Month: September 2019

E-assessment Scheme, 2019 | CBDT Notification

MASTI

In its bid to curb corruption by making tax filing and their review faceless, the government has come out with e-assessment scheme, 2019 making it mandatory for all communication between tax department and taxpayers to be done online.

Now, tax notices will be issued by a centralised e-assessment centre requiring taxpayers to reply only through digital mode. Through mobile app, real-time alerts would be sent to assessees updating about progress in the case.

The tax department has, however, reserved the right to allocate an assessment case to a tax officer where complexity is involved.

Moving to digital from the decades-old system of manual scrutiny, the tax department would use data analytics, artificial intelligence, machine learning and other latest tools to ascertain misreporting or evasion. The move is in line with the government’s promise to eliminate human interface in tax matters.

Finance Act 2018 had introduced three new sub Sections – 3A to 3C to Section 143 with a view to notify a new e-assessment scheme, where the assessment proceedings will be conducted in electronic mode, which will almost eliminate person-to-person contact to the extent it is technologically feasible.

Rakesh Nangia, Managing Partner, Nangia Advisors (Andersen Global) said that the idea of e-assessments, is in principle, an outstanding one but the administrative systems and procedures need to be developed to ensure that it does not result in uncalled-for injustice to the taxpayers.

“The use of artificial intelligence, machine learning, video conferencing, telecommunication application software, mobile app etc. in the e-assessment process are few measures which emerged economies have already adopted long back. However, the digital capabilities may pose significant implementation challenges in India,” Nangia said.

The Central Board of Direct Taxes (CBDT), the policy-making body of the Income Tax Department had been running e-assessment as a pilot project in few major cities before expanding it pan-India. The initiative was launched to reduce visits by taxpayers to income tax offices and their interface with the taxmen, thereby bringing anonymity in proceedings.

Laying down the assessment procedure, the scheme says that National e-Assessment Centre shall serve a notice on the assessee under sub-section (2) of section 143, specifying the issues for selection of his case for assessment. The assessee would be given 15 days time from the date of receipt of the notice to file their response.

“The National e-assessment Centre shall assign the case selected for the purposes of e-assessment under this scheme to a specific assessment unit in any one regional e-assessment centre through an automated allocation system,” the scheme said.

All communications between the National e-assessment Centre and the assessee will be exchanged exclusively by electronic mode. The internal communication within the department will also be online.

DOWNLOAD: Download CBDT Notification E-assessment Scheme, 2019

MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 12th September, 2019
(INCOME-TAX)
S.O. 3264(E).–In exercise of the powers conferred by sub-section (3A) of section 143 of the Income-tax Act,
1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:__
1. Short title and commencement.–– (1) This Scheme may be called the E-assessment Scheme, 2019.
(2) It shall come into force on the date of its publication in the Official Gazette.
2. Definitions .–– (1) In this Scheme, unless the context otherwise requires, ––
(i) “Act” means the Income-tax Act, 1961 (43 of 1961);
(ii) “addressee” shall have the same meaning as assigned to it in clause (b) of sub-section (1) of section 2 of
the Information Technology Act, 2000 (21 of 2000);
(iii) “assessment” means assessment of total income or loss of the assessee under sub-section (3) of section
143 of the Act;
(iv) “authorised representative” shall have the same meaning as assigned to it in sub-section (2) of section
288 of the Act;
(v) “automated allocation system” means an algorithm for randomised allocation of cases, by using suitable
technological tools, including artificial intelligence and machine learning, with a view to optimise the use
of resources;
10 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(ii)]
(vi) “automated examination tool” means an algorithm for standardised examination of draft orders, by using
suitable technological tools, including artificial intelligence and machine learning, with a view to reduce
the scope of discretion;
(vii) “Board” means Central Board of Direct Taxes constituted under the Central Board of Revenues Act,
1963 (54 of 1963);
(viii) “computer resource” shall have the same meaning as assigned to them in clause (k) of sub-section (1) of
section 2 of the Information Technology Act, 2000 (21 of 2000);
(ix) “computer system” shall have the same meaning as assigned to them in clause (l) of sub-section (1) of
section 2 of the Information Technology Act, 2000 (21 of 2000);
(x) “computer resource of assessee” shall include assessee’s registered account in designated portal of the
Income-tax Department, the Mobile App linked to the registered mobile number of the assessee, or the
email account of the assessee with his email service provider;
(xi) “digital signature” shall have the same meaning as assigned to it in clause (p) of sub-section (1) of
section 2 of the Information Technology Act, 2000 (21 of 2000);
(xii) “designated portal” means the web portal designated as such by the Principal Chief Commissioner or
Principal Director General, in charge of the National e-assessment Centre;
(xiii) “e-assessment” means the assessment proceedings conducted electronically in ‘e-Proceeding’ facility
through assessee’s registered account in designated portal;
(xiv) “electronic record” shall have the same meaning as assigned to it in clause (t) of sub-section (1) of section
2 of the Information Technology Act, 2000 (21 of 2000);
(xv) “electronic signature” shall have the same meaning as assigned to it in clause (ta) of sub-section (1) of
section 2 of the Information Technology Act, 2000 (21 of 2000);
(xvi) “email” or “electronic mail” and “electronic mail message” means a message or information created or
transmitted or received on a computer, computer system, computer resource or communication device
including attachments in text, image, audio, video and any other electronic record, which may be
transmitted with the message.;
(xvii) “hash function” and “hash result” shall have the same meaning as assigned to them in the Explanation to
sub-section (2) of section 3 of the Information Technology Act, 2000 (21 of 2000);
(xviii) “Mobile app” shall mean the application software of the Income-tax Department developed for mobile
devices which is downloaded and installed on the registered mobile number of the assessee;
(xix) “originator” shall have the same meaning as assigned to it in clause (za) of sub-section (1) of section 2 of
the Information Technology Act, 2000 (21 of 2000);
(xx) “real time alert” means any communication sent to the assessee, by way of Short Messaging Service on
his registered mobile number, or by way of update on his Mobile App, or by way of an email at his
registered email address, so as to alert him regarding delivery of an electronic communication;
(xxi) “registered account” of the assessee means the electronic filing account registered by the assessee in
designated portal;
(xxii) “registered e-mail address” means the e-mail address at which an electronic communication may be
delivered or transmitted to the addressee, including-
(a) the email address available in the electronic filing account of the addressee registered in
designated portal; or
(b) the e-mail address available in the last income-tax return furnished by the addressee; or
(c) the e-mail address available in the Permanent Account Number database relating to the
addressee; or
(d) in the case of addressee being an individual who possesses the Aadhaar number, the e-mail
address of addressee available in the database of Unique Identification Authority of India ;or
(e) in the case of addressee being a company, the e-mail address of the company as available on the
official website of Ministry of Corporate Affairs; or
(f) any e-mail address made available by the addressee to the income-tax authority or any person
authorised by such authority.
(xxiii) “registered mobile number” of the assessee means the mobile number of the assessee, or his authorised
representative, appearing in the user profile of the electronic filing account registered by the assessee in
designated portal;
(xxiv) “video telephony” means the technological solutions for the reception and transmission of audio-video
signals by users at different locations, for communication between people in real-time.
(2) Words and expressions used herein and not defined but defined in the Act shall have the meaning respectively
assigned to them in the Act.
3. Scope of the Scheme.–– The assessment under this Scheme shall be made in respect of such territorial area, or persons
or class of persons, or incomes or class of incomes, or cases or class of cases, as may be specified by the Board.
4. E-assessment Centres.– (1) For the purposes of this Scheme, the Board may set up-
(i) a National e-assessment Centre to facilitate the conduct of e-assessment proceedings in a centralised manner,
which shall be vested with the jurisdiction to make assessment in accordance with the provisions of this
Scheme;
(ii) Regional e-assessment Centres as it may deem necessary to facilitate the conduct of e-assessment
proceedings in the cadre controlling region of a Principal Chief Commissioner, which shall be vested with the
jurisdiction to make assessment in accordance with the provisions of this Scheme;
(iii) assessment units, as it may deem necessary to facilitate the conduct of e-assessment, to perform the function
of making assessment, which includes identification of points or issues material for the determination of any
liability (including refund) under the Act, seeking information or clarification on points or issues so identified,
analysis of the material furnished by the assessee or any other person, and such other functions as may be
required for the purposes of making assessment;
(iv) verification units, as it may deem necessary to facilitate the conduct of e-assessment, to perform the function
of verification, which includes enquiry, cross verification, examination of books of accounts, examination of
witnesses and recording of statements, and such other functions as may be required for the purposes of
verification.
(v) technical units, as it may deem necessary to facilitate the conduct of e-assessment, to perform the function of
providing technical assistance which includes any assistance or advice on legal, accounting, forensic,
information technology, valuation, transfer pricing, data analytics, management or any other technical matter
which may be required in a particular case or a class of cases, under this Scheme; and
(vi) review units, as it may deem necessary to facilitate the conduct of e-assessment, to perform the function of
review of the draft assessment order, which includes checking whether the relevant and material evidence has
been brought on record, whether the relevant points of fact and law have been duly incorporated in the draft
order, whether the issues on which addition or disallowance should be made have been discussed in the draft
order, whether the applicable judicial decisions have been considered and dealt with in the draft order,
checking for arithmetical correctness of modifications proposed, if any, and such other functions as may be
required for the purposes of review,
and specify their respective jurisdiction.
(2) All communication among the assessment unit, review unit, verification unit or technical unit or with the assesse or
any other person with respect to the information or documents or evidence or any other details, as may be necessary for
the purposes of making an assessment under this Scheme shall be through the National e-assessment Centre.
(3) The units referred to in sub-paragraphs (iii), (iv), (v) and (vi) of paragraph (1) shall have the following authorities,
namely:–
(a) Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, as the case may
be;
(b) Deputy Commissioner or Deputy Director or Assistant Commissioner or Assistant Director, or Income-tax
Officer, as the case may be;
(c) such other income-tax authority, ministerial staff, executive or consultant, as considered necessary by the
Board.
5. Procedure for assessment.––(1) The assessment under this Scheme shall be made as per the following procedure,
namely:__
(i) the National e-Assessment Centre shall serve a notice on the assessee under sub-section (2) of section 143,
specifying the issues for selection of his case for assessment;
(ii) the assessee may, within fifteen days from the date of receipt of notice referred to in sub-clause (i), file his
response to the National e-assessment Centre ;
(iii) the National e-assessment Centre shall assign the case selected for the purposes of e-assessment under this
Scheme to a specific assessment unit in any one Regional e-assessment Centre through an automated
allocation system;
(iv) where a case is assigned to the assessment unit, it may make a request to the National e-assessment Centre for
__
(a) obtaining such further information, documents or evidence from the assesse or any other person,
as it may specify;
(b) conducting of certain enquiry or verification by verification unit; and
(c) seeking technical assistance from the technical unit;
(v) where a request for obtaining further information, documents or evidence from the assessee or any other
person has been made by the assessment unit, the National e-assessment Centre shall issue appropriate
notice or requisition to the assessee or any other person for obtaining the information, documents or evidence
requisitioned by the assessment unit;
(vi) where a request for conducting of certain enquiry or verification by the verification unit has been made by the
assessment unit, the request shall be assigned by the National e-assessment Centre to a verification unit
through an automated allocation system;
(vii) where a request for seeking technical assistance from the technical unit has been made by the assessment unit,
the request shall be assigned by the National e-assessment Centre to a technical unit in any one Regional eassessment
Centres through an automated allocation system;
(viii) the assessment unit shall, after taking into account all the relevant material available on the record, make in
writing, a draft assessment order either accepting the returned income of the assessee or modifying the
returned income of the assesse, as the case may be, and send a copy of such order to the National eassessment
Centre;
(ix) the assessment unit shall, while making draft assessment order, provide details of the penalty proceedings to
be initiated therein, if any;
(x) the National e-assessment Centre shall examine the draft assessment order in accordance with the risk
management strategy specified by the Board, including by way of an automated examination tool, whereupon
it may decide to –
(a) finalise the assessment as per the draft assessment order and serve a copy of such order and notice
for initiating penalty proceedings, if any, to the assessee, alongwith the demand notice, specifying
the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment;
or
(b) provide an opportunity to the assessee, in case a modification is proposed, by serving a notice
calling upon him to show cause as to why the assessment should not be completed as per the draft
assessment order; or
(c) assign the draft assessment order to a review unit in any one Regional e-assessment Centre, through
an automated allocation system, for conducting review of such order;
(xi) the review unit shall conduct review of the draft assessment order, referred to it by the National e-assessment
Centre whereupon it may decide to__
(a) concur with the draft assessment order and intimate the National e-assessment Centre about such
concurrence; or
(b) suggest such modification, as it may deem fit, to the draft assessment order and send its
suggestions to the National e-assessment Centre;
(xii) the National e-assessment Centre shall, upon receiving concurrence of the review unit, follow the procedure
laid down in sub-paragraph (a) or sub-paragraph (b) of paragraph (x), as the case may be;
¹Hkkx IIμ[k.M 3(ii)º Hkkjr dk jkti=k % vlk/kj.k 13
(xiii) the National e-assessment Centre shall, upon receiving suggestions for modifications from the review unit,
communicate the same to the Assessment unit;
(xiv) the assessment unit shall, after considering the modifications suggested by the Review unit, send the final
draft assessment order to the National e-assessment Centre;
(xv) The National e-assessment Centre shall, upon receiving final draft assessment order, follow the procedure laid
down in sub-paragraph (a) or sub-paragraph (b) of paragraph (x),as the case may be;
(xvi) The assessee may, in a case where show-cause notice under sub-paragraph (b) of paragraph (x) has been
served upon him, furnish his response to the National e-assessment Centre on or before the date and time
specified in the notice;
(xvii) The National e-assessment Centre shall,-
(a) in a case where no response to the show-cause notice is received, finalise the assessment as per the
draft assessment order,as per the procedure laid down in sub-paragraph (a) of paragraph (x); or
(b) in any other case, send the response received from the assessee to the assessment unit;
(xviii) The assessment unit shall, after taking into account the response furnished by the assessee, make a revised
draft assessment order and send it to the National e-assessment Centre;
(xix) The National e-assessment Centre shall, upon receiving the revised draft assessment order,-
(a) in case no modification prejudicial to the interest of the assessee is proposed with reference to the draft
assessment order, finalise the assessment as per the procedure laid down in sub-paragraph (a) of
paragraph (x); or
(b) in case a modification prejudicial to the interest of the assessee is proposed with reference to the draft
assessment order,provide an opportunity to the assessee, as per the procedure laid down in subparagraph
(b) of paragraph (x);
(c) the response furnished by the assessee shall be dealt with as per the procedure laid down in paragraphs
(xvi),(xvii), and (xviii);
(xx) The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of
the case to the Assessing Officer having jurisdiction over such case., for –
(a) imposition of penalty;
(b) collection and recovery of demand;
(c) rectification of mistake;
(d) giving effect to appellate orders;
(e) submission of remand report, or any other report to be furnished, or any representation to be made, or
any record to be produced before the Commissioner (Appeals), Appellate Tribunal or Courts, as the
case may be;
(f) proposal seeking sanction for launch of prosecution and filing of complaint before the Court;
(xxi) Notwithstanding anything contained in paragraph (xx), the National e-assessment Centre may at any stage
of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction
over such case.
6. Penalty proceedings for non-compliance.– (1) Any unit may, in the course of assessment proceedings, for noncompliance
of any notice, direction or order issued under this Scheme on the part of the assessee or any other person,
send recommendation for initiation of any penalty proceedings under Chapter XXI of the Act, against such assesse or any
other person, as the case may be, to the National e-assessment Centre, if it considers necessary or expedient to do so.
(2) The National e-assessment Centre shall, on receipt of such recommendation, serve a notice on the assessee or any
other person, as the case may be, calling upon him to show cause as to why penalty should not be imposed on him under
the relevant provisions of the Act.
14 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(ii)]
(3) The response to show – cause notice furnished by the assessee or any other person, if any, shall be sent by the
National e-assessment Centre to the concerned unit which has made the recommendation for penalty.
(4) The said unit shall, after taking into consideration the response furnished by the assesse or any other person, as the
case may be, –
(a) make a draft order of penalty and send a copy of such draft to National e-assessment Centre; or
(b) drop the penalty after recording reasons, under intimation to the National e-assessment Centre.
(5) The National e-assessment Centre shall levy the penalty as per the said draft order of penalty and serve a copy of the
same on the assessee or any other person, as the case may be.
7. Appellate Proceedings.– An appeal against an assessment made by the National e-assessment Centre under this
Scheme shall lie before the Commissioner (Appeals) having jurisdiction over the jurisdictional Assessing Officer and any
reference to the Commissioner (Appeals) in any communication from the National e-assessment Centre shall mean such
jurisdictional Commissioner (Appeals).
8. Exchange of communication exclusively by electronic mode.–– For the purposes of this Scheme,-
(a) all communications between the National e-assessment Centre and the assessee, or his authorised
representative, shall be exchanged exclusively by electronic mode; and
(b) all internal communications between the National e-assessment Centre, Regional e-assessment Centres
and various units shall be exchanged exclusively by electronic mode.
9. Authentication of electronic record.–– For the purposes of this Scheme, an electronic record shall be authenticated
by the originator by affixing his digital signature in accordance with the provisions of sub-section (2) of section 3 of the
Information Technology Act, 2000 (21 of 2000):
Provided that in case of the originator, being the assesse or any other person, such authentication may also be done by
electronic signature or electronic authentication technique in accordance with the provisions of sub-section (2) of section
3A of the said Act:
10. Delivery of electronic record.––(1) Every notice or order or any other electronic communication under this Scheme
shall be delivered to the addressee, being the assessee, by way of-
(a) placing an authenticated copy thereof in the assessee’s registered account; or
(b) sending an authenticated copy thereof to the registered email address of the assessee or his authorised
representative; or
(c) uploading an authenticated copy on the assessee’s Mobile App; and
followed by a real time alert.
(2) Every notice or order or any other electronic communication under this Scheme shall be delivered to the addressee,
being any other person, by sending an authenticated copy thereof to the registered email address of such person, followed
by a real time alert.
(3) The Assessee shall file his response to any notice or order or any other electronic communication, under this Scheme,
through his registered account, and once an acknowledgement is sent by the National e-assessment Centre containing the
hash result generated upon successful submission of response, the response shall be deemed to be authenticated.
(4) The time and place of dispatch and receipt of electronic record shall be determined in accordance with the provisions
of section 13 of the Information Technology Act, 2000 (21 of 2000).
11. No personal appearance in the Centres or Units.––(1) A person shall not be required to appear either personally or
through authorised representative in connection with any proceedings under this Scheme before the income-tax authority
at the National e-assessment Centre or Regional e-assessment Centre or any unit set up under this Scheme.
(2) In a case where a modification is proposed in the draft assessment order, and an opportunity is provided to the
assessee by serving a notice calling upon him to show-cause as to why the assessment should not be completed as per the
¹Hkkx IIμ[k.M 3(ii)º Hkkjr dk jkti=k % vlk/kj.k 15
such draft assessment order, the assessee or his authorised representative, as the case may be, shall be entitled to seek
personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit under
this Scheme, and such hearing shall be conducted exclusively through video conferencing, including use of any
telecommunication application software which supports video telephony, in accordance with the procedure laid down by
the Board.
(3) Any examination or recording of the statement of the assessee or any other person (other than statement recorded in
the course of survey under section 133A of the Act) shall be conducted by an income-tax authority in any unit under this
Scheme, exclusively through video conferencing, including use of any telecommunication application software which
supports video telephony in accordance with the procedure laid down by the Board.
(4) The Board shall establish suitable facilities for video conferencing including telecommunication application software
which supports video telephony at such locations as may be necessary, so as to ensure that the assessee, or his authorised
representative, or any other person referred to in sub-paragraph (2) or sub-paragraph (3) is not denied the benefit of this
Scheme merely on the consideration that such assessee or his authorised representative, or any other person does not
have access to video conferencing at his end.
12. Power to specify format, mode, procedure and processes.––(1) The Principal Chief Commissioner or the Principal
Director General, in charge of the National e-assessment Centre shall lay down the standards, procedures and processes
for effective functioning of the National e-assessment Centre , Regional e-assessment Centres and the unit set-up under
this Scheme, in an automated and mechanised environment, including format, mode, procedure and processes in respect
of the following, namely:__
(i) service of the notice, order or any other communication;
(ii) receipt of any information or documents from the person in response to the notice, order or any other
communication;
(iii) issue of acknowledgment of the response furnished by the person;
(iv) provision of “e-proceeding” facility including login account facility, tracking status of assessment,
display of relevant details, and facility of download;
(v) accessing, verification and authentication of information and response including documents submitted
during the assessment proceedings;
(vi) receipt, storage and retrieval of information or documents in a centralised manner;
(vii) general administration and grievance redressal mechanism in the respective Centres and units.
[Notification No. 61/2019/F.No. 370149/154/2019-TPL]
ANKUR GOYAL, Under Secy.

