The post UPERC Recognises GST Rate Reduction as a ‘Change in Law’ Event for PM-KUSUM Projects first appeared on N J Jain & Associates.

E-way Bill is an electronic trace of movement of goods which is mandated by rule 138 of the CGST Rules, 2017. This rule mandates a form EWB-01 which prescribes what details are required to filled up. GSTN has issued an advisory dated 20.05.2026 whereby it has been stated that from 1st August 2026 it would be mandatory to mention either GSTIN / URP against the ‘Ship to’ address in case the E-way bill is for Bill to Ship to transaction.

Lets take a deep dive and see whether what GSTN has announced is legally plausible

Exactly Who is GSTN?

GSTN is merely a Common Portal as notified under section 146 of the CGST Act.

146. The Government may, on the recommendations of the Council, notify the Common Goods and Services Tax Electronic Portal for facilitating registration, payment of tax, furnishing of returns, computation and settlement of integrated tax, electronic way bill and for carrying out such other functions and for such purposes as may be prescribed.
Accordingly it is merely a facilitator of various procedural aspects, it has not been vested with any power whatsoever to make or announce any change in any procedural aspect. On this count alone the advisory of 20th May 2026 is illegal. Having said so, if the e-way bill portal makes these changes live and the GST officers on the roads take it as gospel truth, it will lead to unnecessary hassle whereby goods in transit will be held hostage which will lead to costly litigation.

Are the changes legally plausible?

Now lets see these changes from another lens, does the law, rules and the e-way bill form as notified permit GSTN to make these changes in the form no less announce it?

a. Rule 138 of CGST rules mandates the procedural aspects of e-way bill issuance. Sub-rule 1 thereof suggests that one has to provide information as specified in Part A of Form GST EWB-01.

b. Notified Part A of EWB 01 is placed below for all to see and witness. As per this notified Part A one is required to furnish GSTIN of only 2 persons:

• Supplier
• Recipient

c. As per section 2(93) of CGST Act the person who is liable to pay the consideration to the supplier is the recipient. Only in case of transactions where there is no consideration, the person receiving delivery is considered as the recipient, such transactions are not subject matter of this discussion.

d. Further, Part A also allows mentioning of Address of Place of dispatch and Place of Delivery, but conspicuously it doesn’t seek GSTIN of these two addresses.

e. In case of ‘Bill to Ship to Transaction’ there are 3 addresses as under:

• Bill from : Supplier
• Bill to : Recipient
• Ship to: Place of Delivery

f. As explained above, Part A of EWB-01 seeks GSTIN of only the Supplier and Recipient, it has no prescription whatsoever for mentioning of GSTIN of Place of Delivery.

g. Further, Notes below Part A provide some clarifications, note 6 is relevant to this discussion and reads as under:

“6. Where the supplier or the recipient is not registered, then the letters “URP” are to be filled-in in column A.1 or, as the case may be, A.3.”

A.1 is for GSTIN of Supplier and A.3 is for GSTIN of Recipient. Again there is no prescription to mention URP in case of ‘Ship to’ address.

Conclusion

To summarize,

a. GSTN doesn’t have the powers to issue any advisory which makes any change to anything which is mandated by law, it is just a facilitator and not a regulator.
b. Notified form EWB-01 does not prescribe mentioning GSTIN / URP for ‘Ship to’ address.

So on both counts, the advisory issued by GSTN is illegal and doesn’t deserve to be given any weightage, in the recent past, GSTN had issued an advisory mandating change in IGST utilisation, they had to unceremoniously withdraw that advisory as it wasn’t legally sound. I had argued against it as well on Linkedin (see link) and there was a huge debate on it as well.

In the guise of stated virtues of “strengthening data integrity, improving traceability of goods movement” GSTN cannot overlook the legally mandated forms and its rightful place in law which doesn’t allow it to make changes in how business documentation is done.

I would sincerely urge the Government and the GST council to ask GSTN to resist from issuing such advisories in the future

Form EWB-01 – Part A is attached below for ease of reference

The post GSTN Announces Key e-Way Bill Portal Enhancements first appeared on N J Jain & Associates.

For several years, tax authorities have consistently taken the position that such assignments constitute a taxable supply of services, typically attracting GST at 18%. Businesses transferring leasehold rights in plots allotted by industrial development corporations such as GIDC, MIDC and others were therefore issued notices demanding GST on the assignment premium or consideration received.

However, a series of recent judgments delivered by the Gujarat High Court and the Bombay High Court between 2025 and 2026 has significantly reshaped the legal landscape. These rulings have largely held that the assignment of long-term leasehold rights is a transfer of benefits arising from immovable property, and therefore does not fall within the scope of GST.

While the matter may ultimately be settled by the Supreme Court, the emerging judicial trend has provided much-needed clarity for businesses involved in industrial land transactions. This article examines the legal principles behind these decisions and the practical implications for taxpayers.

Understanding the Transaction: Lease, Sub-Lease, and Assignment

Before examining the legal controversy, it is important to understand the difference between a lease, a sub-lease, and an assignment of leasehold rights.

Lease or Sub-Lease

In a lease arrangement, the owner of land (the lessor) grants the right to use the property to another person (the lessee) for a specified period in return for rent or lease consideration. A sub-lease arises when the lessee grants a similar right of use to a third party while still retaining their own leasehold interest. In both situations, the original lessee continues to hold rights in the property. From a GST perspective, leasing or renting of immovable property is treated as a supply of service under Schedule II of the CGST Act.

Assignment of Leasehold Rights

An assignment is fundamentally different. In an assignment, the original lessee transfers their entire remaining leasehold interest to a third party. Once the assignment takes effect, the assignor exits the arrangement and the assignee steps into the shoes of the original lessee. In many industrial plots allotted by development corporations, leases are granted for long periods such as 95 or 99 years. When such rights are assigned, the assignee effectively acquires control and enjoyment of the property for the balance lease period.

The central legal question therefore arises:

Is such an assignment merely a service, or is it a transfer of immovable property rights?

Why the Department Has Treated Assignments as Taxable

Tax authorities have generally relied on Section 7 of the CGST Act read with Schedule II, which classifies certain activities involving immovable property as supply of services.

Based on this approach, authorities argued that:

• The transfer of leasehold rights does not amount to sale of land.

• The original lessee merely transfers a right to use land.

• Therefore, the transaction should be treated as a taxable service.

In some cases, the department has also attempted to classify these transactions under residual service categories such as “other miscellaneous services” taxable at 18%. This interpretation resulted in large-scale litigation across industrial estates where businesses transferred leasehold plots.

