Weekly Round-up on Tax and Corporate Laws | 18th to 23rd May 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from May 18th to 23rd 2026, namely:

1. SEBI Proposes Replacing Centralized STP Hub With Direct API Framework for Faster Trade Processing
2. Additions u/s 69C Deleted as Genuine Diamond Purchases Can’t Be Disallowed Merely Due to Cash Sales: HC
3. Labour Court Must Allow Additional Evidence if Domestic Enquiry Is Held Unfair; Remand Justified: HC
4. GSTN Notifies Offline Utility for Filing Annexure-B in Accumulated ITC Refund Applications: Advisory
5. GSTN Proposes Mandatory ‘Ship-To GSTIN’ Capture in Bill-To/Ship-To Transactions: Advisory
6. SEZ Unit Entitled to Apply for Refund of Unutilised ITC Under Zero-Rated Scheme as Binding HC Precedent Applies
7. ICAI Issues Exposure Draft of SSA 5000 Prescribing General Requirements for Sustainability Assurance Engagements
8. Cash Flow Classification Challenges Under Ind AS 7 – Foreign Exchange, Taxes, Dividends & Group Transactions

1. SEBI Proposes Replacing Centralized STP Hub With Direct API Framework for Faster Trade Processing

On May 19, 2026, SEBI released a consultation paper proposing significant changes to the Straight-Through Processing (STP) framework for trades. The proposal aims to simplify the existing infrastructure by replacing the current centralised STP hub model with a decentralised API-based framework. It aims to reduce transaction latency, lower costs, improve operational efficiency, and enhance service delivery for market participants.

1.1 The Backstory – How STP evolved

SEBI originally introduced the Straight-Through Processing (STP) framework in 2002 on a voluntary basis to facilitate the automated and seamless processing of securities market transactions through the electronic exchange of trade-related information among market participants. Subsequently, in 2004, SEBI mandated the use of the STP system for all institutional trades executed on stock exchanges to improve efficiency, reduce manual intervention and enable faster trade confirmation and settlement.

Under the current structure, where market participants are serviced by different STP Service Providers (SSPs), communication is routed through a centralised STP Hub to ensure seamless communication between service providers. While this architecture was intended to create a standardised communication channel, operational experience has revealed certain inefficiencies.

Routing messages through the centralised hub increases transmission time and costs, while continued dependence on manual upload/download interfaces creates scope for operational errors. Further, SEBI’s analysis

indicates that 95%-99% of STP traffic is currently concentrated with a single SSP, creating concentration risk and raising concerns around a potential single point of failure.

1.2 What is Straight Through Processing (STP)

Straight Through Processing (STP) refers to an automated mechanism that enables end-to-end processing of financial transactions. It involves the use of a single system to process or manage all elements of the workflow of a financial transaction. In other words, STP allows the electronic capture and processing of transactions in a single pass from the point of order origination to final settlement.

It is used for various messages exchanged among market participants, such as stock brokers, custodians, and institutional investors, including the Electronic Contract Note (ECN).

1.3 Why Is SEBI Proposing an API-Based Communication Framework

Given the increasing adoption of modern API-based technology infrastructure across financial markets, SEBI has proposed a transition to a direct connectivity framework that enables market participants to communicate and exchange information in real time without relying on a central hub.

An Application Programming Interface (API) is a technology that enables two software systems to communicate and exchange information directly, in a structured and automated manner. In simple terms, an API acts like a digital bridge or messenger between systems. Instead of information being manually entered or routed through an intermediary platform, APIs allow systems to exchange data automatically in real time.

Under the current structure, communication between participants is routed through a central STP Hub. While this model helped digitise transaction processing, it has increasingly created operational bottlenecks due to dependency on a single intermediary layer, resulting in latency, additional costs, and reduced flexibility.

To address these concerns, SEBI has proposed replacing the existing STP Hub-based architecture with a decentralised, API-based communication framework among STP Service Providers (SSPs). Under the proposed framework, messages exchanged between market participants served by different SSPs would move directly between the respective service providers via standardised APIs, rather than being routed through a central intermediary.

The approach would require SSPs serving different STP users to implement standardised API endpoints that adhere to agreed-upon protocols and data formats, enabling seamless and secure exchange of messages and data without routing through a centralised hub. This would also enhance scalability and cost-effectiveness of STP framework while supporting the transaction volumes of institutional trading.

Additionally, SEBI has proposed introducing an optional API-based message exchange mechanism for STP users operating under the same SSP. This is expected to reduce reliance on manual upload and download processes and minimise human errors.

