Indirect Tax Quarterly Milestones (April-June 2026)

The Supreme Court upheld the constitutional validity of levying Goods and Services Tax (GST) on the full stake or deposit amount for online gaming, fantasy sports and casino transactions, rather than only on the platform fee or commission retained by the operators.¹ The Court held that once money or money’s worth is staked on an uncertain outcome, the transaction constitutes betting and gambling for GST purposes, irrespective of whether the underlying game involves skill or chance. Accordingly, the full stake or deposit amount represents consideration for the taxable supply of the actionable claim.

The Court clarified that organised online gaming platforms are suppliers of actionable claims and not merely intermediaries facilitating transactions between players. It upheld the validity of Rules 31A, 31B and 31C of the Central Goods and Services Tax Rules, 2017 (CGST Rules), which prescribe that GST is to be computed on the full amount staked or deposited and not just on the operator’s platform fee.

The Court also held that the 2023 amendments to the GST framework, including the changes to Schedule III and the insertion of Rules 31B and 31C, are clarificatory in nature and, therefore, apply retrospectively. According to the Court, these amendments do not introduce a fresh levy or new taxable event, but rather provide greater specificity and operational clarity to the pre-existing framework governing taxation of actionable claims arising from betting and gambling transactions.

Consequently, it set aside earlier High Court decisions that had quashed GST show cause notices and directed that pending proceedings be adjudicated in accordance with the principles laid down in the judgment.

The ruling substantially strengthens the Revenue’s position in pending and legacy disputes involving online gaming operations. While taxpayers may continue to raise factual valuation/computational objections before the adjudicating authority, the judgment settles the principal controversy on the levy and valuation of GST on online gaming transactions.

The Karnataka High Court held that the two-year limitation period prescribed under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) for filing GST refund claims is mandatory and cannot be relaxed by the proper officer.² It ruled that, in the absence of any statutory power to condone delay, refund claims filed beyond the prescribed period are not maintainable before the tax authorities.

The Court observed that this limitation period forms part of the CGST Act’s broader statutory framework, which also prescribes time limits for tax authorities to initiate proceedings for tax not paid, short paid or erroneously refunded. Permitting belated refund claims without corresponding extension of these limitation periods could prejudice the tax authorities’ ability to examine and recover any tax that may become payable during refund scrutiny.

At the same time, the Court clarified that the statutory limitation does not curtail the High Court’s writ jurisdiction under Article 226 of the Constitution. In cases involving genuine hardship and the absence of an effective statutory remedy, the High Court may condone delays to prevent the State from retaining taxes not legally due. However, such relief would be discretionary, not automatic, and would depend on the facts of each case.

Importantly, the Court held that where a delay in filing a refund claim is condoned in writ proceedings, the Revenue must be given a corresponding extension to apply any statutory demand provisions that would have remained available had the refund claim been filed within time. The judgment reinforces the mandatory nature of the statutory limitation while recognising a narrow constitutional exception, balancing taxpayer relief with the Revenue’s ability to scrutinise belated refund claims.

The Madras High Court upheld the validity of the GST rule governing Input Service Distributor (ISD) credit distribution, while clarifying that the requirement to distribute credit in the “same month” applies only when the credit has become legally available under the CGST Act, and not merely upon receipt of the invoice. An ISD is the office that receives common input service invoices and distributes the related credit to other registrations of the same business.

Examining the ISD distribution provision under Section 20 of the CGST Act which permits a head office to pass on common input service credit to other units, alongside the eligibility conditions for input tax credit (ITC) under Section 16(2) which sets the conditions for a registered person to become entitled to ITC, the Court held that ISD becomes available for distribution only after all statutory conditions for availing of ITC have been satisfied, including receipt of the service, payment of tax to the government and filing of the relevant return.

