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Showing 321 to 340 of 1571 Records
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2023 (7) TMI 1251
Classification of imported goods - U.J. Cross-parts - U.J. Cross Body - U.J. Cross Cup - U.J. Cross Needly Roller - U.J. Cross SNAP Ring - to be classified under heading 8483 60 90 of the Customs Tariff or not - HELD THAT:- It is observed that the usage of these goods is not in dispute in as much as these goods are for use solely or principally with the Transmission Shafts which may be used in Motor Vehicles. It is an admitted fact by the appellant- that universal joints or parts of universal joint and transmission parts fall under Tariff Entry No. 8483. The goods imported are Universal Joint parts to be used in Transmission Shafts. Transmission Shafts are further used in automobiles. Transmission shafts are classifiable under CTH 8483.
In view of the Section Note 2, the parts which are goods included in any of the heading of chapter 84 are in all cases to be classified in their respective headings, except for the heading 8409, 8431, 8448, 8466, 8437, 8487. The goods in question are included in heading 8483 of Chapter 84. However, such classification of the parts in their respective headings is subject to Note 1 of this Section XVI, which excludes the "article of Section XVII." Therefore, it is further inevitable to examine the Notes of Section XVII - the parts and accessories of Section XVII don't apply to article of heading 8483 (clause (e) of Section Note 2).
In view of the specific exclusion of 'articles of heading 8483' from the ambit of the Section XVII under which chapter 87 falls, the impugned goods will not fall under Chapter 87.
The judgment of Tribunal Mumbai in the case of TELCO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE [2006 (1) TMI 281 - CESTAT, MUMBAI] relied upon by the Commissioner (Appeals) is not applicable in as much as the goods, namely, Gear and Gear Box etc involved in the case were specifically covered under heading 8708.
The impugned goods are rightly classifiable under heading 8483 60 90 of the Customs Tariff Act - appeal allowed.
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2023 (7) TMI 1250
Benefit of exemption - Ignoring certificate of origin issued by the exporting Country in respect of imported goods namely cashew - roasted cashew so as to be covered under the exemption N/N. 46/2011-Cus. dated 01.06.2011 as amended vide N/N. 63/2016-Cus. dated 31.12.2016, or not - HELD THAT:- There are no objection to accept the certificate of origin copy available at page 156 of the Appeal Memo that has been issued by the Ministry of Agriculture and Rural Development the Government of Vietnam. At column 8 of it they have certified it as cashew nut Kernel roasted BB Grade. Therefore, in view of the requirement of Annexure-3 of the Customs Tariff (Determination of Origin of Goods) Rules, 2009 in case of doubt regarding certificate of origin containing erroneous description of goods, resolution should have been made in consultation with Competent Authority issuing the certificate but apparently the same has not been followed by the Respondent-Department and, therefore, on this score alone the demand would not survive.
On going through the test report submitted by the CEPCI, Kerala there would not be any hesitation to say that the report creates more confusion than giving a fonding/opinion on the product - it can be said that presence of Cardanol was noticed and if the sample is roasted traces of Cardanol will be less but the report lacks the basic clarity as to if Cardanol presence is much more than the same is supposed to be present in roasted cashew! Likewise at point No. 4, it is clearly mentioned that Fatty Acid is found to be higher above 3% and as per FSSAI standard the maximum limit prescribed is 1.25% for plain cashew. If this is the observation, then the sample should have been considered as roasted cashew since Fatty Acid presence is above 3% as for plain cashew Fatty Acid content should be less than 1.25% but surprisingly it (the report) said that on the basis of the above fact it was concluded that the sample was ‘Plain/Raw Cashew Kernel’ (baby bits).
The only conclusion that can be drawn is that the report is devoid of all logic and it is apparently prepared to favour the department but it contains the basis of such preparation that is favouring the stand taken by the importer appellant - On perusal of the report, it is noticed that on which date those test were conducted is not available in the said report and on which date they have forwarded the same to the Commissioner, JNCH is also not indicated except putting a head-note on these 10 pages report that it is a clarification of CEPCI with reference to test certificate No. 1039 dated 04.04.2018. It is quite imposable to preserve the samples for 5 years without exposure to moisture etc. having its self-live period also. Therefore, the veracity of these reports are questionable apart from the fact that page 4 of the said report that contents quality parameter of Cashew Kernel during AR roasting indicates that the more time it is exposed to heat the more it looses its moisture content, but from it, no reference could be made as to if after being exposed to moisture again subsequent to roasting also cashew nuts would absorb moisture further.
The order passed by the Commissioner of Customs (Appeals), JNCH, Nhava Sheva, Mumbai-II is here by set aside - Appeal allowed.
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2023 (7) TMI 1249
Undervaluation of goods - import of a barge, Aqua Float 300, towed by tug, Fordeco 61 - enhancement of value - value of other equipment on board the barge was required to be added separately or not - Confiscation - redemption fine - penalty - HELD THAT:- It is found that the two individuals who were not imposed with penalties in the impugned order are not notices and, to that extent, the appeal proceedings is limited to the importer.
For asserting that the equipment on board the barge should be charged, independent of the barge, to duty separately, the appellant- Commissioner has relied upon an unauthenticated and untenable source for claiming that these were not integral to the barge. We find no evidence on record that these were not on board the barge when acquired by the importer and, in such circumstances, these cannot be disaggregated from the barge for separate determination of assessable value.
There is no allegation in the show cause notice that the cost, in CIF terms, is in question and rejection of declared value was proposed, under rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988, only owing to the purchase price, and declared value, not being inclusive of freight. Non-inclusion of freight is to be proceeded with under rule 9(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 whereas rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 is limited to recourse to rule 5 to rule 8 of the said Rules.
The appeal of Revenue appears to have ignored this fundamental and crucial difference between adjustment of transaction value for cost and services and alternatives to declared price upon rejection under rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988. The determination by the adjudicating authority cannot, therefore, be displaced on the grounds preferred in the appeal.
Penalties - HELD THAT:- As no misdeclaration has been found insofar as the import is concerned, there is no reason to consider imposition of penalties, too, on the individuals.
Appeal dismissed.
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2023 (7) TMI 1248
Classification of goods proposed to be imported - proposed import of 'Self-ordering Kiosk', in disassembled form where its display unit, connection box and stand would be imported, simultaneously, in a single consignment or where its display unit and connection box (without stand) would be imported, simultaneously, in a single consignment or where its display unit, connection box and stand would be imported on a standalone basis, in separate consignments - to be classified under HSN: 8470 5010 or under HSN: 8471 4190? - exemption under N/N. 24/2005 - Customs, dated 01-03-2005.
HELD THAT:- Self-ordering Kiosk' is a multi-functional device, having capability to perform a number of functions; 'Self-ordering Kiosk' has been designed to not just be a simple data processing machine but it performs a specific function of facilitating sale of products/services and enable customers to make payments via an interactive display interface; it possesses integrated payment terminals, printing function & bar-code/QR code scanning function; component/part of 'Self-ordering Kiosk' i.e 'connection box' is its integral part, designed to function solely/principally with it, with a pre-defined bracket, where 'display unit' is placed for the 'Self-ordering Kiosk' to start functioning and carries out various functions in 'Self-ordering Kiosk', inter-alia receipt printer, barcode leader, QR code reader, payment terminals, wi-fi connectivity, NFC connectivity; component/part of self-ordering kiosk' i.e 'display unit' is an integral component/part, designed to function solely/principally with 'self-ordering kiosk' and aids its various functions viz. Touch-enabled display panel, processor, memory interface, storage unit and operating system; 'stand' is designed to be used solely with 'Self-ordering Kiosk , is also an integral part of 'Self-ordering Kiosk' but it is an optional accessory. Further, the applicant has declared that no processing whatsoever would be carried out on the imported goods, post importation into India.
