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Supreme Court year round-up: Top 15 Tax Judgments

Supreme Court year roundup
2020 has been a year of Covid-19, challenges and changes. The Indian judiciary kept functioning and fulfilling its role in a democracy in the backdrop of the coronavirus pandemic. The Supreme Court took the cue and started functioning via video conferencing when the pandemic hit the world. 

Even though the pandemic changed the way courts functioned in the country, the Supreme Court of India adjudicated on various important cases and delivered certain important judgments in the last year.

As the year 2020 draws to a close, here is a recap of the top 15 Tax judgments of Supreme Court in 2020

1: Taxable value of supply the prize money is not to be excluded for the purpose of levy of GST.

Case Title: Skill Lotto Solutions Pvt. Ltd vs Union of IndiaAIR ONLINE 2020 SC 870

Coram: Justice Ashok Bhushan, Justice R. Subhash Reddy, and Justice M.R. Shah.

The Supreme Court upheld the validity of imposing Goods and Service Tax (GST) on Lotteries and Gambling. The Court granted the petitioner the liberty to challenge notification by which rate of GST for lottery run by the State and lottery organized by the State have been made the same.

2: No retrospective effect of notification published for enhancement of custom duty due to Pulwama terror attack

Case Title: Union of India & Ors vs. M/s G S Chatha Rice Nills & Anr , AIR ONLINE 2020 SC 740

Coram: Justice DY Chandrachud, Justice KM Joseph, and Justice Indu Malhotra.

The Supreme Court rescued importers who were required to pay an elevated customs duty of 200% on import of products from Pakistan due to the Centre’s unexpected tariff enhancement on imports after the 2019 Pulwama terror attack and directed them to pay the duty on import below the older tariff. 

3: Recommendations for making advance tax ruling system more comprehensive as a tool for settlement of disputes

Case Title: National Co-operative Development Corporation vs Commissioner of Income Tax, Delhi, Civil Appeal Nos. 5105-5107 of 2009

Coram: Justice Sanjay Kishan Kaul and Indu Malhotra 

The Supreme Court has recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. 

SC suggested that in order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to the settlement so that such apprehensions do not come in the way of arriving at a settlement and hoped that a serious thought would be given to the aspect of dispute resolution, more so in the post-COVID period.

SC also advocated that mediation has proved to be an efficacious remedyand suggestedthat a serious thought is required to bring forth a comprehensive legislation to institutionalise mediation.

4: Bangalore club not liable to pay wealth tax

Case Title: M/s Bangalore Club vs The Commissioner of Wealth Tax &Anr., 2020 SCC Online SC 721

Coram:  Justice R.F. Nariman, Justice Navin Sinha, and Justice Indira Banerjee

The Supreme Court held that Bangalore Club is not liable to pay wealth tax under the Wealth Tax Act, 1957. The three-judge bench noticed that only three types of persons can be assessed for wealth tax under Section 3 i.e. individuals, Hindu undivided families, and companies. Hence, if Section 3(1) alone were to be looked at, the Bangalore Club neither being an individual, nor a HUF, nor a company cannot possibly be brought into the wealth tax net under this provision. “Bangalore Club is an association of persons and not the creation, by a person who is otherwise assessable, of one among a large number of associations of persons without defining the shares of the members so as to escape tax liability. For all these reasons the bench concluded that it is clear that Section 21AA of the Wealth Tax Act does not get attracted to the facts of the present case. 

5: Gas regulating measuring equipment installed at customers’ sites is taxable service

Case Title: Commissioner of Service Tax, Ahmedabad vs M/s Adani Gas Ltd., AIR ONLINE 2020 SC 709

Coram: Justice Dr. Dhananjaya Y Chandrachud, Justice Indu Malhotra and Justice K M Joseph
The Supreme Court held that gas regulating measuring equipment installed at customers’ sites is taxable service. The Supreme Court observed that Section 65(105)(zzzzj)  of the  Finance  Act  1994  provides for taxability of supply of tangible goods for use, without transferring right of possession and effective control over such goods, as a ‘taxable service’. 

The three judge bench upheld the view of the Adjudicating Authority in concluding that the buyer of gas was as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines. 

In concluding remarks bench noted that “the role of regulating pressure and ensuring the safety of supply of gas performed by the measurement equipment is an essential aspect for the ‘use’ of the consumer. The SKID equipment fulfils the description in Section 65(105)(zzzzj) of a taxable service: service in relation to “tangible goods” where the recipient of the service has use (without possession or effective control) of the goods,”. 

