Recent Updates in GST: A Review of Statutory, Administrative & Judicial Developments

Recent Updates in GST: A Review of Statutory, Administrative and Judicial Developments – Period covered: September 2025 to September 2026

Summary: The period from September 2025 to September 2026 witnessed substantial changes in India’s GST framework across legislation, tax rates, refunds, return filing, appellate remedies and judicial interpretation. The Finance Act, 2026 amended provisions governing post-supply discounts, credit notes, provisional refunds and appellate arrangements, while omitting Section 13(8)(b) of the IGST Act concerning intermediary services. Commencement differs across provisions, and the amendments to Sections 15, 34 and 54 of the CGST Act await notification. Rate rationalisation was completed through the withdrawal of compensation cess and migration of specified tobacco and pan masala products to the 40 per cent slab. Risk-based provisional refunds were expanded, GSTAT benches became operational and revised limitation dates were prescribed for legacy appeals. The return architecture increasingly requires verification and reconciliation before filing, supported by GSTR-1A, GSTR-2B and the Invoice Management System. Judicial developments clarified buyer exposure where suppliers fail to deposit tax, statutory timelines for detention orders and the prospective application of penalty-related pre-deposit requirements. With the 57th GST Council meeting scheduled for 12 September 2026, further proposals concerning ITC protection, corporate guarantees, blocked credit, registration, refunds and small-business compliance remain under consideration but cannot be treated as operative law until formally implemented.

The twelve months preceding the 57th meeting of the GST Council have produced the densest concentration of change since the levy was introduced in July 2017. Three distinct layers moved at once. The rate architecture recommended by the 56th Council was completed with the withdrawal of compensation cess and the migration of tobacco and pan masala into the 40 per cent slab. The Finance Act, 2026 rewrote four operative provisions of the CGST Act and deleted one of the most litigated provisions of the IGST Act. And the Goods and Services Tax Appellate Tribunal, dormant for eight years, began passing orders.

For a practitioner, the practical consequence is that positions taken as recently as FY 2024–25 now require re-examination — on valuation of post-sale discounts, on the export status of intermediary services, on the availability of input tax credit where a supplier defaults, and on the forum in which a demand is contested. This article sets out the position as it stands, identifies which amendments are in force and which await notification, and flags the points on which the law is still unsettled.

1. The legislative layer: Finance Act, 2026

The Finance Act, 2026 (No. 4 of 2026) received Presidential assent on 30 March 2026. Five provisions concern GST.

Commencement is not uniform

This is the point most often missed in practice. Section 1(2) of the Finance Act, 2026 provides that sections 2 to 129, clause (b) of section 152 and section 156 come into force on 1 April 2026, and that sections 153 to 155 come into force on such date as the Central Government may notify. Section 157 falls in neither category and therefore operates from the date of assent.

The resulting position:

• Section 101A(1A) — in force from 1 April 2026. Acting on it, the Ministry of Finance issued a notification dated 7 May 2026 empowering the Principal Bench of the GSTAT to function as the National Appellate Authority for Advance Ruling. A corrigendum was subsequently issued correcting the notification number, and the corrected reference should be cited.
• Omission of section 13(8)(b) of the IGST Act — operative from 30 March 2026. The place of supply of intermediary services now falls to be determined under the residuary rule in section 13(2), namely the location of the recipient.
• Sections 15(3)(b), 34 and 54 — enacted but not yet notified as at the date of this article. Until the appointed day is notified, the pre-amendment text governs. A supplier issuing a tax credit note for a year-end volume rebate must still satisfy the existing conditions: a discount established in terms of an agreement entered into at or before the time of supply, specifically linked to the relevant invoices, with ITC reversed by the recipient. Advising a client on the amended basis before notification is a live exposure.

The intermediary amendment: what actually changed

The omission of section 13(8)(b) restores the destination principle to facilitation services. Where an Indian supplier arranges or facilitates a supply between a foreign principal and a third party, the place of supply is now the recipient’s location, and the supply can qualify as an export of services provided the five conditions in section 2(6) of the IGST Act are cumulatively satisfied.

