57th GST Council: Wider Credit, Faster Refunds and the Legal Gap Between Announcement and Entitlement

A lower GST rate does not necessarily mean a lower cost of doing business. Credit that cannot be claimed becomes expenditure. Credit that cannot be refunded locks up working capital. Procedural uncertainty adds its own cost, through delayed decisions and disputes. The outcomes recorded for the 57th meeting of the GST Council on 8 October 2026 are aimed squarely at these three costs.¹

The package is substantial. The harder question for a business is when each measure becomes an entitlement that can be enforced against the department. The answer differs from item to item, and it turns less on the Council’s intent than on the instrument each change requires. The most valuable credit and refund measures, and every enforcement change, need Parliament to amend the Central Goods and Services Tax Act, 2017 (CGST Act) or the Integrated Goods and Services Tax Act, 2017 (IGST Act). The most contested credit question of all, the position of a genuine buyer whose supplier has defaulted, has been sent to a committee. For now, the package is a reason to plan, not a basis on which to book relief.

01What a Council recommendation does, and does not, do

The Council’s function under Article 279A(4) of the Constitution is to make recommendations to the Union and the States.² In Union of India v. Mohit Minerals Pvt. Ltd., the Supreme Court held that those recommendations do not bind Parliament or the State legislatures; they carry persuasive value.³ A recommendation to amend section 17, section 54 or section 132 therefore changes nothing until the amending law is enacted and brought into force, and until each State legislature makes the matching change to its own State GST Act.

The strongest objection to this caution is practical. Council recommendations are almost always implemented, and the Union Government has told Parliament that recommendations on rules, notifications and rates are, in its view, binding on the executive because the statutes require those instruments to be issued on the Council’s recommendation.⁴ That objection is sound for measures within the rule-making or notification power: refund timelines in rules 90 and 91, automated acceptance of registration amendments, and the rate-notification conditions that deny credit on certain 5 percent services. Those can arrive within weeks. It does not answer the measures that collide with the text of the Act. The distinction between the two routes is the practical key to the whole package.

02Wider credit, but through the blocked-credit list

The outcomes note proposes credit on health and life insurance taken for employees, telecommunication towers, pipelines laid outside a factory, free samples, and stock written off on expiry where a law requires its destruction.⁵ Each item sits in a different limb of section 17(5). Section 17(5)(b) blocks life and health insurance, subject to a proviso that already allows credit where the employer is obliged by law to provide the service.⁶ Section 17(5)(h) blocks goods lost, destroyed, written off or disposed of as gifts or free samples.⁷ Towers and pipelines are blocked indirectly: the Explanation to section 17 excludes them from “plant and machinery”, which takes them outside the exception in section 17(5)(c) and (d) for works contracts and construction on one’s own account.⁸

Every one of these changes therefore requires amendment of the Act. Their scope will matter as much as their headline. Relief for destruction that a law compels, for example under food-safety or drug regulation, should not be read as credit for every commercial write-off. Wider eligibility will not revive credit on past invoices unless the amendment says so; commencement, the time limit in section 16(4) and the documentary conditions in section 16(2) will govern.⁹

The note’s proposal on “double taxation” stands on a different footing. Hotel accommodation up to Rs 7,500 a night, restaurant and catering services and passenger transport are taxed at 5 percent on condition that the supplier does not take credit.¹⁰ When such a service is bought and resold in the same line of business, for example by a tour operator, the credit chain breaks. Because the restriction lives in rate notifications, the Council’s fix can probably be delivered by notification, without legislative amendment.

03Refunds: input services, machinery and the Supreme Court’s reading of “inputs”

Section 54(3) allows refund of unutilised credit in two situations: zero-rated supplies made without payment of tax, and accumulation of credit because the rate on inputs exceeds the rate on output supplies.¹¹ In Union of India v. VKC Footsteps India Pvt. Ltd., the Supreme Court held that the second limb refers to “inputs”, which the Act defines as goods other than capital goods, and upheld the consequent exclusion of input services from inverted-duty refunds.¹² Rule 89(5) gives effect to that reading: “Net ITC” in the inverted-duty formula is credit on inputs alone, although the deduction component, after its 2022 amendment, is scaled by credit on inputs and input services.¹³

This has a consequence the note does not spell out. Because the restriction was located in section 54(3) itself, extending inverted-duty refunds to input services needs amendment of the Act, not merely of rule 89(5). The note makes the change available “for credit availed on or after 1 November 2026”.¹⁴ No Finance Act is due before then. Either Parliament will legislate in the coming session, or the eventual amendment will operate from an earlier date than its enactment. In TLC’s assessment, businesses with inverted structures should tag input-service credit availed from 1 November 2026 separately in their ledgers now, so that a later amendment can be applied without reconstruction.

