This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Dec 28th 2025 to Jan 03rd 2026, namely:
- Revised 2024 compounding guidelines cannot override final HC directions; fee to be recomputed under 2008 CBDT rules: HC;
- HC can’t conduct roving enquiry at pre-trial stage to ascertain whether cheque was issued for discharge of liability: SC;
- Employee designated as manager in front office without supervisory powers or authority over staff is a workman: SC;
- Money is excluded from the definition of goods, cash can’t be seized unless linked to taxable supply: HC;
- GST rate schedules amended for pan masala, tobacco and related products from 01.02.2026: Notification;
- GSTN to block excess ITC re-claim and RCM ITC through system validations in GSTR-3B: Advisory;
- Recognition of past service cost under the New Labour Codes: Ind AS 19 and Ind AS 34 perspective; and
- Extension of Phase IV peer review mandate: Relief for practice units.
1. Revised 2024 compounding guidelines cannot override final HC directions; fee to be recomputed under 2008 CBDT rules: HC
The petitioner, a senior citizen, faced prosecution for offences under the Income-tax Act arising from reassessment proceedings for the assessment year 2002-03. The petitioner had paid tax, interest, and penalty. He applied compounding of the offence under section 279(2), and the competent authority rejected the same.
The matter reached the Madras High Court, which held that the case was suitable for compounding, given the petitioner’s age and the prolonged prosecution. The court remitted the matter only for the fixation of compounding fee and held that the CBDT Guidelines dated 16-5-2008 governed the case.
The Supreme Court also dismissed the Department’s appeal and directed the authorities to compute and communicate the compounding fee within 60 days. Pursuant thereto, the petitioner was asked to pay compounding charges by applying the revised CBDT Compounding Guidelines dated 17-10-2024, including enhanced charges computed on the tax sought to be evaded. Aggrieved by the order, the petitioner filed the instant writ petition.
The Madras High Court held that the determination of the compounding charges payable by the petitioner as per the revised Guidelines dated 17-10-2024 is unsustainable. This was the third round of litigation and the fourth order in a row passed by the CIT.
During the last order, the revised Guidelines dated 17-10-2024 were not in force. In fact, the Circular bearing F.No.285/08/2014-IT(Inv-V)/147 dated 14-6-2019 was in force with effect from 17-6-2019, which was directed to be applied by the Court vide its order dated 31-1-2020 in Contempt Petition. However, the respondents were aggrieved by it and filed a Writ Appeal.
The Division Bench, by its order dated 11-12-2023 in Writ Appeal, also held that the petitioner was governed by the compounding guidelines dated 16-5-2008. The law on the subject is also clear. Thus, only the CBDT Guidelines in F. No.285/90/2008-IT(Inv.)/12 dated 16-5-2008 were to be applied.
Since the respondents applied the revised Guidelines dated 17-10-2024, the writ petition was allowed, and the matter was remanded to the concerned respondent to issue a fresh calculation of the compounding fee.
2. HC can’t conduct roving enquiry at pre-trial stage to ascertain whether cheque was issued for discharge of liability: SC
The Supreme Court, in the matter of Sri Om Sales vs. Abhay Kumar @ Abhay Patel [2025] 181 taxmann.com 756 (SC), held that the High Court erred in quashing complaint proceedings under Section 138 of the Negotiable Instruments Act at the pre-trial stage by examining whether the cheque was issued for discharge of a legally enforceable debt or liability.
Facts of the Case
In the present case, the complainant filed a complaint under Section 138 of the Negotiable Instruments Act alleging that the accused had taken delivery of goods from the complainant. Towards payment for the said goods, the accused issued a cheque in favour of the complainant. When the cheque was presented for encashment, it was returned unpaid by the bank due to insufficiency of funds in the drawer’s account.
Upon consideration of the complaint and the supporting material, the Magistrate took cognisance of the offence and issued summons to the accused.
Aggrieved thereby, the accused approached the High Court by filing a petition under Section 482 of the Code of Criminal Procedure. The High Court, by the impugned order, quashed the complaint proceedings on the ground that the cheque was not issued for discharge, in whole or in part, of any legally enforceable debt or other liability.
The Supreme Court noted that the High Court, while exercising jurisdiction under Section 482, undertook an unwarranted enquiry into whether the cheque was issued towards discharge of a debt or liability. Under Section 139 of the Act, there exists a statutory presumption that the holder of a cheque received it for discharge, in whole or in part, of a debt or other liability.
The Supreme Court observed that such presumption is rebuttable only by evidence led during trial. Whether the cheque was issued towards discharge of liability is a matter to be decided at trial or, thereafter, by the Appellate or Revisional Court. Conducting a roving enquiry at the pre-trial stage was impermissible, particularly when the complaint itself disclosed that the cheque was issued for discharge of liability.
Supreme Court Held
The Supreme Court held that the High Court committed an error in quashing the summoning order and complaint proceedings at the pre-trial stage. The impugned order of the High Court was set aside and the complaint was restored for adjudication in accordance with law.
