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Union Budget 2021 | Amendment proposed in CGST & IGST Act, 2017 and its Impact on professionals and Taxpayer

CA NIYATI SONI 
on 05 February 2021

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I. AMENDMENTS IN THE CGST ACT, 2017

1. Section 7(1)(aa)

New Section is being Inserted under CGST Act, 2017 retrospectively with effect from the 1st July, 2017, so as to ensure levy of tax on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. [Clause 99 of the Finance Bill 2021]

It is also proposed to insert an Explanation therein, For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another.

Analysis:  In a recent verdict of Hon’ble Supreme Court in case of Calcutta club in Service Tax regime that tax cannot be charged on services that are provided by club to its members. Ruling was based on rational that club comprises its members and no member means no club and vice versa. The same would be applicable to GST. The Government now proposed a retrospective amendment by way of section 7(1)(aa) to ensure levy of tax  on the amounts collected from the members towards the supply of goods/services.

2. A new section 16(2)(aa) of the CGST Act is being inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies u/s 37 and such details have been communicated to the recipient of such invoice or debit note. [Clause 100 the Finance Bill 2021]

Analysis: The said clause helps in determining eligibility of Input Tax Credit and it gives statutory back up to Rule 36(4) of SGST Rule. The recipient has to be dependent on the supplier and his filing of Statement of Outward Supply u/s 37. This also prone to litigation.

3. Section 35(5) of the CGST Act, 2017 is being omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional. [Clause 101 the Finance Bill 2021]

Analysis: This provision was in relation to the audit to be conducted by the professionals. There was always a dispute and ambiguity in Section 35(5) related to Annual Account Audited and submission of reconciliation statement vis-à-vis Section 44(2) related to furnishing of Annual Return for Every year in electronic form by registered person other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person and the question which required proper attention was whether it is audit as contemplated and defined in Sec. 2(13) of CGST Act or whether it is only reconciliation.

Union Budget 2021    Amendment proposed in CGST and IGST Act, 2017 and its Impact on professionals and Taxpayer

The omission of this particular provision is certainly leading to loss of business for professionals but the government has tried to remove the ambiguity and accepted this to be only reconciliation and there for has proposed to delete sub-section 5 of Section 35. It is certainly not a welcome step as per professionals but in the large it will not affect opportunities/business of professional in any manner.

4. Section 44 of the CGST Act is being substituted so as to remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professional and to provide for filing of the annual return on self-certification basis. It further provides for the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return. [Clause 102 the Finance Bill 2021]

Analysis: The Section is substituted wholly as now responsibility submitting Annual Return along with reconciliation Statement is shifted to the tax payer, means it include self certified reconciliation statement attached with annual return where is the tax payer is only responsible.

I like to reiterate here that, the professionals and their services will definitely be required to preparation of Annual Return and reconciliation statement. Even the said provision good for professionals as there is no responsibility of Auditor anymore.

It is to be noted here that Audit is compulsory for F.Y. 2019-20 and the said provision will be applicable from F.Y. 2020-21.

5.  Section 50(1) of the CGST Act is being substituted, retrospectively, so as to charge interest on net cash liability with effect from the 1st July, 2017. [Clause 103 the Finance Bill 2021]

Analysis: This amendment is most awaiting since loan and also promised by Hon’ble Finance Minister in one of the council Meeting. The said provision will give huge relief to the tax payers and this certainly is a welcomed step and proposition by Government.

6. Section 74 of the CGST Act,2017 is being amended so as make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax. [Clause 104 the Finance Bill 2021].

 

Analysis: where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded. Whereas

  • Section 122 of CGST Act, 2017 relates to Penalty on disposes off or tampers with any goods that have been detained, seized, or attached under this Act.
  • Section 125 of CGST Act, 2017 relates to Penalty if Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act.
  • Section 129 of CGST Act, 2017 relates to payment of tax and penalty of Detention, seizure and release of goods and conveyances in transit.
  • Section 130 of CGST Act, 2017 relates to Disposal of confiscated goods and conveyance.

Prior to this proposed amendment, even the proceedings of Section 129 and 130 were getting concluded but now those proceedings will continue and therefor the person will be liable to pay applicable and imposed penalties u/s. 129 or 130. This means conclusion of proceedings will lead to conclusion of proceedings u/s. 73 or 74 and the proceedings u/s. 122 and 125 but not the proceedings u/s. 129 and 130.

This proposed amendment shall be having a wide impact on all those tax payers who are getting their proceedings concluded by way of paying the tax, interest and penalty (if any) u/s. 73 or 74.

7. An explanation to sub-section (12) of section 75 of the CGST Act,2017 is being inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39. [Clause 105 the Finance Bill 2021]

 

Analysis: the spectrum of the term self-assessed tax is widened by this proposed amendment and the recovery can be initiated by the officer not only for tax payable as per Section 39 return but also for the outward supply liability shown in the statement filled u/s. 37.

8. Section 83 of the CGST Act,2017 is being amended so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder. [Clause 106 the Finance Bill 2021]

Analysis: This proposed amendment has impact that the gravity and the reach is further widened meaning thereby this proposition intends to increase the ambit of provisional attachment by way of substitution of section by chapters of the CGST Act. broad and widen power is given to the officers and we being the tax payers and tax compliant are now have to keep our fingers crossed and be at the mercy of government officers unless they use this power wisely and with correct application of provision.