Two cautions apply. First, the omission carries no saving clause and no retrospective effect. Periods up to 29 March 2026 continue to be governed by the deeming fiction, and pending show cause notices and appeals for those periods are unaffected by the amendment as such. Second, the amendment cuts both ways. An Indian registered person receiving intermediary services from a foreign supplier now faces a place of supply in India, attracting liability under reverse charge, with a self-invoice required under section 31(3)(f) of the CGST Act. Import-side exposure should be reviewed alongside the export-side relief.

CBIC Circular No. 159/15/2021-GST dated 20 September 2021, which set out the tests for identifying an intermediary — three parties, two distinct supplies, and the intermediary not supplying the main service on its own account — remains relevant to characterisation, even though the place of supply consequence has changed.

2. Completion of the rate architecture and the exit of compensation cess

The two-tier structure of 5 per cent and 18 per cent, with a 40 per cent rate for demerit goods, took effect on 22 September 2025 through the rate notifications issued on 17 September 2025, principally Notification No. 09/2025-Central Tax (Rate), which superseded Notification No. 1/2017-Central Tax (Rate).

Tobacco and pan masala were deliberately excluded from that migration because compensation cess obligations were still outstanding. That transition was completed on 1 February 2026:

• Compensation cess rates on the specified tobacco and pan masala entries were notified as nil.
• Notification No. 19/2025-Central Tax (Rate) dated 31 December 2025 moved cigarettes, cigars, pan masala, gutkha, chewing tobacco and unmanufactured tobacco to 40 per cent, while bidis moved down to 18 per cent.
• The Health Security and National Security Cess Act and the Central Excise (Amendment) Act, 2025 were brought into force from the same date, introducing a capacity-based cess on pan masala manufacture and additional excise duty on tobacco products.
• The Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026 were notified.
• Valuation of the notified goods shifted to a retail sale price basis under section 15(5) of the CGST Act read with the corresponding rule.

For assessees in this sector the compliance consequence is structural, not cosmetic: the compensation cess column disappears from the return and invoice workflow, additional excise duty is a non-creditable cost, and pricing must be back-calculated from declared RSP.

A further alignment followed. Notification No. 01/2026-Central Tax (Rate) dated 30 April 2026 (G.S.R. 328(E)) amended Notification No. 09/2025-Central Tax (Rate) to bring the rate schedules into line with the tariff changes made by the Finance Act, 2026, with effect from 1 May 2026. Corrigenda dated 6 May 2026 (G.S.R. 339(E) and the corresponding IGST and UTGST corrections) substituted tariff item “2202 91 00” for “2202 99 90”. Assessees dealing in beverages of heading 2202 should verify their tariff mapping against the corrected entries rather than the notification as first published.

3. Refunds: administrative liberalisation ahead of statutory amendment

Instruction No. 06/2025-GST dated 3 October 2025 introduced risk-based provisional sanction of refunds. Its operative features:

• Refund applications for zero-rated supplies are scored by the system. Where a claim is identified as low-risk, the proper officer sanctions 90 per cent of the amount claimed on a provisional basis.
• The proviso inserted in rule 91(2) of the CGST Rules permits the proper officer, on a case-by-case basis and for reasons recorded in writing, to decline provisional sanction and proceed to detailed examination instead.
• Provisional refund is not available to persons notified under Notification No. 14/2025-Central Tax, nor where the issue is pending in appeal, is the subject of a show cause notice, or where an earlier refund matter has not attained finality.
• Timelines for issuing FORM GST RFD-02 or RFD-03 continue unchanged, and delay in issuing either is to be strictly avoided.
• As an interim trade facilitation measure, pending the statutory amendment to section 54(6), the same 90 per cent provisional sanction was extended to inverted duty structure claims filed on or after 1 October 2025.

The Finance Act, 2026 has since placed the inverted duty structure provisional refund on a statutory footing and removed the ₹1,000 threshold for refunds on exports with payment of tax, but as noted above, section 155 awaits notification. Until then, the interim instruction is the operative authority for IDS provisional refunds.

On the procedural side, GSTN Advisory No. 660 (May 2026) revised the filing of Annexure-B for refund applications involving accumulated ITC, moving to a structured utility. Refund preparation is now substantially more data-intensive: the statement must reconcile to GSTR-2B as shaped by the Invoice Management System, not to the purchase register alone.

The effect is visible in the revenue data. Refunds disbursed in August 2026 stood at ₹31,795 crore against ₹18,935 crore in August 2025, an increase of approximately 68 per cent, attributed largely to inverted duty structure claims.

