Case BriefsHigh Courts

Madras High Court: Dr Anita Sumanth, J., expressed that with the inception of Section 74(5)of GST Act, it is the case of the revenue that the collection of amounts in advance has attained statutory sanction, provided the same are voluntary in Form GST-DR03.

Merely because an assessee has, under stress of investigation, signed a statement admitting tax liability and has also made a few payments as per the statement, cannot lead to self-assessment or self-ascertainment.

In the present matter, mandamus was sought to restrain the first respondent from harassing the petitioner baselessly without addressing its grievance petition and refund claim pending before the respondents.

The petitioner was registered as a Small-Scale Industry under the MSME Act and was an assesseee under the provisions of all the Goods and Service Tax Act, 2017. An investigation was conducted on the premises of the petitioner and various documents and registers were seized. Further, during the investigation, a statement was recorded from one S.A Kumar, who also deposed to the affidavit filed in support of the present petition, to the effect that the petitioner had not discharged its GST liability correctly.

The Managing Director had signed the undertaking and in line with the same, the petitioner remitted a sum of Rs 1 crore.

Petitioner stated that it had no liability to tax, that the MD and Officials were forced to accept liability to tax and the admission was by no means, voluntary.

Further, the petitioner had made serious allegations about the high handedness of the authorities during the conduct of search and the scant regard expressed for the sentiments of the family of the MD and employees of the petitioner.

Whether the collection of any amount during the process of investigation is statutorily permitted?

Whether the products sold are branded or unbranded?

If unbranded then there is no liability to GST.

Whether the petitioner is entitled to the refund of the amounts paid during investigation and the revenue relies upon the provisions of Section 74(5) of the Act?

Section 74 provides for a determination of tax not paid or short paid or erroneously refunded or the wrongful availment or utilization of Input Tax Credit by reason or fraud, willful misstatement or suppression of facts.

The remittance under Section 74(5) is in terms of Rule 142 of the Central Goods and Services Tax Rules, 2017 and has to be made in Form GST DRC-03.

It was noted that the payment was ‘voluntary’ and the same procedure had been followed in regard to the second instalment as well.

“Prior to the inception of the GST Act, instances were rife when officials of DRI and Customs Department were infamous for collecting advance payments of tax from assesses, many a time under coercion, and in the course of investigation itself.”

Thus, according to the revenue, the remittances made by the petitioner during the investigation in terms of Section 74(5) amount to ‘self-ascertainment’. Having remitted two instalments of tax as per is own ascertainment, it cannot pray for a mandamus seeking a refund of the amount.

“No collection can be insisted upon prior to a final determination of liability being made.”

Further, the Bench added that, what Section 74(5) provides is the first opportunity for an assessee to pay tax, interest and penalty liability even prior to the issuance of a show-cause notice and such acceptance will have to be in the form of either self-ascertainment or an ascertainment by the proper officer.

In the present matter, the enquiry and investigation were on-going, personal hearings had been afforded and both the parties were fully geared towards issuing/receiving a show-cause notice and taking matters forward.

Hence, the understanding and application of Section 74(5) was wholly misconceived.

Therefore, the mandamus as sought for by the petitioner was issued and the amount collected of Rs Two Crores shall be refunded to the petitioner within a period of four weeks.[Shri NandhiDhall Mills India (P) Ltd. v. Senior Intelligence Office, WP No. 5192 of 2020, decided on 7-4-2022]

Advocates before the Court:

For Petitioner: Mr.Hari Radhakrishnan

For Respondents: Mr.V.Sundareshwaran (for R1 to R3 & R5)

Senior Panel Counsel R4 – Given up

Case BriefsHigh Courts

Bombay High Court: The Division Bench of K.R. Shriram and Amit B. Borkar, JJ., discussed when a person can be prosecuted under Section 276C(1) of the Income Tax Act.

