Summary: CBIC Circular No. 265/11/2026-GST, dated 28 October 2026, addresses four issues concerning GST classification, applicable rates and input tax credit, following recommendations of the 57th GST Council meeting held on 8 October 2026. The clarifications cover sublimation paper, toys classified under heading 9503, second-hand motor vehicles sold under the margin scheme and seaweed-extract-based biostimulants. Sublimation paper is classified under heading 4809 and attracts 18% GST, with past transactions recommended for regularisation on an “as is where is” basis. For toys, the expression “etc.” in the relevant rate entries covers all toys falling under heading 9503, including dolls, models and puzzles, rather than only wheeled toys. Non-electronic toys attract 5% GST, while electronic toys attract 18%. The circular also clarifies that second-hand vehicle dealers using the GST margin scheme may claim otherwise eligible input tax credit on business expenses such as repairs, spare parts, software, rent and advertising. The restriction concerns credit on the purchased used vehicles themselves. Finally, seaweed-extract-based biostimulants registered under Schedule VI of the Fertiliser Control Order, 1985, fall under heading 3101 as fertilisers. Past cases are recommended for regularisation on an “as is where is” basis. Businesses should review product classification, invoicing, applicable exemptions, documentary evidence and input tax credit eligibility, particularly where assessments or notices are pending.
What this circular is about
On 28 October 2026 the CBIC issued Circular No. 265/11/2026 GST. It settles four doubts about the classification and rate of goods: sublimation paper, toys, used motor vehicles sold under the margin scheme, and seaweed based bio stimulants. All four points were recommended by the GST Council in its 57th meeting held on 8 October 2026.
A circular does not change the law. It tells the officers how the Board reads the law, so that one officer in Nellore and another in Chennai do not take two different views on the same item. Departmental officers are bound to follow it, and so a taxpayer can safely quote it in a reply to a notice or in an appeal.
Let us take each item one by one, in plain words.
1. Sublimation paper: 18% GST
Sublimation paper is the special paper used to print a design and then transfer it by heat onto T shirts, mugs, caps, polyester cloth and gift items. Every photo printing and gift shop in a small town uses it.
The fight was over which heading it falls under. Some said heading 4809, some said sub heading 4810 22. The two headings carry different rates, so one dealer was charging one rate and another dealer a different rate for the same paper, and notices followed.
The Board has now said clearly that sublimation paper falls under heading 4809 and attracts 18% GST. This is S.No. 176 of Schedule II of Notification No. 09/2025 Central Tax (Rate) dated 17.09.2025.
What about the past? The Council has recommended that the past period be regularised on an “as is where is” basis. In simple words, whatever rate a dealer actually paid in the past is accepted as it stands. If he paid less, the department will not reopen it. If he paid more, he cannot ask for a refund of the difference. From now on, everyone must charge 18%.
2. Toys: the word “etc.” covers all toys
After the rate changes of September 2025, toys were placed in two entries of Notification No. 09/2025 Central Tax (Rate):
1. S.No. 497 of Schedule I: toys like tricycles, scooters, pedal cars etc., including parts and accessories, other than electronic toys, at 5%.
2. S.No. 616 of Schedule II: electronic toys like tricycles, scooters, pedal cars etc., including parts and accessories, at 18%.
Some officers read these entries very narrowly. Their view was that only tricycles, scooters, pedal cars and wheeled toys of that kind get the benefit, and a doll or a puzzle does not. Toy sellers were asked to pay the higher rate on such items.
The Board has rejected that reading. The word “etc.” in these entries is not limited to wheeled toys. It takes in every kind of toy that falls under heading 9503, such as dolls, dolls’ carriages, other toys, reduced size (scale) models and similar recreational models, whether working or not, and puzzles of all kinds.
So the simple rule is this. A toy that is not electronic attracts 5%. An electronic toy attracts 18%. The type of toy does not matter, as long as it falls under heading 9503.
3. Used car and bike dealers: ITC on expenses is allowed
A second hand vehicle dealer can pay GST under the margin scheme. Under this scheme he pays tax only on his margin, that is, the difference between his selling price and his buying price, and not on the full sale value. The notifications are No. 08/2018 Central Tax (Rate), No. 09/2018 Integrated Tax (Rate) and No. 01/2018 Compensation Cess (Rate), all dated 25.01.2018.
One condition of this scheme is that the dealer should not take input tax credit. The doubt was how far this condition goes. Some read it to mean that the dealer cannot take ITC on anything at all, including spare parts, repair and service bills, software, shop rent and advertisement.
The Board has now clarified that the bar on ITC applies only to the tax paid on the old vehicles he buys. On all his other purchases, he can take ITC in the normal way. This includes:
1. spare parts and other inputs (other than the used vehicles themselves)
2. repair and maintenance services
3. technology and software services
4. rent of the showroom or yard
5. marketing and advertisement services
Of course, the normal conditions of the CGST Act still apply, such as a proper tax invoice, the supplier having filed his return, and the blocked credits under Section 17(5).
This is a real relief. A dealer who stayed away from this credit out of doubt can now claim it, and a dealer who gets a notice on this point can quote this circular in his reply.
4. Seaweed based bio stimulants: treated as fertiliser
Bio stimulants made from seaweed extract are sprayed on crops to improve growth and yield. Farmers buy them from fertiliser and pesticide shops.
The question was whether these products are fertilisers under heading 3101, or plant growth regulators under heading 3808. Heading 3101 sits in the lower rate schedule, and so the answer decides how much tax the farmer finally bears.
The Board has clarified that seaweed extract based bio stimulants which are registered under Schedule VI to the Fertiliser (Inorganic, Organic or Mixed) (Control) Order, 1985 fall under heading 3101. This is S.No. 237 of Schedule I of Notification No. 09/2025 Central Tax (Rate). An Explanation has been added to that entry to make this clear.
Please note the condition. The benefit is for products registered under Schedule VI of the Fertiliser Control Order. A dealer should keep a copy of that registration in his file.
For the past period also, the Council has recommended regularisation on an “as is where is” basis, in the same way as sublimation paper.
A few practical words
If you deal in any of these four items, check the rate in your billing software today. Sublimation paper at 18%, non electronic toys at 5%, and seaweed bio stimulants registered under the Fertiliser Control Order under heading 3101.
If you are a used vehicle dealer under the margin scheme, sit with your accountant and look at the ITC you left out on expenses. It can be claimed, subject to the normal time limit under Section 16(4).
If a notice is already pending on any of these points, do not panic. Attach this circular to your reply. For sublimation paper and seaweed bio stimulants, the “as is where is” regularisation should close most past disputes, though how it is applied to a pending case will depend on the facts of that case.
