Goods & Services Tax (GST) in IndiaGST Round-Up 2022: Part I

INTRODUCTION

The Goods and Services Tax (hereinafter referred to as the “GST”) was introduced to tax the transactions of goods and services in the country. At the time of enactment, the Central Goods and Services Tax Act of 2017 (hereinafter referred to as the “CGST Act”) anticipated an interactive return system where credit requests were made after a proper matching procedure. Moreover, the Recipient could report when a Supplier failed to register an invoice or reported it incorrectly in the Goods and Services Tax Network (hereinafter referred to as “GSTN”) ecosystem. The Tax Authorities would have ready information from such visibility to go after the Suppliers first rather than requesting that legitimate Recipients rescind their credits.

However, due to technological limitations, the establishment of such interactivity was not possible. But, there have been several amendments and changes made in the GST regime, this year. Some modifications were brought through the Budget; whereas the others were notified vide Circulars and Notifications through the GST Council. This blog analyses the changes brought to the GST Law in the year 2022 through the Annual Budget.

KEY CHANGES BROUGHT IN THE GST LAW THROUGH THE FINANCE ACT, 2022

The Union Finance Minister Nirmala Sitharaman presented Budget 2022-23 and proposed various changes in the CGST Act and the Integrated Goods and Services Act, 2017 (hereinafter referred to as “IGST Act”) namely; amendments pertaining to Input Tax Credit, Cancellation or Suspension of Registration, Credit and Debit Notes, Furnishing details of Outward and Inward Supplies and levy of late fees, etc. to make the CGST Act more progressive and economically ambitious.

A. Eligibility and conditions for taking “input tax credit”

A new clause (ba) to sub-section (2) of Section 16 of the CGST Act, 2017 has been inserted so as to avail input tax credit (ITC) in respect of the supply, if such credit has not been restricted in the details communicated to the taxpayer under Section 38 of the CGST Act, 2017.

In addition to that sub-section (4) of Section 16 of the CGST Act has been amended to extend the timeline for the availment of ITC by a registered person in respect of any invoice or debit note pertaining to a financial year up to 30^th November, 2022.

This amendment has brought further clarity regarding the availment of ITC in respect of the supply. ITC will be available to a registered person only if such credit has not been limited in the details communicated to the taxpayer under Section 38 of the CGST Act.

Furthermore, the amendment to sub-section 4 of Section 16 of the CGST Act has provided an extended timeline to the registered person in availing the input tax credit which resolves the ambiguity that was present in the sub-section prior to the amendment.

The reason behind this amendment is to bring an end to the fraudulent ITC chain of dealers as it has been causing losses to the country. The changes have brought certain hardships to the actual buyers where their suppliers did not discharge his GST liability correctly.

M/S. D.Y. Beathel Enterprises v. The State Tax Officer (Data Cell), [WP (MD) No. 2127 of 2021] is one of the first judgments which has acknowledged the provision of Section 16(2) of the CGST Act, 2017.

B. Cancellation or suspension of registration

Clause (b) and (c) of sub-section 2 of Section 29 of the CGST Act has been amended so as to provide that the registration of the person is liable to be cancelled where;

• A person paying tax under Section 10 of the CGST Act has not furnished the return for a financial year beyond three months from the due date of furnishing such return.
• A person paying tax under Section 10 of the CGST Act, has not furnished returns for such continuous tax period as may be prescribed.

The amendment has brought more clarity in regards to the timelines given to the taxpayers as it is more specific and prescribes a time limit of three months after which the registration of the person is liable to be cancelled.

The said amendment is introduced because initially composite dealers were responsible to file returns on a quarterly basis but now they are responsible to file returns on annual basis. Therefore, 3 tax periods means 3 years and this was not the intention of the legislatures. Therefore, this amendment was necessary.

C. Credit and Debit Notes

Sub-section 2 of Section 34 of the CGST Act has been amended so as to provide the extension to the timeline for issuance of credit notes in respect of any supply made in a financial year up to 30^th November, 2022.

This amendment extended the timeline to the 30^th of November 2022 while allowing additional time for the registered person. Earlier, the registered person was required to declare the details of a credit note in the month in which it was issued but not later than September following the end of the financial year in which the supply was made or the date when the annual return is to be furnished, whichever is earlier.