CBDT Circulars On Prosecution Of Offenses And Compounding Of Offenses Under Direct Tax Laws

MASTI

Circular No. 24 12019
F.No.2 85/08/2014-IT(Inv. V)/ 349
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
*******
Room No. 515, 5th Floor, C-B1ock,
Dr. Shyama Prasad Mukherjee Civic Cent re,
Minto Road, New Delhi – ll 0002.
Dated: 09.09.2019

Subject: Procedure for identification and processing of cases for prosecution under Direct Tax Laws-reg.

The Central Board of Direct Taxes has been issuing guidelines from time to time for streamlining the procedure of identifying and examining the cases for initiating prosecution for offences under Direct Tax Laws. With a view to achieve the objective behind enactment of Chapter XXII of the Income-tax Act, 1961 (the Act), and to remove any doubts on the intent to address serious cases effectively, this circular is issued.

2. Prosecution is a criminal proceeding. Therefore, based upon evidence gathered, offence and crime as de fined in the relevant provision of the Act, the offence has to be proved beyond reasonable doubt. To ensure that only deserving cases get prosecuted the Central Board of Direct Taxes in exercise of powers under section 119 of the Act lays down the following criteria for launching prosecution in respect of the following categories of offences.

i. Offences u/s 276B: Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.

Cases where non-payment of tax deducted at source is Rs. 25 Lakhs or below, and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution in normal circumstances. In case of exceptional cases like, habitual defaulters, based on particular facts and circumstances of each case, prosecution may be initiated only with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

ii. Offences u/s 276BB: Failure to pay the tax collected at source.

Same approach as in Para 2.i above.

iii . Offences u/s 276C(l): Wilful attempt to evade tax, etc.

Cases where the amount sought to be evaded or tax on under-reported income is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium oftwo CCIT/DG IT rank officers as mentioned in Para 3.

Further, prosecution under this section shall be launched only after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal.

iv. Offences u/s 276CC: Failure to furnish returns of income.

Cases where the amount of tax, which would have been evaded if the failure had not been discovered, is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

3. For the purposes of this Circular, the constitution of the Collegium of two CCIT/DGIT rank officers would mean the following-

As per section 279(1) of the Act, the sanctioning authority for offences under Chapter XXII is the Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. For proper examination of facts and circumstances of a case, and to ensure that only deserving cases below the threshold limit as prescribed in Annexure get selected for filing of prosecution complaint. such sanctioning authority shall seek the prior administrative approval of a collegium of two CCIT/DGIT rank officers, including the CCIT/DGIT in whose j urisdiction the case lies. The Principal CCIT(CCA) concerned may issue directions for pairing of CCslT/DGIT for this purpose. In case of disagreement between the two CCITIDGIT rank officers of the collegium, the matter will be referred to the Principal CClT(CCA) whose decision will be final.

In the event that the Pr.CCIT(CCA) is one of the two officers of the collegium, in case of a disagreement the decision of the Pr.CCIT(CCA) will be final.

4. The list of prosecutable offences under the Act specifying the approving authority is annexed herewith.

5. This Circular shall come into effect immediatel y and shall apply to all the pending cases where com plaint is yet to be filed.

6. Hind version shall follow.
Encl: As above
(Mamta Bansal)
Director to the Government of India

Circular No. 25/2019
F.No.285/0812014-IT(Inv. V) /350
Government of India
Ministry of Finance
Department of Revenue
(Cent ral Board of Direct Taxes)
*******
Room No. 515, 5th Floor, C-Block,
Dr. Shyama Prasad Mukherjee Civic Centre,
Minto Road, New Delhi -110002.
Dated: 09.09.20 19

Subject: Relaxation of time-Compounding of Offences under Direct Tax Laws-One-time measure-Reg.

The Central Board of Direct Taxes (CBDT) has been issuing guidelines from time to time for compounding of offences under the Direct Tax Laws, prescribing the eligibility conditions. One of the conditions for filing of Compounding application is that, it should be filed within 12 months from filing of complaint in the court.

2. Cases have been brought to the notice of CBDT where the taxpayer s could not apply for Compounding of the Offence, as the compounding application was filed beyond 12 months. in view of para 8(vii) of the Guidelines for Compounding of Offences under Direct Tax Laws. 2014 dated 23. 12.2014 or in view of para 7(ii) of the Guidelines for Compounding of Offences under Direct Tax Laws, 2019 dated 14.06.2019.

3. With a view to mitigate unintended hardship to taxpayers in deserving cases, and to reduce the pendency of existing prosecution cases before the courts, the CBDT in exercise of powers u/s 119 of the Income-tax Act, 1961 (the Act) read with explanation below subsection (3) of section 279 of the Act issues this Circular.

4.1 As a one-time measure, the condition that compounding application shall be filed within 12 months, is hereby relaxed, under the following conditions:

i) Such application shall be filed before the Competen t Authority i.e. the Pr. CCIT/CCITIPr. DGIT/DGIT concerned, on or before 31.12.2019.

ii) Relaxation shall not be available in respect of an offence which is generally/normally not compoundable , in view of Para 8.1 of the Guide lines dated 14.06.20 19.

4.2 Applications tiled before the Competent Authority, on or before 31.12.2019 shall be deemed to be in time in terms of Para 7(ii) of the Guidelines dated 14.06.2019.

4.3 It is clarified that Para 9.2 of the Guidelines dated 14.06. 2019, shall not apply to all such applications made under this one-time measure. The other prescriptions of the Guidelines dated 14.06.20 19 including the compounding procedure, compounding charges etc. shall apply to such applications.

5. For the purposes of this Circular, application can be filed in all such cases where a) prosecution proceedings are pending before any court of law for more than 12 months . or b) any compounding application for an offence filed previously was withdrawn by the applicant solely for the reason that such application was filed beyond 12 months, or

c) any compounding application for an offence had been rejected previous ly solely for technical reasons.

6. Hind version shall follow.
(Mamta Bansal)
Director to the Government of India

DOWNLOAD: Download CBDT Circular No. 24 12019 and Circular No. 25/2019 dated 9th September 2019

Declaration for GST transitional credit beyond the due date: Gujarat High Court Judgement

MASTI

In M/S SIDDHARTH ENTERPRISES THROUGH PARTNER MAHESH LILADHAR TIBDEWAL Versus THE NODAL OFFICER SPECIAL CIVIL APPLICATION NO. 5758 of 2019 the Gujarat High Court (HC) had to decide the issues of allowing filing of declaration for transitional credit beyond the due date and whether rule 117 of Central Goods and Services Tax Rules, 2017 providing the due date to claim transitional credit is procedural in nature, and thus merely directory and not a mandatory provision.

According to the petitioner, the intention of the Government was not to collect tax twice on the same goods and thus, credit of duty/tax paid earlier is admissible as transitional credit, even if declaration in Form GST TRAN-1 and TRAN-2 are not filed within the due date on account of technical difficulties.

The phrase “technical difficulties on the common portal” should be interpreted liberally.

Referring to various rulings, the Gujarat High Court heldthat:

• Section 140(3) of Central Goods and Services Tax Act, 2017 provides for a substantive right which cannot be curtailed or defeated on account of the procedural lapse.

• The entitlement of credit of the eligible duties is a vested right.

• Liability to pay GST on stock carried forward from previous regime without corresponding credit would lead to double taxation.

• Rule 117 is violative of Article 14, 19(1)(g) and 300A of the Constitution.

Thus, HC directed the respondents to allow petitioner to file declaration in Form GST TRAN-1 and TRAN-2 to enable them to claim transitional credit of eligible duties. HC held that rule 117 providing the due date for the purposes of claiming transitional credit is procedural in nature and thus, the same should not be construed as a mandatory provision.

DOWNLOAD: Download the judgement in In M/S SIDDHARTH ENTERPRISES THROUGH PARTNER MAHESH LILADHAR TIBDEWAL Versus THE NODAL OFFICER

Full text of the judgement of the Gujarat High Court that declaration for transitional credit beyond the due date is permissible

C/SCA/5758/2019 CAVJUDGMENT

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 5758 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 5759 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 5760 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 5762 of 2019

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/-
and
HONOURABLE MR.JUSTICE A.C. RAO Sd/-

1 Whether Reporters of Local Papers may be allowed YES to see the judgment ?

2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy NO of the judgment ?

4 Whether this case involves a substantial question NO of law as to the interpretation of the Constitution of India or any order made thereunder ?

M/S SIDDHARTH ENTERPRISES THROUGH PARTNER MAHESH LILADHAR TIBDEWAL Versus THE NODAL OFFICER =================== Appearance:

MR. VINAY SHRAFF WITH MR. VISHAL J. DAVE WITH MR. NIPUM SINGHVI for MR SOAHAM JOSHI, AGP for the Respondent(s)No. 2 NOTICE SERVED BY DS for the Respondent(s)No.1,3 =================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO C/SCA/5758/2019 CAVJUDGMENT Date: 06/09/2019 (PER: HONOURABLE MR.JUSTICE J.B.PARDIWALA)

1. Since the issues raised in all the captioned writ- applications are the same, those were heard analogously and are being disposed of by this common judgment and order.

2. RULE returnable forthwith in all the captioned writ- applications. Mr.Soaham Joshi, the learned AGP waives service of notice of rule for and on behalf of the respondents nos.1 and 2 respectively.

3. For the sake of convenience, the Special Civil Application No.5758 of 2019 is treated as the lead matter. By this writ- application under Article 226 of the Constitution of India, the writ-applicant, a partnership firm, has prayed for the following reliefs :

“(a) Your Lordships may be pleased to issue writ of mandamus and/or any other appropriate writ(s) to allow filing of declaration in form GST Tran-1 and GST Tran-2, to enable it to claim transitional credit of eligible duties in respect of inputs held in stock on the appointed day in terms of Section 140(3) of the Central Goods and Services Tax Act, 2017;
(b) Your Lordships may be pleased to issue writ of declaration and/or any other appropriate writ(s) for declaration of the due date contemplated under Rule 117 of the CGST Rules to claim the transitional credit as being C/SCA/5758/2019 CAVJUDGMENT procedural in nature and thus merely directory and not a mandatory provision;
(c) Your Lordships may be pleased to grant ad-interim relief with respect to prayer under Para (a) and Para (b) above;
(d) Your Lordships may be pleased to award costs of and incidental to this application be paid by the respondents;
(e) Your Lordships may be pleased to issue order(s), direction(s), writ(s) or any other relief(s) as this Hon’ble Court deems fit and proper in the facts and circumstances of the case and in the interest of justice;”
4. The writ-applicant is a partnership firm having its registered office at Bharuch, State of Gujarat. The writ-applicant is in the business of import-export and distributor of branded housewares registered under the CGST Act vide registration bearing No.GSTIN24ABJFS7809M1ZL

5. It appears from the materials on record that the writ- application has been filed seeking appropriate writ, order or direction to the respondents for being permitted to file declaration in the form GST TRAN-1 and GST TRAN-2 respectively to enable the writ-applicants to claim transitional credit of the eligible duties in respect of the inputs held in the stock on the appointed day in terms of Section 140(3) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as, ‘the Act’) read with Rule 117 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as, ‘the Rules’).

C/SCA/5758/2019 CAVJUDGMENT

6. It is the case of the writ-applicants that the declaration in the form GST TRAN-1 could not be filed on account of the technical glitches in terms of poor net connectivity and other technical difficulties on the common portal. The writ-applicants, in the alternative, have prayed for a declaration that the due date contemplated under Rule 117 of the Rules to claim transitional credit is procedural in nature, and thus, merely directory and not a mandatory provision.

SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANTS :

7. Mr.Shraff, the learned counsel appearing with Mr.Dave for the writ-applicants, vehemently submitted that when the Indirect Tax regime transitioned from the Central Excise regime to the Goods and Services Tax regime, the CGST Act, 2017, allowed the carry forward of the CENVAT credit on the duty paid stock on the appointed day, i.e. 1st July 2017.

8. It is submitted that the CGST was payable on such duty paid stock and, therefore, the credit was allowed because the intention of the Government was not to collect tax twice on the same goods. It is pointed out that in such cases, it was provided that the credit of the duty/tax paid earlier would be admissible as credit.

9. The learned counsel submitted that as his clients were not able to file the form GST TRAN-1 within the date specified, i.e. 27th December 2017, on account of the technical difficulties, they had to physically lodge their claim of transitional credit on C/SCA/5758/2019 CAVJUDGMENT stock in the form GST TRAN-1 and GST TRAN-2 respectively with their Jurisdictional Officer.

10. The learned counsel submitted that his clients also met the Jurisdictional Officer time to time and also addressed various letters to the Nodal Officer and the Jurisdictional Officer for being allowed to file on-line form GST TRAN-1 and GST TRAN-2 respectively in terms of the decision of the Goods and Services Council and the Circular No.39/13/2018-GST dated 3rd April 2018.

11. The learned counsel pointed out that his clients also requested that they be allowed to file the above referred forms in terms of the Notification No.48/2018-C.T. dated 10th September 2018 read with Order No.01/2019-GST dated 31st January 2019 which extended the period for submitting declaration in the form GST TRAN-1 till 31st March 2019 for all those tax payers who could not submit the said declaration by the due date on account of the technical difficulties on the common portal.

