HSN/SAC classification disputes that determine rate liability, blocked credit challenges under Section 17(5), Rule 86A ITC blocking orders, GSTR-2A/2B mismatch disputes, transitional TRAN-1 credit claims and ISD distribution controversies — AMLEGALS resolves the disputes that sit at the core of every GST assessment.
Classification and ITC disputes represent the largest category of GST litigation by value. A single HSN code determination can shift the applicable rate from 5% to 28%, or from exempt to fully taxable — with retrospective implications across all past assessments. ITC disputes directly affect cash flow: a Rule 86A blocking order freezes the electronic credit ledger, preventing utilisation of accumulated credit for output tax payment.
The GST regime\'s reliance on self-assessment and automated matching (GSTR-2A/2B auto-population) has created a new category of systemic disputes: ITC denials driven not by substantive non-compliance but by vendor filing gaps, timing mismatches and system limitations. The constitutional validity of restricting ITC based on vendor compliance is being tested across multiple High Courts.
AMLEGALS combines deep classification expertise (carrying forward two decades of Central Excise and Service Tax classification practice) with contemporary GST ITC advisory. The approach is to establish the correct classification and ITC position at the outset, defend it through adjudication, and pursue appellate relief where the initial order is adverse.
Determination of correct HSN code (goods) or SAC code (services) applying the General Rules of Interpretation, chapter notes, section notes and HSN Explanatory Notes. Advance ruling under Section 98, appeal against adverse advance rulings (Section 100), and representation in adjudication where classification determines rate.
Characterisation under Section 8 (composite supply — naturally bundled, taxed at principal supply rate) vs Section 2(74) (mixed supply — not naturally bundled, taxed at highest rate). Determination of principal supply, examination of whether supplies are naturally bundled in ordinary course of business, and challenge to department's mixed-supply characterisation.
Determination under Sections 10–14 of the IGST Act: location of supplier, location of recipient, intermediary classification (Section 13(8)(b)), OIDAR services, immovable property services (Section 12(3)), and transportation and event-related services. Challenge to wrong-tax demands (IGST vs CGST+SGST) and consequential ITC implications.
Defence against ITC denial under Section 17(5): establishing exceptions (motor vehicles for transport business, insurance for statutory obligation), challenging expansive interpretation of "construction of immovable property" vs "plant and machinery" definition, and defending ITC on food and beverage supplies for employees as part of statutory obligation.
Writ petitions against Rule 86A blocking orders: challenging the "reasons to believe" standard, demonstrating genuine transactions, producing complete audit trail (purchase orders, invoices, e-way bills, payment proof, goods receipt), and seeking interim relief for unblocking pending adjudication.
Defence against ITC denial for mismatch between GSTR-3B claims and auto-populated GSTR-2A/2B: demonstrating genuine receipt of goods/services, compliance with Section 16(2) conditions, constitutional challenge to Rule 36(4) restriction, and recourse against defaulting suppliers through Section 16(2)(c) compliance.
Filing/revision of TRAN-1 pursuant to Supreme Court directions (Filco Trade Centre), computation of eligible credit from legacy regime (CENVAT, VAT, entry tax), defence against denial of specific credit categories, and time limitation disputes on transitional credit claims.
ISD registration, distribution methodology, proportionate distribution computation, challenge to ISD invoice rejections, and the mandatory ISD mechanism from April 2025 for cross-charge scenarios. Includes structuring advice for multi-state operations to minimise ISD-related disputes.
| Category | Provision | Scope and exceptions |
|---|---|---|
| Motor vehicles | Section 17(5)(a) | Blocked except for: further supply of vehicles, transport of passengers, motor driving training |
| Food and beverages, outdoor catering | Section 17(5)(b)(i) | Blocked except when provided under any law to employees, or inward supply of same category used for outward supply of same category |
| Works contract for immovable property | Section 17(5)(c) | Blocked except for plant and machinery (definition excludes land, building, civil structures, telecom towers, pipelines) |
| Construction on own account | Section 17(5)(d) | Blocked for goods/services received for construction of immovable property on own account, even if used for business |
| Goods lost, stolen, destroyed, gift | Section 17(5)(h) | ITC reversed for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples |
| Personal consumption | Section 17(5)(g) | Blocked for goods/services used for personal consumption of any employee |
Section 17(5) has been amended multiple times since inception. The scope of exceptions varies by amendment date. "Plant and machinery" is specifically defined under Explanation to Section 17 to include apparatus, equipment, machinery affixed to earth — excluding land, building, civil structures, telecommunication towers, pipelines laid outside the factory.
