LATEST GST CASE LAWS: 03.10.2026
🔥📛 Bombay HC to examine whether Deputy Commissioner can authorise search and seizure u/s 67
➡️ The Bombay High Court has issued notice in a writ petition challenging the legality of search and seizure proceedings initiated under Section 67 of the Maharashtra GST Act.
➡️ The Assessee’s principal contention is that the Deputy Commissioner did not possess the statutory authority to authorise the search and seizure, and that such power is vested only in the Joint Commissioner.
➡️ The disputed search and seizure action was undertaken by the GST authorities on the basis of an authorisation specifically granted by the Deputy Commissioner, bringing the competence of the authorising officer into direct question.
➡️ The case raises an important jurisdictional issue for GST proceedings—whether a search conducted pursuant to authorisation by an officer allegedly lacking the prescribed statutory rank can be sustained in law.
➡️ The High Court has granted the State three weeks to file its reply and the Assessee one week thereafter to file a rejoinder, if any, and has directed that the matter be listed on November 19, 2026.
✔️ Bombay HC – Hemang Bipin Varaiya vs The State of Maharashtra & Ors [WRIT PETITION NO. 12636 OF 2026]
🔥📛 SC to examine HC-judgment dismissing constitutional challenge to Sec. 16(2)(c); Stays coercive steps
➡️ The Supreme Court has issued notice in the SLP challenging the Rajasthan High Court’s ruling on Section 16(2)(c) of the CGST Act and, pending further consideration, directed that no coercive steps be taken against the assessee. Notice is returnable in four weeks, with dasti service also permitted.
➡️ The Rajasthan High Court had upheld the constitutional validity of Section 16(2)(c), relying principally on the Supreme Court’s order in Bhandari Scrap Traders, which approved the Gujarat High Court’s decision in Maruti Enterprise. It held that the constitutional challenge to the condition requiring actual payment of tax by the supplier was no longer an open issue and that ITC is a conditional statutory entitlement, not a vested or constitutional right.
➡️ The High Court explained that all conditions under Section 16(2) are cumulative, including the requirement that tax charged by the supplier must ultimately be paid to the Government. Read with Section 41, the scheme requires reversal of ITC where the supplier defaults but allows the recipient to re-avail the credit once the supplier pays the tax; therefore, the denial was viewed as contingent and reversible rather than permanent or confiscatory.
➡️ The assessee’s request to read down Section 16(2)(c), relying on decisions such as Sahil Enterprises, Instakart Services and National Plasto Moulding, was rejected. The High Court observed that such protection, even where recognised, applies to bona fide transactions and does not extend to cases involving collusion, fraud or sham transactions; the present proceedings under Section 74 alleged multi-layered paper transactions without actual movement of goods, making the factual determination crucial.
➡️ The High Court also rejected challenges to the Section 74 proceedings and alleged breach of natural justice, noting that the show-cause notice contained specific allegations of fraud and suppression and that such factual issues should ordinarily be examined through the statutory adjudication process rather than by prematurely challenging the notice. The Supreme Court’s interim protection now keeps coercive recovery in abeyance while the broader issues arising from Section 16(2)(c) are reconsidered in the pending SLP.
✔️ SC – Sumetco Alloys Private Limited vs UOI & ors [Petition for Special Leave to Appeal (C) No. 33701/2026]
🔥📛 HC: Section 6 notification only imposes conditions; Non-issuance does not render cross-empowerment otiose
➡️ The Madras High Court Division Bench held that cross-empowerment of Central and State GST officers flows directly from Section 6(1) of the CGST Act and does not depend upon issuance of a separate notification.
➡️ Following the Supreme Court’s ruling in Armour Security, the Court clarified that the notification contemplated under Section 6(1) is meant only to prescribe conditions or limitations for exercising cross-empowered powers and is not the source of such authority.
➡️ The Court rejected the assessee’s argument that cross-empowerment remains ineffective until a notification is issued, holding that mere non-issuance of a notification cannot keep Section 6 inoperative or indefinitely suspend the statutory powers granted under it.
➡️ Relying also on the Supreme Court’s principle in Gannon Dunkerley, the Court observed that absence of a law or notification prescribing conditions cannot ordinarily be treated as a condition precedent where the substantive taxing or statutory power already exists under the governing provision.
➡️ Consequently, the assessee’s challenge to proceedings solely on the ground of absence of a Section 6 notification was held unsustainable; the earlier writ court orders were set aside and the matters were remanded for fresh consideration in accordance with the Supreme Court’s conclusions and guidelines.
