GST WEEKLY UPDATE :23/2026-27 (06.09.2026) by CA Vipul Khandhar

-By CA Vipul Khandhar

1. Tamil Nadu Commercial Taxes Department Tightens Gst Return Scrutiny: Prior Approval Mandated For Suo Motu Notices And Ex Parte Orders: Circular No. 07/2026-Tngst (R1/14532334/2026) Dated June 25, 2026:

System-Generated Risk-Based Scrutiny Mechanism

1. Prior Approval Framework for Suo Motu Scrutiny Notices

The Circular directs that suo motu scrutiny notices shall not ordinarily be issued. Proper Officers may initiate suo motu proceedings only under exceptional circumstances:

• Cases with substantial revenue implications not captured by system-driven scrutiny.
• Proceedings stemming from specific intelligence inputs, audit observations, investigations, or authenticated third-party data.
• Severe non-compliance involving fraudulent Input Tax Credit (ITC) availment, fake invoices, bogus registrations, or suppression of taxable turnover.
• Significant discrepancies identified through financial statements, e-way bills, TDS/TCS data, or business intelligence tools (e.g., MIS, BIFA, GST Prime).

Before issuing any suo motu scrutiny notice, the Proper Officer must record reasons in writing and obtain prior approval from the competent authority based on monetary thresholds:

2. Safeguards Before Passing Ex Parte Orders

To ensure natural justice, the Circular institutes strict pre-conditions before an ex parte order in Form DRC-07 can be passed following a Show Cause Notice (Form DRC-01):

• Mandatory Outreach: If no reply is received within 30 days of Form DRC-01, the officer must contact the taxpayer via telephone or email and document the attempt.
• Physical Postal Delivery: If the taxpayer misses the personal hearing, Form DRC-01 must be dispatched via Speed Post to both the principal place of business and the residential address of the authorized signatory, with proof of service placed on record.

Supervisory Approval: The officer must record written reasons and secure prior approval from the Deputy Commissioner or Joint Commissioner under the same monetary thresholds applicable to suo motu notices before passing an ex parte order.

2. E WAY bill FAQ: Part: 1

The E-Way Bill Frequently Asked Questions (FAQs) formatted in a concise tabular format:

1. General Portal & Registration FAQs

2. Transporter Enrollment & Login FAQs

3. E-Way Bill Core Provisions & Rules FAQs

4. Validity, Distance & Generation Mechanics FAQs

5. Special Scenarios & Transporter Operations FAQs

3.    Important Judgements:

1. Validity of Composite Orders Covering Multiple Tax Periods: Appellant Name: Vishwa Vinayaka Build Tech: Order Issuing Authority / Respondent: State Tax Department, Andhra Pradesh / Commercial Tax Officer

• Facts & Grounds:
  • The tax authority issued a single composite assessment order covering three distinct tax periods (FY 2020–21, April 2021–March 2022, and April 2022–March 2023).
  • The taxpayer challenged the consolidated order on the ground that each tax period gives rise to a separate cause of action and requires distinct assessment proceedings.
• Key Takeaway: A single/composite assessment order covering multiple financial years or tax periods is legally invalid under GST. Adjudicating authorities must conduct proceedings and pass separate orders for each tax period individually so as not to prejudice the taxpayer’s statutory right to appeal.

2. Service of Orders via Portal & Appeal Limitation Period:Appellant Name: Luxmi Traders (and batch petitions led by Gugal Electrical and Engg. Works):Order Issuing Authority / Respondent: State / Union Territory Tax Authorities (e.g., UT of Chandigarh / State of Punjab)

• Facts & Grounds:
  • Show Cause Notices (SCNs) and adjudication orders were uploaded silently under the “View Additional Notices and Orders” tab on the GST portal without separate e-mail attachments or physical delivery.
  • The taxpayers missed the deadlines, leading to ex-parte orders. The department rejected subsequent appeals as time-barred.
• Key Takeaway: Uploading an SCN or order solely on a complex portal tab without due service does not trigger the statutory limitation period for filing an appeal. Where ex-parte orders are passed due to non-receipt, High Courts will condone the delay and remand the matter back for a proper hearing.

3. Rectification of GSTR-1 / GSTR-3B for Bona Fide Errors:Appellant Name: Various Taxpayers (e.g., M/s. Star Engineers Ltd. / M/s. Sun Dye Chem):Order Issuing Authority / Respondent: Assistant Commissioner of Central / State GST

• Facts & Grounds:
  • Taxpayers committed bona fide clerical errors, such as misreporting GSTIN details of customers or recording outward supply under incorrect heads in GSTR-1 / GSTR-3B.
  • When taxpayers requested permission to rectify these errors, tax authorities rejected the requests citing post-limitation statutory deadlines.
• Key Takeaway: Rectification of GSTR-1 and GSTR-3B returns must be permitted where the error is bona fide, inadvertent, and has not caused any revenue loss to the exchequer. Technicalities should not prevent a taxpayer from correcting honest clerical mistakes.

4. Direct Recovery u/s 79 without Following Rule 88C / Form DRC-01B:Appellant Name: Caterpillar India Private Limited:Order Issuing Authority / Respondent: Assistant Commissioner / Joint Commissioner of CGST and Central Excise

• Facts & Grounds:
  • Tax authorities initiated direct recovery proceedings under Section 79 of the CGST Act based on tax liability mismatches between Form GSTR-1 and Form GSTR-3B.
  • The department bypassed issuing mandatory intimations under Rule 88C (Form GST DRC-01B) before initiating recovery.
• Key Takeaway: Recovery actions under Section 79 initiated purely due to return mismatches are illegal and void if the statutory procedure under Rule 88C is skipped. Tax authorities must issue Form GST DRC-01B to allow the taxpayer an opportunity to explain or pay before any direct recovery can be enforced.

