Introduction
Most awaited The Goods and Services Tax (GST), introduced on 1 July 2017, was welcome as India’s most significant indirect tax reform since Independence. It replaced a fragmented system of Central Excise Duty, Service Tax, VAT, CST, Entry Tax, Octroi, Luxury Tax, Entertainment Tax, and various state-level levies with a unified destination-based tax regime.
The slogan accompanying GST was “One Nation, One Tax, One Market.” The reform was expected to simplify compliance, eliminate cascading taxes, ensure seamless input tax credit (ITC), reduce litigation, and create a common national market.
While GST has undoubtedly transformed India’s indirect tax landscape and significantly improved tax collections, several foundational objectives envisaged during its rollout remain incomplete. Nine years after its introduction, GST continues to be a work in progress rather than a fully realized tax reform.
As a matter of fact, the concept of introduction of GST was to eliminate cascading effect of taxes and ease of doing business with openness and transparency.
While it is time to applaud Central Govt & State Govt for exemplary exhibiting Co-operative federalism through GST Council, which has carried out 56 Meetings since inception and all the resolutions / recommendations were unanimous irrespective of political differences and criticism against each other on GST. It is also necessary to applaud GSTN for continuous updation on the portal with the focus of ease of doing business and less time on compliances leaving initial 2 years of lot of teething problems.
Further, GST Council chaired by Hon Finance Minister Smt Nirmala Sitharaman needs to be applauded has taken the bold decision of rationalizing tax structure and eliminating 12% and 28% tax and Compensation Cess and bringing down the tax rate for number of items without any impact on revenue collection. Rather there was a positive reaction by the trade and compliances have improved and hence there is a increase in total tax collection in spite of reduction in rates.
This article focuses to address and analyze the major unresolved issues that were part of the original GST vision but remain pending or only partially implemented.
A. Inclusion of Petroleum Products Under GST
Original Vision
Article 279A of the Constitution envisaged that the GST Council could recommend bringing the following products under GST and declared the date of bringing them in the net of GST:
- Crude Oil
- Petrol (Motor Spirit)
- Diesel
- Aviation Turbine Fuel (ATF)
- Natural Gas
The expectation was that these products would eventually become part of the GST framework once revenue concerns stabilized. This is the most awaited inclusion to achieve the objective of elimination of cascading effect of taxes and really to achieve “one-nation-one- tax-one-market”.
Current Position
Nearly a decade later, petroleum products continue to remain outside GST.
Currently:
- Central Government levies Excise Duty.
- States levy VAT.
- Rates vary from state to state.
Issues faced for non-inclusion:
1) Different Tax Rates in Different States and Central Excise Duty:
At present each state has notified different VAT rates and central government charges central excise duty, thereby there is a double taxation and therefore, there is a steep increase in the pricing and variations in the cost from state to state.
2) Cascading Effect:
Businesses cannot claim GST credit on fuel used in operations.
For example:
- Manufacturing companies
- Logistics operators
- Airlines
- Mining companies
incur substantial fuel costs but cannot avail input tax credit.
3) Distortion of “One Nation One Tax”
Petrol and diesel prices vary significantly across states because of different VAT rates.
4) Increased Cost :
Fuel taxes become embedded costs, increasing the cost of goods and services. Due to international conflicts and war situation between USA, Israel, Iran and UAE Countries, cost of petroleum products has reached to the highest peak and further it added with taxes. Therefore, there was inflation and also impacted GDP of India adversely.
5) Why It Remains Pending
Further, group of committee from different states was formed and their recommendations are awaited. However, it is getting delayed since states derive substantial revenue from petroleum taxation and are reluctant to surrender this revenue source.
B. Electricity Outside GST:
Original Expectation
Many policymakers and industry groups expected electricity to eventually be included under GST.
Present Situation
Electricity duty remains outside GST.
Generation and distribution of electricity are exempt from GST.
Consequences
Blocked Input Tax Credit
Power generators pay GST on:
- Machinery
- Equipment
- Spare parts
- Services
but often cannot fully utilize these credits.
Increased Cost for Industry
Manufacturers and infrastructure companies face hidden tax costs that cannot be offset.
Break in Credit Chain
One of GST’s fundamental objectives was maintaining a seamless credit chain.
Electricity remains a significant exception.
C) Incomplete Input Tax Credit (ITC) Framework
Original Design
The GST model promised unrestricted credit flow throughout the supply chain.
This was considered the cornerstone of GST.
Current Reality
Numerous restrictions have been introduced.
Key Restrictions
Section 17(5) Blocked Credits
Credits remain unavailable on:
- Motor vehicles
- Club memberships
- Employee welfare expenses
- Certain construction activities
Since, there is provision of blocked credit under Section 17 of CGST Act 2017, there is a not only high impact on cost rather bringing the chain of cascading effect of tax. It has further added to substantial higher litigations and confirmed demands being revenue focused assessments.
