Supreme Court Judgments — 2024

The Supreme Court held that pure coconut oil sold in small quantities is classifiable as edible oil under Heading 1513, unless its packaging meets specific criteria for hair oil under Chapter 33.

The Supreme Court held that the appellant cannot be construed as the 'owner' of the vehicle for the purposes of Section 125 of the Customs Act, 1962. The Court referred to Section 2(30) of the Motor Vehicles Act, 1988, which defines 'owner' as the person in whose name a motor vehicle stands registered. Since the car in question was not registered in the appellant's name, but remained registered in the name of the original importer, the appellant was not the legal owner. The Court also noted that Section 125(1) of the Customs Act allows imposing liability on the possessor only when the owner is not known. In this case, the owner (original importer) was known. Therefore, the proceedings initiated against the appellant, including the Show-Cause Notice, seizure, and confiscation, were unlawful. The impugned High Court judgment was quashed, and the CESTAT order was restored. The Court clarified that the Department could proceed against the actual owner.

The Supreme Court held that mobile towers and prefabricated buildings are essential for providing mobile telecommunication services and qualify as 'inputs' under the CENVAT Credit Rules. Therefore, mobile service providers are entitled to CENVAT credit on the excise duty paid on these items.

The Supreme Court held that officers from the Directorate of Revenue Intelligence and other similar bodies are proper officers for issuing show cause notices under Section 28 of the Customs Act. The Court also upheld the constitutional validity of Section 97 of the Finance Act, 2022, which retrospectively validated such notices.

The Supreme Court held that broken period interest, when securities are treated as stock-in-trade, is a revenue expenditure and thus deductible. The prior ruling in Vijaya Bank Ltd. was distinguished as it dealt with repealed sections of the IT Act.

The Supreme Court held that if government securities are treated as stock-in-trade by the bank, the broken period interest paid on their acquisition cannot be considered capital expenditure and must be treated as revenue expenditure, allowable as a deduction. The Court clarified that whether a Held to Maturity (HTM) security is held as an investment or stock-in-trade depends on the facts of each case. If held as an investment, the benefit of broken period interest will not be available. However, if held as a trading asset (stock-in-trade), a deduction for broken period interest can be claimed. The Court noted that if deduction is not allowed, the broken period interest would have to be added to the acquisition cost of the securities, reducing the profit earned from their sale in subsequent years. The Court restored the ITAT's decisions in the lead cases (Civil Appeal Nos. 3291-3294 of 2009) and dismissed the Revenue's appeals, subject to the clarification regarding HTM securities.

The Supreme Court held that the assessing officer had no jurisdiction to consider a claim made in a revised return filed after the expiry of the time limit prescribed by Section 139(5). The Tribunal's direction to the assessing officer was therefore incorrect.

The Supreme Court held that after April 1, 2021, the Income Tax Act must be read with its substituted provisions. TOLA continues to apply if any action or proceeding under the substituted provisions falls for completion between March 20, 2020, and March 31, 2021. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuing a reassessment notice under Section 148. TOLA extends the time limit for granting sanction under Section 151. The test for Section 151 of the new regime is whether the three-year time limit falls between March 20, 2020, and March 31, 2021, extending approval time to June 30, 2021. For Section 151 of the old regime, if the four-year time limit falls within the same period, approval time is extended to March 31, 2021. The directions in Ashish Agarwal extend to all ninety thousand reassessment notices issued under the old regime between April 1, 2021, and June 30, 2021. The period of stay for show cause notices is from issuance until the supply of information and the two-week response period. Assessing officers must issue reassessment notices under Section 148 of the new regime within the surviving time limit under the Income Tax Act read with TOLA; notices issued beyond this period are time-barred. The High Court judgments relied upon by the assesses were set aside. The appeals by the Revenue were allowed, and appeals by the assesses would be governed by the judgment's reasoning.

