GST Notification Struck Down: High Court Upholds Taxpayers Rights in Landmark Ruling

In a landmark judgment, the Gauhati High Court has delivered a significant ruling that strengthens taxpayers’ rights by striking down Notification No. 56/2023-Central Tax, dated December 28, 2023, as ultra vires the Central Goods and Services Tax (CGST) Act, 2017. The decision in Mahabir Tiwari v. The Union of India (WP(C)/567/2024) [2025(06)LCX0400] reaffirms the sanctity of statutory limitations and the constitutional framework underpinning the Goods and Services Tax (GST) regime in India. By invalidating the notification, which extended the limitation period for issuing notices under Section 73 of the CGST Act, the Court has underscored the necessity of adhering to legal prerequisites, such as force majeure circumstances and GST Council recommendations, for any extension of statutory deadlines.

Background of the Case

The petitioner, Mahabir Tiwari, a registered assessee under the CGST Act, 2017, and the Arunachal Pradesh GST Act, faced a Show Cause Notice (SCN) dated May 30, 2024, proposing a GST demand of over Rs. 1.2 crore for the financial year 2019–20. This was followed by an Order-in-Original dated August 29, 2024, issued under Section 73 of the CGST Act. The issuance of these orders relied on Notification No. 56/2023, which extended the time limit for issuing orders under Section 73(10) of the CGST Act for FY 2019–20 until August 31, 2024, well beyond the statutory deadline of March 31, 2024.

The petitioner challenged the validity of the notification, arguing that it lacked the mandatory legal foundations prescribed under Section 168A of the CGST Act, namely the existence of force majeure circumstances and a recommendation from the GST Council. The case rested on the interpretation of Section 168A, which allows the government to extend time limits under the CGST Act only in exceptional circumstances and with the GST Council’s endorsement.

Key Legal Issues

The central issue before the Court was whether Notification No. 56/2023 was legally sustainable in the absence of:

1. Force Majeure Circumstances: As required under Section 168A, which defines force majeure as events like war, epidemic, flood, or other natural calamities that prevent compliance with statutory timelines.

2. GST Council Recommendation: A mandatory prerequisite for exercising powers under Section 168A to extend limitation periods.

The petitioner contended that the notification was issued without fulfilling these conditions, rendering it ultra vires and the subsequent SCN and Order-in-Original time-barred. The respondents, represented by Mr. M. Ete, acknowledged the precedent set by a Coordinate Bench in Barkataki Print and Media Services v. Union of India (WP(C) No. 3585/2024) [2024(09)LCX0327], which had already declared Notification No. 56/2023 invalid, and offered no substantial rebuttal.

Court’s Analysis and Findings

The Gauhati High Court meticulously examined the legal framework governing the GST regime, particularly Section 168A of the CGST Act, introduced via the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. This provision empowers the government to extend statutory deadlines under exceptional circumstances but explicitly requires:

The Court found that Notification No. 56/2023 failed on both counts:

1. Absence of Force Majeure: The notification did not cite any force majeure circumstances justifying the extension of the limitation period. The Court noted that the 49th GST Council meeting had explicitly rejected further extensions beyond three months, emphasizing the interests of taxpayers.

2. Lack of GST Council Recommendation: The notification falsely claimed to be issued “on the recommendations of the Council,” despite no evidence of such a recommendation. The Court deemed this a “colourable exercise of power,” rendering the notification legally unsustainable.

Drawing heavily from the precedent in Barkataki Print and Media Services, the Court emphasized that the GST Council’s recommendation is a sine qua non for invoking Section 168A. The term “recommendation” was interpreted in light of judicial precedents, such as V.M. Kurian v. State of Kerala (2001), where the Supreme Court held that recommendations are not mere formalities but essential prerequisites for exercising delegated powers. The Court also referenced Mohit Minerals Pvt. Ltd. v. Union of India (2022) [2022(05)LCX0025], which clarified the GST Council’s role as a constitutional body promoting fiscal federalism, underscoring that its recommendations are critical for ensuring uniformity in GST implementation.

The Court further noted that the notification’s issuance without GST Council approval violated the principles of cooperative federalism enshrined in Articles 246A and 279A of the Constitution. These provisions grant simultaneous legislative powers to the Union and States on GST matters, with the GST Council serving as the harmonizing body. By bypassing the Council, the Central Government overstepped its delegated authority, rendering the notification ultra vires.

Implications of the Judgment

The quashing of Notification No. 56/2023 has far-reaching implications for taxpayers and the GST administration:

1. Protection of Taxpayer's Rights: The ruling reinforces the importance of statutory deadlines, preventing arbitrary extensions that could subject taxpayers to prolonged uncertainty and financial burdens.

2. Strengthening Constitutional Mechanisms: By emphasizing the GST Council’s role, the Court upholds the principles of cooperative federalism, ensuring that significant policy decisions, such as extending limitation periods, are made collaboratively.

3. Precedent for Future Challenges: The alignment with Barkataki Print and Media Services establishes a robust judicial precedent, likely discouraging similar overreaches by the government in the absence of proper legal backing.

4. Clarity on Section 168A: The judgment clarifies that Section 168A is a special provision meant for extraordinary circumstances, not a tool for routine administrative convenience.

Broader Context: The Role of the GST Council

The GST Council, established under Article 279A, is a cornerstone of India’s GST framework, designed to balance the interests of the Union and States. Its recommendations, while not always binding, are critical in areas explicitly mandated by the CGST Act, such as Section 168A. The Court’s analysis in this case highlights the Council’s role as a deliberative body that ensures uniformity and fairness in GST implementation. The ruling also underscores the judiciary’s role in checking executive overreach, particularly when it undermines the constitutional architecture of fiscal federalism.

Conclusion

The Gauhati High Court’s decision in Mahabir Tiwari v. The Union of India is a triumph for taxpayers and a reaffirmation of the rule of law in India’s GST regime. By striking down Notification No. 56/2023 and the subsequent SCN and Order-in-Original, the Court has sent a clear message: statutory powers must be exercised within the bounds of the law, and the GST Council’s role cannot be circumvented. This judgment not only protects taxpayers from time-barred demands but also reinforces the constitutional framework that underpins India’s GST system. For businesses and tax professionals, this ruling serves as a reminder of the importance of vigilance in challenging unlawful administrative actions, ensuring that the GST regime operates with fairness and transparency.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.