Most Important GST-Related SC Judgments for Practice

Most Important GST-Related Supreme Court Judgments for Practice

The five most impactful Supreme Court cases are discussed in detail. These 5 judgments are indeed the most important GST Supreme Court rulings for every CA, GST consultant, tax lawyer, CFO, and business owner because they directly impact ITC, refunds, imports, insolvency, and compliance.

Mohit Minerals Pvt. Ltd.

• Issue: Whether IGST can be levied under the Reverse Charge Mechanism on ocean freight for CIF imports.
• Supreme Court Held: Ocean Freight RCM is invalid. The importer was already paying IGST on the CIF value (which includes freight). Levying GST again on freight amounted to taxing the same component twice.
• Key Principle: A composite supply cannot be artificially split merely to levy more tax.

Example: Goods imported for INR 100 lakh, Freight = INR 10 lakh, Insurance = INR 2 lakh, CIF Value = INR 112 lakh. IGST is already paid on INR 112 lakh.

• Government again demanded GST on INR 10 lakh freight under RCM. SC said, “Not permissible.”
• Impact: Huge relief to importers; GST demands on ocean freight became unsustainable. And landmark judgment on composite supply and delegated legislation.

Safari Retreats Pvt. Ltd.

• Issue: Whether ITC is available on the construction of a commercial building intended for leasing/renting.
• Department’s View: Section 17(5)(d) blocks ITC on construction of immovable property. Therefore, ITC on the construction of malls, office buildings, and commercial complexes was denied.
• Supreme Court Held: Section 17(5) should not be interpreted mechanically. Where a building is constructed for further taxable leasing activity, denial of ITC may defeat GST’s objective of avoiding cascading taxes. The court demanded the matter for factual verification but accepted that ITC may be available in such situations.

Example: Builder constructs a shopping mall, Pays GST on cement, steel and services, and Lets shops on rent and charges GST on rent

• Without ITC: GST becomes a cost. The Supreme Court recognized this anomaly.
• Impact: Huge benefit for mall developers, commercial complexes, warehouses, business parks, and leasing companies.
• Key Principle: Substance of business activity matters more than rigid interpretation.

VKC Footsteps India Pvt. Ltd.

• Issue : Refund of accumulated ITC under the Inverted Duty Structure.
• Inverted Duty Structure: Input tax rate > Output tax rate. Example:

Particulars	GST Rate
Inputs	18%
Output Supply	5%

• ITC accumulates: Taxpayer’s Argument. The refund should include input goods and input services
• Supreme Court Held: Rule 89(5) is valid. A refund can be restricted according to a prescribed formula. Input service credit exclusion was upheld. Example Accumulated ITC: Inputs = INR 20 lakh, Input Services = INR 10 lakh. The taxpayer wanted a refund of INR 30 lakh.
• SC upheld the formula restricting the refund.
• Impact: Major setback for taxpayers. Manufacturers facing inverted duty structure suffered blockage of service-related ITC.
• Key Principle: Courts generally will not interfere merely because another refund formula appears fairer.

Rainbow Papers Ltd.

• • Issue: Whether government tax dues have priority over secured creditors under the Insolvency and Bankruptcy Code (IBC).
  • Traditional Understanding: Banks and financial institutions generally enjoy priority as secured creditors.
  • Supreme Court Held: State tax dues can constitute secured debt where the statute creates a charge over property. Government claims cannot automatically be ignored.
  • Example: A company under CIRP has a bank loan of INR 100 crore and VAT/GST dues of INR 20 crore. If state law creates a statutory charge, government dues may get protection similar to secured creditors.
  • Impact: Affected: Insolvency Professionals, Banks, Asset Reconstruction Companies and Resolution Applicants

Why Controversial

• • Many felt it diluted creditor priority under IBC. Later decisions have attempted to harmonize Rainbow Papers with IBC objectives.
  • Key Principle: Statutory charge can elevate government dues to secured debt status.

Bhardwaj Scrap Traders

• Issue: Constitutional validity of Section 16(2)(c) of CGST Act. Section 16(2)(c). Buyers get ITC only if the supplier has paid tax to the government. Taxpayer’s Argument The buyer has paid the supplier, received goods, and possesses the tax invoice.

Why should buyers suffer if a supplier defaults?

• • Supreme Court Held: Section 16(2)(c) is constitutionally valid. ITC is not an absolute right. It is a statutory benefit subject to prescribed conditions. Example: A Ltd buys goods from B Ltd. A Ltd.: Receives goods, pays the invoice, and claims ITC. But B Ltd fails to deposit GST. The department may deny ITC to A Ltd under statutory conditions.
  • Impact: Businesses must now perform Vendor due diligence, GSTR-2B reconciliation, Vendor compliance checks and Periodic supplier monitoring
  • Key Principle: ITC is a concession created by statute, not an unrestricted constitutional right.

One-Line Exam Summary – GST-Related SC Judgments

Case	Principle
Mohit Minerals	Ocean Freight RCM struck down; no artificial splitting of composite supply
Safari Retreats	ITC may be available on commercial buildings used for taxable leasing
VKC Footsteps	Inverted duty refund restriction upheld
Rainbow Papers	Government dues can be treated as secured debt if statutory charge exists
Bhardwaj Scrap Traders	ITC can be denied if supplier fails to pay tax; Sec. 16(2)(c) valid

These judgments collectively shape the law on ITC, refunds, registration cancellation, imports, insolvency, real estate, gaming, and recovery proceedings under GST.