Budget 2021 Update - Key Changes in GST Act

1. Retrospective amendment to include activities by an association to its members.

(Clause 99 and 113 of Finance Bill, 2021)

The following clause has been inserted to expand the meaning of the term supply under section 7(1) of CGST Act, 2017 w.e.f. 01st July 2017.

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment, or other valuable consideration.

An explanation has also been included to the effect 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.

Further, entry 7 of Schedule II which classified the following activity as supply of goods has been omitted w.e.f. 01st July 2017.

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment, or other valuable consideration.

Comments:

The said retrospective amendment has been proposed to overcome the ruling of the Apex Court in the case of State of West Bengal v. Calcutta Club Ltd. cited 2019-TIOL-449-SC-ST- LB, where the levy of Service Tax/VAT was struck down on the principle of mutuality.

Even under GST, levy of GST on Clubs, Societies, Associations can be contested on the same lines under GST. The said amendment could have wider implications, beyond the issue of taxability of activities of a club/association and its members since the entry also includes constituents. The Constitutional validity of the said entry and the validity of retrospective amendment still must be tested, as it appears that the entry has been introduced merely to overcome the decisions of the Apex Court. Till further clarity emerges, it may be advisable to comply with the law.

With the amendment in place, entry 7 of Schedule II, considering supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment, or other valuable consideration as a supply of goods has been omitted retrospectively.

2. Additional condition for availing Input Tax Credit

(Clause 100 of Finance Bill, 2021)

Section 16 of the CGST Act provides eligibility and conditions for availing the Input Tax Credit. A new clause has been added under section 16 requiring the details of the invoice that has been furnished by the supplier in the statement of outward supplies (GSTR-1) and that such details have been communicated to the recipient (GSTR-2A).

Comments:

Rule 36(4) of the CGST Rules,2017 had been inserted vide Notification No.49/2019 - Central Tax dated 09.10.2019 with effect from 09.10.2019, where the credit was restricted to 105% of the inputs reflected in GSTR-2A .

Various Writ applications have been filed before the High Courts, challenging the legal validity of the said rule as there is no specific condition provided under section 16(2) of the CGST Act, 2017 and thereby it can be said that the condition imposed under rule 36(4) of the CGST Rules, 2017 is an additional requirement which increases the scope of the principal Act.

Though Section 43A was inserted vide the CGST Amendment Act, 2018 the same has not been notified till date and thereby not effective as on date to enable the rule 36(4) ibid to derive the power.

To overcome the above challenge, a new condition is proposed to be inserted in Section 16 of the CGST Act to give legal validity to the requirement of Rule 36(4). The said amendment appears to be prospective in nature and hence its validity prior to the introduction of the said condition in Section 16 would be highly disputed.

It is pertinent to note that present restriction provides a taxpayer to avail the credit up to 105% of the eligible credit available in his GSTR-2A/2B. Going forward, the taxpayer could avail only the ITC pertaining to the invoices reflecting in the GSTR-2A/2B, considering the specific condition introduced in Section 16(2) of the CGST Act.

Whereas it is a well stated principal that substantial benefit of credit should not be denied due to the default by vendors. Similarly, provisions/disputes in Central Excise, Service Tax and VAT have been held to be unreasonable in the past in the following decisions wherein held credit cannot be denied when the vendor did not deposit taxes:

• Commissioner of Trade & Taxes, Delhi, and others Vs. Arise India Limited and others [TS-2-SC-2018-VAT]
• Kay Kay Industries (2013-TIOL-41-SC-CX). (2013-TIOL-41-SC-CX)
• Bharti Telemedia Ltd. Vs. Union of India & Ors. [Appeal Number: W.P.(C) 6293/2019]
• Sri Ranganathar Valves Pvt Ltd Vs Assistant Commissioner (CT) (FAC) 2020-TIOL-1611- HC-MAD-VAT

Therefore, in our view on any default on the part of vendor, the recipient cannot be denied the credit.

3. Self-certification of Reconciliation Statement instead of Auditor

(Clause 101 and 102 of Finance Bill, 2021)

Section 44 of CGST Act 2017 has been amended to furnish annual return along with a self- certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, along with the audited annual financial statement electronically.

Comments:

The taxpayer would be required to submit a self-certified reconciliation statement. Earlier the responsibility was on the auditor. The responsibility of correctness of reconciliations & GST Law compliances has been shifted from the Auditor to the taxpayer himself.

