2020-TIOL-2228-HC-AHM-GST

SS Industries Vs UoI

GST - Issue relates to the true interpretation of Rule 86A of the CGST Rules inserted vide the Notification No. 75/2019-CT dated 26th December, 2019 in the CGST Rules - The Rule 86A is in respect of the power and procedure for blocking the input tax credit (ITC) in the electronic credit ledger of a registered person - The second issue involved is with respect to the scope of exercise of power under Rule 86A of the Rules - In other words, the issue is whether the authority concerned is empowered to retain any amount deposited by a registered person during any inquiry or investigation in the absence of any confirmed liability against the assessee and, more particularly, without issuance of a show-cause notice and assessment/adjudication order imposing any tax liability on the assessee - So far as the connected writ application, i.e., the Special Civil Application No.8163 of 2020 is concerned, the question arising therein is whether the authorities could have debited a sum of Rs.7.65 Crore from the credit ledger thereby debiting the ITC availed by the writ applicant on various inputs and input services without there being any demand or any final assessment order.

Held:

Special Civil Application No.8841 of 2020.

+ The only question that falls for our consideration is whether pending inquiry or investigation into the allegations of fraudulent transactions with respect to fake/bogus invoices for the purpose of availing the ITC, the respondents could have blocked/debited the input tax credit (ITC) in the electronic credit ledger of the writ applicants by virtue of the power under Rule 86A of the CGST Rules which came into force vide the Notification No. 75/2019-CT dated 26th December, 2019.

+ Rule 86A undoubtedly could be said to have conferred drastic powers upon the proper officers if they have reason to believe that the activities or invoices are suspicious. The Rule 86A is based on "reason to believe". "Reason to believe" must have a rational connection with or relevant bearing on the formation of the belief. It is a subjective term and can be interpreted differently by different individuals. Prima facie, it appears that the Rule 86A does not even contemplate for issue of any show-cause notice or intimation notice. In such circumstances, the person affected may be taken by surprise when he would go to the portal to pay taxes and finds that his ITC is not usable.

+ The Constitutional validity of Rule 86A of the Rules is not under challenge in the present case and we do not intend to test its validity in the absence of any specific challenge to the same. In such circumstances, we would confine our adjudication in the present litigation only to the question whether the respondents could be said to be justified in invoking Rule 86A of the Rules for the purpose of blocking the input tax credit of the writ applicants pending the inquiry as regards the fraudulent transactions.

Indefeasible right vis-a-vis the benefit of the ITC:-

+ Supreme Court [ Osram Surya (P.) Ltd. vs. CCE, Indore 2002-TIOL-64-SC-CX , ] categorically considered the aspect of availing the credit and utilization of credit as two different stages and declared that the utilization of the accrued credit is a vested right. No vested right accrues before taking credit. In Tungabhadra Industries Ltd., v. Union of India (supra), the Supreme Court considered the dictum laid down in Eicher's case (2002-TIOL-149-SC-CX-LB). The theory of "vested right" has been diluted by the Supreme Court. It is clear that even a vested right can be restricted or controlled by Notifications.

+ It is a settled law that in the case of subordinate legislation, the authorities are conferred with the power to fill up the gaps when on functioning they are able to notice the loop holes or the areas left open. The very purpose of subordinate legislation is to only achieve this, since it may not be possible for the Parliament to make Laws frequently with precision.

+ In the instant case, the writ applicants have not been able to avail the ITC and, in such circumstances, it cannot be said that they have an indefeasible right. In the case of Tungabadra Industries, the Supreme Court approved the view taken by the Karnataka High Court in the case of Union of India v. Modern Mills Ltd ., 1994 (45) ECC 135 (Kar), in which it was ruled that the accumulated credit could be utilized only subject to the conditions of the Notification and thus even in the case of accumulated credit, no vested right accrued.

+ Thus, in view of the aforesaid discussion, Bench holds that the vociferous submission of Mr. Dave, the learned counsel appearing for the writ applicants as regards the indefeasible right to avail the ITC vis-a-vis Rule 86A of the Rules should fail and hereby fails.

