GST - A Nine-Year Journey: From 'One Nation, One Tax' to a Maturing Litigation Landscape

On 1st July 2017, India embarked on its most ambitious indirect tax reform since independence - the Goods and Services Tax (GST). Touted as 'One Nation, One Tax, One Market'. Nine years on, GST has undeniably widened the tax base, improved the ease of doing business, and improved GST collections. But it has also generated an enormous litigation, procedural friction, and interpretational disputes. Past 9 years, both the taxpayers and the government have faced uncertainty over different issues as the matters are on hold due to non-constitution of GST tribunal.

The Beginning: Promise and Teething Trouble (2017-2019)

GST was rolled out with an ambitious technology backbone (GST Network (GSTN)), but the initial years were marked by portal glitches from TRAN forms to GSTR-9/ 9C reconciliation, E-invoice/E-way bill API issues, frequent changes in return formats, an ever-shifting rate structure, and constant amendments through Removal of Difficulty Orders. The anti-profiteering mechanism and the inverted duty structure for several sectors also created early compliance anxiety. Despite these issues, GST collections steadily rose, and the GST Council through its frequent meetings continued to recalibrate rates and procedures, lending the regime a degree of much-needed flexibility, even as it added to the complexity for industry.

Issues Faced by Taxpayers Over the Years

Looking back across nine years, taxpayer grievances have clustered around a few recurring themes -

1. Frequent and retrospective changes in law: Various provisions have been amended frequently considering the practical difficulties in implementation. Amendments include insertion of Section 16(2)(aa)/(ba), Sec 15, Sec 17(5)(d), Rule 36(4), Rule 42 etc. Many retrospective amendments such as insertion of Section 7(aa), and prescribing GSTR-3B as a return etc. Certain amendments though not retrospective but acted retroactive.
2. Classification and rate disputes: Determining the correct HSN classification and applicable rate for products ranging from flavoured milk to solar inverters, parathas versus rotis, and popcorn variants has consumed disproportionate administrative and judicial bandwidth.
3. Place of supply and intermediary issues: Export-oriented service providers, particularly in the IT/ITeS sector, faced repeated disputes over whether their services qualify as 'export of services' or 'intermediary', denying them zero-rating benefits.
4. Frivolous Show Cause Notices and demands invoking extended period at the fake end of limitation: Taxpayers across the country received a flood of SCNs and best-judgment assessments within a short window, often with limited time to respond. More often, notices were issued under Section 74 even in cases of genuine interpretational disputes, a practice increasingly disapproved of by courts.

Various disputes raised by the Department

Departmental audits, scrutiny of returns, and data analytics (matching e-way bills, e-invoices and returns) has given rise to demands broadly falling into these categories

1. Excess/ineligible ITC claims: Credit availed on blocked items under Section 17(5), credit beyond the prescribed time limit under Section 16(4), or credit not reflected in GSTR-2B. Also, issues such as fake invoicing, denial of ITC due to retrospective cancellation of supplier's registration or failure by supplier for filing returns etc.
2. Classification or rate disputes, especially in real estate, works contracts, and composite/mixed supply scenarios.
3. Reverse charge non-compliance, particularly relating to import of services, Royalty payments, director's remuneration, and ocean freight.
4. Interest and penalty demand for delayed filing or short payment, often computed on gross liability rather than net cash liability, a point later corrected through Section 50 amendments.
5. Demands relating to ineligible transitional credit (TRAN-1/2).
6. Mismatch-based demands for outward and ITC mapping with E-way bill registers, TDS returns etc.

Disputes settled by the Courts

Considering the nature of disputes raised by the department, many taxpayers approached High Court and Apex Court. Some landmark decisions include -

1. The Apex Court's ruling in Union of India & Ors. Versus VKC Footsteps India Pvt Ltd. - 2021 (9) TMI 626 - Supreme Court upholding the constitutional validity of the restrictive formula for refund of unutilised ITC on account of inverted duty structure (IDS), denying refund of input services. Also, the Apex court recommended to cure the defect in IDS refund formula.
2. The Bharti Airtel case before the Apex Court, which reversed a Delhi High Court ruling and held that taxpayers could not rectify GSTR-3B retrospectively reaffirming that GST compliance must follow the prescribed procedural architecture.
3. Multiple High Courts granting relief on TRAN-1 technical glitches, directing the department to either reopen the portal or accept manual claims, culminating in the Apex Court's directions in Filco Trade Centre permitting a fresh window for all aggrieved taxpayers nationally.
4. A consistent line of High Court decisions holding that ITC cannot be denied to a bona fide recipient merely because the supplier failed to deposit tax, provided the recipient has genuine invoices, payment proof and goods/services receipt.
5. Courts repeatedly quashing SCNs and orders issued without proper application of mind, in violation of principles of natural justice, or where the extended limitation period under Section 74 was invoked mechanically without establishing fraud or suppression.
6. Continuing litigation on the levy of GST on corporate guarantees, secondment of employees (intra-group deputation), and intermediary services, with the Apex Courts decision in Northern Operating Systems on secondment continuing to influence department action even though its facts pre-dated GST.
7. Online gaming and casino taxation at 28% on full face value, with retrospective demands running into thousands of crores, as held by the Hon'ble Apex Court recently.

