Himanshu SinhaPartner
Samyak JainSenior Associate
AdvetitaAssociate
Key Developments
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Supreme Court validates authority of officers of Directorate of Revenue to issue show cause notices for recovery of customs duties
While considering a review petition,1 the Supreme Court upheld the authority of the officers of the Directorate of Revenue Intelligence (DRI) to issue show cause notices under Section 28 of the Customs Act, 1962 (Customs Act) for recovery of customs duties.2
The Supreme Court clarified that while Section 17 of the Customs Act specifies certain officers as ‘proper officers’ for the purposes of assessment and reassessment, it does not restrict the authority of other ‘proper officers’ to issue a show cause notice under Section 28. The Court relied on various circulars and notifications empowering DRI officers to issue show cause notices for the purposes of Section 28 of the Customs Act to distinguish the nature of review under Section 28 from the nature of assessment and reassessment under Section 17. The Court also upheld the constitutional validity of Section 97 of the Finance Act, 2022 which retrospectively validated all show cause notices issued by DRI officers under Section 28.
This judgment brings clarity and finality to the issue, validating past show cause notices and proceedings initiated by DRI officers, which were under challenge based on the earlier interpretation of the law. Businesses must prepare for the continuation of proceedings under Section 28 and revisit strategies in ongoing disputes involving DRI-initiated actions.
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Supreme Court holds mobile towers and pre-fabricated buildings to be moveable properties qualifying as 'Capital Goods' to avail CENVAT credit
In a significant ruling, the Supreme Court has resolved conflicting interpretations on the eligibility of mobile service providers to claim Central Value Added Tax (CENVAT) credit on setting up mobile towers and pre-fabricated buildings.3 The Court has held that mobile towers and prefabricated buildings qualify as ‘Capital Goods’ for the purpose of claiming CENVAT credit. This overturns a previous Bombay High Court ruling and affirms the Delhi High Court's judgment in Vodafone Mobile Services Limited v CST, Delhi.4
The Delhi High Court had applied the ‘permanency test’, determining that equipment bolted to a civil foundation merely to ensure operational stability does not necessarily constitute immovable property. Telecom towers, fabricated off-site and assembled on-site in a knock-down form, can be dismantled, relocated, and reassembled without damage to their essential structure, thereby qualifying as movable property. This interpretation allowed telecom operators to claim CENVAT credit for the duties paid on such equipment.
The Supreme Court’s validation of this interpretation provides relief to telecom operators by allowing them to claim CENVAT credit on equipment used for setting up telecom infrastructure. It sets a favourable precedent for similar claims in other sectors where movable infrastructure is deployed. Taxpayers can revisit their strategy on availing Input Tax Credit (ITC) for the construction of such structures.
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Clarification on the scope of “as is” and “as is, where is basis” mentioned in the circulars issued for clarification on applicable Goods and Services Tax rates and classification of specified goods and services
The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular clarifying the scope of “as is” and “as is, where is basis” to resolve discrepancies in Goods and Services Tax (GST) rates arising from differing interpretations caused by competing entries in notifications and circulars issued on the recommendations of the GST Council.5 This interpretational challenge often led to taxpayers either underpaying or overpaying GST.
The CBIC has clarified that the phrase “regularised on an as is, where is basis” means that payments made at a lower rate (including nil rate on account of an exemption entry) or exemptions claimed by taxpayers in good faith will be accepted as full discharge of tax liabilities of the taxpayer with no additional payment required for higher rate. However, for tax payments already made at a higher rate, taxpayers will not be entitled to claim refunds.
This clarification standardises tax treatment and establishes a framework in which taxpayers who acted in good faith, based on reasonable interpretations, will not face adverse consequences.
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Clarifications on taxability of transactions in vouchers and sale of used vehicles, and amendments to Section 17(5)(d) of Central Goods and Services Tax Act, 2017
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Taxability of vouchers
The CBIC has clarified that transactions in vouchers will not be treated as a supply of goods or of services under the GST laws.6 It has explained that regardless of whether a voucher is covered as a pre-paid instrument recognised by the Reserve Bank of India or not, it is only an instrument which creates an obligation on the supplier to accept it as consideration, and thus transactions in vouchers themselves cannot be considered either as a supply of goods or as a supply of services. However, the supply of underlying goods and/or services for which vouchers are used as consideration or part consideration may be taxable under GST laws.
Further, distribution of vouchers on a principal-to-principal basis will not be subject to GST. However, where vouchers are distributed on a principal-to-agent basis, the commission or fee or any other amount charged by the agent for such distribution will be taxable under GST laws.
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Taxability of sale of used vehicles
The GST Council, in the 55th GST Council Meeting, has recommended that 18% GST be charged on the margin between the purchase and sale price of used vehicles, including electric vehicles. The current rate for such transactions is 12%. Dealers of used cars can avail of the benefit of the ‘margin scheme’, paying tax only on the profit margin or the depreciated value of the car, if they do not avail of ITC on the purchase of used cars. No GST is payable in case the margin of the dealer is negative, i.e., the car is sold at a loss.
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Amendment in Section 17(5)(d) of the Central Goods and Services Tax Act, 2017
The GST Council, in the 55th GST Council Meeting, has recommended amendment of Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 to replace the phrase ‘plant or machinery’ with ‘plant and machinery’, retrospectively from 1 July 2017 to align it with the explanation at the end of Section 17. This change potentially invalidates ITC claims made prior to the amendment being made effective.7 The amendment negates the functional test adopted by the Supreme Court in the Safari Retreats decision, highlighting a ‘drafting error’. (To read our earlier update on the Supreme Court’s decision, click here.)
Taxpayers who claimed ITC based on the provision’s earlier language may now face demands for reversal of ITC, along with associated interest and penalties. The retrospective nature of this amendment could potentially lead to fresh litigation concerning its legality and impact.
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[1] M/s Canon India Private Ltd. v Commissioner of Customs, 2021 (376) ELT 3 (SC)
[2] Commissioner of Customs v Canon India Pvt. Ltd., 2024 INSC 854 (SC)
[3] M/s Bharti Airtel Ltd. v The Commissioner of Central Excise, Pune, 2024 (11) TMI 1042
[4] 2019 (27) GSTL 481 (Del)
[5] Circular No. 236/30/2024-GST dated 11 October 2024
[6] Circular No. 243/37/2024-GST dated 31 December 2024
[7] Chief Commissioner of CGST and Ors. v Safari Retreats Pvt. Ltd. and Ors., TS-622-SC-2024-GST
