Chapter Wise Analysis of All Statutory Amendments From 1st November 2019 To 30th April 2020
GOODS & SERVICES TAX
Charge of GST
1. Clarification in respect of reverse charge mechanism on Renting of Motor vehicle: – [Notification 28/2019-Integrated Tax Rate dated 31st December, 2019, Notification No. 29/2019- Central Tax (Rate) r/w Circular 130/2019-Circular dated 31st December, 2019]
Reverse charge on renting of motor vehicle service was introduced w.e.f. 1st October, 2019 vide NN 22/2019 – CTR. The language of the Notification 22/2019 – CT (R) was ambiguous and was being misinterpreted by trade and industry due to the usage of the words “Any person other than a body corporate, paying central tax at the rate of 2.5%”.
Such doubts arising thereof, is a result of incorrect interpretation of law, which made it difficult for the assesses to follow the aforesaid amendment, thus rendering the above notification unworkable.
However, trade & industry failed to give a thought to nature of services rendered under RCM. RCM is only attracted where services are provided to corporate entities. Supplier would be still liable to discharge 5% tax (FCM) on supply of such services to non-corporate entities. Nonetheless, CBIC came up with circulars to explain this point and ensure smooth implementation of this entry.
To remove the anomalies, Central Government issued Notification No. 29/2019 Dated 31st December, 2019 which was clarificatory in nature and was effective from 1st October, 2019 itself.
In the said notification, in the Table, for Serial Number 15 and the entries relating thereto, the following shall be substituted, namely: –
| Sr. No. | Nature of Service | Service Provider | Person liable to pay tax |
| (1) | (2) | (3) | (4) |
| 15 | Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body Corporate. | Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 per cent to the service Recipient. | Any Body Corporate located in the taxable territory. |
Department issued circular to delineate wordings mentioned in above two notifications vide Circular No. 130/49/2019-GST dated 31st December, 2019.
Circular stated that RCM shall be applicable on the service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient ONLY IF the SUPPLIER fulfils all the following conditions: –
a) is other than a body-corporate;
b) does not issue an invoice charging GST @12% (6% CGST + 6% SGST) from the service recipient; and
c) supplies the service to a body corporate.
In any other case forward charge mechanism (FCM) would be applicable.
Composition Scheme
1. Amendments in Composition Scheme vide CGST Amendment Act, 2019
1) Exempt Supplies wherein consideration is represented by interest or discount not to be added in calculating turnover in state [Explanation to Section 10 of CGST Act inserted vide CGST Amendment Act, 2019]
Second proviso to Section 10 of CGST Act, states that a person can who opts to pay tax under composition scheme being manufacturer or restaurant service provider or other eligible supplier may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II i.e. restaurant services), of value not exceeding
> 10% of turnover in a State or Union territory in the preceding financial year or
> 5,00,000/-
whichever is higher.
Following explanation has been added to this proviso stating that, value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory.
The same provision was already in force vide CGST Removal of difficulties order No. 1/2019. This amendment is just having effect of adding the same into CGST Act.
2) Casual Taxable person & Non-resident taxable person cannot opt for Composition Scheme [Provision in rule now embedded into Act]
As per rule 5(1)(a) of CGST Act, 2017; the person exercising the option to pay tax under section 10 shall be neither a casual taxable person nor a non-resident taxable person.
The said provision is now brought into the Act vide CGST Amendment Act by inserting clause (f) in Section 10(2) i.e. person ineligible to opt for composition levy.
3) Presumptive Scheme notified under NN 02/2019 CTR dated 7th March, 2019 w.e.f. 1st April, 2019, brought into CGST Act by inserting section 10(2A) [Provision in Notification now Embedded into Act]
As per section 10(2A) of CGST Act, 2017; 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 Rs. 50 Lakhs, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding 3% of the turnover in State or turnover in Union territory, if he is not––
a) engaged in making any supply of goods or services which are not leviable to tax under this Act;
b) engaged in making any inter-State outward supplies of goods or services;
c) engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;
d) a manufacturer of such goods or supplier of such services as may be notified [tobacco, Ice-cream & Pan-masala, Aerated Waters (Not even Trading)] by the Government on the recommendations of the Council; and
e) a casual taxable person or a non-resident taxable person:
Provided that where more than one registered person is having the same PAN issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.”
Explanation 1 – For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Explanation 2 – For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or turnover in Union territory” shall not include the value of following supplies, namely: –
i. Supplies from the 1st day of April of a financial year up to the date when such person becomes liable for registration under this Act; and
ii. Exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.’.
(Please note these provisions were already there, however now inserted into CGST Act, for better understanding of concept please check 33 Pages GST Charts)
4) Provisions of Section 10(3), 10(4), 10(5) of CGST Act, now also applies to Presumptive Scheme u/s 10(2A) of CGST Act, 2017
(i) Option Lapses on crossing turnover limit [S. 10(3) of CGST Act]: –
> The option to pay tax under section 10(2A) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds limit specified i.e. Rs. 1.5 crores / Rs. 75 lakhs [in case of composition scheme u/s 10(1) of CGST Act] or Rs. 50,00,000/- [in case of presumptive u/s 10(2A) of CGST Act].
(ii) Person under composition scheme & presumptive scheme cannot collect taxes from recipient nor can avail ITC [S. 10(4) of CGST Act]: –
> A taxable person who has applied for composition scheme u/s 10(1) of CGST Act or presumptive scheme u/s 10(2A) of CGST Act shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. [Amended Section 10(4) of CGST Act]
(iii) Opting presumptive scheme despite being ineligible [S. 10(5) of CGST Act]
> If a taxable person has opted for composition scheme u/s 10(1) or presumptive scheme u/s 10(2A) inspite of being ineligible such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty. [Amended Section 10(5) of CGST Act]
Place of Supply
1. Place of supply for “Supply of maintenance, repair or overhaul service in respect of aircrafts, aircraft engines and other aircraft components or parts supplied to a person for use in the course or furtherance of business” [Notification No. 02/2020- Integrated Tax dated 26th March, 2020 w.e.f. 1st April, 2020]
| Entry No. | Service | Place of Supply |
| (2) | Supply of maintenance, repair or overhaul service in respect of aircrafts, aircraft engines and other aircraft components or parts supplied to a person for use in the course or furtherance of business. | The place of supply of services shall be the location of the recipient of service |
CBIC amended the Notification No. 4/2019-Integrated Tax dt. 30.09.2019 to change the place of supply for B2B MRO services to the location of the recipient vide Notification No. 02/2020–Integrated Tax Dated 25th March, 2020.
Exemptions under GST
1. Exemption for Upfront Amount on Long term lease where Ownership of CG/SG/UT is >= 50% 20% [Notification 28/2019-Central Tax Rate dated 31st December, 2019]
Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50% 20% or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area are exempt.
Explanation – For the purpose of this exemption, the Central Government, State Government or Union territory shall have 50% 20% or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory.
Input Tax Credit
1. Issues under GST law for companies under Insolvency and Bankruptcy Code, 2016 [Circular No.134/04/2020-GST dated 23rd March, 2020 r/w Notification 11/2020-Central Tax dated 23rd March, 2020]
Preface of Amendment
As per Insolvency and Bankruptcy Code, 2016 (IBC, 2016), once an entity defaults certain threshold amount, Corporate Insolvency Resolution Process (CIRP) gets triggered and the management of such entity (Corporate Debtor) and its assets vest with an Interim Resolution Professional (IRP) or Resolution Professional (RP). IRP / RP continue to run the business and operations of the said entity as a going concern till the insolvency proceeding is over and an order is passed by the National Company Law Tribunal.
As per provisions of IBC, 2016; an IRP/RP is required to ensure the compliance of GST related provisions of deposit of GST dues & filing returns pertaining to CIRP and in respect of dues in arrears pertaining to pre-CIRP period if any. GST Authorities are required to submit the claim to NCLT as operational creditor.
However, practically GST portal does not allow to deposit the GST dues and filing of current period pertaining to CIRP period if dues pertaining to pre-CIRP period is pending. There was no such mechanism under GST law where IRP or RP can file GST return and pay tax for CIRP period. With introduction of this procedure, IRP/RP can file GST returns for CIRP period.
The special procedure which we will be discussing has been announced on the heels of several decisions of the NCLT, such as that of the Chennai bench in the case of T. R. Ravichandran, R. P. (for Kiran Global Chem. Limited) v Assistant Commissioner (ST) & Others (MA/1298/2019 in IBA/130/2019), wherein the NCLT had directed the revenue authorities to permit the corporate debtor to file GST returns and discharge GST from the date of CIRP, without insisting upon payment of past unpaid dues.
Special Procedure under GST for entities undergoing CIRP [Circular 134/04/2020 – GST]
1. How are dues under GST for pre-CIRP period be dealt?
In accordance with the provisions of the IBC and various legal pronouncements on the issue, no coercive action can be taken against the corporate debtor with respect to the dues for period prior to insolvency commencement date. The dues of the period prior to the commencement of CIRP will be treated as ‘operational debt’ and claims may be filed by the proper officer before the NCLT in accordance with the provisions of the IBC. The tax officers shall seek the details of supplies made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT.
Moreover, section 14 of the IBC mandates the imposition of a moratorium period, wherein the institution of suits or continuation of pending suits or proceedings against the corporate debtor is prohibited. It is very interesting to note that supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. [S. 14(2) of IBC, 2016]
Example: – Maharaj Ltd. a company duly registered under Companies Act has applied for IBC due to financial crunch faced by organisation. Application was admitted on 14th June, 2020. Thus, from 14th June, 2020 Insolvency resolution process will begin. As on 13th June, 2020 tax dues payable was pending to the tune of Rs. 1,15,000/-. However, Proper officer cannot take any coercive action on tax dues pending prior to 14th June, 2020 as company is in process of insolvency resolution. Moreover, the company is in moratorium period, wherein the institution of suits or continuation of pending suits or proceedings against the corporate debtor is prohibited.
2. Should the GST registration of corporate debtor be cancelled?
It is clarified that the GST registration of an entity for which CIRP has been initiated should not be cancelled under the provisions of section 29 of the CGST Act, 2017. The proper officer may, if need be, suspend the registration. In case the registration of an entity undergoing CIRP has already been cancelled and it is within the period of revocation of cancellation of registration, it is advised that such cancellation may be revoked by taking appropriate steps in this regard.
