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Recent rulings by courts and authorities
Supreme Court of India
Input Tax Credit cannot be denied to a bona fide purchasing dealer merely because the selling dealer failed to deposit tax
The Supreme Court of India (“SC”) in the case of Commissioner of Trade and Taxes, Delhi vs. Shanti Kiran India (P)[1] held that Input Tax Credit (“ITC”) under the Delhi Value Added Tax Act, 2004 (“DVAT Act”) cannot be denied to genuine purchasers solely because the selling dealer failed to deposit the collected tax with the government.
Purchasing dealer acquired goods from vendors or selling dealer, who were officially registered under the Value Added Tax (“VAT”) system and paid the full price, which included the applicable tax. Later, it was discovered that these vendors had not remitted the collected tax to the government, and their registrations were subsequently revoked. As a result, the tax authorities denied the purchaser’s claim for ITC, under Section 9(2)(g) of the DVAT Act on the ground that ITC is admissible only if the selling dealer has deposited the tax with the government.
Challenging this denial, the purchaser approached the Delhi High Court (“Delhi HC”). The Delhi HC ruled that ITC cannot be denied to purchasers who have paid VAT in good faith to sellers, registered under the law, as long as the transactions are authentic and there is no evidence of collusion. The Delhi HC placed its reliance on On Quest Merchandising India Private Limited vs. GNCTD[2], wherein the Delhi HC read down the provision of section 9(2)(g) which in effect precludes the Delhi VAT authorities to deny to a purchasing dealer who entered into a bona fide purchase transaction with a registered selling dealer and issued a tax invoice reflecting the taxpayer identification number.
The Delhi VAT authorities preferred an appeal before the SC which was dismissed. It was observed by the SC that where the selling dealer was registered at the time of transaction and neither the invoices nor transactions were found to be false, there is no justification to deny ITC to the purchaser merely because the seller failed to deposit the tax. The proper course for the Delhi VAT authorities is to proceed against the defaulting selling dealer, not to penalise the bona fide purchasing dealer.
High Court
‘Negative Blocking’ of ITC held to be impermissible. Blocking of ITC limited only to balance available in the Electronic Credit Ledger
In the case of Rawman Metal and Alloy vs. The Deputy Commissioner of State[3], the Bombay High Court (“Bombay HC”) held that blocking of ITC under Rule 86A of the Central Goods and Services Tax (“GST”) Rules, 2017 (“CGST Rules”) is permissible only to the extent of credit available in the Electronic Credit Ledger (“ECrL”) on the date of the blocking order. Blocking future or non-existent credit commonly referred to as ‘negative blocking’ was found to be ultra vires the rule.
The Bombay HC emphasised that Rule 86A of the CGST Rules must be strictly construed, and its plain language permits blocking only of available credit. It rejected the revenue’s argument that the rule could be used to block future ITC, noting that such an interpretation would require express legislative wording.
Relying on precedents from the Gujarat, Delhi, and Telangana High Courts, and noting the SC’s refusal to interfere with similar findings, the Bombay HC quashed the blocking order and directed restoration of the ITC.
This judgment reinforces the principle that tax provisions must be interpreted literally, and administrative powers cannot be extended beyond the statute’s express language.
Benefit of GST rate cut must be passed on by price reduction, not by increasing grammage or free offers
In Sharma Trading Company vs. Union of India and Ors.[4], the Delhi HC upheld the National Anti-Profiteering Authority’s (“NAPA”) order, reiterating that the benefit of a GST rate reduction must be passed on to consumers through a commensurate reduction in price, not by increasing product quantity or offering promotional schemes.
Assessee, a distributor for Hindustan Unilever Limited, was found by NAPA to have profiteered by INR 5,50,370 (Indian Rupees five lakh fifty thousand three hundred and seventy) . When the GST rate on a vaseline product was reduced from 28% to 18% (w.e.f. November 15, 2017), the assessee, however, did not reduce the MRP. Instead, it increased the base price to absorb the tax cut, keeping the final price to the consumer effectively the same. The assessee argued this was justified because the product’s grammage/quantity was increased and it was offered as part of a scheme with a free soap.
The Delhi HC held that the anti-profiteering law’s mandate is clear: the benefit must be passed on by ‘commensurate reduction in the price’. Relying on Reckitt Benckiser India Private Limited vs. Union of India[5], the Delhi HC ruled that substituting this price reduction with an increase in volume or free offers is ‘nothing but deception’ as it curtails consumer’s choice. The profiteered amount was directed to be deposited in the Consumer Welfare Fund, but the Delhi HC noted that penalty proceedings would not be applicable.
Educational consulting for foreign universities is ‘export of service’, not ‘intermediary service’
In Commissioner of DGST vs. Global Opportunities Private Limited[6], the Delhi HC reaffirmed that educational consultants providing services to foreign universities are not ‘intermediaries’ under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”). Instead, such services qualify as ‘export of services’ under Section 2(6) of the IGST Act, entitling the provider to GST refunds.
The assessee, engaged in providing educational consultancy services to Indian students, entered into formal agreements with Foreign educational institutions (“FEIs”) to offer counselling and advisory services. These services were rendered directly to the FEIs, and the assessee received commission payments in foreign exchange. Upon filing multiple refund claims for the tax paid on these services, the GST authorities denied the refunds, asserting that the assessee acted as an ‘intermediary’ under Section 13(8)(b) of the IGST Act. This classification would render the place of supply as India, thereby disqualifying the services from being treated as exports.
