PREFACE
In many ways, India stands on a strong wicket from an economic point of view. Even though economic growth is yet to return to pre-pandemic levels, business sentiment remains positive.
The Union Budget therefore seeks to build on the foundation laid earlier, and aims to provide stability and continuity, improve ease of doing business, and augment domestic value addition.
We at G Kedia & Associates put in continuous efforts to provide our readers with ample content. In this blog we are providing our analysis of various amendments relating to GST as proposed in Finance Budget 2023.
Most of the GST related amendments such as decriminalisation of offences, clarity in definitions of OIDAR/ non-taxable online recipient, etc. have been made to align with the GST Council recommendations.
Few major changes include provisions empowering common GST portal to share data with other notified systems and restriction of input tax credit on goods/ services used for Corporate Social Responsibility (CSR) activities.
Kindly Note that these are proposals and not final enacted provisions. These are subject to modification and yet to receive assent of President of India.
Enjoy Reading!
COMPOSITION NOW OPENS FOR ONLINE SUPPLIER
Section 10 (2) & section 10 (2A) provides the category of the registered persons eligible for opting composition scheme. However, the person suppling the goods through the e-commerce operator were not eligible to opt for composition scheme.
The amendment purpose to omit the word ‘goods or’ from both the section. Now the person supplying the goods through e-commerce operator can opt for the composition scheme.
Our Comment
This is a welcome amendment, on direction of ease of doing business specially for those suppliers who are intended to opt for composition scheme and supply the goods through e-commerce operator, while reducing the compliance burden.
However, the above benefit is not extended to the supplier of services who are intended to supply services through e-commerce operator.
REVERSAL OF ITC FOR NON-PAYMENT TO SUPPLIER
Second proviso to Section 16(2) of the CGST Act provides that where a recipient fails to pay to the supplier of goods or services or both, the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, paid by him along with interest payable under section 50 in such manner as may be prescribed
- Further, third proviso to Section 16(2) of the CGST Act provides that the recipient shall be entitled to avail ITC on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. In this regard, it has now been proposed that
- such payment should be made by the recipient to the supplier for availing the ITC.
Our Comment
Reversal of ITC on account of non payment to supplier within 180 days is a common audit observation, which has been challenged due to fractured provisions. An attempted has been made to repair those provision recently by amending rule 37 of GST Rules and now the parent legislation. This indicate the express intend of the government to mandate the reversal of ITC in case of failure to make the payment to the supplier within 180 days. The amendment now purpose to reversal of ITC in GSTR-3B under other reversal at table 4(B)(2) ‘others’ instead of adding output tax liability, or it can be paid through DRC-3.
The amendment in third proviso by inserting the words ‘ to the supplier’ leading to interpretation issue that the indirect payment made to supplier or settling the payment obligation through book adjustment no longer be considered as payment for the above purpose and reversal will attract.
Moreover, in certain circumstances the payment is not made to the supplier, but rather to other stakeholders such as tax authorities or the insolvency professional in the event of insolvency (IBC). whether payments made by the recipient to other stakeholders will now be construed as payments made to the supplier, thereby making the recipient eligible for ITC.
NO ITC ON CSR EXPENDITURE
- Section 17(5) of the CGST Act provides for the restrictions on ITC.
- A new clause (fa) has been proposed to be inserted thereunder to restrict ITC in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under
Our Comment
The eligibility of input tax credit related to the expenses incurred by the company on account of Corporate Social Responsibility (CSR) remain challenging under GST Law. The revenue disputed that ITC on the ground that it is not in the course or furtherance of business hence ineligible. The companies contention is that furtherance of business would imply advancement or promotion of business. Any activity carried on with a purpose to achieve business objectives, business continuity and stability would per se amount to an activity in course or furtherance of business hence eligible for ITC.
The above amendment remove the ambiguity and express clear intend that the ITC in respect of the expenses incurred on CSR activities as obligatory under section 135 of the Companies Act, 2013 shall not be available. With the introduction of this new clause, the favorable rulings by the Advance Rulings Authorities (in case of Bambino Pasta & Dwarikesh Sugar) on eligibility of credit related to CSR activity no longer holds good. It is further clear that the said amendment shall be effective from the date to be notified, which may take its own time possible not before than 8-9 months.