3. Is IRP/RP liable to file returns of pre-CIRP period?
No. In accordance with the provisions of IBC, 2016, the IRP/RP is under obligation to comply with all legal requirements for period after the Insolvency Commencement Date. Accordingly, it is clarified that IRP/RP are not under an obligation to file returns of pre-CIRP period.
4. Should a new registration be taken by the corporate debtor during the CIRP period?
The corporate debtor who is undergoing CIRP is to be treated as a distinct person of the corporate debtor and shall be liable to take a new registration in each State or Union territory where the corporate debtor was registered earlier, within 30 days of the appointment of the IRP/RP. Further, in cases where the IRP/RP has been appointed prior to the issuance of notification No. 11/2020- Central Tax, dated 21.03.2020, he shall take registration within 30 days of issuance of the said notification, with effect from date of his appointment as IRP/RP.
It is clarified that IRP/RP would not be required to take a fresh registration in those cases where statements in FORM GSTR-1 under section 37 and returns in FORM GSTR-3B under section 39 of the CGST Act, for all the tax periods prior to the appointment of IRP/RP, have been furnished under the registration of Corporate Debtor (earlier GSTIN) (Clarified vide Circular No. 138/08/2020-GST dated 6th May, 2020)
For Example: – If an IRP/RP has been appointed on 27th March, 2020, new registration shall be obtained upto 26th April, 2020 [30 days from date of appointment]. However, if IRP/RP has been appointed before 21st March, 2020 (date of notification) say 10th March, 2020, new registration shall be obtained upto 20th April, 2020 [30 days from date of notification]
5. How to file First Return after obtaining new registration?
The IRP/RP will be liable to furnish returns, make payment of tax and comply with all the provisions of the GST law during CIRP period. The IRP/RP is required to ensure that the first return is filed under section 40 of the CGST Act, for the period beginning the date on which it became liable to take registration till the date on which registration has been granted.
Analysis by Example: –
For Example: – If an IRP/RP has been appointed on 27th March, 2020, new registration is applied and has been granted on 23rd April, 2020. The first return has to be filed for the period 27th March (Date on which liable to take registration) to 23rd April (Date on which registration has been granted).
6. How to avail ITC for invoices issued to the erstwhile registered person in case the IRP/RP has been appointed before issuance of notification No.11/2020- Central Tax, dated 21.03.2020 and no return has been filed by the IRP during the CIRP?
The special procedure issued under section 148 of the CGST Act has provided the manner of availment of ITC while furnishing the first return under section 40.
The said class of persons shall, in his first return, be eligible to avail input tax credit on invoices covering the supplies of goods or services or both, received since appointment as IRP/RP and during the CIRP period but bearing the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of 16(4) of CGST Act i.e. Time-limit to avail ITC and Rule 36(4) of CGST Rules i.e. 10% of eligible ITC for returns not filed by supplier on the basis of GSTR 2A. In terms of the special procedure under section 148 of the CGST Act issued vide notification No. 11/2020 – Central Tax, dated 21st March, 2020. This exception is made only for the first return filed under section 40 of the CGST Act.
Analysis by Example: –
For Example: – ABC Ltd. was functioning normally during the period FY 2019-20. However, due to financial crunch was unable to file GSTR 3B, thus went for Insolvency resolution. The IRP was appointed on 28th April, 2020 and registration was granted on 20th May, 2020. The company received 3 invoices dated 28th April, 2020; 1st May, 2020; 12th May, 2020 bearing GST Number of erstwhile firm (as registration for new firm is not yet granted). Thus, while filing first return [28th April, 2020 to 20th May, 2020] ABC Ltd. (new registration) can claim ITC of those 3 invoices (bearing GSTIN of erstwhile co.) irrespective whether suppliers have not filed GSTR – 1 in name of new GSTIN (and thereby not appearing in GSTR 2A of newly registered ABC Ltd.)
7. How to avail ITC for invoices by persons who are availing supplies from the corporate debtors undergoing CIRP, in cases where the IRP/RP was appointed before the issuance of the Notification No. 11/2020 – Central Tax, dated 21.03.2020?
Registered persons who are receiving supplies from the said class of persons shall, for the period from the date of appointment of IRP / RP till the date of registration as required in this notification or 30 days from the date of this notification, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-rule (4) of rule 36 of the CGST Rules.
Analysis: –
| Date of Appointment of IRP (A) | 30 days from date of Notification (B) | Date of registration required as per this notification (C) | Earlier of (B) & (C) (D) | Period for which recipients of company in resolution can avail ITC in respect of erstwhile co.’s GSTIN (E) |
| 7th March, 2020 | 20th April, 2020 | 20th April, 2020 | 20th April, 2020 | 7th March to 20th April, 2020 |
| 23rd March, 2020 | 20th April, 2020 | 22nd April, 2020 | 20th April, 2020 | 23rd March to 20th April, 2020 |
| 26thMarch, 2020 | 20th April, 2020 | 25th April, 2020 | 20th April, 2020 | 23rd March to 20th April, 2020 |
Note: – For the period beyond period as specified in (E), the company shall issue tax invoice in new GSTIN.
8. Some of the IRP/RPs have made deposit in the cash ledger of erstwhile registration of the corporate debtor. How to claim refund for amount deposited in the cash ledger by the IRP/RP?
Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP / RP to the date of notification specifying the special procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even though the relevant FORM GSTR-3B/GSTR-1 are not filed for the said period.
The instructions contained in Circular No. 125/44/2019-GST dt. 18.11.2019 i.e. Circular on electronic refund process, stands modified to this extent.
2. Clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules [Circular 133/2019 – Circular dated 23rd March, 2020]
Representations have been received from various taxpayers seeking clarification in respect of apportionment and transfer of ITC in the event of merger, demerger, amalgamation or change in the constitution/ownership of business. Certain doubts have been raised regarding the interpretation of Section 18(3) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) and Rule 41(1) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the CGST Rules) in the context of business reorganization.
According to Section 18(3) of the CGST Act, “Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”
Further, according to Rule 41(1) of the CGST Rules: – “A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de- merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee:
Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
Explanation: – For the purpose of this sub-rule, it is hereby clarified that the “value of assets” means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.
This circular intends to provide clarity on below aspects: –
(i) Ratio of value of assets
(ii) Filing of Form GST ITC 02
(iii) Clarification on other forms of business organisation other than demerger whether covered under ambit of said provisions.
(iv) Application of ratio of value of assets to tax heads.
Let us understand the clarifications
Issue: In case of demerger, proviso to rule 41 (1) of the CGST Rules provides that the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. However, it is not clear as to whether the value of assets of the new units is to be considered at State level or at all-India level.
Clarification: – Proviso to sub-rule (1) of rule 41 of the CGST Rules provides for apportionment of the input tax credit in the ratio of the value of assets of the new units as specified in the demerger scheme. Further, the explanation to sub-rule (1) of rule 41 of the CGST Rules states that “value of assets” means the value of the entire assets of the business, whether or not input tax credit has been availed thereon. Under the provisions of the CGST Act, a person/ company (having same PAN) is required to obtain separate registration in different States and each such registration is considered a distinct person for the purpose of the Act. Accordingly, for the purpose of apportionment of ITC pursuant to a demerger under sub-rule (1) of rule 41 of the CGST Rules, the value of assets of the new units is to be taken at the State level (at the level of distinct person) and not at the all-India level.
Illustration A company XYZ is registered in two States of M.P. and U.P. Its total value of assets is worth Rs. 100 crores, while its assets in State of M.P. and U.P are Rs 60 crores and Rs 40 crores respectively. It demerges a part of its business to company ABC. As a part of such demerger, assets of XYZ amounting to Rs 30 Crores are transferred to company ABC in State of M.P, while assets amounting to Rs 10 crores only are transferred to ABC in State of U.P. (Total assets amounting to Rs 40 crores at all-India level are transferred from XYZ to ABC). The unutilized ITC of XYZ in State of M.P. shall be transferred to ABC on the basis of ratio of value of assets in State of M.P., i.e. 30/60 = 0.5 and not on the basis of all-India ratio of value of assets, i.e. 40/100=0.4. Similarly, unutilized ITC of XYZ in State of U.P. will be transferred to ABC in ratio of value of assets in State of U.P., i.e. 10/40 = 0.25.
Simplified Version: – If a company is demerging its part of assets of unit in one state, unutilised ITC of that state shall be transferred (to resultant company) in the ratio of assets Transferred pertaining to that state to total assets of that state (not total assets at PAN India Level)
Issue: – Is the transferor required to file FORM GST ITC – 02 in all States where it is registered?
Clarification: – No. The transferor is required to file FORM GST ITC-02 only in those States where both transferor and transferee are registered.
Issue: – The proviso to rule 41 (1) of the CGST Rules explicitly mentions ‘demerger’. Other forms of business reorganization where part of business is hived off or business in transferred as a going concern etc. have not been covered in the said rule. Wherever business reorganization results in partial transfer of business assets along with liabilities, whether the proviso to rule 41(1) of the CGST Rules, 2017 shall be applicable to calculate the amount of transferable
Clarification: – Yes, the formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities.
Issue: – Whether the ratio of value of assets, as prescribed under proviso to rule 41 (1) of the CGST Rules, shall be applied in respect of each of the heads of input tax credit viz. CGST/ SGST/ IGST/ Cess?
No, the ratio of value of assets, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applied to the total amount of unutilized input tax credit (ITC) of the transferor i.e. sum of CGST, SGST/UTGST and IGST credit. The said formula need not be applied separately in respect of each heads of ITC (CGST/SGST/IGST). Further, the said formula shall also be applicable for apportionment of Cess between the transferor and transferee.
Illustration: The ITC balances of transferor X in the State of Maharashtra under CGST, SGST and IGST heads are 5 lakh, 5 lakhs and 10 lakhs respectively. Pursuant to a scheme of demerger, X transfers 60% of its assets to transferee B. Accordingly, the amount of ITC to be transferred from A to B shall be 60% of 20 lakh (total sum of CGST, SGST and IGST credit) i.e. 12 lakhs.
Issue: – How to determine the amount of ITC that is to be transferred to the transferee under each tax head (IGST/CGST/SGST) while filing of FORM GST ITC–02 by the transferor?
