Slew of amendments were expected in the Budget given the fact that the GST laws suffer from lacunas which require immediate attention. Also the manner in which secrecy was kept on the proposals related to GST, even though the same were discussed in the GST Council but never made public before the Budget day, had raised the expectations. However as seen from the present document, very few amendments have been proposed (and only three amongst them are substantial). In all 16 amendments have been proposed under the CGST Act, 2017 by virtue of clauses 116 to 131 of the Finance Bill, 2020. Parallel 2 amendments have been proposed under the IGST Act, 2017 by virtue of clauses 132 & 133 of the Finance Bill, 2020. Also parallel 4 amendments have been proposed under the UT GST Act, 2017 and one amendment has been proposed under the Compensation to States Act, 2017.
Before discussing the effective date for the present proposals, it may be noted that substantial amendments already made in the Central GST Laws by virtue of Finance Act (No. 2), 2019 are yet to be notified (e.g. amendment related to imposition of interest on the delayed payment of tax only on the cash portion and not the credit portion is yet to be notified).
Of the present proposals, following are sought to be applied retrospectively:
a. Proposed amendment in the transitional provisions u/s 140 of the CGST Act, 2017
b. Proposed amendment in paragraph 4 of Schedule II to the CGST Act, 2017
c. Concessions with respect to supply of fish meal and pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery (falling under headings 8432, 8433 and 8436)
d. Blockage of refund of compensation cess in cases where the refund of GST is not available under the inverted rate structure for tobacco and manufactured tobacco substitutes.
Hence as and when the proposals are made into law the above amendments would apply retrospectively. Rest amendments would apply only from the notified date.
In the present document for the sake of better understanding, the relevant existing legal provisions have been reproduced wherein the proposed additional words are highlighted in red and existing words omitted are highlighted by a strike.
PROPOSED AMENDMENTS IN THE CGST ACT, 2017
First we shall deal with three substantive proposed amendments and then discuss the other proposals.
1. Sec. 122 – Penalty for certain offences
“Sec. 122(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.”
New sub-section (1A) is sought to be introduced in Sec. 122 wherein it has been proposed that a person who retains the benefit of following transactions:
(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;
(iii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
(iv) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder
And at whose instance such transactions are conducted shall also be liable to penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.
The need for the proposed amendment stems from the fact that the actual beneficiaries of fraudulent issuance of invoices and availment of fake credits are different from the registered persons in whose name they are undertaken. Hence to nab the kingpin of such racquets, the amendment proposes that the penalty will also be imposed on the kingpin who has retained the benefit of such fraudulent transactions and at whose instance they were made.
From the drafting it also appears that twin test of retaining the benefit and at whose instance the transaction is undertaken needs to be satisfied before imposing penalty under the proposed amendment.
2. Sec. 132 – Punishment for certain offences
“Sec. 132(1) Whoever commits any of the following offences Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely :—
(c) avails input tax credit using such invoice or bill referred to in clause (b);
(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;
(e) evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);”
Parallel to the proposal to impose penalty on the kingpin of fake credit racquets, an amendment has also been proposed u/s 132 to punish such kingpin by way of imprisonment and fine. Therefore it has been proposed that the person who even causes to commit and retains the benefit of the given offences would be liable to prosecution. It may also be noted that such offences of fake invoicing/credits are cognizable and non-bailable if the evasion amount exceeds INR 5 crores.
3. Sec. 16(4) – Time limit to avail ITC
“Sec. 16(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier”
It may be noted that the time limit to avail ITC with respect to the tax charged on the debit note is also linked to the invoice date and not the date of the debit note. As an example if the invoice is of FY 2017-18, even if the debit note is issued in FY 2019-20 (e.g. for levy of interest on delayed payment by the customer), the ITC with respect to the said debit note cannot be claimed for the reason that Sec. 16(4) provides for the time limit for claiming the ITC pertaining to the said debit note with reference to the invoice date and as the invoice is for FY 2017-18, time limit to claim ITC even with respect to the debit note linked with the invoice has expired in March, 2019 and as the debit note was issued thereafter ITC cannot be claimed. Said lacuna is sought to be addressed by the proposal to omit the words “invoice relating to such” and hence the time limit for availing ITC with respect to the debit note would be linked with the date of debit note and not the date of invoice.
