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2G Spectrum Scam| Supreme Court rejects ex-licensee’s refund demand of Rs 1454.94 crores Entry Fee, holding him faulty as a confederate of fraud

Supreme Court: The 3-Judge Bench comprising of Dr. Dhananjaya Y Chandrachud*, Surya Kant and Vikram Nath, JJ., affirmed the impugned order of the Telecom Disputes Settlement and Appellate Tribunal whereby the Tribunal had dismissed appellant’s claim for refund of Rs 1454.94 crores Entry Fee paid by it for 2G licences. The Bench stated,

“…as a beneficiary and confederate of fraud, the appellant could not be lent the assistance of this Court for obtaining the refund of the Entry Fee.”

The instant appeals were filed under Section 18 of the Telecom Regulatory Authority of India Act 1997 against the judgments of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). The appellant claimed a refund of Rs 1454.94 crores Entry Fee paid by it for 2G licences for twenty-one service areas.

Noticeably, the Supreme Court by its judgment in Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1 (CPIL), had quashed 2G licences granted by the Union of India, including to the appellant. The Court had declared that the policy of the Union government for allocation of 2G spectrum on a ―First Come First Serve‖ basis was illegal.

Decision of TDSAT

As a consequence, the appellant approached the TDSAT to claim refund of its Entry Fee on the principles of civil, contractual and constitutional law which was dismissed by the TDSAT holding that the quashing of the appellant’s licences by the Supreme Court in its judgment in CPIL could not be equated with the Unified Access Service Licences (UASL) agreements becoming void within the meaning of Section 65 of the Indian Contract Act 1872.

The appellant then instituted another petition before the TDSAT7 raising the issue of a refund of the Entry Fee, on the ground that it had been exonerated by the Special Judge, CBI for charges under Section 120-B and 420 of the Indian Penal Code 1860 in a case relating to the grant of UASLs. However, it met with the same fate as the TDSAT dismissed the second petition noting that the appellant had made a second attempt for claiming the same relief which had been sought earlier in the First Telecom Petition.

Contention of the Appellant

It was against the impugned judgment of the TDSAT that the appellant had approached the Supreme Court contending that the fraud in the First Come First Serve policy for 2G spectrum allotment existed at the doorstep of the Union government alone and that the appellant was free from taint or wrong doing.

The CPIL Judgment

In CPIL, the Supreme Court had held that that the First Come First Serve policy was writ large with arbitrariness, and was intended to favour certain specific entities at a grave detriment to the public exchequer as the then Minister of Communications and Information Technology wanted to favour some companies and that as a matter of fact the entire process was stage-managed to favour those who had access to the nitty-gritties of the policy in advance. The Bench had observed,

“Undoubtedly, the authors of the ―First Come First Serve policy were the official actors comprised within the Union government. But equally, the decision did not exculpate the private business entities who obtained UASLs and became the beneficiaries of their decision.

Noticing that the appellant was amongst the four licensees who were directed to pay a cost of Rs 50 lakhs each because they too had been benefited by the wholly arbitrary and unconstitutional exercise undertaken by Department of Telecommunication (DoT) for grant of UASL and allocation of spectrum of 2G band, the Bench opined that the appellant was also complicit in the illegal exercise of obtaining favours by the indulgence of those in power. Thus, the the appellant was held to be in pari delicto along with the Union government.

Whether the Entry Fee was Refundable?

Clause 619 of the UASL Guidelines issued by the DoT required each applicant seeking a UASL for a given service area to deposit a non-refundable entry fee. Accordingly, the appellant paid paid the amount of Rs 1454.94 crores as entry fee and it was only upon the payment of Entry Fee the appellant became eligible to be issued UASLs in the twenty-one service areas. Additionally, Clause 18.121 of the UASL agreement acknowledged the payment of a onetime non-refundable entry fee prior to the signing of the agreement.

Thus, the Bench noted that the Entry Fee was a onetime non-refundable fee payable by an applicant for participating in the process of obtaining the UASL and was distinguishable from the licence fee under Clause 10.122, which was relatable to the actual operation of the licence.

Doctrine of frustration and restitution

The appellant had relied on the provisions of Sections 56 and 65 of the Contract Act to claim benefits of restitution and frustration contending that when a licence is granted under the proviso to Section (4)(1) of the Telegraph Act, the licence is in the nature of a contract between the government and licensee, thus bringing it within the ambit of the Indian Contract Act.

The Bench referred to Graham Virgo’s, “The Principles of Law of Restitution”, to observed that all claims for restitution are subject to a defence of illegality. The genesis of which is in the legal maxim ex turpi causa non oritur actio (no action can arise from a bad cause). Further, that a court will not assist those who aim to perpetuate illegality.

Thus, relying on the principle that when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto, the Bench held that unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offers them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail. The Bench expressed,

“If the party claiming restitution was equally or more responsible for the illegality (in comparison to the defendant), there shall be no cause for restitution.”

Verdict

Consequently, the Bench concluded that the appellant was in pari delicto with DoT and the then officials of the Union government. Hence, as a beneficiary and confederate of fraud, the appellant could not be lent the assistance of this Court for obtaining the refund of the Entry Fee. Accordingly, the appeal was dismissed.

[Loop Telecom & Trading Ltd. v. Union of India, 2022 SCC OnLine SC 260, decided on 03-03-2022]

*Judgment by: Justice Dhananjaya Y Chandrachud

Appearance by:

For the Appellant: A M Singhvi and Huzefa A Ahmadi, Senior Advocates

For the Union of India: Vikramjit Banerjee, Additional Solicitor General

Kamini Sharma, Editorial Assistant has put this report together

Case Briefs High Courts

Cal HC │ No intention of any evasion of tax; Court directs refund of penalty and tax paid on protest

Calcutta High Court: Md. Nizamuddin, J. decided on a petition which was filed challenging the impugned order of the appellate commissioner confirming the original order passed by the adjudicating authority under section 129 of the West Bengal Goods and Services Act, 2017 for detention of the goods in question on the grounds that the e-way bill relating to the consignment in question had expired one day before, i.e. in the midnight of September 8, 2019, and that the goods was detained in the morning of September 9, 2019 on the grounds that the e-way bill has expired which is even less than one day and extension could not be made and petitioner submits that delay of few hours even less than a day of expiry of the validity of the tenure of the e-way bill was not deliberate and willful and was due to break down of the vehicle in question and there was no intention of any evasion of tax on the part of the petitioner.

Counsel for the petitioner relied on an unreported judgment of the Supreme Court in Assistant Commissioner (ST) v. M/s Satyam Shivam Papers Pvt. Ltd., Special Leave Appeal (C) No(s). 21132/2021, dated 12-01-2022.Advocate appearing for the respondent could not make out a case against the petitioner that the aforesaid violation was willful and deliberate or with a specific material that the intention of the petitioner was for evading tax.

The Court set aside the impugned order and held that the petitioner will be entitled to get the refund of the penalty and tax paid on protest subject to compliance with all legal formalities.[Ashok Kumar Sureka v. Assistant Commissioner, WPA No.11085 of 2021, decided on 01-03-2022]

For the petitioner: Mr Ankit Kanodia

Mr Himangshu Kumar Ray

For the respondent: Mr A. Ray

Md. T.M. Siddiqui

Mr Debasish Ghosh

Suchita Shukla, Editorial Assistant has reported this brief.

Case Briefs Supreme Court

Financier-in-possession of a motor/transport vehicle liable to pay tax under U.P. Motor Vehicles Taxation Act, 1997: SC

Supreme Court: While dealing with the scope of Section 12 of the U.P. Motor Vehicles Taxation Act, 1997, bench of MR Shah* and BV Nagarathna, JJ has held that a financier of a motor vehicle/transport vehicle in respect of which a hire-purchase, lease or hypothecation agreement has been entered, is liable to tax from the date of taking possession of the said vehicle under the said agreements.

The Court further explained that only in a case, which falls under sub-section (2) of Section 12 and subject to surrender of the necessary documents as mentioned in sub-section (2) of Section 12, the liability to pay the tax shall not arise, otherwise the liability to pay the tax by such owner/operator shall continue.

What Section 12 of the U.P. Motor Vehicles Taxation Act, 1997 state?

Section 12 provides for non-use of vehicle and refund of tax.

As per Section12(1) when any person who has paid the tax in respect of a transport vehicle, proves to the satisfaction of the Taxation Officer in the prescribed manner that the motor vehicle in respect whereof such tax has been paid, has not been used for a continuous period of one / month or more since the tax was last paid, he shall be entitled to a refund of an amount equal to one-third of the rate of quarterly tax or one twelfth of the yearly tax, as the case may be payable in respect of such vehicle for each thirty days of such period for which such tax has been paid.

