Taxation Law

[By Aviral Singhai and Shubham Sharma] The authors are students of National Law Institute and University Bhopal Introduction A foreign company can earn significant revenue from Indian users without adhering to the traditional notion of a fixed place. AppleTV, a service distinct from Apple Inc., can collect subscription fees from Indian viewers, Supercell can earn revenue from Indian gamers, and platforms such as Twitch or OnlyFans can generate advertising and subscription income from Indian users. Yet, under most of India’s tax treaties, much of this income may remain outside India’s taxing jurisdiction. The significance of this issue has increased with the growth of the digital economy. The OECD Digital Economy Outlook 2024 reports that the information and communication technology sector grew at nearly three times the rate of the overall economy across OECD countries between 2013 and 2023, while the UNCTAD Digital Economy Report 2024 records global business e-commerce sales of US$27 trillion in 2022. India has emerged as one of the world’s largest digital markets, with a January 2025 ICRIER study identifying it as the world’s third-largest digitally engaged economy. This shows the number of people engaging with companies online without any necessary physical presence. Despite this transformation, most Double Taxation Avoidance Agreements (DTAAs) still allocate taxing rights through the concept of a Permanent Establishment (PE), which generally requires physical presence. India and many of its treaty partners have explored alternatives based on digital or economic presence, but the DTAA framework continues to limit such approaches. The Protocol signed on 23 February 2026 amending the India-France DTAA expanded source taxation through a Service PE provision but still required the physical presence of personnel. Furthermore, the OECD’s update to the Model Tax Convention on 18 November 2025 introduced a commercial reason test for home office Permanent Establishments but this did not recognise a Virtual PE or taxing rights based solely on digital presence. This article examines these developments in depth and evaluates what is necessary to recognise meaningful digital presence as a basis for taxation. India’s approach to Virtual PE Regime India’s tax law does not require a Permanent Establishment, as Section 9(1)(i) of the Income Tax Act, 1961 (Income Tax Act) taxes income arising from a “business connection” in India. However, in cross-border situations, Section 90(2) allows the taxpayer to choose between the Income Tax Act and the DTAA, depending on which is more beneficial. This weakens the scope of domestic taxation and creates problems in taxing digital businesses, where significant income is earned from India but goes untaxed due to the absence of a Permanent Establishment under Article 5 of the OECD Model DTAA. As business shifted towards digital platforms and remote service delivery, disputes arose over whether treaty concepts developed for offices, factories and employees could adequately deal with these new business models. The concept of fixed place PE was explained in Formula One World Championship Ltd. v. CIT, where the Supreme Court held that a PE exists only when the place is at the disposal of the foreign enterprise and business is carried on through it. While the Court adopted a more practical approach by focusing on control over operations rather than ownership, it still treated physical presence as an essential requirement under DTAA. In order to address the problem of digital taxation, India introduced the Equalisation Levy in 2016 and expanded it in 2020. It applied only to online advertising and e-commerce services involving Indian users, including targeted ads and use of user data. Since it operated outside the Income-tax Act and treaty network, it enabled taxation even without a PE. However, it was withdrawn to align with the OECD/G20 BEPS framework and Pillar One, which allocated taxing rights based on business activity and user markets rather than physical presence. India then introduced the concept of Significant Economic Presence (SEP) through the Finance Act, 2018, effective from AY 2022–23. SEP creates a taxable nexus based on revenue from India and continuous user interaction. As per Explanation 2A of Section 9, it covers transactions where payments exceed the prescribed threshold or there is systematic and continuous interaction with users. The thresholds under Rule 11UD of Income Tax Rules, 1962 are INR 2 crore in revenue or 3 lakh users. However, the application of SEP is substantially limited by Section 90(2) of the Income-tax Act, which permits a taxpayer to rely on the more beneficial provisions of an applicable DTAA. Since India’s DTAAs continue to require a Permanent Establishment based on physical presence before business profits can be taxed, SEP has had limited practical effect in most treaty situations. The difficulty became clearer as technology transformed cross-border service delivery. In ABB FZ-LLC v. Dy. CIT, the ITAT recognised that consultancy and technical services could be provided virtually through e-mails, internet platforms, video conferencing, remote monitoring and remote-access systems and observed that continuous physical presence was no longer necessary for a Service PE. A similar shift is seen in Hyatt International Southwest Asia Ltd. v. ADIT, where the Supreme Court held that substantive control over operations of an Indian entity could establish a fixed place PE even without ownership of premises. These decisions reflected a growing judicial focus on how business was actually conducted. The limits of this judicial expansion became apparent in CIT v. Clifford Chance Pte Ltd. The Revenue argued that a “Virtual Service PE” could arise through services provided remotely into India. The High Court rejected the argument and held that the DTAA required services to be performed within India through personnel. Merely rendering services from abroad for Indian clients was insufficient. With regards to “Virtual Service PE” the Court expressly acknowledged that modern business models have exposed weaknesses in the traditional PE framework and referred to developments such as Significant Economic Presence as evidence of a broader policy shift. It made clear that recognising digital or virtual economic participation as a basis for taxation would require amendment of the DTAA itself. Domestic response of countries having DTAAs with India While India may seek