The Court rejected a literal interpretation of Rule 39(1)(a) of the CGST Rules, under which the obligation to distribute credit would arise immediately upon the receipt of the invoice. It observed that such an interpretation could compel ISDs to distribute credit before legal entitlement is established, while simultaneously exposing them to recovery proceedings for wrongful distribution under Section 21 of the CGST Act, which prescribes the manner of recovery of excess credit wrongly distributed by an ISD. The Court therefore upheld the validity of the rule but interpreted it to require distribution only after the credit has become legally available.

The ruling provides important clarity for businesses operating through multiple GST registrations by confirming that ISD credit distribution should be aligned with the substantive conditions for input tax credit eligibility rather than the date of invoice receipt. It also provides support for taxpayers challenging demands based solely on delayed distribution of ISD credit and highlights the need to align GST compliance systems with the statutory conditions governing credit availability.

The Bombay High Court held that corporate guarantees issued by a holding company to its subsidiaries without any consideration do not constitute a taxable supply of service under the CGST Act.³ The petitioner had furnished corporate guarantees for loans extended to its subsidiaries, with the guarantee deeds expressly providing that no fee, commission or other consideration had been or would be received. In these circumstances, the Court held that the absence of consideration was sufficient to exclude the transaction from the scope of taxable supply and quashed the related show cause notice and summons.

The Court observed that while the issuance of a corporate guarantee may involve the provision of a service, GST is attracted only where the transaction qualifies as a “supply” under Section 7 of the CGST Act. The Court distinguished corporate guarantees issued within a group to support subsidiaries from bank guarantees issued in the ordinary course of business, noting that the former are not commercial services rendered for consideration.

The Court also rejected the Revenue’s reliance on Rule 28(2) of the CGST Rules which deals with valuation⁴ of corporate guarantees between related persons, and the corresponding circular which had clarified that the activity of providing corporate guarantee to related persons even without consideration would be treated as a taxable supply of service. It held that valuation provisions become relevant only after the existence of a taxable supply has been established and cannot, by themselves, create a tax liability where the essential requirement of consideration is absent. At the same time, the Court upheld the constitutional validity of Rule 28(2), reiterating that fiscal legislation and delegated legislation are entitled to considerable judicial deference unless shown to violate constitutional principles.

The ruling provides significant relief to corporate groups issuing intra-group guarantees without consideration by reaffirming that valuation provisions cannot expand the scope of a taxable supply. However, the issue is likely to attract further judicial scrutiny, given the substantial revenue implications and the continuing debate on whether Schedule I of the CGST Act, which deems certain transactions between related persons to be supplies even without consideration, is sufficient to attract GST on such guarantees. In this case, the Court’s analysis appears to have proceeded on the threshold issue of taxability, without any separate discussion of Schedule I, which could independently bear on whether such transactions are treated as supplies even in the absence of consideration.

The Central Board of Indirect Taxes and Customs (CBIC) has introduced a special one-time relief window permitting eligible manufacturing units in Special Economic Zones (SEZ) to clear manufactured goods into the Domestic Tariff Area (DTA) at concessional customs duty rates between 1 April 2026 and 31 March 2027.⁵ The measure is intended to address the underutilisation of manufacturing capacity in SEZs arising from prevailing global trade disruptions.

The benefit is available to manufacturing units that commenced production on or before 31 March 2025, subject to specified conditions. These include a cap on DTA clearances linked to the unit’s historical export performance and a minimum value-addition requirement of 20%. The concession does not extend to units operating in Free Trade and Warehousing Zones (FTWZ) or to goods that are merely imported into an SEZ and sold into the DTA without any manufacturing activity.

The notification provides concessional rates for basic customs duty and, in specified cases, the agriculture infrastructure and development cess, while other applicable duties and taxes, including social welfare surcharge and integrated GST, continue to apply. To facilitate implementation, the CBIC has also clarified that eligible DTA clearances will be processed through the faceless assessment mechanism and the Risk Management System.⁶

The one-time relief is expected to reduce the customs duty burden on eligible SEZ manufacturers, improve capacity utilisation, and enhance their competitiveness in the domestic market during a period of continued uncertainty in global trade.