GST Circular 2024: Key Clarifications on Service Taxation

Luxmi Traders addresses a fundamental question in GST adjudication: can a notice or order be treated as duly served merely because it is uploaded on the Common Portal? The Punjab and Haryana High Court held that portal-only service, absent the requisite statutory and notified basis, cannot by itself defeat a taxpayer’s remedies. With Madras and Allahabad adopting different approaches and Delhi subsequently applying Luxmi Traders, the issue reflects a significant divergence in judicial approach awaiting authoritative resolution.

The Supreme Court's decision in Tej Pratap Singh does not settle the JAO–FAO controversy. Following Parliament's retrospective insertion of s. 147A, it remands the issue to the High Courts for fresh consideration. Faceless reassessment was never merely about moving tax files from paper to portal; it fundamentally changed the statutory authority responsible for communicating with the taxpayer, examining the record, drafting the order and completing the assessment. The real question now is how far a retrospective legislative clarification can go.

Mandatory pre-deposit has become a defining feature of indirect tax litigation, balancing revenue protection with access to appellate remedies. While the shift to a fixed statutory framework has improved procedural efficiency, it also raises concerns regarding financial barriers and effective access to justice. This insight examines the legal evolution, judicial interpretation, and practical implications of the regime.

The Delhi High Court in HCL Infosystems Ltd. v. Commissioner of State Tax reaffirmed that GST proceedings against a company dissolved due to amalgamation are void ab initio. The Court held that such actions are not curable under section 160 of the CGST Act, nor authorised by section 87. This judgment aligns with the Supreme Court’s ruling in Maruti Suzuki, reinforcing the principle that legal proceedings cannot be pursued against non-existent entities.

In M/s Silverline v. State of Bihar, the Patna High Court held that GST appellate authorities must adjudicate appeals on their merits, even in cases of procedural lapses or absence of supporting documents. The Court ruled that dismissal for non-prosecution without a merit-based inquiry violates statutory duty under s. 107 of the Bihar GST Act reinforces the importance of reasoned, fair, and substantive appellate decisions.

The Bombay High Court, in a decisive ruling, upheld the allowability of business expenditure incurred by Mahindra & Mahindra Ltd. in supporting its distressed subsidiary. The Court reaffirmed that commercial expediency justifies such deductions under Sections 28 and 37 of the Income-tax Act, 1961. It also clarified that the Assessing Officer has limited jurisdiction under Section 115J, reinforcing the sanctity of audited financials prepared under the Companies Act.

In a significant ruling, the Bombay High Court quashed the provisional attachment of a bank account under the MGST Act, citing procedural lapses and absence of a reasoned order. The Court reiterated that such coercive powers must be exercised judiciously, based on tangible material, and not on presumptions. This decision reinforces judicial scrutiny of arbitrary use of powers under Section 83 of the GST regime.

Does every procedural lapse under the Income-tax Act deserve a penalty? Not quite. In a notable judgment, the Chhattisgarh High Court held that Section 273B offers a crucial safeguard—reasonable cause can shield genuine transactions from automatic penalty under Section 271E. The Court set aside a penalty where the cash repayment of a loan was made under the financier’s insistence, affirming that law must balance compliance with fairness.

The ITAT Nagpur Bench has held that Section 56(2)(vii)(b) of the Income-tax Act, 1961 cannot be retrospectively applied to property transactions based on agreements executed prior to its commencement. In allowing the assessee’s appeal, the Tribunal reaffirmed that taxing provisions must apply prospectively unless explicitly stated otherwise, protecting pre-amendment transactions from adverse retrospective tax consequences.

The Mumbai ITAT ruled that Bay Lines (Mauritius) was not entitled to treaty relief under the India–Mauritius DTAA as its place of effective management (POEM) was in the UAE. The Tribunal also held that its Indian agent did not constitute a dependent PE. This dual ruling clarifies the evidentiary threshold for POEM and reaffirms the independent agent exception under international tax law.

The ITAT Mumbai held that payments made by Deloitte India to a UK-based affiliate for internal branding, technology, and communication services do not qualify as "royalty" under Article 13 of the India–UK DTAA. As there was no transfer of intellectual property, copyright, or commercial exploitation, the tribunal ruled that no TDS obligation arose. This reinforces jurisprudence around intra-network service arrangements and cost-sharing.

The CBDT has notified Form ITR-B as a new income tax return form specifically for block assessments arising from search and seizure actions. Effective retrospectively from 01.09.2024, the new r. 12AE introduces procedural clarity, a digital filing framework, and enables stricter scrutiny of undisclosed income and tax credit claims. This marks a key shift toward structured compliance in high-stakes search proceedings under ch. XIV-B.

