Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order rejecting the claim for interest on the refund from the date of deposit till its realization.

The appellant was manufacturer of zinc ingots, aluminum alloys ingots, lead ingots etc by using zinc scrap, aluminum scrap, ingots and lead scrap as their raw material. The Revenue was of the view that zinc skimming and zinc ash were final products and the appellant was liable to pay duty. The appellant paid an amount during the period 2008-09 and 2009-10 under protest to avoid interest liability. Later on, the matter was settled in favour of the appellant on the basis of CBEC’s circular in this regards wherein it was observed that no duty is payable on zinc skimming and zinc ash arising during the course of manufacturing of the final products. After which a refund claim was filed which was ultimately sanctioned, but no interest was given to the appellant from the date of deposit.

The Tribunal concluded that the facts of the case were not in dispute and that it was understanding of the appellant that they were liable to pay duty that’s why they paid the duty under protest. In these circumstances, the amount deposited under protest is not to take the benefit of time limit, but liability of duty as alleged.  The Tribunal was of the view that the AR failed to show that in case the amount deposited under protest was governed under Section 11AB of the Act for claims of interest.

The Tribunal finally relied on the judgment of the Allahabad High Court in EBIZ Com Pvt Ltd – 2017 (49) STR 389 (All.) where it was observed,

“23. It has been consistent view of various Courts that any amount, deposited during pendency of adjudication proceedings or investigation is in the nature of deposit made under protest or pre-deposit and, therefore, principles of unjust enrichment would not be attracted.

  1. The consensus of the authorities of various High Courts as well as Supreme Court is that any amount received by Revenue, as deposit or pre-deposit i.e. unauthorizedly or under mistaken notion, etc., cannot be retained by Revenue since it has no authority in law to retain such amount and it must be refunded with interest.”

The Tribunal allowed the appeal holding that the appellant was entitled to interest on delayed refund from the date of deposit till its realization @12% p.a.[Soorajmull Baijnath Industries (P) Ltd. v. Commr. Of CE &ST, 2021 SCC OnLine CESTAT 2545, decided on 27-08-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Cyril Amarchand MangaldasExperts Corner

Introduction

In 1920s USA, an Italian immigrant named Charles Ponzi ran a fraudulent scheme that promised a 50 per cent return on investment within a few months. While the scheme lured investors with the claim that investments were in international mail coupons, it was actually a fund embezzlement cycle wherein monies were rotated from new investors to pay “returns” to older investors[1]. After Charles Ponzi’s arrest, his name became synonymous with similar fraudulent schemes that drew beguiled investors, and the term “Ponzi scheme” took off.

 

India is no stranger to Ponzi schemes, numbers of which have surged in the recent times. While central legislations and regulations are in force to regulate and/or ban certain deposit collecting activities, several unscrupulous schemes continue to operate outside the purview of any regulatory body.[2] The presence of several sector-specific regulators has resulted in contemporaneous jurisdiction of many regulatory bodies and as a paradox, several gaps in their operation. In addition, the legislations have differing enforcement mechanisms and penal provisions in case of default. Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act) was enacted in July 2019, and Banning of Unregulated Deposit Schemes Rules, 2020 (Rules) were notified in February 2020, as there was a necessity for a uniform comprehensive legislation to regulate deposit-taking and provide an effective investor protection mechanism.

 

This article is divided into two parts. The first part attempts to examine provisions, powers, and enforcement mechanisms in certain central legislations that govern deposit-taking activities and analyse whether their shortcomings have been addressed by the BUDS Act. The second part of this article discusses the regulatory obstacles faced in the investigation, enforcement, and recovery of monies under a few Ponzi schemes in India.

 

What is a Ponzi scheme?

A Ponzi scheme, in essence, refers to any investment scheme which has no legitimate source of revenue or profits to pay “returns” to investors. Returns are paid to old investors by new investments made on a rolling basis. When the Ponzi scheme does not generate new investments anymore, it collapses and, in most cases, the principal investment is compromised too. Some common features of a Ponzi scheme include false assurance of “guaranteed” high returns or “guaranteed” consistent returns, vague or no business activities, seldom having a commission on referrals, involvement of shell companies, etc.

 

Jurisdiction, powers and enforcement under legislations/regulations

 

Apart from BUDS Act, the following legislations/regulations govern and regulate deposit collecting activities:

(a) Chit Funds Act, 1982 (Chit Funds Act).

(b) Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

(c) Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014.

(d) Securities and Exchange Board of India Act, 1992 (SEBI Act) and Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999 (CIS Regulations).

 

In this article, we will be analysing the Chit Funds Act and CIS Regulations (hereinafter collectively referred to as “Regulating Law”).

 

Penal provisions under the Regulating Law

The Regulating Law prescribes penalties for violation of its provisions and for operation of deposit-taking activity without adequate registration or in contravention of the respective Regulating Law. However, it is pertinent to note that each of the Regulating Law only operates and penalises the deposit-taking activity within the scope of its ambit. For instance, Securities and Exchange Board of India (SEBI) exercises jurisdiction only over collective investment scheme management companies. There is not a comprehensive penal provision, which penalises any other deposit collecting operation that is not regulated by the Regulating Law.

 

Power to take any urgent measures

The Chit Funds Act provides for statutory arbitration before the Registrar of Chits, who has the same powers as a civil court under the Code of Civil Procedure, 1908 and may attach properties of any party to the dispute upon satisfaction that the party may defeat or obstruct the execution of an award. In addition, the Registrar of Chits may wind up chit funds in case of inter alia contravention of the provisions of the Chit Funds Act. The SEBI Act and CIS Regulations empower SEBI to cancel or suspend registration of the collective investment management company, in addition to issuing in some cases ex parte directions to secure the investors. It is to be noted that there is an inconsistency in the powers conferred upon the regulatory bodies to order urgent interim measures to secure the interests of the defrauded investors.

