Custom, Excise & Service Tax Tribunal
Jsw Steel Limited vs Commissioner Of Gst & Central ... on 22 January, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 40013 of 2022
(Arising out of Order-in-Original No. 19/2021-ST (Commr.) dated 20.09.2021 passed
by the Commissioner of G.S.T. and Central Excise, No. 1, Foulk's Compound, Anai
Road, Salem - 636 001)
M/s. JSW Steel Limited : Appellant
Pottenari, Mecheri,
Mettur Taluk,
Salem - 636 453
VERSUS
Commissioner of G.S.T. and Central Excise : Respondent
Salem Commissionerate,
No. 1, Foulk's Compound, Anai Road,
Salem - 636 001
APPEARANCE:
Shri M.S. Nagaraja, Advocate for the Appellant
Smt. Anandalakshmi Ganeshram, Asst. Commissioner for the Respondent
CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
FINAL ORDER NO. 40065 / 2024
DATE OF HEARING: 25.09.2023
DATE OF DECISION: 22.01.2024
Order : [Per Hon'ble Mr. P. Dinesha]
[Period of dispute: April 2016 to June 2017]
The assessee is engaged in the manufacture of
iron and steel products falling under Chapter 72 of the
First Schedule to the Central Excise Tariff Act, 1985.
The Revenue, during its audit of the records of the
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assessee, appears to have observed that the assessee
had paid the auction price of iron ore along with
Royalty, Forest Development Tax, Sales Tax, Cess and
other taxes and charges as specified in the acceptance
letters and tax invoices issued by the Monitoring
Committee. The audit party appears to have assumed
that the Royalty and Forest Development Tax paid to
the Monitoring Committee for auction purchases of
iron ore was a consideration paid for the services of
assignment of right to use natural resources by the
Government of Karnataka and that the assessee was
liable to pay service tax under reverse charge
mechanism.
2. Having noticed that the assessee had not
discharged any such taxes on Royalty and Forest
Development Tax, the same Commissionerate
appears to have issued a Show Cause Notice Sl. No.
10/2019 (Commr.) dated 16.04.2019 by extending
the larger period of limitation under Section 73(1) of
the Finance Act, 1994, thereby also proposing to
impose penalties.
3.1 It appears from the record that the assessee
had contested the proposals in the Show Cause Notice
by filing a detailed reply, but however, the original
authority per impugned Order-in-Original No.
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Appeal No.: ST/40013/2022-DB
19/2021-ST (Commr.) dated 20.09.2021 has
confirmed the proposals made in the Show Cause
Notice. The original authority has held that the
Monitoring Committee issued a tax invoice to the
successful bidder, which contained details of auction
number, rate, which included material value, Royalty,
Forest Development Tax, CST and EMD with location
of mines from where the iron ore was to be lifted
within the scheduled time period. The payment
therefore included Royalty and Forest Development
Tax which was to be collected by the Monitoring
Committee and payable to the Government of
Karnataka. It is therefore held that in respect of the
payments effected, the assessee was liable to pay
Service Tax under reverse charge mechanism in terms
of Section 68(2) of the Finance Act, 1994, read with
Rule 2(1)(d)(i)(E) and Rule 6 of the Service Tax Rules,
1994 and Notification No. 30/2012-ST dated
20.06.2012, as amended.
3.2 It is further held that the consideration so paid
to the Monitoring Committee towards Royalty and
Forest Development Tax payable to the Government
of Karnataka was for "service" as per section 65B(44)
of the Finance Act, 1994, which was squarely covered
under any service used in the said definition; that the
assignment of right to use natural resources by the
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Appeal No.: ST/40013/2022-DB
Government of Karnataka to the mine lease holders
for mining of iron ore is not covered under the
Negative List of services under Section 66D of the
Finance Act, 1994.
3.3 Thus, the demands proposed in the Show Cause
Notice came to be confirmed thereby demanding
Service Tax of Rs.5,00,33,713/- for the period from
April 2016 to June 2017, along with applicable interest
and an equal amount of penalty under Section 78 of
the Finance Act, 1994.
