State Reimbursement Scheme Clause Blocking ITC: Gauhati HC Stays GST SCN Against Patanjali

The Gauhati High Court has granted interim relief to Patanjali Ayurved Limited by staying the operation of a show cause notice issued by the Assam tax authorities, while agreeing to examine the constitutional validity of a key provision of the Assam Industries Tax Reimbursement for Eligible Industries Scheme, 2017. The bench of Justice Soumitra Saikia issued notice in the writ petition, making it returnable on 19 January 2026 and clarified that the question of maintainability would remain open and be decided at the stage of admission. Importantly, the High Court directed that, until the next date of hearing, the impugned show cause notice dated 13 October 2025 shall not be given effect to, thereby granting interim protection to the petitioner. The issue raised was whether a state government can, through an incentive scheme, effectively restrict Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime. The matter arose from a writ petition filed by Patanjali Ayurved Limited before the Gauhati High Court, challenging a show cause notice dated 13 October 2025 and assailing Clause 8 of the Assam Industries Tax Reimbursement for Eligible Industries Scheme, 2017. The petitioner company, registered under both the Central GST Act and the Assam GST Act, is engaged in the fast-moving consumer goods (FMCG) sector and carries on trading, job work, and distribution of edible oils, food products, and allied consumer goods in Assam. According to the petitioner, Clause 8 of the state reimbursement scheme has the effect of blocking or denying ITC in respect of inter-state supplies, which, it argued, runs contrary to the statutory framework of GST. Senior counsel appearing for Patanjali contended that the provision effectively overrides the rights conferred under the Central GST Act and the Constitution, particularly Articles 246A and 279A, which govern the levy and administration of GST in India. Reliance was also placed on Sections 16 and 164 of the CGST Act, which deal with eligibility and conditions for taking ITC and the rule-making powers under the Act. The petitioner submitted that under the GST regime, the power to regulate, allow, or restrict ITC flows exclusively from the central statutory framework and cannot be curtailed by a state government through an executive reimbursement or incentive scheme. It was argued that Assam, by inserting Clause 8 in the 2017 scheme, has travelled beyond its jurisdiction and imposed conditions that are inconsistent with the GST law, thereby rendering the clause ultra vires the Constitution and the CGST Act. During the hearing, Patanjali also pointed out that an identical issue is already pending before the Gauhati High Court in another writ petition, WP(C) No. 6430 of 2025. In that matter, the court had earlier issued notice and stayed the demand raised by the state authorities. That case is scheduled to be taken up on 19 January 2026, and the petitioner sought similar protection in the present proceedings. On behalf of the State of Assam, the Additional Advocate General submitted that the writ petition was premature, as it was directed against a show cause notice and the petitioner had an opportunity to respond before the tax authorities. The state requested that the issue of maintainability be kept open for consideration at the admission stage. The Union of India was represented through the Central Government Counsel. The court further ordered that the respondents complete their instructions and file necessary affidavits. The matter has been directed to be listed along with WP(C) No. 6430 of 2025, indicating that the High Court may consider the broader legal issue of state-level tax incentive schemes vis-à-vis GST input tax credit in a consolidated manner Case Details Case Title: Patanjali Ayurved Limited Versus State Case No.: WP(C)/7280/2025 Date: 18.12.2025 Counsel For Petitioner: Ashwarya Sharma, Mr. P Das, Mr. Vaibhav Vyas,Mr. Keshav Jatwani,Ms. Banshika Podder Counsel For Respondent: Finance And Taxation, Dy.S.G.I. Click Here To Read Order Read More: GST Clearance Certificate Must Be Issued By Dept., Not By CA: Bombay High Court

State Reimbursement Scheme Clause Blocking ITC: Gauhati HC Stays GST SCN Against Patanjali

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