Defending a Favourable Order Before GSTAT - Counter, Written Submissions and Cross-Objection

When the Department Appeals - The Taxpayer Must Shift from Success to Defence

The Goods and Services Tax Appellate Tribunal has ushered in an important new stage in GST litigation. Normally, discussion about GSTAT focuses on a taxpayer filing an appeal against an adverse order. But the position can also be reversed. A taxpayer may have already succeeded before the Appellate Authority, only to find that the Department has challenged that favourable order before GSTAT.

In such a situation, the Department becomes the Appellant, while the taxpayer appears before GSTAT as the Respondent. The taxpayer's role therefore changes. Instead of challenging the order, it must now defend the relief already granted. This raises several practical questions: Should a formal Counter/Reply be filed? Should detailed Written Submissions be filed along with it or at the hearing stage? Is an affidavit necessary? And if some part of the Order-in-Appeal is itself adverse to the taxpayer, should a Cross-Objection or other appropriate remedy also be considered?

A favourable Order-in-Appeal, therefore, does not necessarily bring the dispute to an end. Once the Department challenges that order before GSTAT, the taxpayer must be prepared to defend its favourable findings on both facts and law. A timely and properly structured response is important so that the grounds raised by the Department are specifically addressed and the basis on which relief was originally granted is effectively placed before the Tribunal.

Rule 36 Provides the Framework for the Respondent's Reply

The starting point is Rule 36 of the GSTAT (Procedure) Rules, 2025. The Rule specifically addresses a Respondent's filing of a Reply and supporting documents.

Under Rule 36(1), each Respondent may file a Reply to the petition or application, together with supporting documents, within one month of receipt. A copy of the Reply and supporting documents must also be served upon the applicant. Thus, the procedural Rule 36(1)recognises the Respondent's right to formally answer the case brought before the Tribunal.

Rule 36(2) carries the process further. Upon receipt of the Respondent's Reply, the applicant is required to admit, deny or rebut the facts stated by the Respondent and may state such additional facts as may be necessary for the case. The scheme therefore contemplates an orderly exchange of pleadings rather than leaving the Respondent's defence entirely to oral arguments at the final hearing.

"May File" Does Not Mean That Filing a Reply Is Unimportant

An important feature of Rule 36 is its use of the expression "may file". Strictly speaking, therefore, the provision does not appear to make filing a Reply mandatory in every case. That, however, should not ordinarily be understood as a reason for a taxpayer to remain silent when the Department has challenged a favourable order.

An important distinction exists between what is procedurally compulsory and what is professionally prudent. A departmental appeal may challenge factual findings, the interpretation of statutory provisions, the applicability of notifications or circulars, findings on limitation, eligibility for ITC, valuation, classification, or penalty. If these grounds are left unanswered in the pleadings, the taxpayer may unnecessarily enter the final hearing without a properly structured defence already forming part of the Tribunal's record.

Therefore, where the Department has filed an appeal against an order favourable to the taxpayer, the safer and more effective course would ordinarily be to file a formal Counter/Reply within 1 month of receipt of a copy of the appeal filed by the Departmentunder Rule 36.

The Department's Appeal Must Be Obtained and Studied First

A Counter should not be prepared merely by looking at the favourable Order-in-Appeal. The first essential step is to obtain the complete departmental appeal, including all grounds of appeal and supporting documents. The Respondent must know precisely which findings of the appellate authority are under challenge.

The Counter should then address the Department's grounds point by point. Where appropriate, it may also include preliminary objections and explain why the impugned order is legally and factually sustainable. Relevant documents relied upon by the Respondent may accompany the Reply.

This ground-wise approach is preferable to a general statement that "the Order-in-Appeal is correct and deserves to be upheld" . An effective Counter should demonstrate why each material ground raised by the Department is factually incorrect, legally untenable, or already properly dealt with in the impugned order.

A Practical Illustration - How a Ground-Wise Reply Works

Consider a simple example. The adjudicating authority denies Aayra Ltd. ITC of Rs. 25 lakh. On appeal, the Appellate Authority allows the credit after examining invoices, e-way bills, payment records and other evidence. The Department then appeals to GSTAT on three grounds: first, that the suppliers were subsequently found non-existent; second, that the Appellate Authority wrongly placed the burden of proof on the Department; and third, that the documents produced by Aayra Ltd. were insufficient.

The Counter should preferably address these three grounds separately. Against the first ground, the taxpayer may explain the factual position regarding the suppliers and the relevant period. On the second ground, it may address the statutory burden of proof and explain how it was discharged. On the third ground, it may identify the documentary evidence the Appellate Authority has already examined.

The purpose is not merely to repeat the favourable order. It is to defend the order's reasoning against the specific attack made by the Department.

The One-Month Period Should Be Carefully Monitored

Rule 36 provides a one-month period from the date of receipt to file the Reply. The date of receipt of the appeal or notice is therefore of practical importance and should be recorded immediately.

This also explains why the taxpayer should not wait until the matter is listed for final hearing before considering its defence. The Counter belongs to the pleading stage. Written arguments may come later. The two should not be confused.

As a matter of prudent litigation management, receipt of a departmental appeal should immediately trigger three steps: ascertain the date of receipt, obtain the complete appeal papers, and identify the last date for filing the Reply.

Counter/Reply and Written Submissions Perform Different Functions

A common practical question is whether to file detailed Written Submissions with the Counter. The better view is that the Counter/Reply and Written Submissions are distinct documents serving different purposes.

The Counter is the Respondent's formal answer to the Department's appeal. It places the Respondent's factual and legal position on record and addresses the grounds on which the Department seeks to overturn the favourable order. Written Submissions, by contrast, are primarily hearing-oriented. They generally bring together the principal propositions of law, statutory provisions, notifications, circulars and judicial precedents on which the Respondent intends to rely at the hearing.