1.4 Conclusion

SEBI’s proposal reflects a broader push towards modernising market infrastructure through technology-driven reforms. By moving away from a centralised STP Hub model to an API-based connectivity framework, the proposed changes seek to improve operational efficiency, reduce processing delays and costs, and minimise concentration risk arising from dependence on a single intermediary.

If implemented effectively, the framework could enable faster, more seamless, and more scalable communication among market participants, making institutional trade processing more operationally efficient.

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2. Additions u/s 69C Deleted as Genuine Diamond Purchases Can’t Be Disallowed Merely Due to Cash Sales: HC

The assessee was engaged in the business of dealing in diamonds. The assessee imported diamonds from various countries in accordance with the provisions of the Customs Act, 1962 and other relevant laws.

During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had issued 6,358 cash sale bills of less than Rs. 2 lakhs each aggregating to Rs. 97 crores. He treated the corresponding purchase expenditure of Rs. 97 crores as unexplained on the ground that it was funded by cash from these retail sales and disallowed it.

The CIT(A) deleted the additions. The Tribunal also quashed the additions. The matter reached the Delhi High Court.

The High Court held that the AO had accepted that the purchases were genuine. All purchases were made through banking channels after payment of customs duties and were supported by purchase and import documents. Thus, the source of purchases cannot be said to be unexplained. The AO’s stand that the money in bank accounts had come through cash deposited from retail sales is misconceived. If an assessee is allowed or permitted to sell goods in cash, and there is no non-compliance with any statutory provision, the purchase cannot be disallowed. In any event, the assessee had an opening stock of Rs. 114.62 crores and had imported diamonds worth Rs. 97 crores.

Meaning thereby, he sold the diamonds he had obviously purchased for business reasons. The best case, which the AO could frame against the assessee, was that the identity of the sellers was not known or the persons to whom sales were made were not verifiable, but that by itself did not fall foul of any of the statutory provisions. Thus, the AO’s additions on account of cash sales were to be deleted.

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3. Labour Court Must Allow Additional Evidence if Domestic Enquiry Is Held Unfair; Remand Justified: HC

The Madras High Court, in Suolificio Linea Italia (India) (P.) Ltd. v. K. Sachudanandam [2026] 186 taxmann.com 259 (Madras), held that where the Management had specifically reserved its right to adduce additional evidence in the event the domestic enquiry was held unfair, the Labour Court was required to decide the fairness of such enquiry as a preliminary issue. Since the Labour Court failed to do so and proceeded to decide the dispute finally without granting such an opportunity, the award was liable to be set aside, and the matter was remanded for fresh consideration.

3.1 Brief Facts of the Case

In the instant case, a dispute arose between the appellant-Management and its workmen following a strike. The Management issued a show cause notice dated 11.05.2011, placed the workmen under suspension, and issued charge memoranda alleging misconduct. A domestic enquiry was conducted in which the workmen participated, and the Enquiry Officer ultimately held the charges proved.

Thereafter, a second show cause notice dated 17.08.2011 was issued. The explanations submitted by the workmen were rejected, and orders removing them from service were passed on 20.08.2011. Aggrieved by such removal, the workmen raised industrial disputes before the Labour Court, Pondicherry.

Before the Labour Court, the Management specifically reserved the right in its written statement to adduce additional evidence if the domestic enquiry was found to be unfair or defective. However, the Labour Court, without deciding the fairness of the enquiry as a preliminary issue, proceeded to pass the final award holding that the enquiry was not conducted in a free and fair manner and directed reinstatement of the workmen.

The writ petitions filed by the Management challenging the awards were dismissed by the writ Court, following which intra-Court appeals were preferred before the High Court.

3.2 High Court Observations

The High Court observed that, whenever the Labour Court forms an opinion that a domestic enquiry has not been conducted in a fair and proper manner, such an issue must first be decided as a preliminary issue. This is necessary to enable the Management to exercise its right to lead additional evidence in support of the charges.

The High Court, further, observed that if the Labour Court ultimately finds the enquiry to be fair, there would be no need to decide such an issue preliminarily, and the dispute may proceed directly to final adjudication. However, where the enquiry is found defective, denial of an opportunity to adduce fresh evidence would seriously prejudice the Management’s right to defend its case.

It was noted that in the present case, despite the specific reservation made by the Management in its written statement, the Labour Court failed to provide such an opportunity and directly rendered findings against the Management based on the enquiry report and evidence already available on record.

3.3 High Court Ruling

The High Court held that the Labour Court committed an error in not deciding the fairness of the domestic enquiry as a preliminary issue before passing the final award. Since the Management had specifically sought liberty to adduce additional evidence in the event the enquiry was held defective, the denial of such opportunity vitiated the award.