[By Shivam Tiwari] The author is a student of Gujarat National Law University, Gandhinagar.   Introduction Once a patentable drug compound is produced through an artificial intelligence system on its own, the conventional concepts of ownership and value creation begin to collapse. An example may be a cross-border structure in which the Indian research and development subsidiary offers data curation services to its Luxembourg parent on a cost-plus basis, such that the subsidiary is paid its costs plus a predetermined markup. The parent company’s AI system, which has access to both publicly available molecular databases and the proprietary patient data of the subsidiary, creates a commercially viable compound without the involvement of its human counterparts. Under the OECD functional analysis, residual profits are generally allocated to the entity that performs the economically significant functions, assumes the relevant risks, and makes the principal contributions to value creation. AI-generated intangibles, however, complicate this analysis. Where an AI system autonomously develops a commercially viable drug compound using both publicly available molecular databases and proprietary datasets supplied by an Indian research and development subsidiary, it becomes difficult to determine whether the subsidiary merely rendered routine data-curation services or made a substantive contribution to the creation of the intangible. This uncertainty also raises a broader question: which entity should be recognised as the developer of the AI-generated intangible for transfer pricing purposes? These questions are no longer merely hypothetical. Intangible assets now account for 82% of the total value of S&P 500 companies, according to Brand Finance’s Global Intangible Finance Tracker (GIFT) 2025. As Jonathan Haskel and Stian Westlake observe in Capitalism Without Capital, economies that are becoming more reliant on intangible assets pose special measurement and allocation problems. When non-human systems create or refine those resources, the problem becomes structural. Thus, the question is not whether AI can fit perfectly into the existing doctrine but whether it remains conceptually clear. The OECD Framework and India’s Transfer Pricing Regime The OECD Transfer Pricing Guidelines (Guidelines) are based on the arm’s length principle, which stipulates that related business enterprises should price transactions in a manner that is similar to how unrelated businesses would do so in the same market conditions. Chapter VI applies the DEMPE model of Development, Enhancement, Maintenance, Protection, and Exploitation to intangibles. This model identifies the party entitled to residual profits because it performs economically significant functions, assumes economically significant risks, and contributes to value creation. Legal ownership alone is insufficient. The Guidelines also deal with hard-to-value intangibles, or assets whose capabilities to generate future income cannot be properly estimated at the moment of transfer. In such cases, tax authorities can consider the ex post performance to determine whether arm’s length conditions were incorporated in the original pricing. Recognised methods of valuation are functional analysis, comparability studies, discounted cash flow techniques and contingent arrangements such as royalties or milestone payments. To a great extent, this structure is reflected in India’s transfer pricing regime under Sections 161 to 174 of the Income Tax Act, 2025 (IT Act), which govern the computation of income arising from international transactions and specified domestic transactions between associated enterprises in accordance with the arm’s length principle. Section 165 recognises six methods for determining the arm’s length price, while Rule 79 of the Income-tax Rules, 2025 (IT Rules) sets out the manner in which those methods are to be applied. The Cost-Plus Method compensates a service provider by marking up the expenses. The Profit Split Method is used to allocate total profits to related businesses based on their related contributions. The Transactional Net Margin Method helps to compare net margins of similar independent businesses. In 2012, India introduced Advance Pricing Agreements (APA) in order to enhance certainty. An Advance Pricing Agreement is a pre-transaction agreement between a taxpayer and tax authorities stating in advance the way transfer pricing rules will apply to specific transactions (typically over a number of years). Of the over 500 unilateral and bilateral APAs that the Central Board of Direct Taxes (CBDT) had finalised by March 2023, approximately 18 percent were of intangibles. To resolve cases of double taxation, tax authorities in different jurisdictions invoke the Mutual Agreement Procedure (MAP) as a post-transaction dispute resolution mechanism. These mechanisms are effective when there is an identifiable human activity that can be associated with the value creation. Once that assumption fails, the real challenge emerges. The Attribution Paradox: Algorithms as a Value Creation Process The DEMPE model presupposes the involvement of identifiable legal persons informing the human decision-making process and executing economically significant functions. Current AI systems complicate this concept. Large language models, among other high-end predictive models are trained using large datasets to identify patterns and deliver results with minimal human supervision. The data used to facilitate this learning process is referred to as training data. In a conventional analysis, the role of the latter may be identified as routine in cross-border AI arrangements in which the former party develops and trains the model and the latter provides proprietary datasets. The distinction between regular input and value creation becomes difficult when the quality of datasets directly affects commercial performance. The allocation of residual profits therefore relies more on the technological interdependence than on legal ownership. Domestic law displays this uncertainty. The Copyright Act, 1957 (Copyright Act) does not attract any presumption of non-human authorship. Although 2024 governmental clarifications suggested that already developed rules regarding copyright could help regulate the AI-generated works, they did not provide the answer to the more significant question regarding the attribution of ownership. The case of Asian News International v. Open AI (2024) (Open AI) highlights this ambiguity in the impending ruling in the case. The case concerns an admittedly illegal use of copyrighted content to provide training to large language models, but it raises broader concerns regarding control and ownership in AI-driven models. The Digital Personal Data Protection Act, 2023 (DPDP Act) remains silent on the issue of the proprietary rights of AI-generated outputs but only focuses on personal data processing.