It is a settled principle of interpretation that the law cannot make the taxpayer to do the impossible (Lex non cogit ad impossibilia – the law does not compel the doing of impossibilities)”. One may refer to one of the first ruling of Apex Court on the said principle in the case of Cochin State Power & Light Corporation Ltd. v. The State of Kerala AIR 1965 SC 1688. Hence one cannot be expected to avail the credit within the given time with respect to the debit note legally issued after the last date for availment of the said credit. Therefore it is our contention that even prior to the given proposed amendment, a view can be taken that the time limit enshrined u/s 16(4) with respect to the debit note cannot be read with regard to the invoice date but the same has to be read with respect to the debit note date.
4. Sec. 10 – Composition Scheme for supplier of goods
“Sec. 10(2) The registered person shall be eligible to opt under sub-section (1), if:—
(a) save as provided in sub-section (1), he is not engaged in the supply of services;
(b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods or services;
(d) he is not 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;
(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the [Council; and]
(f) he is neither a casual taxable person nor a non-resident taxable person”
The proposed amendments seeks to provide that a registered person seeking to pay the tax under composition scheme shall not be engaged in making any supply of even services which is not leviable to tax (over and above the goods not leviable to tax) or shall not be engaged in making any inter-state outward supplies of even services or shall not be engaged in making any supplies of even services through an electronic commerce operation who is required to collect TCS. Thus in other words the 10% permissible limit to even enable supply of services for a composition supplier of goods shall not however permit supply of services not leviable to tax, inter-state supply of services as well as supply of services through an E-commerce operator required to collect TCS. It may also be noted that the 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 while reading the said restriction due to specific exclusion of the same by virtue of third proviso to Sec. 10(1) of the CGST Act, 2017
5. Sec. 29 – Cancellation or suspension of registration
“Sec. 29(1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where, —
(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
(b) there is any change in the constitution of the business; or
(c) the taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24
(c) the taxable person is no longer liable to be registered under section 22 or section 24 or intends to opt out of the registration voluntarily made under sub-section (3) of section 25”
As per the proposal even a registered person who has obtained the registration voluntarily can opt for cancellation if such person is otherwise not required to be registered mandatorily u/s 22 (on crossing the threshold) or Sec. 24 (compulsory registration in certain cases).
6. Sec. 30 – Revocation of cancellation of registration
Proviso to Sec. 30(1)
“Provided that the registered person who was served notice under sub-section (2) of section 29 in the manner as provided in clause (c) or clause (d) of sub-section (1) of section 169 and who could not reply to the said notice, thereby resulting in cancellation of his registration certificate and is hence unable to file application for revocation of cancellation of registration under sub-section (1) of section 30 of the Act, against such order passed up to 31-3-2019, shall be allowed to file application for revocation of cancellation of the registration not later than 22-7-2019
“Provided that such period may, on sufficient cause being shown, and for reasons to be recorded in writing, be extended,–– (a) by the Additional Commissioner or the Joint Commissioner, as the case may be, for a period not exceeding thirty days; (b) by the Commissioner, for a further period not exceeding thirty days, beyond the period specified in clause (a).”
Sec. 30(1) provides for the time period of 30 days from the date of service of the cancellation order for making an application seeking revocation of the cancellation of the registration. Proviso however creates an exception to the said time limit of 30 days in cases where cancellation order has been passed upto 31.03.2019. In such case the revocation application could have been made till 22.07.2019. Now an amendment has been proposed to the effect that on sufficient cause, the Additional/Joint Commissioner can extend the period for making the revocation application by 30 more days and the Commissioner can extend even further by 30 more days. In other words a condonation for late filing of the revocation application can be sought upto 60 days from the end of the normal 30 days period subject to sufficient cause.
7. Sec. 31 – Tax invoice
Proviso to Sec. 31(2)
Provided that the Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which —
(a) any other document issued in relation to the supply shall be deemed to be a tax invoice; or
(b) tax invoice may not be issued.
“Provided that the Government may, on the recommendations of the Council, by notification,––
(a) specify the categories of services or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed;
(b) subject to the condition mentioned therein, specify the categories of services in respect of which––
(i) any other document issued in relation to the supply shall be deemed to be a tax invoice; or
(ii) tax invoice may not be issued.”
Proviso to Sec. 31(2) grants power to the Government to specify categories of services in respect of which any other document can be deemed as tax invoice or tax invoice may not be issued on making its supply. Now it has been proposed that the power of the Government would be widened to the effect that the Government can also specify with respect to categories of services or supplies in respect of which a tax invoice shall be issued, the time limit within which it shall be issued and also the manner in which it shall be issued.
