High Court: GSTAT Must Independently Decide Intermediary Status Without Being Bound by Prior AAAR Orders.

The Dispute: The Intermediary Export Trap

The Conflict: The petitioner provided services to an entity outside India and claimed them as “Export of Services” (Zero-rated).

- The Revenue’s Allegation: The Department reclassified the petitioner as an “Intermediary” under Section 2(13) of the IGST Act.
- The Place of Supply (PoS) Trap: Under Section 13(8)(b) of the IGST Act, the PoS for intermediaries is the location of the supplier (India). Therefore, the service is taxed at 18% in India, even if the client and the benefit are abroad.
- The AAR/AAAR Deadlock: The petitioner sought a ruling from the AAR/AAAR. However, the AAAR declined to rule on the “Export of Services” status, citing a lack of jurisdiction over Place of Supply issues—leaving the petitioner in a legal limbo while a separate tax demand was confirmed against them.

The Judicial Verdict: Resetting the Scales of Justice

The High Court intervened with a “Partly in favour of Assessee” order, focusing on the right to a fair trial:

1. Non-Adjudication by Advance Ruling Authorities

The Court noted that since the AAR and AAAR failed to decide on the core issues (Export status and the validity of PoS rules) due to jurisdictional constraints, their orders should not be allowed to prejudice the taxpayer’s case in other forums.

2. Mandatory Independence of the Tribunal

The Court directed the GST Appellate Tribunal (GSTAT)—which is now functional as of April 2026—to decide the pending appeal on its merits.

Key Command: The Tribunal must decide the case “without being influenced” by the adverse remarks or observations in the AAAR order. This effectively “un-links” the advance ruling from the main litigation.

3. Place of Supply Rule Challenge

The Court kept the constitutional challenge to the “Place of Supply” provisions open. While it did not “read down” the law in this specific order, it ensured the petitioner could raise these fundamental legal questions before the Tribunal.

Strategic Takeaways for Cross-Border Service Providers in 2026

- Transition to GSTAT: This case confirms that with GSTAT benches becoming operational (e.g., Hyderabad and Chennai benches notified in April 2026), the High Courts will now push “Intermediary” disputes toward the Tribunal for factual determination.
- The Finance Act 2026 Amendment: Note that Section 13(8)(b) of the IGST Act—the source of this entire controversy—was omitted by the Finance Act, 2026 (effective March 30, 2026).
  - Pre-April 2026: Disputes continue under the old “supplier location” rule.
  - Post-April 2026: The Place of Supply for intermediaries now aligns with the location of the recipient, making most such services qualify as Exports.
- Advance Rulings vs. Adjudication: This judgment serves as a warning: AAR orders on intermediary status are often narrow and can be technically restrictive. If you have a complex service model, direct adjudication followed by a GSTAT appeal may offer a more comprehensive “merits-based” resolution.

HIGH COURT OF BOMBAY

Nagpur Ashok

Additional Director General^*

ANIL L. PANSARE and NIVEDITA P. MEHTA, JJ.

WRIT PETITION NO. 2546 OF 2026

APRIL 10, 2026

Shyam Dewani and Sahil Dewani, Advs. for the Petitioner. Kunal Nalamwar, Adv. for the Respondent.

ORDER

1. The respondents have tendered across the bar their reply. Taken on record.

2. Heard.

3. Challenge is to the demand-cum-show cause notice dated 28/5/2025 issued under Section 74 of The Central Goods and Services Tax Act, 2017 (for short “CGST Act”) by respondent no.5 -Joint Director, DGGI, NZU, Nagpur and consequent order in original dated 29/12/2025 issued by respondent no.4 – Additional Commissioner (Adjudication), CGST & Central Excise, Nagpur. The notice and order pertain to the period from April – 2018 to September – 2023.

4. The argument is that clubbing of period, while issuing notice under Section 74 of the CGST Act, is not permissible. The Counsel for the petitioner submits that the issue involved is covered by a judgment passed by the Division Bench of this Court at Goa in Milroc Good Earth Developers v. UOI (Bombay)/[Writ Petition No. 2203/2025 decided on 9/10/2025], wherein, the Court held that if an authority lacks jurisdiction to have composite assessment for different tax periods/assessment years, then the formality of responding to show cause notice shall not be encouraged. While doing so, the Court considered relevant provisions of the CGST Act, and held as under :

“18. When we have perused the scheme of assessment and payment of tax, we find that the taxes payable under the Act commensurate with Return filed for ‘each tax period’ and this is may be in the form of self assessment or provisional assessment as provided in the Act. However, what is important to note is that there is a prescription ofperiod of five years of due date on which ‘annual Return’ is filed for the relevant financial year and provision of payment and recovery is also included in the statutory scheme in form of Section 73 and 74, which underwent significant amendment by the Act 15 of 2024 and the provision as per sub-section (12) shall be applicable for determination of tax pertaining to the period up to Financial Year 2023-24 and for financial year 2024-25 and onwards, the provision under Section 74A will be relevant.

19. From the perusal of the entire Scheme, it is evidently clear to us that the statutory provision for assessment of tax for each financial year expect the Show Cause Notice to be issued at least 3 months prior to the time limit specified in Section 73(10) and 74(10) of the Act, for issuance of assessment order as subsection (10) provide that the proper officer shall issue the order within a period of five years from the due date for furnishing of annual Return for the financial year to which the tax not paid/short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous Return. Thus, there is limitation prescribed for demand of tax and its recovery.

