The Finance Act 2024 – Key Amendments relating to Indirect Taxes

The Finance (No 2) Act 2024 been notified on 16th August 2024. The Finance Act sections 114 to 157 Page  114 to 157 (Page 67 to 68) amends Goods and Service Tax, and sections 100 to 111 (Page 54 to 56) amends Customs Duty. The key amendments are summarised as follows:

Goods and Service Tax (GST) 

Extra Neutral Alcohol out of purview of GST: CGST Section 9 has been amended to take Extra Neutral Alcohol (un-denatured extra neutral alcohol or rectified spirit) used in manufacture of alcoholic liquor for human consumption out of purview of central tax. Similar amendments have also been done in IGST Act and UTGST Act.

Finance (No. 2) Act 2024 – Key Amendments relating to Direct Taxes

Power to regularize non-levy or short levy of central tax: CGST Section 11A has been inserted to empower the government to regularize non-levy or short levy of central tax due to any general practice prevalent in trade. Similar amendments have also been done in IGST Act, UTGST Act and GST (Compensation to States) Act.

Time of supply of services where the invoice issued by the recipient in cases of reverse charge: CGST Section 13(3) has been amended to provide for time of supply of services where the invoice is required to be issued by the recipient of services in cases of reverse charge supplies. The date of issue of invoice by the recipient will be one of the factors for determining  the time of supply in such cases.

Availment of ITC for Financial Years 2017-18 to 2020-21 and for the period from cancellation to revocation of registration:  The existing section 16(4) provides that a registered person shall not be entitled to take input tax credit after 30^th November following the end of financial year or furnishing of the relevant annual return, whichever is earlier. CGST section 16(5) has been inserted to provide that in respect of an invoice or debit note, for the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed up to the 30th day of November, 2021. Further, CGST section 16(5) has been inserted to allow the availment of input tax credit in respect of an invoice or debit note in a return filed for the period from the date of cancellation of registration till the date of order of revocation of cancellation of registration, filed within thirty days of the date of order of revocation of cancellation of registration, subject to the condition that the time-limit for availment of credit in respect of the said invoice or debit note should not have already expired, on the date of order of cancellation of registration. Further, where the tax has been paid or the input tax credit has been reversed, no refund of the same shall be admissible. These amendments have been made effective from the 1st day of July, 2017.

Non-availability of input tax credit in respect of tax paid under section 74 up to Financial Year 2023-24: CGST section 17(5) provides that input tax credit shall not be available for any tax paid in accordance with the provisions of sections 74, which deals with  determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.  The amendment restricts the non-availability of input tax credit in respect of tax paid under section 74 only for demands up to Financial Year 2023-24.

Conditions and restrictions for revocation of cancellation of registration: Section 30 deals with revocation of cancellation of registration. A new proviso in section 30(2) has been inserted, so as to provide for an enabling clause to prescribe conditions and restrictions for revocation of cancellation of registration.

Issue of Tax invoice: CGST Section 31(3)(f) has been amended to incorporate an enabling provision for prescribing the time period for issuance of invoice by the recipient in case of reverse charge mechanism supplies. Explanation has also been inserted to specify that a supplier registered solely for the purposes of tax deduction at source under section 51 shall not be considered as a registered person for the purpose of section 31(3)(f).

Furnishing of returns: CGST Section 39(3) has been substituted, so as to mandate the electronic furnishing of return for each month by the registered person required to deduct tax at source, irrespective of whether any deduction has been made in the said month or not. It also empowers the Government to prescribe by rules, the form, manner and the time within which such return shall be filed.

Refund of Tax: CGST section 54(15)(3) has been inserted so as to provide that no refund of unutilised input tax credit or integrated tax shall be allowed in cases of zero rated supply of goods where such goods are subjected to export duty.

Power to summon persons to give evidence and produce documents: CGST section 70(1A) has been inserted, to enable an authorised representative to appear on behalf of the summoned person before the proper officer in compliance of summons issued by the said officer. 

