Tribunal sets aside tax demand for financial year 2018-19 citing retrospective provision limits

The Goods and Services Tax Appellate Tribunal has ruled that a tax demand for financial year 2018-19 cannot stand under Section 16(2)(aa) of the Goods and Services Tax Act, because this specific legal provision was only introduced later in 2022. Furthermore, the tribunal pointed out that Section 75(7) strictly prohibits authorities from confirming tax demands on grounds that were never mentioned in the original show-cause notice issued to the taxpayer. The older legal position allowed authorities broader discretion, but the new ruling establishes that retrospective application of newer clauses to past periods is legally invalid.

This decision provides significant legal clarity for businesses facing historical disputes over Input Tax Credit claims. Tax authorities previously sought to recover disputed credits by applying provisions enacted after the relevant financial year, alongside expanding the scope of demands beyond initial allegations. The tribunal's intervention reinforces procedural fairness, ensuring that businesses are only judged against the exact statutory rules and charges specified when proceedings commenced. Tax practitioners and finance professionals should review all pending historical disputes and active show-cause notices for similar retrospective overreach.

Professionals must verify whether current tax demands rely on provisions introduced after the disputed period or introduce new grounds absent from primary notices, using this ruling as precedent for defense filings. Bottom line: Verify your historical tax notices immediately to protect working capital from invalid retrospective demands.