Supreme Court
The Supreme Court has held that mere disclosure of the existence of a transaction, or mere production of books and agreements during original assessment, does not bar reopening under Sections 147/148 if later material or information reveals that the true primary facts relevant to the nature of the receipt were not brought to the Assessing Officer’s notice, and if the original assessment did not involve any formed opinion on that specific issue.
In such a case, reopening is based on fresh information and not on mere change of opinion. Further, the validity of reopening must be tested strictly on the basis of the reasons recorded under Section 148, and cannot be supported by extraneous material not forming part of those reasons. The Apex Court further held that where, under the terms of an AOP agreement, a member is entitled to a fixed percentage of gross sale receipts upfront, without bearing project expenses and without waiting for computation of net surplus, such receipt is not a share of profit of the AOP.
A Two-Judge Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan explained that it is revenue/business income in the member’s hands, arising by diversion at source through overriding title. Profit, in law and accounting, arises only after deduction of expenses; therefore, a receipt carved out of gross receipts and insulated from expenses cannot be treated as profit merely because the parties describe it as “revenue/income” or “profit” in accounts.
The Supreme Court has held that a sale of natural gas under the GSPA, where the contract required delivery at Gadimoga in Andhra Pradesh, where title and risk passed at that delivery point, and where the movement of gas from Andhra Pradesh to Uttar Pradesh occurred pursuant to that contract, is a sale in the course of inter-State trade or commerce within Section 3(a) of the Central Sales Tax Act, 1956. The Court clarified that once the transaction falls within Section 3 of the CST Act, Section 4 of the CST Act, being subject to Section 3, cannot be invoked to treat the sale as an intra-State sale on the basis of ascertainment, appropriation, situs, co-mingling, re-metering, or later processing in another State.
Explanation 3 to Section 3 of the CST Act, inserted in 2016 for gas transported through a common carrier pipeline, is clarificatory and reflects the pre-existing legal position. Therefore, co-mingling and fungibility of gas in a common carrier pipeline do not alter the inter-State character of the sale. Accordingly, the Apex Court concluded that State of Uttar Pradesh had no jurisdiction or statutory right to levy VAT on the subject transactions, as taxation of such inter-State sales lies exclusively within the constitutional and statutory domain of the Union under Articles 269 and 286 read with the CST Act.
A Two-Judge Bench comprising Justice J.K. Maheshwari and Justice Atul S. Chandurkar placed the dispute in the constitutional framework of fiscal federalism and emphasized that the Constitution creates mutually exclusive taxing fields for the Union and the States. It held that Articles 269 and 286, read with Entry 92-A of List I and Entry 54 of List II, reserve taxation of inter-State sales to Parliament and bar States from taxing transactions that are in the course of inter-State trade or commerce.
The Supreme Court has held that imported n-Hexane / Exxsol Hexane is classifiable under Chapter 29, specifically CTH 2901.10 and CETH 2901.90, as a saturated acyclic hydrocarbon existing as a separate chemically defined compound in pure commercial form, and not under Chapter 27 as petroleum oil or motor spirit. The Court held that where a product is specifically covered by Chapter 29 and satisfies the description of a separate chemically defined compound, that specific entry must prevail over the more general petroleum classification under Chapter 27.
The Court further held that the Revenue cannot classify the product as motor spirit merely by showing that the flash point is below 25°C and the boiling range corresponds to special boiling point spirits; it must also prove suitability for use as fuel in spark ignition engines. Since the Revenue failed to discharge that burden, and since the HSN Notes and DGFT clarification supported classification under Chapter 29, the appeal was dismissed and the CESTAT order was affirmed.
A Two-Judge Bench comprising Justice Aravind Kumar and Justice Prasanna B. Varale observed that, in matters of tariff classification, the burden of proof lies on the Revenue, and mere assertion is insufficient unless supported by material, oral or documentary. The Bench observed that HSN Explanatory Notes are a safe and authoritative guide for resolving classification disputes, and that Rule 3(a) of the General Rules for Interpretation requires preference for the heading which provides the most specific description over one which is more general.
The Supreme Court has clarified that an appeal from a CESTAT order involving the excisability of goods is not maintainable before the High Court under Section 35G of the Central Excise Act, 1944, because excisability is a question having relation to the rate of duty for the purpose of assessment and falls within the exclusive appellate jurisdiction of the Supreme Court under Section 35L.
The Court held that Section 35L(2) is clarificatory and retrospective in this regard and the process of cutting, grooving, routing and bending aluminium composite panels to suit the design requirements of a building, followed by their installation at site, does not amount to “manufacture” under Section 2(f) because no new and distinct commercial product with a separate name, character or use comes into existence.
A Two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan also reaffirmed that manufacture requires conjunctive satisfaction of both transformation and marketability, and that the burden to establish marketability as a distinct and independent product lies on the Revenue. Accordingly, the Supreme Court allowed the appeal, held that the process undertaken by the appellant did not result in a distinct product, and set aside the impugned judgment of the High Court.
All High Courts
The Delhi High Court has held that shareholders, even if they hold the entirety of the share capital of a foreign company, cannot on that ground alone be treated as owners or beneficial owners of the company’s underlying assets, nor can the company’s rental income, capital gains, bank interest, or other income be taxed in their hands, absent a specific statutory provision permitting such taxation.