Determination of tax for any reason other than fraud or any willful misstatement or suppression of facts: CGST section 73(12) has been inserted, so as to restrict the applicability of the said section for determination of tax pertaining to the period up to Financial Year 2023-24. 

Determination of tax not by reason of fraud or any willful misstatement or suppression of facts: CGST section 74(12) has been inserted, so as to restrict the applicability of the said section for determination of tax pertaining to the period up to Financial Year 2023-24.

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason for financial year 2024-25 onwards: CGST Section 74A has been inserted, so as to provide for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to the Financial Year 2024-25 onwards. It also provides for limitation period for issuing demand notices and orders, irrespective of whether the charges of fraud, wilful misstatement, or suppression of facts are invoked or not, while keeping a higher penalty, for cases involving fraud, wilful misstatement, or suppression of facts.

General provisions relating to determination of tax: CGST Section 75(2A) has been inserted, so as to provide for redetermination of penalty as per section 74A(5)(i), in cases where the charges of fraud, wilful misstatement, or suppression of facts are not established.

Reduction in Pre-deposit for Appeals to Appellate Authority: CGST Section 107(6) has been amended, so as to reduce the maximum amount of pre-deposit for filing appeal before the Appellate Authority from rupees twenty five crores to rupees twenty crores in central tax. 

Constitution of Appellate Tribunal and Benches thereof: CGST Section 109 has been amended, so as to empower the Government to notify types of cases that shall be heard only by the Principal Bench of the Appellate Tribunal. 

Appeals to Appellate Tribunal: CGST Section 112(1) and 112(3) have been amended, so as to empower the Government to notify the date for filing appeal before the Appellate Tribunal and provide a revised time limit for filing appeals or application before the Appellate Tribunal. Section 112(6) is also being amended so as to enable the Appellate Tribunal to admit appeals filed by the department within three months after the expiry of the specified time limit of six months. Section 112(8) is also being amended so as to reduce the maximum amount of pre-deposit for filing appeals before the Appellate Tribunal from the existing twenty percent to ten percent of the tax in dispute and also reduce the maximum amount payable as pre-deposit from rupees fifty crores to rupees twenty crores in central tax. 

Penalty for certain offences: CGST Section 122(1B) has been amended, so as to restrict its applicability to electronic commerce operators, who are required to collect tax at source under section 52 of the said Act. The said amendment is made effective from the 1^st day of October, 2023 when the said sub-section had come into force. 

Power to waive penalty or fee or both: CGST Section 128A has been inserted, to provide for a conditional waiver of interest and penalty in respect of demand notices issued under section 73 of the said Act for the Financial Years 2017-18, 2018-19 and 2019-20, except the demands notices in respect of erroneous refund. In cases where interest and penalty have already been paid in respect of any demand for the said financial years, no refund shall be admissible for the same.

Transitional arrangements for input tax credit: CGST Section 140(7) has been amended, so as to enable availment of the transitional credit of eligible CENVAT credit on account of input services received by an Input Services Distributor prior to the appointed day, for which invoices were also received prior to the appointed date. The said amendment is made effective from 1st day of July, 2017.

Anti-profiteering measure: Proviso and Explanation has been inserted in section 171(2), so as to empower the Government to notify the date from which the Authority under the said section will not accept any application for examination as to whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. Explanation in section 171(3A) has been inserted, so as to include the reference of Appellate Tribunal in the Authority under the said section so that the Appellate Tribunal may be notified by the Government to act as an Authority under the said section. 

Activities or transactions which shall be treated neither as a supply of goods or a supply of services to include co-insurance and reinsurance: Paragraph 8 has been inserted in Schedule III of CGST Act, so as to provide that the activity of apportionment of co-insurance premium by the lead insurer to the co-insurer for the insurance services jointly supplied by the lead insurer and the co-insurer to the insured in coinsurance agreements shall be treated as neither supply of goods nor supply of services, provided that the lead insurer pays the tax liability on the entire amount of premium paid by the insured. Paragraph 9 has been inserted in Schedule III, so as to provide that the services by the insurer to the re-insurer, for which the ceding commission or the reinsurance commission is deducted from reinsurance premium paid by the insurer to the reinsurer, shall be treated as neither supply of goods nor supply of services, provided that tax liability on the gross reinsurance premium inclusive of reinsurance commission or the ceding commission is paid by the reinsurer. 

