Clause wise Interpretation of GST Provisions of Finance Bill 2021

Interpretation of Finance Bill 2021

Indirect tax

Central Goods and Service Tax

Extract

99. In the Central Goods and Services Tax Act, 2017 (hereinafter referred as the Central Goods and Services Tax Act), in section 7, in sub-section (1), after clause (a), the following clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of July, 2017, namely:––

“(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;”.

113. In Schedule II of the Central Goods and Services Tax Act, paragraph 7 shall be omitted and shall be deemed to have been omitted with effect from the 1st day of July, 2017.

Interpretation

Section 7(1) defines the Scope of Supply. So, if any transaction is covered under this sub-section, it shall be treated as Supply.

Further, Clause (d) to sub-section (1) of Section 7 was substituted by sub-section (1A), which created a fiction under the statute which specifies ‘what is’ and ‘what is not’ to be treated as a transaction of supply of goods or a transaction of supply of service. As per this amendment, it was made clear that firstly, a transaction must be treated as a ‘supply’ under sub-section (1) and then, for the limited purposes of classification of supply, entries in schedule II must be referred.

The omitted para as per Point 113 of Finance Bill was earlier a part of Schedule II, which was covered under Section 7(1A) but excluded from the direct definition of supply.

By omitting the para from Schedule II and adding it as Clause (aa) to section 7(1), the activities or transactions given by a person (other than an individual) to its members or vice-versa, for consideration shall now be treated as Supply.

This amendment has been inserted in the law retrospectively from 01^st July, 2017. 

Extract

100. In section 16 of the Central Goods and Services Tax Act, in sub-section (2), after clause (a), the following clause shall be inserted, namely:––

“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”

Interpretation

Sub-section (2) to section 16 of CGST Act, 2017 has an overriding effect to the entire act. It provides the mandatory conditions required to be fulfilled for availment of Input Tax Credit. If any condition is not fulfilled then ITC cannot be availed.

Extract of clause (a):

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

As per the new clause, the supplier is required to report the Supply in his Statement of Outward Supplies (Presently, GSTR-1 and IFF) and file the same within due date. Once the return is filed, such Supply shall flow to the GSTR-2A and GSTR-2B of the Recipient.

As per this amendment, the recipient can take credit only after such supply flows to GSTR-2A/2B.

Another implication is that now sub-section (4) to Rule 36, which provides relaxation upto [105 per cent] of GSTR-2A may be omitted since Taxpayer will not be eligible to take credit if the Vendor has not uploaded his return/invoice in his GSTR-1/3B.

Further in our opinion, all the pending disputes and legal cases pending before various Courts across India relating to vested right of a Taxpayer to claim credit irrespective of the fact whether Vendor has filed the return, may now be quashed. 

Extract

101. In section 35 of the Central Goods and Services Tax Act, sub-section (5) shall be omitted.

102. For section 44 of the Central Goods and Services Tax Act, the following section shall be substituted, namely:––

“44. Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed:

Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section:

Provided further that nothing contained in this section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”

Interpretation

Extract of sub-section (5) to Section 35:

(5) Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed:

[Provided that nothing contained in this sub-section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.]

The requirement of audit of Books of Account under GST law is removed. This is a major amendment being bought by this Bill, since this will reduce the Compliance cost but will increase the burden on Taxpayers. The Taxpayers will now be solely responsible for their books of account and other records.

The word “may” given in the amended section suggests that the requirement of a self-certified reconciliation statement between the transactions reported in their monthly/quarterly GST Returns and Audited Annual Financial Statements may not be applicable for all the taxpayers.

However, a department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India are exempted from this section altogether. 

Extract

103. “Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.”

Interpretation

Extract of proviso to Sec 50(1)

[Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.]

The present proviso was bought into effect from 1^st September, 2020 whereas the substituted proviso would be effective retrospectively from 1^st July, 2017. 