+ Rule 86A talks about "reason to believe" which is necessary to be formed for the purpose of blocking the input tax credit in cases of inquiry or investigation into fraudulent transactions. Any opinion of the authority to be formed is not subject to objective test. The language leaves no room for the relevance of an official examination as to the sufficiency of the ground on which the authority may act in forming its opinion. But, at the same time, there must be material, based on which alone the authority could form its opinion that it has become necessary to block the input tax credit pending an inquiry or investigation into the fraudulent transactions of fake/bogus invoices. The existence of relevant material is a pre-condition to the formation of the opinion.

+ The use of the word "may" indicates not only the discretion, but an obligation to consider that a necessity has arisen to pass an order of provisional attachment with a view to protect the interest of the government revenue. Therefore, the opinion to be formed by the Commissioner or take a case by the delegated authority cannot be on imaginary ground, wishful thinking, howsoever laudable that may be. Such a course is impermissible in law.

+ At the cost of repetition, the formation of the opinion, though subjective, must be based on some credible material disclosing that it is necessary to provisionally attach the goods or the bank account for the purpose of protecting the interest of the government revenue. The statutory requirement of reasonable belief is to safeguard the citizen from vexatious proceedings. "Belief" is a mental operation of accepting a fact as true, so, without any fact, no belief can be formed. It is equally true that it is not necessary for the authority under the Act to state reasons for its belief. But if it is challenged that he had no reasons to believe, in that case, he must disclose the materials upon which his belief was formed, as it has been held by the Supreme Court in Sheonath Singh's case [AIR 1971 SC 2451], that the Court can examine the materials to find out whether an honest and reasonable person can base his reasonable belief upon such materials although the sufficiency of the reasons for the belief cannot be investigated by the Court.

+ In the absence of any cogent or credible material, if the subjective satisfaction is arrived at by the authority concerned for the purpose of blocking the ITC in exercise of power under Rule 86A of the Rules, then such action would definitely amount to malice in law. Malice, in its legal sense, means such malice as may be assumed from the doing of a wrongful act intentionally but also without just cause or excuse or for want of reasonable or probable cause. Any use of discretionary power exercised for an unauthorized purpose amounts to malice in law. It is immaterial whether the authority acted in good faith or bad faith.

+ We may only say that it cannot be said that the inquiry or investigation initiated as regards the fake/bogus invoices for the purpose of ITC is malafide or based on absolutely no materials. From what has been stated in the reply affidavit filed on behalf of the respondents, it could be said that prima facie , there is something which the Revenue has noticed and, therefore, are looking into the same before taking any final call as regards the claim of the writ applicants to avail the ITC. Even, otherwise, Rule 86A provides that on expiry of the period of one year, the restriction shall cease to have effect from the date of imposition of such restriction.

+ The only question now remains to be looked into is whether Rule 86A of the Rules contemplate any passing of a specific order with an obligation to communicate the same to the affected person so that such person can take recourse to any legal remedy available to him.

+ When we are talking about Rule 86A of the Rules, it reminds us of Section 83 of the CGST Act. Section 83 of the CGST Act provides for provisional attachment of any property including bank account of the taxable person with a view to safeguard the interest of the Revenue.

+ It is pertinent to note that Section 83 can be invoked during the pendency of any proceedings under Section 62 or Section 64 or Section 67 or Section 73 or Section 74 of the Act. Section 83 provides for order in writing. In other words, if the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary to attach provisionally any property including bank account, he may, by order in writing, do so. Even Section 83 of the Act talks about order to be passed in writing on the basis of the reasonable belief of the concerned authority.

+ We may also examine few similar provisions operating during the Pre-GST regime like the Section 11DDA of the Central Excises Act, 1944 and Section 73C of the Finance Act, 1994 respectively.

+ From the above, it is clear that the provisional attachment in terms of Section 11DDA and Section 73C could be made only after issuance of a show-cause notice.

+ Further, Section 67 provides for inspection, search and seizure. Sections 73 and 74 provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized. The Government has prescribed the procedure for the subject attachment vide Rule 159 of the CGST Rules.

+ The sole idea in referring to the provisions of the Pre-GST regime is to indicate that the Government had issued guidelines and had also laid down a procedure for provisional attachment to protect the interest of the revenue in certain cases. As noted above, Section 83 also talks about passing of an order.