[By Devanshi Gupta] The author is a student of Symbiosis Law School, Pune INTRODUCTION In 2024, annual global revenue losses attributable to the challenges of taxing the digitalized digitalised economy were estimated at over USD 100 billion. This figure is projected to worsen as digital trade replaces traditional economic models. This challenge emanates from the existing tax rules that largely depend on physical presence, even as value creation increasingly occurs virtually and across borders. Nowhere is this tension more pronounced than in the Indian legal framework around the Service Permanent Establishment (PE) concept, a cornerstone of international income taxation and Double Tax Avoidance Agreements (DTAAs). On 4th December, 2025, the Delhi High Court’s decision in the case of Commissioner of Income Tax v. Clifford Chance Pte. Ltd. crystallised this dilemma. The Court’s interpretation of Article 5(6) of the India-Singapore DTAA rejected the idea of a “virtual” Service PE, thereby reintroducing the older parameter of mandating the physical presence of service providers for taxation, despite rapid digitization. Yet, the same judgment solidified the requirement of the actual delivery of services over physical presence when calculating the 90-day service PE standard, revealing a doctrinal inconsistency. This article examines the dissonance between the Clifford Chance judgement and earlier Indian precedents, such as ABB FZ-LLC v. DCIT and Verizon Communications Singapore Pte Ltd. v. ITO, which placed a greater emphasis on the economic substance of services provided.  It examines how differing interpretations of the Service PE concept, along with parallel, contradicting domestic measures, like India’s Significant Economic Presence and Equalization Levy, reveal limitations in the current direct tax framework in responding to digitalisation. Finally, the article offers recommendations based on global best practices aimed at harmonizing India’s treaty-based rules with the economic realities of the digital age. SERVICE PERMANENT ESTABLISHEMENT IN INDIA The concept of Permanent Establishment (PE) is utilized to ascertain whether a country has the right to tax a non-resident, natural or artificial. If the said non-resident meets a mutually agreed criteria, its profits and dividends are liable to be taxed. The standard is widely inculcated in DTAAs between nations to resolve taxation conflicts and promote ease and efficiency in business. True to its name, it was originally introduced with the intention of taxing non-residents undertaking business activities with a physical, permanent establishment and presence in India. However, with globalization and digitization, conduction of business and the administration of services is no longer restricted to physical spaces. The rapid expansion of the digital economy has disrupted the physical-presence paradigm. This has resulted in direct interpretation and adaption difficulties pertaining to the determination of ‘permanent establishment’ and the consequent taxation of such persons, raising questions regarding the relevancy and adequacy of existing definitions.  It is against this backdrop that the Clifford Chance judgment, which directly addressed the limits of service PE in the digital context, assumes particular significance. The judgement is examined below. THE CLIFFORD CHANCE JUDGMENT: REASONING AND RATIO The court, in the Clifford Chance case, held that in the absence of explicit treaty language extending the application of PEs to virtual presence, no deduction can be made to that effect. It rejected the concept of virtual Service PE in cross-border services. Physical presence of employees administering the services in India was made mandatory under Article 5(6) of the India–Singapore DTAA and other parallel, similarly framed agreements. This was based on the rationale that the textual interpretation of Article 5(6) does not support the inclusion of digital spaces, which states that “An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services… within a Contracting State through employees or other personnel…”. The Court interpreted the phrase “within a contracting state” as having a clear “territorial connotation”, obligating the need for a physical footprint in India. The term “within” was therefore understood as referring to physical presence, not merely the place where services are implemented or have effect. Notably, however, the judgment adopts a different emphasis when addressing the calculation of the service-day period. In the same judgment, the Delhi HC also held that for the purpose of computing the service-day period, primacy must be given to the actual provision of services rather than mere physical presence. On this basis, it excluded vacation days from the calculation of the 90-day requirement. This creates a dissonance: physical presence is treated as essential for the existence of a Service PE, yet insufficient for the calculation of the actual service days. Additionally, this also marks a shift in ideology from a more adaptive, purposive interpretation in previous precedents to a formalist, text-centric treaty interpretation, an approach that may undermine India’s long-term taxation objectives..  The position taken in Clifford Chance, therefore, sits uneasily with the pre-existing Indian jurisprudence. This divergence is examined below. CONFLICTING INDIAN JURISPRUDENCE: IMPACT Prior to this judgement, Indian tax jurisprudence had not been uniformly dismissive of virtual or non-physical presence as a sufficient nexus for taxation. In the case of ABB FZ-LLC v. DCIT, the court rejected the necessity of physical presence, holding that in light of the technological advances, “it is rendition of services that is required and not the physical presence of employees” for establishing permanent establishment.  Similarly, in Verizon Communications Singapore Pte Ltd. v. ITO, the court stated that “the traditional concepts of physical control, possession, location on economic activities and geographic rules of source of income recede to the background” and have become insignificant. The Court noted that where customers have access to data and services through equipment enabling speed and delivery, such virtual engagement may constitute a sufficient taxable presence. Traditionally, emphasis has been laid on the location of the customers receiving the service, in lieu of the service provider. Notably, the judgment also contradicts the explanation to Section 2A of the Income Tax Act, 1961, which recognizes ‘Significant Economic Presence (SEP)’ as a part of ‘Business Connection’ leading to taxable income in India.  It further clarifies that a physical presence is not necessary for SEP. Consistently, the CBDT Explanatory

