribunal found that the outstanding amounts shown in earlier balance sheets corresponded to the same debt carried forward, and there was no evidence of fresh loans from other creditors. The auditor's report explicitly acknowledged defaults and contingent liabilities related to the Financial Creditor's loans.

Relying on Supreme Court precedents, including the principle that entries in balance sheets constitute acknowledgment of debt for limitation purposes, the Tribunal held that the Corporate Debtors' acknowledgment extended the limitation period. Therefore, the Section 7 applications were held to be within limitation.

Issue 3: Admission of Section 7 Petition Without Opportunity to Reply

The Appellants contended that the Adjudicating Authority admitted the Section 7 applications ex parte without giving them an opportunity to file replies or be heard, violating the principles of natural justice. They cited reasons such as medical emergencies and defective service of notice for their absence. Applications for rehearing (IAs 98 and 99 of 2025) were rejected by the Adjudicating Authority.

The Tribunal noted that the Adjudicating Authority had considered the Appellants' pleas and rejected the applications after detailed reasoning, emphasizing the strict timelines under the IBC framework. The Adjudicating Authority observed that the petitions were listed multiple times, and the Appellants had absented themselves repeatedly and failed to file replies in a timely manner. The Tribunal concurred with the Adjudicating Authority's view that the Appellants could not take advantage of their own negligence or delay and that procedural fairness had been maintained.

Application to Second Appeal

The second appeal involved a similar factual and legal matrix concerning another Corporate Debtor with a default date of 31.03.2017. The Financial Creditor produced similar evidence of debt and default, including statements of accounts and balance sheets. The grounds of challenge mirrored those in the first appeal. The Tribunal applied the same reasoning and upheld the admission of the Section 7 petition in the second appeal as well.

Significant Holdings and Legal Principles Established

1. The Tribunal held that the validity of NPA classification is a matter of fact and evidence, and a mere issuance of a No Due Certificate without detailed particulars cannot negate the existence of default. The classification of accounts as NPA by the Financial Creditor, supported by statutory auditor's report and detailed communications, was upheld as valid.

2. The date of default as recorded in the Section 7 application is critical and can be relied upon if supported by credible evidence of continuing default. The Tribunal rejected the contention that the date of default could be arbitrarily changed or disregarded.

3. The limitation period for filing Section 7 applications under the IBC is governed by the Limitation Act, 1963. The three-year limitation period can be extended if there is a written acknowledgment of debt by the Corporate Debtor before the expiry of the limitation period, as per Section 18 of the Limitation Act.

4. Entries in the balance sheets of the Corporate Debtor, coupled with auditor's disclosures acknowledging default and outstanding dues, constitute sufficient acknowledgment of debt to restart the limitation period.

5. The Adjudicating Authority is entitled to admit Section 7 petitions ex parte if the Corporate Debtor fails to appear or file replies despite multiple opportunities, and such admission does not violate principles of natural justice if procedural fairness and opportunity to be heard have been accorded.

6. The Tribunal reiterated the principle from the Supreme Court in Innoventive Industries Ltd. v. ICICI Bank that the Adjudicating Authority's role in Section 7 applications is limited to ascertaining the existence of debt and default above the threshold limit, and the application should be admitted if these conditions are met, even if the debt is disputed.

Verbatim Extracts of Crucial Legal Reasoning

"As per Section 18 of the Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgment must be before the relevant period of limitation has expired."

"The entries in balance sheets constitute an acknowledgement of debt for the purposes of Section 18 of the Limitation Act."

"The Adjudicating Authority is to be only satisfied that there is a debt which is above the threshold limit which has become due and payable and if a default thereto has occurred, a Section 7 application ought to be admitted even if the debt is disputed."

"When the Appellant was himself prima-facie casual and negligent, the Appellant cannot be seen to take advantage of their own wrong."

In conclusion, the Tribunal affirmed the impugned orders admitting the Corporate Debtors into CIRP, dismissed the appeals as devoid of merit, and closed all interlocutory applications.

1. Whether the accused/applicant is entitled to bail under Section 45 of the Prevention of Money Laundering Act, 2002 (PML Act), considering the twin mandatory conditions laid down therein.

2. Whether the offences alleged, including illegal and unscientific mining and consequent money laundering, fall within the ambit of scheduled offences under the PML Act, particularly in light of legislative changes removing certain provisions of the Environment (Protection) Act (EP Act) from the schedule.

3. Whether the accused/applicant's medical condition justifies grant of bail on medical grounds.

4. The applicability and effect of the principle of parity in bail applications where co-accused remain in custody.

5. The scope and interpretation of the procedural and substantive safeguards under the PML Act, including the burden of proof and the standard of "reasonable grounds for believing" guilt in bail proceedings.

6. The relevance and impact of ongoing investigations and pending cognizance on the bail application.

Issue-wise Detailed Analysis

1. Bail under Section 45 of the PML Act and the Twin Conditions

The legal framework governing bail under the PML Act is encapsulated in Section 45, which mandates two preconditions for bail: (i) reasonable grounds to believe the accused is not guilty of money laundering, and (ii) the accused is not likely to commit any offence while on bail. The Court relied heavily on the Supreme Court precedent in Vijay Madanlal Chaudhary, which emphasized the special and stringent nature of offences under the PML Act, recognizing money laundering as an aggravated crime with transnational impact requiring robust enforcement mechanisms.

The Court interpreted "reasonable grounds for believing" as a standard higher than prima facie but not requiring proof beyond reasonable doubt, focusing on the probability based on available material. The Court underscored that bail considerations in economic offences require a different approach due to their gravity, potential for large-scale public harm, and complexity of conspiracies involved.

In applying this framework, the Court examined the voluminous incriminating material, including documentary evidence and quantified proceeds of crime amounting to over Rs. 78 crores, with the accused/applicant's share quantified at over Rs. 22 crores. The accused/applicant was found to be the kingpin and principal beneficiary of the illegal mining operation, orchestrating activities through a facade company to circumvent legal restrictions. The Court found no reasonable grounds to believe the accused was not guilty and noted the ongoing investigation and the risk of flight or interference with the trial if bail were granted.

Competing arguments from the accused/applicant's counsel, asserting innocence and challenging the predicate offence, were considered but rejected on the basis that the Court need not delve into trial merits but only assess the probability of guilt based on reasonable material.

2. Status of Predicate Offence and Scheduled Offences under the PML Act

The accused/applicant contended that the predicate offence under the EP Act was no longer a scheduled offence following parliamentary amendments, and therefore the Directorate of Enforcement (DoE) lacked jurisdiction. The Court rejected this contention, noting that the offences were committed when the EP Act provisions were still scheduled offences, and that the complaint and FIR had been registered accordingly. The Court also observed that the same acts could constitute offences under multiple statutes, including the Indian Penal Code, and that the removal of the EP Act from the schedule did not negate the ongoing investigation or prosecution under the PML Act.

The Court relied on the National Green Tribunal's findings and the FIR registered by local police detailing cheating, forgery, and conspiracy, which formed the predicate offences for money laundering. The Court held that the DoE's investigation was valid and that the accused/applicant's arguments on jurisdiction and predicate offences were untenable.

3. Medical Grounds for Bail

The accused/applicant sought bail on medical grounds, supported by reports from AIIMS and consolidated medical status reports from the jail dispensary. The Court examined these reports in detail and found the accused/applicant's condition to be stable, with regular medical review and provision of necessary medicines. The Court noted that the accused had actively engaged in legal proceedings during the period of interim bail, indicating that the medical condition was not life-threatening or debilitating to warrant bail.

Thus, the Court concluded that the medical condition did not constitute sufficient grounds for bail under the PML Act's proviso or otherwise.

4. Principle of Parity

The accused/applicant argued for bail on the principle of parity, noting that other accused persons had not been arrested. The Court distinguished the accused/applicant as the kingpin and principal beneficiary of the criminal enterprise, thereby not entitled to parity with other accused. The Court emphasized that the investigation was ongoing and that the DoE would take appropriate decisions regarding other accused at the appropriate stage.

5. Burden of Proof and Presumption under the PML Act

The Court reiterated the settled legal position that under Section 24 of the PML Act, there is a presumption of involvement of proceeds of crime in money laundering unless the contrary is proved. The burden lies on the accused to rebut this presumption. The Court found that the accused/applicant had not discharged this burden, given the extensive documentary and investigative material.

6. Effect of Pending Cognizance and Investigation

The Court acknowledged that cognizance of the prosecution complaint was pending, but held that this did not bar consideration of bail under the PML Act. The Court noted that the complaint had been filed and summons issued in the related EP Act case, and that the FIR was registered and under investigation. The Court observed that the ongoing investigation and the risk of interference justified denial of bail.

Significant Holdings

The Court held:

"The offence of money-laundering has been regarded as an aggravated form of crime 'world over'. It is, therefore, a separate class of offence requiring effective and stringent measures to combat the menace of money laundering."

"The Court while dealing with the application for grant of bail need not delve deep into the merits of the case and only a view of the Court based on available material on record is required. The Court will not weigh the evidence to find the guilt of the accused which is, of course, the work of Trial Court."

"There are no reasonable grounds for believing that the accused/applicant is not guilty of the offences alleged. That being so, the rigors of Section 45 of the PML Act dissuade this court from admitting the accused/applicant to bail on merits."

"The accused/applicant's medical condition is stable and does not warrant bail on medical grounds."

"The accused/applicant being kingpin of the entire gamut of offences cannot be treated at par with the remaining accused persons."

Accordingly, the Court dismissed the applications for regular and interim bail, directing the jail authorities to continue providing medical treatment and to communicate the order to the accused/applicant.

The core legal questions considered by the Court in this application for interim bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 ('BNSS') and Section 45 of the Prevention of Money Laundering Act, 2002 ('PMLA') are:

• Whether interim bail can be granted on humanitarian grounds to the Applicant to attend to his critically ill mother, despite the serious nature of the charges under PMLA and prior adverse bail orders.
• The scope and applicability of Section 45 of the PMLA regarding grounds for interim bail, particularly whether illness of a family member qualifies as a ground under this provision.
• The assessment of medical evidence and factual verification regarding the health condition of the Applicant's mother and whether her condition necessitates the Applicant's physical presence for treatment.
• The risk of the Applicant tampering with evidence or influencing witnesses if interim bail is granted.
• The procedural propriety and conditions under which interim bail may be granted in the context of the Applicant's prior bail history and compliance with court orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Grant of Interim Bail on Humanitarian Grounds

Relevant Legal Framework and Precedents: Section 483 of BNSS and Section 45 of PMLA govern the grant of interim bail in cases involving serious offenses including money laundering. The Court acknowledged the stringent nature of PMLA bail provisions, which require careful balancing of humanitarian considerations against the risk of prejudice to the investigation and trial.

Court's Interpretation and Reasoning: The Court recognized the Applicant's plea for interim bail on humanitarian grounds, specifically to attend to his critically ill mother who had sustained serious spinal injuries. The Court noted the Applicant's prior compliance with bail conditions and his readiness to surrender post the interim bail period. However, the Court was mindful of the serious charges and prior findings about risk of evidence tampering.

Key Evidence and Findings: The Applicant's mother suffered a fracture and partial collapse of vertebrae D-11 and L-1 following an accident. Medical reports indicated the need for advanced diagnostics such as MRI and possible surgical intervention. The Applicant is the sole male family member available to assist, as the sister resides abroad.

Application of Law to Facts: Balancing the humanitarian need against the risk of prejudice, the Court granted interim bail for fifteen days, imposing stringent conditions to mitigate risks. The Court emphasized that any observations regarding merits were without prejudice to the trial court's jurisdiction.

Treatment of Competing Arguments: The Respondent argued that the mother's medical condition was stable and did not require the Applicant's presence, relying on hospital records showing only one outpatient visit. The Court considered the Applicant's submission that the mother was bedridden and unable to attend follow-ups without assistance. The Court found the humanitarian ground sufficient to warrant interim bail, subject to conditions.

Conclusions: Interim bail was granted for a limited period on humanitarian grounds, with conditions designed to prevent tampering or interference with the investigation.

Issue 2: Applicability of Section 45 of PMLA to Grounds of Family Illness

Relevant Legal Framework and Precedents: Section 45 of PMLA outlines grounds for bail but does not explicitly include illness of a family member as a ground. The Court examined whether humanitarian grounds can be read into this provision.

Court's Interpretation and Reasoning: The Court acknowledged the Respondent's submission that illness of a family member is not a ground under Section 45 of PMLA. However, it exercised judicial discretion to grant interim bail on humanitarian grounds, emphasizing the exceptional nature of the case and the limited duration of bail.

Key Evidence and Findings: The Court relied on medical evidence and the Applicant's prior bail history to justify the exercise of discretion.

Application of Law to Facts: The Court applied a purposive interpretation, balancing strict statutory provisions with humanitarian considerations.

Treatment of Competing Arguments: The Respondent's strict interpretation was considered but not accepted to the extent of denying relief entirely.

Conclusions: While illness of a family member is not a statutory ground under Section 45 of PMLA, the Court granted interim bail on humanitarian grounds as an exception, subject to safeguards.

Issue 3: Verification of Medical Condition and Necessity of Applicant's Presence

Relevant Legal Framework and Precedents: Courts require credible medical evidence to grant bail on health grounds, ensuring that the claimed medical exigency is genuine and necessitates the accused's presence.

Court's Interpretation and Reasoning: The Court considered the status report submitted by the Respondent, which indicated that the mother had only one outpatient visit and was not admitted to hospital, suggesting stable condition. The Court also considered the Applicant's submissions and medical reports indicating serious spinal injury requiring further diagnostics and treatment.

Key Evidence and Findings: Medical reports showed fracture and partial collapse of vertebrae; Applicant's mother was reportedly bedridden and unable to attend follow-ups without assistance.

Application of Law to Facts: The Court found that despite the Respondent's report, the medical condition was serious enough to justify interim bail for the Applicant to assist in treatment arrangements.

Treatment of Competing Arguments: The Court balanced the Respondent's factual verification against the Applicant's medical evidence and humanitarian plea.

Conclusions: The Court accepted the necessity of the Applicant's presence for medical treatment of his mother as a valid ground for interim bail.

Issue 4: Risk of Evidence Tampering and Influence on Witnesses

Relevant Legal Framework and Precedents: Courts are cautious in granting bail in PMLA cases due to the risk of tampering with evidence or influencing witnesses, often imposing strict conditions to prevent such risks.

Court's Interpretation and Reasoning: The Court noted prior findings that bail could pose a risk of tampering. To mitigate this, the Court imposed stringent conditions including daily reporting to police, prohibition on contacting witnesses, and surrender after bail period.

Key Evidence and Findings: Previous orders reflected concerns about potential interference; however, the Applicant's compliance history and undertaking to abide by conditions were considered.

Application of Law to Facts: The Court balanced the risk against humanitarian grounds and imposed conditions accordingly.

Treatment of Competing Arguments: The Respondent's concerns were acknowledged but addressed through bail conditions rather than outright denial.

Conclusions: The Court ensured safeguards against tampering while granting interim bail.

Issue 5: Procedural History and Compliance with Bail Conditions

Relevant Legal Framework and Precedents: The Court considered the Applicant's prior interim bail grants, surrender, and compliance with court orders as relevant to the exercise of discretion.

Court's Interpretation and Reasoning: The Applicant had previously been granted interim bail on medical grounds and had surrendered as ordered. The Court noted the Applicant's willingness to comply with conditions and surrender after the interim bail period.

Key Evidence and Findings: Past orders granting and extending interim bail, dismissal of regular bail, and Supreme Court's refusal to interfere were noted.

Application of Law to Facts: The Applicant's past conduct supported the grant of interim bail on humanitarian grounds.

Treatment of Competing Arguments: The Respondent pointed out the Applicant's failure to avail custody parole earlier, but the Court did not treat this as a bar to interim bail.

Conclusions: The Applicant's compliance history favored granting interim bail with conditions.

3. SIGNIFICANT HOLDINGS

The Court held that:

"Any observation made hereinabove shall not tantamount to be an expression on the merits of the case before the learned Trial Court and has been made for the consideration of the interim Bail alone in the prevailing circumstances."

This underscores the limited scope of the interim bail order, preserving the trial court's authority on merits.

The Court established the principle that even though Section 45 of PMLA does not explicitly include family illness as a ground for bail, humanitarian grounds may be considered for interim bail, subject to strict conditions and safeguards.

Final determinations included granting interim bail for fifteen days with conditions:

• Applicant to furnish personal bond and sureties.
• Restriction on leaving NCT of Delhi.
• Mandatory disclosure and operation of mobile numbers.
• Prohibition on contacting or influencing witnesses or tampering with evidence.
• Daily reporting to Police Station between 4:00 PM to 6:00 PM.
• Obligation to surrender after expiry of interim bail period.

These conditions aimed to balance humanitarian concerns with the integrity of the investigation and trial process.

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

(a) Whether the Look Out Circulars (LOCs) issued against the Petitioners at the behest of the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) can be suspended to permit the Petitioners to travel abroad;

(b) Whether the Petitioners have demonstrated sufficient cause and compliance with conditions to justify suspension of the LOCs and grant of permission to travel abroad;

(c) The extent to which the allegations of large-scale fraud and economic loss to consortium banks justify continued restriction on the Petitioners' right to travel abroad;

(d) The applicability of fundamental rights, specifically the right to travel abroad as an integral part of the right to life under Article 21 of the Constitution of India, and the conditions under which such rights may be restricted;

(e) The appropriateness of imposing conditions such as furnishing indemnity bonds and Fixed Deposit Receipts (FDRs) as safeguards against misuse of travel permissions;

(f) The impact of prior judicial orders, including those of the Special Judge, Prevention of Money Laundering Court, Chandigarh, and the High Court of Punjab & Haryana, on the present applications.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Suspension of Look Out Circulars and Permission to Travel Abroad

Legal Framework and Precedents: The issuance and suspension of LOCs are governed by procedural rules under the Code of Civil Procedure, 1908, specifically Section 151 which allows the Court to pass orders necessary for the ends of justice. The right to travel abroad is recognized as part of the fundamental right to life under Article 21 of the Constitution of India, as affirmed by the Supreme Court. Restrictions on this right require sufficient cause and must be proportionate.

Court's Interpretation and Reasoning: The Court noted that the LOC issued by the CBI had been closed effective 01.08.2024 and the LOC issued by the ED had been suspended as of 29.04.2025. The Court relied on prior orders of the Special Judge, Prevention of Money Laundering Court, Chandigarh, which had already granted travel permissions to the Petitioners under strict conditions. The Court found no fresh material or specific evidence indicating that the Petitioners had attempted to hamper trial proceedings or misused prior travel concessions.

Key Evidence and Findings: The Court considered the prior orders permitting travel, the suspension and closure of LOCs, and the fact that the High Court of Punjab & Haryana had set aside the declaration of fraud and quashed the FIR, although the Supreme Court remitted the matter back for reconsideration regarding FIR quashing. The Court also noted that all proceedings based on the Bank's complaint were stayed.

