Types of GST Disputes in India

The Goods and Services Tax (GST), implemented in India on 1 July 2017, is one of the most significant and remarkable tax reforms, which aims to create a unified indirect tax system. It subsumed multiple taxes such as VAT, Excise Duty and Service Tax to simplify compliance and ensure seamless credit flow. Despite its objectives, a variety of GST-related disputes continue to arise owing to interpretational issues, valuation complexities and procedural challenges.

Understanding the types of GST disputes is essential for businesses and professionals to ensure compliance with the Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act). Below are the major dispute categories, aligned with the relevant statutory provisions and CBIC (Central Board of Indirect Taxes and Customs) guidance.

Type of GST Disputes

There are various types of GST disputes, that we have mentioned below:- 

1. Classification Disputes

Disputes regarding classification of goods or services are among the most common under GST. Under Section 9 of the CGST Act, tax rates are prescribed through CBIC notifications based on Harmonized System of Nomenclature (HSN) codes for goods and Service Accounting Codes (SAC) for services.

Typical examples include:

• Whether flavoured milk should be classified as milk (nil-rated) or as a beverage (taxable at 12 % / 18 %).
• Whether a software licence constitutes a supply of goods or services.

Such disputes often arise from ambiguous tariff headings or overlapping descriptions. CBIC has clarified classification principles through its “GST Flyer on Classification of Goods and Services” and various rate notifications.

2. Valuation Disputes

Under Section 15 of the CGST Act, the taxable value of a supply is the transaction value, the price actually paid or payable, subject to inclusions such as incidental expenses, commissions and interest.

Common valuation disputes include:

• Whether post-supply discounts qualify for exclusion under Section 15(3)(b).
• Inclusion of notional interest on advances.
• Treatment of reimbursements or free supplies.

CBIC has issued several circulars, including Circular No. 47/21/2018-GST, explaining how to determine value in cases involving related parties and incidental expenses. Misinterpretation of these rules can lead to under- or over-payment of tax and subsequent litigation.

3. Input Tax Credit (ITC) Disputes

ITC forms the backbone of GST. Sections 16 and 17 of the CGST Act govern the eligibility and conditions for availing credit.

Frequent ITC-related disputes arise due to:

• Mismatch between GSTR-2A (auto-populated data) and GSTR-3B returns.
• Blocked credits under Section 17(5), for example, on motor vehicles, club memberships or construction services.
• Supplier non-compliance (non-filing of returns or non-payment of tax).
• Time limit under Section 16(4) for availing credit.

CBIC has issued Circular No. 237/31/2024-GST clarifying time limits and compliance obligations for ITC. Since ITC directly affects working capital, these disputes are among the most litigated under GST

4. Time of Supply and Place of Supply Disputes

Determining when and where a supply is deemed to occur dictates whether CGST + SGST or IGST applies.

• Time of supply, governed by Sections 12 to 14 of the CGST Act, identifies the point when liability to pay tax arises, typically on invoice or payment, whichever is earlier.
• Place of supply, under Sections 10 to 13 of the IGST Act, decides whether a transaction is intra-state or inter-state.

For example, an IT company providing services to clients across states may face disputes on whether tax should be levied as CGST/SGST or IGST. CBIC’s “Place of Supply Flyer” and Circular No. 159/15/2021-GST provide clarity on such issues.

5. Exemption and Concession Disputes

Various exemptions and concessional rates are granted through CBIC notifications issued under Section 11 of the CGST Act and Section 6 of the IGST Act.

Common controversies involve:

• Whether an educational institution qualifies for GST exemption.
• Applicability of exemption to healthcare services.
• Eligibility for concessional rates in housing or renewable energy sectors.

Courts and authorities often interpret exemptions strictly. CBIC has reiterated in FAQs that taxpayers must satisfy all specified conditions to claim such benefits.

6. Procedural and Compliance Disputes

Procedural lapses, such as return delays, documentation errors or e-way bill mismatches, often lead to penalties or denial of benefits.

Examples include:

• Late filing of GSTR-3B or annual returns under Section 44.
• Non-issuance of proper tax invoices (Rule 46).
• Errors in e-way bills (Rule 138).

Adjudication and appeal procedures are provided under Sections 73 to 75 (demand and recovery) and Sections 107 to 111 (appeals). CBIC has issued Instruction No. 02/2022-GST, outlining the standard operating procedure for scrutiny and adjudication.

Even minor non-compliance can result in notices, penalties or temporary suspension of registration.

7. Refund-Related Disputes

Refunds arise from exports, inverted duty structures or excess tax payments. Section 54 of the CGST Act and Rules 89–97 govern the process.

Frequent issues include:

• Rejection of refund claims due to incomplete documentation.
• Delay in sanctioning refunds.
• Refund of unutilized ITC in case of inverted duty structure.
• Application of the principle of unjust enrichment under Section 54(8).

CBIC’s Circular No. 125/44/2019-GST and Circular No. 181/13/2022-GST clarify documentary requirements and procedures for refunds.

8. Transitional Credit Disputes

When GST was introduced, Section 140 of the CGST Act allowed businesses to carry forward unutilized input credits from the pre-GST regime via TRAN-1 and TRAN-2 forms.

Disputes arose because many taxpayers were unable to file forms due to technical glitches or missed deadlines. Courts and CBIC intervened to reopen filing windows and issue clarifications through Circular No. 39/13/2018-GST.

These transitional credit cases remain significant in the GST litigation history, usually involving judicial review of time limits and portal accessibility.

9. Anti-Profiteering Disputes

Under Section 171 of the CGST Act, suppliers must pass on any benefit of tax rate reduction or ITC to consumers by reducing prices.

Typical issues include:

• Whether the business has genuinely passed on benefits.
• Disputes over computation methodology and profit margins.

The National Anti-Profiteering Authority (NAA), now succeeded by the Competition Commission of India (CCI), examines such complaints. CBIC has issued guidance notes and FAQs to ensure transparency in anti-profiteering investigations.

Conclusion

GST has undoubtedly made the India’s indirect tax structure smooth and simple, but evolving the interpretations and procedural complexities continue to generate the disputes and various complexities. The key to avoiding unwanted litigation lies in the strict adherence to statutory provisions, timely compliance and maintaining robust documentation.

Businesses should stay updated with the latest CBIC circulars, notifications and FAQs and consider periodic GST audits by professionals. As the law matures and judicial precedents accumulate, greater clarity and consistency are expected to emerge, helping strengthen India’s tax ecosystem and reduce disputes in the long run.