Legislation UpdatesRules & Regulations

On September 13, 2021, the Central Board of Direct Taxes notifies Income-tax (29th Amendment) Rules, 2021 to amend Income-tax Rules, 1962. The Amendment inserts a provision prescribing income- tax authority under second proviso to clause (i) of sub-section (1) of section 142.


The Rule provides:

12F. Prescribed income- tax authority under second proviso to clause (i) of sub-section (1) of section 142.- The prescribed income-tax authority under second proviso to clause (i) of sub-section (1) of section 142 shall be an income-tax authority not below the rank of Income-tax Officer who has been authorised by the Central Board of Direct Taxes to act as such authority for the purposes of that clause.

Case BriefsSupreme Court

Supreme Court: In an important ruling on taxation law, the bench of Sanjay Kishan Kaul and Hrishikesh Roy*, JJ has held that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments.


Whether Section 14A of the Income Tax Act, 1961, enables the Department to make disallowance on expenditure incurred for earning tax free income in cases where assessees like the present appellant, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income?

What does Section 14A state?

In Section 14, the various incomes are classified under Salaries, Income from house property, Profit & Gains of business or profession, Capital Gains & Income from other sources.

The Section 14A relates to expenditure incurred in relation to income which are not includable in Total Income and which are exempted from tax. No taxes are therefore levied on such exempted income. The Section 14A had been incorporated in the Income Tax Act to ensure that expenditure incurred in generating such tax exempted income is not allowed as a deduction while calculating total income for the concerned assessee.

Legislative history

Section 14A was introduced to the Income Tax Act by the Finance Act, 2001 with retrospective effect from 01.04.1962, in aftermath of judgment in the case of Rajasthan State Warehousing Corporation Vs. CIT, (2000) 3 SCC 126. The said Section provided for disallowance of expenditure incurred by the assessee in relation to income, which does not form part of their total income.

“As such if the assessee incurs any expenditure for earning tax free income such as interest paid for funds borrowed, for investment in any business which earns tax free income, the assessee is disentitled to deduction of such interest or other expenditure.”

Although the provision was introduced retrospectively from 01.04.1962, the retrospective effect was neutralized by a proviso later introduced by the Finance Act, 2002 with effect from 11.05.2001 whereunder, re-assessment, rectification of assessment was prohibited for any assessment year, up-to the assessment year 2000-2001, when the proviso was introduced, without making any disallowance under Section 14A. The earlier assessments were therefore permitted to attain finality. As such the disallowance under Section 14A was intended to cover pending assessments and for the assessment years commencing from 2001-2002.


  • In the case at hand, the Court was concerned with disallowances made under Section 14A for assessment years commencing from 2001-2002 onwards or for pending assessments.
  • The assessees are scheduled banks and in course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn the assessees, interests from such securities and bonds as also dividend income on investments in shares of companies and from units of UTI etc. which are tax free.
  • None of the assessee banks amongst the appellants, maintained separate accounts for the investments made in bonds, securities and shares wherefrom the tax-free income is earned so that disallowances could be limited to the actual expenditure incurred by the assessee.
  • In absence of separate accounts for investment which earned tax free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax free income by referring to the average cost of deposit for the relevant year.
  • The CIT (A) had concurred with the view taken by the Assessing Officer.
  • The ITAT in Assessee’s appeal against CIT(A) considered the absence of separate identifiable funds utilized by assessee for making investments in tax free bonds and shares but found that assessee bank is having indivisible business and considering their nature of business, the investments made in tax free bonds and in shares would therefore be in nature of stock in trade. The ITAT then noticed that assessee bank is having surplus funds and reserves from which investments can be made. Accordingly, it accepted the assessee’s case that investments were not made out of interest or cost bearing funds alone and held that disallowance under Section 14A is not warranted, in absence of clear identity of funds.
  • The decision of the ITAT was reversed by the High Court.


The Supreme Court took note of the fact that the CIT(A) and the High Court had based their decision on the fact that the assessee had not kept their interest free funds in separate account and as such had purchased the bonds/shares from mixed account. This is how a proportionate amount of the interest paid on the borrowings/deposits, was considered to have been incurred to earn the tax-free income on bonds/shares and such proportionate amount was disallowed applying Section 14A of the Act.

It, however, explained that

“In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure.”

The Court, hence, held that if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made.

[South Indian Bank v. CIT,  2021 SCC OnLine SC 692, decided on 09.09.2021]

*Judgment by: Justice Hrishikesh Roy

Know Thy Judge | Justice Hrishikesh Roy

Appearances before the Court by:

For Appellants: Senior Advocates S. Ganesh, S.K. Bagaria, Jehangir Mistri and Joseph Markose,

For Respondent/Revenue: ASG Vikramjit Banerjee and Senior Advocate Arijit Prasad

Foreign LegislationLegislation Updates

New York Department of Tax and Finance has issued a new guidance on Pass through Entity Tax on August 25, 2021. The PTET is tax that partnerships or New York S corporations may annually elect to pay on certain income for tax years beginning on or after January 1, 2021.


Key points of the guidance are:

  • For 2021, the election must be made by October 15, 2021 and once made it is irrevocable for the year. From 2022 onwards, the annual election must be made by March 15 of the year for which the election is made.
  • Electing entities will have the option to make estimated tax payments prior to December 31, 2021. An online form will be made available for this purpose by December 15, 2021.
  • A direct partner, member, or shareholder eligible to claim the credit means one to whom the electing entity issues a federal Schedule K-1.
  • The guidance states that a partnership cannot include in its PTE taxable income amounts distributed to direct partners, such as partnerships or other entities that are not subject to PIT, even if the income is ultimately taxable to a partner or member through tiered partnerships.
  • The PTE credit must be claimed on the owner’s separate New York State tax returns; it cannot be claimed on a group return.
  • Owners who are New York State residents are also allowed a resident tax credit for “substantially similar” PTE taxes imposed by other states and localities. The Department says it will post on its website a list of substantially similar taxes that qualify for a resident tax credit.

*Tanvi Singh, Editorial Assistant has reported this brief.

Advance RulingsCase Briefs

Maharashtra Authority for Advance Ruling (MahaGST): The Bench of Rajiv Magoo Joint Commissioner of Central Tax and T.R. Ramnani, Joint Commissioner of State Tax, decided whether reimbursement by Industry Partner to Third Party aggregator of stipend paid to students would attract GST or not.

Applicant filed the instant application seeking an advance ruling in respect of the following questions:

  1. Whether the reimbursement by Industry Partner to YAS of the stipend paid to students attracts GST?
  2. Whether the reimbursement by Industry Partner to YAS of the insurance premium attracts GST?
  3. Whether the reimbursement by Industry Partner to YAS of the expenses for uniform and safety shoes attracts GST?

Applicant was stated to be registered as a ‘not for profit Company’ under Section 25 of the Companies Act, 1956. The activities of applicant were charitable and hold registration under Section 12 AA of the Income Tax Act, 1961.

Since applicant is a Third Party Aggregator providing support for mobilizing the trainees under the National Apprenticeship promotion Scheme for providing them on-the-job training in industries, it enters into agreements with industry partner who impart actual practical training to the students.

Analysis, Law and Decision 

Firstly, the AAR stated that the two questions for consideration were withdrawn by the applicant, hence the discussions in the present matter will only pertain to: Whether the reimbursement by Industry Partner to the applicant, of the stipend paid to students, attracts GST?

Bench in view of the said issue stated that the industry partner that provides training to the trainees is required to pay stipend to the trainees. The said stipend is not directly paid to the trainees by the companies, rather the same are routed through the applicant. Adding to this, it was stated that the entire amounts received as stipend from the companies are paid to the trainees without any amount being retained. Hence, applicant acts only as the intermediary.

Therefore, AAR held that the applicant is only a conduit for the payment of stipend and the actual service is supplied by the trainees to the trainer companies against which stipend is payable.

Lastly, it was held that the amount of stipend received by the applicant from the industry partners and paid in full to the trainees is not taxable at the hands of the applicant. [Yashaswi Academy for Skills, In Re., GST-ARA-83/2019-20/B-47, decided on 20-08-2021]

Advance RulingsCase Briefs

Maharashtra Authority for Advance Ruling (MahaGST): The Bench of Rajiv Magoo, Joint Commissioner of Central Tax and T.R. Ramnani, Joint Commissioner of State Tax decided that GST is exempted on Hostel Rent of less than Rs 1000 per day per student.

Questions for Consideration:

  • Whether the activity of providing the hostel on the rent to various students by applicant is exempt (where hostel fees charged per student per day is much less than Rs 1000)?
  • If it is exempt it shall be claimed as exempted under Serial Number 12 or Serial Number 14 of Notification 12/2017 – Central Tax (Rate) (as amended time to time) dated 28-06-2017?

Factual Background

Applicant was registered under the CGST Act, 2017 and provided commercial training and coaching service for students appearing for 11th and 12th standards who are desirous of appearing for IIT, etc., specifically in science stream.

Applicant also provided hostel facility to the students on demand basis and charged them additionally. The said service of hostel was optional and not coming in the form of package.

Under GST, exemptions for services were notified vide Notification No. 12/2017 – Central Tax (Rate) dated 28-06-2017, as amended time to time. In the said notification in Serial Number 12 exemption was provided for “Services by way of renting of residential dwelling for use as residence.”

However, ‘Residential Dwelling’ was not defined in the Act and in exemption notification as well. Therefore, the meaning of the expression ‘residential dwelling’ has to be understood in terms of the normal trade parlance. It means any residential accommodation but does not include hotel, motel, inn, guest house, campsite, lodge, house boat, or like places meant for a temporary stay.

Further, as per the applicant, exemption was available under Sr. No. 14 of Notification 12/2017 – C.T. (Rate) dated 28-6-2017 as amended, for Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having value of supply of a unit of accommodation below one thousand rupees per day or equivalent.

Analysis, Law and Decision

Bench observed that the term “residential dwelling” is not defined under the GST Act. But in common parlance it is to be called as ‘A house or an apartment or other places of residence or a place to live in or building or other places to live in.’