 

Enforcement and recovery mechanism

The Chit Funds Act provides that any interlocutory order or statutory arbitral award passed by the Registrar of Chits for payment of money would be deemed to be a decree of a civil court and enforced accordingly. The SEBI Act confers broad adjudicatory powers upon the SEBI to issue summons, and make such orders for penalty as are in the best interest of investors.

 

BUDS Act and Rules

In the backdrop of Ponzi schemes having defrauded many Indians, the BUDS Act was enacted with a view to address the lacunae in the present legal and regulatory framework for deposit collecting activities.

 

The BUDS Act provides for “regulated deposit schemes” and prohibits and penalises the acceptance of deposits under any scheme or arrangement which is not regulated, thereby characterised as “unregulated deposit schemes”, and therefore, addresses the gaps created by the spherical jurisdictions under each of the Regulating Law. In addition, penalty is prescribed for failure to return monies that are accepted by way of regulated deposit schemes on maturity or in rendering any promised service in lieu of the deposits.

 

The BUDS Act identified another major impediment in the successful enforcement of the Regulating Law. The Act noted that there was no central database of all deposit collecting activities in India and accordingly provides for constitution of an online database for information on all deposit takers PAN India. Further, it necessitates a deposit taker to provide information about its business in the form and manner prescribed in the BUDS Rules, including subsequent changes in operations/business.

 

The BUDS Act and BUDS Rules decentralise its operation and implementation and empower the State Government to appoint a competent authority and designated court within the State. To secure the interests of the investors in the interim, the competent authority, empowered as a civil court, may order provisional attachment of the deposits or properties of the deposit taker who is soliciting deposits in contravention of Section 3 of the BUDS Act. Further, the designated court has been granted exclusive jurisdiction for matters under the BUDS Act, which entails that no other civil court shall have the jurisdiction to entertain any matters arising out of the BUDS Act.[3] With a view to secure the interests of investors, Section 18 of the BUDS Act confers extensive powers upon the designated court.

 

In our view, one of the significant lacuna addressed by the BUDS Act is that the competent authority may refer the investigation to the Central Bureau of Investigation (CBI) via the Central Government, if it has reason to believe that the offence relates to a deposit scheme in which (a) the depositors, deposit takers or properties involved are located in more than one State or Union Territory in India or outside India; and (b) the total value of the amount involved is of such magnitude as to significantly affect the public interest. Such unanimity in action is of paramount importance in severe cases involving multi-State scams as India has seen over the last two decades. In fact, seeking transfer to the CBI required a separate procedure and resulted in further delays at the nascent investigation stage.

 

The BUDS Act provides for a mechanism for restitution to depositors whose claims, and orders of provisional attachment, to the extent of depositors’ claims passed by the competent authority, have been given priority save as otherwise provided in Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Insolvency and Bankruptcy Code, 2016.

 

Conclusion

The BUDS Act addresses several lacunae in the legal and regulatory framework and works to successfully bar illicit investment schemes from mushrooming and functioning. It further allows the regulatory bodies to govern the “regulated deposit schemes”. Taking cue from the CIS Regulations, it would be helpful if the bodies regulating deposit-taking activities could impose uniform conditions for filing of annual statements and annual returns of the regulated deposit schemes, periodic disclosures by the person accepting or soliciting deposits and periodic disclosures of the scheme itself. This would enable the regulatory bodies to undertake routine inspections and ensure prompt investigation into any irregularities or non-compliance of the regulating law or BUDS Act.

 

While the BUDS Act is a welcome legislation that has brought all deposit-taking activities in India under its umbrella, its effective implementation in the States is awaited.


† Partner, Cyril Amarchand, Mangaldas.

†† Associate, Cyril Amarchand, Mangaldas.

[1] Ponzi Schemes, US Securities and Exchange Commission. Available <HERE> (last visited 6-8-2021)

[2] Observations and Recommendations, Twenty-First Report of the Parliamentary Related Standing Committee on Finance (Sixteenth Lok Sabha) titled as “Efficacy of Regulation of Collective Investment Schemes, Chit Funds, etc.” Available <HERE> (last visited 10-5-2021)

[3] S.  8(2) of BUDS Act provides that no court other than the designated court shall have jurisdiction in respect of any matter to which the provisions of the BUDS Act apply.

Experts CornerTarun Jain (Tax Practitioner)

  1. Introduction

Determination of proceedings for recovery of tax takes its own time, passing through the adjudication stage, appellate stages and ultimately judicial review of tax administration’s actions. It is vividly possible that, in the interim the taxpayer may engage in activities which frustrate the tax administration’s recovery proceedings. For illustration, the taxpayer may liquidate the business partly or in whole, dispose significant assets, etc. in order to avoid recovery. In order to address such challenges, the tax administration is entrusted with statutory powers to pre-empt such attempts of the taxpayers to forestall recovery. For illustration, Section 281 of the Income Tax Act, 1961 cloths the tax administration with the power to declare “certain transfers to be void”.[1] In the goods and services tax (GST) laws, the tax administration is entrusted with the power to effect “provisional attachment to protect revenue in certain cases” wherein “any property, including bank account” can be attached provisionally by the tax administration during the pendency of certain proceedings.

 

In a short span of four years since the enforcement of GST laws, this power of provisional attachment has been exercised in plenitude by the tax administration which has resulted into judicial challenges and detailed judgments of the High Court. Recently the Supreme Court was seized with a controversy regarding provisional attachment of the properties of a taxpayer by the Himachal Pradesh GST authorities. By way of a detailed judgment in Radha Krishan Industries v. State of H.P.[2], the Supreme Court has culled out the relevant facets of this power of GST authorities, its contours, limitations, etc. as also enunciated the role of the courts in monitoring the exercise of this power by the GST authorities. The decision is expected to streamline the exercise of such powers under the GST laws while also balancing the rights of the taxpayers. This case comment explores the decision in greater detail so as to demystify the legal position and envision its impact on GST laws.