Application of Law to Facts: Given the closure and suspension of LOCs, the absence of specific allegations of trial obstruction, and the fundamental right to travel, the Court held that the Petitioners were entitled to travel abroad subject to conditions ensuring their presence during trial and safeguarding economic interests.

Treatment of Competing Arguments: The Bank's contention that the Petitioners were masterminds of a Rs. 1626.74 crore fraud and posed a flight risk was found to be generic and unsubstantiated by particulars. The Court emphasized the need for concrete evidence rather than speculative assertions to justify restricting fundamental rights.

Conclusions: The Court allowed suspension of the LOCs and granted travel permission to the Petitioners, subject to conditions similar to those imposed by the Special Judge, including furnishing indemnity bonds and FDRs as financial guarantees.

(b) Conditions Imposed on Travel Permissions

Legal Framework and Precedents: Courts routinely impose conditions such as furnishing addresses, maintaining communication with Investigating Officers, restricting travel to specified countries, and financial sureties to balance the right to travel with the need to ensure trial integrity and prevent flight risks.

Court's Interpretation and Reasoning: The Court adopted conditions similar to those imposed by the Special Judge, including:

• Furnishing present and permanent addresses, mobile numbers, and email addresses to Investigating Officers, with obligation to inform any changes;
• Keeping mobile phones on at all times and reporting whereabouts when asked;
• Providing detailed itineraries for travel;
• Not extending stay abroad except in medical emergencies;
• Restricting travel to specified countries only;
• Furnishing indemnity bonds of Rs. 50 lacs;
• Depositing Fixed Deposit Receipts (FDRs) (Rs. 15 lacs as per Special Judge's order, enhanced to Rs. 25 lacs by this Court) which cannot be encashed without Court permission.

Key Evidence and Findings: The Court relied on the Special Judge's prior orders and the absence of any violation by the Petitioners of those conditions.

Application of Law to Facts: The Court found these conditions appropriate to mitigate any risk of the Petitioners absconding or interfering with the trial, while respecting their fundamental rights.

Treatment of Competing Arguments: The Bank's concerns about economic loss were addressed through these financial safeguards and monitoring conditions.

Conclusions: The Court imposed the above conditions as a precondition to granting travel permissions.

(c) Allegations of Fraud and Economic Interest of the Country

Legal Framework and Precedents: Allegations of economic offences and fraud can justify restrictions on liberty and travel, but such restrictions must be based on evidence and not mere suspicion. The presumption of innocence and the fundamental rights of the accused must be balanced against the State's interest.

Court's Interpretation and Reasoning: The Court observed that the Bank's allegations were serious but remained unsubstantiated in the context of the present applications. The prior judicial orders had set aside the declaration of fraud and quashed the FIR, and the proceedings were stayed. The Court emphasized that mere suspicion or generic assertions cannot override fundamental rights.

Key Evidence and Findings: The lack of particularized evidence from the Bank to demonstrate that the Petitioners posed a flight risk or had attempted to hamper the trial was critical.

Application of Law to Facts: The Court concluded that the economic interest argument, while important, did not justify an absolute bar on travel without due process and safeguards.

Treatment of Competing Arguments: The Court rejected the Bank's argument as vague and insufficient to deny travel permissions.

Conclusions: The Court held that the economic interest concerns could be addressed through conditions rather than outright denial of travel.

(d) Fundamental Right to Travel Abroad under Article 21

Legal Framework and Precedents: The Supreme Court has held that the right to travel abroad is an integral part of the right to life and personal liberty under Article 21. Any restrictions must be reasonable, just, and fair, and must satisfy the test of proportionality.

Court's Interpretation and Reasoning: The Court reiterated that any restriction on the Petitioners' right to travel abroad without sufficient cause would amount to a violation of fundamental rights. The Court found the Petitioners' stated reasons for travel-attending a child's graduation from Yale University and spending time with children residing abroad-to be legitimate and deserving of judicial protection.

Key Evidence and Findings: The Court accepted the Petitioners' reasons as genuine and not frivolous or evasive.

Application of Law to Facts: The Court balanced the fundamental rights of the Petitioners with the State's interest by imposing conditions rather than imposing a total travel ban.

Treatment of Competing Arguments: The Court rejected the Bank's argument that travel should be denied outright, emphasizing constitutional protections.

Conclusions: The Court upheld the fundamental right to travel abroad subject to reasonable restrictions and conditions.

(e) Impact of Prior Judicial Orders

Legal Framework and Precedents: Judicial orders from competent courts, including the Special Judge, Prevention of Money Laundering Court, and the High Court of Punjab & Haryana, are binding and relevant for the present proceedings.

Court's Interpretation and Reasoning: The Court gave due weight to the Special Judge's orders permitting travel under strict conditions and the High Court's setting aside of the fraud declaration and quashing of FIR. The Supreme Court's remand of the quashing issue did not affect the setting aside of the fraud declaration.

Key Evidence and Findings: The Court noted that the prior courts had considered the matter at length and found no reason to deny travel permissions.

Application of Law to Facts: The Court aligned its decision with the prior judicial findings and orders.

Treatment of Competing Arguments: The Bank's opposition was considered but found insufficient to override prior judicial determinations.

Conclusions: The Court followed the precedent and orders of the Special Judge and High Court in granting travel permissions.

3. SIGNIFICANT HOLDINGS

"The right to travel has been held by the Hon'ble Supreme Court as an integral part of the fundamental right to life under Article 21 of the Constitution of India, and any restriction of the same without sufficient cause, would amount to a violation of his fundamental rights."

"The reply, to say the least, is highly generic and vague without giving particulars in any manner, as to the assumptions set out therein."

"Since the Learned Special Judge specifically recorded that there was nothing in particular brought on record by the CBI to establish that Petitioner No. 1 had attempted to hamper the trial and misuse any concessions granted earlier, there is no reason to decline the request of Petitioner No. 1 for travelling abroad."

"Having regard to the afore-mentioned facts as also the fact that the concerned Courts of Special Judge, Prevention of Money Laundering Court, as well as the CBI, Chandigarh have already considered this matter at length and has passed Orders... there is no reason to decline the request of Petitioner No. 2 for travelling abroad."

Core principles established include:

• The fundamental right to travel abroad under Article 21 cannot be restricted without sufficient cause and must be balanced against State interests through reasonable conditions;
• Generic and vague allegations without particularized evidence cannot justify restriction of fundamental rights;
• Prior judicial orders permitting travel under conditions must be respected unless material changes justify otherwise;
• Financial sureties and monitoring conditions are appropriate safeguards to prevent misuse of travel permissions in economic offence cases;
• Legitimate personal reasons such as attending a child's graduation or spending time with children abroad merit judicial protection of travel rights.

Final determinations on each issue were that the LOCs would be suspended and the Petitioners permitted to travel abroad subject to stringent conditions including furnishing indemnity bonds, depositing FDRs, maintaining communication with Investigating Officers, restricting travel to specified countries, and abiding by specified itineraries and timelines.

1. Whether the Petition challenging the rejection of the Application under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 ("SVLDRS Scheme") is barred by delay and laches.

2. Whether the Petitioner was eligible under the SVLDRS Scheme, specifically whether the tax dues were "quantified" as on 30 June 2019 as required by the Scheme.

3. The proper interpretation of the term "quantified" in the context of the SVLDRS Scheme, including the relevance of the CBIC Circular dated 27 August 2019 and the Department's FAQs dated 24 December 2019.

4. Whether the rejection of the Petitioner's Application on the ground of non-quantification of tax dues was legally sustainable.

5. The appropriate relief and conditions, including the payment of interest, if the Petitioner is found eligible under the Scheme.

Issue 1: Delay and Laches

The Respondents contended that the Petition was barred due to delay and laches, as the rejection was communicated on 26 December 2019, but the Petition was filed only on 19 April 2021. Reliance was placed on a precedent where delay was held fatal.

The Court noted that the period in question was partially impacted by the COVID-19 pandemic, which affected the ability to initiate proceedings. The Court distinguished the precedent cited, emphasizing that the Petitioner did not unreasonably delay or create parallel rights for the Respondents. Thus, the objection based on delay and laches was rejected.

Issue 2: Eligibility under the SVLDRS Scheme and Quantification of Tax Dues

The SVLDRS Scheme mandates that tax dues must be "quantified" as on 30 June 2019. The rejection was based on the ground that the tax dues were not quantified by that date, as per a letter from the Directorate General of GST Intelligence (DGGI) dated 3 February 2020.

The Court examined the CBIC Circular dated 27 August 2019, particularly paragraph 10(g), which clarifies that "quantified" means a written communication of the amount payable, including letters intimating duty demand, admissions during enquiry or audit, or audit reports. The Department's FAQs dated 24 December 2019 further elucidated this position.

The Court found that the summons issued on 24 December 2018 and the statements recorded on 4 January 2019 and 17 March 2020 by the Petitioner's Director constituted sufficient written communication of the quantification of tax dues. The Director admitted a short-paid liability of Rs. 120.16 lakhs (approximately Rs. 1.21 Crores) during investigation, which was prior to the cut-off date.

Thus, the Court held that the tax dues were duly quantified before 30 June 2019, satisfying the Scheme's eligibility criteria. The ground for rejection on non-quantification was therefore unsustainable.

Issue 3: Interpretation of Quantification and Precedents

The Court referred to two Coordinate Division Bench decisions which had considered similar issues: Thought Blurb and Landmark Associates. In those cases, the Courts accepted that quantification through statements during investigation sufficed, even if the final liability determined later was higher or lower. The purpose of quantification was to establish eligibility, not to determine the final tax liability or investigate evasion.

In the present case, the final departmental assessment found a liability of approximately Rs. 1.16 Crores, which was less than the amount admitted by the Petitioner. This further strengthened the Petitioner's position.

The Respondents did not dispute the applicability of these precedents but argued that if relief was granted, it should be subject to payment of reasonable interest.

Issue 4: Relief and Interest

The Court acknowledged that although the rejection was improper, the Petitioner had retained and used the disputed amounts for several years. In the interest of equity, the Court directed that the Petitioner should pay the amount determined upon reconsideration along with simple interest at 6% per annum from 1 February 2020 until payment.

The matter was remanded to the concerned authority for fresh computation of the amount payable, taking into account amounts already paid by the Petitioner. The Petitioner was given eight weeks to comply with the payment after the fresh computation.

If the Petitioner paid the computed amount plus interest within the prescribed period, the impugned show cause notice would be quashed. Failure to pay would entitle the Respondents to proceed with the show cause notice.

Significant Holdings and Core Principles:

"(g) Cases under an enquiry, investigation or audit where the duty demand has been quantified on or before the 30th day of June, 2019 are eligible under the scheme. Section 2 (r) defines 'quantified' as a written communication of the amount of duty payable under the indirect tax enactment. It is clarified that such written communication will include a letter intimating duty demand; or duty liability admitted by the person during enquiry, investigation or audit; or audit report etc."

The Court established that the term "quantified" under the SVLDRS Scheme includes admissions of liability during investigation or audit, and not solely formal demand notices issued by the department. This interpretation aligns with the CBIC Circular and Department FAQs, which are integral to understanding the Scheme.

The Court emphasized that the purpose of quantification is to determine eligibility for the Scheme, not to finalize or adjudicate the actual tax liability or investigate evasion.

The Court held that delay and laches cannot be mechanically applied without considering contextual factors such as the COVID-19 pandemic and the absence of prejudice to the Respondents.

Finally, the Court balanced equitable considerations by allowing relief subject to payment of interest, recognizing the Petitioner's benefit from the amounts in question during the pendency of the dispute.

1. Whether the Petitioner was liable to pay service tax under the Finance Act, 1994 for the period January 2016 to June 2017, particularly in light of the exemption under Clause 2(i) of Service Tax Mega Notification No.25/2012-ST dated 20.06.2012 for health care services by clinical establishments.

2. Whether the extended period of limitation under Section 73(2) of the Finance Act, 1994 could be invoked in this case, given the absence or presence of fraud, collusion, willful misstatement, or suppression of facts by the Petitioner.

3. The proper characterization and valuation of services rendered by the Petitioner to the Franchisee, specifically distinguishing between franchise services and supply of standard equipment, and the consequent tax implications.

4. Whether the Show Cause Notice issued complied with the procedural requirements, including clear disclosure of the method for determining taxable value.

5. The applicability and scope of relevant legal provisions, including Sections 65(105)(zzzzj), 66B, 66D(a), 66BA, 73, 75, and 78 of the Finance Act, 1994, and the Service Tax (Determination of Value) Rules, 2006.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax and Applicability of Exemption

The Petitioner contended that the services rendered were exempt under Clause 2(i) of Service Tax Mega Notification No.25/2012-ST dated 20.06.2012, which exempts health care services by clinical establishments. The Petitioner operated under a Franchise Agreement dated 17.12.2015 with M/s. Pranav Labs, where diagnostic services were provided to government-referred and private patients, with revenue sharing arrangements.

The Franchise Agreement defined "Standard Equipment" as equipment provided by the Franchisor (Petitioner) to the Franchisee, who was required to pay prescribed charges for such equipment. The Petitioner argued that the service provided was exempt healthcare service and that the amounts received were revenue shares, not consideration for taxable services.

The Respondents contended that two distinct services were rendered by the Petitioner: (i) franchising services, for which fees were charged and taxed, and (ii) supply of standard equipment to the Franchisee, which was a separate taxable service under the Finance Act, 1994. They argued that the Franchise Agreement contemplated payment for supply of equipment and that the Petitioner had not declared or paid service tax on this component.

The Court noted that the supply of tangible goods including machinery and equipment without transferring right of possession and effective control was taxable under Section 65(105)(zzzzj) prior to 01.07.2012, and post that date, under Section 66B read with 66D(a) and 66BA of the Finance Act, 1994. However, the Franchise Agreement did not separately itemize or charge for supply of equipment, and the valuation of such service was not determined in the Impugned Order.

The Court emphasized the necessity to determine the taxable value of the supply of standard equipment under Section 67 of the Finance Act, 1994 and Rule 3 of the Service Tax (Determination of Value) Rules, 2006, which was not done by the adjudicating authority.

2. Invocation of Extended Period of Limitation under Section 73(2)

Section 73(1) of the Finance Act, 1994 mandates issuance of Show Cause Notices within 30 months from the relevant date for short payment or erroneous refund of service tax, except in cases involving fraud, collusion, willful misstatement, or suppression of facts, where extended limitation under Section 73(2) applies.

The Petitioner argued that there was no suppression or fraud, and thus the extended period could not be invoked. The Petitioner relied on several Supreme Court decisions holding that mere allegations or mechanical invocation of extended limitation without proof of suppression or fraud are impermissible.

The Respondents relied on Supreme Court precedents stating that the extended period is reckoned from the date of knowledge of suppression. However, the Court clarified that such reckoning is relevant only when suppression is established, which was not done here.

The Court observed that the Petitioner had filed returns, albeit belatedly, and had paid some service tax, negating any inference of suppression. The returns were filed within dates that did not justify extension of limitation.

3. Valuation and Characterization of Services under the Franchise Agreement

The Franchise Agreement detailed the operational modalities, including revenue sharing for government-referred and private patients, payment of franchise fees, and supply of standard equipment. The Petitioner contended that the franchise fees were taxed, but supply of equipment was not separately charged or valued.

The Court noted that the Franchise Agreement did not explicitly specify amounts for supply of equipment, and the fees for such supply appeared embedded within revenue shares. The adjudicating authority failed to determine value as per Rule 3 of the Service Tax (Determination of Value) Rules, 2006.

The Court emphasized that lending or supply of equipment is a separate taxable service and must be valued distinctly. The absence of such valuation in the Impugned Order was a significant omission.

4. Procedural Compliance in Issuance of Show Cause Notice

The Show Cause Notice dated 26.06.2020 demanded service tax, interest, late fees, and penalties but did not clearly disclose the method for determining the taxable value of the services, especially the supply of equipment. The Court found this lack of clarity problematic.

The Court directed the Respondents to issue a corrigendum to the Show Cause Notice to clarify the valuation method, ensuring procedural fairness and transparency.

5. Treatment of Competing Arguments and Application of Law to Facts

The Petitioner's argument that the entire service was exempt under the Mega Notification was accepted only partially. The Court recognized that while healthcare services may be exempt, supply of equipment is a distinct service liable to tax.

The Respondents' reliance on extended limitation was rejected due to lack of evidence of suppression or fraud. The Court underscored the necessity of establishing such elements before invoking extended limitation.

The Court found that the adjudicating authority did not apply valuation rules appropriately and failed to distinguish between different services rendered under the Franchise Agreement.

Conclusions

The Court quashed the Impugned Order dated 24.11.2021 and remitted the matter to the adjudicating authority for fresh consideration. The fresh adjudication was to determine the taxable value of the supply of standard equipment under Section 67 and Rule 3 of the Service Tax (Determination of Value) Rules, 2006.

The Court directed issuance of a corrigendum to the Show Cause Notice clarifying the valuation method. The extended limitation period was held inapplicable due to absence of proven suppression or fraud.

Significant Holdings:

"The Petitioner has been awarded the contract of providing clinical laboratory services at Government Hospitals... This service has been outsourced from the Franchisee... The Franchise Agreement contemplates supply of standard equipment by the Franchiser to the Franchisee, for which remuneration is chargeable and taxable."

"Section 73(1) of the Finance Act, 1994 stipulates that the Show Cause Notice must be issued within 30 months from the relevant date unless there is proven fraud, collusion, willful misstatement or suppression of facts. Mere mechanical invocation of extended limitation without proof is impermissible."

"The valuation of the supply of standard equipment is to be determined in terms of Section 67 of the Finance Act, 1994 and Rule 3 of the Service Tax (Determination of Value) Rules, 2006. The Impugned Order does not disclose that such exercise has been carried out."

"The Show Cause Notice must clearly disclose the method of determination of taxable value to enable the Petitioner to make a meaningful defence."

"The Impugned Order is quashed and the matter remitted for fresh adjudication on merits within 30 days."

Regarding the first issue, the Tribunal examined the nature of the construction service rendered by the appellant, who constructed 18 dwelling units-6 for the landowners and 12 for sale to third parties. The appellant claimed exemption under CBEC Circular No. 108/02/2009, arguing that the flats delivered to the ultimate owners for personal use fell outside the scope of taxable service. The Department, however, issued a Show Cause Notice demanding service tax on the entire construction activity, alleging non-registration, non-collection, and non-payment of service tax during the relevant period.

The appellant contended that the contract was a composite contract akin to a works contract, involving supply of materials by the appellant and execution of construction services, and therefore the demand under Construction of Residential Complex Service was misplaced. Reliance was placed on a Chartered Accountant's certificate confirming that no materials were supplied by the landowners and no service tax was charged to them. The appellant also cited the Tribunal's decision in Real Value Promoters Pvt. Ltd. and the subsequent Supreme Court affirmation in Jain Housing & Construction Ltd., which held that composite contracts involving transfer of property in goods fall under Works Contract Service (WCS) and not under Construction of Complex Service (CCS) or Commercial or Industrial Construction Service (CICS).

