Tax Vista

Edn. 258 - 20th October 2025

Kasi Viswanathan V

A. Litigation:

Road restoration Not a supply by Municipality to Power Utility:

The Petitioner, an electricity distribution/utility company, challenged demand under reverse charge on opening permit charges paid to the Municipal corporation. These charges were for reimbursing the cost of repairing and restoring roads that were dug up to lay the distribution lines.

The Petitioner relied on section 42 and 67 of Electricity Act, 2003, particularly section 67(3), to argue that there is statutory obligation on petitioner to pay the compensation for the road damage caused by it to lay down the lines. The petitioner also argued that restoration of road is primary function of municipal corporation under Article 243W of the Constitution of India, which is exempt from GST upto 26.07.2018 and thereafter notified as 'neither supply of goods nor a supply of services'.

The Revenue argued that when the municipality grants permission to dig up roads, there is tolerance of act and consideration is received in the form of compensation / restoration charges making it liable to GST. They further argued that the payment is made in the course of business and does not stem from any statutory obligation, as claimed by the petitioner.

The Hon'ble High Court held that the reimbursement of road repair and restoration costs by the petitioner to the Municipal Corporation cannot be considered as a supply of service by the municipal corporation. The Court took this view for two reasons viz., (1) Municipality is not agreeing to tolerate an act of digging up of the road, rather, the petitioner is statutorily obliged to compensate for any damage under the Electricity Act, 2003 and (2) It is function of municipality to repair and restore any damaged road for whatever reason.

On an earlier occasion, the Maharashtra AAR in case of Reliance Infrastructure [2018-VIL-22-AAR] observed that the Constitution does not entitle municipalities to receive any charges from anyone for doing the said work. The AAR further noted that the primary function is road construction and maintenance, which has already been done, and restoration cannot be equated with the same and therefore, ruled that the applicant is liable to pay tax under reverse charge on reinstatement charges paid to municipality.

It should be appreciated that the GST law exemption or "no supply" applies in relation to municipality's functions, and similarly, Article 243W of the Constitution applies in relation to the matters listed in the Twelfth Schedule, which calls for a broad interpretation. Presumably for this reason, the High Court held that the municipality's functions include road restoration, irrespective of the cause of the damage.

The services performed in relation to functions entrusted to the Municipality under Article 243W of the Constitution were exempt under both Service Tax and GST. Therefore, the High Court unnecessarily observed that the scope of "supply" under the GST Act differs from that under Service Tax (Finance Act, 1994) in order to counter the Revenue's reliance on Service Tax circulars.

An interesting aspect of the case is that, ordinarily, a transaction is examined from the supplier's standpoint, considering whether the municipal authority is performing a statutory function and the basis for collection of charges. This approach applies even in cases of reverse charge, where the liability is assessed first and then the determination is made as to who bears the charge (supplier or recipient). The notable exception arises in the context of exemptions, which typically focus on the recipient.

Albeit there was no recipient-based exemption, the Court considered the statutory obligation of the recipient, i.e., the distribution licensee's obligation to compensate under the Electricity Act offering an insightful and unusual angle.

The analysis would have been complete and beneficial to all utilities, if the Court, instead of merely stating that the rules are framed by the appropriate government to grant permission, had also cited the provisions applicable to the supplier and expressed a view on them. Notably, Reason (2) above i.e. restoration of road is function of municipality is evaluated from the supplier's perspective. [2025-VIL-1036-GUJ]

SC affirms Delhi HC view protecting ITC:

The Delhi High Court [2013-VIL-04-DEL] held that ITC could not be denied where the purchaser had no means to verify the selling dealer's tax deposit or ascertain the cancellation of the supplier's registration. In facts of the present case, the registration of the selling dealers was cancelled subsequent to the transactions. The Department had taken action against the purchasing dealer merely on account of lesser payment of tax by the selling dealer, proceeding on the assumption of collusion without conducting any verification or inquiry. The High Court allowed the taxpayer's appeal and directed the Department to grant ITC after due verification.

The matter was carried by the Department to the Supreme Court in Civil Appeal. The Hon'ble Supreme Court dismissed the appeal, holding that there was no good reason to interfere with the order of the High Court directing grant of ITC benefit after due verification.

In the process, the Supreme Court referred to the decision of Hon'ble Delhi High Court [2017-VIL-544-DEL] in the case of Quest Merchandising/Arise India, wherein section 9(2)(g) of DVAT Act, 2003 was read down to exclude the bonafide purchasing dealers who had entered into transactions with registered selling dealers, who have issued tax invoices, and there is no mismatch of the transactions between the details of sales(Annexure 2B) and details of purchases (Annexure 2A) reported with the returns. The Supreme Court dismissed the Revenue's Special Leave Petition against this decision [2018-VIL-01-SC].

