Karnataka State Chartered Accountants Association (KSCAA) recently submitted a representation to Smt. Nirmala Sitharaman, the Honorable Union Minister of Finance and Chairperson of the GST Council, Government of India, dated 17th June 2024. The representation focused on suggesting amendments to the Goods and Services Tax (GST) Act, 2017, based on issues and challenges faced by taxpayers, Chartered Accountants (CAs), and businesses in Karnataka.
The letter highlighted various concerns and proposed solutions aimed at improving tax compliance and reducing litigation. One key proposal was to introduce a one-time Amnesty Scheme to resolve disputes arising from the early stages of GST implementation, which often resulted from interpretational challenges and errors. This was seen as crucial for providing relief and clarity to taxpayers and businesses.
Additionally, the KSCAA urged for separate Time of Supply provisions for contractors serving government entities, addressing delays in payment approvals. They also emphasized the need for cautious application of cross-empowerment inquiries, advocating against overstepping jurisdictional boundaries.
Moreover, the representation included specific recommendations for amending several sections of the GST Act. For instance, they proposed amendments to broaden the definition of ‘Composite Supply’ to include non-taxable supplies, clarify the applicability of certain provisions related to job work, and revise penalties under Section 73(9) to avoid disproportionate penalties for small tax demands.
The association also sought clarity on the treatment of vouchers and other non-monetary instruments under GST, recommending amendments to the definition of ‘money’. Furthermore, they called for adjustments in the Composition Scheme to resolve confusion over eligibility and tax rates applicable to different turnover limits.
Karnataka State Chartered Accountants Association
To,
Smt. Nirmala Sitharaman,
Hon. Union Minister of Finance and Chairperson of GST Council,
Government of India
Date: 17th June 2024
SUB: REPRESENTATION FOR CHANGES IN RELATING GOODS AND SERVICES TAX ACT, 2017
The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’) is an association of Chartered Accountants, registered under the Karnataka Societies Registration Act, in the year 1957. KSCAA is primarily formed for the welfare of Chartered Accountants and represents before various regulatory authorities to resolve the professional problems faced by Chartered Accountants and the business community.
In the past, we have made representations to Government many times populating various issues, challenges and hardships being faced by taxpayers and Chartered Accountants and suggesting possible solutions on the same. Based on the interactions with our members, we have collated some issues/points, which we are herewith putting across before your good office, few of the representations or suggestions for changes in the GST Law, which are requested to be examined in the interest of nation, trade and businesses and placed before the appropriate forum for required changes.
All tax laws are bound to have uncertainties and possibility of multiple interpretations. Even GST is not free from such interpretations. These differences may ultimately result into disagreement between taxpayer and department leading to rising of legal proceedings.
Accordingly, we the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants community and also on behalf of the trade and industry in the State of Karnataka appeal to your goodselves to kindly consider our Representations or Suggestions. We believe that such representations or suggestions will be taken on a positive note and corresponding changes will be done at the earliest which will greatly aid taxpayers, Government and the Department, thereby supporting in efficient tax compliance or assessment.
Further to the above, we also humbly request to consider the following points as a corrective measure to reduce the litigation of past period in the interest of trade and industry.
a. To introduce a one-time Amnesty Scheme to resolve disputes and issues arising from the early stages of GST implementation. These issues often stem from interpretational challenges, misunderstanding of forms, human errors, and various other factors encountered during the educational period of GST.
b. To provide for separate Time of Supply provisions for contractors providing services to the government and its agencies, addressing specific issues like delayed approvals and release of payment.
c. Cross empowerment enquiry/investigation should be exercised with caution rather than casually. It should be exercised to specific issues based on intelligence and confined to the same. Enquiry/ investigation should not be converted into Audit calling for all records/ information, which can be exercised by jurisdictional officer in due course. This ensures that jurisdiction is not overstepped by counter-jurisdictional officers who are not assigned to the taxpayers in question.
d. To avoid multiple proceedings for the same issue for the same period by multiple officers of same department.e. Recently, the Hon’ble Bombay High Court in the case of Dharmendra M Jani (149 com 317), held that the provisions with respect to services provided by intermediaries under Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional. However, it was held that these provisions are confined to the operation of IGST Act and cannot be made applicable for levy under CGST Act. Section 13 of the IGST Act states that place of supply for such services shall be location of service provider, leading to a levy of local tax. This has led to a lot of confusion, requiring clarity on applicability of taxes.
Representational points and Suggestions for possible changes in details are attached along with this letter in columnar form for ease of reference as follows:
| Section No. |
Extract of Section | Issue involved requiring amendment/ Clarification | Wordings of Suggested amendment/ Clarification |
| Sec 2(30) | “Sec 2(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;” | The definition of ‘Composite Supply’ only covers combination of two or more “Taxable Supplies“. Taxable supplies only includes those supplies on which there is a levy of GST. In effect, transactions in Schedule III are excluded from ambit of Taxable Supply.