However, Section 12(2) provides that where the operator or, as the case may be, the owner of a motor vehicle, does not intend to use his vehicle for a period of one month or more he shall, before the date the tax or additional tax, as the case may be is due, surrender the certificate of registration, the token, if any, issued in respect of the motor vehicle and the permit, if any, to the Taxation Officer of the region where the tax or additional tax was last paid and on such surrender, no tax or additional tax under Act, 1997 shall be payable in respect of such vehicle for each complete calendar month of the period during which the vehicle remains withdrawn from use and the aforesaid documents remain surrendered with the Taxation Officer.

As per proviso to sub-section (2) of Section 12 in case such vehicle is found plying during the period when its documents as mentioned in sub-section (2) of Section 12 remain surrendered with the Taxation Officer, such owner or operator, as the case may be, shall be liable to tax and additional tax as if the documents were not surrendered and shall also be liable to penalty equivalent to five times of the tax and additional tax.

Analysis

Going by the scheme of the U.P. Motor Vehicles Taxation Act, 1997, the Court observed that in respect of a transport vehicle, the tax is to be paid in advance as monthly tax or yearly tax, as the case may be, and only thereafter such vehicle shall be put to use.

The owner or operator has to first pay the tax in advance and thereafter if the transport vehicle is not used for a continuous period of one month or more since the tax was last paid, he may have to apply for the refund, which may be granted subject to compliance of the necessary requirements as per first proviso to Section 12 and subject to satisfaction of the Taxation Officer that the transport vehicle has not been used for a continuous period of one month or more since the tax was last paid.

The Court made it clear that there is only one eventuality where no tax or advance tax under the Act, 1997 shall be payable namely under sub-section (2) of Section 12, where the operator or, as the case may be, the owner of a motor vehicle, does not intend to use his vehicle for a period of one month or more, he shall, before the date the tax or additional tax, as the case may be, is due, surrender the certificate of registration, the token, if any, issued in respect of the motor vehicle and the permit, if any, to the Taxation Officer of the region where the tax or additional tax was last paid and only on such surrender, no tax or additional tax under Act, 1997 shall be payable in respect of such vehicle for each completed calendar month of the period during which the vehicle remains withdrawn from use and the aforesaid documents remain surrendered with the Taxation Officer.

If, after the payment of tax, the vehicle is not used for a month or more, then such an owner may apply for refund under Section 12 of the Act, 1997 and has to comply with all the requirements for seeking the refund as mentioned in Section 12, and on fulfilling and/or complying with all the conditions mentioned in Section 12(1), he may get the refund to the extent provided in sub-section (1) of Section 12, as even under Section 12(1), the owner / operator shall not be entitled to the full refund but shall be entitled to the refund of an amount equal to one-third of the rate of quarterly tax or one twelfth of the yearly tax, as the case may be, payable in respect of such vehicle for each thirty days of such period for which such tax has been paid. However, only in a case, which falls under sub-section (2) of Section 12 and subject to surrender of the necessary documents as mentioned in sub-section (2) of Section 12, the liability to pay the tax shall not arise, otherwise the liability to pay the tax by such owner/operator shall continue.

The Court, hence, upheld the Allahabad High Court judgment wherein it was held that a financier-in-possession of the transport vehicle is liable to pay tax under the U.P. Motor Vehicles Taxation Act, 1997.

[Mahindra and Mahindra Financial Services v. State of UP, 2022 SCC OnLine SC 219, decided on 22.02.2022]

*Judgment by: Justice MR Shah

Counsels

For appellant: Advocate Prashant Kumar

For State: Senior Advocate Garima Prasad

Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | Jurisdiction for claim of refund filed/initiated to be dealt under the provision Central Excise law and not by the provision of CGST law

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) dismissed the application filed by the Revenue (CCE & ST, Panchkula) for ratification of mistake in a final order by the Tribunal which was noticed by the Applicant. The Tribunal dealt with two issues (a) whether to ratify previous order & (b) to deal with the jurisdiction.

The Department’s contention was that while deciding in the instant matters has wrongly relied upon the case of M/s. Sandvik Asia Ltd. v. CIT Pune as in this case the Apex Court was dealing with Section 214 and 244(1A) of the Income tax Act 1961 whereas nothing has been provided in the Central Excise Act, 1944/ Service Tax Act, 1994 at the relevant time. Authorized Representative while presenting this contention relied on a SC case where the Court had held that even there is mistake of law which however should be apparent on the face of record which does not need long drawn process of reasoning and can be subject matter of rectification of mistake.

For this the Tribunal held that it found no mistake apparent on the face of record after examining the definition of the phrase “error apparent on face of records”. Further, it held that “the applicant is seeking to challenge the merits of the order dated 07-01-2020 to recall the same which is not permissible in law as the same shall amounts to review of its own order.”

The Revenue also filed miscellaneous application for modification in order by this Tribunal to implead the Commissioner, CGST, Rohtak as the respondent in the final order dated 7-1-2020, the appellant had wrongly impleaded the Commissioner, CGST, CE & ST, Panchkula, as the correct respondent should have been the Commissioner of CGST & CE, Rohtak and asked that the order be recalled. The Respondents submitted that the Tribunal doesn’t have the power to hear at this stage- the issue of jurisdiction. It was further submitted that the jurisdiction of the appellant/respondent to the application lies with CGST, Panchkula Commissionerate.

The Tribunal held that “the jurisdiction for the purpose of every claim of refund, every proceeding of appeal, review or reference before this Tribunal shall be dealt under the provision Central Excise law and not by the provision of CGST law.” The jurisdiction of the appellant falls under the jurisdiction of DC Range Panipat and the DC Range, Panipat is under the jurisdiction of the Commissioner of CGST, Panchkula. The Tribunal found no merit in the application and it was subsequently dismissed.[Riba Textiles v. CCE & ST, Panchkula, 2021 SCC OnLine CESTAT 2635, decided on 30-12-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

Present for the Appellant: Shri Dinesh Verma

Present for the Respondent: Shri H.S. Brar

Experts Corner Tarun Jain (Tax Practitioner)

Claiming Refund Sans Challenge to Assessment in Customs Law: The Controversy Explained

A technical yet interesting controversy has arisen in the context of indirect tax laws, particularly customs laws. The issue relates to availability of refund despite failure to challenge assessment proceedings. This issue has witnessed multiple rounds of litigation in the context of customs law and is an interesting one.

Background: Understanding the Assessment Scheme

It is expedient to examine the scheme of the assessment in order to appreciate the issue in greater detail. Most of the indirect tax laws were earlier based on the “assessment” regime where a tax officer would pass an order of assessment determining the rights and liabilities of the taxpayers concerned. Subsequently this assessment scheme was replaced by “self-assessment” scheme. Under this scheme, the obligation to comply with the law concerned rests upon the taxpayers who must ensure compliance with the provisions tax law, including filing of tax return along with the attendant consequences. This scheme where the taxpayer is obliged to assess and determine the correct tax liability is commonly understood as the self-assessment scheme. In such scenario the role of the tax officer is limited to verifying the self-assessment of the taxpayer and initiate recovery proceeding, if required, in order to recovery short paid tax, besides ensuring that the other provisions of the tax law are complied with by the taxpayer.

The First Round of Litigation in Customs Law

The question as to the manner in which a taxpayer could apply for refund arose for the first time in the context of the assessment regime under the customs law. The Supreme Court in CCE v. Flock (India) (P) Ltd.[1] opined that it is obligatory on the part of the taxpayers to challenge the assessment orders, without which a refund is not maintainable. In this decision it was observed that “there is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order”.

Subsequent, in Priya Blue Industries Ltd. v. Commr. of Customs[2] the Supreme Court refused to change its opinion and reiterated that the assessment order being in appealable order and refund being a consequence of the assessment, in the absence of a challenge to an assessment order a refund claim could not be entertained much less considered on merits. Thus the issue rested conclusively in the context of the assessment regime under the customs law.

Change to Self-Assessment Scheme under Customs Law

In 2011 the Customs Act, 1962 was substantially amended. One of the major changes was the switchover from the assessment scheme to the self-assessment mechanism. Given that the self-assessment regime implied absence of an order of assessment, a view emerged that the earlier decisions of the Supreme Court were not applicable in the case of self-assessment as in such cases the assessment having been made by the taxpayer himself, it was not possible for the taxpayer to challenge the assessment order. Inter alia (a) on such legal interpretation; (b) grounds of practical exigencies; and (c) citing lack of a provision providing for appeal by the taxpayer against his own self-assessment, it was being contended on such account that there was no requirement to challenge the assessment order in order to claim refund. This view came to be rejected by the tax officers who refused to grant refund citing the self-assessment order but the view came to be vindicated by the Delhi High Court. In its decision in Micromax Informatics Ltd. v. Union of India[3], the Delhi High Court examined the new provisions of the customs law and the self-assessment scheme therein to opine that the process of self-assessment there was “no assessment order as such passed by the customs authorities” and thus there was no necessity to file an appeal any appeal in order to claim refund. This decision of the Delhi High Court was agreed by the Calcutta High Court[4] and Madras High Court[5] amongst others.