+ Rule 86A casts an obligation upon the authority concerned to form an opinion but is silent with regard to passing of any specific order assigning prima facie reasons for invoking Rule 86A. To this extent, the Government needs to look into the matter and issue appropriate guidelines and also lay down some procedure to be followed for the exercise of power under Rule 86A of the Rules.

+ In the case on hand, the inquiry, so far, has revealed a prima facie case for the respondents to exercise the power under Rule 86A of the Rules. Although, no specific order has been passed and communicated to the writ applicants in this regard, yet in the facts of the present case, it cannot be said that exercise of power under Rule 86A for the purpose of blocking the ITC is mala fide or without any application of mind.

+ Bench is convinced that it should not interfere at this stage, more particularly, when the investigation is in progress. The respondents have made themselves clear in the reply affidavit filed in both the matters that at the end of the investigation if they decide to issue a show-cause notice under Section 74 of the Act, then all the materials relied upon by the Department shall be disclosed to the writ applicants. It would be too much for this Court at this stage to stall a legitimate investigation into the allegations of fraudulent transactions and permit the writ applicants to avail the ITC of a huge amount in exercise of its writ jurisdiction.

Conclusions:

(I) The invocation of Rule 86A of the Rules for the purpose of blocking the input tax credit may be justified if the authority concerned or any other authority, empowered in law, is of the prima facie opinion based on some cogent materials that the ITC is sought to be availed based on fraudulent transactions like fake/bogus invoices etc. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief.

(II) The power conferred upon the authority under Rule 86A of the Rules for blocking the ITC could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on subjective weighty grounds and reasons.

(III) The power under Rule 86A of the Rules should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.

(IV) The aspect of availing the credit and utilization of credit are two different stages. The utilization of credit is a vested right. No vested right accrues before taking credit.

(V) The Government needs to apply its mind for the purpose of laying down some guidelines or procedure for the purpose of invoking Rule 86A of the Rules. In the absence of the same, Rule 86A could be misused and may have an irreversible and detrimental effect on the business of the person concerned. In this regard, the Government needs to act promptly.

Special Civil Application No.8163 of 2020

+ Bench directs the respondents to complete the investigation within a period of four weeks from the date of the receipt of this order and take an appropriate decision whether any case has been made out for issue of show-cause notice under Section 74 of the Act or not. At the fag end of the investigation, Bench does not deem fit and reasonable to pass an order in exercise of its writ jurisdiction directing the respondents to give back the credit of the ITC to the writ applicant and permit them to avail the same.

+ Interference with the proceedings initiated by the Statutory Authority in exercise of the extraordinary writ jurisdiction would be justified only in exceptional circumstances.

Conclusion: Both the writ applications fail and are hereby rejected with appropriate observations.

Clarification: Bench has not gone into the issue as regards the constitutional validity of Rule 86A of the Rules. None of the observations made by us in this judgment should prejudice any of the litigant who might have challenged or who may deem fit to challenge the constitutional validity of Rule 86A on the grounds available in law. The challenge to the constitutional validity of Rule 86A, if any, shall be examined independently. The view taken by us in the present litigation is substantially based on the facts of the case, more particularly, the materials as disclosed in the reply affidavits filed by the respondents and on the plain reading of the provisions of Rule 86A of the Rules.

- Petitions dismissed: GUJARAT HIGH COURT

K Devamani Vs UoI

Whether the GOMs issued under Section 31 of the Puducherry Value Added Tax Act, 2007 are in excess of power since they have no been placed before the legislature – YES : HC

Assessee's appeal allowed: MADRAS HIGH COURT

2020-TIOL-2231-HC-MP-ST

Sai Sun Outsourcing Services Pvt Ltd Vs UoI

ST - The assessee-company is engaged in the business of providing cleaning services and manpower supply services - Upon audit during the relevant period, a memo was issued by the Revenue quantifying the differential tax payable by the assessee, along with interest and penalty - Duty demand was raised - Thereafter, the Central Government lauched the Sabka Vishwas Legacy Dispute Resolution Scheme 2019 - The assessee filed application thereunder and submitted Form SVLDRS-1 for settlement of duty demand after rectifying arithmetical mistakes in the memo - Subsequently, based on incorrect advice, the assessee filed a second application in Form SVLDRS-1, during pendency of the first application - The assessee's application was rejected on grounds of duplicate filing - Hence the present petition.

