Place of Supply, Procedural Lapses & Refund Disputes — A Judicially Settled, Evidence-First Framework
By CA Surekha Ahuja
“In GST, the weakest demands are not those involving tax short-payment,
but those where tax is demanded without jurisdiction, denied on procedure, or computed without statutory discipline.”
WHY THESE GST DISPUTES DOMINATE AUDIT AND LITIGATION
Despite years of GST implementation, a disproportionate volume of audit objections continue to arise from:
-
Incorrect determination of place of supply
-
Penal consequences for procedural and technical lapses
-
Rejection or reduction of legitimate refunds and export benefits
These disputes do not arise from legislative gaps.
They arise because numerical return mismatches are examined without applying the charging framework of GST law.
GST is destination-based, intent-sensitive, and evidence-driven.
Audit objections ignoring these fundamentals rarely survive judicial scrutiny.
PLACE OF SUPPLY DISPUTES — JURISDICTION DECIDES TAX, NOT ACCOUNTING DESIGN
Where Audits Commonly Go Wrong
A recurring audit approach is to determine tax type (IGST vs CGST/SGST) based on:
-
Invoice location
-
Registration state
-
Depot or billing office
This approach is legally flawed.
What the Law Mandates
Under the IGST Act:
-
For goods, tax follows the destination under Section 10
-
For services, tax follows the recipient under Section 12
Once place of supply is established, tax type becomes automatic.
There is no statutory mechanism permitting dual levy.
Judicial Position
High Courts have consistently rejected dual taxation and jurisdictional overreach.
In Bharat Petroleum Corporation Ltd. (Delhi High Court), it was held that:
-
Recipient location prevails over internal supply chains
-
Tax cannot be re-characterised due to logistics or ERP design
Audit reality:
Where e-way bills, transport documents, and recipient address proofs align, IGST vs CGST demands routinely fail at the first appellate stage.
OIDAR SERVICES — DESTINATION TAX, NOT FOREIGN ORIGIN
Typical Audit Allegation
Foreign digital service providers often treat supplies as exports, leading to allegations of:
-
Non-payment of IGST
-
Incorrect export classification
Correct Legal Interpretation
Under Section 14 of the IGST Act, OIDAR services are taxed based on:
-
Location of the recipient
-
Not server location, contract situs, or payment currency
If the recipient is located in India, the supply is taxable in India, and the non-resident supplier must comply through GSTR-5A.
Evidence That Decides the Case
Authorities and courts accept:
-
IP address mapping
-
Geo-location tools
-
Payment gateway country identification
Where such records exist, OIDAR-related SCNs collapse on facts, not law.
DEEMED EXPORTS AND MERCHANT EXPORTS — SUBSTANCE PREVAILS OVER FORM
Audit Objection Pattern
Benefits are denied citing:
-
Absence of LUT
-
Procedural deviations
-
Timing mismatches
Settled Legal Position
Notification 48/2022-CT clarifies that:
-
Deemed export eligibility hinges on movement of goods and realisation of consideration
-
Procedural lapses cannot defeat substantive export benefits
-
ITC reversal is not automatic
Courts have repeatedly held that export incentives cannot be nullified through hyper-technical interpretation.
PROCEDURAL LAPSES — GST IS NOT A PENAL STATUTE BY DEFAULT
Delayed or Non-Filed Returns
SCNs often ignore:
-
Portal failures
-
Extension notifications
-
Absence of revenue loss
Legally:
-
Interest under Section 50 compensates delay
-
Penalty requires intent
Voluntary payment through DRC-03 before SCN issuance effectively neutralises penalty exposure — a position consistently upheld by appellate authorities.
E-WAY BILL VIOLATIONS — TECHNICAL BREACHES ARE NOT TAXABLE EVENTS
Courts have decisively drawn the line between:
-
Procedural irregularities, and
-
Tax evasion
In Ashok Gold House (Gujarat High Court), penalties were quashed where:
-
Goods were genuine
-
Documentation existed
-
No intent to evade tax was established
GST enforcement cannot be converted into a revenue tool for logistical imperfections.
REGISTRATION AND ANNUAL RETURN ISSUES — INTENT REMAINS DECISIVE
Delayed registration and non-filing of GSTR-9/9C are often penalised mechanically.
However:
-
Section 25(3) allows retrospective registration
-
Notification 30/2021-CT exempts eligible taxpayers from GSTR-9C
Where conduct is bona fide and turnover thresholds are met, penalties consistently fail judicial scrutiny.
REFUND AND EXPORT DISPUTES — REVENUE NEUTRALITY CANNOT BE IGNORED
Inverted Duty Structure Refunds
Post VKC Footsteps (Supreme Court, 2022):
-
The refund formula under Rule 89(5) stands judicially settled
-
Mechanical exclusion of ITC is impermissible
Any deviation is vulnerable to writ jurisdiction.
LUT and Export Procedural Deviations
Courts and CBIC circulars recognise substantial compliance:
-
Delayed FIRCs
-
LUT extensions
-
Documentation timing gaps
If exports are completed and foreign exchange realised, refund denial is legally unsustainable.
Excess Refunds — VOLUNTARY DISCLOSURE AS A SHIELD
Where excess refund arises due to clerical or computation error:
-
Section 54(6) permits recovery
-
Voluntary DRC-03 disclosure neutralises interest and penalty
Litigation is avoidable where disclosure precedes detection.
HOW THESE DISPUTES ACTUALLY END — PRACTICAL AUDIT INSIGHT
From extensive audit and appellate experience:
-
Place of supply disputes fail where destination evidence is clear
-
Procedural SCNs fail where intent is absent
-
Refund denials fail where export substance is proven
-
Revenue-neutral demands do not survive judicial review
CLOSING NOTE — WHY MOST GST DISPUTES ARE AVOIDABLE
GST litigation is rarely about tax evasion.
It is almost always about misreading law in isolation from commerce.
When statutory sequencing, commercial reality, and evidence alignment are presented together, even aggressive audit objections lose force.
In GST audits, clarity resolves more disputes than confrontation.