On going through the comments of the concerned Commissionerate regarding classification of 'Self-ordering Kiosks', imported in disassembled form into India, where Display Unit, Connection Box & Stand would be imported simultaneously, in a single shipment or where display unit and connection box would be imported simultaneously, in a single shipment, the display unit and connection box would merit classification under Sub-heading 84798999, whereas the stand would merit classification under Sub-heading 94032010/94032090 and as regards applicability of exemption under Notification under serial number 7 of Notification No. 24/2005 -Customs, dated 01-03-2005, the opinion is in negative. Further, the concerned Commissionerate has opined that the components/parts of 'Self-ordering Kiosk' namely display unit, connection box and stand, imported on standalone basis in different/separate consignments at different point of time, the part, display unit merit classifiable under Sub-heading 85285900 and the connection box is classifiable under Sub-heading 84798999, whereas, the stand, being not a part of the 'Self-ordering Kiosk', but is in the nature of optional accessory, would merit classifiable under Sub-heading 94032010/94032090, as the case may be; that the components/parts of 'Self-ordering Kiosk' namely display unit, connection box and stand appears to be not classifiable under heading 8470, the said goods are not entitled for exemption specified at serial number 7 of Notification No. 24/2005 - Customs dated 01-03-2005, when imported on standalone basis in different/separate consignments over a period of time.
Reference drawn to Note 6(E) of Chapter 84 is relevant for the purposes of classification as the 'Self-ordering Kiosks' have specific end-use in retail environment and enables a smart solution to browse products/services and provide multiple payment options; therefore, the 'Self-ordering Kiosk' performs a specific function other than data processing; thus, by virtue of Note (E) of Chapter 84, the 'Self-ordering Kiosk' would not be classifiable as an ADP, under the heading 8471.
Classification of 'Self-ordering Kiosk' in dis-assembled form - HELD THAT:- 'Display Unit' is a comprehensive component/part which acts as an interface with the customer and performs several functions on its own; moreover, Connection Box facilitates payments against sale of products; it is an integral part in functioning of 'Self-ordering Kiosk'. Further, both, 'Display Unit' and 'Connection Box' are designed to function solely/principally with the 'Self-ordering Kiosk'. In view of the observations, the 'Self-ordering Kiosk' imported in disassembled form into India, where display unit, connection box are imported simultaneously, in a single shipment, would be classifiable under Sub-heading 84705010 and will be entitled for exemption stipulated under serial number 7 of Notification No. 24/2005 - Customs, dated 01-03-2005. Where 'Self-ordering Kiosk' imported in disassembled form into India, where display unit, connection box are imported simultaneously, in a single shipment along with 'Stand', then in terms of rule 2(a) of GRI, as presented, 'Display Unit' and 'Connection box', the incomplete or unfinished articles has the essential character of the complete or finished 'Self-ordering Kiosk' or 'Cash Register'. 'Stand' being an optional accessory, not compulsorily supplied along with other components forming 'Self-ordering Kiosk', simultaneously in a single shipment, will merit classification under the heading appropriate to it under heading 9403, in terms of rule I of GRI.
Applicability of exemption vide Notification No. 24/2005-Cus. dated 01.03.2005 on import of different goods - HELD THAT:- It is noticed that under serial number 7 of the said notification, all goods falling under heading 8470 are exempt from whole of duty of Customs leviable thereon under the First schedule of the Customs Tariff Act, 1975 and under serial number 9 of this notification all goods falling under Sub-heading 84732100 or 84732900 are exempted. Thus, exemption from customs duties under serial number 7 and 9 is based on the classification of goods under said heading and Sub-heading respectively.
Classification of components/parts of 'Self-ordering Kiosk' namely (1) Display Unit, (2) Connection Box, (3) Stand, imported on standalone basis in different/separate consignments at different point in time - HELD THAT:- 'Display Unit' is a comprehensive component/part which acts as an interface with the customer and performs several functions on its own; moreover, Connection Box facilitates payments against sale of products; it is an integral part in functioning of 'Self-ordering Kiosk'. Further, both, 'Display Unit' and 'Connection Box' are designed to function solely/principally with the 'Self-ordering Kiosk'. Thus, Display Unit or Connection Box, imported on standalone basis would merit classification under Subheading 84732900 in terms of Note 2(b) of Section XVI read with heading 8470 read with rule 1 of GRI thereby concluding that parts and accessories which are designed for use solely or principally with a machine classifiable under headings 8470 - 8472, would be classifiable under the heading 8473. and 'Stand' would merit classification under heading 9403, classification of 'Stand' at the Sub-heading level would depend upon its constituent material and end-use.
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2023 (7) TMI 1247
Removal of unauthorised occupants from Premises - seeking to ensure a clear passage of 20 feet from the front portion of the main road so to enable the entry of vehicles into premises - HELD THAT:- In terms of the order dated 25 April, 1990, the applicant was directed to pay the balance purchase consideration in quarterly instalments over a period of 18 months. The applicant has only paid an aggregate amount of only Rs. 40,25,000/-. Admittedly, there remains an amount of Rs. 17,25,000/- due and payable. The obligation of any purchaser to ultimately pay the entire purchase consideration within the prescribed time period is a necessary pre-condition to any sale. To this extent, the confirmation of sale is in one sense incohate. There is a shortfall in the sale consideration even after a period of 33 years. The applicant is solely responsible for such default. The duty to timely pay the entirety of the purchase consideration in terms of the order dated 25 April, 1990 was squarely on the applicant. Non-payment of the entire consideration in terms of the order dated 25 April, 1990 renders the sale a nullity.
On a plain reading of section 54 of the Transfer of Property Act, 1882, the time of payment of price is not necessarily a sine qua non to the completion of the sale. However, the order dated 25 April, 1990 provided for a stipulated time period for payment which assumes significance in cases of sale by Courts.
The exercise of any discretion must be in good faith, fairly, for the purpose for which the power is being conferred and without exceeding the limits of such power. No discretion should be legally unfettered. The exercise of any discretion cannot be arbitrary, vague and fanciful; but legal, regular and according to reason. The Rule of Law requires that no discretion should be unconstrained so as to be potentially arbitrary - Section 457 of the Companies Act, 1956 read with Rule 272 of the Company Court Rules, 1959, govern sales by the Official Liquidator. The duty of the Company Court while conducting a sale under Rule 272 is a more onerous task than an ordinary sale conducted by Court in executing a decree. In a sale by the Company Court, the Court holds a fiduciary duty position protecting the interests of all stakeholders. On the other hand, in sales in execution of a decree the sale is rarely held without notice to the judgment debtor. Ordinarily, the judgment debtor in such sales is present to protect its interests.
There has been a conscious effort to perfect the so very imperfect marketable title of the applicant and the original owners vis-a-vis the premises. There are no grounds either pleaded nor which exist which warrant condonation of the inordinate delay in the applicant being unable to make payment of the balance consideration after a period of 33 years. There is no question either in law or equity to permit the applicant to pay the shortfall in price after a delay of 33 years. The benevolence and magnanimity shown to the applicant must end.
There are no substance in the contention that the application is not maintainable since there is a permanent stay of the winding up proceedings. The order of permanent stay does not completely obliterate the winding up order. Company petitions even when dismissed on merit are traditionally not regarded as dismissed or disposed of but as permanently stayed - the sale in terms of the order dated 25 April, 1990 is declared to be a nullity.
Application dismissed.
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2023 (7) TMI 1246
Professional Misconduct - failure to report non-compliance with accounting standards - Non-provision of Interest Costs on Borrowings from Bank and NBFCs - Non-provisioning for Trade Receivables- Unsecured, Considered Doubtful - Wrong Accounting of Deferred Tax Assets - Non-disclosure of Cost Formula for the Measurement of Inventories - Wrong amortization of Expenses - Non-compliance with the format of Financial Statements - Non-compliance with requirements of SA 230 regarding Audit Documentation - Non-compliance Regarding Agreement on Terms of Audit Engagements - Non-compliance Regarding Appointment of Engagement Quality Control Reviewer - Non-compliance Regarding Communication with TCWG.
