Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), New Delhi: Stating that, “Urgent needs invite urgent action”, Amit Shukla, Judicial Member and Dr B.R.R. Kumar, Accountant Member while addressing a very significant matter wherein assessee did not disclose the two bank accounts operated by him to the Income Tax Department, expressed that,

Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.

Purpose of approaching ITAT

Investigation Division of the Income Tax Department found that two bank accounts maintained by the assessee have not been disclosed to the Income Tax Department. Based on the said information, the Assessing Officer initiated the reopening proceedings under Section 148 of the Income Tax Act, 1961 and issued notice.

Owing to credits in the bank account, the addition of Rs 12.81 Crores was made by the Assessing Officer under Section 68 of the Act.

Since the CIT(A) confirmed the order of the Assessing Authorities, the present appeal was filed before the ITAT.

Facts of the Case

The assessee had opened, operated and owned two bank accounts in which Rs 12.81 crores were duly deposited. The assessee before the revenue authorities on various occasions denied the knowledge of having any such account. During the statement recorded on 29.12.2015, the assessee said that he was in no way associated with Alfa India and he was hearing the name for the first time during the assessment proceedings.

Analysis and Discussion

Tribunal noted the stark facts recorded by the Assessing Officer and found no theories, surmises or suspicion, in fact, the information gathered was entirely of factual content.

The credits in the bank were not disputable nor the bank account of the assessee.

Assessing Officer’s reasoning: Mechanical?

In the opinion of the Bench, the Assessing Officer had credible information in his possession and the reasons were duly recorded after application of mind.  It was also an indisputable fact that the assessee had denied owing any such bank account during the statement recorded by the department.

Assessing Officer’s reason clearly mentioned that the AO had applied his mind verified the Income Tax Return of the assessee, gone through the bank statement wherein the credits were appearing.

While the citizen and public are disgruntled regarding the apathy, red tapism and delays in various bureaucratic and judicial procedures, the prompt action taken by the revenue authorities in this case cannot be looked with contempt, rather it is highly appreciable.

Keeping the file for longer time, mulling over issue cannot be considered as a sign of application of mind and taking prompt decision must not be taken as non-application of mind nor mechanical action by the authorities.

 In the instant case, on going through the entire records, we find that there were no theoretical postulates involved in the information or the reasoning recorded by the revenue authorities.

Tribunal relied on the decision of the Delhi High Court in Experion Developer (P) Ltd. v. Assistant Commr. Of Income Tax, wherein it was held that where necessary sanction to issue notice u/s 148 was obtained from Pr. Commissioner as per provision of section 151, Pr. Commissioner was not required to provide elaborate reasoning to arrive at a finding of approval when he was satisfied with reasons recorded by Assessing Officer.

Calling the present case to be a classic case of prompt action on the part of the revenue taking into consideration received, Tribunal denied accepting the arguments that the satisfaction was borrowed, the approval was mechanical, and the promptness of the revenue authorities was misplaced

Tribunal upheld the action of revenue authorities on the issue of impugned under Section 148 of the Income Tax Act as the information received was not wrong nor the reasons to be believed were faltered.

Nothing done behind the back of assessee

The assessee had been given ample opportunities on various occasions as to why the case was reopened and as to what amounts the revenue was proposing to bring to tax.


The assessee had failed every time and feigned ignorance about the account which was opened with his full knowledge and conscience.

Since the assessee failed to prove the source of the sum of money found in his bank account, they have been rightly taxed by the revenue under Section 68 of the Income Tax Act.

Onus of providing the source of a sum of money found to have been received by an assessee is on him.

Where any sum is found credited in the books of the assessee for any previous year, it may be charged to Income Tax as the income of the assessee for that previous year if the explanation offered by assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. [Vasantibai N. Shah v. CIT (Bom.) 213 ITR 805, Sreelekha Banerjee v.  CIT (SC) 49 ITR 112]

Therefore, keeping in view the entire facts and circumstances of the case, Tribunal held that:

  • Action of the revenue authorities on the issue of notice under Section 148, approval under Section 151 was in accordance with the law.
  • Addition under Section 68 was rightly made, as the assessee failed to offer any explanation with regard to nature and source of credit in his bank account and the primary burden cast upon the assessee for proving the credits has not been discharged either before AO or CIT(A) or before us.

Therefore, the action under Sections 147, 148 as well as the addition made under Section 68 was affirmed and the appeal of the assessee was dismissed. [Arun Duggal v. SCIT, ITA No. 3075/Del/2018: Asstt. Year: 2009-10, decided on 4-1-2022]

Assessee by : Sh. Kapil Goel, Adv.

Revenue by : Ms. Paramita M. Biswas, CIT DR

Experts CornerTarun Jain (Tax Practitioner)

A technical yet interesting controversy has arisen in the context of indirect tax laws, particularly customs laws. The issue relates to availability of refund despite failure to challenge assessment proceedings. This issue has witnessed multiple rounds of litigation in the context of customs law and is an interesting one.


Background: Understanding the Assessment Scheme

It is expedient to examine the scheme of the assessment in order to appreciate the issue in greater detail. Most of the indirect tax laws were earlier based on the “assessment” regime where a tax officer would pass an order of assessment determining the rights and liabilities of the taxpayers concerned. Subsequently this assessment scheme was replaced by “self-assessment” scheme. Under this scheme, the obligation to comply with the law concerned rests upon the taxpayers who must ensure compliance with the provisions tax law, including filing of tax return along with the attendant consequences. This scheme where the taxpayer is obliged to assess and determine the correct tax liability is commonly understood as the self-assessment scheme. In such scenario the role of the tax officer is limited to verifying the self-assessment of the taxpayer and initiate recovery proceeding, if required, in order to recovery short paid tax, besides ensuring that the other provisions of the tax law are complied with by the taxpayer.


The First Round of Litigation in Customs Law

The question as to the manner in which a taxpayer could apply for refund arose for the first time in the context of the assessment regime under the customs law. The Supreme Court in CCE v. Flock (India) (P) Ltd.[1] opined that it is obligatory on the part of the taxpayers to challenge the assessment orders, without which a refund is not maintainable. In this decision it was observed that “there is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order”.

Subsequent, in Priya Blue Industries Ltd. v. Commr. of Customs[2] the Supreme Court refused to change its opinion and reiterated that the assessment order being in appealable order and refund being a consequence of the assessment, in the absence of a challenge to an assessment order a refund claim could not be entertained much less considered on merits. Thus the issue rested conclusively in the context of the assessment regime under the customs law.


Change to Self-Assessment Scheme under Customs Law

In 2011 the Customs Act, 1962 was substantially amended. One of the major changes was the switchover from the assessment scheme to the self-assessment mechanism. Given that the self-assessment regime implied absence of an order of assessment, a view emerged that the earlier decisions of the Supreme Court were not applicable in the case of self-assessment as in such cases the assessment having been made by the taxpayer himself, it was not possible for the taxpayer to challenge the assessment order. Inter alia (a) on such legal interpretation; (b) grounds of practical exigencies; and (c) citing lack of a provision providing for appeal by the taxpayer against his own self-assessment, it was being contended on such account that there was no requirement to challenge the assessment order in order to claim refund. This view came to be rejected by the tax officers who refused to grant refund citing the self-assessment order but the view came to be vindicated by the Delhi High Court. In its decision in Micromax Informatics Ltd. v. Union of India[3], the Delhi High Court examined the new provisions of the customs law and the self-assessment scheme therein to opine that the process of self-assessment there was “no assessment order as such passed by the customs authorities” and thus there was no necessity to file an appeal any appeal in order to claim refund. This decision of the Delhi High Court was agreed by the Calcutta High Court[4] and Madras High Court[5] amongst others.


The issue subsequently thereafter came up for consideration of the Supreme Court. Unable to subscribe to the High Court reasoning, the Supreme Court in ITC case[6] reversed this view to the detriment of the taxpayers. In the opinion of the Supreme Court, notwithstanding the change in the customs law framework, there was no change in the legal position emerging from its earlier decisions. The Supreme Court explained that self-assessment also resulted in an “order” under the customs law which could not be wished away and its effect could be invalidated only by way of appropriate proceedings under the customs law. In conclusion, the Supreme Court noted the following:


  1. 47. When we consider the overall effect of the provisions prior to amendment and post amendment under the Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.


A critical observation of the Supreme Court in ITC case[7] was in relation to the refund proceedings. It inter alia observed that refund “is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise”.

The Third Round: Amendment/Rectification as an Alternative to Appeal

One would have assumed that with the decision in ITC case[8] the issue would no longer have been res integra and the controversy would have subsided. However, that the ingenuity of the lawyers knows no bounds is best reflected in the scenario that followed. Faced with the law emanating from the ITC case[9], an innovative approach was adopted in subsequent matters where the taxpayer had claimed refund without challenging the self-assessment order.


It began to be canvassed that the Supreme Court in ITC case[10] itself had opened the door for another remedy to the taxpayer when it observed that the refund provision “cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made”. Stressing upon this observation, the taxpayer contended that a refund proceeding could be supplemented with a request for amendment, which once allowed would imply that the self-assessment order did not stand in the way of claim refund. This assertion came to be accepted by the Bombay High Court in Dimension Data India (P) Ltd. v. Commr. of Customs.[11]


In this decision, the Bombay High Court concluded that it was obligatory upon the tax officers to address a formal request for amendment of documents when accompanied by a refund claim, in view of the power of amendment (Section 149) and the power of rectification (Section 154) being statutorily vested on the tax officers. Declaring the legal position, the High Court inter alia observed as under:


“… in the judgment itself Supreme Court has clarified that in case any person is aggrieved by an order which would include an order of self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Customs Act before he makes a claim for refund. This is because as long as the order is not modified the order remains on record holding the field and on that basis no refund can be claimed but the moot point is Supreme Court has not confined modification of the order through the mechanism of Section 128 only. Supreme Court has clarified that such modification can be done under other relevant provisions of the Customs Act also which would include Sections 149 and 154 of the Customs Act.

*                                              *                                              *

In the instant case, petitioner has not sought for any refund on the basis of the self-assessment. It has sought reassessment upon amendment of the Bills of Entry by correcting the customs tariff head of the goods which would then facilitate the petitioner to seek a claim for refund. This distinction though subtle is crucial to distinguish the case of the petitioner from the one which was adjudicated by the Supreme Court and by this Court.”


Thereafter the Telangana High Court followed suit, albeit independently, to opine in Sony India (P) Ltd. v. Union of India[12] to opine that it was obligatory on the part of the tax officer to ensure that the documents were amended so as to being conformity with law and also that refund was made the taxpayer wherever due. In this case the High Court inter alia observed as under:

  1. 48. Further, it is the duty and responsibility of the Assessing Officer/Assistant Commissioner to correctly determine the duty leviable in accordance with law before clearing the goods for home consumption. The assessing officer instead, having failed in correctly determining the duty payable, has caused serious prejudice to the importer/petitioner at the first instance. Thereafter, in refusing to amend the Bill of Entry under Section 149 of the Act, to enable the importer/petitioner to claim refund of the excess duty paid, the assessing authority/Assistant Commissioner caused further great injustice to petitioner.