The issue subsequently thereafter came up for consideration of the Supreme Court. Unable to subscribe to the High Court reasoning, the Supreme Court in ITC case[6] reversed this view to the detriment of the taxpayers. In the opinion of the Supreme Court, notwithstanding the change in the customs law framework, there was no change in the legal position emerging from its earlier decisions. The Supreme Court explained that self-assessment also resulted in an “order” under the customs law which could not be wished away and its effect could be invalidated only by way of appropriate proceedings under the customs law. In conclusion, the Supreme Court noted the following:

47. When we consider the overall effect of the provisions prior to amendment and post amendment under the Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.

A critical observation of the Supreme Court in ITC case[7] was in relation to the refund proceedings. It inter alia observed that refund “is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise”.

The Third Round: Amendment/Rectification as an Alternative to Appeal

One would have assumed that with the decision in ITC case[8] the issue would no longer have been res integra and the controversy would have subsided. However, that the ingenuity of the lawyers knows no bounds is best reflected in the scenario that followed. Faced with the law emanating from the ITC case[9], an innovative approach was adopted in subsequent matters where the taxpayer had claimed refund without challenging the self-assessment order.

It began to be canvassed that the Supreme Court in ITC case[10] itself had opened the door for another remedy to the taxpayer when it observed that the refund provision “cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made”. Stressing upon this observation, the taxpayer contended that a refund proceeding could be supplemented with a request for amendment, which once allowed would imply that the self-assessment order did not stand in the way of claim refund. This assertion came to be accepted by the Bombay High Court in Dimension Data India (P) Ltd. v. Commr. of Customs.[11]

In this decision, the Bombay High Court concluded that it was obligatory upon the tax officers to address a formal request for amendment of documents when accompanied by a refund claim, in view of the power of amendment (Section 149) and the power of rectification (Section 154) being statutorily vested on the tax officers. Declaring the legal position, the High Court inter alia observed as under:

“… in the judgment itself Supreme Court has clarified that in case any person is aggrieved by an order which would include an order of self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Customs Act before he makes a claim for refund. This is because as long as the order is not modified the order remains on record holding the field and on that basis no refund can be claimed but the moot point is Supreme Court has not confined modification of the order through the mechanism of Section 128 only. Supreme Court has clarified that such modification can be done under other relevant provisions of the Customs Act also which would include Sections 149 and 154 of the Customs Act.

* * *

In the instant case, petitioner has not sought for any refund on the basis of the self-assessment. It has sought reassessment upon amendment of the Bills of Entry by correcting the customs tariff head of the goods which would then facilitate the petitioner to seek a claim for refund. This distinction though subtle is crucial to distinguish the case of the petitioner from the one which was adjudicated by the Supreme Court and by this Court.”

Thereafter the Telangana High Court followed suit, albeit independently, to opine in Sony India (P) Ltd. v. Union of India[12] to opine that it was obligatory on the part of the tax officer to ensure that the documents were amended so as to being conformity with law and also that refund was made the taxpayer wherever due. In this case the High Court inter alia observed as under:

48. Further, it is the duty and responsibility of the Assessing Officer/Assistant Commissioner to correctly determine the duty leviable in accordance with law before clearing the goods for home consumption. The assessing officer instead, having failed in correctly determining the duty payable, has caused serious prejudice to the importer/petitioner at the first instance. Thereafter, in refusing to amend the Bill of Entry under Section 149 of the Act, to enable the importer/petitioner to claim refund of the excess duty paid, the assessing authority/Assistant Commissioner caused further great injustice to petitioner.

These decisions of the Bombay and Telangana High Court has thereafter been followed to various ends. For illustration, in Kirloskar Ferrous Industries Ltd. v. Commr. of Customs,[13] the Customs Tribunal directed the tax officers to treat the taxpayer’s request for reassessment as a request for amendment of the documents and thereafter process the refund claim. Thereafter, as another illustration, the Customs Tribunal in Commr. of Customs v. Vivo Mobile India (P) Ltd.[14] agreed with the contention of the taxpayer to the effect “that even if the refund applications that were filed cannot be entertained, then too it is open to the respondent to invoke the provisions of Section 149 or Section 154 of the Customs Act for either seeking amendment in the bill of entries or seeking correction in the bills of entry and then refund applications can be filed”. In this case the Customs Tribunal disposed the appeal permitting the taxpayer to file an application for amendment even at the second appellate stage with a direction to the tax officer to consider such application.

Conclusion

The aforesaid discussion reveals that two rounds of litigation and decisions of the Supreme Court have failed to course correct the taxpayers into initiating the appropriate proceedings and approaching the correct forum for seeking refund in customs matters. The courts, nonetheless, have been benevolent to the cause of the taxpayers and have sustained claims to creative options albeit within the statutory framework. As the law stands today, to the benefit of the taxpayer, the absence of a formal challenge to self-assessment under customs by way of an appeal is not fatal to the refund claim. In such instances, the taxpayer who may choose to supplement the refund claim with request for amendment/rectification, even belatedly, in order to get the refund claim addressed on merits.

† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1] (2000) 6 SCC 650 : (2000) 120 ELT 285.

[2] (2005) 10 SCC 433 : (2004) 172 ELT 145.

[3] 2016 SCC OnLine Del 1238 : (2016) 335 ELT 446.

[4] SGS Marketing v. Union of India, 2016 SCC OnLine Cal 4915 : (2016) 341 ELT 47.

[5] Micromax Informatics Ltd. v. Commr. of Customs, 2017 SCC OnLine Mad 22043

[6] ITC Ltd. v. CCE, (2019) 17 SCC 46, 69.

[7] (2019) 17 SCC 46.

[8] (2019) 17 SCC 46.

[9] (2019) 17 SCC 46.

[10] (2019) 17 SCC 46.

[11] (2021) 376 ELT 192.

[12] 2021 SCC Online TS 982.

[13] 2021 SCC OnLine CESTAT 225.

[14] 2021 SCC Online CESTAT 2578.

Case Briefs Supreme Court

When 25% of the bid is already paid, whether failure to deposit the remaining 75% empowers the Bank to direct forfeiture of money even when Bank suffered no loss in subsequent auction? SC answers

Supreme Court: The Division Bench comprising of M.R. Shah and B.V. Nagarathna, JJ., directed the Indian Bank to refund the 25% auction consideration forfeited by the bank after cancelling the proposed auction. The Bench stated that since no loss had been accrued by the bank in the subsequent auction, it cannot wrongly deny the release of disputed amount.

The Property in question had been auctioned by the respondent Bank under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Rules made thereunder. The petitioner being successful highest bidder had deposited 25% of auction sale consideration and was required to deposit the remaining 75% of the bid within the time stipulated in the auction notice. The petitioner despite the repeated reminders and relaxation of Covid-19 Pandemic failed to comply the terms and conditions accepted by her, which led the Bank to cancel the sale and forfeit the amount deposited.

Alleging high handedness of the respondent Bank in cancelling the sale and forfeiture of the amount deposited, the petitioner had approached the High Court of the judicature at M.P. seeking refund of the forfeited amount. However, noticing that the petitioner was given proper reminders and Covid 19 extension for the payment of remaining 75% amount of the bid, the High Court had dismissed the petition.

Considering the fact that though initially the appellant deposited 25% of the auction sale consideration, however, subsequently she could not deposit balance 75% due to COVID-19 pandemic, the Bench opined that the High Court ought to have allowed the refund of the amount deposited being 25% of the auction sale consideration.

Further, noticing that subsequently the fresh auction had taken place, the property had been sold and it was not the case of the respondent-bank that in the subsequent sale, lesser amount was received; the Bench opined that no loss was caused to the respondent-bank.

Accordingly, the appeal was allowed and the order of forfeiture of 25% of the amount of auction sale consideration was set aside. The Bench directed the respondent-bank to refund/return the amount earlier deposited by the appellant as the part auction sale consideration (minus 50,000/- towards the expenditure which were required to be incurred by the respondent Bank for conducting the fresh auction) within a period of four weeks.

