FUTURE OF INDIRECT TAX LITIGATION IN INDIA – IT’S ALL SET TO GROW !!!


Introduction of Goods and Services Tax


Till 2017, India had a complex Indirect Taxation system with plethora of taxes like Excise Duty, Service Tax, VAT etc. The multiplicity of taxes led to the cascading effect impacting the cost of goods & services, tedious compliances, and protracted disputes, the burden of which fell on the Common man. This gave rise to evolution of GST – a uniform tax subsuming all Indirect Taxes.


All stakeholders welcomed GST with multifold expectations. Taxpayers expected simplified law and free flow of credits, common man expected overall reduction in price of goods and services, lastly, the Government expected buoyancy in revenue collections. Overall, everyone expected a better experience than previous regime.


Implementation of GST


The onset of GST witnessed the Government adopting a pro-active and expeditious approach in addressing challenges faced by taxpayers. The GST Council (the Constitutional Body to implement & oversee GST) convened series of meetings and the Government also issued plenteous Notifications & Clarifications to address several issues and concerns raised by the Taxpayers.


Transitional credit – the Saga continues


The introduction of GST also witnessed the Government allowing transition of pre-GST credits earned by Taxpayers into new regime. This step was well appreciated by Taxpayers. However, this joy was short lived as law contained multiple restrictions like eligibility of certain credits for transition etc. which led to complete chaos and set-back for Taxpayers. This got further worsened by Government’s IT Portal (GST Portal) which was non-functional and marred with never-ending technical glitches. All cumulative led to complete failure of transition of pre-GST credits and paved way for first set of litigations in GST regime. Soon thereafter, the issues multiplied and the Courts across the country, were flooded with cases relating to transitional credit on account of technical glitches on GST Portal. That apart, there were multiple challenges to constitutional validity of restrictions in transitional credit provisions. The magnitude of these disputes was so huge that the disputes are arising till date and are expected to take many more years to settle.


Anti-profiteering – Entangled law


With implementation of GST, the Government took bold decision to significantly reduce effective rate of tax on large number of products with a hope that it would reduce cost of such products in hands of Common man. To ensure that Taxpayers pass on benefit of reduced tax rates to end consumer, the Government introduced anti-profiteering provisions and set up National Anti-Profiteering Authority (‘NAA’). Despite significant international experience on such set of regulations, implementation of these provisions in India faced significant challenges due to lack of clear guidelines on computation of incidence of reduction in taxes compounded by ambiguous provisions. Consequently, even the validity of anti-profiteering regulations was challenged before the Courts in multiple cases. In nutshell, NAA was an unsuccessful venture which got entangled amidst the law.

4 years - 1400 advance rulings, 200 anti-profiteering rulings, 1100 High Court judgements & 50 Supreme Court judgments and these are multiplying!!!


To address need for providing timely clarity to Taxpayers, the Authority for Advance Ruling (AAR) was set up across India. Unlike earlier laws, GST law allowed Taxpayers to seek ruling even on existing transactions and not just proposed ones. This concept was welcomed by Taxpayers since if well-implemented, it could have eliminated scope of future disputes. However, this delight of Taxpayers was short-lived primarily due to constitution of the AAR comprising of only Tax Officers without any Judicial Member which led to pro-revenue approach. The AARs also took contrary views on same issue in different States and refrained from addressing many issues on grounds of being beyond their jurisdiction. Surprisingly, this led to the authority which was constituted to curb litigation, became hub of one.


Further, the poor draftsmanship of GST law has also led to manifold interpretational issues ranging from issues relating to taxability, applicable rate of tax on goods and services, availability of Input Tax Credit to procedural aspects. Due to this, soon after introduction of GST, the High Courts started dealing with challenge to constitutional validity of several provisions under GST law like GST on intermediary service, GST on Ocean Freight on reverse charge basis, validity of bar on claiming ITC on construction services etc. This was further coupled with numerous litigations relating to detention of goods due to procedural infractions in Electronic-Way (‘E-way bill’) bill system etc. Even several refund related litigations are pending at Appellate Authority level due to absence of robust IT system for submission & disbursal of refund claims, all of which in all likelihood will be settled at high forums only. This brings to one of the biggest misses under GST law - the constitution of Goods and Services Tax Appellate Tribunal (‘GSTAT’)


Basis pre-GST laws experience, disputes relating to interpretation of legal provisions rarely get resolved at Adjudication or Appellate Authority stage and most of them are resolved at Appellate Tribunal level or higher forum. Therefore, constitution and effective working of an Appellate Tribunal cannot be emphasized enough for smooth implementation of GST law. One of the important yet vexed issues under GST law is the constitution of GSTAT which has been challenged on multiple grounds like appointment of advocates and members of Indian legal services as judicial or technical members; absence of judicial member, location of GSTAT in a State etc. With the Madras High Court rendering constitution of GSTAT as invalid, even this issue seems to have drifted into oblivion with no clarity coming from Government on its constitution and Taxpayers waiting for resolution of issues piling up due to its non-constitution.


To add to taxpayers’ agony, the authorities have resorted to coercive measures like cancellation of registration, attachment of bank account, freezing of Electronic Credit Ledger, arrest etc. in an indiscriminate manner. These measures which were supposed to be adopted in exceptional circumstances and limited situations as provided by the Legislature, have become handy tool for authorities to harass genuine Taxpayers. Resultantly, in less than 4 years, these issues have reached to the Supreme Court which has intervened and laid down guidelines for their limited recourse by the authorities!


Disputes under GST – all set to grow!!!


To sum up, GST was introduced by the Government with great fanfare and commitment to provide simplified law & foster ‘ease of doing business’. However, callously drafted legislation, poorly implemented IT system, lack of proper redressal mechanism and lopsided approach of the authorities, has defeated all such noble intentions. Unfortunately, just like erstwhile laws, GST law too has caused and likely to cause many litigations across various forums across the country. For this reason, it is not Good and Simple Tax as was expected to be on its inception. Given all, there is a dire need for Government to work on above areas and until then, disputes under GST are all set to grow!!!

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