Budget 2025 – GST And Customs – Analysis

The 2025 Budget introduces significant amendments to the CGST Act, 2017. The definition of Input Service Distributor (ISD) under Section 2(61) is revised to facilitate ITC distribution for inter-state supplies, aligning with the IGST Act. Section 12 and 13 amendments clarify that vouchers are neither goods nor services but actionable claims or payment instruments, with GST applying only to margins or commissions. A retrospective amendment to Section 17(5)(d) changes “plant or machinery” to “plant and machinery,” nullifying prior Supreme Court interpretations. Adjustments to Section 34 prevent output tax reduction unless ITC linked to credit notes is reversed. Enhancements to the Invoice Management System (IMS) under Sections 38 and 39 aim to streamline ITC reconciliation and return filing. Changes to Sections 107 and 112 require a 10% pre-deposit of penalty amounts for appeals, extending to cases without tax disputes. A new Section 148A introduces a track-and-trace mechanism for specified goods, emphasizing compliance and transparency. These updates collectively aim to simplify GST compliance, strengthen systems, and address key ambiguities.

Important GST Updates – Budget 2025

1. Amendment To Section 2 – CGST Act, 2017:

A. Input Service Distributor

> Definition Of Input Service Distributor [Sec.2(61)] amended to read as follows:

“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 of this Act or under subsection (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;

> Corresponding amendments made to Section 20 of the act which deals with manner of distribution of credit by an Input Service Distributor, to include the provisions of IGST Act for receipt of invoices and distribution of credit

> Section 2(61) of the CGST Act is being amended to specifically allow the Input Service Distributor (ISD) to distribute input tax credit (ITC) for inter-state supplies, where tax must be paid on a reverse charge basis. This is achieved by incorporating references to sub-sections (3) and (4) of Section 5 of the IGST Act.

B. Municipal And Local Fund Defined

> Definition of Local Authority [Sec.2(69)(c)] amended to include a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal fund or local fund.

> Further an Explanation is added after [Sec.2(69)(c)] to define the words municipal fund and local fund as follows:

(a) “local fund” means any fund under the control or management of an authority of a local selfgovernment established for discharging civic functions in relation to a Panchayat area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called;

(b) “municipal fund” means any fund under the control or management of an authority of a local self government established for discharging civic functions in relation to a Metropolitan area or Municipal area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called.’

2. Amendment To Section 12 and 13 – CGST Act, 2017 – Vouchers

> Sub-section 4 to Section 12 and Section 13 of the Act which deal with time of supply of goods and time of supply of services respectively has been omitted thereby ensuring that supply of vouchers is neither treated as supply of goods nor supply of service.

> The amendment is in line with the proposal made in the 55th GST Council Meeting followed by Circular No.243/37/2024-GST Dated 31.12.2024 wherein it was clarified that:

i. vouchers are not considered goods or services; instead, they are payment instruments that create an obligation for the supplier to provide goods or services

ii. GST is not applicable to prepaid instruments recognized by the RBI as they are considered money.

iii. For non-prepaid vouchers, they are treated as actionable claims and are not subject to GST.

> However, when distributors buy and sell vouchers for a margin, or when such distributors act as agents of the issuer and earn commission, GST could apply to such margin or commission earned.

> Further, services such as advertising, co-branding, marketing and technology support will be subject to GST when provided to issuer of the voucher.

3. Retrospective Amendment To Section 17(5)(d) – CGST Act, 2017 – Plant (or) Machinery Now Plant (and) Machinery

> A retrospective amendment has been made to Section 17(5)(d) of the act wherein the words plant or machinery has been substituted by the words plant and

> The amendment has been introduced to categorically nullify the Supreme Court judgment in the case of Safari Retreats Pvt. Ltd. Wherein it was observed that Section 17(5)(d) uses the phrase plant or machinery and given the fact that the word plant is not defined under the act, functionality test could be applied to determine if a building could be considered as a plant for the purpose of granting ITC if the construction of a building was essential for carrying out activity of supplying services such as renting or giving on lease.

> The interpretation was made on the ground that the words used were plant or With this amendment the words plant or machinery has been substituted by the words plant and machinery thereby nullifying the judgment on the very ground on which the interpretation was made.

> Further, Explanation 2 has been added to state that regardless of any judgment that subsists, the words plant or machinery shall always be construed to have been plant and

> However, is this really the end of the dispute or will Functionality Test be applied as a stand-alone test to provide for input tax credit, only time will tell.

4. Amendment To Section 34 – CGST Act, 2017 – Credit Notes

> Section 34(2) of the act deals with adjustment of output tax liability in cases where a registered person issues a credit note in relation to a supply of goods or services or both and declares the details of such credit note in the return for the month during which such credit note has been issued.

> Explanation to Section 34(2) has been amended to state that no reduction in output tax liability will be permitted if

i. if the corresponding ITC attributable to such credit note has not been reversed by the recipient of such supply; or

ii. if the incidence of tax on such supply has been passed on to another person.

5. Amendment To Section 38 – CGST Act, 2017 – Strengthening Invoice Management System (IMS)

> Section 38 of the act deals with communication of details of inward supplies and availability of input tax credit based on such details [GSTR 2A/2B]

> The words ‘auto-generated statement’ is now being replaced by the words ‘a statement’

> Further Section 38(2)(b) deals with details of supplies in respect of which credit cannot be availed. The scope of the said sub-section is being amended to expand its scope wherein the words:

“details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37”

 is being substituted by the words:

“details of supplies in respect of which such credit cannot be availed, whether wholly or partly, including, on account of the details of the said supplies being furnished under sub-section (1) of section 37”

> Clause (c) introduced after clause b in Section 38(2) to include the words ‘such other details as may be prescribed”

> The changes are being made with a view to strengthening the Invoice Management System (IMS), which was introduced to streamline ITC reconciliation by linking the generation of GSTR -2B based on the action taken by an assessee in the IMS.