The Court further held that the doctrines of “substance over form” and piercing the corporate veil cannot be invoked by the Revenue in tax matters unless abuse, sham, fraud, tax evasion, or a tax-avoidance device is first established on facts, and in the absence of such proof, the separate legal personality of the company must be respected. Accordingly, since there was no provision in the Income-tax Act, under which the transactions in question could be taxed in the hands of the respondents, and since the attempt to pierce the corporate veil was misconceived, the Department’s appeals were dismissed.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar noted that the Assessing Officer had proceeded on an assumption that the respondents had adopted a device to avoid tax, but on examining the factual matrix, it found that the respondents had merely invested in shares of a foreign company, which itself obtained bank finance, purchased properties in the United Kingdom, earned rental income, and later sold the properties at a gain. The income was thus earned by the company and not by the shareholders personally.
The Delhi High Court has clarified that for Article 13 of the India-UK DTAA, the “make available” condition is a necessary ingredient for treating consideration as fees for technical services / fees for included services. Mere rendering of centralized support, managerial, technical, marketing or administrative services, or mere guidance/supervision by a foreign parent/group entity, does not by itself satisfy this condition unless technical knowledge, experience, skill, know-how or scientific/technical capability is actually transferred to the Indian recipient so that it is made available to that recipient.
The Court held that mere percolation of some advantage, exposure or skill to employees of the Indian entity, or the existence of an “enduring benefit” in a loose sense, is not enough. What is required is evidence that the technical aspects and skills themselves were shared or transferred by necessary intendment. In the absence of such evidence, the receipts cannot be taxed as FTS under Article 13. Where the Tribunal, as the final fact-finding authority, has concluded on the facts that no technical knowledge or know-how was made available, and no perversity is shown, no substantial question of law arises under Section 260A on that issue, added the Court.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the transactions and agreement contained the quintessentials of a commercial agreement between two companies, whether situated in different countries or in the same country. It further observed that ultimate control and supervision, including marketing and scientific know-how, remained with the parent company, and that merely because some skill or expertise may be developed by the Indian counterpart in the course of receiving and executing instructions, it cannot be said that the technical skill or scientific know-how had been made available to the Indian counterpart.
The Bombay High Court has held that settlement terms entered into in enforcement proceedings for satisfaction of an arbitral award do not, merely because the award-creditor agrees to suspend or withdraw collateral enforcement proceedings upon payment, constitute a “supply” under section 7 of the CGST Act. The Court clarified that Entry 5(e) of Schedule II applies only where there is an independent agreement, in the course or furtherance of business, supported by consideration, under which a party agrees to refrain from an act, tolerate an act or situation, or do an act.
Where amounts are paid as damages/compensation for breach of contract under an arbitral award, and the withdrawal or non-pursuit of enforcement proceedings is only incidental to satisfaction of that award, such payments are not consideration for any taxable supply and cannot attract IGST as import of services, added the Court, while quashed the intimation under Form DRC-01A as well as the show cause notice.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe framed the core issue as whether the settlement between Tata and Docomo in enforcement proceedings under sections 47 and 48 of the Arbitration and Conciliation Act would amount to “supply” within section 7(1) of the CGST Act, and held that the consent terms did not create any independent agreement de hors the arbitral award.
The Bombay High Court has held that post-merger/amalgamation the merged entity has no status in the eyes of law, and therefore no proceedings can be initiated against it. Thus, the Department has no authority to issue a show-cause notice on a non-existent entity post-merger/amalgamation during the intervening Period.
The Court clarified that Section 87 of the CGST Act does not enable the respondent/ Department to place a non-existent entity on notice or for that matter to pass an order of assessment referable to Section 13 against such an entity. In fact, in terms of Section 87, the liabilities of the non-existent company would in any case stand transposed to be borne by the amalgamated entity. This is, therefore, not a case where the Revenue would stand to lose or be deprived of their right to subject transactions to tax. The High Court accordingly quashed the show cause notices as well as the assessment order passed against Vodafone Idea Ltd.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe referred to the decision of the Coordinate Bench of this Court in Reliance Industries Limited v. P. L. Roongta [(2025) 479 ITR 770], which has categorically held that despite the Assessing Officer having been informed that the amalgamating company had ceased to exist pursuant to the scheme of amalgamation, any proceedings initiated against such a non-existent entity are void ab initio.
The Calcutta High Court has asserted that for the purposes of Section 80-IA(8), where electricity generated by a captive power unit is transferred for captive consumption, the “market value” is to be determined with reference to the rate at which the State Electricity Board supplies electricity to industrial consumers in the open market, and such SEB tariff cannot be artificially reduced by excluding the electricity duty component embedded in it.
The Court clarified that Section 80-IA(9) operates only to prevent double deduction in respect of the same profits. Where Section 80-IA deduction arises from profits of an independent power undertaking and Section 80HHC deduction arises from distinct export profits, the deduction under Section 80-IA cannot be reduced while computing deduction under Section 80HHC.
Accordingly, the Division Bench comprising Justice Rajarshi Bharadwaj and Justice Uday Kumar held that a sales tax remission subsidy granted under a scheme intended to promote expansion, modernization, and capital investment in backward areas is capital in nature under the purpose test, and is therefore not chargeable as revenue receipt. A subsidy which is capital in nature does not form part of book profit under Section 115JB, and its inclusion is not justified merely because it is credited through the profit and loss account.