12. The learned counsel submitted that the Jurisdictional Officer of his client twice addressed a communication in writing to the Nodal Officer recommending the case of the writ- applicants for being allowed to file the form GST TRAN-1 and GST TRAN-2 respectively. However, the Jurisdictional Officer has not received any official communication till date from the Nodal Officer neither denying nor allowing to file the above referred forms. However, the office of the Nodal Officer informed that the writ-applicants cannot be permitted to file the form GST TRAN-1 because as per the GST System Logs, the tax payer has neither C/SCA/5758/2019 CAVJUDGMENT tried for saving/submitting or filing the form GST TRAN-1. Mr.Shraff, the learned counsel pointed out that the very same stance is reflected in the affidavit-in-reply filed on behalf of the respondent no.2.

13. The learned counsel submitted that without giving any opportunity of hearing to his clients, the office of the Nodal Officer reached to the conclusion that the writ-applicants had neither tried for saving/submitting or filing the form GST TRAN- 1 as per the GST System Logs.

14. The learned counsel submitted that this could be termed as violative of the principles of natural justice. The learned counsel also submitted that in the absence of the meaning of the phrase “technical difficulties on the common portal” in the CGST Act or Rules, the same should be given a liberal interpretation because it is a settled principle of law that an interpretation unduly restricting the scope of a beneficial provision should be avoided so that it may not take away with one hand what the policy gives with the other.

15. The learned counsel, in support of his submissions, has placed strong reliance on the decision of the Supreme Court in the case of Union of India v. Suksha International & Nutan Gems and another, 1989 (39) ELT 503 (SC) [para-9].

16. The learned counsel, in the last, submitted that the technology has been added to the system for the benefit and convenience of the tax payers but it should not be subservient to the purpose and hence the impediments, if any, should not make the writ-applicants servants of the technology.

C/SCA/5758/2019 CAVJUDGMENT

17. In such circumstances referred to above, the learned counsel prays that there being merit in all the writ-applications, those be allowed and the reliefs as prayed for be granted.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS :

18. Mr.Soaham Joshi, the learned AGP, has vehemently opposed all the writ-applications. Mr.Joshi submitted that none of the grievances redressed by the writ-applicants are tenable in law. At the same time, Mr.Joshi fairly submitted that the Jurisdictional Officer, Bharuch, did bring to the notice of the Nodal Officer about the various problems and difficulties faced by the tax payers. Mr.Joshi submitted that the role of the Nodal Officer is to collect all such complaint and grievances of the tax payers across the State and forward them to the GSTM and the GSTM, upon verification, would further forward the grievances to the IT Redressal Grievance Committee. Mr.Joshi submitted that in the case on hand the Nodal Officer had acted promptly and had also forwarded the grievances of the tax payers to the GSTM. Mr.Joshi placed strong reliance on the following averments made in the affidavit-in-reply filed on behalf of the respondents.

“8. It is respectfully submitted that the petitioner has annexed various articles from various websites such as business standard, financial express which are of the year 2017. In light of the same it is respectfully submitted that, these articles are secondary evidence in nature under the Indian Evidence Act. Therefore, reliance placed upon these articles can be taken into consideration only when there is C/SCA/5758/2019 CAVJUDGMENT no primary evidence available. It is respectfully submitted that, the petitioner has further annexed the minutes of the 26th GST Council meetings held on 10.03.2018, the same is annexed from page 50 to the memorandum of the application and upon perusal of the agenda as mentioned at page 50 of the 26th GST Council meeting agenda 7 reads as under:
“Agenda 7: Grievance Redressal Mechanism in GST Regime in light of recent judgments of Hon’ble High Court of Allahabad and Mumbai.”
In light of the same it is respectfully submitted that the agenda approved the setting up of the Grievance Redressal Committee and further the agenda also approved that instead of setting up new Grievance Redressal Committee the GIC shall act as the IT Grievance Redressal Committee.
9. It is respectfully submitted that, the nodal officer had forwarded the grievance of the petitioner to GSTN and the case of the petitioners were considered by the 33rd GST Council meeting dated 20.02.2019.

10. It is respectfully submitted that the petitioner has placed reliance upon two decisions of the Hon’ble High Court of Allahabad and Hon’ble High Court of Mumbai which is averred in paragraph 2.14 and paragraph 2.15 to the memorandum of application. In light of the same upon reading the cause title of the case the respondent was the Union of India and in the present case the petitioner has not joined the Union of India as party respondent.

C/SCA/5758/2019 CAVJUDGMENT

11. It is respectfully submitted that, upon perusal of the 33rd GST Council meeting the said report contains 195 pages and agenda item 4 reads as decisions/ recommendations of the 4th I.T. Grievance Redressal Committee for information of the council, which is at page no.104 of the report and agenda item on GST Tran-1 cases were discussed and decided on 12/02/2019. The Hon’ble Court may be please to consider the submission made at the time of argument as far as the said report is concerned.

12. It is also respectfully submitted that, the petitioner has not joined GSTN nor the I.T. Grievance Redressal Committee as party respondent and therefore, the petitioner suffices of lack of non-joinder/mis-joinder of parties.”

19. In such circumstances referred to above, Mr.Joshi prays that there being no merit in the writ-applications, those be rejected.

20. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we would like to address ourselves on the following aspects :

(1) Section 140(3) of the CGST Act provides for a substantive right which cannot be curtailed or defeated on account of the procedural lapses.

(2) The entitlement of the credit of carry forward of the eligible duties is a vested right.

C/SCA/5758/2019 CAVJUDGMENT (3) The rights accrued under the existing law have been saved by the CGST Act.

(4) The right to carry forward the CENVAT credit is a constitutional right.

(5) It is arbitrary, irrational and unreasonable to discriminate in terms of the time limit to allow the availment of the input tax credit with respect to the purchase of the goods and services made in the pre-GST regime and post-GST regime and the same could be termed as violative of Article 14 of the Constitution of India.

(6) The doctrine of legitimate expectation also could be said to be violated.

(7) By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST TRAN-1 within the due date would definitely have a serious impact on the working capital of the writ-applicants and such action could be termed as violative of Article 19(1)(g) of the Constitution of India.

(8) The liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation on the same subject matter.

(9) The action could be also termed as violative of Article 300A of the Constitution of India.

C/SCA/5758/2019 CAVJUDGMENT

ANALYSIS :

21. Section 140(3) of the CGST Act allows carry forward of the eligible duties in respect of the inputs held in stock subject to the fulfillment of conditions (i) to (v) as mentioned therein. Section 140(3) of the CGST Act is a complete Code in itself and the substantive right conferred by the Act cannot be curtailed by way of rules.

22. In the aforesaid context, we may refer to the following decisions :

(1) The Madras High Court, in the case of Tara Exports v. Union of India, reported in 2019 (20) G.S.T.L. 321 (Madras), has held as under :
“8. GST is a new progressive levy. One of the progressive ideal of GST is to avoid cascading taxes. GST Laws contemplate seamless flow of tax cred its on all eligible inputs. The input tax credits in TRAN-1 are the credits legitimately accrued in the GST transition. The due date contemplated under the laws to claim the transitional credit is procedural in nature. In view of the GST regime and the IT platform being new, it may not be justifiable to expect the users to back up digital evidences. Even under the old taxation laws, it is a settled legal position that substantive input credits cannot be denied or altered on account of procedural grounds.”
C/SCA/5758/2019 CAVJUDGMENT (2) The Supreme Court, in the case of Union of India v.
Suksha International & Nutan Gems & Anr., reported in 1989 (39) E.L.T. 503 (S.C.), has held that an interpretation unduly restricting the scope of a beneficial provision should be avoided so that it may not take away with one hand what the policy gives with the other. We may quote the relevant paragraph 9 of the judgment thus :
“9. We have considered the rival contentions on the point. Para 185(4) was intended to provide certain incentives to the Export Houses which, upon grant of Imprest-Licences, fulfill their countervailing obligations in the matter of export commitments. The provision is a beneficial one. Clauses (4) and (7), no doubt, on their plain wording present certain constructional difficulties and the view sought to be put across by Shri Subba Rao for the appellants, on the plain language of Clause (7), is not without possibilities. However, the basis of a harmonious construction which commended itself to the High Court in other similar cases appears to us to advance and promote the objects of the policy in paragraph 185(4) and is, at all events, not an unreasonable view to take of the matter. In so me of these cases this Court has declined to interfere with this interpretation by rejecting petitions for special leave. Acceptance of the interpretation suggested by Shri Subba Rao would, in our opinion, unduly restrict the scope of the beneficial provision and, in many instances which would C/SCA/5758/2019 CAVJUDGMENT otherwise fall within the beneficial scope of the policy in para 185(4), take away with one hand what the policy gives with the other. We think we should accept the submissions of Shri Harish Salve which is consistent with the view taken of the matter by the High Court in other cases and hold that the conditions in para 185(4) of the policy would not be attracted to the case of Export Houses which are granted Imprest Licences.
Accordingly we hold and answer contention (a) against the appellants.”
(3) The Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, reported in 1991 (55) E.L.T. 437 (S.C.), has held that the mere fact that a condition is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It would be erroneous to attach equal importance to the non-observance of all the conditions irrespective of the purposes they were intended to serve.
We may quote the relevant paragraph 11 of the judgment thus :

“11. We have given our careful consideration to these submissions. We are afraid the stand of the Revenue suffers from certain basic fallacies, besides being wholly technical. In Kedarnath’s case, the question for C/SCA/5758/2019 CAVJUDGMENT consideration was whether the requirement of the declaration under the proviso to Section 5(2)(a)(ii) of the Bengal Finance (Sales-tax) Act, 1941, could be established by evidence aliunde. The court said that the intention of the Legislature was to grant exemption only upon the satisfaction of the substantive condition of the provision and the condition in the proviso was held to be of substance embodying considerations of policy. Shri Narasimha Murthy would say the position in the present case was no different. He says that the notification of 11th August, 1975 was statutory in character and the condition as to ‘prior-permission’ for adjustment stipulated therein must also be held to be statutory. Such a condition must, says counsel, be equated with the requirement of production of the declaration form in Kedarnath’s case and thus understood the same consequences should ensue for the non-compliance. Shri Narasimhamurthy says that there was no way out of this situation and no adjustment was permissible, whatever be the other remedies of the appellant. There is a fallacy in the emphasis of this argument. The consequence which Shri Narasimha Murthy suggests should flow from the non-compliance would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption. Its stringency and mandatory nature must be justified by the purpose intended to be served. The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be C/SCA/5758/2019 CAVJUDGMENT substantive , mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.
In Kedarnath’s case itself this Court pointed but that the stringency of the provisions and the mandatory character imparted to them were matters of important policy. The Court observed:

“…The object of Section 5(2)(a)(ii) of the Act and the rules made thereunder is self-evident. While they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax. In the nature of things, in view of innumerable transactions that may be entered into between dealers, it will well nigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purposes mentioned in the section.Therefore, presumably to achieve the two fold object, namely, prevention of fraud and facilitating administrative efficiency, the exemption given is made subject to a condition that the person C/SCA/5758/2019 CAVJUDGMENT claiming the exemption shall furnish a declaration form in the manner prescribed under the section. The liberal construction suggested will facilitate the commission of fraud and introduce administrative inconveniences, both of which the provisions of the said clause seek to avoid.” (See : [1965] 3 SCR 626) Such is not the scope or intendment of the provisions concerned here. The main exemption is under the 1969 notification. The subsequent notification which contain condition of prior-permission clearly envisages a procedure to give effect to the exemption. A distinction between the provisions of statute which are of substantive character and were built-in with certain specific objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distinguished.
What we have here is a pure technicality. Clause 3 of the notification leaves no discretion to the Deputy Commissioner to refuse the permission if the conditions are satisfied. The words are that he “will grant”. There is no dispute that appellant had satisfied these conditions. Yet the permission was withheld-not for any valid and substantial reason but owing to certain extraneous things concerning some inter-depart-mental issues. Appellant had nothing to do with those issues. Appellant is now told “we are sorry. We should have given you the permission But now that the period is over, nothing can be done”. The C/SCA/5758/2019 CAVJUDGMENT answer to this is in the words of Lord Denning: “Now I know that a public authority can not be estopped from doing its public duty, but I do think it can be estopped from relying on a technicality and this is a technicality.” (See: Wells v. Minister of Housing and Local Government [1967] 1WLR 1000.

Francis Bennion in his “Statutory Interpretation”, 1984 edition, says at page 683:

“Unnecessary technicality: Modern courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfilment of the purposes of the legislation.””
(4) The Supreme Court, in the case of State of Mysore and Ors. v. Mallick Hashim & Co., reported in AlR 1972 SC 1449, has held that no conditions could be imposed which destroy the right to a refund which is otherwise absolute. The conditions authorised are conditions which regulate the refund and not conditions which result in the extinguishment of the right to a refund which the Legislature has created under the proviso. We may quote the relevant paragraph 20 of the judgment thus :

“As mentioned earlier the petitioner in the two Writ Petitions are dealers in hides and skins whereas the petitioner in the Sales Tax Revision Petition before the C/SCA/5758/2019 CAVJUDGMENT High Court is a dealer in copra and coconuts. It is not disputed that hides and skins as well as copra and coconuts are declared goods under Section 14 of the Central Sales Tax Act, 1956. It is also not disputed that at the time of purchase of those goods the dealers in question had paid the purchase tax. Further it is admitted that these goods were sold in the course of inter-State sale transactions. It is not denied that the petitioners had a right to apply for refund of the taxes paid by them but the objection raised by the State is those refund applications were not filed within the period mentioned in Rule 39-A (2) and (3) and further in two cases it is contended that the applications were not made in the prescribed form. The High Court has taken the view that Rule 39-A is ultra vires the rule-
making power. It has opined that the rules made under Section 5 (4) of the Mysore Sales Tax Act, 1957, are those which must relate to the manner and conditions under which refund has to be made and such a rule cannot in substance deprive the dealer of the right to get refund to which he is entitled to under S. 15 of the Central Sales Tax Act, 1956, as well as Section 5 (4) of the Mysore Sales Tax Act, 1957. We have not thought it necessary to go into that question as, in our opinion, sub-rules (2) and (3) of rule 39-A are wholly unreasonable rules and consequently these cannot be sustained. Sub-rule (3) of Rule 39-A provides that before a person is entitled to refund under Section 15 of the Central Sales Tax Act. 1956, as well as under Section 5 (4) of the Mysore Sales Tax C/SCA/5758/2019 CAVJUDGMENT Act, 1957, he must have made the refund application within the time before which he should have submitted his Sales-tax return. In many States the dealers have to submit quarterly returns. Under Rule 18 framed under the Mysore Sales Tax Act, 1957, we are informed that a dealer will have to submit his annual return within 30 days of the end of the financial year. That means even if a sale in the course of inter-State trade has been made on the 31st March of a year, the refund application will have to be made within 30 days from that date. The position will be worse still if the dealer is required to submit quarterly returns. The learned counsel for the State was not in a position to tell us whether in the Mysore State the dealers have to file quarterly returns. In our opinion the impugned Rule is merely an attempt to deny the dealers the refund to which they are entitled under the law or at any rate to make the enforcement of that right unduly difficult.”

(5) The Supreme Court, in the case of Commissioner of Central Excise, Madras v. Home Ashok Leyland Ltd., reported in 2007 (210) E.L.T. 178 (S.C.), has held that Rule 57A recognizes the right of the manufacturer to take credit for the specified duty paid on the inputs. whereas Rule 57E is a procedural provision. Rule 57E being procedural and classificatory would not affect the substantive rights of the manufacture of the specified final product to claim the Modvat credit for the duty paid on the inputs subsequent to the date of the receipt of those inputs. We may quote the relevant paragraphs 3 and 4 of the judgment thus :

C/SCA/5758/2019 CAVJUDGMENT “3. The above discussion indicates that the right to claim MODVAT credit existed only in Rule 57A. Even Rule 57E says so. There can be no doubt that right from its inception the right to claim MODVAT credit is under Rule 57A. Rule 57A recognizes the right of the manufacturer to claim credit. Rule 57E recognizes not only the right of the manufacturer to claim credit but also the extent to which credit could be claimed for the duty paid on inputs. Therefore, Rule 57A is a substantive provision. However, the procedure of adjustment finds place in Rule 57E. Rule 57E is procedural provision. It deals with adjustments in duty credit. The object behind enacting Rules 57A, 57E and 57G is to avoid duty on duty whereby the price of the final product is loaded. Therefore, Rule 57A recognizes the right of the manufacturer to take credit for the specified duty paid on the inputs, whereas Rule 57E deals with adjustment in the duty credit, such adjustment mean on account of reduction on the credit allowed. It could also be in the event of refund. Suffice it to state that Rule 57E deals only with adjustment in the duty credit. Rule 57G states that credit shall not be taken unless the manufacturer of the final product maintains his records regarding receipt of the inputs in his factory like having again bill of entry certain types of registers (RR-1) or any other document prescribed by Central Board of Excise and Customs.

C/SCA/5758/2019 CAVJUDGMENT

4. In our view, therefore, the courts below were right in holding that Rule 57E was procedural, clarificatory and therefore would not affect the substantive rights of the manufacturer of the specified final product to claim MODVAT credit for the duty paid on the inputs subsequent to the date of the receipt of those inputs. Consequently, the respondent-manufacturer in the present case was entitled to take credit between the period 16.8.1987 to 30.12.1987 in the sum of Rs.6,43,994.57.”