✔️ Madras HC – The State Tax Officer vs Shri Amman Traders & Ors [WA No. 687 of 2026]
🔥📛 AAR: IPO-related expenses eligible for ITC to extent linked to fresh issue and furtherance of business
➡️ Telangana AAR held that ITC on IPO-related expenses depends on the nature of the issue. Where an IPO comprises both a fresh issue of shares and an Offer for Sale (OFS) by existing shareholders, the eligibility of ITC must be determined separately for expenses attributable to each component.
➡️ ITC on expenses relating to the fresh issue of shares—such as merchant banker fees, legal consultancy, registrar fees, underwriting commission, advertising and listing fees—is available where the funds raised are used for business purposes, including setting up new stores or warehouses, meeting working-capital requirements and repaying business borrowings.
➡️ ITC is not available on the portion of IPO expenses attributable to the OFS by existing shareholders because the sale proceeds accrue to the shareholders and not to the company. Merely facilitating the OFS does not make such expenditure part of the company’s business, requiring an appropriate segregation of common IPO expenses.
➡️ Interpreting Section 16(1) of the CGST Act, the AAR held that “in furtherance of business” is wider than “in the course of business” and covers activities that promote, advance, facilitate or support the taxable person’s business. IPO expenditure may therefore have an indirect yet substantial nexus with business, and such expenditure is not specifically blocked under Section 17.
➡️ Rejecting the view that ITC is confined to inputs directly connected with taxable outward supplies, the AAR emphasized that Section 16(1) permits credit where goods or services are used or intended to be used in the course or furtherance of business. It also relied on the Supreme Court’s reasoning in Safari Retreats and the CESTAT ruling in Kernex Microsystems, which recognized credit on services used for raising capital through an IPO.
✔️ Telangana AAR – In the matter of Sai Silks Kalamandir Ltd [TS AAR Order No. 10/2026]
🔥📛 GSTAT: Safari Retreats functionality test doesn’t extend to hotel/resort buildings; Construction “on own account” blocks ITC
➡️ GSTAT Bengaluru upheld denial of ITC, along with applicable interest and penalty, on goods and services used for construction of a resort comprising rooms, restaurant, catering and event facilities. It held that, for Section 17(5)(d), the defined expression “plant and machinery” applies from July 1, 2017, and a building or civil structure cannot fall within that statutory exception.
➡️ Applying the Supreme Court’s ruling in Safari Retreats, the Tribunal held that the functionality test cannot bring a hotel or resort building within “plant” where the building itself is used for providing accommodation, food, weddings, events and similar services. Since the resort’s principal business was that of a hotel, ITC on construction of the resort building remained blocked both under the earlier and the amended Section 17(5)(d).
➡️ The Tribunal clarified that construction is “on his own account” when a taxpayer constructs a building to serve as the setting for its own business. The relevant distinction is not between business and personal use, but between property retained and used by the taxpayer for its own operations and property intended to be sold, leased or licensed to another person; therefore, use of the resort for taxable business did not remove the restriction.
➡️ Referring to Section 155, the Tribunal held that the taxpayer bears the burden of proving ITC eligibility and identifying specific goods or services that fall outside the blocked-credit provisions. A general request that the department verify the claim is insufficient, particularly where the taxpayer admits that goods and services were used to construct an immovable property for use in its own resort business.
➡️ The Tribunal, however, clarified that Section 17(5)(d) does not automatically block ITC on every purchase made by a resort owner. Credit relating to movable assets, machinery, equipment, furniture, fixtures and similar supplies must be examined individually to determine whether they were used for construction of immovable property and, if so, whether the resulting asset qualifies as “plant and machinery”; where it does, ITC is not blocked.
✔️ GSTAT Bengaluru – Flora Kingdom Farm Resort vs Commissioner of Commercial Taxes [APL/05/BUR/2026]
🔥📛 GSTAT: Non-litigants entitled to Ocean Freight IGST refund as per Mohit Minerals; Separate orders unnecessary
➡️ GSTAT Surat dismissed 46 Revenue appeals and upheld refund of IGST paid under RCM on ocean freight, holding that the levy struck down as unconstitutional in Mohit Minerals was void from inception and the Supreme Court’s ruling applies retrospectively unless expressly made prospective.
➡️ The Tribunal rejected Revenue’s argument that refund was unavailable because the taxpayers were not parties to the Mohit Minerals litigation, holding that tax collected without authority of law violates Articles 265 and 300A and refund entitlement arising from an unconstitutional levy is not confined to the original litigants.
➡️ Relying on Mafatlal Industries, GSTAT held that the principle that every taxpayer must independently challenge an illegal levy does not bar refund where the levy itself has been declared unconstitutional; the declaration of invalidity provides the legal basis for similarly placed taxpayers to seek restitution.
➡️ On unjust enrichment and alleged double benefit, the Tribunal held that utilisation of IGST credit did not defeat the refund claim where equivalent CGST/SGST credit remained available and could be used to reverse the corresponding IGST credit, thereby ensuring that no unintended monetary benefit accrued to the taxpayer.
