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February 20, 2021

Can new ground relating to same issue be raised for the first time before the SC?

by CA Jessica Nagaonkar in Income Tax

Can new ground relating to same issue be raised for the first time before the SC?

The Supreme Court stands out to be at the apex of the pyramid of the Courts in India. It is the Highest Court of Appeal in India. The assessee or the Principal Commissioner or Commissioner may prefer an appeal to the Supreme Court from any judgement of the High Court. However, the appeal can lie to Supreme Court only if the High Court certifies the case to be a fit case for appeal to the Supreme Court. Thus, this certificate of fitness is a must for preferring an appeal to the Supreme Court. If, however, the High Court decides not to give such a certificate, then the aggrieved party may make an application to the Supreme Court under Article 136 of the Constitution for Special Leave to Appeal against the decision of the judgment.

Let us refer to the case of CIT v. Varas International P. Ltd (2006), where the issue under consideration was whether it was competent for the Supreme Court to allow a new issue to be raised in an appeal for the first time before it arising under section 262 of the Income-tax Act or not.

Facts of the Case:

  • The Assessee had imported spirit from outside West Bengal in terms of rule 6 of the West Bengal Excise (Manufacture of Country Spirit in Labelled and Capsuled Bottles) Rules, 1979 during assessment years 1984-85 and 1985-86.
  • Apart from the fee which was payable by the manufacturer for the privilege of manufacturing of country spirit in labelled and capsuled bottles, an additional fee was payable on the import of spirits.
  • Clause (a) of section 43B as inserted by Finance Act, 1983 only applied to any amount payable as tax or duty.
  • Subsequently, the said clause was substituted by the Finance Act, 1988 with effect from 01.04.1989 to include any amount also payable as a cess or fee.
  • Deduction of the said fee was denied by the AO invoking the provisions of section 43B of the Income-tax Act.

Order of Appellate Authorities:

  • The order of the AO was upheld by the Commissioner of Income Tax (Appeals)[CIT(A)] holding fee payable to the Government by whatever name called as a duty.
  • The Tribunal had however deleted the disallowance holding that section 43B as it then stood did not apply to fee.

Order of the High Court (HC)

  • HC upheld the Tribunal’s order holding that the amount paid by the assessee was neither a duty nor a cess or fee but was a price for the grant of the privilege.
  • For the first time before the Supreme Court, the Revenue urged that the duty was in the nature of a countervailing duty which the State Government was competent to levy under entry 51 of List II to the Constitution of India.
  • Assessee urged before the Court that this issue had not been raised by the Revenue even before the Tribunal.

Observations of the Supreme Court (SC)

  • SC found that the order of the CIT (A) was not very clear.
  • As far as the Tribunal was concerned, it was true that the submission of the Department was that the levy was either a fee or excise duty.
  • However, SC noted that Rule-6 under which the levy was imposed on the import of spirit was contained in the rules which were described as Excise Rules.
  • Additionally,SC found that in the grounds of the appeal before this Court it was submitted that the levy was a duty and the duty would include payment on public revenue levied on the import, export, manufacture or sale and that the additional fee was nothing but duty and Section 43B of the Income Tax Act, 1961 was fee on any sum payable by the assessee by way of tax or duty under any law for the time being in force.
  • In any event, the tribunal certainly erred in not dealing with the contention relating to the levy being an excise duty.
  • HC also erred in holding that even an excise duty or other duty imposable by virtue of Entry- 51 of List II would be covered by the principle that the amount levied under that Entry should also be treated as a price or consideration for the purposes of the grant of privilege with regard to the manufacture of alcohol.
  • SC, wasof of the view that the respondent’s grievance that the issue was not squarely raised either before the Tribunal and the reference application is strictly speaking correct.
  • Nevertheless, granting the benefit of the doubt to the Department that what was intended to be argued was that it was a countervailing duty, SCcould not shut out what is a pure question of law from consideration.
  • However, SC felt that an opportunity should be granted to the respondent of meeting this case fairly.
  • Accordingly, SC set aside the decision of the High Court as well as the Tribunal and remanded the matters back to the Tribunal for the purposes of deciding this issue alone.
  • SC made it clear that they had not decided the issue on merits in any manner whatsoever and it will be open to the parties to raise whatever points on this issue before the Tribunal as they may be advised and they may be entitled in law.

In simple words, new ground relating to same issue can be allowed to be raised for the first time before the SC

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