(6) The Madras High Court, in the case of Hospira Health Care India P. Ltd. v. Development Commissioner, MEPZ, SEZ & Heous, Chennai, reported in 2016 (340) ELT 668 (Madras), has held that a procedure should not run contrary to the substantive right in the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held bad in law. We may quote the relevant paragraphs 27, 28 and 33 of the judgment thus :

“27. It is a settled position that the procedure formulated under any Policy is only to operationalise the right and not to prevent the same. If a statute is workable even without framing of the rules, the same has to be given effect to When the petitioner had stated that in respect of the purchases made from EOUs was earlier allowed by the respondents, the same would establish that the respondents had followed the provisions of paragraph 6.11.
C/SCA/5758/2019 CAVJUDGMENT
28. When the Policy gives a substantive right, the Appendix cannot restrict the substantive right provided in the policy and the Appendix is meant for effectuating the rights contained in the policy and cannot be a tool for narrowing or frustrating the objective and operation of the substantive right granted to the petitioner.
33. In the present case, when the policy provides for reimbursement under paragraph 6.11, the said objective was prevented or diluted by the Appendix. As already stated, the Appendix is meant for effectuating the rights contained in the policy and not to frustrate the operation of the substantive right. The Appendix should be meant only for reaching the objective and definitely should not be meant for defeating a person from getting the fruits of the substantive right provided in the policy. A procedure should not run contrary to the substantive right in the policy. In the case on hand, it is only a procedural amendment and not a policy amendment. When the policy gives a right to the petitioner for claiming refund of taxes, it cannot be prevented by making an amendment in the procedure. The petitioner can be prevented only if the policy is amended prohibiting refund of tax for the purchases made from an 100% EOU. The procedure was to be prescribed by an authority in implementing the policy and must be in consonance with the policy. If the procedural norms C/SCA/5758/2019 CAVJUDGMENT are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held to be bad in law.”

(7) This High Court, in the case of Baroda Rayon Corporation Ltd. v. Union of India, reported in 2014 (306) E.L.T. 551 (Gujarat), has held that the manner in which the credit taken is required to be utilised is laid down under sub-rule (2) and is subject to the conditions and restrictions, if any, specified in the notification issued under sub-rule (1) of Rule 57A of the Rules. Thus, if the time-limit within which the credit taken under sub-rule (1) of Rule 57A is to be restricted, the same would have to be provided under the notification issued under Rule 57A(1) of the Rules. Insofar as Rule 57G of the Rules is concerned, there is no power vested in the Central Government to restrict the time-limit within which the credit is required to be taken. To put it differently, the right to avail of credit is conferred under Rule 57A of the Rules. Rule 57G only provides the procedure to be observed by the manufacturer. Thus, while exercising the powers under Rule 57G of the Rules, the Central Government is not empowered to curtail any right conferred under Rule 57A of the Rules. In such circumstances, the impugned notification issued in exercise of the powers under Rule 57G of the Rules insofar as the same prescribes a time- limit for taking of credit, being in excess of the powers conferred under the said rule was held to be ultra vires the same and not sustainable to that extent. We may quote the relevant paragraphs 8 and 9 of the judgment thus :

C/SCA/5758/2019 CAVJUDGMENT “8. Rule 57G of the Rules as it stood at the relevant time, insofar as the same is relevant for the present purpose reads thus:-

“RULE 57G. Procedure to be observed by the manufacturer.- (1) Every manufacturer intending to take credit of the duty paid on inputs under rule 57A, shall file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Assistant Collector may require, and obtain a dated acknowledgement of the said declaration.
(2) A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him:
Provided that no credit shall be taken unless the inputs are received in the factory under the cover of an invoice, issued under rule 52A, an AR-1, or triplicate copy of a Bill of Entry, a certificate issued by an Appraiser of Customs C/SCA/5758/2019 CAVJUDGMENT posted in Foreign Post Office or any other document as may be prescribed by the Central Government by notification in the Official Gazette in this behalf evidencing the payment of duty on such inputs.”

The subject notification has been issued in exercise of powers conferred by the first proviso to rule 57G of the Rules which provides for prescription of any other document evidencing the payment of duty on such inputs as may be prescribed by the Central Government by notification in the Official Gazette. Thus, from the language employed in the provision, it is apparent that the Central Government is empowered to prescribe any other document in addition to the documents prescribed under the said rule evidencing the payment of duty on such inputs. However, the said power is limited to prescribing any other document in addition to the documents prescribed and does not extend to prescribing a time limit within which credit has to be taken. In other words, once such documents are prescribed, there is no further power vested in the Central Government to prescribe a time limit for taking credit. Insofar as taking credit is concerned the same is governed by rule 57A of the Rules which lays down that the provisions of the said section shall apply to such finished excisable products as the Central Government may, by notification in the Official Gazette, specify in this behalf for the purpose of allowing credit of any C/SCA/5758/2019 CAVJUDGMENT duty of excise or additional duty under section 3 of the Customs Tariff Act, 1975, (referred to as specified duty) as may be specified in the notification paid on the goods used in the manufacture of the said final products (referred to as the inputs). Sub-rule (2) of rule 57A provides that the credit of specified duty allowed under sub-rule (1) shall be utilised towards payment of duty of excise leviable on final products, whether under the Act or any other Act, as may be specified in the notification issued under sub-rule (1) and subject to the provisions of the said section and the conditions and restrictions, if any, specified in the said notification. Thus, the manner in which credit taken is required to be utilised is laid down under sub-rule (2) and is subject to the conditions and restrictions, if any, specified in the notification issued under sub-rule (1) of rule 57A of the Rules. Thus, if the time limit within which credit taken under sub-rule (1) of rule 57A is to be restricted, the same would have to be provided under the notification issued under rule 57A (1) of the Rules. Insofar as rule 57G of the Rules is concerned, there is no power vested in the Central Government to restrict the time limit within which credit is required to be taken. To put it differently, the right to avail of credit is conferred under rule 57A of the Rules. Rule 57G only provides the procedure to be observed by the manufacturer. Thus, while exercising powers under rule 57G of the Rules, the Central Government is not empowered to curtail any right conferred under rule 57A of the Rules. In the circumstances, the impugned C/SCA/5758/2019 CAVJUDGMENT notification issued in exercise of powers under rule 57G of the Rules insofar as the same prescribes a time limit for taking of credit, being in excess of the powers conferred under the said rule is ultra vires the same and as such cannot be sustained to that extent.

9. Another aspect of the matter is that by curtailing the time limit within which the credit taken is to be availed, in effect and substance the said notification provides for lapsing of the credit that has already accrued in favour of the petitioner. In this regard it may be noted that the petition pertains to credit taken in the year 1994. At the relevant time there was no provision in the Act empowering the Central Government to frame rules providing for lapsing of credit of duty. Clause (xxviii) of sub-section (2) of section 37 of the Act, which empowers the Central Government to frame rules providing for lapsing of credit has been inserted with retrospective effect from 16th March, 1995. Hence, the said provision would not be applicable to the facts of the present case. In the circumstances, apart from the fact that rule 57G of the Act does not empower the Central Government to prescribe a time limit for taking credit, at the relevant time the Central Government was not empowered to frame a rule providing for lapsing of the credit taken. Hence, the present case would be squarely covered by the decisions of the Supreme Court in the case of Collector of Central Excise, Pune vs. Dai Ichi Karkaria Ltd , (supra) and in the case of Eicher Motors Ltd. vs. C/SCA/5758/2019 CAVJUDGMENT Union of India, (supra). In Collector of Central Excise, Pune vs. Dai Ichi Karkaria Ltd. (supra), the Supreme Court in the context of rules 57A to 57J of the Central Excise Rules, 1944 has held that a manufacturer obtains credit for central excise duty on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. The court held that the credit is indefeasible. In Eicher Motors Ltd. vs. Union of India, (supra) the Supreme Court held thus:

“We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16-3-
C/SCA/5758/2019 CAVJUDGMENT 1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.””
(8) The Madhya Pradesh High Court, in the case of Bharat Heavy Electricals Ltd. v. Commissioner of Central Excise, Bhopal, reported in 2016 (332) E.L.T. 411 (M.P.), has held that when power is exercised under Rule 57G, the Central Government is not empowered to curtail any right conferred by the substantive provision of Rule 57A and, therefore, the notification issued under Rule 57G prescribing the time limit for taking the credit as found by this Court in Baroda Rayon Corporation (supra) was declared to be ultra vires, as it was beyond the power and was in conflict with the impugned provision of Rule 57A. The ruling is based on the principle laid down by the Supreme Court in the cases of Eicher Motors Limited and Dai Ichi Karkaria Limited. We may quote the relevant paragraphs 10 and 11 of the judgment thus :

“10. Therefore, in the case of Baroda Rayon Corporation Limited Vs. Union of India, 2014 (306) ELT 551 (Guj), the Gujarat High Court has considered question identical in nature as is posed before us. In the case of Baroda Rayon Corporation Limited also, the benefit of MODVAT credit was denied to the assessee only because of an entry made in RG-23 A Part I & Part II, showing a date beyond six months. In the said case, the principle of law governing grant of MODVAT credit; the requirement of Rules 57A and C/SCA/5758/2019 CAVJUDGMENT 57G; the law laid down in the case of Eicher Motors Limited (supra) and Dai Ichi Karkaria Limited (supra) have all been considered and it has been held by the Gujarat High Court in the aforesaid case has held that merely because the entry of date made in Part II is beyond six months, the benefit of MODVAT credit cannot be denied when from all other material available, including the entry made in Part I, it is found that the benefit can be granted to the assessee.
11. We are in full agreement with the principle laid down by the Gujarat High Court wherein also under similar circumstances, identical action has been quashed and MODVAT credit extended. We agree with the Gujarat High Court when it says that the right to avail all credit conferred under Rule 57A and Rule 57G only provides the procedure to be observed by the manufacturer. Therefore, when power is exercised under Rule 57G, the Central Government is not empowered to curtail any right conferred by the substantive provision of Rule 57A and, therefore, the Notification issued under Rule 57G prescribing the time limit for taking the credit as found by the High Court of Gujarat is found to be ultra vires, as it is beyond the power and is in conflict to the impugn provision of Rule 57A, these are based on the principle laid down by the Hon’ble Supreme Court in the cases of Eicher Motors Limited (supra) and Dai Ichi Karkaria Limited (supra). ”

C/SCA/5758/2019 CAVJUDGMENT (9) The Allahabad High Court, in the case of Global Sugar Ltd. v. Commissioner of Central Excise, Kanpur, reported in 2016 (334) E.L.T. 604 (Allahabad), has held that Rule 57T of the Rules is only procedural in nature. The Modvat credit cannot be denied on a technical ground that the procedure for availing Modvat credit was not followed at the relevant moment of time. We may quote the relevant paragraphs-7 to 13 of the judgment thus :

“7. We find from a perusal of the order that the applicant had filed the application under sub rule (3) of Rule 57T along with an application for condonation of delay showing cause that they were not aware of the procedure for claiming declaration under the said Rule and have filed the same at the earliest opportune moment. It was contended that this is only a procedural/technical lapse and that the substantive right of Modvat credit could not be denied on account of such procedural/technical lapse. The claim of the applicant for Modvat credit was disallowed on the ground that mandatory permission as required under Rule 57-T was not granted by the competent authority though it is admitted that such application was filed by the applicant.
8. Having heard Sri Piyush Agarwal, the learned counsel for the applicant and Sri R.C.Shukla, the learned counsel for the respondents, we find that the procedure involved for availing Modvat credit under Rule 57-T of the Rules is more or less akin as provided C/SCA/5758/2019 CAVJUDGMENT under Section 57G of the Rules. This Court in Commissioner of Central Excise, Kanpur vs. M/s Balmer Lawrie & Co. Ltd., decided on 29.9.2016 (2016 UPTC 137) held that the provision of Rule 57-G of the Rules was not mandatory and that it was only a procedural provision and if there was a procedural lapse, it could not mean that Modvat credit could not be availed. The same principle is applicable in the instant case.

9. We find that Modvat credit is basically a duty collecting procedure which allows relief to a manufacture on the duty element borne by him in respect of the inputs used by him. The object behind Rule 57-T of the Rules in the instant case is utilization of credit allowed towards such inputs which was being exclusively used for erection of a shed and was not exclusively used for production of a final product. Sub-clause (6) of Rule 57-T indicates as to when a Modvat credit could be availed, namely, that if the capital goods are received in the factory premises of the manufacturer under cover of a document specified under Rule 57-G evidencing the payment of duty on such capital goods.

10. In the instant case, it is not disputed that the goods were received in the factory premises and was consumed for the purpose of erection of shades for boiler houses, etc. It is also not disputed that the goods so received showed evidence of payment of C/SCA/5758/2019 CAVJUDGMENT duty on such goods. When these two conditions are existing which are the mandatory requirement, in such case, Modvat credit should be allowed and could not be denied on the ground that there was a procedural lapse in not applying for a declaration within a stipulated period.

11. Sub-rule (3) of Rule 57-T of the Rules clearly indicates that if the declaration is not filed within the specified period, the same can be considered after the expiry of period on sufficient cause being shown. In the instant case, the applicant clearly stated that they were not aware of such procedure for claiming Modvat credit and the moment they came to know applied for Modvat credit. The fact, that the applicant applied for Modvat credit has not been disputed. Once this is not disputed, it is not open to the respondents to deny Modvat credit on the ground that permission was not granted by the competent authority. There is no evidence that the application of the applicant was rejected. In our opinion, even if there is a procedural lapse, it does not mean that Modvat credit could not be availed.

12. In Commissioner of Central Excise, Allahabad vs. Hindalco Industries Pvt. Ltd, 2013 (293)ELT 208, this Court after considering the provision of Rule 52-A and 57-G of the Rules held that Rule 57-G of the Rules only prescribes the procedure for availing Modvat credit and did not affect any substantial right. In our opinion, the said decision is clearly applicable.

C/SCA/5758/2019 CAVJUDGMENT

13. In the light of the aforesaid, we hold that Rule 57-T of the Rules is only procedural in nature. We are also of the opinion, that Modvat credit cannot be denied on a technical ground that the procedure for availing Modvat credit was not followed at the material moment of time.”

(10) The Supreme Court, in the case of Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, has held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. We may quote the relevant paragraphs 11 and 12 of the judgment thus :

“11. The processual law so dominates in certain systems as to overpower substantive rights and substantial justice. The humanist rule that procedure should be the handmaid, not the mistress, of legal justice compels consideration of vesting a residuary power in Judges to act ex debito justitiae where the tragic sequel otherwise would be wholly inequitable. Justice is the goal of jurisprudence, processual, as much as substantive. No person has a vested right in C/SCA/5758/2019 CAVJUDGMENT any course of procedure. He has only the right of prosecution or defence in the manner for the time being by or for the court in which the case is pending, and if, by an Act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode. A procedural law should not ordinarily be construed as mandatory, the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed.
12. Processual law is not to be a tyrant but a servant, not an obstruction but an aid to justice. A Procedural prescription is the handmaid and not the mistress, a lubricant, not a resistant in the administration of justice.”
23. The entitlement of credit of eligible duties on the purchases made in the pre-GST regime as per the then existing Cenvat credit rules is a vested right and, therefore, it cannot be taken away by virtue of Rule 117 of the Central GST Rules, 2017, with retrospective effect for failure to file the form GST Tran-1 within the due date, i.e. 27.12.2017. The provision for facility of credit is as good as the tax paid till the tax is adjusted and, therefore, the right to the credit had become absolute under the Central Excise Act and, therefore, the credit is indefeasible and the same cannot be taken away.