[Alisha Khan v. Indian Bank (Allahabad Bank), C.A. No. 007680 – 007681 of 2021, decided on 13-12-2021]

Kamini Sharma, Editorial Assistant has put this report together

Appearance by:

For the Appellant: Mithan Lal Gupta, Advocate, Vipin Gupta, Advocate and Mohan Lal Sharma, AOR

For Respondent(s): Ashish Rana, AOR

Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | Can refund claim be denied on the ground that freight had not been included in the assessable value? Tribunal answers

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal wherein the refund claim was denied in the impugned order on two grounds:

(a) On account that duty has been paid excess, therefore they are not entitled to take excess claim of refund of excess duty paid.

(b) The freight has not been included in the assessable value of the goods, therefore, they are not entitled to claim refund claim thereon.

Counsel for the appellant submitted that at the time of the clearance they were paying duty but in the impugned period certain goods were returned from the buyers on which they have paid the duty which has been cleared on payment of duty, as they have cleared the goods and paid duty at the time of clearance, therefore they have not paid any excess duty and they have claimed refund of the actual duty paid by them in cash. It was further submitted that freight has not been included in the assessable value.

AR submitted that as the goods have been returned to the appellant and they have taken the Cenvat credit thereon, it is not clear from the records that whether any process has been taken on goods and they have been cleared on payment of duty. It is a fact that when they have taken the credit excess payment of duty, therefore, they are not entitled to claim refund of excess duty paid in cash.

The Tribunal noted that it was a fact on record that at the time of clearance of goods, the appellant paid duty and claim refund thereof only, there was a Cenvat credit relying in Cenvat credit account unutilized due to return of goods already cleared by the appellant on payment duty, further held that appellant was entitled for refund of duty paid in cash at the time of clearance of goods relying on the decision of Shree Nath Industries v. Commr. Of CE, 2018 (364) E.L.T. 904. Further, it was a claim of the appellant that they have not included the transportation charges in the assessable value which was evident from the invoices placed before me, in these circumstances, Tribunal held appellant was entitled to claim refund of duty paid on service tax paid on transportation charges.[Pearl Drinks Ltd. v. C.G.& S.T., 2021 SCC OnLine CESTAT 2711, decided on 24-11-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

Case Briefs

CESTAT | Can refund of the IGST paid on the imported goods be demanded when there is no intention to take release of goods? Tribunal answers

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Sulekha Beevi C.S. (Judicial Member) allowed an appeal brief facts of which were that the appellants imported Lead Ingots and Refined Lead Ingots for manufacture of pure lead and lead alloys and had entered into contract with M/s. KYEN Resources Pte. Ltd. Singapore for import of refined lead ingots and based on the documents received it was observed that M/s. Navam Lanka Ltd. was the manufacturer and shipper of the goods. The appellant claimed exemptions from payment of BCD vide Notification No. 26/2000 dated 1.3.2000 under FTA. The said bills of entry were assessed to duty and facilitated under RMS. The appellant had paid the IGST of Rs.61, 24,785/- on 5.9.2018 and 11.9.2018. The appellant was not able to get the original documents for taking delivery of the impugned goods. It was understood by the appellant that the supplier at Singapore had become bankrupt and was not in a position to provide the original documents. The appellant filed application for refund of the IGST paid on the imported goods as he did not intend to take release of goods. Meanwhile, M/s. Navam approached the appellant to grant NOC (No Objection Certificate) to enable Navam to take charge of the goods and to mitigate the losses.

Pursuant to the issue of NOC, the appellant was under the impression that M/s. Gravita India Ltd. would get the IGM amended and would file fresh bills of entry in their name for clearing the goods. However, M/s. Gravita India Ltd. informed that since cancellation of the bills of entry was not possible in the ICEGATE system, they amended the name of the importer in the bills of entry. Ideally, the customs department ought to have refunded the IGST initially paid by the appellant and ought to have collected the IGST from the substituted importer (M/s. Gravita India Ltd. in this case) with applicable interest. As the refund claim was already withdrawn, the appellant did not respond to the deficiency memo. A Show Cause Notice dated 6.2.2019 was issued proposing to impose penalty on the appellant under sec. 114AA of the Customs Act, 1962 alleging attempt to claim undue refund of the duty to the tune of Rs.61,24,784/-.

Section114AA of the Customs Act, 1962 prescribes that penalty is to be imposed for use of false and incorrect material.

The Tribunal was of the opinion that appellant has replied to the Show Cause Notice explaining the entire situation by which he had to file the refund claim and thereafter the application for withdrawing the refund claim. The adjudicating authority however proceeded to impose a penalty of Rs.50 lakhs. The Tribunal believed that appellant has been put to hardship of making predeposit on such huge penalty by wrong appreciation of facts. The tribunal further found that there was nothing brought out in evidence which attracts the ingredients of section 114AA of the Customs Act, 1962. The mere fact that the department had already appropriated the duty amount paid by the appellant towards the imported goods and therefore could not collect further amount against the amended bills of entry presented by the new purchaser cannot be a ground to issue a Show Cause

Notice alleging attempt to claim undue refund. The appeal was allowed.[Chloride Metals Ltd. v. Commr. Of Customs, 2021 SCC OnLine CESTAT 2599, decided on 02-11-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | If two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted; Appeal allowed

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P. Dinesha (Judicial Member) allowed an appeal which was filed with the point of consideration of eligibility of the appellant for refund of 4% of Special Additional Duty (SAD). The appellant made the above claim for refund and after due adjudication, the Assistant Commissioner rejected 4% SAD being time barred in terms of the above Notification. The Commissioner of Customs (Appeals), Cochin upheld the rejection against which, the present appeal had been filed before this forum.

Counsel for the appellant contended that neither the statute nor the original notification prescribed any limitation for claiming the refund of SAD and hence, imposition of time restriction by an Amending notification is clearly bad in law.

The Tribunal after hearing the contentions was of the view that appellant was correct in claiming refund of 4% SAD which was in terms with the settled position.

The Tribunal explained that the doctrine of precedence only mandates that it is the ratio in the decision of higher courts to be followed, and not conclusions. The Tribunal was of the view that it will be wholly inappropriate to choose views of one of the High Courts based on perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the Hon’ble High Courts- something diametrically opposed to the very basic principles of hierarchical judicial system. When there is a reasonable interpretation of a legal and factual situation, which is favourable to the assessee, such an interpretation is to be adopted.

The Tribunal further held that High Court’s judgment in favour of the assessee, in the light of this legal principle laid down by Supreme Court, is to be preferred over the Hon’ble non-jurisdictional High Court not favourable to the assessee finding guidance from the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.

The appeal was allowed holding the denial of refund is bad in law.[John’s Cashew Co. v. Commr. Of Customs, 2021 SCC OnLine CESTAT 2598, decided on 18-10-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | Amount claimed as refund already debited in Returns, whether there would be entitlement for refund under Rule 5 of CCR, 2004? Tribunal answers

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P Dinesha (Judicial Member) allowed an appeal in which the Tribunal had to decide whether the appellant was entitled to refund under Rule 5 of CENVAT Credit Rules, 2004 (CCR).

The Tribunal noted that the adjudicating authority had rejected the refund claim mainly on the ground that the appellant had not debited the amount claimed as refund from their CENVAT credit account, which according to the said authority, was in violation of Para 2(h) of Notification No.27/2012-CE (NT) dated 18-06-2012. Commissioner (Appeals) had dismissed the appeal thus the instant appeal was filed.

The appellant stated that he in fact, had debited the amount claimed as refund in its Returns filed for the period ended 30-06-2017 and the said ST-3 Returns were very much available for verification.

The Tribunal quoted the relevant para in the judgment of Suretax Prophylactics India (P) Ltd. v. CCE, (2020) 116 Taxmann.com 566 wherein the Karnataka High Court had ruled,

“In other words, time limit has to be computed from the last date of the last month of the quarter which would be the relevant date for the purposes of examining if the claim is filed within the limitation prescribed under Section 11-B or otherwise.”

The Tribunal was of the opinion that claim of the appellant had been filed before the expiry of the quarter in which one year period from the last date of receipt of falls and accordingly the applications for refund was well within time. However, as regards the reversal the adjudicating officer had no chance of verifying the veracity of the appellant’s claim vis-à-vis ST-3 Returns in the subsequent period wherein the said reversal was claimed to have been made. Thus, the Tribunal deemed it proper to remand the case for the file of adjudicating authority before whom the appellant shall furnish its ST-3 Returns for the subsequent period wherein the said reversal is reflected. The Tribunal allowed the appeal by the way of remand.[Zafin Software Centre Of Excellence (P) Ltd. v. Commr. Of CT & CE, 2021 SCC OnLine CESTAT 2614, decided on 12-10-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

Case Briefs Supreme Court

‘Parliament entitled to make policy choices on fiscal issues’;Here’s why Supreme Court upheld constitutionality of Section 54(3) of CGST Act

Supreme Court: The division bench of Dr. DY Chandrachud and MR Shah, JJ has upheld the validity of Section 54(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) which provides for refund of unutilised input tax credit (ITC) in certain cases.

