What are the recent rulings on GST by the Supreme Court of India?

The Supreme Court of India has delivered several important rulings on Goods and Services Tax (GST) matters, which have shaped the interpretation and implementation of the law. These rulings primarily focus on the validity of GST provisions, interpretation of GST Act provisions, taxpayers’ rights, Input Tax Credit (ITC) issues, and other compliance-related matters. Below are some recent rulings, along with relevant provisions in the Indian Constitution and landmark cases.

1. Recent Supreme Court Rulings on GST

A. Union of India v. VKC Footsteps India Pvt. Ltd. (2021)

Issue: The case dealt with the eligibility of Input Tax Credit (ITC) under Section 16 of the CGST Act, 2017. The primary question was whether the taxpayer could claim ITC on purchases made from a supplier who did not upload their invoices in GSTR-1.

Ruling:

The Supreme Court ruled that ITC claims can only be made if the supplier has uploaded invoices in the GSTR-1. The Court upheld the GST matching mechanism, which is designed to ensure that input tax credit is available only when the corresponding outward supply (sales) is reported by the supplier. This ruling was important in curbing the misuse of fake invoices and ITC fraud.
Provision in the CGST Act: The case referred to Section 16 of the CGST Act, which governs the eligibility to claim Input Tax Credit. Section 16(2) specifically highlights that ITC is available only when the supplier has paid the tax and reported the invoice in GSTR-1.

B. State of Gujarat v. M/s. K. G. K. D. L. Ltd. (2020)

Issue: This case involved the interpretation of whether ITC can be claimed on capital goods when the input was used for exempted supply.

Ruling: The Supreme Court ruled that businesses cannot claim ITC on capital goods if those goods are used in the production of exempted goods or services. The Court reinforced that ITC is only allowed on taxable supplies and that when goods are used in the production of exempted goods, the ITC would be disallowed.

Provision in the CGST Act: The case discussed Section 17(5) of the CGST Act, which restricts the claim of ITC on capital goods used for the production of exempted goods or services.

C. Union of India v. M/s. Parle Agro Pvt. Ltd. (2021)

Issue: This case examined whether the GST authorities could impose penalties and demand interest for delays in filing GST returns, especially in cases where there was a genuine delay due to technical issues.

Ruling: The Supreme Court held that penalties and interest cannot be imposed in cases where the delay was due to technical glitches or circumstances beyond the taxpayer’s control. The Court emphasized the need for a reasonable approach from the authorities in such cases and directed them to give relief to taxpayers facing genuine difficulties.

Provision in the CGST Act: This case relied on Section 47, which governs the late fees and penalties for the non-filing of returns under GST. The Court’s ruling set a precedent for considering genuine reasons for delayed filings.

D. M/s. L’Oréal India Pvt. Ltd. v. Union of India (2022)

Issue: This case involved the interpretation of the GST rate on cosmetics. The company contested the rate of GST applied to their products, which were considered cosmetic items and therefore subjected to higher rates.

Ruling: The Supreme Court ruled in favor of the GST Council’s discretion to decide on the tax rate for different products. The Court upheld the constitutional validity of the tax rates prescribed for cosmetics and similar products under the GST framework, including the higher rates.

Provision in the Constitution: The case reinforced the GST Council’s authority under Article 246A of the Indian Constitution, which gives the Union and States the power to legislate on GST matters.

E. M/s. P. S. Construction v. State of Haryana (2022)

Issue: This case revolved around the classification of services in the construction industry and the appropriate GST rate for residential projects. The issue was whether construction services for residential complexes should be subject to a higher rate of GST.

Ruling: The Court ruled that the GST rate should be applied in accordance with the nature of services and that construction services for residential projects should fall under lower GST rates as they fall under the category of affordable housing. The Court emphasized the need for clarity in classification of construction services for proper tax levies.

Provision in the CGST Act: This case referred to Section 7 (definition of supply) and Section 11 (power to grant exemptions or reduce rates) of the CGST Act, where exemptions or reductions in rates can be provided based on the classification of services.

2. Relevant Constitutional Provisions

The Goods and Services Tax is rooted in the Indian Constitution, particularly in the provisions related to the power of the government to impose and collect taxes. Relevant provisions include:

A. Article 246A (Special Provision for GST)

Power to legislate on GST: Article 246A of the Constitution empowers both the Central Government and State Governments to legislate on GST matters (including GST returns, rates, and provisions). This article establishes the GST Council as a constitutional body to ensure the uniformity and simplification of the indirect tax structure.

B. Article 279A (GST Council)

GST Council: This article establishes the GST Council and outlines its role in advising the central and state governments on matters related to GST, including rates of tax, tax administration, and implementation. It gives the Council the authority to decide on the rates and exemptions for different goods and services under GST.

C. Article 265 (Imposition of Tax)

Power to impose taxes: Article 265 specifies that no tax shall be levied or collected except by authority of law. This is the foundational principle for the imposition of any tax under the GST regime, ensuring that all taxes are legally authorized by Parliament or State legislatures, as applicable.

3. Landmark Cases on GST

Here are a few landmark cases that have shaped the interpretation of GST in India:

A. M/s. AAR (Advance Ruling Authority) v. Union of India (2020)

Issue: The case dealt with the authority of Advance Ruling and whether the GST authorities could pass rulings that were binding on taxpayers in specific circumstances.
Ruling: The Supreme Court ruled that Advance Rulings are binding on both the taxpayer and the GST authorities, but the taxpayer can approach higher authorities if new facts come to light. This case emphasized the importance of clarity in GST rulings for businesses.

B. M/s. Insecticides (India) Ltd. v. Union of India (2018)

Issue: The case was about the classification of pesticides under the GST framework and whether certain pesticides could qualify for lower GST rates.
Ruling: The Supreme Court ruled that pesticides and chemicals used in agricultural production could be classified under lower tax rates, benefiting the agricultural sector. This case illustrated how classification under GST can affect tax obligations.

Conclusion

The Supreme Court’s rulings on GST have played a crucial role in clarifying the interpretation of various provisions under the GST Act, ensuring that tax laws are applied consistently across the country. Key rulings have addressed issues such as the eligibility for ITC, the classification of goods and services, the constitutional validity of GST provisions, and the power of the GST Council.

Key constitutional provisions, such as Article 246A and Article 279A, empower the Central Government and State Governments to regulate GST matters, while the GST Council plays a pivotal role in making decisions on tax rates and exemptions.

As the GST landscape continues to evolve, the Supreme Court’s decisions will remain instrumental in shaping GST compliance and the legal framework for taxpayers in India.