Tax Law Weekly: Supreme Court Probes GST on Leaseholds as High Courts Tackle Unregistered Firms, Restitution, and Major Corporate Tax Demands

New Delhi – India's tax litigation landscape was abuzz this past week with a series of significant rulings from the Supreme Court and various High Courts. Key issues under judicial scrutiny included the applicability of GST on leasehold transfers, the procedural rights of unregistered firms in tax disputes, and the fundamental principle of restitution for illegally collected taxes. The decisions span across Goods and Services Tax (GST), Income Tax, and Customs law, offering crucial guidance for corporations, tax practitioners, and government revenue departments alike.

Supreme Court to Examine GST on Leasehold Rights

The Supreme Court has agreed to examine a pivotal question that could have far-reaching implications for the real estate and infrastructure sectors: whether the assignment of leasehold rights constitutes a "transfer of land" (exempt from GST) or a "supply of service" (taxable under GST). The apex court, in Union Of India & Anr. v. M/S Life Sciences Chemicals & Anr. , will review a Gujarat High Court judgment that held such assignments are not taxable supplies. The Centre's appeal brings the issue to the highest judicial forum, promising a definitive ruling on a matter that has been a significant point of contention since the inception of the GST regime. The outcome will be closely watched by businesses involved in long-term land leases, as it will determine the tax liability on substantial transactions across the country

High Courts Deliver Landmark Rulings on Procedural and Substantive Tax Law

Several High Courts delivered impactful judgments, reinforcing taxpayer rights and clarifying complex procedural questions.

Delhi High Court on Unregistered Firms and Statutory Rights

In a significant pronouncement in Amit Kumar Basau & Anr. v. Sales Tax Officer , the Delhi High Court clarified that the bar under Section 69(2) of the Partnership Act, 1932, does not prevent an unregistered partnership firm from filing a suit to enforce a statutory right. The Court was hearing a plea from an unregistered firm challenging a tax demand exceeding ₹50 lakh. The tax department argued the petition was not maintainable due to the firm's unregistered status.

Rejecting this argument, a division bench of Justices Prathiba M. Singh and Shail Jain relied on the Supreme Court's precedent in Haldiram Bhujiawala . The bench observed, “Such a firm, which is paying taxes and has any grievances against the Department cannot be non-suited from enforcing statutory rights.” The ruling affirms that procedural bars in one statute cannot extinguish substantive rights granted under another, particularly when a firm is compliant with its tax obligations under the CGST Act.

Bombay High Court Upholds Principle of Restitution in Tax Refunds

Reinforcing a cornerstone legal principle, the Bombay High Court in West India Continental Oils Fats Pvt. Ltd. v. The Union of India ordered the tax department to pay ₹71.31 lakh as interest on a refund of IGST that was illegally collected. The IGST had been levied under the Reverse Charge Mechanism (RCM) on ocean freight, a practice later deemed unconstitutional.

The bench emphasized that the department had utilized the petitioner's funds until the refund was granted. It powerfully articulated the principle of restitution, stating, “To deprive the Petitioner of interest, in the given facts, would run contrary to the well-recognised legal principle of restitution which also finds statutory force under Section 144 of the Civil Procedure Code (CPC).” This judgment serves as a strong reminder to revenue authorities that they are not only liable to refund illegally collected taxes but also to compensate taxpayers for the time value of that money.

Major GST Demands Against Corporates Under Judicial Scanner

High-stakes GST disputes involving major corporations also saw crucial developments.

• Allahabad High Court Stays ₹110 Crore Demand on Dabur: In a significant relief for FMCG major Dabur India Ltd., the Allahabad High Court stayed a ₹110 crore GST show cause notice concerning the classification of its 'Hajmola Candy'. The dispute centers on whether the product should be classified as a proprietary Ayurvedic medicine (attracting a 12% GST rate) or a confectionery (taxable at 18%). The interim stay allows Dabur to contest the DGGI's notice without the immediate threat of a massive tax liability.

• Gujarat High Court Quashes ₹25.53 Crore Penalty on Coca-Cola: The Gujarat High Court struck down a substantial penalty imposed on Hindustan Coca-Cola Beverages Pvt. Ltd., ruling that the revenue department cannot unilaterally treat a sale price as "tax-inclusive" without concrete evidence. The court noted that sales invoices showed 'Nil' tax and contained an endorsement of tax exemption, finding no proof that the company had collected any tax from its distributors or customers.

Key Procedural Directives and Rulings from High Courts

Across the country, High Courts issued several other important procedural clarifications and directives:

• Unsigned GST Orders (Delhi HC): In Future Consumer Limited v. UOI , the court held that an unsigned GST demand order is valid if it is accompanied by Form DRC-07 containing the details of the issuing officer. This provides clarity on the validity of digitally issued orders in the GST ecosystem.

• Illegible Orders (Delhi HC): The same bench in M/S Moms Cradle Private Limited v. UOI ruled that a taxpayer cannot simply ignore an order uploaded to the GST portal on the grounds of it being illegible. The court stated that the onus is on the taxpayer to approach the department for a legible copy, emphasizing the duty of diligence. “The Petitioner had a duty to approach the Department and obtain a legible order,” the bench remarked.

• Right to Seized Data (Delhi HC): The court affirmed that an assessee is entitled to a copy of data from seized electronic devices unless providing it would be prejudicial to an ongoing investigation, as per Section 67(5) of the CGST Act.

• Timely Jurisdictional Objections (Chhattisgarh HC): In an Income Tax matter, the Chhattisgarh High Court held that an assessee who fails to raise a timely objection to the territorial jurisdiction of an assessing officer under Section 124(3)(a) of the Income Tax Act is barred from challenging the assessment on those grounds later.

• GST on Vehicles for Differently-Abled (Delhi HC): Taking up a public interest matter, the Delhi High Court has questioned the Central government over the effective withdrawal of GST concessions for differently-abled persons on car purchases. The court has sought a response from the government, signaling judicial concern over the accessibility of benefits for vulnerable sections.

These rulings collectively highlight the dynamic and evolving nature of tax jurisprudence in India. While the Supreme Court prepares to settle a fundamental GST question, the High Courts continue to play a vital role in safeguarding taxpayer rights, ensuring procedural fairness, and holding revenue authorities accountable to the letter and spirit of the law.