After successful implementation of GST during a complete period of one year, government is planning to enter into next level of GST to make it more smoother and trade friendly.
Recently, government has issued proposals to amend CGST Act, IGST Act, respective State/UT GST Acts. Following is the set of Major Amendments proposed in such acts.
CGST Act 2017 or respective State/UT GST Acts, 2017
Definition of ‘Business’:
Section 2 (17) defines the word “business”. As per clause (h) of this section, “Business” includes :
“(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and”
It is being proposed to amend this clause as:-
“(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and”
Changes are being made to ensure that all activities related to a race club are included. The term “services” in this clause leads to ambiguity, as actionable claims have been defined as ‘goods’ in the CGST Act
Definition of Services:
Section 2 (102) defines the word “Services”. As per this section, “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
It is proposed to add an explanation as:-
“Explanation: For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities.”
Although ‘securities’ has been excluded from the definition of ‘goods’ and ‘services’ in the CGST Act, facilitating or arranging transactions in securities is liable to GST. This has been clarified recently through a detailed FAQ on Banking and Insurance wherein it has been clarified that if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged in relation to transactions in securities, the same would be a consideration for provision of service and chargeable to GST. It is proposed to insert an Explanation in order to remove any doubts.
Meaning of supply as per Schedule –I of CGST Act 2017
Clause 4 of Schedule –I provides that “Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business”.
It is proposed to remove word “taxable” from this clause.
This amendment is to ensure that import of services by entities which are not registered under GST (say, they are only making exempted supplies) but are otherwise engaged in business activities is taxed when received from a related person or from any of their establishments outside India.
Insertion of New Clauses in Schedule – III of CGST Act 2017
Schedule III prescribes those activities or transactions which shall be treated neither as a supply of goods nor a supply of services. In this Schedule, 6 activities/transactions are listed. Followings clauses are proposed to be added in this list to make it 8.
Clause 7
Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into the taxable territory.
It is sought to exclude from the tax net such transactions which involve movement of goods, caused by a registered person.
Clause 8
(a) Supply of warehoused goods to any person before clearance for home consumption.
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
Explanation- For the purposes of this clause, the expression “warehoused goods” shall have the meaning as assigned to it in the Customs Act, 1962 (52 of 1962).
It is sought to ensure that there is no double taxation of transactions where supply of goods occurs in the course of high sea sales and sale of warehoused goods, before clearance for home consumption. It was observed that in case of supply of goods as high seas sales and sale of warehoused goods, before being cleared for home consumption, IGST was being levied twice, once under the Customs Tariff Act, 1975 (read with the IGST Act) and then for a second time, on clearance for home consumption under the IGST Act.
Since double taxation needs to be avoided, Circulars were issued to state that IGST would be payable only once at the time of clearance of goods for home consumption. However, it is imperative that such situations are squarely mentioned as ‘no supply’ in Schedule III.
Removal of laws of Reverse Charge Mechanism in case of purchase from Unregistered Persons:-
Section 9(4), which mandates that all registered persons shall pay the tax on reverse charge basis on purchases made from unregistered persons, is presently under suspension. This sub-section is proposed to be omitted for trade facilitation.
Instead, it is proposed to take an enabling power for the Government to notify a class of registered persons who would be liable to pay tax on reverse charge basis in case of receipt of goods from an unregistered supplier. Hence, the provision under Section 9(4) is proposed to replace with following provision:
“9 (4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of taxable goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both”
Composition Scheme
- Maximum Limit for composition scheme proposed to enhance from rupees One Crore to Rupees One Crore Fifty Lakh (Rs 1.50 Crore).
- At present, registered persons engaged in the supply of services (other than restaurant services) are not eligible for composition scheme.
As a result, manufacturers and traders supplying services are unable to opt for the scheme even if its percentage is very small as compared to the supplies of goods. With a view to enable these taxpayers to avail of the benefit of composition scheme, following new proviso is being added in order to allow them to be eligible for the scheme even if they supply services of value not exceeding 10% of the turnover in the preceding financial year in a State/Union territory or Rs. 5 lakhs, whichever is higher:-
Following proviso proposed to Section 10(1):-
“Provided further that a person who opts to pay tax under clause (a), clause (b) or clause (c) may supply services of value not exceeding ten percent of turnover in the preceding financial year in a State or Union territory or five lakh rupees, whichever is higher”.