 

  1. Factual Setting before the Supreme Court

The appellant before the Supreme Court was a manufacturer who was issued a notice under Section 78 of the Himachal Pradesh Goods and Services Tax Act, 2017 (H.P. GST). Post a series of hearings, the Joint Commissioner of State Taxes passed orders provisionally attaching the appellant’s receivables from its customers. The provisional attachment was ordered under Section 83 of the H.P. GST read with Rule 159 framed thereunder. This provisional attachment was challenged by the appellant by way of writ petition before the High Court. Instead of adverting to the merits of the challenge, however, the High Court dismissed the writ petition on the ground of maintainability, citing availability of alternate remedies. This refusal by the High Court to examine the correctness of the provisional attachment order was challenged before the Supreme Court.

 

  1. Enunciating the Contours and Limitations on the Power of Provisional Attachment

The relevant provision of the Central Goods and Services Tax Act, 2017 (which has been similarly incorporated under the State GST laws, such as the H.P. GST) states as under:

 

  1. Provisional attachment to protect revenue in certain cases.— (1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1-A) of Section 122, in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).

 

The Supreme Court extensively dissected the statutory scheme under the GST laws whereupon the power of provisional attachment was pedestaled. Noting that in the aforesaid scheme the power was no unbridled and instead was circumscribed by various conditions inherent in the statutory scheme, the Supreme Court laid out the following six parts in which sub-section (1) of Section 83 could be divided, observing thus:

 

  1. 42. Sub-section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on when in point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional attachment is entrusted. The third part defines the conditions which must be fulfilled to validate the power or ordering a provisional attachment. The fourth part indicates the manner in which an attachment is to be levelled. The final and the fifth part defines the nature of the property which can be attached. Each of these special divisions which have been explained above is for convenience of exposition. While they are not watertight compartments, ultimately and together they aid in validating an understanding of the statute. Each of the above five parts is now interpreted and explained below:

(i) The power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 67, 73 or Section 74. In other words, it is when a proceeding under any of these provisions is pending that a provisional attachment can be ordered.

(ii) The power to order a provisional attachment has been vested by the legislature in the Commissioner.

(iii) Before exercising the power, the Commissioner must be “of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do”.

(iv) The order for attachment must be in writing.

(v) The provisional attachment which is contemplated is of any property including a bank account belonging to the taxable person.

(vi) The manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute.

 

Explaining the practical purport of this scheme, the Supreme Court opined that formation of “opinion” was sine qua non for exercise of this power and thus is its precondition. Enthralling the salient features of this conditionality, the Supreme Court observed the following:

 

  1. 49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.
  2. 50. By utilising the expression “it is necessary so to do” the legislature has evinced an intent that an attachment is authorised not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.
  3. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement.

 

The aforesaid aspect reveals that the Supreme Court has effectively rewritten the scheme regarding the power of the tax administration of provisional attachment whereby (a) heavy onus has been placed upon the tax administration to demonstrate the necessity for the exercise of such power objectively and judicially; and (b) also ensure its limited application, in view of the doctrine of proportionality.

 

In order to incorporate further safeguards towards protecting the taxpayers against indiscriminate exercise of this power, the Supreme Court culled out the principles prevailing under the income tax laws, namely, the “tangible material” test as the basis for inquiry and exercise of powers. On this point, the Supreme Court observed as under:

  1. 52. We adopt the test of the existence of “tangible material”. In this context, reference may be made to the decision of this Court in CIT Kelvinator of India Ltd.[3] Mr Justice S.H. Kapadia (as the learned Chief Justice then was) while considering the expression “reason to believe” in Section 147 of the Income Tax Act, 1961 that income chargeable to tax has escaped assessment inter alia by the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year, held that the power to reopen an assessment must be conditioned on the existence of “tangible material” and that “reasons must have a live link with the formation of the belief”. This principle was followed subsequently in a two-Judge Bench decision in ITO v. Techspan India (P) Ltd.[4] While adverting to these decisions we have noticed that Section 83 of the H.P. GST Act uses the expression “opinion” as distinguished from “reasons to believe”. However for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue.

 

To conclude on the legal position, the Supreme Court decision summarises as under:

  1. 79. …

(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled.

(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.

(vi) The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment.

(vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue.

***

(ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:

(a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and

(b) An opportunity of being heard.

(x) The Commissioner is duty-bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached.

 

On the facts of the decision, the Supreme Court rejected the tax administration’s reasoning and declared the provisional attachment to be unlawful.

 

  1. Reflections on Role of High Courts in Provisional Attachment Cases

According to the Supreme Court, the Himachal Pradesh High Court[5] erred in refusing to examine on merits the correctness of provisional attachment by dismissing the writ petition as non-maintainable. In the process of addressing the correctness of the High Court decision, the Supreme Court opined that the power of provisional attachment made significant inroads into the property rights of the taxpayers and thus close supervision of the exercise of such powers was necessary. Being of the opinion that under the statutory scheme of GST there was no means to correct errors in the exercise of such powers by the statutory authorities, the Supreme Court declared that it was incumbent upon the High Courts to exercise their extraordinary writ jurisdiction to examine the propriety of the tax administration’s exercise of power of provisional attachment. For such reason, the Supreme Court categorically concluded as maintainable a writ petition challenging an order of provisional attachment. In doing so, the Supreme Court also affirmed the views of various High Courts which had exercise addressed this proposition.[6] Some of the key propositions emanating from the High Court decisions, which were approved by the Supreme Court in Radha Krishan Industries v. State of H.P.[7] are summarised below:

