Finance Bill 2021, GST and AIDC

Amendments in CGST, IGST and UTGST Acts, 2017:

Amendments carried out in the Finance Bill, 2021 will come into effect from the date when the same will be notified, as far as possible, concurrently with the corresponding amendments to the similar Acts passed by the States and Union territories with Legislature.

1. Reconciliation Statement – Obliterated 

• Sub-section (5) of section 35 of the CGST Act is proposed to be omitted to remove the mandatory requirement of getting annual accounts audited and reconciliation statements submitted by specified professionals in case of registered persons having specified aggregate turnovers.
• Consequentially, section 44 of the CGST Act is proposed to be substituted to remove the mandatory requirement of furnishing a reconciliation statement duly audited by a specified professional. Instead, a new self-certified reconciliation statement may be submitted with the annual return along with the audited annual financial statement. The section further provides that the Commissioner may exempt a class of taxpayers from the requirement of filing the annual return.

2. Scope of Supply

• Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. section 7 of the CGST Act provides the definition for Scope of Supply to include all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The Bill proposes to expand the scope of supply with effect from 1st July 2017 by adding a new clause (aa) in sub-section (1) of section 7 to include 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. For the purpose of the amendment, it is clarified that, 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.
• Consequent to the amendment in section 7 of the CGST Act paragraph 7 of Schedule II to the CGST Act is proposed to be omitted retrospectively, with effect from the 1st July, 2017 under clause 113 of the Finance Bill.

3. Zero Rate Supply

• Clause (b) sub-section (1) section 16 of the IGST Act provides a supply to be zero rated if supply of goods or services or both is made to a Special Economic Zone developer or a Special Economic Zone unit, the bill proposes to amend the entry so as the transaction will be zero rated only when the said supply in the entry is for authorised operations.
• A registered person making a zero rated supply earlier had an option to supply goods or services or both under bond/LUT or on payment of IGST. The bill proposes to restrict the zero rated supply on payment of IGST only to a notified class of taxpayers or notified supplies of goods or services.
• Sub-section 3 of section 16 of the IGST Act further contains proposed amendments with the intent to link the foreign exchange remittance in case of export of goods with refund. The amendment provides that registered person making zero rated supply on basis of bond/LUT shall deposit the refund received along with the applicable interest within a period od 30 days in case the sale proceeds remain unrealised with the time limited prescribed under FEMA.

4. Eligibility and Conditions for Taking Input Tax Credit (ITC)

• Proposal to include filing of return by the supplier of goods/services as provided for in section 37 (statement of outward supplies) of the CGST Act along with the condition of possession of invoice, for availment of credit. The said proposal seeks to include the provisions relating to ITC reconciliation provided in rule 36(4) of CGST Rules and in order to identify and eliminate tax evaders and fake billers. 

5. Interest on Net Liability 

• CGST (Amendment) Act, 2018 (No. 31 of 2018) – Brought into force w.e.f. 01st February 2019 the proviso clause of section 50 which provided that interest shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger. However, subsequent developments by way of standing order, judgments, tweets, and interpretations created a big chaos and confusion in taxpayer’s mind. Bringing the clarity, the bill proposes to amend section 50, retrospectively, to substitute the proviso to sub-section (1) so as to charge interest on net cash liability with effect from the 1st July, 2017.

6. Detention, seizure and release of goods and conveyances in transit 

• Earlier, seizure and confiscation of goods and conveyances in transit were included in Section 73 and 74 of the CGST Act (recovery of taxes). Section 74 of the CGST Act is proposed to be amended so as make seizure and confiscation a separate proceeding from recovery of tax.
• Additionally, it is proposed to amend Section 129 and section 130 of the CGST Act to delink the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit, from the proceedings under section 130 relating to confiscation of goods or conveyances and levy of penalty.
• The bill proposes to insert a proviso to sub-section (6) of section 107 of the CGST Act to provide that no appeal shall be filed against an order made for seizure of goods and conveyances in transit under sub-section (3) of section 129 unless a sum equal to twenty-five per cent of penalty is paid by the appellant, earlier it was only 10%.

7. Other Changes in GST

• An explanation to sub-section (12) of section 75 of the CGST Act is being inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39.
• Section 83 of the CGST Act is proposed to be amended so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.
• The bill proposes to amend section 152 of the CGST Act – Bar on disclosure of information by concerned officers, to eliminate the words “of any individual or part thereof” to avoid any uncalled litigations. The bill further proposes to amend the section to provide that no information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned.

Agriculture Infrastructure and Development Cess (AIDC)

These changes would become effective on 02.02.2021, owing to the declaration made under Provisional Collection of Taxes Act, 1931

8. Agriculture Infrastructure and Development Cess (AIDC)

• Agriculture Infrastructure and Development Cess (AIDC), has been proposed in the bill as a duty of customs. Enabling provisions has been made for levy of this cess on all imported goods at the rate not exceeding the rate specified in the First Schedule to the Customs Tariff Act, 1975. However, it is to note that cess would be levied only on exhaustive list of goods (a few from the list are apples, crude palm oil, peas, kabuli chana, lentils, vermouth and other wines, urea, cotton, gold and silver). Necessarily, the BCD rates have been simultaneously lowered on items on which cess is being imposed. Social Welfare Surcharge (SWS) would be levied on AIDC. However, exemption from SWS on AIDC has been given to gold and silver. Further, goods imported under customs duty exemptions available under FTA and EOU as well as under advance authorization schemes are being exempted from AIDC.
• For the purpose of calculating the AIDC, the import value of such goods shall be calculated in the same manner as the value of goods is calculated under the provisions of section 14 of the Customs Act, 1962.
• AIDC of Rs 2.5 per litre has been imposed on petrol and Rs 4 per litre on diesel as an additional duty of excise. Accordingly, the government has calibrated Basic Excise Duty and the Special Additional Excise Duty so as to minimize the burden on the consumer. Exemption has been provided to blended fuels namely 5% ethanol blended petrol, 10% ethanol blended petrol, 20% bio-diesel blended High speed diesel, and new category of blended fuels namely, 15% Methanol blended Petrol (M-15 fuel) and 20% ethanol blended Petrol (E-20 fuel) (Refer notification Nos. 03/2021-Central Excise, dated 1st February, 2021).