Supreme Court Quarterly Digest 2026 - Tax Law

Tax Law - Supreme Court Quarterly Digest Jan - Mar, 2026

Central Excise Act, 1944 – Section 11A(1) Proviso – Extended Period of Limitation – Suppression of Facts – Revenue Neutrality – The Revenue invoked the extended period of five years alleging suppression of actual use of Naphtha - held that "suppression" requires a deliberate act to escape payment of duty - Where the assessee is a Public Sector Undertaking receiving subsidies from the Central Government, any excise duty paid would be reimbursed as a subsidy, making the entire exercise "revenue neutral" - In cases of revenue neutrality where no benefit is derived by the assessee from evading duty, the extended period of limitation cannot be invoked. [Relied on Steel Authority of India v. Collector of Central Excise (1996) 5 SCC 484; State of Haryana v. Dalmia Dadri Cement Limited 1987 Supp SCC 679; Pushpam Pharmaceuticals Company v. Collector of Central Excise (1995) Supp 3 SCC 462; Nirlon Limited v. Chief Commissioner of Excise (2015) 14 SCC 798; Paras 38-45, 52-54, 56-58] Rashtriya Chemicals and Fertilizers Ltd. v. Commissioner of Central Excise and Service Tax, 2026 LiveLaw (SC) 295 : 2026 INSC 285

Central Excise Act, 1944 – Section 5A – Exemption Notifications (No. 75/84-CE and No. 4/97-CE) – Naphtha used in the manufacture of Fertilizer – Interpretation of "Intended Use" – The Supreme Court held that when an exemption notification is conditioned on the "intended use" of a product, the benefit is attracted if the goods are used for the purpose and with the intention of manufacturing the specified product (fertilizer/ammonia) – Noted that the mere fact that a fraction of the procured Naphtha was used for generating electricity (steam), a portion of which was used in a chemical plant or supplied to the electricity board, does not disentitle the assessee from the exemption - Once eligibility for exemption is established, the notification must be construed liberally. Rashtriya Chemicals and Fertilizers Ltd. v. Commissioner of Central Excise and Service Tax, 2026 LiveLaw (SC) 295 : 2026 INSC 285

Income Tax Act, 1961 – Double Taxation Avoidance Agreement (DTAA) – India-Mauritius Treaty – Tax Residency Certificate (TRC) – Held that the limited evidentiary role of a TRC in proceedings under Section 245R(2) - While a TRC establishes residency, it does not prevent the Revenue from examining whether an entity is a mere "conduit" or a "see-through entity" used as a device for tax avoidance – Held that the applications were rightly rejected by the AAR as being hit by the threshold jurisdictional bar under proviso (iii) to Section 245R(2) – Supreme Court concluded that capital gains arising from transfers effected after the cut-off date of 01.04.2017 are taxable in India under the Income Tax Act read with the DTAA – Appeals allowed. [Relied on Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613; Balvir Singh v. State of Uttarakhand (2023) SC 5551; Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1; LIC v. Escorts Ltd. (1986) 1 SCC 264; McDowell & Company Ltd v. Commercial Tax Officer (1985) 3 SCC 230; Paras 12-25; 40-50] Authority For Advance Rulings v. Tiger Global International II Holdings, 2026 LiveLaw (SC) 50 : 2026 INSC 60

Income Tax Act, 1961 – Section 245R(2) Proviso (iii) – Advance Rulings – Chapter X-A (GAAR) – General Anti-Avoidance Rules - Rejection of application on the ground of being prima facie designed for the avoidance of tax – held that the use of the term "prima facie" in Section 245R(2) implies that the Authority for Advance Rulings (AAR) needs only an initial examination of documents to be satisfied that a transaction is for tax avoidance - The level of satisfaction for a prima facie conclusion is much lower than what is required for final proof – Held that that where evidence prima facie establishes that transactions do not qualify as lawful and are impermissible tax-avoidance arrangements, Chapter X-A becomes applicable. Authority For Advance Rulings v. Tiger Global International II Holdings, 2026 LiveLaw (SC) 50 : 2026 INSC 60

Income Tax Act, 1961 – Section 260A – Jurisdiction of High Court – Substantial Question of Law – Whether the High Court can decide an issue (taxability under Section 28) not specifically framed as a substantial question of law – Held: Issues incidental or collateral to the main formulated question, on which parties have been heard and which go to the root of the matter, can be considered by the High Court - The absence of a formal formulation does not vitiate the judgment if no prejudice is caused and parties had the opportunity to address the dispute – Appeal dismissed. [Para 9] Jindal Equipment Leasing Consultancy Services Ltd. v. Commissioner of Income Tax Delhi – II, 2026 LiveLaw (SC) 37 : 2026 INSC 46

