Key proposed amendments to CGST Act, 2017 vide Budget 2022

Key proposed amendments to CGST Act, 2017, which would be effective from the date to be notified, upon enactment of Finance Bill, 2022, unless otherwise specified

Customs & SEZ Key Update

1. Inclusion of officers under DRI, audit and preventive formation as the “proper officer” under Customs law, retrospectively. Once the proposed amendment comes into effect, the DRI officers if assigned functions by the Board, Principal Commissioner of Customs or Commissioner of Customs shall act as ‘proper officer’ and have authority to initiate proceedings and recover duties under the Act.  The proposed amendment shall negate the decision of the Hon’ble Supreme Court of India passed in the matter of Canon India Private Limited vs. Commissioner of Customs. It is imperative to note that if the Government comes up with such retrospective amendment negating the decision passed by the courts, the assessee would be discouraged to approach the courts for any remedy.

2. SEZ Act to be replaced by a new legislation with an aim for the development enterprise and hubs.  It shall cover existing industrial enclaves and enhance the competitiveness of exports.  Blueprint of the new legislation awaited; however, it is expected to reduce the compliance burden and to allow companies to sell their products in the domestic market without additional customs duty.

3. The Central government is undertaking complete overhauling of all the concession and exemption notification issued in relation to capital goods and project imports. Accordingly, exemptions on capital goods / project imports are being phased out in a gradual manner.

GST Related Amendments

1. Cancellation of GST registration

Section 29 (2) (b) and Section 29 (2) (c) of the CGST Act, 2017 is proposed to be amended to provide that the registration of a person is liable for cancellation by the proper officer, where:

• a composition taxpayer has not furnished the return for a financial year beyond three months from the due date of furnishing of the said return;
• any registered person (other than composition taxpayer) has not furnished returns for such continuous tax period as may be prescribed.

2. Input tax Credit related updates and restrictions

i. Additional condition for availment of input tax credit (ITC)

A new clause under Section 16(2) (ba) of the CGST Act, 2017 is proposed to be inserted to provide that input tax credit entitled to a registered person should not be restricted under Section 38 of the CGST Act, 2017. The above proposed amendment has been made to give effect to the new provisions substituted in Section 38 of the CGST Act, 2017, wherein Section 38 of the CGST Act, 2017 provides an auto-generated statement which provides the details of input tax credit available and restricted.

ii. Timeline for availment of input tax credit in respect of an invoice or debit note

Section 16(4) of the CGST Act, 2017 is proposed to be amended to extend the timeline for availing input tax credit from the due date for furnishing returns for the month of September, to 30 November following the end of the financial year.

iii. Auto-generated statement for availing input tax credit

Section 38 of the CGST Act 2017 is proposed to be substituted, wherein the current provisions pertaining to two-way communication between the supplier and recipient for reconciliation of ITC has been forsaken.

The taxpayer would be allowed to avail ITC based on an auto-generated inward supplies statement which would consist of details pertaining to inward supplies on which the recipient may avail ITC. Further, the statement would provide details of supplies, in respect of which the taxpayer shall be restricted to avail ITC either wholly or partly due to any of the following reasons–

• • Supplies furnished under Section 37(1) of the CGST Act 2017 by the supplier is within such period of taking registration as may be prescribed; or
  • Supplies furnished by a supplier who has defaulted in payment of tax and such default has continued for a period as may be prescribed; or
  • Supplier has disclosed higher tax value as part of outwards supply return (GSTR-1) as compared to the tax discharged during the tax period, and such difference in tax exceeds the limit prescribed; or
  • Supplier has availed credit of ITC more than credit than can be availed by him as per the auto-generated inward supplies statement; or
  • Supplier who has not followed the restriction of utilizing maximum allowed amount that can be utilized from electronic credit ledger for discharging output tax liability in terms of newly inserted Section 49(12) of CGST Act 2017; or
  • Any other class of taxpayers as may be prescribed.

iv. Removal of provisional availment of input tax credit

Section 41 of the CGST Act, 2017 is proposed to be omitted, to do away with claiming input tax credit on a provisional basis. The proposed amendment is to align the input tax credit availment process as per the auto-populated statement of ITC under Section 38 of the CGST Act, 2017.

v. Omission of two-way matching and communication process between supplier and recipient

Sections 42 (Matching, reversal and reclaim of input tax credit), Section 43 (Matching, reversal and reclaim of reduction in output tax liability) and Section 43A (Procedure for furnishing return and availing input tax credit) of the CSGT act, 2017 is proposed to be omitted. These provisions provided for the two-way communication process in filing returns between the supplier and the vendor and matching of returns for claiming input tax credit is done away with. Removal of these provisions are in-line with the changes made to input tax credit availment process.

vi. Restriction for usage of Electronic Cash Ledger for making payment of output liability

The Finance Bill 2022 proposes to amend section 49(2) of the CGST Act 2017 to provide restrictions in case of utilization of electronic credit ledger for payment of output tax liability.

Further, the Finance Bill 2022 proposes to insert section 49(12), which empowers the Government to prescribe maximum proportion of output tax liability under CGST Act 2017 and IGST Act 2017, which may be discharged through the electronic credit ledger, subject to conditions and restrictions.

vii. Interest applicable only when Input tax credit is availed and utilized

The Government through a press release had earlier clarified that interest under section 50(3) of CGST Act, 2017 would be levied on ineligible ITC availed and utilized and not on ineligible ITC availed. Further, the Press release also provided that the interest in such a case would be restricted to 18%.