The activity of providing the hostel on rent to various students is covered under ‘services’. The hostels are exclusively meant for temporary residence for students during the time period of training and coaching only.

Applicant was also providing hostel facilities to the students who were not their own institutional students.

In view of the above, Bench opined that the criteria for residential dwelling under the common parlance teste are not satisfied.

In the case of residential dwelling, there is no embargo in respect of visits and stay by friends, relatives, etc. The period of stay in the residential dwelling is specified in the agreement.

Further, it was noted that the Hostel room which is usually allotted on sharing basis to 3 students is for a period which is usually more than 3 months. The rooms in hostel are let out to the students for residential and study purpose only, that too during the training and coaching periods. The said are the basic differences between a residential dwelling and a Hostel.

In view of the above, the subject activity was not covered under Entry 12 of the said notification.

Therefore, hostel accommodation provided by the applicant was not covered under the exemption Notification.

 Furthermore, the subject activity would be exempted from taxes as per Entry No. 14 of said notification. The fees charged per student per day per room was much less than Rs 1000.


  • Whether the activity of providing the hostel on the rent to various students by applicant is exempt (where hostel fees charged per student per day is much less than Rs 1000)?

Answer: Affirmative

  • If it is exempt it shall be claimed as exempted under Serial Number 12 or Serial Number 14 of Notification 12/2017 – Central Tax (Rate) (as amended time to time) dated 28-06-2017?

Answer: Present activity of the applicant is exempted under Serial Number 14 of Notification No. 12/2017 – C.T. (Rate) dated 28-06-2017 as amended from time to time.[Ghodawat Eduserve LLP, In Re; ARA 72/2019-20/     /B-51, decided on 27-8-2021]

Case BriefsHigh Courts

Karnataka High Court: N. Sanjay Gowda, J., allowed the petition and quashed the demand note.

The facts of the case are such that the petitioner is supplied electricity by the licensee i.e. Hubli Electricity Supply Company Limited i.e. ‘HESCOM’. Apart from this, it is also supplying energy from the energy exchange every month which is called as purchase of electricity from Open Access Source. The petitioner is liable to pay tax on electricity consumed by it. A demand to pay a sum of Rs. 94, 47, 534 being a demand for payment was issued by HESCOM. The grievance of the petitioner is regarding whether the electricity tax which is to be paid should be levied on the price at which it purchases, be it from the licensee or from the Open Access Source. Aggrieved by the demand note, instant petition under Article 226 and 227 of the Constitution of India was filed on grounds of it being without jurisdiction and thus unconstitutional.

Counsel for the petitioner submitted that the price paid for purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee HESCOM.

Counsel for the respondents submitted that irrespective of source of electricity, every consumer is liable to pay tax on the electricity consumed within the State and since, admittedly, petitioner had consumed the electricity within the State of Karnataka, it was bound to pay electricity tax on the rates at which electricity has been supplied by HESCOM.

The Court observed that The Karnataka Electricity (Taxation n Consumption or Sale) Act, 1959 i.e ‘The Act’ was enacted to provide for levy of tax on consumption of electricity energy in the State of Karnataka in the year 1959 for sale of electricity energy in the State of Karnataka.

The intent of Section 3 of The Act is clear that whenever electricity is consumed by a consumer within the State of Karnataka, the consumer is bound to pay electricity tax on that on ad valorem basis at the rate of 6% on the charges payable on the electricity sold or consumed. The deliberate use of the expression “charges payable on electricity sold to or consumed by any consumers” would indicate that the charges for the electricity sold and for the electricity consumed could be different. Section 3 sub section 2 makes it clear that the source of electricity consumed by the consumers would be the yardstick for determination of the electricity charges on the basis of which an ad valorem rate have to be calculated.

Further, it was observed that as per Section 4 (1)(a), licensee is required to collect and pay to the State Government the electricity tax payable under the Act on the electricity charges included in the bill issued by him to the consumers. Thus, it is applicable in respect of electricity sold by the license.

Section 4 (1)(b) clearly states that the licensee shall collect and pay to the State Government the electricity tax payable on the units of electricity supplied to consumer by a non licensee through a license. Thus, a clear distinction is made on the manner in which the tax is paid.

The Court concluded that it is to be borne in mind that the person who sells the electricity would necessarily pay the wheeling and access charges to the licensee and the seller of the electricity would be basically using the infrastructure and paying for the distribution. The licensee, therefore, would have no preferential right.

The Court thus held “the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax. HESCOM shall now calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issued a revised demand within a period of two weeks from the date of receipt of a certified copy of this order”

In view of the above, petition was allowed.[Southern Ferro Ltd. v. State of Karnataka, W.P. No. 105054/2017, decided on 15-03-2021]

Arunima Bose, Editorial Assistant has reported this brief.

Advocates before the Court:

Counsel for the Petitioner: Mr Gurudas Kannur (Senior Counsel) and Mr Narayan G. Rasalkar (Adv.)

Counsel for the respondent: Ms K. Vidyawati (Add. Adv. Gen), Mr Vinayak S. Kulkarni (for R1, 2 and 5) and Mr B. S. Kamate (Adv.)

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Ramesh Nair (Judicial Member) and Raju (Technical Member) allowed an appeal which was filed against in demand of reversal Cenvat Credit, Interest, and Imposition of penalty.

The issue involved in appeal was that whether Rule 6 (3) (b) and Rule 6 (3)(i)(ii) of Cenvat Credit Rules,2004 would be applicable to the removal of byproducts (i.e spent sulphuric Acid) which were removed under serial No 32 of Notification No. 04/2006 –CE dated 1st March 2006 to fertilizer manufacturing units following the procedure laid down under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods)Rule 2001. Notices were issued for recovery of CENVAT under Rule 6(3)(b) and Rule 6(3)(i)(ii) of Cenvat Credit Rules,2004 by treating the removal of Spent Sulphuric Acid under Notification No.04/2006-CE dated 1st March,2006 as exempted goods. The Adjudicating Authority had not accepted the contention of the Appellant that the by-Products were removed at Nil rate of duty on receipt of Annexure-1 from fertilizer manufacturing units.

The Tribunal allowed the appeal and observed that the appellant were engaged in manufacture of Chemicals namely Dichloro Nitro Benzene, etc. and were availing Cenvat Credit in respect of certain inputs and inputs services during the process of manufacture Sulphuric Acid also came into existence. They further observed that appellants were clearing such Sulphuric acid to manufacturers of fertilizers by availing benefit of Procedure Chapter X (Cleared at Nil Rate of Duty). The appellants had contended that they procured Sulphuric Acid from outside and used the same in the process of manufacturing their final products. What is left after the process was nothing but the spent sulphuric acid which was waste/refuse. They claimed that the spent sulphuric acid was not a by-product. The appellant had claimed that spent sulphuric acid was the residue of the input sulphuric acid procured from outside and used in the processing within the factory. The appellant claimed that they had cleared only such Sulphuric Acid under Notification No. 4/2006 – CE. The Tribunal found that a similar issue was decided upon in the case of Nirma Limited – 2012(276) ELT 283.[Panoli Intermediate (India) (P) Ltd. v. C.C.E. & S.T., 2021 SCC OnLine CESTAT 5 , decided on 18-01-2021]

Suchita Shukla, Editorial Assistant ahs put this story together

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 wherein credit had been denied on the premise as per Notification No.02/14-CE (N.T.) dt. 20-01-2014, the appellant was not entitled to credit prior to the Notification No.01/10-CE dt. 6-02-2010.

The appellant was located in the State of Jammu & Kashmir and was availing the benefit of exemption Notification No.01/10-CE dt.6-02-2010. The appellant procured certain inputs and availed credit of duty paid on these inputs. The Revenue stated that an assessee is not entitled to avail credit against the inputs issued by the units, who were availing exemption under Notification No.01/10-CE dt. 6-02-2010 and after the introduction of Notification No.02/14-CE (N.T.) dt. 20-01-2014, the notification No.01/10-CE dt. 6-02-2010 was amended thereafter the credit was available to the assessee. After adjudication, the credit availed by the appellant was denied. Counsel for the appellant also submitted that the period involved in this case was 01-08-2012 to 19-01-2014 whereas the show cause notice had been issued on 31-08-2017 by invoking the extended period of limitation.

The Tribunal observed that similarly placed assessee was allowed the credit although against those orders, the appeals had been filed by the Revenue before the Commissioner (Appeals), in that circumstance, when the Revenue was having divergent views on the issue, the extended period of limitation was not applicable.

The Tribunal allowed the appeal stating that the denial of credit was barred by limitation as the show cause notice was issued by invoking the extended period of limitation.[Pioneer Pesticides (P) Ltd. v. Commr. of CGST, 2021 SCC OnLine CESTAT 8, decided on 12-01-2021]

Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

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]

Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Delhi High Court: Jayant Nath, J., reiterated the consistent position of law that right to access to clean drinking water is a fundamental right.

Petitioners who have filed the instant case are veterans, decorated officers, war-widows and Armed Forces Personnel belonging to all the three wings who were allotted plots in question for residential tenements by respondent 1 pursuant to a scheme by respondent 1 in 1961.

It has been stated that they are legally authorized residents and must be recognized/acknowledged by every respondent. Allotment of plots was by the society formed by the Ministry of Defence which culminated into proper sale deeds registered with the office of sub-registrar.

Further, it was claimed that the petitioners have been paying tax to MCD at urban rates and that subsequently, this was acknowledged as residential in the Master Plan of Delhi 2021.

Petitioners grievance is that despite repeated attempts since last 30 years, MCD has failed to provide a single facility to the petitioners till date under the garb of the petitioners allegedly being unauthorised. It is pleaded that such a stand of the authorities is completely untenable, unjust and illegal.

Harassment faced by War Widows and Disabled/Decorated Ex-Servicemen

 It is stressed that ex-servicemen resettled under this very scheme in many other stations in the country are living peacefully since the last 45 years. It is only in Delhi that war-widows and disabled/decorated ex-servicemen resettled under the Government of India mooted scheme have been harassed and denied essential basic amenities of water, electricity, sewer, road, etc. for the last 55 years.

