Government Revises GST Classification Framework for Non-Alcoholic Beverages
The Government has implemented a comprehensive restructuring of the GST classification framework applicable to non-alcoholic beverages with effect from 1 May 2026. The amendment seeks to rationalise tax treatment based on the nature and composition of products and reflects a policy distinction between nutritional beverages and products primarily consumed for stimulation or energy enhancement.
Under the revised framework, fruit juice-based beverages and milk-based drinks attract GST at 5%, while energy drinks and caffeinated beverages are subjected to GST at 40%. The revised rates are expected to significantly impact manufacturers, distributors and retailers operating within the FMCG and beverage sectors.
The revised rates may also have pricing implications, particularly for products now subject to higher GST incidence.
When the Supplier’s Default Becomes the Recipient’s Loss of Input Tax Credit
One of the most significant developments during the month relates to the continuing judicial debate surrounding denial of Input Tax Credit (ITC) due to supplier default. The issue has become increasingly contentious as tax authorities seek to recover tax from recipients even where the recipient has already paid GST to the supplier.
Section 16(2)(c) of the CGST Act requires that tax charged in respect of a supply must actually be paid to the Government before the recipient becomes entitled to avail ITC. Tax authorities have relied upon this provision to deny credit where suppliers have failed to deposit GST despite collecting the tax from customers.
The Gujarat High Court in Maruti Enterprise v. Union of India upheld the constitutional validity of Section 16(2)(c) and observed that ITC is a conditional statutory benefit. According to the Court, the mere reflection of invoices in GSTR-2B may not be sufficient to establish entitlement to credit.
However, several High Courts have adopted a more taxpayer-friendly approach and have emphasised that bona fide purchasers should not be penalised for supplier defaults unless collusion, fraud or non-genuine transactions are established. The divergent judicial views have resulted in considerable uncertainty for businesses.
In light of the evolving legal landscape, taxpayers should strengthen vendor due diligence processes through supplier compliance monitoring, periodic GSTR-2B reconciliations, verification of GST payment status and incorporation of contractual indemnity clauses.
Audit Officer Cannot Don Two Hats – Karnataka High Court Strikes Down Assessment Order Passed by Auditing Officer
Case: M/s. Sumukha Ventures v. Joint Commissioner of Commercial Taxes (Admn.) & Ors.
The Karnataka High Court examined whether an officer conducting audit proceedings under the GST law can subsequently act as the adjudicating authority and pass an assessment order arising out of the same audit proceedings.
The petitioner argued that combining audit and adjudicatory functions in the same officer violates fundamental principles of natural justice and deprives taxpayers of an independent and impartial determination of disputes.
The department contended that the officer was duly empowered under the statutory framework and that no prejudice had been caused to the taxpayer.
The Court rejected the department’s contention and held that audit and adjudication are distinct statutory functions which must remain independent. The Court observed that an authority cannot simultaneously act as investigator and adjudicator in the same matter, as such a practice undermines fairness and impartiality in decision-making.
The ruling reinforces the principle that assessment proceedings must be conducted by an independent authority and may provide taxpayers with grounds to challenge similar orders where adjudicatory independence is compromised.
No GST TCS Liability Where E-Commerce Operator Does Not Collect Consideration
An important judgement by the Hon’ble Karnataka High Court has been reported regarding the applicability of Tax Collection at Source (TCS) provisions under Section 52 of the CGST Act. This addresses situations where an e-commerce operator merely facilitates transactions between customers and suppliers without handling payment flows.
The GST law generally requires e-commerce operators to collect TCS where they collect consideration on behalf of suppliers. However, questions frequently arise in respect of digital platforms and marketplace models that merely provide technological infrastructure without participating in the collection process. It has been clarified that where consideration flows directly between the customer and supplier and the e-commerce operator does not collect payment on behalf of suppliers, TCS provisions may not be attracted.
This clarification is expected to provide substantial relief to platform-based business models and may reduce compliance burdens for businesses operating in the digital economy.
GST Refund Compliance Tightened – Annexure-B Mandatory Through JSON Utility
GST authorities have introduced enhanced procedural requirements for refund applications as part of their broader objective of strengthening invoice-level validation and reducing erroneous refund claims.
One of the key changes introduced is the mandatory filing of Annexure-B through the prescribed JSON utility. The revised mechanism enables system-driven validation of refund claims against information available in GSTR-2B and related GST records.
Authorities have also introduced additional disclosures relating to ITC eligibility and invoice-level reconciliations. The enhanced scrutiny framework reflects a growing shift towards technology-based compliance verification.
Taxpayers seeking refunds should undertake comprehensive reconciliations between books of account, GSTR-1, GSTR-3B and GSTR-2B before filing claims. Robust documentation and accurate invoice mapping will be critical to minimise refund objections and processing delays.
One GST Show Cause Notice for Multiple Financial Years – Supreme Court to Settle the Controversy
A significant procedural issue under GST is currently awaiting consideration before the Supreme Court. The controversy relates to whether tax authorities can issue a single Show Cause Notice (SCN) covering multiple financial years.