4. It is against this order and the demands therein
that the present appeal has been filed before this
forum.
5.1 Heard Shri M.S. Nagaraja, Ld. Advocate for the
appellant. It is his preliminary submission that in view
of the imposition of ban on mining activities of iron
ore in the three districts of Karnataka, namely,
Bellary, Chitradurga and Tumkur, the Hon'ble
Supreme Court appointed Central Empowered
Committee (CEC) to study the mining related issues
and to make recommendations, constitution of
Monitoring Committee for regulating mining activities
and sale of iron ore belonging to the holders of the
mining leases through auction and procedures to be
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Appeal No.: ST/40013/2022-DB
adopted by the said Monitoring Committee for sale of
iron ore through auction.
5.2 His further submissions are summarized as
below: -
(i) The assessee is a manufacturer of steel
and procures iron ores or lumps and fines, which
are the principal raw materials, from the mine
owners in different States.
(ii) They have purchased iron ore by
participating in the auction sale of iron ore in the
State of Karnataka conducted by the Monitoring
Committee appointed by the Hon'ble Supreme
Court.
(iii) The price paid for the purchase of iron ore
comprised of bid price i.e., material value,
Royalty at 15% of the said price, Forest
Development Tax at 12%, CST of 2%, as per
the acceptance letters issued by the Monitoring
Committee and subsequent tax invoices.
(iv) A perusal of the Acceptance Letter No. EA-
59/45160/581 issued by the Monitoring
Committee shows auction sale of 16,000 metric
tonnes of iron ore lumps to the appellant; the
iron ore lumps under Lot No. N/FP/037L/16
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Appeal No.: ST/40013/2022-DB
belonged to M/s. Sesa Sterlite Ltd. with Mining
Lease (ML) No. 2677 (erstwhile ML No. 2236) in
the State of Karnataka.
(v) The instructions to M/s. JSW Steel Ltd,
Salem in the said acceptance letter was to
deposit 89.655% after deducting MSTC
Commission @ 0.3% plus taxes at applicable
rates, which aggregated to 0.345%, of the
material value in respect of Lot No.
N/FP/037L/16, Rs.2,85,17,462/- to M/s. Sesa
Sterlite Ltd., Sesa Iron Ore, in their account No.
001551000003 with ICICI Bank Ltd., Sindur
Business Centre, S.V. Road, Panaji, Goa; the
balance amount of Rs.1,34,86,621/- was
payable in the account No. 31944819186, which
was in the name of the Monitoring Committee
with the State Bank of India, by way of RTGS,
in respect of the above Lot. The acceptance
letter also revealed that the tax invoice would
be issued upon the receipt of the payments as
mentioned above. The Monitoring Committee
had issued a Tax Invoice No. 59/967 dated
07.10.2016 for the above amounts.
(vi) Similar acceptance letters and tax
invoices, reflecting the mining lease holder's
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Appeal No.: ST/40013/2022-DB
name and mining lease number, quantity of iron
ore, material value plus Royalty plus FDF were
placed on record for illustration of the fact that
the assessee was a buyer of iron ore in the
auction conducted by the Monitoring
Committee.
(vii) The State Government granting lease of
mine and right to use of natural resources by
way of extraction of mineral in the mine is the
service provider and the Holders of mining lease
or Grantee of Rights to use of natural resources
in the leased mine is the service receiver.
(viii) The mining lease holders are liable to pay
Royalty as consideration towards lease of mine
and the Royalty amount would vary with the
quantity of minerals extracted or removed
accordingly in terms of Section 9 of the Mines
and Minerals (Development and Regulation)
[MMDR] Act, 1957. The mining lease holder is
liable to pay Royalty or Dead Rent, whichever is
higher, to the State Government, for the lease
of mine in proportion to the mineral extracted
and removed.
(ix) The appellant, M/s. JSW Steel Ltd.,
Salem, was not at all granted any mining lease
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Appeal No.: ST/40013/2022-DB
by the State Government of Karnataka and
hence, can never be treated as a service
recipient and consequently, the appellant is not
liable to pay Royalty or Service Tax on the
Royalty.