 Further, adding to the above agony, petitioners have also stated that the authorities including the local police do not allow the petitioners to repair/build their boundary walls. The petitioners’ colony roads have become a thoroughfare for tens of thousands of people living in adjoining areas. This has also affected the security and the lands are open to encroachment.

Court’s Analysis

First and foremost thing that strikes the Court was that the petition seemed to have completely ignored that the area in question was as per the stipulated regulations for agriculture purposes.

Delhi Jal Board’s affidavit had mentioned that the Defence Services Enclave is an unauthorized colony mentioned in Registration No. 453 in the list of total 1639 unauthorized colonies, which have been identified by Urban Development Department, Govt. of NCT of Delhi.

South Delhi Municipal Corporation also in its counter affidavit has stated that the Defence Services Enclave is an unauthorised colony and SDMC is not carrying out any development work pertaining to it. Similarly, Govt. of NCT of Delhi in its counter-affidavit also states that Defence Service Enclave is an unauthorised colony.

Bench stated that merely because the petitioners were allotted the plots cannot be a ground to insist that the area is for residential purposes.

As per Section 7 of the said Act, DDA has to prepare a Master Plan for Delhi which will indicate the manner in which the land in each zone is proposed to be used. Further, Zonal Development Plans are to be prepared which will indicate the aspects stated in Section 8 of the said Act. As per Section 14 of the said Act, no person shall use any land in a particular zone otherwise than in conformity with the plan.

 High Court noted that the petitioners are all retired defence personnel who have devoted the most productive period of their lives defending the nation’s borders and performing other dangerous and difficult tasks normally performed by defence service officers.

Bench requested Secretary, the Ministry of Defence/respondent 1 to convene a meeting of functionaries who can take a decision in terms of the directions of Division Bench of this Court in WP (C) 8276 of 2014.

Further, as far as drinking water is concerned, in the counter-affidavit of Delhi Jal Board it was stated that the development work like laying of water pipeline in the area in question could only be executed by the said respondent subject to clearance from the Urban Development Department, GNCTD.

As the colony in the instant case was unauthorised, permission for installation of 4 number tube wells has been given to the RWA and at present, water is being supplied for drinking purposes through the existing tube wells as an interim arrangement. The said arrangement is said to be maintained and regulated by the RWA.

“…an individual has a right to access to drinking water in quantum and quality equal to his basic needs.”

For the above, Court referred to the Supreme Court decision in A.P. Pollution Control Board II v. Prof. M.V. Nayudu, (2001) 2 SCC 62.

“Right to access to drinking water is fundamental to life and there is a duty of the State under Article 21 of the Constitution to provide clean drinking water to its citizens.”

Bench held that the petitioners cannot be deprived of a right to access to drinking water merely on the ground that it is an unauthorised colony. Petitioners were residing in the said area for the last 50 years and could not be continuously deprived of the said right to access to drinking and potable water.

Hence Delhi Jal Board is directed to make an appropriate scheme as per their normal procedure for supply of potable drinking water to the petitioners. The scheme shall be framed and implemented preferably within 9 months. [Delhi Sainik Cooperative Housing Building Society Ltd. (Regd.) v. Union of India,  2021 SCC OnLine Del 34, decided on 11-01-2021]

Advocates for the parties:

Petitioners: Dushyant Dave, Senior Advocate with Bahar U. Barqi, Advocate.

Respondents: Maninder Acharya, ASG with Anurag Ahluwalia, CGSC, Abhigyan Siddhant, and Sharuya Jain, Advocates for Union of India/R-1

Naushad Ahmed Khan, ASC(CIVIL), GNCTD

Puja Kalra, Standing Counsel and Virendra Singh, Advocate for SDMC

Ajay Verma, Senior Standing Counsel with Ruchi Chopra, Advocate for DDA.

Puja Kalra, Advocate for SDMC.

Sumeet Pushkarma, Standing Counsel with Devanshu Lohiya, Advocate for Delhi Jal Board and L.L. Meena (E.E.)

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): S.S. Garg (Judicial Member) allowed appeals which were filed against the impugned order passed by the Commissioner of Central Tax (Appeals) whereby Commissioner had rejected the appeal for not depositing the mandatory pre-deposit under Section 35F.

Appellant had filed four rebate claims before AC Yelahanka Division under Rule 18 of CER 2002 read with Notification No. 19/2004-CE (NT) dated 06/09/2004, as amended read with Section 11B of Central Excise Act, 1944 on the ground that they had manufactured and exported the same as per the documents submitted. The adjudicating authority after due process found that the respondent had paid excess duty from their Cenvat credit account as the duty was paid on CIF value basis and further, re-determined the values as per Section 4 of Central Excise Act and held that duty was paid in excess partly and was not admissible and had re-determined Section 4 value and arrived at the allowable amounts. The Jurisdictional Deputy Commissioner had examined Section 142(3) of the CGST Act, 2017 and allowed the entire rebate claimed by the respondent in cash. The Department filed appeal before the Commissioner (Appeals) on the ground that the Adjudicating Authority has erred in sanctioning the rebate. Further, Commissioner (Appeals) had allowed the appeals in favour of the Department. Aggrieved by the same, the appellant had filed Revision applications. Jurisdictional Assistant Commissioner of Central Tax issued protective show-cause notices and demanded the rebate sanctioned in all the four cases and adjudicated the same as erroneously refunded amount liable for recovery under the provisions of Rule 14 of CCR, 2004 read with Section 11A (1) of CEA, 1944 with applicable interest under the provisions of CCRs 2004 read with Section 11AA of CEA, 1944. Aggrieved by the said order of the Assistant Commissioner, the appellant had filed appeal before the Commissioner who rejected the appeal for not depositing the mandatory pre-deposit under Section 35F of Central Excise Act, 1944 without going into the merits of the case.

The Tribunal after perusal of records found that the appellant had already filed Revision application challenging the decision of the Commissioner (Appeals) whereby the Commissioner (Appeals) had accepted the Department’s appeal and that Revenue has now attached the copy of the notice issued by the Revisionary Authority which shows that the whole issue is pending with the Revisionary Authority, Government of India. Since the issue was pending before the Revisionary Authority, it was incumbent on the original authority not to adjudicate the protective notices issued by them and should have waited till the decision of the Revisionary Authority. The Tribunal allowed the appeals setting aside the impugned order with a direction to keep the whole matter in abeyance till the decision of the Revisionary Authority.[Indo Us Mim Tec (P) Ltd. v. Commr. of Central Tax; 2020 SCC OnLine CESTAT 396    ; decided on 11-12-2020]

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Experts CornerTarun Jain (Tax Practitioner)


Traditionally fiscal laws have their own nuanced interpretation regime wherein strict interpretation of the statute and preference for literal meaning is the order of the day.[1] The observation of Rowlett, J.[2] is often cited to restate the legal proposition that there is no equity in a taxing statute and the intent of the legislature as emanating from the statutory text has to be given effect. Hardships in implementation and regard for consequences are often prepositions which do not find favour in context of fiscal laws.[3] Accordingly the general impression appears to be that equitable doctrines have absolutely no space in the fiscal realm. This impression, however, is not correct as there are many exceptions, principally owing to the judge-made law which has sought to introduce a variety of equitable doctrines in the taxation laws. This article enlists a few such judicially imbibed doctrines.

Tarun Jain, Advocate, Supreme Court of India

Doctrine of Promissory Estoppel

Is it possible for a taxpayer to content that the Government is estopped from giving effect to certain fiscal provisions, or, alternatively, the Government is obliged to extend certain fiscal benefits to the taxpayer? Multiple variations of these question have often come across the Indian courts, though with mixed results.[4]

The locus classicus on this aspect is the decision of the Supreme Court in Motilal Padampat[5] wherein the Supreme Court examined in detail the doctrine of promissory estoppel, throughout its evolution under the common law and its application under the Indian legal system. This judgment declared[6] that it is in principle possible for the taxpayer to claim that the Government has estopped itself through express conduct and therefore cannot operate to the detriment of such taxpayer. The decision in Motilal Padampat[7] and many other judgments which have followed it, such as Nestle[8], Manuelsons Hotels[9], etc., deal with situations where and assurance of tax exemption was given by the Government and later breached despite the taxpayers having acted on the basis of such assurances. In such cases, the Supreme Court has come to the rescue of the taxpayer by declaring that it is not open to the Government to resile from their solemn assurances.

The position, however, is not unequivocal as there are certain decisions which declare that notwithstanding the promises the Government can act to the contrary where overriding “public interest” so requires or where the Government exercises its legislative power. The decisions of the Supreme Court in Kasinka Trading[10], Kothari Industrial[11], and more recently in Unicorn Industries[12], etc. uphold the power of the Government to act despite its promises and assurances in certain situations.

In summary, the doctrine of promissory estoppel does find a place in the interpretation of fiscal statutes, though its application is not unwavering.

Legitimate Expectation Principle

Another facet of equitable doctrines being installed in the interpretation of fiscal statutes is the application of legitimate expectation principle. In multiple decisions, the Supreme Court has applied this principle to declare that the Government is obliged to enforce the assurances of tax exemptions which it makes to the taxpayers, by way of formal executive documents and delays or inaction of the Government can be judicially addressed by applying this principle. For illustration, the decisions of the Supreme Court in Suprabhat Steel[13], Kalyanpur Cement[14] and, more recently in, Brahmputra Metallics[15] declare that once the Government has issued an industrial policy in terms of which certain tax exemptions have been assured, inaction of the Government in enforcing such exemptions is not permitted in view of the legitimate expectation of the taxpayer arising in terms of such policy. Thus, equitable entitlement has been extended to the taxpayer by applying this principle of legitimate expectation as well.