Provisions in question

Section 54[1] of the CGST Act provides for a refund of tax. Under sub-Section (1) of Section 54, a person claiming a refund of “tax and interest, if any, paid on such tax or any other amount paid” has to make an application within two years of the relevant date.

Parliament envisaged a specific situation where the credit has accumulated due to an inverted duty structure, that is where the accumulation of ITC is because the rate of tax on inputs is higher than the rate of tax on output supplies. Taking legislative note of this situation, a provision for refund was provided for in Section 54(3) which embodies for refund of unutilised input tax credit (ITC) in cases involving:

(i) zero rated supplies made without payment of tax; and

(ii) credit accumulation “on account of rate of tax on inputs being higher than rate of tax on output supplies”.

Further, the Central Goods and Service Tax Rules 2017 were formulated in pursuance of the rule making power conferred by Section 164 of the CGST Act. Rule 89(5) provides a formula for the refund of ITC, in “a case of refund on account of inverted duty structure”. The said formula uses the term “Net ITC”. In defining the expression “Net ITC”, Rule 89(5)[2] speaks of “input tax credit availed on inputs”.

Case Trajectory

The petitioners approached the Gujarat High Court and the Madras High Court and made the following submissions:

(i) Section 54(3) allows for a refund of ITC where the accumulation is due to an inverted duty structure;

(ii) ITC includes the credit of input tax charged on the supply of goods as well as services;

(iii) Section 54(3) does not restrict the entitlement of refund only to unutilised ITC which is accumulated due to the rate of tax on inputs being higher than the rate of tax on output supplies. It also allows for refund of unutilised ITC when the rate of tax on input services is higher than the rate of tax on output supplies;

(iv) While Section 54(3) allows for a refund of ITC originating in inputs as well as input services, Rule 89(5) is ultra vires in so far as it excludes tax on input services from the purview of the formula; and

(v) In the event that Section 54(3) is interpreted as a restriction against a claim for refund of accumulated ITC by confining it only to tax on inputs, it would be unconstitutional as it would lead to discrimination between inputs and input services.

Gujarat High Court’s judgment

By its judgment dated 24 July 2020, the Division Bench of the Gujarat High Court, held that:

“Explanation (a) to Rule 89(5) which denies the refund of “unutilised input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017.”

The High Court therefore directed the Union Government to allow the claim for refund made by the petitioners before it, considering unutilised ITC on input services as part of “Net ITC” for the purpose of calculating refund in terms of Rule 89(5), in furtherance of Section 54(3).

Madras High Court’s judgment

The Division Bench of the Madras High Court came to a contrary conclusion, after having noticed the view of the Gujarat High Court, and held;

“63…

(1) Section 54(3)(ii) does not infringe Article 14.

(2) Refund is a statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power.”

The divergent views by both the High Courts led to the case before the Supreme Court.

Supreme Court’s verdict

Upholding the constitutional validity of Section 54(3), the Court held that

“A claim to refund is governed by statute. There is no constitutional entitlement to seek a refund.”

The Court explained that Parliament while enacting the provisions of Section 54(3), legislated within the fold of the GST regime to prescribe a refund. While doing so, it has confined the grant of refund in terms of the first proviso to Section 54(3) to the two categories which are governed by clauses (i) and (ii) i.e.

(i) zero rated supplies made without payment of tax; and

(ii) credit accumulation “on account of rate of tax on inputs being higher than rate of tax on output supplies.

Parliament has in clause (i) of the first proviso allowed a refund of the unutilized ITC in the case of zero-rated supplies made without payment of tax. Under clause (ii) of the first proviso, Parliament has envisaged a refund of unutilized ITC, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

“When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated at par on a matter of a refund of unutilized ITC cannot be accepted. Such an interpretation, if carried to its logical conclusion would involve unforeseen consequences, circumscribing the legislative discretion of Parliament to fashion the rate of tax, concessions and exemptions. If the judiciary were to do so, it would run the risk of encroaching upon legislative choices, and on policy decisions which are the prerogative of the executive.”

Stating that courts are averse to entering the area of policy matters on fiscal issues, the Court said,

“Many of the considerations which underlie these choices are based on complex balances drawn between political, economic and social needs and aspirations and are a result of careful analysis of the data and information regarding the levy of taxes and their collection.”

The Court also found it impossible to accept the premise that the guiding principles which impart a measure of flexibility to the legislature in designing appropriate classifications for the purpose of a fiscal regime should be confined only to the revenue harvesting measures of a statute.

“The precedents of this Court provide abundant justification for the fundamental principle that a discriminatory provision under tax legislation is not per se invalid. A cause of invalidity arises where equals are treated as unequally and unequals are treated as equals.”

Noticing that both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same and they are distinct species, the Court said,

“Parliament engrafted a provision for refund Section 54(3). In enacting such a provision, Parliament is entitled to make policy choices and adopt appropriate classifications, given the latitude which our constitutional jurisprudence allows it in matters involving tax legislation and to provide for exemptions, concessions and benefits on terms, as it considers appropriate.”

[Union of India v. VKC Footsteps, 2021 SCC OnLine SC 706, decided on 13.09.2021]

*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

For UOI: N Venkataraman and Balbir Singh, ASG

For Assessee: Senior Advocates V Sridharan and Arvind Datar; Advocates Sujit Ghosh and Uchit Sheth

For Respondents: Advocate Arvind Poddar

[1] “Section 54. Refund of tax

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of Section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

[…] (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods and services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

*********************************************

[2] “(4) […]

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;

[…]

(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;

(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula: – Maximum Refund Amount= {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover} − tax payable on such inverted rated supply of goods

Explanation:- For the purposes of this sub rule, the expressions “Net ITC” and “Adjusted Total turnover” shall have the same meanings as assigned to them in sub-rule (4).”

Case Briefs Tribunals/Commissions/Regulatory Bodies

MahaRERA unriddles ‘carpet area’ under MOFA & RERA | Apartment booked under Maharashtra Ownership of Flats Act, Can complainants claim refund for variation in area of apartment as sale agreement was executed as per RERA Act?

Maharashtra Real Estate Regulatory Authority, Mumbai (MahaRERA): While focusing on the definition of carpet area in Pre-RERA and Post-RERA, Coram of Ajoy Mehta (Chairperson MahaRERA) observed that,

“If the promoter is duty-bound to honour the agreement for sale in its true letter and spirit so also the allottee is duty-bound to adhere to the terms of the agreement for sale and either party cannot shun their duties and responsibilities under the agreement for sale.”

In the present matter, respondents had registered their project “EMERALD ISLE-T8” under Section 5 of the Real Estate (Regulation and Development) Act, 2016.

Complainants seeks the following reliefs:

“Refund is demanded for the excess funds collected by LAT Realty for carpet area of 57.60 square feet at the rate of Rs 28,L3L.67 amounting to Rs 1-6,20,384 plus interest at RERA applicable rate from the date of first payment.”

Issue for consideration:

Whether the complaint is barred by the principle of res judicata?
Whether the Complainants are entitled to claim refund for difference/variation in area of the said apartment and interest thereon from date of payment of the excess amount?

Respondent had raised the issue of the principle of res judicata stating that a matter that was finally decided on merits cannot be litigated again between the same parties.

However, from the submissions of the Respondent herein it is clear that the earlier complaint No. CC00600000000000414 was filed for the purpose of seeking interest for delayed possession and the Complainants in the present complaint is seeking a refund of the difference in the carpet area of the said apartment with interest as applicable thereon.

Further, it was noted that the complainants had signed a letter whereby they confirmed and agreed to their absolute satisfaction and assured the respondent that they shall not be claiming anything further through any forum/Court.

Hence, the above-stated letter certainly binds the complainants from raising any further issues with regard to the said apartment and MahaRERA expresses displeasure with regard to the complainants turning away from their own words and commitments.

Adding to the above, Authority stated that the instant complaint was filed with a different issue and hence the principle of res judicata was not applicable and thus issue 1 was answered in negative.

Definition of carpet area under Section 2(k) of the said Act. It reads thus:

“carpet area” means net usable floor area of an apartment, excluding the area covered by the external walls, area under services, shafts, exclusive balcony or verandah area and exclusive open terrace area, but including the area covered by the internal partition walls of the Apartment.”