The total amount of ITC to be transferred to the transferee (i.e. sum of CGST, SGST/UTGST and IGST credit) should not exceed the amount of ITC to be transferred, as determined under sub-rule (1) of rule 41 of the CGST Rules [refer above issue]. However, the transferor shall be at liberty to determine the amount to be transferred under each tax head (IGST, CGST, SGST/UTGST) within this total amount, subject to the ITC balance available with the transferor under the concerned tax head. This is shown in the illustration below: –
| State | Asset Ratio of Transferee | Tax Heads | ITC balance of Transferor (pre-appor tionment) as on the date of filing FORM GST ITC–02) | Total amount of ITC transferred to the Transferee under FORM GST ITC-02
(at discretion) |
ITC balance of Transferor (post-appor tionment) after filing of FORM GST ITC–02)
[Col (4) – Col (5)] |
| Delhi |
70% |
CGST | 10,00,000 | 10,00,000 | – |
| SGST | 10,00,000 | 10,00,000 | – | ||
| IGST | 30,00,000 | 15,00,000 | 15,00,000 | ||
| Total | 50,00,000 | 35,00,000 | 15,00,000 | ||
| Haryana |
40% |
CGST | 25,00,000 | 3,00,000 | 22,00,000 |
| SGST | 25,00,000 | 5,00,000 | 20,00,000 | ||
| IGST | 20,00,000 | 20,00,000 | – | ||
| Total | 70,00,000 | 28,00,000 | 42,00,000 |
Issue: – In order to calculate the amount of transferable ITC, the apportionment formula under proviso to rule 41(1) of the CGST Rules has to be applied to the unutilized ITC balance of the transferor. However, it is not clear as to which date shall be relevant to calculate the amount of unutilized ITC balance of transferor.
Clarification: – According to sub-section (3) of section 18 of the CGST Act, “Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.” Further, sub-rule (1) of rule 41 of the CGST Rules prescribes that the registered person shall file the details in FORM GST ITC-02 for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.
A conjoint reading of sub-section (3) of section 18 of the CGST Act along with sub-rule (1) of rule 41 of the CGST Rules would imply that the apportionment formula shall be applied on the ITC balance of the transferor as available in electronic credit ledger on the date of filing of FORM GST ITC – 02 by the transferor.
Issue: – Which date shall be relevant to calculate the ratio of value of assets, as prescribed in the proviso to rule 41 (1) of the CGST Rules, 2017?
According to section 232 (6) of the Companies Act, 2013, “The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date”. The said legal provision appears to indicate that the “appointed date of demerger” is the date from which the scheme for demerger comes into force and it is specified in the respective scheme of demerger. Therefore, for the purpose of apportionment of ITC under rule sub-rule (1) of rule 41 of the CGST Rules, the ratio of the value of assets should be taken as on the “appointed date of demerger”.
Simplified Version: – In other words, for the purpose of apportionment of ITC under sub-rule (1) of rule 41 of the CGST Rules, while the ratio of the value of assets should be taken as on the “appointed date of demerger”, the said ratio is to be applied on the ITC balance of the transferor on the date of filing FORM GST ITC – 02 to calculate the amount to transferable ITC.
3. Manner of reversal in case of Capital Goods [Amendment in Rule 43 of CGST Rules, 2017 vide Notification No. 16/2020 – Central Tax dated 23rd March, 2020]
Rule 43 of CGST Rules, 2017; provides for manner of reversal in case of ITC on capital goods. The analysis of amendment can be made with the help of below table (column D is the amendment part): –
| Provision
(A) |
Description of Provision
(B) |
Remarks
(C) |
Position post amendment vide NN 16/2020 CT
(D) |
| Rule 43(1)(a) | Capital goods procured to effect exclusively exempt supply & non-business supply | ITC shall not be credited to his electronic credit ledger | Unchanged |
| Rule 43(1)(b) | Capital goods procured to effect exclusively taxable supply & zero-rated supply | ITC shall be credited to his electronic credit ledger | Unchanged |
| Rule 43(1)(c) | Capital goods procured to effect taxable supply as well as exempt supplies | “A”, shall be credited to the electronic credit ledger then will be reversed in proportion of exempt supplies. | Unchanged |
| Proviso to Rule 43(1)(c) | Capital goods procured to effect exclusively exempt supply & non-business supply now used for providing taxable as well as exempt supply. | “A” shall be arrived at by reducing the input tax at the rate of 5% p.q. for every quarter or part thereof and the amount “A” shall be credited to the electronic credit ledger | “A” as reflected in invoice be credited to electronic credit ledger.
ITC attributable to the period during which such capital goods were covered by clause (a), denoted as “Tie”, shall be calculated at the rate of 5% p.q. or part thereof and added to the output tax liability of the tax period in which such credit is claimed. |
| Rule 43(1)(d) | “A” credited to the electronic credit ledger under clause (c), to be denoted as “Tc”, shall be the common credit in respect of capital goods | “A” credited to the electronic credit ledger under clause (c) in respect of common capital goods whose useful life remains during the tax period, to be denoted as “Tc”, shall be the common credit in respect of such capital goods.
Thus, what Tr was supposed to do is now inculcated into formula of Tc. |
|
| Proviso to rule 43(1)(d) | Capital goods procured to effect exclusively taxable supply & zero-rated supply now used for providing taxable as well as exempt supply. | The value of “A” arrived at by reducing the input tax @ 5% p.q. or part thereof shall be added to the aggregate value “Tc”. | The input tax credit claimed in respect of such capital good(s) shall be added to arrive at the aggregate value “Tc”.
(Earlier reduced A was to be added in Tc & then was liable to be reversed) |
| Rule 43(1)(e) | Input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as “Tm” | Tm= Tc÷60 | Unchanged |
| Rule 43(1)(f) | ITC, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as “Tr” | Omitted vide NN no. 16/2020 – CT dt. 23.03.2020 w.e.f. 01.04.2020 (due to amendment in definition of Tc) | |
| Rule 43(1)(g) | The amount of common credit attributable towards exempted supplies “Te” | Te = Tr x E/F | Unchanged
(It seems to be a typographic error by department since Tr has been omitted the formula shall stand revised as “Te = Tc x E/F”) |
Let us understand impact on practical sums: –
Illustration 1: – (EXCLUSIVELY EXEMPT TO COMMON USE)
A Ltd. used a machine purchased on 1st January, 2018 for effecting exclusive exempt supplies. However, w.e.f. 1st April, 2020, the said machinery started to effect taxable as well as exempt supply. The cost of the machine was Rs. 2,00,000/- (excl. GST @ 18%). Thus, for the month of January, 2018 nothing would have been credited to ECrL.
Situation pre-amendment: –
= 36,000 (-) 45% x 36,000 [9 Quarters * 5%] would be reduced and credited to ECrL…… [2,00,000 x 18% = 36,000]
= 19,800/- will be credited to ECrL.
Now Rs. 19,800 / 60 i.e. Rs. 330 was to be treated as Tm for the purpose of reversal in proportion of exempt supplies.
Situation post-amendment: –
= 36,000 will be credited to ECrL as it is reflected on invoice.
However, Rs. 16,200 being attributable to period 1st January, 2018 to 31st March, 2020 [9 Quarters * 5% = 45%] would be termed as Tie and would be added in output tax liability in the tax period in which Rs. 36,000/- is credited.
Now, Rs. 36,000 / 60 i.e. Rs. 600 would be treated as Tm for the purpose of reversal in proportion of exempt supplies.
Illustration 2: (EXCLUSIVELY TAXABLE SUPPLIES TO COMMON USE)
ABC Limited, purchased a machinery worth Rs. 1,00,000/- (excl. GST @ 18%) on 1st January, 2018; the same was put to use for effecting EXCLUSIVELY taxable supplies. W.e.f. 1st April, 2020 the said machine was put to use for taxable as well as exempt supplies. Calculate A, Tc, Tm. The turnover for April, 2020 was as below: –
Taxable Turnover: – Rs. 50,00,000
Exempt Turnover: – Rs. 25,00,000
Total Turnover: – Rs. 75,00,000
| Particulars | Pre-Amendment | Post Amendment |
| Amount credited to ECrL (on 1st January, 2018) | 18,000 | 18,000 |
| Calculation of Reversal as per Rule 43 | ||
| (A) Total ITC | 18,000 | 18,000 |
| (B) 5% per quarter or part thereof | 8,100 | NA |
| Value of A for the purpose of Rule 43(1)(d) | 9,900 | 18,000 |
| Amount to be treated as “A” which would be liable to be reversed | 9,900
[18000(-)5% per quarter x 9 quarters] |
18,000
[Amount of A would itself become Tc] |
| Tc = ΣA | 9,900 | 18,000 |
| Tm
(This formula will be valid till its useful life is pending i.e. 5 years) |
165
(9900/60) |
300
(18,000/60) |
| Tr Te = Tm*E/F
(Te will be added to Output Tax Liability of the month of April, 2020) |
55
(165*25/75) |
100
(300*25/75)
|
[Rule 43(1)(g); states that Te = Tr * E/F, however, since clause f i.e. Tr is omitted the clause g shall also be stand amended as to “Te = Tm * E/F”. It seems drafting error of law, which shall be resolved in due course by way of issuance of notification]
Logic Behind the Amendment
Prior to amendment, input tax credit reduced by 5% p.q. was termed as “A” i.e. Tc, then it was divided by 60 instead of remaining useful life of asset. Logically “A” should have been divided by remaining useful life of the asset.
However, government came up with the solution to this and amended respective rule so as to provide that “Full ITC will be divided by 60” for the purpose of Tm (instead of dividing “A” by remaining useful life)
Impact of this amendment would entail higher reversal of ITC when capital goods for exclusive taxable supplies are put into common use.
4. ITC Availment restricted on account of suppliers not filed GSTR – 1 to 20% 10% of Eligible Credit (Insertion of Rule 36(4) vide Notification No. 49 / 2019 – CT dated 9th October, 2019) [Strike-off is the amended part]
As per Rule 36(4) of CGST Rules, Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 10 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.
(Detailed discussion on this amendment has been made in previous amendment sheet & 33 pager GST chart issued for May, 2020 Attempt. In this amendment sheet only rate of 20% has been changed to 10%)
Value of Supply under GST
A. Value of supply of Lottery [Rule 31A (2) of CGST Rules] (Notification 8/2020-Central Tax dated 2nd March, 2020)
The value of supply of lottery shall be deemed to be: –
> 100/128 of the face value of ticket or
> 100/128 of the price as notified in the Official Gazette by the Organising State, whichever is higher.
Explanation: – For the purposes of this sub-rule, the expression “Organising State” has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.
