Fiscal Jurisprudence before the Apex Court: Navigating Direct Tax & GST Disputes

In direct taxes, the Income Tax Appellate Tribunal is the final authority on facts. An appeal lies from it to the High Court under Section 260A of the Income-tax Act, 1961 only if the case involves a substantial question of law, and Section 261 provides for an appeal to the Supreme Court where the High Court certifies the case as fit for appeal. In practice, almost all direct tax cases reach the Supreme Court by special leave petition under Article 136 against the High Court's judgment.

The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026. Section 536 of the new Act repeals the old one but preserves its operation for matters arising under it, so assessments, reassessments, appeals and other proceedings relating to the years before the new Act took effect continue largely under the provisions of the 1961 Act. For some years, therefore, tax litigation will involve both statutes, and citations to the old provisions will remain common.

In customs and the legacy central excise and service tax regimes, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) hears appeals. Appeals on questions relating to the rate of duty or the valuation of goods lie directly from the Tribunal to the Supreme Court under Section 130E of the Customs Act, 1962 and Section 35L of the Central Excise Act, 1944; other questions go first to the High Court. Because the Tribunal's orders on classification and valuation come straight to the Supreme Court, a large share of its indirect tax docket consists of such statutory appeals.

Under the GST laws, appeals from the appellate authority lie to the Goods and Services Tax Appellate Tribunal. Orders of its State Benches can be taken to the High Court on a substantial question of law under Section 117 of the CGST Act, while orders of its Principal Bench, which hears disputes involving the place of supply, lie to the Supreme Court under Section 118. The Tribunal was inaugurated in September 2025 and its Principal Bench heard its first appeals in December 2025. Until it began functioning, taxpayers had to challenge first appellate orders by writ petitions in the High Courts, many of which are still pending.

Article 265 provides that no tax shall be levied or collected except by authority of law. It follows that a charging provision is construed strictly: if the language does not clearly bring the person or the transaction within the charge, the tax cannot be imposed by inference, analogy or appeal to the supposed intention of the legislature.

Exemptions are approached differently. In Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., a Constitution Bench held that an exemption notification must be interpreted strictly, that the burden lies on the assessee to show that the case falls within it, and that any ambiguity in an exemption is to be resolved in favour of the Revenue, overruling the contrary view in Sun Export. Once a person is found to fall within an exemption, however, the notification is to be given full effect.

Tax legislation is also given considerable latitude under Article 14. In Union of India v. VKC Footsteps India (P) Ltd., the Court upheld the formula restricting the refund of accumulated input tax credit under an inverted duty structure to credit on inputs, excluding input services, observing that classifications in fiscal legislation are matters of policy in which the legislature has a wide choice, while inviting the GST Council to reconsider the anomalies the formula produced.

Article 246A gives Parliament and the State Legislatures simultaneous power to make laws on goods and services tax, and Article 279A establishes the GST Council to make recommendations on it. In Union of India v. Mohit Minerals (P) Ltd., the Court held that the Council's recommendations are not binding on Parliament and the State Legislatures, though they have persuasive value as the product of cooperative federalism. On the facts, it struck down the levy of integrated tax on ocean freight in CIF imports under the reverse charge mechanism: the importer already paid tax on the value of the goods, which included the freight, and taxing the transportation service separately violated the scheme of composite supply under the CGST Act.

Input tax credit remains the most litigated area of GST. In Chief Commissioner of CGST v. Safari Retreats (P) Ltd., the Court upheld the validity of Section 17(5)(c) and (d), which block credit for construction of immovable property on one's own account, but held that the words 'plant or machinery' in clause (d) differ from the defined expression 'plant and machinery', so that whether a building qualifies as a 'plant' depends on a functionality test applied to its facts. Parliament responded through the Finance Act, 2025, amending clause (d) with retrospective effect from 1 July 2017 to read 'plant and machinery'. Disputes about the denial of credit because of a supplier's default, about refunds and about the time limits for availing credit continue to reach the Court.

Reopening a completed assessment is one of the most frequent subjects of direct tax litigation. Under the procedure approved in GKN Driveshafts (India) Ltd. v. Income Tax Officer, an assessee who received a notice for reassessment could ask for the reasons recorded for reopening, file objections, and receive a reasoned order disposing of them before the reassessment proceeded.

The Finance Act, 2021 replaced this procedure from 1 April 2021 with a new scheme in Sections 147 to 151, including an inquiry and an opportunity to show cause under Section 148A before a notice is issued, and revised time limits. When the Revenue continued to issue notices under the old provisions after that date, the High Courts quashed them in large numbers. In Union of India v. Ashish Agarwal, the Supreme Court, using its power under Article 142, held that such notices would be treated as show cause notices under the new Section 148A, so that the Revenue could proceed under the new procedure. In Union of India v. Rajeev Bansal, it held that the relaxation of time limits under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 continued to apply to reassessment under the new regime, and explained how the time remaining to the assessing officer was to be computed.

Reassessment challenges typically turn on whether the statutory preconditions were satisfied: whether there was information suggesting that income had escaped assessment, whether the prior approval of the specified authority was obtained, whether the notice was issued within time, and whether the assessee was given a real opportunity to respond.

In Vodafone International Holdings B.V. v. Union of India, a three-judge Bench held that the transfer between two non-resident companies of shares in a Cayman Islands company, which indirectly held an Indian business, was not taxable in India under the law as it then stood. The Court held that a transaction must be looked at as a whole rather than dissected into its parts, and that the Revenue may disregard a structure only if it is a sham or a device for avoiding tax.

Parliament amended the Act retrospectively in 2012 to tax such indirect transfers. After international investment arbitration tribunals ruled against India in disputes arising from the amendment, the Taxation Laws (Amendment) Act, 2021 withdrew the retrospective demands for transfers made before 28 May 2012, subject to the taxpayers withdrawing their claims and litigation. The episode illustrates how a tax dispute can move between domestic courts, Parliament and international forums.

Where a statute provides a complete scheme of appeals, the High Courts ordinarily decline to entertain writ petitions against assessment or demand orders. They do intervene where the authority has acted without jurisdiction, in breach of natural justice, or under a provision whose validity is challenged, or where the statutory remedy is not efficacious. Challenges to the constitutional validity of central tax legislation are often brought, or transferred, to the Supreme Court so that the question is decided once.

The tax statutes require an appellant to deposit a percentage of the disputed tax as a condition of filing appeals before the first appellate authority and the Tribunal, and recovery may otherwise proceed while the appeal is pending. Applications for stay of demand are therefore an important part of tax practice at every level. In the Supreme Court, interim protection in a tax matter is often granted on terms, such as deposit of part of the demand or furnishing security.

Because the Tribunal is the final fact-finding authority, a tax appeal is won or lost on the record built before it. Questions of law should be raised before the Tribunal and framed precisely before the High Court; a point that depends on facts not found by the Tribunal is unlikely to be entertained for the first time in the Supreme Court.

The Revenue's own litigation policy, issued through circulars of the Central Board of Direct Taxes and the Central Board of Indirect Taxes and Customs, sets monetary thresholds below which it does not ordinarily file appeals, while preserving appeals on questions of law of recurring importance whatever the amount. An assessee facing a Revenue appeal should check whether the appeal complies with that policy, and an assessee whose case raises the same question as one pending before the Supreme Court should consider whether the matters can be tagged together.