Held - It is stated that the assessee filed two applications, on 28.12.2019 and 14.01.2020 to avail the benefit of SVLDRS Scheme which was processed on the basis of correctness of "Tax Dues" declared in the application with reference to the amount of duty quantified in the reference document mentioned in the said declaration - As there were application wherein the amount of 'Tax Dues' declared by the assessee in its SVLDRS application were not matching with the amount of duty quantified in the reference document issued on or before 30.06.2019, there was delay in processing - It is stated that the second application dated 14.01.2020 was processed early because the amount of tax due declared therein matched with the amount of duty quantified in the departmental audit spot memo No.228 dated 17.05.2019 - And being to be correctly filed, the amount of Rs.74423447.50 payable by the assessee after allowing the benefit of SVLDRS was intimated vide SVLDRS-3 form issued on 10.02.2020 - It is stated that with the acceptance of declared SVLDRS application dated 17.01.2020, the earlier application which required and was under process to match out the amount of Tax Due declared with the amount of duty quantified with reference document issued on or before 30.06.2019, therefore, rendered redundant - Hence there is no illegality or a jurisdictional error in considering the application dated 14.01.2020, rendering earlier application as redundant: HC

- Petition dismissed/ In favor of Revenue : MADHYA PRADESH HIGH COURT

2020-TIOL-2229-HC-AHM-CX

CTM Technical Textiles Ltd Vs UoI

CX - The appellant is engaged in business of manufacture of goods like Agro Shade Net and Geo Grid - It is the case of appellants that both the manufactured products fall within the Heading Nos.6005 and 5911 respectively and are fully exempt from the payment of excise duties - In such circumstances, it is their case that they have not discharged any excise duty for such goods right from the inception of manufacture, i.e. from around September 2007 - Both the goods in question are being manufactured by appellants by weaving; it being warp knitting in case of Agro Shade Net and weaving by warp and weft in case of Geo Grid fabrics - Both these commodities are in the nature of fabrics, and the respondents have also accepted the fact that the Agro Shade Net are fabrics manufactured on Raschel knitting machine whereas the Geo Grid fabrics are woven fabrics manufactured on the weaving machines - In the order passed by jurisdictional Commissioner during the pendency of adjudication also, this submission has been recorded that there are more than 100 manufacturers in the country and all of those have been treating this product as technical textile material, and a reference has also been made to the evidence like the invoices of other manufacturers - However, no finding has been recorded worth the name in the impugned order about this specific plea of discrimination raised by appellant - The specific pleading in application that verification had been caused by the respondents in respect of many manufacturers whose details have been furnished by appellant has not been disputed, and no material has been brought on record by the respondents to indicate that such submission of appellant is incorrect - In the result, this writ-application is partly allowed - The impugned Order in Original passed by the respondent no.2 dated 30.6.2020 is hereby quashed and set-aside - The matter is remitted to the respondent no.2 for fresh consideration of all the issues discussed in this judgment - The respondent no.2 shall give an adequate opportunity of hearing to the writ-applicants and decide the matter afresh in accordance with law, more particularly, keeping in mind the observations made by this Court - Bench also directs the Union of India to re-look into the CBEC Circular/Order No.8/92 dated 24.9.1992 and the Ahmedabad Collectorate Trade Notice No.78/94 dated 9.5.1994 respectively in light of the observations made by this Court and take an appropriate decision in that regard - It will be in the fitness of things if the Union of India first apply its mind to the CBEC Circular/Order No.8/92 dated 24.9.1992 and the Ahmedabad Collectorate Trade Notice No.78/94 dated 9.5.1994 and take an appropriate decision in accordance with law so as to enable the respondent no.2 to arrive at an appropriate conclusion in the fresh round of hearing - It is made explicitly clear that the issue of discrimination raised by the writ-applicants shall be specifically dealt with by the respondent no.2 in an appropriate manner in accordance with law - This entire exercise is to be undertaken at the earliest and be completed within a period of six months - It is needless to clarify that any proceedings initiated towards the recovery of the dues on the strength of the impugned Order in Original passed by the respondent no.2 shall also stand terminated: High Court

