Case Law Details
Vedanta Limited Vs Union of India & others (Orissa High Court)
Demand of Rs. 231 Crore stayed on SCN issued for multiple years where Constitutionality and fairness of ISD provisions is under challenge
The Hon’ble Orissa High Court in Vedanta Limited v. Union of India & Ors [W.P.(C) No. 23286 of 2025, order dated August 25, 2025] held that there is a prima facie case concerning the challenge to GST Input Service Distributor (ISD) provisions, and, citing Karnataka High Court precedent, stayed the operation of a show cause notice for GST demand issued for multiple financial years until further orders.
Facts:
Vedanta Limited (“the Petitioner”) is engaged in manufacturing with a centralized Input Service Distributor (ISD) mechanism for allocating input service credits to its units. The Petitioner challenged a GST demand of Rs. 231 crores arising out of ISD credit distribution, issued via show cause notice dated June 20, 2025, for multiple financial years.
The Union of India and GST authorities (“the Respondents”) raised the demand based on Section 21 of the CGST Act and relevant ISD rules, holding Vedanta liable as a recipient for alleged inaccuracies in ISD credit distribution. The Respondents maintained that recovery against recipients is legally valid under the scheme.
The Petitioner contended that Section 21 violates constitutional rights by allowing recovery from ISD credit recipients who have no control over the ISD’s processes, thereby treating passive recipients as wrongdoers. The Petitioner also argued that Section 21 conflicts with Sections 73 and 74 (which pertain only to wrongful availment/utilization of credit), and challenged the lack of guidelines on attribution under Section 20 and relevant rules, asserted the show cause notice is non-est for lumping multiple years, and highlighted the absence of savings enabling action for periods before April 1, 2025, when ISD provisions were substituted.
The Respondent countered that the statutory framework permits such proceedings and that appropriate opportunities for representation and adjudication exist.
Aggrieved by the demand and notice, Vedanta Limited approached the Orissa High Court under Article 226, seeking a declaration that the ISD provisions are unconstitutional and for quashing of the notice.
Issue:
Whether the vires of Section 21 and related ISD provisions of the CGST Act, and the legality of issuing a composite show cause notice for multiple years, violate constitutional rights and settled GST recovery principles?
Held:
The Hon’ble Orissa High Court in W.P.(C) No. 23286 of 2025 held as under:
- Observed that, the petitioner has challenged the vires of GST ISD provisions and the legality of a composite notice covering multiple financial years, raising constitutional and procedural issues.
- Noted that, the Karnataka High Court in Veremax Technologie Services Ltd. held that a single show cause notice covering multiple years is impermissible, lending prima facie support to the Petitioner’s position.
- Held that, a prima facie case is made out by the Petitioner, in light of similar pending writs in the Orissa High Court and the Karnataka High Court’s precedent.
- Directed that, the operation of the impugned show cause notice No.29/2025-26 dated June 20, 2025, be stayed until the next hearing, and tagged the matter with other petitions raising the same legal issue.
- Ordered consolidated pleadings and scheduled the matter for further hearing on September 22, 2025.
Our Comments:
This matter raises critical constitutional and procedural questions regarding ISD liability under the GST framework. The challenge to Section 21 as imposing vicarious liability on recipients, who lack agency or control, highlights the principle that only those who avail or utilize credit wrongfully should be subject to demand under Sections 73 and 74— a distinction lost in blanket ISD recovery provisions. The Petitioners’ challenge also targets statutory uncertainty in “attributability” of credit, exposing arbitrariness and potential for undue hardship.
The High Court’s reliance on Karnataka High Court’s Veremax Technologie Services Ltd. v. Assistant Commissioner of Central Tax [W.P. No.15810/2024, order dated September 4, 2024] judgment illustrates judicial consensus that a single show cause notice for several years violates procedural fairness and confounds the assessees’ ability to respond. In Veremax, the Karnataka HC quashed such a composite notice on due process grounds, emphasizing natural justice in fiscal proceedings.
On the Constitutional side, the lack of a “savings clause” for pre–April 1, 2025 periods, post substitution of ISD provisions, may result in abatement of earlier causes, unless otherwise protected by law. The challenge to the legislative vires, particularly in the absence of guidelines to ensure fair attribution of credits, is in line with Article 14 (equality), Article 19(1)(g) (right to trade), and Article 265 (no tax except by authority of law) of the Constitution.
Relevant Provisions:
Section 21 of the Central Goods and Services Tax Act, 2017
21. Manner of Recovery of Credit Distributed in Excess
“Where the Input Service Distributor distributes the credit in contravention of the provisions contained in Section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of Section 73 or Section 74 or Section 74A,as the case may be, shall, mutatis mutandis , apply for determination of amount to be recovered.”
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. Leave is granted to the petitioner to add the State CT & GST Authorities as party-opposite parties in the instant writ petition. A copy of the writ petition shall be served upon Mr. Sunil Mishra, learned Standing Counsel, who appears for the State CT & GST Department in course of the day.
2. Since Mr. P.K. Parhi, learned Deputy Solicitor General of India along with Mr. Satya Narayan Pattanaik, learned Central Government Counsel appears and waives service of notice on behalf of opposite party nos.1 & 5, Ms. Aishwarya Dash, learned Additional Standing Counsel appears and waives service of notice on behalf of opposite party no.2 and Mr. Avinash Kedia, learned Junior Standing Counsel appears and waives service of notice on behalf of opposite party nos.3 & 4, learned counsel for the petitioner is directed to serve adequate number of copies of the writ petition on them in course of the day.
3. We find that certain provisions of the GST Act are challenged in the instant writ petition being unconstitutional and contrary to the settled principles of law as recognized in the Indian Legal Parlance. Apart from the aforesaid relief, the challenge is also founded upon the notice dated 20th June, 2025 on the premises that it covers multiple financial years which is impermissible in law. The aforesaid point came up before the High Court of Karnataka in Writ Petition No.15810 of 2024, decided on 4th September, 2024 (Veremax Technologie Services Ltd. Vs. Assistant Commissioner of Central Tax), wherein the Single Bench was of the view that one show-cause notice for multiple tax periods are not permissible and quashed the same.
4. The spate of writ petitions have been filed before this Court taking the same plea and have been admitted by this Court by granting liberty to the authorities to file their affidavit. One of such writ petitions being W.P.(C) No.27979 of 2024 is pending before this Court, where the identical legal issues are involved.
5. List this matter along with W.P.(C) No.27979 of 2024 on 22nd September, 2025. Consolidated cause title of the writ petition be filed within a week from date. Counter affidavit be filed within two weeks from date and Rejoinder be filed within one week thereafter.
6. There shall be stay of operation of the impugned show-cause notice No.29/2025-26, dated 20th June, 2025 vide Annexure-P-1 till the next date.
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