GST WEEKLY UPDATE :41/2025-26 (11.01.2026) By CA Vipul Khandhar

-By CA Vipul Khandhar

1.    GST Rule 14A Optional Category: Portal Blocking Creates Compliance Deadlock for Taxpayers:

The Goods and Services Tax (GST) portal has recently begun strict system-level enforcement of the ₹2.5 lakh monthly B2B tax liability ceiling applicable to taxpayers registered under Rule 14A – Optional Category. Once this threshold is exceeded, the portal blocks generation of the GSTR-1 summary, thereby preventing filing of outward supply returns.

While the intent behind Rule 14A is to provide a simplified compliance framework for small taxpayers, the present portal implementation has led to a serious procedural anomaly, placing taxpayers in a compliance deadlock with no clear or workable exit mechanism.

Rule 14A – Optional Category: Legislative Intent

Rule 14A was introduced to allow eligible taxpayers to opt into an Optional Category subject to specified conditions, including a monthly B2B tax liability cap of ₹2.5 lakh. The scheme is voluntary and is premised on the assumption that taxpayers who outgrow the limits would be able to smoothly exit the category and migrate to the regular compliance framework.

However, while the restriction is being enforced technologically, the corresponding withdrawal mechanism is not operationally enabled on the GST portal.

Portal Enforcement Without Procedural Enablement

At present, once the B2B tax liability exceeds ₹2.5 lakh in a tax period:

• The GSTR-1 summary cannot be generated
• Consequently, GSTR-1 cannot be filed
• Buyers face the issue in claiming credit.
• Without filing GSTR-1, GSTR-3B compliance also becomes vulnerable
• Late fees, interest exposure, and compliance ratings are impacted

This enforcement occurs without any system prompt or alternative workflow allowing the taxpayer to transition out of the Optional Category for that period.

Withdrawal Conditions: Circular and Unworkable

As per the GST portal advisory:

• If withdrawal application is made before 1 April 2026
  → Returns for at least three months from the effective date of registration must be filed.
• If withdrawal application is made on or after 1 April 2026
  → Returns for at least one tax period must be filed.

While these conditions may appear reasonable in isolation, they become impossible to satisfy in cases where:

• GSTR-1 summary generation itself is blocked due to breach of the ₹2.5 lakh B2B limit, and
• Return filing is a precondition for applying for withdrawal.

This results in a circular compliance trap:

Returns cannot be filed because the limit is breached, and withdrawal cannot be applied for because returns are not filed.

Absence of System-Enabled Exit Mechanism: As on date:

• There is no portal-based option to auto-exit or force-exit the Optional Category upon limit breach
• There is no prescribed manual or offline procedure
• No clarificatory circular or notification addresses this specific scenario
• Helpdesk responses remain inconsistent and non-committal

This gap between legal framework and system design exposes taxpayers to unintended non-compliance without any fault on their part.

Practical Workaround Adopted by Taxpayers

In the absence of any official or technical solution, the only practical workaround currently available is:

Deferring B2B outward supplies to the subsequent month so that the ₹2.5 lakh B2B tax liability threshold is not breached in the current tax period.

While this approach:

• Allows GSTR-1 summary generation and filing to proceed, and
• Helps avoid portal blockage and cascading compliance failures,

it is:

• Commercially inefficient
• Business-disruptive
• Contrary to the principle that tax compliance systems should adapt to business realities, not the other way around

Need for Immediate Clarification and System Correction

To resolve this unintended compliance deadlock, the following measures are urgently required:

1. Auto-migration or forced exit option upon limit breach
2. Temporary relaxation of return-filing preconditions for withdrawal
3. Backend override mechanism for affected taxpayers
4. Official circular or advisory clarifying the procedure
5. Alignment between Rule 14A conditions and portal functionality

Conclusion

The present situation under Rule 14A highlights a recurring issue in GST implementation — technology-driven enforcement without corresponding procedural safeguards. While the Optional Category was introduced to simplify compliance, its current execution has instead resulted in avoidable hardship for compliant taxpayers.

Until the GST portal introduces a clear, system-enabled exit mechanism, taxpayers are left with no choice but to adopt temporary commercial adjustments to remain compliant.