In the earlier occasion, the Delhi High Court's decision did not merge with the Supreme Court's order, as the matter was disposed of at the SLP stage. However, in the present case, being a Civil Appeal, the Delhi High Court's view stands affirmed by the Supreme Court. That said, this affirmation does not extend to reading down Section 9(2)(g) of the Delhi VAT Act, 2003, since the provision was introduced in 2010 and the assessments in the present case pertain to prior years.

Moving on to the effect of this decision on GST matters, as noted above, material provision section 9(2)(g) of the DVAT Act, making payment of tax by selling dealer as a condition for ITC, was not in place at the relevant time. In any case, even Delhi High Court decisions interpreting Section 9(2)(g) have not considered the matter in light of the 'burden of proof' on the purchasing dealer, as clarified by the Supreme Court in Ecom Gill [2023-VIL-20-SC], and therefore would not be of assistance. Under GST, the relevant provisions to consider in this context would be Section 16(2)(c) and Section 155 which govern the entitlement to ITC. Thus, the Supreme Court's decision would have limited application to DVAT matters prior to 2010. [2025-VIL-83-SC]

GST returns cannot be disclosed under RTI:

In a case involving an RTI application seeking copies of GST returns of third parties (i.e., other than the applicant), Public information officer issued notice to the third party under section 11 of the RTI Act seeking their consent/no-objection for disclosure. As the third parties objected, the RTI application was rejected.

The matter was challenged before the Hon'ble Bombay High Court. The HC upheld the action observing that the case involved only bald allegations and did not fall under the exceptions under section 8(1)(j) of RTI Act, which allows disclosure where the larger public interest justifies it.

Importantly, the High Court held that Section 158 of the GST Act prohibits the disclosure of returns filed except in cases covered under sub-section (3) of the GST Act. GST Act, being a special and later enactment, overrides the RTI Act (a general enactment), and information prohibited under Section 158 cannot be disclosed under the RTI Act. [2025-VIL-1080-BOM]

High Court Views consolidate on Consolidated SCNs

In line with decisions of Karnataka, Kerala and Madras High Courts, the Bombay High Court has also held that the scheme of the GST Act does not envisage bunching of show cause notice covering multiple financial years, and accordingly set aside such consolidated show cause notice. The Court distinguished its earlier decision in Riocare [2025-VIL-347-BOM], noting that the observations therein were only prima facie and made without detailed examination of the statutory provisions.

The only contrary final view so far has been that of the Delhi High Court [2025-VIL-806-DEL, 2025-VIL-909-DEL], which, in cases involving input tax credit (ITC), held that the fraudulent availment or utilization of ITC often cannot be established without linking transactions across multiple financial years. Accordingly, in matters alleging fraudulent ITC, the issuance of a consolidated notice and order for multiple financial years was held to be permissible and legally tenable under the CGST Act.

Apart from interpreting the scheme of the GST Act, the Courts also considered the possible prejudice highlighted by the petitioners, such as:

(1) shorter time available to submit a proper and meaningful reply,

(2) inability to file applications for compounding or amnesty,

(3) deprivation of the opportunity to settle or contest each year separately, and

(4) Frustrates limitation period.

While evaluating whether to challenge a consolidated SCN or order through a writ petition, it would be relevant to examine whether actual prejudice has been caused in the facts of the case. [2025-VIL-1081-BOM]

B. GSTN Update

GSTR-9/9C Filing for F.Y. 2024-25

a. GSTR-9 and GSTR-9C are enabled for Financial Year 2024-25.

b. All underlying returns (GSTR-1 and GSTR-3B) for F.Y. 2024-25 must be filed before filing GSTR-9/9C.

c. A FAQ containing 24 Q&As has been released, highlighting changes in reporting arising from updates to the form, such as Table 6A1 and 6M of GSTR-9. It also provides details on data auto-populated in Table 8A (online) and explains the reasons for variance with Table 8A (Excel download).

(Advisory dated 15.10.2025 & FAQ)

New Changes in Invoice Management System (IMS) - October 2025 Returns

a. Introduction of a 'pending' status for credit notes for one reporting period.

b. Allows declaration of ITC reversal amount corresponding to accepted credit notes, ensuring that reversal aligns with ITC claimed and not the full tax on the credit note.

c. Option to save remarks when selecting 'reject' or 'pending'. In case of Partial and no reversal remarks will be mandatory.

(GSTN update dated 17.10.2025)

Time-limit for filing GSTR-3B return extended

The due date for filing the GSTR-3B return for September 2025 (monthly) and July-September 2025 (quarterly) has been extended to 25.10.2025.

[Notification No. 17/2025 - Central Tax dated 18.10.2025]

SEZ issues instruction on conversion from demarcated NPA into PA:

In line with evolving business requirements, rule 11B permitted demarcation of Non processing area (NPA) within an IT/ITES SEZ.

Recent instructions clarify that reverse demarcation (i.e., converting NPA back into Processing Area (PA)) is allowed with the approval of the Development Commissioner, provided there is no claim for refund of any duty paid (at the time of initial demarcation viz., surrender back of benefits.).

[Instruction No. 121 dated 17.10.2025]

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)