The Tribunal referred extensively to the Supreme Court's ruling in CCE Vs. Larsen & Toubro Ltd., which clarified that CCS and CICS cover only pure service contracts without transfer of property in goods. The Court emphasized that taxing composite contracts under CCS or CICS would be constitutionally impermissible as it would amount to levying tax on the value of goods transferred. The statutory framework post-1.6.2007 introduced WCS as a distinct taxable service with mechanisms to exclude the value of goods, thereby distinguishing it from CCS and CICS.

Further, the Tribunal underscored the principle that the demand must be confined to the category specified in the Show Cause Notice. It cannot be altered at the adjudication or appellate stage to a different category without proper notice, as established by precedents and CBEC Circular 128/10/2010. Since the Show Cause Notice alleged tax under Construction of Residential Complex Service, the demand could not be sustained under Works Contract Service without fresh notice.

Applying these legal principles to the facts, the Tribunal found that the appellant's service was composite in nature, involving supply of materials by the appellant and construction services. The appellant did not receive materials from customers, confirming the composite nature of the contract. The demand under Construction of Residential Complex Service was therefore unsustainable both before and after 1.6.2007, as the service rendered was not a pure service simpliciter but a composite contract falling under WCS.

The Tribunal also noted the appellant's reliance on the 67% abatement notification, which further indicated the composite character of the contract. The impugned orders confirming the demand under CCS were thus inconsistent with the settled legal position and the factual matrix.

On the second issue concerning the invocation of the extended limitation period and penalties, the Tribunal held that since the appellant succeeded on the substantive merit of the tax demand, there was no need to delve into the justification for invoking the larger period or imposing penalties. The penalties were consequently set aside as they flowed directly from the unsustainable demand.

The Tribunal concluded by allowing the appeal, setting aside the tax demand and penalties, and granting consequential relief as per law.

Significant holdings include the following verbatim extract from the Tribunal's reasoning in Real Value Promoters Pvt. Ltd.:

"a. The services provided by the appellant in respect of the projects executed by them for the period prior to 1.6.2007 being in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service in the light of the Hon'ble Supreme Court judgment in Larsen & Toubro (supra) upto 1.6.2007.

b. For the period after 1.6.2007, service tax liability under category of "commercial or industrial construction service" under Section 65(105)(zzzh) ibid, "Construction of Complex Service" under Section 65(105)(zzzq) will continue to be attracted only if the activities are in the nature of services" simpliciter.

c. For activities of construction of new building or civil structure or new residential complex etc. involving indivisible composite contract, such services will require to be exigible to service tax liabilities under "Works Contract Service" as defined under section 65(105)(zzzza) ibid.

d. The show cause notices in all these cases prior to 1.6.2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under "Commercial or Industrial Construction Service" or "Construction of Complex" Service, cannot therefore sustain."

The core principles established are:

• Composite contracts involving both service and transfer of property in goods fall exclusively under Works Contract Service and not under Construction of Complex Service or Commercial or Industrial Construction Service.
• Service tax demands must be confined to the category of service specified in the Show Cause Notice; reclassification at adjudication or appeal without notice is impermissible.
• Construction of Complex Service and Commercial or Industrial Construction Service cover only pure service contracts without transfer of property in goods.
• Exemption circulars and abatement notifications support the composite nature of contracts and are relevant for classification and valuation.
• Penalties and extended limitation periods are not sustainable if the underlying tax demand is unsustainable on merits.

Accordingly, the Tribunal's final determination was that the service tax demand under Construction of Residential Complex Service for the period October 2005 to March 2010 was unsustainable, the invocation of the larger period and penalties were unjustified, and the appeal was allowed with consequential relief.

(a) Whether the appellant is entitled to avail Cenvat credit of Service Tax paid on input services procured from a service provider alleged to be a shell company;

(b) Whether non-payment of Service Tax by the service provider to the government can be a ground to deny Cenvat credit to the appellant;

(c) Whether the statements recorded during investigation, relied upon by the Revenue, have evidentiary value to deny Cenvat credit without compliance with statutory safeguards;

(d) Whether the extended period of limitation can be invoked for issuance of the show-cause notice in the absence of evidence of connivance or fraud on the part of the appellant;

(e) Whether the appellant's transactions with the service provider and the ultimate recipient of services were bona fide and supported by valid agreements, invoices, and evidence of receipt of services.

Issue-wise Detailed Analysis

1. Entitlement to Cenvat Credit on Services Procured from Alleged Shell Company

The appellant, acting as a financial intermediary, outsourced certain taxable services to a service provider, PIL, which was alleged by the Revenue to be a shell company based on a SEBI alert issued after the transaction date. The appellant availed Cenvat credit on the service tax paid to PIL and reflected the same in statutory returns.

The Revenue denied credit on the ground that PIL was a shell company and had not discharged service tax liability.

The Tribunal examined the timeline and facts, noting that the SEBI alert listing PIL as a suspected shell company was issued on 07.08.2017, approximately 16 months after the appellant had obtained the No Due Certificate through PIL on 14.03.2016. The Tribunal held that credit denial cannot be premised on an alert issued after the transaction date, as the appellant could not have had knowledge of such adverse information at the time of availing credit.

The appellant produced valid agreements, invoices, and evidence from the recipient of the output services (KIL) confirming receipt of the No Due Certificates from financial institutions, substantiating the bona fide nature of the services rendered. The Revenue did not discredit these evidences nor investigate the appellant or KIL to contradict the appellant's claim.

The Tribunal emphasized that the appellant was a bona fide purchaser of input services, supported by valid service tax registration of PIL and proper payment through banking channels, fulfilling the conditions under the Cenvat Credit Rules, 2004 (CCR).

2. Effect of Non-Payment of Service Tax by the Service Provider on Credit Availment

The Revenue contended that since PIL did not deposit the service tax collected, the appellant's credit was inadmissible under Rule 3 of the CCR.

The Tribunal analyzed binding precedents including the Jharkhand High Court's decision in Tata Motors Ltd. and the Tribunal's own ruling in L.G. Electronics India Pvt. Ltd., which established that the recipient of input services cannot be denied credit on account of non-payment of service tax by the supplier, absent evidence of collusion or fraudulent intent on the part of the recipient.

It was held that the appellant had complied with all statutory requirements, including payment of service tax to the service provider and possession of valid invoices. The law does not impose a duty on the recipient to verify deposit of tax by the supplier. The Revenue's remedy lies against the defaulting supplier.

Further reliance was placed on the Tribunal's decision in Bayer Material Science Pvt. Ltd., which reinforced that the recipient's entitlement to credit is not contingent upon the supplier's compliance with tax payment, provided the recipient has fulfilled its obligations under the CCR.

3. Evidentiary Value of Statements Recorded During Investigation

The Revenue relied on incriminating statements recorded from various persons associated with PIL to support the allegation of fraudulent availment of credit.

The Tribunal referred to the Punjab & Haryana High Court ruling in Ambika International, which held that statements recorded during investigation have no evidentiary value unless recorded in compliance with Section 9D of the Central Excise Act, 1944, as applicable to the Finance Act.

Since the procedural safeguards under Section 9D were not followed, the statements could not be used as a basis to deny credit or establish fraud on the part of the appellant.

4. Invocation of Extended Period of Limitation

The show-cause notice was issued invoking extended limitation period under the Finance Act, 1994.

The Tribunal noted that the appellant had disclosed the credit availed in ST-3 returns filed in 2016, and the Revenue failed to produce any evidence of collusion or fraudulent conduct by the appellant with PIL.

In absence of such evidence, the extended limitation period could not be invoked. This was consistent with the Tribunal's earlier rulings where extended limitation was held applicable only when fraud or suppression was established.

5. Bona Fide Nature of Transactions and Compliance with Cenvat Credit Rules

The appellant demonstrated that the services outsourced to PIL were integral to the output services provided to KIL, supported by agreements and correspondence confirming receipt of services.

The appellant's payment of consideration through banking channels, possession of valid tax invoices, and registration of PIL with the Service Tax Department satisfied the requirements of Rule 9(1) of the CCR.

The Tribunal observed that the Revenue did not challenge the genuineness of the appellant's output services or the contractual arrangements, nor did it disprove the appellant's compliance with procedural requirements for credit availment.

Conclusions on Each Issue

(a) The appellant is entitled to avail Cenvat credit on service tax paid to PIL, notwithstanding the subsequent SEBI alert classifying PIL as a suspected shell company issued after the transaction date.

(b) Non-payment of service tax by the service provider PIL is not a valid ground to deny credit to the appellant, absent evidence of collusion or fraud.

(c) Statements recorded during investigation without compliance with Section 9D do not have evidentiary value to deny credit or establish wrongdoing.

(d) The extended period of limitation cannot be invoked without proof of fraudulent conduct or suppression by the appellant.

(e) The appellant's transactions were bona fide, supported by valid agreements, invoices, and evidence of receipt of services, fulfilling the conditions under the CCR.

Significant Holdings

The Tribunal held verbatim:

"The appellant was a bonafide purchaser of input services for value from PIL on the basis of a valid and effective service tax registration issued to PIL by the service tax department and the credit of service tax was availed by the appellant on the strength of an agreement, legitimate tax invoice including payment of consideration through proper banking channel to PIL not entailing any violation of Rule 3, Rule 4 or Rule 9(1) of the CCR as alleged or at all."

"Non-deposit of service tax by PIL in respect to the tax invoice raised upon the appellant can be no ground to deny service tax credit to the appellant alleging violation of Rule 3 of the Cenvat Credit Rules especially when there is no evidence of connivance of the appellant with PIL."

"The statements recorded during the course of investigation, have no evidentiary value unless and until tested in terms of Section 9D of the Central Excise Act, 1944."

"The show-cause notice issued to the appellant is highly barred by limitation."

"The appellant has paid the service tax, on which they have taken cenvat credit on all the requirements in terms of Rule 9 (1) of the Cenvat Credit Rules, 2004, which are reflected in the invoice. Therefore, the cenvat credit cannot be denied on the ground of non-payment of service tax by the service provider."

"The credit of the service tax paid by him to the service provider for further deposit in the exchequer kitty cannot be denied to him on account of the lapse of the service provider. The Revenue's remedy, in these types of cases lies at the end of service provider, for initiating proceedings against him, in respect of the short levy of service tax."

Accordingly, the impugned order denying Cenvat credit and imposing penalty was set aside and the appeal allowed with consequential relief.

1. Whether the services provided by a members-only club, incorporated as a Public Limited Company, to its members can be classified as "Restaurant Service" liable to Service Tax under Section 65(105)(zzzzv) of the Finance Act, 1994.

2. Whether the appellant's arrangement with a third party (M/s. Astor) for cooking and supplying food to members constitutes "Renting of Immovable Property Service" attracting Service Tax.

3. Whether the income earned by the appellant from display of advertisements/banners at club events or in the club souvenir qualifies as "Advertising Agency Service" under Section 65(105)(e) of the Finance Act, 1994, thereby attracting Service Tax.

4. Whether the confirmed demand for Service Tax for the period April 2008 to March 2013 is barred by limitation, specifically concerning the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994.

5. Whether the appellant is entitled to cum-tax benefit and refund in respect of Service Tax paid on renting of immovable property.

Issue 1: Liability to Service Tax on Restaurant Service Provided by the Club to Its Members

Relevant Legal Framework and Precedents: Section 65(105)(zzzzv) defines "Restaurant Service" as any service provided by a restaurant having air-conditioning and license to serve alcoholic beverages, in relation to serving food or beverages in its premises. The term "restaurant" is commonly understood as a public eating place. The appellant relied heavily on the Supreme Court judgment in the case of State of West Bengal vs Calcutta Club Limited, which addressed the applicability of Service Tax to services provided by a members' club incorporated as a company.

Court's Interpretation and Reasoning: The Tribunal examined the nature of the appellant's club, which is an incorporated Public Limited Company providing facilities exclusively to its members, their spouses, and guests accompanied by members. The club facilities, including dining rooms and restaurants within the club premises, are not open to the general public. The Tribunal noted the Supreme Court's reasoning that the doctrine of mutuality applies to members' clubs and that an incorporated club and its members are not distinct persons for the purpose of Service Tax, as there is no "service provider" and "service receiver" relationship between them. The Explanation 3 to Section 65B(44), which treats unincorporated associations and their members as distinct persons, does not apply to incorporated clubs.

Key Evidence and Findings: The club's bye-laws restrict access to members and their guests only. The club's dining rooms are not public eating places. The Supreme Court clarified that incorporated clubs are outside the purview of Service Tax on services rendered to their members.

Application of Law to Facts: Applying the Supreme Court's ruling, the Tribunal held that the appellant's restaurant services to its members do not constitute taxable services under the Finance Act, as the services are rendered within the mutuality framework of the incorporated club.

Treatment of Competing Arguments: The Revenue contended that the club was operating restaurants with all facilities and should be liable to Service Tax. The Tribunal rejected this, emphasizing the exclusivity of membership and the absence of a public service provider-customer relationship.

Conclusion: The Tribunal set aside the confirmed Service Tax demand of Rs. 57,24,877 on account of Restaurant Service.

Issue 2: Service Tax on Renting of Immovable Property Service in Relation to the Agreement with M/s. Astor

Relevant Legal Framework and Precedents: Renting of Immovable Property Service is taxable when there is a lease or tenancy agreement involving payment of rent. The appellant relied on a prior CESTAT Ahmedabad decision holding that clubs in similar arrangements are not liable for Service Tax under this category.

Court's Interpretation and Reasoning: The Tribunal analyzed the agreement between the appellant and M/s. Astor, noting that Astor was allotted space with infrastructure to cook and serve food exclusively to club members, with no tenancy or lease rights granted. The payment structure involved Astor receiving 80% of the food price charged to members, with the club retaining 20% as margin.

Key Evidence and Findings: The agreement explicitly denied any tenancy or licence rights to Astor. The arrangement was for service provision to members, not a commercial rental transaction.

Application of Law to Facts: The Tribunal concluded that the arrangement did not constitute renting of immovable property but was a service contract for food supply to members.

Treatment of Competing Arguments: The Revenue argued the 20% share constituted rent. The Tribunal rejected this, emphasizing the absence of fixed rent or tenancy rights.

Conclusion: The Tribunal set aside the confirmed demand of Rs. 3,21,147 under Renting of Immovable Property Service related to Astor transactions.

Issue 3: Service Tax on Advertising Agency Service

Relevant Legal Framework and Precedents: Advertising Agency Service under Section 65(105)(e) requires the service provider to be engaged in making, preparation, display, or exhibition of advertisements. Mere canvassing of advertisements on commission basis is not taxable under this category but under Business Auxiliary Service as per CBIC Circular No. 96/7/2007-ST.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant did not engage in preparation or display of advertisements but only allowed advertisers to display banners or advertisements at club events or in souvenirs and collected charges for the same. The appellant's role was limited to canvassing or facilitating advertisement space.

Key Evidence and Findings: The appellant's activities did not meet the statutory definition of an advertising agency.

Application of Law to Facts: The Tribunal applied the CBIC circular and concluded that the appellant's activities do not attract Service Tax under Advertising Agency Service.

Treatment of Competing Arguments: The Revenue contended that the appellant earned advertisement income and was liable. The Tribunal rejected this, distinguishing between actual advertising agency services and mere canvassing.

Conclusion: The Tribunal set aside the confirmed demand of Rs. 2,49,342 on account of Advertising Agency Service.

Issue 4: Limitation and Extended Period of Limitation

Relevant Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 provides for a normal limitation period of 18 months for issuing show cause notices for Service Tax demands. The proviso allows extended limitation in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. Supreme Court judgments have clarified that suppression requires deliberate omission of material facts.

Court's Interpretation and Reasoning: The Tribunal found that the appellant maintained proper records and had a bona fide belief, supported by earlier judicial decisions, that no Service Tax was payable on services rendered to members. There was no evidence of deliberate suppression or evasion.

Key Evidence and Findings: The appellant's conduct did not demonstrate intent to evade tax. The Revenue's invocation of extended limitation was unjustified.

Application of Law to Facts: The Tribunal held that the extended period of limitation was inapplicable and part of the confirmed demand was time-barred.

Treatment of Competing Arguments: The Revenue justified extended limitation due to failure to register and pay Service Tax. The Tribunal rejected this, emphasizing absence of suppression.

Conclusion: The Tribunal held the confirmed demand for the extended period as barred by limitation.

Issue 5: Cum-Tax Benefit and Refund on Renting of Immovable Property Service

Relevant Legal Framework and Precedents: Section 67(2) of the Finance Act, 1994 provides that if the service provider has not collected Service Tax from the service recipient, the service provider may be entitled to cum-tax benefit and refund.

Court's Interpretation and Reasoning: The appellant sought refund on the ground that Service Tax was not collected from lessees. The Tribunal noted that the appellant had admitted charging and paying Service Tax on one party and that the issue for the other party required verification of agreements and payments. However, given the age of the demand and the fact that the appellant had paid the tax in 2016, no refund claim was filed within the prescribed time limit under Section 11B of the Central Excise Act, 1944.

Key Evidence and Findings: No timely refund claim was filed. The appellant's entitlement to refund was not established conclusively.

Application of Law to Facts: The Tribunal declined the request for refund on grounds of limitation and procedural non-compliance.

Treatment of Competing Arguments: The appellant's request was considered but rejected due to lack of timely claim and evidentiary support.

Conclusion: The Tribunal rejected the appellant's plea for refund and cum-tax benefit.

Significant Holdings:

"What has been stated in the present judgment so far as Sales Tax is concerned applies on all fours to Service Tax; as, if the doctrine of agency, trust and mutuality is to be applied qua members' clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to Sales Tax, the fact is that in members' clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of 'service' under Section 65B(44) as well."

"Explanation 3(a) to Section 65B(44) does not apply to members' clubs which are incorporated."

"The overall structure of the transaction is not that of lessor and lessee between the appellant and Astor."

"Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105)(e). Such services are liable to service tax under business auxiliary service [section 65(105)(zzb)]."

"The extended period of limitation is inapplicable in absence of suppression of facts and hence, absence of an intent to evade payment of duty."

Core principles established include:

- Services provided by an incorporated members' club exclusively to its members do not constitute taxable "Restaurant Service" under the Finance Act.

- An arrangement involving the provision of space and facilities to a third party for cooking and serving food to members, without tenancy rights or fixed rent, does not attract Service Tax under Renting of Immovable Property Service.

- Mere canvassing of advertisements for commission does not amount to "Advertising Agency Service" liable to Service Tax.

- Extended period of limitation for Service Tax demands can only be invoked in cases of deliberate suppression or evasion, which must be proven with evidence.

- Refund claims must be filed within prescribed limitation periods; failure to do so results in rejection of refund claims.