The value of supply has changed due to change in rate of GST for Lotteries i.e. now the GST rate is 28% irrespective of whether it is Lottery is run by State Government (earlier rate was 12%) or Lottery is organized by State Government (earlier rate was 28%). [Rate of Tax on lottery is changed Notification 1/2020-Central Tax Rate dated 21st February, 2020 & Notification 1/2020-Integrated Tax Rate dated 21st February, 2020]
Registration under GST
1. Aadhar Authentication [Section 25(6A), (6B), (6C), (6D) of CGST Act inserted vide CGST Amendment Act, 2019
Preface of Amendment: –
CBIC has made mandatory to business registering after 1.04.2020 to undergo Aadhar Authentication. In order to ensure proper & transparent compliance mechanism the provisions of Aadhar Authentication have been brought into force w.e.f. 1st April, 2020. We will be discussing the implications & analysis of such provisions in detail in below paras.
Analysis of Aadhar Authentication Procedure: –
The discussion has been divided into below parts for ease of understanding: –
A. Aadhar Authentication for persons already registration under GST [Section 25(6A) of CGST Act]
B. Aadhar Authentication for newly registered persons w.e.f. 1st April, 2020 being individuals i.e. proprietorship concern [Section 25(6B) of CGST Act]
C. Aadhar Authentication for newly registered persons w.e.f. 1st April, 2020 being other than individuals [Section 25(6C) of CGST Act]
D. Certain persons to be exempt from Aadhar Authentication [Section 25(6D) of CGST Act]
Let us understand each part in detail.
A. Aadhar Authentication for persons already registration under GST [Section 25(6A) of CGST Act]
As per section 25(6A), Every registered person shall undergo authentication, or furnish proof of possession of Aadhaar number, in such form and manner and within such time as may be prescribed.
However, if an Aadhaar number is not assigned to the registered person, such person shall be offered alternate and viable means of identification in such manner as Government may, on the recommendations of the Council, prescribe.
Moreover, in case of failure to undergo authentication or furnish proof of possession of Aadhaar number or furnish alternate and viable means of identification, registration allotted to such person shall be deemed to be invalid and the other provisions of this Act shall apply as if such person does not have a registration.
Prescribed form & manner: – There is no prescribed form & manner for Aadhar Authentication for already registered persons.
B. Aadhar Authentication for newly registered persons w.e.f. 1st April, 2020 being individuals i.e. proprietorship concern [Section 25(6B) of CGST Act]
As per section 25(6B), on and from the date of notification, every individual shall, in order to be eligible for grant of registration, undergo authentication, or furnish proof of possession of Aadhaar number, in such manner as the Government may, on the recommendations of the Council, specify in the said notification:
Provided that if an Aadhaar number is not assigned to an individual, such individual shall be offered alternate and viable means of identification in such manner as the Government may, on the recommendations of the Council, specify in the said notification.
(i) Effective Date of Notification – 1st April, 2020: – Government vide Notification No. 18/2020 – Central Tax dated 23rd March, 2020 appoints 1st April, 2020 as the date from when an Aadhar Authentication shall be mandatory as per specified procedure.
(ii) Specified Procedure [Rule 8(4A) of CGST Rules inserted vide NN 16/2020 – CT dated 23rd March, 2020]: –
The applicant shall, while submitting an application under Rule 8(4) of CGST Rules, with effect from 01.04.2020, undergo authentication of Aadhaar number for grant of registration.
(iii) Failure to undergo Aadhar Authentication Process [Rule 9 of CGST Rules inserted vide NN 16/2020 – CT dated 23rd March, 2020]: –
If a person fails to undergo authentication of Aadhaar number as specified in sub-rule (4A) of rule 8, then the registration shall be granted only after physical verification of the principle place of business in the presence of the said person, not later than 60 days from the date of application, in the manner provided under rule 25 and the provisions of sub-rule (5) shall NOT be applicable in such cases.
(iv) Manner of Physical Verification [Rule 25 of CGST Rules inserted vide NN 16/2020]
As per rule 25, where the proper officer is satisfied that the physical verification of the place of business of a person is required due to failure of Aadhaar authentication before the grant of registration, or due to any other reason after the grant of registration, he may get such verification of the place of business, in the presence of the said person, done and the verification report along with the other documents, including photographs, shall be uploaded in FORM GST REG-30 on the common portal within a period of 15 working days following the date of such verification.
Rule 9(5) talks about deemed approval in case the proper officer fails to take any action, –
a) within a period of 3 working days from the date of submission of the application; or,
b) within a period of 7 working days from the date of the receipt of the clarification, information or documents furnished by the applicant, the application for grant of registration shall be deemed to have been approved.
The said rule 9(5) is not applicable in case where officer is required to take action (of physical verification) in case of failure to undergo Aadhar Authentication.
c. Aadhar Authentication for newly registered persons w.e.f. 1st April, 2020 being OTHER THAN individuals [Section 25(6C) of CGST Act]
As per Section 25(6C), on and from the date of notification (1st April, 2020), every person, other than an individual, shall, in order to be eligible for grant of registration, undergo authentication, or furnish proof of possession of Aadhaar number of the Karta, Managing Director, whole time Director, such number of partners, Members of Managing Committee of Association, Board of Trustees, authorised representative, authorised signatory and such other class of persons, in such manner, as the Government may, on the recommendations of the Council, specify in the said notification:
However, where such person or class of persons have not been assigned the Aadhaar Number, such person or class of persons shall be offered alternate and viable means of identification in such manner as the Government may, on the recommendations of the Council, specify in the said notification.
Effective Date of Notification – 1st April, 2020: – Government vide Notification No. 19/2020 – Central Tax dated 23rd March, 2020 appoints 1st April, 2020 as the date from when
(a) Authorised signatory of all types;
(b) Managing and Authorised partners of a partnership firm; and
(c) Karta of a Hindu undivided family,
shall undergo authentication of possession of Aadhaar number, as specified in rule 8 of the Central Goods and Services Tax Rules, 2017(hereinafter referred to as the said rules), in order to be eligible for registration under GST an Aadhar Authentication shall be mandatory as per specified procedure.
If Aadhaar number is not assigned to the said persons, they shall be offered alternate and viable means of identification in the manner specified in rule 9 of the said rules.
(Note: – Rule 8, 9, 25 will remain same as discussed while analysing Section 25(6B) of CGST Act)
D. Certain persons to be exempt from Aadhar Authentication [Section 25(6D) of CGST Act]
As per section 25(6D), the provisions of sub-section (6A) or sub-section (6B) or sub-section (6C) shall not apply to such person or class of persons or any State or Union territory or part thereof, as the Government may, on the recommendations of the Council, specify by notification.
Notified Persons exempt from Aadhar Authentication [NN 17/2020 – CT dated 23rd March, 2020]
Aadhar Authentication process shall not apply to a person
> who is not a citizen of India or,
> to a class of persons other than the following class of persons, namely: –
(a) Individual;
(b) authorised signatory of all types;
(c) Managing and Authorised partner; and
(d) Karta of a Hindu undivided family.
Explanation – For the purposes of this section, the expression “Aadhaar number” shall have the same meaning as assigned to it in clause (a) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.”.
2. Aggregate Turnover not to include exempt supply by way of interest, discount etc.
(1) Insertion of Proviso in Section 22 of CGST Act – On Request of State, CG may notify increase threshold for registration to Rs. 40 Lakhs to suppliers engaged in exclusive supply of goods
The said proviso provides that government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from 20 lakhs rupees to such amount not exceeding 40 lakhs rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.
At present, Aggregate Turnover limit of Rs. 40 lakhs are not applicable to registered person supplying intra-state within the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand.
(2) Aggregate Turnover not to include exempt supply by way of interest, discount etc.
An explanation has been inserted in Section 22 of CGST Act which states that a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Thus, it is the sigh of relief for those exclusive suppliers of goods who were not allowed to opt for beneficial threshold of Rs. 40 lakhs merely because they were earning interest income. As per said explanation, now such class of persons can opt even if they are earning interest income.
Documentation & E – way Bill
1. E – invoicing under GST [Notification 68/2019, 69/2019, 70/2019, 71/2019, 72/2019 – CT dated 13th December, 2019
The main objective of the step taken by the tax authorities is to enable interoperability across the entire GST eco-system i.e. an e-invoice generated by one software should be capable of being read by any other software. Basically, through machine readability, an invoice can be uniformly interpreted.
In addition to the above, this new system of e-invoicing aims to make invoice reporting an integral part of a business process and remove the tedious task of invoice-compilation at the end of a return period. Claiming fictitious Input Tax Credit (ITC) by raising fake invoices is also one of the biggest challenges currently faced by tax authorities and the e-invoice system will help to curb the actions of unscrupulous taxpayers and reduce the number of fraud cases as the tax authorities will have access to data in real-time.
The e-invoicing system has the potential to turn the Indian economy into a digital & transparent system.
E-invoicing’ or ‘electronic invoicing’ is a system in which the invoices are authenticated electronically by GST Network (GSTN) for further use on the common GST portal.
The e-invoicing system being implemented consists of two parts: –
(a) Generation of invoice in standard format;
(b) Reporting of e- invoice to a central system.
Generation of e- invoice will be the responsibility of the tax payer in his own accounting / billing system through any software utility that generates invoices i.e. SAP/ TALLY or Excel based utility.
The e-invoice system was first rolled out, on a voluntary basis, from January 1st 2020 for the business houses with an annual turnover of more than INR 500 crore and for the business houses with an annual turnover of more than INR 100 crore from February 1st 2020.
As per Notifications Issued following can be Inferred: –
1) New sub-rule (4) has been inserted to Rule 48 of the CGST Rules, 2017 for compulsory issuance of e-invoice by registered person having aggregate annual turnover in excess of INR 100 crore. The requirement is for supplies made to a registered person only. It shall be effective from 1st April 2020 1st October, 2020. [Notification number 68/2019 dated 13th December, 2019 r/w Notification No. 70/2019 dated 13th December, 2019 extended applicability vide Notification No. 13/2020– Central Tax dated 21st March, 2020]
2) The e-invoice should mandatorily contain the following:
> Particulars as contained in Form GST INV-01 after obtaining Invoice Reference Number;
> The tax invoice shall also contain QR Code [Notification 71/2019 dated 13th December, 2019 r/w Notification 31/2019 – CT]
3) For the purpose of e-invoice, ten (10) Invoice Registration Portal have been notified. It shall be effective from 1st January 2020. [Notification No. 69/2019 CT dated 13th December, 2019]
4) Where registered person having turnover in excess of INR 500 crore, makes supply to an unregistered person (i.e. B2C supply) then invoices shall contain QR Code. [Notification No. 72/2019 – CT dated 13th December, 2019] (Also refer exceptions as highlighted below). The said provision shall be applicable w.e.f. 1st October, 2020 [Notification No. 14/2020– Central Tax dated 21st March, 2020].