These decisions of the Bombay and Telangana High Court has thereafter been followed to various ends. For illustration, in Kirloskar Ferrous Industries Ltd. v. Commr. of Customs,[13] the Customs Tribunal directed the tax officers to treat the taxpayer’s request for reassessment as a request for amendment of the documents and thereafter process the refund claim. Thereafter, as another illustration, the Customs Tribunal in Commr. of Customs v. Vivo Mobile India (P) Ltd.[14] agreed with the contention of the taxpayer to the effect “that even if the refund applications that were filed cannot be entertained, then too it is open to the respondent to invoke the provisions of Section 149 or Section 154 of the Customs Act for either seeking amendment in the bill of entries or seeking correction in the bills of entry and then refund applications can be filed”. In this case the Customs Tribunal disposed the appeal permitting the taxpayer to file an application for amendment even at the second appellate stage with a direction to the tax officer to consider such application.


The aforesaid discussion reveals that two rounds of litigation and decisions of the Supreme Court have failed to course correct the taxpayers into initiating the appropriate proceedings and approaching the correct forum for seeking refund in customs matters. The courts, nonetheless, have been benevolent to the cause of the taxpayers and have sustained claims to creative options albeit within the statutory framework. As the law stands today, to the benefit of the taxpayer, the absence of a formal challenge to self-assessment under customs by way of an appeal is not fatal to the refund claim. In such instances, the taxpayer who may choose to supplement the refund claim with request for amendment/rectification, even belatedly, in order to get the refund claim addressed on merits.

† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1] (2000) 6 SCC 650 : (2000) 120 ELT 285.

[2] (2005) 10 SCC 433 : (2004) 172 ELT 145.

[3] 2016 SCC OnLine Del 1238 : (2016) 335 ELT 446.

[4] SGS Marketing v. Union of India, 2016 SCC OnLine Cal 4915 :  (2016) 341 ELT 47.

[5] Micromax Informatics Ltd. v. Commr. of Customs, 2017 SCC OnLine Mad 22043

[6] ITC Ltd. v. CCE, (2019) 17 SCC 46, 69.

[7] (2019) 17 SCC 46.

[8] (2019) 17 SCC 46.

[9] (2019) 17 SCC 46.

[10] (2019) 17 SCC 46.

[11] (2021) 376 ELT 192.

[12] 2021 SCC Online TS 982.

[13] 2021 SCC OnLine CESTAT 225.

[14] 2021 SCC Online CESTAT 2578.

Experts CornerTarun Jain (Tax Practitioner)

Name is important. It assigns an identity, being indicative of the background, connections and ties associated with the name. Thus, name is often determinative and consequential. In legal context, name, however, is irrelevant for, according to settled legal position, nothing turns on the nomenclature of the tax or a provision in fiscal laws. This article traverses this aspect particularly in the wake of a recent decision of the Supreme Court, in Jalkal Vibhag[1], which concludes that “water and sewage tax” is actually not a tax in relation to either water or sewage and is instead a “tax on land and buildings”.


In Jalkal Vibhag[2], repelling the challenge to the constitutional validity of the water and sewage tax, the Supreme Court inter alia noted the following to delineate the relevance (or rather irrelevance) of the name assigned to a particular levy:

  1. 38. The nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. The legislature may choose a label for a tax. The label however will not determine or for that matter clarify the nature of the levy. The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event and, as in the case of Section 52, the unit upon which the levy is to be imposed. The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax as in the present case. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the U.P. Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule.

                                             *                 *                    *

  1. 48. In view of the above decisions, there can be no manner of doubt that the levy which is imposed under Section 52 is a tax on lands and buildings situated within the area of the Jal Sansthan for the purpose of imposing the tax. The tax is imposed on premises which fall within the territorial area of the Jal Sansthan. The expression “premises” is defined to mean land and building. The tax is on lands and buildings. The nomenclature of the tax does not indicate its true character and substance. Nor does the fact that the law enables the Jal Sansthan to levy the tax render it a tax on water. The charging section indicates in unambiguous terms that it is a tax on lands and buildings.


Multiple propositions follow from the aforesaid observations:

(a) The name of a tax neither describes the nature of the tax nor is determinative of its essential character.

(b)  There is an absolute choice available to the legislature to name a tax in any fashion it desires. The name, after all, is just a label which is thoroughly insignificant.

 (c) The nature of the tax is neither linked nor altered by the name chosen by the legislature. Instead, the nature of the tax is to be assessed from the intrinsic attributes and characterises of the tax.

(d) The fact that a particular name has been given to a tax does not imply that it cannot be a different type of tax. For illustration, the nomenclature of the levy in this case as a water and sewerage tax does not detract from the levy actually being a tax on land and building.


Having said that, it must be appreciated that neither the decision of the Supreme Court in Jalkal Vibhag[3] nor the aforesaid propositions are the first on the subject. It is now fairly settled, for illustration by way of the categorical declaration of the Supreme Court in terms of its decision in AIFTP, that the “nomenclature of a levy is not conclusive for deciding its true character and nature” and instead, “[f]or deciding the true character and nature of a particular levy, with reference to the legislative competence, the court has to look into the pith and substance of the legislation.”[4] Similar observations were earlier made in Continental wherein it was declared by the Supreme Court that the scope and coverage of the fiscal law is not determined by the nomenclature used in the relevant statutory provision.[5]


The decision in Jalkal Vibhag[6] is, however, critical from another perspective, which is that it overrules an earlier decision of the Supreme Court in Union of India v. State of U.P.[7] The relevance of this aspect is the fact that in this earlier decision in State of U.P.[8], the Supreme Court had opined on the very same provision (i.e. Section 52 of the U.P. Water Supply and Sewerage Act, 1975) and also similarly concluded that nomenclature of the levy is irrelevant. However, in State of U.P.[9] the Supreme Court had concluded that the levy under Section 52 was not a “tax” and instead was a “fee” even though Section 52 referred the levy as a “tax”. It was inter alia observed in State of U.P.[10] that “[t]hough the charge was loosely termed as ‘tax’ but as already mentioned before, nomenclature is not important. In substance what is being charged is fee for the supply of water as well as maintenance of the sewerage system. Therefore, in our opinion, such service charges are a fee.…”[11] However, the Supreme Court in Jalkal Vibhag[12] overruled State of U.P.[13] to conclude that the levy under Section 52 was indeed a tax, though not a water tax or a sewage tax and instead a tax on land and building.[14] In short, the Supreme Court in both State of U.P.[15] and Jalkal Vibhag[16] concurs that the nomenclature of the levy (under Section 52) is irrelevant and yet comes to different and diametrically opposite conclusions. This aspect illustrates both the criticality and nebulous nature of the issues and consequences arising out of irrelevance assigned to nomenclature of the levy.


An earlier decision of the Supreme Court in Drive-In sheds further insights on this aspect.[17] In this case the High Court had declared as ultra vires the provisions of the Karnataka Entertainments Tax Act, 1958 insofar as they imposed entertainment tax upon admission of cars into drive-in theatres. In appeal the Supreme Court declared that the nomenclature of the levy was not decisive of the matter and thus, even though the provision gave the impression that the levy was on admission of cars in the drive-in theatre actually “the levy is on the person entertained who takes the car inside the theatre and watches the film while sitting in his car”. Thus, the Supreme Court reversed the decision of the High Court on the ground that the true nature of the levy had to be determined on the basis of the pith and substance of the levy and not on the basis of the expressions employed and named in the provision.


In fact, it is not just the nature of the levy which is considered as not dependent upon the nomenclature. Instead, in the context of fiscal laws, the assigned name is irrelevant for various other aspects.[18] To illustrate, the nomenclature assigned to the entries in the schedules to the taxing laws (particularly commodity taxation), is often overlooked to give way to the principles of interpretation which determine the actual construct of these entries.[19] As another illustration, the nomenclature given in the entries to the books of accounts is inconsequential and their actual treatment in the books alone is relevant for determining the application of the fiscal laws thereupon.[20] The same legal treatment is extended to the nomenclature given in an agreement between private parties, which is not considered decisive to determine their intention,[21] similar to the description accorded by the parties to their respective obligations, which have to be determined independent of the terminology deployed in the agreement.[22] This is similar to the interpretative principle commonly applied under commercial and private laws wherein it is near universally acknowledged that headings are not consequential to determine the parties’ intentions.[23]


The aforesaid reflections on the irrelevance of nomenclature, however, must be caveated with the declaration which is made in certain decisions where nomenclature is indeed relied upon, albeit for a limited purpose and subject to conditions. A limited reliance on the assigned nomenclature is witnessed in instances where the legislative scheme reflects that a particular nomenclature has been employed for a specific purpose and the legislature has consciously chosen to distinguish the nomenclature at other places. Such was the situation before the Supreme Court in Sun Oil wherein it was inter alia observed that the “perusal of the provisions extracted above which are clear and unambiguous shows that the legislature itself has referred to two forms of impost under the Act differently. In Section 4, it is referred to as ‘a tax’, whereas in Section 4-AAA, it is referred to as ‘a turnover tax’. The difference in nomenclature is consistently maintained in the said sections as well as other sections of the Act.”[24] Thus, the Supreme Court assigned relative weightage to the nomenclature assigned in the law to describe a tax.


Subject to the above minor deviation, it appears that on an overall basis nomenclature is generally not given much importance in the construction of fiscal statutes. For that matter, it stands clarified that a levy can be considered a tax even though the law refers to such levy as fee once the intrinsic characteristics of the levy satisfy the distinguishing criteria.[25] So much from the name in tax laws.


† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1] Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corpn., 2021 SCC Online SC 960.

[2] 2021 SCC Online SC 960.

[3] 2021 SCC Online SC 960.

[4] All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527, seeking to delineate the legislative provisions relating to levy of service tax. See also, Goodyear India Ltd. v. State of Haryana, (1990) 2 SCC 71 and Municipal Council, Kota v. Delhi Cloth and General Mills Co. Ltd., (2001) 3 SCC 654 to similar effect.

[5] Continental Construction Ltd. v. CIT, 1992 Supp (2) SCC 567, inter alia reflecting upon the scope of deemed income under Section 9 of the Income Tax Act.

[6] 2021 SCC Online SC 960.

[7] (2007) 11 SCC 324.

[8] (2007) 11 SCC 324.

[9] (2007) 11 SCC 324.

[10] (2007) 11 SCC 324.

[11] This decision inter alia also observed that “[o]ur attention was also invited to a decision of this Court in Vijayalashmi Rice Mill v. CTO, (2006) 6 SCC 763. In this case, Their Lordships considered the distinction between fee, cesses and taxes. Their Lordships held that ordinarily a tax generates general revenue not for any service rendered. However, the nomenclature is not important. Sometimes a ‘tax’ may be in reality a fee, depending upon its nature.”

[12] 2021 SCC Online SC 960.

[13] (2007) 11 SCC 324.

[14] It is critical to note that even earlier, the Supreme Court in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur, AIR 1965 SC 895 had concluded similarly to opine that water tax in that case was not a tax on water but was a tax on land and building.

[15] (2007) 11 SCC 324.

[16] 2021 SCC Online SC 960.

[17] State of Karnataka v. Drive-In Enterprises, (2001) 4 SCC 60.