[By Madhu Murari K] The author is a student of Rajiv Gandhi National University of Law, Punjab. The Goods and Service Tax (GST) laws have been enacted to overcome the difficulties of the multiple tax regimes and to get away from the tariff and non-tariff barriers which would hinder the free flow of trade throughout the Country. The structure of GST is of a destination-based consumption tax with input tax credit (ITC) of the tax paid on goods or services at each stage available in the next stage of value addition for avoiding cascading effects irrespective of the destination, be it an inter-state supply or intra-state supply. Section 16 of the Central Goods and Service Act, 2017 (CGST Act) lays down the conditions in which ITC can be claimed. One of the conditions under Section 16(2)(c), which denies ITC to buyers/recipients if the sellers have not remitted the tax to the government. Denying of ITC to the purchaser dealer for default of supplier dealer over whom the purchaser dealer has no control, is an arbitrary and irrational exercise of powers. While earlier commentaries on the impugned provision have primarily focused on drawing comparisons between various judicial decisions from the former tax regimes, current academic discourse on the issue appears limited. Recent judicial decisions demonstrate that courts have either favoured the revenue’s position by upholding the provision or have directed the authorities to conduct thorough investigations before holding a recipient liable for non-payment of tax. Nevertheless, none of these discussions offer a substantive alternative to resolve the present legislative dilemma, leaving a significant gap in the policy analysis on the issue. The prime tenets which would be delved into this particular piece are: firstly, the contention that the impugned provision violates the equality guaranteed under Article 14 of the Constitution, secondly, an analysis of this provision through the lens of doctrine of impossibility, and thirdly, proposal of potential solution that could benefit both the bonafide recipients and the government. Arbitrary classification under Article 14 The principle of equality, is enshrined in Article 14 of the Constitution of India. The guiding principle of this article is that everyone should be treated equally by the state and its essence lies in the prohibition of unequal treatment to individuals who are equal and at the same time it permits valid classification made by the state to avoid arbitrary denial of rights to equals. The Supreme Court (SC) in the EP Royappa v. State of Tamil Nadu, duly held that classification must be based on an intelligible differentia that is bona fide and meaningful, and must serve a legitimate legislative goal. A valid classification does not require mathematical nicety and perfect equality. If there is a similarity or uniformity within a group, the law will not be discriminatory. Analyzing the issue at hand, the Section 16(2)(c) lays a prerequisite for claiming ITC that if the sellers have not transferred the tax amount to the government, then the recipients of goods are not eligible for ITC credit. It draws no distinction between the bonafide purchasers and culpable purchasers who are in collusion with defaulting sellers. This arbitrariness is further aggravated by the fact that while the Government reverses the ITC availed by the buyer and simultaneously demands tax, interest, and penalty from the seller. The effect of such parallel actions is that the revenue secures a double recovery of tax, which is wholly inconsistent with the equitable principles of fiscal law. Precedents can be referred from the earlier Value Added Tax (VAT) regimes, such as Arise India Ltd v Commissioner of Trade & Taxes (Arise India), wherein, the court struck down a materially similar provision under the Delhi VAT Act, holding that law cannot complied in good faith if it imposes disproportionate consequences upon a bona fide purchasing dealer for mere non-compliance of the seller, it risks falling foul of the equality guarantee enshrined in Article 14 of the Constitution. In a very recent pronouncement, the SC in the Commissioner Trade and Tax Delhi v. M/S Shanti Kiran India, also ruled that ITC under the Delhi VAT Act, cannot be denied to bona fide purchasers when sellers fail to deposit VAT. By following the decision in Arise India, it emphasized that at the time of transaction the sellers were duly registered, invoices were genuine and there was no collusion between parties, hence paving the way for equitable treatment to the bonafide purchasers. Even though revenue protection is a legitimate legislative objective, fraudulent, and innocent transactions cannot attract the same punitive measure. However, to impose the same penalties on a bona fide purchaser who has fulfilled all his legal requirements but cannot control the supplier’s compliance is an unjustifiable burden that goes against the constitution and defeats the purpose of the GST framework. This analysis proves that Section 16(2)(c) is ultra vires the quintessential Article 14 of the Constitution by treating both the guilty and the innocents at par. Doctrine of Impossibility The maxim, “Lex non Cogit Ad Impossibilia” means that the does not compel one to impossible things. This is foundational principle in contract law providing relief to parties when the performance becomes impossible wholly due to reasons out of their control. Over the course of time, this principle has expanded to taxation law across globe, especially when the statutory framework places responsibilities on taxpayers to perform an impossible act. Addressing the issue at hand, the Section 16(2)(c) postulates such a scenario where the recipient of goods has to not only to fulfil his duties, but also to ensure that the supplier of goods remits the tax to government to claim ITC. Also, statutorily the recipient is not required to ensure compliance of tax remittance to the government by the supplier. Further in Arise India, the court observed that purchasing dealer cannot reasonably be expected to perform the impossible task of foreseeing which selling dealer may eventually default in remitting the tax collected to the Government and to accordingly refrain from transacting with such sellers.

[By Kushagra Jaiswal] The author is a student of Nalsar University of Law. Introduction On 14 August 2025, in M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate & Anr.,(“Armour Security”)the Supreme Court (“SC”) pronounced on the meaning and purpose of Section 6(2)(b) of the Central Goods and Services Tax Act, 2017 (“CGST Act”). The crux of the matter was whether the issuance of summons under Section 70 could be characterized as “initiation of proceedings” when a related matter was currently under investigation by another GST authority. The petitioner contented that the authorities could not take these parallel approaches as dual action would contravene the bi-jurisdictional bar on them in Section 6(2)(b) and undermine cooperative federalism that is contemplated in the GST law. Through Justice J.B. Pardiwala, the Court disagreed with this argument and noted that a summons is an investigatory tool rather than a process of adjudication. A summons is solely used by the Department to gather information to determine whether legal proceedings should be brought. A summons cannot be considered “commencement of proceedings” under Section 6(2)(b) as it does not render a finding of liability nor issue a show cause notice (“SCN”). The Court confirmed that concurrent proceedings are not allowed on the same subject matter and against the same person (Emphasis supplied), but it nevertheless upheld the validity of the CGST summons on this basis. An Economic Times report reveals that parallel proceedings under GST are anything but rare. Official estimates suggest nearly 10,000 taxpayers have faced simultaneous action by both Central and State authorities. This figure underscores the