4. The appellate layer: GSTAT becomes operational

The Tribunal constituted under section 109 of the CGST Act became functional in stages. E-filing opened on 24 September 2025. The Principal Bench at New Delhi commenced adjudication on 16 February 2026. The Kolkata Bench, covering West Bengal, Sikkim and the Andaman and Nicobar Islands, commenced on 23 March 2026 under Public Notice No. 01/2026. The Hyderabad Bench commenced on 20 April 2026. Thirty-one State Benches across forty-five locations have been notified.

Limitation

The notification dated 17 September 2025 (S.O. 4220(E)) had fixed 30 June 2026 as the last date for filing legacy appeals, with the standard three-month period under section 112(1) applying to orders communicated on or after 1 April 2026.

That notification was superseded by a notification dated 30 June 2026. The Ministry of Finance recorded that approximately 30,000 appeals had been filed in the preceding fifteen days, with daily volumes peaking at 5,500, against a total expected inflow of over 4.80 lakh pending cases. The revised position:

The 31 December 2026 relaxation is not a limitation extension

A recurring misunderstanding requires correction. The GSTAT Principal Bench, by Office Order F.No. GSTAT/Pr.Bench/Portal/125/25-26 dated 14 May 2026, issued under rule 123 of the GSTAT (Procedure) Rules, 2025, extended until 31 December 2026 the relaxed scrutiny framework first introduced by Office Order No. 16/2026 dated 20 January 2026 and the Instructions dated 10 March 2026.

That order governs how the Registry scrutinises filings. Registrars and scrutiny officers are directed not to raise defects where soft copies of the show cause notice, order-in-original, order-in-appeal, statement of facts, grounds of appeal, and proof of pre-deposit and court fee accompany Form APL-05; where exemption from court fee or pre-deposit has been granted by a superior court; or where certified scanned copies are found satisfactory. Departmental appeals under section 112(3) require the Commissioner’s authorisation to be uploaded, and attract neither court fee nor pre-deposit.

It does not amend section 112 and does not extend limitation. Treating 31 December 2026 as a filing deadline would be an error with irreversible consequences.

Pre-deposit

Section 112(8) requires the appellant to pay, in addition to the amount deposited under section 107(6), a sum equal to 10 per cent of the remaining tax in dispute, subject to a maximum of ₹20 crore per enactment. The reduction from 20 per cent, and the reduction of the cap, took effect from 1 November 2024 under the Finance (No. 2) Act, 2024. A proviso inserted by the Finance Act, 2025 and brought into force by Notification No. 16/2025-Central Tax with effect from 1 October 2025 requires 10 per cent of the penalty in appeals against penalty-only orders. Pre-deposit must be discharged through the electronic cash ledger.

Published guidance still circulating in the market states the GSTAT pre-deposit as 20 per cent. That figure is obsolete and should not be relied upon.

5. Returns and portal architecture

The return system has moved decisively from an entry-and-adjust model to a verify-before-filing model.

Hard-locking of outward liability. Following GSTN Advisory No. 606 dated 7 June 2025, Tables 3.1 and 3.2 of FORM GSTR-3B became non-editable from the July 2025 tax period. Errors originating in GSTR-1 or the IFF flow into GSTR-3B and can be corrected only through GSTR-1A before filing.

ITC locking. The stated direction of travel is that auto-populated ITC in Table 4 will be tied to GSTR-2B as shaped by the Invoice Management System, with Table 4A(5) auto-populated for B2B supplies. Practitioners should treat the timeline as indicated rather than notified and confirm the go-live date against the GSTN advisory before restructuring client workflows. The preparatory step is unambiguous either way: reconciliation must move ahead of GSTR-1 and IMS action, not after GSTR-3B.

Credit utilisation sequencing. From February 2026, once IGST credit is exhausted, CGST and SGST credit may be applied against IGST liability in any order. The portal no longer enforces a fixed sequence after IGST exhaustion. This is a working capital lever worth revisiting for assessees carrying asymmetric ledger balances.

E-way bill and e-invoice APIs. The mandatory “Ship-to GSTIN” field in IRN and e-way bill APIs, together with the voluntary e-way bill closure facility, was deferred from 15 June 2026 and took effect from 1 August 2026. Where ship-to information is present and the consignee is unregistered, “URP” applies. Ship-to details captured at IRN generation are not overridden at e-way bill generation for B2B and SEZ transactions. GSTN has issued FAQs on both features.

