India GST legal developments

In late July 2026, Indian courts issued two notable rulings that refined the application of the GST law. On 22 July, the Madras High Court clarified that directors of a liquidated company are not automatically liable for the firm's GST arrears under Section 88(3) of the CGST Act; liability can be avoided if the shortfall is not due to gross neglect, misfeasance, or breach of duty. The court also confirmed that relief under Section 16(6) for retrospectively cancelled GST registrations is limited to the original registrant, meaning downstream recipients cannot reclaim input tax credit (ITC) even if the supplier’s registration is restored.

A week later, on 28 July, the National Company Law Appellate Tribunal ruled that the GST Department could not claim secured‑creditor status under Section 82 of the CGST Act in an insolvency case, treating its Rs 83 million claim as an unsecured operational debt. The decision reinforced the priority scheme of the Insolvency and Bankruptcy Code. Concurrently, the judiciary continues to grapple with Section 16(2)(c), which ties ITC eligibility to the supplier’s actual tax payment. Various High Courts have debated protections for bona‑fide purchasers, while the Gujarat High Court upheld the provision’s constitutional validity and the Supreme Court dismissed a challenge, leaving the issue unresolved.