Further, where the registered person is paid via the application of Dynamic QR Code made available to the recipient through a digital display, such invoice containing cross reference of the payment via the Dynamic QR Code shall be deemed to meet the criteria. It shall be effective from 1 April 2020 1st October, 2020 (extended vide NN 14/2020 – CT dated 21st March, 2020)
Non-Applicability of E – invoicing provisions [NN 13/2020 – CT dated 21st March, 2020]
E – invoicing provisions are applicable only to the registered person whose aggregate turnover in a financial year exceeds Rs. 100 crores. However, the following registered persons shall not be required to generate e – invoice: –
(i) A person who is supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company. [Supplier as per Rule 54(2) of CGST Rules]
(ii) Goods Transportation Agencies [Supplier as per Rule 54(3) of CGST Rules]
(iii) Passenger Transportation Service provider (ticket is deemed to be tax invoice) [Supplier as per Rule 54(4) of CGST Rules]
(iv) Person supplying services by way of admission to exhibition of cinematograph films in multiplex screens and issuing an electronic ticket (deemed tax invoice invoice) [Supplier as per Rule 54(4A) of CGST Rules]
Non-Applicability of QR Code provisions [NN 14/2020–CT dated 21st March, 2020 r/w NN 72/2019 dtd 13.12.2019]
A registered person whose aggregate turnover in a financial year exceeds 500 crore rupees, shall have Quick Response (QR) code. Further, where such registered person makes a Dynamic Quick Response (QR) code available to the recipient through a digital display, such B2C invoice issued by such registered person containing cross-reference of the payment using a Dynamic Quick Response (QR) code, shall be deemed to be having Quick Response (QR) code.
However, the following registered persons shall not be required to comply with above provisions: –
(i) A person who is supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company. [Supplier as per Rule 54(2) of CGST Rules]
(ii) Goods Transportation Agencies [Supplier as per Rule 54(3) of CGST Rules]
(iii) Passenger Transportation Service provider (ticket is deemed to be tax invoice) [Supplier as per Rule 54(4) of CGST Rules]
(iv) Person supplying services by way of admission to exhibition of cinematograph films in multiplex screens and issuing an electronic ticket (deemed tax invoice invoice) [Supplier as per Rule 54(4A) of CGST Rules]
(v) Person engaged in supply of online information and database access or retrieval services located in a non-taxable territory and received by a non-taxable online recipient. [Supplier as per Section 14 of IGST Act]
2. E – Way Bill disallowed to be generated if Statement of Outward Supplies not furnished for 2 months or Quarters [Notification No. 75/2019 – CT dated 26th December, 2019]
As per Rule 138E of CGST Rules, no person (including a consignor, consignee, transporter, an e-commerce operator or a courier agency) shall be allowed to furnish the information in PART A of FORM GST EWB – 01 in respect of a registered person, whether as a supplier or a recipient, who: –
a) being a person paying tax under section 10 i.e. composition scheme
b) being a person other than a person specified in clause (a), has not furnished the returns for a consecutive period of two months.
c) being a person other than a person specified in clause (a), has not furnished the statement of outward supplies for any two months or quarters, as the case may be. [(c) has been inserted vide NN 75/2019 – CT dated 26th December, 2019]
Analysis: –
Prior to amendment clause (b) provided for person other than composition person not filing returns for “Consecutive” period of two months. However, it shall be noted that GSTR – 1 (Details of outward supplies) under GST can be filed even without filing previous tax periods’ return. Thus, by this notification, not only consecutive period defaulter but defaulter of any two tax periods would fall under ambit of blocking of E – way Bill.
Payment of Tax, TDS, TCS
1. Insertion of Rule 86A to CGST Rules, 2017
1. Disallowance of input tax credit for payment of tax liability if such ITC is fraudulently availed [R. 86A (1)]: –
If Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, has the reasons to believe that ITC available in the electronic credit ledger has been fraudulently availed on account of below reasons is ineligible he may for reasons recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount. (Reasons shall be recorded in writing)
a) ITC has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36: –
(i) issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
(ii) without receipt of goods or services or both; or
Analysis through example: – Mr. A who is a regd. person who is not conducting business from the place of business for which registration has been obtained. Mr. A sold goods to Mr. B levying GST. The proper officer may not allow debit of (i.e. for payment of liability) ITC credited by Mr. B in electronic credit ledger.
b) The credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) The registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
d) The registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
2. Allowing ITC for Payment of Tax if satisfied [R. 86A (1)]: –
The Commissioner, or the officer authorised by him under Rule 86A (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
3. Restriction of Disallowance of ITC – Applies for 1 year from date of imposition of restriction
Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”.
2. Insertion of Section 31A to CGST Act – Facility of digital payment to Recipient.
As per section 31A of CGST Act, the Government may, on the recommendations of the Council, prescribe a class of registered persons who shall provide prescribed modes of electronic payment to the recipient of supply of goods or services or both made by him and give option to such recipient to make payment accordingly, in such manner and subject to such conditions and restrictions, as may be prescribed.
The Government is moving towards a cashless economy, and one such measure is the introduction of electronic modes of payment for certain payment and certain registered persons. Under this new section, these registered suppliers will have to mandatorily give their recipients the option of making electronic payments. This move will also help prevent the evasion of taxes
3. Transfer of any amount from minor head to any Major head & vice-versa
Backdrop of Major Head & Minor Head: –
| Major Heads | Minor Heads |
| IGST | Tax
Interest Penalty Fees & Others |
| CGST | |
| SGST / UTGST | |
| Cess |
(It shall be read as IGST – Tax, IGST – Interest, IGST – Penalty, IGST – Fees & Others and so on)
Prior to amendment, if a person has deposited cash in a specific field, he cannot use the same for payment of any other minor head/major head. However, with a motive to enable a taxpayer to use their cash in the way they want to, govt. has enabled transfer of any tax, interest, penalty, fees and other dues to any tax head. In order to make it effective govt. has introduced section 49(10) & 49(11) of CGST Act, vide CGST Amendment Act, 2019. Following is reproduced below for reference: –
“(10) A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act.
(11) Where any amount has been transferred to the electronic cash ledger under this Act, the same shall be deemed to be deposited in the said ledger as provided in sub-section (1).”
The manner has been prescribed in Rule 87(13) which states that “A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under the Act to the electronic cash ledger for integrated tax, central tax, State tax or Union territory tax or cess in FORM GST PMT-09.” [Inserted vide Notification No. 31/2019 – CT dated 28th June, 2019 w.e.f. a date to be notified later.]
It is very interesting to note that facility to transfer any amount on portal through GST PMT 09 as specified above is now available, however no date has been notified so far.
Returns under GST
1. Foreign Airlines – Not required to file GSTR 9C (Reconciliation Statement – GST Audit) if complied with Rule 4(2) of Companies (Registration of Foreign Companies) Rules, 2014 and submits statement of receipt & payment duly certified by Practising CA
Foreign company which is an airlines company covered under the notification issued under Section 381(1) of Companies Act, 2013 and who have complied with the Rule 4(2) of the Companies (Registration of Foreign Companies) Rules, 2014 shall not be required to furnish reconciliation statement in FORM GSTR-9C under Section 44(2) of CGST Act r/w Rule 80(3) of the said rules.
However, a statement of receipts and payments for the financial year in respect of its Indian Business operations, duly authenticated by a practicing Chartered Accountant in India or a firm or a Limited Liability Partnership of practicing Chartered Accountants in India shall be submitted for each GSTIN by the 30th September of the year succeeding the financial year.
Rule 4(2) of Companies (Registration of Foreign Companies) Rules, 2014: – As per this rule, every foreign company shall, along with the financial statement required to be filed with the Registrar, attach thereto the following documents; namely: –
1. Statement of related party transaction.
2. Statement of repatriation of profits.
3. Statement of transfer of funds (including dividends if any) which shall, in relation of any fund transfer between place of business of foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company.
2. GSTR – 9C i.e. GST Reconciliation Statement (GST Audit) not mandatory for FY 2018-19 if aggregate turnover in such year is upto Rs. 5 crores [Proviso to Rule 80(3) inserted vide Notification No. 16/2020 – Central Tax dated 23rd March, 2020]
As per proviso to rule 80(3) inserted vide NN 16/2020 – CT dated 23rd March, 2020, Every registered person whose aggregate turnover during the financial year 2018-2019 exceeds 5 crore rupees shall get his accounts audited as specified under section 35(5) and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C for the financial year 2018-2019.
Refunds under GST
1. Master Circular Automating Refund Procedure under GST [Circular 125/44/2019-GST dated 18th November, 2018]
Preface to Master Circular [Circular 125/44/2019-GST] for refund filing: – Refund claims under GST are very imperative to promote exports for betterment of nation. The said process being manual at various stages post submission, CBIC had introduced Circular No. 79/53/2018-GST dated 31.12.2018 with a motive to make the process electronic. However, it still involved manual intervention in process till disbursement. With a view to make this process of refund fully electronic CBIC has issued a master circular i.e. Circular No. 125/44/2019; which supersedes all previously issued circulars. The paras below will summarise the lengthy circular for better understanding.
Applicability of Circular: – The said circular is applicable for refund claims filed w.e.f. 26th September, 2019. For refund claims filed before 26th September, 2019; circulars issued by CBIC previously from time to time will be applicable.
Supersession of Circulars issued till date: – With a view to ensure uniformity in the implementation of the provisions of law CBIC has laid down the procedure for electronic submission and processing of refund applications in supersession of earlier Circulars.
Types of Refund Claims monitored by said Circular: –
With effect from 26.09.2019, the applications for the following types of refunds shall be filed in FORM GST RFD 01 on the common portal and the same shall be processed electronically:
a) Refund of unutilized input tax credit (ITC) on account of exports without payment of tax;
b) Refund of tax paid on export of services with payment of tax;
c) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer
d) without payment of tax;
e) Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax;
f) Refund of unutilized ITC on account of accumulation due to inverted tax structure;
g) Refund to supplier of tax paid on deemed export supplies;
h) Refund to recipient of tax paid on deemed export supplies;
i) Refund of excess balance in the electronic cash ledger;
j) Refund of excess payment of tax;
k) Refund of tax paid on intra-State supply which is subsequently held to be inter-State
l) supply and vice versa;
m) Refund on account of assessment/provisional assessment/appeal/any other order;
n) Refund on account of “any other” ground or reason.
