An overhaul of compliance procedures and a targeted rate cut on mobile phones take centre stage as the GST Council prepares to meet on September 12 after a 374-day hiatus.
While the council’s previous session focused heavily on tax rate rationalization, this upcoming meeting is expected to prioritize easing compliance burdens for businesses. Rate adjustments remain on the table, most notably a proposed reduction of the GST on mobile handsets from 18 per cent to a lower bracket, though the official agenda has not yet been circulated.
One of the biggest structural concerns is the inverted duty structure, under which GST paid on inputs can exceed the tax payable on the final product. This has resulted in accumulation of credits for manufacturers, textile and pharmaceutical companies and FMCG firms.
“GST 2.0 simplified slabs, but it also deepened the inverted tax problem,” an tax expert said. While provisional refunds introduced in Budget 2026 have provided some relief, he said the underlying issue remains because the refund formula does not cover input services. A legislative change to allow refunds of input-service credit is therefore required, he said.
The issue has also been flagged by another tax expert. The Supreme Court’s rulings in the VKC Footsteps/Transtonnelstroy matter upheld the existing framework restricting inverted-duty refunds to input goods, leaving the policy question for the GST Council, he said.
“Should genuine GST paid on services remain locked as working capital?” he said, adding that the Council also needs to provide statutory protection to bona fide buyers who lose ITC because a supplier subsequently defaults on its tax payment.
The latter concern extends beyond inverted-duty refunds. Another tax expert said legal and technology changes are needed to protect genuine recipients of ITC when suppliers fail to discharge their tax liabilities. He cited the Maruti Enterprises ruling and the Supreme Court’s decision in Bhandari Scrap Traders as highlighting the need for greater certainty for compliant taxpayers.
The Council could also look at the treatment of legacy and transitional credits following GST 2.0, particularly where legitimate credit is embedded in inventory, Ramjee said.
Compensation Cess
Another issue that could require the Council’s attention is the fate of accumulated Compensation Cess. Another tax expert said GST 2.0 left some businesses with accumulated cess that was effectively neutralised after the levy was discontinued. He estimated the amount conservatively at around ₹6,000 crore.
The automobile sector and coal users have consequently either absorbed the impact, passed it on to consumers or begun litigation seeking an adjustment or liquidation mechanism for the accumulated cess, he said. The Council would need to devise a mechanism to unlock the amount.
Beyond the credit-related issues, experts expect the Council to push greater automation and predictability in GST administration. Refund processing, for instance, could move towards a risk-based automated system using GSTN and e-invoicing data, Ramjee said.
He also flagged the need to make it easier for businesses operating across multiple States to transfer ITC seamlessly between registrations. Rationalisation of blocked credits relating to construction and works contracts, an issue highlighted by the Safari Retreats case, could also come up for consideration.
There is also a broader push for resolving recurring disputes before they reach the courts. Ramjee suggested a “clarify before litigate” mechanism for contentious issues such as ITC, place of supply and classification.
On the rate side, the Council may consider reducing the GST on mobile phones from the current 18 per cent, amid a slowdown in handset demand.
However, the mobile-phone proposal and other rate changes should not be treated as settled until the Council takes a decision. The September 12 meeting is also expected to examine whether the benefits of the previous round of GST rate rationalisation have actually been passed on to consumers.
Taken together, the issues before the Council point to a shift from the rate-rationalisation exercise of GST 2.0 towards fixing the operational and legal gaps that have emerged from it, with the focus now on unlocking working capital, protecting compliant taxpayers and reducing the scope for recurring litigation.