While the said provision was made retrospectively effective from 1 July 2017, there was no notification issued in relation to the same. The Finance Bill 2022 proposes to amend Section 50(3) of the CGST Act 2017, to provide that interest in case of input tax credit would be applicable at a rate not exceeding twenty-four percent only if the said input tax credit is availed and utilized (vis-à-vis only availed as per the existing law). The proposed amendment will now make the earlier change applicable.

3. GSTR-1 and GSTR-3B Related Changes

i. Timeline for declaration of credit notes in GST returns

Section 34 (2) of the CGST Act, 2017 is proposed to be amended to extend the timeline for declaring credit notes in GST returns, from the due date of furnishing returns for the month of September, to 30 November following the end of the financial year

ii. Conditions and relaxations in filing outward supply returns in GSTR-1

• • Section 37 of the CGST Act 2017 is proposed to be amended to prescribe additional conditions and restrictions to furnish the details of outward supplies and to communicate the details outward supplies to recipients.
  • The current provision in the law, which restricted taxpayers to furnish details of outward supplies during the eleventh day to fifteenth day of succeeding tax period has been removed.
  • The provisions governing the mechanism for two-way communication between the supplier and recipient for accepting or rejecting the outward supply details submitted by the any taxpayer has been omitted.
  • The time limit for rectification of errors in respect of outward supplies furnished by taxpayers, is proposed to be extended from the due date for furnishing returns for the month of September to the thirtieth day of November following the financial year.
  • Sub section (4) is inserted under Section 37 of the CGST Act 2017 to restrict the taxpayer from furnishing details of outward supplies for a tax period, if the taxpayer has defaulted in furnishing the details for any previous tax period.’

iii. Conditions and relaxations in filing monthly returns – GSTR-3B

• • Section 39 (5) (a) of the CGST Act 2017 is proposed to be amended to change the due date for filing monthly returns of registered non-resident taxable person from 20th of succeeding month to 13th of succeeding month.
  • The proviso to Section 39(7) of the CGST Act 2017 provides an option to the taxpayer to furnish return and pay either the self-assessed tax as per the returns or an amount that may be prescribed.
  • The time limit for rectification of errors in respect of particulars furnished by taxpayers under Section 39, is proposed to be extended from the due date for furnishing returns for the month of September to the thirtieth day of November following the financial year.
  • Sub section (10) of Section 39 of the CGST Act 2017 is proposed to be amended to restrict the taxpayer from furnishing returns under the section, if the taxpayer has defaulted in furnishing the details of outward supplies (GSTR-1) under Section 37(1) for any previous tax period.

iv. Late fee for delayed filing of return where tax is collected at source as per Section 52

Section 47 of the CGST Act, 2017 is proposed to be amended to provide for levying late fee in case of delay in filing returns under Section 52. The Finance Bill 2022 also sought to omit levy of late fee form delay in filing inward supplies as required under Section 38 as the same will be auto- generated as per the newly substituted provision which provides for a robust mechanism to monitor credit availment.

v. Timeline to rectify return in case of any omission or error increased for E-commerce operator

The proposed amendment to Section 52(6) would provide additional time to e-commerce operators to rectify return in case any omission of incorrect particulars as part of the returns submitted. The due date for rectification of such omission or incorrect particulars is proposed to be increased from the due date for furnishing returns for the month of September to the thirtieth day of November following the financial year.

4. Authorisation to Goods and Service tax practitioners

Section 48 of the CGST Act, 2017 provides for authorisation of goods and services tax practitioners. Based on the proposed amendment in Section 38 of the CGST Act, 2017 authorisation of goods and services tax practitioners to furnish inward details under Section 38 has been done away with.

5. Inter-operability of funds in electronic cash ledger

Section 49(10) of the CGST Act 2017 is proposed to be amended to provide the facility to transfer the amount of cash balance under the heads CGST and IGST between one GSTIN to another GSTIN of the same entity, this would enable the taxpayers to transfer unutilised cash balance in one State registration to another State registration within the same legal entity.

6. Amendment in relation to withholding or deducting refund

The Finance Bill 2022 proposes to amend section 54 (1) of the CGST Act 2017 to increase the scope of withholding of or recovery from refunds.

Currently, in case of any registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, refund payable only in relation to unutilised input tax credit could be withheld or deducted by the tax authorities.

However, with the proposed amendment, the tax authorities can withhold or deduct the refund claim from any kind of refund applied, namely refund of excess tax payment or other refunds.

7. Relevant date for filing refund in case of SEZ supplies clarified

Section 54(1) of the CGST Act, 2017 provides a timeline of two years from the “relevant date” for filing refund. Further, for refund in case of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit, there is no specific relevant defined.

Accordingly, the Finance Bill 2022 proposes to add sub-clause (ba) to Explanation 2 of Section 54 of the CGST Act, 2017, defining the relevant date as “due date for furnishing of return under section 39” in respect of refund for zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

8. Other amendments

• A new form is proposed to be introduced for claiming refund of balance in electronic cash ledger.
• Refund time limit extended from 6 months to 2 years for specialised agencies like UNO, and the like as mentioned in Section 55 of the CGST Act, 2017.
• Section 38 of the CGST Act, 2017 (for furnishing inward details) has been replaced and therefore reference to Section 38 in various sections such as 168, have been removed.