Andhra Pradesh HC: NOC Fees Charged by Universities Not Taxable Under GST as ‘Supply of Service’
The Andhra Pradesh High Court (Amaravati Bench) has held that affiliation fees and NOC fees collected by statutory universities established under State legislation, in the discharge of mandatory statutory functions of considering and granting/refusing affiliation and issuing NOCs, are not collected in the course or furtherance of “business”. Accordingly, such activities do not constitute “supply of services” under Section 7 of the CGST Act and are not exigible to GST under Section 9.
The Court explained that such universities, though created by State enactments, are separate legal entities and are not themselves the Central Government, State Government, or local authority; therefore, the deeming expansion of “business” in Section 2(17)(i) and the treatment of public authority activities under Section 7(2) do not apply to them. The impugned assessment orders were accordingly set aside.
The Division Bench comprising Justice R Raghunandan Rao and Justice T.C.D. Sekhar observed that Section 9(1) of CGST Act levies tax on intra-State supplies of goods and services, and that while “supply of services” is not separately defined in Section 2, Section 7 explains the scope of supply and brings within it any supply of services in any form if it is in the course of or in furtherance of business. The Bench noted that Section 7(2)(a) excludes activities in Schedule III from the concept of supply, and Section 7(2)(b) excludes notified activities undertaken by the Central Government, State Government or local authority while acting as public authorities.
Madras HC: Section 194G Inapplicable Where No Commission Paid on Lottery Ticket Sales
The Madras High Court has clarified that a person is chargeable to tax not on the basis what he saves in his pocket, but what goes into his pocket. As in this case, the petitioner (Assessee – Lottery Agency) had never paid any amount to the Dealer by way of commission, the amount saved by the Dealer cannot be termed as “Commission”. Since there is no payment of commission to the Dealer by the lottery agency at the time of purchase of the lottery tickets, Section 194G Income Tax Act becomes inapplicable and no deduction of tax is envisaged.
The Division Bench comprising Dr Justice G. Jayachandran and Justice Shamim Ahmed observed that the Assessee had purchased the lottery tickets at a reduced rate from the State Government and sold the same to its immediate Dealers at a profit margin. The face value of the lottery tickets is Rs.1.00 per ticket and the sale value is Rs.0.76 or Rs.0.77. The difference between the face value and the sale value is Rs.0.24 or Rs.0.23.
The Bench found that there was only payment of the price of the lottery tickets fixed as payable by the Principal and no Commission was paid by the Assessee to its immediate Agent or Dealer. Hence, such difference cannot be termed as “Commission” and it cannot also be held that the Assessee had paid commission to the extent of Rs.0.24 or Rs.0.23. Thus, the Bench concluded that actually, no commission was paid by way of credit to the account of the immediate Dealer by the Assessee, by way of cash or any other mode. Hence, Section 194G of the Act has no application to the case of the Assessee.
The Gujarat High Court (Ahmedabad Bench) has held that where the prosecution concerns undisclosed income for the block assessment period, and coordinate benches of the High Court have already held that no power vested in the Income Tax Department to launch such prosecution for that period, the necessary consequence is quashing of the criminal proceedings. Thus, where the present case is substantially similar to those earlier decisions, the same result must follow.
A Single Judge Bench of Justice Aniruddha P. Mayee noted that it was undisputed that the petitioner company was part of the group companies raided on Dec 01, 1995 and that the prosecution related to undisclosed income detected pursuant to that raid. The Bench recorded that the present case was materially similar to the earlier matters decided by coordinate benches, where prosecutions arising from the same factual background and legal issue had been quashed.
The Madras High Court has held that where an importer knowingly uses false or incorrect declarations or documents in relation to import, penalty under Section 114AA of the Customs Act is attracted, and such liability is not excluded merely because the goods are permitted to be re-exported on payment of redemption fine. Confiscation, redemption fine, duty liability, appropriation of duty paid, and penalty under the Customs Act operate in distinct fields and may co-exist where the statutory conditions are met.
The Bench further laid down that, in light of Section 125(2), redemption of confiscated goods on payment of fine does not wipe out the owner’s liability to pay duty and other charges; therefore, the CESTAT was wrong in treating re-export as a basis to set aside appropriation of duty and penalty under Section 114AA.
The Division Bench comprising Dr. Justice G. Jayachandran and Justice Shamim Ahmed recorded that this was a case of import of a foreign vehicle by mis-declaring its description, value and place of origin so as to gain concessional customs duty under Notification No. 12/2012 dated 17.03.2012. The Bench reproduced Section 46(4) and Section 46(4A) of the Customs Act and emphasized that the importer presenting a bill of entry must ensure the accuracy and completeness of the information furnished, the authenticity and validity of supporting documents, and compliance with restrictions or prohibitions under law.