[18] See generally, Shrimant Padmaraje R. Kadambande v. CIT, (1992) 3 SCC 432.

[19] For illustration, see Akbar Badrudin Giwani v. Collector of Customs, (1990) 2 SCC 203; Atul Glass Industries (P) Ltd. v. CCE, (1986) 3 SCC 480; etc.

[20] CIT v. Groz-Beckert Saboo Ltd., (1979) 1 SCC 340.

[21] CIT v. Alagappa Textile (Cochin) Ltd., (1980) 1 SCC 214.

[22] Central Wines v. CTO, (1987) 2 SCC 371 inter alia observing that “consideration obtained by the vendor from the vendee would in the eye of the law be the sale price regardless of what nomenclature is given to a part of the price charged by him.”

[23] See generally, Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC 813. See, contra, Eastern Coalfields Ltd. v. Sanjay Transport Agency, (2009) 7 SCC 345.

[24] Sun Oil Co. (P) Ltd. v. State of W.B., (1998) 7 SCC 237.

[25] For illustration, see State of T.N. v. TVL South Indian Sugar Mills Assn., (2015) 13 SCC 748.

Op EdsOP. ED.


When determining the constitutional validity of taxation laws, the Court generally analyses whether the challenged provision makes a reasonable classification or not. The general tendency of courts in cases where taxation statutes are challenged on the ground of Article 14[1] of the Indian Constitution (Article 14) can be summed up in the words of the Supreme Court in N. Venugopala Ravi Varma Rajah v. Union of India,[2] which noted as follows– “A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects.” In this article the recent decision of the Supreme Court in CIT v. Pepsi Foods Ltd.[3] (Pepsi Foods decision), has been analysed in view of the above principle of law.

Relevant jurisprudence

A. Relationship between Article 14 and taxation laws

It is accepted that, “the State is allowed to pick and choose objects for taxation if it does do reasonably.” While the above extract is from the laws of the United States of America, the principle has been reiterated by the Indian courts in many decisions.[4] The Supreme Court in Amalgamated Tea Estates Co. Ltd. v. State of Kerala,[5]  held that, “as revenue is the first necessity of the State and as taxes are raised for various purposes and by an adjustment of diverse elements, the Court grants to the State greater choice of classification in the field of taxation than in other spheres.” They went ahead and in view of the above reasoning declared that, “On a challenge to a statute on the ground of Article 14, the Court would generally raise a presumption in favour of its constitutionality.”

For our analysis, it is pertinent to know that any classification made qua taxation legislature, must be based on “rational” grounds and should not be “arbitrary”. Thereby, what one requires to determine is whether the distinction created by the challenged provision is based on “intelligible differentia”. In such cases, the test of permissible classification dictates that a statute may create a distinction so long as it fulfils the two conditions. These are, first, that the classification must be based upon intelligible differentia and must distinguish persons who are grouped together from the rest and second, that the same must have a rational relationship with the objective sought to be achieved by the statute in question.[6]

The Indian courts have dealt with this proposition of law many times, in some cases even declaring taxation laws as unconstitutional. Some instances as highlighted by the Supreme Court in the Pepsi Foods decision[7] are as follows:

(a) Suraj Mall Mohta v. A.V. Visvanatha Sastri[8]– Section 5(4), the Taxation on Income (Investigation Commission) Act, 1947 was held unconstitutional qua Article 14 on the basis that the procedure was substantially more prejudicial and drastic to the assessee than the one contained under the Income Tax Act. The Court noted that, “Classification means segregation in classes which have a systematic relation, usually found in common properties and characteristics.”

(b) Kunnathat Thatehunni Moopil Nair v. State of Kerala[9]Land revenue/tax called “basic tax” challenged on grounds to have treated unequals equally. Classification made under the Land Tax Act, 1955 held to be creating an improper classification and provision held unconstitutional qua Article 14.  In this case, the Court on the ground that the imposition of the above law was ex facie hard on certain classes of people than the other owing to the productivity of their lands, set aside Section 4 of the Act.

(c) Union of India v. A. Sanyasi Rao[10]Section 44[11], the Income Tax Act held unconstitutional for singling out only certain trade whereby relief under Sections 28[12] and 43-C[13] denied to them. Accordingly, the Court held, that the above was “unfair and arbitrary as denying equal treatment under law”.

B. Law of interpretation of statutes

The “golden” rule of interpretation is relevant to the analysis of the Pepsi Foods decision[14]. The first rule of interpretation is ita scriptum est, which states that the Court must not add/modify the law and should carry out a simple literal or grammatical interpretation. However, Lord Wensleydale, in Grey v. Pearson, noted that in many circumstances grammatical or literal interpretation of statute leads to absurdity, repugnance or inconsistency in regard to the object of the statute.[15] Thus, the Court in such cases where the rule of literal interpretation fails may modify the law only with view to remove the said absurdity.

Background to the case

Section 254(2-A)[16], was introduced via amendment to the Finance Act, 1999[17]. It grants the Income Tax Appellate Tribunal (ITAT) power to pass orders in respect to appeals before it and declares that the same will decide the appeal within 4 years from end of financial year it was filed in. The controversy lies in the third proviso to the same which states, that if the appeal is not disposed within the above, order of stay shall stand vacated even if “delay not attributable to taxpayer.”

The genesis of this proviso may be traced to the decision of the Court in ITO v. M.K. Mohammed Kunhi,[18] where it was held that power granted to the Tribunal under Section 254(2-A), implicates that all incidental and necessary powers as well can be exercised such as the power to grant a stay. Power of stay may be exercised, by the Tribunal, however, not as routine and only when strong reasons support the grant of such a stay. The Tribunal must be convinced that the entire purpose of appeal will be frustrated if stay is not granted and recovery proceedings are allowed to continue.

The facts relevant to the present case are; the respondent (assessee) was initially a US based company which merged with PepsiCo India Holdings Pvt. Ltd. w.e.f. 1-4-2010, in view of a scheme of arrangement duly approved by Punjab & Haryana High Court. In the Assessment Year 2008-2009, a return was filed declaring the total income. A final assessment award was made against the assessee on 19-10-2012. The assessee filed an appeal before the Income Tax Appellate Tribunal on 29-4-2013. On 31-5-2013 a stay of the operation of the order of the assessing officer was granted for six months by the Tribunal. The stay extended for 6 months, and was subsequently extended till 28-5-2014. Since, the statutory period for extension of stay was to expire as under Section 254(2-A) was to end of 30-5-2014, the assessee filed a writ petition in the Delhi High Court. The Delhi HC struck down third proviso to Section 254(2-A) which did not permit extension of stay beyond 365 days even if assessee was not responsible for delay in hearing of appeal. The bunch of appeals before the Supreme Court which yielded in the Pepsi Foods decision[19], which is analysed in this article, aimed to seek whether Section 254(2-A), the Income Tax Act, 1961 was constitutional vis-à-vis Article 14 and challenged the orders of various High Courts[20] which also declared the provision unconstitutional.

Synopsis of arguments

The table below will illustrate the main arguments led by the counsels.

S. No. In regard to Petitioner Respondent
1. Whether there is a right to “stay”? No right to stay the judgment of appellate proceedings and the same dependent upon discretion of the appellate court, which once exercised the same does result in an automatic extension in cases of expiry of reasonable period. Once discretionary relief granted it would be arbitrary and discriminatory that such stay be vacated automatically without reference to whether or not the assessee responsible for such delay in appellate proceedings.
2. Whether remedy of stay available? Discretionary remedy of stay part and parcel with right to appeal, which is statutory and may be taken away. Once vested right to appeal there is a vested right to seek stay.


3. Whether Article 14 may be used to challenge constitutionality of tax legislations? Article 14 cannot be applied mechanically to tax laws. Discriminatory taxation may be struck down under Article 14 qua the test of Manifest Arbitrariness (Shayara Bano v. Union of India[21]).


Ratio of the decision[22]

The Court held that the third proviso to Section 254(2-A) is both arbitrary and discriminatory and thereby, offends Article 14 of the Constitution. This is for twofold reason, firstly, it treats unequals as equals. This is for reason that the same treats assessee who is responsible for delay in proceedings with those who are not. The astonishing feature pointed by the Court under Proviso 3 which in itself spells out the said distinction. Secondly, the third proviso was inserted with view to stay achieve speedy disposal of cases wherein stay has been granted in favour of the assessee. The Court noted that such an objective cannot be discriminatory or arbitrary. Therefore, the above distinction does not fulfil the twin test[23] laid down in Nagpur Improvement Trust v. Vithal Rao[24]. Accordingly, the third proviso which stated “automatic vacation of stay on completion of 365 days, whether or not assessee responsible for the same or not”, was held to be prima facie discriminatory and thus, violative of Article 14. Further, the provision was termed to be “capricious, irrational and disproportionate” towards the assessee.

The Court lay their reasoning in bedrock of various decisions outlining necessary facets of the present matter. The Court took reference from the decision in Essar Steel (India) Ltd. v. Satish Kumar Gupta[25], where the term “mandatorily” as used under Section 12(3) of the Insolvency and Bankruptcy Code, 2016[26] was struck down. The aforementioned decision noted that time taken in a proceeding should not operate to harm the litigant for no fault of their own. The Court went ahead and instead of categorising the entire provision as arbitrary only struck down the term “mandatorily” for being manifestly arbitrary and unreasonably excessive. Further, the Court also noted that where the “tax was imposed deliberately with the object of differentiating between persons similarly circumstanced” the same should be struck down.


In view of the above, the Court held that in the present matter, unequals have deliberately been treated as equals qua equating assesses who are responsible for the delay in appellate proceedings with those who are not. Such a distinction was categorised by the Court as arbitrary and discriminatory and accordingly liable to be struck down. The Court thus, upheld the decision of the Delhi High Court and held that the Section 254(2-A) third proviso must be read without the word, “even” and “is not” after the words, “delay in disposing of appeal”. Thereby, the Court following the golden rule of interpretation simply modified the part of the challenged law which created the absurdity. The unreasonable and arbitrary distinction so created on the grounds of being contrary to Article 14 of the Indian Constitution has been transformed instead of being struck down in its entirety. This has been done both to fit the scheme and fulfil objective of the Income Tax Act.

 Associate, Jusip, e-mail:

[1] <>.

[2] (1969) 1 SCC 681 : (1969) 74 ITR 49.

[3] 2021 SCC Online SC 283.

[4] Jagannath Baksh Singh v. State of U.P., AIR 1962 SC 1563.

[5] (1974) 4 SCC 415  

[6] Grey v. Pearson (1857) 6 HL Cas 61, 106: 26 LJ Ch 473, 481.

[7] 2021 SCC Online SC 283.

[8] AIR 1954 SC 545 : (1955) 1 SCR 448.

[9] AIR 1961 SC 552 : (1961) 3 SCR 77.

[10] (1996) 3 SCC 465.

[11]  Income Tax Act, 1961, S. 44.

[12]  Income Tax Act, 1961, S. 28.

[13]  Income Tax Act, 1961, S. 43-C.

[14]  2021 SCC Online SC 283.

[15] (1857) 6 HL Cas 61, 106: 26 LJ Ch 473, 481.

