GST disputes

A goods and services tax (GST) dispute moves through a fixed sequence: a notice, an order by the proper officer, a first appeal, a second appeal to the Tribunal and, on a question of law, the High Court. The Taxation and fiscal practice page covers GST alongside direct tax and customs in outline. This page takes the GST dispute stage by stage. Because the tax is levied by both the Union and the States, the same transaction usually draws a parallel provision in the Karnataka Goods and Services Tax Act, 2017, and the officer who issues the notice is the one with jurisdiction over the taxpayer's registration.

Show cause notices and the sections that support them

A demand starts with a show cause notice. Before one is issued the officer will often send an intimation of the tax ascertained as payable, so that the taxpayer can pay or respond. The notice itself is issued under one of three sections of the Central Goods and Services Tax Act, 2017.

Section 73 applies where tax has not been paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised, for any reason other than fraud, wilful misstatement or suppression of facts. Section 74 applies to the same defaults where the cause is fraud, wilful misstatement or suppression of facts to evade tax. Section 74A, inserted by the Finance (No. 2) Act, 2024, is a single demand section that applies to tax for the financial year 2024-25 onwards. Sections 73 and 74 apply to tax up to the financial year 2023-24. Under section 74A the notice must be issued within forty-two months of the due date for the annual return for the year (or of the erroneous refund), and the order within twelve months of the notice, which the Commissioner may extend by up to six months for recorded reasons. A taxpayer who pays the tax and interest within sixty days of the notice closes the proceedings without penalty where fraud is not alleged, and with a penalty of twenty-five per cent where it is.

The periods differ by section. For section 73, the order is to be passed within three years of the due date for the annual return of the year concerned, and the notice is to be issued at least three months before that time limit ends. For section 74 the period is five years, with a notice at least six months before it ends. A notice that is issued late, or that is framed as fraud on facts that do not support the allegation, is open to challenge on that ground alone. The time limits for the early years of GST were extended by notifications under section 168A.

Adjudication

Under section 75 the proper officer must consider the reply and give an opportunity of hearing where a request is made in writing or where an adverse decision is contemplated. The order cannot demand more tax, interest or penalty than the notice specifies, and cannot rest on grounds that the notice did not state. A taxpayer who pays the tax with interest within thirty days of a section 73 notice, or the tax with interest and a reduced penalty of twenty-five per cent within thirty days of a section 74 notice, closes the proceedings on the notice under those sections. Disputes at this stage are commonly about the facts and documents on which the demand rests, since an order that is not supported by the notice does not survive an appeal.

First appeal and pre-deposit

Section 107 gives an appeal to the Appellate Authority within three months of the communication of the order, with a further period of up to one month if the Authority is satisfied that there was sufficient cause. The appellant must pay the amount of tax, interest, fine, fee and penalty admitted, and ten per cent of the remaining tax in dispute, subject to a ceiling that was fixed at INR 20 crore of central tax in 2024, with the same under the State law. Where the order demands only a penalty, the deposit is ten per cent of the penalty. Payment stays recovery of the balance during the appeal. The Appellate Authority must decide the appeal on the record and cannot remand the matter to the officer (section 107(11)).

The Appellate Tribunal

A second appeal lies under section 112 to the Goods and Services Tax Appellate Tribunal, constituted under section 109, which sits as a Principal Bench in New Delhi and State Benches that include Bengaluru. The appeal is filed within three months of the communication of the order or of the date the Government notifies for filing before the Tribunal, whichever is later, with a pre-deposit of ten per cent of the remaining tax in dispute, subject to a ceiling of INR 20 crore, in addition to the first-appeal deposit. The Goods and Services Tax Appellate Tribunal Procedure Rules, 2025 govern the filing. A further appeal lies from the Tribunal to the High Court under section 117 on a substantial question of law, within one hundred and eighty days, and to the Supreme Court under section 118 in the cases the Act allows.

Writ petitions before the High Court

A taxpayer may also petition the High Court of Karnataka under Article 226 of the Constitution. The Court usually declines to interfere where a statutory appeal is available, but in Radha Krishan Industries v. State of Himachal Pradesh (2021) the Supreme Court set out the exceptions: where a fundamental right is violated, where the order or proceeding is wholly without jurisdiction, where natural justice has been breached, or where the vires of a provision is challenged. A writ is therefore the route for a notice or order that is outside the statute, and not for a dispute that turns on the merits of the demand.

Refunds and input tax credit disputes

A refund claim is made under section 54 within two years of the relevant date, which differs by type of claim: export of goods or services, unutilised credit on zero-rated supplies, credit accumulated through an inverted duty structure, and tax paid in excess. The officer is to decide within sixty days of a complete application, and interest runs on a delay under section 56. A rejection or part sanction is an order that can be appealed under section 107.

Input tax credit disputes arise under section 16, which makes credit conditional on a tax invoice, receipt of the goods or services, payment of the tax by the supplier and the filing of returns, and sets a time limit for availing it, and under section 17(5), which blocks credit for listed kinds of expenditure. Many show cause notices under sections 73, 74 and 74A are demands to reverse credit on one of these grounds.

What the law does not allow

A demand beyond the notice. Section 75(7) bars an order for tax, interest or penalty in excess of the amount specified in the notice, or on grounds not specified in it.

A remand by the first appellate authority. Section 107(11) bars the Appellate Authority from referring the case back to the officer who passed the order.

An appeal after the period has run. Section 107(4) allows the Appellate Authority to condone a delay of one month beyond the three months and no more, and section 112(6) allows the Tribunal three months beyond its period.

What a registered person served with a notice has to decide is whether the reply puts its whole case on the record, since the officer and the Appellate Authority decide on that record and the appeal is a review of the order and not a second hearing of a case never made.