GST Litigation and Dispute Resolution

Typical matters that lead to GST litigation are summarised below:

• Mismatch between outward supplies and reported liability (GSTR-1 vs GSTR-3B; ITC reflection in GSTR-2A/2B).
• Denial or reversal of input tax credit due to alleged ineligibility, mismatch, time-bar, supplier default, or blocked credit.
• Classification dispute affecting rate, exemption, or reverse charge.
• Valuation dispute: related party transaction, additional consideration, discounts, reimbursable expenses.
• Place of supply and inter-State vs intra-State characterization; zero-rated supplies and export refund issues.
• E-way bill non-compliance; detention and confiscation of goods in transit.
• Allegations of fake invoicing, circular trading, or fraudulent availment of ITC.
• Refund rejections or delayed sanction, including inverted duty structure and export IGST refunds.

Regulatory triggers and pre-adjudication stages

• Scrutiny of returns (Section 61): communication generally through ASMT-10; response by ASMT-11; closure by ASMT-12.
• Audit by tax authorities (Section 65): initiation via ADT-01; findings via ADT-02; reply addressing working papers and reconciliations.
• Special audit (Section 66): nomination of a chartered accountant/cost accountant; binding timelines; taxpayer representation on scope.
• Inspection, search and seizure (Section 67): panchnama, seizure memos, electronic device imaging; ensure inventory of seized records; request copies.
• Pre-notice intimation (DRC-01A): opportunity to make submissions or voluntary payment (DRC-03) before issuance of SCN.

Show cause notice and adjudication

• Legal basis: Section 73 (non-fraud cases) and Section 74 (fraud, wilful misstatement, suppression).
• SCN format: summary in DRC-01; detailed SCN must state facts, legal provisions, evidence, computation, and proposed penalty.
• Reply: file a reasoned reply with chronology, statutory provisions, case law, reconciliations, and documentary exhibits; use DRC-06 for online reply where applicable.
• Personal hearing: Section 75 mandates opportunity of hearing; request additional hearing where new material is relied upon; seek cross-examination when statements are used as evidence.
• Limitation and timelines: limitation is prescribed under Sections 73 and 74; verify whether the SCN and order are within limitation; seek benefit of Section 75(1)/(2) on time computation where proceedings are stayed or records are unavailable for reasons attributable to the department.
• Orders: reasoned order must deal with each contention; absence of reasons, reliance on materials not supplied, or violation of natural justice is a ground for challenge.

Demand, recovery, and protective measures

• Recovery (Section 79): modes include deduction, attachment, distraint, and sale; seek stay upon filing appeal with statutory pre-deposit.
• Provisional attachment (Section 83): challenge attachment that is disproportionate, unsupported by material, or continued beyond the permitted period.
• Interest and penalty: verify statutory trigger, computation period, and whether mens rea is invoked correctly under Section 74; consider voluntary payment effects under Section 73(8)/74(8).

Detention and confiscation of goods (e-way bill)

• Detention (Section 129): grounds include documentation and e-way bill deficiencies; release upon payment of tax and penalty as prescribed; challenge mechanical detention or extended retention without notice.
• Confiscation (Section 130): requires separate proceedings and reasons; contest when invocation is disproportionate to the breach.

Appeals: forums, forms, and pre-deposits

• First appeal (Section 107): file APL-01 within the statutory limitation; pre-deposit of admitted dues and the prescribed percentage of disputed tax; seek condonation within the permissible extension.
• Appellate Tribunal (Section 112): file in the prescribed form (e.g., APL-05) when the GST Appellate Tribunal is constituted and operational; additional pre-deposit as provided by statute.
• Further appeals: High Court on substantial questions of law (Section 117); Supreme Court (Section 118).
• Stay of demand: filing a valid appeal with pre-deposit ordinarily stays recovery for the balance; seek interim protection for coercive steps taken despite stay.
• Revision (Section 108): consider revisional jurisdiction where applicable.

Writ jurisdiction and extraordinary remedies

• High Court jurisdiction under Article 226 can be invoked for: lack of jurisdiction, breach of natural justice, patently time-barred SCN or order, attachment without material, and where alternate remedy is not efficacious (e.g., absence of Tribunal).
• Interim relief: challenge coercive recovery pending appeal, arbitrary attachment of bank accounts, or repeated summons without rationale.

Evidence, documentation, and forensic aspects

• Maintain and produce primary records: tax invoices, e-way bills, delivery challans, books of account, contracts, purchase orders, goods receipt notes, bank statements, and reconciliations.
• Electronic evidence: ensure hash values and metadata where digital records are relied upon; request mirror images for seized devices.
• Statements under Section 70: seek cross-examination if relied upon; retract promptly if involuntary.
• Third-party vendor validation: obtain supplier confirmations, MCA master data, GST registration status, and payment trails for ITC defense.

