GST rules explained: Key clarifications on tax notices, refunds and ITC

The Central Board of Indirect Taxes and Customs (CBIC) has issued eight GST circulars clarifying registration procedures, tax demand proceedings, input tax credit (ITC) and export payments, among other issues.

Dated October 26, the circulars follow decisions taken at the 57th GST Council meeting and aim to reduce procedural hurdles and inconsistencies in the implementation of GST provisions.

For businesses, the key takeaways concern documentation for registration, evidence required to invoke fraud-related tax demands, and the treatment of export payments and ITC.

GST registration: Unnecessary document requests restricted

CBIC has directed tax officers not to seek unwarranted documents or raise presumptive queries unrelated to processing GST registration applications.

Under Circular No. 257/03/2026-GST, applicants must provide a specific address for their principal place of business and submit documents appropriate to the premises. These include ownership proof, a rent agreement or a co-working space membership agreement, as applicable.

The guidelines also address complaints about delays caused by repeated queries and clarify the applicable registration processing timelines.

Tax demands: Evidence needed to allege fraud

Circular No. 258/04/2026-GST clarifies that non-payment of GST or a discrepancy found during scrutiny does not, by itself, justify invoking provisions relating to fraud, wilful misstatement or suppression of facts with intent to evade tax.

CBIC said officers must have specific material evidence supporting such allegations, which must be clearly set out in the show-cause notice.

The circular also calls for clear notices, consideration of taxpayers' submissions and reasoned adjudication orders. Information generated through artificial intelligence or other technological tools must be independently verified before being relied upon.

Export payments: Certain settlement methods recognised

Circular No. 263/09/2026-GST clarifies the treatment of specified export payments received through eligible Indian rupee accounts and export receivables set off against import payables in accordance with Reserve Bank of India (RBI) directions.

The clarification is relevant to exporters whose transactions are settled through permitted arrangements rather than conventional foreign-currency remittances. The applicable GST and foreign-exchange conditions must still be met.

The circular also addresses export refund recovery where proceeds are not realised within the prescribed period and specified cases involving permitted write-offs.

Banks and NBFCs: Clarification on input tax credit

Circular No. 261/07/2026-GST clarifies the 50% ITC mechanism under Section 17(4) of the CGST Act for eligible banking companies and financial institutions, including NBFCs.

It addresses the application of the option across qualifying registrations under the same PAN and the treatment of inter-branch transactions. The relaxation allowing full ITC on qualifying supplies between registrations is available only where both registrations have opted for the mechanism.

Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat, said the clarification addresses longstanding uncertainties around the scope of the option, inter-branch supplies and ITC reporting.

He said the guidance on historical reporting practices could help reduce disputes arising from differences in reporting methods, provided the credit actually availed follows the prescribed principles.

Other areas covered

The remaining circulars address:

• Appeal pre-deposits: Clarifications on amounts paid when filing GST appeals.
• Input Service Distributors: Guidance on distributing ITC across registrations.
• Demo vehicles: ITC eligibility for authorised motor-vehicle dealers operating under an agency model.
• Export refunds: Clarifications following the omission of Rule 96(10) of the CGST Rules.

The circulars clarify the administration of existing GST provisions; they should not be confused with separate statutory amendments that have their own effective dates.