The High Court further held that such a procedure was contrary to the settled principles governing adjudication under section 11-A of the Industrial Disputes Act, 1947.

Accordingly, the impugned awards and the orders passed by the writ Court were set aside, and the matters were remanded to the Labour Court for fresh adjudication, with an opportunity granted to the Management to adduce additional evidence.

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4. GSTN Notifies Offline Utility for Filing Annexure-B in Accumulated ITC Refund Applications: Advisory

The GSTN issued an advisory informing about the availability of an offline Excel-based utility for filing Annexure-B in refund applications related to ITC. The utility enables invoice reporting by HSN/SAC, JSON file creation, and validation against GSTR-2B for various refund categories, such as exports without tax payment, supplies to SEZ units/developers, and inverted duty refunds. This was stated in GSTN Advisory, Dated 18-05-2026.

4.1 About the Update

The GSTN has issued an advisory notifying the availability of an Excel-based Annexure-B Offline Utility for filing refund applications related to accumulated Input Tax Credit (ITC). The utility is applicable for refund claims under categories such as exports without payment of tax, supplies to SEZ units/developers, and inverted duty structure refunds.

It enables taxpayers to report invoices in an HSN/SAC-wise format, generate JSON files for upload, and undergo system-based validation against GSTR-2B to ensure accuracy. The initiative aims to standardise, automate, and streamline the processing of ITC refund applications.

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5. GSTN Proposes Mandatory ‘Ship-To GSTIN’ Capture in Bill-To/Ship-To Transactions: Advisory

The GSTN has issued an advisory mandating the inclusion of ‘Ship-To GSTIN’ in Bill-To Ship-To transactions during e-Way Bill generation as per Rule 138 of the CGST Rules. The advisory also introduces a voluntary e-Way Bill closure feature and requires reporting of ‘URP’ when the consignee remains unregistered, while mandating ERP vendors, GSPs, ASPs, and system integrators to complete API testing by 15-06-2026. This was stated in GSTN Advisory, Dated 21-05-2026.

5.1 About the Update

The GSTN has issued an advisory introducing key enhancements to the e-Way Bill (EWB) system under Rule 138 of the CGST Rules. The changes are aimed at strengthening data integrity, improving traceability of goods movement, and streamlining compliance processes. A significant modification is the mandatory capture of ‘Ship-To GSTIN’ in Bill-To Ship-To transactions during e-Way Bill generation. In cases where the consignee is an unregistered person, taxpayers are required to report ‘URP’ in the Ship-To GSTIN field.

It also introduces a voluntary e-Way Bill closure mechanism, enabling suppliers, recipients, transporters, or authorised persons to close an e-Way Bill once the delivery is completed. The facility can be exercised EWB-wise or date-wise, including via a mobile number-based closure option linked to the transaction. The GSTN has clarified that closure may be done on the day of delivery or the immediately succeeding day. Additionally, API changes have already been released in the sandbox environment, with production deployment scheduled for 15-06-2026, requiring ERP vendors, It also introduces a voluntary e-Way Bill closure mechanism, enabling suppliers, recipients, transporters, or authorised persons to close an e-Way Bill once the delivery is completed. The facility can be exercised EWB-wise or date-wise, including via a mobile number-based closure option linked to the transaction. The GSTN has clarified that closure may be done on the day of delivery or the immediately succeeding day. Additionally, API changes have already been released in the sandbox environment, with production deployment scheduled for 15-06-2026, requiring ERP vendors, GSPs, ASPs, and other system integrators to complete testing and configuration updates in advance to ensure seamless transition.

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6. SEZ Unit Entitled to Apply for Refund of Unutilised ITC Under Zero-Rated Scheme as Binding HC Precedent Applies: HC

The High Court held that SEZ unit is entitled to claim a refund of unutilised ITC under the zero-rated supply mechanism, and such claims cannot be rejected on the ground that only the supplier is eligible to seek a refund. It was observed that the pendency of an SLP against a High Court judgment does not dilute its binding nature. This was held in Lupin Ltd. vs. State of Maharashtra [2026].

6.1 Facts

The petitioner, a SEZ unit, filed applications seeking refund of unutilised Input Tax Credit (ITC), including Input Service Distributor (ISD) credit, under the zero-rated supply mechanism. The jurisdictional authorities rejected the refund claims on the ground that only the supplier making supplies to the SEZ unit was eligible to claim refund, and not the SEZ unit itself. The appellate authority affirmed the rejection, and further declined to follow the decision of the Gujarat High Court in Britannia Industries Ltd. v. Union of India on the ground that a Special Leave Petition against the said judgment was pending before the Supreme Court. The Department also contended that refund eligibility was contingent upon the services being used for authorised operations duly endorsed by the Specified Officer of the SEZ, which, according to the Department, had not been established on record. The matter was accordingly placed before the High Court.