The Turning Point: Gujarat High Court in GCCI

A major turning point came with the decision of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India (2025). The case concerned assignment of leasehold rights in plots allotted by Gujarat Industrial Development Corporation (GIDC). The Court examined whether the assignment of leasehold rights by an existing allottee to a new party could be treated as a taxable service. The High Court held that such transactions involve assignment or transfer of benefits arising out of immovable property, rather than the provision of a service.

The Court relied on well-established principles under property law, noting that immovable property includes not only land itself but also benefits arising from land. Since long-term leasehold rights constitute an interest in land, the Court concluded that assignment of such rights should not be treated as a supply of service under GST. This judgment became a landmark ruling and laid the foundation for subsequent decisions on the issue.

Bombay High Court Reinforces the Principle

Following the Gujarat decision, the Bombay High Court delivered a series of rulings that further strengthened the taxpayer position. These cases involved assignments of leasehold rights in plots allotted by the Maharashtra Industrial Development Corporation (MIDC).

Panacea Biotec (2025)

In this case, the Bombay High Court set aside the GST demand raised on the assignment of leasehold land. The Court accepted the taxpayer’s argument that the transaction involved transfer of leasehold rights rather than provision of a service.

Aerocom Cushions Pvt. Ltd. (2026)

In another important ruling, the Court examined the department’s attempt to classify assignment of leasehold rights as “other miscellaneous services.” The Court rejected this approach, observing that a residual service category cannot be stretched to cover transactions involving transfer of valuable immovable property rights. The Court also emphasised that an assignment is neither a lease nor a sub-lease, since the assignor’s rights are completely extinguished once the transaction is completed.

Hindustan Equipment Craft (2026)

The most recent ruling further reinforced the same legal principle. The Court again held that assignment of leasehold rights in an industrial plot amounts to transfer of an interest in immovable property, and therefore cannot be treated as a taxable service under GST. These decisions collectively indicate a clear judicial trend favouring non-taxability of such assignments.

The Legal Principle Emerging from the Courts

Across these judgments, several common legal principles can be identified.

1. Leasehold Rights Are an Interest in Land

Courts have recognised that long-term leasehold rights represent benefits arising from immovable property. Therefore, transfer of such rights is closely linked to land itself.

2. Assignment Is Different from Leasing

Unlike a lease or sub-lease, an assignment transfers the entire remaining interest of the assignor. Once the assignment takes place, the assignor ceases to have any rights in the property.

3. Substance of the Transaction Matters

The courts have emphasised that GST should be applied based on the real nature of the transaction. If the transaction effectively transfers control and enjoyment of land for decades, it cannot be artificially treated as a service.

4. Residual Service Entries Cannot Be Misused

Attempts to classify such transactions under miscellaneous service categories have also been rejected. Courts have held that residual classifications cannot override the true nature of the transaction.

Important Distinction: Transfer of Development Rights

It is also important to note that not all transactions involving land rights receive the same treatment under GST. For example, earlier litigation such as Prahitha Constructions before the Telangana High Court dealt with transfer of development rights under joint development agreements. That case involved a different commercial structure and the Court held the transaction to be taxable.

Therefore, taxpayers must distinguish between:

• Assignment of leasehold rights, and

• Transfer of development rights or other property-related arrangements

The GST treatment may vary depending on the nature of the transaction.

Practical Implications for Businesses

The recent High Court rulings provide significant relief for industries dealing with long-term leasehold land. However, businesses should still approach the issue carefully.

Review Transaction Structure

The documentation should clearly reflect an outright assignment of leasehold rights rather than a permission to use the property. Proper drafting is critical in supporting the legal position.

Evaluate Pending Disputes

Businesses that have received GST notices on assignment premiums may consider relying on these High Court judgments while responding to the authorities.

Assess Past Payments

Where GST has already been paid, companies may examine whether the facts support potential litigation or refund strategies, subject to legal and procedural considerations.

Monitor Supreme Court Developments

The issue may eventually reach the Supreme Court, which will provide final clarity on the subject. Until then, the High Court rulings remain important precedents, particularly within their respective jurisdictions.

Conclusion

The taxation of leasehold assignments under GST has been a complex and evolving issue. For several years, businesses faced uncertainty as tax authorities treated these transactions as taxable services. However, the recent rulings of the Gujarat High Court and the Bombay High Court have significantly altered that narrative. The courts have consistently recognised that assignment of long-term leasehold rights represents transfer of benefits arising from immovable property, rather than provision of a service.

While the final word may still come from the Supreme Court, the current judicial trend provides meaningful clarity and relief for industries involved in industrial land transactions. For businesses, the key takeaway is clear: the structure and documentation of leasehold assignments will play a decisive role in determining their GST treatment. Careful legal analysis and well-drafted agreements remain essential in navigating this evolving area of law.

The post Is GST Payable on Assignment of Leasehold Rights? first appeared on N J Jain & Associates.

Given that exports are zero-rated supplies under GST, exporters often question whether the rigours of e-invoicing were intended to apply at all. However, successive notifications and clarifications issued by the Government make it clear that exports are very much within the ambit of e-invoicing, subject to prescribed thresholds and exclusions.

This article examines the legal basis, scope, practical issues, and compliance imperatives surrounding e-invoicing for export supplies, drawing exclusively from Government-issued provisions and clarifications.

Statutory Framework Governing E-Invoicing

E-invoicing has been introduced under Rule 48(4) of the CGST Rules, 2017, which mandates specified registered persons to issue invoices by reporting prescribed particulars to the Invoice Registration Portal (IRP) and obtaining an Invoice Reference Number (IRN).

Key aspects of the framework include:

• Applicability based on aggregate turnover threshold (PAN-based, all-India).

• Mandatory reporting of invoice details to IRP prior to issuance of invoice.

• QR code and IRN becoming integral parts of a valid tax invoice.

The rule applies to “tax invoices, credit notes and debit notes”, except where specifically excluded.

Are Export Supplies Covered Under E-Invoicing?

Yes. Export supplies are squarely covered under e-invoicing provisions.

The term “supply” under GST includes export of goods and services. Further, export invoices are issued as tax invoices, albeit zero-rated under Section 16 of the IGST Act, 2017. Since Rule 48(4) does not carve out any exclusion for exports, export invoices issued by eligible taxpayers are required to be reported to IRP.

The Government has also clarified through system-level validations and FAQs that:

• Export invoices must be reported with “EXP” as the supply type.

• Both export with payment of tax and export under LUT/Bond without payment of tax are covered.