9. A proviso to sub-section (6) of section 107 of the CGST Act is being inserted to provide that no appeal shall be filed against an order made under sub-section (3) of section 129, unless a sum equal to twenty-five per cent. of penalty has been paid by the appellant. [Clause 107 the Finance Bill 2021]

As per the law, the pre-deposit prior to this amendment was only to the extent of 10% of Tax Liability in case of dispute which is now proposed to be 25% of the penalty amount in case of sec 129 i.e detention and seizure of conveyance and goods during transit.

10. Section 129(1)(i)(a)(b) of the CGST Act, 2017 is being amended to delink the proceedings under that section relating to detention, seizure and release of goods and conveyances in transit, from the proceedings under section 130 relating to confiscation of goods or conveyances and levy of penalty. [Clause 108 the Finance Bill 2021]

Analysis: Existing Provision:

(a) on payment of the applicable tax and penalty equal to one hundred per cent of the tax payable on such goods and, in case o exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

(b) on payment of the applicable tax and penalty equal to the fifty per cent of the value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to five per cent of the value of goods or twenty five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such tax and panelty.

New Provision

(a) on payment of penalty equal to two hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

(b) on payment of penalty equal to fifty per cent. of the value of the goods or two hundred per cent. of the tax payable on such goods whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward.

The said amendment have benefited and loss both for tax payer. Benefited in terms of tax term which is deleted from the provision which means now getting the conveyance and goods released, only penalty is required to be paid by the concerned person (Noticee). Loss in terms as the penalty is increased to 200% from 100% which means no relief to the tax payer and we are back to square one. The reason why I am saying so is prior to amendment also I was liable to pay 200% (Tax + Penalty) and now after amendment also, I am liable to pay 200% therefore no relief to the Tax Payer in total.  

11. Section 129(2) of CGST Act, 2017 has been omitted.

Analysis: Now the conveyance and goods detained by the officer cannot be released on execution of bond and bank guarantee as security meaning thereby the penalty imposed by the officer will have to be paid in cash.

12. Section 129(3) of CGST Act, 2017, is substituted as The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of subsection (1).

Analysis: This proposition has the impact of imposition of penalty, if any, within the time frame as provided.  In Earlier Law, no time limit was prescribed for notice.

13. Section 129(4) of CGST Act, 2017, is substituted as No penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

Analysis: Tax and Interest are not applicable and will not be demanded after this amendment in law. For release of conveyance and goods, only penalty shall be imposed.

14. Section 130 of the CGST Act, 2017 is being amended to delink the proceedings under that section relating to confiscation of goods or conveyances and levy of penalty from the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit. [Clause 109 the Finance Bill 2021]

15. Section 151 of the CGST Act, 2017 is being substituted to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the Act. [Clause 110 the Finance Bill 2021]

Analysis: This proposition of amendment intends to grant wider powers to the concerned jurisdictional commissioner to call for any information on any matters concerned with the act.

16. Section 152 of the CGST Act is being amended so as to provide that no information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned. [Clause 111 the Finance Bill 2021]

17. Section 168 of the CGST Act is being amended to enable the jurisdictional commissioner to exercise powers under section 151 to call for information. [Clause 112 the Finance Bill 2021]

18. Consequent to the amendment in section 7 of the CGST Act paragraph 7 of Schedule II to the CGST Act is being omitted retrospectively, with effect from the 1st July, 2017. [Clause 113 the Finance Bill 2021]

II. AMENDMENTS IN THE IGST ACT, 2017

1. Section 16 of the IGST Act is being amended so as to:

(i) zero rate the supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit only when the said supply is for authorised operations;

Analysis: This proposed amendment restricts the enjoyment of benefits of zero rating in case the supplies are made to SEZ developer or SEZ Unit in a way that now post this amendment the benefits will be available only to the supplies to SEZ developer or SEZ Unit which are for authorised operations and not for any other supplies. Such authorised operations must be as per the SEZ Act, Rules and other relevant notifications.

(ii) restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services;

Analysis: Prior to this proposed amendment, the exporters were having an option (i) to export with payment of IGST and claim refund thereof; or (ii) to export without payment of Tax under LUT and claim refund thereof. After this proposed amendment, the scheme is supposed to undergo complete change.

Now, only notified class of taxpayer/notified class of goods/services are eligible for claiming refund in case the supplies are made with payment of tax. Therefore, now everyone making supplies with payment of IGST may not be eligible for claiming refund unless they are covered in the notified class of taxpayer or they are supplying notified class of goods/services.

Further to this, another impact of this amendment is that the proviso to subsection (3) mandates the collection and realisation of sales proceeds otherwise the refund claimed needs to be deposited back in the treasury of the government along with the interest u/s. 50. This proposed amendment i.e. the proviso is now providing teeth to the toothless provision of Rule 96B and therefor it could be said that Rule 96B is now having the statutory back up.

(iii) link the foreign exchange remittance in case of export of goods with refund. [Clause 114 the Finance Bill 2021]

Note:

(a) CGST Act, 2017 means Central Goods and Services Tax Act, 2017
(b) IGST Act, 2017 means Integrated Goods and Services Tax Act, 2017

Amendments carried out in the Finance Bill, 2021 will come into effect from the date when the same will be notified, as far as possible, concurrently with the corresponding amendments to the similar Acts passed by the States and Union territories with Legislature.


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