Indirect Tax Quarterly Milestones (January-March 2026)

The Supreme Court held that no customs duty is leviable on electrical energy supplied from a Special Economic Zone (SEZ) to the Domestic Tariff Area (DTA).¹ The dispute arose in a fiscal regime where imported electrical energy attracted a nil rate of customs duty while the central government sought to impose duty on SEZ to DTA supply through a series of notifications under Section 25 of the Customs Act, 1962 (Customs Act).

The Court analysed Section 30 of the SEZ Act, read with Section 12 of the Customs Act and held that the supply of electricity from an SEZ to the DTA does not constitute a physical import. It also noted that the Special Economic Zones Rules, 2006 already provide for neutralisation of duty benefit on inputs for electricity generation, therefore, the notifications effectively sought to levy additional duty on the output. Emphasising that the delegated power to exempt from customs duty is not a power to tax, the Court held that the notifications constituted a colourable exercise of delegated legislation, and violated Article 265 of the Constitution.

Accordingly, the Court directed that the duty paid by the appellant under protest be refunded (without interest). Invoking the maxim interest reipublicae ut sit finis litium (i.e., it is in the interest of the State that there be an end to litigation), the Court cautioned against repetitive imposition of invalid levies through successive notifications. The Court also reaffirmed judicial discipline, holding that a coordinate bench cannot dilute or sidestep an earlier ruling on the same question of law. Any disagreement must necessarily be referred to a larger bench. The judgment, therefore, also underscores the importance of precedents in ensuring certainty and finality in tax adjudication.

In a case on the Value Added Tax (VAT) regime in Uttar Pradesh, the Supreme Court held that regulatory or licensing descriptions under food laws cannot control the interpretation of an entry in a taxing statute.²

The dispute related to whether “Sharbat Rooh Afza” was taxable as a “fruit drink” at 4%, or under the residuary entry at 12.5%. The tax authorities relied on the Fruit Products Order, 1955 (FPO), and the related food regulatory framework, which classified a beverage containing less than 25% fruit juice as “non-fruit syrup,” rather than a fruit drink. Accordingly, they treated “Sharbat Rooh Afza,” which contained 10% fruit juice, as a “non-fruit syrup/sharbat” and taxed it at the higher rate under the residuary entry.

The Court rejected this approach, holding that food laws and tax laws operate in distinct fields, and regulatory classification (based on food safety and quality standards) cannot determine fiscal classification under VAT. It applied the two-fold tests of (i) common parlance and (ii) essential character, and held that despite its high sugar content, the product’s commercial identity was derived from its fruit-based ingredient, and it was commonly understood as a fruit-based beverage. In view of these conclusions, and the fact that the relevant entry for fruit drinks and juices in the VAT statute did not prescribe a minimum fruit-content threshold, the Court refused to read the 25% fruit threshold of the FPO into the VAT entry. The Court also reiterated that the residuary entry applies only where classification under a specific entry is not possible, and even then, the tax authorities must justify such classification.

Although the current Goods and Services Tax (GST) regime introduced a different tariff structure, chapter notes and rate entries, this VAT-related judgment reiterates the broader principle of tax interpretation – that commercial understanding and statutory wording prevail over regulatory labels, unless the taxing statute expressly provides otherwise.

The Allahabad High Court held that while electronic service of notices and orders is legally permissible under the GST law, mere uploading on the GST portal or dispatch by email does not, by itself, amount to effective communication to trigger the limitation period to file an appeal under Section 107 of the Central/State GST enactments.³ The Court distinguished between the validity of electronic service as a mode of service and the question of whether such service can be treated as effective “communication” of the order so as to trigger the appellate limitation period.

Analysing Sections 107 and 169, the Court distinguished between “service” and “communication,” holding that limitation begins only when the taxpayer has actual or constructive knowledge of the order. It further held that the deeming fiction of service under Section 169 applies only to specified modes (such as physical delivery, post, publication, or affixation) and does not extend to portal uploads. The Court accordingly held that the taxpayer’s limited right of appeal must remain real and effective, particularly in a statutory framework where delay can be condoned only to a limited extent and where the appellate authority cannot remand the matter to the adjudicating authority.

The Court also acknowledged the relevance of Sections 12 and 13 of the Information Technology Act, 2000 (IT Act) to electronic dispatch and receipt. However, it held that “receipt” of an electronic record under the IT Act is not equivalent to “communication” under GST law, particularly in the absence of any mechanism to trace whether a taxpayer has actually accessed or viewed the document.

The ruling underscores that digital and automated processes cannot dilute the principles of natural justice or the appellate remedy available to taxpayers.

The Delhi High Court held that GST demands for periods prior to the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), cannot be raised or continued if they are not included in the approved plan.⁴

The Court observed that the GST department had participated in the insolvency proceedings and had filed its claims before the Resolution Professional (RP), which were considered and crystallised in the approved plan. However, the department later issued fresh demands for earlier financial years.

Relying on the Ghanashyam Mishra & Sons Pvt. Ltd.,⁵ the Court reiterated that once a resolution plan was approved, all claims not forming part of the plan stand extinguished. The Court also referred to Sundaresh Bhatt ⁶ to clarify that while tax authorities may assess dues for the purpose of lodging their claim in insolvency, they cannot enforce or recover such dues outside the IBC framework.

Setting aside the impugned orders and demands, the Court reinforced the “clean slate” principle, holding that the new management cannot be burdened with past liabilities not included in the resolution plan.

The Finance Act, 2026, introduces important changes across customs and GST laws:

• Customs
  • The validity of advance rulings under Section 28J(2) of the Customs Act, 1962 has been extended from three years to five years, with existing rulings eligible for a five-year extension upon request. This provides meaningful planning certainty for sectors with recurring or long-gestation import programmes, including manufacturing, electronics, pharmaceuticals, and project imports.
  • The INR 10 lakh per-consignment value cap on courier exports has been removed, enabling e-commerce exporters and Micro, Small, and Medium Enterprises (MSME) to ship higher-value goods through faster, more cost-efficient channels.
  • The amount payable under Section 28 of the Customs Act upon voluntary settlement is now statutorily characterised as a “charge” rather than a “penalty,” reducing collateral consequences in audits and compliance assessments and encouraging faster dispute closure.
• GST
  • The place of supply rule for intermediary services under Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 has been omitted with effect from 30 March 2026, enabling Indian intermediaries serving foreign recipients to qualify their services as exports and access zero-rating benefits. This is a significant relief for Information Technology (IT) and Information Technology Enabled Services (ITES), Global Capability Centres (GCC), and cross-border facilitation models.
  • The requirement of a prior agreement for post-supply discounts under Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act) has been removed, allowing credit notes to serve as the operative instrument for reducing taxable value, which should materially ease valuation disputes in B2B distribution-driven sectors.
  • The 90% provisional refund mechanism under Section 54(6) of the CGST Act has been extended to inverted duty structure refunds, improving working capital for textiles, chemicals, and other inversion-affected sectors.
  The latter two changes will come into effect from a date to be notified by the government.