6: Principles on determination of value of Excisable goods

Case Title: The Commissioner of Central Excise, Customs and Service Tax, Calicut vs. M/s CERA Boards and Doors, Kannur, Kerala, AIR ONLINE 2020 SC 690

Coram: Chief Justice S.A. Bobde, Justice A. S. Bopanna and Justice V. Ramasubramanian
The Supreme Court laid down detailed principles to keep in mind while determining the value of the Excisable Goods. The appeals were disposed of by the Supreme Court, confirming the impugned orders of CESTAT setting aside the Order in Original passed by the Adjudicating Authorities and remanding the matters back for re-adjudication. 

The bench while disposing of the appeal directed the Adjudicating Authorities to conduct hearings, afford adequate opportunities to the parties and pass orders in original as early as possible.

7: Individuals must deduct TDS on payments to contractors even in the absence of a contract

Case Title: Shree Choudhary Transport Company Vs Income Tax Officer,AIR ONLINE 2020 SC 665

Coram:  JusticeA.M. Khanwilkar and Justice Dinesh Maheshwari

The Supreme Court held that the individuals must deduct TDS on payments to contractors even in the absence of a contract. The division bench of A.M. Khanwilkar and Justice Dinesh Maheshwari, while upholding the orders of AO, CIT(A) and the ITAT, held that truck operators/owners answered to the description of “sub-contractor” for carrying out the whole or part of the work undertaken by the contractor (i.e., the appellant) for the purpose of Section 194C(2) of the Act.

The court remarked that “If a particular truck was not engaged, there existed no contract but, when any truck got engaged for the purpose of execution of the work undertaken by the appellant and freight charges were payable to its operator/owner upon execution of the work, i.e., transportation of the goods, all the essentials of making a contract existed; and, as aforesaid, the said truck operator/owner became a subcontractor for the purpose of the work in question,” 

8: Double Tax Avoidance Treaty Mumbai project office of Samsung Heavy Industries not a 'Permanent Establishment'

Case Title: Director of Income Tax vs M/s Samsung Heavy Industries, AIR ONLINE 2020 SC 647

Coram: Justice R. F. Nariman, Justice Navin Sinha and Justice B.R. Gavai

The Supreme Court while quashing the order of the ITAT, held that the office of Samsung Heavy Industries at Mumbai, India which is established merely for the sake of communication is not covered under the character of Permanent Establishment (PE) under India-Korea Double Taxation Avoidance Agreement (DTAA). The three-judge bench of Justice R. F. Nariman, Justice Navin Sinha and Justice B.R. Gavai concluded that no permanent establishment has been set up within the meaning of Article 5(1) of the Double Taxation Avoidance Agreement (DTAA), as the Mumbai Project Office cannot be said to be a fixed place. 

9: Excess of Income over Expenditure in the Hands of Company is Taxable
Case Title:Yum ! Restaurants (Marketing) Private Limited vs Commissioner of Income Tax, Delhi, AIR ONLINE 2020 SC 557

Coram: Justice A.M. Khanwilkar and Justice Dinesh Maheshwari

The Supreme Court of India held that excess of income over expenditure in the hands of a company is taxable. 

The imposition of liability by the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals) on the ground of taint of commerciality in the activities undertaken by the assessee company, which was further confirmed by the Tribunal, wherein the essential ingredients of the doctrine of mutuality were found to be missing.

The division bench consisting of Justice A.M. Khanwilkar and Justice Dinesh Maheshwari upheld the impugned order passed by the High court and stated, “the questions posed for our consideration stand answered against the appellant (assessee company) and in favor of the Revenue and the appeal stands disposed of upholding the impugned judgment with the liberty to the appellant to pursue the remedy of rectification, as per law. There shall be no order as to costs. Pending interlocutory applications, if any, shall also stand disposed of.”

10: UAE Exchange can’t be Taxed through It’s Liaison Office in India as it does not constitute ‘Permanent Establishment’.

Case Title: Union of India & Anr. vs. U.A.E. Exchange CentreAIR ONLINE 2020 SC 537

Coram: Justice A.M Khanwilkar and Justice Ajay Rastogi

The Supreme Court has granted relief to UAE Exchange by holding that its liaison office in India would not constitute a “Permanent Establishment” for the purpose of taxing the former as per the provisions of the Income Tax Act, 1961 and the relevant Double Taxation Avoidance Agreements (DTAAs).

The bench comprising Justice A.M Khanwilkar and Justice Ajay Rastogi held that levying of tax from a UAE Company in India, when no trading, commercial or industrial activities took place is against Double Taxation Avoidance Agreement (DTAA), signed between India and UAE. 

