Constitutional Milestones in GST Jurisprudence

GST replaced multiple taxes with a single, unified tax on goods and services across India to simplify the system and reduce tax-on-tax. However, GST was more than a tax reform. It reshaped our federal structure. The 101st Constitutional Amendment empowered both Parliament and States to levy GST under Article 246A, assigned interstate trade to Article 269A, and created the GST Council under Article 279A to guide this new system.

Yet, the real story has unfolded in courtrooms, and it has just begun. Judges have validated arrest and attachment powers under the GST law and intervened when provisional attachment is used like a blunt instrument, insisting that due process must be respected. In disputes over double taxation, input tax credit, refunds, intermediary services, anti-profiteering, mutuality, and e-way bill related violations, the judiciary has steadily carved boundaries around the officer’s reach.

This article explores those landmark rulings, revealing how GST has evolved through judicial scrutiny. Beneath statutes and amendments, the courts have emerged as architects, safeguarding taxpayer rights under Articles 14, 19, 21, and 265. It is not a finished rule book. It is a living law, rewritten every day in courtrooms across the country.

The introduction of GST was not a tax reform. It was a constitutional reset. With the 101st Constitutional Amendment, India introduced Article 246A, which permitted concurrent jurisdiction for the levy of tax on intrastate supply of goods & services. Article 269A provided for the power to tax interstate trade. Article 279A provided for the creation of the GST Council, sadly as a recommendatory body. Article 366(12)(a) defines “Goods & Services Tax” as any tax on the supply of goods or services or both except taxes on the supply of alcoholic liquor for human consumption. Article 366(26) (a) defines “Services” means anything other than goods. Similarly, certain consequential amendments were made in the Seventh Schedule, consisting of the Union List and the State List.

 

Thus, the statute (Central Goods & Services Tax Act, 2017, State Goods & Services Tax and Union Territory Goods & Services Tax Act, 2017, and rules framed thereunder) came to be enacted, deriving power from Article 246A. Hence, the same would always be subject to constitutional boundaries and must pass scrutiny of Article 14, Article 19(1)(g), Article 21, Article 265, read with Article 300A of the Constitution.

With this background, let us look at some important constitutional rulings under GST, not as dry theory, but as living law that directly impacts litigation, advisory, and enforcement strategy. Though an attempt has been made to cover all probable issues, any omission must be pardoned. 

 

However, the Court did not  give a green flag for unchecked enforcement. It warned that arrests must be based on solid evidence, written reasons, and follow due process. Notably, it held that arrest can come before tax adjudication, marking a shift from earlier views like MakeMyTrip. While the ruling backs tax enforcement, it also raises red flags about the potential misuse, spotlighting the need for clear safeguards to protect  taxpayer rights under Articles 21 and 19(1)(g) of the Constitution of India1.

Consequent to the above ruling, an amendment was made to section 83 with effect from January 1, 2022. It changed the language of the provision from “during the pendency of proceedings” to “after the initiation of any proceeding”; expanded the scope of attachment to include proceedings under the relevant chapters of the CGST Act, rather than limiting it to specific sections, and provided for the attachment of properties belonging to persons other than the taxable person, such as beneficiaries of  fraudulent transactions. Despite this, section 83 cannot be resorted to as a matter of routine. The Apex Court3 reaffirmed these principles.

 

The Apex Court4, recently, in the context of section 6(2)(b) of the Act, ruled that formal proceedings are only initiated after the tax

authorities ‘form their mind’ regarding the exact allegations against the assessee and commence formal adjudication proceedings by way of the issuance of an SCN.

 

An issue relating to the levy of IGST on ocean freight included in the CIF (Cost, Insurance and Freight) price was being examined by the Apex Court. The charge was sought to be levied on the importer on a reverse charge basis. Though the challenge to the validity of the notification was upheld, the Court held that charging IGST again would amount to double taxation. It emphasized that a foreign shipping service in a CIF contract, already part of the import value, lacks a territorial nexus to justify a second levy5.

There was a challenge to the validity of section 13(8)(b) of the IGST Act, 2017 before the Bombay High Court. Section 13(8)(b) deemed the place of supply for intermediary services to be the location of the supplier. It was contended that there is an export of services to a recipient located outside India. There was a split verdict. One Hon’ble Judge struck it down as unconstitutional, calling it a violation of Articles 246A, 269A, 286, and 19(1)(g). The other Hon’ble Judge upheld it. The Third Hon’ble Judge, while upholding 13(8)(b), laid down that the scope was restricted to the IGST Act only, excluding CGST and SGST. Thus, holding that there cannot be a levy of CGST/ SGST (local taxes) on export of services. The matter is now pending before the Supreme Court (SLP No. 26011/2023) for the final word on its constitutionality6.