➡️ GSTAT further held that a departmental appeal under Section 112(3) cannot travel beyond the grounds authorised by the Commissioner, and that the Supreme Court’s Mohit Minerals judgment itself constitutes sufficient legal foundation under Rule 89(2) for claiming refund; no separate order specifically in the taxpayer’s name is required.
✔️ GSTAT Surat – Assistant Commissioner, CGST & Central Excise vs Filatex India Limited [APL/11-56/SRT/2026]
🔥📛 GSTAT: Commercial credit note permits ITC retention despite 180-day reversal requirement; Interest liable for intervening period
➡️ GSTAT Bengaluru partly allowed the appeal by setting aside the demand for reversal of IGST credit and penalty under Section 74, while sustaining interest on proportionate ITC for the period during which consideration remained unpaid beyond 180 days as required under the second proviso to Section 16(2).
➡️ The Tribunal held that where consideration remains unpaid beyond 180 days, proportionate ITC reversal is initially attracted. In the present case, the assessee could not produce contemporaneous evidence showing that the reduction in price had been agreed within the prescribed 180-day period, and therefore the statutory requirement became applicable.
➡️ Relying on CBIC Circular Nos. 92/11/2019-GST and 251/08/2025-GST, the Tribunal held that a financial/commercial credit note that does not reduce the original taxable value or supplier’s GST liability does not require corresponding ITC reversal by the recipient. Once the supplier accepted the reduced consideration in full settlement while retaining the GST paid on the original invoice value, the recipient became entitled to retain the ITC.
➡️ The Tribunal clarified that the subsequent waiver of the outstanding consideration cures the ITC position prospectively under the third proviso to Section 16(2), and Rule 37(4) protects such re-availment from the time restriction under Section 16(4). However, the later waiver does not erase the interest liability for the intervening period during which proportionate ITC remained liable to reversal.
➡️ Invocation of Section 74 was held unsustainable because mere detection of unpaid consideration during audit does not establish fraud, wilful misstatement or suppression with intent to evade tax, particularly when the liability was disclosed in the books and audited financial statements. Applying Section 75(2), the Tribunal treated the proceedings as falling within Section 73 limitation, preserved the applicable interest liability, and deleted the Section 74 penalty.
✔️ GSTAT Bengaluru – Maltown Electricals Private Limited vs Commissioner of Central Tax, Mysore [APL/84/BUR/2026]
🔥📛 GSTAT: E-way bill reuse requires corroborative evidence of earlier goods movement, not mere date discrepancies
➡️ GSTAT Lucknow upheld the First Appellate Authority’s decision deleting the penalty under Section 129 of the CGST Act, holding that an allegation of reuse of e-way bills cannot be sustained merely on suspicion or inference and must be supported by clear, positive and reliable evidence showing an intent to evade tax.
➡️ The Tribunal held that differences between the dates of invoices, loading and actual movement of goods do not, by themselves, establish reuse of e-way bills. To prove reuse, the Revenue must produce corroborative material showing that the same documents were connected with an earlier movement, delivery or unloading of the same goods.
➡️ The driver’s statement that the goods were loaded on July 9, 2024, despite invoices being dated earlier, was found insufficient because there was no independent evidence of any prior transportation or completed delivery. The subsequent extension of the e-way bills also did not establish reuse in the absence of evidence linking them to an earlier movement.
➡️ Physical verification revealed no excess, shortage or mismatch in the quantity or description of goods, and the goods found in the vehicle fully corresponded with the accompanying invoices. The absence of any physical discrepancy materially weakened the Revenue’s allegation that the documents related to a different or unaccounted consignment.
➡️ The Tribunal reaffirmed that penalties involving alleged misuse or reuse of e-way bills require cogent evidence rather than presumptions, relying on Allahabad High Court rulings in Hindustan Herbal Cosmetics, Shyam Sel and Power Ltd., Maa Vindhyavasini Tobacco Pvt. Ltd. and Ashoka P.U. Foam, along with the Supreme Court’s principle in Hindustan Steel Ltd. concerning the imposition of penalties.
✔️ GSTAT Lucknow – Akata Singh vs OM Marketing, Partnership [APL/129/LCK/2029]
🔥📛 GSTAT: 7-day period for passing penalty u/s 129 after service of MOV-07 mandatory; Post that period, penalty illegal
➡️ GSTAT Ernakulam held that an order imposing penalty under Section 129 of the CGST Act must be passed within the statutory period of seven days from the date of service of the notice prescribed under Section 129(3).
➡️ The Tribunal set aside the penalty where Form GST MOV-09 was issued 230 days after Form GST MOV-07, holding that such an extraordinary delay violated the clear and definite statutory limitation and rendered the order illegal and without jurisdiction.
