Recommendation from 45th GST council meeting held on 17th Sep 2021 with some sort of analysis in the bracket.

Measures for Trade facilitation:

In the spirit of earlier Council decision that interest is to be charged only in respect of net cash liability, section 50 (3) of the CGST Act to be amended retrospectively, w.e.f. 01.07.2017, to provide 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. 01.07.2017.”

Analysis on Recommendation from 45th GST Council Meeting

(Important to note from this above wording, in whatever way the law is amended, the intention of the legislature to levy tax only if the tax liability is payable in cash. As this amendment is proposed w.e.f. 1st of July 2017, the assessee may explore the option of refund, if interest has been paid on account of ineligible ITC availed and reversed without utilizing the same. This change is welcome move, hopefully, the law would be amended in an unambiguous way)

“Taxpayers whose annual aggregate turnover in preceding financial year is above Rs. 5 crores shall furnish ITC-04 once in six months;

Taxpayers whose annual aggregate turnover in preceding financial year is upto Rs. 5 crores shall furnish ITC-04 annually.”

(It will help in ease of compliance)

“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), without going through the refund procedure, subject to certain safeguards.”

(Concept of Person being distinct is only for GST perspective, otherwise, it is one and same person only. Hence it will help the registered person to unlock its working capital and less administrative work for GST department)

“Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

Clarification on scope of “intermediary services”

Clarification relating to 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. 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.”

(As we understand that there is always dispute on the definition of “intermediary services”. Definition of intermediary services creates a legal fiction and decides the POS at the location service provider as against the service recipient and deny the benefit of export. We have seen that the Bombay High Court is divided on its opinion on whether services provided by intermediaries to overseas clients are Constitutionally permitted to be taxed under the goods and services tax law.

The division bench of Justices Ujjal Bhuyan and Abhay Ahuja could not come to a unanimous decision on the issue of GST on intermediary services. Therefore, a clarification will be provided on the definition of intermediary services and hopefully the clarification will keep the spirit of GST law alive i.e., consumption-based taxation.

The clarification on the mere establishment of a distinct person will surely remove the doubts of the taxpayers and create a fine line between mere establishment of distinct person and separate person)

Other clarification

“W.e.f. 01.01.2021, 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;” (So, the last date to take ITC on debit notes will be counted from the date of issue of debit note, not from the date of underlying invoice, but why is it effective from 1st Jan 2021, as debit notes should be assumed to be delinked with original invoices w.e.f. 1st July 2017 for the purpose of ITC)

“There is no need to carry the physical copy of tax invoice in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules, 2017;”

(No need to carry the hard copy of the invoice if the taxpayer has generated IRN)

“Only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) of CGST Act, 2017 from availment of refund of accumulated ITC.”

“Provision to be incorporated in in CGST Rules, 2017 for removing ambiguity regarding procedure and time limit for filing refund of tax wrongfully paid as specified in section 77(1) of the CGST/SGST Act and section 19(1) of the IGST Act.”

(Govt will prescribe procedure and rules to take a refund of taxes wrongly paid assuming a transaction as intrastate (CGST+SGST) and later it held to be interstate (IGST) and vice versa, so the assessee is required to pay the correct tax and to take the of taxes wrongly paid. It is humbly submitted that as this is revenue neutral exercise, so rather than paying taxes and taking refunds, a set-off functionality should be provided in the portal itself. Such functionality will reduce the administrative burden itself. And point to be noted here, as there is ambiguity in this situation as accepted by GST council, the taxpayer shouldn’t be harassed in respect of position taken by the taxpayer on its wisdom for past periods, rather should be sorted out amicably keeping in view of revenue neutrality)

Measures for streamlining compliances in GST

1. Aadhaar authentication of registration to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration.

2. Late fee for delayed filing of FORM GSTR-1 to be auto-populated and collected in next open return in FORM GSTR-3B.

3. Refund to be disbursed in the bank account, which is linked with same PAN on which registration has been obtained under GST.

4. Rule 59(6) of the CGST Rules to be amended with effect from 01.01.2022 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.

5. Rule 36(4) of CGST Rules, 2017 to be amended, once the proposed clause (aa) of section 16(2) of CGST Act, 2017 is notified, 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. (Point to be noted here that sub-clause (aa) of section 16(2) of CGST Act, 2017 is yet to be notified, meaning thereby still there is no requirement to match ITC with GSTR 2A/ GSTR 2B. Further, as there is no requirement to match ITC with GSTR 2A/ GSTR 2B, the condition of checking tax charged in respect of such supplies has been paid to the Government as envisaged clause (c) of section 16(2) of the CGST act 2017 is impossible to apply and flow the GSNT return system is not as envisaged as the inception of the GST law (i.e., GSTR 1, GSTR 2 and GSTR 3). So, it is humbly submitted that council should also provide the better clarification on mandate of comparison of ITC with GSTR 2A for past periods, as this is the basis of various notices from the GST department now a days)

There is other clarification related to rates on goods and services which can be referred from the press release of the posted-on 17 SEP 2021 9:16PM by PIB Delhi

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3 Comments

  1. Brajesh81 says:

    In continuation with above, following clarification has been provided by Circular No. 161/16/2021-GST dated 20th of Sep 2021.

    The benefit of export of service is denied if the supplier of service and the recipient of service are merely establishments of a distinct person in accordance with Explanation 1 in section 8;

    So, it is clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as a foreign company under the Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.

    Therefore, supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017 .

    Similarly, the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.

  2. Brajesh81 says:

    In continuation with the above, the following clarification has been provided Circular No. 160/16/2021-GST dated 20th of Sep 2021.

    1. As per section 16(4), ITC can be availed before the due date of filing of the return for the month Sep following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier So, w.e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

    2. It is clarified that there is no need to carry the physical copy of tax invoice in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, would suffice.
    3. it is clarified that only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) from availment of refund of accumulated ITC. Goods, which are not subject to any export duty and in respect of which either NIL rate is specified in Second Schedule to the Customs Tariff Act, 1975 or which are fully exempted from payment of export duty by virtue of any customs notification or which are not covered under Second Schedule to the Customs Tariff Act, 1975, would not be covered by the restriction imposed under the first proviso to section 54(3) of the CGST Act for the purpose of availment of refund of accumulated ITC.

  3. Brajesh81 says:

    As explained in the Article that clarification will be issued on coverage of “Intermediary Services”, CBIC has issued Circular No. 159/15/2021-GST | Dated the 20th of September 2021 and has set out the following broad principle for services to be termed as “Intermediary”

    1. Minimum of Three Parties
    2. Two distinct supplies (Main Supply and Ancillary Supply)
    3. Intermediary service provider to have the character of an agent, broker, or any other similar person
    4. Does not include a person who supplies such goods or services or both or securities on his own account
    5. Sub-contracting for a service is not an intermediary service:

    From the above, now it is clarified that services provided by back offices of MNCs, export of services by ITES, service by captive BPOs cannot be treated as “Intermediary Services”

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