Under MOFA, Section 3(m), Promoter was to disclose one of the particulars in the advertisement for sale of flats and clause (i) states the particulars to the extent of carpet area of the flat including the areas of balconies whereas under RERA, balconies have been excluded in the definition of carpet area.

Coram stated that it was clear from the facts of the complaint that on the date of booking of the said apartment MOFA was in effect and on the date of the said agreement RERA was holding the ground.

A very pertinent observation was made, that the carpet area was defined differently in both the Acts.

Hence, there was no actual change but simply a variation/difference in the methodology of calculation of carpet area as per MOFA and RERA from time to time.

Since the allotment letter was dated 1-10-2015 which was Pre-RERA i.e. MOFA was applicable for calculating carpet area and after May 2017 RERA was applicable after which the said agreement was executed i.e. 20-12-2017

Therefore, no ambiguity on the issue of carpet area was found resulting in no refund and interest.

Coram while concluding added that the discrepancy/variation/difference in terms of the carpet area of the said apartment was as per the said agreement which provided that a variation of up to 3% on account of any design change and construction exigencies which the complainant was aware of and the same had been agreed upon by them. Thus, raising an issue at a later point was not acceptable nor could be changed as the agreement was binding upon both parties.

In the present matter, complainants chose to raise an unreasonable dispute in a very irresponsible manner, leading to wasting the time of the Authority.

Cost of Rs 20,000 was imposed on the complainant and the complaint was dismissed in view of the above.[Deepak Pande v. Larsen & Toubro Ltd., Complaint No. CC006000000100256, decided on 17-08-2021]

Advocate before the Authority:

Advocate Subhashree Chatterjee for the Respondent

Case Briefs Tribunals/Commissions/Regulatory Bodies

Unregistered Collective Investment Scheme violative of S. 12(1)(b) of SEBI Act and Regulations, order to pay 10% p.a. interest on refundable amount not vitiated: SAT

Securities Appellate Tribunal, Mumbai: Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member), upheld the direction given by SEBI whereby the appellant was required to pay 10% per annum interest from the date the amount was due till the date it was actually refunded.

Instant appeal was filed against the Order passed by the Whole Time Member of SEBI whereby certain directions were issued to refund the amount with interest.

Factual Matrix

Appellants had launched a scheme/fund in 2006 known as “The Osian’s Art Fund Scheme Contemporary-1” by way of subscription from private investors to enable the appellant to make investments in artworks. An amount of Rs 102.40 crores was raised and the scheme was ended in July 2009.

SEBI had concluded that the fund launched by the appellant was nothing but a Collective Investment Scheme. The said scheme was not registered and therefore was violative of Section 12(1)(b) of the SEBI Act read with Regulation 3 of the SEBI (Collective Investment Scheme) Regulations, 1999.

The only contention raised by the learned counsel for the appellant was that the direction to pay interest at the rate of 10% per annum was wholly illegal and against the teeth of the directions given by this Tribunal.

Bench stated that counsel for the appellant’s contention does not hold any water. WTM in its earlier order had directed payment of interest at the rate of 10% per annum from the due date till the amount was refunded.

In light of the facts and circumstances of the case, Coram stated that it does not find any error in the directions issued by the WTM with regard to the payment of the balance principal amount which was not disputed by the appellant and the payment of interest at the rate of 10% p.a. from the date when it became due till the closure of the scheme which was in consonance with the directions given in the decision of Pravin Gandhi v. SEBI, 2017 SCC OnLine SAT 89

Hence, the appeal was dismissed. [Osian’s -Connoisseurs of Art (P) Ltd. v. SEBI, 2021 SCC OnLine SAT 249, decided on 9-07-2021]

Advocates before the Tribunal:

Mr. Vyapak Desai, Advocate with Ms. Payel Chatterjee, Mr. Mohammad Kamran, Mr. Adimesh Lochan and Ms. Lakshmi Narayan, Advocates for the Appellant.

Mr. Abhiraj Arora, Advocate with Ms. Rashi Dalmia and Mr. Karthik Narayan i/b. ELP for the Respondent.

Case Briefs District Court

Builder handing over possession of plot with incomplete development beyond agreed time. Is buyer entitled to refund of deposit with interest? Commission decides

Delhi Consumer Disputes Redressal Commission: The Division Bench of Justice Sangita Dhingra Sehgal (President) and Anil Srivastava (Member) addresses a builder-buyer dispute wherein refund in view of delayed possession along with incomplete internal development work was provided to the buyer.

Instant complaint was filed against Parasvnath Developer Ltd.

Crux of the Complaint

Whether the complainant is entitled to the refund of the amount deposited with interest?

Possession of the plot land booked by the complainant was not handed over within the time agreed to despite the complainant has made the payment to the extent sought from time to time.

Factual Matrix

OPs had promised that the internal development works of the colony will be completed within 24 months from the date of signing of the Agreement with a grace period of 6 months in case of force measure. Once the said work would be completed, OPs had assured to give the possession.

Complainants had opted for a Special Payment Plan floated by the OPs where 10% of the total sale consideration is payable at the time of booking of the Plot. The Complainant had also agreed to pay another 15% of the amount within 45 days from the date of booking and the last instalment would be payable by the Complainant at the time the possession is offered. Agreement to this effect was executed between the parties on 03-09-2013.

The plot possession was to be given by 3-09-2015. Further, it was stated that in case of delay in handing over the possession of the Plot beyond the agreed period of 24 months, the OPs would be under an obligation to pay the complainant’s compensation @Rs 10 per sq. Yard of the Plot area per month for the period of delay.

Further, it was submitted that OPs with malafide intentions not to pay the delay charges, issued possession letter to the complainants after a delay of 11 months of scheduled date of possession without completing the internal services as agreed to.

OPs vide the possession letter illegally demanded the balance consideration price.

Complainant made several attempts to settle the score, but all the attempts and efforts were futile due to which the complaint before this Commission had to be filed.

In view of the facts and circumstances of the case, Bench opined that possession of plot not having been handed over within the agreed time, ends of justice would be met if a direction was issued to the OPs to refund the principal amount with simple interest at the rate of 6%.[Alka Pundir v. Parasvnath Developers Ltd., Complaint No. 941 of 2017, decided on 15-07-2021]

Advocates before the Commission:

Ms Suman Tripathy, Counsel for the complainant

Mr Rakesh Bhardwaj, Counsel for the OPs

Case Briefs Supreme Court

Parties agreeing to out-of-court settlement without judicial intervention under Section 89 CPC can’t be denied benefit of refund of court fees; they are “even more deserving”: Supreme Court

Supreme Court: The bench of MM Shantanagoudar* and Vineet Saran, JJ has held that Section 89 of CPC and Section 69-A of Tamil Nadu Court Fees and Suit Valuation Act, 1955 contemplate the refund of court fees in all methods of out-of-court dispute settlement between parties that the Court subsequently finds to have been legally arrived at and not just to those cases where the Court itself refers the parties to any of the alternative dispute settlement mechanisms listed in Section 89 of the CPC.

Issue before the Court

Madras High Court had, on8.01.2020, held that, given their beneficial intent, Section 89 of CPC and Section 69-A of Tamil Nadu Court Fees and Suit Valuation Act, 1955 must be interpreted liberally, in a manner that would serve their object and purpose.

“Construing them narrowly would lead to a situation wherein parties who settle their dispute through a Mediation Centre or other centres of alternative judicial settlement under Section 89, CPC would be entitled to claim refund of their court fee, whilst parties who settle the disputes privately by themselves will be left without any means to seek a refund.”

The High Court was of the opinion that as such differential treatment between two similarly situated persons, would constitute a violation of Article 14 of the Constitution, a constitutional interpretation of Section 89 of the CPC, and resultantly Section 69-A of the 1955 Act, would require that these provisions cover all methods of out-of-court dispute settlement between parties that the Court subsequently finds to have been legally arrived at.

Challenging the said decision, the Madras High Court’s Registry had approached the Supreme Court with the contention that Section 69-A of the 1955 Act only contemplates refund of court fees in those cases where the Court itself refers the parties to any of the alternative dispute settlement mechanisms listed in Section 89 of the CPC. Hence, it does not apply to circumstances such as in the present case, where the parties, without any reference by the Court, privately agreed to settle their dispute outside the modes contemplated under Section 89 of the CPC.

Analysis

Understanding the object of the provisions in question

The object and purpose of Section 89 crystal clear is to facilitate private settlements, and enable lightening of the overcrowded docket of the Indian judiciary.

“This purpose, being sacrosanct and imperative for the effecting of timely justice in Indian courts, also informs Section 69-A of the 1955 Act, which further encourages settlements by providing for refund of court fee.”