Final determinations on each issue were:

- The confirmed Service Tax demand on Restaurant Service of Rs. 57,24,877 was set aside.

- The confirmed demand of Rs. 3,21,147 under Renting of Immovable Property Service related to Astor was set aside.

- The confirmed demand of Rs. 2,49,342 under Advertising Agency Service was set aside.

- The confirmed demand relating to renting of immovable property to other parties was not contested and stands paid; refund claims were rejected.

- The demand confirmed for the extended period of limitation was held to be time-barred.

Additional issues implicitly considered include the validity and applicability of the Central Board of Excise and Customs (CBEC) Circular dated 28.04.2008, which clarified that the rate of 4% applies to payments received on or after 01.03.2008 regardless of the date of service provision, and the consequent imposition of interest and penalty under the Finance Act, 1994.

Regarding the core issue of the applicable rate of service tax, the Tribunal examined the relevant legal framework, including Section 66 of the Finance Act, 1994, which stipulates that the liability to pay service tax arises on the provision of service, and the definition of the taxable event. The appellant contended that service tax liability arises at the time of rendering the service, and hence the rate prevailing on that date should apply. The appellant relied on Section 83 of the Finance Act read with Section 38A of the Central Excise Act, 1944, to support this position.

The Tribunal referred extensively to precedent decisions, notably the judgment of the Delhi High Court in Commissioner of Service Tax v. Consulting Engineering Services (I) Pvt. Ltd., which held that the rate of tax applicable is the rate in force on the date the service was rendered, not on the date of payment receipt. Furthermore, the Tribunal relied on the decision in CCE, Salem v. M/s URC Constructions Pvt Ltd., where the Tribunal invalidated the CBEC Circular dated 28.04.2008, holding that circulars or instructions issued by the Board cannot override the law as declared by the Supreme Court or High Courts. The Supreme Court's ruling in Commissioner of Central Excise, Bolpur v. Ratan Meltins & Wire Industries was cited to emphasize that circulars contrary to statutory provisions have no legal existence.

The Tribunal analyzed the Board's circular, which stated that service tax becomes chargeable on receipt of payment and that the rate applicable is the rate in force at the time of receipt. However, this was found to be inconsistent with the statutory provisions and judicial pronouncements that the taxable event is the rendition of service, not the receipt of payment. The Tribunal noted that reliance on the circular to demand differential tax at the higher rate for payments received post 01.03.2008 for services rendered pre-01.03.2008 was misplaced.

In applying the law to the facts, the Tribunal observed that the appellant had discharged service tax at 2% on services rendered up to 29.02.2008, which was the rate prescribed at the time. The department's demand for differential tax at 4% for payments received after 01.03.2008 was therefore unsustainable. The Tribunal also considered the appellant's argument regarding penalty imposition, noting that since the question involved interpretation of law and no contumacious conduct was found, penalty was not justified.

Competing arguments from the department reiterated the Appellate Authority's view that the Board's circular and notification imposed liability at the time of receipt of payment. However, the Tribunal rejected this, holding that the circular could not override statutory provisions or judicial decisions.

In conclusion, the Tribunal set aside the impugned order to the extent it upheld the demand for service tax at 4% on payments received after 01.03.2008 for services rendered before that date. The Tribunal held that the applicable rate is the rate prevailing on the date the services were rendered, i.e., 2%, and dismissed the department's appeal accordingly.

Significant holdings include the explicit declaration that the Board's Circular dated 28.04.2008 is invalid to the extent it conflicts with statutory provisions and judicial pronouncements. The Tribunal reaffirmed the principle that the taxable event for service tax is the rendition of service, not the receipt of payment, and that the rate of tax applicable is the rate in force on the date of rendition of service.

Verbatim from the judgment encapsulates this principle: "It is no more res integra that for the relevant period involved in this dispute, the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which the payments were received."

Further, the Tribunal emphasized the binding nature of Supreme Court and High Court decisions over Board circulars: "Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court."

Ultimately, the Tribunal's final determination was that the appellant's service tax liability for the disputed period should be computed at 2%, the rate prevailing at the time the services were rendered, and the demand for differential tax at 4% based on payment receipt date was unsustainable. The order imposing interest and penalty was also modified accordingly.

1. Whether the appellant, a registered dealer under Central Excise, is required to obtain a separate registration as an importer to issue invoices on imported goods enabling the recipient to avail Cenvat credit, consequent to the amendment in Rule 9 of the Central Excise Rules, 2002 by Notification No. 8/2014-CE (NT) dated 28.02.2014.

2. Whether the invoices issued by the appellant's unit, registered only as a dealer and not as an importer, qualify as valid documents for availing Cenvat credit on imported inputs.

3. Whether the Department was justified in invoking the extended period of limitation for demand of duty under Section 11A(4) of the Central Excise Act, 1944.

4. The applicability and retrospective effect of Notification No. 30/2016-CE (NT) dated 28.06.2016 and Circular No. 1032/20/2016-CX dated 28.06.2016 clarifying the registration requirements for first stage dealers and importers.

Issue-wise Detailed Analysis

Issue 1 & 2: Requirement of Separate Importer Registration and Validity of Dealer Invoices for Cenvat Credit

The legal framework revolves around Rule 9(1) of the Central Excise Rules, 2002, as amended by Notification No. 8/2014-CE (NT). The Rule mandates that every person who produces, manufactures, carries on trade, holds private store or warehouse or otherwise uses excisable goods or an importer who issues an invoice on which Cenvat credit can be taken shall get registered. The Department's contention was that a dealer who also deals in imported goods must obtain a separate importer registration to issue valid invoices for Cenvat credit purposes.

The appellant contended that the existing dealer registration suffices for issuing invoices on imported goods and that there is no statutory requirement for dual registration. The appellant relied on the plain language of Rule 9(1), which distinguishes between a dealer and an importer, requiring registration only for importers who issue invoices for Cenvat credit. Further, Rule 9(1)(a)(iv) of the Cenvat Credit Rules, 2004 explicitly recognizes invoices issued by first stage dealers as valid documents for credit availment.

The Court examined Notification No. 30/2016-CE (NT) and Circular No. 1032/20/2016-CX, both dated 28.06.2016, which clarify that a person registered as a first stage dealer need not obtain separate registration as an importer and vice versa. The circular further allows for optional single registration and filing of a single return covering both roles. The Tribunal interpreted these instruments as clarificatory, removing any ambiguity about the need for dual registration.

The Court rejected the Department's interpretation that the amendment to Rule 9 imposed a mandatory dual registration requirement. It held that the amended Rule 9 only requires importers issuing invoices for Cenvat credit to be registered, and a dealer already registered can issue such invoices without additional registration. The invoices issued by the appellant's Raigad unit, a registered dealer, were therefore valid for availing Cenvat credit on imported inputs.

The appellant's reliance on case law supporting this interpretation, including decisions by this Tribunal and the Assistant Commissioner's orders in the appellant's favour for subsequent periods, was noted. The Court emphasized that the invoices complied with Rule 11 of the Central Excise Rules, 2002, and there was no dispute regarding the duty paid nature of the goods or their receipt and use.

Issue 3: Justification for Invoking Extended Period of Limitation

The Department invoked the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944, on the ground that the appellant had taken credit on ineligible invoices and that the irregularity was detected only on verification. The appellant argued that the extended period invocation was unsustainable as there was no deliberate or willful suppression or fraud.

The Court referred to settled principles that extended limitation applies only in cases of fraud, suppression, or willful misstatement. Since the appellant was a registered dealer issuing invoices in accordance with the rules and there was no evidence of deliberate concealment, the extended period invocation was held to be unjustified. The Court relied on the Supreme Court decision in Uniworth Textiles Ltd. vs C.C.E., Raipur, which supports this principle.

Issue 4: Retrospective Effect of Notification and Circular

The Department contended that the Board's Circular dated 28.06.2016 could not be applied retrospectively. The appellant argued that the circular and notification were clarificatory and beneficial, thus applicable retrospectively.

The Court held that beneficial circulars and notifications clarifying existing law are to be applied retrospectively, citing the Supreme Court decisions in Suchitra Components Ltd. v. CCE and Government of India v. India Tobacco Association. The Court interpreted the term "henceforth" in the circular as relating only to the option of filing a single return and not as limiting the retrospective applicability of the clarification on registration requirements.

Treatment of Competing Arguments

The Court carefully analyzed the Department's reliance on the 2016 circular's prospective application and the requirement of dual registration but found these arguments unpersuasive in light of the plain language of the rules, the clarificatory nature of the notification and circular, and binding judicial precedents. The appellant's arguments regarding the sufficiency of dealer registration and validity of invoices were accepted. The Court also criticized the adjudicating authority for disregarding binding Tribunal decisions and the appellant's submissions, describing it as judicial indiscipline contributing to protracted litigation.

Conclusions

The Court concluded that:

• The appellant's unit, registered as a dealer, was not required to obtain separate importer registration to issue invoices for imported goods enabling Cenvat credit.
• The invoices issued by the appellant's Raigad unit were valid documents for availing Cenvat credit on imported inputs.
• The extended period of limitation invoked by the Department was unjustified as there was no evidence of deliberate suppression or fraud.
• The Notification No. 30/2016-CE (NT) and Circular No. 1032/20/2016-CX are clarificatory and apply retrospectively.
• The impugned Order-in-Original confirming demand, interest, and penalty was unsustainable and liable to be set aside.

Significant Holdings

The Court stated verbatim:

"On a bare reading of the amended Rule 9 of the CER, 2002, we are unable to decipher any mandate flowing therefrom requiring a dealer who is already registered as a 'dealer' with the Department and issuing invoices for the excisable goods that he trades in, upon which the recipient can avail cenvat credit, to yet again obtain a separate registration as an 'importer'."

"The notification and the circular make it amply clear, without room for any doubt whatsoever, that there is no requirement for a First Stage Dealer who is already registered with the Department to take yet another separate registration as an importer."

"We also hold that in the instant case, the SCN does not bring out any positive act on the part of the appellant that can be construed as a deliberate or wilful act of suppression or misstatement of facts with intent to evade payment of duty, and thus the invocation of the extended period of limitation is wholly untenable."

"We are of the considered view that the Notification and the Circular are clarificatory in nature and apply retrospectively."

"The adjudicating authority committed an egregious error in denying the benefit of the notification and circular to the appellant even after the binding decisions of this Tribunal were brought to the authority's attention."

Core principles established include:

• A registered dealer is not mandatorily required to obtain separate importer registration for issuing invoices on imported goods for Cenvat credit purposes.
• Invoices issued by a first stage dealer are valid documents for availing Cenvat credit under Rule 9(1)(a)(iv) of the Cenvat Credit Rules, 2004.
• Clarificatory notifications and circulars beneficial to the assessee apply retrospectively.
• Extended period of limitation can only be invoked in cases of deliberate suppression or fraud, not mere procedural lapses.
• Adjudicating authorities must adhere to binding Tribunal decisions to maintain judicial discipline and avoid protracted litigation.

Final determinations were that the appellant's appeal succeeds on merits and limitation grounds, the demand and penalty confirmed by the adjudicating authority are set aside, and consequential relief, if any, is granted in favor of the appellant.

The core legal questions considered by the Tribunal include:

• Whether the demand raised for the period August 2015 to March 2016 is barred by limitation, given the date of issuance of the show cause notice on 17.05.2017.
• The interpretation of the phrase "wholly from the raw material produced or manufactured in India" in the relevant notification, specifically whether the use of imported raw materials disqualifies the unit from claiming exemption under the notification.
• The applicability and scope of prior show cause notices and audit findings in relation to the limitation and merits of the current demand.
• Whether the department's failure to verify the appellant's segregation of goods manufactured from indigenous versus imported raw materials affects the entitlement to exemption.
• The presence or absence of any intent to evade duties, considering the legal interpretation of the notification and facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Limitation of Demand

Relevant legal framework and precedents: The limitation period for issuance of a show cause notice is governed by the relevant statutory provisions under the Customs and Excise laws. The law requires that the notice must be issued within a prescribed time frame from the date of the alleged contravention or demand.

Court's interpretation and reasoning: The Tribunal noted that the show cause notice for the period August 2015 to March 2016 was issued on 17.05.2017, which was beyond the limitation period, as the demand should have been initiated by 10.04.2017 to protect any part of the claim. The earlier show cause notice issued on 24.05.2016 for the period July 2013 to July 2015 indicated that the department was aware of the facts and circumstances well before the limitation period expired.

Key evidence and findings: The appellant relied on the prior show cause notice and audit reports to demonstrate that the department had knowledge of the matter, and the delay in issuance of the later notice was fatal to the demand.

Application of law to facts: The Tribunal accepted that the demand was time barred as the show cause notice was issued after the limitation period, and the prior notice did not extend or revive the limitation for the subsequent period.

Treatment of competing arguments: The department did not dispute the limitation issue but focused on merits. The Tribunal found the limitation argument to be decisive and favored the appellant on this ground.

Conclusions: The demand for the period August 2015 to March 2016 is barred by limitation and cannot be sustained.

Interpretation of "Wholly from the raw material produced or manufactured in India"

Relevant legal framework and precedents: The notification in question (No. 23/2003 CE) provides exemption conditions for goods produced wholly from indigenous raw materials. The Tribunal relied heavily on the Division Bench decision in Eurotex Industries and Exports Limited vs CCE Pune, which interpreted the phrase and the scope of exemption.

Court's interpretation and reasoning: The Tribunal noted that the Division Bench held that the condition does not exclude the use of imported raw materials altogether. The exemption is available if the goods cleared into the Domestic Tariff Area (DTA) are made up solely of indigenous raw materials. The appellant had provided charts segregating goods produced from indigenous raw materials and those from imported raw materials, but the department failed to verify these claims.

Key evidence and findings: The appellant's submission of detailed charts and the absence of departmental verification were significant. The Tribunal observed that the department's adjudicating authority had refused to accept the alternate submission without proper verification, which was a procedural lapse.

Application of law to facts: The Tribunal found that the notification's language and the precedent allowed for an interpretation that does not categorically bar usage of imported raw materials by the unit, provided the goods cleared into DTA are made from indigenous materials only.

Treatment of competing arguments: The department's representative contended that "wholly" excludes any imported raw material usage, but could not counter the precedent or show any departmental appeal challenging that decision. The Tribunal found this argument unpersuasive.

Conclusions: There is sufficient scope for legal interpretation allowing the appellant's claim for exemption, and the department's denial without verification was unjustified.

Intent to Evade and Legal Interpretation

Relevant legal framework and precedents: The question of intent to evade duty is critical in excise and customs matters, especially where legal interpretation of notifications is involved.

Court's interpretation and reasoning: The Tribunal emphasized that the matter involved legal interpretation of the notification's terms. Given the prior show cause notice, audit records, and the ambiguity in the notification's language, the Tribunal was reluctant to infer any intent to evade duty.

Key evidence and findings: The existence of prior show cause notices, audit findings, and the appellant's submissions indicated transparency and absence of willful evasion.

Application of law to facts: The Tribunal applied the principle that where a matter is open to legal interpretation, penal consequences or adverse inferences of evasion should not be drawn lightly.

Treatment of competing arguments: The department did not present evidence of fraudulent intent or concealment, relying only on the interpretation that the exemption was not available.

Conclusions: No intent to evade duty was found, reinforcing the appellant's entitlement to relief.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the entire demand for the period August 2015 to March 2016 was barred by limitation, as the show cause notice was issued beyond the prescribed period. It observed that the prior show cause notice and audit findings demonstrated departmental awareness but did not extend limitation.

The Tribunal relied on the Division Bench decision in Eurotex Industries and Exports Limited vs CCE Pune, reproducing para 13 verbatim, which clarified that the exemption notification does not prohibit the use of imported raw materials by the unit, so long as goods cleared into DTA are made solely from indigenous raw materials:

"The above conditions nowhere debars the EOU from availing exemption in case where the EOU is manufacturing goods from indigenous raw material as well as imported raw material. It is only to be ensured that the goods cleared in DTA are made up of indigenous raw material only. The Appellant had given the charts showing the goods manufactured from indigenous raw material and goods manufactured from imported raw material separately to the adjudicating authority and the department also. No verification of the same was conducted by the revenue. The same should have been verified by the department. There is no stipulation under notification no. 23/2003 CE that if a unit has produced the goods from imported raw material in that case it would lose its eligibility to claim exemption in terms of serial no. 3."

The Tribunal concluded that the matter involved a legal interpretation and that the department's failure to verify the appellant's submissions was a procedural lapse. It further held that no intent to evade duty could be surmised, given the circumstances and prior proceedings.

Accordingly, the Tribunal allowed the appeal on the ground of limitation and legal interpretation, granting consequential relief to the appellant.

1. Whether the appellants were entitled to utilize Cenvat Credit under the heading of Basic Excise Duty (BED) for payment of Education Cess (EC) and Secondary and Higher Education Cess (SHE Cess).

2. Whether the demand raised for recovery of EC and SHE Cess and disallowance of Cenvat Credit utilized for payment of these cesses was barred by the doctrines of double jeopardy and res judicata due to overlapping Show Cause Notices for the same period.

3. Whether the adjudicating authority erred in rejecting documentary evidence submitted by the appellants to substantiate utilization of Cenvat Credit towards reversal of Input Tax Credit and clearance of finished goods.

4. Whether there were quantification errors in the demand raised by the revenue.

5. Whether the penalty imposed on the appellants was justified given the nature of the dispute as one of interpretation.

Issue-wise Detailed Analysis:

1. Utilization of Cenvat Credit of Basic Excise Duty for Payment of Education Cess and SHE Cess

The relevant legal framework comprises the Cenvat Credit Rules, 2004, which govern the utilization of Cenvat Credit, and the statutory provisions relating to Education Cess and SHE Cess. The appellants had utilized Cenvat Credit available on Basic Excise Duty for payment of these cesses. A Show Cause Notice was issued alleging that such utilization was not permissible, and consequently, demands were raised for recovery of the cesses along with disallowance of the credit utilized.

The appellants contended that such utilization was admissible under the Cenvat Credit Rules, 2004. This issue had already been the subject matter of earlier proceedings, including an appeal before the Tribunal, which ultimately decided in favour of the appellants, allowing the utilization of BED credit for payment of EC and SHE Cess.

The adjudicating authority, however, distinguished the present demand on the ground that the earlier proceedings had not attained finality at the time of the impugned order and that the present demand was based on a separate ground - contravention of the mandatory condition of an area-based exemption notification due to non-exhaustion of correct Cenvat Credit availability on BED. The authority held that this separate ground justified confirming the demand and that it was not barred by the doctrines of double jeopardy or res judicata.

The Tribunal, upon review, found that the demands were overlapping and related to the same period. It noted that the earlier proceedings had reached finality with the Tribunal allowing the appellants' appeal. Therefore, the Tribunal set aside the demand relating to EC and SHE Cess and the disallowance of Cenvat Credit utilized for payment of these cesses on merits, holding that the doctrine of double jeopardy and res judicata applied to bar the repeated demand.