Procedure & other modalities Laid down by Circular: –
1) Filing of Refund Application & Acknowledgement, Deficiency Memo: – GST RFD 01 (instead of RFD 01A) shall be filed online along with supporting documents electronically. ARN will be generated on filing of application which shall be deemed to be the date of filing application. The time limit of 15 days to issue an acknowledgement or a deficiency memo, as the case may be, shall be counted from the said date.
2) Assignment of Application to Proper Officer: – The application be forwarded to the jurisdictional officer of the registered person. However, if it has been assigned to wrong officer, such officer has right to assign it to proper officer (within 3 working days he has to assign). Re-submission of refund application on deficiency memo shall be treated as fresh application and be forwarded to the jurisdictional proper officer of the tax authority to which the taxpayer has now been assigned, irrespective of which authority handled the initial refund claim and issued the deficiency memo.
3) All returns be filed before application: – Any refund claim for a tax period may be filed only after furnishing all the returns.
4) Undertaking to pay back erroneous refund claim: – Applicants applying for refund must give an undertaking to the effect that the amount of refund sanctioned would be paid back to the Government with interest in case it is found subsequently that the requirements of Section 16(2)(c) read with Section 42(2) CGST Act have not been complied with subject to restriction imposed under sub-rule (4) in rule 36 of the CGST rules.
5) Refund Claim may be filed for any period without financial year clubbing: – The applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years.
However, the said restriction on bunching of refund claims across financial years has been relaxed vide Para 2.5 of circular 135/05/2020 dated 31st March, 2020 [Hon’ble Delhi High Court in Order dated 21.01.2020, in the case of M/s Pitambra Books Pvt Ltd.]
6) Response to Deficiency Memo – Treated as fresh application, be filed within same time-limit: – Once an acknowledgement has been issued in relation to a refund application, no deficiency memo, on any grounds, may be subsequently issued for the said application. After a deficiency memo has been issued, the refund application would not be further processed and a fresh application would have to be filed. Any amount of input tax credit/cash debited from electronic credit/ cash ledger would be re-credited automatically once the deficiency memo has been issued. Fresh Application has to be filed to clear deficiency memo & it will have distinct ARN. It may be noted that fresh application in lieu of deficiency memo shall be filed within 2 years from relevant date.
7) Provisional Refund: – Proper officer (PO) would be required to grant provisional refund of 90% x [Refund claimed (-) Inadmissible refund]; in case where PO prima-facie has sufficient reasons to believe that there are irregularities in the refund application which would result in rejection of whole or part of the refund.
It shall be further noted that if officer is fully satisfied with the application & eligibility of refund claim he may sanction entire amount within 7 days of the issuance of acknowledgement through issuance of FORM GST RFD-06, instead of grant of provisional refund of 90%.
8) Provisional Refund Sanctioned (90%) > Final Amount of Refund: – In case where the final refund amount to be sanctioned in FORM GST RFD-06 is less than the amount of refund sanctioned provisionally through FORM GST RFD-04, the proper officer shall have to issue a show cause notice in FORM GST RFD-08, under section 54 of the CGST Act, read with section 73 or 74 of the CGST Act, requiring the applicant to show cause as to why:
a) The amount claimed should not be rejected as per the relevant provisions of the law; and
b) The amount of erroneously refunded should not be recovered under section 73 or section 74 of the CGST Act, as the case may be, along with interest and penalty, if any.
Other points in this regard: –
> The amount of refund erroneously sanctioned shall be credited to electronic liability register of person through DRC – 07 by proper officer.
> The amount of rejected refund shall be recredited to Electronic credit ledger on undertaking by regd. person that he will not file an appeal or in case he files an appeal.
> In such cases, it may be noted that FORM GST RFD – 08 and FORM GST RFD – 06, are to be considered as show cause notice and adjudication order respectively.
9) No adjustment of outstanding dues or withholding shall be done from provisional refund. In case of need, final refund may be granted instead of provisional refund and withholding/recovery may be done there from.
10) Illustration of Sanction, Rejection, Appeal Filing & Recredit: – Consider an example where against a refund claim of unutilized/accumulated ITC of Rs.100/-, only Rs.80/- is sanctioned (Rs.15/- is rejected on account of ineligible ITC and Rs.5/- is rejected on account of any other reason). As stated above, a show cause notice, in FORM GST RFD-08 shall have to be issued to the applicant, requiring him to show cause as to why the refund claim amounting to Rs.20/-should not be rejected under the relevant provisions of the law and why the ineligible ITC of Rs. 15/- should not be recovered under section 73 or section 74, as the case may be, with interest and penalty, if any. If the said notice is decided against the applicant, Rs. 15/-, along with interest and penalty, if any, shall be entered by the officer in the electronic liability register of the applicant through issuance of FORM GST DRC-07. Further, Rs. 20/- would be recredited through FORM GST PMT-03 only after the receipt of an undertaking from the applicant to the effect that he shall not file an appeal or in case he files an appeal, the same is finally decided against the applicant. Continuing with the above example, further assume that the applicant files an appeal against this order and the appellate authority decides wholly in the applicant’s favour. It is hereby clarified in such a case the petitioner would file a fresh refund claim for the said amount of Rs. 20/- under the option of claiming refund “On Account of Assessment/Provisional Assessment/Appeal/Any other order”.
11) Verification of Shipping bill details to be done from icegate portal by keying in port name, Shipping bill number and date. Mismatch between 3B and GSTR-1 may be resolved following system of adjustment provided in Circular 26/2017 – GST.
12) Disbursal of refund amount shall be done through Public Financial Management System (PFMS) after validating bank details provided in refund application. PFMS shall create unique assessee code to facilitate payment. The taxpayers have been advised not change bank details in respective refund applications. Communication of disbursal shall be done by PFMS on the portal and by SMS to the taxpayer. In case of invalid bank details, bank details can be updated on portal.
13) Interest on delayed disbursal @ 6% on the refund amount starting from the date immediately after the expiry of sixty days from the date of receipt of application (ARN) till the date of refund of such tax (i.e. date of credit in bank account) shall have to be paid to the applicant. Tax authorities have been advised to issue the final sanction order in FORM GST RFD-06 and the payment order in FORM GST RFD-05 within 45 days of the date of generation of ARN, so that the disbursement is completed within 60 days.
14) In case for refund of unutilized ITC (except compensation cess) the following points shall be noted: –
a) GSTR 2A relating to period for which Invoice carrying ITC pertain to be uploaded.
b) 2A to be treated evidence of account of tax on invoices being claimed by recipient. Submission of invoices accounted in 2A not to be insisted.
c) List of Invoices not appearing in 2A for which refund is being claimed to be provided in Annexure B along with declaration of eligibility and subject to restrictions of ITC not exceeding 20% of invoices appearing in GSTR – 2A (Omitted vide Para 5 of Circular 135/05/2020 – GST dated 31st March, 2020).
d) Invoices not uploaded in 2A and declared eligible in Annexure B to be self-certified and to be uploaded along GST RFD-01. (Omitted vide Para 5 of Circular 135/05/2020 – GST dated 31st March, 2020)
Thus, refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant.
e) Formula under Rule 89(4) and 89(5) to be applied on consolidated amount of tax heads and not to be applied on each tax head separately.
f) Quantum of refund of Unutilized ITC = Minimum of [Refund as per Formula, Credit ledger Balance at the end of period after filing 3B for the period for which refund is claimed, Credit ledger Balance at the time of filing refund]
g) Order of Debit in Electronic Credit Ledger: First utilize IGST Credit to the extent possible, 2nd: utilize CGST and SGST equally to the extent of balance available 3rd: If there is shortfall in some credit ledger, then utilize other credit ledger to the extent balance is available. Order of Debit facility is not available on portal and to be followed manually. However no adverse view to be taken if order of debit is not followed. Hence it is not compulsory to follow order of debit.
15) If a supplier avails of drawback in respect of duties rebated under the Customs and Central Excise Duties Drawback Rules, 2017, he shall be eligible for refund of unutilized input tax credit of Central tax/ State tax/ Union Territory tax / Integrated tax/ Compensation cess. It is also clarified that refund of eligible credit on account of State tax shall be available if the supplier of goods or services or both has availed of drawback in respect of Central tax.
16) Zero rated supply before furnishing LUT may be allowed on ex post facto basis. Exports after expiry of time limit under LUT may be allowed if goods have actually been exported after 3 months from the date of invoice. Asking for self–declaration for prosecution with every refund claim where the exports have been made under LUT is not warranted.
17) During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be taken into account while calculating the eligible amount of refund.
18) FIRC/BRC not required for refund application for export of goods
19) In case of zero-rated supply of exempted or non-GST goods, the requirement for furnishing a bond or LUT cannot be insisted upon.
20) NO refund for Inverted Duty on Input service and Capital goods. Stores and spares, for capital goods, the expenditure on which has been charged as a revenue expense in the books of account, cannot be held to be capital goods and hence refund for unutilized ITC can be claimed in respect of such stores and spares
21) Where there are multiple inputs attracting different rates of tax, in the formula provided in rule 89(5) of the CGST Rules, some of which have rate lower or equal to rate of output supplies, the term “Net ITC‟ covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax
22) Tax Deductor/collector may claim refund of tax deposited in wrong head. After filing of GSTR-7/8, Deductee may claim refund of the TDS/TCS under the category “refund of excess balance in the electronic cash ledger
23) Refund on ITC @ 0.05%/0.1% on inward supplies received by merchant exporter can be claimed under Category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax”. if the proper officer is satisfied that the whole or any part of the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. However, exporter can export such goods only against LUT.
24) The supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure.
25) Limit of rupees one thousand u/s 54(14) shall be applied for each tax head separately.
2. Refund of wrong payment of tax through debit in Electronic Credit Ledger (ECL) shall be re-credited to ECL [Rule 86(4A) inserted vide NN 16/2020 – CT dated 23rd March, 2020]
As per the said rule, where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.
3. Addressing various refund Related Issues [Circular 135/05/2020 – GST]
(i) Bunching of refund claims across the financial years: – The applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years. However, the said restriction on bunching of refund claims across financial years has been relaxed vide Para 2.5 of circular 135/05/2020 dated 31st March, 2020 [Hon’ble Delhi High Court in Order dated 21.01.2020, in the case of M/s Pitambra Books Pvt Ltd.]
(ii) Refund of accumulated input tax credit (ITC) NOT ALLOWED on account of reduction in GST Rate: – It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act i.e. inverted duty structure is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act.