The Andhra Pradesh High Court (Amaravati Bench) has held that mere deposit of cash into the electronic ledger does not amount to payment of GST; rather the payment is complete only upon appropriation/debit to the Government account under Section 49(1) of the CGST Act read with Rule 87(6) and (7) of the CGST Rules. The Court clarified that where such appropriation is made belatedly, the tax liability stands discharged on such later appropriation, but interest remains payable for the period of delay. The Court emphasised that Input tax credit (ITC) cannot be validly availed before the underlying reverse charge tax is appropriated to the Government; however, once the tax is subsequently appropriated, separate recovery of the input tax credit in the manner adopted in the impugned order is not sustainable.
The Court also held that whether failure to debit the electronic ledger constitutes inadvertent omission or suppression / wilful misstatement, attracting Section 74 of CGST Act is a factual issue that must be properly examined by the adjudicating authority. A composite assessment / penalty order covering separate tax periods is impermissible and is liable to be set aside on that ground as well. Accordingly, the High Court set aside the impugned order and remanded the matter to the second respondent to pass separate orders for the two tax periods, after considering the objections of the petitioner.
The Division Bench comprising Justice R Raghunandan Rao and Justice T.C.D. Sekhar recorded that there was no dispute as to the quantum of tax payable, and that the dispute was confined to whether tax had been paid in time, whether input tax credit was validly availed, and the consequences of those issues. The Bench specifically noted that the petitioner had deposited cash equal to the GST liability within the stipulated time, and that the only omission was failure to debit and appropriate that amount in favour of the Government.
The Jodhpur Bench of Rajasthan High Court has clarified that under Section 75 of the Rajasthan Value Added Tax Act, 2003 read with Rule 51 of the Rajasthan Value Added Tax Rules, 2006, search of residential premises is legally permissible where there exists material giving rise to a reasonable belief that business is being carried on there, accounts are being kept there, or concealment of business-related facts is suspected there; the statute does not create any absolute bar between business premises and residential premises.
The Court held that a common authorization/order for search of business and residential premises is not invalid merely because it is common, provided reasons are recorded in writing as required by Rule 51; a separate order for the residential premises is not mandatory.
The High Court laid down that while reasons may not be reflected in the face of the search order itself, the action will not be vitiated if the record produced before the Court demonstrates the existence of tangible material on the basis of which the authority could form the requisite suspicion or belief. In the present case, the anonymous complaint, the inquiry reports, the common family control of multiple firms in similar business, prior proceedings alleging tax evasion, and the recovery of business-related documents from the residential premises were held sufficient to sustain the search and seizure action.
The Delhi High Court has held that education consultancy, marketing and recruitment support services rendered by an Indian entity to foreign universities do not fall within “intermediary” services under Section 2(13) of the IGST Act merely because Indian students are incidentally assisted, or because the consideration is structured as commission.
The Court explained that where the foreign university is the contractual recipient, the foreign university pays the consideration, and the Indian entity supplies services on its own account without authority to bind the university, the services qualify as export of services. Accordingly, the Court directed that the refund be processed and granted to the petitioner together with applicable statutory interest, in accordance with law.
The Division Bench comprising Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul observed that where an Indian entity renders educational consultancy/marketing services to foreign universities, raises invoices on them, and receives consideration from them, such services do not become intermediary services merely because students in India are incidentally assisted in the process.
The Ahmedabad Bench of the Gujarat High Court has held that an officer of the State Government, namely the Deputy Conservator of Forests, who in his official capacity collects permit fees, entry fees, camera fees and related charges in the course of conservation and regulation of forest access, is discharging sovereign and statutory functions on behalf of the State and is not carrying on the business of a “Tour Operator” within the meaning of the Finance Act, 1994.
Consequently, such collections, being statutory/official charges credited to the consolidated fund of the State, cannot be subjected to service tax in the hands of that officer, and no substantial question of law arose against the Tribunal’s order setting aside the demand.
The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi recorded that the department had sought to treat the Deputy Conservator of Forests as falling within the definition of “Tour Operator” under Sections 65(105)(zzzzw) and 65(105)(n) of the Finance Act, 1994, as substituted by the Finance Act, 2008 with effect from 16.05.2008, on the footing that he was engaged in planning, scheduling or arranging tours by mode of transport. The Bench expressly observed that it failed to understand how an officer of the State Government could be roped into such proceedings and brought within the definition of “Tour Operator.”
The Srinagar Bench of the Jammu & Kashmir & Ladakh High Court has asserted that where an order passed under Section 73 of the J&K GST Act/CGST Act is appealable under Section 107, the High Court will ordinarily decline to entertain a writ petition under Article 226 unless the case falls within the recognised exceptions to the rule of alternative remedy, namely violation of fundamental rights, violation of principles of natural justice, lack of jurisdiction, or challenge to vires. Mere assertion of breach of natural justice or lack of jurisdiction is not sufficient; the petitioner must demonstrate material facts bringing the case within those exceptions.
Essentially, the Court ruled that Section 65(7) of the CGST Act expressly permits the proper officer to initiate proceedings under Section 73 or Section 74 where audit results in detection of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised. Therefore, the conduct of audit under Section 65 does not oust the jurisdiction of the proper officer to proceed under Section 73.
The Division Bench comprising Justice Sanjeev Kumar and Justice Wasim Sadiq Nargal first observed that the show cause notice had granted 30 days for reply and had fixed personal hearing, and that thereafter, by reminder, further time was granted along with a fresh date of hearing. The Bench noted that it was not the petitioner’s case that she approached the State Taxes Officer (STO) or sought another opportunity, and further observed that nothing prevented the petitioner from submitting at least a written reply. On that basis, the Bench concluded that sufficient opportunity had been afforded and that the ground of denial of hearing was without substance or lawful basis.