Disputes Yet to Begin or Still Unfolding

Even as the above threads near resolution, several issues are only beginning to surface or remain unresolved -

1. Validity of Cross-empowerment and Parallel proceedings
2. Real estate and joint development agreement (JDA) taxation, including valuation of development rights and applicability of GST on transfer of development rights.
3. Corporate guarantee valuation disputes following Rule 28(2) and subsequent clarificatory circulars, where many companies have already received fresh notices.
4. Post-sale discounts, dealer incentive schemes, and credit notes continuing to attract demands for alleged short reversal of ITC by recipients.
5. Cross-charge and ISD (Input Service Distributor) disputes between head offices and branch offices, an area expected to see a fresh wave of litigation following the mandatory ISD mechanism effective April 2025.
6. Disputes likely to emerge from GSTAT's own interpretation of issues that High Courts had ruled upon differently across states, as the Tribunal works toward a uniform national position.

GSTAT: The long-awaited second appellate forum

The delay in constitution of the GSTAT owing to litigation over the composition of the selection committee, qualification criteria for members, etc left no remedy for over four lakh orders of the First Appellate Authority. Many taxpayers are forced to either pay up disputed demands or approach High Courts under writ jurisdiction which is an expensive and time-consuming route.

The GST Appellate Tribunal (Procedure) Rules, 2025 were notified in April 2025, the Tribunal was formally launched by the Union Finance Minister in September 2025, and the e-filing portal at efiling.gstat.gov.in went live shortly thereafter. The Principal Bench at New Delhi and several State Benches have become operational. Recognising the scale of the backlog, the government provided a one-time extended window up to 31st July 2026 (for all order passed up to 01st May 2026).

Its operationalisation is expected to substantially reduce the burden on High Courts, bring consistency to GST jurisprudence across states, and finally complete the three-tier dispute resolution architecture envisaged in 2017.

The Way Forward for Taxpayers and Professionals

As GST enters its tenth year, the focus is visibly shifting from 'law-making' to 'law-settling.' For taxpayers and professionals, this calls for a recalibrated approach-

1. Litigation triage: With the backlog filing window closing soon, taxpayers must urgently review all pending first-appellate orders, compute pre-deposit liability, and decide which matters merit a GSTAT appeal versus settlement, given the cost-benefit of prolonged litigation.
2. Documentation discipline: As GSTAT functions as the final fact-finding authority, taxpayers cannot introduce fresh evidence before the High Court later making contemporaneous documentation and a robust factual record at the adjudication and first-appeal stage critical.
3. Proactive reconciliation: Routine ITC and turnover reconciliations should become a standing compliance practice rather than a year-end exercise, to pre-empt mismatch-based notices.
4. Tracking emerging issues: Professionals should closely monitor developing areas ISD, cross-charge, E-commerce and digital transactions and classification disputes where the next wave of litigation is expected and advise clients to structure transactions and maintain records accordingly.
5. Leveraging amnesty and settlement avenues: The taxpayers should evaluate amnesty schemes provided under Section 128A (available for department appeals and redetermined matters from Section 74) to close out legacy disputes rather than carry them indefinitely.
6. Engaging with GSTAT constructively: As a new institution, GSTAT will take time to develop settled procedures and jurisprudence. Professionals have an opportunity and responsibility to help shape consistent, principled outcomes through well-argued, well-documented appeals rather than treating it merely as another procedural hurdle.

GST's nine-year journey reflects the classic arc of a transformative reform, early disruption, gradual stabilisation, and a maturing dispute resolution ecosystem. The operationalisation of GSTAT marks the completion of a structure that was always part of the original design but took the better part of a decade to materialise. For taxpayers and professionals, the next phase will be less about adapting to a new tax and more about navigating a settling body of law one where discipline in compliance, documentation and timely litigation strategy will determine outcomes as much as the merits of the underlying dispute itself.

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CA Lakshman Kumar K

CA Asha Latha T