Petitioner challenged the order passed by respondent 3 sanctioning the prosecution against the petitioner under Section 276C (1) of the Income Tax Act, 1961 and a complaint was filed against the petitioner in the Court of Additional Chief Metropolitan Magistrate, Mumbai.


Petitioner was engaged in the business of trading in ferrous and non-ferrous metals. He filed his return of income on 20-03-2010 for Assessment Year 2009-10.

By notice dated 28-03-2014, the assessment of Petitioner was re-opened under Section 148 of the said Act. The Assessing Officer on 4-03-2015 passed an order of assessment, making addition of Rs 34,25,377/- being 12.5% of alleged bogus purchases of Rs 2,74,03,016/-. The Assessing Officer also issued show cause notice under Section 271(1)(c) of the said Act.

On being aggrieved with the assesment order, an appeal with the Commissioner of Income Tax was filed.

The assessing officer after hearing the petitioner made the addition of Rs 12,91,069 being 12.5% of alleged bonus purchases of Rs 1,03,28,552 by order dated 30-11-2016. CIT(A) y its order dated 19-12-2016 confirmed the order of Assessing Officer passed on 4-3-2015.

Again, on being aggrieved, petitioner filed an appeal before the Income Tax Appellate Tribunal (ITAT) which was dismissed on 3-7-2017.

In November 2017, respondent 3 issued a show-cause notice to the petitioner as to why prosecution under Sections 276C(1) and 277 of the said Act should not be initiated against the petitioner.

Present petition was filed by the petitioner challenging the order of sanction of prosecution dated 25-1-2018.

Law | Section 276C (1) of the Income Tax Act

“Section 276C (1) :- 

If a person willfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or [imposable, or under reports his income] under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,

(i) in a case where the amount sought to be evaded [or tax on under reported income] exceeds [twenty-five] hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two] years and with fine.”

Analysis and Decision

High Court firstly noted that the following ingredients must be fulfilled to attract the offence under Section 276(C):

  1. a) Willful attempt to evade any tax.
  2. b) Willful attempt to evade any penalty; or
  3. c) Willful attempt to evade any interest chargeable or imposable under this Act; or
  4. d) under reports his income.

Even if one of the above three ingredients are fulfilled, then prosecution can be initiated under Section 276(C).

In the sanction order, it was stated that the petitioner failed to substantiate the claim of purchases amounting to Rs 2,74,03,016 and the assessing office held the purchases to be bogus and made an addition of Rs 34,25,377 (12.5% of the bogus purchases).

“…before granting sanction the authority must have before it the necessary report and the material facts which prima facie establish the commission of offence alleged for and that the sanctioning authority would apply its mind to those facts. The order of sanction is only an administrative act and not a quasi-judicial one nor is a lis involved.”

Bench stated that in the present matter the sanctioning authority seemed to have applied its mind to the facts placed before it and considered them and then granted sanction.

Court noted the note of caution on the powers of quashing a criminal proceeding as was given in the Supreme court decision of State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335.

Further, the Court also relied on the decision in Rajiv Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330, wherein the scope of power under Section 482 of the Code of Criminal Procedure was succinctly laid down.

In Court’s opinion, the petitioner willfully and intentionally evaded his tax liability.

The Court was satisfied that prima facie the ingredients of the offences under Section 276C(1) of the Income Tax Act were satisfied and at this stage, Court cannot go into the truth or otherwise of the allegations made against the petitioner.

In view of the above petition was dismissed. [Nayan Jayantilal Balu v. Union of India, 2021 SCC OnLine Bom 5913, decided on 7-12-2021]

Advocates before the Court:

Mr Dharan V. Gandhi, for the Petitioner.

Mr Akhileshwar Sharma, for the Respondents.