2. Overlapping Demands and Application of Double Jeopardy and Res Judicata

The appellants argued that the Show Cause Notices issued for the same period created overlapping demands, which should not be sustained simultaneously. The adjudicating authority initially acknowledged that the demand was hit by double jeopardy and res judicata but proceeded to confirm the demand on a separate ground, as noted above.

The Tribunal analyzed this position and held that since the earlier demand had been adjudicated and the appeal allowed, the subsequent demand covering the same amount and period was barred. It emphasized that the two demands were mutually exclusive and could not be pursued concurrently. This reasoning preserved the principles of finality and protection against multiple punishments for the same cause.

3. Rejection of Documentary Evidence Regarding Utilization of Credit for Reversal and Finished Goods Clearance

The appellants submitted documentary evidence to prove that amounts of Rs.58,733/- and Rs.24,273/- were legitimately utilized towards reversal of Input Tax Credit under Rule 6(3) of the Cenvat Credit Rules, 2004, and payment of duty under Rule 16 of the Central Excise Rules, 2002, respectively. The adjudicating authority rejected these submissions on the ground that no documentary evidence was produced.

The Tribunal found that the appellants had indeed submitted relevant documents, which were not considered. It directed that the appellants be granted another opportunity to produce these documents before the adjudicating authority, who was to verify the facts and pass a reasoned order. This approach ensured adherence to principles of natural justice and fair adjudication.

4. Quantification Errors in Demand

The appellants contended that the Show Cause Notice contained quantification errors amounting to approximately Rs.1,00,000. The Tribunal remanded this issue to the adjudicating authority, directing the appellants to submit documentary evidence supporting their claim. The authority was tasked with verifying and rectifying any errors in quantification, ensuring accuracy in demand assessment.

5. Re-credit and Excess Credit Claims

The appellants disputed the rejection of amounts taken as re-credit, asserting that no excess credit was taken. They submitted detailed reconciliations and tables in support of their claim. The Tribunal observed that these details required careful verification and directed the adjudicating authority to examine the matter thoroughly before concluding.

6. Penalty Imposed on the Appellants

The appellants requested that the penalty imposed be set aside, arguing that the issue was one of interpretation and had been litigated extensively. The Tribunal accepted this submission, noting that the question of whether BED credit could be utilized for payment of EC and SHE Cess was under dispute and ultimately decided in favour of the appellants. Consequently, the penalty of Rs.6,13,158/- was set aside as a reasonable relief.

Significant Holdings:

"We find that the Appellant has rightly claimed that there has been an over-lapping of demand since Show Cause Notices have been issued pertaining to the same period... That Show Cause Notice proceedings in the due course had reached the Tribunal and this Tribunal... has allowed the Appellant's Appeal. Therefore, we set aside the demand to this extent on merits."

This establishes the principle that overlapping demands for the same period and amount, which have been adjudicated and allowed on appeal, cannot be pursued again, affirming the application of double jeopardy and res judicata in excise matters.

"The appellant is required to be given one more opportunity to produce these documents before the Adjudicating authority, who will get these facts verified and take a considered decision."

This underscores the necessity of fair procedure and the right of the appellant to present evidence fully before adverse findings are made.

"Considering the same, we set aside the penalty of Rs.6,13,158/- imposed on the Appellant."

This highlights the Court's approach to penalties in cases involving genuine disputes of law and interpretation, emphasizing that penalties should not be imposed where the issue is contentious and ultimately decided in favour of the assessee.

In conclusion, the Tribunal set aside the demands relating to Education Cess and SHE Cess and the related disallowance of Cenvat Credit on the ground of overlapping demands barred by double jeopardy and res judicata. It remanded other disputed issues relating to documentary evidence, quantification errors, and re-credit claims to the adjudicating authority for fresh consideration. The penalty imposed was quashed considering the nature of the dispute. The appeal was disposed of accordingly, and the cross-objection filed by the revenue was also disposed.

1. Whether the value of tools billed to customers, particularly tools manufactured by subcontractors and subsequently invoiced by the appellant with a margin, should be treated as trading turnover for the purpose of CENVAT credit reversal under Rule 6(3) and Rule 14 of the CENVAT Credit Rules, 2004.

2. The correct method of computing the value of traded tools for reversal of CENVAT credit, including the application of Explanation 1(c) to Rule 6(3A) of the CENVAT Credit Rules, 2004.

3. Whether the appellant's alleged failure to reverse the correct amount of CENVAT credit and the related non-disclosure constitutes willful suppression attracting extended period of limitation and penalty under Section 11AC of the Central Excise Act, 1944.

4. The legitimacy of the penalty imposed and the applicability of extended period of limitation in the absence of proven deliberate suppression.

Regarding the first issue, the relevant legal framework includes the Central Excise Valuation Rules and the CENVAT Credit Rules, 2004, particularly Rule 6(3) and Rule 14, which govern the reversal of CENVAT credit in cases of exempted goods or trading activities. The Explanation 1(c) to Rule 6 clarifies that, for trading activities, the value for reversal shall be the difference between the sale price and the cost of goods sold (determined as per generally accepted accounting principles, excluding purchase expenses), or 10% of the cost of goods sold, whichever is higher.

The Court observed that the appellant manufactures two categories of tools: those made in-house and used in their factory for manufacturing dutiable components, and those manufactured by subcontractors and billed to customers after adding a margin. The department accepted that the appellant's activity involving subcontractor-made tools billed to customers constitutes trading. Consequently, the entire amount billed towards trading activity was considered for the purpose of CENVAT credit reversal by the Original Authority.

The appellant contended that the Original Authority erroneously included the value of tools manufactured and used in-house within the trading turnover, which should have been excluded. They argued that the correct value for reversal should be computed strictly as the margin on trading activity, i.e., the difference between the sale price to customers and the cost paid to subcontractors, in line with Explanation 1(c) to Rule 6(3A). The appellant also submitted that all tools on which costs were recovered had been amortized and no tool cost was left out, implying that no excess credit reversal was warranted.

The Tribunal agreed that the value of traded tools should be recomputed based on the margin, as per Explanation 1(c), rather than the gross billed amount. It held that the Original Authority should verify the actual sale price and cost of goods sold to determine the correct margin for CENVAT credit reversal. The appellant's claim that the margin amount had been amortized was noted, indicating that the issue required factual verification.

On the second issue concerning the penalty and extended period of limitation, the appellant argued that any mistake was bona fide and arose from a misunderstanding of the law rather than deliberate suppression of facts. They contended that the extended period for demand and penalty should not apply in such circumstances.

The Original Authority had imposed penalty under Section 11AC and invoked extended period of limitation, treating the conduct as suppression. The Tribunal, however, refrained from deciding on these aspects at this stage, noting that the facts relating to suppression and bona fide mistake had not been examined in detail by the Original Authority. The Tribunal emphasized that if the appellant's explanation of bona fide mistake and amortization of margin is found true, it would not constitute deliberate suppression warranting penalty or extended limitation. Conversely, if deception is established, appropriate action may be taken.

The Tribunal therefore remanded the matter to the Original Authority for de novo adjudication, directing that the principles of natural justice be followed and the appellant be given a reasonable and time-bound opportunity to present their case. The remand was limited to the issue of correct valuation of traded tools for CENVAT credit reversal and the question of penalty and limitation period, excluding the part of the demand already dropped by the Commissioner and not challenged by Revenue.

Significant holdings include the following verbatim reasoning:

"As per Explanation 1(c) to rule 6 of CENVAT Credit Rules 2004, value for the purpose of sub rules (3) and (3A), in case of trading shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or 10% of the cost of goods sold whichever is more."

"The value of the traded goods (tools manufactured by the subcontractor on which the appellant added a margin) as represented by the difference between the sale price (price billed to the customer) and the cost of goods (price paid to the subcontractor) should have been worked out for reversal of credit as per rule 6(3). The claim hence requires verification."

"If it is found true and in the absence of any other charge of a blame worthy conduct, the act though incorrect, can be taken as a reasonable cause for non-compliance with the rule and not a case of deliberate suppression of fact / deception, thereby not attracting the larger period for demand of duty and imposition of penalty."

"We partly set aside the impugned order and remand the matter back to the Original Authority for de novo adjudication... The appellant should also co-operate with the adjudicating authority in completing the process expeditiously and in any case within ninety days of receipt of this order."

In conclusion, the Tribunal clarified that:

- The value for CENVAT credit reversal in respect of trading of tools must be computed as the margin between sale price and cost, not the gross billed amount.

- The Original Authority must verify the appellant's claim of amortization and bona fide mistake before deciding on penalty and extended period of limitation.

- The appeal is allowed in part, and the matter is remanded for fresh adjudication consistent with the Tribunal's directions.

Regarding the first issue, the legal framework involves provisions of the Central Excise Act, 1944, particularly Section 11AC dealing with penalty for suppression of facts and evasion of duty, and Section 11A(6) regarding payment of penalty during audit or investigation. The CENVAT Credit Rules, 2004, especially Rule 9(1)(b), govern the admissibility of credit on valid documents. Precedents relied upon include the Supreme Court decisions in Nirlon Ltd. v. Commissioner of Central Excise and Commissioner of Central Excise, Calcutta-II v. Indian Aluminium Co. Ltd., which clarify the necessity of mala fide intent to impose penalty and the principle that bona fide mistakes do not attract penalty.

The Tribunal analyzed the facts that the appellant manufacturer (BIPL) had inadvertently undervalued the job-work goods cleared to the supporting manufacturer (WAL) due to a system-generated cost data error. The system failed to account for the initial conversion costs incurred by WAL before the goods were sent to BIPL for plating. This led to the goods being valued below the actual cost, but the appellant had voluntarily paid the differential duty along with interest prior to issuance of the show cause notice. The appellant also filed a detailed affidavit explaining the sequence of transactions and the inadvertent nature of the undervaluation, which the adjudicating authority had not addressed or controverted.

The Tribunal noted that the entire transaction was revenue neutral because the duty short-paid by BIPL was ultimately paid and credited by WAL, and the final product cleared by WAL suffered the full duty at the selling price fixed by BIPL. This negated any revenue loss or gain from the undervaluation. The Tribunal emphasized that the Department failed to produce evidence of deliberate suppression or mala fide intent by BIPL, and the burden of proving such intent lies heavily on the revenue. Reliance was placed on the Apex Court's ruling that the absence of mala fide intention precludes imposition of penalty under Section 11AC.

Regarding the contention that BIPL's failure to pay the 1% per month penalty under Section 11A(6) indicated suppression, the Tribunal held that this provision applies only where extended period of limitation is invoked due to specific reasons such as fraud or willful misstatement. Since the appellant's error was inadvertent and bona fide, no such penalty was warranted or obligatory. The adjudicating authority's reasoning to the contrary was found to be a misinterpretation of the statutory provisions.

On the second issue concerning the supporting manufacturer WAL, the Tribunal considered whether the CENVAT credit availed on the supplementary invoice issued by BIPL was legitimate. Since the Tribunal concluded that BIPL's duty payment was valid and free of any taint of suppression or evasion, the invoice issued by BIPL was a valid document under Rule 9(1)(b) of the CENVAT Credit Rules, 2004. Consequently, WAL's availing of CENVAT credit on that invoice was lawful. The penalty imposed on WAL for availing such credit was therefore unsustainable and was set aside.

The Tribunal also addressed the argument that even if suppression were assumed, WAL would still be entitled to credit based on precedents where credit was allowed in the absence of malafide intention or revenue loss. However, since no suppression was found, this was a supplementary observation.

In conclusion, the Tribunal held that the undervaluation by BIPL was a bona fide inadvertent error without any intention to evade duty. The voluntary payment of differential duty and interest prior to notice further evidenced good faith. The penalty imposed under Section 11AC on BIPL was set aside as unsustainable. Similarly, the CENVAT credit availed by WAL on the supplementary invoice was held to be legitimate, and the penalty imposed on WAL was also set aside.

Significant holdings include the following verbatim excerpt from the Apex Court in Nirlon Ltd.:

"9. We have ourselves indicated that the two types of goods were different in nature. The question is about the intention, namely, whether it was done with bona fide belief or there was some mala fide intentions in doing so. It is here we agree with the contention of the learned Senior Counsel for the appellant, in the circumstances which are explained by him and recorded above. It is stated at the cost of repetition that when the entire exercise was revenue neutral, the appellant could not have achieved any purpose to evade the duty.

10. Therefore, it was not permissible for the respondent to invoke the proviso to Section 11A(1) of the Act and apply the extended period of limitation. In view thereof, we confirm the demand insofar as it pertains to show cause notice dated 25-2-2000. However, as far as show cause notice dated 3-3-2001 is concerned, the demand from February, 1996 till February, 2000 would be beyond limitation and that part of the demand is hereby set aside. Once we have found that there was no mala fide intention on the part of the appellant, we set aside the penalty as well."

Core principles established are that mere inadvertent or bona fide mistakes in valuation, which are rectified voluntarily before notice, do not attract penalty under Section 11AC; that the burden of proving mala fide intent lies on the revenue; that revenue neutrality negates intent to evade duty; and that CENVAT credit availed on valid invoices, free from suppression, is legitimate.

Final determinations are: (1) The undervaluation by BIPL was inadvertent and bona fide; (2) Penalty under Section 11AC imposed on BIPL is set aside; (3) CENVAT credit availed by WAL on the supplementary invoice is lawful; and (4) Penalty imposed on WAL is set aside. Both appeals are allowed accordingly.

1. Whether the appellant was liable to reverse cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004 (CCR, 2004) on the clearance of non-dutiable scrap/assets such as office equipment, vehicles, furniture & fixtures, computers, scrapped batteries, scrap structure steel, and other used materials.

2. Whether the assets cleared by the appellant fall within the definition of 'exempted goods' under Rule 2(d) read with Explanation 1 to Rule 6(1) of CCR, 2004, especially in light of the Explanation inserted by Notification No. 6/2015-CE (N.T.) dated 1.3.2015.

3. Whether the extended period of limitation for recovery proceedings was properly invoked by the Revenue for demands pertaining to the period prior to the issuance of the Show Cause Notices in November 2019.

Issue-wise Detailed Analysis

Issue 1: Applicability of Rule 6(3) CCR, 2004 on clearance of non-dutiable scrap/assets

Relevant legal framework and precedents: Rule 6 of CCR, 2004 mandates reversal of cenvat credit on clearance of exempted goods. Rule 6(3) specifically requires reversal of credit at the prescribed rate when such goods are cleared. The Explanation 1 inserted by Notification dated 1.3.2015 expanded the definition of exempted goods to include 'non-excisable goods' cleared from the factory for consideration.

Court's interpretation and reasoning: The Tribunal emphasized that Rule 6 applies exclusively to the manufacture and clearance of exempted goods. The term 'manufacture' is a sine qua non for the applicability of Rule 6. The appellant's scrap/assets were not manufactured by them; they are engaged in manufacturing 'Sponge Iron' and 'Liquid Carbon Dioxide'. The scrap/assets in question were neither main products nor by-products of the manufacturing process.

Key evidence and findings: The appellant produced documentary evidence (invoices) showing the nature and dates of clearance of scrap/assets. The Tribunal noted that these were non-dutiable assets cleared by the appellant and not manufactured goods.

Application of law to facts: Since the assets cleared were not manufactured goods, Rule 6 and its provisions regarding reversal of cenvat credit do not apply. The Explanation 1 to Rule 6(1) which includes 'non-excisable goods' only applies when such goods are manufactured and cleared for consideration. The appellant's case falls outside this scope.

Treatment of competing arguments: The Revenue relied on the expanded definition of exempted goods to argue that the appellant should have reversed credit. However, the Tribunal distinguished the Revenue's reliance on a precedent involving trading activity, which is not analogous since the appellant was a manufacturer and the scrap/assets were not manufactured goods. The Tribunal rejected the Revenue's contention, holding that Rule 6 cannot be invoked for clearance of non-manufactured goods.

Conclusion: The appellant was not liable to reverse cenvat credit under Rule 6(3) on the clearance of non-dutiable scrap/assets.

Issue 2: Whether the assets cleared are 'exempted goods' under Rule 2(d) r/w Explanation 1 to Rule 6(1) CCR, 2004

Relevant legal framework and precedents: Rule 2(d) defines exempted goods, and Explanation 1 to Rule 6(1) (effective from 1.3.2015) includes non-excisable goods cleared from the factory for consideration within this definition. The key condition is that the goods must be manufactured by the assessee.

Court's interpretation and reasoning: The Tribunal held that the Explanation 1's inclusion of non-excisable goods is conditional upon the manufacture of such goods. The appellant's cleared scrap/assets were not manufactured by them, and thus do not qualify as exempted goods under Rule 2(d) or Explanation 1.

Key evidence and findings: The appellant's admitted manufacturing activities and the nature of the cleared goods (scrap/assets) were examined. The Tribunal found no evidence to show that the scrap/assets were manufactured goods.

Application of law to facts: Since the goods cleared were not manufactured, they cannot be classified as exempted goods under the relevant provisions, and therefore the reversal provisions under Rule 6 do not apply.

Treatment of competing arguments: The Revenue's argument that the goods fall within the expanded definition of exempted goods was rejected due to the absence of manufacture. The Tribunal also distinguished the cited precedent involving trading activities, which is not applicable here.

Conclusion: The assets cleared by the appellant are not 'exempted goods' under Rule 2(d) r/w Explanation 1 to Rule 6(1) CCR, 2004.

Issue 3: Validity of invoking extended period of limitation for recovery of demands relating to invoices dated prior to November 2017

Relevant legal framework and precedents: The limitation period for initiating recovery proceedings under service tax law is generally three years from the relevant date. The Show Cause Notices were issued on 19.11.2019, so demands relating to periods prior to November 2016 are barred by limitation unless extended period is validly invoked.

Court's interpretation and reasoning: The Tribunal noted that the demand for the period 2014-15, particularly for invoices dated from 31.5.2014 to 31.10.2014, was clearly beyond the extended period of limitation. The adjudicating authority noted the appellant's submissions on limitation but failed to give any finding. The first appellate authority also did not address this issue.

Key evidence and findings: Documentary evidence in the form of invoices substantiating the dates and amounts was produced by the appellant. The Tribunal found that the demand for Rs.3,51,039/- relating to the 2014-15 period was time-barred.

Application of law to facts: Since the Show Cause Notices were issued in November 2019, demands pertaining to periods earlier than November 2016 are barred by limitation and liable to be set aside.

Treatment of competing arguments: The Revenue did not produce any valid justification for invoking the extended period of limitation for the earlier period. The Tribunal found the Revenue's failure to address the limitation issue significant.

Conclusion: The demands relating to the period prior to November 2016, particularly for the 2014-15 invoices, are barred by limitation and not sustainable.