4. Interest payable on net cash liability made effective from 1st July 2017.

(Clause 103 of Finance Bill, 2021)

Proviso to Section 50(1) of the CGST Act has been substituted retrospectively w.e.f 01st July 2017, as under

'Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger'.

Comments:

With a minor change in the wording of the said proviso, it has been made abundantly clear that the effect of the said proviso would be applicable w.e.f. 01st July 2017.

Whoever paid the interest liability on gross GST liability should apply for the refund of excess interest paid.

5. Delinking of proceedings under section 73 or 74 from the proceeding under the Section 129 and 130

(Clause 104 of Finance Bill, 2021)

In Explanation 1(ii) provided under section 74 of the CGST, for the words and figures 'sections 122, 125, 129 and 130' the words and figures 'section 122 and 125' shall be substituted.

Comments:

Through this amendment, Sections 129 and 130 have been excluded, whereby the proceedings initiated against other persons would not be deemed to be concluded automatically on conclusion of proceedings against the main person under Sections 73 or 74. The proceedings against other persons under Sections 129 and 130 initiated against other persons would still continue even after conclusion of proceedings under Sections 73 or 74.

6. Tax replaced with increase in Penalty under Section 129

(Clause 108(ii) of Finance Bill, 2021)

Section 129(1)(a) of the CGST Act, 2017 provides for detention and seizure of goods and conveyance in transit. Currently, the release of goods and conveyance is allowed on payment of tax and penalty equal to 100% of tax payable on such goods. However, as per the proposed amendment, the goods and conveyance so detained and seized are now subject to release on payment of penalty equal to 200% of tax payable on such goods.

Similarly, in cases where the owner of the goods does not come forward to make payment for release of such goods, the owner would be required to make payment of applicable tax and penalty equal to 50% of the value of goods. As per the proposed amendment, the release on goods would be allowed on payment of penalty equal to 50% of the value of goods or 200% of tax payable, whichever is higher.

Comments:

These amendments have been proposed with an intention to substantially increase the burden of penalty for contravening the provisions of the CGST Act including E-Invoice and E- way Bill provisions. Further, the amendment has done away with the requirement to pay tax by substituting the words 'penalty' for 'tax and penalty', which has also been nullified by the corresponding increase in penalty. The present lack of clarity on how to adjust the tax paid under Section 129, while filing Form GSTR-3B, would now be settled.

7. Time period specified to issue notice and pass order.

(Clause 108(iii) of Finance Bill, 2021)

It has been proposed to amend Section 129(3) of the CGST Act to prescribe a specified time limit for issuance of notice within 7 days of such detention or seizure specifying the penalty payable and thereafter, pass an order within a period of 7 days from the date of service of such notice for payment of such penalty.

With an increased penalty, section 107 of the Finance Bill, 2021 further requires the assessee to deposit a sum equal to 25% of the penalty to file an appeal against order issued u/s 129(3).

Comments:

1. The amendment has reduced the time limit to adjudicate the proceedings in case of detention of goods. This will result in quick redressal and release of goods and conveyance.
2. It may be noted that with increased penalty, the increased pre-deposit beyond 10% of the disputed tax amount as prescribed for other appeals would be an undue hardship for the Assessee.

8. Right to sell goods and conveyance on failure to pay penalty.

(Clause 108(v) of Finance Bill, 2021)

Clause 108(v) of the Finance Bill, 2021 allows detaining authority to sell/dispose the goods and conveyance in such manner and recover penalty payable in case the Assessee fails to pay the penalty as determined in order issued u/s 129(3) within 15 days from receipt of such order. Earlier, the time was 14 days from such detention or seizure.

Goods which are perishable, hazardous in nature - time limit would be 15 days from receipt of such order which may be reduced by the officer as he deems fit.

Also, the amendment now does not link Section 129(6) to Section 130, i.e., confiscation of goods or conveyance and levy of penalty.

The proviso added through the amendment allows release of conveyance (only and not goods) to the transporter on payment of penalty of Rs. 1 Lakh or penalty as prescribed u/s 129(3), whichever is less.

Comments:

1. The time limit to pay the penalty u/s 129 is now clear and extended
2. The amended provision is stringent in manner that the earlier provisions only gave the power to confiscate the goods and the conveyance. Whereas the new amendment now amplifies the power of the authority to confiscate and sell/dispose the goods and the conveyance.
3. The inserted proviso gives sigh of relief to the transporters against whom the detention proceedings are initiated due to fault of the supplier/receiver.

