Supreme Court Rulings on Indirect Taxes: What Your Business Needs to Know

The Supreme Court of India (“SC”) has delivered several significant indirect tax judgments in recent months that directly affect how businesses manage GST compliance, customs duties and input tax credit claims. Understanding these decisions is essential for ensuring your business remains compliant and for protecting your financial interests. Below is what you need to know and how you can apply the rulings practically.

Input Tax Credit on Construction for Rental Properties
In the case of Safari Retreats Pvt. Ltd. (Chief Commissioner of CGST & Ors. v. Safari Retreats) the SC ruled that when a building is constructed for leasing or rental and the business activity of the taxpayer involves making taxable supplies (for example renting commercial units) then that building may qualify as a “plant” under section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act). The Court held that the term “plant or machinery” in clause (d) cannot rigidly be given the meaning under the definition of “plant and machinery” (which excludes land and buildings) and that a building may be a “plant” if it passes a functionality test, meaning it is integral to the business of taxable supplies rather than being a mere passive asset. The Court upheld the constitutional validity of clauses (c) and (d) of section 17(5) but qualified their operation in cases of leasing/renting.

Implications for your business:

• If your business constructs commercial real-estate (warehouses, logistics hubs, bonded facilities, shopping malls, office complexes) and intends to lease or rent them out under taxable supplies, you should assess whether the building qualifies as a “plant” under the functionality test.

• Document clearly how the building is used in your taxable business activities, how it is integral to your supply chain or services, and how it is accounted (capitalised vs expense) and utilised.

• Be aware that although the SC ruling is favourable, it does not create an automatic right to ITC in all cases of constructed immovable property. Each case will depend on facts (usage, business activity, whether supply is taxable or exempt) and the building’s role in your operations.

• Monitor pending legislative developments: for example the Finance Bill proposes a retrospective amendment replacing “plant or machinery” with “plant and machinery,” which may restrict future claims.

• For historical periods you should assess risk: if you claimed ITC on construction and the facts are strong, that may be defensible; but if the usage is weak or mixed, caution is warranted.

• From a supply chain and logistics perspective: if you build a leased warehouse or container terminal or export-warehousing facility and pay GST during construction, then you might, subject to fact pattern, claim ITC – provided you show that the facility is directed to taxable leasing or rental activity rather than being treated as an investment asset.

Rectification of GSTR 3B Returns Has Strict Time Limits

In the case of Bharti Airtel Ltd. the SC held that under section 39(9) of the CGST Act rectification of a monthly return in Form GSTR-3B must be done in the month in which the omission or incorrect particulars are discovered. The Court took the view that the taxpayer cannot go back and revise the return of the month in which the error originally occurred. The reasoning was that allowing such retrospective revisions would undermine the self-assessment regime and create uncertainty for other stakeholders in the supply chain. 

Implications for your business:

• Establish robust internal controls and reviews of your GST returns so that any error or omission is identified as soon as it is discovered and corrected without delay.

• If you discover a mistake (for example mis-classification of input supplies, ineligible input tax credit, missed outward supplies) you should adjust the next available return rather than attempt to revise the original period’s filing.

• Note that you do not lose all recourse, but the mechanism is constrained: you cannot treat the original month’s GSTR-3B as open for revision by you unilaterally unless the law or rules permit it.

• For complex supply chain transactions (imports, cross-border services, delayed invoices, transit goods) you should ensure timing of inward supplies and matching of records so that you identify eligible credits in the correct return period.

• Document when you discover the error (date of internal audit, date of management review, date supplier corrected invoice) because the timing of discovery may matter.
  

Authority of DRI Officers to Issue Show-Cause Notices Under Customs Law

The SC in its review of the earlier decision Canon India Pvt. Ltd. (2021) held that officers of the Directorate of Revenue Intelligence (DRI) are “proper officers” under section 28 of the Customs Act, 1962 and therefore have the power to issue show-cause notices (“SCNs”) claiming short‐levy, non‐levy or erroneous refund of duty.The Court observed that the earlier 2021 judgment (Canon India) did not properly consider statutory scheme, circulars and notifications that empowered DRI officers. The SC also clarified that its decision does not disturb findings on limitation period or other procedural safeguards that were part of the earlier decision.

Implications for your business:

• If your business is involved in imports, exports, transshipment or handling of customs cleared goods, you should be aware that the DRI now clearly has authority to issue SCNs under Section 28 for past periods.