Thus, the zero-rated nature of exports does not dilute the e-invoicing obligation.

Applicability Based on Turnover Threshold

E-invoicing applicability for exports follows the same turnover threshold as domestic supplies.

Currently, e-invoicing is mandatory for registered persons whose aggregate turnover exceeds the notified limit in any preceding financial year, excluding certain notified classes (such as SEZ units, insurers, banks, etc.).

Important points to note:

• Turnover is computed PAN-wise, not GSTIN-wise.

• Turnover includes export turnover, exempt supplies, and inter-State supplies.

• Once applicable, all qualifying invoices, including export invoices, must be e-invoiced.

Failure to generate IRN for export invoices where applicable renders the invoice non-compliant under Rule 48.

Type of Document to be Reported for Exports

A common area of confusion is whether exporters should report:

• Export invoice

• Shipping bill

• Commercial invoice

The legal position is unambiguous:

• Only the GST tax invoice issued under Section 31 of the CGST Act is required to be reported to IRP.

• Shipping bills are governed by Customs law and are not substitutes for tax invoices under GST.

• Commercial invoices, if different from GST tax invoices, have no relevance for e-invoicing purposes.

Accordingly, the GST tax invoice raised for export must be reported to IRP and must contain export-specific fields.

Mandatory Fields in Export E-Invoices

The IRP schema prescribes specific mandatory fields for export invoices, including:

• Supply type: EXP

• Export category: With payment / Without payment

• Port code

• Shipping bill number and date (if available at the time of reporting)

• Country code of destination

Practical issue arises where shipping bill details are not available at the time of invoice generation. The system permits reporting of export invoices without shipping bill details, which can be updated later in GST returns and refund applications.

Time of Reporting Export Invoices to IRP

Rule 48(4) requires that invoice details be reported to IRP before issuance of the invoice.

In export scenarios:

• IRN must be generated before the invoice is shared with the overseas customer.

• Customs authorities increasingly rely on invoice data alignment between GST systems and ICEGATE.

Backdated IRN generation or post-export IRN creation is not legally permissible and may result in disputes during refund processing.

Impact on GST Refunds for Exporters

E-invoicing has a direct bearing on export refunds, particularly:

1. Refund of IGST Paid on Exports

For exports with payment of tax, refund of IGST is largely system-driven and depends on:

• Invoice data in IRP

• Shipping bill data

• GSTR-1 and GSTR-3B reconciliation

Mismatch between e-invoice data and shipping bill details can lead to refund holds or rejections.

2. Refund of Unutilised ITC (LUT Exports)

For exports under LUT without payment of tax, refund claims rely on:

• Turnover of zero-rated supplies as per GSTR-1

• Invoice details reported to IRP

Any invoice not reported to IRP despite being applicable may be excluded from refund computation, leading to cash flow issues.

Common Practical Issues Faced by Exporters

Based on representations and audit observations, the following issues frequently arise:

• Non-generation of IRN for export invoices under mistaken belief of exemption

• Incorrect classification of supply type (B2B instead of EXP)

• Port code errors leading to refund mismatches

• Multiple commercial invoices vs single GST invoice confusion

• Amendment of export invoices without corresponding IRP amendment

Each of these can trigger downstream consequences in returns, refunds, and departmental scrutiny.

Consequences of Non-Compliance

Non-compliance with e-invoicing provisions for export supplies may result in:

• Invoice treated as invalid under Rule 48

• Exposure to penalty under Section 122 of the CGST Act

• Rejection or delay of export refunds

• Adverse audit observations during departmental audits

Given the increasing use of data analytics, export invoices not backed by IRN are easily traceable.

Compliance Tips for Exporters

To ensure seamless compliance, exporters should consider the following best practices:

1. Assess e-invoice applicability annually based on PAN-level turnover.

2. Configure ERP systems to mandatorily generate IRN for all export invoices.

3. Ensure correct tagging of supply type as “EXP”.

4. Reconcile e-invoice data with GSTR-1 and shipping bill details on a periodic basis.

5. Train commercial and logistics teams on timing and documentation discipline.

6. Maintain internal SOPs for invoice amendments and cancellations through IRP.

Proactive compliance significantly reduces refund friction and litigation exposure.

Conclusion

E-invoicing for export supplies is no longer a grey area—it is a clearly mandated compliance requirement for eligible taxpayers. While exports enjoy zero-rated benefits under GST, the procedural discipline of e-invoicing is non-negotiable.

Exporters who align their invoicing, customs documentation, and GST reporting processes stand to benefit from smoother refunds, reduced scrutiny, and improved compliance ratings. Conversely, misinterpretation or lax implementation can erode the very benefits that the export framework seeks to provide.

As GST continues to evolve into a data-driven regime, e-invoicing for exports should be viewed not merely as a compliance burden, but as a foundational control mechanism in the overall indirect tax ecosystem.

The post E-Invoice Applicability on Export Supplies: Key Issues, Clarifications & Compliance Tips first appeared on N J Jain & Associates.

Importantly, receiving a GST notice does not automatically imply wrongdoing. Many actions are triggered due to mismatches, reporting gaps, or system-generated flags. This article aims to help businesses understand what these actions mean, why they happen, and how to prepare for them without disruption.

Understanding GST Department Actions – In Simple Terms

GST law provides multiple tools to tax authorities to verify compliance. While the terminology may sound intimidating, the intent is largely to validate data.

GST Scrutiny – The First Level Check

Scrutiny is usually the starting point. It involves a desk-based review of GST returns to identify inconsistencies.

Typical scrutiny triggers include:

• Differences between GSTR-1 and GSTR-3B

• ITC claimed in GSTR-3B not matching GSTR-2B

• Abnormal variations in turnover or tax liability

Scrutiny is generally initiated through a system-generated communication on the GST portal.

Key point for businesses:
Scrutiny is clarificatory in nature and, if handled correctly, often closes without escalation.

GST Audit – A Deeper Review of Records

A GST audit involves a more detailed examination of records, returns, and transactions for a specified period.

Audits may be:

• Desk-based, where documents are submitted electronically, or

• On-site, where officers visit business premises

Audits typically cover:

• Input tax credit eligibility

• Classification and tax rates

• Valuation and time of supply

• Compliance with exemptions and notifications

Inspection, Search and Investigation – When Matters Escalate

Inspection or investigation is initiated when authorities believe there may be tax evasion, wrongful ITC, or suppression of facts.

These actions are generally carried out by:

• State GST authorities, or

• Central agencies such as the Directorate General of GST Intelligence under the Central Board of Indirect Taxes and Customs

While serious, such actions are procedural in nature and businesses that cooperate and respond factually can manage them effectively.

