Supreme Court

Munjal Showa Ltd. vs Commissioner Of Customs And Central Excise

MANU/SC/1239/2022

23.09.2022

Customs

Fraud vitiates everything and forged DEPB licenses are void ab initio

The original assessee has preferred the present Civil Appeal against the impugned judgment passed by the High Court by which the High Court has confirmed the order passed by the Customs, Excise and Service Tax Appellate Tribunal (“Tribunal”) confirming the demand of Customs Duty with interest.

From the judgment and order passed by the Tribunal and even from the findings recorded by the Department, it has been found that the DEPB licenses/Scripps, on which the exemption benefit was availed of by the Appellant(s) (as buyers of the forged/ fake DEPB licenses/Scripps) were found to be forged one and it was found that the DEPB licenses/Scripps were not issued at all. A fraud was played and the exemption benefit was availed on such forged/fake DEPB licenses/Scripps.

In that view of the matter and on the principle that fraud vitiates everything and such forged/fake DEPB licenses/Scripps are void ab initio, it cannot be said that the Department acted illegally in invoking the extended period of limitation. In the facts and circumstances, the Department was absolutely justified in invoking the extended period of limitation.

It is also required to be noted that, the moment, the Appellant(s) was/were informed about the fake DEPB licenses, immediately they paid the Customs Duty, may be under protest. The Customs Duty was paid under protest to avoid any further coercive action. The fact remains that the DEPB licenses/Scripps on which the exemption was availed by the appellant(s) was/were found to be forged one and, therefore, there shall be a duty liability and the same has been rightly confirmed by the Department, which has been rightly confirmed by the Tribunal as well as the High Court.

In the present case so far as the penalty proceedings are concerned, the matter is remanded by the Tribunal to the adjudicating authority, which is reported to be pending. The adjudicating authority is directed to complete the penalty proceedings on remand, at the earliest preferably within a period of six months. Appeals dismissed.

Tags : Demand Duty Penalty

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Customs, Excise and Service Tax Appellate Tribunal

Ratnamani Metal And Tubes Ltd vs Commissioner of Customs, Mundra

MANU/CS/0245/2022

23.09.2022

Customs

Any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods would fall within the scope of capital goods

The Appellant purchased a "Complete Used Stainless Steel Tube Manufacturing Plant" including parts, spares, accessories, tools & tackles and office related furniture/equipment, at a total purchase price of 31,00,000 Euros from SN Aussenhandel E.K. Germany in terms of purchase agreement and sought clearance of the said goods vide Bill of Entry. The proper officer of customs, in respect of all other parts of second-hand tube manufacturing plant, permitted clearance.

However, in respect of office furniture/equipment, he denied clearance on the premise that, the said item cannot be construed as "capital goods" and accordingly the same falls under Sr. II of para. 2.31 of Foreign Trade Policy - 2015-2020 whereunder the second-hand goods that are not capital goods are restricted and is importable only against authorization.

However, the Additional Commissioner of Customs, vide his Order ordered confiscation of the said goods under Section 111(d) of the Customs Act, 1962 and gave an option to redeem the goods on payment of fine of Rs. 5,00,000.00 and further imposed penalty of Rs. 4,00,00.00 on the Appellant holding that the second hand office furniture/equipment are not "capital goods" as the same are not required for manufacture or production either directly or indirectly, therefore not covered under definition of capital goods.

It is clear from the definition of capital goods that, any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods would fall within the scope of capital goods. The scope of word "for manufacture" and "indirectly" appearing in the definition of capital goods under the policy is wide and thus use of such goods having indirect nexus with the manufacture or production of goods also qualify as capital goods.

The office furniture, tools etc which are used in relation to the manufacturing plant/services answers "user test" and in view of the wide and inclusive definition of "capital goods" under the Foreign Trade Policy; such goods qualify as "capital goods".

Since the subject goods qualify as capital goods in terms of para. 2.31 Sr. No. I (c) of the Policy; the import was in accordance with the policy. In the circumstances, the said goods cannot be held to be liable for confiscation under Section 111(d) of the Customs Act. Consequently, neither redemption fine under section 125 of the Act was warranted nor penalty under Section 112 (a) of the Act was required to be imposed, hence the same cannot be sustained. The impugned order is not set aside. Appeal allowed.