This amendment also likely to manifested the claim of ITC legitimate availed so far till this amendment is notified.
The taxpayer can also explore the possibility of the re-claim of the ITC already reversed previously.
The said amendment restrict the ITC in respect of the amount as obligatory under section 135 of The Companies Act, therefore the possibility of availing the ITC of any amount incurred over and above the said mandatory obligation can be explore.
REVERSAL OF ITC U/R 42 FOR SUPPLY FROM BONDED WAREHOUSE
Section 17(3) of the CGST Act provides the value to be considered of exempt supplies for the purpose of reversal of ITC. W.e.f 01.02.2019 an explanation has been inserted to that sub section and excludes the value of transaction neither consider as supply of goods or services (Sch III) except for value of sale of land and sale of building post receipt of occupancy/ completion.
Now the purpose amendment further seeks to expand the scope the such exception by including the value of supply made from the bonded warehouse to any person before clearance for home consumption for the limited purpose of reversal of ITC under rule 43 / 43
Our Comment
Bombay High Court in case of Sandeep Patil v. UOI [[2019] 110 taxmann.com 155 (Bombay)] and Kerala High Court in case of CIAL Duty Free & Retail Services Limited [[2020] 119 taxmann.com 388 (Kerala)], has held that the supply of goods by DFSs (Duyt free shops) to outgoing passengers was export of goods under IGST and zero rated supply and it would entitle petitioner(s) to claim 100 per cent of ITC and refund thereof effective from 1-7-2020 onwards. This amendment is an attempt the overturn the decision of these case laws by reversal of ITC in respect to such goods supplied from the bonded warehouse.
NO REGISTRATION FOR ENTIRE EXEMPTED SUPPLY
Section 23 of the CGST Act provides for the persons not liable to obtain registration which inter alia includes person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under CGST Act or IGST Act. Section 23 is now proposed to be substituted retrospectively from 01.07.2017 with non-obstante clause to provide that Section 23 of the CGST Act shall override Section 22 and Section 24 of the CGST Act (which provides for compulsory registration in specific cases).
Our Comment
Prior to purpose amendment a situation was envisage where a person engaged in supplying of goods and services not liable to tax or wholly exempted from tax under GST however in case procurement of services under which recipient is liable to pay tax on RCM basis (Say advocate services) such person are required to take registration by virtue of applicability of Section 24. Now by insertion of non-obstruction clause to section 23, such kind of supplier are not required to obtain registration to discharge the liability on RCM basis.
OUTER LIMIT OF 3 YEARS FOR FILING RETURNS
New sub-section has been proposed to be inserted to Section 37 / 39 / 44 / 52 of the CGST Act to introduce a outer time limit of three years from the respective ue date of filing the return upto which the details of outward supplies under Section 37(1) in Form GSTR-1, return under Section 39 in form GSTR-3B, annual return under Section 44 in form GSTR-9, ) and statement under Section 52 (4) i.e. TCS return in form GSTR-8 of the CGST Act for a tax period can be furnished by a registered person.
Further, a proviso has been inserted in all the aforesaid cases empowering the Government, to extend the said time limit by way of notification, on the recommendation of the Council, for any registered person or a class of registered persons, subject to such conditions and restrictions, as may be prescribed.
Our Comment
Prior to purpose amendment no outer time limit was specified under the law for filing the returns/ statement in form GSTR-1, GSTR-3B, GSTR-5, GSTR-6, GSTR-7, GSTR-8 and GSTR-9 and GSTR-9C. Now by insertion of time limit of three year from the due date of respective return said return can not be filed beyond of period of three year. However government has power to extend the said time limit by way of notification.
Such extended period is very much relevant specially the case where the litigation is going on for revocation of cancellation of registration for non filing of return for a period of more than 6 months in term of rule 21 of CGST Rules. Pursuant to such cancellation or suspension, the GSTN portal doesn’t allow to furnishing of return for the period subsequent to the date of such cancellation / suspension. However, the returns for the period prior to the date of cancellation / suspension can be filed.
