GST Litigation Strategies: Protecting Your Position in Tax Disputes

The GST Dispute Landscape: Where We Stand

GST litigation in 2026 looks different from the early transition years. The low-hanging fruit—procedural defects, transitional credit disputes, technical portal issues—has largely been harvested. The disputes now are substantive: classification battles, valuation methodologies, place of supply determinations, and the perennial question of what qualifies as input tax credit.

The revenue authorities have also matured. The early inconsistencies across states have reduced as officers gained experience and internal guidelines developed. That said, we still see significant variation in how identical issues are treated across jurisdictions—a GST designed to be one nation, one tax, still operates with notable federal friction.

What hasn't changed is the importance of getting the documentation right. In our experience, the businesses that maintain comprehensive records—not just invoices but supporting contracts, price justifications, delivery evidence, and end-use documentation—prevail more often. GST is a documentary tax; your documents are your defense.

The procedural framework has also tightened. Limitation periods are being enforced more strictly, appeal requirements are formalized, and the tolerance for technical defects has reduced. The informal resolution channels that characterized early GST have given way to more formal, litigious interactions.

Assessment Proceedings: Responding Effectively

When you receive a show cause notice under Section 73 or 74, the clock starts running. You have 30 days to respond—extendable, but not indefinitely. How you use this time shapes the entire dispute.

First, analyze the basis of the demand. Is this a classification dispute? A valuation issue? An ITC denial? Each category requires different defensive strategies. Don't file a generic response—tailor your reply to the specific grounds raised.

Second, gather your evidence immediately. By the time you receive a notice, the department has already completed its investigation. You're playing catch-up. Identify the documents that support your position and organize them chronologically. Create a clear narrative that the assessing officer can follow.

Third, consider the personal hearing strategically. You have the right to be heard—exercise it. The written submission matters, but the personal hearing is where you can address doubts, clarify positions, and sometimes identify settlement possibilities. Prepare thoroughly: anticipate questions, have documents accessible, and bring someone with technical knowledge of your business.

Fourth, don't concede unnecessarily. We see businesses accept partial demands to avoid litigation, only to find that the concession creates precedent for future assessments. If your position is legally defensible, defend it. The assessment order isn't the end—it's often just the beginning.

Input Tax Credit Disputes: The Battleground

ITC denial is the most common GST dispute we handle. The grounds for denial have evolved: initially, it was GSTR-2A mismatches; now, it's more sophisticated challenges to the nexus between inputs and business activities.

The "used or intended to be used in the course or furtherance of business" test in Section 16 sounds straightforward but creates substantial litigation. When a manufacturer maintains a guest house, are those inputs business-related? When a company provides transport to employees, is the GST on vehicles recoverable? Courts have reached different conclusions on similar facts.

Our defensive approach has three elements. First, contemporaneous documentation of business purpose. Don't wait for an audit to explain why a particular input serves business objectives—document it when the expenditure is incurred. Second, clear organizational policies that establish the business rationale for expenditure categories. Third, allocation methodologies for shared-use assets that can withstand scrutiny.

The GSTR-2A/GSTR-2B reconciliation disputes deserve special mention. The law is now clear: ITC cannot be denied solely because your supplier didn't file returns, provided you have valid tax invoices and have actually received goods or services. But proving receipt, particularly for services, requires documentation many businesses don't maintain. Start maintaining delivery chalans, service completion certificates, and payment records systematically.

Classification and Valuation: The Technical Disputes

Classification disputes—determining the correct HSN code for your supplies—involve both law and facts. The legal framework is the Customs Tariff Act principles applied to GST: General Rules of Interpretation, Section Notes, Chapter Notes. The factual element is understanding what your product or service actually is, which surprisingly often differs from how you've marketed or described it.

We approach classification disputes by building both legal and technical cases. The legal case analyzes tariff entries, explanatory notes, and comparable rulings. The technical case—often supported by expert reports—establishes what the product does, how it's manufactured, and how the industry understands it. The combination is more persuasive than either alone.

Valuation disputes arise when the department believes your transaction value doesn't represent fair market value—typically in related-party transactions. The GST Valuation Rules follow transfer pricing principles: you need to establish that your pricing reflects arm's length values, using comparable uncontrolled prices, resale price methods, or cost-plus approaches.

Document your transfer pricing rationale in real-time. If you're pricing intra-group transactions below market because of volume commitments, document the volume agreement. If pricing reflects credit terms, document the credit policy. The time to build your valuation defense is when you set prices, not when the department challenges them.

The Appellate Journey: Strategic Considerations

If the assessment goes against you, the appeal to the First Appellate Authority is mandatory before approaching higher forums. This isn't a formality—the First Appellate Authority can and does reverse assessment orders. Prepare your appeal with the same rigor you'd bring to a High Court matter.

The appeal involves a 10% pre-deposit of disputed tax (capped at ₹25 crore for CGST and ₹25 crore for SGST). This isn't waivable, but the limitation is significant for large disputes. Factor the cash flow impact into your litigation strategy.

The GST Appellate Tribunal, when it becomes operational, will be the next tier. Based on the legislative framework, we expect technical members with accountancy or commerce backgrounds alongside judicial members—a composition that should improve the quality of tax jurisprudence.

High Court intervention is possible through writ jurisdiction for procedural violations, jurisdictional excess, or violation of natural justice. The courts have been receptive to GST writs, particularly where the department acts beyond its powers or fails to follow mandated procedures. But remember: writ jurisdiction is discretionary and shouldn't substitute for the statutory appeal route on factual disputes.

Strategic considerations matter throughout. Sometimes accepting a partial demand and not appealing makes business sense—litigation has costs beyond legal fees. Other times, the principle matters and precedent implications require fighting. We help clients think through these trade-offs explicitly.

Advance Rulings: When and How to Use Them

The Advance Ruling mechanism offers certainty on GST treatment before you enter transactions. For significant deals, new business lines, or complex arrangements, this certainty has real value.

But advance rulings have limitations. They bind only the applicant and the jurisdictional officer, not authorities in other states. If you operate nationally, a ruling from the Maharashtra AAR doesn't protect your Karnataka transactions. The ruling is also susceptible to appeal by the department, which can create uncertainty during the appeal period.

The application requires careful drafting. You're essentially framing the question and the facts. How you frame matters—overly narrow questions may not cover your actual transaction; overly broad questions invite unhelpful general answers. Include enough factual detail to get a meaningful ruling, but not so much that you expose aspects you'd rather not highlight.

Prepare for personal hearings thoroughly. The Authority will question your commercial rationale, the substance of arrangements, and the basis for your proposed treatment. Come prepared to explain not just what you're doing, but why—commercially, not just from a tax perspective. Arrangements that appear designed solely for tax benefits face skeptical reception.