 

Input Tax credit is a “Hot Potato” for the taxpayers and tax administrators alike. Two sections deal with input tax credit (ITC), viz., section 16 and section 17. However, the contribution to litigation by these sections is about 80% of the disputes in the last 8 years. Kudos.

 

Supplier fails to pay tax; can the purchaser be penalized? The Calcutta High Court ruled that if the buyer has paid, holds a valid  invoice, and reflected the transaction in returns, ITC should not be denied. The Revenue challenged the said ruling before the Apex Court. However, the Apex Court declined to interfere7. However, the validity of section 16(2)(c) is still pending adjudication before various High Courts.

 

Is input tax credit on goods and services used to construct immovable property that the taxpayer intends to lease, available or not? Section 17(5) bars ITC on certain immovable property. The Supreme Court upheld the validity of the said provision; however, it refused a blanket denial. It introduced a “functionality test”. If the said property is the “commodity” in itself, credit has to be allowed. The credit chain must end only with the consumer. It is a destination-based consumption tax8. 

 

There are errors (some clerical, some unintentional, some reporting) in filing returns. Could the same lead to denial of ITC? The Court
answered in the negative. It ruled that the bona fide mistakes, especially when tax is paid and no revenue loss occurs, should not lead to the blockage of ITC. Compliance cannot become punishment. The right to correct errors flows from the right to do business under Article 19(1)(g).  Thus, the administration must be fair, facilitative, and human, especially in the face of software glitches and procedural rigidity9 . A similar view was reiterated by the Delhi High Court10.

 

The Bombay High Court upheld the validity of Sections 17(2) and 17(3) of the CGST/MGST Acts. It held that denying ITC to non-corporates under the reverse charge mechanism was not discriminatory. ITC is a conditional concession, not a right, and the classification between corporates and non-corporates has a rational basis. Thus, there is no violation of Articles 14 or 19(1)(g), and courts cannot strike down fiscal policy merely due to business hardship (nonavailability of ITC)11. It followed the view taken by the Delhi High Court12.

 

The Patna High Court upheld the constitutional validity of Section 16(4) of the CGST/BGST Act, 2017, which restricts Input Tax Credit (ITC) if invoices or debit notes are reported beyond the prescribed time limit. The Court ruled that ITC is a statutory concession and not a vested right, and therefore, denial of credit for missing timelines does not violate Articles 19(1)(g) or 300A. It emphasized that strict adherence to compliance deadlines is fundamental to the GST framework and legally sustainable13.

The Gauhati High Court14 struck down the validity of section 16(2)(c) and section 16(2)(d) of the Act following the Delhi High Court judgment in Quest Merchandising. However, the Kerala High Court15 has taken a contrary view and upheld the said provisions.

 

The validity of Rule 89(5) of the CGST Rules excluding input services from refund under the inverted duty structure was a subject  matter before the Supreme Court on the grounds that it is ultra vires Section 54(3)(ii) of the CGST Act. Divergent views of the Gujarat  High Court16 and Madras High Court17 were before the Apex Court.

 

The Supreme Court upheld Rule 89(5), holding refund of unutilized ITC is allowed only on input goods and not input services.  However, it acknowledged the flaws in the refund formula since ITC on both goods and services accumulates and urged the GST Council to review and fix the formula18.

 

Basis the same, Rule 89(5) was amended vide Notification No. 14/2022-CT dated 05.07.2022, which explicitly excluded input services from the refund calculation. The Apex Court19 considered the question whether the amendment to Rule 89(5) excluding input  services from refunds under the inverted duty structure (IDS) could be applied retrospectively to deny refunds for the pre-amendment period. It affirmed the Gujarat High Court’s ruling that the amendment cannot be applied retrospectively. It is prospective in nature. Thus, refund claims for input services filed prior to 05.07.2022 remain valid and must be processed  accordingly.

 

Rule 96(10) denying refunds to exporters where the inputs/raw material have been imported without payment of IGST has had its fair share of litigation. The Kerala High Court held that the said rule is ultra vires section 54 of the CGST Act and Section 16 of the IGST Act, and struck it down20. However, the said rule was subsequently omitted. Based on the same, the Bombay High Court21 resolved a long-pending dispute concerning the constitutional validity of CGST Rules 89(4B) and 96(10), holding that ongoing GST proceedings founded on these omitted rules cannot be sustained. Emphasizing that once a rule is omitted without a saving clause, it is deemed to have never existed. The Court clarified that pending actions under such rules automatically lapse unless they pertain to “transactions past and closed.” This judgment effectively nullifies thousands of refund-related disputes and firmly establishes  that omitted rules have no “legal afterlife”. A similar view has been taken by the Uttarakhand High Court22 and the Gujarat High Court23.

