Important GST Law Changes Effective from 1st October 2023

A lot of legislative changes with an eye on the ease of doing business and reducing difficulties in compliance obligations with reference to GST Laws were proposed as part of Finance Bill 2023. All such changes became law under CGST, IGST and UTGST Acts on receipt of the assent from Presidential of India. However, the changes proposed will come into effect only from the notified date. The following changes are notified to take effect with effect from 01^st October 2023. This article is an attempt to chalk out all the important changes that takes effect from 1^st October 2013 under the GST laws.

1. Benefits of Composition Levy Extended to E-commerce Suppliers:

Whilst the provisions of Section 10 of the CGST Act 2017 small taxpayers supplying Goods and (to some extent) Services are eligible for Composition levy scheme, now, this Section 10 has been amended to the effect that benefit of such composition levy scheme which was earlier not available to registered persons engaged in supplying goods through E-commerce operator has been extended to them. This means that small suppliers who are otherwise eligible for the Composition levy scheme are now eligible for such benefits even if they supply through E-Commerce Operators. This will improve the market network of MSME Suppliers of Goods. However, it must be noted that the restriction applicable will continue to apply for such registered persons who are engaged in supply of services through E-commerce operator.

2. Clarity on Payment to Suppliers Within 180 Days:

There was lot of ambiguity and discussions with reference to tax leviability in case the recipient fails to pay the supplier the value of consideration and tax within 180 days of issuance of Tax invoice. To clear this confusion, Section 16 of the CGST Act 2017, has been amended to the effect that where a recipient fails to pay to the supplier the amount towards the value of supply along with tax, within a period of 180 days from the date of issue of invoice, an amount equal to the ITC availed by the recipient, shall be paid by the recipient along with interest payable under Section 50 of the CGST Act 2017. The pre-amendment provision provides for payment of ITC as addition to output tax liability whereas, post-amendment it would be payment/reversal of ITC. Consequently, the liability of interest on such reversal shall be determined in accordance with Section 50(3) instead of 50(1) of the CGST Act 2017 though in both cases the interest leviable is only 18% pa at present. This amendment will help to align the language of law with the return filing system. But let us not forget that the provisions of Section 50(3) still have a higher limit of notifying interest at the rate of 24% pa.

3. Impact on Supply of Warehoused Goods:

Sale of warehoused goods before filing BOE includible in value of exempt supply for reversal of common ITC u/s 17(2) and (3) r.w. Rule 42/43 of CGST Rules 2017:

In terms of Clause 8(a) of Schedule – III of the CGST Act 2017, Supply of Warehoused goods to any person before clearance to home consumption are activities or Transactions which shall be treated neither as a supply of Goods nor a Supply of Service. Now, the value of transactions attributable in respect of para 8(a) of Schedule III to the CGST Act 2017 i.e., “Supply of warehoused goods to any person before clearance for home consumption”, shall be includible in the value of exempt supply for the purpose of reversal of common input tax credit under Section 17(2) & 17(3) read with Rule 42 & 43 of CGST Rules 2017. Though there will not be any IGST liability on Supply of warehoused goods to any person before clearance for home consumption, as it is treated on par with “Exempt Supplies” ITC reversal becomes a consequence for common Inputs, Input Services and Capital Goods.

4. ITC blocked on CSR activities under Section 17(5) (fa) of CGST Act 2017:

There was a lot of misperceptions prevailing on the eligibility of ITC on Corporate Social Responsibility – CSR activities because of conflicting decisions by various authorities. Considering this difficulty, the Government had decided to introduce an amendment in Section 17(5) of the CGST Act, 2017. The amendment with insertion of new clause 17(5)(fa), states that input tax credit on goods and services received by companies to undertake CSR activities under section 135 of Companies Act, 2013 is not allowed. So in effect, ITC shall not be available on goods/services received by taxable person, which are used or intended to be used for activities relating to fulfillment of obligations under Corporate Social Responsibility (“CSR”) activities.

5.Retroactive Impact of Section 23(2) on Section 22 and Section 24:

The persons exempted from obtaining registration by virtue of a notification issued under Section 23(2) of the CGST Act 2017 need not be obtain registration notwithstanding anything contained under Section 22 (threshold limit cases) or Section 24 24 (mandatory cases). This amendment comes retrospectively with effect from 01-07-2017. This amendment is only for those covered under Section 23(2) i.e., “Specified Class of persons”. However, it is interesting to note that persons exempted from registration under Section 23(1) do not get the benefit of retrospective amendment.