6.2 Held

The High Court held that refusal to follow a binding High Court precedent merely on account of pendency of an SLP before the Supreme Court was legally unsustainable, as judicial discipline mandates adherence to binding precedents unless such judgments are stayed or set aside. The Court further held that, in terms of Section 54 of the CGST Act read with Section 16 of the IGST Act and Rule 89 of the CGST Rules, a SEZ unit is entitled to claim refund of unutilised ITC under the zero-rated supply mechanism, and such claims are required to be adjudicated in accordance with law. The Court also observed that the impugned orders failed to record any finding with respect to authorised operations and endorsement by the Specified Officer of the SEZ, as contemplated under the SEZ framework, thereby necessitating reconsideration of the matter. Accordingly, the impugned orders were quashed and the matter was remanded to the adjudicating authority for fresh adjudication in accordance with law.

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7. ICAI Issues Exposure Draft of SSA 5000 Prescribing General Requirements for Sustainability Assurance Engagements

The Sustainability Reporting Standards Board (SRSB) of ICAI has issued an Exposure Draft on SSA 5000, General Requirements for Sustainability Assurance Engagements, inviting public comments until 19th June 2026. The proposed standard aims to establish a structured assurance framework for sustainability disclosures and strengthen the credibility and consistency of sustainability reporting in India.

SSA 5000 applies to assurance engagements relating to sustainability information, including matters such as climate change, biodiversity, labour practices, social and governance issues, and related risks and opportunities. It requires sustainability information to be prepared using suitable criteria established through law, regulation, or recognised frameworks.

A key feature of the draft is its focus on the entity’s process for identifying sustainability information, including the determination of material sustainability matters and reporting boundaries. The Standard also clarifies that assurance engagements may cover either complete sustainability reports or selected disclosures, requiring practitioners to clearly define the scope of assurance.

The Exposure Draft places strong emphasis on ethical requirements, independence, and quality management, assuming compliance with ICAI’s Code of Ethics and applicable quality control standards. By providing general principles for sustainability assurance engagements, SSA 5000 is expected to enhance reliability, comparability, and stakeholder confidence in sustainability disclosures and support the development of India’s sustainability assurance ecosystem.

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8. Cash Flow Classification Challenges Under Ind AS 7 – Foreign Exchange, Taxes, Dividends & Group Transactions

Ind AS 7 requires certain cash flow transactions to be classified and disclosed with special care to ensure a fair understanding of an entity’s liquidity and financial flexibility. Some of these transactions are discussed below:

a) Foreign currency cash flows are translated using exchange rates prevailing on the transaction date, or an appropriate average rate where it reasonably approximates actual rates. Unrealised exchange differences are not treated as cash flows; however, exchange differences relating to foreign-currency cash and cash equivalents are disclosed separately to reconcile the opening and closing balances.

b) Interest and dividend transactions are classified based on their economic substance. Interest paid and dividend paid are generally financing activities, while interest received and dividend received are generally investing activities. For financial institutions, interest-related cash flows usually form part of operating activities. Even where borrowing costs are capitalised under Ind AS 23, the related cash payment remains reportable in the cash flow statement.

c) Taxes on income are ordinarily classified as operating activities since they arise from business operations. However, where taxes can be specifically linked to investing or financing transactions, they are classified consistently with the underlying activity. If allocation is impracticable, tax cash flows are generally presented as operating activities.

d) Transactions involving subsidiaries, associates, and joint ventures also require distinct treatment. In standalone financial statements, investments and related receipts are generally classified as investing activities. However, in consolidated financial statements, intra-group cash flows such as inter-company loans, interest, and dividends are eliminated, while transactions with non-controlling interests continue to be recognised.

e) Cash flows arising from obtaining or losing control of subsidiaries or businesses are classified as investing activities and presented separately in the Statement of Cash Flows. Such cash flows are reported net of cash and cash equivalents acquired or disposed of, while acquisitions and disposals cannot be offset against each other.

f) The Standard includes specific disclosure requirements for supplier finance arrangements, such as supply chain finance or reverse factoring. Since these arrangements can materially affect working capital and liquidity profiles, entities must disclose key terms, liabilities covered, payment due dates, and significant non-cash changes associated with such arrangements.

Accurate classification of these special transactions enhances transparency and strengthens the usefulness of the Statement of Cash Flows under Ind AS 7.

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