Income Tax Act, 1961 – Section 28 and Section 47(vii) – Amalgamation – Substitution of Shares held as Stock-in-Trade – Whether the receipt of shares of an amalgamated company in lieu of shares of an amalgamating company held as stock-in-trade gives rise to taxable business income – Held: Amalgamation is a statutory process of substitution - While Section 47(vii) exempts capital gains arising from such substitution if the shares are "capital assets," it does not apply if they are held as "stock-in-trade" - Taxable business income under Section 28 arises when an assessee receives a real and presently realisable commercial benefit - In the context of amalgamation, the charge under Section 28 crystallises only upon the allotment of new shares, as this is when the assessee receives realisable instruments capable of valuation in money's worth - At the stages of the "appointed date" or "date of court sanction," no such benefit accrues or is received - The profit arising on receipt of the amalgamated company's shares may be taxed under Section 28 where the shares allotted are tradable and possess a definite market value - This is a fact-sensitive test to be determined based on the realisability of the shares in each case. [Relied on Commissioner of Income-tax, Cochin v. Grace Collis and others (2001) 3 SCC 430; Orient Trading Company Ltd. v. Commissioner of Income Tax, Calcutta (1997) 3 SCC 340; R. Nagaraj v. Rajamani 2025 LiveLaw (SC) 416; Shiv Raj Gupta v. Commissioner of Income-Tax, Delhi (2020) 425 ITR 420 (SC); Paras 18 - 31] Jindal Equipment Leasing Consultancy Services Ltd. v. Commissioner of Income Tax Delhi – II, 2026 LiveLaw (SC) 37 : 2026 INSC 46

Income Tax Act, 1961 – Section 90 – Double Taxation Avoidance Agreement (DTAA) – India-Mauritius Treaty – Tax Residency Certificate (TRC) – Supreme Court clarified that while a TRC is a valid piece of evidence to establish residence in a contracting state, it does not act as a complete bar to further enquiry by the Revenue - If the Revenue establishes that a Mauritian company was interposed merely as a "conduit" or a "device" to avoid tax, the tax authorities are entitled to "look through" the entity and discard the device to tax the real transaction - The dispute involved the sale of shares of a Singapore-based entity (Flipkart) that derived its value substantially from assets located in India - held that even if the transfer involved shares of a non-resident company (Singapore), the capital gains are taxable in India if the value is derived from Indian assets - The AAR found that the exemption under the India-Mauritius DTAA was intended for the alienation of shares of an Indian company and did not automatically extend to shares of a company resident in a third country (Singapore). Authority For Advance Rulings v. Tiger Global International II Holdings, 2026 LiveLaw (SC) 50 : 2026 INSC 60

Motor Vehicles Tax Act, 1958 (Gujarat); Section 3 — Constitution of India; Seventh Schedule, List II, Entry 57 — Taxability of Heavy Earth Moving Machinery/Construction Equipment Vehicles - The Supreme Court held that heavy earth moving machinery and construction equipment vehicles (such as Dumpers, Loaders, Excavators, etc.) designed for off-road use within factory or enclosed premises are excluded from the definition of "motor vehicle" under the second part of Section 2(28) of the Motor Vehicles Act, 1988 – Supreme Court made following findings- i. Definition of Motor Vehicle: While such vehicles may fall under the inclusive first part of Section 2(28), they are specifically excluded by the second part of the definition, which omits "a vehicle of a special type adapted for use only in a factory or in any other enclosed premises"; ii. Constitutional Limitation: Entry 57 of List II of the Seventh Schedule only permits states to tax vehicles "suitable for use on roads”- Noted that if a vehicle is designed for off-road operations and does not derive benefit from public road infrastructure, it cannot be burdened with motor vehicle tax; iii. Gujarat Tax Act Deficiency: noted that Schedule I of the Gujarat Motor Vehicles Tax Act, 1958, mentions construction equipment vehicles but prescribes no corresponding rate of tax for them - no tax can be levied or collected from such vehicles; iv. Status of Registration: Merely because such vehicles are registered under the Act does not estop the owner from challenging the liability to pay road tax if the vehicles do not ply on public roads – Appeal allowed. [Relied on Bolani Ores Ltd. vs. State of Orissa (1974) 2 SCC 777; Tarachand Logistic Solutions Limited vs. State of Andhra Pradesh 2025 SCC OnLine SC 1851; Paras 37-39, 42-45, 55] Ultratech Cement Ltd. v. State of Gujarat, 2026 LiveLaw (SC) 27 : 2026 INSC 43

