Understanding GST Disputes and Legal Procedures

As the Goods and Services Tax (GST) system matures in India, taxpayers increasingly encounter legal disputes with the tax department. Disagreements frequently arise from differing interpretations of GST laws. This article thoroughly explores various types of GST legal cases and the entire litigation process.

What is a GST Dispute?

GST litigation involves the formal process of resolving disagreements between tax authorities and taxpayers concerning the interpretation or application of GST regulations. These disputes typically involve issues such as claims for input tax credit, GST refund applications, or the correct calculation and payment of GST liabilities.

Given the relative novelty and intricate nature of GST law, coupled with its frequent amendments, differing interpretations between taxpayers and tax authorities can easily lead to conflicts. Furthermore, administrative delays in processing applications often contribute to these disputes.

Examples of GST Litigation

Common scenarios leading to GST disputes include:

Disputes over the correct GST rate for specific products, such as snacks taxed at 5% versus 18%.
Rejection of input tax credit claims because of non-compliance by a vendor.
Denial of GST refund applications submitted by exporters.
Imposition of penalties for delayed or erroneous GST return filings, even if caused by technical issues.

GST disputes significantly affect businesses, particularly smaller entities. They often result in higher compliance burdens, financial strain, a loss of competitive edge, increased pressure on finance teams, and potential business disruptions.

Common Causes of GST Disputes

GST disputes typically arise from disagreements concerning:

The appropriate GST rate and classification for specific goods or services.
A business's entitlement to claim input tax credit (ITC) on GST paid for purchases.
The validity and timeliness of GST refund claims.
Discrepancies or errors identified in GST data during a tax audit.
The imposition of penalties or interest, compared to amounts already paid.

Phases of GST Dispute Resolution

GST dispute resolution begins with a disagreement, progresses through a structured exchange of notices and responses, and may ultimately involve court proceedings if no earlier resolution is reached. This process spans several stages and requires time for a final outcome.

Audit or Assessment

Tax authorities examine your GST returns and supporting documents. Should any irregularities be detected, they might issue an inquiry or objection.

Show Cause Notice (SCN)

If the department identifies a potential issue, it dispatches a formal notice detailing the alleged discrepancy and requests the taxpayer's explanation.

Response

Taxpayers can submit a response, presenting evidence or arguments to support their stance.

Final Order

After reviewing the taxpayer's reply, the tax authority issues a conclusive order, representing its final decision.

Appeal

Should a taxpayer disagree with the order, they have the option to appeal to higher bodies, including the Appellate Authority, GST Tribunal, High Court, or, in certain circumstances, the Supreme Court.

Varieties of Notices Issued by the GST Department

The GST department issues various types of notices, summarized below:

Serial No.	Notice Category	Potential Reasons for Issuance
1	Compliance	Discrepancies in Input Tax Credit (ITC) or tax liabilities between various GST returns (e.g., system-generated DRC-01B / DRC-01C). Also, mismatches in reported data, as indicated by a scrutiny notice like ASMT-10.
2	Legal Interpretation	Disagreements on correct GST rates based on HSN codes or issues related to the place of supply.
3	GST Registration	Concerns regarding an unregistered additional place of business or an unauthorized signatory.
4	Audit: DGGI	Discrepancies discovered during a physical verification audit conducted by the Directorate General of GST Intelligence (DGGI).

How to Respond to Notices and Official Orders

Different notices and orders demand specific actions. Below is a summary outlining the notices, required responses, response deadlines, and the repercussions of failing to act within the stipulated timeframes.

Sl No.	Form Name - Notice	Description	Required Reply or Action	Response Time Limit	Non-Response Consequence
1	GSTR-3A	A notice issued to taxpayers who have failed to file their GST returns, such as GSTR-1, GSTR-3B, GSTR-4, or GSTR-8.	File the outstanding GST return along with applicable late fees and interest.	15 days from notice receipt.	The department may assess tax based on its best judgment, leading to a penalty of Rs. 10,000 or 10% of the tax due, whichever is higher.
2	ASMT-02	A request for additional information required for provisional assessment under GST.	Respond using form ASMT-03, including all necessary documents.	Within 15 days of the notice's service date.	The provisional assessment application may be denied.
3	ASMT-06	A request for further information for the final assessment under GST, applicable to those who previously sought provisional assessment.	Reply using form ASMT-03 within 15 days of receiving the notice.	Within 15 days from the date of notice receipt.	The final assessment order (ASMT-07) might be issued without considering the taxpayer's submissions.
4	ASMT-10	This is a scrutiny notice issued under Section 61 of the CGST Act, highlighting discrepancies in GST returns and any associated tax, interest, or other payable amounts.	Respond using form ASMT-11, explaining the reasons for the discrepancies in the GST returns.	Within the period specified in the show cause notice, or a maximum of 30 days from service, or as otherwise notified.	The department may proceed with taxpayer assessment based on available information, issuing an order in ASMT-12, potentially leading to prosecution and penalties.
5	ASMT-14	A Show Cause Notice for assessment under Section 63, detailing reasons for conducting assessment on a best judgment basis.	Submit a written reply and appear before the issuing GST authority.	Within 15 days of the notice.	The assessment order (ASMT-15) may be unfavorable to the assessee.
6	DRC-01	A Show Cause Notice for Demand of Tax, issued to claim tax that was unpaid, underpaid, or erroneously refunded, with or without fraudulent intent. It comes with a statement of details in DRC-02.	Pay the demanded tax, interest, and any applicable penalty using DRC-03. Alternatively, use DRC-06 to formally reply to the show cause notice. Note: If no fraud is involved, a penalty applies only if payment is made beyond the 30-day limit.	Within 60 days of receiving the notice.	An order in form DRC-07 could be issued, imposing higher penalties or initiating prosecution within three years from the annual return's due date for the relevant financial year.
7	ASMT-04	An order for provisional assessment.	Comply with the stated conditions and pay tax as per the order.	As specified in the order.	Non-compliance might result in penalties and interest charges.
8	ASMT-07	A final assessment order.	Pay any determined tax, interest, or penalty.	As specified in the order.	Recovery proceedings will commence for unpaid amounts.
9	ASMT-13	A summary assessment order.	File an application for withdrawal (ASMT-14) or an appeal.	Within 30 days of the order.	The amount becomes recoverable, and assets may be attached.
10	DRC-07	A summary order detailing a demand for tax, interest, or penalty.	Pay the demanded amount or file an appeal.	Within three months of the order.	Recovery proceedings will be initiated for unpaid amounts.
11	DRC-09	An order for the recovery of outstanding dues.	Pay the outstanding dues.	As specified in the order.	Recovery actions, such as bank account attachment or property seizure, may be taken.

For more information on notices related to GST registration and other categories, please refer to our dedicated page on types of notices.

Initiating a GST Appeal

GST appeals offer taxpayers a recourse when they are dissatisfied with decisions or orders issued by tax authorities or lower courts. These appeals allow taxpayers to challenge such judgments before higher authorities. Essentially, an appeal is a formal request to a superior court to overturn a previous decision from a lower court.

Appeal Level	Original Order Issued By	Appeal Filed With	Timeframe for Filing Appeal
First	Adjudicating Authority	First Appellate Authority	Within three months of receiving the order, with a potential one-month extension.
Second	First Appellate Authority	Appellate Tribunal	Within three months of receiving the order, with a potential three-month extension.
Third	Appellate Tribunal	High Court	Within three months of receiving the order.
Fourth	High Court	Supreme Court	Within 30 days of the order or as certified by the High Court.