  • Decision of the Delhi High Court, in Proex Fashion[8] holding that there are five conditions for invocation of Section 83 of the CGST, which stand approved in para 41 of the Supreme Court decision.
  • Decision of the Gujarat High Court, in Valerius Industries[9] which laid down principles for construction of Section 83 of the SGST/CGST Act. The High Court held that provisional attachment on the basis of a subjective satisfaction, absent any cogent or credible material, constitutes malice in law; vague, indefinite, distant, remote or far-fetching material would not warrant provisional The High Court further went on to lay down the conditions which would permit provisional attachment: (a) where there exists “reasonable apprehension” that the assessee may default the collection of the demand; (b) where there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his/her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective; and (c) provisional attachment power is to be used only as a last resort measure. The power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.
  • In Jay Ambey Filament[10] the Gujarat High Court further expounded the above reasoning, holding that on his opinion being challenged, the competent officer must be able to show the material on the basis of which the belief is formed.
  • Decision in UFV India Global Education[11] of the Punjab and Haryana High Court which held that pendency of proceedings under the provisions mentioned in Section 83 (viz. Sections 62 or 63 or 64 or 67 or 73 or 74) is the sine qua nonfor an order of provisional attachment to be directed under Section 83.
  • Decision of the Bombay High Court in Kaish Impex[12] which considered a similar question regarding the application of Section 83. In this case the tax authorities traced money trail in tax fraud by an export firm and provisionally attached the bank accounts of the petitioner. The issue before the High Court was whether the petitioner’s assets could be attached considering the fact pattern that the proceedings were against another taxable entity. The High Court noted that the proceedings referred to under Section 83 of the Act must be pending against the taxable entity whose property is being attached. It inter alia observed:

 

  1. 18. … Section 83 does not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under these provisions. … The format of the order i.e. Form GST DRC-22 also specifies the particulars of a registered taxable person and which proceedings have been launched against the aforesaid taxable person indicating a nexus between the proceedings to be initiated against a taxable person and provisional attachment of bank account of such taxable person.

 

In short, contextualising the observations of the High Courts, the Supreme Court streamlined the legal position regarding the power of provisional attachment available to GST officers seeking to balance the tax recovery objective underlying the power while preserving the legitimate rights of the taxpayers.

 

  1. Conclusion

Any decision of the Supreme Court, given its constitutional authority under Article 141 as being binding on all courts and authorities in India, settled the controversy and lays down the law of the land. However, this decision is relevant on multiple counts not just in the context of the immediate facts but much beyond. Some of the salient aspects are enlisted below:

  • First, as discussed above, the Supreme Court has streamlined the legal position regarding the power of provisional attachment available to GST officers. This is crucial because GST is a relatively new tax and, more critically, cited as a reform. Thus, it is crucial that its provisions are interpreted uniformly across the country and that too in a humane manner such that their indiscriminate application does not derail the underlying objective of the new tax regime.
  • Second, the decision of the Supreme Court is not just based upon interpretation of the statutory provisions. Instead, it seeks to achieve a delicate balance protecting government revenue and allowing genuine businesses to operate, evidently in furtherance of underlying objective of making the GST law workable.
  • Third, the jurisprudential intercourse sought to be embedded in the scheme of provisional attachment related statutory provisions clearly dispels the long-standing tradition of the Supreme Court wherein the principle of natural justice and fair play are sought to be read in the fiscal laws, thereby ensuring that they remain within the constitutional precincts and do not trample upon the fundamental rights of the taxpayers, indulging the right for reasonable and balanced application of fiscal laws. To this effect, inter alia, the Supreme Court rightly dismissed the contention to grant higher sanctity to discretion of the GST Commissioner, thereby ensuring that the rights of the taxpayers are protected by a fair interpretation of the taxing statute.
  • Fourth, on a larger level, by confirming High Court’s supervision of tax officers’ actions under the extraordinary writ jurisdiction even though the statutory provisions do not provide any legal remedy to the aggrieved taxpayer, the Supreme Court has not just ensured that the taxpayer is not left remediless and instead introduced a mechanism to ensure tax officers’ accountability. No executive power can be exercised without effective supervision, much less a wide and potent power to attach assets which cannot only put fetters upon business operations of any entity but can also put strenuous effect on the very survival of business. In such circumstance, it is only appropriate that the exercise of such power is supervised by a constitutional court such that it can ensure balance between the law’s objective and the rights of the affected party.
  • Fifth, by reading into the law twin tests, the doctrine of proportionality and “tangible material”, the Supreme Court has adverted to the conditions necessary to make the law fair and reasonable which is a constitutional Absence of such tenets do not ipso facto make the law unconstitutional but by reading them into the law, the Supreme Court has ensured that arbitrariness and capricious conduct is not perpetrated in the garb of exercising statutory functions. Thereby the Supreme Court has protected genuine persons from unwarranted harassment and obviated the possibility of unguided discretion leading to peril of arbitrary power.

 

In short, this decision of the Supreme Court is a welcome addition to tax jurisprudence and incremental vindication of taxpayers’ rights.

 


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

The author would like to thank Vanaj Vidyan, Fourth Year Student at Ram Manohar Lohia National Law University for his able assistance.

[1] The provision states that “[w]here, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under R. 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise”.

[2] 2021 SCC OnLine SC 334.

[3] (2010) 2 SCC 723.

[4] (2018) 6 SCC 685.

[5] Radha Krishan Industries v. State of H.P., 2021 SCC OnLine HP 4566 : (2021) 48 GSTL 3.

[6] Bindal Smelting (P) Ltd. v.  Directorate General of GST Intelligence, 2019 SCC OnLine P&H 6015 : (2020) 34 GSTL 592; Society for Integrated Development in Urban and Rural Areas v. CIT2001 SCC OnLine AP 1457 : (2001) 252 ITR 642; Vinodkumar Murlidhar Chechani v. State of Gujarat, 2020 SCC OnLine Guj 3010.

[7] 2021 SCC OnLine SC 334.

[8] Proex Fashion (P) Ltd.  v. Govt. of India,  2021 SCC OnLine Del 2082.

[9]Valerius Industries v. Union of India, 2019 SCC OnLine Guj 6866 : (2019) 30 GSTL 15.