Doctrine of Fairness

As stated earlier, hardship in giving effect to the stipulations of the fiscal law is often considered irrelevant. Conversely, it could be argued, as it is often, “fairness” is not a consideration in the interpretation of fiscal laws.[16] Such conclusion would be incorrect. A five-Judge Bench decision of the Supreme Court in Vatika Township[17] traversed through competing jurisprudential theories to declare the need to balance the rights of the subject taxpayers vis-à-vis the State. opining that there was a need to instil fairness in the interpretation of taxing statutes, this judgment declares that oppressive tax laws cannot be implied to carry retrospectively application and if indeed an oppressive tax law has to be given effect retrospectively, it shall be given effect only in presence of specific legislative mandates. In other words, the Supreme Court ruled out impliedly retrospective consequences for the taxpayers. This decision must be read in conjunction with the earlier decisions on the subject holding that those government instructions under the taxing laws which are favourable to the taxpayers must be given retrospective effect whereas instructions against the interests of the taxpayers must be applied only prospectively.[18] In other words, albeit in the limited context of retrospectivity, the doctrine of fairness does exist in the fiscal space.

Aspects of “Reasonableness” and “Fair Play” in Operation of Taxing Statute

Apparently owing their origins to the administrative law principles, a number of equitable doctrines appear to have been implanted in the practical enforcement of the taxation laws. For illustration, natural justice principles being read in the law even where the taxing statute does not provide so,[19] principles governing fair play in tax adjudication,[20] mandate for the Government to expressly set out the allegations against the taxpayer such that they can be defended adequately,[21] rule against predetermined tax enquiries,[22] right against coercive actions by the tax authorities and non-sustenance of extra legal measures,[23] etc. are some of the judicially affirmed equitable propositions which find their place in the tax law. In fact, there are certain instances of substantive application of such principles insofar as statutory instruments have also been quashed by the quotes on the ground that they violate the principle of reasonableness and fair play which emanates from the larger and expensive construction of Article 14 of the Constitution of India.[24]


From the above discussion it is apparent that the general rejection of equity in interpretation of taxing statutes, the invocation and application of equitable doctrines in the fiscal space by the judiciary is a clear testament that even tax laws have to operate within the same rule of law framework under which the other laws find their feet. It is no doubt true that such judicial interventions are infrequent, nonetheless, they repel the perception that equity is anathema to tax.

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

[1] A recent five-Judge Bench decision of the Supreme Court observes, “it is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute”. Commr. of Customs v. Dilip Kumar and Co., (2018) 9 SCC 1 at para 29.

[2] Cape Brandy Syndicate v. Inland Revenue Commissioners, (1921) 1 KB 64.

[3] “In the case of taxation, it is settled law that hardship or equity has no role to play in determining eligibility (sic exigibility) to tax and it is for the legislature to determine the same.” Union of India v. M.V. Valliappan, (1999) 6 SCC 259 at para 19.

[4] See, Tarun Jain, “Promissory Estoppel: A Fading Enigma in Fiscal Space?”, NLUJ Law Review, (2020) 7(1) NLUJ Law Review 1-42 (available at HERE) for a critical review of the legal position on the application of this doctrine in the Indian fiscal jurisprudence.

[5] Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., (1979) 2 SCC 409.

[6] Extending the declaration in Union of India v. Indo-Afghan Agencies Ltd., AIR 1968 SC 718 : (1968) 2 SCR 366.

[7] (1979) 2 SCC 409.

[8] State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465.

[9] Manuelsons Hotels (P) Ltd. v. State of Kerala, (2016) 6 SCC 766.

[10] Kasinka Trading v. Union of India, (1995) 1 SCC 274.

[11] Kothari Industrial Corpn. Ltd. v. T.N. Electricity Board, (2016) 4 SCC 134.

[12] Union of India v. Unicorn Industries, (2019) 10 SCC 575.

[13] State of Bihar v. Suprabhat Steel Ltd., (1999) 1 SCC 31.

[14] State of Bihar v. Kalyanpur Cement Ltd., (2010) 3 SCC 274.

[15] State of Jharkhand v. Brahmputra Metallics Ltd., 2020 SCC Online SC 968.

[16] See contra, Hindustan Sugar Mills v. State of Rajasthan, (1978) 4 SCC 271 inter alia observing that “We think that, in the circumstances, fairness and justice demand that the Central Government should pay to the assessee the amount of sales tax on the freight component of the price in respect of transactions of sale of cement entered into by the assessee with them under the provisions of the control order. It is true and we are aware that there is no legal liability on the Central Government to do so, but it must be remembered that we are living in a democratic society governed by the rule of law and every Government which claims to be inspired by ethical and moral values must do what is fair and just to the citizen, regardless of legal technicalities. We hope and trust that the Central Government will not seek to defeat the legitimate claim of the assessee for reimbursement of sales tax on the amount of freight by adopting a legalistic attitude but will do what fairness and justice demand. After all, the motto of every civilised State must be: ‘Let right be done’.”

[17] CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1.

[18] For illustration, Suchitra Components Ltd. v. CCE, (2006) 12 SCC 452.

[19] Kesar Enterprises Ltd. v. State of U.P., (2011) 13 SCC 733.

[20] Nagarjuna Construction Co. Ltd. v. Govt. of A.P., (2008) 16 SCC 276.

[21] SACI Allied Products Ltd. v. CCE, (2005) 7 SCC 159.

[22] Oryx Fisheries (P) Ltd. v. Union of India, (2010) 13 SCC 427.

[23] Dabur India Ltd. v. State of U.P., (1990) 4 SCC 113.

[24] For illustration, see Union of India v. N.S. Rathnam and Sons, (2015) 10 SCC 681.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of P. Venkata Subba Rao (Technical Member) and P. Dinesha (Judicial Member) allowed an appeal filed against Order-in-Appeal passed by Commissioner of Customs, Central Excise & Service Tax, (Appeals-II).

The appellant was a 100% Export Oriented Unit (EOU) and was engaged in research and development services of advanced pharmaceutical ingredients and other biopharma products, a wholly-owned subsidiary of Nektar USA. An employee of the parent company, Nektar USA, was sent to India on a secondment to work as a full-time Managing Director of the appellant company. During his tenure as the Managing Director of the appellant, the ‘secondee’ was a full-time employee of the appellant and that there was a relationship of employer-employee between the appellant and the ‘secondee’. Further, since the ‘secondee’ was a citizen of America, the parent company and the appellant company entered into a ‘salary reimbursement agreement’ for the sake of administrative convenience so that the salary of the ‘secondee’ would be paid in foreign currency outside India by the parent company which would be reimbursed by the appellant to its parent entity. The issue that arose was whether the reimbursement of salary paid to the ‘secondee’, to the parent company, Nektar USA amounted to consideration for the provision of manpower recruitment and supply agency services, within the meaning of section 65(68) of the Finance Act, 1994.

The Tribunal relied upon the CESTAT judgments of Nissin Brake India Pvt. Ltd. v. CCE, 2018 SCC OnLine CESTAT 1690, reiterated in Komatsu (India) (P) Ltd. v. CST, and in Goldman Sachs Services (P) Ltd. v. CST.

The Tribunal while reproducing the relevant portion of Komatsu India (P) Ltd. v. CST allowed the appeal holding that the revenue was not disputing that the ‘secondee’ was always under the control and supervision of the appellant and that the appellant’s parent company had absolutely no obligation to pay the salary and other charges to the ‘secondee’ but for remitting secondee’s salary in foreign exchange based on the salary reimbursement agreement. [Nektar Therapeutics (India) (P) Ltd. v. CCE, 2020 SCC OnLine CESTAT 382, decided on 10-12-2020]

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Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of P.V. Subba Rao (Technical Member) and P. Dinesha (Judicial Member) allowed an appeal which filed to decide whether the appellant was entitled to distribute the Cenvat Credit including Education Cess and SHE cess taken on the Research & Development services received to their manufacturing units in terms of Rule 7 of Cenvat Credit Rules, 2004.

A show-cause notice was issued by the Revenue and the same was adjudicated by the Principal Commissioner.

The Tribunal considered the decision relied on by the counsel of the appellant, Mr S. Thirumalai in Final Order of the Tribunal Bench in No. A/30883- 30885 of 2020 in respect of the Dr Reddy’s Laboratories Ltd., wherein it had been observed as under:

“2. ………The appellant herein is a major manufacturer of bulk drugs (Active Pharmaceutical Ingredients or API) and formulations in India. Manufacture of pharmaceutical requires a lot of Research & Development in terms of product development, testing, process improvements, cost reduction and meeting the legal certification requirements of various authorities such as Drugs Controller of India and his counterparts in other countries.

  1. The appellant has created a single Integrated Product Development Organisation Unit

(IPDO) at Bachupally to undertake research and development activities of their products. It caters to the requirements of various manufacturing units of the appellant. The appellant had taken CENVAT Credit on the services used in the IPDO. Revenue is of the opinion that the IPDO not being a manufacturer of excisable goods nor provider of taxable services, no CENVAT Credit is admissible on the input services used in the IPDO. The appellant’s position is that various input services and inputs used in the IPDO are intrinsically linked to the manufacture of the final products in their manufacturing units and therefore is a direct corelation between the services used in the IPDO, which is their R&D unit and the manufacture. Therefore, they are entitled to CENVAT Credit on such services. The question before us is whether the appellant is entitled to CENVAT Credit on the input services used in the IPDO or otherwise. The appellant had taken registration as Input Service Distributor and has distributed the credit taken in their IPDO to their units. 