 

Notifications N0. 9/2023 and Notification N0. 56/2023, issued under Section 168A of the CGST Act, extending limitation periods for adjudication under Section 73 of the Act, was the subject matter of challenge before various courts. It was contended that the said notifications are ultra vires the parent Act; being delegated legislation must comply. The Gauhati High Court24 held that the prior GST Council recommendation is a mandatory jurisdictional requirement. Hence, notifications issued merely on the inputs of the
GST Implementation Committee were declared ultra vires. However, the Patna High Court25 upheld the validity of the said  notifications. The Telangana High Court26, however, without going into the validity of the notification, held that the time limit had been extended by the Supreme Court in suo motu orders under Article 142, excluding the COVID-19 period from limitation
computation. The Madras High Court27 held that the impugned notifications are bad in law. However, the Supreme Court order  would prevail and cannot be overridden by flawed executive notifications. Now, all these matters are pending before the Apex Court, awaiting a final verdict from the Top Court28.

 

Section 171 of the Act provides for antiprofiteering provisions. The Delhi High Court29 examined the validity of anti-profiteering provisions and the legitimacy of the National Anti-Profiteering Authority (NAA), which ensures businesses pass tax  benefits to consumers. The Court upheld the provisions and the NAA’s role. It clarified that these measures promote consumer welfare by preventing unjust enrichment and ensuring tax savings reach buyers. Section 171 is not a price control but a  regulatory tool aligned with the GST objective. The NAA was recognized as a fact-finding body with the necessary expertise, and judicial oversight over its decisions was deemed adequate. However, in appropriate cases, the decision-making process can be questioned. Now, the matter is awaiting its final nod at the doorstep of the Apex Court30.

 

Section 7(1)(aa) was an amendment to section 7. Section 7 provides for the scope of supply. Within a few years of the introduction of the law, the most important provision is being amended, that too retrospectively. The validity of retrospective amendment to  Section 7(1)(aa) of the CGST Act, 2017 was called to question. The Kerala High Court31 held that no GST is leviable on services provided by clubs and associations exclusively to their members because these transactions are based on the doctrine of  mutuality. The Court found retrospective amendment to Section 7(1) (aa) of the CGST Act as unconstitutional. This ruling could also be a tower light for Resident Welfare Associations that charge GST on maintenance charges.

 

Recently, the Gujarat High Court32 addressed the issue of levy of GST on assignment of leasehold rights pertaining to a Gujarat Industrial Development Corporation (GIDC) plot by a lessor (other than GIDC) to a lessee in consideration of lump sum charges. The ownership rights over the plot always remained with GIDC, and the original allotment of lease by GIDC to a lessee is treated as a service but is exempt from GST. The Court ruled that the assignment or transfer of leasehold rights in an immovable property cannot not considered a ‘supply’ under the CGST Act. It held that it was a right flowing from land and stands excluded in terms of Paragraph 5 of Schedule III to section 7 of the Act. Referring to Article 265 of the Constitution, it held that taxes must have clear legal backing and cannot be imposed by stretched interpretation.

The Apex Court addressed the issue of detention of goods during inter-State transportation due to an expired E-Way Bill, despite no tax evasion33. It held that ownership of the consignment and its use in executing contractual obligations is not in dispute. While
upholding tax liability, the Hon’ble Court halved the penalty under Article 142, citing no intent to evade and a bona fide transaction.

The Kerala High Court34 held that a visible typographical error in the invoice value does not justify a penalty, treating it as a minor lapse. The Allahabad High Court35 quashed seizure and penalty where a valid e-way bill was generated prior to interception. The Madras High Court36 held that delivering goods to the wrong location by mistake does not warrant seizure when tax is paid and documents are proper. The Court urged officers to act reasonably. A similar view has been taken by the Calcutta High Court37.

 

GST is a new law. It represents a complex marriage between the Centre and the States. There have been several amendments to the
statute (Act and Rules), but less spoken about the notifications and circulars over the past eight years, the better. The GST Appellate
Tribunal is nowhere in sight. A delay that appears to be a matter of conscious choice, intent, and design. We must not forget the “children” born of this wedlock, “a maze of compliances and procedural complexities” marred by systemdriven failures. Not a critique; as the law is here to stay. However, it requires major reforms, not just the rationalization of tax rates.

In this landscape, the Courts are expected to rescue taxpayers. We can only hope that pray that the judiciary, the strongest pillar that holds the Constitution together, comes to the aid of genuine taxpayers, exporters, and businesses, acting as a check on coercive actions carried out in the name of constitutional duties. The judiciary must ensure that the law remains fair, proportional, and that the rule of law prevails.

 

For legal and tax professionals, this evolving jurisprudence is not just academic; it is a living toolkit for defending taxpayer rights and promoting a more balanced taxation regime. In the end, a good tax policy must pass the constitutional test, and our courts are making sure it does.

 

The Article was authored  by Bharat Raichandani, Advocate and Prachi Sharma, Advocate