D. Furnishing details of outward supplies

Section 37 of the CGST Act has been amended to include the following:

• To provide for prescribing conditions and restrictions for furnishing the details of outward supply and for communication of the same to the concerned recipients;
• To do away with the two-way communication process in return filing;
• To provide for an extended time up to 30^th November 2022 for rectification of errors in respect of outward supply details furnished under sub-Section (1);
• Provide for tax period-wise sequential filing of outward supplies details under sub-section (1).

The amendment is more inclined toward the registered person as it provides an extended timeline to correct the errors made in respect of outward supply details. In addition to that, the amendment has made the process of filing outward supply details easier by laying down the conditions and restrictions for furnishing the details of outward supply. This amendment has brought a greater level of diligence in timely filing of the GSTR-1 Return.

E. Furnishing details of inward supplies

Section 38 of the CGST Act has been substituted for prescribing the manner, as well as conditions and restrictions for communication of inward supply details and input tax credit to the recipient by the means of auto-generated statement and to do away with two-way communication process in return filing.

The amendment has made the entire process more hassle-free as it intends to remove the two-way communication process in return filling. Further, the aim of this amendment was to prescribe the manner, conditions and restrictions for communication of inward supply details which will make the entire process easier for the registered person.

However, it has kept the timeline intact for the rectification of errors in respect of the details furnished under sub-section (2) of Section 38 of the CGST Act.

 F. Furnishing of returns

 Section 39 of the CGST Act has been amended so as to:

• provide that the non-resident taxable person shall furnish the return for a month by the 13^th day of the following month;
• provide an option to the persons furnishing return under proviso to sub-section (1), to pay either the self-assessed tax or an amount that may be prescribed;
• provide for an extended time up to the 13^th day of November of the following financial year, for rectification of errors in the return furnished under Section 39 of the CGST Act;
• provide for the furnishing of details of outward supplies of a tax period under sub-section (1) of Section 37 as a condition for furnishing the return under Section 39 of the CGST Act for the said tax period.

The amendment has prescribed specific timelines for the non-resident taxable person to furnish the returns i.e. 30^th day of the following month. In addition to that, it has given extended time for rectification of errors, if made in the return furnished under Section 39 of the CGST Act.

After this amendment, the taxpayers need to compulsorily file GSTR-1 of the tax period in order to file GSTR-3B of the said tax period. Earlier, the taxpayers were restricted to filing GSTR-3B only when GSTR-3B of the previous tax period was not filed.

This amendment is in line with the restrictions imposed under Section 16 and Section 38 of the CGST Act.

G. Claim of input tax credit and provisional acceptance thereof

Section 41 of the CGST Act has been substituted so as to do away with the concept of a “provisional claim” of an eligible input tax credit.

The matching concept of output tax liability of the supplier vis-à-vis input tax credit of the recipient i.e. two- way communication, as envisaged at the inception of GST has been discontinued.

Now, the input tax credit is to be claimed by the recipient on a self-assessment basis. If outward tax liability has not been discharged by the supplier, then the recipient has to reverse the input tax credit along with interest. However, upon payment of outward tax liability by the supplier, the recipient can re-avail such input tax credit.

This amendment has rightly discontinued the concept of provisional ITC as matching and validation of the same could not be implemented because of operational difficulties on the Portal.

H. Levy of late fee

Section 47 of the CGST Act has been amended so as to provide for the levy of late fees for delayed filing of returns under Section 52 of the CGST Act.

The amendment has brought Section 52 of the CGST Act under its ambit which means that late fees can be levied for delayed filing of returns which was not the case earlier. However, no late fee can be implicated in reference to Section 38 of the CGST Act which was possible even prior to the amendment.

I. Goods and Services tax practitioners

Consequent to the amendment in Section 38 of the CGST Act, sub-section (2) of section 48 of the CGST Act has been amended so as to remove reference to Section 38 therefrom.

In furtherance to the amendment made in Section 38, the amendment to sub-Section (2) of Section 48 is removed to curb the scope of ambiguities in that regard.