Extract

104. In section 74 of the Central Goods and Services Tax Act, in Explanation 1, in clause (ii), for the words and figures “sections 122, 125, 129 and 130”, the words and figures “sections 122 and 125” shall be substituted.

Interpretation

Given the respective amendments in Section 129 and 130, impact for the same is given in this explanation. 

Extract

105. In section 75 of the Central Goods and Services Tax Act, in sub-section (12), the following Explanation shall be inserted, namely:––

‘Explanation.––For the purposes of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.’

Interpretation

Extract of sub-section(12) to Sec 75

(12) Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

This amendment fixes the loophole whereby if any liability reported under Section 37, remains unpaid (by virtue of not being reported in return as per Section 39), the same could not have been recovered under Sec 79.

Extract

106. In section 83 of the Central Goods and Services Tax Act, for sub-section (1), the following sub-section shall be substituted, namely:––

“(1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.”

Interpretation

Extract of sub-section (1) to Section 83

(1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

This proposed amendment intends to increase the scope of power of Commissioner to provisionally attach any property in order to protect the interest of the Government Revenue. 

Extract

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

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

Interpretation

Extract of sub-section (6) to Section 107

(6) No appeal shall be filed under sub-section (1), unless the appellant has paid—

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute arising from the said order, [subject to a maximum of twenty-five crore rupees], in relation to which the appeal has been filed.

As per the amendment only for appeal for proceedings under 129(3)(Detention, seizure and release of goods and conveyances in transit), the taxpayer shall be liable to pre-deposit 25 per cent of penalty adjudicated under the section apart from tax which was already paid by the taxpayer since the word “Tax” doesn’t exist anymore in section 129. 

Extract

108. In section 129 of the Central Goods and Services Tax Act, ––

(i) in sub-section (1), for clauses (a) and (b), the following clauses shall be substituted, namely:–

“(a) on payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

(b) on payment of penalty equal to fifty per cent of the value of the goods or two hundred per cent. of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;”;

(ii) sub-section (2) shall be omitted;

(iii) for sub-section (3), the following sub-section shall be substituted, namely:––

“(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).”;

(iv) in sub-section (4), for the words “No tax, interest or penalty”, the words “No penalty” shall be substituted;

(v) for sub-section (6), the following sub-section shall be substituted, namely:––

“(6) Where the person transporting any goods or the owner of such goods fails to pay the amount of penalty under sub-section (1) within fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3):

Provided that the conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less

Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of fifteen days may be reduced by the proper officer.”

Interpretation

• Earlier, as per Clause (a) to Section 129(1), where the owner of the goods comes forward for the payment of tax and penalty, penalty applicable was one hundred percent of tax applicable in case of taxable goods. With this amendment, requirement to pay tax is not mentioned in the clause, however the rate of penalty has been increased to two hundred percent. So, earlier the taxpayer (recipient) could have taken credit of the tax paid under this clause, but now penalty paid will not be eligible for ITC availment.

Entire penalty should be discharged through Electronic Cash ledger only.

• Earlier, as per Clause (b) to Section 129(1), where the owner of the goods does not come forward for payment of such penalty, penalty applicable was fifty percent of value of goods less tax paid. However, as per amendment, penalty payable shall be higher of fifty percent of value of goods or two hundred per cent of tax payable.
• The deletion of sub-section (2) means that after detention or seizure of goods, the same cannot be provisionally released based on execution of bank guarantee and bond. Goods can be released only after payment of penalty as per Clause (a) or (b) of sub-section (1).
• The amendment to sub-section (3) eliminates the word tax from the law and provides time limit for issue of notice and order after detention and seizure of goods.
• The amendment to sub-section (6) provides more time to taxpayer for payment of penalty. Earlier amount was required to be paid within fourteen days from date of detention of goods. Now, the amount will be liable to be paid within fifteen days from date of order of penalty. If such penalty is not paid within the time specified, the goods will be liable to be sold or disposed off and amount of penalty will be recovered from such proceeds.

If the transporter wants to release the conveyance, he shall be liable to pay lower of penalty payable under sub-section (3) or rupees one lakh. 