Section 17(3) to define exempt supply for the purpose of reversal of ITC on such supplies
Section 17(3) deals with the meaning of exempt supply for the purpose of reversal of ITC. It is proposed to allow availment of ITC on activities or transactions specified in Schedule III (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) by excluding it from the ambit of ‘exempt supply’ on which ITC is blocked.
Proposed amended provision under Section 17(3) is reproduced as below:-
“The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building but shall not include the value of activities or transactions (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) specified in Schedule III.”
Blocked Credits under Section 17(5)
Section 17(5) provides a list of inward supplies against which input tax credit not available. This list has also been proposed to be amended with following provisions:
- Earlier ITC for all motor vehicles was restricted subject to same category of business. It is now being amended as:
(a) Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), vessels and aircraft except when they are used ––
(i) for making the following taxable supplies, namely:-
(A) further supply of such vehicles or vessels or aircraft conveyances; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles, vessels or aircraft or conveyances
(ii) for transportation of goods;
(iii) for transportation of money for or by a banking company or a financial institution.
It is proposed to expand the scope of ITC availability in case of motor vehicles having approved capacity of not more than 13 persons (including the driver) in case it is used for specified purposes. Earlier, all passenger vehicles were in restrictive list unless such vehicles used for making taxable supplies. ITC was not allowed for vehicles like staff bus, cash vans, security vehicles, ambulances, etc. purchased by a taxable person.
Further, the amendment is sought to make it clear that input tax credit would now be available in respect of dumpers, work -trucks, fork-lift trucks and other special purpose motor vehicles. After the amendment is carried out, input tax credit would be denied only in respect of motor vehicles for transport of persons having approved seating capacity of not more than 13 persons (including the driver), vessels and aircraft when these are used for personal purposes.
- Further, to bring more clarity on restriction of ITC on routine expenses on such vehicles whose ITC is not allowed, a new clause is proposed to be inserted as :-
(aa) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels and aircraft for which the credit is not available in accordance with the provisions of clause (a);
The proposal is to clarify that ITC in respect of services of general insurance, servicing, repair and maintenance in respect of those motor vehicles, vessels and aircraft on which ITC is not available under clause (a).
- Amending clause (b) of section 17(5), it is being proposed to restrict ITC of renting or hiring of motor vehicles, vessels and aircraft referred to in clause (a) Earlier, this restriction was limited to rent a cab service.
Meaning of turnover for ISD under Section 20
As per clause (c) of Explanation to Section 20, the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
It is proposed to exclude the amount of tax levied under entry 92A of List I from the value of turnover for the purposes of distribution of credit. The same was inadvertently left out from clause (c) of Explanation to section 20.
Section 22 for registration:-
For special category states, turnover limit for registration kept at ten lakh rupees. However, Assam has requested to raise the threshold exemption limit from ten lakh rupees to twenty lakh rupees as like in other states. So, it is proposed to amend the definition of special category states to exclude Assam.
Section 24 for compulsory registration:-
It is proposed to amend Section 24(x) to exclude those e-commerce operators who is not required to collect tax at source under section 52.
Section 25(2) for multiple registrations of business verticles:-
A new proviso is proposed to allow registration of same type of business at multiple locations in a state:-
“Provided further that a person having multiple places of business in a State or Union territory may be granted a separate registration for each such place of business, subject to such conditions as may be prescribed:”
Further, to make it compulsory for separate registration by an SEZ Unit, It is proposed to insert the provisions of separate registration for a person having a unit(s) in a Special Economic Zone or being a Special Economic Zone developer as a business vertical distinct from his other units located outside the Special Economic Zone. This provision is already contained in rule 8 of the CGST Rules.
“Provided also that a person having a unit, as defined in the Special Economic Zones Act, 2005 (28 of 2005), in a Special Economic Zone or being a Special Economic Zone Developer shall be granted a separate registration as distinct from his units located outside the Special Economic Zone in the same State or Union territory:
Provided also that a person having more than one unit, as defined in the Special Economic Zones Act, 2005 (28 of 2005), in a Special Economic Zone shall be granted a separate registration for each such unit, subject to such conditions as may be prescribed.”