Common Triggers That Invite GST Scrutiny or Audit

From practical experience, the following issues most commonly lead to GST actions:

• Mismatch between returns and auto-populated data

• Excess ITC claims or incorrect reversals

• High refund claims, especially export-related

• Sudden changes in turnover or tax ratios

• Sector-specific focus areas (real estate, infrastructure, automobile, exports)

Many of these triggers arise not due to intent, but due to process gaps or reporting errors.

What GST Officers Usually Look For

During scrutiny or audit, officers typically examine:

• Eligibility and utilisation of input tax credit

• Correct classification and applicable tax rates

• Time of supply determination

• Related-party and group transactions

• Supporting documentation for exemptions or refunds

Businesses with clear documentation and reconciliations are able to address these queries smoothly.

Documents Businesses Should Always Keep Audit-Ready

One of the most effective safeguards against GST disputes is documentation readiness. Businesses should ensure easy access to:

• Sales and purchase registers

• Tax invoices, debit and credit notes

• E-way bills and delivery challans

• Contracts, agreements and work orders

• GSTR-1, GSTR-3B and reconciliation workings

• Refund applications, LUTs and export documents

In practice, documentation gaps cause more disputes than tax positions.

How Businesses Should Respond When a GST Notice Is Received

A measured and structured response is critical.

Best practices include:

• Carefully reading the scope and period of the notice

• Avoiding rushed or generic replies

• Responding strictly within timelines

• Ensuring consistency between submissions and records

• Seeking professional review before filing replies

Early and accurate responses often prevent escalation into audits or investigations.

Common Mistakes Businesses Make During GST Proceedings

Some frequent errors that increase exposure include:

• Ignoring or delaying initial communications

• Submitting incomplete or inconsistent data

• Relying on verbal explanations without records

• Accepting audit objections without legal evaluation

• Treating GST proceedings like income-tax assessments

GST proceedings are transaction-driven and document-centric, requiring a different approach.

Preventive Measures: Staying Audit-Ready Throughout the Year

Rather than reacting to notices, businesses should focus on continuous preparedness, including:

• Periodic GST health checks

• Monthly reconciliations of returns and ITC

• Well-defined internal SOPs

• Training of finance and accounts teams

• Proactive review of high-risk transactions

Such measures significantly reduce compliance stress and litigation risk.

The Role of Professional Handholding in GST Actions

Experienced professional support helps businesses:

• Communicate effectively with tax authorities

• Present facts in a structured and legally sound manner

• Manage audits without operational disruption

• Avoid unnecessary litigation and penalties

The objective is not merely compliance, but risk mitigation and business continuity.

Conclusion: Compliance Is a Process, Not an Event

GST scrutiny, audits and investigations are now a regular feature of the tax ecosystem. Businesses that invest in systems, documentation, and preparedness are able to navigate these actions with minimal disruption.

With the right approach, GST proceedings can remain procedural exercises rather than business threats.

The post GST Audits, Scrutiny and Investigations – A Practical Guide For Businesses first appeared on N J Jain & Associates.

This article examines how GST rate rationalisation has materially shaped the auto industry’s pricing structure, demand recovery, structural dynamics, and future growth trajectory.

Background: GST Rationalisation and the Automobile Sector

Since its implementation, GST has unified India’s indirect tax framework, replacing a complex maze of excise duties, VAT, and state levies. Despite its benefits, the early years of GST saw multiple tax slabs and additional surcharges (like the compensation cess) complicating tax incidence, particularly for vehicles. Commercial vehicles, passenger cars, and bikes were previously taxed at varying rates (18%, 28%, plus a cess) depending on category, size, and engine capacity, which led to significant price distortions and compliance challenges.

In September 2025, the GST Council undertook a major reset. The Council rationalised the rate structure into a simpler set of slabs – mainly 18% for mass-market vehicles and 40% for luxury segments – while abolishing the compensation cess on most auto segments. Commercial vehicles and buses migrated from 28% to a uniform 18% rate, aligning tax incidence more closely with economic fundamentals.

Pricing, Affordability, and Demand Revival

One of the most visible outcomes of the GST reform has been downward price adjustments across multiple vehicle categories:

Small cars (<4 metres): The GST cut from ~28% to 18% has driven meaningful retail price reductions. This has lowered the ex-showroom price of entry-level models to under ₹4 lakh and relieved years of upward pricing pressure.

Commercial vehicles (trucks, buses): A reduction of GST from 28% to 18% has materially lowered the total cost of ownership – a key input for fleet operators and logistics providers.

Two-wheelers (≤350cc): Lower taxes have improved affordability in the mass-commuter bike segment, critical for India’s rural and first-time buyers.

Luxury cars and premium SUVs: Consolidation into a 40% slab and the abolition of higher cess components have simplified pricing. While the percentage drop is proportionately less than for entry-level models, it still represents a substantial reduction in effective tax rates for aspirational vehicles.

Automakers have passed on these savings to consumers. Leading brands like Maruti Suzuki, Tata Motors, and Hyundai have announced price cuts ranging from tens of thousands to over a lakh rupees. This has stimulated demand, resulting in significant upticks in booking rates for popular models.

Structural Impact on the Commercial Vehicle Segment

The GST reset has had particularly transformative effects on the commercial vehicle (CV) market. Previously, the post-GST environment enabled a form of tax arbitrage. Large fleet operators leveraged Input Tax Credits (ITC) disproportionately by offsetting the high 28% vehicle GST against their service tax output – a mechanism effectively closed off to smaller players. The reset – by equalising GST under forward charge at 18% and removing these asymmetries – curbs this distortion and is steering the industry back toward utilisation-driven buying rather than tax-planning-driven procurement.

This structural correction benefits light commercial vehicles (LCVs), last-mile logistics fleets, and owner-operator models. This shift will enhance pricing discipline, improve freight rates, and stabilise demand patterns over the medium term.

Broader Industry and Ancillary Sector Benefits

GST rationalisation also helps alleviate compliance complexity and input-credit mismatches across the automobile supply chain:

Uniform Component Tax: A uniform 18% tax on auto components replaces a patchwork of different rates. This eases classification disputes and reduces working capital constraints for suppliers.

Improved Production Planning: Lower tax on key vehicle categories enhances production planning, inventory management, and dealer financing flows, especially for MSME suppliers.

Administrative Efficiency: Simplified tax slabs reduce administrative burden and improve transparency, allowing manufacturers to focus on product strategy and after-sales support rather than tax arbitrage.

