Major Amendments In ITC Under GST Law- Finance Bill, 2022

Finance Bill, 2022 has proposed several changes in CGST Act, 2017 in its clauses 99 to 123. The major amendments are proposed in provisions relating to input tax credit making it more harsh, conditional and restrictive. These changes relate to the following provisions:

These amendments are briefly discussed hereunder:

 Additional Conditions for ITC u/s 16 of CGST Act, 2017

Finance Bill 2022 vide Clause 99 seeks to amend section 16 of CGST Act, 2017, which provides for eligibility and conditions for taking input tax credit as follows :

• New clause (ba) is added in sub-section (2) to mean that no registered person shall be entitled to take credit of any input tax in respect of goods or services or both unless the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted. It thus provide that input tax credit with respect to a supply may be availed only when such credit has not been restricted in the details communicated to the registered person under section 38.
• Since section 43A on procedure for furnishing return and availing input tax credit is also being deleted by Finance Bill, 2022, reference to section 43A is deleted.
• In sub-section (4), time limit for taking ITC is extended upto 30^th November of the following financial year.

[Source: Clause 99 of Finance Bill, 2022]

 Communication of Details of Inward Supplies and ITC

• Clause 103 of Finance Bill, 2022 has substituted new section 38 in CGST Act, 2017.
• Sub-section(1) seeks to empower the Central Government to make rules to specify other supplies as well as the manner, time, conditions and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto-generated statement and to do away with two-way communication process in return filing.
• Sub-section (2) seeks to provide details contained in auto generated statement i.e.,

a) Details of inward supplies in respect of which credit of input tax may be available to the recipient; and

b) Details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37.

• This change is going to be harsh on taxpayers and may invite litigation.
• This shall be effective from notified date after enactment of Finance Bill, 2022.

[Source: Clause 103 of Finance Bill, 2022]

Provisional claim of ITC to be withdrawn

• Clause 105 of Finance Bill, 2022 proposes to substitute section 41 of CGST Act, 2022 on availment of input tax credit on provisional basis.
• This amendment seeks to substitute a new section for section 41 of the Central Goods and Services Tax Act so as to do away with the concept of “claim” of eligible input tax credit on a “provisional” basis and to provide for availment of self-assessed input tax credit subject to such conditions and restrictions as may be prescribed.
• Thus, if output tax liability has not been discharged by the supplier, buyer has to revenue the ITC alongwith applicable interest but on payment of output tax liability by the supplier later, ITC can be reavailed by the recipient.
• Conditions and restrictions shall be prescribed by way of rules.

 [Source: Clause 105 of Finance Bill, 2022]

Two way communication in returns to go

• Clause 106 of Finance Bill, 2022 has proposed to omit the following section of CGST Act, 2017:

• This amendment seeks to omit section 42 of the Central Goods and Services Tax Act relating to matching, reversal and reclaiming of input tax credit so as to do away with the concept of “claim” of eligible input tax credit on a “provisional” basis and subsequent matching, reversals and reclaim of such credit. It further seeks to omit section 43 relating to matching, reversal and reclaim of reduction in output tax liability so as to do away with two-way communication process in return filing. It also seeks to omit section 43 A.
• Thus, with this amendment, two way communication in return filling will be done away with as matching mechanism has been prescribed in section 41 of CGST Act, 2017 now.

[Source: Clause 106 of Finance Bill, 2022]

Changes in provision related to GST Practitioners

• Clause 108 of Finance Act, 2022 seeks to amend sub-section (2) of section 48 of the Central Goods and Services Tax Act so as to remove reference to section 38 therefrom as there is no requirement of furnishing details of inward supplies by the registered person under the said section 38.
• Section 48 deals with scope of work of GST Practitioners.
• This amendment is in view of the proposed amendment in section 38 of the CGST Act, 2017. The substituted section 38 provides for:
  • Prescribing such other supplies as well as the manner, time, conditions and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto-generated statement and to do away with two-way communication process in return filing.
  • The details of inward supplies in respect of which input tax credit may be availed and the details of supplies on which input tax credit cannot be availed by the recipient.
• Thus, there will be no requirement of filing return of inward supplies.

[Source: Clause 108 of Finance Bill, 2022]

Allowing cash balance to be transferred to Distinct Persons

• Clause 109 proposes to amend section 49 of the CGST Act, 2017 which deals with payment of tax, interest, penalty and other amounts
• The proposed amendments are as follows:
  • Omit reference to section 43A in sub-section (2) as section 43A is being omitted.
  • Amend section 49(4) of the Central Goods and Services Tax Act so as to provide for prescribing restrictions for utilizing the amount available in the electronic credit ledger.
  • Amend sub-section (10) so as to allow transfer of amount available in electronic cash ledger under the CGST Act of a registered person to the electronic cash ledger under the said Act or the IGST Act of a distinct person.
  • Insert sub-section (12) so as to provide for prescribing the maximum proportion of output tax liability which may be discharged through the electronic credit ledger.
• Central Government will be empowered to make rules for maximum proportion of output tax liability which may be discharged through the electronic credit ledger.
• The taxpayers can now transfer the balance of credit in cash ledger to any other distinct person (i.e., any other GST registration under the same PAN) subject to stipulation that there is no unpaid liability in the electronic liability ledger.
• New sub-section 12 enables and makes valid the rule 86B for mandatory payment of 1 percent of tax liability by specified persons, despite there being sufficient balance of ITC.

[Source: Clause 109 of Finance Bill, 2022]

Retrospective relief in interest liability on wrong ITC in GST: Finance Bill, 2022

• According to section 50(3) of CGST Act, 2017, a taxable person who makes an undue or excess claim of input tax credit under section 42(10) or undue or excess reduction in output tax liability under section 43(10), shall pay interest on such undue or excess claim or on such undue or excess reduction.
• Finance Bill, 2022 has proposed to substitute new sub-section 50(3) retrospectively, with effect from the 1^st July, 2017, so as to provide for levy of interest on input tax credit wrongly availed and utilized, and to provide for prescribing manner of calculation of interest in such cases.
• This amendment would result in following :
  • No interest leviable if wrong ITC availed but not utilized
  • Interest to be levied only when ITC is both, availed and utilized
  • No new litigation on this issue
  • The rules will prescribe the manner of calculation of interest
• The amendment will have retrospective effect from 1.7.2017.

[Source: Clause 110 of Finance Bill, 2022]

 Amendment in Section 168  with reference to section 38 of CGST Act, 2017

• Clause 113 of Finance Bill, 2022 proposes to amend section 168 of CGST Act, 2017, which deals with power to issue instructions or directions
• In section 168(2), reference to section 38(2) is to be omitted.
• In view of major changes in section 38 wherein two way communication in return filing has been withdrawn, this is a consequential amendment as no more reference to section 38 is needed.
• Section 38 provides for auto drafted ITC statement in Form GSTR-3B and restricts ITC availment.

[Source: Clause 113 of Finance Bill, 2022]