As summer approaches, GST law is cooling down. The months of May and June have become extremely crucial from the GST perspective. Courts have been so kind, reminding us of the famous dialogue from the movie Jolly LLB 2: people have so much faith in the judiciary that when anything goes wrong, they say- "I will see you in court."
Truly, in the realm of GST, if courts are not there, the situation could have worsened significantly. We bow our heads to the Indian Judiciary for their invaluable contribution in making Indian GST Law more business-friendly and ensuring its implementation in the true spirit of the law.
In the last few months, Indian courts has pronounced the landmark judgments that shapes up the GST law. These judgements have provided relief and clarifications on various prolonged issues such as availment of ITC by recipient due to supplier's default, refund of ITC upon closure of business, proceedings under sections 74 and 122 of CGST Act, 2017 etc.
We are discussing the landmark judgements pronounced by the Indian Courts which shape up the Indian GST law:
1. M/S R.T. Infotech vs. Additional Commissioner Grade 2 And 2 Others (Case No. WRIT TAX No. - 1330 of 2022)
Big Relief by Allahabad High Court to the honest taxpayers: Hon'ble High Court in the judgment held that the "Buyer is Not Liable for Supplier's Default". ITC is not required to be reversed by recipient if the supplier defaults in payment of tax. The judgement has been passed by putting reliance on judgements in case of
- Assistant Commissioner of State Tax vs. Suncraft Energy Pvt. Ltd. (2023)
- D.Y. Beathel Enterprises vs. State Tax Officer, 2022 (58) G.S.T.L. 269 (Mad.)
It is held that a bonafide recipient cannot be punished for a supplier's failure to deposit tax. This decision acknowledges the persistent pain point in the GST regime - where buyers, despite fulfilling their tax obligations, are hounded by authorities due to defaults by their suppliers.
In numerous cases, we've witnessed departments demanding reversal of ITC with interest and penalty from recipients - merely because the supplier did not pay the tax. This judgment rightly questions why recovery should target the compliant buyer instead of the actual defaulter.
The petitioner argued the case on the following points:
- He had no control over the seller's filing behavior or payment of tax, and thus, should not be made to suffer for the seller's fault. It is unreasonable to expect a buyer to ensure the supplier's compliance. Penalizing the buyer for the supplier's fault is unjust.
- He had paid the tax via RTGS and relied on genuine tax invoices.
- The invoices were duly reflected in GSTR-2A, proving they were uploaded by the supplier in GSTR-1.
- The primary responsibility to recover tax lies with the department - from the defaulting supplier.
This judgement brings a relief on the bonafide taxpayers who are suffering from bad actions of their supplier. Indeed, it is duty of the department to recover the tax from supplier first. When thief is in front of you there is no point in doubting and catching others. It prevents the jeopardy of the recipient.
2. Patanjali Ayurved Ltd. vs. Union of India (Writ Tax No. 1603 of 2024, decided on 29-5-2025)
Hon'ble Allahabad high court is very strict on defaulters. It is held that defaulters cannot escape themselves from the penalty imposed Under Section 122 even proceedings under Section 74 are dropped. If you are beneficiary or mastermind of fake billings or circular trading, the sword of Section 122 can be fallen on you in spite of the fact proceedings of Section 74 has attained finality. Penalty proceedings under Section 74 and Section 122 are distinct and independent proceedings and conclusion of one does not automatically nullify or conclude the other.
This is significant judgment which reaffirmed a crucial principle that a defaulter cannot hide behind procedural conclusions to escape liability.
The case was booked against the taxpayer for indulging in malpractices of circular trading and goods-less invoices. The case was booked by the GST Intelligence under the following sections:
- Section 74 - dealing with tax evasion involving fraud, willful misstatement, or suppression of facts, and
- Section 122 - dealing with penalties for specific offences, including issuing fake invoices without actual supply of goods/services.
While the authorities dropped proceedings under Section 74, the penalty under Section 122 for bogus billing was upheld.
The petitioner gave reference to Explanation 1(ii) of Section 74 of CGST Act,2017 which states that
"where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122 and 125 are deemed to be concluded"
Hon'ble Allahabad high court came to the conclusion that the proceeding under Section 122 of the CGST Act is to be adjudicated by the adjudicating officer and is not required to undergo prosecution and also abatement of proceedings under Section 74 of the CGST Act does not ipso facto abate the proceedings under Section 122 which are for completely different offences i.e. issuance of fake invoices.
It was also contended by the petitioner that a penalty under Section 122 can only be imposed after a conviction under Section 132.