5. Gujarat High Court: Reporting Nil Turnover Cannot Be Treated as Proof of Business Closure for GST Cancellation:

The tax department suspended and cancelled the GST registration of a merchant exporter on the ground that the petitioner reported “nil” turnover in GSTR-3B filings continuously from April 2021 to March 2024. Authorities treated three consecutive years of zero turnover as proof that the enterprise had ceased business operations under Section 29(1) of the Gujarat GST Act and subsequently rejected the revocation plea.

KEY RULING BY THE HIGH COURT

• Reporting zero turnover in periodic GST returns cannot automatically be treated as conclusive proof that an enterprise has shut down operations.
• Tax officers cannot assume business closure without gathering tangible evidence; issuing a show-cause notice purely based on “nil” filings falls outside statutory grounds prescribed under Section 29.
• The authority violated principles of natural justice by ignoring active trade documents submitted by the taxpayer for transactions conducted between July and August 2024.
• The order cancelling GST registration is set aside and the registration is restored.
• Tax authorities retain the liberty to independently verify active business operations, provided they strictly adhere to due legal process.

FINAL DECISION

The petition is allowed. The GST cancellation order is quashed, restoring the taxpayer’s registration subject to the department’s right to conduct legal verification.

6. TRANSITIONAL VAT CREDIT CARRIED FORWARD TO GST REGIME CANNOT BE REFUNDED UNDER SECTION 54(3) BUT RE-CREDIT TO ELECTRONIC CREDIT LEDGER IS PERMISSIBLE:The Hon’ble Gujarat High Court in Dilip Babubhai Patel v. State of Gujarat & Anr. [R/Special Civil Application No. 21685 of 2019 dated June 29, 2026] upheld the Department’s rejection of refund of transitional SGST credit carried forward under Section 140 of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (“the GST Acts”). The Court held that once accumulated credit from the erstwhile regime is transitioned into the GST framework, the statutory bar under the second proviso to Section 142(3) of the GST Acts is triggered, rendering cash refund impermissible. Merely transferring credit via Form GST TRAN-1 does not automatically qualify it for refund under Section 54(3) on account of an inverted duty structure. However, the Court partly allowed the writ petition, holding the Assessee entitled to a re-credit of the rejected refund amount to its Electronic Credit Ledger (“ECL”) under Form GST PMT-03 for future utilization.

Issues:

• Whether unutilized transitional VAT credit carried forward to the ECL under Section 140 of the GST Acts can be refunded in cash under Section 54(3) of the GST Acts due to an inverted duty structure?
• Whether the Petitioner is entitled to a re-credit of the rejected refund amount back to its ECL under Rule 93 of the GST Rules?

Held:   The Hon’ble Gujarat High Court held as under:

• Scheme of Transitional Provisions: Chapter-XX (Sections 139–142) governs migration to the GST regime. Section 140 allows taxpayers to carry forward unutilized ITC into GST. Section 142(3) provides that refund claims for credit under the old law must be processed under the old law and paid in cash. However, the second proviso to Section 142(3) explicitly bars any cash refund of CENVAT/VAT credit where the balance as on the appointed day has already been carried forward under the GST Acts.
• Scope of Refund vs. Utilization: A combined reading of Section 49(4) and Section 54(3) distinguishes ITC utilization from refund. Section 49(4) permits ECL balances to be used for output tax payments. Section 54(3) restricts unutilized ITC refunds strictly to zero-rated supplies without tax payment or accumulation due to an inverted duty structure. Section 49(6) allows refund of ECL balances for amounts payable under “this Act,” demonstrating that Parliament never intended Section 54 to refund credit accumulated under former enactments.
• Elections Cannot Overlap: A taxpayer migrating to GST cannot claim both cash refund and credit transition concurrently or interchangeably. Transitioning credit via Form GST TRAN-1 forfeits the right to a cash refund under Section 142(3), while preserving the right to utilize that credit for output tax discharge.
• Bar Under Second Proviso Triggered: Once credit is transitioned, the statutory bar under the second proviso to Section 142(3) applies. Transitioning credit via TRAN-1 does not ipso facto make it refundable under Section 54(3). CBIC Circular No. 37/11/2018-GST dated March 15, 2018 (Para 10) re-affirms this explicit policy intention.
• Distinction of Precedents:
  • Torrent Pharmaceuticals Ltd. v. Union of India [2024 (22) Centax 431 (Guj.)] pertained to zero-rated supplies where Section 142(3) was not at issue.
  • Weatherproof Solution v. State of Gujarat [2025 (32) Centax 258 (Guj.)] directed processing under the VAT Act read with Section 174(2)(c), not the GST Act.
  • Ford India Pvt. Ltd. v. Union of India [2025 (94) GSTL 84 (Guj.)] involved credit that was not transferred as of the cut-off date.
• Breach of Natural Justice Not Fatal to Merit: Though no hearing was granted under Rule 92 prior to rejection, remanding the matter would be a futile exercise since the core dispute is a pure question of law fully argued before the Court.
• Entitlement to Re-credit: Under Rule 93 of the GST Rules, upon rejecting a refund claim, the Revenue must re-credit the debited amount back to the ECL using Form GST PMT-03.

Direction: The Court directed the Revenue to verify records upon the Petitioner’s application and pass an order in Form GST PMT-03 within 12 weeks to re-credit the admissible amount to the Petitioner’s ECL for utilization. The writ petition was allowed in part.

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.