Exports must be kept distinct. For zero-rated supplies, rule 89(4) has always counted credit on both inputs and input services in “Net ITC”.¹⁵ Exporters are not receiving input-service refunds for the first time. What exporters do gain is refund of tax on plant and machinery, which rule 89(4) excludes by its definition. For exporters that exclusion sits in the rule; for inverted-duty businesses it also flows from the word “inputs” in section 54(3). The same announced benefit may therefore arrive for the two groups by different instruments, and possibly at different times.

The note proposes that the machinery refund be worked out at one-sixtieth of the credit for each month, for credit availed on or after 1 April 2027.¹⁶ Take a manufacturer with an inverted structure that commissions a Rs 10 crore line in May 2027 and pays Rs 1.8 crore of GST on it. One-sixtieth gives Rs 3 lakh a month that may enter the refund computation. That is an allocation, not a promised cash refund: the final formula, attribution between taxable and exempt supplies, prior utilisation of credit, and any safeguards will determine what is actually paid. A business should model the possible cash release when budgeting a project, but should not recognise a refund receivable on the strength of the announcement.

04Faster refunds, and what “deemed” means

The note proposes acknowledgement within ten days instead of fifteen, deemed acknowledgement where neither an acknowledgement nor a deficiency memo issues in that time, and system sanction of 90 percent of the claim on a risk assessment within three working days of acknowledgement instead of seven.¹⁷ Excess balances in the electronic cash ledger would be refunded without officer involvement. The existing framework is rule 90(2), which gives fifteen days to scrutinise a claim for completeness, rule 90(1), which treats cash-ledger claims separately, and rule 91(2), which requires a provisional refund order within seven days of acknowledgement.¹⁸ These are rule changes and can be made quickly.

Section 54(6) originally confined the 90 percent provisional refund to zero-rated supplies. Since 1 October 2025, however, CBIC has applied risk-based provisional sanction of 90 percent to inverted-duty claims as well, as an interim measure, and the proviso to rule 91(2) lets the officer withhold it for recorded reasons.¹⁹ The Finance Act, 2026 then amended section 54(6) to cover inverted-duty claims expressly; that amendment comes into force on a date to be notified, and at the time of writing we have not seen the notification bringing it into force.²⁰ The Council’s three-day system sanction builds on this framework.

Speed should not blur three different stages. Acknowledgement confirms that a claim is complete. A provisional sanction pays 90 percent subject to verification. The final order decides entitlement. A deemed acknowledgement is not a deemed approval, and the department may still reject or reduce the claim by a reasoned order after notice. Interest under section 56 for delayed refunds continues to run from the statutory trigger, and faster provisional payment does not alter that computation for the balance.²¹

A deemed acknowledgement is not a deemed approval.

05The genuine buyer is still waiting

Supplier default remains the most consequential credit risk in GST, and the meeting has not resolved it. The note refers protection of a buyer who holds a proper invoice, has received the goods and has paid the supplier in full to a committee of officers, with a study in three months and an agenda for the next meeting.²² It does not create a safe harbour.

Section 16(2)(c) makes credit conditional on the tax charged having “actually been paid to the Government”, subject to section 41.²³ Possession of an invoice, receipt of goods and payment to the vendor do not, by themselves, displace that condition. The case law pulls in two directions. In Suncraft Energy, a Division Bench of the Calcutta High Court set aside a reversal demand against a buyer and held that recovery should first be pursued against the defaulting supplier, absent collusion or exceptional circumstances such as a missing dealer; the Supreme Court declined to interfere.²⁴ In State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., decided under the Karnataka VAT Act, the Supreme Court held that the burden of proving the genuineness of a transaction lies on the dealer claiming credit, and that invoices and payment by cheque are not sufficient on their own.²⁵

The two are reconcilable. Suncraft governs where the buyer’s transaction is genuine and the department has not first exhausted its remedy against the supplier; Ecom Gill governs where genuineness itself is in issue. A buyer defending a demand today should therefore build the record that Ecom Gill requires: the supplier’s identity and address, transport and vehicle details, freight, proof of receipt and stock entry, and bank payment. A durable statutory reform would draw the same line, protecting genuine purchasing while leaving collusion exposed. Until its text appears, vendor default remains a contractual and governance risk, to be managed through supplier diligence, payment holds and indemnities.