Significant Holdings

"The essential requirement for invoking Rule 6 ibid is the manufacture of exempted goods. The explanation inserted therein w.e.f. 1.3.2015 includes 'non-excisable goods' only when they are being manufactured there and cleared for consideration."

"Once if Rule 6 ibid is held to be applicable in a given situation, then only the applicability of Rule 2(d) can be looked into but that is not the case here."

"The scrap/assets cleared by the appellant were not manufactured by the appellant as they are into the manufacturing of 'Sponge Iron' and 'Liquid Carbon Dioxide'. These scrap/assets in question were neither the main products nor bye products."

"From the perusal of the above table it is clear that demand pertaining to invoices from dated 31.5.2014 till 31.10.2014 is clearly hit by limitation as the show cause notice itself was issued in November, 2019, hence liable to be set aside on this ground alone."

"In the light of the foregoing discussions, the demands in question are not sustainable. Accordingly the impugned orders are set aside and the appeals are allowed with consequential relief, if any, in accordance with law."

Another related issue was the interpretation and applicability of various statutory provisions under the Central Excise Act, 1944, namely Sections 11B, 11BB, 35F, and 35FF, as they stood at the time of the deposit (2006) and at the time of refund claim (2020). The Tribunal also examined whether the principles laid down in landmark Supreme Court decisions, particularly the Sandvik Asia Ltd. case and its subsequent clarifications, support the appellant's claim for interest on the refund amount.

Regarding the first issue of entitlement to interest on refund sanctioned within two months, the Tribunal analyzed the relevant statutory framework. Section 11B of the Central Excise Act, 1944, as it stood in 2006, provides for the claim of refund of duty and interest, if any, paid on such duty. The 'relevant date' for refund claims arising from appellate orders is the date of such judgment or order. Section 11BB prescribes interest on delayed refunds when the refund is not made within three months from the date of receipt of the refund application. In the instant case, since the refund was sanctioned within two months, no delay occurred, and therefore, no interest is payable under Section 11BB.

The appellant contended that the amount deposited during investigation was a deposit under protest and not a payment of duty, thus entitling them to interest as compensation for wrongful deprivation of use of funds since June-July 2006. The Tribunal rejected this contention, emphasizing that the payment made during investigation is treated as duty amount and not a pre-deposit for appeal under Section 35F. The latter provision applies only to deposits made to avail the right of appeal and was not applicable here, as the deposit was made during investigation and not for filing any appeal. Moreover, Section 35FF, which provides for interest on delayed refunds of pre-deposits under Section 35F, was introduced only in 2008, two years after the deposit in question.

The Tribunal further noted that the appellant's reliance on judicial precedents such as Sandvik Asia Ltd., Ranbaxy Laboratories Ltd., and Kull Fire Works was misplaced. In Sandvik Asia Ltd., the Supreme Court awarded interest as compensation due to an inordinate delay of 17-18 years by the revenue in refunding amounts, including interest. The Tribunal highlighted the clarification by a Three Judges' Bench of the Supreme Court in a later case, which explained that the Sandvik decision was confined to compensation for undue delay in refund payment and did not establish a general right to interest on interest or interest from the date of deposit during investigation. The Tribunal reproduced the relevant paragraphs from the later Supreme Court judgment, emphasizing that Sandvik addressed compensation for delay and not entitlement to interest on deposits made during investigation.

The Tribunal also distinguished the appellant's case from those where pre-deposits under Section 35F were involved or where the Income Tax Act's provisions on interest on refunds were applicable. The Central Excise Act, as it stood in 2006, did not contain provisions for interest on refunds of amounts deposited during investigation, and the Tribunal cannot grant interest beyond the statutory scheme. The Tribunal underscored that it is a creature of statute and must act within the four corners of the law, without exercising powers akin to constitutional courts.

In applying the law to the facts, the Tribunal found that since the refund was sanctioned promptly within two months of the refund claim, no delay existed to justify interest under Section 11BB. The amount deposited was treated as duty paid during investigation, not as a pre-deposit for appeal, hence Sections 35F and 35FF were inapplicable. The appellant's claim for interest from the date of deposit in 2006 was therefore not sustainable under the statutory provisions in force at the relevant time.

The Tribunal considered and rejected the competing arguments of the appellant regarding the nature of the deposit and the entitlement to interest, as well as the revenue's position that the refund and interest claims must be governed strictly by the statutory provisions. The Tribunal found the revenue's submissions consistent with the statutory framework and judicial precedents, including the appellant's own reliance on the Ranbaxy Laboratories Ltd. decision.

Consequently, the Tribunal concluded that the impugned orders rejecting interest on the refund amount were legally sound and dismissed the appeal.

The significant holdings of the Tribunal include the following:

"The amount in issue becomes refundable consequent to the order of the Tribunal dated 22.11.2019 and prior to that there was no ground for the appellant to claim any refund."

"Section 35 ibid applies only on pre-deposit made for availing the right of appeal and the said amount is liable to be refunded when the appeal is allowed with consequential relief since it is not a payment of duty."

"Section 11B ibid provides the procedure and prescribed the limitation of one year from the relevant date for filing application for refund. The 'relevant date' as per Explanation (B) clause (ec) of section 11B ibid means in case where the duty becomes refundable as a consequence of judgment, decree or a direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction."

"Section 11BB ibid at that time provides for interest on delayed refunds when the duty ordered to be refunded u/s. 11B ibid is not refunded within three months from the date of receipt of application for refund. Since there is no such delay herein, as the refund was granted within two months of filing refund application, no interest can be allowed under the said provision."

"The aforesaid decision [Sandvik Asia Ltd.] has been clarified by the Hon'ble Three Judges' Bench of the Hon'ble Supreme Court... In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue... the Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period... the Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest."

"The payment made during the course of investigation cannot take the color of pre-deposit by any stretch and it will be treated as duty amount only."

"The Tribunal, being a statutory tribunal, exercise powers conferred by the statute. The powers of Tribunal are circumscribed by the statute and it cannot act beyond the statutory provisions."

"Since at the relevant time there was no provision in the Central Excise Act prescribing payment of interest from the period of deposit during investigation until refund, the same cannot be granted to the appellant."

"It is undoubtedly true if the department is negligent or there was inordinate delay in releasing the refund then certainly taking recourse to the law laid down by the Hon'ble Supreme Court in the matter of Sandvik India Ltd. as a compensatory measure interest on refund could have been considered but such is not the case here as there is no delay at all and within two months of filing application for refund the same was sanctioned."

In sum, the Tribunal held that the appellant is not entitled to interest on the refund amount where the refund is sanctioned within the statutory period of three months, and the amount deposited during investigation is treated as duty paid, not a pre-deposit for appeal. The statutory provisions in force at the relevant time do not provide for interest on such refunds from the date of deposit, and the principles laid down in judicial precedents concerning compensation for delay are inapplicable in the absence of any delay.

1. Whether the appellant is eligible for exemption from Central Excise duty under Notification No.05/2006-CE (Sl. No.10) dated 01.03.2006 as amended by Notification No.15/2009-CE dated 07.07.2009 and Notification No.12/2012-CE (Sl. No.186) dated 17.03.2012, on reinforced concrete girders manufactured at a factory located approximately 6 kilometers away from the actual construction site.

2. Whether the premises used for manufacturing the girders can be considered as the "site" of construction within the meaning of the exemption notifications, despite not being specifically mentioned in the original contract but approved subsequently by the project authority.

3. Whether the extended period of limitation and penalty imposed on the appellant for non-payment of duty are justified.

4. The correctness of the methodology adopted by the department in computing the duty demand and whether the demand is revenue neutral.

Issue-wise Detailed Analysis:

Issue 1 & 2: Eligibility for Exemption under Notification and Definition of "Site"

The legal framework revolves around Notification No.05/2006-CE (Sl. No.10) and its amendments, which exempt goods manufactured at the site of construction for use in construction work at that site from Central Excise duty. Notification No.12/2012-CE introduced an Explanation defining "site" as any premises made available for manufacture of goods by specific mention in the contract or agreement, provided the goods are solely used for the construction work.

Precedents relied upon by the appellant include judgments from this Tribunal and High Courts that have broadly interpreted "site" to include premises approved by the principal (project authority) for manufacturing construction materials, even if physically distant from the actual construction site. Notably, the Tribunal in M/s. Simplex Concrete Piles (I) Ltd. vs. CCE held that the expression "site" should not be given a restrictive meaning and includes any premises approved by the principal for manufacture of goods used exclusively in the construction work.

The appellant's contract with the project authority (BMRCL) did not provide land for manufacturing activities, requiring the appellant to arrange their own premises. Although the factory was 6 km away from the project site, BMRCL issued a letter approving the premises for precasting activities, which the appellant contended forms part of the contract. Clause 19.1 of the contract explicitly treats segmental construction at nominated places as part of the construction work covered under the agreement.

The Commissioner denied exemption on the ground that the premises was not part of the contract and was located away from the project site, relying on Circular No.456/22/99-CX which was interpreted restrictively. The Court, however, found this reasoning untenable, emphasizing the broader interpretation endorsed by the Board's Circular dated 18.05.1999 and the subsequent insertion of the Explanation in Notification No.12/2012-CE clarifying the meaning of "site".

The Court held that the approval letter from BMRCL, though not originally part of the contract, effectively forms part of the contractual arrangement and that the physical distance of 6 km cannot be a valid ground to deny exemption, especially given the practical constraints of carrying out precasting activities in congested urban areas.

The Court distinguished the Larger Bench decision in Asian Tech vs. CCE, Pune-II, which dealt with the classification of PSC girders under Central Excise Tariff and the applicability of a different notification, noting that it did not address the definition of "site" or the exemption notifications in question.

Issue 3: Extended Period of Limitation and Penalty

The appellant argued there was no suppression of facts warranting invocation of the extended period of limitation, and hence penalties imposed were unsustainable. They contended the demand was revenue neutral and the methodology adopted by the department was incorrect. The appellant relied on Supreme Court judgments that have held penalties and extended limitation periods unjustified in the absence of suppression or fraud.

The Revenue contended that the appellant deliberately avoided registration and payment of duty despite clear legal position against exemption, justifying extended limitation and penalty. The Court, however, did not find merit in the Revenue's contention given the appellant's eligibility for exemption as per the broader interpretation of the notifications and supporting contract documents. Thus, the justification for extended limitation and penalty was undermined.

Issue 4: Correctness of Demand Computation and Revenue Neutrality

The appellant submitted that the department's demand computation was flawed and the entire exercise was revenue neutral, implying the demand should not be sustained. They supported this with apex court rulings emphasizing correct valuation and duty computation principles.

The Court did not delve deeply into the technicalities of demand computation but indicated that since the exemption claim was valid, the demand itself could not be sustained, implicitly addressing concerns about revenue neutrality.

Significant Holdings:

The Court held: "Merely because the site is away by 6 km from the project site, which is situated in a traffic congestion area having no place to carry out the pre-casting activities, it cannot be a valid ground for denying the benefit of the said Notification."

It further observed: "The expression 'site' may not be given a restrictive meaning and shall include any premises made available to the manufacture of goods... by way of a specific mention in the contract for such construction work provided that the goods manufactured at site premises are solely used in the said construction work only."

The Court rejected the Revenue's reliance on the Larger Bench decision in Asian Tech (supra) as not applicable to the issue of exemption under the relevant notifications.

Consequently, the Court set aside the impugned orders confirming duty demands, interest, and penalties, allowing the appeals and granting consequential relief as per law.

1. Whether the appellant is entitled to interest on the refund of a pre-deposit amount made under Section 35F of the Central Excise Act, 1944, and if so, from which date the interest should be calculated-whether from the date of deposit or from the date of communication of the appellate order or the date of refund.

2. The applicability and interpretation of Section 35FF of the Central Excise Act, 1944, including its proviso relating to deposits made prior to the Finance (No. 2) Act, 2014 amendment.

3. The relevance and applicability of Sections 11B and 11BB of the Central Excise Act concerning refund claims and interest on delayed refunds.

4. The extent to which precedents, including Supreme Court and Tribunal decisions, support the appellant's claim for interest from the date of deposit.

5. Whether the interest rate applicable should be the statutory rate prescribed under the Act or a higher rate as awarded by courts under equitable principles or compensation doctrines.

6. The distinction between deposits made as pre-deposits under Section 35F and other types of deposits made during investigations or adjudication proceedings, and the consequent effect on interest entitlement.

7. The legal framework governing the payment of interest on delayed refunds, including the interplay between statutory provisions and equitable principles.

Issue-wise Detailed Analysis:

Issue 1 & 2: Entitlement to Interest on Refund of Pre-Deposit and Date from Which Interest is Payable

The relevant legal framework includes Section 35F (requiring pre-deposit for appeals), Section 35FF (interest on delayed refund of such deposits), and Sections 11B and 11BB (refund claims and interest on delayed refunds) of the Central Excise Act, 1944. Section 35FF prior to the 2014 amendment provided for interest payable only if the refund was delayed beyond three months from the date of communication of the appellate order. Post-2014 amendment, interest is payable from the date of payment of the amount till refund, but the proviso preserves the pre-2014 regime for deposits made prior to the amendment.

The appellant had deposited Rs. 60 lakh as a pre-deposit in 2007 pursuant to a CESTAT order and claimed refund in 2017 after the matter was decided in their favor. The original authority allowed the refund without interest. The Commissioner (Appeals) allowed interest only from three months after the communication of the appellate order until refund, rejecting the appellant's claim for interest from the date of deposit.

The Tribunal examined Section 35FF and held that since the deposit was made before the 2014 amendment, the pre-amendment provision applies, entitling interest only after three months from the date of communication of the appellate order. The Tribunal relied on multiple precedents confirming this interpretation, including decisions from various CESTAT benches and High Courts.

The appellant's reliance on judgments awarding interest from the date of deposit was distinguished on the ground that those cases involved deposits made during investigations or under departmental instructions, not pre-deposits under Section 35F. The Tribunal emphasized that pre-deposits are security deposits, not duty payments, and thus Sections 11B and 11BB do not apply to them.

Issue 3 & 4: Applicability of Sections 11B and 11BB and Precedents on Interest Calculation

Section 11B requires a formal application for refund of duty and interest, and Section 11BB prescribes interest on delayed refunds from the date of receipt of such application. The Tribunal noted that pre-deposits under Section 35F are distinct from duty payments and do not require an application for refund under Section 11B. Section 35FF specifically governs interest on delayed refund of pre-deposits.

The appellant cited decisions such as Riba Textiles Ltd. and Marshall Foundry & Engg. Pvt. Ltd., which held that interest should be paid from the date of deposit. However, the Tribunal found these decisions distinguishable because they dealt with deposits other than pre-deposits under Section 35F.

The Tribunal also reviewed the Supreme Court's decision in Sandvik Asia Ltd., which recognized entitlement to interest on delayed refunds but emphasized that the rate and period of interest must follow statutory provisions unless exceptional circumstances justify equitable compensation. The Tribunal observed that Sandvik Asia involved extraordinary delays and compensation, which is not the case here.

Issue 5: Rate of Interest and Compensation Principles

The statutory rate of interest under Section 11BB ranges between 5% and 36%, fixed by government notification. The appellant sought interest at 12%, relying on various judicial pronouncements awarding this rate as reasonable. The Tribunal acknowledged that while courts have discretion to award interest as compensation in the absence of statutory provisions, where the statute prescribes interest, that provision governs.

The Tribunal referred to decisions such as Parle Agro Pvt. Ltd. and Continental Engines Pvt. Ltd., which endorsed 12% as an appropriate rate for interest on delayed refunds or deposits, noting the variation in rates prescribed under different sections of the Central Excise Act. However, the Tribunal emphasized adherence to the statutory scheme applicable to pre-deposits under Section 35F and 35FF.

Issue 6: Distinction Between Pre-Deposits and Other Deposits

The Tribunal underscored the distinction between pre-deposits under Section 35F and other deposits made during investigations or adjudication. Pre-deposits are security deposits required for filing appeals and are not treated as duty payments. This distinction affects the entitlement to interest and the applicable statutory provisions.

The appellant's reliance on judgments involving deposits during investigations was rejected as not applicable to pre-deposits. The Tribunal reiterated that Sections 11B and 11BB, which govern refund of duty and interest, do not apply to pre-deposits, which are governed by Section 35FF.

Issue 7: Legal Framework Governing Interest on Delayed Refunds

The Tribunal analyzed the interplay between Sections 11B, 11BB, 35F, and 35FF, and relevant Supreme Court decisions. It noted that Sections 11B and 11BB require a refund application and govern interest on delayed refunds of duty, whereas Section 35FF imposes an obligation to pay interest on delayed refund of pre-deposits without requiring an application.

The Tribunal highlighted the Supreme Court's rulings in Ranbaxy Laboratories Ltd. and subsequent decisions, which clarified that interest under Section 11BB commences after three months from receipt of refund application, not from the date of deposit or appellate order. The Tribunal also referred to the Delhi High Court's decision in Goldy Engineering Works, which distinguished between refund of duty and refund of pre-deposits, reinforcing the statutory scheme.

The Tribunal concluded that the appellant is entitled to interest under Section 35FF at the rate prescribed in Section 11BB, payable after three months from communication of the appellate order, consistent with the proviso preserving the pre-2014 regime for deposits made before the amendment.

Competing Arguments and Treatment

The appellant argued for interest from the date of deposit based on equitable principles and various judicial precedents awarding such interest. The Revenue and the Commissioner (Appeals) contended that the statutory provisions, particularly the proviso to Section 35FF, limit interest to the period after three months from communication of the appellate order.

The Tribunal carefully distinguished the precedents cited by the appellant, noting differences in factual and legal contexts, especially regarding the nature of the deposit. It emphasized strict adherence to the statutory provisions governing pre-deposits and interest entitlement.

The Tribunal also addressed the appellant's reliance on judgments awarding higher rates or interest from the date of deposit, clarifying that such awards are exceptions or based on equitable grounds where statutory provisions are silent or inapplicable, which is not the case here.

Conclusions

The Tribunal held that the appellant is entitled to interest on the refund of the pre-deposit amount, but such interest is payable only after the expiry of three months from the date of communication of the appellate order, not from the date of deposit.

The interest rate is to be as specified in Section 11BB of the Central Excise Act, consistent with the statutory scheme and government notifications.

The appeal was dismissed, affirming the Commissioner (Appeals) order.

Significant Holdings:

"From the aforesaid provisions of law, it is clear that earlier the interest was liable to be paid only in the case of delay beyond three months in granting the refund, whereas post 6-8-2014, the interest will have to be paid from the date of payment of the amount till the date of refund of such amount. Proviso to Section 35FF as extracted supra clearly mandates that the earlier provision of Section 35FF shall apply to the amount deposited prior to the commencement of 2014 Act."

"Therefore, I conclude that in the present case, interest is payable to the appellant at the rate specified in Section 11BB after the expiry of three months from the date of communication of the order of the appellate authority, till the date of refund of such amount and not from the date of payment of said amount of Rs. 60 Lacs."