The purpose of Section 69-A of the 1955 Act is to reward parties who have chosen to withdraw their litigations in favour of more conciliatory dispute settlement mechanisms, thus saving the time and resources of the Court, by enabling them to claim refund of the court fees deposited by them. Such refund of court fee, though it may not be connected to the substance of the dispute between the parties, is certainly an ancillary economic incentive for pushing them towards exploring alternative methods of dispute settlement.

Why a narrow interpretation would lead to absurd and unjust outcome

The narrow interpretation of Section 89 of CPC and Section 69¬A of the 1955 Act sought to be imposed by the Petitioner would lead to an outcome wherein parties who are referred to a Mediation Centre or other centres by the Court will be entitled to a full refund of their court fee; whilst parties who similarly save the Court’s time and resources by privately settling their dispute themselves will be deprived of the same benefit, simply because they did not require the Court’s interference to seek a settlement. Such an interpretation would lead to an absurd and unjust outcome, where two classes of parties who are equally facilitating the object and purpose of the aforesaid provisions are treated differentially, with one class being deprived of the benefit of Section 69-A of the 1955 Act.

“A literal or technical interpretation, in this background, would only lead to injustice and render the purpose of the provisions nugatory – and thus, needs to be departed from, in favour of a purposive interpretation of the provisions.”

Further, parties who have agreed to settle their disputes without requiring judicial intervention under Section 89, CPC are even more deserving of this benefit. This is because by choosing to resolve their claims themselves, they have saved the State of the logistical hassle of arranging for a third¬party institution to settle the dispute.

“Though arbitration and mediation are certainly salutary dispute resolution mechanisms, we also find that the importance of private amicable negotiation between the parties cannot be understated. In our view, there is no justifiable reason why Section 69-A should only incentivize the methods of out-of-court settlement stated in Section 89, CPC and afford step brotherly treatment to other methods availed of by the parties.”

Noticing that there may be situations wherein the parties have after the course of a long-drawn trial, or multiple frivolous litigations, approached the Court seeking refund of court fees in the guise of having settled their disputes, the Court said that in such cases, the Court may, having regard to the previous conduct of the parties and the principles of equity, refuse to grant relief under the relevant rules pertaining to court fees.

How the Registry and State Government would benefit in long run

Finding it puzzling that the High Court’s Registry should be so vehemently opposed to granting such benefit, the Court said that

“Though the Registry/State Government will be losing a one-time court fee in the short term, they will be saved the expense and opportunity cost of managing an endless cycle of litigation in the long term.”

[High Court of Judicature at Madras Rep. by its Registrar General v. MC Subramaniam, 2021 SCC OnLine SC 109, decided on 17.02.2021]

*Judgment by: Justice MM Shantanagoudar

Case Briefs High Courts

Tri HC | Default on the part of a Government department cannot be a reason to prevent an entity from seeking its entitlement; Petition allowed

Tripura High Court: A Division Bench of Akil Kureshi, CJ and S.G. Chattopadhyay J., while allowing the present petition, held, “One department of the Government cannot cite the reason of another department not acting promptly enough to deny the benefit declared by the Government under any scheme.”

The petitioner herein challenged a communication dated 25-06-2020 and further prayed for grant of subsidy in terms of Tripura Industrial Investment Promotion Incentive Scheme, 2012 (hereinafter to be referred to as the Incentive Scheme). Petitioner is a private limited company and is engaged in manufacturing different types of UPVC pipe and fittings, HDE coil pipes, etc. for which the petitioner had established a manufacturing unit at Agartala in the year 2013. The State of Tripura had framed the said scheme which envisaged grant of certain incentives in the form of subsidy to the specified industries set up on or after 01-04-2012. Such rebate would be equal to the net amount of Tripura Value Added Tax and Central Sales Tax and other taxes paid by the industry to the State Government on sale of finished goods subject to certain conditions. The petitioner was one of the eligible units and in the past had also claimed and was granted subsidy as per the terms of the said scheme. The issue for determination in the instant case is, a refund of the VAT etc. under the said scheme for the period between 01-01-2016 to 31-12-2016 and thereafter from 01-01-2017 to 30-06-2017. The petitioner first applied under two separate applications for such refund to the District Industries Centre on 23-06-2020 along with all necessary documents. These applications of the petitioner were rejected by the District Industries Centre by two separate orders both dated 25-06-2020. The sole ground cited for rejection of the petitioner’s applications was that the claim was submitted after expiry of two years from the period to which the claim related.

Court observed,

“It is not in dispute that a petitioner is otherwise an eligible unit entitled to the refund of the value-added tax under the said scheme, of course subject to fulfillment of the conditions contained therein. The scheme also envisages time limit for making application for refund. However, if the VAT department of the Government had delayed issuing necessary certificates of payment of tax to the petitioner, the application of the petitioner for refund cannot be rejected only on the ground of delay in making the same.”

While issuing necessary directions, Court held,

“The District Industrial Centre shall consider the petitioner’s further representations both dated 13-07-2020 and the contents thereof. If it is found that the petitioner is correct in contending that the refund applications were delayed on account of non-issuance of certificate of payment of tax by the VAT authorities, its applications for refund shall be entertained and examined on merits and refund to the extent payable be released. If, on the other hand, the authority comes to the conclusion that delay in making the applications could not be attributed to the delay in issuance of the VAT payment certificates by the concerned authority, a speaking order shall be passed and communicated to the petitioner. Entire exercise shall be completed within four months from today.” [Agartala Plastic Private Ltd. v. State of Tripura, 2021 SCC OnLine Tri 27, decided on 12-01-2021]

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Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | Less than 12 residential units to be covered under exemption clause, refund allowed; Tribunal considers the Architect certificate, floor plan

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Suvendu Kumar Pati (Judicial Member) allowed an appeal filed against the rejection of refund claim on Service Tax paid for the construction of residential complex before 30-06-2012 on the ground that appellant had failed to establish that it comprised of less than 12 residential units so as to be covered under exemption clause.

Appellant had sought for refund of Rs 45,13,475 for the period between October, 2011 and March, 2012 for the service category of “construction of complex service – residential complex” classifiable under Section 65 (91a) of the Finance Act, 1994 but was issued with deficiency memo and show-cause notice on several grounds that were ultimately adjudicated by the Assistant Commissioner of Service Tax resulting in rejection of its refund claim. It was confirmed in the appeal before the Commissioner (Appeals). Thus, the instant appeal was filed.

The counsel for the appellant, Mr Mahesh Raichandani submitted that sufficient documents had been placed on record before the Commissioner (Appeals), which had been acknowledged in his order which would establish that the residential complex consisted of 9 residential units only. He further submitted that the BMC approval plan concerning description of parking area wherein it has been clearly mentioned that total number of units were 9.

The Tribunal framed three main issues first being non-establishment of number of units by the appellant that was cited as the main ground in the Order-in-Appeal in which they opined that meeting the requirement of law, which was the paramount consideration for establishment of tax liability, need not necessarily be made a ground in the show-cause notice since everyone is presumed to know the law/rules governing the affair of the State. In the second issue which mentioned that Commissioner (Appeals) had not dealt with the issue of unjust enrichment, the Tribunal stated that it had been adequately dealt by Commissioner (Appeals) who after going through the case record, had noted that customers were not charged Service Tax for Bandra unit. In order to decide the establishment of construction of less than 12 units by the appellant in the disputed complex, the Tribunal reproduced a relevant portion of the order passed by the Commissioner (Appeals),

“The appellants have produced voluminous documents in this regard viz. agreement copy of customer, title certificate, Commencement certificate, Occupation certificate, copy of letter towards submission under protest and paid challan copy, Service Tax returns, Architect certificate and BMC approved plan. However, from all these documents, there is no way of knowing whether the complex consists of only 9 residential units. The approved plan shows that there are 13 floors with two refuge floors. It has not specified the number of flats in each floor or whether there is any other wing in the same complex. In absence of such information, it is not feasible to arrive at a conclusive finding that the complex indeed had less than 12 residential units and that the appellants have rightly claimed refund.”

