Bombay High Court Stays Retrospective GST Demand On Insurance To SEZ Units Allegedly For Employee Benefits

The Bombay High Court has stayed GST demands on insurers over policies issued to SEZ units, which the department claimed were for employees, prima facie finding the retrospective levy may be without jurisdiction prior to October 1, 2023.

A Bench of Justice G. S. Kulkarni and Justice Farhan P. Dubash held, "Prima-facie, we find much substance in the contention urged on behalf of the petitioners that the designated officer would not have jurisdiction to retrospectively levy tax on the petitioners in respect of the supply in question, namely the sale of insurance policies to the SEZ unit."

The petitions were filed by insurers including ICICI Lombard, HDFC Ergo, Bajaj Allianz, IFFCO Tokio, SBI General Insurance and others, challenging show cause notices and consequent orders seeking to levy GST on insurance policies issued to SEZ units for the period from 2017–18 to 30 September 2023.

The department argued that by inserting the words “for authorised operations” in Section 16, the law clarified that only supplies used for the authorised operations of an SEZ unit qualify as zero-rated, and therefore insurance services provided for employees did not meet this condition and were liable to GST even for the prior period.

The impugned order stated, “The clarification, issued through Notification No. 27/2023- Central Tax dated 31.07.2023 and effective from 01.10.2023, established that such services must be utilized solely for the authorized operations of SEZ.”

The insurers contended that prior to 01 October 2023, such supplies were undisputedly treated as zero-rated and could not be subjected to tax retrospectively.

Holding that the petitions raise triable issues, the Court observed, “In this view of the matter, we are of the opinion that arguable issues are raised by the petitioners, which would require consideration at the final hearing.”

Granting interim protection, the court directed, “Pending the hearing and final disposal of the petitions, the impugned order arising from the show cause notices in question in all these petitions shall remain stayed.”

The court directed the department to file reply affidavits within four weeks and permitted the parties to move for a final hearing thereafter.

For Petitioners: Senior Advocate Vikram Nankani with Advocates Prithwiraj Choudhari and Aansh Desai, instructed by Pythogoras Legal. Senior Advocate Rohan P. Shah with Harish Bindumadhavan, Mahir Chablani, Prathamesh Gargate, Dimpal Jangaid. Sriram Sridharan with Shanmuga Dev and Aditi Jain.

For Respondents: Advocates Yogendraprasad Ramdin Mishra with Niyati Mankad, Priyanka Singh; Siddharth Chandrashekhar with Niyati Mankad, Priyanka Singh; Ram Ochani with Sangeeta Yadav; and Jitendra B. Mishra with Abhishek R. Mishra. Karan Adik with Mamta Omle, Advocates Shruti D. Vyas with Niyati Mankad and Priyanka Singh.