Changes in GST with effect from 1st January 2021

As the 2021 New Year is ushering, everyone wishes to welcome it with lots of celebrations, waving goodbye to 2020. In light of the GST investigation wing recently unearthing several cases of fake invoices and bogus firms, which also resulted in the arrest of some individuals CBIC has issued a couple of notifications amending the CGST Act, 2017 and the CGST Rules, 2017 which are applicable w.e.f. 1^st January 2021.

The amendments have been summarized below in a simple manner.

> Section 10 of the CGST Act has amended clause (b), (c) and (d) to make composition levy applicable for service provider also.

“a registered person shall be eligible to opt for composition scheme under section 10(1) if:

• he is not engaged in making any supply of goods or services which are not leviable to tax under this Act,
• he is not engaged in inter-state supply of goods or services,
• he is not making any supply of goods or services through electronic commerce operator who is required to collect tax at source.”

> Section 16 of the CGST Act has been amended to provide that the time limit to avail input tax credit (ITC) in relation to debit notes is from the date of such debit note and not the date of invoice to which the debit note pertains.

> Clause (c) of section 29(1) of the CGST Act has been amended to provide that a taxpayer who has obtained voluntary registration is also entitled to opt out of GST registration.

> Proviso to section 30(1) had been amended to provide that the time limit to apply for revocation of cancellation of registration may be extended by:

• Additional Commissioner or Joint Commissioner, for a period not exceeding 30 days,
• Commissioner, for a further period not exceeding 30 days beyond the period specified above.

> Section 31 of the CGST Act has been amended to –

a. specify the categories of services or supplies for which a tax invoice shall be issued, within such time and in such manner as may be prescribed; and

b. specify the categories of services for 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.

> Section 51(3) of the CGST Act has been amended to prescribe a new format of the tax deducted at source (TDS) certificate (to be notified). The late fee for non-furnishing of TDS certificate within 5 days has also been removed from section 51(4) of CGST Act.

> For Section 122, Sub-section (1A) had been inserted to provide that any person who retains benefit under the transactions listed below, and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to tax evaded or ITC availed of or passed on:

• Supply of goods or services without any invoice or issuance of an incorrect or false invoice with regard to any such supply.
• Issuance of any invoice or bill without supply of goods or services in violation of the provisions of the Act or rules made thereunder.
• Taking or utilizing ITC without actual receipt of goods or services either fully or partially, in contravention of the provisions of the Act or rules made thereunder.
• Taking or distributing ITC in contravention of section 20, or the rules made thereunder.

> Section 132(1) has been amended so as to make the offence of fraudulent availment of ITC without invoice or bill cognizable and non-bailable under section 69(1) and to make any person who retains the benefit of certain transactions and at whose instance such transactions are conducted liable for punishment.

> Schedule II of the CGST Act has been amended to consider ‘transfer of business assets’, as supply of goods/ services, only when it is made for consideration.

GST Registration:

> Rule 8(4A) of the CGST Rules shall be substituted to provide that every application for registration shall be accompanied with:

• Biometric based Aadhar authentication and taking photograph where the applicant has opted for authentication of Aadhar number, or
• Where applicant has not opted for Aadhar authentication, biometric information with photograph and verification of “Know Your Customer” (KYC) documents should be submitted.

Further, original copy of the documents uploaded with the application shall be verified at one of the notified Facilitation Centres.

> Time limit for issuance of GST Registration:

• Time limit for proper officer to approve the grant of registration where the application and accompanying documents are found to be in order, or Issue notice in Form GST REG-03 to the applicant, where the application is found to be deficient or such officer requires any clarification has been increased from 3 working days to 7 working days from the date of submission of application.
• Where the applicant fails to carry out or does not opt for Aadhar authentication or where the department deems it fit to undertake physical verification of place of business, the registration or the notice in Form GST REG-03 shall be granted/ issued within 30 days (instead of 7 days) of submission of application after physical verification of such place.

> Deemed registration under Rule 9(5) of the CGST Rules: If the proper officer fails to take action concerning the registration application or any deficiency therein, within the specified period of 7 or 30 days, the application shall be deemed to be approved.