Section 29(1) for Cancellation of Registration
It is proposed to add following proviso to provide that once a registered person has applied for cancellation of registration, the proper officer may temporarily suspend its registration till the procedural formalities for cancellation are completed.
“Provided that pending cancellation of registration, the proper officer may suspend the registration of the person subject to such conditions and limitations as may be prescribed.”
This measure would relieve the taxpayer of continued compliance burden under the law till such time as the process of allowing cancellation of registration is completed.
Section 29(2) for Cancellation of Registration by Proper Officer
Following Proviso proposed on the same lines of Section 29(1).
“Provided further that pending cancellation of registration, the proper officer may suspend the registration of the person subject to such conditions and limitations as may be prescribed.”
Credit Note and Debit Note under Section 34
At present, a credit/debit note which is issued by the registered person is required to be issued invoice-wise. This causes avoidable compliance burden for tax payers. Thus, it is proposed to allow issuance of consolidated credit/debit which is in line with the best international practices.
The amendment seeks to permit a registered person to issue consolidated credit / debit notes in respect of multiple invoices issued in a Financial Year without linking the same to individual invoices.
Exemption from Audit to various Government Departments
It is proposed to provide that any department of the Central or State Government /local authority which is subject to audit by CAG need not get their books of account audited by any Chartered Accountant or Cost Accountant. Following proviso is proposed under section 35 (5):-
“Provided that nothing contained in this sub-section shall apply to any department of the Central Government or a State Government or a local authority, whose books of accounts are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”
Amendment of GST Returns
At present, amendment of original return is not allowed, however, such amendment is allowed through relevant entries in returns of subsequent tax periods.
To make GST law more trade friendly, it is proposed to provide for allowing taxpayers to amend the returns. This provision existed in pre-GST regime, and is a trade friendly measure which would enable the taxpayers to correct inadvertent mistakes in the returns by filing an amendment return. These amendments are facilitated through amendment in Section 39(9).
New Procedure for return filing
A new section (43A) is being introduced in order to enable the new return filing procedure as proposed by the Returns Committee and approved by GST Council.
43A. Procedure for furnishing return and availing input tax credit. –
(1) Notwithstanding anything contained in section 37 or section 38, the procedure for furnishing the details of outward supplies by a registered person, other than an Input Service Distributor or a non- resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 (hereafter in this section referred to as the ‘supplier’), and for verifying, validating, modifying or deleting such supplies by the corresponding registered person (hereafter in this section referred to as the ‘recipient’) in connection with the furnishing of return under section 39 shall be such as may be prescribed.
(2) Notwithstanding anything contained in section 41, section 42 or section 43, the procedure for availing of input tax credit by the recipient and verification thereof shall be such as may be prescribed.
(3) The procedure specified under sub-section (1) and sub-section (2) may include the following:-
(i) the procedure for furnishing the details of a tax invoice by the supplier on the common portal for the purposes of availing input tax credit by the recipient in terms of clause (a) of sub-section (2) of section 16;
(ii) the amount of tax specified in an invoice for which the details have been furnished by the supplier under clause (i) but the return in respect thereof has not been furnished and tax has not been paid shall be deemed to be.
GST Practitioner under Section 48
Presently, they are authorised to furnish the details of outward and inward supplies and various returns under sections 39, 44 or 45 on behalf of a registered person.
It is proposed to allow the GST practitioner to perform other functions such as, filing refund claim, filing application for cancellation of registration etc.
Cross utilization of Input Tax Credits under Section 49(5)
At Present, there is no restriction on priority basis where cross utilization of ITC allowed. E.g. SGST ITC can be used for payment of IGST even if ITC for CGST or IGST are also available and it is allowed to carry forward such ITC of CGST or IGST.
It is proposed to amend clauses (c) and (d) of Section 49(5) to provide that the credit of State tax/ Union territory tax can be utilized for payment of integrated tax only when the balance of the input tax credit on account of central tax is not available for payment of integrated tax.
Further, it is proposed to add following proviso to Section 49(5) to provide for utilization of credit on account of CGST, SGST/UTGST for the payment of IGST, only after exhausting all the credit on account of IGST available to him. This is being done to minimize fund settlement on account of IGST.
“Provided that input tax credit on account of central tax, State tax or Union territory tax shall be utilized towards payment of integrated tax under clause (b), clause (c) or clause (d) only after the input tax credit available on account of integrated tax has been first utilized fully towards such payment.”