[10] Jay Ambey Filament (P) Ltd. v. Union of India, 2020 SCC OnLine Guj 3009 : (2021) 44 GSTL 41.

[11]UFV India Global Education v. Union of India, 2020 SCC OnLine P&H 2796 : (2020) 43 GSTL 472.

[12]Kaish Impex (P) Ltd. v. Union of India, 2020 SCC OnLine Bom 125 : (2020) 6 AIR Bom R 122.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P. Dinesha (Judicial Member) allowed the appeals which were filed after the Adjudicating Authority vide Orders-in-Original dated 27-09-2019 while partly sanctioning the refund, directed the same to be credited to Consumer Welfare Fund on the ground that the appellant had not proved that the incidence of Duty had not been passed on to the customers. The First Appellate Authority had dismissed the appeal.

Ms D. Naveena, Advocate appearing for the assessee-appellant submitted that:

(i) The Adjudicating Authority relied solely on the report of the Jurisdictional Range Officer (hereinafter referred to as ‘JRO’) dated 26.08.2019, copy of which was not furnished to the appellant;

(ii) The refund claimed was not collected from the/ passed on to the customers of the appellant either by invoices or by debit notes;

(iii) That the expenditure booked which was not shown as ‘receivables’ was a fresh ground not raised by the First Appellate Authority and hence, the Commissioner (Appeals) has clearly travelled beyond the scope of the Orders-in-Original;

(iv)There is a Chartered Accountant Certificate issued by the qualified Chartered Accountant to the effect that no incidence of interest was passed on to the customers of the appellant;

(v) The appellant had also filed a letter dated 14.08.2019 wherein also the appellant had categorically submitted as having not passed on the Duty element to its customers, etc.

Ms T. Usha Devi, Departmental Representative appearing for the Revenue, submitted that the appellant primarily has not proved that the Duty element has not been passed on to its customers.

The Court observed that there were two main things

(1) Certificate of the Chartered Accountant though taken note of, has not been deliberated upon by the Officers nor have they deliberated upon the undertaking letter dated 14.08.2019 filed by the appellant; and

(2) the letter dated 26-08-2019 of the JRO relied upon by the Adjudicating Authority wherein he has claimed to have examined the invoices – most of which noticed to have passed on the incidence of Duty to customers – gives an impression that either he has not examined all the invoices, or that only some of the invoices indicate the passing on of Duty.

The Tribunal emphasized that sole reliance placed on the JRO’s report by the Adjudicating Authority, unfortunately, has not been put across for rebuttal, which is also an undisputed fact and the same has been used to draw a presumption against the appellant which is a serious flaw not only of the procedure, but also of the principles of natural justice.

The Tribunal further stated that The judgement of the Hon’ble Supreme Court relied upon by the Adjudicating Authority in the case of Sahakari Khand Udyog Mandal Ltd. v. C.C.E. & Cus. reported in 2005 (181) E.L.T. 328 (S.C.), a paragraph of which has been extracted in the Order-in-Original, clearly indicates that the Hon’ble Court had ruled that the doctrine of unjust enrichment could be invoked to deny benefit to which a person is not otherwise entitled, which by itself forms a separate category and the same is not applicable in rem and this was not the case here.

The Tribunal while allowing the appeals held that in the absence of any findings to the contrary, the onus shifts to the Revenue and the Revenue has miserably failed to discharge its onus. Therefore, the presumption as to the preponderance of probabilities is heavily stacked against the Revenue. Law has prescribed Accounting Standards that is required to be followed consistently. Books of Accounts are therefore to be maintained accordingly and, of course, following a consistent method of accounting.[Johnson Lifts (P) Ltd. v. Commr. of G.S.T. and Central Excise, 2021 SCC OnLine CESTAT 325, decided on 08-07-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: Interpreting the true scope of Section 80-IA(5) of the Income Tax Act, 1961, the bench of L. Nageswara Rao* and Vineet Saran, JJ has held that the scope of sub-section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating ‘eligible business’ as the ‘only source of income’.

Provision in question

Sub-section (1) and sub-section (5) of Section 80-IA which are relevant for these Appeals are as under:

“80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.— (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years.

* * * *

(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

The essential ingredients of Section 80-IA (1) of the Act are:

  1. a) the ‘gross total income’ of an assessee should include profits and gains;
  2. b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in subsection (4);
  3. c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and
  4. d) in computing the ‘total income’ of the Assessee, such deduction shall be allowed.

The import of Section 80-IA is that the ‘total income’ of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the ‘eligible business’.

Background

In the case at hand, the ‘gross total income’ of the Assessee for the assessment year 2002-03 was less than the quantum of deduction determined under Section 80-IA of the Act. The Assessee contended that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of ‘gross total income’. The Appellate Authority was of the view that there is no limitation on deduction admissible under Section 80-IA of the Act to income under the head ‘business’ only.

The Court was hearing a case where the Revenue had argued that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from ‘eligible business’ by taking it as the only source of income.

“… the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from ‘eligible business’ which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the ‘business income’.”

On the other hand, the Assessee had argued that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the ‘eligible business’ as the only source of income.

The claim of the Assessee was that in computing its ‘total income’, deductions available to it have to be set-off against the ‘gross total income’, while the Revenue contends that it is only the ‘business income’ which has to be taken into account for the purpose of setting-off the deductions under Sections 80-IA and 80-IB of the Act

Analysis and conclusion

In Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai, (2008) 4 SCC 22, the Supreme Court was concerned with Section 80-I of the Act. Section 80-I(6), which is in pari materia to Section 80-IA(5), is as follows:

“ 80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under subsection (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

It was held in Synco Industries that

  • for the purpose of calculating the deduction under Section 80-I, loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income.
  • Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee.

In CIT (Central), Madras v. Canara Workshops (P) Ltd., Kodialball, Mangalore, (1986) 3 SCC 538, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under Section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels.