Case Briefs

Supreme Court: The 3-Judge Bench comprising of Dr Dhananjaya Y Chandrachud*, Vikram Nath and BV Nagarathna, JJ., has held that the question whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor is a question of law and existence of alternate remedy would not bar the High Court from entertaining the same. The Bench expressed,

“The issues raised by the appellant were questions of law which required, upon a comprehensive reading of the Bihar Electricity Act, a determination of whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor…”

The crux of the case was that the Patna High Court had declined to entertain writ petition challenging the validity of electricity duty and penalty imposed on the electricity supplied to Bihar State Electricity Board (BSEB) on the ground that the dispute between the parties was factual in nature and was suitable for adjudication in terms of the statutory remedy provided in the Bihar Electricity Duty Act 19481.

Factual Developments

The appellant, a sugar mill company was engaged in the business of manufacture and sale of white crystal sugar. The waste of sugarcane (bagasse) was used for the production of electricity for its own consumption by the appellant and the surplus energy was supplied to BSEB.

In pursuance of its power under Section 3(1) of the Act, the State had issued a notification dated 21-10-2002 which stipulated that the rate of duty applicable on the consumption or sale of electricity would be fixed at six per cent of the value of energy consumed or sold for any other purposes other than irrigation which was later amended on 04-03-2005 which provided that the rate of duty to be levied on consumption of electrical energy generated by captive power plants would be six per cent of the  value of energy, i.e. energy tariff as fixed by the BSEB. Noticeably on 14-01-2011 another notification was issued by the State, granting a blanket exemption from payment of electricity duty on electricity generated by captive plants for self-consumption.

In the above backdrop, the appellant had challenged the notifications dated 21-10-2002, which was struck down by the High Court on the ground that there were no guidelines in the statute or the notifications for construing the expression ‘value of energy’. Subsequently, the State amended the Act through the Bihar Finance Act 2012 with retrospective effect from 17-10-2002 for defining the term ‘value of energy’.

Once again, the appellant challenged the amendment in the High Court, however, while the petition was pending the State issued a notice to the appellant for its failure to file returns under Section 6B (1) of the Act, concealment of the sale of electricity of approximately Rs 56 crores and for raising a demand of electricity duty and penalty of about Rs 67 crores.

Grievance raised by the Appellant

On behalf of the appellant, the following submissions had been made to substantiate the claim that no tax can be levied on the supply of electricity by the appellant to BSEB for the following reasons:

  1. Under Section 3 of the Act, tax was levied on the ‘value of energy’ and Section 2(ee) only brought the sale to a consumer within the ambit of the phrase ‘value of energy’;
  2. BSEB was a ‘licensee’ and not a ‘consumer’ in view of the definition of ‘licensee’ provided under Section 2(d) of the Act; and the term ‘value of energy’ used in Section 3 for the levy of tax was not applicable to BSEB because the definition of ‘consumer’ excluded a licensee, Section 2 (b) states:

“‘Consumer’ means any person who is supplied with energy but does not include either a licensee or the distributing licensee…”

  1. BSEB was already paying electricity duty for the electricity sold by it to consumers, including the electricity supplied by the company to the Board. The levy of tax on the electricity supplied by the company would thus amount to double taxation;
  2. Even if it was conceded that the State had power to levy tax on the supply of electricity by the generator to the licensee, the Government had not exercised its power, since under Section 3, a notification must be issued for specifying the rate of charge. The notification issued on 21-10-2002 was only providing the rate of duty on ‘consumption or sale of electricity’.
  3. Since the power exercised by the State under Section 3 of the Act to levy electricity duty on sale of electricity by the appellant to BSEB was a jurisdictional issue, the rule of alternate remedy would not apply;


In a similarly placed case, which was initially tagged with the instant petition but was later de-tagged, National Thermal Power Corporation Ltd. (NTPC) was supplying electricity exclusively to the Electricity Boards, which had challenged the same issue before the Court, the High Court had held that electricity duty could not be imposed under Section 3 (1) of the Act on a power generation company supplying electricity to a licensee like the Electricity Board, concluding that it was beyond the legislative competence of the State to impose a tax on the sale of electricity which was not a sale for consumption. Moreover, the High Court observed that in terms of the provisions of the Bihar Electricity Act, a power generation company is liable to pay duty only if it is selling electricity to the consumer, as defined in the legislation.