There may be many situations where transactions which are Non-GST supplies are clubbed with taxable supplies for Eg. High Sea sale along with recovery of related transport/handling charges, Sale of land and additionally charged for preferential location of the site sold, etc. This would lead to a confusion as to non-taxability of such ancillary transaction by virtue of Composite Supply. Moreover, there is no mechanism to identify and segregate such transaction involving essentially non-taxable supplies. Hence it is suggested that the provision be amended cover all supplies. |
The words “Taxable Supplies“, shall
be substituted with the word |
| Sec 2(68) | Sec 2(68) “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly; | The context of the said definition was for its usage in Section 147 and not for any other purposes.
However, the said definition is being adopted for interpretation of GST rate notification, whereby the tax rate on job work for registered person and that for job work carried out to the unregistered persons are treated differently. Hence, clarity is required in the statute that the said definition is applicable only for the purpose of Section 147. Alternatively, a separate job-work definition be given in Rate notification to exclude the words “registered”. |
It is suggested to add in clause (68), “for the purpose of Section 147”;
or To add a definition of job work in rate notification to read “ “job work” means any treatment or process undertaken by a person on goods belonging to another person and the expression “job worker” shall be construed accordingly”. |
| Sec 2(75) | Sec 2(75) “money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value; | The vouchers are also defined in the same manner as that of ‘Money’. Judicially, Hon’ble Karnataka High Court has already considered the Pre-paid Instruments/Vouchers, used as consideration for supplies are similar to ‘money’. The said decision was also maintained by Hon’ble Supreme Court.
Hence it is suggested that the definition of ‘money’ be amended to include, Vouchers and other instruments, which are used as consideration for supplies. There have been demands raised on GST on sale of such vouchers, which is opposed to the judicially settled position on this issue. |
It is suggested to insert after the words
‘postal or electronic remittance’ |
| Sec 25(5)
Sec 2(85) |
“25(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.”
2(85) “place of business” includes–– (a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or (b) a place where a taxable person maintains his books of account; or (c) a place where a taxable person is engaged in business through an agent, by whatever name called; |
In few instances, goods are temporarily stored outside state, generally close to airports/ports before it is brought back to registered place or is sold directly from there. This facility may either be managed by third party warehouse keepers or may have been temporarily taken by the registered person to store goods.
No sale happens from such place but only is stored for its subsequent movement when sale happens from the registered place of business of registered person. Answer to this issue lies in the meaning of the term “establishment” in Sec 25(5), which is not defined in the GST law. Suitable clarification/ definition of “establishment” may be provided to exclude such temporary places from definition of place of business/establishment requiring registration. |
Establishment may be defined to mean “a place of business equipped with sufficient degree and manpower and resources to carry out Supply and from where supply is made, excluding the place which is merely used for temporary storage of goods up-to 3 months” |
| Sec 7 (1) (a) read with second proviso Sec 16(1) | Sec 7(1)(a) – all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty 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 [paid by him along with interest payable under section 50], in such manner as may be prescribed | Barter/Exchange are considered within the scope of supply and sale invoice towards supply of goods or services are issued.
Payment towards such supply are received in the form of any other goods or services in exchange. In books of accounts, these are adjusted and only net payment is made, if any. Tax Authorities are not considering these books adjustments as payment and are disallowing the ITC. In order to clarify this anomaly, it is suggested that second proviso be amended to exclude payments made through non-monetary |
It is suggested to insert after the words “other than the supplies on which tax is payable on reverse charge basis”, “and supplies against non-monetary consideration, to that extent” |
| Sec 7 (aa)(1) | (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;] |
Many associations were not collecting GST from their members based on judicial precedents under the previous law.
The recent amendment regarding the taxability of transactions between associations and their members has significantly impacted many associations, which are primarily non-business entities formed to serve their members and not to maintain large reserves. The imposition of additional tax liabilities and interest on past transactions would severely harm these organizations, potentially making them inoperable and threatening their existence. Therefore, it is recommended that these changes be applied prospectively from January 1, 2022, rather than retroactively. This approach would prevent unnecessary litigation and increased costs for such associations. |
It is suggested to add explanation that this clause would be having prospective effect from the date of notification;Alternatively, a one-time relaxation be granted for the period 01/07/2017 to 21/12/2021 (date of notification) and regularise the past cases on as is basis. |
| Sec 7 (1) (C) read with Sec 17 (5) (h) | (c) the activities specified in Schedule I, made or agreed to be made without a consideration;
Sch I (1) Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. (2) “Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.” |
1) Schedule I lists certain transactions which are made even without consideration will be deemed as supply. One of the Entry therein states that “Permanent transfer or disposal of business assets where input tax credit has been availed on such assets” – There is no definition of “Business Asset” as well as “Permanent Transfer/ disposal” under GST law. There is overlapping of entry 1 of Schedule I with Sec 17 (5) (h) wherein it is not clear whether ITC is required to be reversed or supply needs to be shown when any asset is disposed-off. A definition of above terms would clarify the position.