9. Section 129 and 130 are independent provisions - Delinking.

(Clause 109 of Finance Bill, 2021)

Clause 109 of the Finances Bill, 2021 substitutes the words 'notwithstanding anything contained in this act' with 'where'. Further, when the goods are confiscated u/s 130 of the Act, the assessee shall be given an option to pay fine in lieu of confiscation which shall not be less than penalty equal to 100% of tax payable on such goods.

Also, section 129(6) earlier was linked to Section 130, which has been amended now.

Section 130 has also been delinked from demand and recovery provisions under Section 73 & 74. (refer clause 104 of Finance Bill, 2021)

Comments:

Clause 108 of the Bill seeks to amend section 129 of the Central Goods and Services Tax Act 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. Therefore, proceedings u/s 129 and 130 are now independent proceedings and are mutually exclusive. The amendment has followed the ruling of Hon'ble Gujarat High Court in the case of Synergy Fertichem Pvt Ltd Vs State of Gujarat Special Civil Application No. 4730 of 2019 dated 08/03/2019.

10. Insertion of explanation for self-assessed tax under section 75

(Clause 105 of Finance Bill, 2021)

Explanation has been inserted under sub section (12) of Section 75 for the word 'Self assessed tax' would include the tax payable on supplies declared in GSTR-1 returns but not included and paid GST liability in GSTR-3B returns.

Earlier such instances were routed through Section 73 & 74, i.e., time period to issue show- cause notice was present and the opportunity of being heard was provided to the assessee.

For a situation where GSTR 1 does not match to the GSTR 3B for the tax period(s), the department now:

• Is not restricted by 3/5 years' time limits to issue SCN (Section 73 & 74)
• SCN need not be
• Opportunity to be heard is not provided.
• Recovery proceedings can be directly taken up by the officer (Section 79)

Types of recovery - Bank account/property attachment, selling goods under control of officer, garnishee order to taxpayer's customers.

As the amendment to the Act is through an explanation, could it be a retrospective amendment? In our view this explanation is having the prospective application only as there is no mention about the retrospective application.

Comments:

This explanation provides clarification for the word self-assessed tax would include the taxes which are declared in GSTR-1 but not paid in GSTR-3B for the purpose of recovery of taxes under Section 79 without following the process of raising SCN, providing opportunity to being heard and then if the situation demands recovery taxes in accordance with Section 79. Principles of natural justice have been overlooked cases where there genuine reconciliation issues, and this could be disputed.

Circular 26/26/2017 dated 29th December 2017 allowed for rectifying errors or omissions in GST returns as the returns cannot be revised. This provision must be read in line with the Circular wherein, the GSTR-1 Vs GSTR 3B must be matched for the entire financial year including corrections done before September month GST returns of the subsequent financial year.

Also, any amendment which has a substantive change, will always be considered to having a prospective change.

It would be possible to obtain a stay order where bank accounts (or other recovery methods) have been attached to ensure that business functions are not affected.

Going forward, risk averse taxpayers could ensure that GSTR 1 matches to GSTR 3B while filing the GST returns. This would require that strong internal control procedures be in place. (cut off dates, back dated entries, revenue recognition, etc.)

11. Extension of validity for provisional attachment of property, bank account

(Clause 106 of Finance Bill, 2021)

Subsection (1) of Section 83 of CGST Act, 2017 amended that, Commissioner is of the opinion that to protect the interest of the Government revenue, to attach provisionally property

including bank account of the taxable person or any person who retains the benefit and at

whose order or instance the following transactions undertaken:

1. Supply of any goods or services or both without issue of any invoice or issue of an incorrect or false
2. Issuing any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made
3. Taking or utilising input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made
4. Taking or distributing input tax credit in contravention of section 20 (Input service distributor), or the rules made

From the initiation of the proceeding under the provisions of Assessment, Inspection, Search, Seizure & Arrest and Demand & Recovery till the expiry of one year from the date of the order made thereunder.

Comments:

This enables the Commissioner to attach the property including bank account of the taxable person or any person who retains the benefits and at whose order or instance taken the above transactions would be valid from starting of the above proceedings as compared to during the pendency of the above proceedings.

It is settled position of law that property can be attached only when the authority is of the opinion that after closer of proceedings there may be ultimate default of tax payment. How can the revenue officers determine the tax evasion or quantum of tax evasion or ultimate default of tax payment by the tax payer in the beginning of proceedings are not clear. These provisions are challengeable before the Court.