systemic, not incidental, nature of the problem. This article analyses the Supreme Court’s ruling in Armour Security, highlights the persistence of parallel proceedings despite safeguards, and proposes a VAT Information Exchange System (“VIES”) like framework within Goods and service Tax Network (“GSTN”) to prevent duplication. What Did The Court Say? The jurisprudence surrounding Section 6(2)(b) of the CGST Act has steadily delineated the contours of “proceedings” vis-à-vis “inquiry.” The High Courts (“HC”) in G.K. Trading v. Union of India & Kuppan Gounder case, have underscored that the power to summon under Section 70 is investigatory in character, whereas “proceedings” connote adjudicatory steps such as assessment, demand, or penalty. Nevertheless, despite this doctrinal clarity, the persistence of duplicative actions remains unmistakable. The Orissa HC in the Anurag Suri case quashed a State GST SCN where the Central authority was already seized of the matter, observing that such overlap imposes needless hardship on taxpayers. Likewise, the Delhi HC in the Indo International Tobacco case drew attention to the practical complexities of concurrent jurisdiction, noting how fragmented enforcement fosters administrative inefficiency and conflicting outcomes. The SC also took note of the petitioner’s reliance on Vivek Narsaria v. State of Jharkhand, where both the Central and State GST authorities commenced investigations at the same time, ultimately compelling the assessee to reverse his input tax credit. The petitioner relied on this case to highlight how overlapping jurisdiction creates hardship. However, the Court articulated that the factual matrix was materially different, noting that in that case the grievance stemmed from simultaneous investigations concerning the same matter, while in this instance, the search took place only after the prior assessments and pending proceedings had been completed. Based on those findings, the reasoning was determined to be inapplicable. This issue pertains to the very design of the GST structure, which rests inter alia, on the concepts of ‘single interface’ and ‘cross empowerment.’ On their face, these two concepts might seem contradictory, but the Court explained they complement each other, not stand in conflict. The single interface principle aims to abolish the dual system of administrative oversight, which prevents a taxpayer from being supervised by various authorities regarding the same compliance. The principle embraces the idea that GST, even if it is a dual levy, is administered through a single interface whereby compliance with CGST, SGST and IGST is met simultaneously. Cross empowerment allows for Central and State authorities to undertake enforcement power, albeit not in parallel. Therefore, maintaining the federal balance: both levels of the Government have the authority to enforce, but jurisdiction should not be exercised in parallel in order to avoid duplication of the exercise of jurisdiction. Together, these two principles embody the cooperative federalism that underlies the GST, promising simplicity and fairness for taxpayers. The Conundrum Of Parallel Proceeding While the ruling definitively resolves the narrow legal issue, it makes equally clear what it foreshadows as a deeper execution problem, i.e. taxpayers still remain subject to processes by multiple agents with overlapping statutory jurisdiction. Actions taken by statutory authorities with overlapping jurisdiction may be lawful, and they do violate the overall spirit of GST i.e “One nation, One tax.” While the Court prohibits parallel proceedings on the same subject with respect to the same assessee, the absence of institutional coordination between the Centre and the States only permits it to continue. Bridging the coordination gap will require structural change in procedure, sharing of data, jurisdictional allocation of authority, and cross-empowerment among the actors involved, not simply an interpretation of judicial meaning. The government sought to curb duplication through a  circular dated 5 October 2018, which authorised both Central and State tax authorities to initiate intelligence-based enforcement across the taxpayer base. The authority that first acts was mandated to carry the matter to its conclusion, including investigation, SCN, adjudication, recovery and appeal.Yet, despite these safeguards, judicial precedents reveal that parallel proceedings persist. Courts across jurisdictions have repeatedly quashed duplicative SCNs and inquiries, for instance, in M/S Toyota Kirloskar Motor Pvt. Ltd. v. Union of India, Baazar Style Retail Ltd. & Anr. v. Deputy Commissioner of State Tax, et al., underscoring the continuing breach of Section 6(2)(b). In fact, the Supreme Court itself in Armour Security (¶ 98–99) emphasised the pressing need for better coordination. The Court observed that since both Central and State authorities rely on a common IT infrastructure, it is imperative that they act in harmony and exercise heightened

[By Runit Rathore and Lakshita Goyal] The authors are students of Hidayatullah National Law University, Raipur On 24th July 2025, the Supreme Court (SC) delivered a landmark judgment in Hyatt International Southwest Asia Ltd v. Additional Director of Income Tax (Hyatt Ruling), wherein it was confronted with a seemingly straightforward question: whether Hyatt International (Hyatt) had a permanent establishment (PE) in India under the provisions of the Indo-UAE Double Tax Avoidance Agreement (DTAA) or not. To set the stage, DTAA is a bilateral treaty that allocates taxing rights between the source country and the country of residence, thereby ensuring that income is not taxed twice. Typically, Article 5 of the DTAA defines the concept of a PE as a “fixed place of business” through which the business of an enterprise is wholly or partly carried on thereby enabling the source country to tax the profits attributable to such PE. Article 7 of the DTAA permits India to tax so much of the profits of the enterprise as are attributable to the PE. Importantly, once a PE is established, the source country is entitled to independently attribute profits to it, irrespective of whether the parent entity is incurring losses. The primary issue in the Hyatt Ruling pertained to the permissibility of India taxing the profits earned by Hyatt from rendering services to Indian hotels. This piece examines the reasoning adopted by the Court and how it gave precedence to substance over form. It also explores the potential influence the judgment may have on the development of Indian tax jurisprudence. FACTUAL BACKGROUND Hyatt was incorporated in Dubai and managed Hyatt brand across the Asia. It entered into long-term Strategic Oversight Services Agreements (SOSAs) with Asian Hotels Limited (AHL), according to which it provided branding, managerial oversight, training, procurement advice and other hotel-management services. Hyatt dispatched executives and staff to India periodically, but it had no office or lease in India. The operations were coordinated remotely from Dubai and the service fees linked to the revenues of AHL were remitted to the UAE. The dispute arose when the Assessing Officer treated Hyatt’s presence as constituting a PE in India. The tax authorities argued that its continuous involvement in, and control over, the hotel operations