24. This High Court, in the case of Filco Trade Centre Pvt. Ltd. v. Union of India, reported in 2018 (17) G.S.T.L. 3 (Gujarat), C/SCA/5758/2019 CAVJUDGMENT while striking down clause (iv) of sub-section (3) of Section 140 of the CGST Act, recognized that the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing Cenvat credit rules was a vested right and it cannot be taken away by virtue of clause (iv) of sub-section (3) of Section 140 with retrospective effect in relation to the goods which were purchased prior to one year from the appointed day. We may quote the relevant paragraphs 26 to 31 of the judgment thus :

“26. In case of Indusr Global Ltd v. Union of India, 2014 (310) ELT 833 (Guj) Division Bench of this Court was considering vires of Rule 8 (3A) of the Central Excise Rules, 2002 which provided that if an assessee defaults in payment of duty beyond thirty days from the date prescribed under sub-rule (1) then notwithstanding anything contained in the sub-rule(1), the assessee shall pay excise duty for each consignment at the time of removal without utilizing the CENVAT credit till the assessee pays the outstanding amount including interest. The Court while striking down such Rule unconstitutional observed as under:
“31. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing cenvat credit of the duty already paid and thereby suspends, if not withdraws, his right to take credit of the duty already paid to the Government. It is true that such a provision is made because of peculiar circumstances the assessee lands himself in. However, when such provision makes no distinction between a willful C/SCA/5758/2019 CAVJUDGMENT defaulter and the rest, we must view its reasonableness in the background of an ordinary assessee who would be hit and targeted by such a provision. As held by the Supreme Court in the case of Eicher Motors Ltd (supra) an assessee would be entitled to take credit of input already used by the manufacturer in the final product. In the said case, the Supreme Court was dealing with rule 57F which was introduced in the Central Excise Rules, 1944 under which credit lying unutilized in the Modvat credit account of an assessee on 16th March 1995 would lapse. Such provision was questioned. The Supreme Court held that since excess credit could not have been utilized for payment of the excise duty on any other product, the unutilised credit was getting accumulated. For the utilization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the C/SCA/5758/2019 CAVJUDGMENT raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. We may also recall that in the case of Dai Ichi Karkaria Ltd (supra) it was reiterated that a manufacture obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable produce immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product.”
27. These judgements would thus indicate that the right that the petitioner had to pass on the credit of excise duty paid on goods purchased at the time of sale of such goods was a vested right. It was as good as the duty paid by the assessee to the Government revenue which could be utilised by the purchasers of such goods from the petitioner against future liabilities of course subject to fulfilment of conditions.
When the new regime was therefore introduced through goods and service tax statutes, through migration these existing rights were being adjusted in terms of provisions contained in sections 139 and 140 of the CGST Act. The legislature also recognized such existing rights and largely protected the same by allowing migration thereof in the new regime. In the process, however, a condition was imposed to enable the assessees in the nature of first stage dealer such as the present petitioner-company viz. that the invoices or other prescribed documents on the basis of which credit was claimed were issued not earlier than twelve months C/SCA/5758/2019 CAVJUDGMENT immediately preceding the appointed day. In effective terms, this condition restricted the enjoyment of existing credit in respect of goods purchased not prior to one year of the appointed day. In relation to all goods purchased prior to such day, no credit would be available under the credit ledger to be maintained under the CGST Act. Such credit would be lost. Undoubtedly, therefore, this condition has retrospective operation and takes away an existing right. This by itself may not be sufficient to hold the provision as ultra vires or unconstitutional. However, in addition to these findings, we also find that no just reasonable or plausible reason is shown for making such retrospective provision taking away the vested rights. Had the statutory provision given a time limit from the appointed day for utilization of such credit, the issue would stand on an entirely different footing. Such a provision could be seen as a sunset clause permitting the dealers to manage their affairs for which reasonable time frame is provided. The present condition however without any basis limits the scope of a dealer to enjoy existing tax credits in relation to purchases made prior to one year from the appointed day. No such restriction existed in the prior regime. Merely the stated grounds in the affidavit in reply that the provision is introduced since physical identification of goods is necessary so as to ensure that the first stage dealers do not take any undue advantage of such benefit and also to accommodate the administrative convenience would not be sufficient. Firstly, as noted, there was no such restriction in the CENVAT Credit Rules or analogous provisions of similar rules in the past. Since decades therefore the credits would be available C/SCA/5758/2019 CAVJUDGMENT to a first stage dealer on all purchases towards the manufacturing duty. No time frame of the past dealings was envisaged under such rules. The same grounds of physical identification of goods preventing undue advantage being taken and the administrative convenience would exist even then. Secondly, no limitation of time is prescribed in the proviso to sub-section (3) of section 140 where a dealer is not in possession of any invoice or any other document evidencing payment of duty in respect of inputs in which case credit at the prescribed rate would be granted.

28. The judgment of the Supreme Court in case of Osram Surya (P.) Ltd. (supra) involved different facts. It was a case in which, first provisio which was introduced in Rule 57-G of the MODVAT Credit Rules was challenged. By virtue of this provision a manufacturer would not be allowed to take MODVAT credit after six months from the date of the documents specified therein. It was on this background the Supreme Court had, while upholding the validity of the provision held and observed that the same did not take away a vested right. The important distinction in the present case as compared to the facts of our case is that the Legislature, by introducing a condition for enjoyment of an existing right, provided prospective time limit of six months which did not exist earlier. In other words, from the date of introduction of the proviso, the benefit of utilization of CENVAT credit under certain circumstances would be restricted to a period of six months. This provision thus, did not act with retrospective effect.

C/SCA/5758/2019 CAVJUDGMENT

29. We are conscious that the Bombay High Court in case of JCB India Limited (supra) has taken a different view. We have given our detailed reasons for the view that we have adopted. Needless to record, we are unable to adopt the line chosen by the Bombay High Court in case of JCB India Ltd. (supra).

30. To sum up we are of the opinion that the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140A such right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from the appointed day. This retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of “in order to co-relate the goods or administrative convenience” prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year.

31. In the conclusion we hold that though the impugned provision does not make hostile discrimination between similarly situated persons, the same does impose a burden with retrospective effect without any justification.”

C/SCA/5758/2019 CAVJUDGMENT

25. The Supreme Court, in the case of Eicher Motors Ltd. v. Union of India, reported in 1999 (106) E.L.T. 3 (S.C.), has recognized the provision for facility of credit as a vested right and has held that the facility of credit is as good as tax paid till the tax is adjusted on future goods. We may quote the relevant paragraphs 5 and 6 of the judgment thus :

“5. Rule 57F(4A) was introduced into the Rules pursuant to Budget for 1995-96 providing for lapsing of credit lying unutilised on 16-3-1995 with a manufacturer of tractors falling under heading No. 87.01 or motor vehicles falling under heading No. 87.02 and 87.04 or chassis of such tractors or such motor vehicles under heading No. 87.06.
However, credit taken on inputs which were lying in the factory on 16-3-1995 either as parts or contained in finished products lying in stock on 16-3-1995 was allowed. Prior to 1995-96 Budget, central excise/additional duty of customs paid on inputs was allowed as credit for payment of excise duty on the final products, in the manufacture of which such inputs were used. The condition required for the same was that the credit of duty paid on inputs could have been used for discharge of duty/liability only in respect of those final products in the manufacture of which such inputs were used. Thus it was claimed that there was a nexus between the inputs and the final products. In 1995-96 Budget MODVAT scheme was liberalised/simplified and the credit earned on any input was allowed to be utilised for payment of duty on any final product manufactured within the same factory irrespective of whether such inputs were used in its manufacture or not. The experience showed that credit C/SCA/5758/2019 CAVJUDGMENT accused on inputs is less than the duty liable to be paid on the final products and thus the credit of duty earned on inputs gets fully utilised and some amount has to be paid by the manufacturer by way of cash. Prior to 1995-96 Budget, the excise duty on inputs used in the manufacture of tractors, commercial vehicles varied from 15% to 25%, whereas the final products were attracted excise duty of 10% or 15% only. The value addition was also not of such a magnitude that the excise duty required to be paid on final products could have exceeded the total input credit allowed. Since the excess credit could not have been utilised for payment of the excise duty on any other product, the unutilised credit was getting accumulated. The stand of the assessees is that they have utilised the facility of paying excise duty on the inputs and carried the credit towards excise duty payable on the finished products. For the purpose of utilisation of the credit all vestitive facts or necessary incidents thereto have taken place prior to 16-3- 1995 or utilisation of the finished products prior to 16-3- 1995. Thus the assessee became entitled to take the credit of the input instantaneously once the input is received in the factory on the basis of the existing scheme. Now by application of Rule 57F(4A) credit attributable to inputs already used in the manufacture of the final products and the final products which have already been cleared from the factory alone is sought to be lapsed, that is, the amount that is sought to be lapsed relates to the inputs already used in the manufacture of the final products but the final products have already been cleared from the factory before 16-3- 1995. Thus the right to the credit has become absolute at C/SCA/5758/2019 CAVJUDGMENT any rate when the input is used in the manufacture of the final product. The basic postulate, that the scheme is merely being altered and, therefore, does not have any retrospective or retro-active effect, submitted on behalf of the State, does not appeal to us. As pointed out by us that when on the strength of the rules available certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that right, which had accrued to a party such as availability of a scheme, is affected and, in particular, it loses sight of the fact that provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. Therefore, the scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the earlier scheme necessarily the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said rule would result in affecting the rights of the assessees.

6. We may look at the matter from another angle. If on the inputs the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus C/SCA/5758/2019 CAVJUDGMENT a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the rule cannot be applied to the goods manufactured prior to 16-3-1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.”

26. The Supreme Court, in the case of Collector of Central Excise, Pune v. Dal Ichi Karkaria Ltd., reported in 1999 (112) E.L.T. 353 (S.C.), has held that the credit taken is indefeasible. We may quote the relevant paragraphs 17 and 18 of the judgment thus :

“17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is C/SCA/5758/2019 CAVJUDGMENT available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
18. It is, therefore, that in the case of Eicher Motors Ltd. v. Union of India (1999) 106 ELT 3 : (1999 AIR SCW 563 : AIR 1999 SC 892) this Court said that a credit under the MODVAT scheme was “as good as tax paid”.”
27. The right to carry forward credit is a right or privilege, acquired and accrued under the repealed Central Excise Act, 1944 (1 of 1944) and it has been saved under Section 174(2)(c) of the CGST Act, 2017 and, therefore, it cannot be allowed to lapse under Rule 117 of the CGST, 2017, for failure to file declaration form GST Tran-1 within the due date, i.e. 27.12.2017.

28. The right to carry forward CENVAT credit for not being able to file the form GST Tran-1 within the due date offends the policy of the Government to remove the cascading effect of tax by allowing the input tax credit as mentioned in the Objects and Reasons of the Constitution 122nd Amendment Bill, 2014. The Objects and Reasons of the Constitution 122nd Amendment Bill, 2014 clearly set out that it is intended to remove the cascading effect of taxes and to bring out a nationwide taxation system.

C/SCA/5758/2019 CAVJUDGMENT

29. The cascading of taxes, in simple language, is ‘tax on tax’. The denial of carry forward of tax paid on stock on the appointed day may lead to cascading effect of tax because the GST will again have to be paid on the Central Excise duty already suffered on the stock. It is an established principle of law that it is necessary to look into the mischief against which the statute is directed, other statutes in pari materia and the state of the law at the time.

30. It was held by the Supreme Court in the case of Macquarie Bank Limited v. Shilpi Cable Technologies Ltd., reported in AIR 2018 SC 498, that :

“It is thus clear on a reading of English, U.S., Australian and our own Supreme Court judgments that the ‘Lakshman Rekha’ has in fact been extended to move away from the strictly literal Rule of interpretation back to the Rule of the old English case of Heydon, where the Court must have recourse to the purpose, object, text, and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the Rule as stated in 1584 in Heydon’s case, which was then waylaid by the literal interpretation Rule laid down by the Privy Council and the House of Lords in the mid 1800s, and has come back to restate the Rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon’s case.”
31. It was held by the Supreme Court in the case of District Mining Officer and Ors. v. Tata Iron and Steel Co. and Ors., C/SCA/5758/2019 CAVJUDGMENT reported in AIR 2001 SC 3134 that, “the process of construction combines both literal and purposive approaches. In other words, the legislative intention, i.e. the true or legal meaning of an enactment, is derived by considering the meaning of the words used in the enactment in light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. We may quote the relevant paragraph 14 of the judgment thus :

“14. Dr.A.M.Singhvi, the learned senior counsel, appearing for the assessee-respondent in S.L.P. (Civil) No. 13106/96 and S.L.P. (Civil) No. 15442-15443/98 contended that the intention of the Parliament in enacting the Validation Act was only to save the State Governments from refunding the monies already collected under Statutes declared void ab initio by the Courts and it never intended to confer a right on the State to make any fresh levy or collection in respect of the cess and taxes, which could be collected up to 4-4-91, as contended by Mr. Dwivedi, appearing for the State of Bihar.
According to Dr. Singhvi, when this Court in Orissa Cement’s case, following the earlier judgment of the Court in India Cement, invalidated levies made under different Statutes enacted by the States of Orissa, Madhya Pradesh and Bihar and issued a mandamus, directing refund of the monies collected under such void Statutes, the State Governments would have been under a constitutional obligation to carry out the directions issued and were bound to refund the monies collected from the respective States from the date of the Judgment of the High Court, which would have ruinous consequences on the States economy. When the State C/SCA/5758/2019 CAVJUDGMENT Governments apprised these problems to the Central Government, the Parliament intervened and to save the State Governments from refunding the monies collected, enacted the Cess and Other Taxes on Minerals (Validation) Act, 1992 to validate imposition and collection of such levies under the State laws which were declared void by the Court. The Statement of Objects and Reasons of the Validation Act unequivocally proclaims that the Act was promulgated to validate collection of such levies by the State Governments up to 4th of April, 1991. The date 4-4-91was chosen because on the date, the Supreme Court delivered the judgment in Orissa Cement case. To bring about the uniformity among all the States, the cut off date was selected in the Validation Act as 4-4-91. Parliament also consciously did not desire or choose to prescribe different dates for different States in the schedule to Validation Act containing 11 enactments in respect of 7 States. The Parliament, thus devised the method of prospective overruling and the language used in sub-section (2) of Section 2 of the Validation Act makes the intention more explicit, and as such it must be held that it allowed the States to retain the amount of cess already collected but did not authorise to make any fresh collection which has not been collected up to 4-4-91. Dr. Singhvi further contends that the deliberate and conscious omissions by Parliament of a saving clause in the Validation Act, permitting levies or actions after 4-4-91 points to the only effect that Parliament did not intend any levy to be imposed or any collection to be made after 4-4-1991. Had it been the intention, then a specific and unambiguous saving clause could have been C/SCA/5758/2019 CAVJUDGMENT provided as was done in Jaora Sugar Mills’ case (1966) 1 SCR 523 and Prithvi Cotton Mills Ltd. case (1969) 2 SCC

283. A bare perusal of the Validation Act in Jaora Sugar Mills case and the Validation Act in the present case would unequivocally indicate that in the case in hand, the Parliament never intended to confer a right on the States to collect and impose any levy subsequent to 4-4-91 and on the other hand merely allowed the State to retain the collection already made. According to Dr.Singhvi in Kannadasan’s case, this Court drew wrong analogy from Gangopadhyaya’s case and held that the provisions therein were identical to the provisions in the Validation Act, which was under consideration. Dr. Singhvi further urged that this Court in Kannadasan’s case, has not appreciated the fact that Parliament deliberately and consciously omitted to incorporate a saving clause in the Validation Act. Dr. Singhvi urged that by the Validation Act life was infused into void State Statutes only up to 4-4-91 and consequently, the levies which may have accrued prior to 4-4-91 could not be permitted to be collected after 4-4-91. With reference to Article 265 of the Constitution, the learned counsel urged that the Constitution of India imposes a limitation on the taxing power of the State in so far as it provides that no tax can be levied or collected except by authority of law. Thus not only the levy, but also the collection must be only by authority of law. The expression “authority of law” would mean that there should be in existence, a lawful enactment, which authorises the levy or collection of a tax. After 4-4-91, there being no valid law in existence, which could authorise collection of the levy of cess and taxes on minerals, it is C/SCA/5758/2019 CAVJUDGMENT difficult to comprehend how the State could be permitted to make the levy and collection of the dues subsequent to 4.4.91. According to Dr. Singhvi, and interpretation of the provisions of the Validation Act, authorising realisation of levy after 4-4-91 for the past period would be contrary to equity, justice and fair-play.”

32. It was held by the Supreme Court, in the case of U.P. Bhoodan Yagna Samiti, U.P. v. Braj Kishore and Ors., reported in AIR 1988 SC 2239, that it is clear that when one has to look to the intention of the Legislature, one has to look to the circumstances under which the law was enacted, the Preamble of the law, the mischief which was intended to be remedied by the enactment of the statute. We may quote the relevant paragraph 16 of the judgment thus :

“16. And it is clear that when one has to look to the intention of the Legislature, one has to look to the circumstances under which the law was enacted. The Preamble of the law, the mischief which was intended to be remedied by the enactment of the statute and in this context, Lord Denning, in the same book at Page No. 10, observed as under :
“At one time the Judges used to limit themselves to the bare reading of the Statute itself – to go simply by the words, giving them their grammatical meaning and that was all. That view was prevalent in the 19th century and still has some supporters today. But it is wrong in principle. The Statute as it appears to those C/SCA/5758/2019 CAVJUDGMENT who have to obey it – and to those who have to advise them what to do about it; in short, to lawyers like yourselves. Now the eccentrics cut off from all that is happening around them. The Statute comes to them as men of affairs – who have their own feeling for the meaning of the words and know the reason why the Act was passed just as if it had been fully set out in a preamble. So it has been held very rightly that you can enquire into the mischief which gave rise to the Statute
– to see what was the evil which it was sought to remedy.”
It is now well settled that in order to interpret a law one must understand the background and the purpose for which the law was enacted. And in this context as indicated earlier if one has bothered to understand the common phrase used in the Bhoodan Movement as ‘Bhoomihin Kissan’ which has been translated into English to mean ‘landless persons’ there would have been no difficulty but apart from it even as contended by learned counsel that it was clearly indicated by S. 15 that the allotments could only be made in accordance with the scheme of Bhoodan Yagna.
In order to understand the scheme of Bhoodan and the movement of Shri Vinoba Bhave, it would be worthwhile to quote from ‘Vinoba And His Mission’ by Suresh Ram printed with an introduction by Shri Jaya Prakash Narain and foreword by Dr. S. Radhakrishnan. In this work, statement of annual Sarvodaya Conference at Sevapuri has been quoted as under :

C/SCA/5758/2019 CAVJUDGMENT “The fundamental principle of the Bhoodan Yagna movement is that all children of the soil have an equal right over the Mother Earth, in the same way as those born of a mother have over her. It is, therefore, essential that the entire land of the country should be equitably redistributed anew, providing roughly at least five acres of dry land or one acre of wet land to every family. The Sarvodaya Samaj, by appealing to the good sense of the people, should prepare their minds for this equitable distribution and acquire within the next two years at least 25 lakhs of acres of land from about five lakhs of our villages on the rough basis of five acres per village. This land will be distributed to those landless labourers who are versed in agriculture, want to take to it, and have no other means of subsistence.”