‘Legal Representative’ Need Not Be A ‘Legal Heir’ For Valid Reassessment Notice: Delhi High Court
The Delhi High Court has clarified that, for purposes of reassessment proceedings after the death of an assessee, the relevant expression under Section 159 of the Income-tax Act, is “legal representative” and not “legal heir”. This expression must be understood in the wider sense assigned by Section 2(11) of the Code of Civil Procedure, 1908, and may include a person who, by conduct, represents or intermeddles with the estate of the deceased, even if such person is not a Class I heir under succession law.
However, where reassessment is initiated by invoking the extended limitation period, approval must be obtained from the authority specified in Section 151(ii), namely the PCCIT; approval by the PCIT is incompetent and renders the reassessment notice liable to be quashed, added the Court.
The Division Bench comprising Justice Dinesh Mehta and Justice Amit Mahajan rejected the petitioner’s contention that service of notice on Vijender Pal Jain was fundamentally void. The Bench drew a distinction between the expressions “legal heir” and “legal representative”, observing that these are legally distinct expressions operating in different statutory domains. It noted that Section 159 of the Income-tax Act uses the expression “legal representative” and not “legal heir”, and that by virtue of Section 2(29) of the Act, “legal representative” bears the meaning assigned in Section 2(11) of the Code of Civil Procedure, 1908.
Emphasising that the ITAT is required to maintain consistency on the question of disallowance of the expenses in question, particularly when there is no factual difference between the year under appeal and the earlier years, the Delhi High Court has held that while a company is a separate legal person, that fact alone does not mean that its expenses are required to be disallowed as being personal in nature.
The Court drew a clear distinction between an individual assessee and a company, and explained that in the case of an individual using a car or telephone, there is an element of personal use; however, in the case of a company, despite being a legal person, there cannot be any personal expenses. Accordingly, the Court set aside the order of the ITAT and allowed 1/6th telephone and car expenses having nexus with business of the company.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that even if expenses borne by the company are reimbursed to employees or Directors, such expenses form part of the complete package given to those employees as a need of the company’s business, and are required to be allowed in totality. Until the concept of fringe benefits was introduced, every amount spent by a company or by employees (subject to limits under the Companies Act or other laws) was allowable.
The Delhi High Court has held that where a passenger carrying gold is intercepted by Customs officers before he reaches the stage of Customs clearance through the red or green channel, and before he has had the opportunity to make a declaration, such interception does not by itself establish the offences under Sections 132 and 135 of the Customs Act. In such circumstances, there is neither a false declaration or false document under Section 132, nor a completed or attempted fraudulent evasion of duty under Section 135, because the conduct at that stage amounts at best to preparation and not attempt.
The Court essentially asserted that mere concealment giving rise to suspicion is insufficient to sustain criminal conviction unless fraudulent evasion is proved beyond reasonable doubt. A Single Judge Bench of Justice Neena Bansal Krishna examined the scope of Sections 132 and 135 of the Customs Act and focused on the stage at which the respondent was intercepted. The Bench noted that, on the prosecution’s own evidence, after immigration clearance a passenger was still required to obtain Customs clearance by proceeding through either the red or green channel.
The Calcutta High Court has held that where a Container Freight Station (CFS) operator has been appointed as custodian under section 45(1) of the Customs Act, 1962 subject to an express condition that it shall bear the cost of Customs Officers posted at the facility on cost recovery basis, and has accepted that condition, operated the facility under customs supervision, paid such charges for a substantial period, and failed to secure exemption under the applicable regulatory framework, it cannot subsequently deny liability to pay cost recovery charges by contending that formal sanction of posts was absent.
Regulation 6(1)(o) of the Handling of Cargo in Customs Areas Regulations, 2009 does not make such liability contingent upon prior formal sanction of posts in the manner asserted by the petitioner, particularly where customs personnel were in fact deployed and the CFS functioned under active customs control, added the Court.
A Single Judge Bench of Justice Rai Chattopadhyay further held down that administrative subsuming or regularisation of diverted posts into the existing cadre strength does not, by itself, extinguish the custodian’s liability to pay cost recovery charges; exemption arises only upon satisfaction of the prescribed norms and issuance of a specific exemption order. It also held that after an earlier adjudication upholding the regulatory framework and leaving open only the issue of quantification, the petitioner is barred from reopening the foundational issue of liability in a subsequent writ petition, and that operational restrictions imposed for persistent default in payment of such charges are a valid consequential administrative measure.
The Patna High Court has held that where, under the governing contractual arrangement, crude oil is stored at an intermediate point in tankage/discharge facilities before onward transportation, and such facility is separately charged, the activity does not remain merely incidental to pipeline transportation but constitutes an independent service in the nature of “storage and warehousing” within Section 65(102) read with Section 65(105)(zza) of the Finance Act, 1994, and is therefore separately liable to service tax.