Noticeably, the High Court by its impugned order had declined to entertain the writ petition on two counts: (i) the appellant had an alternate statutory remedy under Section 9A of the Act; and (ii) the dispute involved questions of fact which are not amenable to the writ jurisdiction of the High Court. The Bench observed that it was not the case of the appellant that the respondents had miscalculated the duty and penalty imposed on it. The appellant contended that the State Government did not have power to levy tax on its sale of electricity to BSEB. Thus, the plea stroke at the exercise of jurisdiction by the Government; accordingly, the Bench held,

“The High Court can exercise its writ jurisdiction if the order of the authority is challenged for want of authority and jurisdiction, which is a pure question of law.”

Relying on the decision in Sree Meenakshi Mills Ltd. v CIT, 1956 SCR 691, wherein a three judge Bench had explained succinctly the tests for the identification of questions of fact, questions of law and mixed questions of law and facts, the Bench stated that, “the test that is to be applied for the determination of a question of law is whether the rights of the parties before the court can be determined without reference to the factual scenario.”


Hence, the Bench held that the issues raised by the appellant were questions of law which required, upon a comprehensive reading of the Bihar Electricity Act, a determination of whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor; and whether the State had the legislative competence to levy duty on the sale of electricity to an intermediary distributor.

Resultantly, the Bench was of the view that the High Court made an error in declining to entertain the writ petition and it would be appropriate to restore the proceedings back to the High Court for a fresh disposal. Accordingly, the appeal was allowed and the impugned judgment was set aside.

[M/s Magadh Sugar & Energy Ltd. v. State of Bihar, 2021 SCC OnLine SC 801, decided on 24-09-2021]

Kamini Sharma, Editorial Assistant has put this report together


Appearance by:

For the Appellant: Advocate SK Bagaria

For the State of Bihar: Sr. Advocate Saket Singh

*Judgment by: Justice Dr Dhananjaya Y Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT): A two-Member Bench of Pramod Kumar, Vice President and Amarjit Singh, Judicial Member, referred a seminal question to be decided by a larger Bench of three or more Members of the Income Tax Appellate Tribunal (“ITAT”). The two-Member Bench dubbed it as:

“[A] macro issue that touches upon the tax liability of virtually every company which has residents of a tax treaty partner jurisdiction as shareholders, and has substantial revenue implications.”

The present appeal (filed by the Income Tax Department) and cross-objection (filed by the assessee) called into question the correctness of the order passed by the Commissioner of Income Tax (Appeals) in the matter of assessment under Section 143(3) of the Income Tax Act, 1961, for the assessment year 2016-17.  One of the issues raised in the present matter (by way of one of the grounds taken by the assessee in cross-objection) was that:

“The Assessing Officer be directed to compute the tax payable by the assessee under Section 115-O of the Income Tax Act, 1961 at the rate prescribed in the Double Taxation Avoidance Agreement between India and France in respect of dividend paid by the assessee to the non-resident shareholders i.e., Total Marketing Services and Total Holdings Asie, a tax resident of France.”

Material Facts and Assessee’s Contention

The assessee company has some non-resident tax holders fiscally domiciled in France. The assessee has paid dividend distribution tax under Section 115-O of the Income Tax Act. The short case of the assessee is that since the shareholders of the assessee company are entitled to the benefits of the India France Double Taxation Avoidance Agreement (“Indo French Tax Treaty”), the dividend distribution tax paid by the assessee, which is nothing but a tax on dividend income of the shareholders, cannot exceed the rate at which, under the Indo French Tax Treaty, such dividends can be taxed in the hands of the non-resident shareholders in question

Preliminary Objections by Income Tax Department

The appellant−Income Tax Department raised various preliminary objections to the cross-objection filed by the respondent−assessee, which were rejected by the ITAT. The first objection was that the cross-objection filed by the assessee was time-barred. Perusing the material on record, the ITAT was satisfied that the memorandum of cross-objection was filed within the time limit.