Extract

109. In section 130 of the Central Goods and Services Tax Act,––

(a) in sub-section (1), for the words “Notwithstanding anything contained in this Act, if ”, the word “Where” shall be substituted;

(b) in sub-section (2), in the second proviso, for the words, brackets and figures “amount of penalty leviable under sub-section (1) of section 129”, the words “penalty equal to hundred per cent. of the tax payable on such goods” shall be substituted;

(c) sub-section (3) shall be omitted.

Interpretation

• The over-riding effect of sub-section (1) has been removed.
• The minimum amount of fine leviable has been delinked from penalty payable under 129(1), and minimum fine payable shall not be less than one hundred per cent of tax payable.
• Additional burden on transporter for payment of fine and penalty has been removed.
  

Extract

110. For section 151 of the Central Goods and Services Tax Act, the following section shall be substituted, namely: ––

 “151. The Commissioner or an officer authorized by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as may be specified therein.”

Interpretation

After proposed amendment, the Commissioner may direct any person to furnish information without the need to issue notification. 

Extract

111. In section 152 of the Central Goods and Services Tax Act,––

(a) in sub-section (1),––

(i) the words “of any individual return or part thereof” shall be omitted;

(ii) after the words “any proceedings under this Act”, the words “without giving an opportunity of being heard to the person concerned” shall be inserted;

(b) sub-section (2) shall be omitted.

Interpretation

Extract of sub-section (1) to Section 152

(1) No information of any individual return or part thereof  with respect to any matter given for the purposes of section 150 or section 151 shall, without the previous consent in writing of the concerned person or his authorised representative, be published in such manner so as to enable such particulars to be identified as referring to a particular person and no such information shall be used for the purpose of any proceedings under this Act

Earlier, the bar on disclosure of information for the purpose of Section 150/151 was there only on return data furnished by the taxpayer and the information could be used for any other proceedings under the act without giving any opportunity of being heard to the taxpayer.

However, after the amendment, in addition to written consent for sharing of information for purpose of Section 150/151, an opportunity of being heard will be given before any data is used for any other proceedings under the act.

Extract

112. In section 168 of the Central Goods and Services Tax Act, in sub-section (2),––

(i) for the words, brackets and figures “sub-section (1) of section 44”, the word and figures “section 44” shall be substituted;

(ii) the words, brackets and figures “sub-section (1) of section 151,” shall be omitted.

Interpretation

Section 44(1) has been substituted with Section 44 and Section 151(1) has been omitted to give effect to amendment in the respective sections. 

 Integrated Goods and Service Tax

Extract

114. In the Integrated Goods and Services Tax Act, 2017, in section 16, ––

 (a) in sub-section (1), in clause (b), after the words “supply of goods or services or both”, the words “for authorised operations” shall be inserted;

(b) for sub-section (3), the following sub-sections shall be substituted, namely

“(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed:

Provided that the registered person making zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be prescribed.

(4) The Government may, on the recommendation of the Council, and subject to such conditions, safeguards and procedures, by notification, specify––

(i) a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid;

(ii) a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid.

Interpretation

• Earlier Supplies to SEZ unit or SEZ Developer was automatically covered under Zero rated Supplies, however after the amendment the said will be applicable only for Supplies to SEZ unit or SEZ Developer for their Authorized operations (which are specified in the letter of approval issued by Development Commissioner of SEZ)
• Similar to Customs Act, sale proceeds from the export customer including SEZ unit/Developer must be realized within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999. If the same is not realized, then the refund of unutilized ITC or refund of IGST paid on such sale to be returned along with Interest payable as per Section 50 of CGST Act.

This article has been complied by Harisankar K, Jaskamal Singh and Shubham Kishanpuria.

Disclaimer: The following article has been written based on Finance Bill, 2021 issued by Ministry of Finance. The following section/sub-section/clause is not yet notified and may be subject to change at the time of notification.

This article is for educational purposes only.