Non-provision of Interest Costs on Borrowings from Bank and NBFCs - HELD THAT:- The charges relating to failure to report non-provision of Interest Costs pertaining to Borrowings from bank and NBFCs stand proven. The omission being material in nature, the EP should have taken them into consideration before issuing his opinion in accordance with SA 705 , which he failed to do.
Non-provisioning for Trade Receivables- Unsecured, Considered Doubtful - HELD THAT:- SA 200 requires the auditor to comply with all SAs relevant to the audit and mandates an understanding of the entire text of an SA, including its application and other explanatory material, to understand its objectives and to apply its requirements properly. Objective of SA 705 is to express clearly an appropriately modified opinion on the financial statements when the conditions for modifications are met - The opinion expressed in this case is ambiguous as the basis of qualification did not have a proper description and quantification of the financial effects of the misstatement or other explanations as required by Para 17 of SA 705. Hence, the audit opinion is not meeting the objective of SA 705. Such an opinion is misleading to the users of the financial statements as well. The charges regarding non-compliance with SA 705, therefore, stand proven.
Wrong Accounting of Deferred Tax Assets - HELD THAT:- It is noted that there is no documentation of evaluation of misstatement identified during the audit as required under SA 450. It is important to note that SA 450 requires the auditor to accumulate misstatements identified during the audit, determine whether overall audit strategy and audit plan needs revision, communicate all misstatements accumulated to the appropriate level of management, evaluate the effect of uncorrected misstatements after reassessing materiality in the context of entity's actual financial result and determine whether uncorrected misstatements are material individually or in the aggregate taking into account the financial statements as a whole and also communicate the same to TCWG. However, none of these steps were performed by the EP - In the absence of such an evaluation in the Audit File, there is no evidence of how the EP assured himself of "reasonable assurance". Hence the arguments regarding DT A not being material and being 2% of total balance sheet are afterthoughts and the charges regarding non-reporting the wrong accounting of DTA stand proven.
Non-disclosure of Cost Formula for the Measurement of Inventories - HELD THAT:- The replies of the EP are not acceptable as disclosure of cost formula for inventory is a mandatory requirement under the AS 2 and the financial statements of the company do not indicate the same. Use of specific cost for measurement is also a type of cost formula and should have been included in the Accounting Policies of the company. Use of different formulae permitted under para 14-1 7 of AS 2 can have material impact on the carrying amount of inventories in the Balance Sheet & cost of sales in the Profit or Loss. Therefore, disclosure of cost formula in the Financial Statements has relevance & significance to the users - As a diligent auditor, it was necessary for him to take up with the TCWG/Management to ensure that there is proper disclosure of accounting policy. In the absence of such action taken by the EP or any work paper in the Audit File pointing to same, the charge regarding not reporting the non-disclosure of cost formula for valuation of inventories in the financial statements stands proven.
Wrong amortization of Expenses - HELD THAT:- EP has admitted his mistake and was of the view that these were presentation errors and not material and sought pardon for the same - In light of the auditor's acceptance of his errors, it is clear that the provisions of AS 26 and AS 22 have not been adhered to and the charge regarding non-reporting of the wrong amortization of expenses stands proven.
Non-compliance with the format of Financial Statements - HELD THAT:- Section 129(1) of the Act very clearly states that the financial statements shall be in the format as may be provided for different class or classes of companies in Schedule III. Therefore, any deviation from the prescribed format is a non-compliance with the statutory provisions and therefore the auditor's submission in this regard is unacceptable as it is auditors' responsibility to report such non-compliances with the prescribed format.
Non-compliance with requirements of SA 230 regarding Audit Documentation - HELD THAT:- As per para A21 of SA 230, Audit Documentation, the Audit File needs to be compiled within a period of 60 days from the date of signing of the Audit Report, not six months as mentioned by EP. This time period of sixty days is given in the Standards on Auditing taking into consideration the constraints faced by the chartered accountants. As the auditor has stated that the documents were scattered in various files and have been compiled only for the submission of Audit File to NFRA, it is evident that the Audit File had not been compiled by the Auditor even after 5 years of signing of Audit Report. The charges against the EP are, therefore, proved.
Non-compliance Regarding Agreement on Terms of Audit Engagements - HELD THAT:- The contention of the EP is not acceptable as in case of recurring audits, Para 12 of SA 220 requires an assessment from the auditor of whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms. There is no document evidencing such an assessment and there is no such procedure documented in the Audit File. Moreover, there was no audit engagement letter (as prescribed by SA 210) in the Audit File. Hence the charges against EP stand proven.
Non-compliance Regarding Appointment of Engagement Quality Control Reviewer - HELD THAT:- The EP was charged for not complying with para 19(a) of SA 220 and para 60 of SQC-1 as there was no evidence that he had determined that Engagement Quality Control Reviewer (EQCR, hereafter) had been appointed, which is required for audits of listed entities - there are no other persons accountable for this assignment. Therefore, there was no requirement for the appointment of any other person on quality control.
Non-compliance Regarding Communication with TCWG - HELD THAT:- The EP was charged for not complying with para 7, 10, 11, 12, 13 & 19 of SA 260 & SA 265 as he did not determine TCWG and did not communicate with TCWG about the responsibilities of auditor, overview of planned scope and timing of the audit etc. and did not make required documentations. The Audit File did not have any documentation regarding communication with TCWG - The mistakes made in the audit were unintended and happened due to lack of knowledge of accounting standards and standards on auditing. He further added that he was a budding Chartered Accountant and had only four years of experience at the time of this audit. It was his first audit of a listed company and that he is not doing audits of any listed companies anymore. In addition, the EP showed his inclination for further studying the Accounting Standards and Standards on Auditing and the Act and submitted that the sanctions be imposed lightly lest they adversely impact his career.
Penalty and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which the Companies Act views cases of professional misconduct is evident from the fact that a minimum punishment is laid down by the law.
Considering the proven professional misconduct by CA Sachin Kansal, acceptance of mistakes by him, the nature of violations, size of the audit firm, and applying the principles of proportionality, following sanctions under Section 132( 4 )( c) of the Companies Act, 2013 have been ordered:
(i) Imposition of a monetary penalty of Rs 1,00,000 (Rupees One Lakh) upon CA Sachin Kansal.
(ii) CA Sachin Kansal is debarred for one year from being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (7) TMI 1245
Professional Misconduct - Lapses pertaining to Related Party Transactions - Conversion of Loan into Capital Advance to Merino Shelters Pvt. Ltd. (MSPL) - Failure to report full particulars of loan to a Related Party - Failure to report non-disclosure of Related Party Loans on gross basis - Failure to report non-disclosure of material transactions - Issues related to Credit Risk Exposures (Trade Receivables) - errors in Presentation and Disclosures - Ageing Analysis of Trade Receivables - Inadequacy of disclosures regarding credit risk exposure of trade receivables required under Para 35M and 35N of Ind AS 107 - Failure to report non-consolidation of subsidiary - Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - Recognition and measurement of Expected Credit Loss Allowance - Audit of Internal Financial Control Over Financial Reporting(Clause (i) of sub- section 3 of Section 143 of the Companies Act, 2013 - Failure to plan the audit of Financial Statements - Failure to perform risk assesment procedures and response to such risks - Failure to design and implement auditors’ response to assessed risks - Failure to determine materiality - Failure to perform Analytical Procedures - Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud - Failure to Communicate with Those Charged with Governance (TCWG).
Findings on Articles of Charges of Professional Misconduct by the Auditors - HELD THAT:- It is concluded that the Auditors have committed professional misconduct as defined in Section 132 (4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949 (the CA Act), as amended from time to time, as detailed below:
i. The Auditors committed professional misconduct of failure to disclose a material fact known to them which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where they are concerned with that financial statement in a professional capacity".
ii. The Auditors committed professional misconduct of failure to report a material misstatement known to them to appear in a financial statement with which they are concerned in a professional capacity.
iii. The Auditors committed professional misconduct by not exercising due diligence and being grossly negligent in the conduct of their professional duties.
iv. The Auditors committed professional misconduct by failing to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion.
v. The Auditors committed professional misconduct by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances.