It is clarified in this circular that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.
Illustration: – An applicant trading in goods has purchased, say goods “X” attracting 18% GST. However, subsequently, the rate of GST on “X” has been reduced to, say 12%. It is being claimed that accumulation of ITC in such a case is also covered as accumulation on account of inverted duty structure and such applicants have sought refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act. Such refund would not be allowed.
(iii) Proportionate Refund in Cash & ITC in certain cases: –
In case of refund of tax paid falling in below categories: –
a) Refund of excess payment of tax;
b) Refund of tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa;
c) Refund on account of assessment/provisional assessment/appeal/any other order;
d) Refund on account of “any other” ground or reason.
no separate debit of ITC from electronic credit ledger is required to be made by the applicant at the time of filing refund claim, being claim of tax already paid. However, the total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger. At present, in these cases, the amount of admissible refund, is paid in cash even when such payment of tax or any part thereof, has been made through ITC.
As this could lead to allowing unintended encashment of credit balances, Rule 86(4A) has been inserted vide Notification No.16/2020 – CT dated 23rd March, 2020, which reads as under:
“(4A) Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.”
Further, vide the same notification, sub-rule (1A) has also been inserted in rule 92 of the CGST Rules, 2017.
The same is reproduced hereunder:
“(1A) Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.”
The combined effect the abovementioned changes is that any such refund of tax paid on supplies other than zero rated supplies will now be admissible proportionately in the respective original mode of payment i.e. in cases of refund, where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund to be paid in cash and credit shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which application for refund has been filed. Such amount, shall be accordingly paid by issuance of order in FORM GST RFD-06 for amount refundable in cash and FORM GST PMT-03 to re-credit the amount attributable to credit as ITC in the electronic credit ledger.
4. Change in Definition of “Turnover of Zero-rated supply of goods” u/r 89(4C) of CGST Rules
Exports play a pivotal role for building an economy as it helps in influencing the level of economic growth, employment and the balance of payments. GST law provides copious benefits to exporters, however in the meanwhile we will analyse how the Indian Government has discouraged the same by modifying definition of turnover of zero-rated supply of goods.
Turnover of Zero-rated supply of goods is imperative to note for calculation of refund amount in case of export of goods without LUT. Prior to amendment, Rule 89(4C) of CGST Rules, 2017 read as “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both.
The amended definition is reproduced below for reference: –
“Turnover of zero-rated supply of goods” means
> the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or,
> the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier.
whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both.
The Indian Government, in view of bringing stringent control over fraudulent claims of refund on account of export of goods where values of exports have been overstated, has introduced new definition of “turnover of zero-rated supply of goods” which has completely changed the dimensions of exports. In case of refund on account of export of goods, “consideration” was not a yardstick, only a shipping bill filed at the time of export was the only basis on which refund claims were sanctioned. However, w.e.f. 23rd March, 2020, by insertion of Rule 96B Realisation of consideration will play an important role (discussed later).
Analysis: –
1) The upper cap of 1.5 times of value of domestic goods is only applicable in case of “Export of Goods under LUT”. Thus, it is not applicable in case of export of services or where goods are exported without LUT on payment of GST.
2) By carefully analysing & understanding the intent of the amendment, it appears that the amendment focuses on the ‘value’ of goods or like goods. Hence, the computation of the refund and the restriction of 1.5 times has to be product specific, and not turnover specific.
3) In other words, where the value per unit charged by a supplier in global markets exceed 1.5 times the value of the same product in India, the sale value (per unit) of such goods globally shall be restricted to 1.5 times the domestic sales value per unit.
Let us understand this rule with an example: –
A Ltd. is engaged in supplying goods in India and UAE (Outside India). Following is the price structure of Mr. A. Following are the details available.
Purchase Details
| Product | Quantity | Purchase Value | GST @ 18% | Total |
| A | 10,000 | 50,00,000
(10,000×500) |
9,00,000
(10,000x500x18%) |
59,00,000 |
Sales Details of Product “A” – Domestic
| Product | Quantity | Domestic Selling Price | Sales Value | GST | Total |
| Sale in Domestic Market | 7000 | 800 | 56,0 0,000
(7,000 x800) |
10,0 8,000
(7,000x 800×18%) |
66,0 8,000 |
Let us move on to calculate adjusted total turnover for the purpose of refund claim & amount of refund claim in following independent cases: –
Sales Details of Product “A” Outside India
| Case | Quantity
(a) |
Export Selling Price
(b) |
Export Value
(a) x (b) |
| A | 3000 | 1,100 | 33,00,000 |
| B | 3000 | 900 | 27,00,000 |
| C | 3000 | 1500 | 45,00,000 |
Calculation of Refund as below: –
Pre-Amendment Refund Calculation
| Case | Domestic Sale
(A) |
Export Value
(B) |
Adjusted Total Turnover
[(C) = (A)+(B)] |
Total ITC
(D) (Refer Purchase Details) |
Refund Claim
(D x B/C) |
| A | 56,00,000 | 33,00,000 | 89,00,000 | 9,00,000 | 3,33,708 |
| B | 56,00,000 | 27,00,000 | 83,00,000 | 9,00,000 | 2,92,771 |
| C | 56,00,000 | 45,00,000 | 1,01,00,000 | 9,00,000 | 4,00,990 |
Post Amendment Refund Calculation
| Case | Dom estic Sale (A) | Export Value (B) | Value @ 1.5 times [3000 units x 800 x 1.5 times] (C) | Lower of [(D) = (B) & (C)] | Adjusted Total Turnover
[(E) = (A)+(D)] |
Total ITC (F) (Refer Purchase Details) | Re fund Cla im
(F x D/E) |
| A | 56,00 ,000 | 33,0 0,000 | 36,0 0,000 | 33,0 0,000 | 89,0 0,000 | 9,00,000 | 3,33,708 |
| B | 56,0 0,000 | 27,0 0,000 | 36,0 0,000 | 27,00 ,000 | 83,0 0,000 | 9,00,000 | 2,92,771 |
| C | 56,00 ,000 | 45,0 0,000 | 36, 00,000 | 36,0 0,000 | 92,0 0,000 | 9,00,000 | 3,52,174 |
Analysis of the above illustration: –
We can clearly see in case (C) that refund claim has been reduced due to upper cap on turnover of Zero-rated Supplies of goods to the tune of 1.5 times of domestic value of goods. Consequently, refund claim is reduced from 4,00,990/- to 3,52,174/-.
Issues in amended definition: –
> The term ‘like goods’ has not been specifically explained for the said sub-rule. Tax Authorities may take a different view with regards to like goods & may further reduce refund by reducing value of exports.
> Where supplier is totally engaged in export of goods, he has to determine domestic price of goods by checking the prices of same goods in India supplied by “similarly placed suppliers”.
> Law does not define phrase “similarly placed suppliers”. Prices charged by suppliers are always different depending upon their reputation, hold in the market, competition, quality they offer, special packaging and many other aspects. Thus, the matter under consideration is which price shall be considered as base for computing 1.5 times of domestic value. Government should have given the acceptable deviation margin arising on account of such aspects.
Realisation of Export Proceeds [Rule 96B inserted vide Notification No. 16/2020 – CT dtd. 23rd March, 2020]
As per Rule 96B(1) where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period. If such amount is not realised within time-limit the sanctioned refund shall be recovered u/s 73 / 74 of CGST Act along with interest u/s 50 of CGST Act.
However, where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), but the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered.
Time Limit under FEMA [Regulation 9 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015: –
In ordinary case: The amount representing the full export value of goods / software/ services exported shall be realised and repatriated to India within nine months from the date of export.
However, where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen months from the date of shipment of goods.
Extension of period: Further the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause, extend the period of nine months or fifteen months, as the case may be.
For the purpose of this regulation, the “date of export” in relation to the export of software in other than physical form, shall be deemed to be the date of invoice covering such export.
Foreign Exchange realised after recovery of refund but within extended period by RBI [Rule 96B (2)]: –
Where the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him under sub-rule (1) and the applicant produces evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been realised within such extended period as permitted by the Reserve Bank of India.
It is quite obvious that export goods are always highly priced owing to its special packaging & other quality aspects.
Let’s say, domestic price of certain product is Rs. 30, the same product is exported at $ 5. Refund will be given by considering export turnover at 1.5 times of 30 i.e. Rs. 45, however, as per FEMA, 1999 read with Rule 96B of CGST Rules, an exporter is expected to bring value covered by invoice to India (in this example – $5) within specified time limit as per FEMA, 1999 otherwise refund sanctioned would be recovered to the extent of proceeds not realised.
Thus, it is crystal clear that genuine exporters have become victim in order to curb fraudulent bogus claims of refund arising on account of overstatement of value of export of goods.
In my opinion insertion of rule 96B was sufficient enough to curb bogus / overstatement of exports.
4. Standard Operating Procedure for Exporter [Circular 131/01/2020 – GST dated 23rd January, 2020]
Several cases of monetization of credit fraudulently obtained or ineligible credit through refund of IGST on exports of goods have been detected. On verification, several such exporters were found to be non-existent in a number of cases. In all these cases it has been found that the ITC was taken by the exporters on the basis of fake invoices and IGST on exports was paid using such ITC.
To mitigate the risk, the Board has taken measures to apply stringent risk parameters-based checks driven by rigorous data analytics and Artificial Intelligence tools based on which certain exporters are taken up for further verification.
(i) The refund scrolls in such cases are kept in abeyance till the verification report in respect of such cases is received from the field formations.
(ii) Further, the export consignments / shipments of concerned exporters are subjected to 100% examination at the customs port.
(iii) While the verifications are caused to mitigate risk, it is necessary that genuine exporters do NOT face any hardship, hence the following is prescribed:
a) The exporters whose scrolls have been kept in abeyance for verification would be informed at the earliest possible either by the jurisdictional CGST or by Customs.
b) The exporters on being informed in this regard or on their own volition should fill in information in Annexure ‘A’ [collects GST related data, financial data and other additional data] and submit the same to their jurisdictional CGST authorities for verification by them.
c) If required, the jurisdictional authority may seek further additional information for verification.
d) Verification shall be completed by jurisdiction CGST office within 14 working days of furnishing of information in Annexure A by the exporter. If the verification is NOT completed within this period, the jurisdiction officer will bring it to the notice of a nodal cell to be constituted in the jurisdictional Principal Chief Commissioner / Chief Commissioner Office.
e) After a period of 14 working days from the date of submission of details in Annexure A, the exporter may also escalate the matter to the jurisdictional Principal Chief Commissioner / Chief Commissioner by sending an email.
f) The jurisdictional Principal Chief Commissioner / Chief Commissioner should take appropriate action to get the verification completed within next 7 working days.
g) In case, any refund remains pending for more than 1 month, the exporter may register his grievance at www.cbic.gov.in / issue by giving all relevant details like GSTIN, IEC, Shipping Bill No., Port of Export & CGST formation where the details in prescribed format had been submitted etc. All such grievances shall be examined by a Committee headed by Member GST, CBIC for resolution of the issue.