  1. We have considered the arguments on both sides and perused the records. Pharmaceutical industry is a specialised industry distinct from other industries. Not only is the manufacturer required to manufacture the correct drug but is also required to make it of the requisite quality and standards. Further, a manufacturer is also required to obtain the necessary clearances and certifications from the authorities before the product can be marketed. Without any of these activities, the product cannot be manufactured and sold. Therefore, for a marketable pharmaceutical product to come into existence, the certifications and quality control are absolutely essential. Further, pharmaceutical industry is one which involves a lot of research and development which distinguishes the product of the manufacturer from those of others. In fact, a large proportion of the cost of any pharmaceutical product is on account of the amounts spent on research and development both in terms of discovery of a new molecule and also in terms of developing an appropriate formulation containing various quantities of different drugs. Once a product is developed, the product has to be necessarily certified by the Drugs Controller for it to be marketable and this involves requisite paper work, clearances and obtaining the certificates without which the product cannot be marketed. We, therefore, find that as far as pharmaceutical industry is concerned, research & development is an essential part of the entire manufacturing process. Therefore, the services used in the R&D have a direct nexus with the manufacture of the final products. It is not necessary that the pharmaceutical industry has a complete R&D facility in each of its manufacturing units. In order to economise and benefit from the economies of scale, R&D units are set up as independent units for serving various manufacturing units of the manufacturer. In such a case, the services availed in the R&D units have a direct nexus to the manufacture of the products in various units. If the assessee is registered as an input service distributor, the CENVAT Credit availed on the services used in the R&D unit can be distributed to various manufacturing units. The appellant has just done that.
  2. Our view in this regard is consistent with the view taken by the Tribunal Allahabad in the case of Jubiliant Life Sciences Ltd. (supra) and upheld by the Hon’ble Apex Court. It is also consistent with the decision of this Bench in the case of Aurobindo Pharma Limited (2019- TIOL-3415- CESTAT HYDERABAD)] and CESTAT Chennai (2018-TIOL-1661-CESTATMAD).
  3. In view of the above, we find that the issue is no longer res integra and stands decided in favour of the appellant by various case laws cited above. We, therefore, find that the impugned orders are unsustainable and need to be set aside and we do so.”

The Tribunal allowed the appeal keeping in mind the findings of the Bench in the above case.[Aurobindo Pharma Ltd. v. Commr. of CT, 2020 SCC OnLine CESTAT 335, decided on 09-12-2020]

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Case BriefsTribunals/Commissions/Regulatory Bodies

West Bengal Authority for Advance Ruling, Goods and Services Tax: The Bench of Susmita Bhattacharya (Joint Commissioner, CGST & CX) and Parthasarathi Dey (Senior Joint Commissioner, SGST), held that no GST will be applicable on composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempted as provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.

The applicant intends to supply to the State Government the service of crushing food grains. The processed food grain will be used for distribution through the Public Distribution System. 

Applicant sought a ruling whether the above-stated activity would be exempted under Sl No. 3 or 3A of Notification No 1212017 CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-O6-2017), as amended (hereinafter collectively called the Exemption Notification).

Applicant was unregistered under the GST Act.

Observations & Findings 

ln Circular No. 5112512018-GST dated 31-07-2018 the Central Government clarified that the service tax exemption under Sl No. 25(a) of Notification No. 2512012 dated 20-06-2012 has been substantially, although not in the same form, continued under GST vide Sl No. 3 and 34 of the Exemption Notification. Sl No. 25(a) of the ST notification under the Service Tax exempts “services provided to the Government, a local authority or a governmental authority by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and up-gradation.”

“…under the GST the ambit has been broadened to include any such functions that are performed by a Panchayat or a Municipality under specific provisions of the Constitution. These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST.”

Hence, in view of the above, applicant’s eligibility under the above-stated SI No. 3 or 3A will have to be examined under three aspects:

  • whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply
  • whether the recipient is government, local authority, governmental authority or a government entity, and
  • whether the supply is being made in relation to any function entrusted to a Panchayat or a Municipality, as clarified in the above paragraphs.

Bench observed that the applicant is making the supply of a bundle consisting of the service of crushing the grains and supply of materials required to pack the crushed grains, where the former is the predominant supply. They are supplied in conjunction with each other in the ordinary course of business as food grain cannot be transported without proper packing.

Therefore, the above activity is a composite supply of goods and services where service of crushing food grains is the principal supply and providing packing materials is ancillary to it.


In view of the above discussion, it was held that if the applicant’s agreement with the State Government binds both the supplier and the recipient in such a way that neither can divert the food grains to any use other than distribution through PDS, the Applicant’s composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempt under Sl No. 3A of Notification No 1212017 CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-06-2017), as amended, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.[Sakshi Jhajharia, In re., 2020 SCC OnLine WB AAR-GST 9, decided on 10-02-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal against the order of dismissal by the Commissioner (Appeals).

The appellant was engaged in providing works contract service to Garrison Engineers (MES) a unit of Department in the Ministry of Defense who was not engaged in any commercial activity. The said service was exempted from service tax before 01-04-2015 vide entry No. 12(a) of Mega Exemption Notification No. 25/2012-ST which was withdrawn and the above mentioning construction services became taxable with effect from 01-04-2015 subsequently by another notification the said entry was again inserted thereby exempting the service tax providing in relation to construction of noncommercial Govt. building from whole of service tax retrospectively. In view of which the appellant had filed a refund claim for the service tax paid.

Initially an amount of Rs 3,50,746/- for the period March, 2015 was rejected as time-barred and the refund claim of Rs 32,70,626/- was sanctioned but was credited to Consumer Welfare Fund being hit by unjust and enrichment. The said order was challenged before the Commissioner (Appeal) by the appellant who had allowed the refund claim of Rs 32,70,626/- to the appellant holding that the said amount be given back to the appellant who would in turn refund the same to the military, amount of Rs 3,50,746/-was rejected as time-barred. The revenue had filed an appeal before the Tribunal against the order of sanctioning refund claim which was dismissed and against the order of holding the refund of Rs 3,50,746/- as time barred an appeal had been filed by the appellant which was allowed holding that refund claim cannot be held time-barred and the appellant was entitled to claim of the amount paid for the period March, 2015.

Thereafter, the appellant made a request to the Assistant Commissioner to refund the amount, the adjudicating authority instead of complying the direction of Commissioner (Appeals) as well as the Tribunal transferred the whole of the amount of Rs. 36,21,376/- to the Consumer Welfare Fund holding that the same was hit by the principle of unjust enrichment. An appeal against the said order was filed before the Commissioner (Appeals) was also dismissed. Hence, the instant appeal.

The Tribunal explained that the said issue had been dealt in the judgment of A.P. Enterprises v. C.C.E & S.T. Panchkula, and it was to be decided whether the refund claim was hit by barred of unjust enrichment or not,

            “On going through the said letter, I find that in terms of Section 11B (2) (e), the person who has borne the tax, can file the refund claim. Therefore, the service tax in the impugned matter paid by the appellant is required to be refunded to the service recipient directly. In these circumstances, I hold that the refund of service tax paid by the appellant cannot be rejected. Therefore, I sanctioned the refund claim, but the same is payable in the account of service recipient directly. Therefore, the appellant is directed to provide all the details of the service recipient required for sanctioning the refund claim. If already provided by the appellant, the adjudicating authority shall sanction the refund claim to the service recipient directly within 30 days from the receipt of this order.”

The Tribunal while allowing the appeal relied on the case of the Supreme Court in Ranbaxy Laboratories Ltd. v. Union of India, (2011) 10 SCC 292 and held that the refund claim was to be given directly to the service recipient i.e Garrison Engineers (MES), therefore, the refund claim was allowed along with interest.[Verma Brothers v. C.C.E. & ST, Service Tax Appeal No. 60358 of 2020, decided on 01-12-2020]

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Advance RulingsCase Briefs

Himachal Pradesh, Authority for Advance Rulings: The Division Bench of Rakesh Sharma, Additional Commissioner of State Taxes and Excise, Member (State Tax) and Abhay Gupta, Joint Commissioner of Central Tax, Member (Central Tax) held that input tax credit cannot be claimed for GST paid on hiring commercially licensed vehicles for transportation of employees if the service of providing the facility of transportation of employees is not obligatory under any law.

In the instant application, the applicant is a public service broadcaster, taxpayer availed services of hiring taxis for different purposes, such as:

  • To pick up/drop shift duty-staff in odd hours.
  • This facility is being provided in odd hours to lady-employees, handicapped & general employees.
  • Taxis are hired for tour/OB recordings, etc. within the State of Himachal Pradesh on different occasions.
  • Taxis are also hired to drop shift staff at High Power Transmitter during morning/evening & for office work during day time.

Question raised by the applicant was:

Whether input tax credit was available to the applicant on the services availed for the aforementioned items through contractors and what rate of GST will be applicable on the same?

Findings of the Authority

Bench noted that the applicant was a registered taxpayer and entered into an agreement for hiring commercially licensed vehicles for transportation of his employees.

As per Section 16 of the CGST/HPGST Act, 2017, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.

Availability of ITC as per the provision of the second proviso to Section 17(5)b is available only on the condition that such goods or service or both is obligatory for an employer to provide to its employees under any law for the time being in force.

Bench stated that since the applicant had not been able to cite any law under which the service of providing the facility of transportation to his employees was obligatory, hence ITC will not be available to him.


  • As per Notification No. 20/2017 dated 22-08-2017, the applicable tax rate on renting of Cabs is 5% with limited ITC and 12% with full ITC.
  • If the facility provided by a taxpayer for transportation of employees is not obligatory under any law, for the time being in force then no ITC will be available to such a taxpayer. The applicant will, however, be eligible to claim ITC for the service supplied at 12% GST Rate if the conditions laid down in the second proviso to Section 17(5) b are satisfied. [Prasar Bharti Broadcasting Corpn. of India (All India Radio), In Re., decided on 24-02-2020]
Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): A Coram of Anil Chaudhary (Judicial Member) and C.L. Mahar (Technical Member), allowed an appeal filed aggrieved by the penalties imposed on the service tax and disallowance of cenvat credit.

The appellant had set up a Shopping Mall cum Entertainment World known as ‘Treasure Island’, which is in operation since December, 2005 after completion of the construction. The appellant is registered with the Service Tax Department for various services including Renting of Immovable Property, Selling of space or time slots, Maintenance or repairs etc. They also availed input service credit with respect to various input service received for rendering the output services. The appellant have been filling their returns regularly. It appeared to Revenue that appellant have been discharging service tax on receipt basis, whereas w.e.f. 01.04.2011, service tax is liable on the billed amount, thus, there appears to be some short payment of service tax. It appeared to Revenue that the said amount of cenvat credit amounting to Rs 49, 91,539 is not admissible to appellant, as cenvat credit is admissible only when such input service/ inputs are used in providing any output service. It appeared that there is non-payment of service tax for renting of immovable property service. It was also alleged that inspite of repeated requisition, appellant have failed to submit details of the credit taken, gross amount received towards taxable services etc.

