A company (the petitioner) has filed a writ petition before the Bombay High Court challenging a circular issued by the Central Board of Indirect Taxes and Customs (CBIC). This circular, numbered 204/16/2023-GST and dated October 27, 2023, clarifies the tax treatment of corporate guarantees.

The Challenge:

The petitioner argues that the circular goes beyond simply clarifying tax rules. They contend that point number 2 of the circular effectively takes away the decision-making power (adjudicatory powers) of both the assessing authority (who makes the initial tax assessment) and the appellate authority (who reviews appeals on the assessment).

Grounds for Challenge:

• Circular vs. Adjudication: The petitioner asserts that a circular cannot replace the established process of tax assessment and appeal. Clarifications in a circular should not dictate the outcome of individual cases.
• Right to Appeal Undermined: The petitioner argues that point number 2 of the circular directly affects the appellate authority's ability to consider the case impartially. This essentially renders the appeal process pointless if the appellate authority is bound by the circular's interpretation.

Supporting Arguments:

• The petitioner cites a Supreme Court case, (Union of India Vs. Karvy Stock Broking Ltd., (2019) 11 SCC 631), which emphasizes the importance of following established legal procedures in tax matters.
• They also reference a similar case before the Delhi High Court, (Sterlite Power Transmission Limited Vs. Union of India & Ors., {(2024 TAXONATION 614 (DELHI)), where a company challenged a circular impacting their right to appeal a tax decision related to corporate guarantees.

Impact of the Challenge:

• The petitioner had already filed an appeal against the tax assessment related to corporate guarantees. However, they argue that point number 2 of the circular makes the appeal potentially meaningless.
• The court has issued a notice to the government (respondents) for a response by August 20, 2024.
• In the meantime, the court has stayed the effect of point number 2 of the circular. This means the appellate authority can decide the petitioner's case without being influenced by the clarification in the circular.

Possible Outcomes:

• The court will hear arguments from both sides and decide whether the circular oversteps its bounds by restricting appeal rights.
• If the court rules in favor of the petitioner, the circular may be struck down or modified.

Topic-ACME Cleantech Solutions PVT LTD Versus Union of India and Ors.

Citation-2024 TAXONATION 977 (PUNJAB AND HARYANA)

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