This would clearly indicate the purpose of the scheme of Bhoodan Yagna and it is clear that S.15 provided that all allotments in accordance with S.14 could only be done under the scheme of the Bhoodan Yagna.”

33. In our opinion, it is arbitrary, irrational and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in the pre-GST regime and post-GST regime and, therefore, it is violative of Article 14 of the Constitution.

34. Section 16 of the CGST Act allows the entitlement to take input tax credit in respect of the post-GST purchase of goods or C/SCA/5758/2019 CAVJUDGMENT services within return to be filed under Section 39 for the month of September following the end of financial year to such purchase or furnishing of the relevant annual return, whichever is earlier. Whereas, Rule 117 allows time-limit only up to 27th December 2017 to claim transitional credit on pre-GST purchases. Therefore, it is arbitrary and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in pre-GST regime and post-GST regime. This discrimination does not have any rationale and, therefore, it is violative of Article 14 of the Constitution.

35. The Supreme Court, in the case of Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors., reported in AIR 1981 SC 487, has held that Article 14 strikes at the arbitrariness because any action that is arbitrary, must necessarily involve negation of equality. It is sufficient to state that the content and reach of Article 14 must not be confused with the doctrine of classification. The doctrine of classification which is evolved by the courts is not para-phrase of Article 14 nor is it the objective and end of that Article. Wherever there is arbitrariness in the State action, whether it be of the legislature or of the executive or of an “authority” under Article 12, Article 14 immediately springs into action and strikes down such State action. In fact, the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution. We may quote the relevant paragraphs 16 and 17 of the judgment thus :

“16. If the Society is an “authority” and therefore “State”
within the meaning of Article 12, it must follow that it is C/SCA/5758/2019 CAVJUDGMENT subject to the constitutional obligation under Article 14. The true scope and ambit of Article 14 has been the subject matter of numerous decisions and it is not necessary to make any detailed reference to them. It is sufficient to state that the content and reach of Article 14 must not be confused with the doctrine of classification. Unfortunately, in the early stages of the evolution of our constitutional law, Article 14 came to be identified with the doctrine of classification because the view taken was that that Article forbids discrimination and there would be no discrimination where the classification making the differentia fulfils two conditions, namely. (i) that the classification is founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that that differentia has a rational relation to the object sought to be achieved by the impugned legislative or executive action. It was for the first time in E. P. Ayyappa v. State of Tamil Nadu, (1974) 2 SCR 348 : (AIR 1974 SC

555), that this Court laid bare a new dimension of Article 14 and pointed out that that Article has highly activist magnitude and it embodies a guarantee against arbitrariness. This Court speaking through one of us (Bhatgwati, J.) said :

“The basic principle which therefore informs both Articles 14 and 16 is equality and inhibition against discrimination. Now what is the content and reach of this great equalising principle? It is a founding faith, to use the words of Bose, J., “a way of life”, and it must not be subjected to a narrow pedantic or lexicographic C/SCA/5758/2019 CAVJUDGMENT approach. We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be “cribbed, cabined and confined” within traditional and doctrinaire limits. From a positivistic point of view equality is antithetic to arbitrariness. In fact, equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14, and if it affects any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment.”
17. This vital and dynamic aspect which was till then lying latent and submerged in the few simple but pregnant words of Article 14 was explored and brought to light in Royappa’s case and it was reaffirmed and elaborated by this Court in Maneka Gandhi v. Union of India, (1978) 2 SCR 621 : (AIR 1978 SC 597), where this Court again speaking through one of us (Bhagwati, J.) observed :-

“Now the question immediately arises as to what is the requirement of Art. 14: what is the content and C/SCA/5758/2019 CAVJUDGMENT reach of the great equalising principle enunciated in this article, There can be no doubt that it is a founding faith of the Constitution. It is indeed the pillar on which rests securely the foundation of our democratic republic. And, therefore, it must not be subjected to a narrow, pedantic or lexicographic approach. No attempt should be made to truncate its all-embracing scope and meaning for, to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be imprisoned within traditional and doctrinaire limits………. Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omnipresence.”

This was again reiterated by this Court in International Airport Authority’s case ( (1979) 3 SCR 1014) at p. 1042: (AIR 1979 SC 1628) (supra) of the Report. It must therefore now be taken to be well settled that what Article 14 strikes at is arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. The doctrine of classification which is evolved by the Courts is not paraphrase of Article 14 nor is it the objective and end of that Article. It is merely a judicial formula for determining whether the legislative or executive action in question is arbitrary and therefore constituting C/SCA/5758/2019 CAVJUDGMENT denial of equality. If the classification is not reasonable and does not satisfy the two conditions referred to above, the impugned legislative or executive action would plainly be arbitrary and the guarantee of equality under Article 14 would be breached. Wherever therefore there is arbitrariness in State action whether it be of the legislature or of the executive or of an “authority” under Article 12, Art. 14 immediately springs into action and strikes down such State action. In fact, the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution.”

36. It is legitimate for a going concern to expect that it will be allowed to carry forward and utilise the CENVAT credit after satisfying all the conditions as mentioned in the Central Excise Law and, therefore, disallowing such vested right is offensive against Article 14 of the Constitution as it goes against the essence of doctrine of legitimate expectation.

37. The Supreme Court, in the case of MRF Ltd. v. Assistant Commissioner (Assessment) Sales Tax, reported in 2006 (206) E.L.T. 6 (S.C.), has held that a person may have a ‘legitimate expectation’ of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past C/SCA/5758/2019 CAVJUDGMENT practice. The doctrine of legitimate expectation has an important place in developing law of judicial review. We may quote the relevant paragraph 38 of the judgment thus :

“38. The principle underlying legitimate expectation which is based on Article 14 and the rule of fairness has been re- stated by this Court in Bannari Amman Sugars Ltd. v. Commercial Tax Officer, 2005 (1) SCC 625. It was observed in paras 8 and 9:
“8. A person may have a ‘legitimate expectation’ of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The doctrine of legitimate expectation has an important place in the developing law of judicial review. It is, however, not necessary to explore the doctrine in this case, it is enough merely to note that a legitimate expectation can provide a sufficient interest to enable one who cannot point to the existence of a substantive right to obtain the leave of the court to apply for judicial review. It is generally agreed that ‘legitimate expectation’ gives the applicant sufficient locus standi for judicial review and that the doctrine of legitimate expectation to be confined mostly to right of a fair hearing before a decision which results in negativing a promise or withdrawing an undertaking is taken. The C/SCA/5758/2019 CAVJUDGMENT doctrine does not give scope to claim relief straightway from the administrative authorities as no crystallized right as such is involved. The protection of such legitimate expectation does not require the fulfillment of the expectation where an overriding public interest requires otherwise. In other words, where a person’s legitimate expectation is not fulfilled by taking a particular decision then the decision-maker should justify the denial of such expectation by showing some overriding public interest. (See : Union of India and Ors. v. Hindustan Development Corporation and Ors., AIR 1994 SC 988)
9. While the discretion to change the policy in exercise of the executive power, when not trammeled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of C/SCA/5758/2019 CAVJUDGMENT arbitrariness is more easily visualized than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness.””
38. By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST Tran-1 within the due date may severely dent the writ-applicants working capital and may diminish their ability to continue with the business. Such action violates the mandate of Article 19(1)(g) of the Constitution of India.

39. This High Court, in the case of Indsur Global Ltd. v. Union of India, reported in 2014 (310) E.L.T. 833 (Gujarat), has held as under:

“34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of Rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing Cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of C/SCA/5758/2019 CAVJUDGMENT Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail.”
40. The liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation on the same subject matter and, therefore, it is arbitrary and irrational.

41. C.B.E. & C. Flyer No.20, dated 1.1.2018 had clarified as under :

“(c) Credit on duty paid stock : A registered taxable person. other than manufacturer or service provider, may have a duty paid goods in his stock on 1st July 2017. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided that the credit of the duty/tax paid earlier would be admissible as credit.”
42. Article 300A provides that no person shall be deprived of property saved by authority of law. While right to the property is no longer a fundamental right but it is still a constitutional right. CENVAT credit earned under the erstwhile Central Excise Law is the property of the writ-applicants and it cannot be appropriated for merely failing to file a declaration in the absence of Law in C/SCA/5758/2019 CAVJUDGMENT this respect. It could have been appropriated by the government by providing for the same in the CGST Act but it cannot be taken away by virtue of merely framing Rules in this regard.

43. In the result, all the four writ-applications succeed and are hereby allowed. The respondents are directed to permit the writ- applicants to allow filing of declaration in form GST TRAN-1 and GST TRAN-2 so as to enable them to claim transitional credit of the eligible duties in respect of the inputs held in stock on the appointed day in terms of Section 140(3) of the Act. It is further declared that the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision.

44. Rule made absolute to the aforesaid extent.

(J. B. PARDIWALA, J.) (A. C. RAO, J.) /MOINUDDIN

Liability Of Non-Executive Directors For Offenses Committed By The Company

MASTI

In Rajendra Shah s/o. Ambalal Shah vs. The State of Maharashtra CRIMINAL WRIT PETITION NO.1528 OF 2016, the Bombay High Court has laid down important law that persons who are not Executive Director but are alternate Directors cannot be prosecuted for offenses committed by the Company. The Court followed the judgement in Homi Phiroz Ranina & Ors. vs. State of Maharashtra & Ors where the complaint was filed for delay in remitting the tax deducted.

The applicant argued that he was non- executive Director of the company and was a practising advocates and, therefore, was prohibited under the law to act as full time directors. They could only act as non-executive directors not exercising administrative powers or peforming administrative duties.

The Bombay High Court held that unless the complaint discloses a prima facie case against the applicant/accused of their liability and obligation as principal officers in the day to day affairs of the company as Directors of the company, the applicants cannot be prsoecuted for the offences committed by the company and held that it will be a travesty of justice to prosecute all the Directors if the offence is committed without their knowledge.

DOWNLOAD: Download Rajendra Shah s/o. Ambalal Shah vs. The State of Maharashtra CRIMINAL WRIT PETITION NO.1528 OF 2016

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION

CRIMINAL WRIT PETITION NO.1528 OF 2016

Rajendra Shah s/o. Ambalal Shah … Petitioner
Vs.
The State of Maharashtra & anr. … Respondents

Mr.Amit Desai, Senior Advocate with Pranav Badheka and Abhay
Jadeja, P.Mane I/b Prashant Bhikaji Pawar for the Petitioner

Mr.Vinod Chate, APP, for the Respondent – State

Mr.Dhirendra Pratap Singh for Resp. No.2

CORAM: Mrs.MRIDULA BHATKAR, J.

JUDGEMENT RESERVED ON: JANUARY 15, 2019
JUDGEMENT DELIVERED ON: JANUARY 30, 2019

JUDGEMENT:
1. Admit. Respondents waive notice through their respective Counsel. By consent of the parties, the Petition is heard finally at the stage of admission.

2. The petitioner, the original accused No.6, challenges the order of issuance of process dated 24.5.2002 and the issuance of summons dated 3.11.2015 and prays that all proceedings and the orders are to be set aside in Criminal Case No.3847/SS/15 from the Court of Metropolitan Magistrate, 18 th Court, Girgaum, Mumbai. Respondent No.2, the Registrar of Companies, has filed this complaint under section 295 (4) of the Companies Act, 1956 for contravention of section 295 (4) of the Companies Act (for short, hereinafter referred to as ‘the Act’).

U/s 295(4) of the Act, a company needs to take prior sanction for giving loans to the other parties. However, there is a violation of the provisions under section 295 of the Act as the loans were disbursed by accused No.1 company to its sister concern. Accused Nos.7 and 8 are the companies to whom the loan is disbursed by the company, namely, M/s.Baron International Ltd. of which accused Nos.1 to 6 are the Directors. During inspection of the company’s books of accounts and the records taken on 3.11.1999 by the concerned officer from the Office of the Registrar of Companies, it was found that this disbursement of loans to accused Nos.7 and 8 was without prior sanction of the Registrar of Companies and therefore, criminal complaint is lodged on 24.5.2002.

3. The learned Senior Counsel appearing for the applicant/accused has submitted that the order of issuance of process against the applicant/accused is illegal and bad in law on the following grounds:

i) He submits that the applicant/accused is not an Executive Director but he was an alternate Director. He submits that in the averments made in the complaint, no substantial role is attributed to accused No.6, who is an advocate and solicitor by profession and is a senior partner in the firm M/s.Crawford Bayley & Company, advocates & Solicitors. He is not a signatory of the cheque which is subject matter of the prosecution. In the complaint also, it is specifically mentioned that the original accused No.2 has signed and issued the said cheque. The averments are mainly against the accused Nos.2 to 4 and not against accused No.6.

ii) In the balance sheet of 30.6.1999, the amount of Rs.112,240/- has been shown as the loan amount due from Jaykaba Trading and Investment Ltd., accused No.8 and Rs.26 lakhs has been shown as amount due from Shakun Mulchanani and Kabir Mulchandani of M/s.Sprite Electronics Private Ltd. of which accused Nos.2 and 3 are the directors. The petitioner is not connected with those companies.

4. They held the position of Directors in these two companies. Thus, both accused Nos.1 and 2 are the ones, who were active in disbursement and maintaining the books of accounts. He further submitted that as per the Advocates Act, the applicant/accused, being an advocate, is not supposed to sign any balance sheet or cannot be a witness in any proceedings. Moreover, a mere signature is not to be taken that he had approval and knowledge about such disbursement of loans and whether this disbursement is without sanction? He submitted that accused No.6 was an alternate Director and not Managing Director. He signed as an alternate director on the balance sheet and not as a Managing Director. On the balance sheet, the signatures of a Chairman and accused No.2 as a Managing Director are appearing. Therefore, the signature of applicant/accused appearing on the balance sheet is in fact insignificant and no vicarious liability can be saddled on accused No.6 in this company affair.

He also pointed out that company is not a party to the proceedings. The learned Counsel has submitted that in para 2, the complainant has mentioned that accused Nos.1 to 6, at the relevant time, were the officer in default of the company as per annexure A. The learned Counsel relied on the definition of officer, who is in default, under section 5 of the Act.

He argued that he does not fall in the category of A, B, C, D, E and F. In clause (G), he may fall, however, accused No.2 is working as a Managing Director and, therefore, clause (g) will not be attracted to the present applicant/accused.

5. He further argued that the inspection has taken place in 1999; the complaint was filed in 2002 i.e., after more than 2 years and, therefore, as per section 468 of the Criminal Procedure Code, cognisance of this offence can be taken only within one year where the punishment is of one year. In the present case, the punishment is prescribed for one year and so, the complaint filed is beyond limitation and the trial Court ought not to have taken cognisance of this complaint.

6. In support of his submissions, he relied on the judgments in Srikumar Menon and Ors. vs. Registrar of Companies. 1; Atul B. Munim vs. Registrar of Companies & Ors. 2 and in Homi Phiroz Ranina & Ors. vs. State of Maharashtra & Ors. 3

7. Mr.Singh, the learned Counsel appearing for Respondent No.2, while opposing this application has submitted that at the 1 MANU/WB/0525/2011 2 1999 SCC Online Bom 893 3 2003 (3) Mh.L.J. 34 wp.1528.2016 (R).doc stage of issuance of process, the learned Judge has to only consider the averments made in the complaint. In the present case, the petitioner is admittedly a Director of the said company. It is also admitted that the loans were disbursed to the respondents/ accused Nos.7 and 8 without taking prior sanction of the government, which are the sister companies of the company. He submitted that there is no delay in filing the complaint because time was taken for show-cause notice dated 3.1.2002 issued by the office to accused No.6 and it was received by the wife of the accused on 26.5.2005 and it was served. The show-cause notice was served immediately at the residence of respondent No.6. The learned Counsel submitted that there is no delay in filing the complaint because the sanction to launch prosecution by the respondents was obtained by the complainant on 12.10.2002 and immediately in 2002. Then, the complaint was filed in May, 2002.

8. In support of his submissions, he relied on the judgment of the Madras High Court in the case of R.M. Subramaniam & Ors. vs. Inspector of Labour, Tiruchirapalli 4; so also of the Delhi High Court in the case of Bhupinder Kaur Singh & Ors. vs. Registrar 4 MANU/TN/1049/1999 wp.1528.2016 (R).doc of Companies5.

9. Heard. Perused the complaint and other record before the Court. In the case of Srikumar Menon and Ors. vs. Registrar of Companies (supra), a show-cause notice was sent under section 295(1C) of the Act. An application was filed under section 633(2) of the Companies Act, where without permission of the Central Government, intercorporate deposits were created. For such violation, conviction prescribed was maximum imprisonment of 6 months for the offender. The complaint was filed, however, objection was raised on the ground that it was barred by limitation under section 468 of the Code of Criminal Procedure. The learned Single Judge of the Calcutta High Court held that under section 469(3) of the Code of Criminal Procedure, the period of limitation in relation to offence shall commence on the day, when such offence came to his knowledge of the aggrieved person. In that case, therefore, if the Central Government is aggrieved by the act of company then, the date of inspection was considered as the date of knowledge to the Central Government and from that date, the limitation was to be computed.

