Representation on GST Issues & Reforms to Reduce Litigation & Boost Ease of Doing Business

Submission of Representation on Common GST Issues and the Need for Department-Level Reforms to Reduce Litigation and Promote Ease of Doing Business

Summary: This representation highlights critical GST issues faced by taxpayers, particularly small and medium businesses, emphasizing the need for department-level reforms to reduce litigation and promote ease of doing business. Key challenges include the lack of effective departmental remedies forcing taxpayers to approach High Courts for routine matters, inconsistencies in GST procedure implementation across jurisdictions, harsh penalties for minor errors in goods transit under Section 129, final orders exceeding the scope of show cause notices, difficulties in rectifying return errors, denial of ITC due to supplier defaults under Section 16(2)(c), and the absence of mechanisms for verifying supplier tax payments. The submission proposes solutions such as establishing in-house remedies, ensuring uniform policy through SOPs and guidelines, mandating pre-detention rectification for minor transit errors, introducing system validation for final orders, allowing return rectification during adjudication, enabling ITC re-availment for incorrect head claims without penalty if no revenue loss, and developing a mechanism for verifying supplier tax payments. These reforms aim to provide accessible remedies, ensure fair treatment, reduce judicial burden, and foster a more collaborative relationship between taxpayers and the administration.

Date: 17-04-2024

To
The Secretary,
GST Council,
Department of Revenue,
Ministry of Finance,
Government of India,
New Delhi

Respected Sir/Madam,

Subject: Submission of Representation on Common GST Issues and the Need for Department-Level Reforms to Reduce Litigation and Promote Ease of Doing Business

We, on behalf of the taxpayer community, respectfully submit this representation to bring to your kind attention several pressing issues and procedural challenges being faced by taxpayers under the current Goods and Services Tax (GST) regime. Our submission is based on extensive feedback from stakeholders, analysis of recent judicial pronouncements, and a careful review of the operational difficulties encountered in GST compliance across the country.

1. The Need for Department-Level Remedies and Uniform Policy

At present, taxpayers—especially small and medium business owners—are compelled to approach the Hon’ble High Courts under writ jurisdiction to seek redressal for issues that could and should be resolved at the departmental level. This is primarily due to the absence of effective, accessible, and timely remedies within the GST framework at the jurisdictional level. The cost of litigation before the High Courts is often prohibitive, particularly for small and medium businesses, where the disputed tax demand is frequently less than the cost of pursuing legal remedies. As a result, many honest taxpayers are left without any practical remediless, forced to either accept unjust orders or bear a disproportionate financial burden.

This situation not only causes undue hardship to taxpayers but also leads to an unnecessary increase in the workload of the Hon’ble High Courts. In a significant number of cases, the High Courts, recognizing the procedural lapses or violations of natural justice, simply remand the matters back to the original adjudicating authorities for fresh consideration. Such orders, while providing relief to the taxpayer, do not address the root cause of the problem and result in duplication of effort, wastage of resources, and avoidable delays for all stakeholders.

2. The Case for Uniform, Binding, and Practical Reforms

We respectfully submit that many of the issues highlighted in our representation—such as denial of personal hearing, improper service of notices, mechanical or non-speaking orders, rigid procedural requirements, and lack of rectification mechanisms—can be effectively addressed through minor amendments in law, clear Standard Operating Procedures (SOPs), and the issuance of binding guidelines applicable uniformly to all GST officers, whether under the Central or State jurisdiction.

Currently, there is a lack of uniformity in the implementation of GST procedures across different jurisdictions, with officers often following divergent practices based on their own interpretation or administrative convenience. This not only creates confusion and uncertainty for taxpayers but also undermines the objective of a “One Nation, One Tax” regime. There is an urgent need for a uniform, binding policy framework that ensures consistent and fair treatment of taxpayers across India, reduces avoidable litigation, and promotes voluntary compliance.

3. Benefits of the Proposed Reforms

The reforms and solutions proposed in our representation are aimed at:

• Providing accessible and cost-effective remedies to taxpayers at the department level, thereby reducing the need to approach the High Courts for routine procedural matters.
• Ensuring uniform implementation of GST law and procedures by all officers, both Central and State, through clear and binding SOPs and guidelines.
• Reducing the burden on the judiciary by resolving issues at the earliest possible stage and preventing unnecessary escalation of disputes.
• Allowing honest businessmen to focus on their core activities and contribute to the economic growth of the country, rather than being entangled in avoidable litigation.
• Enabling the department to allocate its resources more efficiently, focusing on identifying and addressing cases of genuine fraud or evasion, rather than being occupied with routine procedural disputes.

4. Our Request

We earnestly request the Government to consider the issues and solutions detailed in our attached representation. We believe that by instituting the suggested reforms, the Government can significantly enhance the ease of doing business, foster a more collaborative relationship between taxpayers and the administration, and uphold the principles of fairness and natural justice.

We remain committed to working closely with the authorities in the spirit of partnership and nation-building. We would be grateful for an opportunity to discuss these issues further and to provide any additional information or clarification as may be required.

Enclosures:

• Detailed Representation with issues and probable solutions
• Annexures to the Representation.