3. Employee designated as manager in front office without supervisory powers or authority over staff is a workman: SC
The Supreme Court, in the matter of Srinibas Goradia vs. Arvind Kumar Sahu [2025] 181 taxmann.com 667 (SC), held that an employee designated as a ‘front office manager’ without supervisory or managerial powers qualifies as a ‘workman’.
Facts of the Case
In the instant case, the appellant was appointed as a cashier in the hotel of the respondent-employer. The employer designated the appellant as a ‘front office manager’. In his identity card, he was shown as an executive. However, the appellant stated that he was actually performing the duties of a receptionist and used to handle the hotel boys. He denied that he was a manager or that he exercised any supervisory powers. He further stated that no employee was working under him and that he had no authority over the staff.
After rendering service for about 12 to 13 years, his salary was suddenly stopped by the employer. Upon seeking information under the Right to Information Act, the appellant received a letter from the respondent-employer stating that his services had already been terminated and that he had been offered one month’s notice pay.
The appellant invoked the jurisdiction of the Labour Court by filing a reference on 20-7-2019. The terms of reference before the Labour Court were whether the termination letter issued to the appellant by the respondent was legal.
The employer filed its written statement before the Labour Court, stating that the dispute did not fall within the scope of an ‘industrial dispute’ and that the appellant was not a ‘workman’ within the meaning of the Act.
The employer also contended that the appellant used to work as a ‘Front Office Executive’ and was entrusted with the work of Receptionist and supervising the room boys, and since his duty was supervisory in nature, he was not a ‘workman’ to be entitled to seek the industrial reference. However, the appellant asserted that he was not a supervisor and had not been assigned any supervisory or administrative duties.
The Labour Court held that the dispute between the parties was in the nature of ‘industrial dispute’ within the meaning of section 2(j) of the Industrial Disputes Act, that the hotel business run by the respondent-management was an ‘industry’ and also that the appellant fell within the definition of ‘workman’ under section 2(s) of the Act.
Further, the Labour Court concluded that the termination of the appellant was in breach of provisions of section 25F of the Industrial Disputes Act, 1947, and accordingly directed the appellant to be reinstated with back wages. The High Court set aside the order of the Labour Court on the ground that the appellant was engaged in supervisory or managerial work and, therefore, could not be treated as a ‘workman’ under section 2(s) of the Act. Thereafter, an appeal was made before the Supreme Court.
While analysing the definition of ‘workman’, the Supreme Court noted that a workman means any person employed in any industry to perform manual, unskilled, skilled, technical, operational, clerical, or supervisory work for hire or reward, whether the terms of employment may be expressed or implied.
The definition of a workman also includes a person who has been dismissed, discharged, or retrenched in connection with or as a consequence of any dispute. However, sub-clause (iii) excludes persons employed mainly in a managerial or administrative capacity. Sub-clause (iv) excludes persons employed in a supervisory capacity who draw wages exceeding a particular monetary limit, or who, by virtue of their duties attached to their job or by reason of powers vested in them, discharge functions mainly of a managerial nature.
The Supreme Court observed that the appellant was not found to be discharging any supervisory or authoritative functions. Instead, he was performing the work of a receptionist and was used to handling hotel boys. Further, the appellant denied that he was a manager or exercised any supervisory powers, stating that no employee was under him and that he was unable to exercise his own authority over staff.
Supreme Court Held
The Supreme Court held that merely because the management named the post of the appellant as a ‘front office manager, it would not ipso facto take him out of the purview of a workman. The appellant was not entrusted with any independent supervisory authority or work, except such duties as were incidental to manual work.
Further, the Supreme Court held that the bald assertion on behalf of the respondent employer that the appellant was a manager and vested with supervisory powers remained unsupported by any cogent material and, therefore, without substantiation. Hence, the appellant fell within the definition of ‘workman’, and accordingly, the termination of his services was liable to be set aside.
4. Money is excluded from the definition of goods, cash can’t be seized unless linked to taxable supply: HC
The High Court held that money stands excluded from the definition of goods, and cash cannot be seized by GST authorities unless it is directly linked to a taxable supply. It was reasoned that mere possession of unexplained cash, without nexus to any identifiable taxable transaction, does not justify seizure under GST law.
Facts of the Case
The assessee was a private limited company. A search and seizure operation was conducted at the assessee’s office and residential premises. The proper officer found cash, which was sealed in the assessee’s premises and kept in the custody of the assessee himself. The assessee was unable to explain the source of such cash and thus, it was considered as unaccounted cash against the clandestine supply of taxable goods and services without any bill or invoice. A writ petition was filed to the Calcutta High Court contending that the GST authorities lack any power to seize any amount of cash. The GST authorities can seize goods or documents or books or things if they have reasons to believe that such goods or documents or books or things shall be useful or relevant to any proceeding under this Act and have been secreted in any place. It was not stated with any degree of conviction that the currency notes that had been seized shall be useful or relevant to any proceeding to be undertaken by GST Authorities against the petitioner or that the same could be correlated or traced to any transaction by the petitioner which respondent GST authorities were required to establish.