There may a situation where the time limit of three years may lapse before the finality of the dispute and the taxpayers may not be able to file the returns, inter alia leading to a loss of ITC
ALIGNING REFUND PROVISIONS
The concept of provisional input tax credit no longer exist hence the provision of section 54 (6) is suitably modified by omitting the words “excluding the amount of input tax credit provisionally accepted,” to align with the existing provisions.
INTEREST ON DELAYED REFUND
Section 56 of the CGST Act provides that If any tax ordered to be Refunded to an applicant is not refunded within 60 days from the date of receipt of application, interest shall be payable from the date post 60 days from the date of receipt of refund application till the date of refund of such tax.
- Section 56 of the CGST Act is proposed to be amended to empower the Government to prescribe conditions, restrictions and the manner of ascertaining the period of delay for the purpose of computation of interest.
Our Comment
As per the prevalent provision, proper officer is required to issue the refund order within 60 days from the date of receipt of refund application. Where application is complete in all respects, an acknowledgement in FORM GST RFD-02 is to be issued by the proper officer and the time limit of 60 days starts from the actual date of filing the refund application. However, where a deficiency memo is issued vide FORM GST RFD-03, the taxpayer is required to file a fresh refund application after rectification of such deficiencies and acknowledgement in FORM GST RFD- 02 is issued. One can hope that while prescribing the conditions, the date of filing of the original application is considered for ascertaining the delay and consequential interest unless the deficiency is so apparent or the delay is attributable to a taxpayer whereby the proper officer may not be in a position to process the refund claims. It is to be noted that in many cases, courts have directed to consider the original date of application for counting the days of delay.
ECO LIABLE FOR COMPLIANCE, FAILURE WILL ATTRACT PENALTY
Certain penalties has been purposed on Electronic Commerce Operators in the following cases:
- If ECO allows an unregistered person other than those explicitly exempted for supply of goods or services or both through it
- If ECO allow ineligible persons to entered into inter-state supply on its portal
- If ECO fails to furnish the details of outward supplies of goods or services or both effected through it.
Penalty would be higher of following:
- Rs 10,000; or
- Amount of tax involved had such supply been made by a registered person (other than a composition dealer).
DECRIMINALISING CERTAIN OFFENCES
An amendment is proposed to Section 132(1) of the CGST Act whereby Following offences will not be punishable with imprisonment and fine under GST law:
- Obstructing/ preventing any officer from discharging their duties under the CGST Act (clause g).
- Tampering or destruction of any material evidence/ documents (clause j).
- Failure to furnish information or furnishing false information summoned under the CGST Act (clause k).
- Abetment in commission of any of the aforesaid offences.
Further, an amendment is proposed in clause (iii) of sub-section (1) of Section 132 to restrict the punishment under the said clause to an offence relating to issuance of fake invoice without supply.
- Prosecution will not be initiated for offences where the tax evaded or ITC wrongly availed or utilised or the amount of refund wrongly taken does not exceed Rs. 2.5 crores.
- Person accused of issuing invoice or bill without supply of goods and / or services leading to wrongful availment or utilization of ITC or refund of tax exceeding Rs. 1 crore but not exceeding Rs. 2 crore will be punishable with imprisonment for a term which may extend to one year and fine.
Our Comment
Section 132 of the CGST Act provides for arrests in respect of certain specified offences and has consistently been invoked by the tax authorities for instances relating to issue of fake invoices or availing of ITC without invoices etc. The proposed amendment seeks to decriminalize certain offences which are trivial in nature. It is to be noted that the larger issue with respect to invoking the powers to arrest is pending before the three member bench of the Supreme Court in UOI vs. Sapna Jain [SLP(Crl.) Nos. 4322-4324/2019], wherein the powers of the Commissioner to arrest without issuing an FIR or a SCN under Section 74 of the CGST Act, is pending for determination.
COMPOUNDING OF OFFENCES
An amendment is proposed to Section 138(a) of the CGST Act to provide that following offences cannot be compounded more than once:
- Acquisition/ Possession of any goods which are liable for confiscation.
- Receipt or an association in any manner, in respect of a supply which is made in contravention of the GST Laws.
- Attempt to commit or abetment in commission of an offence which is liable for prosecution under Section 132 of the CGST Act.
