Applicability of the law of inverse proportion to GST.

It appears that there are no stipulations as on date on the minimum required number of GST Council meeting within one financial year. If that is so, let us make a policy that there should be a minimum of two such meetings every financial year with a further stipulation that the gap between two successive meetings should not exceed 183 days. Consequent to the 56th GST Council meeting that took place on 03/09/2025, nine full months have already crossed without seeing the 57th council meeting. However, media reports suggest that the next meeting is under active consideration and may take place during August 2026, if not earlier. This information prompts me to suggest two proposals to the GST Council to consider in 57th or 58th meeting which may help improving the GST collections by a minimum of 15% and shall reduce the workload as well as litigation by a minimum of 10% while the collections on GST shall definitely improve further from current levels to much higher levels as well.

In a majority of cases, the ASMT 10 or DRC 01 etc. are issued based on GSTR 1, GSTR 2 as well as GSTR 3 differences claiming that during initial periods of GST, availment of credit in GSTR 3B is higher than available ITC in GSTR 2 and when the taxpayer fails to reply due to unnoticing of the same as it is only uploaded in GST Portal and that too under addition notices column, it becomes easy to the GST Officer to confirm 100 % of demand as per SCN in OIO as no reply has been filed. This issue has to addressed immediately, as during initial 9 years ending on 30/09/2026, we accepted this scenario whereas as GST enters the 10th year of operation on 01/07/2026, there should a suitable mechanism to avoid such cases in future.

The second major demand is on account of ineligibility of ITC under section 17 (5). Data is simply picked on expenses on Travel, insurance, construction materials etc. and the DRC 01 straight away conclude that all such ITC are fully not eligible. Insurance on other than motor vehicles, Travel which is a must for that nature of business, amount spent on repairs and maintenance of building which are not capitalized in the books of accounts are all fully eligible. The tax officer issues notices and the tax professional or taxpayer files replies and at the end of the game, only a small proportion is confirmed, even though the same may also be challengeable.

Under the above circumstances, on careful thought, it is suggested that the following two reforms, if implemented with immediate effect through either 57th or 58th GST Council meeting before 01/04/2027, the GST Collections shall definitely improve further. The first suggestion would be to increase the basic exemption limit of services at 20,00,000 and goods at 40,00,000 to any amount as the GST Council may deem fit based on accurate data available with them. It is a simple phenomenon that a major tax collection comes from minor group and a major taxpayer group say consisting of lowest turnover cases of around 25% may pay only 5% or even less than that of the gross GST collections. If this issue is properly addressed, it shall be a win -win situation for both Government as well as the taxpayer. The quantum of the new exemption limit for GST registration may be decided by the GST Council or the Government. I strongly advocate this proposition at the cost of repetition as I come across cases with demand amount of 50,000 to one lakh rupees in so many cases whereas the GST officials are not in a position focus on issues like online games etc. where there exists a huge potential to improve such tax collections.

I reproduce a small portion from my earlier article to spread this message.

This is the information available now in the public domain which speaks on the quality of the adjudication orders. Though this information pertains to Telangana State, no state is an exception as all GST officials all over India behave in a similar manner. The following table shows the time taken for passing one OIO.

in the matter of M/s. Divya Textile Industries Versus The Assistant Commissioner, Vanasthalipuram-I Circle, Telangana - 2026 (6) TMI 634 - TELANGANA HIGH COURT  refers to the above data. In case one show cause notice is adjudicated in 15 minutes, the GST Council may verify the quality of such adjudication process. To put it differently, GST officials are hunting fishes that weigh less than one kg and happy that they are able to hunt say 50 KG to 100 KG at small ponds whereas fishes are available at 100 KG, 200 KG etc. at oceans and hardly a small fraction of such fishes are caught in such hunting leaving a major portion, despite the huge potential to hunt such fishes.

The second request to abolish Section 17(5). Out of all the sub sections under Section 17, other sub sections other than sub section 5 are well framed and accepted by taxpayer as well as tax officials and there are not much disputes. But when Section 17 (5) is seen, a reference on ineligible ITC is invariably there in at least 20% of the total cases under litigation as on date and upon proper submissions on facts and proof on eligibility, the demands are waived in favor of the taxpayers. This is a futile exercise which consumes huge time, energy, efficiency at both ends with insignificant collection of GST/ denial of ITC. In case it is not possible to abolish 17 (5) in one go, it is suggested that the clauses in 17 (5) may be deleted in phases by starting with any one clause in the next GST Council meeting itself.

The law of inverse proportion shall really work and any reduction on number of taxpayers or any removal of denial of ITC shall definitely result in overall GST collections as time spent on infructuous activities are available for productive jobs.