(x) The Monitoring Committee has not
provided any service to the appellant attracting
the levy of Service Tax under reverse charge
mechanism.
(xi) The Monitoring Committee is a committee
appointed by the Hon'ble Supreme Court to
regulate sale of iron ore and thus, not "the
Central Government, a State Government and
its Departments and a Union Territory and its
Departments" or an entity maintaining its
accounts in accordance with Article 150 of the
Constitution of India as per the definition of
"Government" under Section 65B (26A) of the
Finance Act, 1994,
(xii) Royalty and Forest Development Tax are
taxes by themselves and hence, there is no
question of further liability in the case of Service
Tax.
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Appeal No.: ST/40013/2022-DB
5.3 The Ld. Advocate took us through the directions
of the Hon'ble Supreme Court in its Order in W.P.
(Civil) No. 562 of 2009 dated 23.09.2011 in the case
of Samaj Parivartana Samudaya & Ors. v. State of
Karnataka & ors. wherein it is stated it is for the
Monitoring Committee to conduct sale of iron ore
through auction, collection of the sale price, Royalty
and other taxes and applicable charges from the buyer
and remittance of the taxes with the Governments,
which is as per paragraphs 2(viii) and 2(xii)(c) of the
said Order.
5.4 Further reference was made to the Order of the
Hon'ble Supreme Court in W.P. (Civil) No. 562 of 2009
dated 18.04.2013 wherein specific directions were
given with respect to payment of 90% of the sale price
(excluding the Royalty and the applicable taxes) by
the buyers to the respective mining lease holders and
the balance 10% to be deposited with the Monitoring
Committee along with Royalty, FDT and other
applicable taxes/charges.
5.5 He would also submit that in terms of the
Hon'ble Apex Court's directions, the Monitoring
Committee collected part of the price along with
Royalty, Forest Development Tax, CST and other
applicable taxes/charges, which was duly remitted to
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Appeal No.: ST/40013/2022-DB
the Government. Further the Monitoring Committee
has remitted the same under the name and Service
Tax Registration of the respective mining lease
holders. He would thus invite our attention to a
print-out of the copy of e-mail dated 08.11.2016
issued by the Monitoring Committee and a list of
mining lease holders in whose names Service Tax and
Royalty was remitted by the Monitoring Committee for
the period 2016-17, which are placed on record.
5.6 He would further contend that the sale of iron
ore by the mining lease holders to the buyers by way
of e-auction by the Monitoring Committee was a
transaction of sale and not a service. The appellant
has paid the price for the iron ore, which comprised of
bid value i.e., material value, Royalty, Forest
Development Tax/Fee, VAT/CST and other charges as
specified by the Monitoring Committee in the
acceptance letters and tax invoices under the
directions and orders of the Hon'ble Apex Court, which
is binding in terms of Article 141 of the Constitution.
He would also rely on a decision of the Hon'ble Apex
Court in the case of M/s. Bharat Sanchar Nigam Ltd.
v. Union of India [2006 (2) S.T.R. 161 (S.C.)] in
respect of the principle of mutual exclusivity between
transactions of sale and service.
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Appeal No.: ST/40013/2022-DB
5.7 He would also refer to Notification No. 30/2012-
ST dated 20.06.2012 to emphasize that the
Monitoring Committee formed by the CEC can never
be considered as a department of the Central
Government or State Government or of a Union
Territory within the meaning of "government", or even
a "local authority" as per Section 65B (31) of the
Finance Act, 1994 and that the Monitoring Committee
is also not shown to be maintaining its accounts in
accordance with Article 150 of the Constitution and
therefore, liability to pay Service Tax under reverse
charge mechanism in terms of Sl. No. 6 of the above
Notification is not at all applicable.