Tags : Confiscation Penalty Legality

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Customs, Excise and Service Tax Appellate Tribunal

Commissioner of Central Excise and Service Tax vs. Hazira Port Pvt Ltd

MANU/CS/0246/2022

23.09.2022

Service Tax

Any issue which is not flowing from the show cause notice being beyond the show cause notice, need not be addressed by the authority

The brief facts of the case are that, the Appellant was issued show cause notice proposing demand of Cenvat credit of service tax paid under Section 66A for the services of Maintenance or Repairs service, Consulting Engineer Service, Management Consultant Service, Erection & Commissioning service and Information Technology services received from a foreign service provider on reverse charge mechanism. Whereas, as per Rule 3 of Cenvat Credit Rules, 2004, Cenvat credit is allowable only in respect of service tax liable under Section 66 of Finance Act, 1994.

The Adjudicating Authority dropped the demand on the ground that, Section 66A of the Finance Act, 1994 has been added in the list of eligible credit in Rule 3 with effect from 18th April, 2006 by retrospective amendment in the Bill and the same was also clarified by Board Circular F.No. 345/1/2008-TRU dated 27th June, 2008. The Revenue filed the present appeal on the ground that the Adjudicating Authority while dropping the demand should have examined that whether the services in question were admissible input service in terms of Rule 2(l) of Cenvat Credit Rules, 2004, therefore the order is not legal and proper.

Admittedly, the show cause notice has alleged that Appellant is not entitled for the Cenvat credit in respect of services namely Maintenance or Repairs service, Consulting Engineer Service, Management Consultant Service, Erection & Commissioning service and Information Technology services on the ground that service tax paid under reverse charge mechanism under Section 66A of the Finance Act, 1994 whereas Rule 3 prescribes the Cenvat credit in respect of service tax leviable under Section 66. This issue was correctly decided by the Adjudicating Authority as Section 66A was added retrospectively in Rule 3 for allowing Cenvat credit.

As regards the issue that whether the services in question are admissible input service in terms of Rule 2(l), this issue was never raised in the show cause notice. Therefore, it cannot be expected from the Adjudicating Authority to pass order on the issue which is beyond the scope of show cause notice. It is settled law that any issue which is not flowing from the show cause notice being beyond the show cause notice, need not be addressed by the authority. Therefore, there is no error on the part of the Adjudicating Authority for not considering the issue of admissible input service in terms of Rule 2(l). The Adjudicating Authority has correctly passed order addressing the only issue which was raised in the show cause notice. Moreover, all the services on which the assessee has availed Cenvat credit are prima-facie appears to be input service. There is no infirmity in the impugned order. Accordingly, the same is upheld. Revenue's appeal is dismissed.

Tags : Demand Deletion Legality

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Supreme Court

Bharat Sanchar Nigam Ltd. & Etc. vs. M/S Tata Communications Ltd.

MANU/SC/1222/2022

22.09.2022

Media and Communication

Executive orders or circulars in the absence of any legislative competence cannot be made applicable with retrospective effect

The instant batch of appeals has been preferred by the Appellant, Bharat Sanchar Nigam Ltd. assailing the judgment passed by the Telecom Disputes Settlement and Appellate Tribunal, New Delhi, followed with the order rejecting the application filed by the Appellant.

The limited question which has been raised for consideration is as to whether the rates prescribed by the Appellant under the circular dated 12th June, 2012 could be applied retrospectively w.e.f. 1st April, 2009 or be effective from 1st April, 2013, as observed by the Tribunal and whether the Appellant is entitled to claim 10% notional increase every year from 1 st April, 2009 to be applicable from 1st April, 2013.

It is a settled principle of law that, it is the Union Parliament and State Legislatures that have plenary powers of legislation within the fields assigned to them, and subject to certain constitutional and judicially recognized restrictions, they can legislate prospectively as well as retrospectively. Competence to make a law for a past period on a subject depends upon present competence to legislate on that subject. By a retrospective legislation, the Legislature may make a law which is operative for a limited period prior to the date of its coming into force and is not operative either on that date or in future.

The power to make retrospective legislations enables the Legislature to obliterate an amending Act completely and restore the law as it existed before the amending Act, but at the same time, administrative/executive orders or circulars, as the case may be, in the absence of any legislative competence cannot be made applicable with retrospective effect. Only law could be made retrospectively, if it was expressly provided by the Legislature in the Statute. In view of principles of law on the subject, applicability of the circular dated 12th June, 2012 to be effective retrospectively from 1 st April 2009, in revising the infrastructure charges, is not legally sustainable and to this extent, present Court is in agreement with the view expressed by the Tribunal under the impugned judgment.