satisfied the conditions for a PE under the applicable DTAA. On the contrary, Hyatt argued that it neither maintained an exclusive or permanent office in India nor did any of its employees exceed the 183-day threshold under Article 5(2)(i) of the DTAA, as all visits were intermittent in nature. However, both the Tribunal and the Delhi High Court rejected Hyatt’s contentions, leading the matter to be escalated before the Hon’ble SC. SUPREME COURT’S RULING The SC held that the Hyatt had a fixed place PE in India and that its income was therefore taxable in India. The court’s reasoning relied on the twin conditions set out in Article 5(1) of the DTAA: first, whether there was a fixed place of business at Hyatt’s disposal in India and second, whether its business was carried on through that place. Firstly, court ruled that a fixed place need not be exclusively owned or leased by the enterprise. It observed that it is sufficient if a certain space is made available at the disposal of the enterprise, even if such space is shared and no formal lease exists. It found that the Indian hotel premises, where Hyatt’s personnel were continuously present and performed core functions, were effectively in control of it. In practical terms, it did not have its own office but the hotel premises functioned as its de-facto office for core management tasks. The second condition was met by looking at its aggregated activities. The court observed that Hyatt’s executives made frequent and substantial visits under the SOSAs. Although no single employee exceeded the 183-day threshold under Article 5(2)(i), the combined presence of multiple personnel over the duration of the contract demonstrated a continuous business presence. The court held that the relevant consideration is continuity of business presence in aggregate, rather than the individual duration of stay of each employee. These facts satisfied the classic PE tests of stability, productivity and independence. The court carefully distinguished the present case from the Assistant Director of Income Tax v. E-Funds IT Solutions Inc. (E-Funds), where no PE was found. In this case, the SC held that the operation of Indian subsidiary was purely auxiliary in nature and conducted at arm’s length and thus did not constitute the foreign parent carrying on business through that location. In the present case, the court noted that E-Funds is factually different, the foreign parent did not perform any core business in India; here, the hotel itself was the situs of Hyatt’s primary business activities. Thus, what mattered was that in present case, the foreign company’s main work (hotel management) was literally going on in India, whereas in E-Funds it was only simple support work. The court emphasized that the key distinction lay in the nature of the functions performed, Hyatt involved the conduct of core operational activities in India, while E-Funds involved only back-end, support functions. SUBSTANCE OVER FORM: A SHIFT IN JUDICIAL APPROACH One of the most noteworthy aspects of the Hyatt Ruling is the SC’s clear emphasis on economic substance over legal form. It rejected the argument that the absence of a formal office or lease in India would shield Hyatt from taxation.It held that the functional reality of its business presence was determinative. The court emphasized on the reality of who did what, where and how often within Hyatt’s business model. As observed, the SC undertook a detailed factual inquiry by examining travel records, revenue sharing provisions and the scope of contractual duties to determine the degree of control exercised by Hyatt over hotel operations. The judgment reflects a clear shift away from a purely formalistic approach thus favoring a more substantive and fact-driven analysis. The court held that the disposal test for determining a fixed place PE must be used with flexibility and

[By Shrushti Taori & Tatva Damania] The authors are students of Maharashtra National Law University, Nagpur and Maharashtra National Law University, Mumbai respectively.   Introduction Recently, in Union of India v. Tata Steel Ltd. , the Hon’ble Supreme Court decided on the prospective nature of the Explanation to Rule 89(4) of the Central Goods and Services Rules, 2017 (‘the Rules’) (‘the Explanation’) added vide Notification No. 19/2022 (‘the Notification’). The appeal was against Jharkhand High Court’s judgement in Tata Steel Ltd. v. Union of India , wherein the petitioner challenged the validity of Paragraph 47 of the Circular No. 125/44/2019-GST (‘the Circular’). Paragraph 47 of the Circular directs the authorities to examine the value declared in both the GST invoice and the shipping bill while processing refund claims of unutilised Input Tax Credit (‘ITC’). It further clarifies that the lower of the two values must be considered to compute the eligible refund amount. This was later vis-à-vis incorporated as the Explanation vide the Notification. The very objective of the Explanation is to avoid over-invoicing by the assessee. In Tata Steel, the Hon’ble Supreme Court decided on the prospective application of the Notification. However, it remanded the matter back to the Jharkhand High Court to decide on the merits of the Paragraph 47 the Circular, and hence that of the Explanation. The petition is pending in the Jharkhand High Court. The authors contend that the Explanation to Rule 89(4) of the Rules is ultra vires the Central Goods and Services Act, 2017 (‘CGST Act’), as it imposes a substantive cap on availment of refund on ITC, despite having no such cap in the parent statute. This article frames three arguments to justify the ultra vires nature of the Explanation: (i) the statutory scheme of the CGST Act bases refund of ITC entirely on the invoice only, and shipping bill serves an entirely different purpose; (ii) The CGST Act employs the intention of ‘full refund’, and basing refund on shipping bill does not ascertain ‘full refund’, especially in cases of CIF Contracts; and (iii) Principles laid down in Tanbo Imaging affirms that exports are ‘zero-rated’ and hence, must be tax neutral. Refund on Export in GST Laws Exports are zero-rated supplies under Section 16(1) of the Integrated Goods and Services Tax Act, 2017 (‘the IGST Act’). In cases of zero‐rated supplies under a Bond/Letter of Undertaking (‘LUT’), according to Rule 96A of the Rules, the export is made without the payment of IGST. In such arrangement, the refund of unutilised ITC is later claimed by the exporter under Section 54(3) of the CGST Act. Rule 89(4) of the Rules lays down the formula to calculate the refund of unutilised ITC for that export. It is : Refund = (Export turnover) × (Net ITC) / (Adjusted Total Turnover). Here, Export turnover means turnover of zero‐rated supplies of goods and services, and Net ITC is the input credit availed during the period. The Adjusted Total Turnover is essentially the exporter’s overall turnover (taxable supplies plus zero‐rated services) in a State, excluding exempt supplies and any supplies already refunded under Rules 89(4A)/(4B). Hence, the formula essentially prorates the total ITC based on the share of exports in the total (taxable) business, so that only the portion of credit attributable to exports is refunded. While this mathematical equation precisely gives the amount of refund for that specific export turnover, an important legal issue that arose is the cap on export turnover in this formula. Oftentimes, the transactional value on tax invoice is different than that on the shipping bill for the same product. Hence, vide Paragraph 47 of the Circular, and then vide the Explanation, the Department inserted an explanation to Rule 89(4): it expressly provides that the “value of goods exported” shall be taken as the lower of (i) the Free On Board (‘FOB’) value in the shipping bill; or (ii) the invoice value.  