"Section 11B(1) in clear and unambiguous terms contemplates the making of an application for refund being made by any person claiming refund of any duty of excise and interest paid on such duty. The claim of refund insofar as the petitioner is concerned arose in the backdrop of the order in original coming to be set aside in appeal. The petitioner appears to have made an application for refund ultimately and only after the departmental appeal before the CESTAT came to be dismissed."

"Section 35FF as distinct from Section 11B does not require the making of a formal application by the assessee. In fact and contrary to Section 11B, the said provision uses the expression '...there shall be paid to the appellant interest...'. Thus, the language of Section 35FF is an embodiment of the manifest obligation of the respondents to refund the pre-deposit consequent to an order passed by the Appellate Authority notwithstanding an application having not been made by the depositor."

"The liability of the revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the said period from the date on which order of refund is made."

"Interest on delayed refund is clearly dependent upon the making of a formal application as stipulated by Section 11B of the 1944 Act. The distinction between Sections 11B and 35FF is also evident when one bears in mind the language employed in the latter and which stipulates that interest would commence from the date when the amount deposited by the appellant under Section 35F is required to be refunded consequent to an order passed by the Appellate Authority."

"When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the Court has to take all relevant factors into consideration while awarding the rate of interest on the compensation."

"The appellant is entitled to claim the interest on delayed refund from the date of deposit till its realization." (Distinguished on facts by the Tribunal as not applicable to pre-deposits under Section 35F.)

"The appeal is dismissed."

(i) Whether the State of Tamil Nadu has the power to collect tax on electricity supplied and consumed through inter-State open access systems or purchases through power exchanges such as the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL).

(ii) Whether the Tamil Nadu Tax on Consumption or Sale and Electricity Tax Act, 2003 (Act 12 of 2003), enacted without reference to the concept of open access and power purchases through exchanges, can be applied to levy and collect tax on intra-State consumption of electricity procured through open access systems.

(iii) Whether tax is leviable on captive generation and consumption of electricity under the said Act.

(iv) Whether the impugned Government Order G.O.Ms.No.121, dated 23.12.2010, which designates officers for collection of electricity tax, is liable to be quashed on grounds of procedural or substantive illegality.

(v) Whether the collection of tax through licensees such as TANGEDCO is illegal due to the absence of a statutory mechanism for assessing and collecting such tax.

Issue-wise Detailed Analysis:

(i) Power of the State to Collect Tax on Electricity Supplied and Consumed Through Inter-State Open Access Systems/Purchases Through Exchanges

The legal framework centers on Entry 53 of List II of the Seventh Schedule of the Constitution of India, which empowers States to levy tax on the consumption or sale of electricity. Section 3(1)(c) of Act 12/2003 imposes tax on electricity consumption by persons other than licensees, at rates notified by the Government.

The Court analyzed the nature of electricity as "goods" under Article 366(12) and judicial precedents, including a Constitution Bench judgment which held that electricity cannot be stored and that generation, sale, supply, and consumption occur simultaneously without any hiatus. This principle implies that consumption and sale are inseparable for taxation purposes.

However, the introduction of the Indian Electricity Act, 2003, and the concept of open access, permitting consumers to purchase electricity directly from generators or exchanges, complicates the traditional understanding. Open access allows consumers to procure electricity through inter-State transmission systems, with associated wheeling and transmission charges regulated by Central and State Commissions.

The Court noted the constitutional amendments via the One Hundred and First Amendment Act, 2016, adding Article 269A and modifying Article 286, which govern the levy and collection of Goods and Services Tax (GST) on inter-State supplies, including electricity. These provisions restrict States from imposing tax on supplies occurring outside their territory or in the course of inter-State trade or commerce.

Given that electricity purchased through exchanges like IEX is treated as an inter-State transaction, the Court held that the State of Tamil Nadu lacks the constitutional competence to levy tax on such inter-State electricity consumption, despite the consumption physically occurring within the State. The Court emphasized that Section 3(1)(c) of Act 12/2003 cannot be interpreted to override the constitutional restrictions imposed by Articles 269A and 286.

(ii) Applicability of Act 12/2003 to Open Access Purchases and Intra-State Consumption Without Subsequent Amendments

The Act 12/2003 was enacted prior to the Electricity Act, 2003, and before the open access regime was introduced. The Court acknowledged that tax statutes are generally technology-neutral and may apply to new forms of transactions arising after enactment, provided the language of the statute covers them clearly.

However, the Court found that Section 3(1)(c) specifically taxes consumption "for own use" by persons other than licensees, a phrase interpreted to apply primarily to captive generating plants. The term "consumer" is notably absent in this charging provision, indicating legislative intent to exclude open access consumers from this tax.

The Court held that the Government Order G.O.Ms.No.55, dated 20.10.2021, which directs TANGEDCO to collect tax on electricity procured through exchanges and open access, is not supported by the charging provisions of the Act and is therefore liable to be quashed. The Court left open the possibility for the State to amend the Act to expressly cover intra-State open access purchases if it so desires.

(iii) Levy of Tax on Captive Generation and Consumption

The Act defines "captive generating plant" as a power plant set up primarily for own use, with allowance for sale of surplus power. The definition of "consumer" includes persons supplied electricity by licensees or those consuming self-generated electricity.

Section 3(1)(c) imposes tax on consumption for own use by persons other than licensees, which includes captive generating plants. The Court affirmed that the State is entitled to levy and collect tax on captive generation and consumption at the prescribed rates (not less than Rs. 0.10 and not more than Rs. 0.20 per unit).

(iv) Validity of G.O.Ms.No.121, dated 23.12.2010

This Government Order designates various officers and officials of TANGEDCO and the Electricity Department as authorities for collection and inspection of electricity tax under Act 12/2003. The petitioners challenged this order on grounds that it contradicts the Act and Rules and lacks a proper mechanism for assessment and collection.

The Court examined the statutory provisions, including Sections 5 (registration), 7 (recovery as arrears), 8 (maintenance of accounts and returns), 9 (assessment procedure), 10 (appeal), 12 (appointment of inspecting officers), and 13 (powers of inspecting officers), along with the Rules framed under the Act.

It was held that the Act and Rules provide a comprehensive mechanism for levy, assessment, collection, and enforcement of electricity tax. Since TANGEDCO is the distribution licensee with access to metering data and billing infrastructure, it is appropriate and lawful for TANGEDCO and its officers to collect the tax. The Government Order does not violate the Act or Rules and is therefore upheld.

(v) Legality of Collection of Tax Through Licensee in Absence of a Statutory Mechanism

The Court rejected the contention that collection of tax through licensees is illegal due to lack of statutory procedure. The Act and Rules explicitly empower licensees to include electricity tax as a separate item in consumer bills and to recover the tax along with consumption charges. The statutory framework includes provisions for registration, accounting, assessment, inspection, and appeals, providing a valid mechanism for collection and enforcement.

Therefore, the collection of tax through TANGEDCO is lawful and consistent with the statutory scheme.

Significant Holdings and Core Principles:

"The taxing event is the consumption of energy. The source from which the electricity is acquired is altogether irrelevant." (Paragraph 48)

"Electricity is goods. It is capable of abstraction, consumption and use... electricity cannot be preserved or stored; generation, sale, supply, and consumption occur simultaneously without any hiatus." (Paragraph 50)

"Entry 53 should therefore be read as 'taxes on the consumption or sale for consumption of electricity'." (Paragraph 50)

"The State of Tamil Nadu lacks the power to impose tax on electricity procured through inter-State open access systems or exchanges, as such transactions fall within the domain of inter-State trade or commerce governed by Article 269A and Article 286 of the Constitution." (Paragraph 58)

"Section 3(1)(c) of Act 12/2003 does not cover consumers procuring electricity through open access or power exchanges; it is confined to captive generating plants consuming electricity for own use." (Paragraph 61)

"The Government Order G.O.Ms.No.121, dated 23.12.2010, is a valid delegation of authority to TANGEDCO and its officers to collect electricity tax under the Act and Rules, given their access to metering and billing data." (Paragraph 67)

"The collection of electricity tax through licensees is lawful and supported by the statutory provisions, including provisions for assessment, inspection, and appeals." (Paragraph 69)

Final Determinations:

(i) The State of Tamil Nadu does not have the constitutional or statutory power to levy and collect tax on electricity consumed through inter-State open access systems or purchased via power exchanges such as IEX or PXIL. Such transactions are inter-State supplies and fall under the exclusive jurisdiction of the Union under GST provisions.

(ii) The Tamil Nadu Act 12/2003, as presently enacted, does not encompass intra-State open access purchases or power exchange transactions. The Government Order G.O.Ms.No.55, dated 20.10.2021, attempting to levy tax on such consumption through TANGEDCO, is quashed.

(iii) Tax on captive generating plants consuming electricity for own use is validly leviable under Section 3(1)(c) of Act 12/2003, and the State may collect such tax at prescribed rates.

(iv) The Government Order G.O.Ms.No.121, dated 23.12.2010, which designates collection authorities and empowers TANGEDCO and its officers to collect electricity tax on captive generation and consumption, is upheld as valid and consistent with the Act and Rules.

(v) The mechanism for collection of electricity tax through licensees is lawful, and the absence of a separate statutory procedure does not invalidate the collection process under the existing statutory framework.

1. Whether the appellate court was justified in reversing the trial court's conviction under Section 138 of the Negotiable Instruments Act (NI Act), by holding that the complainant failed to prove the transaction leading to the execution of the cheque (Ext.P2) and the agreement (Ext.P1).

2. Whether interference is warranted in the appellate court's judgment of acquittal.

3. The appropriate order to be passed in light of the findings on the above issues.

Issue-wise Detailed Analysis:

Issue 1: Justification of appellate court's reversal of trial court's conviction under Section 138 of the NI Act

Relevant legal framework and precedents: Section 138 of the NI Act penalizes the drawer of a cheque if it is dishonoured for insufficiency of funds or other reasons. Sections 118 and 139 of the NI Act create presumptions in favor of the holder of the cheque: Section 118 presumes the existence of a debt or liability, and Section 139 presumes that the cheque was issued for discharge of such debt or liability. The burden lies on the accused to rebut these presumptions by adducing evidence. The Supreme Court's decision in Bir Singh v. Mukesh Kumar (2019) extensively clarified these principles, emphasizing that even a blank cheque voluntarily signed and handed over by the drawer attracts these presumptions unless rebutted by cogent evidence. It further held that the fact that the cheque was filled in by someone other than the drawer does not invalidate the cheque or absolve the drawer of liability.

Court's interpretation and reasoning: The trial court convicted the accused on the basis of the complainant's evidence (PW1) and the documents marked (Ext.P1 to Ext.P7), which included the agreement acknowledging the debt, the cheque issued, the dishonour memo, and notices exchanged. The accused was given opportunity to cross-examine PW1 and to produce defense evidence but did not do so. The trial court found the accused guilty under Section 138 of the NI Act.

The appellate court reversed this finding, primarily on the ground that the complainant's evidence was insufficient and not credible. It noted that PW1 did not deny that the cheque was filled in by him (the complainant) and that the signature and the entries were in different inks, leading to doubt about the authenticity of the cheque and the transaction. It also observed that no independent witness was examined to corroborate the complainant's case and that there was no direct proof that the accused signed the agreement (Ext.P1) in the presence of the complainant. The appellate court thus found lacunae in the complainant's evidence and acquitted the accused.

The High Court, on appeal, disagreed with the appellate court's hypertechnical approach. It emphasized that the complainant's evidence was not effectively challenged in cross-examination and that the accused did not produce any evidence to rebut the presumption under Sections 118 and 139 of the NI Act. The High Court relied on the binding precedent in Bir Singh's case, which clarified that the cheque need not be handwritten by the drawer and that the payee filling in the cheque does not invalidate the instrument. The High Court held that the appellate court erred in disbelieving the complainant's evidence merely because the complainant did not deny the suggestion that he filled in the cheque. The High Court further noted that the accused admitted borrowing Rs.1,15,000/- and repaying Rs.1,00,000/-, leaving Rs.15,000/- outstanding, but failed to substantiate this defense with evidence.

Key evidence and findings: The complainant's testimony (PW1) was supported by documentary evidence: Ext.P1 agreement acknowledging the debt, Ext.P2 cheque issued in discharge of the debt, Ext.P3 dishonour memo, Ext.P4 lawyer's notice of demand, Ext.P5 and Ext.P6 postal receipts and acknowledgments, and Ext.P7 reply notice from the accused. The accused did not produce any evidence to contradict these documents or to rebut the statutory presumptions. The accused's defense was limited to suggestions during cross-examination and a reply notice denying liability and alleging misuse of a blank cheque.

Application of law to facts: The High Court applied the legal principles from the NI Act and the Supreme Court precedents to the facts. It held that the complainant had established a legally enforceable debt, the cheque was issued in discharge of that debt, and was dishonoured. The accused failed to rebut the presumption that the cheque was issued for discharge of a debt. The appellate court's reliance on the absence of independent witnesses and the technicalities regarding the handwriting and ink colors was found to be misplaced and contrary to settled law.

Treatment of competing arguments: The complainant's argument emphasized the statutory presumptions and the failure of the accused to rebut them, as well as the lack of effective cross-examination. The accused's argument centered on alleged misuse of a blank cheque, partial repayment of the loan, and the complainant's role in filling the cheque. The High Court rejected the accused's contentions due to lack of evidence and reliance on mere suggestions. It also rejected the appellate court's approach as overly technical and contrary to binding precedent.

Conclusions: The appellate court erred in acquitting the accused. The trial court rightly convicted the accused under Section 138 of the NI Act based on the complainant's evidence and statutory presumptions.

Issue 2: Whether interference is required in the appellate court's judgment

The High Court found it necessary to interfere with the appellate court's judgment in the interest of justice. The appellate court's acquittal was based on an incorrect appreciation of evidence and misapplication of legal principles relating to statutory presumptions under the NI Act. The High Court emphasized that the appellate court's reasons were not justifiable and warranted setting aside the acquittal.

Issue 3: Appropriate order to be passed

The High Court allowed the appeal, set aside the appellate court's judgment of acquittal, and restored the conviction imposed by the trial court. The accused was convicted under Section 138 of the NI Act and sentenced to simple imprisonment for one day till rising of the court and to pay a fine of Rs.3,25,000, which was directed to be given as compensation to the complainant under Section 357(1)(b) of the CrPC. In default of payment of fine, the accused was to undergo default imprisonment for eight months. The accused was directed to surrender before the trial court to undergo the modified sentence.

Significant Holdings:

"The proposition of law which emerges from the judgments referred to above is that the onus to rebut the presumption under S.139 that the cheque has been issued in discharge of a debt or liability is on the accused and the fact that the cheque might be post dated does not absolve the drawer of a cheque of the penal consequences of S.138 of the Negotiable Instruments Act."

"A person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability, it is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer."

"Even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under S.139 of the Negotiable Instruments Act, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt."

"The subsequent filing in of an unfiled signed cheque is not an alteration. There was no change in the amount of the cheque, its date, or the name of the payee. The High Court ought not to have acquitted the respondent-accused of the charge under S.138 of the Negotiable Instruments Act."

"The trial court rightly appreciated the evidence and recorded the conviction. Since the reason given by the appellate court to set aside the conviction imposed by the trial court are not justifiable, it is necessary in the interest of justice to interfere with the judgment of the appellate court."

1. Whether the first Appellate Court erred in holding that the complainant failed to prove the transaction leading to issuance of the cheque (Ext.P1) for Rs.3 Lakh by the accused.

2. Whether the first Appellate Court wrongly set aside the trial court's conviction and sentence imposed on the accused under Section 138 of the NI Act.

3. Whether the impugned acquittal requires interference by this Court.

4. What orders should be passed in light of the findings on the above issues.

Issue-wise Detailed Analysis

1. Proof of Transaction and Issuance of Cheque

The legal framework governing Section 138 NI Act cases mandates that the complainant initially bears the burden to prove the existence of a debt or liability and that the cheque was issued in discharge thereof. Sections 118 and 139 of the NI Act create presumptions in favour of the holder of the cheque once the cheque is produced in evidence. The accused then bears the onus to rebut this presumption with cogent evidence.

Precedents relied upon include the Apex Court's decision in K. Ramesh v. K. Kothandaraman, which clarified that even a voluntarily signed blank cheque leaf handed over to the payee attracts the presumption under Section 139 NI Act. The burden lies on the accused to disprove that the cheque was issued in discharge of a debt or liability. The Court also referred to Bir Singh v. Mukesh Kumar, which emphasized that the drawer remains liable even if the cheque was filled in by another person, provided it was signed by the drawer.

In the present case, the trial court accepted the complainant's evidence (PW1) that the accused borrowed Rs.3 Lakh on 19.08.2008 and issued Ext.P1 cheque dated 19.09.2008 as repayment security. The cheque was dishonoured due to insufficient funds, and legal notice was issued. The complainant produced the original cheque, dishonour memo, legal notices, postal receipts, and bank statements as exhibits.

While PW1 admitted during cross-examination that he could not recall the name of the purchaser to whom he sold properties to raise the money advanced to the accused, the defence summoned and examined the purchaser (DW1), who corroborated the sale of properties from the complainant. Although DW1 could not recall exact dates or agreement details, his testimony supported the complainant's claim of having sold properties and having funds available.

The trial court also relied on Ext.P7 (bank statement) showing deposits of Rs.9,50,000/- in the complainant's account in July 2007, confirming availability of funds. Despite PW1's admission that the money was not withdrawn immediately, the court found that the complainant had sufficiently proved the source of funds and the transaction leading to issuance of the cheque.

The first Appellate Court, however, disbelieved PW1's evidence, focusing on his inability to identify who filled the cheque and the handwriting on it. It accepted the accused's contention that the cheque was issued as security for gold loan dealings and was misused by the complainant. This Court found the Appellate Court's reasoning insufficient, especially given the corroborative evidence from DW1 and the bank statement.

2. Legitimacy of the Appellate Court's Acquittal

The first Appellate Court reversed the trial court's conviction primarily on the ground that the complainant failed to explain the filling of the cheque and the handwriting on it, thereby doubting the authenticity of the transaction. It accepted the accused's version that the cheque was a security instrument for gold loan dealings and not a repayment of a debt.

The Court analyzed the competing arguments and found that the Appellate Court gave undue weight to the complainant's inability to identify the person who filled the cheque and overlooked the statutory presumption under Section 139 NI Act. The Court emphasized that the issuance of the cheque by the accused was admitted and that the burden was on the accused to rebut the presumption of liability, which was not satisfactorily done.

Further, the Court noted that the defence itself summoned DW1, who supported the complainant's version of property sale, thereby reinforcing the complainant's claim regarding the source of funds. The Appellate Court's acceptance of the accused's claim of misuse of the cheque as security was found to be unsubstantiated by evidence.