Taxpayers have challenged the practice on grounds of procedural fairness, complexity in reconciliation and potential violation of statutory safeguards. It has been argued that clubbing multiple years together makes effective defence difficult and may prejudice taxpayer rights.
Revenue authorities, on the other hand, contend that a consolidated notice promotes administrative efficiency and avoids duplication of proceedings.
The Supreme Court’s decision is expected to have far-reaching implications for GST investigations, audits and adjudication proceedings across the country.
Transit-State GST Officers Lack Jurisdiction to Detain Goods
A significant case has been reported with respect to the jurisdictional powers of GST authorities during the transit of goods across State boundaries. It has been reiterated that GST officers of a State through which goods merely pass during transportation do not possess the authority to detain, inspect, or confiscate such goods unless the underlying supply has a direct nexus with that State.
This is rooted in the principle that statutory jurisdiction under GST must be territorially and functionally connected to the taxable event, i.e., the origin, destination, or taxable supply being linked to that State. Merely because goods are in transit through a State does not confer jurisdiction on its authorities to initiate enforcement action, as such an interpretation would lead to overlapping powers and potential harassment of taxpayers engaged in legitimate inter-State trade.
This position reinforces the federal structure of GST administration and aims to prevent arbitrary detention of goods during logistics movement. The clarification is expected to provide significant relief to transporters, e-commerce operators, and logistics companies, particularly in cases where goods are intercepted during transit without any allegation of tax evasion linked to the transit State.
GSTAT Revamps Appeal Scrutiny Process – Mandatory Division Bench Review Introduced
The Goods and Services Tax Appellate Tribunal introduced a significant procedural reform requiring that all appeals-both pending and newly filed-must first be placed before a Division Bench for preliminary review before being assigned to a Single Member Bench for detailed hearing.
The objective of the revised mechanism is to ensure uniformity in admission standards, reduce inconsistencies in procedural scrutiny, and enhance judicial discipline within the Tribunal. It is also aimed at preventing selective listing and ensuring that complex matters are identified at the threshold stage itself.
The Tribunal observed that GST litigation involves high-volume technical disputes relating to classification, input tax credit, valuation and procedural compliance, which necessitate structured case filtering before final allocation.
This development is expected to improve efficiency in case management but may initially increase admission-stage scrutiny for taxpayers filing appeals under GSTAT.
GSTAT Bengaluru Bench Becomes Operational – Public Notice No. 01/2026 Issued (Jalahalli Bench)
The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, issued Public Notice No. 01/2026 formally notifying the commencement of its functioning from 27 May 2026. The Bench has been established at its temporary premises located at NACIN, Bengaluru, Jalahalli, and has been made operational for hearing appeals and related proceedings under the CGST Act, 2017 and the Karnataka GST Act, 2017.
The public notice clarifies that the Bengaluru Bench will exercise jurisdiction over the entire State of Karnataka and the Bench is empowered to hear appeals arising from Appellate Authority orders and other specified proceedings under Section 109 and Section 112 of the CGST Act.
It further provides that all appeals, applications and proceedings must be filed strictly in accordance with the GSTAT (Procedure) Rules, 2025, and must be submitted through the designated e-filing portal. Stakeholders have been directed to comply with procedural requirements including proper documentation, limitation timelines, and prescribed filing formats.
The Tribunal also highlighted that a dedicated helpdesk and grievance mechanism has been made available to assist taxpayers and authorised representatives in filing appeals and resolving procedural difficulties during the initial operational phase.
GSTAT Extends Relaxed Appeal Filing Guidelines till 31 December 2026
In a significant relief for taxpayers and professionals, the Goods and Services Tax Appellate Tribunal (“GSTAT”) has extended the relaxation in scrutiny norms and procedural requirements for filing appeals on the GSTAT Portal till 31 December 2026. The move acknowledges the practical and technological difficulties being faced during the initial operational phase of the Tribunal system and aims to ensure that genuine appeals are not rejected merely on technical or procedural grounds.
The GSTAT, being a newly operationalized appellate forum under the GST regime, is presently witnessing transitional challenges relating to portal functionality, documentation requirements, procedural clarity and adaptation by taxpayers, consultants and departmental officers. In this background, the relaxation has been continued to facilitate smoother implementation of the appellate mechanism and to avoid unnecessary hardship to litigants.
GSTAT Directs Additional Service Through Registered Post under Section 169
GSTAT has emphasised the importance of proper service of notices and directed that, in appropriate cases, service through registered post should be undertaken in addition to electronic modes prescribed under Section 169 of the CGST Act. The direction seeks to strengthen procedural fairness and minimise disputes relating to non-service of notices and ex-parte proceedings.
Taxpayers should ensure that their registered email addresses, mobile numbers and principal place of business details are accurately updated on the GST portal.
Assignment of Leasehold Rights Held to be Transfer of Immovable Property – Not Liable to GST
Case: Assistant Commissioner (Anti-Evasion) & Anr. v. Aerocom Cushions Private Limited
The Supreme Court dismissed the Revenue’s Special Leave Petition challenging the Bombay High Court’s decision concerning GST liability on assignment of leasehold rights in industrial land allotted by MIDC.