High Court Held
The Calcutta High Court held that money stands excluded from the purview of goods. The action of the respondent GST authorities in seizing cash and sealing the same in the custody of the petitioners is beyond the power domain of the GST authorities in the facts of the present case. Accordingly, the GST authorities were directed to forthwith de-seal the said amount so as to enable the petitioners to use the same in accordance with law.
5. GST rate schedules amended for pan masala, tobacco and related products from 01.02.2026: Notification
The Government has issued a notification amending the CGST rate schedules for pan masala, tobacco, and related products with effect from 01-02-2026. It shifts biris to 9% CGST, pan masala and specified tobacco/tobacco substitutes to 20% CGST, and deletes the 14% CGST schedule.
About the Update
The Government has issued a notification amending Notification No. 9/2025–Central Tax (Rate) dated 17-09-2025, whereby the rate schedules applicable to certain tobacco-related goods have been revised. Pursuant to the amendment:
- Biris have been inserted under Schedule II and are now taxable at 9% CGST;
- Pan masala and specified tobacco and tobacco-substitute products, including inhalation products, have been inserted under Schedule III and are taxable at 20% CGST; and
- Schedule VII, which prescribed a 14% CGST rate, has been omitted.
Consequently, the CGST rate of 14% is no longer applicable to the said goods. The revised classifications and tax rates shall apply to all relevant supplies made on or after 01 February 2026.
6. GSTN to block excess ITC re-claim and RCM ITC through system validations in GSTR-3B: Advisory
The GSTN has issued an advisory introducing system validations to restrict excess ITC re-claim and RCM ITC through GSTR-3B. It mandates that GSTR-3B filing will be blocked where ITC reclaimed or RCM ITC exceeds the available ledger balance until excess ITC is reversed or RCM liability is paid. This was stated in GSTN Advisory, Dated 29-12-2025
About the Update
The GSTN has issued an advisory introducing system validations for the ITC Reclaim Ledger and RCM Liability/ITC Statement. It provides FAQs explaining that GSTR-3B filing will be blocked if the ITC being reclaimed or the RCM ITC claimed exceeds the available balance in the respective ledgers.
Taxpayers will be required to reverse any excess ITC or pay the additional RCM liability before filing GSTR-3B. The system validations are intended to ensure that claims in the GSTR-3B return do not exceed ledger balances, and the filing will only be accepted once the excess ITC or liability is adjusted accordingly.
7. Recognition of past service cost under the New Labour Codes: Ind AS 19 and Ind AS 34 perspective
A company reporting under Ind AS, maintains defined benefit gratuity and long-term leave encashment plans that are actuarially valued in accordance with Ind AS 19, Employee Benefits and reported in quarterly interim financial results under Ind AS 34, Interim Financial Reporting. During FY 2025–26, the New Labour Codes became effective from 21st November 2025, bringing a revised definition of wages and expanded employee eligibility for gratuity and leave benefits. Based on legal advice, the Company concluded that these revised provisions are immediately applicable for employees whose last working day falls on or after that date, notwithstanding that detailed Rules are yet to be notified. Accordingly, the actuarial valuation as at 31st December 2025 reflects a significant increase in employee benefit obligations due to inclusion of additional wage components and higher benefit bases.
This increase in obligation does not arise from a change in actuarial assumptions such as discount rates or employee attrition, but from a legislative change that alters the benefit formula and coverage itself. In substance, this represents a modification of the terms of the defined benefit plans and therefore qualifies as a plan amendment under Ind AS 19, giving rise to past service cost. Ind AS 19 requires past service cost to be recognised immediately in the Statement of Profit and Loss in the period in which the plan amendment occurs and specifically prohibits its recognition through other comprehensive income. Further, applying Ind AS 34, interim financial statements must follow the same recognition principles as annual financial statements. Since the revised Labour Code provisions create a present obligation as at 31st December 2025, the resulting increase in gratuity and leave encashment liability exists at the interim reporting date and cannot be deferred merely because the detailed Rules are pending.
Accordingly, the incremental employee benefit obligation arising from the New Labour Codes is required to be recognised in the quarter ended 31st December 2025 as past service cost charged to profit or loss, and deferral of recognition to the annual financial statements for the year ending 31st March 2026 would not be appropriate.
8. Extension of Phase IV peer review mandate: Relief for practice units
To enhance the quality of assurance services, the Peer Review Board of the ICAI mandates Practice Units to undergo Peer Review. Practice Units intending to undertake audits of Public Sector Bank branches, as well as firms with three or more partners rendering attestation services, are required to hold a valid Peer Review Certificate prior to accepting statutory audit assignments. The ICAI Council has now decided to extend the applicability of Phase IV of the Peer Review mandate, which was earlier effective from 1st January 2026 up to 31st December 2026.
The post Weekly Round-up on Tax and Corporate Laws | 28th December 2025 to 03rd January 2026 appeared first on Taxmann Blog.
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