The service provider is not under an obligation to pay any additional infrastructure charges which was prescribed by the Appellant under its circular dated 12th June, 2012 for the previous years, effective from 1st April, 2009, but at the same point of time, it was open for the Appellant to notionally fix the charges to be computed and became payable from 1st April, 2013, based on 10% annual increase every year or by any other mechanism which may have a reasonable justification.

The order of the Tribunal are modified and the Appellant is at liberty to revise the notional rates based on 10% increase every year in terms of circular dated 12th June, 2012 as applicable on 1st April, 2013 and to raise its additional demand/bills based on notional increase of infrastructure charges effective as on 1st April, 2013 to the service providers/respondents and if the service providers/ respondents fail to pay, consequences in terms of the agreements executed between the parties shall follow. Appeal partly allowed.

Tags : Circular Rates Applicability

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Supreme Court

Maitreya Doshi vs. Anand Rathi Global Finance Ltd. and Ors.

MANU/SC/1216/2022

22.09.2022

Insolvency

Factual finding of the Appellate Authority cannot be interfered with in an appeal under Section 62 of the IBC

Present appeal under Section 62 of the Insolvency and Bankruptcy Code 2016, the ‘IBC’, is against a Judgement passed by the National Company Law Appellate Tribunal (NCLAT), dismissing the Company Appeal filed by the Appellant, against an order passed by the Adjudicating Authority (National Company Law Tribunal), NCLT, admitting a Company Petition filed by the Respondent No. 1 - Anand Rathi Global Finance Limited as Financial Creditor, for initiation of the Corporate Insolvency Resolution Process (CIRP) of Doshi Holdings Pvt. Ltd., “Doshi Holdings”, under Section 7 of the IBC. The Appellant is a suspended Director of Doshi Holdings.

It is not in dispute that, the Financial Creditor disbursed loan to the tune of Rs.6,00,00,000 to Premier pursuant to the Loan-cum-Pledge Agreements, executed both by Premier and by Doshi Holdings. Doshi Holdings has been referred to in the agreement as borrower and pledgor. Prima facie, it appears that Doshi Holdings was a party to the Loan-cum-Pledge Agreement in its dual capacity of borrower and pledgor of shares. The Appellate Authority has arrived at the factual finding that, Doshi Holdings is also a borrower under the Loan-cum-Pledge Agreement. The factual finding of the Appellate Authority which was the final fact finding authority ought not to be interfered in this appeal.

The finding of the Appellate Authority that Doshi Holdings is a borrower, is based on its interpretation of the Loan-cum-Pledge Agreements and supporting documents. The interpretation given by the Appellate Authority is definitely a possible interpretation. The interpretation is a plausible interpretation which cannot be interfered with in an appeal under Section 62 of the IBC. The proposition of law which emerges from the judgment is that a pledgor per se may not be a Financial Debtor. However, in this case, the Appellate Authority arrived at a factual finding that Disha Holdings was a borrower. In Lalit Kumar Jain v. Union of India , this Court held that the approval of a resolution plan in relation to a Corporate Debtor does not discharge the guarantor of the Corporate Debtor. On a parity of reasoning, the approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower.

If there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. The same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corporate Debtor, the balance may be realised from the other Corporate Debtor being the co-borrower. However, once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over. There are no grounds to interfere with the impugned judgment and order of the Appellate Authority. Appeal dismissed.

Tags : CIRP Initiation Legality

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High Court of Delhi

The Pr. Commissioner Of Income Tax vs. Macquarie Global Services Pvt. Ltd.

MANU/DE/3621/2022

22.09.2022

Direct Taxation

Inclusion or exclusion of comparables per se cannot be treated as a question of law unless it is demonstrated that the Tribunal took into account irrelevant consideration

Present appeal has been filed seeking a direction for setting aside the order passed by the Income Tax Appellate Tribunal ('ITAT') in with respect to Assessment Year ('AY') 2011-12.

