Legal Challenges Businesses Face in GST

GST has simplified the indirect tax structure in principle but has created a new set of legal and practical challenges for businesses, especially MSMEs. Many disputes now centre around interpretation of provisions, procedural lapses, and technology‑driven compliance mechanisms.​

1. Complex registration and classification issues

• Determining whether multiple registrations are required across states and branches can be legally challenging, particularly for service providers and e‑commerce participants.​
• Businesses often struggle with correct HSN/SAC classification and applicable GST rates, leading to either short‑payment or excess payment of tax.​
• Wrong registration structure or classification can trigger show‑cause notices, demands, and prolonged disputes.​

2. Input tax credit disputes

• Improper blocking or denial of input tax credit (ITC) is one of the most common legal disputes under GST.​
• Mismatches between suppliers’ and recipients’ returns, restrictions in auto‑drafted statements, and evolving rules on ITC eligibility create significant uncertainty.​
• Disallowed ITC not only increases tax cost but can also result in interest, penalties, and litigation before appellate forums.​

3. Procedural non‑compliance and penalties

• Non‑filing or delayed filing of returns, incorrect details in returns, or errors in e‑way bills often attract automatic late fees and penalties.​
• Even inadvertent mistakes may invite punitive action under provisions dealing with incorrect information, non‑registration, or non‑payment of tax.​
• Businesses need to invest in robust systems to reduce these procedural lapses and defend themselves when penal action is disproportionate.​

4. Technology‑driven challenges

• The dependence on the GST Network (GSTN) and portal‑based compliances has brought issues like system glitches, downtime, and data mismatches.​
• Errors in auto‑generated forms or technical problems during filing may still be treated as taxpayer lapses unless properly documented and contested.​
• This technology‑centric regime demands both legal understanding and practical familiarity with the portal to protect taxpayers’ rights.​

5. Litigation over interpretation of law

• Many key concepts—such as composite and mixed supply, place of supply, and valuation—continue to generate interpretational disputes.​
• Courts are frequently called upon to examine the validity of notifications, circulars, and rules in light of the parent Act and the Constitution.​
• Until settled by higher courts, businesses must navigate these grey areas carefully to balance compliance and commercial viability.​

6. Sector‑specific and SME challenges

• E‑commerce operators, exporters, and highly regulated sectors face additional GST obligations, including TCS, refunds, and specialised reporting.​
• SMEs often bear disproportionate compliance costs and cash‑flow pressure due to upfront tax payment and delayed credits or refunds.​
• Limited in‑house expertise makes smaller entities more vulnerable to errors and legal exposure.​

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