'Interest of government revenue' is not similar to 'public interest' therefore, could be considered to be vague and subjective.

This increases the compliance burden on the taxpayer. The taxpayers are by default being viewed as tax avoiders and in a negative light. This perception has to be changed by the common man and the government.

12. Power to call for information.

(Clause 110 of Finance Bill, 2021)

Power to collect statistics under Section 151 has been substituted to power to call for information which states as follows:

'The Commissioner or an officer authorised by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as may be specified therein'.

Comments:

In the earlier provision, Commissioner by notification would direct to collect statistics relating to any matter dealt with by or in connection with this Act and Commissioner, or any person authorised by him in this behalf, may call upon the concerned persons to furnish such information or returns relating to any matter in respect of which statistics is to be collected. Now, statistics would not be required to be collected for the same.

13. Bar on disclosure of information

(Clause 111 of Finance Bill, 2021)

Section 152 provided to bar on disclosure of individual return or part thereof with respect to matters given for the purpose of Section 150 (Obligation to furnish information return by specified authorities) and Section 151 (Power to collect information) without the previous consent in writing of the concerned person or his authorised representative no person engaged in Section 150 and 151 shall be permitted to see or have access to any information or any individual return referred to in section 151.

Amendment has been made to include principles of natural justice when proceedings are undertaken. Although, the intention is to restrict the disclosure of information therefore, including these wordings here are unclear.

Comments:

In the earlier provision, only the individual return or part thereof were not allowed to be disclosed. However, now restricted for any information. Also, person who is engaged in the collection of statistics under this Act or compilation or computerisation thereof were allowed to see or have access, but after amendment such power has been provided only without previous consent in writing of the concerned person or his authorised representative.

14. Power to issue instructions or directions.

(Clause 112 of Finance Bill, 2021)

Amendment has been made to section 168 which provides powers to the Board to issue such orders, instructions, or directions to the central tax officers to observe and follow such orders, instructions, or directions, wherein, the 'Commissioner' referred to in various provisions are amended as follows:

• Section 44 has been considered instead of Section 44(1) -Annual returns due to recent amendment.
• Section 151(1) has been omitted from the

Comment:

Section 168(2) provided to identify the 'Commissioner' in various provision of the GST law.

15. Amendment in IGST Act for Zero related supply

(Clause 114 of Finance Bill, 2021)

Following the amendment in Section 16 of IGST Act 2017

1. Supply of goods and services to SEZ or SEZ developer would be treated as zero rated supplies only if provided for authorised operation.
2. Refund option available for supplies of goods without payment of tax has been restricted to realisation of sale Where sale proceeds are not received within the time frame prescribed in FEMA 1999, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50.
3. Supplies of goods and services with payment of taxes have been restricted and only be provided if notification issued by government specifying (notification awaited):

1. a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so
2. a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid.

Comments:

Following are the comments for the provisions amended -

1. There was restriction in the Rules for claiming for refund of supplies to SEZ or SEZ developer only if supplied for authorised operation. However, such restriction was not provided in parent act which has been amended to include the Supplier may not be knowing whether the SEZ Unit is purchasing the goods really for authorized operations or not. To this extent litigation on this issue will increase substantially.
2. Receipt of sale proceeds in case of export of goods was restricted through Rule 96B notified vide Notification 16/2020 CT dated 23rd March 2020 however such provisions in the parent Act were not available. This amendment has provided an enabling power in the act for the
3. Restriction has been provided for export/zero rated supply of goods and services with payment of tax by giving power to government to notify class of persons and goods and
4. So, export with payment of IGST (automatic, system driven processing & sanctioning the IGST Refunds based on shipping bill) no longer be available for all the exporters. It is for the Government to give that option to specific person who is dealing with specific good or services. In some cases, exporters claimed the ITC on basis of fake invoices, IGST was paid by using such Credit and Customs refunded such amounts to exporters. In some cases, vendors of exporters claimed the bogus credits and discharged their liability through such credit. Because of these reasons Govt wants to restrict that IGST refund option only to few Organized
5. Therefore, it is suggested to all the exporters to make their shipments with payment of IGST so that your existing Credit can be liquidated in the form of automatic
6. Once the Finance Bill is signed by the President of India, exporters may be required to file the Monthly applications to Jurisdictional officers for claiming the refunds