[16]  Income Tax Act, 1961, S. 254(2-A).

[17]  Finance Act, 1999.

[18] AIR 1969 SC 430 : (1969) 71 ITR 815.

[19]  2021 SCC Online SC 283.

[20] CIT v. Ronuk Industries Ltd., 2010 SCC OnLine Bom 2064 : (2011) 333 ITR 99; Narang Overseas (P) Ltd. v. Income Tax Appellate Tribunal, 2007 SCC OnLine Bom 671 : (2007) 295 ITR 22; Pepsi Foods (P) Ltd. v. CIT, 2015 SCC OnLine Del 9543.

[21] (2017) 9 SCC 1.

[22] Paras 22 & 23, Pepsi Foods decision, 2021 SCC Online SC 283.

[23] Twin Test – (i) must be founded on intelligible deferential; and (ii) the differentia must have rational relation with the objective sought to be achieved by the legislation.

[24] (1973) 1 SCC 500.

[25] (2020) 8 SCC 531.

[26]  Insolvency and Bankruptcy Code, 2016, S. 12(3).

Case Briefs

Maharashtra Authority for Advance Ruling: The Bench of Rajiv Magoo, Additional Commissioner of Central Tax (Member) and T.R. Ramnani, Joint Commissioner of State Tax, decided whether GST will be payable on services provided by Club to its Members against monthly contribution?

Instant application was filed by the applicant seeking an advance ruling in respect of the following questions:

  1. Whether the activity of the applicant i.e. collecting contributions and spending towards meeting and administrative expenditures only, is ‘business’ as envisaged under Section 2(17) of the CGST Act, 2017?
  2. Whether contributions from the members in the Administration Account, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, within the meaning of supply?

Factual Background

Applicant arranges meetings for its members and in order to defray its expenditure for such meetings, communications and administration, fees are collected from members. No facilities/benefits are provided such as recreation, etc. by the applicant. The applicant also sends fees to International Institution at USA for service activities and international administration.

Applicant further sends fees to its District Clubs.

It was stated that a separate administration account is maintained by the club, wherein sum recovered from all members for using the same for meetings and other petty administrative expenses and also include expenses for location and light refreshments.

The admin account is managed as if it is purely an agent of the members and no actual service if extended to the members.

Applicant maintains two separate bank accounts, one for administrative expenses and other for donations/charity. The receipts in donations/charity account are used exclusively for the purpose of donation/charity and no amount is utilized for administration purposes.

Advance ruling is sought about taxability or otherwise under the Act, of contributions received from the members in the Administration Account for expending the same for the weekly and other meetings and other petty administrative expenses.

Observations and Findings

Bench stated that in view of Section 7 of the CGST Act, 2017, the applicant society and its members were distinct persons and the fees received by the applicant, from its members was nothing but consideration received for supply of goods/services as a separate entity. Therefore, the applicant has to pay GST on the said amounts received from its members.

Contributions from the members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply.

Authority expressed that the impugned activities performed by the applicant for the welfare activities of its members which includes meetings with food and refreshments, etc. is a service rendered by the applicant to its members as per the definition of term ‘services under Section 2(102) of the CGST Act.

Clause (e) of Section 2(17) of the CGST makes it clear that the activity of providing facilities or benefits by an association to its members for a subscription is a business under GST Act. Hence the transactions between the association and its members is a service.

“Member and Club are two distinct persons and hence, any activities and transactions between them will be supply between separate/distinct persons.”

 In view of the above discussion, it was held that the amount collected as membership subscription and admission fees from members is liable to GST as supply of services.[Rotary Club of Bombay Queen City, In Re., GST-ARA-19/2020-21/B-96, decided on 22-11-2021]

Case BriefsHigh Courts

Karnataka High Court: S. Sunil Dutt Yadav J. disposed off the petition and reinstated an observation “If any money is due to the Government, the Government should take steps but not take extra steps or maneuver…”

Factual Background

The facts of the case are such that the petitioner operates an e commerce platform under the name ‘Swiggy’ and is registered under the Central Goods and Services tax Act, 2017. Due to spike in food orders during holidays and festive season, third party service providers i.e. Greenfich in the present case, are engaged who charge consideration for the same along with GST which is paid by the petitioner as Input Tax Credit. An investigation was conducted by the respondent Department on the ground that Greenfich was a non existent entity and ITC availed are fraudulent. The petitioner alleged that a sum of Rs. 27 crores was illegally collected from the petitioner during the investigation proceedings under threat of arrest and coercion. Hence the instant petition was filed seeking a writ of mandamus directing the respondents to refund the amount illegally collected.


Counsel for the petitioners Mr. Lakshmikumaran and Mr. Ravi Raghavan submitted that payment has been collected under duress and coercion which is clear from a letter presented before the Court dated 30-11-2019. It was further submitted that the manner in which the investigation was conducted and payments were made reflects an unfair and arbitrary treatment of a bonafide tax payer as petitioner’s credibility as tax payer could never have been doubt by presenting documents for the same.

Counsel for the respondents Mr. M B Naragund and Mr. Amit Despande submitted that according to letter dated 30-11-2019 it is clear that the payments were made as a goodwill gesture and are to be construed as payment of tax in furtherance of self ascertainment as contemplated under section 74(5) of the CGST Act. It was further submitted that the petitioner has exercised its statutory right of refund and is bound to follow the procedure to its logical end by invoking the remedies available under the statutory scheme of the Act, thus invoking writ jurisdiction is impermissible.


The Court observed that the mere fact that application has been made for refund does not in anyway take away the right of the petitioner to seek for appropriate direction in the present proceedings, as the application for refund has merely been deferred and in effect no decision is taken, even otherwise, the question of alternate remedy is of no significance, when the eventual direction in the present writ is only for consideration of the refund application.

The Court further observed that the letter dated 30-11-2019 is clear and unambiguous wherein it is stated that the amount is made in furtherance of their goodwill conduct and bonafide during the pendency of the inspection proceedings and seeking necessary refund should not be regarded as an admission of liability.

The Court observed that the scheme of self ascertainment as contained in sub sections (5) (6) (7) (8) of Section 74 of CGST Act does not call for making of payment and continuance of investigation. “Upon payment of tax after collection of the same with penalty, if the same is accepted even before the issuance of notice under Section 74 (1) during investigation, there ends the matter and there is nothing further to be proceeded with.”

The Court observed that while considering the time at which the amount was deposited and the date of the deposit, it would indicate that amounts were paid during times when there was no legal obligation to make payment. It was further observed that the matter regarding wrongful availment of input tax credit was pending investigation and the Department acted in undue haste to ensure that taxes are paid during the process of investigation instead of allowing the investigation to proceed and conclude in accordance with law.

The Court relied on judgment Dabur India Limited v. State of Uttar Pradesh, (1990) 4 SCC 113 and observed that This is unfortunate. We would not like to hear from a litigant in this country that the Government is coercing citizens of this country to make payment of duties which the litigant is contending not to be leviable. Government, of course, is entitled to enforce payment and for that purpose to take all legal steps but the Government, Central or State, cannot be permitted to play dirty games with the citizens of this country to coerce them in making payments which the citizens were not legally obliged to make.”

The Court further observed that it does not desire to place any sort of fetter on the power of investigation and it would be unwise to impose any kind of time limit, for it is the authority which should be permitted to complete its investigation in a manner as may be desired by it as is permissible.

The Court thus held “the consideration of right of refund in the present factual matrix would be independent of the process of investigation and two cannot be linked together”

“Accordingly refund applications are to be considered and suitable orders be passed within a period of four weeks from the date of the release of the order.

[Bundl Technologies Private Limited v. Union of India, 2021 SCC OnLine Kar 14702, decided on 14-09-2021]

Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-judg bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has upheld the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act, 1975 and has held that the levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee. The Court also went on to hold that the levy which is imposed under Section 52 is a tax on lands and buildings within the meaning of Entry 49 of List II.

Nomenclature of the Tax imposed 

The Court held that the nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. While the legislature may choose a label for a tax, the said label however will not determine or for that matter clarify the nature of the levy.

“The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax …”

The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event and, as in the case of Section 52, the unit upon which the levy is to be imposed. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the UP Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule.

Entry 49 List II: Taxes on Lands and Buildings

There can be no manner of doubt that the levy which is imposed under Section 52 is a tax on lands and buildings situated within the area of the Jal Sansthan for the purpose of imposing the tax. The tax is imposed on premises which fall within the territorial area of the Jal Sansthan.

The expression ‘premises’ is defined to mean land and building. The tax is on lands and buildings. The nomenclature of the tax does not indicate its true character and substance. Nor does the fact that the law enables the Jal Sansthan to levy the tax render it a tax on water. The charging section indicates in unambiguous terms that it is a tax on lands and buildings.

The legislature has introduced certain restrictions in Section 55 inter alia stipulating in clause (a) that for land which is exclusively used for agricultural purposes, the tax shall not be levied unless water is supplied by the Jal Sansthan for such purposes to the land and in clause (b) stipulating that

  • the premises should be situated within the prescribed radius from the nearest stand-post or other waterworks at which the water is made available to the public; and
  • the annual value of which does not exceed Rs. 360 and to which no water has been supplied by the Jal Sansthan.

These restrictions do not detract from the nature of the levy nor would the liability which is imposed on the owner and occupier be anything other than a tax on lands and building within the meaning of Entry 49 of List II.

“The water tax and sewerage tax are taxes levied in order to augment the finances of the Jal Sansthan for the purpose of meeting the cost of its operation, maintenance and services, so as to achieve an economic return on its fixed assets. The collection is ultimately for providing water supply and sewerage in the area of the Jal Sansthan, even if it may not be provided to the particular premises.”

The tax is imposed on an occupier or owner of the building or land falling within the area of the Jal Sansthan irrespective of whether a connection of water supply or sewerage has been obtained to the land or building. In another words, the basis for the levy of the taxes is on the location of premises within the area of the Jal Sansthan as notified by the State Government.

Tax and fee – Difference

the practical and even constitutional, distinction between a tax and fee has been weathered down. As in the case of a tax, a fee may also involve a compulsory exaction. A fee may involve an element of compulsion and its proceeds may form a part of the Consolidated Fund. Similarly, the element of a quid pro quo is not necessarily absent in the case of every tax.

Levy under Section 52 (1) is a tax and not a fee

The tax has been imposed by the legislature in Section 52 on premises situated within the area of the Jal Sansthan. The proceeds of the tax are intended to constitute revenue available to the Jal Sansthan to carry out its mandatory obligations and functions under the statute of making water and sewerage facilities available in the area under its jurisdiction. The levy is imposed by virtue of the presence of the premises within the area of the jurisdiction of the Jal Sansthan. The water tax is levied so long as the Jal Sansthan has provided a stand post or waterworks within a stipulated radius of the premises through which water has been made available to the public by the Jal Sansthan. The levy of the tax does not depend upon the actual consumption of water by the owner or occupier upon whom the tax is levied. Unlike the charge under Section 59 which is towards the cost of water to be supplied by the Jal Sansthan according to its volume or, in lieu thereof on a fixed sum, the tax under Section 52 is a compulsory exaction. Where the premises are connected with water supply, the tax is levied on the occupier of the premises. On the other hand, where the premises are not so connected, it is the owner of the premises who bears the tax. The levy under Section 52 (1) is hence a tax and not a fee. Moreover, it is a tax on lands and buildings within the meaning of Entry 49 of List II.

[Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corporation, 2021 SCC OnLine SC 960, decided on 22.10.2021]


For appellants: Senior Advocate Pradeep Kant

For First Respondent: Madhavi Divan, Additional Solicitor General

*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Experts CornerKhaitan & Co.

Indian tax law is routinely amended by the Parliament. While well-reasoned amendments serve as a tool to rectify lacunae in the existing law, retrospective amendments are inherently controversial.


Retrospective amendments introduced in 2012 enabled the Government to tax gains on certain transactions from 1-4-1961. The tax net was widened to include share transfers of foreign entities deriving substantial value from assets in India (also colloquially referred to as “indirect transfer”). Against this backdrop, there was widespread apprehension on the possible negative impact of capital inflows in an emerging economy like ours.


Fast forward to today, the Government has passed a separate amendment[1] (2021 Act) in the Income Tax Act to nullify the retrospectivity in the law on offshore indirect transfers undertaken prior to 28-5-2012. Accordingly, orders raising demand on account of retrospective charge would stand nullified where the taxpayers agree to withdraw all pending litigation and waive their rights in all forums (including international arbitrations). As part of such trade-off, the Indian Government will refund all taxes collected on account of such retrospective application of law.



Offshore indirect transfers took center stage during the Vodafone[2] controversy wherein the  Supreme Court unequivocally held that Indian domestic tax law (at the time) did not permit taxing an offshore indirect transfer. However, the legislature expressed that the Supreme Court judgment was   inconsistent with the legislative intent of the then existing provisions under Indian tax law (as acknowledged by the Statement of Objects and Reasons of the Bill of 2021 Act). Subsequently, the Parliament retrospectively amended the statute to “clarify” that an offshore indirect transfer in India has always been deemed to be a taxable event.


In some other parts of the world too, Revenue Authorities have sought to tax offshore indirect transfers (such as Bharti Airtel’s acquisition of Zain Telecom in Africa and purchase of Petrotech by Ecopetrol in Peru). From a source country perspective, transferring source country’s assets through indirect share transfers at an offshore level is nothing but an effective “transfer” of assets in the source country. The source country naturally wants its share of the pie and claims tax on proportionate gains attributable to value derived from the assets located in the source country.

Ensuing disputes and arbitrations

The need to undertake concrete measures to address the negative effect on foreign investor sentiment was evident almost immediately. An Expert Committee chaired by Dr Parthasarathi Shome in 2012 made a case for the amendments to be made effective prospectively[3]. However, despite successive changes of Governments, the amendments stayed in the statute.


According to Government’s own data, tax demands were raised in 17 cases involving indirect transfers undertaken prior to 2012. Out of the above, two cases were stayed by the High Courts and bilateral investment treaties (BITs) with UK and the Netherlands were invoked in other four. In the past few months, Arbitral Tribunals ruled in favour of the taxpayers in the arbitrations of Vodafone International Holdings BV v. Republic of India (Vodafone)[4] and Cairn Energy Plc and Cairn UK Holdings Ltd. v. Republic of India (Cairn)[5]. The tribunals based their view upon violation of the “fair and equitable treatment” standard guaranteed to the investors under bilateral investment treaties. Consequently, the Arbitral Tribunal awarded Cairn a billion dollar in damages for the “total harm” suffered by them as a result of breach of BIT with India. Such cases are a reminder of limits placed by international law upon sovereign right of taxation. International law recognises States sovereign right to tax and determine whether a specific transaction is chargeable to tax or not. However, the manner and imposition of tax on the foreign investor can be tested on the anvil of “fair and equitable treatment” under various BITs.


Until recently, news reports suggested that India did not accept the arbitration awards and appealed the decision in both Vodafone[6] and Cairn case[7].  At the same time, Cairn moved the United States District Court in the Southern District of New York (SDNY) on 14-5-2021 stating that they intended to enforce the arbitration award[8]. Cairn sought seizure of assets of Air India as “an alter ego of Indian Government” on the premise that Air India is State owned and “legally indistinct” from the State. For now, the US District Court has stayed the proceedings in light of any potential settlement that might be agreed between Cairn and India[9].


Course correction


The key aspects of the 2021 Act are as follows:

  • Non-levy of taxes on offshore indirect transfers undertaken prior to 28-5-2012 i.e. the law on taxation of indirect transfers has been made prospectively applicable from the date of the amendment.
  • Government would nullify the demands raised, subject to withdrawal of pending litigation by the taxpayers (including, international arbitration). The taxpayers are also required to furnish an undertaking waiving their rights to seek or pursue any remedy in connection thereto.
  • Refund of taxes which were collected pursuant to demand raised on account of indirect transfers. However, the Government would not be paying any interest on refund of the tax amounts.


The enactment of 2021 Act as a means to settle the long-drawn controversy is a welcome move. Though delayed, the amendment, along with the Government’s efforts to revamp the tax ecosystem to bring out a change in how taxpayers are assessed could enhance investor confidence. Having said that denial of interest on principal tax amount not only denies the existing right of a taxpayer enshrined in the statute book, but it also results in inequitable treatment. However, the larger construct behind the enactment cannot be faulted with.


Way forward

It is hoped that 2021 Act will draw the final curtains to the decade long controversy. There are however some notable lessons that may be drawn from this matter:

  • Changes in law, specifically tax law, should be guided by sound policy rather than revenue considerations alone. While the controversy disparaged India’s image as an investment jurisdiction, no meaningful revenue was collected from such measure. In a world driven by cross-border investments, having a sound tax policy will ensure that India is seen positively as a country that honours its treaty obligations and presents tax certainty which will in turn attract more investment, possibly leading to higher tax collections.
  • In addition, considering the changing international tax ecosystem, it would serve well if the dispute resolution mechanisms were relooked at to provide for a faster resolution of tax disputes.

Partner, Khaitan & Co.

†† Associate, Khaitan & Co.

[1] Taxation Laws (Amendment) Act, 2021, See HERE

[2] Vodafone International Holdings BV v. Union of India, (2012) 6 SCC  613 : (2012) 341 ITR 1.

[3] See HERE.

[4] (2012) 6 SCC  613

[5] PCA Case No. 2016-7.

[6]See HERE.

[7]See HERE.

[8]See HERE.

[9]See HERE.

Experts CornerTarun Jain (Tax Practitioner)


It was under the shadow of a war that India introduced two major fiscal legislations; the Income Tax Act, 1961 and the Customs Act, 1962, paving way for tax policy of independent India. Both legislations have witnessed umpteen amendments to accommodate the shifting priorities of the incumbent Governments and are now well past their sell-by date. In respect of customs, no fundamental alteration is required as the law is mostly aligned to the international framework[1] which ensures that it stays abreast with the changing times. However, the framework of the income tax law – notwithstanding the tide of significant policy changes and amendments to reverse the judicial pronouncements – continues to wheel the Indian economy like a patchy retreated tyre.


Earnest attempts to bring about holistic changes have not yielded fruit despite the Direct Taxes Code of 2009,[2] the Direct Taxes Code Bill, 2010,[3] followed with a 2013 Bill,[4] all of which lapsed. Thereafter, another fresh attempt in recent past by an Expert Committee in 2019[5] seems to have met the same fate. This is so despite the fact that substantial changes have been made in the income tax policy and law. To enumerate certain landmark changes, the 2016 black money legislation[6]; 15% corporate tax rate for new manufacturing entities announced in 2019;[7] India’s digital services tax i.e. the 2020 Equalisation Levy;[8] Taxpayers’ Charter;[9] scheme for faceless assessments, appeals, penalties;[10] the new scheme for reopening of assessments unveiled in 2021;[11] etc. are some of the path-defining measures. However, their fullest potential cannot be realised given the limitations inherited under the old framework. It is not a surprise, therefore, that the Supreme Court recently implored the Parliament, particularly the draftsmen, to frame simpler tax laws which do not scuttle the taxpayers’ ability to carry out their affairs.


Recent decision of Supreme Court

September 9 decision of the Supreme Court in South Indian Bank[12] is a quintessential illustration on why the founding premise of the tax law needs to be revisited. The decision has been rendered in the context of Section 14-A of the Income Tax Act which disallows claim for expenses which are incurred for earning tax free income.[13] This single provision, which was inserted in 2001, has seen more than its fair share of litigation. Notwithstanding the correctness of the underlying premise,[14] stretched interpretation of the law and an indiscriminate and patchy implementation has resulted into multiple and tiresome controversies. In its two decades of existence, it has engaged the Supreme Court more than 25 times and cluttered the dockets of the tax tribunals and High Courts.


This part of law illustrates that an over-empowered tax administration results into ad hoc stances. It is routinely invoked by tax officers who insist that a proportional disallowance to the ratio of average investments to average assets is mandatory.[15] The application of this provision and the accompanying subordinate legislation[16] warrants a closer look at the minutest of facts of a business enterprise during the assessment stage, which have to be subsequently revaluated at multiple appellate levels in the tax litigation system. In most cases, the disallowance is pressed upon to require businesses to justify whether the expenditure is not just directly related to exempt income but also to rule out its indirect linkage.[17]

The practice of ad hoc disallowance may appear to be trivial but it indicates a discomforting scenario. It not only obliges business to incur more compliance costs, but also disproportionately influences business choices, making them perennially sceptical of Tax Department’s outlook, and perpetuates a penny wise pound foolish quandary.


The Supreme Court decision, echoing Adam Smith’s canon of certainty in tax law, seeks to impress upon the Government that “it is the responsibility of the regime to design a tax system for which a subject can budget and plan”. The Supreme Court has unhesitatingly implored upon the Government to ensure a fair balance of taxpayers’ entitlements such that “unnecessary litigation can be avoided without compromising on generation of revenue”. The observations of the Court, therefore, could not have come at a more appropriate instance. The Government must, however, go beyond. It must reinstitute the tax system such that it scuttles the tax officials’ urge to assume the role of the corporate managers and review their decisions from a tax expediency perspective. In other words, the Department should not be permitted to put itself in the shoes of the taxpayer to assess how a prudent businessman should operate.[18]


Aspirational cravings

The ambitious outlines of the Government, to make India a 5 trillion dollar economy[19] and an economic powerhouse, cannot be achieved with an outdated tax system. The recent withdrawal of 2012 retrospective amendment[20] reveals that the Government is not shy of undertaking bold course correction measures. Having undone all legacy issues, it is time for reforming the administration and functioning of officials. All bets now rest on the faceless assessment scheme, which has had a rough start, given the clutch of writs issued by some High Courts on denial of natural justice and quashing of notices for fallacious reopening of past cases by application of old archaic provisions despite simplification brought into the statute.[21] One cannot over-emphasise the urgency for a new tax system which synergises (and not digests) the aspirations and energies of this reinventing nation, a tax system which facilitates business activity and does not scare away business or drive out investments with humongous compliances and energy sapping inspector-like approach of tax officers.