2) Gift given to employees exceeding Rs. 50,000/- to be treated as supply. With the increase in inflation and cost, the value seems to be very minimal and requires increment. |
1) To define “Business Asset” and “Permanent Traansfer/Disposal”
2) “fifty thousand rupees” to be replaced with “Five Lakh rupees” |
| Sec 10 | 10(1) – ….
Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding 2[one crore and fifty lakh rupees], as may be recommended by the Council: 10(2A) – Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub- section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in…” |
1) There is confusion in the industry regarding the Composition Scheme, as there are two types: one with a turnover limit of 1.5 crore and another with a turnover limit of 50 lakhs. Taxpayers often struggle to determine which scheme applies to their business.
2) Additionally, the two schemes have different applicable tax rates. 3) There is also confusion about whether an unregistered person can opt for the Composition Scheme under Section 63 in the case of “Assessment of Unregistered Persons.” 4) Instances where taxpayers switch schemes due to allegations of non-eligibility by GST authorities should be allowed the benefit of Input Tax Credit (ITC) as per Section 18. |
1) To club both the categories 10(1) & 10(2A) into 10(1) and Sec 10(2A) to be omitted.
2) To bring a single rate of tax for sale of goods and single rate of tax for sale of services. 3) An explanation to the effect as below: “For the purposes of this section, the person eligible for paying tax as per Sec 10 in lieu of taxes otherwise payable and has been assessed u/s 63 to also be eligible for the scheme for the period covered in the proceedings u/s 63.” 4) An explanation to be inserted in Sec 18: “The claim of ITC can be |
| Sec 73 (8) | (8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded. | In few instances, payment of tax and interest is made beyond 30 days from the date of SCN due to delay in receipt of SCN or not being aware of SCN.
An amendment to be made stating that if payment is made within date of passing the order, there shall be no penalty. |
In place of “within thirty days of issue of show cause notice,”, “within date of issue of order” may be substituted. |
| Sec 73 (9) | (1) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order. | 2) A penalty is imposed at a rate of 10% of the tax demand or Rs. 10,000/-, whichever is higher, under Section 73(9) of the CGST Act. However, in cases of small demands such as Rs. 1,000/-, the penalty is levied at Rs. 10,000/-, which can be burdensome for small businesses.
This issue is exemplified in a case where a meagre demand of Rs. 32/- (CGST Rs. 16 + SGST Rs. 16) incurred a penalty of Rs. 20,000/-. 3) From a plain reading of Section 73(9) read with Rule 142(4) & (5), it is clear that the penalty of 10% or Rs. 10,000/-, whichever is higher, needs to be levied on the total demand of tax and not on a paragraph-wise demand proposed in the Show Cause Notice (SCN) or confirmed in the order. However, it is observed that the penalty is being proposed in the SCN or confirmed in the order on each paragraph, resulting in a penalty of 10% of the demand or Rs. 10,000/- for each paragraph. |
To exclude “or ten thousand rupees, whichever is higher” |
| Sec 73 (11) | (11) Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub- section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax. | To avoid redundancy, the second part of Section 73(11) of the CGST Act, which states “any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax,” should be omitted as it is already addressed in Section 76. | It is recommended to Omit Sec 73(11) which will not overlap with Sec 76 |
| Sec 107 | NA | It has been observed that orders are often uploaded on the GST portal without the taxpayer’s knowledge. Taxpayers frequently remain unaware of these orders until bank attachment notices are issued. While “service” pertains to the sender of the notice, Section 107 necessitates “communication” to the recipient. Therefore, it is essential to consider the date when the assessee acknowledges receipt of the order. | To insert an explanation to this extent |
| Sec 112 (8) | (8) No appeal shall be filed under sub-section (1), unless the appellant has paid-
(d) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him, and (e) a sum equal to twenty per cent. of the remaining amount of tax in dispute, in addition to the amount paid under sub-section (6) of section 107, arising from the said order, 3[subject to a maximum of fifty crore rupees, in relation to which the appeal has been filed. |
For filing an appeal to the Tribunal, an additional 20% of the disputed demand must be paid as a pre-deposit. This pre-deposit requirement is in addition to the 10% already paid before the first appellate authority. Requiring a total payment of 30% of the disputed tax imposes undue hardship on the assessee. | Clause (b) to be replaced as below:
“(b) a sum equal to twenty per cent. of the remaining amount of tax in dispute, including the amount paid under sub-ection (6) of section |
| Sec 16 (4) | (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the 20/10 or 30/11 following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. | 1) Referring to the previously established scheme of filing GSTR 1, 2, and 3, it appears that Section 16(4) of the CGST Act addresses situations where ITC related to invoices of a particular year is included in returns filed beyond the September return of the subsequent year. However, it does not cover cases of belated filing, which is the current basis for does not cover cases of belated filing, which is the current basis for disallowance under Section 16(4). An explanation should be provided stating that there will be no disallowance of ITC for delayed filing of GSTR 3B, to address issues related to past instances.
