Indirect Tax Quarterly Milestones (April-June 2025) 

Partner: Himanshu Sinha, Senior Associate: Samyak Jain, Associate: Advetita

Key Developments

Kerala High Court upholds the principle of mutuality in the GST regime, strikes down retrospective GST levy on transactions between clubs or associations and their members

The Kerala High Court provided relief to clubs and associations placed similarly to the Indian Medical Association (IMA) by upholding the doctrine of mutuality and declaring Sections 2(17)(e), 7(1)(aa), and the accompanying Explanation of the Central Goods and Services Tax Act, 2017 (CGST Act) unconstitutional for lack of legislative competence.¹ Section 7(1)(aa), introduced by the Finance Act, 2021, with retrospective effect from 1 July 2017, sought to tax transactions between clubs or associations and their members by legally deeming them as two separate entities.

The Court emphasised that the doctrine of mutuality — based on the premise that one cannot profit from oneself — continues to apply under the Goods and Services Tax (GST) regime. The Court also noted that a legislative amendment cannot artificially expand the natural meaning of a term (especially to expand the scope of operation of the legislation) without a supporting constitutional provision. As there is no constitutional provision expanding the meaning of ‘supply’ or ‘service’, the meaning of ‘supply’ under the CGST Act cannot be expanded beyond its natural meaning by a legislative amendment to include supplies by clubs or associations to their members.

This judgment may have far-reaching implications under the GST regime. It empowers clubs and associations that are similar to the IMA to contest GST demands on internal member-based transactions.

Considering the importance of the issue, this judgment is likely to be challenged by the tax department before the Supreme Court. However, until a final judgment from the Supreme Court, the High Court’s ruling remains binding on tax authorities of Kerala, and persuasive for tax authorities of other states. Clubs and associations can rely on this ruling to avail of its benefits. However, even if the judgment is upheld by the Supreme Court, the possibility of a constitutional or legislative amendment by the government to negate the judgment cannot be entirely ruled out.

Karnataka High Court clarifies the scope of intermediary services vis-à-vis principal-to-principal relationship for GST purposes

In a significant judgment, the Karnataka High Court held that the services rendered by the petitioner to its overseas affiliate constituted export of services and could not be classified as ‘intermediary services’ under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).² The Court observed that the petitioner was providing support services (sourcing, factory monitoring, and shipment coordination services) on a principal-to-principal basis. These services did not involve facilitating or arranging any third-party supply. Therefore, the petitioner was acting independently on its own account and not on behalf of another party. Consequently, the Court quashed the denial of refund and directed the GST authorities to process the refund of the unutilised input tax credit along with applicable interest.

To determine what constitutes intermediary services vis-à-vis a principal-to-principal relationship, the Court analysed the current legal position. It relied on a Central Board of Indirect Taxes and Customs (CBIC) circular dated 20 September 2021, alongside judicial precedents. Accordingly, the Court laid down the following essential conditions for a service to qualify as intermediary service:

• Minimum number of parties and distinct supplies: There must be at least three parties involved, with the intermediary facilitating supply between two or more of them. The absence of three parties directly rules out classification as intermediary services.
• Facilitation not on own account: The intermediary’s role must be to facilitate supply of goods or services between a principal and a third party. The intermediary must not provide the services on their own account.
• Contractual clarity: The agreement between the parties must clearly indicate that the intermediary is acting as a facilitator between two or more persons.

The judgment provides a crucial legal and practical framework for distinguishing intermediary services from principal-to-principal supplies under GST laws. By emphasising the ‘own account’ test and the role of explicit contractual terms, the judgment offers clarity and certainty to entities exporting services from India.

Bombay High Court holds interest, penalty and redemption fine not applicable to unpaid Integrated Goods and Services Tax before the amendment providing for such levy became effective

The Bombay High Court delivered a significant ruling holding that interest and penalty cannot be charged on unpaid Integrated Goods and Services Tax (IGST) on imports before 16 August 2024. This date is significant as this is when Section 3(12) of the Customs Tariff Act, 1975 (Customs Tariff Act) was amended by the Finance (No. 2) Act, 2024 to include the phrase ‘offences and penalties’.³

The Court relied upon its earlier decision in the case of Mahindra and Mahindra, which was upheld by the Supreme Court.⁴ In that case, it was established that Section 3(12) of the Customs Tariff Act does not specifically refer to provisions pertaining to interest and penalties. Since these charges are substantive in nature, they cannot be imposed without clear authority of law.