The Court was, however, not in agreement with the submissions made by the Revenue. It was, hence, held that the profits and gains by an industry entitled to benefit under Section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.

Referring to the aforesaid authorities, the Court held that

“… Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’.”

[CIT v. Reliance Energy Ltd., 2021 SCC OnLine SC 349, decided on 28.04.2021]


Judgment by: Justice L. Nageswara Rao 

Know Thy Judge| Justice L. Nageswara Rao

For Revenue: Senior Advocate Arijit Prasad

For Assessee: Senior Advocate Ajay Vohra

Case BriefsHigh Courts

Orissa High Court: A Division Bench of Mohammed Rafiq and B. R. Sarangi, JJ., disposed off the writ petition holding that equity has to be maintained between industrialization and eco-system itself.

The facts of the case are such that the petitioner-club New Light Yubak Sangha, registered under the Cooperative Society Act was established for the purpose of development of the poor, unemployed and downtrodden persons as well as the welfare and social public works of village Sodamal and its nearby area and also put grievance before the authority for their fundamental rights of enjoyment of pollution-free water and air for full enjoyment of their life as well as other inhabitants of the locality. In 2011 and 2015, Tahasildar, Kolabira issued a public notice that the land in question would be handed over to IDCO, Bhubaneswar for the establishment of industry on a permanent lease basis as it is government land which was opposed by the local people especially scheduled caste and scheduled which was thereby cancelled. But, again in the year 2019, a notification has been issued stating that the land is jungle kisam, would be handed over to IDCO on a lease basis so that IDCO would hand over the same to opposite party 8 for setting up of the industry by allotting the area measuring Ac. 8.00 decimals for the project. The District Level Single Window Clearance Committee without giving the opportunity of hearing to the local villagers approved the application of opposite party 8 for allotment of forest land in which newly planted valuable trees are growing. Aggrieved by the same, instant writ petition has been filed seeking direction to the opposite parties to cause an inquiry on the basis of the grievance made by the villagers of Sodamal and further seeks to cancel the notification.

Counsel for the petitioners submitted that the area having been located in the district of Jharsuguda wherein full-grown forest has been undergone with the help of local people, it helps the people to get free air and water. In the event the industry of opposite party 8 is established, it will destroy the eco-system and people will be deprived of getting free air and water, which will affect their right to live with dignity enshrined under Article 21 of the Constitution of India.

The Court observed that “steps taken by opposite party 8 at the cost of local people is serious one, thereby as has been stated earlier if the lease was allotted in the year 2011 and 2015 and the said proposal was cancelled, subsequently there was no valid justifiable reason to set up the industry by opposite party no.8 in the said land by destroying the eco-system without hearing the grievance of the local people. No doubt, industrialization is required for enhancement of revenue, but that does not mean at the cost of the lives of human being by destroying eco-system. Thereby, equity has to be maintained between industrialization and eco-system itself. Unless there is equilibrium between the two systems, ultimate result will be devastated.”

The Court directed  opposite party 2 “to pass a reasoned and speaking order by affording opportunity of hearing the petitioner vis-à-vis opposite party 8 and other affected persons, if any, as expeditiously as possible preferably within a period of three months from the date of production of this order.”

In view of the above, writ petition was disposed off.[New Light Yubak Sangha v. State of Odisha, 2020 SCC OnLine Ori 931, decided on 18-12-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Karnataka High Court: A Division Bench of Alok Aradhe and H. T. Narendra Prasad JJ., allowed the appeal and quashed the impugned order due to point of law favouring the assessee and not the revenue.

The facts of the case are such that the assessee is a software engineer who was employed with Aerospace Systems Pvt. Ltd., a company registered in India between the period from 1995-1998 and was deputed to SiRF Technology Inc., U.S. in the year 1995 by Aerospace Systems Pvt. Ltd., India as an independent consultant and worked in that capacity 1995-1998 and later as an employee of SiRF USA from 2001-2004. While on deputation to SiRF USA, the assessee was granted stock option by SiRF USA whereunder the assessee was given right to purchase 30,000 shares of SiRF USA at an exercise price of US $0.08 per share and he also had an option of cashless exercise of stock options. The assessee in assessment year 2006- 07 exercised his right under stock option plan by way of cashless exercise and received net consideration of US $ 283,606 and offered the gain as a long term capital gain as the stock options were held nearly for ten years. The assessee also claimed deduction under Section 54 F of the Act. The Assessing Officer vide order dated 26-12-2018 and as per Section 143 (3) of the Income Tax Act, 1961 i.e IT Act artificially split the transaction into two and brought to tax the difference between the market value of shares on the date of exercise and the exercise price as ‘income from salary’ and the difference between the sale price of shares and market value of shares on the date of exercise of ‘income from short term capital gains’. The claim for deduction under Section 54 F of IT Act was disallowed.  The Commissioner of Income Tax (Appeals) was approached who dismissed the appeal on merits which further went in appeal before Income Tax Appellate Tribunal which was thereby dismissed. Aggrieved by the said orders, instant appeal was filed before present High Court.

Counsel for the appellants submitted that the finding recorded by the tribunal that assesee was an employee of SiRF USA is perverse and therefore, the finding of the tribunal that consideration received on transfer of stock options is in the nature of income from salaries cannot be sustained in the eye of law. It was further submitted that stock option was granted to asssessee when he was an independent consultant with SiRF USA and therefore, cannot be treated to be an employee for the purposes of Sections 15 to 17 of the IT Act.

Counsel for the respondents submitted that as per clause 2(f) of the stock plan even a consultant who performs services for the company or a subsidiary shall be treated as an employee. Therefore, the assessee shall be treated as an employee of SiRF USA and amount received as income from salary.

