The Article below summarizes the changes proposed in the CGST Act, 2017 and IGST Act, 2017 vide the Finance Bill, 2020 (‘Budget’). Post the enactment of Finance Act, 2020, these changes shall be applicable only when a notification is issued regarding their applicability.

1. Section 10 (Composition Scheme)

With the option to avail composition scheme being granted to service providers having a turnover of upto 50 lakh w.e.f 1 January 2020, the Budget seeks to deny the benefit of composition scheme to the following service providers engaged in:

  • Supply of services not liable to GST;
  • Inter-state supply of services; and
  • Supply of services through E-commerce operator.

These restrictions are in line with the current provisions that impose limitations to in respect of eligibility of composition scheme for a supplier of goods.

Goods and Service Tax

2. Section 16 (ITC of Debit Note)

Presently, Section 16 imposes limitation on the availment of ITC of a debit note relating to an invoice upto the due date of filing of return of September following the end of financial year to which invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier. An amendment is proposed by the Budget to delink the period of limitation of availment of ITC of a debit note from the date of invoice to which such debit note pertains. Instead, now the limitation period of availment of ITC of a debit note shall be calculated from the issue of debit note and shall be allowed upto the due date of filing GSTR-3B of September following the end of financial year in which such debit note is issued or the date of filing relevant annual return, whichever is earlier.

3. Section 29 and Section 30 (Cancellation of registration)

3.1 The Budget proposes an amendment to enable a person who had applied registration voluntarily to apply for cancellation of registration if he is no longer liable to obtain registration. Presently, a GST officer is empowered to cancel the registration on an application made by the supplier or on his own volition only under the following circumstances:

  • Discontinuance, Amalgamation, demerger, death of a proprietor, etc;
  • Change in constitution of business; or
  • Taxable person is no longer liable to obtain registration except who has obtained registration voluntarily.

3.2 Presently, a registered person whose registration has been cancelled by the GST officer on his own motion, can file an application for revocation of cancellation within a period of 30 days from the date of service of cancellation order. The Budget proposes to extend the time limit of 30 days, on sufficient cause being shown, as follows:

  • By Additional / Joint Commissioner up to 30 days; or
  • By Commissioner up to 60 days

4. Penalty and Prosecution (Section 122 and Section 132)

  • The Budget proposes to enhance the scope of penal provisions under Section 122 to penalize the person who retains the benefit of the following transactions or at whose instance the following transactions are conducted:
  • Supply of goods or services or both without the issue of invoice or issue of an incorrect or false invoice in relation to such supply;
  • Issue of an invoice without the supply of goods or services;
  • Availment or utilization of ITC without the actual receipt of goods or services either fully or partially;
  • Availment or distribution of ITC by an input service distributor

Presently, only the taxable person who committed such offences could be penalized under the Act. It was often found that a kingpin who was the beneficiary or was causing such offences to be conducted was doing such transactions with the registered taxable person being his employees. The employees, in most cases, were untraceable or were oblivious to such transaction being conducted in their name. The Budget seeks to bring an amendment to also penalize the actual kingpin / mastermind behind such fraudulent transactions.

4.2 In line with the amendment to penalty provisions, the Budget also seeks to amend the prosecution provisions to extend their scope to the kingpin/ mastermind behind the aforementioned transactions.

4.3 Another amendment is proposed to be made to the prosecution provisions to make the availment of ITC without an invoice or bill a cognizable and non-bailable offence.

5. TDS

To reduce the compliance burden on tax deductors who are Government establishments, the Budget seeks to remove the requirement for issue of TDS certificate and the hence strike out the penal provisions for delay in issue of TDS certificate.

6. Miscellaneous Provisions

6.1 With the amendment made to the definition of Supply vide the CGST Amendment Act, 2018 the transactions mentioned in Schedule II were not de-facto considered as supply. A transaction had to fulfill the requirements of Section 7 which specified consideration as a pre-requisite for a transaction to be a supply or in the absence of consideration it had to be listed under Schedule I in order for it to qualify as a supply under the Act. Schedule II served the purpose of only classification of a transaction as a supply of goods or services. Even post this amendment, transfer of business assets carried out without consideration was classified to be a transaction in goods as per Schedule II even though the same was not even a supply under the amended definition of supply.

The budget proposes to bring a clarificatory amendment to remove the transaction of transaction of business assets carried out without consideration from Schedule II. Thus the proposed amendment seeks to bring Schedule II in line with the amended definition of supply.

The time limit for issue of Removal of Difficulty Order under the CGST Act, 2017 is proposed to be extended from the present period of 3 years to 5 years.

7. Retrospective changes

Post the enactment of the Finance Act, 2020 the following amendments shall have retrospective effect:

  • The refund of accumulated compensation cess on tobacco products arising out of inverted duty structure is disallowed w.e.f. 1 July 2017 instead of the present date of 01.10.2019. Thus, no refund of accumulated ITC due to inverted duty structure shall be allowed on tobacco products.
  • No tax in respect of supply of fishmeal (HS 2301) for the period 01.07.2017 to 30.09.2017.
  • GST @ 12% in respect of supply of pulley, wheels and other parts (falling under heading 8433) and used as parts of agricultural machinery (falling under headings 8432, 8433 and 8436), during the period 01.07.2017 to 31.12.2018.
  • No refund of all such tax which has been collected, but which would not be have been so collected, had amendment was in force at all material times.

(The author is a practicing Chartered Accountant based in Delhi and can be reached at [email protected] or 9811933762)

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author.

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April 2021