06Enforcement relief needs precise drafting

The note proposes to remove the power of arrest, raise the prosecution threshold to Rs 5 crore and drop the minimum punishment.²⁶ Removal of the power of arrest engages section 69, which today allows the Commissioner to authorise arrest for specified offences punishable under section 132(1)(i) or (ii) or section 132(2).²⁷ The higher prosecution threshold and removal of minimum punishment engage section 132, including section 132(3), which today prescribes a minimum of six months’ imprisonment unless the court records special and adequate reasons.²⁸ None of this operates until the Act is amended.

The note describes the present prosecution threshold as Rs 1 crore. That is accurate only for the offence of issuing invoices without supply. Since the Finance Act, 2023 took effect on 1 October 2023, the lowest band of section 132(1) applies only to that offence; for other offences prosecution begins above Rs 2 crore.²⁹ The amending Bill will need to say what happens to prosecutions already launched. Absent a contrary intention, section 6 of the General Clauses Act, 1897 preserves pending proceedings when an enactment is repealed, so a raised threshold will not by itself end a pending case.³⁰

The reduction of the section 125 ceiling from Rs 25,000 to Rs 10,000 concerns the residual penalty that applies only where no other penalty is prescribed.³¹ It is not a general reduction of GST penalties. The proposal that no notice issue below Rs 10,000 will need rules on aggregation across periods, tax heads and registrations before anyone can rely on it.³²

07Administration, exports and platforms

Common standards for notices, allegations of fraud, hearings and reasoned orders could improve adjudication. They operate within the period-specific demand provisions: sections 73 and 74 for periods up to 2023-24, and section 74A from 2024-25, together with the hearing and reasoning safeguards in section 75.³³ The optional annual-return and quarterly-payment scheme for consumer-only taxpayers up to Rs 5 crore is approved only in principle, with the framework to return to the Council; it is not yet a permission to change filing frequency. The limits on stopping vehicles in transit similarly need amendment of the e-way bill and interception framework; documentation duties continue unchanged.³⁴

The note proposes export treatment for an Indian firm serving a foreign client through its own branch abroad, and for work done in India on a foreign client’s goods.³⁵ Under the present law, section 2(6) of the IGST Act denies export status where supplier and recipient are merely establishments of a distinct person, which catches an Indian firm billing through its own branch abroad.³⁶ Services performed in India on goods made physically available by a foreign client are placed in India by section 13(3)(a), so testing, repair and processing on foreign-owned goods do not presently qualify.³⁷ Both changes need amendment of the IGST Act. They follow the Finance Act, 2026’s omission of the intermediary rule in section 13(8)(b), which has already moved intermediary services to the recipient’s location.³⁸ Foreign ownership of goods or billing in foreign currency will still not, by itself, make a supply an export.

The e-commerce proposal lets an eligible seller declare an operator’s warehouse in another State as its principal place of business there, with one registration per PAN in each State, confined to platform supplies.³⁹ It eases State registration for small sellers; it does not abolish multi-State registration, and making inter-State sales from a home State has never itself required registration elsewhere.

08Where each measure stands

The table below sets out, in TLC’s assessment, the instrument each principal measure is likely to require. The dates are those stated in the outcomes note.

09The next test is enforceable relief

The package marks a shift towards invoice-level detection, risk-based processing and wider access to credit and refund. Its commercial value is real, but it will reach businesses unevenly: rule-based procedural relief first, statutory credit and enforcement relief only after Parliament and the State legislatures act, and protection for the genuine buyer only after a further meeting. Businesses should map affected expenditure, segregate credit by the stated eligibility dates, strengthen evidence for purchases from risky suppliers and revisit contract clauses on tax default. Existing filing, refund and litigation deadlines continue to run. The reform will have succeeded when its promise is converted into clear statutory eligibility, predictable cash recovery and reasoned decisions.

About the authorSumit KumarFounder, The Lord’s Consultancy · Partner, Harvey Legal LLP

Appears before the GST Appellate Tribunal, CESTAT, the High Courts and the Supreme Court.