GST Council to Address ₹2,500 Cr Cess Credits and ITC Relief in October 7 Meeting

The GST Council meeting scheduled for October 7 will focus on process reforms under the indirect tax regime. Finance Minister Nirmala Sitharaman said in a LinkedIn post that proposals before the Council cover registration, returns, refunds, disputes, and smoother input tax credit flow, aiming to lower compliance time and cost.

GST Collections Show Consistent Growth in 2026

Sitharaman pointed to recent revenue numbers to underline the system’s resilience after the September 2025 rate restructuring.

Every month from June to September recorded double-digit annual growth, and the four months combined accelerated by nearly 15%.

Why Input Tax Credit Access Is the Biggest Business Demand?

Businesses want to claim input tax credit when they hold a valid invoice, even if the supplier has not deposited the collected tax with the authorities. Under the current framework, a buyer can face denial of ITC due to supplier non-compliance, even when the purchase is genuine.

The October 7 meeting follows the September 2025 move from a four-slab to a three-slab GST structure, which was aimed at reducing classification disputes and compliance friction.

Why Auto Dealers Have ₹2,500 Crore Stuck in Cess Credits

Auto dealers purchased inventory from original equipment manufacturers by paying GST plus compensation cess of 1-22%. When the compensation cess was discontinued in 2025, around ₹2,500 crore of input cess credits became locked in electronic ledgers.

Under normal GST rules, cess paid on inventory could offset tax on fresh sales. Since compensation cess no longer exists, those credits cannot be applied to current GST liabilities. Existing statutory provisions also do not allow a cash refund. Industry is asking for a time-bound mechanism to either utilise or refund these stranded balances.

Decriminalisation May Be a Major GST Council Meeting Item

The Council may deliberate on whether tax authorities should retain arrest powers under GST. Under Section 69 of the Central GST Act, a Commissioner can authorise an arrest when there are reasons to believe a person has committed specified offences under Section 132, including:

• Fake invoicing
• Fraudulent input tax credit claims
• Fake refunds
• Deliberate tax evasion

One proposal under discussion is to remove GST’s standalone arrest provisions, which would eliminate the Section 69 route for a GST officer to arrest a taxpayer during an investigation.

What Registration and Litigation Reforms Are on the Table

On registration, businesses have sought:

• A guided single-attempt application process with tailored document lists
• Carry-over of data from an existing GSTIN
• Simultaneous multi-state registration applications
• Automatic jurisdiction allocation
• Risk-based and time-bound approval for larger low-risk businesses

On litigation, industry has asked for:

• A bar on notices where the tax demand is below ₹10,000
• Clearer guidelines for drafting and serving notices
• A distinction between fraud or suppression and bona fide short payment
• Mandatory personal hearings and speaking orders

Export Relief for GCCs Is Part of the Agenda

The Council may also address a tax treatment issue affecting global capability centres, or GCCs, which are India-based units of multinational companies carrying out engineering, product development, and testing for overseas group companies. These units are typically paid in foreign exchange for their services. The tax treatment of such payments affects refunds and GST compliance, making this a significant issue for India’s services export sector.

Final Outlook

Source: Moneycontrol