ISSUE NO. 1:

OPPORTUNITY OF PERSONAL HEARING NOT PROVIDED- VIOLATIONS OF SECTION 75(4) OF THE CENTRAL GOODS AND SERVICES TAX (CGST) ACT, 2017

Taxpayers across various sectors, especially small and medium enterprises, are facing persistent procedural challenges under Section 75(4) of the CGST Act. Despite submitting written requests, personal hearings are often not granted, and orders are passed mechanically without proper application of mind. In many cases, hearing dates are either not reflected on the GST portal or notices are uploaded after the scheduled date, resulting in ex parte orders.

Notices are sometimes served incorrectly or belatedly, depriving taxpayers of the opportunity to present their case. Even when hearings are granted, they are often scheduled with insufficient notice, making it difficult to prepare a proper defence.

For many, the only remedy is a writ petition before the High Court—a path that is financially burdensome and time-consuming. Repeated violations of natural justice are not only overwhelming taxpayers but are also contributing to judicial backlog, as cases remanded by courts must go through the entire adjudication process again, causing duplication of effort and resource wastage for all stakeholders involved.

For small taxpayers where the demand is between 10,000 to 50,000 are forced to not to seek remedy as cost of litigation through high court is much higher and they are left remediless.

Provisions of Section 75(4) of the CGST Act mandates that:

“An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.”

Notably, in Mahaveer Trading Company v. Deputy Commissioner State Tax (Writ Tax No. 303 of 2024), the Hon’ble Allahabad High Court not only set aside an order passed without granting a hearing, but also acknowledged the systemic failure and directed the Commissioner, Commercial Tax, U.P., to undertake remedial measures, including possible disciplinary action against erring officials.

The Court underscored that mere existence of appellate remedies is not sufficient when fundamental principles of natural justice are violated and recommended proactive steps to prevent recurrence. Despite such judicial observations, the recurring nature of such violations shows that departmental processes lack an effective, accessible, and timely internal redressal mechanism.

For your reference we have attached list of 100 judgements passed by various Hon’ble High Courts addressing the above mentioned issue in Annexure-1.

PROPOSED SOLUTION:

We hereby present to you our suggestions and prayer for introducing the following within the Adjudication Process:

1. Amendment in Law to introduce In-house remedy for ex parte orders:

• A provision similar to Section 32 of the Uttar Pradesh VAT Act, 2008 be introduced under the GST law, allowing assessees to apply for setting aside ex parte orders where there is a failure of natural justice. This would enable resolution within the department itself, reduce dependence on High Courts, and offer relief to taxpayers who miss hearings due to genuine reasons, without compromising revenue interests.
• Introduce a 30-day rectification/recall mechanism within which an taxpayer can challenge an ex parte order passed in violation of natural justice, without needing to approach the court.

2. Establish a Department-Level Redressal Mechanism:

• By amending the law introduce a provision to create a Review Panel or Grievance Cell at the Commissionerate level to entertain cases where procedural lapses (like denial of hearing) are alleged. This should allow the order to be recalled, corrected, or sent back to the adjudicating officer with directions—without forcing the taxpayer to file a writ.

3. Strict Enforcement of Section 75(4) through SOP and Trainings:

• Issue clear Standard Operating Procedures (SOPs) to adjudicating authorities emphasizing the requirement of granting hearings.
• Use the GSTN portal to mandatorily document whether hearing was granted, date/time of hearing, and remarks on non-attendance.
• Conduct training workshops for adjudicating officers to reinforce legal obligations under Section 75(4) and highlight recent judicial pronouncements.

4. Modification of Portal Functionality:

• Enable a feature on the GST portal that allows taxpayers to electronically opt for hearing and receive scheduled dates with confirmation receipts.

ISSUE NO. 2:

DIFFICULTIES IN SERVICE OF NOTICE AND ORDERS

Taxpayers are encountering considerable procedural difficulties due to ambiguities in the process and timelines for receiving electronic notices under the GST regime. Currently, notices and orders are typically uploaded on the GST portal, and the law presumes that service is complete as soon as the document is uploaded. However, this approach does not consider practical challenges such as technical glitches, outdated or incorrect contact information, or problems accessing the portal or registered email accounts.

As a result, taxpayers often remain unaware of critical communications, leading to ex parte orders, missed response deadlines, and unwarranted penalties. The situation is further complicated by the absence of a clear legal provision within the GST framework to establish when a notice is actually received or to challenge the presumption of deemed service, particularly in the context of digital communication.

Section 169 prescribes the various mode of service of notice and orders such as:

• direct delivery or through a messenger courier to the taxpayer or their authorized representative;
• by registered post, speed post, or courier with acknowledgment due to the last known address;
• by sending to the email address provided at registration
• by making it available on the common GST portal
• by publication in a local newspaper; or, if none of these are practicable,
• by affixing it at the last known place of business or residence, or on the notice board of the concerned officer.

It is respectfully submitted that departmental officers are routinely treating the mere act of uploading notices on the GST portal as sufficient service, without verifying whether such notices have actually been received or communicated to the concerned taxpayers. Consequently, ex-parte orders are being passed in the absence of any response, on the presumption that the taxpayer is non-compliant. In such cases, officers are not resorting to the alternative modes of service as prescribed under Section 169 of the CGST Act, even when there is no response from the taxpayer after uploading the notice on the portal.