The Act of 2017, therefore involve a definite tax period, based on the filing of the Return, which can be either monthly or annual Return and if the assessment is based on annual Return, the tax period shall be the relevant financial year.

In the light of the statutory scheme, we find that there is no scope for consolidating various financial years/tax period which is attempted by the impugned Show Cause Notices assailed in the Petition.”

5. As could be seen, the Division Bench has, in categorical terms, held that there is no scope for consolidating various financial years/tax period while issuing show cause notice under Section 74 of the CGST Act.

6. The aforesaid judgment was then considered by the Division Bench of this Court in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST & Central Excise (Bombay)/[Writ Petition No. 466/2025 decided on 28/11/2025], wherein, the Court reiterated that there is no scope for consolidating various financial years/tax period while issuing show cause notice under Section 74 of the CGST Act.

7. The Counsel for the respondents opposed the contentions by saying that clubbing of notice is permissible. He referred to the judgment of the Division Bench of the High Court of Delhi in Mathur Polymers v. UOI GSTL 72 (Delhi)/[W.P.(C) 2394/2025 decided on 26/8/2025], wherein, the Court referred to its earlier judgment, and held as under :

“22. Thus, this Court is of the opinion that in cases involving allegations of fraudulent availment of ITC, where the transactions are spread across several years, a consolidated notice may in fact be required in such cases in order to establish the illegal modality adopted by such businesses and entities. The language of the legislation, itself, does not prevent issuance of SCN or order for multiple years in a consolidated manner.”

8. The Counsel for the respondents submits that the judgment of the Delhi High Court was tested before the Hon’ble Supreme Court in Mathur Polymers v. UOI (SC)/ Special Leave Petition (Civil) Diary No. 50279/2025, wherein, the Supreme Court declined to interfere with the impugned judgment. Accordingly, the Counsel argued that the law laid down by the Delhi High Court has attained finality.

9. True it is that the judgment of the Delhi High Court has attained finality, however, concept of merger of judgment will not apply here because the Hon’ble Supreme Court has dismissed the petition in limine and not on merit.

10. There is another reason why we find that the judgments of the High Court of Bombay will prevail. In the case of Milroc Good Earth Developers (supra) and Rite Water Solutions (India) Ltd. (supra), following amongst others were the reasons why the Court held that show cause notice consolidating various financial years/tax periods is not permissible.

The GST Scheme is based on annual returns for each financial year (even if returns are filed monthly in practice, the liability is tied to a specific financial year).

II]

The statute fixes a five year time limit for demanding and recovering tax from due date for furnishing annual return for that year or from the date of erroneous return (Sections 73(10) and 74(10) of the CGST Act as applicable). This limit runs separately for each year.

III]

If issued a single SCN covering multiple years, you would be aggregating different tax period with different due dates and different limitations, which the statute does not permit.

IV]

Tax period is defined (Section 2(106) of the CGST Act) as the period, for which the return is required to be furnished. Return can be monthly or yearly, but the statute treats each financial year as a separate tax period for the purpose of assessment and recovery (Sections 39, 44, 37, 50, etc.).

Time limit operate year by year. Section 73(10) and 74(10) of the CGST Act fix the time limit to issue an assessment order within three years (Section 73) or five years (Section 74) from the last date for filing annual return for the year to which the tax dues relate.

VI]

Consolidation would collapse these years, specific steps and grounds, harming the tax payers’ ability to respond year by year and violating the explicit year wise structure of the statute.

These niceties, in our view, were not considered by the Delhi High Court.

11. The Division Bench of this Court in CIT v. Smt. Godavaridevi Saraf Tumsar [1978 (2) ELTJ 624 Bombay] held that until a contrary decision is given by any other competent High Court, which is binding on Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of land.

12. In the present case, since this Court has, subsequent to decision of the Delhi High Court, taken a different view, the authorities below will be bound by the subsequent judgments. The Hon’ble Supreme Court has neither stayed nor overruled the view taken in above two cases. The argument of Counsel for respondent nos. 1 to 4, therefore, cannot be accepted.

13. The Counsel for the respondents submits that to the best of his knowledge, a proposal to challenge the judgments in Milroc Good Earth Developers (supra) and Rite Water Solutions (India) Ltd. (supra), is under consideration. Thus, it is suggested that judgments in both cases are likely to be challenged before the Hon’ble Supreme Court.

14. If that be so, the purpose will be served if the respondents are given opportunity to revive the petition, if the judgments passed by the High Court of Bombay in aforesaid two cases, are set aside.

15. With the above liberty, and for the reasons set out in Milroc Good Earth Developers (supra) and Rite Water Solutions (India) Ltd. (supra), the petition is partly allowed. The demand-cum-show cause notice dated 28/5/2025 issued by respondent no.5 and the consequential order in original dated 29/12/2025 passed by respondent no.4 are quashed and set aside. The respondents, however, are at liberty to re-issue notice strictly in terms of the provisions of Section 74 of the CGST Act, if there is no other legal impediment.

16. The petition is disposed of in above terms. No order as to costs.