J. Payment of tax, interest, penalty, and other amounts

Section 49 of the CGST Act, 2017 has been amended so as to:

• provide for prescribing restrictions for utilizing the amount available in the electronic credit ledger;
• allow transfer of amount available in the 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;
• provide for prescribing the maximum proportion of output tax liability that may be discharged through the electronic credit ledger

The amendment has brought forth more clarity in respect of the usage of the amount available in the electronic credit ledger. Earlier, there were no guidelines and instructions as to how the amount shall be utilized and the maximum proportion of output tax liability that may be discharged.

This amendment has enabled taxpayers in liquidating their working capital without getting into the hassle of claiming a refund of the amount available in the electronic credit ledger.

K. Interest on delayed payment of tax

Sub-section (3) of Section 50 of the CGST Act has been substituted retrospectively, with effect from the 1^st July 2017, so as to provide for the levy of interest on input tax credit wrongly availed and utilized.

The amendment has levied the interest on those taxpayers who claimed the undue or excess input tax credit under sub-section (10) of Section 42 of the CGST Act or undue or excess reduction in output tax liability under sub-section (10) of Section 43 of CGST Act.

In the case of Star Indian Private Limited v. CCE [2005-VIL-55-SC-ST], the Supreme Court also held that interest cannot be levied retrospectively. In case the Department intends to levy interest for past period, the same can be challenged.

After this amendment, the taxpayers can also claim a refund for the interest paid for any past years specifically for the period wherein ITC was availed but not utilised.

L. Collection of tax at source

Sub-section (6) of Section 52 of the CGST Act has been amended so as to provide for an extended time up to the 30^th of November of the following financial year for rectification of errors in the statement furnished under sub-section (4).

The amendment has provided extended time to the operators to rectify the errors after furnishing a statement under sub-section (4) of Section 52 of the CGST Act.

M. Refund of Tax

Section 54 of the CGST Act has been amended so as to:

• explicitly provide that refund claim of any balance in the electronic cash ledger shall be made in such form and manner as may be prescribed;
• provide the time limit for claiming a refund of tax paid on inward supplies of goods or services or both under Section 55 of the CGST Act as two years from the last day of the quarter in which the said supply was received;
• extend the scope of withholding of or recovery from refunds in respect of all types of refund;
• provide clarity regarding the relevant date for filing a refund claim in respect of supplies made to a Special Economic Zone developer or a Special Economic Zone unit by way of insertion of a new sub-clause (ba) in clause (2) of Explanation thereto.

The amendment has tried to bring more clarity for those who are entitled to claim refunds so that they have specific knowledge of the particulars before proceeding with the application. Earlier, the said Section had general guidelines and restrictions in reference to the refund; however, the recent amendment is proposed to supplement the already existing provisions of the said Section.

N. Power to issue instructions or directions

Consequent to the amendment in Section 38 of the CGST Act sub-section (2) of Section 168 of the CGST Act has been amended so as to remove reference to Section 38 therefrom.

In furtherance to the amendment made to Section 38, sub-section (2) of Section 168 of the CGST Act has also been amended to curb the scope of ambiguities.

O. Other Amendments /Changes

I. Section 42, 43, and 43 A have been omitted to do away with the two-way communication process of returns.

II. Notification No. 9/2018- CGST dated 23^rd January, 2018 has been amended retrospectively with effect from 22nd June 2017.

III. Notification No 13/2017-CGST dated 28^th June, 2017 has been amended retrospectively with effect from 1st July 2017 so as to notify the rate of interest under sub-section (3) of Section 50 of the CGST Act is 18%.

IV. Notification No 6/2017- IGST dated 28^th June, 2017 has been amended retrospectively with effect from 1st July 2017 so as to notify the rate of interest under sub-section (3) of Section 50 of the CGST Act is 18%.

AMLEGALS REMARKS

The overall changes brought in the CGST Act through the Finance Act, 2022 are progressive in nature and aim to eliminate the extant lacunas. The amendments intend to fill the gaps and bring more clarity to the taxpayers by making the process hassle-free and convenient.

In most of the amended provisions, the timelines have been extended for the registered persons and operators to rectify the errors which comes as a sigh of relief for them. Certain amendments were brought just to remove the two-way communication process of returns.

The next blog of the series shall cover the other changes brought into the GST Law through various Circulars and Notifications.

– Team AMLEGALS assisted by Ms. Ishita Jaiswal (Intern)

For any queries or feedback, please feel free to get in touch with aditi.tiwari@amlegals.com or himanshi.patwa@amlegals.com.