Rule 36 does not appear to require detailed Written Submissions to accompany the Counter. Ordinarily, therefore, a proper Counter should first be filed within the prescribed period, while concise Written Submissions may be filed separately at or before the final hearing, or whenever permitted or directed by the Bench.

The Counter Should Plead the Case; Written Submissions Should Argue It

The distinction is simple: the Counter tells the Tribunal what the Respondent's case is; the Written Submissions explain why that case should succeed.

Suppose the Department alleges that an exemption notification has been wrongly interpreted by the Appellate Authority. The Counter may deny that ground, set out the relevant facts, reproduce or refer to the relevant entry in the notification, and explain why the Appellate Authority's interpretation should be sustained.

At the hearing stage, the Written Submissions may sharpen that defence by setting out the precise statutory proposition, referring to subsequent amendments or clarifications, arranging the relevant judicial precedents in a logical sequence, and identifying the paragraphs of the impugned order that correctly apply the law. The Written Submissions need not reproduce the entire Counter.

Should Every Counter Be Accompanied by an Affidavit?

Another question frequently encountered in practice is whether a Counter/Reply filed before GSTAT must necessarily be supported by an affidavit.

Rule 36 does not expressly require a separate affidavit to accompany every Counter/Reply. Therefore, merely because the taxpayer is filing a Reply as Respondent, an affidavit should not ordinarily be regarded as mandatory. This is distinguishable from situations under the GSTAT (Procedure) Rules, where an affidavit may be specifically required for a particular type of application.

An affidavit may nevertheless be appropriate where the Respondent seeks to introduce additional factual evidence requiring affirmation, or where a specific practice direction or the Bench/Registry requires one. The correct approach is therefore not that an affidavit can never accompany a Counter, but that it should not automatically be treated as an indispensable accompaniment to every Reply under Rule 36.

Practical Illustration - When an Affidavit May Become Relevant

Suppose Harpreet Ltd. is defending a departmental appeal concerning classification. All relevant facts and documents already form part of the adjudication and first appellate record. Its Counter merely addresses the Department's legal grounds and relies on the existing record. In such circumstances, there may ordinarily be little reason for a separate affidavit merely to repeat matters already on record.

The position may differ if Harpreet Ltd. seeks to place before GSTAT an additional factual document, accompanied by an explanation of circumstances not in the existing record. Depending on the nature of that material and the applicable procedure, factual affirmation through an affidavit may become relevant.

Thus, the need for an affidavit should be determined by the nature of the material being placed before the Tribunal, rather than by an assumption that every Counter must necessarily be verified through a separate affidavit.

A Favourable Order Does Not Mean Every Part of the Order Is Favourable

Another important aspect to examine immediately upon receipt of the Department's appeal is whether the Order-in-Appeal is fully favourable. An Order-in-Appeal may be substantially favourable to the taxpayer yet contain a finding or part of the decision adverse to it.

For example, suppose the original demand against Anish Ltd. is Rs. 1 crore. The Appellate Authority deletes Rs. 80 lakh but sustains Rs. 20 lakh. The Department appeals against the deletion of Rs. 80 lakh. Anish Ltd. must defend the Rs. 80 lakh relief in its Counter. But the company must separately consider whether it also wishes to challenge the Rs. 20 lakh portion sustained against it.

That issue should not be confused with filing the Counter. The necessity and maintainability of an appropriate Cross-Objection or other statutory remedy, as applicable, should be examined independently. The Counter is principally defensive; challenging an adverse part of the impugned order involves a different procedural objective. A Cross-Objection is needed when any part of the impugned order is adverse to the taxpayer. For instance, in the above example, a cross-objection may be filed against the Rs. 20 lakh demand, which is against the taxpayer.

Keep the Counter Focused and Ground-Wise

A Counter should briefly set out the relevant facts and, wherever applicable, the preliminary objections, and thereafter answer the Department's grounds point-wise, with reference to the supporting documents and relevant legal provisions. Detailed arguments and extensive case law may ordinarily be reserved for Written Submissions. The Counter should conclude with a clear prayer for dismissal of the Department's appeal and for affirmation of the favourable part of the impugned order.

Do Not Turn the Counter into Final Written Arguments

A Counter should be complete yet focused, addressing the grounds raised by the Department and placing the Respondent's defence on record. Lengthy legal arguments, extensive case law and reproduction of statutory provisions may ordinarily be avoided and reserved for Written Submissions at the hearing stage, when the principal issues requiring detailed consideration are clearer.

The Defence Should Build on the Favourable Order

Where the taxpayer has succeeded before the Appellate Authority, the Counter should build on the favourable findings and reasoning already recorded, rather than reconstructing the entire dispute. Each ground raised by the Department should be linked to the corresponding finding in the impugned order, with a brief explanation of why no interference by GSTAT is warranted.

The Record Is as Important as the Legal Argument

GST appeals often hinge on documentary evidence such as invoices, returns, reconciliations and e-way bills. Where the favourable finding is document-based, the Counter should clearly identify and properly organise the supporting records, enabling GSTAT to readily verify the factual basis of the taxpayer's case.

A Practical Sequence When the Department Appeals

On receiving a departmental appeal, the taxpayer should obtain the complete appeal, record the date of receipt and examine each ground against the impugned order. A Counter/Reply with necessary supporting documents should ordinarily be filed within one month under Rule 36. Written Submissions may follow at the hearing stage, while the need for an affidavit or a Cross-Objection against any adverse part of the order should be examined separately.