Aggregate annual turnover. The AATO amendment window for FY 2025–26 was open from 1 July to 31 July 2026, with departmental verification of amended data from 1 August to 15 August 2026. AATO now updates automatically as subsequent returns are filed after the amendment window closes. Because AATO drives e-invoicing applicability, QRMP eligibility and several reporting thresholds, the accuracy of this figure has consequences well beyond the window itself.

Rule 14A registrations. The simplified registration route under rule 14A, granting registration within three working days to applicants whose monthly output tax liability does not exceed ₹2.5 lakh, has been supplemented by a withdrawal facility in FORM GST REG-32. From 1 April 2026 the requirement of three months of filed returns before applying for withdrawal was reduced to one complete tax period, with withdrawal effective from the first day of the month following approval.

6. Fund settlement and administrative machinery

The Goods and Services Tax Settlement of Funds Rules, 2026 were notified and published in the Gazette on 30 March 2026, following the report of the Committee of Officers on IGST Settlement constituted pursuant to the 54th Council meeting and approved by the GST Implementation Committee. The rules incorporate a standard operating procedure addressing abnormal ITC reversals, merge specified settlement categories relating to ineligible and time-barred credit with the structure of FORM GSTR-3B, and insert corresponding section and rule references where the earlier rules lacked precision.

This is Centre–State revenue plumbing rather than a taxpayer-facing compliance change, but it matters for two reasons: it signals the end of the compensation cess era in the settlement architecture, and the SOP on abnormal ITC reversals will shape the data on which reversal-related scrutiny is generated.

7. Judicial developments

Section 16(2)(c): the buyer’s exposure to supplier default is settled at the apex level

In Bhandari Scrap Traders v. Union of India & Ors. [SLP (C) No. 23931 of 2026, decided 24 July 2026], the Supreme Court dismissed the special leave petitions and affirmed the judgment of the Gujarat High Court in Maruti Enterprise v. Union of India & Ors. [R/Special Civil Application No. 18080 of 2023 and allied matters, including R/SCA No. 749 of 2025, decided 1 May 2026].

The petitioners had been denied ITC solely because their suppliers had not deposited the tax. They contended that section 16(2)(c) of the CGST Act should either be struck down or read down so as to protect a bona fide purchaser who holds a valid tax invoice, has received the goods, and has paid the consideration including tax.

The Court held that no ground existed either to strike down the provision or to read it down. It endorsed the Gujarat High Court’s reasoning that the GST framework differs materially from the erstwhile VAT regime, that the Delhi Value Added Tax Act, 2004 and the CGST Act operate on fundamentally different statutory schemes, and that VAT-era protections for bona fide purchasing dealers cannot be mechanically imported into GST. The Court noted that sections 41, 73 and 74 provide a mechanism for restoration of credit once the supplier discharges the liability.

The contrary line has not disappeared entirely. In Sahil Enterprises v. Union of India & Ors. [W.P.(C) No. 688 of 2022, decided 6 January 2026], the Tripura High Court upheld the validity of section 16(2)(c) but read it down, following On Quest Merchandising India (P) Ltd., to apply only to transactions that are not bona fide or are collusive or fraudulent. Since the department had invoked only section 73 and had not disputed payment of tax by the assessee to the supplier, the transaction was held bona fide and credit was directed to be allowed. A special leave petition against that judgment has been entertained and remains pending. The Supreme Court in Bhandari Scrap Traders expressly noted that the Gujarat High Court had undertaken the more comprehensive analysis of the statutory framework.

Practical consequence. Vendor compliance has become a balance sheet exposure rather than a procurement preference. The defensible position now rests on documented vendor due diligence, monthly GSTR-2B reconciliation against the purchase register, monitoring of supplier filing and payment status, and GST compliance warranties with indemnity in purchase contracts. Rule 37A continues to govern the mechanics of reversal where the supplier fails to furnish the return under section 39 within the prescribed period.

It is worth noting that buyer protection where the supplier defaults is reported to be among the matters under consideration for the 57th Council. Any relief on that front will require legislative amendment; the judgment settles the position under the law as it presently stands.

The Tribunal begins to speak

Early GSTAT orders indicate a willingness to apply statutory discipline to detention and penalty proceedings.