5.8 With regard to Forest Development Tax (FDT)
paid to the Monitoring Committee, he would submit
that the State Government was collecting FDT at 8%
of the Royalty amount paid by the mining lease
holders by treating the same as forest disposal within
the meaning of Section 98A of the Karnataka Forest
Act, 1963; the same being a levy on the mining lease
holders, cannot be levied on the buyer of iron ore;
further, that the Monitoring Committee has collected
50% of the FDT, by referring to the Interim Order of
the Hon'ble Apex Court dated 13.02.2017 in SLPs filed
against the judgement of the Hon'ble High Court of
Karnataka striking down the impugned provisions as
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Appeal No.: ST/40013/2022-DB
ultra vires the Constitution of India, which are pending
before the Hon'ble Apex Court.
6.1 On the other hand, Smt. Anandalakshmi
Ganeshram, Ld. Assistant Commissioner, defended
the order of the lower authority.
6.2 She would place reliance on orders of the
Authority for Advance Ruling, wherein it was held that
G.S.T. was payable on Royalty. She would also rely on
a decision of the Hon'ble High Court of Rajasthan in
the case of Sudershan Lal Gupta, Contractor v. Union
of India [2022 (6) G.S.T.L. 4 (Raj.)] wherein the
Hon'ble High Court has confirmed the levy of G.S.T.
on the Royalty amount payable on lease of mines for
extraction of ores, in terms of the Central Goods and
Services Tax (CGST) Act, 2017.
7. We have considered the rival contentions, we
have carefully gone through the documents placed on
record. We have also gone through the
decisions/orders referred to during the course of
arguments. After hearing both sides, we find that the
only issue to be decided by us is: whether the
appellant has received any taxable service of lease of
mine and assignment of right to use of natural
resources from the State Government of Karnataka
for mining of iron ore, on which the Royalty and Forest
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Appeal No.: ST/40013/2022-DB
Development Tax/Fee are payable under reverse
charge mechanism?
8.1 The appellant is a manufacturer of iron and steel
and are purchasing iron ore from various mines. It had
participated in the auction conducted by the
Monitoring Committee for sale of iron ore by holders
of mining leases in the State of Karnataka. The levy
of Royalty in respect of the lease of mines is on the
holder of the mining lease in terms of Section 9 of the
Mines and Minerals (Development and Regulation)
Act, 1957. For the sake of convenience, Section 9 is
reproduced hereinbelow:
"Royalties in respect of mining leases.
9. (1) The holder of a mining lease granted before
the commencement of this Act shall,
notwithstanding anything contained in the
instrument of lease or in any law in force at such
commencement, pay royalty in respect of any
mineral removed or consumed by him or by his
agent, manager, employee, contractor or sub-
lessee from the leased area after such
commencement, at the rate for the time being
specified in the Second Schedule in respect of that
mineral.
(2) The holder of a mining lease granted on or
after the commencement of this Act shall pay
royalty in respect of any mineral removed or
consumed by him or by his agent, manager,
employee, contractor or sub-lessee from the
leased area at the rate for the time being specified
in the Second Schedule in respect of that mineral.
(2A) The holder of a mining lease, whether
granted before or after the commencement of the
Mines and Minerals (Regulation and Development)
Amendment Act, 1972, shall not be liable to pay
any royalty in respect of any coal consumed by a
workman engaged in a colliery provided that such
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Appeal No.: ST/40013/2022-DB
consumption by the workman does not exceed
one-third of a tonne per month.
(3) The Central Government may, by notification
in the Official Gazette, amend the Second
Schedule so as to enhance or reduce the rate at
which royalty shall be payable in respect of any
mineral with effect from such date as may be
specified in the notification:
Provided that the Central Government shall not
enhance the rate of royalty in respect of any
mineral more than once during any period of three
years."
8.2 In terms of the above, therefore, the holder of
the mining lease is fastened with the liability to pay
Royalty on the price of mineral extracted or consumed
by the said lease holder at the rates specified, or, the
dead rent as per Section 9A of the said Act, whichever
is higher. It is not the case of the Department that the
appellant is the holder of a mining lease nor has the
appellant claimed to be a mining lease holder. We also
do not find anywhere as to the any commitment by
the appellant-company to having undertaken mining
of the iron ore for which they were held to be liable
for payment of Royalty and FDT.