• Ensure your import documentation, classification, valuation, invoice/BOE (bill of entry), shipping documents, freight/insurance payments, transfer price records or bonded warehouse records are complete, accurate and auditable.

• On receipt of any show-cause notice you should check: (i) whether the issuing officer was properly designated as a “proper officer”, (ii) whether limitation period for issuing SCN has run out, (iii) whether the underlying assessment or clearance was valid and (iv) whether the value/circumstance relied on by the department is properly recorded.

• Particularly in your context of logistics, maritime shipping and supply chain, ensure that your bonded facilities, export warehouses, container leasing, freight forwarding documentation and import records are robust and aligned with applicable customs law, given heightened enforcement risk.

• Integrate your export control/sanctions compliance framework with your customs compliance framework since mis-classification or mis-valuation can trigger both duties and compliance risk under sanctions regimes.
  

No Double Taxation on Ocean Freight in CIF Imports

In the case of Mohit Minerals Pvt. Ltd. the SC held that in the case of imports on a cost-insurance-freight (CIF) basis where the freight cost is included in the customs assessable value and IGST is paid on the CIF value, the importer is not liable under the reverse charge mechanism to pay separate IGST on ocean freight paid by the foreign exporter or shipping line. The Court held that taxing the freight element again under reverse charge would amount to double taxation and offend the composite supply principle under section 8 of the CGST Act.

Implications for your business:

• If your business imports goods on CIF terms, you should review whether you have paid IGST separately under reverse charge on freight and whether those payments are correct or whether refunds may lie (subject to limitation).

• Validate carefully your contract terms: who pays the freight, who is recipient of the freight service, how the freight component is treated in customs valuation, and whether the contract is truly CIF or FOB or another term.

• For imports done on FOB or other delivery terms you should separately assess whether IGST under reverse charge may apply or not; the Mohit Minerals ruling is fact-specific to CIF.

• Ensure that your inward supply records and GST compliance reflect the correct position and that you maintain documentation of contract terms, freight invoices, shipping lines, and assessable value disclosures.
  

Practical Steps for Your Business

Based on these rulings I'd recommend the following steps:

1. Maintain meticulous documentation for all GST and customs transactions. This includes invoices, contracts, shipping documents, import/export declarations, internal cost allocations, construction cost breakdowns and records linking usage of assets (especially for input tax credit and construction of buildings).

2. Implement review and monitoring mechanisms for your GST returns. Errors or omissions should be detected promptly and rectified in the next appropriate return period rather than left uncorrected for months.

3. For businesses constructing commercial property for leasing or renting, evaluate whether your property qualifies under the Safari Retreats “plant” test. Work closely with legal and tax advisors to assess eligibility for ITC, document the business usage of the property and monitor legislative developments.

4. Strengthen your customs compliance framework. Given the confirmed enforcement powers of DRI officers, ensure your classification, valuation, documentation supporting imports/exports are defensible. When audits or enquiries arise, engage legal and customs counsel early.

5. Align your export/supply-chain compliance (including sanctions, logistics, bonded warehousing) with your tax/compliance team. Many of these indirect tax rulings affect the same supply-chain and import/export flows you manage.

6. Stay alert to legislative changes. Even favourable judgments may be subject to amendment or legislative override. For example the amendment to section 17(5)(d) of CGST Act may affect future claims.

7. Train your internal teams, especially finance, tax, supply chain and legal, so they understand the timing, eligibility, documentation and risk aspects of GST and customs rulings.

8. Seek expert advice early when you face a dispute, show cause notice or major claim. These rulings often turn on fact-intensive tests (plant or machinery, usage, date of error discovery, proper officer designation, contract terms). Having advisors engaged early gives you better prospect of outcome and reduces risk of surprise exposures.

Conclusion

These SC decisions collectively reaffirm that courts are willing to provide relief to taxpayers on both procedural and substantive fronts in the realm of indirect taxes. However compliance remains non-negotiable: timing, documentation, usage, contract terms, self-assessment obligations and internal records are all critical. For a business functioning in shipping, maritime logistics, import/export and supply chain, the interplay of GST, customs and cross-border documentation means you cannot treat tax/compliance in isolation. By aligning your practices with these rulings, you protect yourself from unnecessary disputes, optimise your tax positions lawfully and build a stronger compliance foundation for the future.

Target Audience:

The article is aimed at senior finance and tax leaders, supply chain and logistics managers, commercial real estate developers, and legal compliance teams in businesses involved in import-export or rental/leasing operations who need to understand how recent Supreme Court rulings affect GST credits, customs enforcement, and compliance practices.