Service Tax — Finance Act, 1994 — Sections 65(40), 65(41), 65(105)(zu), 66A — Reverse charge — “Event Management Service” — Fees paid to foreign booking agencies for procuring speakers for Hindustan Times Leadership Summit — HELD: Not taxable as Event Management Service — Booking of speakers is distinct from managing, organizing, planning, or presenting an event — Mere procurement of speakers does not amount to “event management” — Presence of speakers being essential to the Summit does not convert booking agents into “event managers” — Tax cannot be imposed by stretching the statutory definition — Strict interpretation of taxing statutes must prevail – Further held that i. The contracts with Washington Speakers Bureau and Harry Walker Agency were speaker-booking contracts, not contracts for event management; they did not involve management of venue, logistics, stage, publicity, sound, light, security, invitations, or coordination of the event; ii. “Event management” under Section 65(40) requires services relating to planning, promotion, organizing, or presentation of an event; mere facilitation of a speaker's appearance does not satisfy this test; iii. The CBIC/TRU Circular dated 08.08.2002 supports the assessee, as it contemplates an event manager as one who manages venue, stage, artists, logistics, and production of the event — functions absent in the present case; iv. Even if speakers are central to the Summit, participation in the event is not equivalent to managing the event; booking agents cannot be treated as “event managers”; v. Applying the principle of strict interpretation of taxing statutes, tax cannot be imposed by analogy or inference if the service does not fall squarely within the statutory entry; vi. Applying the common parlance test, ordinary understanding of “event management” does not cover speaker-booking services – Appeals allowed. [Relied on: Shiv Steels v. State of Assam, 2025 SCC Online SC 2006; CST v. Jaswant Singh Charan Singh, 1967 SCC Online SC 154 (Para 46); Indo International Industries v. CST, (1981) 2 SCC 528; Paras 28, 37-41, 44-48] HT Media Ltd. v. Principal Commissioner Delhi South Goods and Service Tax, 2026 LiveLaw (SC) 55 : 2026 INSC 66 : AIR 2026 SC 560

Value Added Tax Act, 2008 (UP) – Schedule II, Part A, Entry 103 vs. Schedule V, Entry 1 (Residuary Entry) – Classification of "Sharbat Rooh Afza" - The Supreme Court held that "Sharbat Rooh Afza" is classifiable as a "fruit drink" under Entry 103 of Schedule II, Part A of the UPVAT Act, taxable at the concessional rate of 4%, rather than as an unclassified item under the residuary entry taxable at 12.5%; held that - 1. Inclusive Nature of Entry 103 - Supreme Court observed that Entry 103 is an inclusive and umbrella entry covering "processed or preserved vegetables and fruits, fruit drink and fruit juice."- Since the entry does not prescribe a minimum quantitative threshold for fruit content, it is improper to read a rigid percentage requirement into it that the Legislature did not provide; 2. Essential Character Test - Supreme Court applied the "Essential Character Test" as embodied in Rule 3(b) of the HSN Explanatory Notes - It held that while invert sugar syrup constitutes 80% of the volume, it merely acts as a carrier and preservative - The flavor, aroma, and beverage identity are derived from the 10% fruit juice and herbal distillates, which impart the product's distinctive character as a refreshing drink; 3. Common Parlance vs. Regulatory Classification - Supreme Court clarified that regulatory classifications under food safety laws (like the Fruit Products Order, 1955) are intended for quality control and safety, not fiscal classification - A fiscal statute must be interpreted based on how the product is understood in common or commercial parlance; 4. Burden of Proof on Revenue for Reclassification - Supreme Court reiterated that the burden of proof lies squarely on the Revenue to establish that a product falls within a residuary entry or an entry different from that claimed by the assessee - In this case, the Revenue failed to produce trade inquiries or market evidence to displace the appellant's classification; 5. Avoidance of Residuary Clause - Recourse to a residuary entry is impermissible when a commodity can reasonably be brought within the ambit of a specific entry. Denying a product "parentage" in a specific entry and consigning it to the "orphanage of the residuary clause" is against the principles of classification – Appeals allowed. [Relied on Dunlop India Ltd v. Union of India (1976) 2 SCC 241; Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. (1987) 1 SCC 424; Hindustan Ferodo Ltd v. Collector of Central Excise (1997) 2 SCC 677; CCE v. Connaught Plaza Restaurant (P) Ltd (2012) 13 SCC 639; Paras 16, 19-22, 24-27, 30] Hamdard (Wakf) Laboratories v. Commissioner of Commercial Tax, 2026 LiveLaw (SC) 197 : 2026 INSC 195