- Matter remanded: GUJARAT HIGH COURT

2020-TIOL-2227-HC-MUM-ST

GGS Infrastructure Pvt Ltd Vs CCGST & CE

ST - Petitioner was engaged in the business of providing cranes for hire/lease to other companies involved in infrastructure business. It is stated that as had happened with many companies engaged in infrastructure business, petitioner also underwent a period of great financial stress which resulted in failure to repay dues of various creditors. One of the unsecured creditors of the petitioner Shri. Sanjay Talakshi Mamaniya filed a petition under section 7 of the Insolvency and Bankruptcy Code, 2016. In the said order dated 30.08.2019 of the National Company Law Tribunal reference was made to the service tax dues of the petitioner, particularly in the backdrop of two show cause cum demand notices dated 18.04.2015 and 13.02.2017 (01.02.2017) issued to the petitioner raising demand of service tax, interest, late fee and penalty, totalling Rs.1929.85 lakhs. Tribunal noted that the claim raised on account of service tax dues fell under the definition of operational creditors and held that the dues should be settled at par with other operational creditors under the resolution plan. Tribunal noted that the claim raised on account of service tax dues fell under the definition of operational creditors and held that the dues should be settled at par with other operational creditors under the resolution plan. It was pointed out that the resolution plan provided for settlement of dues of operational creditors at the rate of 5% of the principal amount and waiver of interest, penal interest and penalty. It is stated that the respondent adjudicated upon three show cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. Petitioner informed the respondent that against the demand raised i.e. Rs.7,10,93,651.00, the liability which was contested by the petitioner stood at Rs.2,92,47,370.00. Remaining amount of Rs.4,18,46,281.00 was an admitted claim which was required to be settled at 5% in terms of the order of the Tribunal dated 30.08.2019. It is further stated that before adjudication respondent had issued notices under section 87(b)( i ) of the Finance Act, 1994 to branch managers of banks where the petitioner had maintained its accounts directing them to transfer the amounts held by them to the government treasury. Similar notices were issued to various debtors of the petitioner as well directing them to deposit the amounts owed by them to the petitioner directly to the account of government treasury. In the process respondent had recovered total amount of Rs.6,23,82,214.00 on account of service tax liability of the petitioner, the break-up of which has been mentioned in paragraphs 19 and 20 of the writ petition. Ultimately, respondent passed the impugned order in original on 22.07.2020. The demand raised in the three show cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018 were confirmed. As per the said order the total demand raised against the petitioner was quantified at Rs.7,02,20,725.00. As stated above, respondent had already recovered an amount of Rs.6,23,82,214.00. In the impugned order respondent had recorded the statement of the petitioner that petitioner is required to pay 5% of the admitted liability and thereafter 5% of the crystallized amount upon adjudication of the contested liability in terms of the resolution plan as approved by the committee of creditors and sanctioned by the Tribunal. However, there appears to be no discussion of the effect of the Tribunal's order dated 30.08.2019 on the demand raised by the respondent. However, it is seen that a copy of the impugned order dated 22.07.2020 was forwarded to the resolution professional Shri. Naren Sheth . With the grievance that the impugned order in original is ex facie illegal and in complete violation of the order of the Tribunal dated 30.08.2019, present writ petition has been filed seeking the reliefs as indicated above. Respondent submits that they had rightly passed the said order adjudicating the service tax dues of the petitioner pursuant to three show-cause notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. Following the said order service tax dues of the petitioner has crystallized which is Rs.7,02,20,725.00. Respondent has the power to make recovery under section 87 of the Finance Act, 1994. Accordingly, various recoveries were made which amounted to total of Rs.6,23,82,214.00 which is part of the service tax dues of the petitioner. Therefore respondent has every right to appropriate the said amount. On a query by the Court, Counsel for Respondent submits that the resolution plan and the order of the Tribunal dated 30.08.2019 have to be read and understood in a practical and pragmatic manner. If so understood, 5% of the principal amount would mean the crystallized dues less the amount already collected. It is from this adjusted amount that 5% is required to be calculated and realized. Therefore, there is no question of respondent making any refund to the petitioner. On the contrary, it is the petitioner who has to make payment of 5% of the adjusted amount (Rs.7,02,20,725.00 less Rs.6,23,82,214.00); that the principle of unjust enrichment cannot be applied against the State. There cannot be any unjust enrichment by the State. He therefore submits that the writ petition filed by the petitioner is completely misplaced and is as such liable to be dismissed.