Another objection was about the assessee’s claim of treaty protection. It was contended that the claim so far as the rate of dividend distribution tax is concerned, was never raised before any of the authorities below, and no fresh issue can be raised by way of a cross-objection filed under Section 253(4) of the Income Tax Act. Negating this, the ITAT opined that there is a legal parity in the appeal and the cross-objection inasmuch as the issues which can be raised in an appeal can also be raised in a cross-objection. There cannot be any justification in restricting the scope of issues which can be raised in a cross-objection. Whatever issues, therefore, can be raised by way of an appeal are the issues that can be raised by way of a cross-objection.

Reference to Larger Bench

On the main issue (as noted above), the assessee contended that the matter is covered by the decisions of other Coordinate Benches. The assessee submitted that following the principles of consistency, the issue does not require a reference to Special Bench. The ITAT was urged to follow the Coordinate Benches and remit the matter to the file of the Assessing Officer for reconsideration in the light of the same.

For rejecting this submission, the ITAT found force in the Supreme Court decision in Union of India v. Paras Laminates (P) Ltd., (1990) 4 SCC 453. It was observed by ITAT that the assessee’s submission that the ITAT President cannot constitute a Special Bench in the absence of conflict of opinions by the Division Benches is incorrect and untenable in law. Of course, it is for the President to take a considered call on whether or not it is a fit case for constitution of a Special Bench, but, in the event of his holding the view that it is indeed a fit case to constitute a Special Bench, he is not denuded of the powers to do so on account of lack of conflict in the views of the Division Benches.

Thereafter, the ITAT set out its reasons for doubting the correctness of the decisions of the Coordinate Benches, on the dividend distribution tax rate being restricted by the treaty provision dealing with taxation of dividends in the hands of the shareholders (i.e. Article 11 of the Indo French Tax Treaty, as in the present case):

  • The payment of dividend distribution tax under Section 115-O does not discharge the tax liability of the shareholders. It is a liability of the company and discharged by the company. Whatever be the conceptual foundation of such a tax, it is not a tax paid by, or on behalf of, the shareholder. Therefore, dividend distribution tax cannot be treated as a tax on behalf of the recipient of dividends, i.e. the shareholders.
  • Under the scheme of the tax treaties, no tax credits are envisaged in the hands of the shareholders in respect of dividend distribution tax paid by the company in which shares are held. The dividend distribution tax thus cannot be equated with a tax paid by, or on behalf of, a shareholder in receipt of such a dividend. In fact, the payment of dividend distribution tax does not, in any manner, prejudice the foreign shareholder, and any reduction in the dividend distribution tax does not, in any manner, act to the benefit of the foreign shareholder resident in the treaty partner jurisdiction. This taxability is wholly tax-neutral vis-à-vis foreign resident shareholder and the treaty protection, when given in respect of dividend distribution tax, can only benefit the domestic company concerned. The treaty protection thus sought goes well beyond the purpose of the tax treaties.
  • It is to stretch things a bit too far to say that even when tax burden is shifted from a resident of the tax treaty partner jurisdiction to resident of another jurisdiction, the tax burden on another person, who is not eligible for tax treaty benefits anyway, will nevertheless be subjected to the same level of tax treaty protection. . Such a proposition does not even find mention in any tax treaty literature, and therefore the present decision, extending the tax treaty protection to the company paying dividends, in respect of dividend tax distribution tax, appears to be a solitary decision of its kind.
  • Wherever the Contracting States to a tax treaty intended to extend the treaty protection to the dividend distribution tax, it has been so specifically provided in the tax treaty itself. In the absence of such a provision, it cannot be inferred as such.
  • A tax treaty protects taxation of income in the hands of residents of the treaty partner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French Tax Treaty, the person seeking such treaty protection has to be a resident of France. The expression ‘resident’ is defined, under Article 4(1) of the Indo French Tax Treaty, as “any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature”. Obviously, the company incorporated in India, i.e. the assessee in the present case, cannot seek treaty protection in India ─ except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under Article 26(1), deductibility non-discrimination under Article 26(4), and ownership non-discrimination under Article 24(5). as, for example, Article 26(5) specifically extends the scope of tax treaty protection to the “enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State”. The same is the position with respect of the other non-discrimination provisions. No such extension of the scope of treaty protection is envisaged, or demonstrated, in the present case. When the taxes are paid by the resident of India, in respect of its own liability in India, such taxation in India, cannot be protected or influenced by a tax treaty provision, unless a specific provision exists in the related tax treaty enabling extension of the treaty protection.
  • Taxation is a sovereign power of the State ─ collection and imposition of taxes are sovereign functions. Double Taxation Avoidance Agreement is in the nature of self-imposed limitations of a State’s inherent right to tax, and these DTAAs divide tax sources, taxable objects amongst themselves. Inherent in the self-imposed restrictions imposed by the DTAA is the fact that outside of the limitations imposed by the DTAA, the State is free to levy taxes as per its own policy choices. The dividend distribution tax, not being a tax paid by or on behalf of a resident of treaty partner jurisdiction, cannot thus be curtailed by a tax treaty provision.