3. Interference with the Impugned Judgment

The Court held that the first Appellate Court erred in reappreciating evidence and reversing the conviction without adequate basis. The Court reiterated settled principles that once the cheque is produced and the complainant proves the transaction, the presumption under Section 139 NI Act applies, and the accused must rebut it with credible evidence.

The Court found that the complainant had discharged his initial burden by adducing evidence of the transaction, cheque issuance, dishonour, and demand notice. The accused failed to provide cogent evidence to rebut the presumption that the cheque was issued in discharge of a debt. The Appellate Court's reliance on the complainant's lack of knowledge about who filled the cheque was insufficient to overturn the trial court's finding.

Therefore, the Court concluded that the acquittal was erroneous and warranted interference.

4. Orders to be Passed

Accordingly, the appeal was allowed, the judgment of the first Appellate Court was set aside, and the trial court's conviction and sentence were restored. The accused was convicted under Section 138 NI Act and sentenced to simple imprisonment for one day and a fine of Rs.3,50,000/-, with the fine directed to be paid as compensation under Section 357(1)(b) Cr.P.C. In default of payment, six months' imprisonment was imposed. The accused was directed to surrender before the trial court to undergo the modified sentence.

Significant Holdings and Core Principles

"When once negotiable instrument has been marked in evidence, presumption regarding its validity would arise and it is for accused to displace the presumption."

"Even if a blank cheque leaf is voluntarily signed and handed over by accused towards some payment would attract presumption under Section 139 of Act and in absence of any cogent evidence to show that cheque was not issued in discharge of debt, presumption would hold good."

"The onus to rebut the presumption under Section 139 that the cheque has been issued in discharge of a debt or liability is on the accused and the fact that the cheque might be post-dated does not absolve the drawer of a cheque of the penal consequences of Section 138 of the Negotiable Instruments Act."

"If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque."

"The complainant has an initial burden to prove the transaction, which led to execution of the cheque alleged to be issued by the accused in his favour. When the source of money to advance the cheque amount is put under challenge, the complainant is expected to give a rational explanation."

"The accused failed to rebut the statutory presumption under Section 139 NI Act by adducing cogent evidence."

"The appellate court erred in reversing the conviction on the ground that the complainant did not know who filled up the cheque and the handwriting on it."

In conclusion, the Court restored the trial court's conviction and sentence, emphasizing the application of statutory presumptions under the NI Act and the necessity for the accused to rebut such presumptions with credible evidence. The decision underscores the principle that mere doubts about the filling of the cheque or handwriting, without substantive evidence, cannot absolve the drawer from liability under Section 138 NI Act once the cheque is admitted to have been issued.

Another significant issue relates to the proper application of the presumption under Section 139 of the Negotiable Instruments Act and whether the accused successfully rebutted this presumption through cross-examination and documentary evidence.

Additionally, the Court examined the procedural propriety of the appellate proceedings, specifically the effect of non-appearance of the accused's counsel before the appellate court and whether this justified interference under Sections 397 and 401 of the Code of Criminal Procedure.

Issue-wise detailed analysis:

1. Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881, is sustainable on the evidenceRs.

The relevant legal framework includes Sections 138 and 139 of the Negotiable Instruments Act, 1881. Section 138 penalizes dishonour of cheque for insufficiency of funds, and Section 139 creates a presumption that the cheque was issued for discharge of a legally enforceable debt or liability.

Precedents cited include the Supreme Court rulings in Krishna Janardhan Bhat v. Dattatraya G. Hegde and Rangappa v. Sri Mohan, which clarify that the accused need not necessarily enter the witness box to rebut the presumption under Section 139; cross-examination of the complainant and reliance on documentary evidence may suffice.

The Court's interpretation focused on the evidentiary value of the complainant's testimony and documents. The complainant admitted in cross-examination that although he claimed to have disbursed Rs.6,50,000 as loan, he failed to produce bank statements or other documentary proof of such disbursement. The complainant also admitted issuing acknowledgments (Ex.D-1 to Ex.D-4) to the accused for amounts received, and that the cheques and promissory notes were not returned upon repayment.

The Court found that these admissions effectively rebutted the initial presumption under Section 139. The accused's reply notice denying the claim further supported this rebuttal. The trial court and appellate court, however, had convicted the accused primarily on the presumption without adequately considering these admissions and documentary evidence.

The Court noted that the complainant's failure to produce bank statements or proof of payment was a significant lacuna, and no adverse inference under Section 114 of the Indian Evidence Act was drawn against him, which was a legal error. The Court concluded that the complainant's case was vague and weak, and the conviction based solely on presumption was erroneous.

2. Whether the appellate court's dismissal of the appeal for non-appearance of counsel was proper and whether this justified interference under Sections 397 and 401 of the Code of Criminal ProcedureRs.

The Court examined Sections 397 and 401 Cr.P.C., which empower the High Court to call for records and exercise revisional jurisdiction to examine the correctness, legality, or propriety of any finding or order passed by an inferior court.

The Court observed that the appeal was dismissed due to the non-appearance of the accused's counsel, who had misled the accused about managing the case and failed to inform her of the appeal's progress. The accused had even lodged a complaint against her counsel for professional misconduct.

While the Court acknowledged that it cannot presume that the appeal would have succeeded had the counsel appeared, it found that the accused's grievance about counsel's non-cooperation and absence justified entertaining the revision petition. The Court held that the appellate court's dismissal without hearing the accused's counsel was a procedural irregularity warranting interference.

3. Whether the courts below erred in not properly considering the accused's defense and documentary evidenceRs.

The accused had produced documents (Ex.B-1 to Ex.B-4) relating to past transactions and repayments, which the trial court dismissed as irrelevant to the current claim. However, the Court found that these documents, along with the complainant's admissions, raised serious doubts about the genuineness of the claim.

The Court emphasized that the trial court failed to appreciate the evidence in its entirety, especially the cross-examination admissions and the reply notice sent by the accused, which denied the claim and alleged misuse of blank signed cheques by the complainant.

The Court concluded that the conviction was based on a perverse application of the presumption under Section 139 and that the courts below had not properly scrutinized the evidence or the accused's defense.

Significant holdings:

"The admission of the Complainant in the cross-examination that he had withdrawn the amount from Axis Bank, Periyar Nagar Branch to disburse the loan of Rs.6,50,000/- to the Accused is unbelievable."

"When the Complainant is unable to mark those documents, it is to be presumed that the Complainant had filed the complaint based on the duly signed, unfilled cheques retained by him from the Accused."

"The learned Metropolitan Magistrate, Fast Track Court No.II, Egmore, Chennai had not considered the materials available in cross-examination of P.W-1/Complainant... it is not known as to how the Respondent/Complainant arrived at Rs.6,50,000/- as the loan amount to be paid by the Revision Petitioner/Accused."

"The judgment of the learned Metropolitan Magistrate, Fast Track Court No.II, Egmore, Chennai as well as the learned V Additional Sessions Judge, City Civil Court, Chennai are perverse and they are liable to be set aside."

Core principles established include that the presumption under Section 139 can be rebutted by cross-examination and documentary evidence without the accused entering the witness box; failure of the complainant to produce documentary proof of payment weakens the prosecution's case; and procedural lapses such as non-appearance of counsel in appeal may justify revisional interference.

Final determination was that the conviction under Section 138 of the Negotiable Instruments Act, 1881, confirmed by the appellate court, was set aside as perverse. The revision petition was allowed, quashing the judgment of conviction and sentence.

Regarding the enforceability of the debt and the accused's liability, the Court examined the legal framework under Section 138 of the Negotiable Instruments Act, which mandates that for a conviction, the cheque must have been issued for discharge of a legally enforceable debt or liability. The complainant alleged that the accused issued a cheque for Rs. 30,00,000/- towards part payment of a loan of Rs. 70,00,000/- advanced to the partnership firm M/s. Exide Industrial Distributors (EID). The accused contended that he was inducted as a partner only after the loan was taken and that his liability was limited to Rs. 10,44,462/- as per the MoU entered into between the partners, which was not marked or relied upon by the complainant. The accused further asserted that the cheque for Rs. 30,00,000/- was not issued by him and was misused by the complainant, who had not taken any action against the other partners for recovery of the loan.

The Court scrutinized the MoU (marked as Ex.D-2) and noted the agreed sharing of liabilities among the partners: 25% each for two partners and 50% for the third. The MoU explicitly detailed the amounts payable by each partner and the issuance of cheques corresponding to those amounts. The accused had issued a cheque for Rs. 10,44,462/- (Cheque No.109686) to discharge his liability, which was admitted. The complainant's failure to mark the MoU or explain the basis for fixing the accused's liability at Rs. 30,00,000/- raised serious doubts about the claim. Furthermore, the complainant did not produce documents evidencing the loan transaction, the rate of interest, or the distribution of liability among partners. The Court emphasized that the complainant must prove the existence of a legally enforceable debt and the accused's liability beyond reasonable doubt.

On the presumption under Section 139 of the Negotiable Instruments Act, the Court acknowledged that the signature on the cheque was not disputed, thus initially raising a presumption of issuance for discharge of debt. However, the accused discharged the burden of rebuttal by adducing evidence including stop payment letters and the MoU, thereby shifting the onus back on the complainant to disprove the defense. The complainant failed to satisfactorily discharge this burden. The Court relied on the Supreme Court's ruling in Rangappa v. Sri Mohan, which clarified that once the accused raises a probable defense, the burden shifts to the complainant to prove the charge beyond reasonable doubt.

The Court also addressed the procedural issue regarding the maintainability of the appeal filed against the acquittal. It was held that as per the amended Section 378 of the Code of Criminal Procedure, an appeal against an acquittal in a private complaint under Section 138 of the Negotiable Instruments Act lies only to the High Court with its leave, and not before the Sessions Court. The learned I Additional District and Sessions Judge, who entertained the appeal, lacked jurisdiction, rendering the appeal and the resulting conviction liable to be set aside on this ground alone.

Regarding the evidence, the Court observed that the complainant initially relied on his Power of Attorney agent as P.W-1, who lacked personal knowledge of the transactions. The complainant himself was examined belatedly as P.W-2, which was against established principles requiring the principal complainant to be the competent witness with personal knowledge. The complainant's evasive and incomplete testimony, including admissions that he did not specify the date of loan, rate of interest, or the basis for the accused's liability, further weakened the prosecution's case. The Court drew adverse inferences from the complainant's conduct, including the failure to mark the MoU and the unexplained possession of the cheque for Rs. 30,00,000/- by the complainant.

In applying the law to the facts, the Court concluded that the complainant had not established a legally enforceable debt against the accused for Rs. 30,00,000/-, nor had he proved that the cheque in question was issued by the accused for such debt. The accused's defense that his liability was limited as per the MoU and that the cheque was misused was found credible and probable. The presumption under Section 139 was rebutted, and the complainant failed to rebut the defense. The procedural irregularity in entertaining the appeal also vitiated the conviction.

The competing arguments were carefully considered. The complainant's contention that the accused had signed the cheque and thus was liable was weighed against the accused's evidence of limited liability and misuse of the cheque. The Court favored the latter, emphasizing the necessity of proving the particulars of debt and liability rather than relying solely on presumptions. The appellate court's reliance on Section 139 presumption without adequately considering the MoU and rebuttal evidence was criticized as perverse.

The Court's conclusions were that the learned I Additional District and Sessions Judge's judgment convicting the accused was perverse and liable to be set aside. The acquittal by the learned Judicial Magistrate, Fast Track Court-I, Coimbatore was restored. The complaint under Section 138 of the Negotiable Instruments Act was dismissed for lack of proof of legally enforceable debt and the accused's liability.

Significant holdings include the following verbatim excerpts of crucial legal reasoning:

"Merely because the Accused signed the cheque and had not disputed the cheque and it gives a presumption to the Court under 118 and 139 of Negotiable Instrument Act, it will not help the Complainant in this case."

"The Complainant failed to explain the circumstances which prompted the Accused to allegedly issue the cheques. Hence, the trial court reversed the burden upon the Complainant to explain about the existing liability between the parties."

"The defense raised by the Accused creates doubt regarding the existing liability, until the contradiction is proved. It is presumed that the cheque in question was issued for legal enforceable debt or liability unless and otherwise the contrary is proved."

"Once the Accused discharges the burden of rebuttal evidence under Section 139, the burden shifts towards Complainant to disprove the case of the Accused. The Complainant had not discharged the burden to disprove the rebuttal evidence of the Accused."

"The learned I Additional District and Sessions Judge taking up the Appeal for consideration itself is an illegality. The Appeal itself was not maintainable."

"The learned Appellate Judge shall appreciate the judgment of acquittal with caution. It shall not reverse the finding of acquittal without proper assessment of evidence."

"The complainant has not approached the Court with clean hands. He has, with ulterior motive, filed the complaint through his Power of Attorney and allowing his Power of Attorney to let in evidence on his behalf which is also against the reported decision of the Honourable Supreme Court."

Core principles established include:

• The presumption under Section 139 of the Negotiable Instruments Act is rebuttable, and once rebutted, the burden shifts back to the complainant to prove the existence of legally enforceable debt beyond reasonable doubt.
• An appeal against acquittal in a private complaint under Section 138 of the Negotiable Instruments Act lies only to the High Court with its leave, not before the Sessions Court.
• The complainant must produce all material documents, especially those fixing the liability of the accused, to sustain a complaint under Section 138.
• The principal complainant must be the competent witness with personal knowledge; reliance solely on a Power of Attorney agent without the complainant's evidence is insufficient.
• The appellate court must exercise caution in reversing acquittals, especially when the trial court had the advantage of observing witness demeanor.

Final determinations on each issue are:

• The accused's liability was limited to Rs. 10,44,462/- as per the MoU; the claim for Rs. 30,00,000/- was not legally enforceable.
• The cheque for Rs. 30,00,000/- was not issued by the accused for discharge of any debt owed to the complainant and was misused.
• The complainant failed to discharge the burden of proving the accused's liability and the existence of a legally enforceable debt.
• The appeal against acquittal before the Sessions Court was not maintainable and was an illegality.
• The conviction recorded by the learned I Additional District and Sessions Judge was perverse and is set aside.
• The acquittal by the learned Judicial Magistrate, Fast Track Court-I, Coimbatore is restored.

- Whether the offence under Section 138 of the Negotiable Instruments Act is maintainable when the cheque in question was issued towards the discharge of a time-barred debt.

- Whether the omission by the complainant to specify the exact date when the cheque was handed over to him materially affects the credibility of the prosecution case.

- Whether there exists any material irregularity, legal impropriety, or miscarriage of justice in the concurrent findings of the Trial Court and the Appellate Court warranting interference under the revisional jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of prosecution under Section 138 of the Negotiable Instruments Act for a cheque issued in discharge of a time-barred debt

The legal framework governing this issue is grounded in the provisions of Section 138 of the Negotiable Instruments Act, which penalizes the dishonour of a cheque for insufficiency of funds or other reasons. The petitioner contended that since the debt was time-barred, the offence under Section 138 would not be attracted.

The Court referred to the binding precedent set by a Division Bench of the Kerala High Court in K.K.Ramakrishnan v. Parthasarathi and Others, which held that prosecution under Section 138 is maintainable even if the cheque was issued towards the discharge of a time-barred debt. This interpretation aligns with the legislative intent and judicial precedents emphasizing that the limitation applicable to civil recovery of debt does not bar criminal liability under Section 138.

The courts below correctly applied this principle, rejecting the petitioner's argument. The Court found no anomaly or impropriety in their conclusions. The legal principle established is that the limitation for civil claims does not preclude prosecution under the Negotiable Instruments Act for cheque dishonour.

Issue 2: Effect of omission to state the exact date of handing over the cheque

The petitioner argued that the complainant failed to disclose the precise date when the cheque was handed over, which allegedly undermines the prosecution's case. The Court examined the evidence and found that the complainant (PW1) had sufficiently narrated the factual matrix, including the loan transaction in 1991, the petitioner's promise to include the complainant as a business partner, the failure to do so, and the subsequent issuance of the cheque dated 30.04.2003 pursuant to a mediation agreement.

The Court held that the omission of the exact date of delivery of the cheque was not a material lapse affecting the credibility of the prosecution. The complainant had provided adequate particulars to establish the transaction and the issuance of the cheque, which is the crux of the offence under Section 138. Therefore, this omission was not fatal to the prosecution's case.

Issue 3: Scope of interference under revisional jurisdiction

The Court extensively reviewed the settled legal principles governing the scope of interference in revisional jurisdiction under Sections 397 to 401 of the Criminal Procedure Code. It relied on authoritative Supreme Court decisions:

• In State of Kerala v. Jathadevan Namboodiri, it was held that the High Court ordinarily should not reappreciate evidence already evaluated by the Magistrate and Sessions Judge unless there is a glaring miscarriage of justice.
• In Sanjaysinh Ramrao Chavan v. Dattatray Gulabrao Phalke, the Supreme Court clarified that revisional power is not equivalent to appellate power and interference is justified only if the findings are perverse, untenable in law, grossly erroneous, or where relevant material is ignored or judicial discretion is exercised arbitrarily or capriciously.
• In Kishan Rao v. Shankargouda, it was reiterated that the revisional court must not set aside an order merely because another view is possible, emphasizing the limited scope of revisional jurisdiction.

Applying these principles, the Court found no material irregularity, illegality, or miscarriage of justice in the findings of the Trial Court and the Appellate Court. The evidence was properly considered, and the conclusions were neither perverse nor unreasonable. The sentence imposed was also appropriate and in accordance with law.

3. SIGNIFICANT HOLDINGS

- "There is absolutely no anomaly or impropriety in the findings of the Trial Court and the Appellate Court that a prosecution under Section 138 of the Negotiable Instruments Act is maintainable even if the cheque had been issued towards the discharge of a time barred debt."

- "The omission in mentioning the exact date when the cheque was handed over to the first respondent cannot be said to be a serious lapse affecting the credibility of the case of the first respondent."

- "Ordinarily, therefore, it would not be appropriate for the High Court to reappreciate the evidence and come to its own conclusion on the same when the evidence has already been appreciated by the Magistrate as well as Sessions Judge in appeal unless any glaring feature is brought to the notice of the High Court which would otherwise tantamount to gross miscarriage of justice."

- "Unless the finding of the court, whose decision is sought to be revised, is shown to be perverse or untenable in law or is grossly erroneous or glaringly unreasonable or where the decision is based on no material or where the material facts are wholly ignored or where the judicial discretion is exercised arbitrarily or capriciously, the courts may not interfere with decision in exercise of their revisional jurisdiction."

- "It is not possible to say that the findings of the Trial Court and the Appellate Court are untenable in law, glaringly unreasonable or grossly erroneous. Nor could it be said that the decisions of the courts below are based on unacceptable evidence, or that admissible evidence were ignored for arriving at the findings against the petitioner. The sentence awarded by the courts below is also perfectly in order."

The Court thus affirmed the conviction and sentence under Section 138 of the Negotiable Instruments Act and dismissed the revision petition, upholding the concurrent findings of fact and law by the courts below.