Volume of litigation under GST regime to grow in a big way: Experts

Last month, the power of GST officers to arrest tax evaders hogged headlines and courts’ time. Following conflicting orders from various high courts, the apex court stepped in. A three-judge Supreme Court Bench is now looking at the constitutionality of such arrest powers in course of an investigation.

Similarly, conflicting views of advance ruling authorities have sent tax experts and businesses into a tizzy. Anti-profiteering disputes are being litigated at various fora by multiple taxpayers.

Tax experts say GST-related litigation,  so far, has mostly been confined to writ petitions filed before various high courts. “The ‘mainstream litigation’ under GST is set to grow,” says Sudipta Bhattacharjee, partner, Advaita Legal. Experts expect the volume of litigation to grow in a big way through show cause notices, statutory appeals, reviews.

Input tax credit has been the biggest cause of litigation in the GST regime. The key issues under litigation are the denial of refund claims of input tax credit, carrying forward of transitional credits from the erstwhile indirect tax regime, the eligibility of input tax credit on various goods/ services, and the eligibility to claim credit of taxes paid in the pre-GST regime. Anti-profiteering-related disputes are keeping multiple taxpayers busy.

What added to taxpayers’ woes are conflicting rulings from various state-specific advance ruling authorities. “There is an urgent need for having a centralised appellate mechanism to resolve such disputes,” says N Mathivanan, principal partner, Laksmikumaran & Sridharan. Experts add unless such machinery is provided, taxpayers are likely to escalate the matter in high courts and subsequently in the Supreme Court, leading to prolonged litigation.

“A centralised advance ruling authority with four benches (in north, south, east and west) will go a long way in curbing litigation,” says Bhattacharjee.

Orders passed by the National Anti-Profiteering Authority have been the subject matter of litigation. They have been challenged before high courts on the ground that the mechanism adopted by the NAA for computing anti-profiteering is arbitrary, points out Rashmi Deshpande, partner, Khaitan & Co.

The constitutional validity of certain anti-profiteering provisions has been challenged on the ground that they fail to prescribe a procedure to determine the commensurate reduction in prices.

Of late, there have been multiple instances of tax commissioners arbitrarily and, at times, unlawfully detaining assesses and making arrests without properly complying with provisions of the Code of Criminal Procedure, allege legal experts.

The Income Tax Act, 1961, did not give officers any power to arrest. But the Central GST Act gives such powers to officers. What has come under criticism is that arrests have been made even when investigations against evasion are underway. High courts have given conflicting views on granting of pre-arrest bail to the accused tax evaders.

Last month, the Supreme Court constituted a three-judge Bench lay down the guidelines for commencing arrest proceedings under GST. Experts say the government needs to seriously look into such conduct as it violates personal freedom and liberty of individual assesses.

“More clarity is required pertaining to the constitutionality of GST arrest proceedings,” says Deshpande.

Many feel the GST Council should take a relatively proactive view on curbing litigation. A way forward could be for the Council to actively keep track of all writ petitions which are filed across the country. Experts say steps could be taken to resolve them and get these petitions withdrawn. It will help save precious time of various high courts.


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