In practice, taxpayers often become aware of such notices only when recovery proceedings are initiated by the department, by which time ex-parte orders have already been passed and the statutory period for filing an appeal has lapsed. This leaves taxpayers without any effective remedy, except to approach the Hon’ble High Courts under writ jurisdiction. In numerous instances, the Hon’ble Courts have recognized this procedural lapse and have remanded the matters back to the department, directing that fresh notices be issued and the matters be adjudicated afresh. For your kind reference, we have attached 112 judgments in Annexure-2 delivered by various Hon’ble High Courts addressing this very issue

PROPOSED SOLUTION:

We hereby present to you our suggestions and prayer for introducing a framework to verify actual point of receipt of communication from the department:

1. Mandatory to Send Communication through Reg. Post before Ex-Parte Decision: The Notice/Order/Any other communication should be send by the department through the registered post on the taxpayer’s registered place of business before any ex parte action is taken and the same shall be made mandatory through law.

2. Dedicated System to Track the Notice / Order Communication Status: Introduce a dedicated section where all notices and communications are clearly listed, with timestamps of upload and read status to track whether the taxpayer has accessed them.

3. Auto-reminder system: GSTN should send automatic reminders (via email/SMS) if a notice is not opened within 2–3 days of upload, to reduce the chances of missing deadlines.

4. GSTN should also provide alerts through SMS or a separate dashboard notification, so that no notice is missed by the taxpayer.

5. Proof of delivery by department: Before passing any ex parte order, the officer should record evidence that the taxpayer was properly informed—like email or post delivery status.

ISSUE NO. 3:

DIFFICULTIES FACED BY TAXPAYERS UNDER SECTION 129 – DETENTION AND SEIZURE OF GOODS IN TRANSIT

Section 129 of the CGST Act, 2017 empowers authorities to detain or seize goods and conveyances in transit for alleged violations. However, in practice, taxpayers are frequently penalized even for minor clerical or documentation errors, such as typographical mistakes, mismatch of invoice headings, or slight rate differences. These discrepancies often do not indicate intent to evade tax but result in harsh penalties and unnecessary detention of goods and vehicles.

The cost of securing release by paying penalties is substantial, especially for small and medium businesses. Further, even after payment, taxpayers must resort to the appeal process to recover amounts, adding time, cost, and emotional stress.

Despite the issuance of Circular No. 64/38/2018-GST dated 14.09.2018, which clarifies that minor procedural lapses (e.g., spelling mistakes, wrong address, or typographical errors) should not be treated as evasion, adjudicating authorities continue to impose penalties. Many orders explicitly state that the specific discrepancy is “not covered in the circular,” leading to rigid interpretations and penal consequences for genuine mistakes.

It has been observed that field officers often display reluctance in considering submissions made by taxpayers regarding minor or technical errors, even when such errors are clearly covered by existing circulars or have been settled by judicial pronouncements. Frequently, officers justify their actions by citing administrative targets or by stating that they lack the authority to provide relief, advising taxpayers to seek redress through the appellate process instead.

In practice, more than 80% of appeals filed in cases of detention involving technical or minor errors are ultimately decided in favor of the taxpayers by appellate authorities or the High Courts. However, this approach results in unnecessary delays in the movement of goods, escalates litigation, and places an additional burden on appellate forums and the judiciary.

It is also important to highlight that small taxpayers, in particular, are often unable to pursue remedies before higher courts due to the prohibitive costs involved, effectively leaving them without any practical recourse. This situation not only undermines the ease of doing business but also erodes taxpayer confidence in the system.

For your reference we have attached 100 out of many judgements passed by various Hon’ble High Courts addressing the above mentioned issue in Annexure-3.

PROPOSED SOLUTION:

We hereby present to you our suggestions and prayer for introducing a framework to address practical challenges and ensure fair implementation of provisions related to detention and seizure of goods under Section 129 of the CGST Act.

1. Statutory Recognition of Circulars and Judicial Precedents

Amend the CGST Act or issue a binding notification to explicitly mandate that minor procedural lapses, as clarified in Circular No. 64/38/2018-GST and as settled by courts, shall not attract detention, seizure, or penalty under Section 129, provided there is no intent to evade tax.

Require adjudicating authorities to record specific reasons, with reference to the circular and relevant case law, when deviating from such guidance.

2. Empowerment and Accountability of Field Officers

Provide clear administrative instructions and training to field officers, emphasizing the need for a facilitative approach and the importance of distinguishing between genuine errors and deliberate evasion.

Introduce a mechanism for accountability, including periodic review of orders passed under Section 129, and disciplinary action in cases of repeated disregard for circulars or judicial directions.

3. Pre-Detention Opportunity for Rectification

Introduce a provision for issuing a pre-detention notice in cases of minor discrepancies, allowing the taxpayer a reasonable opportunity to rectify the error or provide an explanation before any detention or seizure is initiated.