The Supreme Court held that the constitutional validity of clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act is upheld. The Court found no ambiguity in their plain interpretation, thus negating the need to read them down. It was clarified that the expression “plant or machinery” in Section 17(5)(d) cannot be given the same meaning as the expression “plant and machinery” defined by the explanation to Section 17. The determination of whether a mall, warehouse, or other building constitutes a “plant” within the meaning of Section 17(5)(d) is a factual question. This determination must consider the business of the registered person and the role the building plays in that business. If the construction of a building is essential for carrying out the activity of supplying services, such as renting or leasing, covered by Schedule II of the CGST Act, it could be classified as a “plant”. In such cases, it would be taken out of the exception carved out by Section 17(5)(d). A functionality test must be applied to ascertain this. Consequently, the impugned judgment in Civil Appeal Nos. 2948 and 2949 of 2023 was set aside, and the writ petitions were remanded to the High Court for a limited purpose: to decide whether, on the facts, the shopping mall satisfies the functionality test and qualifies as a “plant” under Section 17(5)(d). The Court also noted that Section 17(5) begins with a non-obstante clause, giving it an overriding effect over Section 16(1) and Section 18(1). The Court rejected the plea that clauses (c) and (d) of Section 17(5) are discriminatory, stating that immovable property and goods constitute a distinct class for GST purposes. The Court did not make a final adjudication on whether the construction of immovable property by the petitioners in the writ petitions amounts to a “plant”, leaving this to be decided on merit in appropriate proceedings using the functionality test.

The Supreme Court held that the activity of purchasing and selling lottery tickets by the assessees does not attract service tax under Section 65(19)(ii) of the Finance Act, 1994. The Court reasoned that the outright purchase of lottery tickets from the State or Directorate of Lotteries is not a service in relation to promotion or marketing of a service provided by the client (the State). Conducting a lottery is a revenue-generating activity by the State, not a service. The Explanation to Section 65(19)(ii) cannot override the main provision, especially as it was contrary to the established principle that lottery tickets are actionable claims, as held in Sunrise Associates. The relationship between the State and the assessees is principal-to-principal, not principal-agent, negating the concept of business auxiliary service. The High Courts erred in not considering the definition of 'goods' which excludes actionable claims. The appeals are allowed, setting aside the impugned judgments and granting consequential reliefs.

The Supreme Court held that the owner of goods has a liability to pay customs duty even after confiscated goods are redeemed upon payment of fine under Section 125 of the Act. It clarified that when confiscation proceedings are initiated under Section 124, the obligation to pay duty and charges under Section 125 arises only when the owner exercises the option to pay a fine for redemption and the Department accepts it. The Court found that the duty liability arising under Section 125(2) must be assessed under Section 28. Consequently, once Section 28 applies for the determination of duty, interest on delayed payment under Section 28AB follows. The Court also clarified that the Jagdish Cancer case is not an authority for the proposition that duty assessment under Section 28 is precluded when liability arises under Section 125(2). The High Court's decision was upheld, and the appeal was disposed of.

The Supreme Court held that Section 206C of the Income Tax Act is not applicable to Mysore Sales International Ltd. in respect of arrack sales to liquor vendors. The Court found that the liquor vendors were not 'buyers' as defined under Explanation (a) to Section 206C. Specifically, the Court determined that the conditions under Explanation (a)(iii) were satisfied. Firstly, the arrack was sold by the appellant on behalf of the State Government, and the property in the arrack vested with the State. Secondly, the sale price was fixed statutorily under Rule 4 of the 1967 Rules, even though it was within a price range. Therefore, the liquor vendors were excluded from the definition of 'buyer'. The Court also noted that while Section 206C(6) does not expressly mandate notice and hearing, orders passed thereunder have adverse civil consequences, requiring adherence to principles of natural justice. Although a show cause notice was issued, it was deemed inadequate. Consequently, the Supreme Court set aside the orders of the assessing officer, the Single Judge, and the Division Bench of the High Court.

The Supreme Court held that the Council of the Institute of Chartered Accountants of India possessed the legal competence to frame the impugned Guidelines restricting the number of tax audits under Section 44AB of the Income Tax Act, 1961. The Court found these guidelines, initially setting limits at thirty, later forty-five, and then sixty audits per assessment year, to be valid and not violative of Article 19(1)(g) of the Constitution. It reasoned that these were reasonable restrictions justifiable under Article 19(6), aimed at serving the public interest by ensuring quality in tax audits, a privilege extended to Chartered Accountants. The Court noted that compulsory tax audits were not an inherent part of the profession but a privilege granted in the public interest. However, the Court also acknowledged an uncertainty in the law and the selective enforcement of the guidelines by the ICAI, where many Chartered Accountants who breached the limits were not proceeded against. Consequently, while upholding the validity of the guidelines, the Court ruled that they would not be given effect to until April 1, 2024. All disciplinary proceedings initiated against the writ petitioners and similarly situated Chartered Accountants based on the impugned guideline were quashed. The ICAI was granted liberty to enhance the specified number of audits if it deemed fit, and the petitioners were allowed to make representations.

