GST’s 8th Anniversary: With disputes piling up, India pushes for faster, fairer resolution framework

The Goods and Services Tax (GST) is arguably India’s most significant tax reform. It has simplified compliance and administration by replacing multiple indirect tax levies within a single unified system, thus harmonising tax across states. Although this reform has made considerable strides in digital compliance, the GST system is now facing a critical challenge: a rising number of tax disputes and a growing backlog within the adjudication system, that is delaying dispute resolution. While Government has taken several notable measures, as GST completes eight years, it might be the opportune time to look at the evolution of the GST adjudication system.

Also Read: GST @8: India’s tax landscape has changed but key reforms are still pending

Current Pendency at Different Adjudication Levels Under GST

Pending GST cases have more than doubled—from 10k cases involving disputed demands of INR 22k crore in 2021-22 to 22k cases amounting to INR 1.14 lac crore in 2023-24. Alongside this, the cash amount blocked in pending indirect tax appeals has more than doubled over the same period, rising from INR 3.67 lac crore to INR 7.40 lac crore.
Further compounding the issue is the extended timeline for dispute resolution. In 2023-24, approximately 22k indirect tax appeals have been pending across forums for over five years. For many taxpayers, particularly MSMEs, these blocked funds represent vital working capital frozen due to unresolved disputes, impacting operational liquidity.

Challenges in the Current Adjudication System

Several factors such as differing legal interpretations across states have contributed to the challenge. Initially, businesses were not familiar with the laws and divergent positions were adopted, with minimal clarity and precedents.
In adjudication, although the law imposes strict timelines for issuing Show Cause Notices (SCNs) and initial orders, the timelines for appellate decisions at first-level appeals or tribunal remain suggestive rather than binding. This has resulted in inconsistent adherence and rising case backlog.
The pre-deposit requirement – mandating taxpayers to deposit 10% of the disputed tax upfront before filing appeals is another constraint. While intended to filter out frivolous cases, this requirement restricts cash flow for legitimate taxpayers, particularly smaller businesses with limited liquidity.
While the Government has constituted the GST Appellate Tribunal and initiated the e-filing process, its operationalization is eagerly awaited.

Measures Taken by Government

The Government has introduced multiple measures aimed at reducing disputes and addressing systemic challenges. These include the issuance of FAQs, circulars, and advance rulings to clarify complex GST provisions and reduce misinterpretations leading to disputes.

The National Litigation Policy was also introduced to rationalise government litigation by discouraging redundant appeals, thereby focusing resources on significant cases. Additionally, monetary thresholds for departmental appeals were established to prevent compulsive appeals by tax department from overburdening the system.

In recognition of cash flow challenges faced by taxpayers, pre-deposit requirements have been relaxed. Additionally, Section 11A in the CGST Act was introduced, allowing regularisation of cases involving short levy or short payment of tax due to established trade practices on “as is/ where is”. Once implemented, it will offer a mechanism to resolve disputes on controversial sectoral issues.

Way Forward for the Current Adjudication System

These measures undoubtedly point to Government’s intention of addressing the backlog and improve dispute resolution.
As next wave of reforms in dispute resolution, the operationalisation of GSTAT will enable faster, specialised resolution of appeals.

Further, Government may consider possibility of mandating timelines for passing of appeal orders, to reduce adjudication delays. Awaited procedural guidelines for implementation of Section 11A will promote its use as an effective tool for reducing litigation volumes.

Another step worth consideration is the establishment of a National Authority for Advance Ruling (National AAR), to harmonise legal interpretations across states, eliminate conflicting rulings, and reduce disputes caused by inconsistent legal views.

Alternative Dispute Resolution (ADR): Arbitration

To ease the burden on departmental infrastructure, perhaps ADR mechanisms like arbitration may offer complementary path for dispute resolution beyond the existing adjudication process. Incorporating arbitration within GST framework would provide taxpayers and authorities with a mechanism for settling disputes in a faster, cost-effective and flexible manner. While this would not replace current adjudication, its adoption can significantly reduce litigation volumes, expedite resolution, and improve taxpayer satisfaction.

The GST framework faces a critical challenge of managing the rising volume of disputes and the growing backlog in the adjudication system. Government initiatives to clarify interpretation, rationalise litigation, relax pre-deposit norms, and introduce measures for dispute regularisation are laudable. Now swift operationalisation of GSTAT, enforcement of binding appellate timelines, establishment of a National AAR will further compliment these initiatives. Further, a broader adoption of arbitration as an ADR mechanism can also aid GST dispute resolution.
Fair to say that these reforms will create a more transparent, efficient, and fair dispute resolution structure – key to supporting GST’s objectives of simplicity, fairness, and ease of doing business.

Saurabh Agarwal and Divya Bhushan are Tax Partners at EY India. Tanmay Chaturvedi, Tax Professional, EY India also contributed to the article.