4. Streamlined and Time-Bound Redressal Mechanism

Establish a fast-track grievance redressal mechanism at the departmental level for cases involving minor or technical errors, with a mandate to resolve such cases within a specified timeframe (e.g., 48 hours).

Provide for immediate release of goods and conveyances upon submission of a suitable undertaking or security, pending resolution of the dispute.

5. Rationalization of Penalties

Prescribe a graded penalty structure, with nominal or no penalty for bona fide, minor errors, and higher penalties reserved for cases involving clear intent to evade tax.

6. Support for Small Taxpayers

Create a dedicated helpdesk or support cell for small and medium taxpayers to assist in compliance and representation in cases of detention or seizure.

Consider waiving or substantially reducing penalties for first-time or inadvertent errors by small businesses.

7. Periodic Review and Reporting

Mandate periodic publication of data on detentions, penalties, and outcomes of appeals under Section 129, to ensure transparency and facilitate policy review.

ISSUE NO. 4:

ADHERENCE TO SCOPE OF SHOW CAUSE NOTICE IN FINAL ORDERS UNDER SECTION 75(7)

Section 75(7) of the CGST Act, 2017, clearly stipulates that the amount of tax, interest, and penalty demanded in the final order shall not exceed the amount specified in the show cause notice (SCN), and that no new grounds can be introduced at the stage of adjudication. This provision is intended to safeguard the principles of natural justice and ensure that taxpayers are given a fair and reasonable opportunity to respond to the allegations made against them.

Despite this statutory mandate, it has been observed that, in practice, final orders are frequently passed with enhanced demands or on grounds that were not set out in the original SCN. Such deviations deprive taxpayers of the opportunity to present their defense on these new issues, resulting in a clear violation of natural justice. This not only leads to unnecessary and avoidable litigation before appellate authorities and courts but also increases the compliance burden and uncertainty for taxpayers.

It is further noted that the GST portal currently lacks any systemic control or validation to ensure that final orders do not exceed the scope of the original SCN, thereby allowing such procedural lapses to occur unchecked.

Issues Identified

1. Frequent Deviation from Section 75(7): Final orders are being passed with enhanced demands or on new grounds not mentioned in the SCN.

2. Violation of Natural Justice: Taxpayers are denied a fair opportunity to respond to new grounds or increased demands.

3. Increased Litigation: Such procedural lapses force taxpayers to seek redress before appellate authorities and courts, leading to avoidable litigation and judicial burden.

4. Lack of Systemic Safeguards: The GST portal does not have any built-in mechanism to prevent or flag such deviations at the adjudication stage.

PROPOSED SOLUTION:

In light of the above, the following measures are proposed to address and resolve the issue:

1. Introduce Rectification of Orders exceeded the Scope of SCN:

The current rectification provision under section 161 covers only clerical or arithmetical errors. A legal amendment should be introduced to allow a simplified rectification route for cases where final orders exceed the scope of the SCN. Taxpayers may be permitted to file a rectification through the GST portal, enabling a adjudicating officer to review and, if necessary, suo motu annul or amend such orders to prevent procedural injustice.

2. Mandatory System Validation on GST Portal: Introduce a system-based validation on the GST portal that cross-verifies the contents of the final order with the original SCN. The portal should not allow the issuance of a final order that exceeds the amount or introduces new grounds not specified in the SCN. Any attempt to do so should trigger an alert and require the adjudicating authority to provide a written justification, which should be subject to supervisory review.

3. Standardized Adjudication Templates: Implement standardized templates for final orders on the GST portal, which require the adjudicating officer to specifically reference each ground and amount as mentioned in the SCN, and to certify that no new grounds or enhanced demands are being introduced.

4. Training and Sensitization of Officers: Conduct regular training and sensitization programs for adjudicating officers to reinforce the importance of adhering to the scope of the SCN and the principles of natural justice, with specific reference to Section 75(7) and relevant judicial pronouncements.

5. Supervisory Review Mechanism: Establish a supervisory review mechanism whereby all final orders are subject to review by a higher authority to ensure compliance with Section 75(7) before they are issued to the taxpayer.

6. Issue Clarificatory Circular: The CBIC may issue a detailed circular reiterating the legal mandate under Section 75(7) and instructing proper officers to confine adjudication strictly to the grounds and figures proposed in the original SCN. The circular may also specify that any deviation requires a revised or supplementary SCN, allowing the assessee an opportunity of reply and hearing.

7. Grievance Redressal and Accountability: Create a dedicated grievance redressal mechanism for taxpayers to report instances where final orders have exceeded the scope of the SCN. Officers found to be repeatedly violating this provision should be held accountable through appropriate administrative action.

Strict adherence to Section 75(7) of the CGST Act, 2017, is essential to uphold the principles of natural justice and to ensure a fair and transparent adjudication process. The above suggestions, if implemented, will not only reduce unnecessary litigation and judicial burden but will also enhance taxpayer confidence in the GST regime.

We respectfully urge the government to consider these proposals and take necessary steps to address the issue in the interest of justice and good governance.

For your reference, we have attached 23 judgments of various Hon’ble High Courts that have addressed this issue and underscored the need for strict compliance with Section 75(7) in Annexure-4.