9.1 Further, the whole transaction of the sale of iron
ore mined by the holders of mining leases in the State
of Karnataka was clearly regulated by the Monitoring
Committee under the orders of the Hon'ble Apex
Court, as evident from the various interim orders
passed in W.P. (Civil) No. 562 of 2009 (supra). The
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Appeal No.: ST/40013/2022-DB
Hon'ble Apex Court vide Order dated 23.09.2011 had
in fact approved the constitution of the Monitoring
Committee and empowered it to receive the auction
sale price, Royalty, taxation of applicable charges, in
bank accounts maintained for that purpose.
Paragraphs 2(viii), 2(xii)(c) and 4, which are relevant,
are reproduced below for convenience: -
"2. The following modalities for the sale of the existing
stock of iron ore, keeping the account of the sale proceeds
and related issues are submitted for the consideration of
this Hon'ble Court:
.
.
.
viii) the successful bidder will, in addition to the sale price of the iron ore, be required to pay the applicable royalty (at 10% of the market price), Forest Development Tax, sales tax, cess and other applicable charges; .
.
xii) the Monitoring Committee will have the powers and responsibilities for/to:
...
(c) the receipt of sale price, royalty, taxation of applicable charges in bank account(s) maintained in the nationalized bank(s), investment in the fixed deposits in the nationalized bank(s), payment of royalty, taxes and applicable charges, payment of service charges for e-
auction, investment of the balance amount in the fixed deposits with the nationalized bank(s) and its disbursal as per the directions of this Hon'ble Court; .
16
Appeal No.: ST/40013/2022-DB .
.
4. It is also recommended that the Monitoring Committee may not be allowed to utilize any part of the sale proceeds or interest thereon except for depositing the royalty, taxes and other applicable charges, payment of the service charges towards the e-auction service and payment to the lessees as per para 2 (x) above. The CEC may for the present be permitted to release funds to the Monitoring Committee for meeting the expenditure towards monitoring, online linking of weigh bridges with e-permit system and related activities. The amount paid by the CEC may be reimbursed to it in due course of time and as per directions of this Hon'ble Court." 9.2 It is equally relevant and important herein to refer to the Interim Order dated 18.04.2013 of the Hon'ble Apex Court, the relevant portion of which is reproduced for convenience: -
"5. We may now proceed to notice the relevant part of the two Reports of the CEC dated 3.2.2012 and 13.3.2012, as referred to hereinabove.
...
RECOMMENDATIONS (as modified by CEC by its Report dated 13.3.2012. Items 1 to IV of the Report dated 3.2.2012 stood replaced by Items A to I of the Report dated 13.3.2012 which are reproduced below along with Items V to XIV of the initial Report dated 3.2.2012).
.
.
.17
Appeal No.: ST/40013/2022-DB E) the sale of the iron ore should continue to be through e-auction and the same should be conducted by the Monitoring Committee constituted by this Hon'ble Court.