Relevant Date for refund in case of inverted duty structure
It is proposed to correct an inherent contradiction of the relevant date in case of refund of unutilized ITC under section 54(3) since as per Explanation (2) (e) to section 54, the relevant date means the end of the financial year in which such claim for refund arises while section 54(3) states that a registered person may claim refund of any unutilized ITC at the end of any tax period.
Thus, it is proposed to provide that the relevant date in the case of refund of unutilised input tax credit under clause (ii) of subsection (3), shall be the due date for furnishing of return under section 39 for the period in which such claim for refund arises.
Clause (ii) of Section 54(3) provides for refund in case where tax rate for outward supplies is lower than inward supplies (i.e. inverted duty structure)
Relevant date for refund in case of export of services
At present, relevant date for refund in case of export of services is the date of receipt of payment in convertible foreign exchange, where the supply of services had been completed prior to the receipt of such payment. However, RBI has allowed receipts in Indian Rupees from some counties, also like from Nepal or Bhutan. In order to facilitate such transactions being eligible for refund on receipt of such remittances, Explanation 2(c)(i) is proposed to amended as:
(i) receipt of payment in convertible foreign exchange or in Indian Rupees where permitted by the Reserve Bank of India, where the supply of services had been completed prior to the receipt of such payment; or
Ceiling limit of deposit of tax before filing Appeal before Appellate Authority
Presently, in terms of section 107(6), the appellant is required to pay a sum equal to 10% of the tax in dispute arising from the order being appealed against for filing an appeal before the Appellate Authority. It is proposed to provide a ceiling of Rs. 25 crore for filing an appeal before the Appellate Authority.
Ceiling limit of deposit of tax before filing Appeal before Appellate Tribunal
In terms of section 112 (8), the appellant is required to pay a sum equal to 20% of the tax in dispute, in addition to the amount paid under section 107 (6), arising from the order of the Appellate Authority for filing an appeal before the Appellate Tribunal. This section is being amended to provide a ceiling of Rs. 50 crores for filing an appeal before the Appellate Tribunal.
Transitional Credit in respect of certain duties
It is proposed to clarify that only transitional credit of eligible duties can be carried forward in the return and not all credits. This provision is already contained in rule 117(1) of the CGST Rules.
The eligible duties do not include the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978.
Further, it is proposed to insert an explanation 3 as below:-
Explanation 3.—For removal of doubts, it is clarified that the expression “eligible duties and taxes” excludes any cess which has not been specified in Explanation 1 or Explanation 2 above and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975.
Time limit to recall materials in case of Job Work:
n terms of section 143 of the CGST Act, a registered person (Principal) is allowed to send inputs or capital goods to a job worker for job work without payment of tax subject to the conditions inter-alia, that the inputs and capital goods are brought back within a period of one year and three years respectively.
It is proposed to insert a proviso in section 143 to provide that the period of one year or three years may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding one year and two years respectively.
IGST Act 2017
Definition of ‘Export of Services’:
Section 2 (6) defines the word “export of services”.
To satisfy the definition of Export of Services, clause (iv) provides that the payment for such service should have been received by the supplier of service in convertible foreign exchange.
It is proposed to allow receipt of payment in Indian rupees in case of export of services where permitted by the Reserve Bank of India since particularly in the case of exports to Nepal and Bhutan, the payment is received in Indian rupees as per RBI regulations. Updated clause would be:-
“iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian Rupees where permitted by the Reserve Bank of India; and”
Place of supply of service by way of transportation of goods where destination of such consignment is a place Out of India :-
In order to provide a level playing field to the domestic transportation companies and promote export of goods, it is proposed that the transportation of goods from a place in India to a place outside India by a transporter located in India would not be chargeable to GST, as place of supply will be outside India.
For this, a proviso is proposed under Section 12(8) as:-
“Provided that if the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.”
Place of supply in case of job work on goods imported temporarily
It is proposed to not tax job work of any treatment or process done on goods temporarily imported into India (e.g., gold, diamonds) which are then exported. At present, only repairs are allowed as tax free exports.
Proviso to section 13(3)(a) is proposed to be amended to allow any other treatment or process undertaken on temporarily imported goods as tax free job work.
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