The Government of India must attempt a GST-like[22] rewriting of entire direct tax landscape which should be based on deep stakeholder consultations such that the progressive advancement of tax system is not replete with thorny issues. The basis premise of the law must be simple; business should focus on doing business without managing tax consequences and Tax Department should collect tax without sitting in judgment over how business should do business. The correct tax lawmaking process, which is usually centred around budget day, is too secretive and gives overwhelming powers to the tax bureaucracy and requires businesses to immediate react to the changes because, many of which are overnight. India can do well to take inspiration from advanced countries wherein lawmaking is a continuous process of stakeholder discussion and duly factors economic metrices and impact analysis before deploying the tax measure. Such system avoids a trial and error approach and obviates the need for frequent course correction measures which become inevitable when the measure has not been thought through. In short, the tax law must reduce avenues for friction.

† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1]The Indian Customs policy and law is aligned to India’s participation and multilateral agreements inter alia under the aegis of (a) World Trade Organisation; (b) World Customs Organisation; and (c) Harmonised Commodity Description and Coding System (or Harmonised System).

[2] This was draft for public consultation. Available  HERE.

[3] Introduced in the Lok Sabha on 28-8-2010. Available HERE.

[4] Available at HERE.

[5] The Task Force on Direct Tax Code submitted its Report to FM Nirmala Sitharaman on 19-8-2019. For details, see HERE.

[6]The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

[7] For details, see, corporate tax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs, (PIB 20-9-2019), available  HERE.

[8]Vide Chapter VI (Part VI) of the Finance Act, 2020 (amending provisions of Finance Act, 2016).

[9]Unveiled in year 2020. For details, see HERE.

[10]For details, see <HERE>.

[11]In terms of Ss. 40-45 of Finance Act, 2021 (amending Ss. 147-151 of Income Tax Act, 1961).

[12]South Indian Bank Ltd. v. CIT, 2021 SCC OnLine SC 692.

[13]“14-A. Expenditure incurred in relation to income not includible in total income.— (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.”

[14]In a detailed decision in Maxopp Investment Ltd. v. CIT, (2018) 15 SCC 523, the Supreme Court upheld the underlying premise of S. 14-A.

[15]For illustration, see CIT v. Jagson International Ltd., 2018 SCC OnLine Del 12874 opining that the mandatory conditionalities under the Income Tax Rules need to be satisfied before S. 14-A disallowance can be triggered and rejecting the stand of the tax authorities of automatically applying the provision.

[16]I.e. R. 8-D, Income Tax Rules, 1962.

[17]For illustration, see CIT v. Sociedade De Fomento Industrial (P) Ltd., 2020 SCC OnLine Bom 1896 : (2020) 429 ITR 207.

[18]For illustration, see recent decision of the Supreme Court in Shiv Raj Gupta v. CIT, 2020 SCC OnLine SC 589 where the “doctrine of commercial expediency” has been affirmed. In this case the Supreme Court inter alia observed that “a catena of judgments has held that commercial expediency has to be adjudged from the point of view of the assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the assessee”.

[19] For details, see Vision of a USD 5 Trillion Indian Economy, (PIB 11-10-2018), available HERE.

[20]Vide Taxation Laws (Amendment) Act, 2021 (Act 34 of 2021), assented by the President on 13-8-2021.

[21]For illustration, see Pooja Singla Builders and Engineers (P) Ltd. v. National Faceless Assessment Centre, 2021 SCC OnLine Del 4294, holding that even if principles of natural justice have been complied with, still the proceedings cannot be sustained if an order was passed without issuing a show-cause notice which is a mandatory statutory condition.

[22]See generally, Tarun Jain, One Year of “Goods and Services Tax” in India, available at HERE.

Advance RulingsCase Briefs

Rajasthan Authority for Advance Ruling, GST: Bench of J.P. Meena (Member Central Tax) and M.S. Kavia (State Tax)  determined whether supplying of coaching services along with supply of goods/printed material/test papers, uniforms, bags and other goods to students shall be considered a supply of goods or supply of services.

Questions for consideration:

  • Applicant supplied services of coaching to students which also included along with coaching, supply of goods/printed material/test papers, uniform, bags and other goods to students. Such supplies were not charged separately but a consolidated amount was charged. The major component of which was imparting of coaching. In such circumstances, whether such supply shall be considered, a supply goods or a supply of services?
  • If the answer to the aforementioned first question is supply of service, whether such supply shall be considered as composite supply? If yes, what shall be the principal supply?
  • Applicant provides coaching service under a business model through Network Partners as per sample agreement attached, containing obligations of Applicant and Network partners. Accordingly, the network partner provides the services to the students on behalf of Applicant. In such a case, who shall be considered as supplier of service and recipient of service under the agreement?
  • Subject to the above question, what shall be the value of service provided by Applicant to students and by network partner to Applicant?
  • Whether both, Applicant and network partner can avail eligible ITC for their respective supplies?

Findings, Analysis & Conclusion

In the instant case, the applicant was providing coaching service to its enrolled students for consideration which will be a lump sum amount for both goods and services.

Therefore, transaction of supply of coaching service for consideration falls under the ambit of “Supply of Service”.

As the supply involves multiple services and goods, the issue has to be examined whether the said supply is s Composite Supply or a Mixed Supply.

In the present case there is a principal supply of goods or services which constitutes the predominant element of a composite supply. Classification of this composite supply as goods or service would depend on which Supply is the principal supply which is also to be determined on the basis of facts and circumstances of the present case.

Therefore, in the instant case, the applicant along with coaching services provided goods in the form of uniforms, bags, study material etc.

Supply of goods is a part of supply of service shall qualify as composite supply’. The principal supply being the supply of coaching service to the students, tax on such supply shall be levied accordingly.

Further, the AAR also observed that where services are provided by the applicant to the students. students shall be regarded as recipient as consideration is payable for the supply of goods or services or both by the students to the applicant. Similarly. Network partner will be regarded as a provider of service to the applicant

Bench also noted that, the values of goods are part of the value of services provided by the applicant and charged a consolidated amount to the students. Therefore, the consolidated value for which tax invoice is issued shall be the taxable value.

As per Section 16(1) of the CGST Act, Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, been titled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Hence, in the present matter, applicant was a registered person and could avail eligible ITC as per provisions of GST Act.


Pointwise conclusion:

  • Supply by the applicant will be considered “Supply of Service”.
  • The ‘supply’ stated above shall be considered as Composite Supply, and Coaching Service shall be principal supply.
  • Applicant will be service provider to the students and Network partner will be service provider to the applicant.
  • Total consolidated amount charged for which Tax invoice generated by the applicant will be the value of service supply by the applicant.
  • Applicant can avail eligible ITC as per provisions of GST Act, 2017.

[Symmetric Infrastructure (P) Ltd., In re.; Raj/AAR/2021-22/09; decided on 2-09-2021]

Advocate before the AAR:

Present for the applicant: Sanjiv Agrawal

Legislation UpdatesRules & Regulations

On September 13, 2021, the Central Board of Direct Taxes notifies Income-tax (29th Amendment) Rules, 2021 to amend Income-tax Rules, 1962. The Amendment inserts a provision prescribing income- tax authority under second proviso to clause (i) of sub-section (1) of section 142.


The Rule provides:

12F. Prescribed income- tax authority under second proviso to clause (i) of sub-section (1) of section 142.- The prescribed income-tax authority under second proviso to clause (i) of sub-section (1) of section 142 shall be an income-tax authority not below the rank of Income-tax Officer who has been authorised by the Central Board of Direct Taxes to act as such authority for the purposes of that clause.

Case BriefsSupreme Court

Supreme Court: In an important ruling on taxation law, the bench of Sanjay Kishan Kaul and Hrishikesh Roy*, JJ has held that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments.


Whether Section 14A of the Income Tax Act, 1961, enables the Department to make disallowance on expenditure incurred for earning tax free income in cases where assessees like the present appellant, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income?

What does Section 14A state?

In Section 14, the various incomes are classified under Salaries, Income from house property, Profit & Gains of business or profession, Capital Gains & Income from other sources.

The Section 14A relates to expenditure incurred in relation to income which are not includable in Total Income and which are exempted from tax. No taxes are therefore levied on such exempted income. The Section 14A had been incorporated in the Income Tax Act to ensure that expenditure incurred in generating such tax exempted income is not allowed as a deduction while calculating total income for the concerned assessee.

Legislative history

Section 14A was introduced to the Income Tax Act by the Finance Act, 2001 with retrospective effect from 01.04.1962, in aftermath of judgment in the case of Rajasthan State Warehousing Corporation Vs. CIT, (2000) 3 SCC 126. The said Section provided for disallowance of expenditure incurred by the assessee in relation to income, which does not form part of their total income.

“As such if the assessee incurs any expenditure for earning tax free income such as interest paid for funds borrowed, for investment in any business which earns tax free income, the assessee is disentitled to deduction of such interest or other expenditure.”

Although the provision was introduced retrospectively from 01.04.1962, the retrospective effect was neutralized by a proviso later introduced by the Finance Act, 2002 with effect from 11.05.2001 whereunder, re-assessment, rectification of assessment was prohibited for any assessment year, up-to the assessment year 2000-2001, when the proviso was introduced, without making any disallowance under Section 14A. The earlier assessments were therefore permitted to attain finality. As such the disallowance under Section 14A was intended to cover pending assessments and for the assessment years commencing from 2001-2002.


  • In the case at hand, the Court was concerned with disallowances made under Section 14A for assessment years commencing from 2001-2002 onwards or for pending assessments.
  • The assessees are scheduled banks and in course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn the assessees, interests from such securities and bonds as also dividend income on investments in shares of companies and from units of UTI etc. which are tax free.
  • None of the assessee banks amongst the appellants, maintained separate accounts for the investments made in bonds, securities and shares wherefrom the tax-free income is earned so that disallowances could be limited to the actual expenditure incurred by the assessee.
  • In absence of separate accounts for investment which earned tax free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax free income by referring to the average cost of deposit for the relevant year.
  • The CIT (A) had concurred with the view taken by the Assessing Officer.
  • The ITAT in Assessee’s appeal against CIT(A) considered the absence of separate identifiable funds utilized by assessee for making investments in tax free bonds and shares but found that assessee bank is having indivisible business and considering their nature of business, the investments made in tax free bonds and in shares would therefore be in nature of stock in trade. The ITAT then noticed that assessee bank is having surplus funds and reserves from which investments can be made. Accordingly, it accepted the assessee’s case that investments were not made out of interest or cost bearing funds alone and held that disallowance under Section 14A is not warranted, in absence of clear identity of funds.
  • The decision of the ITAT was reversed by the High Court.


The Supreme Court took note of the fact that the CIT(A) and the High Court had based their decision on the fact that the assessee had not kept their interest free funds in separate account and as such had purchased the bonds/shares from mixed account. This is how a proportionate amount of the interest paid on the borrowings/deposits, was considered to have been incurred to earn the tax-free income on bonds/shares and such proportionate amount was disallowed applying Section 14A of the Act.

It, however, explained that

“In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure.”

The Court, hence, held that if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made.

