Raj Jaggi
Can a Small GST Dispute Decide the Tax Liability of an Entire Industry?
Imagine a manufacturer who receives an adjudication order involving a comparatively small GST demand. The amount involved is modest. From a purely financial perspective, the dispute appears insignificant. Many may naturally assume that such a case has reached its practical conclusion because pursuing further litigation may neither be economical nor administratively worthwhile. At first glance, it seems to be just another routine dispute involving one taxpayer, one product and one assessment period. If the amount involved falls below the monetary limit prescribed for departmental appeals, the common expectation would be that the litigation should quietly come to an end.
Now imagine that the dispute does not concern the taxpayer alone. Instead, it concerns the correct classification of a product manufactured by hundreds of businesses across the country. The same issue is likely to arise not merely in one assessment period but repeatedly in future tax periods. Every future assessment of the same taxpayer may involve the same question. Similar disputes may also arise before different adjudicating authorities, appellate forums and High Courts. In such a situation, the apparent value of the dispute changes completely. The amount involved in the first case may still be comparatively small, yet the legal principle emerging from that dispute may ultimately determine the tax liability of an entire industry and influence thousands of future assessments.
The same principle applies with equal force to refund disputes. A refund rejected today may involve only one tax period, but the very same legal issue may recur in every subsequent refund application filed by the taxpayer. It may also affect numerous other taxpayers carrying on identical business activities. Likewise, a valuation issue or a place-of-supply controversy may repeatedly arise from the same business model adopted across an industry. What appears to be a small dispute in monetary terms may therefore become a large dispute in legal terms. The true significance of such litigation lies not in the amount mentioned in the first demand notice, but in the legal principle that will govern future transactions.
This distinction between the monetary value of a dispute and the legal importance of the issue lies at the heart of modern tax litigation policy. A mature tax administration cannot afford to challenge every adverse order merely because it disagrees with the reasoning adopted by the adjudicating authority. Equally, it cannot permit an important question of law to attain finality merely because the amount involved in the first dispute is comparatively insignificant. Every legal system must therefore strike a careful balance between two equally important objectives—reducing unnecessary litigation on the one hand and ensuring authoritative judicial determination of recurring legal questions on the other.
It is this delicate balance that forms the foundation of Section 120 of the Central Goods and Services Tax (CGST) Act, 2017. The provision empowers the Central Board of Indirect Taxes and Customs (CBIC) to prescribe monetary limits for departmental appeals so that routine disputes involving comparatively small amounts do not unnecessarily occupy the time of appellate authorities and constitutional courts. At the same time, the statutory scheme recognises that certain disputes possess a significance far beyond the immediate amount involved. Among all the recognised exclusions, none is more significant—or perhaps more intriguing—than disputes involving issues of a “recurring nature.”
Curiously, neither the CGST Act, the CGST Rules nor the departmental Circular defines the expression “recurring nature.” The expression has therefore remained open-textured, requiring courts and tax administrators to determine its scope through legal principles rather than mechanical formulae. T he absence of a definition also demonstrates that recurrence cannot satisfactorily be measured merely by arithmetic. It is a concept rooted in jurisprudence, practical experience and the long-term impact of a legal issue upon tax administration.
This naturally raises a series of important questions. When does a dispute cease to remain an isolated controversy and acquire the character of a recurring legal issue? Does recurrence depend upon the number of taxpayers affected, the number of assessment periods involved, the amount of future revenue at stake or the nature of the legal question itself? Can every classification dispute be regarded as recurring? Is every refund claim capable of satisfying this test? More importantly, does the existence of a recurring issue by itself justify filing a departmental appeal, notwithstanding the prescribed monetary limits?
The answers to these questions do not lie merely in the text of Section 120 or the departmental Circular. They lie in the broader principles evolved by courts while explaining recurring causes of action, recurring liabilities, recurring legal consequences and the need for consistency in tax administration. An understanding of those principles is essential for appreciating the true philosophy underlying the recurring nature exclusion. Before examining that jurisprudence, however, it is necessary to understand the statutory framework within which the Department’s litigation policy has been designed under GST law.
Section 120 - The Statutory Gateway to the Jurisprudence of Recurring Issues
A modern tax administration is judged not merely by its ability to collect revenue but also by its ability to manage litigation responsibly. Every adjudication or appellate order adverse to the Department does not necessarily require a further appeal, particularly where the amount involved is comparatively insignificant, and the issue does not possess wider legal implications. Recognising this practical reality, Parliament enacted Section 120 of the CGST Act, 2017, empowering the CBIC) on the recommendations of the GST Council, to prescribe monetary limits below which departmental appeals may ordinarily not be filed. The provision, therefore, reflects an important legislative policy that litigation should be pursued with discernment rather than as a matter of routine.
Section 120, however, does much more than authorise the prescription of monetary limits. Sub-sections (2), (3) and (4) make it clear that the Department’s decision not to file an appeal in one case does not amount to acceptance of the legal reasoning contained in the impugned order. Nor does such a decision prevent the Department from challenging the same or a similar legal issue in another case where appellate scrutiny is considered necessary. The Tribunal or court is also required to take into account the circumstances in which an appeal was not filed in the earlier case. These safeguards preserve the flexibility of the litigation policy while ensuring that important questions of law are not foreclosed merely because the first dispute involved a comparatively small amount.
Equally significant is the fact that Section 120 does not itself specify the situations in which an appeal should nevertheless be filed despite the prescribed monetary limits. Parliament has left that responsibility to the litigation policy framed by the CBIC from time to time. It is within that policy framework that certain exclusions have been recognised, acknowledging that some disputes derive their importance not from the amount involved in the individual case but from their potential impact on future assessments and taxpayers. Among these exclusions, the expression “recurring nature” occupies a place of particular significance. Although the expression remains undefined in the statute as well as in the departmental Circular, it forms the foundation of one of the most important exclusions from the policy governing departmental appeals. Understanding the true scope of this expression therefore requires an examination extending beyond the text of Section 120 into the broader principles of tax jurisprudence.