D) Supplier Compliance Dependency
It was expected that there will be automatic process of uploading of invoices on portal itself on real time basis, introduction of e-way bills with RFID tracking and much envisaged GSTR-1 & 1A, GSTR-2 & 2A, GSTR-3B. However, as on date, this was not implemented and now it has been accepted fact that it will not be possible to implement. Therefore, the new system of Invoice Management System (IMS) and E-Way Bill Closure is in pipeline. Such type of introductions have not only created number of litigations and dependency on suppliers compliances. Huge demands have been confirmed inspite of number of Supreme Court & high Court decisions that purchaser cannot be penalized on the wrong doings of suppliers. But, majority of the litigations are mainly on compliances not done properly by suppliers. Therefore, buyers are loosing ITC, if suppliers :
- Fail to upload invoices
- Fail to pay tax
- Become non-compliant
Section 16 of CGST Act 2017 was amended and Section 16 (2) (aa) of CGST Act 2017 was made effective only from 01.01.2022, which has resulted into insertion of Rule 36(4) , Rule 88A, Rule 88B of CGST Rules 2017 thereby blocking the credit and requirement of GST ITC Reconciliation.
Businesses must continuously reconcile:
- Books
- GSTR-2B
- Vendor data
- E-Way Bill
Impact
The seamless credit mechanism promised in 2017 remains only partially realized, but compliance cost has increased substantially and there is a negative impact on number of litigations and blocking of funds by way of deposit at the time of filing first appeal and second appeal.
E) Original Invoice Matching System Never Fully Implemented
GST’s Initial Design
The original framework included:
GSTR-1
Supplier return
GSTR-2
Recipient return
GSTR-3
Final monthly return
The system was supposed to automatically match invoices.
What Happened
The original return architecture collapsed due to technological challenges.
Instead:
- GSTR-2 was suspended.
- GSTR-3 was deferred.
- GSTR-3B became the primary return.
Consequences
The system now relies heavily on:
- Self-assessment
- Manual reconciliation
- Post-facto audits
rather than real-time invoice matching.
This remains one of the biggest departures from the original GST blueprint.
F) GST Appellate Tribunal (GSTAT) Delays
Legislative Intent
The CGST Act, 2017 created GSTAT as the primary appellate body for GST disputes.
The intended hierarchy was:
- Adjudicating Authority
- First Appellate Authority
- GSTAT
- High Court
- Supreme Court
What Happened
The first Principal Bench of the GST Appellate Tribunal (GSTAT) in New Delhi officially commenced its adjudicatory operations and began hearing cases on February 16, 2026.
While the GSTAT was formally launched in September 2025, and the New Delhi Principal Bench was already handling anti-profiteering matters prior to this, February 16, 2026, marked the official commencement of regular dispute resolution and case hearings.
Taxpayers had no option but to approach High Courts directly, which has resulted in number of litigations and substantial high cost.
Impact
Massive Litigation Burden
High Courts became flooded with GST disputes.
Increased Cost
Businesses incurred substantial legal expenses.
Lack of Uniformity
Different High Courts often delivered divergent judgments.
Although tribunal formation has recently progressed, the delay itself remains one of GST’s largest institutional failures.
G) Latest Status:
At present 45 benches have been constituted, out of which 13 are Circuit Benches and 24 regular benches are operational.
GSTAT online portal is already operational for filing the appeals, albeit with teething problems and the order of first appeal issued by Appellate Authority prior to 31st March 2026 needs to be uploaded by 30th June 2026. It was expected to file around 6 lacs appeals. However considering the portal issues coupled with technical glitches , unresolved issues and time taken for uploading the appeal as on today i.e. on 30th June 2026 only ____ appeals have been filed. Thereby, number of taxpayers have to suffer incidence of unjustified demand confirmed by Appellate Authority in the first appeal.
H) Continued High GST Litigation
Original Promise
GST was expected to reduce tax disputes through uniform laws and rates.
Current Reality
GST has generated extensive litigation involving:
Classification Issues
- Food products
- Renewable energy projects
- Software
- Construction contracts
Input Tax Credit
- Eligibility disputes
- Vendor default issues
- Fraud allegations
Place of Supply
- Online services
- Inter-state transactions
- E-commerce
Procedural Violations
- Registration cancellation
- E-way bills
- Detentions
As a result, GST litigation today rivals or exceeds disputes under previous indirect tax laws.
I) Lack of a Truly Seamless National Market
Original Objective
GST sought to eliminate internal trade barriers.
