We all are aware that the 45th GST Council meeting was held on 17th September 2021 wherein various recommendations were made regarding revision of GST rates on certain goods / services as well as several changes in procedural and legal aspects. These recommendations will be effective after issue of relevant Notifications. In this article, I will be discussing the impact of recommendations related to procedural as well as legal aspects.
Recommendations relating to GST law and procedure and its impact:
1. Recommendation – At present, ITC-04 is required to be filed in case manufacturer is sending its raw material or semi-finished goods outside its factory for job work activity. Manufacturer is required to file ITC-04 return on quarterly basis. In this regard, the GST Council has made the below recommendations:
| Turnover in the preceding financial year | Frequency of filing of ITC-04 |
| Upto Rs. 5 crores | Yearly |
| More than Rs. 5 crores | Six monthly |
Impact of recommendation: Practically speaking filing of ITC-04 was merely a time-consuming compliance / reporting. This relaxation will definitely save time and efforts to certain extent. However, as per section 143 (1) of the CGST Act, 2017, assessee is required to reverse input tax credit in case raw material or semi-finished goods are not returned within one year of their being sent out for job work purpose. In case of capital goods, the time limit is three years. Therefore, even though there is a relaxation of frequency of filing of ITC-04, assessees are still required to maintain register / details of goods which are sent outside for job work and received from job work on monthly basis. For example, suppose goods are sent for job work and the said goods are not received even after the completion of one year. In such a case, assessee is required to reverse input tax credit (by adding to its outward supply liability) immediately after the completion of one year even though ITC-04 is to be filed either on six monthly or yearly, as the case may be.
2. Recommendation – It is recommended that interest is to be paid by a taxpayer on “ineligible ITC availed and utilized” and not on “ineligible ITC availed”. It has also been decided that interest in such cases should be charged on ineligible ITC availed and utilized at 18% w.e.f. 1st July 2017 i.e. from retrospective effect.
Impact of recommendation: This is one of the most awaited recommendations. In Central Excise and Service Tax regime, similar provisions were covered under Rule 14 of Cenvat Credit Rules, 2004. As per the earlier provisions, interest was required to be paid on credit wrongly availed or wrongly utilised. Mere availment of wrong credit never led to any loss of revenue to the Government and therefore, there were several decisions of the Hon’ble Hight Courts and Supreme Court wherein it was held that interest is to be charged only when such wrongly availed credit is utilised. Subsequently, the Government amended Rule 14 to provide applicability of interest only when such wrongly availed credit is utilised.
Section 50(3) of the CGST Act, 2017 drafted in the same manner as it was related to earlier Rule 14 of Cenvat Credit Rules, 2004. At present, this anomaly has already created issues / confusion in the mind of assessee for applicability of interest even if wrongly availed credit is not utilised. As a result, GST officers are asking to pay interest even if credit is never utilised i.e., assessee is having sufficient balance in Electronic Credit Ledger. As a result, many assessees and consultants are taking stand not to pay interest when there was a sufficient balance of Electronic Credit Ledger. The tax authorities would never accept this stand and accordingly, assessee were required to face litigations. Because of this recommendation, assessees can save time, cost and efforts for litigation. Moreover, assessee can claim credit without any mental stress. Furthermore, assessee can claim credit in such cases where eligibility of credit is not clear at the time of taking credit.
3. Recommendation – It is recommended that unutilized balance in CGST and IGST cash ledger may be allowed to be transferred between distinct persons (entities having same PAN but registered in different states).
Impact of recommendation: There will not be much impact on assessee since cash balance in Electronic Cash Ledger will be allowed to transfer. Thus, assuming that assessee is registered in Maharashtra (main manufacturing premises) and having branch / warehouse / service offices in five other states. Assessee is having huge credit balance in Maharashtra location and therefore, the position is always “receivable” whereas other five locations are having “payable” positions i.e. GST is required to be paid in cash since credit balance is not sufficient. In such case, Maharashtra location cannot transfer its credit balance to other locations since transfer of cash balance is recommended. Thus, there will not be much impact on assessee.