The Tribunal while allowing the appeal held that because of availability of 13 floors, Commissioner (Appeals) had failed to reach a conclusion that the complex had less than 12 residential units to admit refund as the said was not taxable, however going by the Architect certificate, floor plan referred to and the full occupation certificate issued by the Executive Engineer (building proposal) of the Municipal Corporation clearly indicates that the complex comprised of 9 residential units, taking each duplex to be counted as one unit and the appellant was entitled to refund. [Man Infraprojects Ltd. v. Commr. of CGST, 2020 SCC OnLine CESTAT 372, decided on 09-12-2020]

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Case Briefs COVID 19 Supreme Court

Booked air tickets during lockdown? Supreme Court orders full refund| Read directions

Supreme Court: The 3-judge bench of Ashik Bhushan, R. Subhash Reddy, JJ has directed full refund of air tickets booked during lockdown period i.e. from 25th March, 2020 to 24th May, 2020 for travel during lockdown period. The order of the Court came after accepted Directorate General of Civil Aviation’s (DGCA) proposal of

To contain the pandemic situation of COVID¬19, lockdown was imposed by the Government of India, from 25th March 2020 to 14^th April 2020 which was later extended upto 03^rd May 2020. A ban was also imposed on operation of all domestic and international flights. There was an issue of refund of air fare during the lockdown period, when domestic and international flights’ operation was suspended. The Ministry of Civil Aviation (MoCA), while acknowledging the unusual situation that has arisen due to the lockdown imposed, to contain further spread of COVID¬19 and its consequential effect on the air passengers and airlines, by examining the grievances received from various quarters, issued an advisory to all stake holders in civil aviation sector in the shape of Office Memorandum dated 16^th April 2020.

The present writ petition was filed to declare the action on the part of the respondent-airlines, operating domestic as well as international flights in India, in not refunding the full amount collected for the tickets, due to the cancellation of flights in the wake of restrictions imposed by the Government of India to contain COVID-19 as arbitrary and in violation of Civil Aviation Requirements, issued by the Directorate General of Civil Aviation. A consequential relief was sought to direct the respondents to refund the full amount upon such cancellations.

The Court noticed that in ordinary course modalities and timelines for refund on cancellation of tickets are governed by, the Civil Aviation Requirements, i.e. CAR dated 22nd May 2008; 06th August 2010 as revised on 27th February 2019, and the said Requirements are issued by the competent authority in exercise of powers under the provisions of Aircrafts Act, 1934 and the Rules made thereunder.

It, however, said that

“… we cannot lose sight of the present situation prevailing in the country and across the globe, i.e. the effect of pandemic COVID-19. It cannot be disputed that the civil aviation sector, which is one of the important sectors, is seriously affected in view of the ban imposed for operating flights. Added to the same, air passenger traffic has come down heavily and which is gradually being restored. At this moment any strict enforcement action of the CARs would further restrict/reduce their operations and such enforcement action may further jeopardise the possibilities of generation of cash by airlines which can further adversely affect/delay the refund cycle. “

Strict enforcement of Civil Aviation Requirements at this moment may not yield any meaningful result for any stake holder. Hence, in view of the suggestions and formulations arrived at in the meetings held by Union of India and DGCA, which are acceptable to the majority of stake holders, the Court directed that the same have to be implemented in letter and spirit since such formulations are workable solutions in these peculiar circumstances which are prevailing in the country.

DIRECTIONS ISSUED

If a passenger has booked a ticket during the lockdown period (from 25th March, 2020 to 24th May, 2020) for travel during lockdown period and the airline has received payment for booking of air ticket for travel during the same period, for both domestic and international air travel and the refund is sought by the passenger against that booking being cancelled, the airline shall refund the full amount collected without any cancellation charges. The refund shall be made within a period of three weeks from the date of cancellation.
If the tickets have been booked during the lockdown period through a travel agent for a travel within the lockdown period, in all such cases full refund shall be given by the airlines immediately. On such refund, the amount shall be passed on immediately by the agent to the passengers.
Passengers who booked tickets at any period of time but for travel after 24th May, 2020 – refund of fares to the passengers covered under this category shall be governed by the provisions of Civil Aviation Requirements (CAR).
Even for international travel, when the tickets have been booked on an Indian carrier and the booking is ex¬India, if the tickets have been booked during the lockdown period for travel within the lockdown period, immediate refund shall be made.
If the tickets are booked for international travel on a foreign carrier and the booking is ex¬India during the lockdown period for travel within the lockdown period, full refund shall be given by the airlines and said amount shall be passed on immediately by the agent to the passengers, wherever such tickets are booked through agents. In all other cases airline shall refund the collected amount to the passenger within a period of three weeks.
In all other cases, the airlines shall make all endeavours to refund the collected amount to the passenger within 15 days from today. If on account of financial distress, any airline / airlines are not able to do so, they shall provide credit shell, equal to the amount of fare collected, in the name of passenger when the booking is done either directly by the passenger or through travel agent so as to consume the same on or before 31st March, 2021. It is open to the passenger either to utilize such credit etc. shell upto 31st March, 2021 on any route of his choice or the passenger can transfer the credit shell to any person including the travel agent through whom he/she has booked the ticket and the airlines shall honour such a transfer.

The credit shell issued in the name of the passenger shall be transferable which can be utilize upto 31st March, 2021 and the concerned airline shall honour such a transfer by devising a mechanism to facilitate such a transfer. It is also made clear that such credit shell can be utilized by the concerned agent through whom the ticket is booked, for third party use. It is also made clear that even in cases where credit shell is transferred to third party, same is to be utilized only through the agent who has booked the ticket at the first instance.

In cases where passengers have purchased the ticket through an agent, and credit shell is issued in the name of passenger, such credit shell is to be utilized only through the agent who has booked the ticket. In cases where tickets are booked through agent, credit shell as issued in the name of the passenger which is not utilized by 31st March, 2021, refund of the fare collected shall be made to the same account from which account amount was received by the airline.
In all cases where credit shell is issued there shall be an incentive to compensate the passenger from the date of cancellation upto 30th June, 2020 in which event the credit shell shall be enhanced by 0.5% of the face value (the amount of fare collected) for every month or part thereof between the date of cancellation and 30th June, 2020. Thereafter the value of the credit shell shall be enhanced by 0.75% of the face value per month upto 31st March, 2021.

[Pravasi Legal Cell v. Union of India, 2020 SCC OnLine SC 799, decided on 01.10.2020]

Case Briefs Tribunals/Commissions/Regulatory Bodies

CESTAT | Refund of 4 % Special Additional Duty allowed where goods imported and sold were co-relatable goods

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P. Dinesha (Judicial Member), allowed an appeal filed with the issue of denial of refund of 4% Special Additional Duty (SAD) under the Customs Notification No. 102/2007-Cus. dated 14-09-2007, as amended. During adjudication, the Assistant Commissioner of Customs (Refunds) had granted a partial refund against which the appellant preferred an appeal before the First Appellate Authority which was rejected by the Commissioner of Customs, thus the present appeal was filed.

The Tribunal while allowing the appeal explained that High Court had categorically answered the doubts raised by the authorities while restricting/denying the refund claim of 4% SAD stating that the goods imported and the goods sold are one and the same and are co-relatable and the department had not proved that the goods sold were different from the goods imported. The lower authority had not disputed the fulfillment of the other substantive conditions of the notification by the appellants thus rejection of partial amount of refund on this flimsy ground was not sustainable. Hence, for the same reason, the impugned order was set aside. [P.P. Products (P) Ltd. v. Commissioner of Customs, Customs Appeal No. C/42420 of 2014, decided on 20-02-2020]

Legislation Updates Rules & Regulations

Central Govt. notifies — Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund)Second Amendment Rules, 2019

G.S.R. 571(E).—In exercise of the powers conferred under sub-sections (1), (2), (3), (4), (8), (9), (10) and (11) of Section 125 and sub-section (6) of Section 124 read with Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, further to amend the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, namely –

1. (1) These rules may be called the Investor Education and Protection FundAuthority (Accounting, Audit, Transfer and Refund)Second Amendment Rules, 2019.

(2) The provisions of these rules, Other than rule 6 (i), 6 (iv), 6 (v), 6(vi), 6(vii) and 6 (viii), shall come into force with effect from the 20th day of August, 2019.

(3) The provisions of rule 6 (i), 6 (iv), 6 (v), 6(vi), 6(vii) and 6 (viii), shall come into force with effect from the 20th day of September, 2019.

* Please follow the link to read the detailed amendments notified by the Government: NOTIFICATION

Ministry of Corporate Affairs

[Notification dt. 14-08-2019]

Decision of TDSAT

Contention of the Appellant

The CPIL Judgment

Whether the Entry Fee was Refundable?

Doctrine of frustration and restitution

Verdict

*Judgment by: Justice Dhananjaya Y Chandrachud

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What Section 12 of the U.P. Motor Vehicles Taxation Act, 1997 state?

Analysis

*Judgment by: Justice MR Shah

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Provisions in question

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Gujarat High Court’s judgment

Madras High Court’s judgment

Supreme Court’s verdict

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Issue for consideration:

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Issue before the Court

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Understanding the object of the provisions in question

Why a narrow interpretation would lead to absurd and unjust outcome

How the Registry and State Government would benefit in long run

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DIRECTIONS ISSUED

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