ISSUE NO. 5:

Issues Faced by Taxpayers in Cancellation of GST Registration under Section 29 of the CGST Act, 2017

Section 29 of the CGST Act, 2017 governs the cancellation and suspension of GST registration, either voluntarily by the taxpayer or initiated by the department. While the intent is to ensure regulatory compliance and prevent misuse of registration, in practice, taxpayers are encountering several procedural and systemic challenges.

While the legislative intent behind Section 29 is to ensure regulatory compliance and prevent misuse of GST registration, the practical experience of taxpayers reveals several areas where the current processes are resulting in undue hardship, business disruption, and procedural unfairness. We respectfully submit the following issues for your consideration:

1. Prolonged Suspension and Suo Motu Cancellations

In cases where the department initiates suo motu cancellation, the registration is often suspended immediately, but the final adjudication is not completed within a reasonable timeframe. This results in prolonged suspension, causing significant business disruption, denial of input tax credit to customers, and practical difficulties in filing returns or responding to notices due to restrictions on the GST portal.

2. Retrospective Cancellations without Adequate Hearing

There have been instances where retrospective cancellation of registration has been effected without providing the taxpayer with a clear show cause notice indicating the proposed date of cancellation or an adequate opportunity of personal hearing. Such actions have led to reversal of input tax credit already availed and passed on, resulting in cascading tax effects and financial hardship.

3. Non-Speaking and Unreasoned Orders

A recurring concern is that orders passed under Section 29, particularly in cases of suo motu cancellation, are often non-speaking and lack any reasoning or reference to the taxpayer’s submissions. This not only violates principles of natural justice but also compels taxpayers to seek appellate remedies, thereby increasing the cost and time involved in resolving such disputes.

We wish to highlight that these issues have been the subject matter of numerous judicial pronouncements, and for your reference, we have attached 100 judgments of various Hon’ble High Courts addressing the above concerns in Annexure-5.

In light of the above, we respectfully submit the following suggestions and prayers for your kind consideration, with a view to streamlining the implementation of Section 29 and ensuring procedural fairness:

PROPOSED SOLUTION:

1. Timely Processing of Voluntary Cancellation Applications: A specific time limit (for example, 15 working days) may be prescribed for the disposal of applications filed under Rule 20, to ensure that taxpayers are not subjected to prolonged compliance obligations after cessation of business.

2. Provisional Deactivation Mechanism: Upon submission of a voluntary cancellation application, a provisional deactivation mechanism may be introduced to pause further compliance requirements, thereby reducing unnecessary burden on taxpayers.

3. Auto-Revocation of Suspension: In cases where no final cancellation order is passed within 30 days of suspension, the registration may be automatically restored to prevent undue interruption of business activities.

4. Mandatory Personal Hearing for Retrospective Cancellations: Retrospective cancellation should be permitted only after issuance of a show cause notice clearly indicating the proposed date of cancellation and after granting the taxpayer an opportunity of personal hearing, in line with principles of natural justice.

5. Enable Portal Access during Suspension: Taxpayers should be permitted limited access to the GST portal during the period of suspension, to allow for submission of replies, filing of returns, and payment of dues.

6. Speaking and Reasoned Orders: It should be made mandatory for all orders passed under Section 29 to be speaking and reasoned, explicitly referring to the facts of the case and the taxpayer’s submissions. The GST portal may incorporate a structured template to prompt officers to record reasons before finalizing orders.

ISSUE NO. 6:

HARDSHIP CAUSED BY NON-SPEAKING ORDERS PASSED BY THE DEPARTMENT

Section 75(6) of the CGST Act mandates that the proper officer, while passing any order under the Act, must “set out the relevant facts and the basis of his decision.” This provision is not merely procedural; it embodies a fundamental principle of natural justice, ensuring that every quasi-judicial order is transparent, reasoned, and accountable. The requirement for a speaking order is essential to instill confidence in the system, provide clarity to taxpayers, and enable effective appellate review.

However, in practice, there is a growing trend of non-compliance with this statutory mandate, resulting in significant hardship for taxpayers and undermining the integrity of the GST adjudication process.

Key Issues Faced by Taxpayers

It is commonly observed that final orders under the CGST / SGST Act are often passed in a mechanical and template-based manner. Detailed replies and submissions made by taxpayers are frequently summarized with cursory remarks such as “the reply is found unsatisfactory” or “not acceptable,” without any meaningful analysis, rebuttal, or application of mind by the adjudicating authority. The absence of a reasoned order not only deprives the taxpayer of a fair hearing but also compels them to approach appellate forums, not for substantive relief, but merely to obtain a proper adjudication with reasoning.

This practice imposes unnecessary financial and administrative burdens on taxpayers, leads to avoidable litigation, and contributes to the clogging of appellate dockets. More importantly, it erodes taxpayer confidence and creates a perception of arbitrariness and lack of accountability in the system.

We wish to bring to your attention that this issue has been repeatedly recognized by various Hon’ble High Courts across the country. For your reference, we have attached 100 judgments in Annexure-6 addressing the non-compliance with Section 75(6) and emphasizing the necessity of speaking and reasoned orders.