Held: [para 21.1, 29.1, 31, 34.3, 36 to 42]

+ It is evident that focus of the Insolvency and Bankruptcy Code is resolution of insolvency and bankruptcy. In other words the thrust is for revival of such corporate persons, partnership firms and individuals facing insolvency and bankruptcy rather than liquidation.

+ From the above, it is evident that if the adjudicating authority is satisfied that the resolution plan as approved by the committee of creditors under sub section (4) of section 30 meets the requirements of sub section (2) of section 30, it shall by order approve the resolution plan. Once such approval is granted by the adjudicating authority, it shall be binding on the corporate debtor and its employees, members, creditors (including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed), guarantors and other stakeholders involved in the resolution plan. As per the proviso, before passing an order under section 31 (of the IBC, 2016) the adjudicating authority has to satisfy itself that the resolution plan has provisions for its effective implementation.

+ From a conjoint reading of section 31(1) and section 238 of the Code, it is quite evident that the provisions of the Code shall have overriding effect. The non-obstante clause in section 238 and the use of the expression "shall" in sub section (1) of section 31 makes it abundantly clear that a resolution plan approved by the committee of creditors and further approved (or sanctioned) by the adjudicating authority would be binding on all creditors including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed.

+ Thus, the resolution plan mentions that the claim of service tax dues falls under the definition of operational creditors. Such dues should be settled at par with other operational creditors under the resolution plan which provides for settlement of dues of operational creditors at the rate of 5% of the principal amount with waiver of interest, penal interest and penalties. The claim amounting to Rs.1929.85 lakhs was being contested by the corporate debtor before the concerned authority and the amount of admitted claim could not be determined until the outcome of the said proceeding. Therefore, the said amount of Rs.1929.85 lakhs was kept in abeyance. However, the amount that would come to be determined upon adjudication would be settled at the appropriate time. The resolution plan highlighted that in the interest of safeguarding the sustainability of the company and so as not to derail the same in the event of a substantial claim by the department, the liability, if any, that would crystallize would be settled at 5% of the amount of the principal dues adjudicated by the appropriate authority and interest, penal interest as well as penalty that may be charged shall be waived.

+ The said order in original was passed upon adjudication of three show-cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. It may be mentioned that even before issuance of the first show-cause cum demand notice dated 18.04.2015, respondent had initiated recovery proceedings under section 87(b)( i ) of the Finance Act, 1994 for recovery of service tax dues by issuing letter dated 18.04.2013 calling upon the bankers and debtors to deposit the amounts of the petitioner or due to the petitioner and available with them to the government account on behalf of the noticee (petitioner). Pursuant to such proceedings various debtors made payments from time to time.

+ While adjudication of the show-cause notices to arrive at the total service tax dues may be the requirement of law and in conformity with the resolution plan because only upon crystallization of the amount due, the amount that the petitioner would be liable to pay at the rate of 5% could be arrived at. However, what is disconcerting is the order of the respondent for appropriation of the amounts already realized/recovered from the bankers and debtors of the petitioner.

+ Though counsel for the petitioner has assailed recoveries made by the respondent by invoking the provisions of section 87(b)( i ) of the Finance Act, 1994, the same may not detain us in view of what we have discussed above and on the basis of which the conclusions that may be reached. It is true that many High Courts of the country have held in unequivocal terms that exercise of power under section 87(b)( i ) of the Finance Act, 1994 without determination of the amount payable by a person under section 73 thereof would amount to putting the cart before the horse. It has been held that the expression "amount payable by a person" appearing in section 87 of the Finance Act, 1994 would have to be considered in the background of section 73 inasmuch as show cause notice issued under section 73 would have to be adjudicated upon and thereafter the amount payable is to be determined, otherwise it would be in violation of the principle of audi alteram partem . The jurisdictional authority would be entitled to recover the amount payable from the person concerned only after adjudication has been done.

+ Following the above, we have no hesitation to hold that once a resolution plan is approved by the committee of creditors by the requisite percentage of voting and the same is thereafter sanctioned by the adjudicating authority (Tribunal in this case), the same is binding on all the stakeholders including the operational creditors. As a matter of fact, respondent herein as an operational creditor had lodged its claim before the resolution professional. The resolution plan provides for settlement of service tax dues at 5% of the amount of principal dues that would be crystallized upon adjudication, further providing for waiver of interest, penal interest and penalty that may be charged.