Consumer Sentiment and Market Momentum

Beyond pure pricing effects, GST cuts have revitalised consumer sentiment. This has resulted in strong double-digit growth in passenger vehicle sales and distinct sales upticks during the recent festive season, citing GST reductions alongside broader macroeconomic factors as primary drivers. For first-time buyers and mid-income households, reduced GST translates into lower EMIs and shorter payback periods. In two-wheeler and entry-car segments, this has catalyzed upgrades from older vehicles or shared mobility to personal ownership.

Strategic Implications and the Road Ahead

The GST overhaul demonstrates the government’s recognition of the automobile industry’s dual role as a demand engine and employment driver. By recalibrating tax rates, policymakers have:

• Rebalanced the tax structure to reflect economic realities and affordability needs.

• Boosted domestic demand while simplifying compliance for a sector deeply integrated with exports.

• Corrected market distortions caused by earlier tax arbitrage, especially in the CV domain.

Looking ahead, sustaining this momentum will require complementary reforms – including improved access to credit, infrastructure investment, and targeted incentives for clean mobility – to ensure that demand growth translates into productive industrial expansion.

Conclusion

The GST rate cuts of 2025 have reshaped India’s automobile sector by lowering prices, simplifying compliance, and restoring equilibrium to market dynamics. From mass-market entry cars and two-wheelers to commercial fleets, the impact has been multifaceted. As the sector navigates this new tax regime, the GST reset stands out as a landmark reform with enduring implications for mobility, manufacturing, and economic growth.

The post How GST Rate Cuts Are Reshaping Automobile Industry first appeared on N J Jain & Associates.

However, industry stakeholders warn that the relief is limited. Though tax on modules has fallen, the ability of developers to claim Input Tax Credit (ITC) has not kept pace. This constraint may markedly blunt the intended benefit.

This article analyses the new GST change, explores the practical and structural challenges, and discusses what those in the solar sector should watch for going forward.

Why the GST Cut Mattered

The rationale for lowering GST on solar modules and related equipment was multi-fold:

Lower upfront equipment cost: By bringing modules into the 5% slab, the cost base of solar projects was expected to be reduced. For example, the reduction was projected to cut the capital cost of solar and wind at scale by up to 5 %.

Strengthen ‘Make in India’ and domestic manufacturing: With module and component manufacturing gaining traction, lower tax rates drive the competitiveness of Indian-made goods vis-à-vis imports.

Support the clean-energy target: With India targeting 500 GW of non-fossil fuel capacity by 2030, reducing equipment costs is critical to achieving capacity deployment and moderating tariffs.

Thus, from a policy perspective, the tax cut was strongly aligned with both industry growth and strategic energy goals.

The Input Credit Problem

Despite the drop in GST rates, developers say the relief is modest due to input tax credit (ITC) issues. A few specific mechanics:

• Under the earlier regime (when modules attracted 18% GST), developers could avail of ITC on equipment purchases. With a reduction to 5 %, the advantage of ITC becomes less clear.

• Many solar electricity supplies are exempt or zero-rated under GST. When output supplies attract zero/lowest tax, but inputs carry higher tax, an “inverted duty structure” arises, leading to blocked credits and cash-flow strain.

• While the GST law allows refund of unutilised ITC in an inverted-duty scenario, the procedural bottlenecks, documentation requirements, and timing delays reduce the practical benefit.

In short, developers are saying: yes, equipment is slightly cheaper – but the advantage is eroded by their inability to fully leverage ITC or secure timely refunds. That means the benefit may not flow through to tariffs. Nor will it project economics in a meaningful way – at least not immediately.

Structural and Practical Constraints

These are some of the key constraints dampening the impact:

1. Pre-existing projects and PPAs

Many solar-power projects were bid and contracted under power-purchase agreements (PPAs) before the tax-cut announcement. For these, the timing of invoicing and equipment procurement may not align neatly with the revised GST rate or refund mechanism. The Central Electricity Regulatory Commission (CERC) issued a suo-moto order on 4 November 2025 declaring the tax cut a “Change in Law” under renewable-energy PPAs and mandating that developers pass on the benefits to discoms or claim refunds. However, developers must provide auditor-certified proof of cost reduction and reconciled invoices. These requirements add layers of compliance and delay.

2. Cash-flow and refund timing

For inverted duty structure cases, even though a refund is legally permissible, long processing times and accumulating credits weigh on working capital. Some developers argue that while legal eligibility exists, the practical ability to monetize the credit remains constrained.

3. Deeper inversion risk

By lowering the output tax (module equipment) to 5%, while electricity output remains exempt or zero-rated, the inverted duty gap may widen unless inputs are also taxed at similarly low rates or refund mechanisms are accelerated. If the input slab remains high relative to the output, the burden shifts to refund systems.

4. Project-specific cost pass-through

Even when equipment costs fall, whether the benefit reaches end consumers depends on the contractual mechanics: sharing savings in PPAs, renegotiation with discoms, and audit timelines. Many developers report only modest tariff relief so far – on the order of ~0.5–1 percentage point.

Why the GST Relief is Limited (for Now)

Putting the above together, the reason relief is limited can be summarised plainly:

• The tax cut affects the upfront equipment cost. But for full benefit, ITC must be usable, or cash flow should not be blocked.

• Projects under older contracts may not flex easily to reflect the new cost structure.

• The refund and compliance systems are not instantaneous; the timing lag reduces near-term value.

• Even when cost reduction occurs, the mechanism for passing it through to tariffs or staying within the project economics may limit its visible impact.

Ultimately, the cut did lower equipment tax – but it did not (yet) fully unblock the indirect tax credit loop. For developers and manufacturers, liquidity and certainty matter more than a point or two of tax-rate reduction.

Implications for Developers, Manufacturers, and Policy Makers

For Developers & EPC contractors

• Conduct a detailed review of invoicing dates, equipment procurement, and PPA terms to map eligibility for benefits.

• Track and diligently document audit-certified savings from the GST reduction, which will be needed for a refund or tariff renegotiation under the CERC order.

• Monitor working-capital impact: unpaid or delayed refunds may negate upfront savings.

• Factor the modest near-term tariff benefit into bid models. Avoid over-relying on rate cuts as a game-changer, unless input credit systems improve.

For Module & Component Manufacturers

• Use the lower GST rate as a marketing proposition, but also factor in supply-chain costs, backward integration, and potentially delayed downstream benefit realisation.