The Court further held that the existence of a substantial question of law permits maintainability of the appeal notwithstanding the monetary limits prescribed under the CBIC instructions. On that basis, the High Court allowed the Department’s appeal, set aside the CESTAT order, and restored the Commissioner’s order confirming service tax, interest and penalties.
The Division Bench comprising Justice Bibek Chaudhuri and Justice Chandra Shekhar Jha first considered the objection to maintainability on the ground that the disputed tax amount was below the monetary threshold prescribed in the CBIC instructions dated Aug 22, 2019 and Aug 06, 2024. It held that although the aggregate disputed tax was below the monetary limit applicable to High Court appeals, the appeal was still maintainable because it involved a substantial question of law, namely whether storing/warehousing of crude oil at Barauni was incidental to pipeline service or an independent terminal facility.
Tribunals (CESTAT/ ITAT/ AAR)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Income Tax Act does not contemplate estimation of income in anticipation of a business which has not yet been set up. Such an interpretation would render the proviso to section 3 and the exception carved out in section 234C(1) ineffective. The ITAT reiterated the settled legal principle that interest under section 234C of the Income Tax Act cannot be levied on income which was not in existence or could not have been reasonably foreseen on the relevant due dates. This principle is not confined merely to cases of windfall income such as gifts, but extends to all situations where the income arises subsequently and could not have been anticipated earlier.
In the present case, the ITAT found that it is not merely a case of unexpected income, but a case where the business of Capgemini IT Solutions (appellant) itself had not come into existence prior to October 2019. In the absence of any business activity or source of income, the question of estimating income for the earlier instalments does not arise at all. Accordingly, the levy of interest under section 234C in respect of the instalments falling due prior to Oct 17, 2019 is not sustainable in law.
The Division Bench comprising Kavitha Rajagopal (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) observed that the proviso to section 3 clearly stipulates that in the case of a business newly set up, the previous year shall commence from the date of setting up of such business and end with the financial year. Thus, the statutory scheme itself recognises that prior to the date of setting up of business, there is no previous year qua such business and consequently no income under the head “Profits and gains of business or profession” can be said to have arisen.
ITAT: CSR Spending Disallowed Under Sec 37(1) May Still Qualify for Deduction Under Sec 80G
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that CSR expenditure disallowed under Explanation 2 to Section 37(1) of the Income Tax Act is not, for that reason alone, barred from being considered for deduction under Section 80G; the two provisions operate in distinct fields, and deduction under Section 80G is available if the donation satisfies the conditions of that section and does not fall within the expressly excluded categories.
Essentially, unless the donation falls within the specifically excluded CSR-linked funds under Section 80G, a donation otherwise eligible under Section 80G can still be claimed even if the underlying spend was part of CSR and already disallowed under Section 37(1) of the Income Tax Act, added the Tribunal.
The Division Bench comprising Pawan Singh (Judicial Member) and Girish Agrawal (Accountant Member) ruled that a donation does not cease to be eligible under Section 80G merely because it also satisfies the assessee’s CSR obligation under the Companies Act; the contention that such payment lacks voluntariness solely because it forms part of CSR was rejected as misconceived in law. Accordingly, the Tribunal deleted the disallowance made by the Assessing Officer.
The Gujarat Authority for Advance Ruling (AAR) has held that for purposes of serial no. 10 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, “electricity” is not “fuel”. Therefore, rental services of electric buses with operators do not fall within entry 10(i), which applies where the cost of fuel is included in the consideration for renting motor vehicles designed to carry passengers. Such services fall within the residual entry 10(iii) and are taxable at 18%.
The AAR ruled that entry 10(i) covers rental services of motor vehicles with operators where cost of fuel is included in the consideration; the applicant’s electric bus services are not covered under entry 10(i); and the applicant’s services are covered under entry 10(iii) of Notification No. 11/2017-CT(R), as amended.
The Division Bench comprising Vishal Malani (CGST Member) and Sushma Vora (SGST Member) observed that the applicant’s services fell under SAC 996601, and relied on the terms of the concession agreement, noting that the buses were given on rent along with driver/operator, while Surat Sitilink Limited determined schedules and routes.
Gujarat AAR: Coaching for Classes 5–12 Taxable at 18% GST as Commercial Training Services
The Gujarat Authority for Advance Ruling (AAR) has held that supplementary academic coaching / extra tuition provided by a private coaching institute to school students of Standards 5 to 12 is not, merely because it relates to school subjects, treated as services by an “educational institution” within paragraph 2(y) of Notification No. 12/2017-Central Tax (Rate). Where the provider is not an “educational institution” as defined, the exemption under Entry 66 is unavailable, and the service is classifiable under SAC 999293 as “commercial training and coaching services,” taxable at 18%.
The AAR ruled that the academic coaching services provided by Friends Classes, Surat to students of Standards 5 to 12 are covered under “Education Services” at Sr. No. 30 of Notification No. 11/2017-Central Tax (Rate), fall under Entry No. 599 / Service Code 999293 as “commercial training and coaching services”, and are liable to GST at 18%. The Division Bench comprising Vishal Malani (CGST Member) and Sushma Vora (SGST Member) referred to Entry 66 of Notification No. 12/2017-Central Tax (Rate), which grants exemption, inter alia, to services provided by an educational institution to its students, faculty and staff.