6. Time Limit for Revoking Cancelled GST Registrations Extended:

Any registered person whose registration has been cancelled by the proper officer on his own motion (suo-moto cancellation) may apply for revocation of Cancelled registration within such time as prescribed. The Time limit of 30 days earlier prescribed under Section 30 has been omitted for moving an application for Revocation of Cancellation of GST Registration. The time period has now been prescribed under Rule 23 of CGST Rule 2017 which is increased to 90 days from the date of order of cancellation or such further period as may be allowed by Commissioner not exceeding 180 days. This is a welcome move as the restrictions of obtaining condonation for failure to file such revocation applications within a short time of 30 days had put a lot of pressure on the Taxpayer and this extension of time limit will give breathing space. However, it must be noted that no application for revocation shall be filed if the registration has been cancelled for failure to furnish returns and payment of tax in terms of such returns till the same has been paid along with interest, penalty and late fees associated with such returns. This condition still holds valid.

7. Limitation of 3 Years for Filing Returns:

Limitation of 3 years on filing of returns under Section 37, 39, 44, 52 of CGST Act 2017:-

The registered person shall not be allowed to furnish the return in GSTR-1, GSTR-3B, GSTR-9, GSTR-9C and GSTR-8 after a period of 3 years from the due date of furnishing the relevant return as prescribed under the respective sections.

8. Assessment of unregistered persons under Section 62 of CGST Act 2017:

One must be aware that in terms of the powers vested under Section 62 of the CGST Act 2017, where a registered person fails to furnish the return under section 39 (GSTR-3B) or section 45 (GSTR-10), even after the service of a notice under section 46, the proper officer may proceed to assess the tax liability of the said person to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. Now, the time Period to furnish Form GSTR 3B or Form GSTR 10 has been increased from 30 days to 60 days for effecting deemed withdrawal of the best judgement order. Beyond 60 days, additional period of 60 days (61 to 120 days) has been extended on payment of additional late fee over and the standard late fee.

9. Penalty for E-commerce Operators:

Penalty for certain offences on the E-Commerce Operators under Section 122(1b) of CGST Act 2017:

This amendment will provide penal provisions applicable to ECO (e-commerce operator) in case of contravention of provisions relating to supplies of goods made through them by unregistered persons or composition taxpayers.

10. Punishment of certain offences (Section 132):

The amendment provides to decriminalize the offences specified under clause (g)(obstruction to discharge duty) , (j) (tampers or destroys material evidence) and (k) (fails to supply evidence) from Section 132(1) of the CGST Act, 2017. The amendment also brings in change in monetary limit for initiating prosecution proceedings: The Monetary threshold amended from Rs. 1 Crore to Rs.2 Crore for launching prosecution, except for cases those involving fake/bogus invoices. Thus, in case of offences, other than fake invoices, imprisonment can be initiated if value is more than Rs. 2 crores and for fake invoices, the prosecution will continue as for threshold amount of Rs. 1 Crore.

11. Compounding of offences under Section 138 of CGST Act 2017:

Any Offence involving Fake/bogus invoice cases have been excluded from the option of compounding of offences. Further, reduction of amount for compounding of various offences except offence of fake invoice, by reducing the minimum and maximum amount for compounding as recommended by GSTC.

It may be noted that there is a reduction in the compounding fees also. The revised rates as per the table below: –

12. Consent-Based Information Sharing:

Consent based sharing of information furnished by taxable person Section 158 (A) inserted:

In a very proactive move the insertion of new Section 158A will provide for allowing sharing of information or details furnished by a taxable person on the GST common portal with such other systems as may be notified by government. This gives powers to share critical and valuable information to other agencies and help in their investigations.

13. Retrospective applicability of Para 7, 8(a) and 8(c) of Schedule III:

Activities of supply of goods from a place outside the taxable territory to another place outside the taxable territory, high sea sales, and supply of warehoused goods before their clearance for home consumption were inserted in Schedule III of the CGST Act 2017 vide CGST Amendment Act, 2018 dated 01.02.2019, thereby making them non-taxable as they are activities or Transactions which shall be treated neither as a supply of Goods nor a Supply of Service. Now, these supplies are proposed to be made non-taxable with retrospective effect from 01 July 2017 to put an end on ongoing litigation or prospective litigation in cases wherein no tax is paid by any taxpayer on such supplies. However, it has been made clear that no refund of such tax paid shall be available in cases where any tax has already been paid in respect of such transactions/ activities during the period July 01, 2017 to January 31, 2019.

14.Widening Scope of OIDAR Services:

Scope of OIDAR services widened in definition under Section 2(17) of IGST Act 2017: –

Definition of OIDAR amended to widen the scope of services, by removing the condition of “essentially automated” and “involving minimal human intervention.” Essentially, the omission of these words will add more activities within the ambit of OIDAR with the advancement in technology.

15. Changes in Place of Supply for Transportation of Goods:

Place of Supply in respect of Transportation of Goods changes in Section 12(8) and 13 (9) of the IGST Act 2017:

The amendment proposes to omit the Proviso to Section 12(8) of IGST Act 2017 to specify the place of supply, irrespective of destination of the goods, in cases where the supplier of services and recipient of services are located in India or in cases where either the supplier of services or recipient of services is located outside India as the case may be.