- Issuance of fake invoice leading to availment/ utilization of ITC.
The existing provision of section 138 (1) (c) restricts the benefit of compounding to those cases where an offence under GST Law is also an offence under any other law. The proposed amendment shall extend the benefit of compounding even in such cases where an offence under GST Law is also an offence under any other law, except for offence wherein the person is involved in supplying of invoices without supplying goods or services i.e. Fake invoices cases. It is proposed to reduce the minimum amount to be paid for compounding of offence from higher of 50% of tax involved or Rs. 10,000 to 25% of tax involved. Similarly, it is proposed to reduce the Maximum amount to be paid for compounding offence from higher of 150% of tax involved or Rs. 30,000 to 100% of tax involved.
Our Comment
Restrict the benefit of compounding in case of fake invoicing indicate a serious attempt of the government to protect its revenue.
Further the omission of monetary limit of Rs. 1.00 crore for being eligible for compounding benefit except certain scenarios are welcome approach of the government.
CONSENT FOR SHARING TAXPAYERS INFORMATION WITH OTHER
A new Section 158A in the CGST Act is proposed to be inserted to share the following information by the common portal with such other systems, as may be notified, subject to prescribed consent and conditions
- Particulars furnished in registration application, Form GSTR-3B, Form GSTR-4, Form GSTR-5, Form GSTR-6, Form GSTR-7 and Annual Return in Form GSTR-9;
- Particulars uploaded on the portal for preparation of invoice, details of outward supplies furnished in Form GSTR-1 and particulars uploaded on common portal for generating e-way bill; and
- Such other particulars as may be prescribed.
Our Comment
By insertion of the above provisions now the government is empowered to share data with other systems such as tax department, bank and financial institution. This will help other system to have better information about the taxpayer and can be use a cross evidence if needed. However a system should be develop to ensure that such data is used for legitimate purpose only.
OUT & OUT SUPPLY , HIGH SEAS SALES & BONDED WAREHOUSE SALES ARE NOT SUPPLY SINCE INCEPTION.
Schedule III of GST Act has been amended w.e.f 01.02.2019 to given the effect that the high seas sales, supply of warehoused goods before clearance for home consumption and Third-country exports (i.e. out and- out sales) shall neither be treated as supply of goods nor supply. Now a clarification has been inserted stating that the said amendment will be applicable with retrospective effect from July 1, 2017.
It is further proposed that refund shall not be granted in respect of GST collected on such transactions undertaken during 1st July 2017 to 31st January 2019.
Our Comment
The taxability of the above transaction took place between the period from 01.07.2017 to 31.01.2019 was under question now the above clarification will remove the any scope of litigation which is a welcome step. Denial of refund of the taxes already paid is subject to the testing of constitutional validity of the higher courts.
OIDAR DEFINITION EXPANDED
- The definition of ‘OIDAR’ has been proposed to be amended to exclude the condition of ‘essentially automated and involving minimum human intervention’.
- Presently, “non-taxable online recipient” is defined to mean any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.
- It is now proposed to amend definition of ‘non-taxable online recipient’ to mean any unregistered person receiving OIDAR services located in taxable territory.
- Term ‘unregistered person’ in above definition includes a person who is registered solely for the purpose of deducting TDS under the GST Act.
Our Comment
The Exclusion of the term ‘essentially automated and involving minimum human intervention’ will enhance the scope of OIDAR services. This will eliminate the scope of possible litigation as earlier the degree of ‘essentially automation’ and minimum human intervention’ are subject matter of individual interpretation.
In addition, the non-resident supplier will be liable to GST for all unregistered recipients, whether or not the services are used for business or commerce.
Place of supply of services by way of transportation of goods
Presently Proviso to Section 12(8) of the IGST Act place of supply of services provided to Indian customer in relation to transportation of goods exported outside India is the destination of such goods. Consequently, the said services are treated as inter-state supply leviable to IGST. Now this proviso is purpose to be omitted.
Our Comment
The proposed amendment suggest that the place of supply of services for transportation of goods in case where the goods are being transported to a place outside India, shall either be:
• in case of registered person, the location of such person or
• in case of person other than registered person, the location where such goods are handed over for transportation.
