The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 265/11/2026-GST dated 28 October 2026, clarifying the GST classification, applicable tax rates and input tax credit (ITC) eligibility for four categories of goods. The clarification follows the recommendations of the 57th GST Council meeting held on 8 October 2026 and aims to reduce classification disputes and ensure uniform implementation of GST provisions.

1. Sublimation Paper: 18% GST Under Heading 4809

CBIC has clarified that sublimation paper is classifiable under heading 4809 of the Customs Tariff Act, 1975, and attracts GST at 18%.

The clarification addresses disputes over whether sublimation paper should be classified under heading 4809 or sub-heading 4810 22.

Key points:

• Applicable GST rate: 18%.

• Relevant entry: Serial No. 176 of Schedule II to Notification No. 09/2025-Central Tax (Rate), dated 17 September 2025.

• Past disputes concerning classification and GST rates are to be regularised on an “as is where is” basis, as recommended by the GST Council.

Businesses dealing in sublimation paper should review their product classification, invoices and records, particularly where earlier transactions have been disputed.

2. Toys: GST Entries Cover All Toys Under Heading 9503

CBIC has clarified that the relevant GST rate entries for toys are not restricted to tricycles, scooters, pedal cars and similar wheeled toys. They cover all toys falling under heading 9503 of the Customs Tariff Act, 1975.

The applicable entries are:

• 5% GST: Non-electronic toys covered under Serial No. 497 of Schedule I to Notification No. 09/2025-Central Tax (Rate).

• 18% GST: Electronic toys covered under Serial No. 616 of Schedule II to the same notification.

The clarification confirms that the expression “etc.” extends to other categories of toys covered by heading 9503, including dolls, dolls’ carriages, scale models, other toys and puzzles of all kinds.

Manufacturers, importers, distributors and retailers should review their HSN classification and GST billing configurations to ensure that products are taxed under the appropriate entry.

3. Used Motor Vehicles: ITC Restriction Limited to Vehicles Purchased

The circular clarifies the input tax credit position for dealers supplying old and used motor vehicles under the prescribed GST margin scheme.

Previously, uncertainty existed over whether the restriction on ITC applied only to the second-hand vehicles purchased for resale or also extended to other business expenses.

CBIC has clarified that:

• ITC restriction applies to the tax paid on the procured second-hand motor vehicles covered by the scheme.

• Dealers may claim otherwise eligible ITC on other inputs and input services, subject to the provisions of the Central Goods and Services Tax Act, 2017.

• Eligible expenses may include spare parts, repair and maintenance services, technology services, rent, marketing and advertising services.

The clarification refers to Notification No. 08/2018-Central Tax (Rate), Notification No. 09/2018-Integrated Tax (Rate) and Notification No. 01/2018-Compensation Cess (Rate), all dated 25 January 2018.

Used-vehicle dealers should review their previously unclaimed ITC on eligible business expenses. Any claim must satisfy the applicable statutory conditions, documentation requirements and time limits.

4. Seaweed-Extract-Based Bio-Stimulants: Classification Under Heading 3101

CBIC has clarified the GST classification of seaweed-extract-based bio-stimulants registered under Schedule VI to the Fertiliser (Inorganic, Organic or Mixed) (Control) Order, 1985.

The clarification establishes that eligible products are classifiable under heading 3101, rather than being treated as plant-growth regulators under heading 3808.

Key points:

• Relevant entry: Serial No. 237 of Schedule I to Notification No. 09/2025-Central Tax (Rate), dated 17 September 2025.

• The notification entry has been supplemented with an explanation to implement the clarification.

• Past classification disputes are to be regularised on an “as is where is” basis, as recommended by the GST Council.

Businesses should verify that their products meet the specified registration condition before applying this classification. The treatment should not automatically be extended to every seaweed-based agricultural product.

5. What Should Businesses Do Now?

Businesses dealing in these goods should take the following steps:

1. Review HSN classification: Verify the classification of sublimation paper, toys and eligible seaweed-based bio-stimulants.

2. Check GST rates: Confirm the applicable rate in invoices, accounting software and product master records.

3. Reassess ITC: Used-vehicle dealers should review eligible credit on business inputs and input services, subject to statutory restrictions.

4. Review past disputes: Assess pending notices, assessments and classification disputes in light of the circular's past-period regularisation recommendations.

5. Maintain supporting records: Preserve product specifications, registration documents, purchase invoices and ITC working papers to support the tax treatment adopted.

Conclusion

CBIC Circular No. 265/11/2026-GST dated 28 October 2026 provides important clarity on the classification and taxation of four categories of goods. It helps businesses adopt more consistent GST treatment, reduces ambiguity in toy classification and clarifies ITC eligibility for used-vehicle dealers.

Taxpayers should review their current and past transactions carefully and apply the clarifications in accordance with the relevant notifications and statutory requirements.

For expert guidance on this topic, contact your tax professional today.