Orissa High Court Stays ₹231 Crore GST Demand Against Vedanta, Citing Constitutional Challenge to ISD Provisions
In a significant legal development for GST taxpayers, the Orissa High Court has temporarily halted a ₹231 crore GST demand issued to Vedanta Limited. The court’s decision, issued on August 25, 2025, acknowledges that the company has a “prima facie case” in its challenge to the constitutionality and procedural fairness of the GST Input Service Distributor (ISD) provisions.
Key Arguments and Court’s Rationale
Vedanta, which uses a centralized ISD mechanism to distribute input service credits, challenged a show cause notice covering multiple financial years. The company argued that Section 21 of the CGST Act is unconstitutional because it holds recipients of ISD credit liable, even though they have no control over the distribution process. This, according to the petitioner, unfairly treats passive recipients as wrongdoers and conflicts with the core principles of wrongful credit recovery outlined in Sections 73 and 74.
The court also considered a procedural issue: the legality of a single, composite show cause notice for multiple years. The court relied on a recent Karnataka High Court precedent (Veremax Technologie Services Ltd.), which held that such composite notices are impermissible and violate principles of procedural fairness.
Based on these arguments and the precedent, the Orissa High Court:
- Observed a strong prima facie case for the petitioner’s claims.
- Stayed the operation of the show cause notice until further orders.
- Tagged the matter with other pending petitions raising similar legal questions.
- Scheduled the next hearing for September 22, 2025, to allow for consolidated pleadings.
Implications of the Ruling
This ruling raises critical questions about the GST framework. The challenge to Section 21 highlights a key issue: whether liability should fall on a recipient who had no role in the credit distribution process. Furthermore, the court’s reliance on the Veremax judgment emphasizes that GST authorities must follow proper legal procedure, including issuing separate show cause notices for distinct financial years, to ensure due process and natural justice.
This case will be closely watched by businesses as it could redefine how GST authorities handle ISD-related demands and could lead to a clearer legal framework for credit distribution under the GST regime.