PROPOSED SOLUTION:

In view of the above, we respectfully submit the following suggestions and prayers to ensure strict adherence to the principles embedded in Section 75(6) and to improve the quality of adjudication under GST:

1. Mandatory Template with Structured Reasoning Fields:

The GST portal may be enhanced to integrate a mandatory adjudication template for all orders passed under the Act. This template should require the adjudicating officer to enter:

• A summary of the taxpayer’s reply;
• Specific points of agreement or disagreement with the taxpayer’s submissions;
• The legal basis for acceptance or rejection of each argument;
• A clear and reasoned conclusion, including quantification of demand (if any).
  Such a structured approach would encourage more reasoned, case-specific, and transparent orders, reducing the scope for arbitrariness.

2. Training and Monitoring of Adjudicating Authorities:

Regular training and capacity-building programs should be conducted for adjudicating officers, emphasizing the legal importance of speaking orders and the consequences of violating Section 75(6). Officers should be sensitized to the need for detailed reasoning and the impact of their orders on taxpayer rights and the appellate process.

3. Accountability through Performance Audit:

The department may institute a system of periodic performance audits, wherein a random sample of adjudication orders is reviewed to assess compliance with Section 75(6). The findings from such audits should be used to improve internal standard operating procedures (SOPs) and to hold officers accountable for repeated non-compliance.

4. Legal Clarification through CBIC Circular:

The Central Board of Indirect Taxes and Customs (CBIC) may issue a clarificatory circular reinforcing that summary rejection of replies without adequate reasoning amounts to a violation of Section 75(6) and may render such orders legally unsustainable. This would provide much-needed clarity to both taxpayers and officers and help standardize adjudication practices across the country.

ISSUE NO. 7:

HARDSHIP CAUSED BY NO OPTION TO RECTIFY ERRORS IN GST RETURNS DURING ADJUDICATION AND APPEAL PROCEEDINGS

Under the current GST framework, taxpayers are required to file multiple returns, including GSTR-1, GSTR-3B, and GSTR-9 (Annual Return). Given the complexity and frequency of these filings, it is not uncommon for taxpayers to make unintentional errors such as incorrect disclosure of outward or inward supplies, mismatches in Input Tax Credit (ITC), or erroneous reporting of tax liability. These mistakes are often clerical in nature and do not reflect any intent to evade tax.

However, such errors frequently become the basis for demand notices or show cause notices issued by the department. Normally the department start the demand and recovery proceedings after the period of 2-3 years and at that time option to rectify the errors get over and taxpayer left remediless for minor errors and issues that does not have any impact on the government revenue but not allowing to rectify the mistakes during that time is unjust and against the right to equality.

At present, the law does not provide any mechanism for taxpayers to rectify these mistakes once the return filing period is over. Nor is there any formal recourse during adjudication or appeal proceedings to correct such discrepancies by filing revised or explanatory returns. As a result, taxpayers are left to defend genuine clerical errors through lengthy reconciliations, which are often summarily rejected without proper examination.

Consequences of the Current Framework

The absence of a rectification mechanism leads to several adverse outcomes, including:

• Unjust tax demands, even when the correct tax has been paid;
• Rejection of ITC due to errors in reporting in GSTR-3B or other returns;
• Duplicated tax liability arising from the same transaction being reported in multiple return fields;
• Inaccurate conclusions being drawn during audit or assessment proceedings;
• Escalation of issues to appeals and litigation, resulting in avoidable delays, costs, and clogging of appellate forums.

This rigid approach not only undermines the principle of fairness but also erodes taxpayer confidence in the GST system.

PROPOSED SOLUTION:

In light of the above, we respectfully submit the following suggestions and prayers for your kind consideration, with a view to creating a more balanced and taxpayer-friendly GST regime:

1. Enable Rectification During Adjudication/Appeal Proceedings:

A statutory provision should be introduced to allow rectification of clerical or reporting errors during adjudication or appeal proceedings, especially where the taxpayer can demonstrate that the actual tax liability is unaffected and proper payment has been made. The law may permit the filing of revised GSTR-3B or GSTR-1 with necessary declarations, supported by reconciliations, Chartered Accountant certifications, or revised computation statements. This would ensure that genuine errors do not result in unjust demands or denial of credit.

2. Statutory Recognition of GSTR-9 as Corrective Disclosure:

Where taxpayers have correctly disclosed information in GSTR-9, it should be presumed that the taxpayer has self-corrected any earlier discrepancies, unless there is evidence to the contrary. GSTR-9 should be recognized as valid evidence during adjudication and appeal proceedings to explain differences and reconcile figures.

3. Guidelines for Discretion in Minor Errors:

The Central Board of Indirect Taxes and Customs (CBIC) may issue a circular instructing officers to adopt a materiality threshold for minor errors or differences, particularly where there is no revenue impact. Officers should be guided to exercise discretion and avoid raising demands or denying credit for immaterial or technical mistakes. 

ISSUE NO. 8:

ERRONEOUS CLAIM OF ITC UNDER INCORRECT HEAD (CGST/SGST VS IGST) WITHOUT REVENUE LOSS

It is not uncommon for registered persons, while filing GST returns, to inadvertently claim ITC under the wrong head—for example, availing credit under CGST/SGST instead of IGST, or vice versa. Such errors are typically clerical or inadvertent, arising from the complexity of GST compliance, and are made without any mala fide intent. Importantly, these mistakes do not result in any loss of revenue to the Government, as the total quantum of credit claimed remains unchanged and the taxpayer is otherwise eligible for the credit under Section 16 of the CGST Act, 2017.

