A functional GSTAT – an immediate judicial remedy

One of the most important aspects of the GST regime is the dispute resolution mechanism that provides taxpayers with a judicial forum to redress their grievances against the authorities (Representative image)

Charanya Lakshmikumaran and Amrinder Singh

The goods and services tax (GST) is considered a symbol of cooperative federalism because it represents a successful collaborative effort between the Centre and the states. It took the National Democratic Alliance (NDA) government three years to herald this monumental reform. But setting up a GST tribunal – that has been a different story.

One of the most important aspects of the GST regime is the dispute resolution mechanism that provides taxpayers with a judicial forum to redress their grievances against the authorities. The GST Appellate Tribunal (GSTAT), as envisaged, provided for a three-member bench; one technical member each from the Centre and the state and one judicial member.

On a challenge to this structure, the Madras High Court held that the provisions related to the establishment of the GSTAT were unconstitutional because they violated the principles of separation of powers and the independence of the judiciary.

Relying on numerous Supreme Court judgments, the high court held that two technical members and one judicial member in the GSTAT compromised the independence required for a judicial body. This essentially required an amendment in the provisions to align the constitution of the tribunal with the decisions of the Supreme Court and High Court.

Inequitable situation

Be that as it may, the delay in setting up the GSTAT created a significant void in the GST dispute resolution mechanism, leaving assessees with no option but to approach various high courts for redressal of their grievances. It is not just the taxpayers who are suffering, but also revenue collection.

The authorities are unable to recover demands that they may be legally entitled to. The courts have taken the position that it is inequitable for the authorities to recover the demand when the government itself has not set up the appellate forum.

The GST Council had tasked a Group of Ministers (GoM) in July 2022 with recommending amendments to align the provisions of setting up the GSTAT with the principles laid down in the judgments of the Supreme Court and ensure that they are legally sustainable.

During the 49th GST Council meeting on February 18, 2023, the GoM report on the constitution of the GSTAT was discussed and two significant decisions were taken. The first decision pertained to whether to establish separate national and state tribunals or a single tribunal with a principal bench and state benches. The second decision concerned the balance between the judicial and technical members in the GSTAT.

It was decided that there will be a principal bench situated in New Delhi and state benches depending upon the requirements of states or a group of states. This would mean all issues would be decided by the benches operating under the common structure, which is something taxpayers are familiar with under the excise and service tax regime. The unified structure of the GSTAT is a positive move aimed at reducing litigation over time.

It also appears that the GST Council is set to recommend an equal number of technical and judicial members in all the benches. Accordingly, the GSTAT in every state is expected to consist of two judicial members and two technical members, one each from the Centre and the state. However, decision making in the GSTAT will be by two members – one judicial and one technical.

Recently, the Supreme Court mentioned that the GSTAT should be completely paperless. It will be interesting to see whether the Council deliberates on the GSTAT going completely paperless – from filing to disposal. This could be implemented by incorporating the matter in the rules pertaining to the GSTAT.

With this progress in the GST Council, we hope that the amendments are finalised in the coming weeks after deliberations by the Council members and the GSTAT is constituted in the immediate future.

Charanya Lakshmikumaran and Amrinder Singh are partners, Lakshmikumaran & Sridharan.