The Tribunal found that the appellant is entitled to input service credit of Rs 49, 91,591 in dispute. All the services in question were eligible input services for rendering of output services. There was no dispute as regards receipt of any of the input services. In regards to the demand of service tax the Tribunal held that said amount was also not tenable as the said demand was prima facie raised under the impression that the appellant was not entitled to cenvat credit of Rs 49,91,539/. Further, they found that the appellant have deposited the service tax as per their calculation and it was also evident from the calculation chart and the payment challans brought on record vide miscellaneous application, which was earlier allowed. The Tribunal allowed the appeal directing the adjudicating authority to verify the challans for payment of service tax along with calculation as furnished by the appellant before this Tribunal.[Entertainment world Developers (P) Ltd. v. Commr., Customs, CE & ST, 2020 SCC OnLine CESTAT 204, decided on 15-10-2020]

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Case BriefsHigh Courts

Uttaranchal High Court: A Division Judge Bench of K.M. Joseph and Sharad Kumar Sharma, JJ., had allowed a revision which was filed aggrieved by the order of the Trade Tax Tribunal.

The assessment was done under the U.P. Trade Tax Act, 1948 and the respondent was assessed to tax in respect of sale of imported cement, imported sheet tiles & steel and self-manufactured tiles. The Assessing Officer had also assessed respondent in regard to the sale of steel scrap, sale of discarded items and tender forms. In Appeal, the Appellate Authority had dismissed the Appeal. Thereafter, the respondent preferred Second Appeal No. 117 of 1999 before the Trade Tax Tribunal, which partly allowed the appeal filed by the respondent and had sustained the tax assessed in respect of steel scrap, old discarded items and tender forms. The assessment order in so far it relates to the tax levied in respect of the imported cement, sale of imported sheet tiles & steel and self-manufactured tiles was interfered with. Thus the instant revision was filed.

The issue to be dealt was whether the Commercial Tax Tribunal has erred in law in holding that supply of cement, steel and bricks etc. to the contractors by the Government Department, for which cost is deducted from the bills of the contractors, does not amount to sale? And was it not liable to tax?

The Court relied on the Supreme Court judgment in N.M. Goel & Co. v. Sales Tax Officer, (1989) 1 SCC 335, wherein the Court noted that the appellant was a building contractor and registered dealer under the Madhya Pradesh General Sales Tax Act. The C.P.W.D. invited tenders for construction of foodgrain godown. In the tender submitted by the appellant the prices of the material to be used for construction cost of iron, steel and cement were included. The P.W.D. agreed to supply from its stores iron, steel and cement for the construction work and to deduct the price of material so supplied and consumed from the construction from the final bill of the appellant. It was found that all materials supplied to the contractors under the clause remain absolute property of the Government and could not be removed on any account from the site of the work and was at all times open to inspection by the Engineer-in-charge. The clause in fact inter alia provided that the contractor was bound to procure and to supply the material from stores as from time to time required for use of work for the purpose of contract only, and value of the full quantity of the materials and stores so supplied was specified at a rate and got set off or deducted from any sum due or that became due thereafter to the contractor.

The Court keeping in view these observations held that Tribunal was in error in taking the view that no tax to be paid on the sale of imported cement, sheet piles & steel and sale of self-manufactured tiles. The Court also noticed that definition of sale under the U.P. Trade Tax Act under Section 2-h includes transfer of property in goods involved in the execution of a works contract. The Court allowed the revision restoring the order of the Assessing Officer.[Commr., Commercial Tax v. Executive Engineer,  2018 SCC OnLine Utt 193, decided on 21-02-2018]

Suchita Shukla, Editorial Assistant has put this story together

Op EdsOP. ED.

When we study the origins and functioning of the Indian credit recovery infrastructure, it can be seen that originally the only remedy was suits under the provisions of CPC[1] which was long and cumbersome. Here, the process had two parts i.e. debt adjudication which end in a judgment/decree followed by execution proceedings under Order 21 CPC for recovery of decreed amount. Later, with the enactment of the RDBFI Act, 1993[2], DRTs[3] were established as exclusive forums for speedy adjudication and recovery of debts due to Banks and Financial Institutions (FIs). As per the RDBFI Act, DRTs had the power to issue a Recovery Certificate certifying the amount payable by the debtor after debt adjudication in a summary procedure. This amount was thereafter recovered by the Recovery Officer attached to DRT as per the procedure of recovery of tax under Schedule II of the Income Tax Act, 1961. So, the design was to speed up the recovery once the debt adjudication by DRTs. Although, the RDDBFI Act gave 180 days for disposal of recovery applications, cases have been pending for many years due to prolonged hearings. Almost 70,000 cases involving more than Rupees 5 lakh crore were pending in DRTs as of April 2016[4]. Majority of the delay is at the debt adjudication stage with long drawn processes and adjournments in DRTs. It was for overcoming this hurdle and to further speed up recovery that the SARFAESI Act[5] was enacted. This Act give the Banks and FIs the power to recover their debts classified as non-performing assets by various modes including taking possession and sale of the security, without approaching any Court or Tribunal. Interestingly, the SARFEASI Act dispenses the requirement of debt adjudication and the debt amount stated by the creditor in their demand notice issued under Section 13(2) is conferred sanctity to trigger recovery actions under the Act. When we read through the provisions of the aforesaid Acts and the procedure laid down by them for recovery, it is clear that one of the major causes for delay in securing recovery was the time taken for ascertaining the debt amount payable[6].

Most of the litigation in money recovery laws are in the nature of disputes on the amount claimed for recovery by the creditors. This kind of litigation and resultant delay in recovery can be avoided if there is a mechanism for collection, collation, authentication and dissemination of information regarding debts/defaults by independent third parties that are reliable as evidence of debt/default.

The law-makers of the country seem to have appreciated this point while enacting the Insolvency and Bankruptcy Code, 2016 (IBC) which in its Chapter V under Part IV talks about ‘Information Utilities’ (IUs) which is a first of its kind in the world. In this regard, it is significant to note the following statements in the Report of the Bankruptcy Law Reforms Committee[7]:

“Under the present arrangements, considerable time can be lost before all parties obtain this information. Disputes about these facts can take up years to resolve in court. Hence, the Committee envisions a competitive industry of information utilities who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay.”

This article attempts to understand the concept and working of IUs as contemplated under the IBC regime and its utilities in securing the objectives of IBC.

What is ‘Information Utility’?

IUs are entities that would act as data repositories of financial information which would receive, authenticate, maintain and deliver financial information pertaining to a debtor with a view to facilitate the insolvency resolution process in a time-bound manner. IU maintains an information network which would store financial data like borrowings, default and security interests among others of debtors for providing such information to businesses, financial institutions, adjudicating authorities, insolvency professionals and other stakeholders.

As per Section 3(21) of IBC, ‘Information Utility’ is defined as a person registered with the IBBI[8] under Section 210. Furthermore, as per Section 209 of IBC, a person shall be eligible to carry on business as IU only if a certificate of registration is obtained from the IBBI. As per Section 210 of IBC, a certificate of registration shall be issued to an entity to function as IU if all the technical formalities are completed as prescribed by the IBBI.

Historical perspective of ‘Information Utilities’

The setting up of IUs was preceded by a regime of Credit Information Companies (CICs) and Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) that provided credit-related information services including details of security interests.

In his Budget speech made in  Parliament on 28th February 1994, the then Finance Minister of India announced that Reserve Bank of India (RBI) would put in place arrangements for circulating names of defaulting borrowers among the Banks and FIs. The purpose of the same was to alert them and to put them on guard against the borrowers who have defaulted in their dues to other lending institutions. Pursuant to the above announcement, a Working Group was set up under the Chairmanship of Mr N.H. Siddiqui (Chief General Manager, RBI) which submitted its Report in 1999 recommending the establishment of CICs[9]. Accordingly, Credit Information Bureau (India) Ltd. (CIBIL) was incorporated in August 2000. Later, pursuant to the enactment of the Credit Information Companies (Regulation) Act, 2005[10], three other CICs have also been set up in India[11]. Further, in 2013, RBI constituted another Committee under the Chairmanship of Mr Aditya Puri (Managing Director, HDFC Bank) to examine the reporting formats used by CICs and other related issues. This Committees’ report led to the standardisation of data formats for reporting corporate, consumer and MFI[12] data by all credit institutions and streamlining the process of data submission by credit institutions to CICs[13]. In 2015, all credit institutions were directed by RBI to become members of all the CICs and submit current and historical data about specified borrower to them and to update it regularly.

Later, in the year 2011 the then Finance Minister declared in his budget speech about creation of a central registry of equitable mortgages. Pursuant to the same, the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) was established to maintain and operate a registration system for the purpose of registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest over property, as contemplated under the SARFAESI Act. CERSAI is providing a platform for filing registrations by the Banks and FIs with an option for other lenders and the public to search its database.

The idea to establish IUs appears to be an outcome of the research and efforts to set up a hybrid model unique to India by incorporating the best features of CICs, CERSAI and other similar agencies across the world that are engaged in financial information services.

How an ‘Information Utility’ can be created under IBC?

As per Section 196 of IBC, IBBI is entrusted with the power to grant, renew, withdraw, suspend or cancel registration to IUs. This provision further empowers IBBI to make regulations for registration and matters connected therewith. In exercise of the said power, IBBI has notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017[14] (“the IU Regulations”) which provide detailed regulations for registration and working of IUs.