6. Amendment To Section 39 – CGST Act, 2017 – Filing Of Returns

> Section 39(1) is being amended to read as follows:

Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars, in such form and manner, and within such time, and subject to such conditions and restrictions as may be prescribed:

> The scope of the section has been increased to include or prescribe terms & conditions for filing returns.

> Yet another step towards strengthening the IMS by possibly linking filing of returns to the same.

7. Amendment To The Proviso Section 107(6) – CGST Act, 2017 – Penalty – First Appellate Authority

> Section 107 of the act deals with Appeals to First Appellate Authority.

> The proviso to section 107 (6) earlier read as follows:

Provided that no appeal shall be filed against an order under sub-section (3) of section 129, unless a sum equal to twenty-five per cent. of the penalty has been paid by the appellant.

> Proviso to Section 107(6) is being substituted by a new proviso, which reads as follows:

“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”

> This proviso makes it mandatory for assesses to make a 10% pre-deposit of the disputed penalty amount while filing an appeal before the first appellate authority.

> This would include an appeal against an order issued under Section 129 of the CGST Act, 2017.

8. Amendment To Section 112 – CGST Act, 2017 – Penalty – Appellate Tribunal

> Section 112 of the act deals with Appeals to the Appellate Tribunal.

> A new Proviso to Section 112(8) is being inserted, which reads as follows:

“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.”

> This proviso makes it mandatory for assesses to make a 10% pre-deposit of the disputed penalty amount while filing an appeal before the Appellate Tribunal, over and above the 10% pre-deposit made before the first appellate authority in terms of Proviso to Section 107(6).

9. Insertion Of Section 148A & 122B – CGST Act, 2017 – Track & Trace Mechanism

> A new Section 148A is being inserted after Section 148 which reads as under:

148A. (1) The Government may, on the recommendations of the Council, by notification, specify,–

(a) the goods;

(b) persons or class of persons who are in possession or deal with such goods, to which the provisions of this section shall apply.

(2) The Government may, in respect of the goods referred to in clause (a) of sub-section (1),––

(a) provide a system for enabling affixation of unique identification marking and for electronic storage and access of information contained therein, through such persons, as may be prescribed; and

(b) prescribe the unique identification marking for such goods, including the information to be recorded therein.

(3) The persons referred to in sub-section (1), shall,––

(a) affix on the said goods or packages thereof, a unique identification marking, containing such information and in such manner;

(b) furnish such information and details within such time and maintain such records

> The term Unique Identification Marking has been defined by inserting Section 2(116A) which reads as follows:

“unique identification marking” means the unique identification marking referred to in Section 148(2)(b) and includes a digital stamp, digital mark or any other similar marking, which is unique, secure and non-removable”

> Further, Section 122B is being introduced to levy penalty for failure to comply with the provisions of Section 148A. The said section reads as under:

Notwithstanding anything contained in this Act, where any person referred to in clause (b) of sub-section (1) 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.

> A combined reading of Section 148A and Section 122B indicates the following:

i. Section 148A is being introduced to identify goods which will be labeled with a unique identification marking [as defined under Section 2(116A) of the CGST Act] and that require electronic storage and access.

ii. Assessees dealing in such goods will have to abide by the section, maintain records and furnish the same as and when required.

iii. In terms of Section 122B, failure to do so will make such assessee 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, in addition to any other penalty payable under Chapter XV of the Act.

10. Insertion Of Clause (aa) in Schedule III – CGST Act, 2017

> Schedule III deals with activities or transactions which shall be treated neither as a supply of goods nor a supply of services

> The said schedule is being amended retrospectively from 1^st July 2017 to make the following changes:

i. insert clause (aa) which reads as follows:

 (aa) Supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area;

ii. Amendment to Explanation 2.––For the purposes of clause (a) of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.

iii. Insertion of Explanation 3 which reads as follows:

For the purposes of clause (aa) of paragraph 8, the expressions “Special Economic Zone”, “Free Trade Warehousing Zone” and “Domestic Tariff Area” shall have the same meanings respectively as assigned to them in section 2 of the Special Economic Zones Act, 2005

> The GST Council, in its 55th meeting, recommended inserting Clause (aa) in Schedule III of the CGST Act, effective from July 1, 2017. This amendment clarifies that the supply of goods warehoused in a Special Economic Zone (SEZ) or Free Trade Warehousing Zone (FTWZ) to any person, before clearance for export or to the Domestic Tariff Area (DTA), shall not be considered a supply of goods or services. It aligns SEZ/FTWZ warehousing transactions with customs bonded warehouses, ensuring such supplies remain non-taxable under GST until cleared for consumption or export.

11. Clause 129 Of The Finance Bill – No refund shall be made of all such tax which has been collected, but which would not have been so collected, had section 128 been in force at all material times.

Important Customs Act Updates – BUDGET 2025

1. Provisional Assessment And Voluntary Revision

2. Other Amendments

3. Customs Duty Rates – Important Changes

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Disclaimer: This Tax Alert is for informational purposes only and does not constitute legal, tax, or professional advice. The information contained herein is based on the latest updates, laws, and regulations as available at the time of publication. However, tax laws and interpretations are subject to frequent changes, and their application may vary based on specific circumstances.

The author does not assume any liability for errors, omissions, or any consequences arising from the use of this Tax Alert.