The learned Senior Standing Counsel for the Appellant/Revenue states that, the ITAT fell in error in holding that the Assessee is not a Knowledge Processing Outsourcing Unit ('KPO') whereas the Assessee itself in the transfer pricing study report had declared that it is engaged in KPO activities. He states that, the ITAT erred in rejecting eClerxservices as a comparable as it ignored the fact that the said comparable provides Data Analysis and Outsourcing Services which are a part and parcel of the ITES Segment. He states that similarly ITAT fell in error in rejecting ICRA Techno Analytics Ltd. as a comparable whereas this company provides IT enabled services. He further states that ITAT fell in error in applying the high turnover threshold limit while excluding the comparable as it failed to appreciate that margins in the ITES industry are not linked to the turnover of the company.

The ITAT as well in the impugned order has after examining the financial and annual reports of each of the four comparables, concurred with the DRP's finding that each of the four comparables are functionally dissimilar. With respect to Accentia Technologies Ltd., the ITAT considered that the said comparable has also been excluded in Assessee's own case in AY 2009-10. It has also come on record that similarly, eClerxservices was also excluded as a comparable during the AY 2009-10. The ITAT has recorded that admittedly, there has been no change in the functions performed by the Assessee for the earlier years and in AY 2009-10 when the said comparables were excluded in the case of the Assessee after analyzing its functional profile.

The ITAT and the DRP have thus, returned concurrent finding of facts with respect to the functional dissimilarities of the said four comparables with the Assessee. In the present appeal, the challenge is to the said finding of facts and there is no perversity in the said findings. The Revenue has not been able to demonstrate that the analysis done by ITAT and DRP while excluding the companies suggested by Revenue from the list of comparables, was in any manner contrary to the settled position in law.

This Court in Pr. Commissioner of Income Tax-9 vs. WSP Consultants India Pvt. Ltd., has held that inclusion or exclusion of comparables per se cannot be treated as a question of law unless it is demonstrated to the Court that the Tribunal took into account irrelevant consideration or excluded irrelevant factors in the ALP that impact significantly. The ITAT has not committed any perversity or applied incorrect principle to the given facts. Therefore, present Court do not find that any substantial questions of law arise for consideration in the present appeal. Appeal dismissed.

Tags : Comparables Exclusion Validity

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High Court of Delhi

Priyanka Gupta Vs. Employees State Insurance Corporation

MANU/DE/3575/2022

19.09.2022

Insurance

Prosecution cannot be instituted in absence of sanction of the Insurance Commissioner

The present petition is filed under section 482 of Code of Criminal procedure, 1973 (Cr.P.C.) for quashing of complaint filed by the Respondent for the offence punishable under section 85(g) read with sections 45(2) and 86 of the Employee State Insurance Act, 1948 and all proceedings arising therefrom including order of summoning of the Petitioner.

The perusal of the complaint under section 85(g) of the Employees' State Insurance Act, 1948 reflects that, the Petitioner was made one of the accused and the sanction was only accorded against the Anil Kumar Gupta and HMR Institute of Technology and Management vide letter but no sanction was granted against the Petitioner.

Section 86 of Act, 1948 provides that, (1) No prosecution under this Act shall be instituted except by or with the previous sanction of the Insurance Commissioner [or of such other officer of the Corporation as may be authorized in this behalf by the [Director General of the Corporation]. [(2) No court inferior to that of a Metropolitan Magistrate or Judicial Magistrate of the First Class shall try any offence under this Act.] (3) No Court shall take cognizance of any offence under this Act except on a complaint made in writing in respect thereof."

The Allahabad High Court in Vishwanidhi Dalmia (Raja) V. Director, Employees' State Insurance Corporation and Ors. vide judgment and order while dealing with similar proceedings under the Employees State Insurance Act, 1948, quashed the complaint as no sanction was obtained for prosecution of the petitioner/Director under section 86 of the Act. It was held that sanction being mandatory no prosecution can be instituted against the petitioner/director. Consequently complaint against the Director was quashed. The Patna High Court in of Raj Kumar Sodera V. Chief Commissioner of Income Tax & Ors. vide judgment and order also quashed the prosecution of the petitioner in absence of Sanction in similar matter dealing with prosecution under the Income Tax Act.

It is true that no sanction was granted against the Petitioner as per section 86 of the Act, as such the prosecution cannot be launched against the Petitioner. Accordingly, the summoning order against the Petitioner is bad in the eyes of law and hence set aside. However, the Respondent shall be at liberty to initiate appropriate prosecution after according the sanction in accordance with law. Petition allowed.

Tags : Summoning order Sanction Quashing

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