Facts of the Case:

In this case, the petitioner engaged in providing insurance services challenged show cause notices and consequential orders whereby the GST department sought to levy tax retrospectively on insurance policies supplied to Special Economic Zone (SEZ) units for the period from 2017–18 to 30 September 2023. The demand was based on the amendment introduced by the Finance Act, 2021 to Section 16 of the IGST Act, which inserted the words “for authorised operations” in the definition of zero-rated supply. This amendment was notified to come into force from 01 October 2023.

The department proceeded on the premise that the notification dated 31 July 2023 amounted to a clarification that only supplies used for authorised operations would qualify as zero-rated, and accordingly attempted to deny zero-rated benefit even for the prior period. The petitioners contended that prior to 01 October 2023, supplies to SEZ units were treated as zero-rated without such restriction and were consistently accepted by the department. They further relied on governmental instructions recognizing insurance services as approved services for SEZ units.

Issue: Whether the GST authorities have the jurisdiction to retrospectively levy tax on supplies made to SEZ units for the period prior to 01 October 2023 by applying the amended provisions of Section 16 of the IGST Act, 2017 requiring supplies to be “for authorised operations”.

Held that:

The Court found substantial merit in the petitioners’ challenge to the retrospective levy of GST on supplies made to SEZ units. It observed that the amendment introduced to Section 16 of the IGST Act by the Finance Act, 2021, whereby the words “for authorised operations” were inserted—was admittedly brought into force only with effect from 01.10.2023 through a notified date. In absence of any express legislative intent providing for retrospective operation, such an amendment cannot be applied to transactions undertaken prior to its enforcement.

The Court took serious note of the approach adopted by the department in treating the notification bringing the amendment into force as a clarificatory instrument, thereby attempting to retrospectively alter the tax position. It prima facie held that such interpretation is misconceived and legally untenable, as a notification merely operationalizing an amendment cannot be equated with a clarification having retrospective effect.

Further, the Court examined the statutory framework and emphasized the definition of “recipient” under Section 2(93) of the CGST Act. It observed that the SEZ units, being the entities that subscribed to the insurance policies and paid consideration, would qualify as the recipients of the services, notwithstanding the fact that the ultimate beneficiaries may be employees. This prima facie supports the petitioners’ contention that such supplies were indeed made to SEZ units, thereby qualifying as zero-rated supplies under the unamended provision.

The Court held that the issue involves substantial and arguable questions of law, particularly on the aspect of retrospective application of taxing provisions and the jurisdiction of the authorities to reopen concluded positions. Accordingly, it granted interim relief by staying the operation of the impugned show cause notices and adjudication orders, thereby restraining the department from taking coercive steps against the petitioners.

Case Name: ICICI Lombard General Insurance Co. Ltd., HDFC Ergo General Insurance Co. Ltd., Bajaj Allianz General Insurance Co. Ltd., IFFCO Tokio General Insurance Co. Ltd., SBI General Insurance Co. Ltd., Aditya Birla Health Insurance Co. Ltd., Generali Central Insurance Co. Ltd., Star Health and Allied Insurance Co. Ltd., Royal Sundaram General Insurance Co. Ltd., Indusind General Insurance Co. Ltd., Care Health Insurance Limited, New India Assurance Co. Ltd. Versus Union of India & Ors. dated 26.03.2026

To read the complete judgement 2026 Taxo.online 746