News Update

Income tax hands over Rs 1700 Cr tax demand to Congress PartyGST - Neither SCN nor the order spell out the reasons for retrospective cancellation of registration, hence cannot be sustained: HCStage-2 of Vikram-1 orbital rocket successfully test-firedGST - Non-application of mind - If reply was unsatisfactory, details could have been sought - Record does not reflect that such exercise was done - Matter remitted: HCHouthis claim UK has not capability to intercept their hypersonic missilesGST - Merely because a taxpayer has not filed returns for some period does not mean that registration is required to be cancelled with retrospective date also covering the period when returns were filed and taxpayer was compliant: HCIsraeli forces kill 200 Palestinians at Gaza medical complex & arrest over 1000GST - Petitioner's reply, although terse, is not taken into account while passing assessment orders - Petitioner put on terms, another opportunity provided: HCUnveil One Nation; One Debt Code; One Compliance Rule for Centre & StatesChina moves WTO against US tax subsidies for EVs & renewable energyMore on non-doms - The UK Spring Budget 2024 (See TII Edit)Notorious history-sheeter Mukhtar Ansari succumbs to cardiac arrest in UP jailTraining Program for Cambodian civil servants commences at MussoorieNY imposes USD 15 congestion taxCBIC revises tariff value of edible oils, gold & silver45 killed as bus races into ravine in South AfricaCBIC directs all Customs offices to remain open on Saturday & SundayBankman-Fried jailed for 25 yrs in FTX scamI-T- Once the citizen deposits the tax upon coming to know of his liability, it cannot be said that he has deliberately or willfully evaded the depositing of tax and interest in terms of Section 234A can be waived: HCHouthis attack continues in Red Sea; US military shoots down 4 dronesFederal Govt hands out USD 60 mn to rebuild collapsed bridge in BaltimoreI-T - Receipts of sale of scrap being part & parcel of activity and being proximate thereto would also be within ambit of gains derived from industrial undertaking for purpose of computing deduction u/s 80-IB: HCCanadian School Boards sue social media titans for 4 bn Canadian dollar in damagesFormer IPS officer Sanjiv Bhatt jailed for 20 yrs for planting drugs to frame lawyerCus - No Cess is payable when Basic Customs Duty is found to be Nil: CESTAT
 
Constitutional Bench ruling of SC - whether retrospective?

OCTOBER 21, 2014

By Abhijit Saha, Director (Indirect Tax), BDO India

IN State of AP v Kone Elevators - 2005-TIOL-30-SC-CT-LB a three member bench of the Supreme Court observed that contractual obligation of the assessee was only to supply and install the lift, while the customer's obligation was to undertake the work connected in keeping the site ready for installation as per the drawings. In view of the contractual obligations of the customer and the fact that the assessee undertook exclusive installation of the lifts manufactured and brought to the site in knocked-down state to be assembled by the assessee, it is clear that the transaction in question was a contract of 'sale' and not a 'works-contract'.

It was also held that the major component of the end product is the material consumed in producing the lift to be delivered and the skill and labour employed for converting the main components into the end-product was only incidentally used and, therefore, the delivery of the end-product by the assessee to the customer constituted a 'sale' and not a 'works-contract'. This judgement was delivered in 2005.

The issue was referred to a Constitution Bench of Five Judges.The Constitution Bench (Five Member Bench) delivered its landmark judgement in 2014 reversing the decision of the three member bench decision made in 2005 (after a lapse of ten years) and held that it is a works contract and not a contract for sale. - 2014-TIOL-57-SC-CT-CB

Four judges subscribed to a majority judgement while another judge gave a dissenting judgement. The Majority of four judges held that "the dominant nature test" or "overwhelming component test" or "the degree of labour and service test" are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building.

It was concluded that the decision rendered in Kone Elevators by the three-judge bench does not correctly lay down the law and it is, accordingly, overruled.

Now the question which needs to be addressed is:

++ What happens when a judgement of a three-member bench of the Supreme Court is overruled by a bench of five judges? Does the new judgement get retrospective effect? After all, the five judge bench is only clarifying the law and so perhaps has the effect from the beginning of law itself, but if I have been following the law as laid down by three hon'ble judges of the highest court in the country, can I be stuck with a liability because after ten years a larger bench of five judges feels that the three judges did not interpret the law correctly?

++ What is the valuation methodology for excise duty; works contract service tax and works contract VAT?

Author's View:

As per author's view, there has to be an application of the Doctrine of Promissory Estoppel in respect of the retrospective effect of the decision of the court. Tax payer cannot be subjected to incremental liability because of the mistake of the Court of Law. If a Larger Bench decision of the Supreme Court has been overruled by a Constitutional Bench of the Supreme Court, the net effect is that the decision of the Larger Bench of the Supreme Court was wrong. Can the tax payer suffer for the wrong decision of the Larger Bench of the Supreme Court? The Doctrine of Natural Justice and Equity demands that the tax payer should not be liable to any incremental liability because of the wrong decision of the Larger Bench of the Supreme Court which has been overruled by the Constitutional bench of the Supreme Court.

The applicability of the provision of Article 141 of the Constitution of India (which states that the decision of the Supreme Court is the law of the country) has to be revisited to define as to which decision of the Supreme Court is the law of the country? Division Bench or Larger Bench or the Constitutional Bench decision of the Supreme Court? Accordingly the enforceability of the said decision has to be determined in the light of the Doctrine of Promissory Estoppel.

(DISCLAIMER: The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)

 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: All declaration of law are retrospective

I am afraid, the learned paper writer is wrong on two counts: One, there is no estoppel against the judgment of a court, neither in Indian nor in British jurisprudence from which we draw sustenance; Two, all judgments which declare the law are retrospective in operation and take effect from the date on which the provision itself came into force. If the court feels that this retrospectivity will result in inequitous consequences, the court has adopt the doctrine of prospective over ruling, so that past judgments, which are affected by the new declaration of law are left undisturbed. This judicial device was adopted in the celebrated constitutional case of State of Punjab v.IC Golak Nath, decided by a 11 judge bench of the Apex Court. The other such ase was Somaiya Organics v. State of U.P., where the unconstitutionality of Vend Fee was given prospective effect, so that the State didn't have to refund the past collections of Vend Fee.

Posted by Gururaj B N
 
Sub: Promissory Estoppel vis-a-vis Apex Court's decisions

Decisions of the Supreme Court are, of course, binding under Article 141. When a decision of a smaller Bench is overruled by a larger Bench, especially, in respect of a tax provision, the effect would, obviously, take effect from the date the tax provision is in the statute, unless the Apex Court applies the principle of 'doctrine of prospective overruling' and states so in the decision.

Of course, the Department and the tax payer would be governed by the provisions related to limitation, in the respective tax laws.

I don't think, the doctrine of promissory estoppel can be applied to decisions of the Apex Court, in the context of the subsequent overruling of decisions by the larger Bench. In effect, the law laid down by the Apex Court, in terms of Article 141, would be the larger Bench's decision and not that decided by the smaller Bench.

S Sivakumar, Advocate




Posted by SUBRAMANI SIVAKUMAR
 

AR not Afar by SK Rahman

TIOL Tube Latest

Shri Shailendra Kumar, Trustee, TIOL Trust, giving welcome speech at TIOL Awards 2023




Shri M C Joshi, Former Chairman, CBDT




Address by Shri Buggana Rajendranath, Hon'ble Finance Minister of Andhra Pradesh at TIOL Awards 2023