However, the Delhi HC rejected the Department’s contention, holding that the assessee was not merely facilitating or arranging services between 2 (two) parties. Instead, the assessee was providing services on a principal-to-principal basis directly to the foreign institutions. Consequently, the services qualified as ‘export of services’ under GST law, entitling the assessee to claim the refund.
Importantly, the Delhi HC also noted the 56th GST Council’s recommendation to omit Section 13(8)(b), aligning the place of supply with the recipient’s location, further supporting the export classification of such services.
Consolidated Show Cause Notices clubbing multiple financial years held to be without jurisdiction
In the case of M/s. Milroc Good Earth Developers vs. Union of India[7], the High Court of Bombay at Goa (“Bombay-Goa HC”) quashed a consolidated Show Cause Notice (“SCN”) that ‘bunched’ together demands for multiple financial years (FY 2017-18 to 2023-24). The Bombay-Goa HC held that the Central Goods and Service Tax Act, 2017 (“CGST Act”) is structured around distinct ‘tax periods’ and ‘financial years’, each with its own limitation period, and clubbing them in a single SCN is a ‘jurisdictional overreach’. This case deals with GST assessment.
The petitioner, a real estate developer, received a single SCN under Section 74(1) of the CGST Act covering seven financial years, demanding GST, interest, and penalties related to construction services and ITC reversals. The petitioner challenged the SCN, not on merits, but on the fundamental legal ground that the GST authorities lack jurisdiction to issue a single, consolidated SCN for multiple financial years, arguing that each financial year is a separate assessment unit.
The Bombay HC rejected the department’s preliminary objection that the petition was premature, holding that the challenge was to the jurisdiction itself. Analysing the CGST Act’s scheme, particularly the provisions for furnishing returns (Section 39), annual returns (Section 44), and determination of tax (Sections 73 and 74), the Court found that assessment, returns, and limitation periods are all structured on a ‘financial year’ basis. It noted that the limitation period under Section 74(10) runs from the due date of the annual return for that specific financial year. The Bombay-Goa HC concluded there is “no scope for consolidating various financial years” and followed similar rulings by the Madras and Kerala High Courts, setting aside the SCN as ‘without jurisdiction’.
Courtroom updates
Supreme Court of India
SC stayed the order of the Andhra Pradesh High Court that held that an order without Document Identification Number is ‘non-est’
The Andhra Pradesh High Court (“AP HC”) in the case of Novelty Reddy and Redddy Motors Private Limited vs. Assistant Commissioner (CT), Eluru CGST Division and Anr.[8] had held that the absence of a Document Identification Number (“DIN”) on the summary SCN in Form GST DRC – 01 vitiated the proceedings. Relying upon its earlier decision the AP HC held that any communication or order under GST law without a DIN is ‘non est’ in law.
The aforesaid order of the AP HC has been challenged before the SC[9], wherein the SC has issued notice and stayed the operation of the said order. However, pertinent to note that the stay was granted ex-parte without the presence of the respondents.
Notifications and circulars
Circular mandating production of Chartered Accountant/ Certified Management Accountant certificates to ensure credit reversal in cases of post-sale discounts, withdrawn
The Central Board of Indirect Taxes and Customs (“CBIC”), vide circular[10] dated October 1, 2025, has withdrawn circular no. 212/6/2024-GST which prescribed the mechanism for providing evidence of compliance with Section 15(3)(b) of the CGST Act pertaining to ITC reversal by recipient where suppliers issued credit notes for post-sale discounts.
The said circular required recipient to furnish a certificate from a chartered accountant or certified management accountant, confirming proportionate reversal of ITC and stated that the same would be admissible evidence under Section 15(3)(b)(ii) of the CGST Act. By way of withdrawing the said circular, the aforesaid procedure for providing evidence of compliance will not be required.
CBIC issues notification to consolidate 31 (thirty-one) customs exemption notifications under a single framework
CBIC, vide notification[11], dated October 24, 2025, to consolidate and rationalise customs duty exemptions across sectors. This notification, effective from November 1, 2025, is issued under Section 25 (1) of the Customs Act, 1962, and Section 3(12) of the Customs Tariff Act, 1975. The notification supersedes 31 (thirty-one) earlier notifications spanning from 1957 to 2025. It streamlines the customs exemption framework by merging multiple notifications into a unified schedule, thereby enhancing clarity and ease of reference for importers and customs authorities.
This Newsletter has been prepared by:
|
Manish Mishra |
Shareen Gupta |
Rajan Mishra |
Dhwani Vyas |
[1] Civil Appeal Nos. 2042–2047 of 2015
[2] (2017 SCC OnLine Del 13037)
[3] Writ Petition (L) No. 10928 of 2025
[4] WP(c) 13194 of 2018
[5] W.P.(C) 7743/2019
[6] W.P.(C) 10189/2025 & CM APPL. 42299/2025
[7] W.P. No. 2203 of 2025
[8] TS-887-HC(AP)-2025-GST
[9] Assistant Commissioner, CGST and Anr. vs. M/s. Novelty Reddy and Reddy Motors Private Limited – SLP (C) No. 28105/2025
[10] Circular no. 253/10/2025-GST
[11] Notification No. 45/2025- Customs
