Decoding Recent Judgements of Supreme Court in taxes – Part 2

JUNE 24, 2023

By V Raghuraman, Senior Advocate,B.Com, FCA, ACS, Grad.CWA, LLB and JP Sneha, Chartered Accountant

IN this part, we shall continue our discussions on several judgements, first we notice the following:

State of Karnataka vs Ecom Gill Coffee Trading (P.) Ltd - 2023-TIOL-18-SC-VAT:

Facts
: The interpretation of section 70 of the Karnataka Value Added Tax Act (KVAT) Act, 2003 came before the Hon'ble SC. The assessee in this
case had purchased green coffee bean from certain dealers and claimed input tax credit based on the tax invoice. The input tax credit was
disallowed by the assessing officer on the ground that the sellers or the vendors of the assessee either got their VAT registration cancelled or
failed to pay taxes, or denied the transaction of purchase. The issue was appealed before various forums, ultimately, the issue got settled in
favour of the assessee.

Held
: On further appeal by revenue, the Hon'ble SC held that for claiming Input Tax Credit (ITC) under section 70 of the KVAT Act, the burden of
proof lay on the assessee. The genuineness of the transaction and the actual physical movement of the goods are essential requirements.
These can be established by providing details such as the name and address of the selling dealer, information about the vehicle used for
delivering the goods, payment of freight charges, acknowledgment of goods delivery, tax invoices, and payment details, among other
supporting documents. Therefore, the revenue appeal was allowed.

Comments : It should be noted carefully that Section 70 only casts the burden of proof on the assessee just like Section 155 of the CGST
Act, 2017
. There is a substantial difference between burden of proof and onus of proof. The burden of proof lies upon the person who has to prove a
fact and the burden remains constant which never shifts while on other hand onus shifts from one to another, Addagada Ragavamma & Anr v.
Addagada Chenchaamma & Anr. AIR 1964 SC 136, Supreme Court held that there is an essential distinction between the burden of proof and
onus of proof, the first one is the burden to prove the main contention of the party requesting the action of the court, while the second one is
the burden to produce actual evidence. While the burden is always on the assessee, he can shift the same to the revenue. Once the assessee
produces cheque payments and bank record details, he has shifted the onus to the revenue. It is then for the revenue to produce transport
documents to show that the goods were not transported. To expect only the assessee to produce everything while the revenue makes bald
allegations ignores this vital difference in evidentiary jurisprudence. The question of payment of taxes by the dealers to the suppliers was not
at all considered. The disturbing factor in the decision is that the recipient of goods may end up paying the taxes for the same purchase
transaction – once to the supplier at the time of purchase and again in the form of denial of input tax credit. Even if the tax amount is
subsequently recovered from the supplier in the future, the assessee would not be regranted the credit. Such a burden is in terrorem.

Test of time will tell whether this decision would act in terrorem or will be modified in its application.

PCIT vs Wipro Ltd - 2022-TIOL-54-SC-IT:

Facts
: The Assessee, a 100% export-oriented unit, declared its loss and claimed deduction under section 10B of the Income Tax Act, 1961 for AY
2001-02. After filing a return of income but before completion of assessment, the assessee submitted a declaration with a revised return

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stating that they do not wish to avail the benefit of section 10B(8) and instead want to carry forward their losses. However, the assessing
officer rejected the declaration on the grounds that it was not filed within the due date of filing the return of income. On appeal, the Tribunal &
the High Court allowed the appeal of the assessee on the ground that while filing the declaration was mandatory, the time when it should be
filed was directory.

Held
: The Hon'ble SC applying the rule of strict interpretation, rejected the claim of the assessee to carry forward the loss. As a concluding remark,
it was observed that the assessee is not allowed to take a contradictory stance or claim the benefit of carrying forward losses through a
revised return, which was not originally claimed. It was also pointed out that for claiming exemption under section 10B(8), the assessee is not
only required to file the declaration but also to do so within the specified due date. Thus, the time limit for filing Form was held to be a
mandatory provision rather than a directory provision.

Comments
: In our opinion, the above decision fails to distinguish between the exemption and the deductions as later need not be read as strictly as the
former. The Supreme Court's earlier decision in CIT vs Yokogawa India Ltd [2017] - 2016-TIOL-228-SC-IT
, clearly established that section 10A, despite being categorized under "exemption" provisions (placed in Chapter III), is in the nature of a
deduction. Exemption and deduction sections are construed differently and this aspect finds no discussion in the judgement. Secondly, the
section was primarily meant to encourage export oriented units and deserved a beneficial interpretation in keeping with its objectives.

Furthermore, this decision may have an impact on those assesses who need to revise their returns due to genuine errors or unavoidable
delays in submitting the required forms before the due date of the original return. The decision seems to limit the scope of revised returns,
treating them on par with belated returns, as the deduction under section 10A cannot be claimed when the return is filed belatedly under
section 139(4). The theme of the judgement is that revised returns cannot claim a set off or loss but can be only for omission seems to be self-
defeating as why else will an assessee file a revised return if not for rectifying a mistake or omission of any item which includes a claim for a
loss provided other conditions are met? What if he discovers some income which he wants to declare in his revised return? Is that too barred?