Findings on Additional Articles of Charges of Professional Misconduct by the Audit Firm - HELD THAT:- The Audit Firm has committed Professional Misconduct as defined in Section 132(4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949, as amended from time to time, as failure to exercise due diligence and being grossly negligent and by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances, in the conduct of professional duties in respect of matters as explained in Section E above and thus violated SQC I.
Penalty and Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - Independent Auditors of Public Listed Companies serve a critical public function of enabling the users of Audited Financial Statements to take informed decisions.
The Auditors in the present case were required to ensure compliance with SAs to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this Order, substantial deficiencies in the audit, abdication of responsibility and inappropriate conclusions on the part of CA Devang Dalal establish his professional misconduct. Despite being a qualified professional, CA Devang Dalal has not adhered to the Standards and has thus not discharged the duty cast upon him. On the contrary, he has tried to cover up by giving unsubstantiated and unconvincing replies to the SCN - The Firm, M/s. M H Dalal & Associates has also failed to exercise appropriate control and monitoring of the work of the EP and the Engagement Team during the audit engagement and has abdicated its responsibility to ensure audit quality as per Professional Standards. Under the circumstances, we proceed to order the following sanctions keeping in mind the deterrence, proportionality, and the signalling value of sanctions.
Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, order:
i. Imposition of a monetary penalty of Rs.10,00,000/- (Rupees Ten Lakhs) upon CA Devang Dalal who is also debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of Financial Statements or internal audit of the functions and activities of any company or body corporate.
ii. Imposition of a monetary penalty of Rs.50,00,000/- (Rupees Fifty Lakhs) upon M/s. M H Dalal & Associates.
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2023 (7) TMI 1244
Professional Misconduct - Failure in understanding the nature of business of MACEL resulting in lapses in audit relating to fraudulent diversion of funds - Lapses in audit relating to accounting of related party borrowings and bank borrowings resulting in misstatements by Rs 2,363.34 crore due to fraud - Lapses in audit relating to misstatement of Rs 909.99 crores in Cash Flow Statement - Lapses in evaluation of corporate guarantee and creation of charge on the assets of the company (Rs 130 crores) - Lapses in making audit conclusions and forming audit opinion - other non-compliances.
HELD THAT:- The Audit Firm was charged with various omissions and commissions observed in the audit, as discussed in the preceding paragraphs, for its role as the statutory auditor appointed under section 139 of the Act.
The Audit Firm was also charged with failure to comply with para 2 of SA 220 and para 3 of SQC 1, which stipulate that Quality Control Systems, Policies and Procedures are the responsibility of the Audit Firm. The Audit Firm was also charged with failure to establish and maintain a system of quality control to provide it with reasonable assurance that:
a) The firm and its personnel comply with professional standards and regulatory and legal requirements; and
b) The reports issued by the firm or engagement partners are appropriate in the circumstances.
On examining pointwise reply it is found that all charges are proved except the charge relating to constitution of the Audit Committee. Therefore, CA Lavitha Shetty, Proprietor of the Audit Firm is also responsible for non-compliance with provisions relating to Quality Control Systems, Policies and Procedures of SA 220 and SQC 1.
Articles of Charges of Professional Misconduct by the Statutory Auditor - HELD THAT:- The Auditor has made a series of serious departures from the Standards and the Law, in conduct of the audit of MACEL for FY 2018-19 - it is proved that the Auditor had issued unmodified audit opinion on the Financial Statements without reporting diversion of funds, evergreening of loans and committed other serious lapses during performance of audit. Based on the discussion and analysis, it is concluded that the Auditor has committed Professional Misconduct as defined in Section 132 (4) of the Companies Act, read with section 22 the Chartered Accountants Act 1949 (the CA act), as amended from time to time.
Penalty and sanctions - HELD THAT:- Section 132( 4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - The Auditor was required to ensure compliance with Standards on Auditing, Laws and Regulations to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the Auditors establish her professional misconduct and lack of due diligence. Despite being a qualified professional, the Auditor has not adhered to the Standards and have thus not discharged the duty cast upon her.
Considering the proved professional misconduct, the nature of violations and principles of proportionality, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered that “Imposition of a monetary penalty of Rs Five Lakhs only upon CA Lavitha Shetty. In addition, CA Lavitha Shetty is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate”.
Application disposed off.
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2023 (7) TMI 1243
Violation of principles of natural justice - evidence produced by the Corporate Debtor showing that claims by Operational Creditor were bogus on the basis of 12 fake invoices, were not considered suitably by the Adjudicating Authority - existence of operational debt over Rs. 1 Crore existed between the Corporate Debtor and the Respondent No. 1 or not - HELD THAT:- It is noted from the averments that there has been no pre-existing dispute between the parties and the Corporate Debtor did not raise any dispute before the demand notice was issued. Even during pleading before this Appellate Tribunal, no pre-existing dispute on any ground has been brought out by the Corporate Debtor.
It is the case of the Corporate Debtor that 12 invoices which have been claimed by the Respondent No. 1 are not genuine and have been fabricated by the Respondent No. 1 to get more money out of the Corporate Debtor. From this, only point emerges is regarding existence of 12 invoices and not regarding any other point including supply or quality of the material/ pre-existing disputes.
The Corporate Debtor has also taken the plea that the Respondent No. 1 has not furnished documents to prove his claims like weight scale receipt of Dharamkata. On this account the Respondent No. 1 has submitted that he was never required to submit the Dharamkata receipt as it was choice on part of the Corporate Debtor as buyer of the goods to get the products weighted at its end, if so required, and to communicate discrepancy, if any, the Respondent No. 1. The Respondent No. 1 further clarified that even for the invoices admitted by the Corporate Debtor, no Dharamkata receipts have been produced, by the Corporate Debtor as such the plea of the Corporate Debtor about non-submission of documents is prima-facie not convincing.
The Corporate Debtor has admitted that there was no formal written contract agreement for supply of material by the Respondent No. 1 and similarly no formal purchase order was issued by him. The Corporate Debtor also admitted that on the representative of the Corporate Debtor used to ask the Respondent No. 1 to supply goods on oral instructions and subsequently payment would be claimed by the Respondent No. 1 based on invoices issued by him to the Corporate Debtor. Hence, there cannot be any dispute regarding payment being made on the basis of invoices issued by the supplier of the material, here in case, by the Respondent No. 1 - On consideration of various invoices which have been relied upon by the Respondent No. 1 had been attached with the application filed before the Adjudicating Authority under Section 7 of the Code. On this account, it may also be pertinent to note that these invoices have stated to been reported in the GST returns and necessary ITC have also been claimed. It is the case of the Corporate Debtor that CGST Department had enquired into alleged fake purchases by the Corporate Debtor based on the alleged fake documents/ invoices issued by alleged non-existent Respondent No. 1.
The Corporate Debtor has admitted that he was undergoing financial stress and there have been delays in making payments as well as in default at relevant period. In fact, the Corporate Debtor indeed tried to settle the matter by making payments as already discussed earlier, however, the Corporate Debtor failed to settle the matter - there are not in position to accept the plea of the Corporate Debtor regarding alleged fraudulent invoices claimed by the Respondent No. 1 or over payment made by the Corporate Debtor to the Respondent No. 1.
There are no error in the challenged Impugned Order - The Appeal being devoid of any merit(s) is dismissed.
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2023 (7) TMI 1242
Maintainability of application u/s 7 of IBC - initiation of CIRP - legitimate loan transactions between the Appellant and the Corporate Debtor or not - disbursement to the Corporate Debtor against the consideration for the time value of money or not - HELD THAT:- It is pertinent to note that Section 7(1) clearly spells out that a Section 7 application can only be initiated only by a Financial Creditor either by itself or jointly. A perusal of the definition of expression ‘Financial Creditor’ would show that it refers to a person to whom a financial debt is owed and includes even a person to whom such debt has been legally assigned or transferred to. The trigger for initiation of the corporate insolvency resolution process by such a Financial Creditor under Section 7 of IBC is the occurrence of a default by the Corporate Debtor above a prescribed threshold limit. Default in the IBC framework means the incidence of non-payment of debt in whole or in part when the debt has become due and payable, in law and in fact. Debt means a liability or obligation in respect of a claim which is due from any person and claim means a right to payment even if it is disputed.