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has asserted that where an employer does not deduct tax at source on Leave Travel Concession (LFC/LTC) payments during the period in which binding interim directions of a High Court are in force, specifically directing that such payments are not to be treated as income for TDS purposes, the employer cannot be treated as an “assessee in default” under Section 201(1) of the Income-tax Act, for that period.
The ITAT clarified that the obligation under Section 192 of the Income Tax Act to deduct tax at source must yield to binding judicial orders, and a subsequent final decision of the Supreme Court settling the substantive tax position cannot retrospectively fasten liability under Section 201(1) or interest under Section 201(1A) for the period during which the employer acted in compliance with such interim judicial directions.
The Division Bench comprising Siddhartha Nautiyal (Judicial Member) and Narendra Prasad Sinha (Accountant Member) noted that the controversy was no longer with respect to the merits of exemption under Section 10(5), because that stood concluded against the assessee by the Supreme Court. The Tribunal identified the limited issue as whether, in the peculiar facts of the case, the assessee could still be treated as an assessee in default under Section 201(1), and consequently be made liable for interest under Section 201(1A), for non-deduction of tax during the period when binding interim judicial directions of the Madras High Court were operating.
The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that unlocking/activating mobile phones before export, in order to enable their use in a geographical territory outside India, is mere “configuration” of the product to make it usable and does not amount to the goods being “taken into use” under the proviso to Rule 3 of the Customs and Central Excise Duties Drawback Rules, 2017. Hence, the CBIC clarification dated September 25, 2020 to the contrary is unsustainable, and any confiscation, redemption fine, rejection of drawback, or penalties founded on the allegation that such configuration constituted use, mis-declaration, mis-representation, or suppression cannot be legally sustained.
The Division Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that the entire foundation of the department’s case rested on treating unlocking/activation and allied processes carried out before export as conduct showing that the mobile phones had been “taken into use,” and therefore as mis-declaration, mis-representation, and suppression on the part of the exporter.
The Hyderabad Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that the notifications in question being conditional exemption notifications issued under Section 93(1) of the Finance Act, 1994, are required to be construed strictly. Where an appellant has availed Cenvat credit on input services during the period covered by such conditional notifications, which expressly prohibit such availment, the benefit of abatement under those notifications cannot be extended, irrespective of whether the services were exclusively or only partly used for providing the taxable output services.
In the absence of cogent and substantive evidence demonstrating that the input services had no nexus whatsoever with the taxable services provided, the conditions of the notification must be held to have been violated, added the Tribunal.
The Division Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) observed that in the ST-3 return for the period prior to 30.06.2012, the appellants had clearly mentioned that they had taken credit in respect of “input”. Although the appellants claimed this was an inadvertent entry, the Adjudicating Authority had examined the matter and established that the said entry was a clerical mistake and that it was, in fact, input services and not input. The invoices pertained to the period prior to 30.06.2012 and therefore, these services were used for that period.
The New Delhi Principal Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that integrated drive generator and starter generator imported for use in conjunction with turboprop/turbofan aircraft engines are classifiable under Heading 8501, and not under Heading 8511, because Heading 8511 is confined to generators used in conjunction with spark-ignition or compression-ignition internal combustion engines, whereas turboprop/turbofan engines are gas turbine engines falling under Heading 8411. Accordingly, the CESTAT held the integrated drive generator as classifiable under Tariff Item 8501 62 00 and the starter generator under Tariff Item 8501 32 20.
The Division Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Accountant Member) further held that when reassessment is opened by the department, the importer is entitled to claim a correct alternative classification different from that originally declared, and mere misclassification in the bills of entry, in a dispute purely relating to tariff classification, does not justify invocation of the extended period of limitation under section 28(4). Consequently, penalty under section 114A also fails.
The Tribunal also held that penalty under section 117 cannot be imposed on the customs house agent in these facts, because the agent’s role is confined to filing entries on the basis of documents and instructions supplied by the importer, and no independent contravention warranting residuary penalty was established against it.
The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Rosoboronexport, Moscow, being a governmental/ state intermediary organization under the India-Russia inter-governmental arrangement, is neither “a scientist or a technocrat” nor “a science or technology institution or organization” within the meaning of the definition of “Scientific or Technical Consultancy Service”. Consequently, payments made by HAL under the agreement for transfer of licence, technology documentation, and related technical support for SU-30 MKI production could not be taxed as Scientific or Technical Consultancy Services (STC) under reverse charge.
Thus, in the absence of evidence that HAL received taxable advice, consultancy, or technical assistance from any individual scientist or technocrat, the demand of service tax and penalty on the STC component was unsustainable. Accordingly, the impugned orders were set aside to the extent they confirmed service tax demand and penalty under STC, while the demand and penalty relating to MMR were sustained because that issue had not been contested.
The Division Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) found that an identical issue had already been examined in HAL’s own cases by coordinate benches at Mumbai, Allahabad, and Bangalore in relation to agreements for technology transfer and technical assistance connected with aircraft manufacture under inter-governmental arrangements. The Tribunal placed specific reliance on Commissioner of Central Excise, Nashik v. Hindustan Aeronautics Ltd. [2015 (40) STR 289 (Tri-Mum)], where Rosoboronexport’s status and the nature of the arrangement had been considered and it had been held that the activity did not fall within STC.
