The Gujarat High Court has granted ad-interim protection in a batch of petitions challenging GST proceedings concerning royalty payments, directing the tax authorities not to pass final orders without obtaining its prior permission. 

The Bench of Justice Sangeeta K. Vishen and Justice Utkarsh Thakorbhai Desai has, however, allowed the adjudication process connected with the show cause notices to continue.

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The petitions raise questions concerning the levy of GST on royalty payments, the invocation of Section 74 of the GST legislation and, in some matters, the adoption of State-notified prices for determining the taxable value. 

Appearing for the petitioners, advocate Uchit Sheth submitted that, considering the provisions of the Goods and Services Tax Act, 2017, and the legal position laid down by the Supreme Court, tax could not be imposed on royalty payments under the Act.

The petitioners argued that imposing such a levy would exceed the scope of Article 246A of the Constitution as well as the GST legislation.

These arguments were recorded as submissions made on behalf of the petitioners. The High Court did not finally decide whether royalty payments are liable to GST or uphold the constitutional challenge at this stage.

The petitioners also questioned the authorities’ decision to initiate proceedings under Section 74.

Their counsel submitted that there had been no suppression, wilful misstatement, fraud or intention to evade payment of tax on the petitioners’ part. Consequently, they argued, invoking the extended period of limitation under Section 74 was without jurisdiction in the circumstances of their cases.

The challenge thus concerns both the levy itself and the statutory basis for invoking the extended limitation period. The Bench did not give a final finding on whether the conditions for applying Section 74 were satisfied.

In some of the connected matters, the petitioners raised an additional objection to demands calculated using prices notified by the State’s Industries and Mines Department.

They argued that adopting the notified price lacked a legal basis under Section 15. According to their submission, the taxable value must be determined by reference to the actual consideration paid or payable for the supply where the transaction is between unrelated parties.

On that basis, the petitioners questioned the use of the State-notified price for calculating the tax demand in those matters.

The order does not specify the demand amounts, relevant tax periods or individual valuation calculations.

The petitioners submitted that the High Court had already issued notices and granted protection in identical matters.

After considering the submissions, the Bench issued notice in the present batch and granted limited ad-interim relief. It permitted the adjudication process connected with the show cause notices to continue, but directed that the authorities must obtain the Court’s prior permission before passing final orders.

The distinction is significant: the Court has restricted the conclusion of adjudication while allowing the proceedings to move forward. It has neither quashed the show cause notices nor finally resolved the questions concerning taxability, limitation or valuation.

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