Substantive themes commonly arising in GST adjudication

• Input tax credit denial: test against Sections 16, 17, 18, Rule 36, and jurisprudence on bona fide recipient, possession of invoice, receipt of goods, tax actually paid to government, and GSTR-2B mechanics.
• Classification: interpret HSN and chapter notes; apply Rules for Interpretation; consider AAR/AAAR though not binding on non-parties; rely on trade parlance and functional characteristics.
• Valuation: include additional consideration, related party pricing (Rule 28), pure agent exclusion, discount treatment, and post-supply price revisions.
• Place of supply: analyze Sections 10–13 of the IGST Act; recurring issues include intermediary services and export of services.
• Zero-rated supplies and refunds: documentation for LUT/bond, shipping bills, realization of proceeds, and correlation with GSTR-1/3B; address deficiency memos and unjust enrichment.
• Offences and prosecution (Section 132): interaction between adjudication and criminal complaints; bail and compounding (Section 138); standards for arrest per judicial guidance.

Procedure checklists

A. Reply to SCN (DRC-06)

• Capture jurisdictional facts and limitation.
• Admit, deny, or clarify alleged facts with supporting documents.
• Address each ground: classification, valuation, ITC, place of supply.
• Cite statutory provisions and binding precedents.
• Request cross-examination and inspection of relied-upon material.
• Seek personal hearing and reasoned order.

B. Appeal memorandum (APL-01/APL-05)

• Statement of facts and questions of law.
• Grounds in numbered paragraphs: jurisdictional error, limitation, violation of natural justice, incorrect application of law, computational errors.
• Relief sought: setting aside order, remand, or modification; stay of recovery; release from attachment.
• Annexures: SCN, reply, order-in-original, evidence bundle, proof of pre-deposit, and limitation computation.

Timelines and limitation

• Verify the date of communication of the order for computing limitation.
• Track statutory extensions and exclusions notified during force majeure periods.
• For detention/confiscation, monitor statutory limits for issuance of notice and passing of order; prolonged detention without notice can be challenged.

Costs, interest, and penalty calibration

• Distinguish interest liability (automatic but subject to correct base) from penalty (dependent on mens rea in Section 74 matters).
• Seek waiver or reduction where statute or circular permits; ensure arithmetical accuracy and correct tax head (CGST/SGST/IGST).

Natural justice and procedural safeguards

• Supply of relied-upon documents and opportunity to rebut are mandatory.
• Personal hearing under Section 75(4) is integral; additional hearing required if new grounds are introduced.
• Reasoned order is essential; non-speaking orders are vulnerable.

Use of advance ruling in dispute resolution

• AAR/AAAR can pre-empt disputes on proposed supplies; note limited binding effect and potential revenue appeal.
• Consider ruling strategy for recurring classification or place of supply issues.

Digital forms and utilities

• DRC-01 (summary of SCN), DRC-01A (pre-SCN intimation), DRC-03 (voluntary payment), DRC-06 (reply), DRC-07 (summary of order), DRC-13 (bank attachment).
• APL-01 (first appeal), APL-02 (acknowledgment), APL-05 (appeal to Tribunal), APL-07 (application for stay/condonation, as notified).
• Keep screenshots and acknowledgments of all portal filings

Risk management and preventive controls

• Periodic reconciliation of GSTR-1/3B and 2B; vendor compliance tracking.
• Documented SOPs for e-way bill generation and transit checks.
• Contract clauses on tax, indemnity, and documentation retention.
• Training for staff handling invoices, logistics, and portal filings.

Indicative citations and themes from jurisprudence

• Jurisdiction and authorization must be established for valid SCN and search.
• Substantial benefit should not be denied for minor procedural defects where tax is paid and no revenue loss occurs.
• Cross-examination is necessary when statements are the primary evidence.
• High Courts have interfered where limitation is ignored, attachments are disproportionate, or personal hearings are denied.

Practical notes on GST appeals and stays

• File appeal within limitation with complete annexures to avoid defects.
• Calculate pre-deposit as per current notification; preserve right to refund of pre-deposit with interest on success.
• Seek protection against coercive recovery pending appeal; point to the statutory stay operating upon pre-deposit.

Data privacy and confidentiality in proceedings

• Mark sensitive documents as confidential; request in-camera inspection where justified.
• Ensure compliance with summons while asserting rights against fishing inquiries.

GST litigation and GST dispute resolution require attention to statutory text, procedural discipline, documentation, and targeted use of appellate and writ remedies. A structured approach to adjudication, GST appeals, and interim protection often determines outcome. Maintaining reconciled records and contemporaneous evidence reduces exposure and supports defense across forums.

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