From a bare reading of Section 7 of IBC, it is amply clear that insolvency process under IBC can be triggered only by a Financial Creditor either singularly or jointly. The primary and fundamental basis for a creditor to be treated as a financial creditor for the purpose of Section 7 in Part II of the IBC requires that a financial debt is owed to that person in terms of Section 5(7) of IBC. Such a financial debt could cover any of the transactions outlined in Section 5(8) (a) to (i) of the IBC. That being so, the basic requirement of existence of financial debt being owed by the Corporate Debtor to the Financial Creditor has to be first satisfied and cannot be overlooked.
Whether the Appellant had made any disbursement to the Corporate Debtor against the consideration for the time value of money? - HELD THAT:- In the present facts of the case, it is an undisputed fact that the Corporate Debtor has neither admitted to owing a financial debt to the Appellant nor has the Appellant been able to successfully substantiate that he directly disbursed any sum of money against the consideration for time value of money to the Corporate Debtor - the Appellant has clearly failed to adduce evidence to prove the existence of financial debt qua the Corporate Debtor. In the absence of financial debt qua the Corporate Debtor, the Appellant cannot be said to be a financial creditor under Section 5(7) of IBC.
There are no hesitation in holding that the Appellant does not meet the specific and distinct connotations required to be treated as a Financial Creditor qua the Corporate Debtor. Since the Appellant is not a Financial Creditor of the Corporate Debtor and the transactions in question are not in the nature of financial debt owed by the Corporate Debtor, there is no error in the judgment of the Adjudicating Authority that no case has been made out against the Corporate Debtor for initiation of CIRP.
Thus, it is a settled proposition of law that a company is a legal personality entirely distinct from its directors. Once a company is incorporated, it becomes an ‘artificial person’ and must be treated separately from its members. In the present factual matrix, the Respondent No.1-THPL is a ‘corporate person’ in terms of Section 3(7) of IBC and therefore enjoys a legal entity separate from that of BKT and NT. From the juristic point of view, therefore, the rights, duties and liabilities of THPL are distinctive from those enjoyed, exercised or discharged by directors in their personal capacity. It is abundantly clear that the Appellant has not entered into any direct transactions with the Corporate Debtor at any stage - Given the fact that the Appellant has failed to establish that he had given any loan to the Corporate Debtor directly, it does not stand to reason for him to press for piercing the corporate veil to alleviate the burdens of his financial misadventure - the findings of the Adjudicating Authority are satisfying that the Section 7 application filed by the Appellant before it was not liable to be admitted.
The Adjudicating Authority did not commit any error in rejecting the Section 7 application filed by the Appellant. The impugned order does not warrant any interference - Appeal dismissed.
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2023 (7) TMI 1241
Money Laundering - Whether an Online Payment Gateway Service (OPGSP) could be said to be a Reporting Agency under the PMLA? - It is the case of the respondents that PayPal is a payment system operator and thus a reporting entity.
Money Laundering - Global Experiences - HELD THAT:- The FIU-IND essentially acts as the central nodal agency for receiving, processing and analysing information relating to suspicious financial transactions. It is thus tasked with the collection of information, analysis thereof and the consequential sharing of information with other national intelligence and law enforcement agencies. FIU-IND represents the coordinated mechanism adopted by nations aimed at strengthening the collection and sharing of financial intelligence by the creation of a national, regional and a global network to detect illicit financial flows and combat money laundering - The extent and reach of payment facilitation platforms and the exponential increase in transactions accomplished thereon is also evident from the disclosures made by FIU-IND in these proceedings. FIU-IND had, with the aid of data disclosed on the record of these proceedings drawn the attention of the Court to the increase in the value of transactions completed on the PayPal platform between 2020 to March 2022 and stated that the transactional value which stood at Rs. 9951 crores in 2020 had increased to Rs. 12327 crores in 2021 and as of March 2022 that figure stood at Rs. 3048 crores.
While the Court has taken note of the global trends and the multifaceted complexities which emerging technologies and tools have brought on in the fight against money laundering and terror financing, it has done so only to broadly note the scenario which prevails and which appears to have prompted FIU-IND to require the petitioner to comply with reporting obligations under the PMLA.
Central Theme of Payments and Settlements System Act 2007 (PSS Act) - HELD THAT:- The PSS Act essentially appears to regulate the functioning of Intermediaries and PAs’ who are directly engaged in handling funds and acting as a conduit between customers and e-commerce sites/merchants. This is also evident from the activities relating to settlement and netting which are spoken of in Section 23 of the Act, the opening of separate and independent import/export collection accounts by AD Category I Banks, the opening of NOSTRO accounts, all of which deal with the range of activities which are undertaken by Intermediaries and PAs’ while being directly engaged in the handling of funds received from customers.
The aforesaid conclusion is further fortified from Para 8 of the Guidelines which obligates non-bank PAs’ to maintain a separate escrow account to which all monies collected by them would be credited. The said escrow account is to be opened and maintained with a scheduled commercial bank. This is apart from the requirement of an additional escrow account being maintained with a different scheduled commercial bank at the discretion of the PA. Paras 8.4 and 8.5 also indicate that the aforenoted directions and guidelines principally regulate the activities of Intermediaries and PAs’ who directly receive funds from customers in their accounts before they are transmitted onwards to merchants or other beneficiaries.
The Court thus comes to the firm conclusion that the PSS Act is concerned with PAs’ and Intermediaries who are engaged in the direct handling of funds received from customers and the various aspects connected therewith including the settlement and netting of such funds. The PSS Act does not appear to control technology platforms, interfaces and facilitators, who though not directly concerned with the handling of funds, may yet constitute an intermediary in the movement of funds, though a “cog in the wheel” yet constituting a critical functional element in the remittance of funds.
Pari materia question - HELD THAT:- The Court also finds itself unable to accept the submission that the similarity of the definition clause in the two enactments would lead to PayPal being held to fall outside the ambit of Section 2(1)(rb) of the PMLA. The conclusions aforenoted, however, do not rest merely on the interpretation accorded on the provisions of the PSS Act, its discernible scheme, the regulatory regime embodied therein or the circulars and directions issued by the RBI noticed hereinabove. This since the Court is of the considered opinion that the answer to the principal question posited must necessarily be answered bearing in mind the objectives and the legislative policy underlying the PMLA and the various provisions incorporated therein. What the Court seeks to underline is that the meaning to be ascribed to the phrase “payment system” must necessarily be ascertained bearing in mind the theme and ethos of the PMLA as opposed to an answer that is beclouded by how that subject is treated under the PSS Act. Approaching the issue from any other angle would in fact fall foul of certain well accepted tenets of statutory interpretation as would be manifest from the discussion which follows in the latter parts of this decision.
Payment system under PMLA - HELD THAT:- The PMLA constructs various regulatory measures and safeguards to aid and assist the jurisdictional authorities in uncovering proceeds of crime. It must be remembered that the said enactment is not concerned merely with meting out punishment for commission of the crime created by Section 3 thereof. The various declarations, disclosures and reporting measures put in place by Sections 11A, 12, 12A, 12AA are all aimed towards discovery and prevention of fraudulent and suspicious transactions. Those provisions are concerned with collation of data, a centralized analysis thereof all of which would then enable the authorities to detect patterns of suspicious financial flows and assist in eradicating the scourge of money laundering. Of equal significance are the provisions comprised in Chapter IX which deals with reciprocal arrangements and gives teeth to the collaborative resolve of nations to tackle the complexities surrounding money laundering - The aforesaid discussion indubitably brings to the fore the regulatory aspects of the legislation and establishes that the PMLA goes far beyond being intended to be a mere penal statute. This aspect has also been noticed by the Supreme Court in VIJAY MADANLAL CHOUDHARY & ORS. VERSUS UNION OF INDIA & ORS. [2022 (7) TMI 1316 - SUPREME COURT]. It is these salutary objectives of the statute which must be borne in mind while seeking to unravel the intent and scope of its various provisions.