Beyond that, the time limit for filing declaration, a procedural provision, cannot be considered mandatory especially when it has been filed with
the revised return; rather, it should be deemed directory in nature. Rules of procedure are hand maids of justice and not its mistress [See: CST
vs U.P. V Auriaya Chamber of Commerce, Allahabad - 2002-TIOL-404-SC-CT
. All statutes are meant to work and they should be read reasonably too! An urgent revisit would be required.

ITO vs Vikram Sujitkumar Bhatia - 2023-TIOL-30-SC-IT:

Facts
: A search was conducted in the premises of M/s. H.N. Safal Group on 4-9-2013, and the assessing officer-initiated proceedings under section
153C of the Act, 1961 & recorded the satisfaction note on 25.04.2017. The materials and documents pertaining to another person (other than
the searched person) found during the search were handed over to the concerned jurisdictional officer. The jurisdictional officer (other than the
searched person) initiated the proceedings under section 153C of the Act and recorded the satisfaction note on 4.5.2018.

In the meantime, the provisions of section 153C were amended by the Finance Act, 2015 w.e.f. 1.06.2015, and the words ‘belongs or belong
to' came to be substituted with ‘pertains to pertain to'. Therefore, the question was whether for searches conducted before 1.6.2015, the
provision would apply and the argument of the revenue was that though search was before that date, the satisfaction note was after 1.6.2015
when the amended law applied. The High Court held that the said amendments would apply only for searches after 1.6.2015.

Held : The Hon'ble Supreme Court held that the provisions of section 153C have been amended by way of substitution, which has the effect of
wiping the earlier provision from the statute book and replacing it with the amended provision as if the unamended provision never existed.
Further, in Para 10.6, it was observed that section 153C, being a machinery provision, has to be interpreted in accordance with the purpose
and object of the Statute. Finally, it was concluded that the amended provisions would apply to the searches conducted prior to 01.06.2015.

Comments
: The effect of this judgement is that the provisions of Section 153C substituting the words pertaining to other persons could apply to searches
before 1.6.2015 also as the substitution means taking effect from an earlier period and the previous provisions are no more in the statute book.
It is clear from the said decision and amendments that the same were substantive in nature though the provisions are machinery provisions as
it sought to enlarge the scope of proceedings itself. In taxing statute, in the absence of machinery provisions, the levy itself does not operate.
Machinery provisions can contain substantive provisions.The general principle is that statutes operate prospectively unless expressly or
impliedly provided otherwise. However, in this case, the Finance Act, 2015, explicitly specified the date of applicability as 01.06.2015. When
an amendment clearly states that it will take effect from a specified date, it means the legislature knew the implication of the amendment &

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gave a prospective effect [See: CIT vs Vatika Township - 2014-TIOL-78-SC-IT-CB
(Para 39)]. This intent of the legislature cannot be interpreted otherwise. The paragraph is extracted below where block assessment provisions
were sought to be applied retrospectively which was negatived.

There are some other circumstances which reflect the legislative intent. The problem which was highlighted in the Conference of
Chief Commissioners on the rate of surcharge applicable is noted above. In view of the aforesaid difficulties pointed out by the
Chief Commissioners in their Conference, it becomes clear that as per the provisions then enforced, levy of surcharge in the block
assessment on the undisclosed income was a difficult proposition. It is for this reason retrospective amendment toÂSection 113
 was suggested. Notwithstanding the same, the legislature chose not to do so, as is clear from the discussion hereinafter.

"Notes on Clauses" appended to Finance Bill, 2002 while proposing insertion of proviso categorically states that "this amendment
will take effect from 1st June, 2002". These become epigraphic words, when seen in contradistinction to other amendments
specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the
same notes that few other amendments in theÂIncome Tax Act  were made by the same Finance Act
 specifically making those amendments retrospectively. For example, clause 40 seeks to amend S.92F. Clause iii (a) of S.92F is
amended "so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a
contract." This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively.
The Notes on Clauses show that the legislature is fully aware of 3 concepts:

(i) prospective amendment with effect from a fixed date;

(ii) retrospective amendment with effect from a fixed anterior date; and

(iii) clarificatory amendments which are retrospective in nature.

Thus, it was a conscious decision of the legislature, even when the legislature knew the implication thereof and took note of the
reasons which led to the insertion of the proviso, that the amendment is to operate prospectively.Â

This decision itself, having not been referred to renders the same per incuriam. The concept of "per incuriam" signifies those decisions
rendered in ignorance or forgetfulness of some inconsistent statutory provisions, or of some authority binding on the Court concerned. In order
words, the concept means that a given decision is in disregard of the previous decisions of the Court itself, or that it was rendered in ignorance
of the terms of an applicable statute or of a rule having the force of law [See: Constitution Bench in  the  case  of Indore Development Â
Authority  versus Shailendra (2018) 3  SCC 412]. We are sure that the test of time principle will see several judgements distinguishing or
stating it per incuriam.

[The views expressed are strictly personal.]

See Part I

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