The Court relied on judgment Dhun Dadabhoy Kapadia v. CIT, (1967) 63 ITR 651 (SC) and on perusing clause 2 (f) and 11 of the stock plan as well as the communication dated 03-08-2006 sent by the SiRF USA to the assessee, the Court observed that the assessee was an independent consultant to SiRF USA and was not an employee of SiRF USA at the relevant time.

The Court thus held that, there was no relationship of employer and employee between the SiRF USA and the assessee and therefore, the finding recorded between the SiRF USA and the assessee and therefore, the finding recorded by the tribunal that the income from the exercise of stock option has to be treated as income from salaries is perverse as it is trite law that unless the relationship of employer and employee exists, the income cannot be treated as salary.

In view of the above, impugned order was quashed and appeal was allowed.[Chittharanjan A. Dasannacharya v.  Commissioner of Income Tax, I.T.A. No. 153 of 2014, decided on 23-10-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Anil Choudhary (Judicial Member), allowed an appeal which was filed aggrieved by the judgment and order of Commissioner (Appeals).

The appellant was engaged in the manufacture of MCBs (Miniature Circuit Breaker) and various other electrical accessories, which were dutiable falling under CETH 85362030. The appellant was availing SSI exemption in respect of goods manufactured on their own account or brand and at the same time, was paying duty on the goods bearing brand name of other persons. The other appellant was buyer of goods. On the basis of intelligence that the appellant has been indulging in evasion of duty, a search was conducted where certain documents were resumed. Statements of about 16 persons were recorded, which had been relied upon in the show cause notice. On the basis of scrutiny of the documents and statements of various persons, the Revenue concluded that duty was worked out including cess at Rs 1,22,00,622, invoking the extended period of limitation with a proposal to appropriate Rs.50 lakhs deposited during the investigation stage. Further, penalty was also proposed.

Initially, the appellant had approached the Settlement Commission, admitting duty liability of Rs 6,47,685. Before the Settlement Commission, the Department itself had revised the duty demand to Rs 49,50,711. However, the Settlement Commission recorded the finding that the evidence before it was not sufficient to come to any logical conclusion and sent the case to the Adjudicating Authority. The Adjudicating Authority further, on contest, confirmed a reduced demand of Rs 34,94,797, which was further reduced by the Commissioner (Appeals) to Rs 34,06,203, recording calculation errors. The Adjudicating Authority also imposed penalty of Rs 34,94,797 under Section 11 AC of the ACT read with Rule 25. Being aggrieved, the appellant again preferred appeal before the Commissioner (Appeals) who recorded the finding that the appellant have by and large accepted that they have been indulged in duty evasion but have raised certain issues – the calculation of turnover and duty evaded. They had mainly disputed the estimation of quantity. Commissioner (Appeals) re-calculated and aggrieved by which the instant appeal was filed. The counsel for the appellant, Mr Rajesh Chhibber urged that the Commissioner (Appeals) have erred in observing and reconciling the figures. Further, the rejection of the grounds of the appellant by the Commissioner (Appeals) particularly estimation of turn over by Revenue beyond the installed capacity was bad. Further, the learned Commissioner in spite of taking notice of a wide guess work down by the department has erred in not setting aside the duty demand along with a penalty for the alleged clandestine removal. It was further urged that in spite of allegation of the department of having cleared huge quantity and value of finished goods not a single consignment was intercepted outside the factory being transported without proper document either of raw materials or finished goods.

The Tribunal observed that it was evident on the face of the record that the show cause notice was issued by way of wide guess work wherein duty demand of Rs 1.22 crores was made approximately. Further, they found that Revenue had not worked out the source of raw material for manufacture of the huge quantity alleged to be clandestinely cleared, nor flow back of the proceeds of the alleged clandestine removal. Further, no adverse quantitative ratio has been found out nor any adverse ratio with respect to consumption of electricity was found. Admittedly, the total electricity bill for the two months in dispute is about Rs 20,100 or Rs 10,000 per month approximately. With such meagre consumption of power and taking in view the installed capacity, as well as the idle time due to power failure or break down of machine from time to time, the estimated production and confirming of duty by Revenue is found to be erroneous and high pitched.

The Tribunal allowing the appeal held that penalty under Section 11AC read with Rule 25 of Central Excise Rules should be set aside as case of Revenue was not proved.[Prakash Switchgear v. CCE, 2020 SCC OnLine CESTAT 321, decided on 12-11-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P.K. Choudhary (Judicial Member), dismissed an appeal filed by the Revenue alleging that the amendment of word “from” in the phrase “clearance of final products from the place of removal” to “upto” would not change the position of law as regards outward transportation upto the place of removal.

The respondent-assessee had availed cenvat credit on service tax paid on outward transportation of its finished goods, i.e. biscuits, which were transported up to the customers’ premises during the period from January, 2005 to September, 2007. Show cause notice dated 04-06-2008 was issued alleging suppression of facts etc. The adjudicating authority confirmed the demand along with applicable interest and imposed equal penalty. On appeal, the Commissioner (Appeals) set aside the Order-in-Original and allowed the appeal of the assessee. Thus, the instant appeal was filed.

The Tribunal relied on the judgment of the Supreme Court in CCE v. Vasavadatta Cements Ltd., (2018) 3 SCC 769 where the Court had held that the assessee was legally eligible to avail credit on outward transportation availed from place of removal upto a certain point, whether it is a depot or customer’s premises.

The Tribunal while dismissing the appeal observed that the availment of credit on outward transportation from factory gate to customer’s place pertains to period prior to April 2008 i.e. prior to period when the definition of input service was amended so credit eligibility goes in favour of the assessee.[CCE v. Anmol Biscuits Ltd., 2020 SCC OnLine CESTAT 256, decided on 28-10-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Tribunal (CESTAT): Justice P. Dinesha (Judicial Member) allowed the appeal filed by a shipping company against the Commissioner of Customs. He further decided that the impugned penalties stand set aside.