Progress Achieved
Significant improvements include:
- Elimination of check-posts
- Faster logistics
- Uniform registration framework
Remaining Barriers
Several major levies remain outside GST:
Stamp Duty
Property transactions remain outside GST.
Electricity Duty
State-specific taxes continue.
Petroleum Taxes
Different state VAT structures persist.
Alcohol for Human Consumption
Completely excluded from GST.
Consequently, India has not yet achieved a fully integrated tax market.
J) Compliance Burden on MSMEs
Original Promise
GST was marketed as a simplified digital tax system.
Current Experience
Small businesses continue to face multiple compliance obligations:
Returns
- GSTR-1
- GSTR-3B
- Annual Return
- Reconciliation requirements
E-Invoicing
Threshold-based obligations continue to expand.
E-Way Bills
Separate compliance layer.
Frequent Amendments
Rules change frequently.
Many MSMEs argue that GST remains significantly more complex than originally promised.
K) Revenue Neutrality and Fiscal Federalism Concerns
Original Arrangement
States were promised:
- Compensation for five years
- Guaranteed 14% annual revenue growth
Emerging Concerns
After the compensation period ended:
- Several states expressed revenue concerns.
- Dependence on GST compensation created fiscal stress.
- Centre-State disagreements occasionally emerged.
The challenge of balancing national tax uniformity with state fiscal autonomy remains unresolved.
L) Rationalization of GST Exemptions
One of GST’s objectives was reducing exemptions.
However, numerous exemptions continue in sectors such as:
- Real estate
- Healthcare
- Education
- Agriculture
- Electricity
While some exemptions serve social objectives, they also create:
- Classification disputes
- Credit blockages
- Compliance complexity
M) Rationalization of practices for scrutiny, assessment and adjudication by the proper officer.
In spite of 8 years of completion , the practices followed by State Govt Officers and Central Govt Officers for scrutiny, audit, assessment and adjudications are completely different and practices followed by State Govt in different states are also different and thereby causing the hardship to the taxpayer. It is also observed that majority of the officers who are implementing GST are not aware of basic provisions of GST law. They only act as a postman of issuing same notices without even scrutinizing the data from the portal. It is high time to have the common platform and common training to each of the central govt officers as well as state government officers of different states. Old practices of commercial tax / VAT assessment and proceeding thereof still continued calling taxpayer at their offices number of times without even issuing notices or signing the proceeding sheet. No of officers are still demanding physical copies to the taxpayer for invoices and books of accounts in spite of the facts that even the invoices are issued from e-invoice portal, e-way bill are issued from e-way bill portal, GSTR-2B is available on GSTN portal and query based system is designed for the scrutiny of data for such officers. However, they still demand physical copies. Even the books of accounts are kept on ERP system or Tally system, but still government officials demand the physical copies even for books of accounts. As such it was envisaged there should be no interface but interface is still not avoided. There has to be some enquiry as to why number of taxpayers are required to visit GST office, either State or Central.
Further, there are different practices adopted for adjudication. As such one personal hearing is more than sufficient but some of the state government officials are calling for personal hearing number of times and they don’t hear the matter in one sitting, which is not correct. CGST officials have followed the practice of e-hearing and majority of personal hearings granted by CGST officials are held on virtual mode except opted by taxpayers in physical mode, but none of the state governments officials are granting personal hearing on virtual mode. There has to be common practices and procedures to be followed and mandated to state governments and central government officials. This is high time to meet the objective of Ease of Doing Business.
Conclusion
GST has been a remarkable reform that has increased tax compliance, widened the tax base, improved revenue collections, and strengthened the digital tax ecosystem. However, the reform remains incomplete.
The most significant unfinished components of the 2017 GST vision are:
- Inclusion of petroleum products under GST
- Bringing electricity into the GST chain
- Creating a simpler rate structure
- Ensuring truly seamless input tax credit
- Reducing litigation and compliance complexity
- Completing institutional mechanisms such as GSTAT
- Achieving a genuinely integrated national market
- Rationalisation of practices and procedures followed by SGST and CGST officials for scrutiny, assessment, audit & adjudications
The next phase of GST reform will likely determine whether India can move from a successful tax transition to the fully integrated indirect tax system originally envisioned in 2017. The challenge for policymakers is not merely improving GST collections but completing the unfinished reform agenda while preserving the delicate balance between the Centre and the States that underpins India’s federal structure.
Hon Prime Minister of India Shri Narendrabhai Modi is determined to achieve the dream of Vikasit Bharat 2047 and therefore, he is personally monitoring the issues faced by taxpayers and achieve the dream of Make-in-India through ensuring ease of doing business with less transaction cost & transaction time.
Let us support through ensuring 100% compliances !!
