Diwan Advocates

Indirect Tax Practice

A technology company receives a show-cause notice from the GST department alleging that certain software services it supplied to overseas clients do not qualify as exports of services because the place of supply rules have been applied incorrectly. The proposed demand including interest and penalty runs to several crores. The company believes its position is correct. Its lawyers need to draft a reply that engages with the technical provisions of the IGST Act, the place of supply rules, the export of services conditions, and the relevant advance rulings and High Court decisions.

A manufacturer imports components and classifies them under a customs tariff heading that attracts a five percent duty. The customs department rejects the classification and assesses the goods under a heading that attracts fifteen percent. The difference in duty on three years of imports is material. The manufacturer has paid duty in good faith under its classification. It now needs to challenge the assessment, obtain a stay of the demand, and pursue the matter through CESTAT and, if necessary, the High Court.

Indirect tax in India after GST is both simpler in structure and more complex in practice than the pre-GST regime it replaced. The unified tax base, the input tax credit mechanism, and the online return infrastructure have rationalised the system. But the rate classification framework, the place of supply rules for services, the treatment of related party transactions, the input tax credit restrictions for specified categories of goods and services, and the interface between GST and customs create disputes that require genuine technical expertise to resolve.

At Diwan Advocates, we advise on GST compliance, customs classification and valuation, export incentive schemes, SEZ compliance, and the full range of indirect tax disputes before the GST appellate authorities, CESTAT, and the High Courts.

GST: The Core Framework

The Goods and Services Tax came into force on 1 July 2017 through a constitutional amendment and four Acts: the CGST Act, the IGST Act, and the corresponding state GST Acts. CGST and the applicable state GST apply to intra-state supplies. IGST applies to inter-state supplies and imports. The GST Council, comprising the Union Finance Minister and state finance ministers, recommends rates and policy changes that are then notified by the Central Government.

Input Tax Credit

Input tax credit allows a registered person to set off the GST paid on inputs, input services, and capital goods against the GST payable on output supplies. ITC is the mechanism that prevents the cascading of taxes through the supply chain. The conditions for claiming ITC are strict: the supplier must have filed its return and paid the tax, the recipient must hold a valid tax invoice, and the goods or services must have been received. ITC is blocked for specified categories including food and beverages, club memberships, and personal consumption.

ITC disputes are the most heavily litigated category in GST. Common disputes include the reversal of ITC on the ground that the supplier failed to pay the tax or file its return, the denial of ITC for goods and services alleged to be for personal use, and the treatment of ITC on capital goods across different uses. The Supreme Court and High Courts have developed a growing body of jurisprudence on ITC, and staying current with it is essential for any GST advisory practice.

Place of Supply and Export of Services

GST on services is levied at the place of supply, which for cross-border services is determined by detailed rules in the IGST Act. For a service to qualify as an export and attract zero-rate treatment, the supplier must be in India, the recipient must be outside India, the place of supply must be outside India, payment must be received in convertible foreign exchange, and the supplier and recipient must not be merely establishments of the same person. Each of these conditions has been litigated, and incorrect determination of place of supply is a common source of GST disputes for service exporters.

GST Assessments, Audits, and Demands

The GST department conducts scrutiny assessments, departmental audits, and special audits for specified categories of taxpayers. A show-cause notice typically alleges a specific breach: incorrect ITC claim, wrong classification, undervaluation of supplies, or failure to pay on a reverse charge basis. The taxpayer has an opportunity to file a reply and appear for a personal hearing before the adjudicating authority. We draft replies to show-cause notices, represent clients at personal hearings, and advise on the litigation strategy if the adjudication order is adverse.

GST Appeals

An adverse order of the GST officer can be appealed to the Appellate Authority at the first level, then to the GST Appellate Tribunal at the second level, and then to the High Court on a question of law. The GST Appellate Tribunal, after years of delay, is being constituted and will significantly change the pace at which GST disputes are resolved. We appear at all levels of the GST appellate hierarchy and advise on the best point in the appeal chain to raise specific legal arguments.

Customs: Classification, Valuation, and Disputes

The Customs Act, 1962 and the Customs Tariff Act, 1975 together govern the levy of customs duty on imports and exports. Classification of goods under the Harmonised System of Nomenclature determines the applicable duty rate. Valuation of goods determines the customs duty base. Both are frequent sources of dispute between importers and the customs department.

Classification Disputes

The customs department can challenge an importer's self-assessed tariff classification and issue a demand for the differential duty. Classification disputes turn on the characteristics of the goods, their principal use, and the Explanatory Notes to the HS. Courts have held that classification must be done on the basis of the goods as presented at the time of importation, not their ultimate end use. We appear before the Customs Commissioner, CESTAT, and the High Courts in classification disputes.

Customs Valuation

The primary method of customs valuation is transaction value: the price actually paid or payable for the goods when sold for export to India, adjusted for specified additions. The customs department can reject transaction value and substitute a higher value where the parties are related, where there are conditions on the sale that affect the price, or where the transaction value is significantly lower than comparable goods. We advise importers on documenting their transactions to withstand valuation challenges and represent them in valuation disputes.

Advance Rulings and Binding Guidance

The Authority for Advance Rulings under both GST and customs allows taxpayers and importers to obtain a binding ruling on the tax treatment of a proposed transaction. An advance ruling provides certainty before a transaction is entered into and avoids the risk of a post-transaction demand. We prepare advance ruling applications on classification, valuation, place of supply, and ITC eligibility questions.

Export Incentive Schemes

The Foreign Trade Policy administered by the DGFT provides a range of export incentive schemes for goods and services exporters. These include the Remission of Duties and Taxes on Exported Products scheme, advance authorisations for duty-free import of inputs used in export production, Export Promotion Capital Goods authorisations for duty-free import of capital goods, and duty drawback on customs duties paid on inputs used in exported goods. Each scheme has specific eligibility conditions, export obligation periods, and compliance requirements. Failure to meet export obligations results in duty demands with interest and penalty.

Why Diwan Advocates for Indirect Tax?

Legislative Reference Index

Indirect tax disputes are technical, fast-moving, and consequential.

Having the right team at the show-cause notice stage determines the outcome at every level above it.

Diwan Advocates is that team.

Diwan Advocates  |  Delhi, India