Several changes have been proposed in the Finance Bill, 2021 with respect to GST. Following is the brief summary of the same along with our remarks. It may be noted that the amendments proposed in the Finance Bill, 2021 will come into effect from the date when the same will be notified, as far as possible, concurrently with the corresponding amendments to the similar Acts passed by the States and Union Territories with Legislature.
Proposed amendments in the CGST Act, 2017
Sec. 7(1)(aa) is sought to be inserted so as to ensure levy of tax on activities or transactions involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Consequent to the proposed amendment in section 7 of the CGST Act, paragraph 7 of Schedule II to the CGST Act is proposed to be omitted retrospectively, with effect from the 1st July, 2017.
Brief remarks – Hon’ble Supreme Court in the case of Calcutta Club [Civil Appeal No. 4184/2009] in the context of the pre-GST era held that there cannot be the sale of goods or provision of services between the unincorporated private clubs/associations and its members owing to the principle of mutuality which treats such clubs/associations and its members as the same person. Said ratio also applies to GST given the current statutory provisions. Now a retrospective amendment has been proposed to ensure the levy of tax on the amounts collected from the members towards the supply of goods/services. This shall however be subject to the exemption (upto Rs. 7,500/month/member) in respect of housing societies.
2. Input tax credit – matching
A new clause (aa) to sub-section (2) of the section 16 of the CGST Act is sought to be inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.
Brief remarks – The conditions for determining the eligibility of input tax credit u/s 16(2) of the CGST Act, 2017 does not include the requirement of furnishing the details of the invoice by the vendors and the consequent communication to the recipient. Now it has been proposed to add a new clause providing for such requirement to determine the eligibility of input tax credits.
3. Annual Return & Reconciliation Statement
Sub-section (5) of section 35 of the CGST Act is proposed to be omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional. Section 44 of the CGST Act is also sought to be substituted so as to remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professional and to provide for filing of the annual return on self-certification basis. It further provides for the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return.
Brief remarks – It has been proposed to remove the mandatory certification by a professional with respect to the reconciliation statement (GSTR 9C). It has been thus been proposed to undertake the filing of the same form by the taxpayer on self-certification basis.
Section 50 of the CGST Act is sought to be amended, retrospectively, to substitute the proviso to sub-section (1) so as to charge interest on net cash liability with effect from the 1st July, 2017.
Brief remarks – The liability to pay interest shall be computed on the net cash liability declared in the return with effect from the 1st July, 2017. In other words, the interest shall not be computed on the tax paid by utilizing the input tax credit.
5. Seizure and confiscation of goods and conveyances in transit
Section 74 of the CGST Act is sought to be amended so as make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax.
Brief remarks – Clause (ii) to Explanation 1 of the CGST Act, 2017 provides for the conclusion of the proceedings (including the proceedings u/s 129 and 130 related to seizure and confiscation of goods/conveyance during transit) against the main person as well as some other persons if the main person exercises the option of paying the requisite amount of tax, interest and penalties for concluding the proceedings. Now it has been proposed to consider seizure and confiscation of goods and conveyances in transit as a separate proceeding from recovery of tax. Therefore the other persons (e.g. transporter) shall not get the closure of the proceedings even if the main person (e.g. supplier) opts to close the proceedings.
6. Self-assessment tax and recovery
An explanation to sub-section (12) of section 75 of the CGST Act is sought to be inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39.
Brief remarks – It has been proposed to be clarified that the liability declared in GSTR 1 but not included in GSTR 3B will be considered as “self-assessed tax” thereby permitting initiation of recovery proceedings without following the process of adjudication.
7. Provisional attachment
Section 83 of the CGST Act is sought to be amended so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.
Brief remarks – It has been proposed to increase the ambit of provisional attachment by permitting attachments in proceedings in the nature of assessment (Chapter XII); inspection, search, seizure and arrest (Chapter XIV) and demands & recovery (Chapter XV) which currently are restricted to limited types of assessments (viz. non-filers, unregistered, summary) and demands and recovery proceedings u/s 73 or 74.
8. Pre-deposit for Appeal filing
A proviso to sub-section (6) of section 107 of the CGST Act is sought to be inserted to provide that no appeal shall be filed against an order made under sub-section (3) of section 129, unless a sum equal to twenty-five per cent. of penalty has been paid by the appellant.
Brief remarks – It has been proposed that the pre-deposit amount for filing the appeal before the first appellate authority in cases of detention and seizure of goods and conveyance during transit shall be 25% of the penalty amount imposed.
9. Seizure and confiscation of goods and conveyances in transit
Section 129 of the CGST Act is sought to be amended to delink the proceedings under that section relating to detention, seizure and release of goods and conveyances in transit, from the proceedings under section 130 relating to confiscation of goods or conveyances and levy of penalty. Similarly Section 130 of the CGST Act is sought to be amended to delink the proceedings under that section relating to confiscation of goods or conveyances and levy of penalty from the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit.
Brief remarks – It has been proposed to delink the proceedings relating to detention, seizure and release of goods and conveyances in transit from the proceedings relating to confiscation of goods or conveyances. Further the quantum of penalty u/s 129 has been doubled to 200% of the tax payable where the owner of the goods comes forward for payment of such penalty.
10. Power to collect information
Section 151 of the CGST Act is sought to be substituted to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the Act. Section 152 of the CGST Act is sought to be amended so as to provide that no information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned. Section 168 of the CGST Act is sought to be amended to enable the jurisdictional commissioner to exercise powers under section 151 to call for information.
Brief remarks – It has been proposed to grant wider powers to the jurisdictional commissioner to call for information on any matters concerned with the Act.
Proposed amendments in the IGST Act, 2017
11. SEZ supplies
Section 16 of the IGST Act is sought to be amended so as to zero rate the supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit only when the said supply is for authorised operations.
Brief remarks – It has been proposed that only the supplies to Special Economic Zone developer or a Special Economic Zone unit which are for authorised operations (as per the SEZ Act and relevant rules and notifications read with the letter of allotment) shall enjoy the benefit of zero-rating.
12. Refunds on account of zero-rated supplies
Section 16 of the IGST Act is sought to be amended so as to restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services and link the foreign exchange remittance in case of export of goods with refund.
Brief remarks – At present Sec. 16(3) provides for two routes for claiming the refund of the accumulated ITC viz. (a) making the supplies with payment of IGST and claiming refund thereof and (b) making the supplies under LUT without tax and claiming refund of the accumulated ITC based on the formula. It has been proposed that the option of making the supply on payment of integrated tax shall only be granted to a notified class of taxpayers or notified supplies of goods or services. Therefore one will have to wait for amendments, if any, in the Rules to understand the notified categories. Otherwise barring the situations covered under Rule 96(10) (e.g. where IGST exemption has been claimed under advance authorization), the exporters should be permitted to claim refunds under the with-payment route. Further, it has been proposed to recover the refunds in the context of export of goods if foreign exchange remittance is not received within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999.
(Views are strictly personal)