Undoubtedly, the technology on which the platform of PayPal rests enables the transfer of money between parties at different ends. The mere fact that the said platform also interacts with AD Category Banks or other PAs’ would not detract from the platform of PayPal being otherwise understood and recognised to be a system which enables payment and one which is concerned with money transfer operations. The Court deems it apposite to emphasise that bearing in mind the objectives underlying the promulgation of PMLA and the activity that it seeks to regulate and penalise, there appears to be no legal justification to interpret Section 2(1)(rb) to embrace only those entities which are directly engaged in the handling, retention or transfer of funds.
In terms of the Amending Act, clauses (ra) to (rc) came to be inserted in Section 2(1). If it was the intent of Parliament to accord an identical meaning upon the phrase “payment system” as already defined in the PSS Act, it could have conveniently adopted the tool of legislation by reference/incorporation. Notwithstanding such recourse being available, it appears to have consciously introduced Section 2(1)(rb) as well as the other amendments embodied in the 2009 Amending Act being aware of the distinct scheme and objective of the PMLA. This too leads the Court to come to the irresistible conclusion that the meaning of the term “payment system” as contained in the PSS Act was not intended by Parliament to be directly infused or blindly transposed in the PMLA.
Paypal's Global Compliances - HELD THAT:- The Court finds merit in the submission so addressed and is of the considered opinion that the question of whether PayPal is liable to be treated as a payment system operator must fundamentally be answered on a construction of Section 2(1)(rb) and (rc) of the PMLA alone and not by its conduct in other jurisdictions where the gamut of services provided by it range far wider than those that are ordinarily extended by an OPGSP. Ultimately the question of whether it is liable to be recognised as a payment system operator would have to be answered solely on the anvil of the statutory provisions embodied in the PMLA. This is precisely what the Court has attempted to focus upon and has hopefully achieved. Its ultimate conclusions, as would be evident from the body of this decision, have remained uninfluenced by the conduct of PayPal in foreign jurisdictions.
PAYPAL AND TPAPs’ - HELD THAT:- The National Payments Corporation of India is an organisation that owns and operates the Unified Payments Interface and is essentially charged with the authority of prescribing rules for and approving the participation of Customer Banks, PSPs, TPAPs and Prepaid Payment Instrument issuers in the UPI. More fundamentally in terms of the UPI structure, all details relating to the remitter as well as the beneficiary are captured end to end. In fact, in order to participate on that system both the remitter as well as the beneficiary have to be pre-enrolled. Appropriate particulars of individuals and entities are thus fully captured quite apart from the transactions themselves being conducted through banking channels.
Penalty unjustified - HELD THAT:- The Court finds merit in the challenge raised by PayPal in this regard for the following reasons. On first principles, the Court notes that undisputedly the levy of penalty is imbued with a quasi- criminal characteristic. It is this aspect which was highlighted by the Supreme Court in Hindustan Steel when it observed that penalty would be justified provided it is established that a party had failed to comply with legal obligations deliberately, in defiance of the law or be guilty of contumacious or dishonest conduct. The Supreme Court pertinently observed that penalty would not be leviable merely because it was lawful to do so. Hindustan Steel went further to hold that the imposition of penalty would also not be justified where a person is found to have proceeded on the bona fide belief that it was not covered by the provision or legally obliged to effect compliance.
It is manifest that the imposition of penalty is clearly unjustified in the facts of the present case. As the record would bear out, PayPal had consistently taken the position that it could not be held to be a payment system operator under the PMLA. The stand taken by the petitioner in this regard cannot possibly be said to be wholly specious or in wilful disobedience to abide by a legal obligation which was either apparent or free from doubt. The issue was further compounded by the affidavit filed by RBI in the Abhijit Mishra proceedings. PayPal can thus be justifiably said to have been proceeding under the bona fide belief that its operations did not fall within the ambit of the PMLA.
The Court also cannot lose sight of the fact that the stand of PayPal as evident from its communications with FIU-IND was essentially collaborative and a testament to its intent to arrive at a mutually acceptable solution. This is also manifest from its approach of both parties identifying a “mutually acceptable mechanism” and the suggestion of three models of information sharing forming part of their letter dated 20 December 2019.
It was, in the considered opinion of this Court, imperative for FIU-IND to have recorded reasons in justification of the levy of the maximum penalty provided under the statute. For all the aforesaid reasons, the Court finds itself unable to be sustain the imposition of penalty as embodied in the impugned order.
Deeming fiction argument - HELD THAT:- The Court also finds itself unable to sustain the impugned order insofar as it proceeds to observe that PayPal would be “deemed” to be a payment system operator. A deeming fiction must stand specifically engrafted in a statutory provision. A legal fiction would be available to be invoked only in a situation where the Legislature engrafts such a measure or frames the provision in language which justifies the existence of such a fiction being recognised to operate.
The Court holds that PayPal is liable to be viewed as a “payment system operator” and consequently obliged to comply with reporting entity obligations as placed under the PMLA. The imposition of penalty in terms of the impugned order dated 17 December 2020 is quashed.
The instant writ petition is partly allowed.
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2023 (7) TMI 1240
Rejection of SVLDRS application filed by the petitioner - it is alleged that the quantification of tax liability was not done before 30.06.2019 - HELD THAT:- As per Section 125(1)(e), though benefit of the scheme was to be given where there was a quantification on or before 30.06.2019 and in the perception of the department that quantification was not done before that relevant date appears to be misconceived. It is apparent from the letter dated 21.05.2019 of the petitioner that it was the case of the petitioner that during the course of verification of record, the petitioner had agreed to the points raised during the verification/scrutiny quantifying the amount. It was even admitted by the statement made on behalf of the assessee as is evident from the statement of 03.06.2020. Communications of the revenue authorities of 24.10.2019 as well as SVLDRS forms 1 and 2 indicate that there was no discrepancy in the figures of the outstanding amounts in the perception of the department and the ones that the petitioner had paid and informed accordingly to the department before 30.06.2019 i.e. on 21.05.2019. Apparently, therefore, the perception of the department that there was no “quantification” before 30.06.2019 is clearly misconceived.
Support can be drawn from the circular of the department itself dated 27.08.2019 wherein in para 10 (g) thereof a clarification was made that “quantified” would also include a written communication intimating duty demand or duty liability admitted by a person during inquiry. That admission in the facts of the case had come on 21.05.2019 for the dues already paid and admitted by the assessee which was not even disputed as has now come on record by virtue of an order being OIO passed on 20.06.2023 pursuant to the investigation proceedings wherein the figure of outstanding tax dues is quantified at the same figure as that in the communication dated 21.05.2019.
The amount in question stood quantified before the cut-off date in accordance with the circulars of the department and thus the action on the part of the department making the petitioner ineligible to file declaration under the scheme is required to be quashed and set aside - the impugned order set aside - respondents are directed to accept the declaration filed by the petitioner on 03.12.2019 as per SVLRDS-1 and close the issue including the OIO dated 28.06.2023 - petition allowed.
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2023 (7) TMI 1239
Principles of natural justice - SCN was not served upon the petitioner and without giving an opportunity of hearing, the Adjudicating Officer had passed the order and the copy of the order was not served to the petitioner - Levy of penalty u/s 78 of the Finance Act, 1994 - HELD THAT:- In the case of SARAL WIRE CRAFT PVT. LTD. VERSUS COMMISSIONER CUSTOMS, CENTRAL EXCISE AND SERVICE TAX & OTHERS [2015 (7) TMI 894 - SUPREME COURT], the Hon’ble Supreme Court held that an order must be tendered on the person concerned or his authorised agent, in other words, on no other person, to ensure efficaciousness.