Hence an enabling power is sought to be vested to the Government to prescribe e-invoicing amongst other things which can come in future.
8. Sec. 51 – TDS
Sec. 51(3) The deductor shall furnish to the deductee a certificate mentioning therein the contract value, rate of deduction, amount deducted, amount paid to the Government and such other particulars in such manner as may be prescribed.
(3) A certificate of tax deduction at source shall be issued in such form and in such manner as may be prescribed.
Sec. 51(4) If any deductor fails to furnish to the deductee the certificate, after deducting the tax at source, within five days of crediting the amount so deducted to the Government, the deductor shall pay, by way of a late fee, a sum of one hundred rupees per day from the day after the expiry of such five days period until the failure is rectified, subject to a maximum amount of five thousand rupees.
The procedural part contained in Sec. 51 dealing with the issuance of the TDS certificate and the consequences on certain failures is now proposed to be dealt by way of a delegated legislation (viz. Rules) and hence the concerned provisions contained in the Act are sought to be omitted.
9. Sec. 140 – Transitional arrangements for input tax credit
A retrospective amendment has been proposed u/s 140 to the effect that the Government will stipulate the time limits within which the transitional credits under various scenarios covered u/s 140 can be claimed. It may be noted that the Government had in fact by way of Rules already prescribed the time limits for claiming the transitional credits. Hence the said proposal only seeks to address a lacuna by way of an amendment in the Act to allow the Government to stipulate the already given time limits.
10. Sec. 168 – Power to issue instructions or directions
“(2) The Commissioner specified in clause (91) of section 2, sub-section (3) of section 5, clause (b) of sub-section (9) of section 25, sub-sections (3) and (4) of section 35, sub-section (1) of section 37, sub-section (2) of section 38, sub-section (6) of section 39, [sub-section (1) of section 44, sub-sections (4) and (5) of section 52,] sub-section (5) of section 66, sub-section (1) of section 143 sub-section (1) of section 143, except the second proviso thereof, sub-section (1) of section 151, clause (l) of sub-section (3) of section 158 and section 167 shall mean a Commissioner or Joint Secretary posted in the Board and such Commissioner or Joint Secretary shall exercise the powers specified in the said sections with the approval of the Board.”
An amendment has been proposed to the effect that the Commissioner determining the expenses and the remuneration for the special audit directed u/s 66 need not be the Commissioner or Joint Secretary posted in the Board and shall also not require the approval of the Board. Similarly the Commissioner authorized under the second proviso to Sec. 143(1) to extend the period for bringing back the goods given for job-work or for supply from the premises of the job-worker by one year (for inputs) and two years (for capital goods) beyond the normal time limit of one year (for inputs) and three years (for capital goods) shall also need not be the Commissioner or Joint Secretary posted in the Board and shall also not require the approval of the Board while extending the said time limits.
11. Sec. 172 – Removal of difficulties
Time limit to issue removal of difficulty orders (e.g. date of extending the due date for filing the annual return, etc.) is proposed to be increased to five years from the date of implementation of GST as against the present limit of three years. Hence the removal of difficulty order as per the proposed amendment can now be issued upto 30.06.2022.
12. Schedule – II
“4. Transfer of business assets
(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;”
Schedule II is merely a classification schedule and does not determine whether a transaction is a supply or not. Paragraph 4 of the said Schedule provides that the transfer or disposal of goods forming part of the assets of a business shall be considered as a supply of goods even if such transfer or disposal is for a consideration or not. Similarly where the goods held for the purpose of business are put to any private use or made available to any person for use other than business, then such usage or making available of such goods would be treated as supply of services even if such usage or making available is without a consideration. With this background it may be noted that Sec. 7(1)(c) of the CGST Act, 2017 only allows the activities specified in Schedule I as supply even if the same are made without a consideration. Hence unless the transaction in question is not covered by Schedule I, Schedule II by way of the above referred paragraph 4 cannot deem it as a supply if it is made without a consideration. Therefore the said anomaly is sought to be corrected by way of a retrospective amendment effective from 01.07.2017 to the effect that the aspect of presence/absence of consideration will be dealt by Schedule I only and Schedule II shall merely classify the said transaction once it is established that it is a supply. As an example, disposal of goods (for which ITC has not been claimed) forming part of the assets to an unrelated party without any consideration (e.g. scrap articles) shall not suffer any tax as the same is not covered by Schedule I and as per the proposed amendment paragraph 4 of schedule II won’t consider the aspect of absence/presence of consideration but will merely classify a supply if found to have been made.