The ITAT Mumbai ruled in favour of Vanguard, holding that gains from sale of rights entitlements by FPIs are not taxable in India under Article 13(6) of the India-Ireland DTAA. The Tribunal distinguished REs from shares and disallowed the Revenue’s attempt to offset exempt gains against Indian capital losses. This judgment reinforces treaty-based protections and clarity on the treatment of financial instruments distinct from equity.

The ITAT clarified that mutual settlement deeds between brothers, executed to preserve family harmony, are not ‘transfers’ under Section 2(47) and thus fall within the exemption provided under Section 47(iii) of the Income-tax Act. The decision reiterates that genuine family arrangements, executed without monetary consideration, cannot be subjected to capital gains tax. This sets a precedent on interpreting intra-family property settlements.

The CBDT has issued clarificatory FAQs to operationalise the 2024 Guidelines on compounding of offences under the Income-tax Act, 1961. This update explains the legal position on key procedural issues such as filing timelines, multi-jurisdictional applications, post-conviction compounding, and treatment of co-accused. The write-up unpacks the framework and highlights areas where discretion remains with the tax authorities.

The Gauhati High Court, in Principal Commissioner of Income-tax v. Greenply Industries Ltd., held that excise duty exemptions granted under a notified industrial policy constitute capital receipts. Consequently, such receipts are neither taxable under regular provisions of the Income-tax Act, 1961 nor includible in book profits for MAT purposes under section 115JB.

In a pivotal decision, the ITAT Chennai held that accrued interest on non-performing assets (NPAs) is not taxable for co-operative banks if not credited to the profit and loss account, in compliance with RBI guidelines. This ruling reinforces the legal principle that RBI norms on income recognition, under Section 45Q of the RBI Act, override the provisions of the Income-tax Act, even prior to the 2018 amendment to Section 43D.

The Jaipur ITAT’s ruling in Jai Singh Sethia v. DCIT/ACIT clarifies the distinction between Sections 54 and 54F under the Income-tax Act, 1961. The Tribunal denied exemption under Section 54F due to the property’s residential classification but granted relief under Section 54, reaffirming that procedural lapses should not defeat substantive tax relief when eligibility conditions are otherwise satisfied.

Bombay High Court reaffirms that statutory law prevails over CBDT guidelines in compounding offences under income tax legislation.

The ITAT Mumbai held that recording a bank-transferred loan via a journal entry does not violate s. 269SS of the Income-tax Act. The decision reinforces that substance prevails over form in genuine business transactions, especially where funds are routed through banking channels and properly documented.

Rajasthan High Court upholds Section 153C action based on WhatsApp chats corroborated by digital records and cash book evidence.

ITAT rules that failure to transfer liabilities with assets disqualifies a demerger from tax exemption under Section 2(19AA) of the IT Act.

The Delhi High Court, in Shiv Prakash Bansal v. DCIT, reaffirmed that proceedings under Section 153C of the Income-tax Act can be initiated solely on incriminating material found during a search, without requiring any nexus between the searched and non-searched persons. This judgment strengthens the Department’s power to act on discovered evidence, even against third parties not named in the search warrant.

In a notable decision, the Karnataka High Court affirmed that the DCF method, when used in compliance with Rule 11UA(2), cannot be disregarded without a reasoned and case-specific analysis. The ruling reinforces that Revenue authorities must exercise subjective satisfaction, backed by substantive evidence, before invoking Section 56(2)(viib) to tax share premiums.

In a decisive ruling, the ITAT Mumbai held that a BMA assessment cannot be sustained without a valid notice under section 10(1), reinforcing that procedural compliance is not a mere formality but a jurisdictional precondition. The case underscores the interplay between notice issuance, deemed acquisition under section 72(c), and the consequences of retrospective taxation under the Black Money regime.

Delhi HC clarifies that cash violations under Section 269ST don't void contracts; unjust enrichment cannot override contractual claims.

SC clarifies whether royalty on minerals is a tax or a fee, reaffirming state powers in a landmark ruling with retrospective effect.

Special Bench of ITAT rules in favour of Mashreq Bank, allowing full PE expense deductions under pre-2008 India–UAE tax treaty.

The Delhi High Court clarifies reassessment timelines, approvals, and JAO powers under the faceless regime post Finance Act, 2021.

SC rules that statutory amendments apply prospectively and cannot extinguish vested tax exemptions granted under unamended law.