➡️ It emphasised that the seven-day timeline under Section 129(3) is mandatory and must be strictly followed; the tax authority cannot keep penalty proceedings pending beyond the period specifically prescribed by law.
➡️ The Tribunal observed that nothing prevented the State tax authority from passing the penalty order within seven days, and failure to do so resulted in the proceedings becoming barred by limitation and legally unsustainable.
➡️ The First Appellate Authority was faulted for overlooking this apparent statutory violation; consequently, the appellate order and the penalty were set aside, reinforcing that non-compliance with the mandatory timeline under Section 129(3) vitiates the entire penalty proceedings.
✔️ GSTAT Ernakulam – Lachmandas & Company vs Commissioner of Kerala State GST, Thiruvananthapuram [APPEAL NOS: APL/32/ERN/2026]
🔥📛 GSTAT: Carrying E-way Bill pre-April 2018 under Rule 138 not mandatory; Quashes detention & penalty
➡️ GSTAT Agra held that carrying an e-way bill for inter-State movement of goods was not mandatory before April 1, 2018, as the Central Government made the compulsory e-way bill regime effective only from that date under Rule 138 of the CGST Rules, 2017.
➡️ The goods were intercepted on November 24, 2017, much before the mandatory e-way bill requirement came into force; therefore, absence of an e-way bill on the date of interception could not, by itself, constitute a statutory violation warranting adverse action.
➡️ The dispute arose from detention of a consignment of old used iron for alleged violation of Sections 67 and 68 of the CGST/SGST Acts read with Rule 138, resulting in demand of tax of ₹91,180 and an equal penalty, aggregating to ₹1,83,960.
➡️ The Tribunal noted that there was no discrepancy in the quantity, weight or description of the goods, both the supplier and recipient were bona fide registered dealers, and the vehicle was travelling on its designated route; these circumstances indicated absence of any intention or possibility of tax evasion.
➡️ Accordingly, GSTAT answered the issue regarding compulsory e-way bill requirement against the Revenue for the pre-April 1, 2018 period; however, as recorded in the supplied case summary, the Tribunal ultimately dismissed the appeal and upheld the detention and penalty, despite its findings on the non-mandatory e-way bill requirement and absence of tax evasion.
✔️ GSTAT Agra – Neeraj Shukla vs Jay Steels [APL/44/AGR/2026]
🔥📛 HC: Selling-dealer’s fraud not purchasing-dealer’s fraud; No mechanical ITC denial, provides Sec.16(2)(c) invocation guidelines
➡️ The Punjab & Haryana High Court, while deciding 424 writ petitions, held that Section 16(2)(c) of the CGST Act cannot be applied mechanically to deny ITC merely because the supplier failed to deposit tax with the Government. The purchasing dealer cannot automatically be treated as responsible for the supplier’s default or fraud unless there is material establishing the purchaser’s involvement or connection with such wrongdoing.
➡️ Subsequent or retrospective cancellation of the supplier’s GST registration may justify an inquiry, but cannot by itself form the basis for denial or reversal of ITC or retrospective cancellation of the purchaser’s registration. Before issuing a notice, the proper officer must independently examine the relevant suppliers, invoices, tax periods, ITC involved, nature and reasons for the supplier’s default, and any proceedings already initiated against the supplier.
➡️ Proceedings for ITC denial must disclose the material relied upon, details of the concerned suppliers, the manner in which ITC is alleged to have been wrongly availed and the supporting documents. Where Section 74/74A is invoked, the notice must specifically set out foundational facts demonstrating fraud, wilful misstatement or suppression; mere non-payment of tax by the supplier is insufficient to attribute fraud to a bona fide purchasing dealer.
➡️ A purchasing dealer may establish genuine ITC entitlement through tax invoices and evidence of actual receipt of goods or services, including e-way bills, transport receipts, weighbridge slips, stock records and consumption records. In cases involving retrospective cancellation of a supplier’s registration, authorities must examine the grounds and effective date of cancellation and determine whether they genuinely affect the particular transaction with the purchaser.
➡️ Authorities must verify and coordinate recovery proceedings against defaulting suppliers, avoid double recovery of tax and permit credit or re-availment wherever legally permissible. The law applicable to the relevant tax period must be applied without retrospectively importing later amendments; personal hearing under Section 75(4) must be granted, cross-examination requests involving third-party statements must be decided by reasoned order, and the final order must address the taxpayer’s evidence and each disputed Section 16(2) condition. Any DRC-03 payment made during investigation cannot substitute a legally valid show-cause notice containing the necessary foundational facts.
✔️ P&H HC – Shaurya Alloys Pvt. Ltd. v. State of Punjab & Ors [CWP – 34296 – 2024]