In terms of Section 12(8) of the IGST Act 2017, the POS shall be the location of recipient of service if the recipient is a registered person.

While in terms of Section 13(9) of the IGST Act, 2017, place of supply of services in case of transportation of goods, other than by way of mail or courier would be covered under default provision of Section 13(2) of IGST Act and would be the location of the recipient of services, in cases where either the supplier of services or recipient of services is located outside India. As a result, Services to recipient outside India would qualify as export, and Services from supplier outside India would qualify as import of service irrespective of the destination of goods.

16. Zero-rated Supplies to Special Economic Zones (SEZ):

Zero-rated supplies to SEZ for authorized operations under Section (1)(b) of the IGST Act 2017:

The words “for authorized operations” have been added to clause (b) of Section 16(1) to remove the ambiguity that only the supplies made for authorized operations to SEZ unit or developer shall qualify as zero-rated supplies. Earlier, the requirement existed under Rule 89 of the CGST Rues 2017 to provide endorsement from designated officer of SEZ (Specified Officer or Authorized Officer) regarding authorized operations while claiming refund of accumulated ITC or IGST by the DTA supplier. Now, the same has been incorporated under the Statute so that the Rules cannot be challenged as superseding the Statute. For the period prior to 01.10.2023, one may argue that even if endorsement of authorized operations is unavailable, still the supply to SEZ qualifies as zero- rated supply qua Section 16 of the IGST Act 2017. Ultimately, the intention to use such supplies for Authorized Operations has been confirmed.

17. Zero-rated Supplies with Payment of IGST:

Zero-rated supplies not permitted with payment of IGST until notified under Section 16 (3) & (4) of IGST Act 2017:

The default option now generally is supplying under LUT without tax payment and claiming refund of accumulated ITC or pay IGST upfront and claim cash refund. Now, Ministry of Finance has issued a notification, specifying all goods and services eligible for export on payment of integrated tax. Suppliers of these goods and services can claim a refund of the tax paid. However, certain specified goods are exempted from this provision. The latest notification, No.01/2023-IGST, permits tax payment for all exports of goods and services, barring specific goods like cigarettes, pan-masala, and other tobacco related products.

The notification outlines the specified class of goods and services eligible for export on IGST payment and cash refund. It includes a detailed list of exempted goods such as tobacco products, essential oils, and more under Table-1 of the notification.

The notification in fact aims to facilitate exports by allowing eligible goods and services to be exported on payment of integrated tax, with the option to claim a refund. This measure aligns with the government’s efforts to streamline export procedures and promote ease of doing business in the country.

18. Import Ocean Freight Under Reverse Charge Mechanism (RCM):

Notifications deleting the entries casting liability on importers on import ocean freight in CIF imports under RCM to align with the Supreme Court Judgement in UOI vs Mohit Minerals:-

The three Notifications that have been issued have made amendment in the Rate, Exemption, and RCM to terminate the IGST liability casted on the importers on the services supplied by a person located in non- taxable territory (foreign shipping line) to a person located in non-taxable territory (foreign supplier) by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India (in lieu of import ocean freight) in case of CIF imports under reverse charge. The amendment has come after more than a year of Supreme Court’s judgement in UNION OF INDIA & VERSUS M/S MOHIT MINERALS PVT. LTD. wherein Supreme Court had held the reverse charge levy on importer as import of service violative of Section 8 of the CGST Act, 2017, and decided in favour of the Indian importers. Actually, in the case of import of Goods, customs duty is applicable on assessable value, and the assessable value includes freight amount. IGST is payable on the freight element by including it in the assessable value of goods. So, the applicability of GST on an RCM basis had presumably led to double taxation. The amendments proposed are aligned with the apex court’s ruling in the case of Mohit Minerals and help explicitly mention the government’s alignment to the position prospectively. Actually, the industry has been successfully claiming refund of taxes already paid for the past period, where credit has not been availed. Just looking back, giving its ruling in the Mohit Minerals case, the Supreme Court in May 2022 had held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc in a CIF (Cost Insurance Freight) contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of the GST Act. In the Mohit Minerals case, the company challenged the validity of the CBIC notification regarding the levy of IGST on ocean freight in the Gujarat High Court. The Supreme Court upheld the decision of the High Court.

Conclusion: As these changes in GST laws come into effect from October 2023, it’s essential for businesses and taxpayers to stay informed and adapt to the new provisions. These amendments are designed to streamline processes, reduce ambiguities, and enhance compliance in the world of Goods and Services Tax in India. To ensure compliance and make the most of these changes, it’s advisable for taxpayers to consult with tax experts and stay updated with official notifications and circulars from the GST authorities.