Bombay High Court Stays GST Demand Orders as Authorities Overlook CBIC Circulars Based on GST Council Decisions

Overview of the Case

The Bombay High Court recently adjudicated a series of writ petitions filed by Aditya Birla Health Insurance Co. Ltd and other petitioners against Union of India. These petitions challenged GST demand orders that were confirmed by the Additional Commissioner, Central Goods and Service Tax and Central Excise, Palghar Commissionerate. The disputed demands pertained to co-insurance premium and ceding commission transactions.

The petitioners presented their case through Senior Advocates Shri Arvind Datar and Mr. Rohan Shah, contending that the tax authorities had issued demand orders that contradicted established CBIC circulars. The Court, after examining the preliminary submissions and reviewing the material on record, decided to grant interim relief by staying the contested demand orders pending further proceedings.

Background and Context of the Dispute

The core controversy in this litigation revolves around GST demands raised against insurance companies operating in the co-insurance and reinsurance space. The tax department had confirmed demands through formal orders issued by the Additional Commissioner stationed at the Palghar Commissionerate.

Nature of Transactions Under Scrutiny

The demands specifically targeted two categories of transactions:

  • Co-insurance premium payments
  • Ceding commission arrangements

These transactions form an integral part of insurance business operations, particularly in risk-sharing arrangements between multiple insurance entities.

Primary Arguments Advanced by the Petitioners

Contradiction with CBIC Circulars

The petitioners mounted their challenge primarily on the ground that the impugned orders flew in the face of official guidance issued by the Central Board of Indirect Taxes and Customs. Two specific circulars were highlighted:

  • Circular dated 11th October 2024
  • Circular dated 28th January 2025

Both these circulars were issued following deliberations and decisions taken by the GST Council, which was also joined as a party respondent in these proceedings.

Evidence of Inconsistent Departmental Action

The petitioners brought to the Court's attention that similar demands raised in six separate cases across various jurisdictions had been voluntarily withdrawn by the department. These cases were spread across:

  • Meerut jurisdiction
  • Delhi jurisdiction
  • Pune jurisdiction
  • Mumbai jurisdiction (two cases)

One such order evidencing the withdrawal of demand was specifically placed on record before the Court. The petitioners argued that this demonstrated arbitrary and inconsistent application of the law by different tax authorities, despite clear policy guidance from the CBIC.

Request for Production of Orders

Mr. Rohan Shah specifically urged that the respondent authorities should be directed to produce copies of all six orders where demands were dropped. The objective was to establish that the department itself had recognized the applicability of the CBIC circulars in identical fact situations, yet had adopted a contrary stance in the present batch of cases.

This inconsistency, according to the petitioners, demonstrated a lack of uniformity in tax administration and warranted immediate judicial intervention.

Respondents' Preliminary Submissions

Ms. Bharucha, appearing for the respondent authorities, made preliminary submissions indicating that she had recently received instructions to represent the department in these proceedings. She highlighted two procedural aspects:

  1. Not all writ petitions in the batch had been formally served upon the respondent authorities
  2. The department required adequate time to examine the contentions raised and file comprehensive reply affidavits

The Court acknowledged these procedural requirements while balancing the need to protect the assessees from immediate coercive action.

Judicial Analysis and Directions

Service and Filing Timeline

Taking into account the procedural requirements highlighted by the respondents, the Bombay High Court issued the following directions:

The Court mandated that all pending petitions in the batch should be served upon the respondent authorities within the same day. This ensured that the department would have complete knowledge of all grievances raised across the multiple petitions.

The respondents were granted time until 12th February 2026 to file their reply affidavits. The Court further directed that copies of these affidavits should be served upon the respective advocates representing the petitioners well in advance of the next hearing date.

Grant of Interim Protection

After considering the averments made in the writ petitions and hearing preliminary submissions from counsel representing both sides, the Court formed the opinion that an ad-interim stay was warranted.

The Court specifically ordered that all impugned orders forming the subject matter of each writ petition shall remain stayed until the adjourned hearing date. This interim relief ensured that the petitioners would not face coercive recovery proceedings while their substantive challenge was pending adjudication.

The matter was posted for further hearing on 18th February 2026 at 3:00 p.m.

Significance of CBIC Circulars in GST Administration

CBIC circulars issued under the GST framework carry significant weight in tax administration. They represent the official interpretation and guidance provided by the apex indirect tax body on various provisions of GST law.