The GST law already recognizes the need for correction in analogous situations. Section 77 of the CGST Act, 2017 and Section 19 of the IGST Act, 2017 provide a mechanism for refund or adjustment where tax has been paid under the wrong head due to misclassification of supply (inter-State vs intra-State). However, there is no corresponding provision for rectifying ITC availed under the wrong head, even though such errors only affect the distribution of credit between the Centre and the State and do not impact the overall revenue.

Consequences of the Current Framework

The absence of a statutory rectification mechanism for such ITC errors leads to the following adverse outcomes:

• Taxpayers face undue demands, interest, and penalties during audit or scrutiny, even when the error is bona fide and there is no revenue loss.
• The process of reversing and re-availing ITC under the correct head is not formally recognized, leading to uncertainty and litigation.
• Taxpayers are discouraged from voluntary compliance due to the fear of penal consequences for genuine mistakes.
• The administrative burden on both taxpayers and the department increases, as such issues escalate to appeals and courts.

We wish to draw your attention to several judicial pronouncements that have recognized the need for a corrective mechanism in such cases, including:

1. Rejimon Padickapparambil Alex vs. Union of India & Others (Kerala High Court)

2. Divya s.r. Vs. State of kerala & Others (Kerala High Court)

3. Chukkath Krishnan Praveen & Others vs. State of Kerala & Others (Kerala High Court)

4. Sun Dye Chem Vs. The Assistant Commissioner (ST), the Commissioner of State Tax (Madras High Court)

These judgments have emphasized that where there is no loss of revenue and the eligibility of ITC is not in dispute, taxpayers should not be penalized for such technical errors.

PROPOSED SOLUTION:

In light of the above, we respectfully submit the following for your kind consideration:

We suggest that a mechanism, similar to that provided under Section 77 of the CGST Act, 2017, be incorporated for cases where ITC has been claimed under the wrong head. Specifically, taxpayers should be permitted to reverse the ITC claimed under the incorrect head and re-avail it under the correct head, without payment of interest or penalty, provided that:

• There is no loss of revenue to the Government;
• The eligibility of ITC is otherwise not in dispute;
• The error is bona fide and not with any intent to evade tax.

Such a provision would promote voluntary compliance, reduce unnecessary litigation, and align the law with the principles of equity and fairness.

We believe that the introduction of a statutory rectification mechanism for ITC claimed under the wrong head will greatly benefit both taxpayers and the administration, ensuring that technical errors do not result in disproportionate hardship. We urge the Government and the GST Council to consider this suggestion favorably and to initiate the necessary legislative and administrative changes at the earliest.

ISSUE NO. 9:

PRACTICAL INFEASIBILITY OF ENSURING TAX PAYMENT BY SUPPLIER – SECTION 16(2)(C)

Section 16(2)(c) of the CGST Act, 2017 stipulates that a registered person is eligible to avail ITC only if the tax charged in respect of such supply has been actually paid to the Government by the supplier, either in cash or through utilization of input tax credit. While the intent of this provision is to safeguard government revenue, its practical implementation has resulted in significant hardship for bona fide recipients.

Currently, there is no statutory or technological mechanism available to the recipient to verify whether the supplier has actually discharged the tax liability to the Government. The filing of GSTR-1 by the supplier and the reflection of invoice data in the recipient’s GSTR-2B only indicate that the invoice has been reported, but do not conclusively establish that the corresponding tax has been paid through GSTR-3B. In cases where the supplier defaults in filing GSTR-3B or underreports liability, the recipient is left with no means to verify or ensure compliance.

This situation leads to several adverse outcomes:

• Denial or Recovery of ITC: Recipients are denied ITC or subjected to recovery proceedings, even when they have acted in good faith, paid the full invoice amount (including tax) to the supplier, and fulfilled all other conditions under Section 16(2).
• Unreasonable Burden on Recipients: The provision effectively shifts the responsibility of tax collection and compliance monitoring from the Government to the buyer, which is neither reasonable nor feasible, especially in cases involving large dealer networks or purchases from small or unknown vendors.
• Litigation and Audit Objections: The lack of a verification mechanism has led to widespread litigation, audit objections, and loss of legitimate credit, undermining the ease of doing business and the trust-based nature of the GST regime. Department during audit and show cause stage point out that tax is not deposited by the supplier that usually takes place after 4-5 years after the transaction took place and it becomes impossible in some cases to track and find the such defaulting suppliers.
• Practical Impossibility: In many cases, especially for large businesses with thousands of vendors, it is practically impossible to trace and verify the final tax discharge by each supplier.

PROPOSED SOLUTION:

In light of the above, we respectfully submit the following suggestions and prayer for your kind consideration:

1. Development of a Statutory Verification Mechanism: The Government may develop and implement a statutory mechanism or technological solution (such as a real-time portal or dashboard) that enables recipients to verify, at the time of claiming ITC, whether the supplier has actually discharged the tax liability in respect of the relevant invoice. This could be integrated with the GST portal and linked to GSTR-3B filings.