But the court stated that Section 122 of the CGST Act is a provision specifically for the imposition of penalty to be adjudicated by the proper officer while the provisions from Sections 132 to 138 deal with the prosecution to be done by the criminal courts.
These kinds of judgments are very much required for making the Indian GST robust and business-friendly.
3. SICPA India Private Limited and Another. vs. Union of India and Others (WP(C) No.54 of 2023)
A business winds up its operations - the lights go off, the accounts are closed, but one thing remains: unutilized Input Tax Credit locked in the GST portal. The Hon'ble High Court of Sikkim has provided significant relief to these taxpayers by allowing refund of the unutilized Input Tax Credit (ITC) lying in the electronic credit ledger upon closure or discontinuation of business. This judgment gives a big relief to taxpayers.
In the present case, the department argued that a plain reading of Sections 49 and 54 of the CGST Act, 2017, does not support the refund of accumulated ITC in the event of business closure. Section 54(3) permits refund only in two specific scenarios - inverted duty structure and exports (zero-rated supply).
However, the Court took a broader constitutional and legal view. It observed that there is no express prohibition under Section 49(6) read with Section 54 and Section 54(3) that bars a refund of ITC in case of closure of business. Importantly, the Court emphasized that the State cannot retain tax without the authority of law.
Accordingly, the Court allowed the refund to the petitioner, reinforcing that where tax is lawfully collected but cannot be utilized due to the closure of business, the same cannot be retained by the government.
4. M/s KEI Industries Limited. Vs. Union of India & ORS (W.P.(C) 6919/2025 & CM APPL. 31310/2025)
Imagine a company operating seamlessly across states, only to be slapped with a ₹59 crore GST demand for a mere accounting formality. This judgment provides crucial relief for businesses with multi-state operations, reinforces the doctrine of substance over form, and prevents tax demands arising purely from technical lapses.
The Hon'ble Delhi High Court quashed a ₹59.03 crore GST demand, penalty, and interest raised against KEI Industries under Sections 74(1), 122(2)(b), and 50(1) of the CGST Act, 2017. The tax authorities had alleged that KEI Industries failed to cross-charge common Head Office (HO) expenses to its Branch Offices (BOs), thereby avoiding IGST liability.
However, the Court decisively held that mere non-reflection of internal cross-charges doesn't amount to tax evasion-especially when the Branches are entitled to full Input Tax Credit. Citing CBIC Circular No. 199/11/2023-GST dated 17 July 2023, the Court upheld that valuation of such HO-to-BO services can be treated as Nil when full ITC is available at the recipient end and no invoice is raised.
This judgment clears the industry issues where the cross-charge invoicing is not done and the department disputes the same. Cross charge is a revenue-neutral exercise now the judgement clears the air that the valuation rules said that where the ITC available in supplies between distinct persons, then the Invoice Value is considered as Transaction Value. And in the case where ITC is available but no Invoice is raised means the transaction value is NIL and the same is affirmed in the circular stated in the above para.
5. Add wrap Packaging Pvt. Ltd. vs. Union of India (C/SCA/22519/2019 Pronounced On: 13/06/2025)
In the Remarkable judgment passed by Hon'ble Gujarat High Court, it is held that all the pending matters related to Rule 96(10) will be dealt as the said rule was not in existence. There was no saving clause in the amendment made by the government where it struck down the rule w.e.f. 8th October 2024, which means that exporters now can avail the refund also in the case where they have availed the certain concessions, such as those under Advance Authorization, EPCG, or supplies at concessional rates from EOUs or under deemed export benefits.
Question come to the court that what is the fate of the cases where the department raised the demand of taxes refunded to the exporters prior to 8th October 2024 and there is present litigation going on. It is beautifully decided that all the pending litigations related to this rule will be dealt as that rule is not in existence. It is a big sign of relief for the exporters but what about those exporters who have paid back the refund to the government. Are they entitled to get their refunds back? However, it is a big sign of relief for the exporters who are availing the FTP benefits.
These judgments are making the GST to be implemented in true spirits. GST was bought by the government with only two objectives - the seamless flow of credit and remove the cascading effect of taxes. These legal pronouncements reaffirm the role of the judiciary in ensuring fairness, preventing tax issues, and bringing clarity to make GST law as intended by everyone- business and user friendly.
Disclaimer: The above write-up is on the basis of experience, struggles, failures and knowledge of the authors. The views expressed above are personal in nature and don't have any intention to demean anybody and finding faults in any system. The only motive is to make the taxpayers aware and cautious while complying with the tax law.
The authors can also be reached at gaauravarya@gmail.com and bedisambhav24@gmail.com
CAclubindia
