Key GST Changes in Budget 2025: Impact & Compliance

The Union Budget 2025-26 was tabled by the Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman in the Parliament on 01^st February 2025. The budget introduces significant changes in GST laws, the major amendment to ensure trade facilitation. 

In section 17 of the Central Goods and Services Tax Act, in sub-section (5), in clause (d),––

(i) for the words “plant or machinery”, the words “plant and machinery” shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017;

(ii) the Explanation shall be numbered as Explanation 1 thereof, and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:––

‘Explanation 2.––For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery”.’.  

This amendment will affect the ruling of recent landmark judgment SC, In the case of Chief Commissioner of Central Goods and Services Tax & Ors. Vs Safari Retreats Private Ltd. & Ors. (Supreme Court of India), Civil Appeal No. 2948 of 2023, dated 03/10/2024.

Brief of ruling of the Supreme Court

• “Plant or machinery” in section 17(5)(d) cannot be read as “plant and machinery” used in section 17(5)(c), and that a building can also qualify as plant under section 17(5)(d) of the CGST Act.
• When the legislature has used the expression “plant and machinery,” only a plant will not be covered by the definition. The expression includes such foundations and structural supports fixed to the earth. However, the definition excludes land, buildings, or any other civil structures.
• If it is found, based on the facts, that a building has been planned and constructed to serve an assessee’s special technical requirements, it will qualify to be treated as a “plant”. The word “plant” must be interpreted by applying the functionality test. If a building qualifies as a plant, ITC can be availed against the supply of services in the form of renting or leasing the building or premises, provided the other terms and conditions of the GST law are fulfilled.

Implications for Real Estate, warehousing and Logistic sector

The real estate industry is poised to feel the brunt of these changes. Developer constructing commercial properties for lease will now be ineligible to claim ITC on construction-related expenses. This move could escalate project cost, potentially leading to high rental and dampening investment enthusiasm in commercial real estate market.

Further various Industry Players in the Warehousing and Logistics Sector who availed ITC upon the judgement of Safari (supra) shall have to reverse their ITC availed on any warehousing structure. The said loss of ITC is in the thousands of Crores for these players, thereby leading to higher overall logistics costs for consume.

In section 34 of the Central Goods and Services Tax Act, in sub-section (2), for the proviso, the following proviso shall be substituted, namely:––

“Provided that no reduction in output tax liability of the supplier shall be permitted, if the––

• • input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or
  • incidence of tax on such supply has been passed on to any other person, in other cases.”.

As per the decisions taken in the 55^th GST Council meeting government has amendment in CGST Act, 2017 in the budget 2025, after this amendment specifically provide for the requirement of reversal of input tax credit as is attributable to a credit note, by the recipient, to enable the reduction of output tax liability of the supplier.

However, this places an additional compliance responsibility on recipients to monitor suppliers’ credit notes. Presently, there is no mechanism via which a supplier can check whether the recipient has reversed their ITC or not and therefore, it complicates the reconciliation process and may lead to inadvertent errors, resulting in disputes and penalties in the future leading to Additional Litigations.

In section 38 of the Central Goods and Services Tax Act,––

• in sub-section (1), for the words “an auto-generated statement”, the words “a statement” shall be substituted;
• in sub-section (2),––

(a) for the words “auto-generated statement  under”, the words “statement referred in” shall be substituted;

(b) in clause (a), the word “and” shall be omitted; 

(c)  in clause (b), after the words “by the recipient,”, the word “including” shall be inserted;

(d) after clause (b), the following clause shall be inserted, namely:––

“(c) such other details as may be prescribed.”.

As per the decisions taken in the 55^th GST Council meeting government has amendment in CGST Act, 2017 in the budget 2025, after this amendment specifically provide a legal framework in respect of generation of FORM GSTR-2B based on the action taken by the taxpayers on the Invoice Management System (IMS).

In section 107 of the Central Goods and Services Act, in sub-section (6), for the proviso, the following proviso shall be substituted, namely:–

“Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent. of the said penalty has been paid by the appellant.”.

After this amendment 10% mandatory pre-deposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any tax demand.

• Section 107(6) is being amended to provide for a 10% mandatory predeposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any demand for tax.
• Section 112(8) is amended to provide for a 10% mandatory pre-deposit of penalty amount for appeals before the Appellate Tribunal in cases involving only demand of penalty without any tax demand.

In section 112 of the Central Goods and Services Act, in sub-section (8), the following proviso shall be inserted, namely:––

“Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent. of the said penalty, in addition to the amount payable under the proviso to sub-section (6) of section 107 has been paid by the appellant.”.

After section 122A of the Central Goods and Services Act, the following section shall be inserted, namely:―

“122B. Notwithstanding anything contained in this Act, where any person referred to in clause (b) of sub-section (1) Amendment of section 38. Amendment of section 39. Amendment of section 107. Amendment of section 112. Insertion of new section 122B. Penalty failure for to 68 comply with of section 148A acts in contravention of the provisions of the said section, he shall, in addition to any penalty under Chapter XV or the provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees or ten per cent. of the tax payable on such goods, whichever is higher.”.

All these amendments shall take effect retrospectively with effect from the 1st day of July, 2017.