• Seek to align procurement to maximise benefits: sourcing domestic components (which may have different tax profiles) becomes more meaningful in the context of a ‘5 %’ regime.

• Stay vigilant for issues related to an inverted duty structure, especially if the ultimate output (electricity) is exempt or zero-rated.

For Policy Makers and Regulators

• Focus on streamlining refund mechanisms for unutilised ITC: accelerate processing, reduce documentation burden, and provide provisional refunds. The GST-inverted-duty issue is well identified.

• Clarify the cut-over mechanics for contracts, bids, and invoices. For example, specify clearly which projects (pre- or post-September) qualify for the benefit. The CERC order is a step, but operational clarity will help.

• Consider further rate rationalisation upstream (balance-of-system goods) if input taxation remains high. Simply lowering the module GST may not be sufficient.

• Monitor whether the savings translate into lower tariffs for end consumers or better project viability, not just lower tax slabs.

Looking Ahead: What Key Indicators to Watch

For sector participants and tax advisors, the following indicators merit close tracking:

• Refund processing timelines and amounts: If claims under the inverted duty structure begin flowing faster, that will improve cash flow and mark a real shift.

• Tariff revisions and auctions: Future PPA bids may reflect lower equipment cost. If the differential shows up meaningfully, the tax change will have punched through.

• Domestic manufacturing uptick: Whether the tax cut drives more module/component manufacturing in India (as the policy aimed) or merely shifts supply sourcing remains to be observed.

• Working-capital impact: Developers and EPC firms may report reduced financing costs or shorter project cycles if the tax system friction eases.

• Depth of cost-benefit passed on: Anecdotal reports suggest that only ~0.5-1% of the benefit has reached consumers so far. The question will be whether that expands materially.

Conclusion

The GST cut from 12 % to 5 % on solar modules and related renewable energy equipment was a welcome, strategically aligned measure. It offers a foundation for cost-reduction, manufacturing impetus, and cleaner economics in India’s energy transition. But for many developers, the practical relief remains limited because the input-credit mechanics and refund infrastructure have yet to fully deliver.

For the solar sector, this means: don’t treat the rate cut as a silver bullet. Instead, pair it with robust compliance, cash-flow planning, documentation readiness, and close monitoring of refund system performance. For policy makers, the warning is clear: tax rate changes must be coupled with system-level fixes to truly unlock impact.

As India marches toward its 2030 clean-energy targets, the design of indirect taxes will matter nearly as much as tariffs, technology, and manufacturing. The GST reform is a step, but converting it into sector-wide relief will require follow-through.

The post GST Cut on Solar Modules Offers Limited Relief as Developers Flag ITC Challenges first appeared on N J Jain & Associates.

The News: SC Affirms Tax on Printing Inputs

In a decisive judgment, a bench of Justices J B Pardiwala and K V Viswanathan of the Supreme Court upheld the levy of Trade Tax on ink and processing materials used by a printing firm, M/s Aristo Printers Pvt Ltd (Ghaziabad), in the execution of printing lottery tickets. The court affirmed that these materials constitute part of the goods transferred under a works contract as per Section 3F of the Uttar Pradesh Trade Tax Act, 1948 (the Act). This decision came against the company’s appeal challenging the 2010 ruling of the Allahabad High Court, which had restored the tax demand by the revenue department.

The core of the matter was whether the ink and chemicals, which blend and adhere to the paper supplied by the client, qualify as “goods” whose property is transferred to the client, thus attracting the levy of trade tax.

The History: A 25-Year Legal Odyssey

This dispute has a long and complex lineage, spanning over 25 years and traversing multiple judicial and quasi-judicial forums:

Original Assessment (1999):

The Trade Tax Officer, Ghaziabad, initially levied the trade tax on the value of ink, chemicals, and packing materials used by Aristo Printers for the assessment years 1996-97 and 1997-98, under Section 3F of the Act.

First Appeal (Favourable to Assessee):

The Deputy Commissioner (Appeals) deleted the tax on ink and chemicals, arguing they were merely used in the printing process and not transferred to the client. However, the tax on packing material was upheld.

Tribunal Stage (Favourable to Assessee):

The Trade Tax Tribunal, Ghaziabad, ruled entirely in favour of the assessee in 2002, deleting the levy even on the packing material.

High Court Stage (Favourable to Revenue):

The Allahabad High Court overturned the Tribunal’s order in 2010. Crucially, it held that the diluted ink, being a mix of ink and chemicals, was indeed transferred to the customers as an integral component of the finished printed lottery tickets.

Supreme Court (Final Verdict):

The apex court has now upheld the High Court’s reasoning, bringing finality to the matter and validating the trade tax levy on the ink and processing materials.

Legal Aspects: The Three Pillars of Works Contract Tax

The judgment hinges entirely on the interpretation and application of Section 3F of the U.P. Trade Tax Act, 1948, which imposes tax on the transfer of goods involved in the execution of a works contract.

The Supreme Court clearly laid down three mandatory conditions that must be fulfilled to sustain a levy of tax under this section:

1. Existence of a Works Contract: There must be a recognized “works contract.” The appellant firm readily admitted that the contract for printing lottery tickets was a works contract, an observation affirmed by the court based on established legal precedents.
2. Involvement of Goods: Goods must be “involved” in the execution of the works contract. The court confirmed that the ink, chemicals, and other processing materials were undeniably involved in the printing of the lottery tickets.
3. Transfer of Property in Goods: The property in those goods must be transferred to the client, either as goods or “in another form.”

The critical point of contention was the third condition. While the materials (ink and chemicals) are consumed in the process, the High Court and now the Supreme Court have concurred that once these materials are physically applied and permanently fixed to the client’s paper, they form an inseparable part of the final product (the lottery ticket). Therefore, the property in the ink and chemicals is deemed to have been transferred to the client in the course of executing the works contract.

Significance and Future Implications

The Supreme Court’s ruling carries significant weight for tax jurisprudence, particularly in the context of works contracts:

Clarity on the ‘Transfer of Property’

The verdict provides definitive clarity on what constitutes a “transfer of property” in goods consumed during a works contract, especially in industries like printing, fabrication, and manufacturing where raw materials are integrated into the client’s final product. It emphasizes the functional transfer, where the material becomes an inherent and non-detachable component of the final output, rather than just being used as a tool or intermediary. This is crucial for businesses assessing their tax liabilities under the current Goods and Services Tax (GST) regime, which also defines a ‘works contract’ with an analogous tax structure for the supply of goods and services.

