Court rules amendment to IGST Act operates prospectively, providing interim relief to ICICI Lombard and others from tax demands dating back to 2017.
In a significant judgment, the Bombay High Court has stayed the retrospective demand for Goods and Services Tax (GST) levied on insurance services provided to Special Economic Zone (SEZ) units by ICICI Lombard General Insurance Co. Ltd. and other petitioners. The court held that the amendment to Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017, introduced by the Finance Act, 2021, operates prospectively from October 1, 2023, and cannot be applied to tax transactions retrospectively from 2017 to September 2023.
The division bench of Justices G. S. Kulkarni and Farhan P. Dubash presided over the matter, which involved multiple writ petitions challenging show cause notices issued by the tax department. These notices demanded GST on insurance policies subscribed by SEZ units, asserting that the amendment mandating services be utilized "for authorised operations" of SEZ units should apply retrospectively.
The court emphasized that taxing statutes, unless explicitly stated, are presumed to operate prospectively. Consequently, the retrospective tax demand on transactions from 2017 to September 2023 was deemed invalid. The court pointed out that insurance services provided to SEZ units had been consistently treated as zero-rated supplies under the IGST Act until the amendment's effective date.
ICICI Lombard and other petitioners argued that the retrospective demand violated established principles of taxation, which require clear legislative intent for retroactive application. The court found merit in their argument, noting that SEZ units were the recipients of the insurance services, and the benefits extended to their employees did not alter this classification.
The ruling draws support from a precedent set by the Madras High Court in the case of Lenovo (India) Pvt. Ltd. v. Joint Commissioner of GST (Appeals-1), where a similar amendment was interpreted as operating prospectively.
Pending a final hearing, the Bombay High Court has granted interim relief by staying the impugned tax demands. The respondents, including the Union of India, have been directed to file reply affidavits within four weeks. This stay provides temporary protection to the petitioners from financial liabilities arising from the disputed tax demands.
Legal experts view the judgment as a reaffirmation of the principle that amendments to taxing statutes cannot be applied retrospectively unless explicitly stated by the legislature. The decision is likely to have significant implications for other businesses facing similar retrospective tax demands under the IGST framework.
Bottom Line:
GST - Retrospective tax demand for insurance services provided to SEZ units cannot be levied based on an amendment brought into force from 1 October 2023. Amendment to Section 16 of the IGST Act, 2017 operates prospectively, and taxing provisions cannot be construed to have a retrospective effect.
Statutory provision(s): IGST Act, 2017 Section 16, Finance Act, 2021 Section 123, CGST Act, 2017 Section 2(93)