GST classification disputes involve determining the correct HSN (Harmonised System of Nomenclature) code for goods or SAC (Services Accounting Code) for services, which determines the applicable rate of tax. Resolution follows the General Rules of Interpretation (GRI) for goods and the scheme of SAC classification for services. Advance ruling under Section 98 provides prospective certainty. Disputes on existing assessments go through adjudication, Appellate Authority (Section 107), GSTAT (Section 112) and High Court (Section 117). Key issues include composite vs mixed supply characterisation (Sections 8 and 2(30)/2(74)), principal supply determination, and whether a transaction is a supply of goods or services.
Section 17(5) of the CGST Act 2017 lists categories of inward supplies on which ITC is blocked regardless of business use. Key blocked categories include: motor vehicles (with exceptions for specified businesses), food and beverages, outdoor catering, beauty treatment, health services, club/fitness memberships, rent-a-cab (with exceptions), life/health insurance (with exceptions), travel (business class and above), works contract for construction of immovable property (except plant and machinery), goods/services for construction of immovable property on own account, and goods lost/stolen/destroyed/written off or disposed of by way of gift/free samples.
Rule 86A of the CGST Rules 2017 empowers the Commissioner (or authorised officer not below the rank of Assistant Commissioner) to block credit in the electronic credit ledger if the officer has "reasons to believe" that the ITC was availed fraudulently or is ineligible. The block can be for credit from a non-existent supplier, from a supplier who did not supply the goods/services, on invoices without receipt of goods/services, or on fraudulent invoices. The block must be reviewed within one year. Challenges include: writ petition before the High Court challenging the "reasons to believe" standard, showing that the blocking is arbitrary or procedurally deficient, and demonstrating genuine transactions with supporting documentation.
TRAN-1 (form GST TRAN-1) was the mechanism for carrying forward eligible CENVAT credit, VAT credit and other legacy credits into the GST regime on 1 July 2017. Disputes arise from: technical glitches in filing (the Supreme Court in Union of India v. Filco Trade Centre (2022) allowed re-opening of the portal for filing/revision), computation of eligible credit, conditions for carrying forward (closing balance of credit return, duty-paid invoices), and denial of credit for specific categories. High Courts have consistently directed that technical failures should not deprive assessees of legitimate transitional credit.
An Input Service Distributor (ISD) under Section 20 of the CGST Act 2017 is an office that receives tax invoices for input services and distributes the ITC to its other offices/branches via ISD invoices. Disputes arise on: eligibility of services for ISD distribution (input services only, not capital goods — though this is expanded from April 2025), proportionate distribution methodology (based on turnover), whether the ISD has correctly distributed CGST/SGST/IGST/UTGST, and recovery of excess distributed credit. The mandatory ISD mechanism (effective April 2025 for cross-charge scenarios) adds new compliance and dispute dimensions.
Place of supply (Sections 10–14 of the IGST Act 2017) determines whether a supply is intra-state (CGST + SGST/UTGST) or inter-state (IGST). Incorrect determination leads to: wrong tax being paid (IGST instead of CGST+SGST or vice versa), ITC complications for the recipient, refund claims, and demand proceedings. Common disputes involve: location of supplier vs place of supply for services, intermediary classification (Section 13(8)(b)), OIDAR services, bundled services, and immovable property-related services (Section 12(3)). The intermediary controversy has been the subject of extensive High Court litigation.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
Share the goods/service description, HSN/SAC code in dispute, ITC amount involved and dispute stage for a confidential preliminary assessment.