According to the Circular No. 197/09/2023- GST (‘2023 Circular’), this ‘lower’ value must be considered in both numerator and denominator in ‘export turnover’ and ‘adjusted total turnover’ while calculating the refund according to the Rule 89(4) of the Rules. The explanation to Rule 89(4) is ultra vires the CGST Act This consideration of the ‘lesser’ value of the invoice or the shipping bill has been challenged in the Tata Steel. It is pertinent to note that the Jharkhand High Court did not decide on the validity of the Explanation yet, nor consider the issue in the judgement. Hence, the Supreme Court remanded the matter back to the Jharkhand High Court to decide on the validity of the Explanation of considering the ‘lesser’ value out of either FOB value of the value on the tax invoice for the purpose of refund of the unutilised ITC. Purpose of invoice and shipping bill, and the scheme of CGST Act for refund of ITC For the purpose of tax, the invoice and the shipping bill serve different purposes. The invoice is issued under Section 31 of the CGST Act r/w Rule 46 of the CGST Rules, whereas the Shipping Bill is issued under Section 50 of the Customs Act, 1962. Even though, according to Rule 96 of the CGST Rules, the Shipping Bill is deemed as a refund application of integrated tax paid on the goods, it is merely a proof of the fact that the good has been exported and the assessee has utilised zero-rated policy, and hence is eligible for the refund. According to the Shipping Bill and Bill of Export (Forms) Regulations, 2017, Form SB I / SB II mandates to list the quantity, description, and declared values (including INCOTERM-based breakdown of FOB, freight, insurance, etc.). However, the valuation of refund as per the Explanation is based on the FOB component only. The invoice, on the other hand, contains total value of supply of goods or services, taxable value of supply of goods or services, rate of tax, and amount of tax charged. For the purpose of valuation, especially that of ITC, the authorities rely on

[By Sudarshana Mahanta and Aditya Belsare] The authors are students of Gujarat National Law University, Gandhinagar   Introduction Section 147 of the Income Tax Act, 1961 (IT Act) allows an Assessing Officer to assess or reassess any income if they have reasons to believe that such income has escaped assessment in the assessment year where they were liable to be charged with tax. Section 149 of the IT Act prescribes the time limit for sending notice to initiate reassessment proceedings under Section 147 of the IT Act. Section 149 was amended by the Finance Act, 2012 (Finance Act), extending the time limit for sending notice for reassessment in cases involving foreign assets from six to sixteen years. This resulted in the issuance of reassessment notices by the tax department for cases that would have been time-barred under the earlier law. The department placed reliance on the extended limitation period provided by the amendment to do so. These reassessment notices were challenged before different judicial forums, leading to varying interpretations and judicial uncertainty. The issue is currently pending before the Delhi High Court and merits a close inspection given its relevance to tax certainty and jurisprudential development. I. Judicial Divergence In 2018, the Delhi High Court in Brahm Datt v. Assistant Commissioner of Income-tax (Brahm Dutt) quashed a reassessment notice for assessment year 1998-99, holding that the extension of the time period of limitation cannot be used to reopen proceedings that have attained finality before the amendment became effective. Following this, the Income Tax Appellate Tribunal (ITAT), Mumbai, in Deputy Commissioner of Income-tax v. Smt. Deval D. Thakkar quashed reopening proceedings initiated under Section 147 of the IT Act, holding that the extended limitation cannot revive proceedings for which the limitation period has already expired, given that the 2012 amendment is prospective in nature. A similar view was expressed by ITAT Kolkata, relying on Brahm Dutt. On the flip side, the above-mentioned view was not agreed upon by ITAT Mumbai in Deputy Commissioner of Income Tax 6(4), Mumbai v. Smt. Mitali R Lakhanpal, Mumbai where the court refused to be bound by the Brahm Dutt precedent, citing that the judgment is of a non-jurisdictional court along with being contrary to the clear provision of law. The court declared that retrospective application of the extended limitation period is possible in light of the express terms of the Explanation to Section 149 of the IT Act, as amended by the Finance Act. A similar view was taken by the tribunal in Deputy Commissioner of Income Tax v. Dilip J Thakkar as well. Given these divergent views, by an order dated 30 May 2025, a division bench of the Delhi High Court referred the issue to a larger bench to answer the question, “Can legislative amendments to limitation periods revive assessments that are already time-barred?” The court would be adjudging the implication of Explanation to Section 149 of the IT Act inserted through the Finance Act which states: “For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.” Section 149(1)(c) of the IT Act, as amended, had extended the limitation period to sixteen years. Brahm Dutt, while holding that retrospective application of the amendment is impermissible, did not seem to consider this explanation. The question that lingers is whether the explanation gives the amended provision a retrospective nature. II. Critical Analysis A close examination of the provision, jurisprudential and constitutional principles, and practical implications suggests that the courts should refrain from allowing the Revenue to reopen cases that would have been time-barred if not for the amendment through the Finance Act. The moot question before the larger bench of the Delhi High Court would be assessing whether “any assessment year beginning on or before April 1, 2012” encompasses all assessments, including the ones already time-barred or only those that were still open. The Supreme Court has been clear in its stance that the rule of interpretation does not allow for retrospective operation to create or impose a new obligation or liability unless the language of the statute expressly or by necessary implication provides for it. “Any assessment year” in this context could be construed to mean the years before April 1, 2012, for which the limitation period has not expired yet. Nothing in the provision explicitly and unambiguously declares that the extended limitation period could be used to revive time-barred cases. Since two interpretations are possible, retrospective application for all years should be avoided, and the explanation read with the section should be understood to extend the time limit for cases for which the limitation period, as it existed during their relevant