A beneficial GST circular granting relief on reinsurance services has been held to apply retrospectively, leading to the quashing of old, confirmed tax demands.

A beneficial GST circular granting relief on reinsurance services has been held to apply retrospectively, leading to the quashing of old, confirmed tax demands.

Issue

Can a beneficial circular issued by the Central Board of Indirect Taxes and Customs (CBIC), which regularizes the GST liability for a specific past period, be applied retrospectively to quash a tax demand that has already been confirmed by both the original and the appellate tax authorities?

Facts

• The Oriental Insurance Company was held liable for GST on reinsurance services that it had availed for the period from July 1, 2017, to January 24, 2018. This tax demand was confirmed by the original adjudicating authority and was subsequently upheld by the first appellate authority.
• After these orders were passed, the CBIC issued a beneficial circular (No. 228/22/2024-GST). This circular, which was issued following a GST Council recommendation, clarified that the GST on reinsurance for certain specified insurance schemes for the period from July 1, 2017, to July 26, 2018, stands “regularized” on an “as is where is” basis. This effectively meant that no further tax would be collected for that period.
• The Revenue department argued that since their orders confirming the demand were passed before this beneficial circular was issued, the company could not claim the benefit of the circular retrospectively. They argued the matter was already closed.
• The company argued that the circular was clearly intended to be retrospective and cited a previous Delhi High Court judgment in the AXA France Vie-India case, which had already granted such retrospective relief in a similar matter.

Decision

The Delhi High Court ruled decisively in favour of the assessee (The Oriental Insurance Company).

• It held that the benefit of the circular does indeed extend to the assessee, rejecting the Revenue’s argument that the timing of the orders prevented the relief from being applied.
• The court found that the circular was squarely intended to apply to the relevant past period, and the precedent that had been set in the AXA France Vie-India case was directly applicable.
• Consequently, the court set aside and quashed both the impugned orders (the original demand order and the appellate order) that had been passed against the company.

Key Takeways

1. Beneficial Circulars are Generally Retrospective: Circulars that are issued by the tax board to grant a benefit, a relief, or to clarify a law in favour of taxpayers are generally interpreted by the courts as having a retrospective effect. This is to ensure that the benefit is applied uniformly to all taxpayers who fall within that period, regardless of whether their case is pending or has been decided.
2. The Purpose of the Circular is the Deciding Factor: The court looked at the purpose of the circular, which was to “regularize” the tax treatment for a specific past period. This language itself strongly implies a retrospective application that is meant to settle all outstanding disputes for that period.
3. A Binding Precedent is Powerful: The existence of a prior judgment from the same court on the exact same issue (AXA France Vie-India) made the assessee’s case very strong and almost impossible for the revenue department to argue against.
4. The Finality of an Order is Not Absolute: This case is a great example of how, even if a tax demand is confirmed by an adjudicating authority and an appellate authority, it is not absolutely final. It can still be challenged and quashed by a High Court if a subsequent beneficial circular or a binding judgment fundamentally changes the legal landscape.