For all these reasons independently, as also taken together, the ITAT was of the considered view that it is a fit case for the constitution of a Special Bench, consisting of three or more Members, so that all the aspects relating to this issue can be considered in a holistic and comprehensive manner. The question which may be referred for the consideration of Special Bench consisting of three or more Members, subject to the approval of, and modifications by, the ITAT President, is as follows:

“Whether the protection granted by the tax treaties, under Section 90 of the Income Tax Act, 1961, in respect of taxation of dividend in the source jurisdiction, can be extended, even in the absence of a specific treaty provision to that effect, to the dividend distribution tax under Section 115-O in the hands of a domestic company?”

The Registry was directed to place the matter before the ITAT President for appropriate orders. [CIT v. Total Oil (India) (P) Ltd.,  2021 SCC OnLine ITAT 367, dated 23-6-2021]

Case BriefsHigh Courts

Karnataka High Court: A Division Judge Bench comprising of Vineet Kothari and S. Sujatha, JJ., decided an Income Tax Appeal wherein it was held that the income tax appellate tribunal has the power to give direction for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on the grounds raised by any party.

The appellant-assessee company bought back it’s share from it’s Holding Company at an extremely high price out of the Reserve and Surplus and on the directions of Dispute Resolution Panel, the same was taxed as a dividend under Section 115-O of the IT Act, 1961. Thereafter the appellant went for appeal before the ITAT, it held that as per Section 26-A of IT Act, the buyback of shares should be taxed as Capital Gains and ordered for the re-opening of the matter by Assessing Officer who should also decide the fair market value of shares. Hence, the present appeal.

The appellant-assessee submitted that the Tribunal had exceeded its jurisdiction in opening the enquiry upon questions of market price of the shares’ buy-back. Whereas, the respondent submitted that the Tribunal was completely justified in re-opening the assessment and the same was well within the parameters of the subject of appeal.

The Court kept away from deciding the second issue of taxability in the light of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613. Thereafter, it held that ITAT has the power to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee. The Court added that payment by the assessee to its holding company could not be taxed as dividend. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and it has the freedom to pass any order on important matters related to appeal. The appeal was thus dismissed.[ Fidelity Business Services India (P) Ltd v. CIT,  2018 SCC OnLine Kar 756,  dated 23-07-2018]