4. Recommendation – It is recommended to clarify scope of “intermediary service” and also interpretation of the term “merely establishment of distinct person” in condition (v) of the Section 2 (6) of the IGST Act 2017 for export of services. It is thus recommended that a person incorporated in India under the Companies Act, 2013 and a person incorporated under the laws of any other country are to be treated as separate legal entities and would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for considering a supply of service as export of services.
Impact of recommendation: This will have a positive impact on assessees who are in service industry mainly BPO / KPO / back office. Such assessees are mainly exporting services to their parent company located abroad. At present, refund of some of the assessees are rejected mainly on the ground that their services are not covered under export category on the ground that back-office work is covered under “intermediary service” or the assessee and their parent company are mere establishment of same person. This recommendation would certainly help such assessees to allow refund and thereby save cost and time for litigation.
5. Recommendation – It is recommended that w.e.f. 1st January 2021, the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of CGST Act, 2017.
Impact of recommendation: This recommendation is of clarificatory in nature and will have a positive impact on the assessee. The impact can be explained with the help of example. Suppose supplier has raised tax invoice which is dated April 2020. As per section 16(4), credit of such invoice can be availed upto September 2021 and not thereafter. The assessee availed ITC in the month of April 2020 itself. Subsequently, in April 2021, the supplier raised debit note related to this invoice. As per this recommendation, date of debit note is to be considered for section 16(4) and therefore, ITC related to debit note dated April 2021 can be claimed upto September 2022.
6. Recommendation – It is recommended that there is no need to carry the physical copy of tax invoice in cases where the supplier has generated e-invoice.
Impact of recommendation: This recommendation will not have much impact on the assessee since the assessee is anyways required to print tax invoice and share the same to the customer for commercial purpose as well as for claiming ITC. This might save printing cost in some cases where the customer accepts soft copy of digitally signed copy of tax invoice.
7. Recommendation – Aadhaar authentication of registration to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration.
Impact of recommendation: Though this is one time compliance, it will be time consuming and involving a bit complexity since availability of director / partner will be the concern for their Aadhaar authentication.
8. Recommendation – Late fee for delayed filing of FORM GSTR-1 to be auto-populated and collected in next open return in FORM GSTR-3B
Impact of recommendation: This is certainly not a good recommendation for those assessees who are not filing GSTR-1 in time. At present, the portal automatically calculates late fee for delayed filing of GSTR-3B however, there was no provision for calculating late fee for delayed filing of GSTR-1. As per this recommendation, GST portal will calculate late fee at the time of filing of GSTR-3B for delayed filing of GSTR-1. Thus, this will have additional cash out flow. It is not clear as to whether GST portal would calculate late fee for the delayed filing of GSTR-1 for the past period. However, considering the present amnesty scheme and part experience of late fee for GSTR-3B, it is expected that late fee for delayed filing of GSTR-1 will be auto-populated from the current / future period.
9. Recommendation – Refund to be disbursed in the bank account, which is linked with same PAN on which registration has been obtained under GST.
Impact of recommendation: This will be the one-time task. Before filing of refund application, the assessee is to cross check as to whether PAN is linked with the bank account which is mentioned in the GST registration. Thus, henceforth, the assessee cannot mention any bank account in the refund application which was possible at present.
10. Recommendation – Rule 59(6) of the CGST Rules to be amended with effect from 1st January 2022 to provide that a registered person shall not be allowed to furnish FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for the preceding month.
Impact of recommendation: It is seen that many assessees are filing only GSTR-1 so that invoices can be seen in GSTR-2A of the respective customers so that payment can be released however, such assessee are not filing of GSTR-3B due to financial crunch. Therefore, this recommendation is made to safeguard the revenue the Government. At present, the restriction of filing of GSTR-1 is applicable in case of non-filing of FORM GSTR-3B for the preceding two months. This would lead to strict and timely compliance by the assessee. However, this will have cash flow impact of the assessees.
11. Recommendation – It is recommended to restrict availment of ITC in respect of invoices / debit notes, to the extent the details of such invoices/ debit notes are furnished by the supplier in FORM GSTR-1/ IFF and are communicated to the registered person in FORM GSTR-2B.
Impact of recommendation: As expected, ITC will be restricted to the extent of invoices / debit reflected in GSTR-2B. In other words, excess availment of 5% will not be allowed. Actually, this will have a positive impact since availment of excess 5% / 10% / 20% would lead to reconciliation issues.
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