+ As we have held above, respondent may be justified in proceeding with the show-cause cum demand notices because that has resulted in crystallization of the total amount of service tax dues i.e., the principal amount payable by the petitioner which is Rs.7,02,20,725.00. The amount of service tax dues having thus crystallized as above, the resolution plan says that the same would be settled at 5% of the principal dues adjudicated.

+ The word used is "adjudicated" and not "adjusted" as sought to be read and applied by the respondent. Therefore, the amount that the petitioner would be required to pay is 5% of Rs.7,02,20,725.00. Insofar as the recovered amount i.e. Rs.6,23,82,214.00 is concerned, the same is part of the total demand determined i.e. Rs.7,02,20,725.00. After retaining 5% of Rs.7,02,20,725.00, respondent would be duty bound to refund the balance amount to the petitioner which will not only be in terms of the resolution plan and thus in accordance with law but will also be a step in the right direction for revival of the petitioner which is the key objective of the Code. There is no question of retaining the said amount. Submissions made by Mr. Jetly that the amount already recovered should be allowed to be appropriated by the respondent and that petitioner should pay 5% of the balance of the principal dues i.e. 5% of Rs.7,02,20,725.00 less Rs.6,23,82,214.00 is without any substance and liable to be rejected. It is accordingly rejected.

+ It cannot be argued that the State having recovered certain money even though such recovery may be illegal or questionable cannot be compelled to refund the same. Such a contention is clearly untenable, notwithstanding the question as to whether it is a case of unjust enrichment or not. Once it is determined that the State is holding money beyond what is legally permissible, it has a binding duty to refund the same.

+ Thus, having considered all aspects of the matter, Bench has no hesitation to hold that principal service tax dues quantified by the respondent vide order in original dated 22.07.2020 has to be settled at the rate of 5%, in other words 5% of Rs.7,02,20,725.00. The directions of the respondent for appropriation of the amount of Rs.6,23,82,214.00 already recovered cannot be sustained. Respondent shall retain 5% of Rs.7,02,20,725.00 from the above amount recovered and thereafter refund the balance amount to the petitioner. To that extent, impugned order in original dated 22.07.2020 is interfered with. Refund shall be made within a period of three months.

+ Writ Petition is accordingly allowed.

- Petition allowed: BOMBAY HIGH COURT

2020-TIOL-1709-CESTAT-CHD

Tata Steel BSL Ltd Vs CCE & ST

CX - The assessee is engaged in manufacturing of "Precision Tubes of IRON or STEEL" and selling goods on payment of duty - In certain cases, the goods are rejected by buyer and returned to the assessee - Assessee undertook to rectify/re-make the goods for sale, in that process, certain goods were re-made and cleared on payment of duty - In such goods, where the goods could not be repaired, they were sold as scrap to their sister unit on payment of duty - Case of revenue is that in the cases, the goods were cleared as scrap, assessee is required to pay cenvat credit availed on such goods at the time of clearance as they have removed the goods as such in terms of Rule 16(2) of CER, 2002 - It is clear that the rejected goods were received by assessee and at the time of receiving the rejected goods, assessee took the cenvat credit in terms of Rule 16 of CER, 2002 - As per the facts of the case itself, it is clear that the returned goods were subjected to some process and when they were not found up to the mark were cleared on payment of duty as scrap - The assessee has correctly paid the duty as scrap at the time of clearances - Further, assessee has cleared these goods to their another unit - Admittedly, whatever duty have been paid, the same are entitled to cenvat credit to themselves - It is a revenue neutral situation - In that circumstances also, assessee is not required to pay any differential duty or any amount on account of cenvat credit: CESTAT

- Appeal allowed: CHANDIGARH CESTAT

2020-TIOL-1708-CESTAT-ALL

Tejveer Singh Vs CC

Cus - Smuggling of betel nuts - Betel nuts are not covered by Section 123 of Customs Act, 1962, therefore, onus was on Revenue to prove that the impugned goods were smuggled into India - The said onus has not been discharged by Revenue - Thus, there are no grounds to hold that the impugned goods were smuggled into India: CESTAT

- Appeal allowed: ALLAHABAD CESTAT