5. Addressing the Challenges faced by various Taxpayers [Circular 137/07/2020 – GST dated 13th April, 2020
CBIC has issued this circular to bring uniformity in application of certain legal provisions in practical world. Following are the issues and their clarifications issued.
Issue 1: – An advance is received by a supplier for a Service contract which subsequently got cancelled. The supplier has issued the invoice before supply of service and paid the GST thereon. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns?
In case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.
Issue 2: – An advance is received by a supplier for a Service Contract which got cancelled subsequently. The supplier has issued receipt voucher and paid the GST on such advance received. Whether he can claim refund of tax paid on advance or he is required to adjust his tax liability in his returns?
In case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, he is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules. The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.
Issue 3: – Goods supplied by a supplier under cover of a tax invoice are returned by the recipient. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns?
In such a case where the goods supplied by a supplier are returned by the recipient and where tax invoice had been issued, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim in such a case.
However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.
Issue 4: – Letter of Undertaking (LUT) furnished for the purposes of zero-rated supplies as per provisions of section 16 of the Integrated Goods and Services Tax Act, 2017 read with rule 96A of the CGST Rules has expired on 31.03.2020. Whether a registered person can still make a zero-rated supply on such LUT and claim refund accordingly or does he have to make such supplies on payment of IGST and claim refund of such IGST?
Notification No. 37/2017-Central Tax, dated 04.10.2017, requires LUT to be furnished for a financial year. However, in terms of notification No. 35/2020 Central Tax dated 03.04.2020, where the requirement under the GST Law for furnishing of any report, document, return, statement or such other record falls during between the period from 20.03.2020 to 29.06.2020, has been extended till 30.06.2020.
Therefore, in terms of Notification No. 35/2020-Central Tax, time limit for filing of LUT for the year 2020-21 shall stand extended to 30.06.2020 and the taxpayer can continue to make the supply without payment of tax under LUT provided that the FORM GST RFD-11 for 2020-21 is furnished on or before 30.06.2020. Taxpayers may quote the reference no of the LUT for the year 2019-20 in the relevant documents.
Assessment & Audit under GST
1. Guidelines for proper officer to undertake Assessment under GST [Circular No. 129/48/2019 – GST dated 24th December, 2019]
Section 46 of the CGST Act read with rule 68 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”) requires issuance of a notice in FORM GSTR-3A to a registered person who fails to furnish return under section 39 or section 44 or section 45 (hereinafter referred to as the “defaulter”) requiring him to furnish such return within fifteen days. Further section 62 provides for assessment of non-filers of return of registered persons who fails to furnish return under section 39 or section 45 even after service of notice under section 46.
As such, no separate notice is required to be issued for best judgment assessment under section 62 and in case of failure to file return within 15 days of issuance of FORM GSTR-3A, the best judgment assessment in FORM ASMT-13 can be issued without any further communication.
Guidelines: –
a) SMS be sent to all regd. persons 3 days prior to return filing: – Preferably, a system generated message would be sent to all the registered persons 3 days before the due date to nudge them about filing of the return for the tax period by the due date.
b) Mail to be sent to all regd. persons stating that failed to furnish return within due date: – Once the due date for furnishing the return under section 39 is over, a system generated mail / message would be sent to all the defaulters immediately after the due date to the effect that the said registered person has not furnished his return for the said tax period; the said mail/message is to be sent to the authorized signatory as well as the proprietor/partner/director/karta., etc.
c) Notice u/s 46 be issued w/i 5 days from due date: – Five days after the due date of furnishing the return, a notice in FORM GSTR-3A (under section 46 of the CGST Act read with rule 68 of the CGST Rules) shall be issued electronically to such registered person who fails to furnish return under section 39, requiring him to furnish such return within fifteen days;
d) If return not filed w/i 15 days from notice – Best Judgement Assessment can be done: – In case the said return is still not filed by the defaulter within 15 days of the said notice, the proper officer may proceed to assess the tax liability of the said person under section 62 of the CGST Act, to the best of his judgement taking into account all the relevant material which is available or which he has gathered and would issue order under rule 100 of the CGST Rules in FORM GST ASMT-13. The proper officer would then be required to upload the summary thereof in FORM GST DRC-07.
e) Information to be used for assessing liability by proper officer in Best Judgement Assessment: – For the purpose of assessment of tax liability under section 62 of the CGST Act, the proper officer may take into account the details of outward supplies available in the statement furnished under section 37 (FORM GSTR-1), details of supplies auto-populated in FORM GSTR-2A, information available from e-way bills, or any other information available from any other source, including from inspection under section 71 of CGST Act.
f) BJ Assessment Order be withdrawn if valid returns filed w/i 30 days of Service of Assessment Order: – In case the defaulter furnishes a valid return within thirty days of the service of assessment order (refer note below) in FORM GST ASMT-13, the said assessment order shall be deemed to have been withdrawn in terms of provision of sub-section (2) of section 62 of the CGST Act. However, if the said return remains unfurnished within the statutory period of 30 days from issuance of order in FORM ASMT-13, then proper officer may initiate proceedings under section 78 and recovery under section 79 of the CGST Act.
(Note: BJ Assessment Order shall be issued within 5 years from due date filing of annual return (i.e. 31st December of succeeding FY) to which such non-filing/payment relates.)
(Students may refer headings which are meant for quick recap of inner content in few words)
Above general guidelines may be followed by the proper officer in case of non-furnishing of return. In deserving cases, based on the facts of the case, the Commissioner may resort to provisional attachment to protect revenue under section 83 of the CGST Act before issuance of FORM GST ASMT-13.
Further, the proper officer would initiate action under sub-section (2) of section 29 of the CGST Act for cancellation of registration in cases where the return has not been furnished for the period specified in section 29.
Appeals & Revision
1. Appointment of Revisional Authority under GST
Backdrop of Revisional Authority under GST: – The Revisional Authority means an authority appointed or authorised for revision of decision or orders as referred to in Section 108 of CGST Act. The Revisional Authority is empowered to examine any proceedings and stay the operation of any decision or order, if he considers that such decision or order passed by any officer subordinate to him is erroneous in so far as it is prejudicial to the interest of the revenue or illegal or improper or has not taken into account certain material facts.
By virtue of Notification No. 05/2020 – Central Tax 13th January, 2020 revisional authority has been appointed under GST.
| Authority Passing Order | Revisional Authority for said order |
| Additional or Joint Commissioner of Central Tax | The Principal Commissioner or Commissioner of Central Tax |
| Deputy Commissioner or Assistant Commissioner or Superintendent of Central Tax | Additional or Joint Commissioner of Central Tax |
2. Non-constitution of Appellate Tribunal [Circular No. 132/2/2020 – GST dated 28th March, 2020]
Various representations have been received by CBIC, wherein the issue has been decided against the registered person by the adjudicating authority or refund application has been rejected by the appropriate authority and appeal against the said order is pending before the appellate authority. CBIC has noticed that appellate process is being kept pending by several appellate authorities on the grounds that the appellate tribunal has been not constituted and that till such time no remedy is available against their Order-in-Appeal, such appeals cannot be disposed.
The appellate tribunal has not been constituted in view of the order by Madras High Court in case of Revenue Bar Assn. v. Union of India and therefore the appeal cannot be filed within three months from the date on which the order sought to be appealed against is communicated.
In order to remove difficulty arising in giving effect to the above provision of the Act, the Government, on the recommendations of the Council, has issued the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 dated 03.12.2019. It has been provided through the said Order that the appeal to tribunal can be made within 3 months (6 months in case of appeals by the Government) from the: –
> Date of communication of order or,
> Date on which the President or the State President, as the case may be, of the Appellate Tribunal enters office, whichever is later.
Accordingly, CBIC has advised appellate authorities to dispose all pending appeals expeditiously without waiting for the constitution of the appellate tribunal.
Miscellaneous Provisions
1. Amendment in Section 168 of CGST Act [Amendment vide CGST Amendment Act, 2019]
Section 168 of CGST Act empowers the Competent Authority to issue orders, instruction or directions to the lower authorities to bring in uniformity in the implementation of the Act.
The purpose is to bring in uniformity in the implementation of the Act; and it is binding on all GST officers. There are various commissioners who are empowered to issue such orders, instructions or directions. Vide CGST Amendment Act, 2019; following Commissioners under section 44(1) (relating to annual return) / 52(4) (relating to monthly TCS Return) / 52(5) (relating to annual return for ECO) are further being empowered to issue orders, instructions or directions.
2. Penalty for Anti-profiteering [Section 171(3A) of CGST Act inserted vide CGST Amendment Act, 2019]
The objective of section 171 of CGST Act is to ensure that with the introduction of GST, taxable persons are not getting excessive profits, but shall pass on the reduction in price to the consumers. The registered person is expected to reduce the price on account of availment of input tax credit or reduction in tax rates. An authority would be notified for this purpose, who would exercise powers and discharge functions in a prescribed manner.
Penalty @ 10% of Profiteered Amount if such amount not deposited within 30 days of order: – As per section 171(3A) where the authority referred to in sub-section (2), after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered.
However, no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.
3. Insertion of Section 168A of CGST Act [Amendment to CGST Act]
S. 168A reads as, “Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed or complied with due to force majeure.
The power to issue notification shall include the power to give retrospective effect to such notification from a date not earlier than the date of commencement of this Act.
Explanation: For the purposes of this section, the expression “force majeure” means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.”
Analysis: –
> Notification issued under section 168A may have a retrospective effect.
> In order to give effect to these announcements among other taxation matters, an Ordinance, namely, The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 has been promulgated on 31 March, 2020 by the President whereby relaxation of certain provision of specified Acts enacted.
> Accordingly, a new Section 168A has been inserted in the CGST Act, 2017 to extend time limit in specified circumstances. Prior to insertion of Section 168A, by virtue of section 172 of CGST Act the due dates were extended, however, due to COVID-19 government come out with a new provision.
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