By Smita Singh
A critical aspect of GST implementation over the past 8 years to some extent has been policy variability. In the first year alone, the GST Council made dozens of changes to tax rates, return forms, and compliance requirements. While the changes were very much required in order to address ambiguities, the constant changes created confusion for taxpayers and professionals alike. Businesses had to continuously update their systems and reconfigure accounting processes just to keep up. It would not be wrong to say that GST initially turned into a shifting target, leaving taxpayers in a constant state of doubt.
GST rate slabs and inverted duty structure
Frequent changes in the GST regime have caused considerable confusion for taxpayers and businesses, particularly SMEs and MSMEs. The GST Council regularly revises tax rates, leading to uncertainty in pricing and inventory management. Unfortunately the assessees were left to decide the applicable rate by themselves without much clarity on it. The biggest debacle was that of paratha, chocolate peanut butter, etc. This confusion has led to numerous litigation which has not only kept our judiciary very busy but has also bled MSMEs and SMEs financially.
The recent “GST 2.0” reforms aimed to simplify the system with fewer tax slabs, however businesses continue to face challenges in adapting to rapid updates in rates, return formats, and compliance procedures. While lowering of the rates was a much welcome and needed step, however the roll out needed to be backed by a concrete plan to ensure a seamless transition. Till the last moment businesses were confused regarding practical issues such as changes in MRP, profiteering provisions, etc.
Further the new structure largely still did not cater to the problem of inverted duty, something that has been triggering complications for businesses over the last 8 years.
Constant Changes in Return Formats Confuse Taxpayers
Ambiguity over the years has been caused by frequent alterations in GST returns, like the pause of GSTR-2 and GSTR-3 or the new GST returns, introduction of Invoice Management System (IMS) and hard-locking of auto-filled GSTR-3B. Again it’s a no brainer that such frequent changes that have to be amalgamated in inhouse ERP systems are a huge financial drain for assesses. Further SMEs and MSMEs without systematic access to qualified support are baffled by altering invoice-matching regulations, reconciliation procedures, etc. SMEs struggle with tech limitations and costly digital filings to meet obligations, undermine the goal of simplified taxation.
Portal Failures Disrupt Timely GST Compliance
Technology is the backbone of the GST regime and the Government has largely facilitated the entire digitisation of the return filing system in India. However, the GSTN portal collapsing during rush hour is one of the persistent issues faced by businesses. Technical issues such as slow loading and failing logins result in missed filings and expensive fines.
Input tax credit (ITC) dilemma
Confusion surrounding ITC under the Indian GST regime stems from complex eligibility criteria, frequent rule amendments, strict compliance requirements, and issues arising from supplier non-compliance. Here are some of the key issues.
- A major source of confusion is liability of the recipient on account of non-compliance by its supplier, even if the recipient has a valid invoice and compliance on their part. Rule 37A requires buyers to reverse ITC in such situations by a specific deadline, creating a significant burden on the buyer to monitor supplier compliance. Although the judiciary has time and again ruled that bonafide buyers should not be denied ITC, however the GST department has been very aggressive on this issue, without demarcating bonafide and probable malafide transactions.
- Blocked Credits: There is a list of specific goods and services for which ITC cannot be claimed, known as “blocked credits”. The nuances of these exclusions often lead to confusion. e.g., ITC is generally not allowed on motor vehicles with a seating capacity of less than 13, food and beverages, club memberships, and works contract services for constructing immovable property (other than plant and machinery). Further it is also important to note that these rules have exceptions, such as when the goods or services are used for making further taxable supplies of the same category (e.g., a car dealer claiming ITC on cars for resale).
Although system-driven reconciliation between GSTR-1, 3B, and 2A/2B are conceptually robust, this has become a major operational challenge. Credit denials, delayed refunds, and exhaustive reconciliation efforts have turned routine compliance into a high-stakes, resource-intensive function.
Despite interventions by courts and the GST Council, these recurring issues remain contentious, stressing the need for centralised and consistent interpretation.
The Judiciary’s Role in GST Implementation
Having stated the problematic issues, it must be emphasised that the road is not as dark as it seems. Proactive clarifications from the GST Council and key decisions by the judiciary have helped resolve several issues, such as the non-taxability of ocean freight under RCM (Mohit Minerals case), clarity around liquidated damages. Courts have also clarified ambiguous terms, such as “place of supply,” in interstate transactions, which is essential for determining whether IGST, CGST, or SGST applies. However, in several jurisdictions, the establishment of the GST Appellate Tribunal was postponed, causing a huge backlog of pending cases. Many businesses await redress on issues like ITC reversals, demand notices, and tax interest disputes. The delay hindered resolution and increased compliance uncertainty.
Moreover, several rulings have supported taxpayers when input tax credit was denied due to minor clerical errors, provided the transactions were otherwise valid. These decisions help protect businesses from losing credit over procedural shortcomings. Judicial interpretation continues to shape GST’s real-world framework.
Despite its objective of creating one nation one tax, the problem of implementation of GST continues. Various challenges, such as technical, legal, and procedural along with frequent compliance related changes, continue to affect the compliance. These operational issues can be only countered when GST compliance in India is backed up by focused and continued reforms for steady progress.
(The author is Partner at S&A Law Offices)
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