In the case of M/s RU’s Marketing and Creative Unit [2018 (1) TMI 220 - MADRAS HIGH COURT], the Hon’ble Division Bench of Madras High Court held that it is clear that after the word “sending it by registered post with acknowledgement due” the words i.e. “or by speed post with proof of delivery” has been inserted. The aforesaid amendment itself would clearly shows that the amendment sought to be made is not only clarificatory in nature but also purely procedural for the purpose of communication of decisions/orders/summons to the parties.
It is the basic Principle of Law long settled that if the manner of doing a particular is prescribed under any statute, the must be done in that manner or not at all.
Section 27 of the General Clause Act will not come in aid to the respondent. The respondents failed to show any material that the impugned order dated March 6, 2018 was served upon the petitioner - respondents have already realised the amount from the petitioner and the same is lying with the respondents, therefore, to safeguard the interest of revenue at this stage, it is not proper to direct the amount to be returned to the petitioner as this Court has not gone into the merit of the matter.
Matter remanded back to the Adjudicating Authority to decide the matter of fresh by allowing the petitioner to file reply to show cause and after giving an opportunity of hearing to the petitioner, the Adjudicating Authority shall dispose of the said matter within a period of eight weeks from the date of receipt of this order - petition allowed by way of remand.
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2023 (7) TMI 1238
Interpretation of statute - broadcasting services - STGU services - essence of services under the category of broadcasting and STGU, both under the un-amended definition of taxable service (effective up to 30.06.2012) and service under Negative List regime (w.e.f. 01.07.2012).
HELD THAT:- For the period pre-2012, Supply of Tangible Goods for Use (STGU) are covered as a taxable service, under Section 65 (105) (zzzzj) of the Finance Act, 1994. Such taxable service has been defined to mean, the service provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances. Similarly, the phrase ‘broadcasting’ has also been defined in sub-section (15) read with clause 105 (zk) of Section 65 of the Act of 1994 - in providing DTH television channels for viewing by the subscribers, the appellants are providing transmission of signals, sounds, images, pictures etc. of various channels such as, pay channels, free to air channels or other bouquet of channels direct to the subscribers. This is definitely covered under the category (i) and/or (iii) of the broadcasting services explained above. However, it is found that the provision of STBs is outside the scope and ambit of any of the above said three groups, in order to fall within the ambit of ‘broadcasting service’.
It is not the case of Revenue that the appellants had retained the effective control over the STBs supplied to their buyers. Since, the effective control of the STB was with the buyer/subscriber to operate and to view the channels to his own choice, the transaction between the appellants and the buyer/subscriber cannot fall within the ambit of STGU for levy of service tax and would be considered as a deemed sale, attracting payment of VAT - CBEC in the circular dated 29.02.2008, has also accepted the legal provision and clarified that if VAT has been paid on a transaction, there is no question of levy of service tax under the STGU services.
What is nature of activity undertaken by the appellants in supply/provision of Set top Boxes (STBs) to their customers/ subscribers? - HELD THAT:- It is found from the plain reading of the above statutory provisions that every DTH operator is required to provide STBs to their subscribers in order to provide DTH service, inasmuch as STB is a necessary equipment to receive the DTH signals sent in encrypted form, to be received through the dish antenna, and which can be decoded and displayed on the television of the subscriber. From the above, we thus come to the conclusion that STB is a part of Customer Premises Equipment which is necessary for providing DTH service to a subscriber. It may be seen that STB is used as an equipment, being part of CPE, and that whenever the television channels are viewed by a subscriber, the said STB along with antenna are used for receiving and decoding the signals as a part of conditional access system.
The broadcasting of signals by the appellants for viewing television channels are distinct by themselves from the STBs and other equipment. Thus, it is concluded that the nature of activity undertaken by the DTH operator in providing STB to a subscriber, is provision of an equipment, which is one-time activity, and it is not a part of DTH service in providing television channels for viewing by the subscriber.
Whether provision of STBs by the appellants to the subscribers would amount to rendition of service? - HELD THAT:- On reading of Regulation 10 of the DTH Regulations, it would transpire that a subscriber may or may not pay for his subscription charges. However, as a provider of DTH service, the appellants herein are entitled, even when no broadcasting signals go to the subscriber, to collect lease rental amounts for such period when the STBs remain with the subscriber. Hence, it can be concluded that the subscriber had control over the STBs during the time when he pays for the lease rental for the same and he can exercise the right of control by viewing free to air channels like Doordarshan etc., even if does not able to view the other channels for non-payment of requisite charges - there are no hesitation, but to conclude that supply of STBs by the appellants is not a service, rather it is a deemed sale, leviable to VAT under the State legislature, inasmuch as the right to use of STB has not been retained by the appellants and the same was transferred to the subscriber for viewing the channels etc. according to his own choice and will.
Whether the charges collected by the appellants for STBs are amenable for levy of service tax under any other taxable category? - HELD THAT:- From the records of the case, it is seen that the charges collected by the appellants in respect of providing STBs are on rental basis. The learned Advocate for the appellants argues that they are rightly paid the VAT on supply of STBs considering it as deemed sale - supply of STB on rental basis is a deemed sale in terms of Article 366(29A) of the Constitution, and thus, such transactions per se are not amenable to charge of service tax, for the reason that the right to use the STBs has not been retained by the appellants and same has been provided or transferred to the subscribers for viewing the broadcast channels according to their choice.
The supply of STBs cannot be categorized as a taxable service under the definition of ‘broadcasting’. Even considering the same as a taxable service under the category of STGU, the same cannot meet the requirement of levy of service tax in the case of the appellants inasmuch as the right to use the STBs were transferred by the appellants to the subscribers. In other words, if the right to use and control of the STBs retained by the appellants, the same would fall under the purview of STGU for levy and payment of service tax under that category of service. These aspects have been adequately dealt with in the Circulars and Educational Guide issued by CBEC. Such guidelines were issued by the Board by considering the Budget Speech delivered by the Finance Minister in the floor of the Parliament, which is to the effect that right to use the goods, would be subjected to levy of service tax, in cases where VAT is not payable on such goods.
The appellants have assailed the impugned order on the ground that the present demand is a duplication one, as the amount has already been considered in the other adjudication order dated 27.12.2016. Further, the appellants have also contended in the appeal that the amount received by them as lease rentals is on account of deemed sale and not service and accordingly, not chargeable to service tax. Since, the issue in both the impugned orders is identical, this order passed by the Bench will have equal force in respect of both the appeals filed by the appellants.
There are no merits in the impugned orders, in so far as the adjudged demands were confirmed on the appellants - appeal allowed.
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2023 (7) TMI 1237
Refund claim - Availment of excess credit - inputs supplied to 100% EOU by not following the formula prescribed under Rule 3(7)(a) of Cenvat Credit Rules, 2004 - allegation that appellant had not paid excise duty of Rs. 54,796/- on the removal of samples of medicines taken out for the purpose of testing/ chemical examination - whether the original adjudicating authority of the refund claim was required to issue a show cause notice before appropriation of the confirmed dues or not?
HELD THAT:- It is a matter on record that amount of duty and penalty which has been confirmed by the Additional Commissioner vide his order dated 07.01.2010 has already attained finality. The appeal filed by appellant against this order has already been rejected by the Commissioner (Appeals) - there are no order of this Tribunal on the confirmed dues as per the order of Additional Commissioner dated 07.01.2010. It is a matter on record that Assistant Commissioner processed the refund claim of the appellant and thereafter the entire amount which was deposited by them amounting to Rs. 7,49,664/- has been sanctioned and as per the provisions of Section 11 of Central Excise Act, 1944, the confirmed dues amounting to Rs. 5,89,662/- has been appropriated from the refund amount due to the appellant.