Zero rated supply of goods or services  or both:  IGST Section 16(4) has been amended, so as to provide for notification of class of persons who may make zero rated supplies of goods or services or both or class of goods or services which may be supplied on zero rated basis, and refund of integrated tax in respect of which can be claimed, subject to such conditions, safeguards and procedures as may be prescribed. Section 16(5) has been inserted to provide that no refund of unutilized input tax credit or of integrated tax paid on account of zero rated supply of goods shall be allowed in cases where the zero rated supply of goods is subjected to export duty. 

Reduction in pre-deposit for filing appeal: IGST Section 20 has been amended, so as to reduce the maximum amount of pre-deposit payable for filing appeal before appellate authority from rupees fifty crores to rupees forty crores of integrated tax. Further, it reduces the maximum amount payable as pre-deposit for filing appeal before the Appellate Tribunal from rupees hundred crores to rupees forty crores of integrated tax.

Customs Duty

Procedure regarding claim of preferential rate of duty: Section 28DA of the Customs Act has been amended to enable the acceptance of different types of proof of origin provided in trade agreements in order to align the said section with new trade agreements, which provide for self-certification. ‘Proof of Origin’ means a certificate or declaration issued in accordance with a trade agreement certifying or declaring, as the case may be, that the goods fulfil the country of origin criteria and other requirements specified in the said agreement. ‘Issuing Authority’ means an authority or person designated for the purposes of issuing proof of origin under a trade agreement.

Manufacture and other operations in relation to goods in a warehouse: A proviso to section 65(1) has been inserted to empower the Central Government to specify certain manufacturing and other operations in relation to a class of goods that shall not be permitted in a warehouse.

Power to simplify or provide different procedure, etc., to facilitate trade: Section 143AA of the Customs Act provides that the Board may, for the purposes of facilitation of trade, take such measures or prescribe separate procedure or documentation for a class of importers or exporters or for categories of goods or on the basis of the modes of transport of goods. It has been amended by substituting the expression ‘a class of importers or exporters’ with ‘a class of importers or exporters or any other persons’ for the purpose of facilitating trade.

General power to make regulations: Section 157(2)(m) of the Customs Act states that the regulations may provide for the measures and separate procedure or documentation for a class of importers or exporters or categories of goods or on the basis of the modes of transport of goods. It has been amended by substituting the expression ‘a class of importers or exporters’ with ‘a class of importers or exporters or any other persons’.

Levy of additional duty equal to excise duty, sales tax, local taxes  and other charges, applicability of provisions of Customs Act:  Section 3(12) of the Customs Tariff Act has been substituted to provide that the provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section.

Omitted Section 6 relating to Power of Central Government to levy protective duties in certain cases: Section 6 of the Customs Tariff Act which provided for levy of protective duties in certain cases on the recommendations of the Tariff Commission is being omitted, as the Tariff Commission has been wound up by resolution dated 1^st June 2022 by the Government of India. This change will come into effect from the date of enactment of the Finance Bill.

Power of Central Government to apply safeguard measures, applicability of provisions of Customs Act: Section 8B(9) of the Customs Tariff Act has been substituted to provide that the provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section.

Countervailing duty on subsidized articles, applicability of provisions of Customs Act:  Section 9(7A) of the Customs Tariff Act has been substituted to provide that the provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section.

Anti- dumping duty on dumped articles, applicability of provisions of Customs Act: Section 9A(8) of the Customs Tariff Act has been substituted to provide that the provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section.

Amendment of First Schedule of Customs Tariff Act: The amendments relates to changes in rate of duty and notes/ supplementary notes for various chapters. These are as per the manner specified in Third and Fourth schedule of The Finance (No2) Act 2024.

Disclaimer: The contents of this article are for informational purposes only. The user may refer to the notification issued by Central Government on Tax matters for specific interpretation and compliances related to a particular subject matter)