As per Regulation 3 of the IU Regulations, registration can be applied by any public company having a minimum net worth of fifty crore rupees and; (a) whose sole object is to provide core services and other services under the IU Regulations, and discharge such functions as may be necessary for providing these services; (b) its shareholding and governance is in accordance with Chapter III of the IU Regulations; (c) its bye-laws are in accordance with Chapter IV of the IU Regulations; (d) its promoters, directors, key managerial personnel, and persons  holding more than 5%, directly or indirectly, of its paid-up equity share capital or its total voting power, are fit and proper persons[15].

A person eligible for registration as aforesaid may make an application to IBBI in Form A of the Schedule to the IU Regulations, along with a non-refundable application fee of five lakh rupees. After due enquiry as contemplated under the IU Regulations, IBBI shall issue a Certificate of Registration in Form B of the Schedule within sixty days of receipt of the application excluding the time taken for removal of difficulties and for obtaining additional documents, if any. Such certificate of registration is valid for a period of five years from the date of issue and it may be renewed by filing an application for renewal at least six months before the expiry of its registration along with the renewal fees of five lakh rupees. IUs are also required to pay annual fee of fifty lakh rupees to IBBI, within fifteen days from commencement of the financial year. However, no annual fee shall be payable in the financial year in which an IU is granted registration or renewal[16].

The shareholding pattern and governance of IUs should be in compliance to the requirements under Chapter III of the IU Regulations. Furthermore, all changes in the shareholding and voting power of IUs are to be reported to the IBBI. As per Regulation 8 of the IU Regulations, no person shall at any time, directly or indirectly, either by itself or together with persons acting in concert, acquire or hold more than 10% of the paid-up equity share capital or total voting power of an IU. However, there are certain exemptions to the said restriction as follows:

  • None of the restrictions on shareholding are applicable to the holding of shares or voting power by the Central Government or a State Government[17].
  • A government company, stock exchange, depository, bank, insurance company and public financial institution either by themselves or together in concert, acquire or hold up to 25% of the paid-up equity share capital or total voting power of an IU[18].
  • Holding up to 51% of paid-up equity share capital or total voting power of an IU by a person directly or indirectly, either by itself or together with persons acting in concert, is allowed up to 3 years from the date of its registration[19], if the IU is registered before 30th September, 2018.
  • Indian companies (i) which are listed on a recognised stock exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than 10% of the paid-up equity share capital, may hold up to 100% of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration[20], if such IU is registered before 30th September, 2018.

Importance and Utility of Information Utilities

The Bankruptcy Law Reforms Committee (BLRC) led by Mr T. K. Viswanathan which designed the IBC, visualised four pillars of supporting institutional infrastructure to make the processes under IBC to work efficiently. They are:  (1) a private industry of IUs, (2) a private industry of Insolvency Professionals (IPs) with oversight by private insolvency professional agencies (IPAs), (3) adjudication infrastructure at the National Company Law Tribunal (NCLT) and DRT, and (4) a regulator i.e.  IBBI[21]. As noted rightly by the BLRC, IU is a very significant institution for the successful operation of the processes under IBC.

IBC was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of the value of assets of such persons[22]. Section 12 of IBC thus mandates that the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor (CD) must conclude within 330 days[23] from the insolvency commencement date which includes (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to 90 days of such CIRP period granted by the adjudicating authority, and (c) the time taken in legal proceedings in relation to the CIRP of the corporate debtor. This ambitious time-limit prescribed for concluding CIRP appears to be based on an assumption that information relevant for the process will be easily accessible to the parties involved viz. creditors, adjudicating authorities, insolvency resolution professionals, etc. This assumption appears to be based on the confidence of the framers of the law in the idea of IUs envisaged under IBC. As the timelines specified by IBC are strict, they can be met only if the IUs stand ready to provide all relevant information quickly.

The relevant financial information in this stage includes the details of the default, disputes on the same, other financial information of debtors such as records of its debt, liabilities at the time of solvency, assets over which the security interest is created by debtor, timely records of its default and its financial statements of preceding years. Furthermore, it is quintessential for the adjudicating authority to ascertain the existence of default as claimed by the applicant and such existence would decide the fate of the application for CIRP.

As per the scheme of IBC, once CIRP gets initiated against any  corporate debtor, the management of its affairs vest in the Interim Resolution Professional (IRP) and thereupon all the powers of its Board of Directors stands suspended and the same is exercised by the IRP. During such phase, there is every possibility for the Resolution Professionals to face non-cooperation from the management and the suspended Board of the  corporate debtor in disseminating relevant financial information. In these circumstances, an independent and reliable third party which is a repository of validated information regarding debt/default that is capable of providing the same quickly can add significant value to the process.

IBBI has now strengthened the role of IUs by allowing it to access the data of MCA-21[24] database and CERSAI portals to speed up the process of debtor default authentication[25]. By ensuring access of MCA-21 and CERSAI portal data to an IU, IBBI is also providing the mechanism for quick and reliable data for all the stake-holders in the processes under IBC. It may also be noted that RBI has directed all the Scheduled Commercial Banks (Including RRBs), small finance banks, local area banks, non-banking financial companies and all the co-operative banks of the country to put in place appropriate systems and procedures for submission of financial information to IUs[26].

Functions of ‘Information Utility’ as contemplated under the IBC

As per Section 213 of IBC, IUs shall provide services which include core services to any person, if such person complies with the terms and conditions of the IU Regulations. Furthermore, as per Section 3(9) of IBC, “core  services” means – (a) accepting electronic submission of financial information; (b) safe and accurate recording of financial information; (c) authenticating and verifying financial information submitted by person; and (d) providing access to information stored with IUs to persons as may be specified.

As per Section 3(13) of IBC, “financial information”, in relation to a person, means one or more of the following categories of information, namely:  (a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c) records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified.

Section 214 of the IBC elaborate the functions to be performed by IUs for the purpose of providing core services. The major obligations of IUs as per Section 214 can be summarised as follows:

  • Acceptance of financial information in electronic form from persons who are under obligation to submit the same under IBC and also from other persons who intend to submit the same. This acceptance is to be in such form and manner as specified under the IU Regulations.
  • Authentication of the financial information so received by all the parties concerned.
  • Storage of the financial information received as aforesaid in a universally accessible format after the same is duly authentication by all the parties concerned.
  • Providing the financial information stored by it as aforesaid to any person who intend to access such information in such manner as may be specified by the IU Regulations.
  • Publication of such statistical information as may be specified by the IU Regulations.

While performing aforesaid obligations, IUs are required to meet such minimum service quality standards as may be specified by IBBI and they are also required to ensure systems to facilitate inter-operatability with other IUs[27]. As per Section 215 of IBC, while it is mandatory for the financial creditors[28] to submit financial information and information relating to assets in relation to which any security interest has been created; submission of information is optional for the operational creditors[29]. Insolvency professionals also may submit reports, registers and minutes in respect of any insolvency resolution, liquidation or bankruptcy proceedings to an IU for storage[30].

Significance of Information Utility in the operation of processes under IBC

As per the scheme of IBC, a CIRP can be triggered by the corporate debtor itself or by the financial or operational creditors of such corporate debtor[31]. Application for CIRP by a financial creditor is governed by Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016[32].  The application is to be filed as per Form 1 of the said Rules along with the record of the default recorded with the IU or such other record or evidence of default as may be specified. As per Part V of the said Form 1, record of default with IU is listed among the documents acceptable as evidence of default. Upon submission of application, NCLT is required to ascertain the existence of default from the records of an IU or on the basis of other evidence furnished by the financial creditor. It is significant to note that this activity is to be completed by NCLT within fourteen days of the receipt of application. This timeline can be met only if such ascertainment can be done from the records of an IU. Furthermore, upon initiation of CIRP when public announcement is made by the IRP calling for claims, financial creditors may submit their claims along with sufficient proof of such claims. In this regard, it may be noted that the records available with an IU is accepted as a proof of existence of debt due[33].

Whereas, application for CIRP by operational creditors is governed by Section 9 of the IBC read with Rules 5 & 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. On the occurrence of a default, operational creditors are required to deliver either a demand notice of the unpaid debt to the debtor as per Form 3 of the said Rules or a copy of an invoice attached with a notice in Form 4. On receipt of notice, the debtor may, within 10 days, bring to the notice of the creditor about any pre-existing dispute on such debt and get out of the clutches of IBC. On expiry of 10 days from the said notice, if the payment is not done by the defaulter, the operational creditor can file application for CIRP in Form 5 of the aforesaid Rules. As per the aforesaid Forms 3 and 5, record of default with IU is listed as one of the documents to prove the debt. Furthermore, upon initiation of CIRP when the public announcement is made by the IRP calling for claims, operational creditors may submit their claims along with records available with IU which are acceptable as proof for the debt.

Similarly, in an application for CIRP by corporate applicants and in the claims submitted by the other categories of claimants/creditors including workmen, records with IU is accepted as proof of such debt/default. Furthermore, as per IBC and the Rules, the records with IUs can be accessed and relied by the adjudicating authority as evidence for the default/debt in their proceedings. Hence, IUs play a very significant role in enabling timely completion of the processes under IBC.

Operating Procedure of ‘Information Utility’ under IBC

IBC provides little guidance on how IUs are to function, leaving the details to subordinate regulation. Section 240 of IBC empowers the IBBI to make regulations by notification with regard to the registration of IUs, their functioning and on matters connected thereto. The IU Regulations were notified in exercise of this power in order to prescribe the details on how IUs shall operate to meet their objectives as contemplated under IBC.

As per the IU Regulations, a person shall register itself with an IU for submitting information to; or for accessing information stored with any of the IUs. Upon such registration, IU shall verify the identity of the applicant and assign him with a unique identifier and intimate the same to him. A person registered once with an IU shall not register itself with any IU again. A registered user may submit information to any IU and not only to the IU with which he is registered. Different parties to the same transaction may use different IUs to submit, or access information in respect of the same transaction and a user may access information stored with an IU through any IU[34].