From Monetary Limits to an Undefined Exception
Pursuant to the powers conferred by Section 120, the CBIC has issued instructions and circulars prescribing monetary limits for departmental appeals with the objective of promoting responsible litigation and reducing avoidable disputes. These monetary limits are founded upon a practical administrative principle that the value of an individual dispute should ordinarily determine whether appellate proceedings deserve to be pursued. Such a policy enables the Department to concentrate its resources on matters involving substantial revenue implications while reducing litigation in cases where the amount involved is comparatively insignificant. At the same time, the policy has never proceeded on the assumption that the monetary value of every dispute accurately reflects its legal importance.
For this reason, the departmental litigation policy recognises certain defined exclusions under which the decision to file an appeal must be taken on the merits notwithstanding the prescribed monetary limits. Circular No. 207/1/2024-GST dated 26.06.2024 includes within these exclusions matters relating to valuation, Classification and refund issues which are of legal and/or recurring nature, place of supply, or other case or class of cases, where in the opinion of the Board, it is necessary to contest in the interest of justice or revenue. The common thread running through these matters is that the legal question involved may possess consequences extending beyond the individual dispute. Where the same question is capable of influencing future assessments or affecting similarly placed taxpayers, the amount involved in the first dispute becomes a poor indicator of the true importance of the controversy.
While the Circular identifies recurring issues as an exclusion from the normal rule governing departmental appeals, it does not define what constitutes an issue of a “recurring nature.” Neither the CGST Act nor the CGST Rules furnishes any guidance in this regard. This absence of a statutory or administrative definition is neither unusual nor necessarily problematic. Tax legislation frequently employs broad expressions whose precise content is left to be developed through judicial interpretation, thereby permitting the law to adapt to diverse factual situations without being confined within a rigid statutory definition. The expression “recurring nature” belongs to this category of open-textured legal concepts.
The absence of a definition, however, should not be mistaken for the absence of legal principles. Courts have, over the years, evolved valuable jurisprudence while dealing with recurring causes of action, recurring liabilities, recurring legal consequences and the need for consistency in tax administration. Although many of those decisions were rendered outside the context of Section 120, the underlying principles provide important guidance in understanding why certain disputes may deserve appellate consideration despite their comparatively low monetary value.
Distinguishing Recurring Issues from Continuing Wrongs and Repeated Disputes
The distinction between a recurring issue, a continuing wrong and a merely repeated dispute is far more than a matter of legal terminology. Although these expressions are often used interchangeably in ordinary conversation, each has evolved in a different jurisprudential context and carries distinct legal consequences. Confusing one concept with another may lead to an incorrect understanding of the recurring nature exclusion recognised in the departmental litigation policy. It is, therefore, essential to examine the legal character of each concept before determining the true scope of that exclusion.
A recurring issue concerns the repeated applicability of the same legal question to successive transactions, tax periods or taxpayers. Once such an issue arises, it possesses the inherent capacity to reappear whenever substantially similar facts arise in future. Its recurrence is attributable not to the repetition of a wrongful act but to the enduring operation of the legal principle governing the transaction. A classification dispute involving a particular product, a valuation issue arising from an established business model or a recurring refund controversy under the same statutory provision may continue to arise over successive tax periods without any change in the underlying legal question. It is this recurring potential of the legal issue, rather than the frequency of disputes already decided, that gives the issue its distinctive character.
A continuing wrong operates on an entirely different footing. It refers to a wrongful state of affairs that persists from day to day, thereby giving rise to a continuing cause of action so long as the wrong remains unremedied. The legal significance of a continuing wrong lies in the uninterrupted continuance of the wrongful state of affairs. A recurring issue, on the other hand, does not necessarily involve a continuing wrong. Each assessment or tax period may give rise to an independent dispute, yet the legal question involved may remain exactly the same. The recurrence therefore arises from the repeated application of the same legal principle rather than from the continuous existence of a single wrongful act.
A merely repeated dispute is different from both these concepts. A taxpayer may repeatedly commit the same factual error, or similar disputes may arise among different taxpayers because of different factual circumstances. Such repetition does not, by itself, convert the controversy into a recurring legal issue. The true enquiry is whether substantially similar governing facts and statutory provisions are capable of giving rise repeatedly to the same legal question. If the apparent repetition arises merely from separate factual mistakes or fact-specific transactions, the disputes may resemble one another but cannot properly be described as recurring in the jurisprudential sense.
The principles underlying these distinctions have emerged from decisions of the Supreme Court rendered in different legal contexts involving continuing wrongs, successive causes of action and repeated legal consequences. Although those decisions did not arise under Section 120 of the CGST Act, the jurisprudence developed through them provides valuable guidance in determining the true scope of the recurring nature exclusion recognised under the departmental litigation policy.
The importance of this conceptual framework is not merely academic. It provides the basis for identifying the true scope of a recurring issue under the departmental litigation policy. Unless a clear distinction is maintained between recurring issues, continuing wrongs, and merely repeated disputes, the recurring-nature exclusion may either be interpreted too narrowly, thereby defeating its purpose, or too broadly, thereby diluting the very object of prescribing monetary limits for departmental appeals.
The conceptual distinctions discussed above provide the foundation for the next stage of the enquiry. The real challenge lies in translating these jurisprudential principles into workable judicial tests capable of identifying disputes that genuinely deserve appellate consideration despite the prescribed monetary limits. That important aspect forms the subject matter of Part II.
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