However, the quantity to be put up for e-auction, its grade, lot size, its base/floor price and the period of delivery will be decided/provided by the respective lease holders. The Monitoring Committee may permit the lease holders to put up for e-auction the quantities of the iron ore planned to be produced in subsequent months. The system of sale through the Monitoring Committee may be reviewed after say two year;
F) 90% of the sale price (excluding the royalty and the applicable taxes) received during the e-auction may be paid by the buyer directly to the respective lease holders and the balance 10% may be deposited with the Monitoring Committee alongwith the royalty, FDT and other applicable taxes/charges;"
10. It is thus clear from the above that the Monitoring Committee is conducting e-auction and sale of iron ores mined by the holders of mining leases in the three districts of Karnataka and the amount paid by the buyer of iron ores, as per the acceptance letters and tax invoices issued by the Monitoring Committee, is the price of the minerals. The Hon'ble Apex Court had clearly directed that the buyer of iron ores shall pay 90% of the sale price, excluding Royalty and applicable taxes, to the holders of mining lease directly and the balance of 10% is to be deposited with the Monitoring Committee along with Royalty, FDT and other applicable taxes/charges. 18
Appeal No.: ST/40013/2022-DB 11.1 It is clear from Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 that the Royalty is to be paid by the holder of the mining lease. Therefore, the liability in respect of the payment of Royalty is fastened by law on the lease- holder and not on the buyers like the appellant. Sub- paragraph (F) below paragraph 5 of the Order of the Hon'ble Supreme Court dated 18.04.2013 in the case of Samaj Parivartana Samudaya merely lays down the manner in which the payment of these Royalties will be made. Sub-paragraph (F) stipulates that the buyer will make the payment of the Royalty, the liability of which lies primarily on the shoulders of the lease- holder. Merely because the payment is made by the buyer, it cannot automatically be said that the primary liability is on him, that any relatable services were received by him, or indeed that the leaseholder is absolved of liability. To construe sub-paragraph (F) in any other manner would be to construe the Hon'ble Supreme Court as having passed an order directly in contradiction to Section 9 of the Act, which cannot be countenanced. Accordingly, the payment of the Royalty being the primary obligation of the lease- holder, it cannot be said that the services, if any, relatable thereto, could have been rendered to the buyer (the Appellant) as the recipient of service. 19
Appeal No.: ST/40013/2022-DB 11.2 This view is fortified when we look at the question from another angle: under the MMDR Act and the law as it stands, Royalty is undoubtedly payable to the Government, and this is undoubtedly either consideration or a levy relatable to the right to mine and to exploit the land. There is also no question that such right vests in the lease-holder. This being the position, we cannot hold that a service (if any at all) was received by the buyer (Appellant) in this respect which enjoyed no such right.
12. At the hearing of this appeal, references were also made to the decisions of the Hon'ble Supreme Court in the cases of Mineral Area Development Authority v. M/s. Steel Authority of India & ors. [Civil Appeal Nos. 4056 to 4064 of 1999 & ors. dated 30.03.2011] and India Cement Ltd. and ors. v. State of Tamil Nadu & ors. [(1990) 1 SCC 12 / 1990 AIR 85 (S.C.)]. We have reached our conclusions above without touching upon these aspects as they are not germane to the questions before us. Any view we reach on the effect of these judgements will not alter our conclusions above. It is thus not for us to consider it necessary to adjudicate upon these arguments, particularly considering that the questions are still pending before the Hon'ble Supreme Court. 20
Appeal No.: ST/40013/2022-DB
13. It is clear from this that it was as per the directions of Hon'ble Apex Court that the Monitoring Committee was required to collect the Royalty, taxes and other applicable charges from the auction buyers of iron ores and deposit the same with the Government. This is clearly evidenced by the samples of invoices/e-mails that were filed along with the appeal papers. The said tax has been deposited by the Monitoring Committee under the name and service tax registration of the holders of the mining leases in the State of Karnataka.
14. Therefore, the payment of Royalty, FDT and other applicable taxes/charges by the buyers of the iron ores to the Monitoring Committee, as per the price of iron ore purchased in auction, would not be held to be liable to Service Tax and hence, the buyer i.e., the appellant herein, could not be held to be the service recipient from the State Government for the purposes of liability to Service Tax. Hence, there is no question of any liability to pay Service Tax on the lease of mines and right to use of natural resources under reverse charge mechanism. The said findings in the impugned order are therefore unsustainable in the eye of law.
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15. In the cited decision of the Hon'ble High Court of Rajasthan in the case of Sudershan Lal Gupta (supra), the same is in the context of levy of G.S.T. on Royalty, which cannot be said to be identical.
16. In view of above discussions, we are of the clear view that the demand of Service Tax as sustained in the impugned order is not sustainable, for which reason we set aside the same.
17. Resultantly, the appeal is allowed with consequential benefits, if any, as per law.
(Order pronounced in the open court on 22.01.2024) Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) Sdd