assessment year, has not expired. Secondly, the rationale behind the amendment cannot be used to justify a retrospective operation. The memo accompanying the Finance Bill, 2012 (Bill) clearly states that the amendment is proposed since the existing timeline of six years was insufficient in cases where assets are located outside India, because additional procedural requirements and foreign laws make the process more time-consuming. Judicial precedents do not allow for administrative difficulty to justify taking away vested rights, except where the legislature’s intention is unambiguously clear. Jurisprudential principles, supported by case laws, do not allow subsequent legislation to interfere with vested rights unless they are made retrospective, expressly or by necessary implication. The Bill further stated that the provisions are procedural in nature. However, it is a settled law that once the limitation period expires, the taxpayers’ right against adjudication becomes a vested right. Provisions of fiscal statutes prescribing the period of limitation would be subjected to strict construction and cannot be overridden by legislative intent. Thirdly, retrospectively increasing the limitation period would impose undue compliance burdens on taxpayers who might be subjected to defending themselves against matters they considered closed and did not maintain records for. Since non-disclosure of

[By Ishtmeet Kaur] The author is a student of Rajiv Gandhi National University of Law, Patiala.   Introduction Since the introduction of GST in 2017, Input Tax credit (ITC) has consistently remained at the centre of litigation and policy debates. Although ITC was envisioned as a mechanism to avoid the cascading effect of taxes and provide relief to the taxpayers, however in practise, it has produced the exact opposite outcomes. In the past few years, a plethora of cases have come forward where ITC has been denied by the department to bona-fide purchasers either due to the default of the supplier or because of retrospective cancellation of supplier’s registration. In this context, the recent judgment of Sikkim High Court in the case of SICPA India (P.) Ltd. v. Union of India provides a ray of hope to the taxpayers who are facing uncertainties surrounding ITC entitlement. In this landmark ruling, a single-judge bench of the High Court has allowed the assessee to claim refund on unutilized ITC on the closure of business after the same was denied by the adjudicating and appellate authorities under the GST regime. While the judgment is progressive and aligns with the interests of the taxpayers, however the rationale given by the court appears legally inadequate and therefore deserves scrutiny. This article intends to critically examine the judgment of the court, contending that despite being tax-payer friendly it may not withstand appellate scrutiny due to the absence of a robust legal foundation. At the same time, through this piece the author advocates that the core idea underlying the judgment, which is the recognition of refund of ITC on business closure should be legislatively codified, subject to certain safeguards to ensure that such refunds are only granted in genuine cases. A Closer Look at the HC’s ruling In the present case, the petitioner upon shutting down its manufacturing unit in Sikkim, sought a refund of the unutilized balance of Input Tax Credit lying in its Electronic Credit Ledger (ECL). However, the same was denied by the Assistant Commissioner on the ground that exists no statutory provision which allows the refund of ITC on the closure of business. On an analysis of the provisions governing refunds, Section 49(6) of the Central Goods and Service Tax (CGST) Act, 2017 permits the refund of ITC but in accordance with the conditions laid down in Section 54. Specifically, Section 54(3) of CGST Act, 2017 clearly lays down two conditions in which the refund of unutilized Input Tax Credit can be claimed, i.e., (i) in case of zero-rated supplies and (ii) inverted-duty structure (rate of tax on inputs being higher than the rate of tax on outputs). Therefore, there is no express provision in the CGST Act which allows the assessee to claim ITC refund in situations like cancellation of registration or closure of business. Despite the absence of a legal provision providing for refund of ITC on business closure, the court allowed the refund by relying on Karnataka High Court’s judgment in Union of India v. Slovak India Trading Company Private Limited in the erstwhile regime. The rationale adopted by the Court was that there is no express prohibition either in Section 49 or 54 which does not allow such refunds. While the intention of the court may have been to prevent undue burden on taxpayers, however the judgment appears to be overstepping the judicial boundaries especially in absence of a statutory basis or even robust reasoning by the court. Fault Lines in the Judgment Flawed Interpretation of Section 54(3) The High Court in its judgment has held that Section 54(3) does not expressly prohibit the refund of unutilized Input Tax Credit on closure of business. However, this reasoning of the court appears to be erroneous. The language of the first proviso to Section 54(3) has been framed by the Parliament in the following terms: “Provided that no refund of unutilised input tax credit shall be allowed in cases other than”. The critical expressions used here: “no refund shall be allowed” and “in cases other than”, clearly indicate that the legislature intends to allow refund only in these two situations as provided. Hence, the construction of the proviso is prohibitory and exhaustive in nature. This interpretation has also been affirmed by the apex court in the case of Union of India & Ors. V. VKC Footsteps India Pvt. Ltd. where the court has clearly held that “A refund can be allowed only in the eventualities envisaged in clauses (i) and (ii). The expression “in cases other than” is a clear indicator that clauses (i) and (ii) are restrictive and not conditions of eligibility.” It remains uncertain as to how the High Court’s judgment would withstand judicial scrutiny when its interpretation of Section 54(3) clearly diverges from the one already laid down by the apex court. A case of Judicial Overreach Taxation statutes are required to be strictly interpreted. The rationale behind this is that the fiscal policy of the government is often shaped by various economic and administrative considerations which may not necessarily align with the broader principles of equity usually applied by the courts. In such a context, courts through their judgments must remain confined to the text of law and should not dictate fiscal policy making by the government. By disregarding the rule of literal interpretation, the High Court appears to have overstepped these boundaries, particularly when the intention of the Parliament was unambiguously expressed in the language of the proviso to Section 54(3). Introduction of an additional ground by the Court on which refund of ITC can be claimed serves as judicial encroachment on the powers of the legislature. This view also finds support in the decision of Supreme Court in the case of C.I.T. v. Calcutta Knitwears, where strict interpretation of a taxing statute was emphasized. “Common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look fairly at