13. Concessions in rate of tax
Fish meal (falling under heading 2301)
A retrospective exemption is proposed with respect to the supply of fish meal (falling under heading 2301) during the period commencing from the 1st day of July, 2017 and ending with the 30th day of September, 2019.
It may be noted that vide Circular No. 80/54/2018-GST, dated 31-12-2018 it has been clarified that “fish meal” is a raw material/input for manufacture/formulation of aquatic feed, animal feed, cattle feed, poultry feed etc. and hence the same cannot be exempted from tax as aquatic feed under Sr. No. 102 of notification No. 2/2017-Central Tax (Rate), dated 28-6-2017 but shall fall under Sr. No. 103 of notification No. 1/2017-Central Tax (Rate), dated 28-6-2017 leviable to tax @ 5%.
However in the 37th GST Council Meeting it was decided that the exemption should be granted to fish meal for the period 1-7-2017 to 30-9-2019 in view of doubts as regards taxability of fishmeal due to the interpretational issues. Hence the present proposal has been moved.
Therefore based on the above discussions it can be inferred that fish meal shall be taxable @ 5% w.e.f. 01.10.2019. The amendment also proposes that refund of the tax which has already been collected on the said supplies for the given period shall not be granted.
Pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery (falling under headings 8432, 8433 and 8436)
Rate of tax of 12% is proposed to be applied retrospectively to the supply of pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery (falling under headings 8432, 8433 and 8436), during the period commencing from the 1st day of July, 2017 and ending with the 31st day of December, 2018.
In the 37th GST Council Meeting it was decided that concession shall be granted in the form of 12% GST during the period 1-7-2017 to 31-12-2018 on pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery. Same is proposed to be effected by virtue of the present retrospective amendment proposal. The amendment also proposes that refund of the tax which has already been collected (in the present case at the higher rate) on the said supplies for the given period shall not be granted.
14. Inverted rate refund – blocked retrospectively with respect to compensation cess for tobacco and manufactured tobacco substitutes
An amendment has been proposed to the effect that the supplies for tobacco and manufactured tobacco substitutes with respect to which the refund under the inverted rate structure has been blocked by virtue of issuance of notification u/s 54(3)(ii) shall also equally apply retrospectively w.e.f. 01.07.2017 to the compensation cess credit.
15. Sec. 2 – Definitions
Sec. 2(114) “Union territory” means the territory of—
(a) the Andaman and Nicobar Islands;
(c) Dadra and Nagar Haveli; (c) Dadra and Nagar Haveli and Daman and Diu;
(d) Daman and Diu; (d) Ladakh
(e) Chandigarh; and
(f) other territory.
Due to reorganization of the UT’s (without legislators) by way of merger in the case of Dadra and Nagar Haveli and Daman and Diu as well as creation of a new UT of Ladakh, corresponding amendment has been proposed in the definition of “Union territory” so as to facilitate the requirements pertaining to registration along with necessary consequences.
16. Sec. 109 – Constitution of Appellate Tribunal and Benches thereof
With the reorganization of Jammu & Kashmir, the reference in Sec. 109(6) to deem the State bench constituted under the J & K GST Act, 2017 (now obliterated) as the State bench under CGST Act, 2017 is proposed to be omitted. Hence the Central Government shall have the right to notify bench of Appellate Tribunal for the State of Jammu and Kashmir as well.
PROPOSED AMENDMENTS IN THE IGST ACT, 2017
Parallel amendments with respect to the enhanced time limit for the issuance of removal of difficulty order as well as concessions with respect to the supply of fish meal and pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery (falling under headings 8432, 8433 and 8436) have also been proposed under the IGST Act, 2017. Readers may refer to discussions made earlier on the said proposals.
PROPOSED AMENDMENTS IN THE UT GST ACT, 2017
Amendments have been proposed in the UT (Union Territory) GST Act, 2017 on account of reorganization of UT’s, extension of period upto 5 years for issuance of removal of difficulty order and concession with respect to fish meals and pulley, wheels and other parts of agricultural machinery. Readers may refer to the analysis made earlier to understand the said proposals.
PROPOSED AMENDMENT IN THE GST (COMPENSATION TO STATES) ACT, 2017
One amendment has been proposed to extend the time period for issuance of removal of difficulty order to five years from the present three years.