[South Indian Bank v. CIT,  2021 SCC OnLine SC 692, decided on 09.09.2021]

*Judgment by: Justice Hrishikesh Roy

Know Thy Judge | Justice Hrishikesh Roy

Appearances before the Court by:

For Appellants: Senior Advocates S. Ganesh, S.K. Bagaria, Jehangir Mistri and Joseph Markose,

For Respondent/Revenue: ASG Vikramjit Banerjee and Senior Advocate Arijit Prasad

Foreign LegislationLegislation Updates

New York Department of Tax and Finance has issued a new guidance on Pass through Entity Tax on August 25, 2021. The PTET is tax that partnerships or New York S corporations may annually elect to pay on certain income for tax years beginning on or after January 1, 2021.


Key points of the guidance are:

  • For 2021, the election must be made by October 15, 2021 and once made it is irrevocable for the year. From 2022 onwards, the annual election must be made by March 15 of the year for which the election is made.
  • Electing entities will have the option to make estimated tax payments prior to December 31, 2021. An online form will be made available for this purpose by December 15, 2021.
  • A direct partner, member, or shareholder eligible to claim the credit means one to whom the electing entity issues a federal Schedule K-1.
  • The guidance states that a partnership cannot include in its PTE taxable income amounts distributed to direct partners, such as partnerships or other entities that are not subject to PIT, even if the income is ultimately taxable to a partner or member through tiered partnerships.
  • The PTE credit must be claimed on the owner’s separate New York State tax returns; it cannot be claimed on a group return.
  • Owners who are New York State residents are also allowed a resident tax credit for “substantially similar” PTE taxes imposed by other states and localities. The Department says it will post on its website a list of substantially similar taxes that qualify for a resident tax credit.

*Tanvi Singh, Editorial Assistant has reported this brief.

Advance RulingsCase Briefs

Maharashtra Authority for Advance Ruling (MahaGST): The Bench of Rajiv Magoo Joint Commissioner of Central Tax and T.R. Ramnani, Joint Commissioner of State Tax, decided whether reimbursement by Industry Partner to Third Party aggregator of stipend paid to students would attract GST or not.

Applicant filed the instant application seeking an advance ruling in respect of the following questions:

  1. Whether the reimbursement by Industry Partner to YAS of the stipend paid to students attracts GST?
  2. Whether the reimbursement by Industry Partner to YAS of the insurance premium attracts GST?
  3. Whether the reimbursement by Industry Partner to YAS of the expenses for uniform and safety shoes attracts GST?

Applicant was stated to be registered as a ‘not for profit Company’ under Section 25 of the Companies Act, 1956. The activities of applicant were charitable and hold registration under Section 12 AA of the Income Tax Act, 1961.

Since applicant is a Third Party Aggregator providing support for mobilizing the trainees under the National Apprenticeship promotion Scheme for providing them on-the-job training in industries, it enters into agreements with industry partner who impart actual practical training to the students.

Analysis, Law and Decision 

Firstly, the AAR stated that the two questions for consideration were withdrawn by the applicant, hence the discussions in the present matter will only pertain to: Whether the reimbursement by Industry Partner to the applicant, of the stipend paid to students, attracts GST?

Bench in view of the said issue stated that the industry partner that provides training to the trainees is required to pay stipend to the trainees. The said stipend is not directly paid to the trainees by the companies, rather the same are routed through the applicant. Adding to this, it was stated that the entire amounts received as stipend from the companies are paid to the trainees without any amount being retained. Hence, applicant acts only as the intermediary.

Therefore, AAR held that the applicant is only a conduit for the payment of stipend and the actual service is supplied by the trainees to the trainer companies against which stipend is payable.

Lastly, it was held that the amount of stipend received by the applicant from the industry partners and paid in full to the trainees is not taxable at the hands of the applicant. [Yashaswi Academy for Skills, In Re., GST-ARA-83/2019-20/B-47, decided on 20-08-2021]

Advance RulingsCase Briefs

Maharashtra Authority for Advance Ruling (MahaGST): The Bench of Rajiv Magoo, Joint Commissioner of Central Tax and T.R. Ramnani, Joint Commissioner of State Tax decided that GST is exempted on Hostel Rent of less than Rs 1000 per day per student.

Questions for Consideration:

  • Whether the activity of providing the hostel on the rent to various students by applicant is exempt (where hostel fees charged per student per day is much less than Rs 1000)?
  • If it is exempt it shall be claimed as exempted under Serial Number 12 or Serial Number 14 of Notification 12/2017 – Central Tax (Rate) (as amended time to time) dated 28-06-2017?

Factual Background

Applicant was registered under the CGST Act, 2017 and provided commercial training and coaching service for students appearing for 11th and 12th standards who are desirous of appearing for IIT, etc., specifically in science stream.

Applicant also provided hostel facility to the students on demand basis and charged them additionally. The said service of hostel was optional and not coming in the form of package.

Under GST, exemptions for services were notified vide Notification No. 12/2017 – Central Tax (Rate) dated 28-06-2017, as amended time to time. In the said notification in Serial Number 12 exemption was provided for “Services by way of renting of residential dwelling for use as residence.”

However, ‘Residential Dwelling’ was not defined in the Act and in exemption notification as well. Therefore, the meaning of the expression ‘residential dwelling’ has to be understood in terms of the normal trade parlance. It means any residential accommodation but does not include hotel, motel, inn, guest house, campsite, lodge, house boat, or like places meant for a temporary stay.

Further, as per the applicant, exemption was available under Sr. No. 14 of Notification 12/2017 – C.T. (Rate) dated 28-6-2017 as amended, for Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having value of supply of a unit of accommodation below one thousand rupees per day or equivalent.

Analysis, Law and Decision

Bench observed that the term “residential dwelling” is not defined under the GST Act. But in common parlance it is to be called as ‘A house or an apartment or other places of residence or a place to live in or building or other places to live in.’

The activity of providing the hostel on rent to various students is covered under ‘services’. The hostels are exclusively meant for temporary residence for students during the time period of training and coaching only.

Applicant was also providing hostel facilities to the students who were not their own institutional students.

In view of the above, Bench opined that the criteria for residential dwelling under the common parlance teste are not satisfied.

In the case of residential dwelling, there is no embargo in respect of visits and stay by friends, relatives, etc. The period of stay in the residential dwelling is specified in the agreement.

Further, it was noted that the Hostel room which is usually allotted on sharing basis to 3 students is for a period which is usually more than 3 months. The rooms in hostel are let out to the students for residential and study purpose only, that too during the training and coaching periods. The said are the basic differences between a residential dwelling and a Hostel.

In view of the above, the subject activity was not covered under Entry 12 of the said notification.

Therefore, hostel accommodation provided by the applicant was not covered under the exemption Notification.

 Furthermore, the subject activity would be exempted from taxes as per Entry No. 14 of said notification. The fees charged per student per day per room was much less than Rs 1000.


  • Whether the activity of providing the hostel on the rent to various students by applicant is exempt (where hostel fees charged per student per day is much less than Rs 1000)?

Answer: Affirmative

  • If it is exempt it shall be claimed as exempted under Serial Number 12 or Serial Number 14 of Notification 12/2017 – Central Tax (Rate) (as amended time to time) dated 28-06-2017?

Answer: Present activity of the applicant is exempted under Serial Number 14 of Notification No. 12/2017 – C.T. (Rate) dated 28-06-2017 as amended from time to time.[Ghodawat Eduserve LLP, In Re; ARA 72/2019-20/     /B-51, decided on 27-8-2021]

Case BriefsHigh Courts

Karnataka High Court: N. Sanjay Gowda, J., allowed the petition and quashed the demand note.

The facts of the case are such that the petitioner is supplied electricity by the licensee i.e. Hubli Electricity Supply Company Limited i.e. ‘HESCOM’. Apart from this, it is also supplying energy from the energy exchange every month which is called as purchase of electricity from Open Access Source. The petitioner is liable to pay tax on electricity consumed by it. A demand to pay a sum of Rs. 94, 47, 534 being a demand for payment was issued by HESCOM. The grievance of the petitioner is regarding whether the electricity tax which is to be paid should be levied on the price at which it purchases, be it from the licensee or from the Open Access Source. Aggrieved by the demand note, instant petition under Article 226 and 227 of the Constitution of India was filed on grounds of it being without jurisdiction and thus unconstitutional.

Counsel for the petitioner submitted that the price paid for purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee HESCOM.

Counsel for the respondents submitted that irrespective of source of electricity, every consumer is liable to pay tax on the electricity consumed within the State and since, admittedly, petitioner had consumed the electricity within the State of Karnataka, it was bound to pay electricity tax on the rates at which electricity has been supplied by HESCOM.

The Court observed that The Karnataka Electricity (Taxation n Consumption or Sale) Act, 1959 i.e ‘The Act’ was enacted to provide for levy of tax on consumption of electricity energy in the State of Karnataka in the year 1959 for sale of electricity energy in the State of Karnataka.

The intent of Section 3 of The Act is clear that whenever electricity is consumed by a consumer within the State of Karnataka, the consumer is bound to pay electricity tax on that on ad valorem basis at the rate of 6% on the charges payable on the electricity sold or consumed. The deliberate use of the expression “charges payable on electricity sold to or consumed by any consumers” would indicate that the charges for the electricity sold and for the electricity consumed could be different. Section 3 sub section 2 makes it clear that the source of electricity consumed by the consumers would be the yardstick for determination of the electricity charges on the basis of which an ad valorem rate have to be calculated.

Further, it was observed that as per Section 4 (1)(a), licensee is required to collect and pay to the State Government the electricity tax payable under the Act on the electricity charges included in the bill issued by him to the consumers. Thus, it is applicable in respect of electricity sold by the license.

Section 4 (1)(b) clearly states that the licensee shall collect and pay to the State Government the electricity tax payable on the units of electricity supplied to consumer by a non licensee through a license. Thus, a clear distinction is made on the manner in which the tax is paid.

The Court concluded that it is to be borne in mind that the person who sells the electricity would necessarily pay the wheeling and access charges to the licensee and the seller of the electricity would be basically using the infrastructure and paying for the distribution. The licensee, therefore, would have no preferential right.

The Court thus held “the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax. HESCOM shall now calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issued a revised demand within a period of two weeks from the date of receipt of a certified copy of this order”

In view of the above, petition was allowed.[Southern Ferro Ltd. v. State of Karnataka, W.P. No. 105054/2017, decided on 15-03-2021]

Arunima Bose, Editorial Assistant has reported this brief.

Advocates before the Court:

Counsel for the Petitioner: Mr Gurudas Kannur (Senior Counsel) and Mr Narayan G. Rasalkar (Adv.)

Counsel for the respondent: Ms K. Vidyawati (Add. Adv. Gen), Mr Vinayak S. Kulkarni (for R1, 2 and 5) and Mr B. S. Kamate (Adv.)

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Ramesh Nair (Judicial Member) and Raju (Technical Member) allowed an appeal which was filed against in demand of reversal Cenvat Credit, Interest, and Imposition of penalty.