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Language is precise, structured, and reader-friendly for taxpayers, CAs, and consultants.

2. Major Changes Introduced Through Portal Automation:

Auto Late Fee – Delay Automatically Means Penalty

GST Returns

• Late fee is auto-calculated and displayed
• Filing is blocked unless the late fee is paid
• Waivers or manual requests are virtually eliminated

Key Takeaway: Due dates are no longer flexible milestones—they are hard system cut-offs.

2. Ledger-Based Filing – Unclean Books Lead to Filing Blocks

• GST portal now cross-verifies:
  • ITC Ledger
  • Cash Ledger
  • Liability Ledger
• While filing GSTR-3B:
  • Excess ITC claims
  • Missing reversals
  • Ledger mismatches
    → Result in immediate filing blockage

Year-end adjustments are obsolete. Monthly reconciliation is now mandatory.

Bank Details Verification – Automatic Suspension Risk

• New GST registrations must update bank account details within 30 days
• Failure leads to system-generated suspension
• Consequences of suspension:
  • Return filing blocked
  • E-way bill generation stopped
  • Business operations effectively frozen

Even small traders are equally exposed.

3. AAR & Important Judgements:

(i) Gujarat Highcourt Decision Regarding Order detaining goods and vehicle passed beyond 7 days from date of service of notice quashed:

(Applicant – Allcargo Logistics Ltd)

GST – Detention of goods and conveyance – Section 129(3), CGST Act – Mandatory time limit – Procedural violation – Order passed beyond 7 days – Invalid

• Where a notice under Section 129(3) of the CGST Act is issued, the proper officer is mandatorily required to pass the final order within seven days from the date of service of notice.
• Non-adherence to the statutory time limit vitiates the entire detention proceedings.
• Procedural safeguards under GST law are mandatory and not directory.
• Detention based on a clerical error in vehicle number in E-way bills, duly corrected immediately, does not justify prolonged detention.
• Transporter cannot be penalized for minor procedural lapses when there is no intent to evade tax.

Brief Facts

• The petitioner, Allcargo Logistics Ltd., was acting solely as a transporter of goods and not as the owner or consignor.
• During transit, the goods and vehicle were detained on the ground that vehicle numbers mentioned in multiple E-way bills did not match.
• The mismatch was explained as a clerical mistake, and a corrected consolidated E-way bill reflecting the proper vehicle number was generated and produced immediately.
• A notice under Section 129(3) of the CGST Act was issued by the department.
• However, the final detention order was passed beyond the statutory period of seven days from the date of service of notice.

Issues for Consideration

1. Whether passing an order under Section 129(3) beyond seven days renders the detention proceedings invalid?
2. Whether a clerical error in vehicle number in E-way bills, subsequently rectified, constitutes a valid ground for detention?

Observations & Findings of the Court

• The High Court observed that Section 129(3) clearly mandates passing of the final order within seven days from the date of service of notice.
• The timeline prescribed under the provision is mandatory, and failure to comply amounts to a jurisdictional error.
• The Court noted that the detention was solely based on a procedural lapse without any allegation of tax evasion.
• Since the petitioner was merely a transporter, and the error was promptly rectified, the detention lacked substantive justification.
• Reliance was placed on settled judicial precedents holding that procedural safeguards under GST must be strictly followed.

Decision

• The Gujarat High Court held that non-compliance with the mandatory seven-day time limit under Section 129(3) invalidates:
  • the notice,
  • the detention of goods and vehicle, and
  • the consequential order.
• Accordingly, all proceedings were quashed and set aside.

Ratio Decidendi

An order passed under Section 129(3) of the CGST Act beyond the prescribed period of seven days from service of notice is void ab initio, and procedural safeguards under GST law must be strictly complied with. 

Disclaimer:

This publication contains information for general guidance only. It is not intended to address the circumstances of any particular individual or entity. Although the best of endeavour has been made to provide the provisions in a simpler and accurate form, there is no substitute to detailed research with regard to the specific situation of a particular individual or entity. We do not accept any responsibility for loss incurred by any person for acting or refraining to act as a result of any matter in this publication.

(Author is a well known Chartered Accountant practicing on Direct & Indirect Tax At Ahmedabad)