Reinforcement of Revenue Authority

This judgment reinforces the principle that where materials are demonstrably incorporated into a product owned by the client under a works contract, the revenue department is justified in levying tax on the value of those materials. It serves as a strong precedent for cases involving the taxation of inputs like paint, cement, or fixtures that are chemically or physically integrated into the subject matter of a works contract.

Guidance for Industry Contracts

For printers, manufacturers, and contractors, the decision underscores the necessity of:

• Segmenting Contract Value: Clearly demarcating the ‘services’ component from the ‘supply of goods’ component in their works contracts to accurately assess tax liabilities.
• Compliance Review: Undertaking an immediate review of their existing tax compliance, particularly concerning input materials that are consumed or incorporated into a product where the principal goods are supplied by the client.

In conclusion, the Supreme Court’s affirmation in the M/s Aristo Printers case is a cornerstone decision. It reaffirms the established legal position that the tax on works contracts is levied on the deemed sale of the goods involved, and this deemed sale occurs when the property in the goods is transferred, irrespective of whether the goods retain their original form or are transformed (like ink mixed with chemicals) in the execution of the contract. This verdict ensures that the legislative intent behind taxing the ‘transfer of goods’ in a works contract is fully realized.

The post Works Contract Law – SC Clarifies ‘Transfer of Property’ first appeared on N J Jain & Associates.

In this article I have tried to analyze the issue from viewpoint of whether the Cess has been practically subsumed and also from judicial standpoint whereby I have analysed few landmark judgements of Supreme Court and High Court where the issue of ITC was at the core.

I. Cess is being subsumed in the new rates and is not being abolished

The argument that Cess levy is being made nil may be correct in theory, but not so legally, in my view in most cases Cess tax is being replaced with regular GST. In other words, commensurate reduction in cess is not being passed on in the new rates, let’s see the current total tax and new tax rates on goods on which cess is applicable:

From the above table, it is clear that cess is now being invisibly subsumed in the new rates either fully or partly. As would be clear from below discussed judicial precedents, a scheme which was promised needs to run its course, it is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said change would result in affecting the rights of the assesses.

II. Judicial Precedents and their relevance in the Cess saga

1. EICHER MOTORS LTD. Versus UNION OF India 1999 (106) E.L.T. 3 (S.C.)

Facts before the court:

Excise duty on Inputs used in making tractors was 15% to 25% whereas excise duty on final products (Tractors) was 10% to 15%. Value addition from raw material to finished tractors was also not of such a magnitude that the excise duty required to be paid on final products could have exceeded the total input credit allowed. Since the excess credit could not have been utilized for payment of the excise duty on any other product, the unutilized credit was getting accumulated. In other words, government was not getting anything in cash from tractor manufacturers.

To overcome this issue, Rule 57-F (4-A) was introduced in Central excise Rules 1994 and ITC lying in balance with the manufacturers on 16.03.1995 was sought to be lapsed.

Apex Court ruling:

Few manufacturers of tractors challenged this rule, Supreme Court, quashed the rule and allowed the ITC, but more importantly it gave a very important maxim which is relevant even today, Credit once legitimately availed becomes a vested right and cannot be taken away. Following para from this judgement is relevant for our discussion on the issue of Cess ITC:

“As pointed out by us that when on the strength of the Rules available, certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that the right, which had accrued to a party such as the availability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assesses concerned. Therefore, the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said Rule would result in affecting the rights of the assesses”

In simple words, Supreme Court said that if a tax is paid under a scheme with a promise that the same would be allowed to be utilised towards a final product, said tax so paid cannot be lapsed for goods which have already come into existence. Compensation Cess was introduced due to compromise between the centre and states. It was to be used to compensate the states to cover their losses, taxpayers were promised that they could pass on the burden to the end consumer. Cess is not to be levied from 22nd Sept on Passenger vehicles, coal and beverages. Same situation will arise in near future for tobacco industry as and when the finance minister decides to discontinue levy of cess of them. Cess was collected from Traders for compensating states, but the next leg of the promise whereby the same could be passed on the end consumers won’t be possible post 22nd Sept. Traders can’t be left in a lurch as they can no more shift this burden to the end consumer.

2. DAI ICHI KARKARIA LTD. 1999 (112) E.L.T. 353 (S.C.)

This one is another landmark judgment on Input tax credit. The facts of this case were a bit different though, it was a case of valuation of intermediate goods.

Facts before the court:

The manufacturer purchased raw material, same were used in the manufacture of an intermediate product. He then used the intermediate product in the manufacture of a final product. The raw material and the intermediate product were then liable to excise duty and they were specified goods for the purposes of the Modvat scheme. The assessable value of the intermediate product for the purposes of excise duty was to be determined on the basis of its cost. In determining the assessable value of the intermediate product the cost of the raw material was to be considered.

Department took the view that the cost of the raw material must be the price paid by the manufacturer to its seller inclusive of excise duty so paid. Manufacturer took a stand that the basic price of the raw material should be taken without the excise duty thereon, as he is entitled to credit. Hence it was a question of valuation to start with but the subject matter of difference between the department and the taxpayer was the eligibility of Modvat credit.

After considering, Eicher Motors judgement, Supreme Court ruled that excise duty paid on raw materials used in making of intermediate goods cannot be included in the cost of intermediate goods because that credit will be used to pay excise duty on the final products being manufactured using the intermediate goods.

3. CCE, PANCHKULA Versus HMT (TD) LTD. 2015 (322) E.L.T. 342 (P & H)

Facts before the court:

HMT was engaged in manufacturing of tractors. It procured spares and other goods which were used for manufacturing of these tractors. It paid excise duty on procurement of such raw materials and took Input credit of the same. Effective from 9.07.2004, Tractors and parts used within the factory production for manufacturing of final goods were exempted from levy of excise duty, therefore the dept demanded reversal of ITC availed on raw materials.

Judgement by the Larger Bench of CESTAT – 2008 (232) E.L.T. 217 (Tri. – LB)

Larger Bench allowed the matter in favour of the taxpayer and ruled as under:”

21. We find that the different benches of the Tribunal have taken the similar view in the cases of C.N.C. Commercial Ltd. (supra) upheld by the High Court, Saboo Alloys Pvt. Ltd. (supra), Swastik Textile Engineers Ltd. (supra) and P.S.L. Ltd. (supra). We agree with the views expressed in the said decisions.

22. In view of the above discussions, we hold that when the input-credit legally taken and utilised on the dutiable final products, need not be reversed on the final product becoming exempt subsequently w.e.f. 9-7-2004. The decision of the Bangalore Bench in the case of TAFE Ltd. (Tractor Division) v. CCE, Bangalore – 2007 (210) E.L.T. 571 (Tri.) = 2007 (79) RLT 706 (Tribunal-Bangalore) enunciated the correct position of the law. The issue is thus, answered in favour of the assessee and against the Revenue.