The authorities filed allegations against the appellant under Sections 112(d) and 114AA of the Customs Act, 1962. A show-cause notice was issued against the appellant herein under Sections 28 and 124 of the Customs Act stating that he did not inform the Revenue that the importer did not possess licence for import of Chlorodifluoromethane (R-22 Gas); he did not present the imported goods for examination; and thus he was liable for penalty under Section 112(a) of the Act for abetting smuggling of R-22 gas, for non-compliance of Regulations 11(d) and 11(n) of the Customs Broker Licensing Regulations, 2013 (CBLR).

Issue: Whether the Revenue was justified in imposing a penalty under Sections 112 (d) and 114AA of the Customs Act, 1962 on the appellant who was only a Customs Broker and not the importer.

J.V. Niranjan, Advocate for the appellant, contended that the Revenue had not established mens rea for levying penalty and that the authorities did not conduct any investigation, filed an appeal against the above allegations. L. Nandakumar, Advocate for the Respondent, prayed for sustaining the penalty contending that the Bill-of-Entry did not contain sufficient details of the goods sought to be imported and the appellant did not bother to ascertain whether the importer had the required licence, constituting a serious lapse covered under Regulations 11(d) and 11(n) of the CBLR.

The Tribunal opined that the Revenue was not able to clearly establish either active or passive role or any deliberate or mala fide act; and the appellant had advised the importer as to the requirement of import licence, being sufficient compliance insofar as Regulation 11(d) is concerned. It was further held that the allegations were not sufficient to fasten with the penalty of the nature impugned as it was not established that appellant handled the work of clearance with mala fide motive and Sections 112(a) and 114AA of the Customs Act include an intentional or deliberate act or omission and even the motive is attributable to the act of abetment to do any act or omit to do any act.

The appeal was allowed stating that Section 114AA could be invoked only on the establishment of the fact that the declaration, statement or document submitted in the transaction of any business for the purpose of the act is false or incorrect. The penalties and impugned order confirming the penalties questioned herein was set aside. [Sea Queen Shipping Services (P) Ltd. v. Commr. of Customs, 2019 SCC OnLine CESTAT 1483, decided on 05-12-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Custom, Excise and Service Tax Appellant Tribunal (CESTAT), Chennai: These appeals were preferred by the assessee before a Coram of P. Dinesha (Judicial Member), for waiver of penal charges, levied for belated filing of Bills-of-Entry.

The adjudicating authority had informed the appellant who was the Customs Broker that their request for waiver of penal charges for late filing of Bills-of-Entry was rejected. Appellant had filed an appeal before the first appellate authority but the same on being rejected this second appeal before this Tribunal was filed.

The dispute before the forum was with respect to the eligibility of the appellant for waiver of late filing fees, in terms of Section 46 (3) of the Customs Act, 1962 which deals with the entry of goods being imported with time limit of filing the same but states nothing related to the consequences on failure to adhere to the time limit. It was submitted that in the impugned order the bona fides of the appellant was not questioned as the cause shown were not rejected as insufficient, wrong or improper. Section 46 authorizes the proper officer to collect late fees unless he is dissatisfied with the cause shown for delay.

Tribunal was of the view that appellant was not the first importer and Revenue after collecting requisite fees allowed amendment in IGM on record which are developed after imports due to goods being perishable. Since, Revenue did not find any malafide intention in the development aforementioned it can be assumed that Revenue was satisfied with the ‘sufficient cause’. Therefore, the impugned order rejecting the request for waiver of penal charges for late filing of Bills-of-Entry was set aside. [Blueleaf Trading Co. v. Commissioner (GST), Customs Appeal No. 42670 of 2018, Order dated 08-05-2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of S. Ravindra Bhat and A.K. Chawla, JJ. allowed a writ petition filed against the notice of re-assessment issued by the revenue under Section 147 and 148 of Income Tax Act, 1961.

The case relates to assessment for the year 2004-05. The original return filed by the petitioner was not accepted and re-assessment notice was issued. After repeated requests, the reasons to believe recorded by the Assessment Officer were furnished to the petitioner-assessee. The petitioner filed objections to the said notice which were turned down. Consequently, he approached the High Court for relief.

The High Court perused the notice impugned and found that the reasons to believe were recorded subsequent to the issuing of such notice. This was contrary to the mandate of Section 148(2), according to which the reasons to believe have to be recorded prior to the issuing of notice. Further, it was also found that new page numbers were assigned to old pages in order to manipulate the placement of documents. Also, the font of the text on pages did not match. In such circumstances, it was held that the Revenue played a subterfuge in ante dating the record. Investigation for the same was directed. Resultantly, the petition was allowed and the notice impugned was quashed. [Prabhat Agarwal v. CIT,2018 SCC OnLine Del 10598, dated 16-8-2018]

 

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of M.S. Sanklecha and Sandeep K. Shinde, JJ., allowed a writ petition filed against the assessment order passed by the Revenue against the petitioner for the year 2011-12.

The petitioner was a foreign company and as such an eligible assessee as defined in Section 144-C(15) of the Income Tax Act, 1961. The Revenue passed the impugned assessment order under Section 144(3) read Section 144-C(13) read with Section 254. The petitioner challenged the said order contending that it was passed without following the procedure as mandated by Section 144-C. It is pertinent to note that the said section provides that a draft assessment order has to be made before the final order for certain assessees that also include a foreign company.

The High Court observed that passing a draft assessment order wherever provided for by Section 144-C is mandatory. The object being to ensure that the disputes of foreign companies are resolved expeditiously, as the eligible assessees are given an opportunity to submit objections prior to passing the final order. The said procedure not being complied with by the Revenue in present case where the petitioner – a foreign company – was an eligible assessee, the High Court held that the final order passed was sans jurisdiction. Accordingly, the impugned order was set aside while allowing the petition. The Revenue was given liberty to take steps as available to it in law. [Dimension Data Asia Pacific PTE Ltd. v. CIT,2018 SCC OnLine Bom 2111, dated 06-07-2018]