5 142 (2007) Delhi Law Times 277

10. In the case of Atul B. Munim vs. Registrar of Companies & Ors (supra), a learned Single Judge of this Court has considered section 5 of the Companies Act. It was held that if the petitioner was not a whole time or executive director of the company, then, he is to be treated as alternate to the whole time director or executive director of the company. He also stated that the process cannot be issued mecanically without applying mind to the facts of the case and the provisions of law.

11. In Homi Phiroz Ranina & Ors. vs. State of Maharashtra & Ors., the complaint was filed for delay in remitting the tax deducted. The applicant has taken stand that he was non- executive Director of the company and they are also practising advocates and, therefore, they are prohibited under the law to act as full time directors. They could only act as non-executive directors not exercising administrative powers or peforming administrative duties. It is held that unless the complaint discloses a prima facie case against the applicant/accused of their liability and obligation as principal officers in the day to day affairs of the company as Directors of the company, the applicants cannot be prsoecuted for the offences committed by the company and held that it will be a travesty of justice to prosecute all the Directors if the offence is committed without their knowledge. The set of the facts are quite similar to the facts in the present case.

The status of the applicant/accused in the case of Homi Phiroz Ranina & ors. vs. The State of Maharashtra & ors. (supra), is similar to the status of the petitioner in the case in hand. The applicant is also a practising advocate and solicitor. So, he could only act as non- executive Director unless specific material is brought on record, the liability of a principal or active Director cannot be fixed on him. Admittedly, he is not a signatory to the cheque, which is the subject matter of the complaint.

12. In R.M. Subramaniam & Ors. vs. Inspector of Labour, Tiruchirapalli (supra), a revision was preferred against conviction under the Industrial Disputes Act. A learned Single Judge of the Madras High Court in that case has held that where notice of prosecution for an offence has been given and where previous sanction of the government is required, the period of such notice and the time spent for obtaining sanction has to be excluded in admitting the period of limitation. In the said case, the learned Judge has taken a different view from the earlier view taken by the wp.1528.2016 (R).doc Bombay High Court in the case of H.H. Wagh vs. State of Maharashtra & anr.6. In the said case, the offence was committed under the Industrial Disputes Act but the learned Single Judge of this Court has taken a view that when there is no provision of taking sanction in the act of the government or the authority and though the sanction is taken, there is no such period of sanction which can be excluded from computing the period of limitation.

13. In Bhupinder Kaur Singh & Ors. vs. Registrar of Companies7. In this case, the learned Single Judge of Delhi High Court while dealing with the proceedings under the Companies Act, has dealt with the issue of period of limitation for prosecution. In the said case, the funds collected by way of public issue were not utilised in the leasing business as stated in and promised in the prospectus and, therefore, the act was made punishable under section 63 and 628 of the Companies Act. In the said case, the complaint was filed immediately after receiving permission from the Department of Company Affairs. The learned Judge has held that the question of limitation is a mixed question of law and fact. The learned Judge has held that the complaint cannot be thrown out on 6 1991 (1) Bom.C.R. 206 7 142 (2007) Delhi Law Times 277 wp.1528.2016 (R).doc the ground of limitation and it is to be decided at the stage of trial. In the said case, in November, 2015, the prospectus was sent in November, 1995 and the issue was opened on 29.1.1996 and closed on 8.2.1996 and the complaint was filed 6 years thereafter i.e., in the year 2002, though the period of limitation was 3 years.

14. In the present case, the inspection was carried on 3.11.1999 by the Income Tax department and the complaint was filed in May 2002. The view taken by the Madras High Court in the case of R.M. Subramaniam (supra) is different than the view taken by the Bombay High Court. However, it is also true as laid down in the case of Bhupinder Kaur Singh (supra), it is a matter of mixed question of law and facts. Therefore, this issue can be kept open in the complaint.

15. The other point in respect of the status of the petitioner as an active partner and was having knowledge of not taking prior approval for disbursement, is not made out in the averments. A specific role is attributed to accused Nos.1 and 2. Accused No.2 is a Managing Director and therefore, he has signed the cheque. The petitioner had not signed the books of accounts but he has signed the balance sheet. The submissions of the learned Senior wp.1528.2016 (R).doc Counsel that the said balance sheet was signed in a routine manner as the signature of the Managing Director and the chairman were appearing, carries substance. Thus on the basis of only signature, it cannot be said that there is enough material to show the knowledge of the petitioner of disbursement of the loan without prior approval. A significant circumstance also to be addressed to is that the accused Nos.1 and 2 are the Directors of those companies in whose favour the loans were disbursed. Thus, the accused Nos.1 and 2 had direct interest in the disbursement of loan. There is nothing to show that the petitioner has any interest or any connection with the other two companies. In view of these facts and the submissions of the learned Counsel for both the parties, I hold that no case is made out to issue process under section 295 (4) of the Companies Act, 1956 is made out to swaddle the vicarious liability on the petitioner.

16. Hence, the process issued by the learned Magistrate under section 295 (4) of the Companies Act, 1956 on 24.5.2002 and the summons dated 3.11.2015 are quashed and set aside. Rule is made absolute accordingly.

(MRIDULA BHATKAR, J.)

CBDT Circular On Bogus Long-Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) On Penny Stocks

MASTI

Circular No. 23 of 2019
F. No. 279/Misc./M-93/2018-ITJ(Pt.)
Government of India
Ministry of Finance
Department of Revenue
Central Board Direct Taxes
Judicial Section
New Delhi, 6th September 2019

Subject: -Exception to monetary limits for filing appeals specified in any Circular issued under Section 268A of the Income-tax Act, 1961-reg

Reference is invited to the Circulars issued from time to time by Central Board of Direct Taxes (the Board) under section 268A of the Income-tax Act,1961 (the Act), for laying down monetary limits and other conditions for filing of departmental appeals before Income Tax Appellate Tribunal (ITAT), High Courts and SLPs/appeals before Supreme Court.

DOWNLOAD: Download CBDT Circular No. 23 of 2019 (Penny Stocks Monetary Tax Limit)

2. Several references have been received by the Board that in large number of cases where organised tax-evasion scam is noticed through bogus Long-Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on penny stocks and department is unable to pursue the cases in higher judicial fora on account of enhanced monetary limits. It has been reported that in large number of cases, ITATs and High Court have recognized the unique modus operandi involved in such scam and have passed judgements in favour of the revenue.

However, in cases where some appellate fora have not given due consideration to position of law or facts investigated by the department, there is no remedy available with the department for filing further appeal in view of the prescribed monetary limits.

3. In this context, Board has decided that notwithstanding anything contained in any circular issued u/s 268A specifying monetary limits for filing of departmental appeals before Income Tax Appellate Tribunal (ITAT), High Courts and SLPs/appeals before Supreme Court. appeals may be filed on merits as an exception to said circular, where Board, by way of special order direct filing of appeal on merit in cases involved in organised tax evasion activity.

4. Hindi version follows.
(Neetika Bansal)
Director (lTJ)
CBDT, New Delhi
Copy to:
I . Chairman, Members and all other officers in CBDT of the rank of Under Secretary and
above.
2. All Pr. Chief Commissioners oflncome tax and all Directors General oflncome Tax
3. ADG (PR, P&P), Mayur Bhawan, New Delhi for printing in the quarterly Tax Bulletin
and for circulation as per usual mailing list.
4. The Comptroller and Auditor General ofIndia.
5. ADG (Vigilance), Mayur Bhawan, New Delhi.
6. Joint Secretary & Legal Advisor, Ministry of Law & Justice, New Delhi.
7. All Directorates of Income-tax, New Delhi and ProDGIT(NADT), Nagpur.
8. ITCC (3 copies).
9. ADG (System)-4, for uploading on the Department’s website.
10. Data Base Cell for uploading on irsofficersonline.gov.in.
II. njrs_support@nsdl.co.in for uploading on NJRS.
12. Hindi Cell for translation.
13. Guard file.
(Neetika Bansa )
Director (lTJ)
CBDT, New Delhi

Guidelines for manual selection of returns for Complete Scrutiny during the financial-year 2019-20

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F.No.225/169/2019/ITA-11
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes (ITA-II division)
North Block, New Delhi, the 5th September, 2019

To

All Pr. Chief-Commissioners of Income-tax/Chief-Commissioner of Income-Tax

All Pr. Directors-General of Income tax/Directors-General of Income-tax

Sir/Madam

Subject: Guidelines for manual selection of returns for Complete Scrutiny during the financial-year 2019-20-regarding.-

1. The parameters for manual selection of returns for Complete Scrutiny during financial year 2019-20 are as under.-

(i) Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact: –

a. exceeding Rs. 25 lakhs in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune while at other charges, quantum of addition should exceed Rs. 10 lakhs;

b. exceeding Rs. 10 crore in transfer pricing cases. and where such an addition:-

1. has become fi ~al as no further appeal has been filed against the assessment order; or

2. has been confirmed at any stage of appellate process in favor of revenue and assessee has not filed further appeal; or

3. has been confirmed at the 1st stage of appeal in favor of revenue or subsequently; even if further appeal of assessee is pending, against such order.

(ii) Cases pertaining to Survey under section 133A of the Income-tax Act, 1961 (‘Act’) excluding those cases where books of accounts, documents, etc. were not impounded and returned income (excluding any disclosure made during the Survey) is not less than returned income of preceding assessment year.

However, where assessee has retracted from disclosure made during the Survey, such cases will be considered for scrutiny.

(iii) Assessments in search and seizure cases to be made under section(s) 153A, 153C, 158BA, 158BC & 158BD read with section 143(3) of the Act and also for return filed for assessment year relevant to previous year in which authorization for search and seizure was executed under section 132 or 132A of the Act.

(iv) Cases where registration/approval under various sections of the Act such as 12A,
35(1)(ii)/(iia)/ (iii) , lO(23C), etc . have not been granted or have been cancelled/withdrawn by the Competent Authority, yet the assessee has been found to be claiming tax-exemption/deduction in the return. However, where such orders of withdrawal of registration/approval have been reversed/set-aside in appellate proceedings, those cases will not be selected under this clause.

(v) Cases in respect of which specific information pointing out tax-evasion for the relevant year is given by any law- enforcement /intelligence/regulatory authority or agency . However, before selecting a return for scrutiny under this criterion, Assessing Officer shall take prior administrative approval from jurisdictional Pr. CIT/Pr.DIT/CIT/DIT concerned.

2. Through Computer Aided Scrutiny Selection (CASS), cases are being selected in two categories viz. Limited Scrutiny & Complete Scrutiny in a centralized manner under CASS-2019. CASS is a system-based method for scrutiny selection which identifies the cases through data-analytics and three-hundred sixty degree data profiling of taxpayers and in a non -discretionary manner. The list of these cases is being/has been separately intimated by the Principal DGIT(Systems) to the Jurisdictional authorities concerned for further necessary action. In respect of cases selected under CASS cycle 2019, the following guidelines are specified.

(i) Cases where returns are selected for scrutiny through CASS but are not verified by the assessee within th e specified peri od of e-fil ing and such ret urns remain unverified before the due date for issue of notice u/s 143(2), shou ld be reopened by issue of notice under section 148 of the Act .

(ii) Cases selected for ‘Limited Scrutiny’ but credible specific information has been/is received from any law- enforcement/intelligence/ regulatory authority or agency regarding tax-evasion in such cases, then only issue(s) arising from such information can be exam ined during the course of conduct of assessment proceedings in such ‘Limited Scrutiny’ cases, with prior administrative approval of the Pr. CIT/CIT concerned as per the procedure laid down in Board’s letter dated 28.11.2018 issued vide F.No.225/402/2018/ITA-1 1. In such ‘limited Scrutiny’ cases, Assessing Officer shall not expand the scope of enquiry/investigation beyond the issue(s) on which the case was flagged for ‘Limited Scrutiny’ and the issue(s) arising from the information received from the above referred agency or authority.

3. This may be brought to the notice of all concerned for necessary compliance .

4. Hindi version to follow.

(Rajarajeswari R.)

Under Secretary-ITA.II, CBDT

DOWNLOAD: Download CBDT Guidelines for manual selection of returns for Complete Scrutiny

Modification by CBDT in the new system of approval in respect of application under section 197 of Income Tax Act

MASTI

F.No.275/16/2019-IT(B)
Government of India
Ministry of Finance, Department of Revenue
Central Board of Direct Taxes
*****
North Block, New Delhi 2nd September, 2019

Office Memorandum

Subject: Modification in the new system of approval in respect of application under section 197 of Income Tax Act

Reference may be made to the Board’s Instruction No. 7 of 2009 dated 23.12.2009 vide which prior administrative approva l of Commissioner of Income Tax was prescribed for issue of certificate under section 197 of the Income -Tax Act, where the tax forgone exceeded specified thresholds.

Various administrative and systematic difficulties related to such amount of revenue forgone under the newly introduced system of online application uls 195/197 of the LT. Act 1961 in respect of non-resident taxpayers were brought to the notice of the Board.

To address these difficulties, a proposal for raising the threshold of revenue forgone
was made so as to balance the needs of supervisory control and expeditious grant of certificate .

2. The above matter has been examined in the Board and it has been decided to raise threshold of revenue effect for issue of certificates under section 197/195 needing approval of the Commissioner of Income Tax (IntI. Taxation) to Rs. 10 Crore.

This threshold will be applicable for all stations in respect of all applications of non-resident taxpayers either pending as on date or filed hereafter.

This issues with the approval of the Chairman , CBDT.

(Naveen Kapoor)
Under Secretary to the Govt. of India
Ph. No. 011-23094182

DOWNLOAD: Download CBDT Office Memorandum

ITAT Vice Presidents Transferred By Justice P P Bhatt

MASTI

Government of India
Ministry of Law & Justice
Income Tax Appellate Tribunal
4th Floor, Prathishtha Bhavan, 101 Maharshi Karve Marg,
Mumbai – 400020
INo. F.46-Ad(AT)/2019

ORDER

20th August, 2019

Shri Pramod Kumar, Vice President, Income Tax Appellate Tribunal, Ahmedabad Zone
(with Headquarter at Mumbai) is transferred to ITAT Mumbai Benches as Vice President
(Mumbai Benches) w.e.f. 2nd September, 2019. Shri Pramod Kumar, Vice President will continue to hold additional charge of Vice President, ITAT Hyderabad Zone.

Shri G.S. Pannu, Vice President, Income Tax Appellate Tribunal, Mumbai is transferred to ITAT Delhi Benches w.e.f. 2nd September, 2019 as Vice President (Delhi Zone). Shri G.S. Pannu, Vice President will continue to hold additional charge of Vice President, ITAT Chennai Zone.

Shri G.S. Pannu, Vice President may avail, if so advised, TAIDA and joining time as admissible under the rules.

Sd/-

[Justice P P Bhatt]
President

DOWNLOAD: Download ITAT Transfer Order

CBDT Consolidated circular No. 22/2019 dt. 30.08.2019 for assessment of Startups

MASTI

Circular No..22/2019
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi , dated the 30th August, 2019

Sub: Consolidated circular for assessment of Startups – reg.

In order to provide hassle-free tax environment to the Startups, a series of announcements have been made by the Hon’ble Finance Minister in her Budget Speech of 2019 and also on 23rd August, 2019.

To give effect to these announcements, the Central Board of Direct Taxes (CBDT) has issued various circulars/clarifications in the matter. This circular consolidates all these circulars and further clarifies as under:-

2. Assessment of Startups

The circular No. 16/2019 dated 7 th of August, 2019 provided for the following procedure for pending assessment of the Startups:-

i. In case of Startup companies recognized by Department for Promotion of Industry and Internal Trade (DPIIT) which have filed Form No.2 and whose cases are under “limited scrutiny” on the single issue of applicability of section 56(2)(viib) of the Income-tax Act, 1961 (the Act),the contention of the assessee will be summarily accepted.

ii. In case of Startup companies recognized by DPIIT which have filed Form No. 2 and whose cases have been selected under scrutiny to examine multiple issues including the issue of section 56(2)(viib)of the Act, this issue will not be pursued during the assessment proceedings and inquiry on other issues will be carried out by the Assessing Officer only after obtaining approval of the supervisory authority.

iii. In case of Startup Companies recognized by the DPIIT, which have not filed Form No.2, but have been selected for scrutiny, the inquiry in such cases also will be carried out by the Assessing Officer only after obtaining approval of the supervisory authorities.

3. Time limit for Completion of pending assessments of the Startups

All assessment referred to in 2(i) should preferably be completed by the AOs by 30th September, 2019. The assessments referred to in 2(ii) & 2(iii) should be taken up on priority and should be preferably completed by 31st October, 2019.

4. Procedure for addition made U/S 56(2)(viib) in the past assessment

The clarification issued on 9th August,2019 provided that the provisions of the section 56(2)(viib) of the Act shall also not be applicable in respect of assessment made before 19th February, 2019 if a recognised Startups has filed declaration in Form No.2.