2. Deeming Provision for ITC Eligibility: In the absence of such a mechanism, it is requested that a deeming provision be introduced, whereby if the recipient has paid the invoice amount (including tax) to the supplier and the invoice is reflected in GSTR-2B, the recipient’s ITC claim should be considered valid, unless there is evidence of collusion or fraud.

3. Guidelines for Officers: The Central Board of Indirect Taxes and Customs (CBIC) may issue a circular instructing officers not to deny ITC to recipients solely on the ground of non-payment of tax by the supplier, unless it is established that the recipient was a party to the default or has not acted in good faith.

4. Awareness and Education: The Government may also consider conducting awareness programs and issuing FAQs to clarify the rights and responsibilities of recipients in this regard, and to reduce unnecessary disputes and litigation.

Summary Table: GST Issues & Proposed Solutions

Issue No. & Title	Key Challenges/Problems	Proposed Solutions
1. No Personal Hearing (Section 75(4))	– Hearings not granted despite requests- Ex parte orders due to lack of notice- Small taxpayers left remediless- Judicial backlog due to repeated violations	– In-house remedy for ex parte orders (like UP VAT Act)- 30-day rectification/recall window- Dept-level grievance cell/Review Panel- SOPs, portal documentation, officer training- Portal feature for hearing requests & confirmations
2. Service of Notice & Orders (Section 169)	– Notices presumed served on upload- Taxpayers unaware due to tech issues- No clear receipt verification- Ex parte orders without proper service	– Mandatory registered post before ex parte action- Portal tracking of notice status/read receipts- Auto-reminders via email/SMS- Alerts through SMS/dashboard- Proof of delivery before ex parte orders
3. Detention & Seizure of Goods (Section 129)	– Harsh penalties for minor errors- Circulars/judgments not followed- Officers reluctant to provide relief- Small taxpayers unable to appeal- High litigation despite most appeals favoring taxpayers	– Statutory recognition of circulars/judgments- Officer training & accountability- Pre-detention rectification opportunity- Fast-track redressal for minor errors- Graded penalties, support for small taxpayers- Periodic review/reporting of detentions
4. Scope of Show Cause Notice (Section 75(7))	– Final orders exceed SCN scope- New grounds introduced at adjudication- No portal safeguards- Increased litigation	– Rectification route for orders exceeding SCN- System validation on portal- Standardized order templates- Officer training- Supervisory review before order issue- Clarificatory CBIC circular- Grievance redressal & officer accountability
5. GST Registration Cancellation (Section 29)	– Prolonged suspension, delayed adjudication- Retrospective cancellations without hearing- Non-speaking, unreasoned orders- Business disruption, ITC reversal	– Time limit for voluntary cancellation disposal- Provisional deactivation on application- Auto-revocation if no order in 30 days- Mandatory hearing for retrospective cancellations- Portal access during suspension- Mandatory reasoned orders with structured templates
6. Non-Speaking Orders (Section 75(6))	– Orders lack reasoning, are template-based- Taxpayer submissions not addressed- Increased appeals for proper adjudication	– Mandatory order templates with reasoning fields- Officer training & monitoring- Performance audits of orders- CBIC circular clarifying need for reasoned orders
7. No Rectification of Return Errors	– No mechanism to correct return errors during adjudication/appeal- Unjust demands for clerical mistakes- Escalation to litigation	– Allow rectification during adjudication/appeal- Recognize GSTR-9 as corrective disclosure- CBIC guidelines for materiality threshold in minor errors
8. ITC Claimed Under Wrong Head	– ITC claimed under wrong head (CGST/SGST vs IGST)- No revenue loss, but penalized- No formal correction process	– Allow reversal & re-availment of ITC under correct head without penalty/interest if no revenue loss- Statutory mechanism similar to Section 77 for ITC errors
9. ITC Linked to Supplier’s Tax Payment (Section 16(2)(c))	– Recipients denied ITC if supplier defaults- No way to verify supplier’s tax payment- Unreasonable burden on buyers- Widespread litigation	– Statutory/tech mechanism to verify supplier’s tax payment- Deeming provision for ITC if invoice in GSTR-2B & payment made- CBIC guidelines to not deny ITC unless collusion/fraud- Awareness programs for taxpayers

The objective of this representation is to work collaboratively with the Department in creating a fair, transparent, and legally sound adjudication system that serves both the revenue and the public interest. We respectfully submit that unless corrective measures are institutionalized at the departmental level, taxpayers will continue to suffer due to procedural infirmities, and valuable judicial resources will be unnecessarily burdened. We humbly request you to consider this representation on behalf of the lacks of honest and law-abiding taxpayers, and we remain available for any further discussion or assistance in this regard.

*****

CA Himanshu Singh

LLM, FCA

Visiting Faculty NACIN, Lucknow

Visiting Faculty, UP State GST Officers Training Institute Lucknow

Visiting Faculty, The Institute of Chartered Accountants of India.

Mob: 9125777007

Email: mr.himanshu@icai.org