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Indirect Tax Update No. 43
Sublimation Paper
There has been disputes regarding the correct classification and GST rate applicable to sublimation paper. The disputes were on the question of whether sublimation paper is a form of transfer paper/copy paper classifiable under Heading 4809 or whether it is a form of coated paper classifiable under Heading 4810.
For the period before 22 September 2025, items covered under Heading 4809 were taxable at 18% while items covered under Heading 4810 were taxable at 12%. (Post introduction of Notification No. 9/2025-CT (R) w.e.f 22 September 2025both are taxable at 18%).
The circular has clarified that sublimation paper is classifiable under Heading 4809 and attracts GST at 18%.
Further, the GST Council has recommended to regularise past disputes on classification and GST rate on an “as is where is” basis.
LKS Comments
Going forward, the circular brings clarity and certainty to the tax treatment of sublimation paper and for past periods, the disputes are regularised on “as is where is” basis.
Toys
Sr. No. 497 of Schedule I of Notification No. 09/2025-CT(R) prescribes 5% GST for non-electronic toys covered under Heading 9503, and Sr. No. 616 of Schedule II of Notification No. 09/2025-CT(R) prescribes 18% GST for electronic toys covered under Heading 9503.
However, since both the entries mentioned illustrative examples such as tricycles, scooters and pedal cars etc, certain field formations were interpreting these entries restrictively and limiting their scope only to the specifically enumerated toys in the entries.
Therefore, there was uncertainty regarding the GST rate applicable to other products falling under Heading 9503 such as dolls, scale models, puzzles and other toys.
The Circular has clarified that Sr. No. 497 of Schedule I of Notification No. 09/2025-CT(R) which prescribes 5% GST for non-electronic toys, and Sr. No. 616 of Schedule II of Notification No. 09/2025-CT(R) which prescribes 18% GST for electronic toys, are applicable to all toys classifiable under Heading 9503 of the Customs Tariff Act, 1975.
The circular has clarified that the scope of these entries is not limited to the illustrative examples mentioned in the entries but to all products covered under Heading 9503.The Circular clarifies that the use of the expression “etc.” in the entriesextends the coverage of the rate entries to all toys classifiable under Heading 9503.
LKS comments
The clarification has provided relief to the assesses by ensuring uniform GST treatment at 5% for all non-electronic toys and 18% for all electronic toys covered under Heading 9503.
Margin Scheme for old and used vehicles
Under the Margin Scheme Notifications for supply of old and used vehicles, i.e. Notification No. 08/2018-C.T.R., Notification No. 09/2018-I.T.R., and Notification No. 01/2018-Compensation Cess (Rate) dated 25 January 2018, assesses can discharge GST/Compensation Cess on the prescribed margin, subject to a condition that Input Tax Credit (ITC) is not availed.
Presently, the Circular has clarified that the condition of non-availment of Input Tax Credit (ITC) prescribed under the GST margin scheme notifications for supplies of old and used motor vehicles applies only to the tax paid on the procurement of the second-hand motor vehicles themselves and does not extend to other inputs or input services used in the business.
Accordingly, dealers supplying old and used motor vehicles under the concessional GST and Compensation Cess scheme may avail ITC on other eligible inputs and input services, such as spares, repair and maintenance services, technology services, rent, marketing and advertisement services, subject to other conditions.
LKS comments
The clarification confirms that the ITC restriction is narrowly confined to the tax paid on the procured old and used motor vehicle, while ITC on other eligible business inputs and input services remains available thereby removing ambiguity and reducing the tax cost for dealers operating under the margin scheme.
Sea-weed Extract Based Bio-stimulants
There was ambiguity regarding whether seaweed extract-based bio-stimulants should be classified as fertilisers under Heading 3101 or as plant growth regulators under Heading 3808 leading to uncertainty in the applicable GST treatment.
For the period before 22 September 2025, items covered under Heading 3101 attracted 5% GST while items covered under Heading 3808 attracted 12% GST. Post introduction of Notification No. 9/2025-CT (R) w.e.f 22 September 2025, items covered under Heading 3101 continues to attract 5% rate while items covered under Heading 3808 attract 18% GST.
The circular has clarified that seaweed extract-based bio-stimulants that are registered under Schedule VI of the Fertiliser (Inorganic, Organic or Mixed) (Control) Order, 1985 are classifiable as fertilisers under Heading 3101 and covered by Sr. No. 237 of Schedule I of Notification No. 09/2025-CT(R), attracting 5% GST rate. The clarification has been given effect through the insertion of an explanation in Sr. No. 237 of Schedule I.
Further, to resolve historical disputes, the GST Council has recommended that past classification issues relating to such products be regularised on an “as is where is” basis.
LKS comments
Going forward, the circular brings clarity and certainty to the tax treatment of seaweed extract-based bio-stimulants, and for the past periods disputes are regularised on “as is where is” basis.
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