The following procedure is laid down with regard to addition made under section 56(2)(viib) of the Act in assessment order passed before 19th February, 2019:-

i. In case the appeal against the assessment is pending before the Commissioner of Income-tax (Appeal)[CIT(A)], the appellate order should be passed by CIT(A) on or before 31st December, 2019 after taking into account the fact that the Startup has filed declaration in Form No. 2 and hence the provisions of section 56(2)(viib) of the Act are not applicable for the addition made under section 56(2)(viib) of the Act before 19th February, 2019. The Department shall no t file further ap peal on the issue of addition made under section 56(2)(viib) of the Act;

ii. In case the case is pending before the ITAT, the Department shall not press the ground relating to addition under section
56(2)(viib) of the Act in these cases.

5. Income-tax demand

It is reiterated that the outstanding income-tax demand relating to additions made under section 56(2)(viib) shall not be pursued and no communication with the assessee in respect of outstanding demand shall be made for this purpose. In respect of other income-tax demand, it is decided that the income-tax demand shall not be pursued unless the demand is confirmed by the ITAT.

6. Constitution of Startup cell

In order to redress grievances and to address various tax related
issues in the cases of Startups, a Startup Cell is constituted on 30th August, 2019 with the following ex-officio members:-

S.No . Portfolio Designation Contact Number

1. Member (IT&C) Chairman 011-230982831
2. JS (TPL-II) Member 011-23092859
3. CIT (ITA) Member 011-23092837
4. Director (ITA-I) Member Secretary 011-23092107
5. Under Secretary (ITA-I) Member 011-23095479
7. The Cell, for any grievances/ communications relating to Startups may be approached at % Under Secretary, ITA-I, Room No. 245A, North Block, New Delhi-11000l. Ph. No. 011-23095479/ 23093070 (F). The Cell will also be accessible at star tupcelI.cbdt@gov.in.

(F.No. 173jl49/2019-ITA-I)
8. Hindi version to follow .

(Prajna Paramita)
Director (ITA-I )

DOWNLOAD: Download CBDT Circular No. 22/2019 dated 30th August 2019

Taxation Of Startups – Angel Tax: Complete Guide

MASTI

This is a guide to the levy of “angel tax” on start-ups. It summarizes the legislative amendments made to the Income-tax Act 1961 and also the various circulars and instructions issued by the CBDT.

What is “angel tax”?

Section 56(2)(viib) (Section) of the Indian Tax Laws (ITL) (popularly known as the “angel tax” provisions) is an anti-abuse provision which applies when a CHC issues shares (including preference shares) to a resident at a premium and receives consideration which is in excess of the FMV of the shares. The excess amount so received is deemed as income from other sources in the hands of the CHC in the year of issue of the shares.

• Rule 11UA of the Income Tax Rules (Valuation Rules) prescribes the valuation methodology for determining the FMV of various types of assets (including unquoted equity shares), not only for the purposes of the angel tax provision, but also for other anti-abuse provisions involving transfer of assets without consideration or at a value less than the FMV.

• The FMV of unquoted equity shares for the purpose of the angel tax provision read with Rule 11UA is the higher of the following:

Net asset value as reflected in the audited balance sheet of the CHC (break-up value method)

OR

The DCF value as determined by a Category-I MB or Accountant

OR

The value that the company is able to substantiate to the satisfaction of the Tax Authority, basis the holding of various intellectual property rights (IPRs) like goodwill, know-how, patents, copyrights etc.

• In case of unquoted shares and securities other than equity shares in a company not listed in any recognized stock exchange, as per Rule 11UA, the FMV is the estimated open market value as may be determined by a Category I MB or Accountant. This rule applies to both angel tax and other anti-abuse provisions.

• Prior to the Valuation Notification, the term “Accountant” was defined as under:

• For angel taxation: In case of valuation of unquoted equity shares, an Accountant is a Fellow CA who is not appointed as a tax auditor under the ITL or as a statutory auditor under the Companies Act, 2013.

• For other anti-abuse provisions: Any CA in practice who can act as an Authorized Representative for the taxpayer and fulfils the independence criteria as prescribed under the ITL.

• Changes brought about by the Valuation Notification are as follows:

• The Valuation Notification has withdrawn the option given to the taxpayer to obtain a valuation report from a CA for determining the FMV of unquoted equity shares based on the DCF method for the purpose of the angel tax provision. As a
consequential amendment, it has also omitted the definition of “accountant”.

• Thus, where the taxpayer wishes to rely on the DCF method, it can now obtain a DCF valuation report only from a Category 1 MB. A valuation report from a practising CA will no longer be a valid compliance for the angel tax provision.

• However, it may be noted that the above change applies only to the valuation of unquoted equity shares required for the angel tax provision by adopting the DCF method option. For shares other than unquoted equity shares (like preference
shares), the taxpayer continues to have the option to obtain a valuation report from either a Category I MB or a CA. The changes in Rule 11UA are depicted in the table at Annexure.

• The aforesaid amendment comes into force from the date of publication in the official gazette i.e., 24 May 2018.
• Exemption from the angel tax provision for eligible

DOWNLOAD: Download Guide To Angel Tax On Startups – CBDT Circulars, Notifications, Press Note, Instructions

“start-ups”

• The angel tax provision does not apply to shares issued by a venture capital undertaking to a venture capital fund or a venture capital company[“Venture capital undertaking”, “venture capital fund” and “venture capital company” shall have meaning as assigned under Explanation(c) to Section 10(23FB) of the ITL].

• In addition, the provision does not apply when shares are issued to a class or classes of persons as notified by the CG. Pursuant to exercise of this power, the CG issued the following notifications with corresponding reference to the DIPP notifications.

• The additional conditions imposed by the 2018 DIPP Notification for start-up companies are:

• A cap of INR100m on the aggregate of paid-up share capital and share premium post issue of shares.

• Requirement to furnish a valuation report obtained from a Category I MB specifying the FMV of the shares, in accordance with Rule 11UA.

• As per the 2018 DIPP Notification, the conditions required to be fulfilled by the investor are, either:

• Average returned income of INR2.5m or more for the preceding three financial years.
OR

• Net worth of INR20m or more on the last date of the preceding financial year.

• The Start-up Notification aligns with the 2018 DIPP Notification and provides that where shares are issued at premium for a consideration in excess of the FMV, the angel tax provision shall not apply on such consideration received from an investor by a start-up company, in accordance with the approval granted by the IMB under the 2018 DIPP Notification.

• This change comes into force retrospectively from 11 April 2018, being the date on which the 2018 DIPP Notification was issued/published in the official gazette.

Key amendments of Finance (No. 2) Bill, 2019 relating to Angel tax on startups

Withdrawal of exemption and automatic levy of penalty where start-ups breach condition for angel tax exemption

► FB 2019 proposed to introduce claw back provision for “angel tax” exemption availed of by start-up companies in the event of breach of any of the notified conditions. “Angel tax” refers to taxation of excess premium received by a closely-held company from a resident investor (i.e., consideration received in excess of fair market value of shares). But, the claw back was proposed for the whole premium (consideration received in excess of face value of shares), instead of only excess premium.

► At the enactment stage, the claw back is restricted to only excess premium over fair market value, but with a more onerous consequence that such claw back shall be deemed to be misreported income attracting penalty @ 200% of the excess premium.

Angel tax exemption extended to issue of shares to all sub-categories of Category-I AIFs

► FB 2019 proposed to extend exemption from angel tax currently available for investment by a Venture Capital Company or a Venture Capital Fund (being a sub-category of Category-I AIF) in a Venture Capital Undertaking to investment by Category-II AIFs also. This left out other sub-categories of Category-I AIFs like infrastructure fund, social venture fund, SME fund etc.

► At the enactment stage, the exemption is extended to all sub-categories of Category-I AIFs. Thus, investment by any entity in Category-I or Category-II AIF in a Venture Capital Undertaking (including a recognized start-up) will now be exempt from angel tax.

CBDT notifies exemption for start-ups from ups from “angel tax” as per relaxations notified by DPIIT

Notification No. 13 of 2019 dated 5 March 2019 was issued by the Central Board of Direct Taxes (CBDT) in relation to exemption to start-ups from taxation of excess share premium received by such start-up companies from a resident investor under an anti-abuse provision of the Indian Tax Laws (ITL) popularly known as the “angel tax” provision.

On 19 February 2019, the Department for Promotion of Industries and Internal Trade (DPIIT) issued a Notification (2019 DPIIT Notification) which substantially relaxed the conditions and procedure for exemption from “angel tax” for start-up companies by adopting a “green channel” process in place of the earlier approval-based process.

In order to claim exemption, the “start-up company” which fulfils the modified conditions[4] has to merely file a self-declaration stating that the eligible start-up has not invested in non-qualifying assets[5] which shall be transmitted by the DPIIT to the CBDT.

In the light of new exemption regime prescribed by the 2019 DPIIT Notification, the present CBDT Notification, as a consequential step, supersedes the earlier CBDT Notification[6] and grants exemption to start-ups from “angel tax” provision if the start-up company complies with the conditions specified in the 2019 DPIIT Notification.

The present CBDT Notification comes into force retrospectively from 19 February 2019, being the date of the 2019 DPIIT Notification.

In relation to past issue of shares, in line with the 2019 DPIIT Notification, the relaxation will not apply to prior years where assessment orders in relation to angel tax have already been passed by the Tax Authority. As per news reports, the CBDT has instructed the Tax Authority not to take coercive action and ensure speedy disposal of such appeals on priority.

But where no such demands are raised or notices are received but assessment orders are yet to be passed, taxpayers can expect relief from angel tax provision by complying with the 2019 DPIIT Notification. If conditions of the 2019 DPIIT Notification are not fulfilled, taxpayers will need to defend their case on merits by justifying the share valuation.

It may also be noted that the present CBDT Notification does not address invocation of broader provisions to treat share investments by non-resident investors as unexplained cash credits.

CBDT lays down administrative mechanism for pending assessments of start-up companies

The Central Board of Direct Taxes (CBDT) issued Circular No. 16/2019 dated 7 August 2019 in relation to the manner of conducting assessment proceedings (including pending assessments as of date), involving angel tax and other issues, in case of start-up companies.

Angel tax, under the Indian Tax Laws (ITL), refers to a tax on premium received by a closely-held company on issue of shares in excess of the fair market value (FMV) of the shares.

Such FMV is determined basis normative valuation rules or the valuation report by a merchant banker or any other basis as substantiated to the satisfaction of the Tax Authority.

With a view to promote the start-up industry, the CBDT issued a notification[3] stating that “start-up” companies which satisfy the conditions prescribed under the notification[4] issued by the Department for Promotion of Industries and Internal Trade (DPIIT) (2019 DPIIT Notification) will be exempt from the levy of angel tax. The 2019 DPIIT Notification, however, did not explicitly provide any relief where the assessment proceedings are pending with the Tax Authority.

► In wake of representations from the start-up industry, through the Budget Speech on 5 July 2019, the Finance Minister had announced that the CBDT shall frame a special administrative mechanism for disposing pending assessments of start-ups and for redressal of grievances. The Finance Minister also assured that, for start-up companies, the Tax Authority shall not conduct inquiry or verification without the approval of the supervisory officer.

► Pursuant thereto and by exercising powers granted to the CBDT under the ITL for proper administration, the CBDT Circular was issued on 7 August 2019 for granting relaxation to start-up companies in relation to the manner of conduct of pending assessments for angel tax and other issues.

► The CBDT Circular was issued in light of various instances where notices for conducting assessment or reassessment have been issued by the Tax Authority before or after the issue of the 2019 DPIIT Notification and where such cases are, presently, pending for disposal.

The relaxation provided by the CBDT is as follows:

► Procedure for completion of pending assessment for recognized start-ups: In case of recognized start-up companies satisfying the conditions for availing angel tax exemption under the 2019 DPIIT Notification, the procedure shall be as follows:

o In case of “limited scrutiny” where the sole issue of applicability of angel tax is being examined, the Tax Authority shall not conduct any verification. The Tax Authority is directed to summarily accept the contentions of recognized start-up companies.

o In case of “limited scrutiny with multiple issues” or “complete scrutiny” where assessment is conducted in case of other issues along with examination of levy of angel tax, the issue of angel tax shall not be pursued by the Tax Authority.

Furthermore, the Tax Authority shall conduct inquiry or verification for other issues only after obtaining the approval of the supervisory officer. Furthermore, in relation to other issues, assessment proceedings shall be conducted as per the procedure laid down under the ITL.

► Procedure for start-up companies not having DPIIT approval: In such cases where the assessment is being conducted for angel tax or other issues, the Tax Authority shall conduct inquiry or verification only after obtaining the approval of the supervisory officer.

Adhering to the promise of the Finance Minister, the CBDT has taken a proactive measure to clear the air on the outcome of assessment proceedings of start-up companies. While this is a welcome move, the said directions are not applicable in relation to the issues of start-up companies which are pending at the appellate level and assessments have already been conducted by the Tax Authority in past years.

CBDT extends Angel tax exemption to start-up companies for completed assessments of past years

The Central Board of Direct Taxes issued Instruction No. F.No.173/354/2019-ITA-1 dated 9 August 2019 (CBDT Instruction) to extend exemption from Angel tax to start-up companies where addition of income in relation to Angel tax is made in assessment orders passed before 19 February 2019.

“Start-up” companies which satisfy the conditions prescribed under the notification[4] issued by the Department for Promotion of Industries and Internal Trade (DPIIT) [5] (2019 DPIIT Notification) are exempt from the levy of Angel tax[6]. The 2019 DPIIT Notification extended the condition-based exemption to past and proposed issue of shares undertaken by start-up companies. However, it did not provide any relaxation where an addition has been made in relation to Angel tax in an assessment order before issue of 2019 DPIIT Notification i.e., prior to 19 February 2019.

In order to mitigate hardship caused to the start-up companies, the CBDT has, on realization of the lacuna, issued a clarification on 9 August 2019 to relieve recognized start-ups where addition is made for Angel tax income in assessment order passed before 19 February 2019. To claim such an exemption, the start-up company is required to submit self-declaration as required in the 2019 DPIIT Notification confirming that all the conditions laid down in the said Notification are fulfilled.

The CBDT clarification follows the CBDT Circular[7] which lays down administrative mechanism for conduct of assessment proceedings (including pending assessments). The present CBDT instruction is a welcome move which directs the Tax Authority to grant Angel tax exemption in case of past years where assessment orders were passed before the date of 2019 DPIIT Notification. The Government of India has been proactive in resolving the concerns faced by the start-ups.

Accordingly, start-up companies which are recognized and have filed requisite declaration to the CBDT may apply for rectification of assessment order passed by the Tax Authority within the time limit prescribed under the ITL. In case of on-going assessment proceedings at appellate level, the present CBDT clarification may help the start-up companies to defend their cases before the relevant authorities.

CBDT forms dedicated cell for start-ups to redress tax grievances

The Central Board of Direct Taxes (CBDT) issued Order dated 30 August 2019 for setting-up of a dedicated cell for start-ups (“Start-up Cell”) to redress the grievances and address the various issues under Indian Tax Laws (ITL), including angel tax. The CBDT Order is issued in light of the announcement made by the Finance Minister in Budget Speech as also at the press meeting held on 23 August 2019.

The Start-up Cell comprises the officials from different hierarchy at CBDT and can be contacted over telephone number (011-23095479/23093070 (F)) and email id (startupcell.cbdt@gov.in).

The CBDT Order is issued to implement the announcement made by the Finance Minister in Budget Speech on 5 July 2019 as also at the press meeting held on 23 August 2019 and is the latest in a series of proactive steps undertaken by CBDT to provide impetus to Start-up industry and clarify the ambiguities under the ITL.

The Start-up Cell comprises the following officials from different hierarchy at CBDT:

Official Designation in Start-up Cell
Member (Income Tax and Computerisation)
Chairman
Joint Secretary -Tax Policy and Legislation-II
Member
Commissioner of Income Tax (ITA)
Member
Director (ITA-I)
Member Secretary
Under Secretary (ITA-I)
Member

The Start-up Cell can be contacted over telephone number (011-23095479/23093070 (F)) and email id (startupcell.cbdt@gov.in) provided in the Order. The official address of the Start-up Cell is located at Room No. 245A, North Block, New Delhi – 110001.

This recent initiative by the CBDT is aimed to ease the compliance issues for start-ups. The CBDT Order is the latest in a series of proactive steps undertaken by CBDT to provide impetus to Start-up industry and clarify the ambiguities under the ITL. Earlier, on 5 March 2019, the CBDT issued a Notification to provide exemption from angel tax to start-ups satisfying the prescribed conditions.

Subsequently, in July 2019, the Finance (No.2) Act, 2019 introduced several measures to ease the tax burden in the hands of start-ups and their promoters[4]. Thereafter, as promised by the Finance Minister in Budget Speech on 5 July 2019, the CBDT laid down a specific administrative mechanism for pending assessments of start-ups involving angel tax and other issues.

The CBDT also extended the benefit of angel tax exemption to start-ups where additions were made in assessment orders passed before 19 February 2019. Also, in a press meeting on 23 August 2019, the Finance Minister announced a blanket relaxation from angel tax to start-ups registered with Department for Promotion of Industry and Internal Trade. These measures are expected to address the tax issues of start-ups and improve ease of doing business for such entities.