11: Lifted RBI Circular that curbed Crypto-currencies In India

Case Title: Internet and Mobile Association of India vs. Reserve Bank of India

Coram:Justices R F Nariman, Aniruddha Bose, and V Ramasubramanian

The Supreme Court has set aside Reserve bank of India’s (RBI) 2018 Circular on the ground of "proportionality" which had restricted banks from dealing with crypto-currency such as bitcoins. 

The petition against the RBI curbs was filed by the Internet and Mobile Association of India (IAMAI) questioning the powers of the RBI to impose such a ban since the crypto-currency wasn’t a “currency” in the legal sense. IAMAI had insisted that crypto-currencies were more like a commodity. 

The bench observed in its 180 page order that "when the consistent stand of RBI is that they have not banned VCs (virtual currencies) and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”

12: Allowed filling of revise GST Tran-1 either electronically or manually.

Case Title: Union of India vs. Adfert Technologies Pvt. LtdSLP No. 4408/2020

Coram: Justice D.Y. Chandrachud  and Justice Sanjiv Khanna

The Supreme Court of India has upheld the Punjab and Haryana High Court order directing the GST Department to Re-Open the facility to file or revise GST Tran-1 either electronically or manually. The Punjab and Haryana High Court had directed the Goods and Services (GST) department to file or revise Tran-1 either electronically or manually. 

The Supreme Court observed that The Hon’ble Punjab & Haryana HC passed a very reasoned ruling in the matter, observing as under:

  • GST is an electronic system-based tax regime and most of the people in India are not very conversant with such electronic mechanisms.
  • Accrued unutilized credits are a vested right of the Petitioners and cannot be taken away as such by the Respondents just on account of procedural or technical grounds.
13: Amusement Parks entitled to only One Benefit under Bombay Entertainments Duty Act

Case Title: The State of Maharashtra &Ors vs. Pan India Paryatan Limited &AnrAIR ONLINE 2020 SC 281

Coram: Justice Deepak Gupta and Justice Hemant Gupta

The Supreme court ruled that amusement parks within limits of Greater Bombay would be entitled to only one benefit i.e. either under Section 3(2) or under Section 3(5)(a) of the Bombay Entertainment Duty Act. 

Justice Deepak Gupta and Justice Hemant Gupta allowed the appeal against the High Court decision and held, “All amusement parks for all entertainment are not entitled to concessional duty in terms of Section 3(2) of the Act. 

14: Penalty can’t be levied on Erroneously Seized Amount

Case Title: Kishore JagjivandasTanna vs. Joint Director of Income TaxCivil Appeal No. 625 of 2020

Coram:  Justice S. Abdul Nazeer and Justice Sanjiv Khanna 

The Supreme Court of India has held that when the liability to pay an erroneously withheld sum is acknowledged and accepted by the Revenue Department, then to deny relief by directing payment in terms of the order under Section 132(5) of the Act would be unjust, unfair and inequitable amount. Supreme Court says that penalty can’t be levied on Erroneously Seized Amount. 

Finally ,the appellant was brought to justice after nearly 33 years Justice S. Abdul Nazeer and Justice Sanjiv Khanna who held, “ . . . . Laches is this case would require sheer negligence of nature and type which would render it unjust and unfair to grant relief. . . . the appeal is allowed with the direction to the respondent authorities to pay Rs. 4,99,900/- with interest as per law within a period of three months from the date on which the copy of this order is received. In case of failure to pay in time, the appellant would be at liberty to file a contempt petition against the officers concerned and also claim costs.”

15: MODVAT Credit not allowable as Deduction u/s 43B of Income Tax Act

Case Title: Maruti Suzuki India Ltd. vs. Commissioner of Income Tax, Delhi, AIR ONLINE 2020 SC 195

Coram: Justices Ashok Bhushan and Navin Sinha

The Bench constituting of Justices Ashok Bhushan and Navin Sinha held that the unutilized credit under the MODVAT scheme does not qualify for deductions u/s 43B of the Income Tax Act.

It further held that the deductions under Section 43B are allowable only when the sum is actually paid by the assessee. In the present case, the Excise Duty leviable on the appellant on the manufacture of vehicles was already adjusted in the concerned assessment year from the credit of Excise Duty under the MODVAT scheme. The unutilized credit in the MODVAT scheme cannot be treated as a sum actually paid by the appellant. The assessee when pays the cost of raw materials where the duty is embedded, it does not ipso facto mean that the assessee is the one who is liable to pay Excise Duty on such raw material/inputs. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same.


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