The dispute arose when the taxpayer transferred its leasehold rights in an industrial plot along with the factory building standing thereon to a third-party purchaser after obtaining the consent of MIDC. The department sought to levy GST by treating the transaction as a supply of service under Section 7 of the CGST Act.
The taxpayer contended that assignment of leasehold rights amounts to transfer of benefits arising out of immovable property and therefore cannot be treated as a taxable supply. It was further argued that the transaction was a one-time transfer of property rights and lacked the essential element of business required under the GST framework.
The Supreme Court declined to interfere with the Bombay High Court’s judgment and effectively affirmed the view that assignment of leasehold rights constitutes transfer of immovable property and does not amount to supply of service under GST.
The ruling is expected to provide substantial relief to industrial undertakings, infrastructure developers and businesses involved in transfer of long-term leasehold rights.
Proceedings Cannot Continue After Omission of Rule 96(10)
Case: Techno Waxchem Private Limited v. Union of India & Ors.
The Hon’ble Calcutta High Court examined whether proceedings initiated under Rule 96(10) of the CGST Rules could survive after the said Rule was omitted from the statute book. The case arose in the context of IGST refund restrictions imposed on exporters, where the department had denied refunds alleging violation of Rule 96(10), which restricted refund claims where certain exemption benefits were availed on inputs.
The petitioner challenged the validity of the adjudication proceedings on the ground that once Rule 96(10) was omitted w.e.f. 08 October 2024, the very foundation of the show cause notice ceased to exist. It was contended that in the absence of any express saving clause preserving pending proceedings, continuation of adjudication would be legally unsustainable.
The revenue argued that proceedings initiated when the rule was in force should continue notwithstanding its omission, as the omission would operate only prospectively and should not affect vested rights of the department to complete ongoing proceedings.
The Court held that once a rule forming the sole basis of proceedings is omitted without a saving clause, such proceedings cannot continue. It observed that the legal foundation for the demand collapses with the disappearance of the enabling provision, and any adjudication based solely on the omitted rule becomes unsustainable.
Accordingly, the Court quashed the impugned order and consequential demand notices, reiterating that proceedings cannot survive in the absence of statutory backing.
This judgment reinforces the principle that subordinate legislation, once omitted without a saving clause, cannot sustain pending adjudication proceedings unless independently supported under the parent statute.
Foreign Director’s Commission Taxable as Import of Services (Tamilnadu AAR)
Assessee: M/s Sampurnam Hosieries Impex Private Limited
The Authority for Advance Ruling examined the GST implications of commission paid to a foreign director and services rendered by overseas marketing agents.
The applicant sought clarity on whether payments made to non-resident directors and foreign agents would attract GST under reverse charge as import of services.
The Authority observed that commission paid to a foreign director may qualify as import of services and attract GST liability under the reverse charge mechanism. At the same time, the ruling distinguished certain overseas marketing arrangements from intermediary services depending upon the factual matrix of the transaction.
The ruling highlights the continuing importance of examining cross-border service arrangements and reverse charge obligations under GST.
Rose Water Used for Religious Purposes Not Eligible as Pooja Samagri (Tamilnadu AAR)
Assessee: M/s Sri Venkatesh Aromatics (Rose Water Division)
The applicant sought clarification regarding classification and GST rate applicable to “Pooja Panneer” (rose water) commonly used in religious ceremonies.
It was argued that the product should be treated as pooja samagri and qualify for exemption available to religious articles. The Authority rejected the contention and held that rose water cannot automatically be classified as pooja samagri merely because it is used during religious functions. Accordingly, the product was held liable to GST at the applicable rate.
The ruling reiterates that product classification under GST depends upon the nature and characteristics of the goods rather than the end use claimed by the supplier or consumer.
Corpus/Sinking Fund by Apartment Owners Association Taxable as Consideration for Future Supply (Karnataka AAR)
Assessee: Re Liberty Square Apartment Owners Association
The Karnataka Authority for Advance Ruling examined whether corpus fund or sinking fund collected by a residential apartment owners association from its members is liable to GST. The applicant contended that such contributions are in the nature of capital receipts collected for creation of reserves and contingency funds and do not constitute consideration for any specific supply of services.
It was further argued that corpus funds are not linked to any identifiable supply and are merely held in trust for future use, and therefore cannot be subjected to GST at the time of receipt.
The department submitted that contributions collected from members form part of the overall consideration for maintenance and management services provided by the association. It was contended that such funds are integrally connected to the supply of services to members and therefore fall within the ambit of “consideration” under Section 2(31) of the CGST Act.
The Authority held that corpus/sinking fund collected by the association is not a mere capital deposit but constitutes an advance consideration for future supply of services. It observed that such collections are intrinsically linked to maintenance and management obligations of the association and therefore form part of taxable supply.
Accordingly, the AAR ruled that GST is applicable on corpus and sinking fund collections at the time of receipt itself, treating them as advance consideration for future services.
The ruling has significant implications for apartment owners’ associations and RWAs, as it reinforces the principle that recurring member contributions linked to future services may be taxable under GST even if earmarked as “corpus” or “sinking fund.”
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