Indirect Tax Amicus, September 2026

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Articles

Navigating the SEZ exit: Real-world hurdles and hidden tax traps for transitioning units

By Ratan Jain and Shambhavi Mishra

The first article in this issue of Indirect Tax Amicus highlights the legal, tax and administrative challenges faced by operational SEZ units transitioning into Domestic Tariff Area units. Key issues include uncertainty during the approval period, inconsistent inventory valuation dates, excessive duties on domestic assets, and full-value taxation of raw materials. Businesses may also face unrecoverable reversals of pre-GST VAT and excise benefits, demands for historical service tax exemptions, and GST registration blocks at the same premises. The authors advocate that a successful transition requires a customized strategy—one that separates local assets from imports, resolves old tax regime conflicts, and fixes registration blocks long before filing the first document with the Development Commissioner.

India-New Zealand Free Trade Agreement: Key things to note

By Srinidhi Ganeshan and Bharath Menon

The India-New Zealand Free Trade Agreement (‘India-NZ FTA’), ratified by both countries on 21 September 2026, marks a significant milestone in bilateral economic relations between the two countries. As the agreement is set to come into force on 20 October 2026, the second article in this issue of the newsletter provides a broad overview of the agreement. Covering various aspects of trade in goods as well as services, the authors advise the importers and exporters intending to avail the benefit of the India-NZ FTA to examine the Agreement closely, as a thorough understanding of its provisions is essential for securing the preferential benefits offered by the same. 

Goods and Services Tax (GST)

Ratio decidendi

·         Interest paid earlier to be refunded when there is no liability to pay tax after omission of Rule 96(10) since inception – Bombay High Court

·         Refund of ITC on exports – Computation of ‘Net ITC’ under Rule 89(4) – Credit pertaining to earlier period but reversed during relevant period not to be deducted from credit availed – GSTAT Ranchi

·         Refund for inverted duty structure is available if packing material has higher duty incidence, even when tax on principal input and final product is same – GSTAT Kolkata

·         Refund of accumulated ITC is not deniable on grounds of ineligible ITC in absence of any order under Section 73 or 74 – GSTAT Ernakulam

·         Supply of food to in-patients of a hospital by an assessee is not a composite supply of healthcare service, thus liable to tax – GSTAT Hyderabad

·         Transportation of goods – No penalty under Section 129 for taking longer route while also entering into another State – GSTAT Varanasi

·         Pre-deposit cannot be paid by appropriation of part of Input Tax Credit blocked under Rule 86A – Delhi High Court

·         No pre-deposit for penalty-only appeals if SCN issued prior to 1 October 2025 when provisions amended to mandate such deposit – GSTAT Hyderabad

·         Payment made during investigation when cannot be considered as voluntary – Karnataka High Court

·         Jurisdiction of officer of DGGI to issue SCN – Absence of specific assignment under Section 2(91) is not material – Circular No. 254/11/2025-GST is clarificatory – Delhi High Court

·         Demand – Section 61 [Scrutiny of returns] is not an invariable jurisdictional precondition for issuance of notice under Section 74A – Allahabad High Court

·         Demand – Limitation for issuance of SCN – Section 73(2) does not mandate application of corresponding-date principle – Gauhati High Court

·         Recovery – Blocking, including negative blocking, of electronic credit ledger falls within scope of Section 79 – Madras High Court

·         Parallel proceedings – Bar of Section 6(2)(b) not applicable even if both State and Central proceedings on ITC claimed from certain entity in same FY – Delhi High Court 

Customs and FTP

Notifications and Circulars

·         Edible oils, crude or refined – BCD reduced

·         FTA imports – Requirement of Form-I under India-UK FTA and application of earlier determination to subsequent imports clarified

·         Textile exports – Mandatory declaration of ‘Flame Retardant Fabric’ from 1 November 2026

·         Recovery under Customs Section 28AAA where duty credit scrips obtained fraudulently – Customs when to act before DGFT

·         Exemption from RCMC for low value exports

Ratio decidendi

·         Quicklime is classifiable under TI 2522 10 10 if calcium oxide content is less than 98% – Supreme Court

·         Chemicals ‘Dehydol LS 1 TH’, ‘Dehydol LS 2 TH’ and ‘Lauryl Alcohol Ethoxylate 2 Mole’ are classifiable under TI 3824 90 90/3824 99 90 and not under TI 3402 13 00 – CESTAT Mumbai

·         Sensors – Temperature sensors, gas analysis sensors and other sensors – Classification of – CESTAT Chennai

·         Demand – Section 28 cannot be invoked merely to reclassify certain goods for which duty not demanded – CESTAT Chennai

·         Courier agent – No contravention of Courier Imports and Exports Regulations for non-collection of second identity document and outsourcing of physical pick-up – CESTAT Chennai

·         Courier agent when not liable for penalties under Section 114(i) and 114AA – CESTAT Chennai

·         Classification of goods – Department cannot justify reclassification through general assertions, selective examination of few products, or by relying on website material which not placed on record – CESTAT Chennai

·         Served from India Scheme (SFIS) benefit available for import of parts of helicopter used for transportation of personnel – CESTAT Mumbai

·         Pre-import condition not fulfilled – IGST exemption cannot be claimed merely because EO discharged under Advance Authorisation – CESTAT Hyderabad

·         Pre-import condition cannot be examined in abstract for entire Advance Authorisation – CESTAT Hyderabad 

Central Excise, Service Tax and VAT

Ratio decidendi

·         Development of customised software on work-on-hire basis and issuance of digital signature certificates are not liable to VAT in absence of transfer of property – Telangana High Court

·         Demand – Extended period – Deliberate act on part of assessee and not absence of knowledge of Department is relevant – Calcutta High Court