2) Many notices and orders have been issued disallowing ITC if returns are filed beyond 20th October or 30th November. This has caused undue hardship to taxpayers in the initial 4-5 years of GST implementation. Furthermore, Notification No. 33/2021 – Central Tax dated 29/08/2021 extended the deadline to 30/11/2021 for filing pending returns up to April 2021 and regularizing them. This was promoted to taxpayers as the GST amnesty scheme for return filing. Based on this scheme, many assessees filed their pending returns and regularized their delays. However, despite the scheme’s issuance, no ITC benefit was extended, resulting in undue benefit to the government. |
It is suggested to allow ITC even if the respective returns are filed beyond 20th October or 30th November. The true intention of Section 16(4) is to block ITC that is availed beyond the September or November GSTR-3B returns, not the other way around.
For example, if ITC related to FY 2020-21 has been disclosed in the GSTR-3B for March 2021, then this ITC should not be disallowed under Section 16(4), even if the GSTR-3B is filed after 20th October or 30th November. Conversely, ITC related to FY 2020-21 disclosed and availed in the GSTR-3B returns for October 2021 or December 2021 would be ineligible as it is time-barred by Section 16(4) of the CGST Act, 2017. Based on this interpretation, it is requested to provide clarification or insert an explanation to allow the ITC under Section 16(4) for delayed filings. |
| the person an opportunity of being heard.” | |||
| Sec 62/63 r/w Rule 142 | Assessment of Non-filers/Assessment of un registered persons | To enable issue of Show Cause Notice for assessment of non-filers and un registered persons, which is missing in reference. | A related amendment should be made to Rule 142 to include “Sections 63 and 64” for the purpose of issuing a Show Cause Notice (SCN). |
| Sec 65 | 65(7) Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74. | Audit is a participative exercise where the outcome is based on records available and submitted by the taxpayer. Reference to Section 74 should be omitted from Sec 65 as all the details are provided during the Audit and there will never be any reason of fraud, or any wilful-misstatement or suppression of facts to evade tax once details are provided during Audit. Further references to Sections 67 and 70 should be included in Sec 65 so as to provide scope for further investigation and access to premises in case of any serious offence. | “or section 74.” May be omitted. |
| Sec 34(3) | Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient 4[one or more debit notes for supplies made in a financial year] containing such particulars as may be prescribed. | The provision to issue Debit notes should be permissible against the Bill of Supply issued in the past. This is for the reason that, Bill of Supply if any issued for an exempt supply which subsequently held as liable to tax, going by the provisions, since invoice is not issued, no debit note can be issued. By making changes to the provision to include ‘bill of supply’ as well will enable the registered person to issue debit note against the past bill of supplies issued. | After the words “one or more tax invoices…”, the words “or bill of supply” to be inserted. “ |
| Sec 50 | “Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.” | This provision seems discriminatory as it is advantageous to a taxpayer who discharges tax liability through electronic cash ledger by belated filing GSTR-3B of a particular month whereas it is disadvantageous to a taxpayer who discharges tax liability of a previous month through electronic credit/cash ledger in subsequent month’s GSTR-3B. | Said proviso can be replaced as below:
“Provided that the interest on tax payable in respect of supplies made during a tax period and included in the any return after the due date of the concerned return in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger, providing sufficient balance is maintained from the date of such availement” |
Taking into consideration the hardships which may be caused, we the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants community and also on behalf of the trade and industry in the state of Karnataka appeal to your good selves to kindly consider our above request.
Yours sincerely,
For Karnataka State Chartered Accountants Association ®
| CA. Sujatha G
President |
CA. Sunil Bhandary
Secretary |
| CA. Babitha G Chairperson,
Representation Committee |
CA Subramanya B L
Chairperson, Indirect Tax Committee |
CC:
1. Shri Pankaj Chaudhary, Union Minister of State, Finance
2. Shri Sanjay Malhotra, Revenue Secretary, Ministry of Finance
3. Shri Sanjay Kumar Agarwal, Chairman, Central Board of Indirect Taxes and Customs
4. Shri Tarun Bajaj Secretary GST Council Secretariat
5. C Shikha, Commissioner of Commercial Taxes, Government of Karnataka
6. Ranjhana Jha, Principal Chief Commissioner of Central Taxes, Karnataka, Government of India
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