Ruling by Punjab & Haryana High Court:

Matter was appealed by the department in High Court where in following ruling was given

20. In the instant case, it is not a matter of dispute that the assessee has paid the duty on inputs used in the indicated manufacturing of final goods, the assessee has maintained separate accounts/record, duly entered credit of duty-paid on the inputs in manufacture of final goods and validly availed the Cenvat credit. Therefore, the same cannot be reversed on the ground that the final product (i.e. agricultural Tractors) were subsequently exempted from tax. Thus, the contrary arguments of the learned counsel for the Revenue ‘stricto sensu’ deserve to be and are hereby repelled under the present set of circumstances. No contrary judgment has been cited on behalf of the Revenue. Therefore, the aforesaid judgments are the complete answer to the problem in hand.

21. In the light of aforesaid reasons, the assessee is held entitled to the benefit of Cenvat credit in the obtaining circumstances of the case. Hence, question No. 1 is answered against the Revenue and in favour of the assessee.

Department Appeal against the above judgement is pending in the Supreme Court – 2015 (323) E.L.T. A79 (S.C.) [10-01-2011]

III. Conclusion:

It would not be out of place to say that introduction of GST in its present form is because of a compromise between centre and state governments, that compromise came in the form levy of Compensation Cess. States feared that GST will decrease their revenue, Central Government promised them with 14% compounded growth of revenue for 5 years. To fund this promise, Compensation Cess was levied on many luxury and sin goods. This promise has now run its course, 56th Council meeting decided to remove this levy from all goods except tobacco related products, Finance Minister has been given the mandate to remove cess on tobacco related products once the loan and interest taken during covid is paid. In a nutshell, Compensation cess was a bridge to achieve GST reforms. GST is a refined form of Value added tax whereby the suppliers are allowed to pass on the burden to the end consumer, removing cess is a good step nonetheless, but burdening the traders who were just a pass through agents would be a huge breach of trust, trust which the taxpayers reposed in the governments.

Finance Minister once said that governments must collect taxes like bees collect nectar, flowers remain to blossom so should the taxpayers. This issue of reversal of cess needs to be resolved in this spirit, else the courts of this country will be inundated with litigation for years.

About Author
Nitesh Jain

A pioneer in his field, Nitesh Jain is the primary driving force behind the firm. Nurturing a result- oriented mind and a go-getter attitude, he specializes in presenting pragmatic solutions for key business challenges. He has consulted renowned corporates and PSUs like Sardar Sarovar Narmada Nigam Limited and Ahmedabad Metro Rail. He is an active member of Indirect Tax Committee of GCCI.

Know More

The post Compensation Cess ITC – Is reversal mandatory? first appeared on N J Jain & Associates.

1. Facts explained by way of example:

ABC Ltd is dealing in Luxury Cars and has stock of 100 such cars with it on 22nd Sept morning. On Purchase of these 100 cars he had availed ITC of 1 crore worth of Compensation cess. It utilised 80 lac worth of ITC of Cess in its regular course of business and only has 20 lac Cess ITC in its electronic credit ledger on 22nd Sept morning.  Luxury cars stand exempt from levy of Cess from 22nd Sept.

2. Question that arises

Whether these taxpayers are required to reverse:

A) ITC only to the extent which is lying in their Electronic Credit Ledger on 22nd September 

OR 

B) they are required to reverse entire ITC which was originally availed on the goods lying in stock on 22nd September.

3. Legal Provisions and FAQ issued

Section 18(4) of the CGST Act reads as follows:

18 (4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption:

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

Relevant abstract / version of above provision would read as follows:

18 (4) Where any registered person who has availed of input tax credit where the goods supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such exemption:

FAQ issued after 56th GST Council meeting in point no 9 – this issue has been covered:

My outward supply is exempt under new rate schedule. But I already have ITC of GST paid in my ledger. Will I need to reverse ITC?

The ITC can be utilized to discharge outward liability for supplies of goods/services or both made till 21st September, 2025. However, for supplies made on or after i.e 22nd September, 2025 when the rate change is effected, ITC will have to be reversed as per provisions of CGST Act, 2017.

4. Probable Impact 

Currently entire trade understands that any ITC lying in balance on 22nd Sept will lapse and therefore would be required to be reversed only to that extent. However, on literal interpretation of section 18(4), it could mean that the taxpayers are required to calculate original ITC which was availed on stock lying in hand on 22nd September and reverse the same either by debiting available ITC or by paying in cash. 

In given example, auto dealers would be required to reverse entire 1 crore of Cess ITC originally availed even though he had legitimately availed the ITC when the product was taxable and also utilised it legally in compliance with section 49.

5. Judicial Precedent

There have been judgements in the past which say that ITC once legitimately availed goes in the common pool and cannot be demanded back if the goods or services become exempt later on. Gujarat High Court in the case of Alembic Ltd has ruled on this line.

6. Clarification sought

Clarification on this issue is required to be issued at the earliest, media reports quote a figure of 2500 Crores of cess being the impact on the Auto dealers, some quote a figure of 4000 crores. Same issue of Cess ITC reversal is being faced by coal and beverages industry. If entire ITC availed on stock in hand is required to be reversed, then this figure would be much more then what has been reported.

To overcome this grave issue we request to issue a Removal of Difficulty Order u/s 14 of Goods And Services Tax (Compensation To States) Act, 2017 read with Section 172 of the CGST Act, 2017 and provide for 

1. Non application of section 18(4) on goods on which compensation cess has been abolished.
2. Transition of Cess ITC lying in Electronic Credit ledger and allow it to be utilised against regular GST liability post 22nd September 2025. 

In light of the above, it becomes imperative for the GST Council or the CBIC to issue a timely clarification, either through a Removal of Difficulty Order or a specific Circular, to ensure uniformity in interpretation and avoid large-scale disputes. The current ambiguity, if left unaddressed, could translate into massive financial outflows for the industry, with estimates suggesting a reversal impact upwards of ₹4,000 crore. Given the legitimate availing and utilisation of ITC under the law when the goods were taxable, a pragmatic solution that avoids retrospective hardship is essential. The principle of certainty in tax policy must prevail – especially when the industry has acted in good faith and in compliance with the provisions of the law.

The post Auto Dealers & ITC Reversal – Cess Exemption Dilemma first appeared on N J Jain & Associates.