The High Court also clarified that the amendment to Section 3(12) was prospective and applies only from 16 August 2024. Consequently, since the phrase ‘offences and penalties’ was introduced prospectively, no confiscation could have been ordered and no redemption fine imposed in lieu of the confiscation before the amendment became effective. Further, the Court also held Circular No. 16/2023-Cus dated 7 June 2023 to be beyond the provisions of the Customs Tariff Act, to the extent that it purports to levy interest on the IGST payment.

The judgment offers significant relief to assessees. With the striking down of the circular, assessees may now be able to claim a refund of any interest amounts paid based on the circular.

Ministry of Finance notifies Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025

The Ministry of Finance has notified the Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025 (GSTAT Procedure Rules). These rules are set to govern the operations and procedural framework of the much-anticipated Goods and Services Tax Appellate Tribunal (GSTAT), marking a crucial step towards its operationalisation. The key procedural aspects are outlined below.

• Computation of period of limitation: Rule 3 clarifies that when calculating the limitation period, the day from which the period is computed, and the last day, if it falls on a day when the Appellate Tribunal is closed, will be excluded.
• Filing of appeals: Rule 18 of the GSTAT Procedure Rules provides that appeals may be filed online through the GSTAT portal in the prescribed manner.
• Required appeal documents: Rule 21 requires (online) submission of all relevant documents, including a certified copy of the decision or order appealed against, along with prescribed fees.
• Interlocutory applications: Rule 29 provides for filing of various interlocutory applications, such as applications for stay of demand, condonation of delay, amendment of pleadings or any other interim relief, in the prescribed manner.
• Rejection or amendment of Form of Appeal: Rule 32 empowers the registrar to allow necessary amendments to the Form of Appeal and to seek additional documents. The registrar can reject the Form of Appeal if amendments are not made or documents are not submitted within the prescribed time.
• Appeal referral to larger bench: Rule 50 allows the President to refer an appeal to a larger bench if a difference of opinion arises between members of the bench while hearing the appeal.
• Pronouncement of order: Rule 103 mandates that the GSTAT pronounce its order within 30 days from the date of the final hearing.

The GSTAT Procedure Rules also prescribe the manner of filing appeals and other documents, issuance of order, procedure to be followed by and before the registrar, applicable fees, etc.

Guidelines on implementing CAROTAR Rules amended to streamline verification by replacing Certificate of Origin with Proof of Origin

The CBIC has issued a circular amending the guidelines for implementing the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR Rules).⁵ This amendment follows a notification from March 2025,⁶ which replaced the Certificate of Origin requirement with Proof of Origin to align with the amended Section 28DA of the Customs Act, 1962, reflecting a global move towards self-certification.

The circular clarifies that Proof of Origin encompasses both Certificates of Origin issued by designated issuing authorities and self-declarations by eligible exporters, producers, or other designated persons, as stipulated under relevant trade agreements. Consequently, the circular from August 2020,⁷ which provides guidelines for implementing the CAROTAR Rules, should be read in conjunction with this amendment.

The type of Proof of Origin required will vary depending on the specific trade agreement. To streamline verification processes, all requests for Proof of Origin under trade agreements will now be directed to the Directorate of International Customs (DIC) in New Delhi. The DIC’s Free Trade Agreement (FTA) Cell will be responsible for receiving and uploading specimen signatures and seals of authorised officials from partner countries onto the Indian Customs EDI System (ICES) portal. The FTA Cell is also tasked with establishing a standard operating procedure for tracking these records and must submit periodic reports to the CBIC.

This amendment is expected to enhance flexibility for importers by recognising alternative origin documents, potentially simplifying compliance and reducing trade disruptions.

[1] Indian Medical Association v Union of India and Ors., 2025 (4) TMI 872 – Kerala High Court

[2] Columbia Sportswear India Sourcing Pvt. Ltd. v Union of India & Ors., TS-421-HC(KAR)-2025-GST

[3] A.R. Sulphonates Pvt. Ltd. v Union of India, 2025 (4) TMI 578 – Bombay High Court

[4] Union Of India & Ors. v Mahindra and Mahindra Ltd., 2023 (8) TMI 135 – Supreme Court Order

[5] Circular No. 14/2025-Customs dated 21.04.2025

[6] Notification No. 14/2025-Customs dated 18.03.2025

[7] Circular No. 38/2020-Customs dated 21.08.2020

If you require any further information about the material contained in this newsletter, please get in touch with your Trilegal relationship partner or send an email to alerts@trilegal.com. The contents of this newsletter are intended for informational purposes only and are not in the nature of a legal opinion. Readers are encouraged to seek legal counsel prior to acting upon any of the information provided herein.