In M.S. Steels v. Commissioner of Kerala State GST, Thiruvananthapuram [Appeal No. APL/1/TVP/2026, order dated 14 August 2026], the Thiruvananthapuram Bench held that penalty under section 129(3) could not be levied on an intra-firm stock movement between two premises registered under the same GSTIN, transported under a delivery challan without an e-way bill. Reading section 129(1)(a) with sections 7 and 9, the Bench held that the penalty is measured by reference to “tax payable on such goods”; where the movement attracts no tax, the tax-linked penalty cannot be invoked. The Bench was careful to clarify that it was not holding an e-way bill unnecessary for movements covered by rule 138(1)(ii) — only that the consequence of such a contravention lies in the documentation-specific penalty under section 122(1)(xiv), not in section 129(3).

In Siddhi Vinayak Automobiles v. Commissioner of Kerala State GST, Thiruvananthapuram [order dated 14 August 2026], the same Bench held that an order in FORM GST MOV-09 passed forty-seven days after service of FORM GST MOV-07 was barred by limitation, the seven-day requirement in section 129(3) being mandatory. The order was set aside as illegal and without jurisdiction, with a direction to release the bank guarantee. The Bench rejected the department’s objection that the limitation point was raised for the first time before it, holding that the dates were undisputed facts already on record.

The Jammu & Kashmir and Ladakh High Court took a similar view of the seven-day requirement in Mohd Hazzak Lohar & Another v. Commissioner, State Tax & Another (23 July 2026).

On pre-deposit, the GSTAT Hyderabad Bench in Reddy Veeranna Constructions (P) Ltd. held that the proviso to section 112(8) requiring 10 per cent of the penalty operates prospectively, and does not apply where the show cause notice, order-in-original and order-in-appeal all pre-date 1 October 2025. The Bench relied on the Calcutta High Court’s decision in Barjinder Singh Kohli v. State of West Bengal [WPA 19676 of 2025, decided 3 November 2025].

Other developments worth tracking

The Telangana High Court held rule 39(1)(a) of the CGST Rules to be ultra vires section 20 of the CGST Act, quashing the audit report and show cause notice founded on it. The Bombay High Court has referred to a larger bench the question whether a consolidated show cause notice may be issued for multiple financial years. Both lines have direct bearing on pending assessments and should be monitored for further appellate movement.

8. Revenue trend

Cumulatively, gross collections for April to August 2026 stood at ₹10,42,757 crore against ₹9,39,724 crore in the corresponding period of the previous year, a growth of 11 per cent, with net collections at ₹8,89,523 crore, up 9 per cent. The figures are provisional.

The divergence between gross growth of 14.8 per cent and net growth of 8.3 per cent is the story worth reading. It reflects the refund liberalisation described in section 3 above working through the system, and it also explains why revenue adequacy is expected to feature in the Council’s deliberations.

9. The 57th GST Council meeting

Per the office memorandum issued by the GST Council Secretariat, the 57th meeting of the Council will be held at New Delhi on Saturday, 12 September 2026 from 11:00 hours, preceded by an Officers’ Meeting on 11 September 2026. This is the first meeting in over a year, the 56th having been held on 3 September 2025.

Matters reported to be under consideration include denial and reversal of input tax credit where a supplier collects tax but does not deposit it, valuation of corporate guarantees, treatment of employee-related benefits, compliance relief for small businesses, faster registration, blocked credit under section 17(5), refunds, and a review of the revenue position of the States and the Centre following rate rationalisation. Several law committees are reported to have submitted recommendations on registration, returns and refunds.

These are reported expectations, not decisions. The Council’s recommendations, when made, will require implementation through legislative amendment, rules, notifications or circulars, and States and Union Territories will have to pass corresponding amendments. No position should be taken on the strength of pre-meeting reporting.

10. Action points

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Disclaimer: This article is intended for general information and academic discussion of recent developments in the law relating to the Goods and Services Tax. It does not constitute professional advice and should not be acted upon without reference to the relevant statutory provisions, rules, notifications, circulars and judicial pronouncements as applicable to the specific facts of a case. Positions stated reflect the law as understood as on the date of writing; several amendments referred to await notification and the position may change. The author accepts no liability for any loss occasioned by reliance on the contents of this article.