The Supreme Court dismissed the appeal, affirming the Delhi High Court's judgment. The Court held that the language of Section 38(3) of the Delhi Value Added Tax Act, 2004, is mandatory, and the department must adhere to the stipulated timelines for processing and issuing refunds. The Court reasoned that the object of the provision is to ensure timely refunds. In this case, the refund periods (two months for quarterly returns) expired on May 31, 2017, and May 29, 2019, respectively. The default notices were issued subsequently. Therefore, the dues under the default notices had not crystallized when the refunds were due. The Court rejected the revenue's argument that the timeline was only for interest calculation, stating it would defeat the provision's object by allowing the department to retain refundable amounts indefinitely. The Court directed the refund of the amounts along with interest as per Section 42 of the Act.

The Supreme Court held that in relation to products of Chapter 18 of the Central Excise Tariff Act, labelling or re-labelling of containers amounts to 'manufacture' as per Note 3. Therefore, the activity of the respondent was considered manufacture.

The Supreme Court agreed with the High Court that the letter dated 20.01.2001 was the appellant's own document and its non-furnishing did not cause prejudice. However, the Court affirmed the High Court's remand order to the tribunal for fresh adjudication.

The Supreme Court held that the demand for customs duty and interest on the 264 cases was not sustainable as they were unloaded outside the notified area with permission. However, the demand for duty and interest on the 27 missing cases was sustained.

The Supreme Court held that the review order by the Committee of Commissioners was not time-barred due to COVID-19 pandemic extensions and that the CESTAT's finding of undervaluation based on comparison with identical/similar past imports was factually sound. The court found no error in the CESTAT's view or the imposition of penalties.

The Supreme Court held that the assessees were not under a legal obligation to deduct tax at source under Section 194-H of the Income Tax Act, 1961. The Court reasoned that the term 'agent' in Explanation (i) to Section 194-H is used in a restricted sense, referring to one who has the power to affect the legal position of the principal by making contracts or disposing of property. Distributors and franchisees are generally regarded as independent contractors, buying goods on their own account and selling them, with their profit being the margin between purchase and sale price. Unlike agents, they do not act as intermediaries creating a relationship between the principal and a third party. The Court distinguished the relationship of a distributor/franchisee from that of an agent, emphasizing that independent contractors work for themselves and are not required to render accounts of the business. Therefore, Section 194-H was not applicable to the facts and circumstances of the case. The appeals by the assessee challenging the Calcutta High Court judgment were allowed, and appeals by the Revenue challenging the judgments of Rajasthan, Karnataka, and Bombay High Courts were dismissed.

The Supreme Court, in a majority judgment, declared the Electoral Bond Scheme, 2018, unconstitutional. The Court directed the State Bank of India to stop issuing electoral bonds and to submit details of all electoral bonds purchased since April 12, 2019, including purchaser details, denominations, and dates, to the Election Commission of India (ECI). The ECI is to publish this information. The Court also held that the amendment to Section 182(1) of the Companies Act, 2013, which removed the limit on corporate funding, is arbitrary and violative of Article 14, as it infringes the principle of free and fair elections. Furthermore, the Court found that the non-disclosure provisions in Section 29C of the Representation of the People Act, 1951, Section 182(3) of the Companies Act, 2013, and Section 13A(b) of the Income Tax Act, 1961, to the extent they anonymize contributions through electoral bonds, violate the right to information under Article 19(1)(a). The Court struck down these provisions and the Electoral Bond Scheme, holding that the government failed to demonstrate that the anonymization was the least restrictive means to balance informational privacy and the right to information. Unencashed bonds within their validity period are to be returned to the issuing bank.

The Supreme Court held that the respondent was indeed entitled to duty drawback as a case of 'deemed export' under the Exim Policy, 1992-1997, and the subsequent clarifications by the DGFT, including the circulars dated 20.08.1998 and 05.12.2000, confirmed this entitlement. The Court found the revenue's contention that the refund was a concession untenable, as the respondent had a right to the refund. Regarding interest, the Court affirmed that Section 75A of the Customs Act, 1962, mandates payment of interest if duty drawback is not paid within three months of the claim. The Court found the High Court's award of 15% interest to be justified, referencing Section 27A of the Customs Act and a notification by the Central Board of Excise and Customs fixing the rate at fifteen percent. The Court dismissed the appeal, upholding the High Court's decision that the respondent was entitled to interest on the delayed duty drawback payment.

The Supreme Court held that the reassessment proceedings were not justified. The Court found that the Assessing Officer's conclusion of escaped income was based on a subjective analysis and a change of opinion, not on any false declaration by the assessee.