> Cancellation of registration – Registration can be cancelled by the proper officer under rule 21 of the CGST rules where the registered person:

• Avails ITC in violation to section 16 or the rules made thereunder, or
• Furnishes details of outward supplies in GSTR-1 for one or more tax periods which is in excess of the output details declared by him in GSTR-3B, or
• Violates the provision of rule 86B.

> Suspension of registration – Rule 21A of the CGST Rules:

• Rule 21A (2) have been amended to enable proper officer to suspend registration of a person without affording him a reasonable opportunity of being heard, in cases where such officer has reasons to believe that the registration is liable to be cancelled.

• Sub-rule (2A) have been inserted in rule 21A to provide that on comparison of GSTR-3B furnished by a registered person with
• details provided by him in GSTR-1, or
• details of inward supplies derived from information provided by his suppliers in their GSTR-1, or
• such other analysis, as may be carried out on recommendation of Goods and Services Tax Council,

show significant differences indicating contravention of law, which may lead to cancellation of registration, then in such cases the registration shall be temporarily suspended. Intimation in Form GST REG-31 shall be sent highlighting the differences and asking the taxpayer to explain, within 30 days, as to why the registration should not be cancelled.

Further, sub-rule (3A) has been inserted in Rule 21A to provide that if the registration of a person has been suspended under sub-rule (2) or (2A), then he shall not be granted refund under section 54 during the period of suspension.

 Input Tax Credit

> Restriction on availing of ITC: Rule 36(4) of the CGST Rules has been amended to reduce the limit of availing ITC in respect of invoices or debit notes, details of which have not been furnished by suppliers in their GSTR-1 or using invoice furnishing facility (IFF) to 5% (from current limit of 10%) of the eligible credit available in respect of invoices or debit notes, details of which have been furnished by suppliers in GSTR-1 or using IFF.

> Restriction on utilization of ITC : Rule 86B of the CGST Rules a registered person shall not utilize ITC to discharge his output tax liability in excess of 99% of such liability, in cases where the value of taxable supplies (other than exempt and zero-rated supply) in a month exceeds INR 50,00,000.

However, the restriction shall not apply where:

• the registered person has paid income-tax exceeding INR 100,000 in two preceding financial years;
• the registered person has received refund exceeding INR 100,000 under section 54 of CGST Act 2017;
• the registered person has used electronic cash ledger to pay liability on outward supplies, which cumulatively makes 1% of the total liability up to the said month;
• a person is a Government Department, Public Sector Undertaking, local authority or a statutory body.

Returns

> Restriction on filing GSTR-1: Sub-rule (5) have been inserted in rule 59 to restrict a registered person to file GSTR-1 or use IFF where:

• For a monthly return filer, where a taxpayer fails to file GSTR-3B for the preceding 2 months, his GSTR-1 shall be blocked.
• For quarterly return filers, when a taxpayer fails to file GSTR-3B for the preceding quarter, he shall not be permitted to file GSTR-1 of the subsequent quarter.
• A registered person, who is restricted from using the amount available in electronic credit ledger to discharge his liability towards tax in excess of 99% of such tax liability (under Rule 86B of the CGST Rules) shall also not be permitted to file GSTR-1, where he has not filed GSTR-3B for the preceding tax period.

 E-waybill related changes

> Rule 138 of the CGST Rules: Validity of an e-way bill distance have been enhanced to 200 Km from earlier 100 km for an e-way bill which is valid for one day.

> E-way bill cannot be generated in the following 2 cases:

• In rule 138E, clause (b) has been amended to provide that a person cannot generate e-way bill if he has not furnished returns for a consecutive period of two tax periods. Earlier, the words used were “consecutive period of two months”.
• Further, clause (d) has been inserted to provide that a person will not be able to generate e-way bill if his registration has been suspended under rule 21A (2)/(2A)

Waiver of late fee for Form GSTR-4 in Ladakh

> Late fee for delay in furnishing GSTR-4 for FY 2019-20 have been waived till 31 December 2020 for composition dealers located in the Union Territory of Ladakh.

Conclusion:

The amendments in the CGST Rules relating to registration and its cancellation and restriction on filing GSTR-1 seems to aim at minimizing tax leakage and avoiding tax evasion. However, these measures may cause hardships for genuine taxpayers.