The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that Rule 2(a) of the General Rules for the Interpretation of the Customs Tariff Act, 1975 can be invoked in relation to incomplete or unfinished imported goods only where the department is able to conclusively establish that such goods possess the essential character of the complete or finished article; where the evidence, including the department’s own expert reports, shows that the imported goods are incomplete, non-functional, and require additional components, software, testing and processing, the goods cannot be treated as complete mobile phones merely because they may acquire the shape of a mobile phone after assembly.
The Division Bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) further held that when the department seeks to displace the classification declared by the importer and reclassify the goods under a different tariff entry, the burden of proof lies upon the department to adduce proper evidence in support of such reclassification, and that burden cannot be shifted to the importer.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that, even where an assessee has not opted for the Safe Harbour Rules, the definitions in Rule 10TA distinguishing “core auto components” from “non-core auto components” may validly be used as a guiding aid in FAR analysis and comparability determination under transfer pricing provisions.
Where the tested party is engaged in manufacturing a core auto component, comparables engaged in non-core auto components or in functionally dissimilar businesses are liable to be excluded if the product and business differences materially affect comparability. Further, a comparable may also be excluded independently if it fails the accepted related party transaction filter.
The Division Bench comprising Madhumita Roy (Judicial Member) and Manish Agarwal (Accountant Member) thus recognised that the distinction between core and non-core auto components is relevant for determining ALP under TNMM as well, and is not confined only to cases where Safe Harbour has been formally opted for. Accordingly, the Tribunal directed the AO/TPO to exclude Vega Auto Accessories Private Limited, Studds Accessories Ltd., Nifco South India Manufacturing Private Limited, Eicher Motors Limited, and Special Engineering Services Limited from the final set of comparables for the manufacturing segment.
The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that where a manufacturer (appellant/ taxpayer) reverses, even subsequently, the proportionate CENVAT credit attributable to inputs and input services used in generation of electricity that is sold/wheeled out, such reversal is to be treated in law as equivalent to not having availed the credit at all. Consequently, a demand under Rule 6 for payment of 5%/6% of the value of such electricity is unsustainable. The Tribunal therefore set aside the impugned order
The Division Bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) recorded that the settled position is that reversal of proportionate CENVAT credit attributable to electricity sold to the State Electricity Board or third parties amounts to non-availment of credit itself.
The Tribunal thus rejected the revenue’s attempt to distinguish the earlier cases on the ground that Rule 14 had been invoked in the present case through Explanation III to Rule 6, holding that the earlier decisions rested on the evolved jurisprudence on reversal of credit and not merely on the absence of an express recovery provision. On that basis, the Tribunal concluded that the demand in the impugned order could not be sustained.
The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has clarified that, although grounds not set out in the memorandum of appeal ordinarily cannot be urged without leave under Rule 10 of the CESTAT (Procedure) Rules, the issue of limitation stands on a different footing because it goes to jurisdiction and may be examined by the adjudicating or appellate authority even if not specifically raised by the appellant. However, where the show cause notices are only partly time-barred and not wholly beyond limitation, the proceedings are not rendered void for lack of jurisdiction; instead, the demand must be confined to the period lawfully recoverable and reworked accordingly.
The CESTAT held that where there is nothing on record to establish that service tax was collected separately from the recipient of service, or that the assessee recovered the tax after the demand was raised, the gross consideration received for taxable services is to be treated as inclusive of service tax, and the benefit of cum-tax valuation under Section 67(2) of the Finance Act, 1994 must be granted while determining taxable value.
The Division Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) also held that penalty under Section 78 cannot be sustained merely on non-payment of service tax; the statute requires the presence of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade payment of service tax. Since no such allegation or supporting material was discernible in the present case, penalty under Section 78 was unsustainable, and for the same reason, the demand beyond the normal period could not be upheld. Accordingly, the Tribunal and remanded the matter to the Original Authority and directed that the appellant’s claim for exemption under Notification No. 25/2012-Service Tax dated 20.06.2012 be duly examined in accordance with law, and that due consideration also be given to CBEC Circular No. 200/10/2016-Service Tax dated 06.09.2016 while adjudicating the matter.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that where the facts are unchanged from the earlier assessment years and the Revenue fails to establish the existence of a PE in India, receipts from offshore supply cannot be taxed in India on a presumptive basis under section 44BB. The Tribunal held that, following the co-ordinate bench decisions in the assessee’s own case for AY 2020–21 and AY 2021–22, the assessee did not have a PE in India; therefore, section 44BB was not applicable to the offshore supply receipts. Therefore, respectfully following the co-ordinate bench, the ITAT held that the assessee did not have a PE in India and deleted the addition of INR 99.50 crores.
The Division Bench comprising Vikas Awasthy (Judicial Member) and Renu Jauhri (Accountant Member) recorded that the sole substantive issue was the existence of PE and attribution of profits, which it described as a legacy issue. It noted that the DRP itself had recorded that the factual matrix for the year under consideration was similar to the preceding years. The Tribunal further noted that the co-ordinate bench, in the assessee’s own case for AY 2021–22, held that the assessee neither had a project office in India nor carried out installation activity at the ONGC site, that the scope of work assigned to the assessee was only manufacturing and supply of SPS components, and that the Revenue had not brought any evidence to establish any kind of PE in India.