A user can submit information of debts or defaults to the IU[35] and on receipt of the same, IU is to assign a unique identifier to the information and intimate the same to the user along with an acknowledgement. In the case of information of default, IU is to expeditiously undertake the process of authentication and verification of the information of default. For this purpose, IU is to deliver the information of default to the debtor seeking confirmation of the same within the specified time. If the debtor fails to respond, IU is to send three reminders giving 3 days’ time in each case for the debtor to respond. If the debtor do not respond even after three reminders as aforesaid, the information is deemed to be authenticated[36]. In case if the debtor confirms the information of default, the information is treated as authenticated and green colour is assigned to the status. If the debtor disputes the information of default the information is treated as disputed and red colour is assigned to the status. Whereas, in cases where the debtor does not respond even after three reminders, the information is‘Deemed to be authenticated’ and yellow colour is assigned to the status. After recording the status of information of default, IU is to communicate the status of authentication in physical or electronic form of the relevant colour, as aforesaid, to the registered users who are- (a) creditors of the debtor who has defaulted; (b) parties and sureties, if any, to the debt in respect of which the information of default has been received[37].

IUs are required to store the information received by it in their facilities located in India and they shall allow the following persons to access the information stored with it- (a) the user which has submitted the information; (b) all the parties to the debt and the host bank[38], if any, if the information is regarding record of debts or assets or instances of default by a person against any debt; (c) the corporate person and its auditor, if the information is of liabilities of a person during solvency or balance sheet and cash-flow statements of the person; (d) the insolvency professional; (e) the adjudicating authority; (f) the IBBI; (g) any person authorised to access the information under any other law; and (h) any other person who the persons referred to in (a), (b) or (c) have consented to share the information.

Provisions to ensure protection of the data with Information Utilities

As per the provisions of IBC, data entrusted with the IUs by the users are to be held as a custodian and hence they shall not have ownership over the data available with them. As such, it is one of the most important duties of the IUs to ensure safety of the data and its protection from unauthorised interferences and data theft. To ensure safety of the data, the IU Regulations prescribe the following to be complied by the IUs:

  • Establish adequate procedures and facilities to ensure that its records are protected against loss or destruction and adopt secure systems for information flows.
  • Storage of all information in a facility located in India shall be governed by the laws of India.
  • Not to outsource the provision of core services to a third-party service provider.
  • Not to use the information stored with it for any purpose other than providing services under these Regulations, without the prior approval of the Board.
  • Not to seek data/details of users except as required for the provision of services under IBC[39].
  • Adequate arrangements, including insurance is to be made for indemnifying the users for losses that may be caused to them by any wrongful act, negligence or default of the IU, its employees or any other person whose services are used for the services[40].
  • Appoint external auditor having relevant qualifications to audit its information technology framework, interface and data processing systems every year. The auditor’s report along with the comments of the Governing Board of IU is to be submitted to the IBBI within one month from the receipt of the same[41].
  • Establish an appropriate risk management framework in line with the Technical Standards[42].
  • Declare a Preservation Policy providing for the form, manner and duration of preservation of information stored with it; and details of the transactions of the IU with each user in respect of the information stored with it[43].
  • Inspection by the IBBI with such periodicity as may be considered necessary[44]. Disciplinary actions can be taken by IBBI including imposition of penalty under Section 220(3) of IBC.

Evidentiary Value of Information with Information Utilities

Authenticated information stored by IUs with regard to a debt or its default amounts to admission of such debt and default thereto by and between the parties to such debt or default. In the light of this fact, evidentiary value of information with IUs can be appreciated by referring to certain provisions of the Evidence Act, 1872. As per Section 65-B of the Evidence Act, information contained in any electronic record shall be deemed to be a document and shall be admissible in the court of law. Furthermore, Section 31 of the Evidence Act state that admissions are not conclusive proof of the matters admitted, but they may operate as estoppels under the provisions hereinafter contained.  In the context of information with IUs, Section 115 of the Evidence Act is significant, which state as follows:  “When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

When we examine the provisions of IBC with regard to IUs as explained in the preceding paragraphs of this article, it can be noted that the adjudicating authorities are given the option to accept records with IUs as proof/evidence of debts and defaults. This is on the basis of estoppel which would operate against the parties as per the aforesaid provisions of the Evidence Act. In Swiss Ribbons Pvt. Ltd. v. Union of India[45], constitutional validity of the various provisions of IBC was considered by the Supreme Court of India. One of the arguments in the matter was that IBC provides for private information utilities not only to collect financial data, but also to check whether a default has occurred or not. It was also argued that certification of debt/default by IUs is in the nature of a preliminary decree issued without any hearing and without any process of adjudication. On this ground along with others, the constitutional validity of IBC was challenged in this matter. However, the  Supreme Court of India upheld the constitutional validity of IBC and on the basis of statements made by the then Attorney General of India, declared at para 57 of the judgment that the record of default with IU is only a prima facie evidence of default, which is rebuttable by the  corporate debtor. So, the records with IUs are not conclusive proof and they are only a prima facie evidence of default, which is rebuttable by the corporate debtor.


It can be concluded that creation of IU is definitely a step towards ensuring an information-rich environment for the working of IBC. IUs certainly provide an infrastructure which ensure relevant financial information of debtors easily accessible at anytime from anywhere. This infrastructure undoubtedly empower the creditors and lenders to make informed choices and also provide essential financial information enabling time-bound insolvency resolution process. While, the purpose of setting up the above regime of IUs was to reduce information asymmetry; IUs not only reduce information asymmetry, but it is also enable the processes of IBC to meet the strict timelines prescribed. It can also be seen that the IUs are significant as they provide for improved credit risk assessment and improve the recovery processes. Though there is no doubt about the significance of the IUs; it may take a while before they become relevant as expected. As the first step, IBBI has registered National E-Governance Services Limited (a Union Government company) as the first IU of the country on September 25, 2017. Being sanguine about the developments thus far, we can expect that the data available with the IUs will grow in terms of quantity and quality over a period of time making them an important pillar in the overall resolution process.

* BA LLB (Hons.), LLM, currently working as Manager-Legal with Hindustan Petroleum Corporation Limited at Zonal Administrative Office, Chennai.

[1] Civil Procedure Code, 1908 (Act  5 of 1908).

[2] Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act  51 of 1993).

[3] Debts Recovery Tribunal.

[4]Indu Bhan, “Long Due – Banks can now confiscate security in case of a loan default”, Financial Express, August 19, 2016, available at https://www.financialexpress.com/opinion/long-due/351486/, last visited on 15.05.2020.

[5]Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act  54 of 2002).

[6] Prasanth V. Regy and Shubho Roy, “Understanding Judicial Delays in Debt Tribunals”, Paper No. 195 in the Working Paper Series of National Institute of Public Finance and Policy at New Delhi, May 2, 2017, available at https://www.nipfp.org.in/media/medialibrary/2017/05/WP_2017_195.pdf, last visited on 15.05.2020.

[7] Government of India, “Report of the Bankruptcy Law Reforms Committee” (Ministry of Finance, November 2015).

[8] Insolvency and Bankruptcy Board of India established under Section 188 of the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).

[9]Reserve Bank of India, “Report of the Working Group to explore the possibilities of setting up a Credit Information Bureau in India” (Department of Banking Operations and Development, October 1999)

[10] Credit Information Companies (Regulation) Act, 2005 

[11] Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited have been granted Certificate of Registration by RBI.

[12]Monetary Financial Institutions.

[13]Reserve Bank of India, “Report of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies”, (Department of Banking Operations and Development, January 2014)

[14] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017

[15]As per Explanation to Regn. 3 of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, a person is considered as fit and proper, if he (a) is having integrity, reputation, character and financial solvency (b) has never been convicted by a Court for an offence or sentenced to imprisonment for a period less than 6 months, and (c) has not suffered any restraint order issued by financial sector regulator or adjudicating authority.

[16] IBBI (Information Utilities) Regulations, 2017, Regns. 5 and 6.

[17]Id, Regn.  8(3).

[18]Id,  proviso to Regn. 8(1)

[19]Id, Regn. 8(2)(a).

[20]Id,  Regn. 8(2)(b).

[21]Supra Note 7.

[22]Government of India, “Report of the Working Group on Information Utilities” (Ministry of Corporate Affairs, January 2017).

[23] This cap of 330 days was brought by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (w.e.f. 16-8-2019).

[24]MCA-21 is an e-Governance initiative of Ministry of Company Affairs (MCA), Government of India that enables an easy and secure access of the MCA services to the corporate entities, professionals and citizens of India. It is designed to fully automate all processes related to the enforcement and compliance of the legal requirements under the Companies Act, 1956, the New Companies Act, 2013 and the Limited Liability Partnership Act, 2008. Its database will contain the master data and the charges registered on companies and LLP.

[25]Insolvency and Bankruptcy Board of India, Circular No. IBBI/IU/025/2019 dated 07-09-2019.

[26] Notification No: DBR.No.Leg.BC.98/09.08.019/2017-18 dated December 19, 2017 issued by Reserve Bank of India, available at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11189&Mode=0, last accessed on 16.05.2020.

[27] Insolvency and Bankruptcy Code, 2016 (31 of 2016), Ss. 214(d) and (h).

[28] As per Section 5(7) of IBC, “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. Eg. – Banks and financial lenders.

[29] As per Section 5(20) of IBC, “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Eg. – Suppliers and vendors.

[30]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 38.

[31] Insolvency and Bankruptcy Code, 2016 (31 of 2016), S.6.

[32] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

[33]Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regn. 8(2)(a)

[34]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Chapter V (Regns.17 to 27).

[35]Id, Form C of the Schedule.

[36]Deemed authentication was inserted by Notification No. IBBI/2019-20/GN/REG046 dated 25/07/ 2019. Prior to this, there was no option for deemed authentication when debtor do not respond to notice for authentication.

[37] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 21.

[38] Host bank means the financial institution hosting the repayment account.

[39] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 30.

[40]Id, Regn. 31.

[41]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn 34.

[42]Id,  Regn. 33.

[43]Id, Regn. 35.

[44]Id,  Regn.37.

[45] 2019 SCC OnLine SC 73.