There are no legal short-coming in the order of the Adjudicating Authority. As there are no stay on the confirmed dues and as per the provisions of Central Excise Act, 1944, the officer sanctioning the refund is authorised to make deductions of any tax dues which are recoverable from the appellant.
In the case of COMMISSIONER OF CENTRAL EXCISE, INDORE VERSUS GAHOI FOODS PVT. LTD. [2004 (11) TMI 147 - CESTAT, NEW DELHI]), the Tribunal has held that the Deputy Commissioner was justified in adjusting the amount of refund against the pending demand.
The appeals are without any merit and deserve to be dismissed - appeal dismissed.
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2023 (7) TMI 1236
Reversal of CENVAT credit - New exemption from duty - Recovery of CENVAT credit with interest and penalty - case of the department is that while availing the exemption Notification No. 30/2004- CE dated 09.07.2004, the appellant was not entitled to utilize the cenvat credit lying unutilized after reversal - HELD THAT:- As per the clause (i) of Section 11 (3), assessee who opts for exemption is required to reverse the credit on input, input in process and input contained in the finished goods. As per the clause (ii) of Section 11 (3) if the assessee avail an absolute exemption notification in that case the remaining unutilized amount after reversal in terms of clause (i) shall stand lapse. As per the above provision, only in a case where the exemption which is opted for, if it is absolute exemption, the remaining amount of cenvat credit after reversal as per clause (i) shall lapse, whereas if the exemption is not absolute only requirement is to reverse the credit attributed to input as such, input in process and input contained in the finished goods lying on the date of opting of exemption notification.
In the present case since the Notification No. 30/2004-CE is undisputedly a conditional one therefore clause (ii) of the Rule 11 (3) is not applicable. Consequently the remaining amount of unutilized cenvat credit shall not lapse. In this case the appellant has utilized an amount of Rs. 4,42,539/- out of unutilized cenvat credit which is not barred under any of the provision.
In the case of SYNFAB SALES AND INDUSTRIES LTD VERSUS C.C.E & S.T. -SILVASA [2022 (1) TMI 259 - CESTAT AHMEDABAD], this Tribunal dealing with the absolutely identical issue held that The issue has been considered by the tribunal time and again and after interpreting Rule 11(3) (i) and (ii) came to conclusion that in case of conditional notification the assessee is not required to lapse the remaining credit after reversal on input as such, input in process and input contained in finished goods.
The issue is no longer res-integra. Accordingly, the impugned order is set aside - Appeal allowed.
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2023 (7) TMI 1235
Refund of accumulated Cenvat Credit - whether inputs procured under DEEC/ Advance License Scheme has not suffered any duty and hence, availment of refund for export under such scheme would tantamount to double benefit to the appellant? - HELD THAT:- The manufacturer of excisable goods is entitled for grant of refund of accumulated Cenvat Credit availed on the inputs, subject to fulfillment of the condition that the finished goods have been exported. In the present case, since the Department has not specifically alleged that the appellant had not exported the finished goods, denial of benefit of refund on the ground that the inputs procured under the DEEC/Advance License Authorization Scheme will not be sustained, inasmuch as the statute does not debar such availment of benefit by the exporter.
In an identical case, this Tribunal in the case of COMMISSIONER OF C. EX., JAIPUR-II VERSUS BHILWARA SPINNERS LTD. [2011 (2) TMI 584 - CESTAT, NEW DELHI] has dealt with the situation and allowed the refund benefit in favour of the assessee.
There are no merits in the impugned order, insofar as it has denied the refund benefit to the appellant. Therefore, by setting aside impugned order, the appeal is allowed in favour of the appellant with consequent benefit of refund, if any, as per law.
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2023 (7) TMI 1234
Goods - Levy of Service Tax or Sales tax - activity of developing and supply of customised software to its clients - Levy of penalty - wilful suppression of facts or not - HELD THAT:- Even a customised software will satisfy the definition of 'goods' for, it is evident that it has the attributes having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. Once the said attributes are seen satisfied in the software in question, then whether the software is treated as customised or non-customised, it would nevertheless be categorised as 'goods' for the purposes of levy of tax - The said view of the Supreme Court has since been followed in later decisions including a recent decision of the Supreme Court in COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED [2022 (8) TMI 283 - SUPREME COURT].
Merely because the software developed by the respondent/assessee in the instant case was customised for a particular user and was not sold to other users, the charges collected from the customer cannot escape the levy of sales tax under the KGST Act. This is more so because the mere fact that it was customised for a particular user did not lead to the software ceasing to be goods for the purposes of levy of sales tax.
Issue in favour of the assessee and against the Revenue.
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2023 (7) TMI 1233
Validity of Best Judgement Assessment - fixation of rate of Gross Profit - 70% or 80% of cost of goods sold (COGS) - invocation of provisions under Section 41(1) of the Kerala General Sales Tax Act, 1963 - HELD THAT:- In the instant case, the Appellate Tribunal found that the assessee was given the opportunity, both at the time of issuance of notice for the production of the books of accounts as well as at the time of issuance of proposal notice, to produce the books of accounts. However, the assessee did not avail of those opportunities. The Appellate Tribunal noticed that no audited statements in Form 50A and 50B were produced before the first appellate authority and no such audited statements were produced before the Tribunal as well. After considering the rival contentions, the Appellate Tribunal, by the order dated 03.11.2022, dismissed the appeals filed by the assessee.
In the instant case, in Annexure-A assessment orders for the year 2017-18 and 2018-19, the assessing authority fixed gross profit at the rate of 80%, to complete the assessment for those years on the basis of ‘best judgment assessment’. In Annexure-C orders for the year 2017-18 and 2018-19, the first appellate authority modified Annexure-A assessment orders by adopting a gross profit of 70% of the cost of the goods sold for those assessment years, considering the fact that the assessee is conducting business at a distance of 8 kilometres from the town. It is an admitted fact that, for the years 2015-16 and 2016-17, the assessing authority adopted a gross profit of 65% of the cost of the goods sold, while completing the assessment of the assessee for those years on the basis of ‘best judgment assessment’, in the assessment orders dated 11.03.2020 and 16.03.2020.
In best judgment assessment there is always a certain degree of guesswork and it is the assessee himself who is to blame, as he did not submit proper accounts. In the facts and circumstances of the case on hand, it cannot be said that the estimation of gross profit by the assessing authority at 70% of the cost of the goods sold for those assessment years is not bona fide or without a rational basis.
There are no reason to interfere with the orders of the authorities below, which are impugned in these S.T. Revisions - Revision dismissed.
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2023 (7) TMI 1232
Dishonour of Cheque - insufficiency of funds - acquittal of the accused - discharge of liability or not - Burden of rebuttal of presumption - Section 138 of the Negotiable Instruments Act.
Burden of rebuttal of presumption - HELD THAT:- The presumption mandated by Section 139, does indeed include the existence of a legally enforceable debt or liability. Bare denial of the passing of the consideration and existence of debt, is not enough to rebut the presumption. To rebut the statutory presumptions an accused is not expected to prove his defence beyond reasonable doubt as is expected of the complaint in a criminal trial - Apart from adducing direct evidence to prove that the consideration did not exist, or that he had not incurred any debt or liability, the accused may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant.
In the present case, the accused persons could not/did not discharge their liability under Section 139 of the N.I Act.
The complainant has proved the issuance of the cheque by the accused firm by a partner. No evidence otherwise has been adduced. The dishonour of the cheque and the due service of notice has also been duly proved. Thus, the findings of the trial court being not in accordance with the evidence on record and with law is liable to be set aside. The cheque is of the year 2002. More than 20 years have passed. The complainant has proved his case against the accuseds/respondents by way of oral evidence and documents.
The accuseds/respondents no. 1 to 3 are found guilty and convicted of offence punishable under Section 138 of the N.I. Act and sentenced to pay compensation of Rs.50 lakhs within one month from the date of this order, in default to suffer simple imprisonment for a period of one year in respect of respondents/accuseds no.2 and 3 and attachment in respect of the respondent/accused no.1 firm.
Appeal disposed off.
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