The issue involved in appeal was that whether Rule 6 (3) (b) and Rule 6 (3)(i)(ii) of Cenvat Credit Rules,2004 would be applicable to the removal of byproducts (i.e spent sulphuric Acid) which were removed under serial No 32 of Notification No. 04/2006 –CE dated 1st March 2006 to fertilizer manufacturing units following the procedure laid down under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods)Rule 2001. Notices were issued for recovery of CENVAT under Rule 6(3)(b) and Rule 6(3)(i)(ii) of Cenvat Credit Rules,2004 by treating the removal of Spent Sulphuric Acid under Notification No.04/2006-CE dated 1st March,2006 as exempted goods. The Adjudicating Authority had not accepted the contention of the Appellant that the by-Products were removed at Nil rate of duty on receipt of Annexure-1 from fertilizer manufacturing units.

The Tribunal allowed the appeal and observed that the appellant were engaged in manufacture of Chemicals namely Dichloro Nitro Benzene, etc. and were availing Cenvat Credit in respect of certain inputs and inputs services during the process of manufacture Sulphuric Acid also came into existence. They further observed that appellants were clearing such Sulphuric acid to manufacturers of fertilizers by availing benefit of Procedure Chapter X (Cleared at Nil Rate of Duty). The appellants had contended that they procured Sulphuric Acid from outside and used the same in the process of manufacturing their final products. What is left after the process was nothing but the spent sulphuric acid which was waste/refuse. They claimed that the spent sulphuric acid was not a by-product. The appellant had claimed that spent sulphuric acid was the residue of the input sulphuric acid procured from outside and used in the processing within the factory. The appellant claimed that they had cleared only such Sulphuric Acid under Notification No. 4/2006 – CE. The Tribunal found that a similar issue was decided upon in the case of Nirma Limited – 2012(276) ELT 283.[Panoli Intermediate (India) (P) Ltd. v. C.C.E. & S.T., 2021 SCC OnLine CESTAT 5 , decided on 18-01-2021]

Suchita Shukla, Editorial Assistant ahs put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order wherein credit had been denied on the premise as per Notification No.02/14-CE (N.T.) dt. 20-01-2014, the appellant was not entitled to credit prior to the Notification No.01/10-CE dt. 6-02-2010.

The appellant was located in the State of Jammu & Kashmir and was availing the benefit of exemption Notification No.01/10-CE dt.6-02-2010. The appellant procured certain inputs and availed credit of duty paid on these inputs. The Revenue stated that an assessee is not entitled to avail credit against the inputs issued by the units, who were availing exemption under Notification No.01/10-CE dt. 6-02-2010 and after the introduction of Notification No.02/14-CE (N.T.) dt. 20-01-2014, the notification No.01/10-CE dt. 6-02-2010 was amended thereafter the credit was available to the assessee. After adjudication, the credit availed by the appellant was denied. Counsel for the appellant also submitted that the period involved in this case was 01-08-2012 to 19-01-2014 whereas the show cause notice had been issued on 31-08-2017 by invoking the extended period of limitation.

The Tribunal observed that similarly placed assessee was allowed the credit although against those orders, the appeals had been filed by the Revenue before the Commissioner (Appeals), in that circumstance, when the Revenue was having divergent views on the issue, the extended period of limitation was not applicable.

The Tribunal allowed the appeal stating that the denial of credit was barred by limitation as the show cause notice was issued by invoking the extended period of limitation.[Pioneer Pesticides (P) Ltd. v. Commr. of CGST, 2021 SCC OnLine CESTAT 8, decided on 12-01-2021]

Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Tripura High Court: A Division Bench of Akil Kureshi, CJ and S.G. Chattopadhyay J., while allowing the present petition, held, “One department of the Government cannot cite the reason of another department not acting promptly enough to deny the benefit declared by the Government under any scheme.”

The petitioner herein challenged a communication dated 25-06-2020 and further prayed for grant of subsidy in terms of Tripura Industrial Investment Promotion Incentive Scheme, 2012 (hereinafter to be referred to as the Incentive Scheme). Petitioner is a private limited company and is engaged in manufacturing different types of UPVC pipe and fittings, HDE coil pipes, etc. for which the petitioner had established a manufacturing unit at Agartala in the year 2013. The State of Tripura had framed the said scheme which envisaged grant of certain incentives in the form of subsidy to the specified industries set up on or after 01-04-2012. Such rebate would be equal to the net amount of Tripura Value Added Tax and Central Sales Tax and other taxes paid by the industry to the State Government on sale of finished goods subject to certain conditions. The petitioner was one of the eligible units and in the past had also claimed and was granted subsidy as per the terms of the said scheme. The issue for determination in the instant case is, a refund of the VAT etc. under the said scheme for the period between 01-01-2016 to 31-12-2016 and thereafter from 01-01-2017 to 30-06-2017. The petitioner first applied under two separate applications for such refund to the District Industries Centre on 23-06-2020 along with all necessary documents. These applications of the petitioner were rejected by the District Industries Centre by two separate orders both dated 25-06-2020. The sole ground cited for rejection of the petitioner’s applications was that the claim was submitted after expiry of two years from the period to which the claim related.

Court observed,

“It is not in dispute that a petitioner is otherwise an eligible unit entitled to the refund of the value-added tax under the said scheme, of course subject to fulfillment of the conditions contained therein. The scheme also envisages time limit for making application for refund. However, if the VAT department of the Government had delayed issuing necessary certificates of payment of tax to the petitioner, the application of the petitioner for refund cannot be rejected only on the ground of delay in making the same.”

While issuing necessary directions, Court held,

“The District Industrial Centre shall consider the petitioner’s further representations both dated 13-07-2020 and the contents thereof. If it is found that the petitioner is correct in contending that the refund applications were delayed on account of non-issuance of certificate of payment of tax by the VAT authorities, its applications for refund shall be entertained and examined on merits and refund to the extent payable be released. If, on the other hand, the authority comes to the conclusion that delay in making the applications could not be attributed to the delay in issuance of the VAT payment certificates by the concerned authority, a speaking order shall be passed and communicated to the petitioner. Entire exercise shall be completed within four months from today.”  [Agartala Plastic Private Ltd. v. State of Tripura, 2021 SCC OnLine Tri 27, decided on 12-01-2021]

Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Delhi High Court: Jayant Nath, J., reiterated the consistent position of law that right to access to clean drinking water is a fundamental right.

Petitioners who have filed the instant case are veterans, decorated officers, war-widows and Armed Forces Personnel belonging to all the three wings who were allotted plots in question for residential tenements by respondent 1 pursuant to a scheme by respondent 1 in 1961.

It has been stated that they are legally authorized residents and must be recognized/acknowledged by every respondent. Allotment of plots was by the society formed by the Ministry of Defence which culminated into proper sale deeds registered with the office of sub-registrar.

Further, it was claimed that the petitioners have been paying tax to MCD at urban rates and that subsequently, this was acknowledged as residential in the Master Plan of Delhi 2021.

Petitioners grievance is that despite repeated attempts since last 30 years, MCD has failed to provide a single facility to the petitioners till date under the garb of the petitioners allegedly being unauthorised. It is pleaded that such a stand of the authorities is completely untenable, unjust and illegal.

Harassment faced by War Widows and Disabled/Decorated Ex-Servicemen

 It is stressed that ex-servicemen resettled under this very scheme in many other stations in the country are living peacefully since the last 45 years. It is only in Delhi that war-widows and disabled/decorated ex-servicemen resettled under the Government of India mooted scheme have been harassed and denied essential basic amenities of water, electricity, sewer, road, etc. for the last 55 years.

 Further, adding to the above agony, petitioners have also stated that the authorities including the local police do not allow the petitioners to repair/build their boundary walls. The petitioners’ colony roads have become a thoroughfare for tens of thousands of people living in adjoining areas. This has also affected the security and the lands are open to encroachment.

Court’s Analysis

First and foremost thing that strikes the Court was that the petition seemed to have completely ignored that the area in question was as per the stipulated regulations for agriculture purposes.

Delhi Jal Board’s affidavit had mentioned that the Defence Services Enclave is an unauthorized colony mentioned in Registration No. 453 in the list of total 1639 unauthorized colonies, which have been identified by Urban Development Department, Govt. of NCT of Delhi.

South Delhi Municipal Corporation also in its counter affidavit has stated that the Defence Services Enclave is an unauthorised colony and SDMC is not carrying out any development work pertaining to it. Similarly, Govt. of NCT of Delhi in its counter-affidavit also states that Defence Service Enclave is an unauthorised colony.

Bench stated that merely because the petitioners were allotted the plots cannot be a ground to insist that the area is for residential purposes.

As per Section 7 of the said Act, DDA has to prepare a Master Plan for Delhi which will indicate the manner in which the land in each zone is proposed to be used. Further, Zonal Development Plans are to be prepared which will indicate the aspects stated in Section 8 of the said Act. As per Section 14 of the said Act, no person shall use any land in a particular zone otherwise than in conformity with the plan.

 High Court noted that the petitioners are all retired defence personnel who have devoted the most productive period of their lives defending the nation’s borders and performing other dangerous and difficult tasks normally performed by defence service officers.

Bench requested Secretary, the Ministry of Defence/respondent 1 to convene a meeting of functionaries who can take a decision in terms of the directions of Division Bench of this Court in WP (C) 8276 of 2014.

Further, as far as drinking water is concerned, in the counter-affidavit of Delhi Jal Board it was stated that the development work like laying of water pipeline in the area in question could only be executed by the said respondent subject to clearance from the Urban Development Department, GNCTD.

As the colony in the instant case was unauthorised, permission for installation of 4 number tube wells has been given to the RWA and at present, water is being supplied for drinking purposes through the existing tube wells as an interim arrangement. The said arrangement is said to be maintained and regulated by the RWA.

“…an individual has a right to access to drinking water in quantum and quality equal to his basic needs.”

For the above, Court referred to the Supreme Court decision in A.P. Pollution Control Board II v. Prof. M.V. Nayudu, (2001) 2 SCC 62.

“Right to access to drinking water is fundamental to life and there is a duty of the State under Article 21 of the Constitution to provide clean drinking water to its citizens.”

Bench held that the petitioners cannot be deprived of a right to access to drinking water merely on the ground that it is an unauthorised colony. Petitioners were residing in the said area for the last 50 years and could not be continuously deprived of the said right to access to drinking and potable water.

Hence Delhi Jal Board is directed to make an appropriate scheme as per their normal procedure for supply of potable drinking water to the petitioners. The scheme shall be framed and implemented preferably within 9 months. [Delhi Sainik Cooperative Housing Building Society Ltd. (Regd.) v. Union of India,  2021 SCC OnLine Del 34, decided on 11-01-2021]

Advocates for the parties:

Petitioners: Dushyant Dave, Senior Advocate with Bahar U. Barqi, Advocate.

Respondents: Maninder Acharya, ASG with Anurag Ahluwalia, CGSC, Abhigyan Siddhant, and Sharuya Jain, Advocates for Union of India/R-1

Naushad Ahmed Khan, ASC(CIVIL), GNCTD

Puja Kalra, Standing Counsel and Virendra Singh, Advocate for SDMC

Ajay Verma, Senior Standing Counsel with Ruchi Chopra, Advocate for DDA.

Puja Kalra, Advocate for SDMC.

Sumeet Pushkarma, Standing Counsel with Devanshu Lohiya, Advocate for Delhi Jal Board and L.L. Meena (E.E.)