Provision

Amending Statute

Amendment

NITYA Comments

Section 16

Finance Act, 2021

Option to claim output stage refund of IGST paid on exports to be given only to specific class of taxpayers or goods / services.

This amendment would significantly increase compliance burden on goods exporters for claiming refund since claiming output stage refund is simpler and faster vis-à-vis input stage refund.

Minutes of Council meeting indicated that this amendment will be notified soon. However, basis recent discussion in Council meeting, it was agreed that since this will significantly increase compliance burden, it is prudent to wait for time being. These minutes also indicate that post amendment, AEO category exporters as well as certain Status Holders will be allowed to export goods on payment of IGST. Hence, exporters may opt for relevant Status scheme to avoid restriction to export goods on payment of IGST in future.

Section 16(2)(ba) and Section 38

Finance Act, 2022

Additional condition for availment of ITC viz. details of ITC for supplies communicated under Section 38 (in GSTR-2B) as not restricted.

This amendment bars recipient’s ITC because of supplier’s default and beyond recipient’s control. This will require several changes in GST Portal due to which this amendment may not have been implemented. Basis jurisprudence under erstwhile law and similar challenges under GST law, bona-fide taxpayers can challenge constitutionality of this amendment.

Section 16(4), 34(2), 37, 39

Finance Act, 2022

Time limit to be extended to November 30 of succeeding FY or date of filing of annual return, whichever is earlier, for following compliances:

·         Last date of availing ITC

·         Furnishing details of Credit Notes in GSTR-1

·         Rectification of GSTR-1

·         Rectification of GSTR-3B

Till this amendment gets notified, due date for compliances continues to be due date of filing GSTR-3B of September of succeeding FY or date of filing annual return for FY, whichever is earlier.

Section 37 and 39

Finance Act, 2022

·         Restriction on filing GSTR-3B if GTSR-1 of earlier tax period is not filed.

·         Restriction on filing GSTR-1 if GTSR-1 of earlier tax period is not filed.

These changes will bring higher level of discipline in timely filing of GST Returns.

Section 38, 39, 40, 41, 42 and 43

Finance Act, 2022

Discontinuation of concept of provisional ITC.

This change will allow ITC availment on self-assessed basis.

Section 41

Finance Act, 2022

Recipient liable to reverse ITC along with interest if supplier did not deposit tax. Recipient can re-claim such ITC if supplier subsequently deposits tax.

Post this change, there will be no time limit for re-availment of ITC in such cases.

Section 54

Finance Act, 2022

Relevant date for claiming refund on supplies to SEZ to be due date for furnishing of GSTR-3B for such supplies.

Section 54 does not provide any time limit for refund of ITC for supplies made to SEZ without payment of tax. Since there is no payment of tax, residuary clause is also not applicable. Till this amendment gets notified, there is no time limit to claim such refund (in absence of any relevant date).

Explanation 1 and 2 to Section 140

CGST (Amendment) Act, 2018

Explanation 1 and 2 defined ‘eligible duties’ and ‘eligible duties and taxes’, respectively for various sub-sections to Section 140 except for sub-section (1). This amendment to Explanation 1 and 2 proposed for extending meanings to sub-section (1) as well.

Department released Circular No. 87/06/2019-GST dated January 2, 2019 to clarify that amendments to Explanation 1 and 2 will not be notified as this will lead to an absurdity in law by barring Service Tax credit as well. Further, the Circular clarified that desired purpose of barring credit of Cesses has been achieved by insertion of Explanation 3.

Refer to our detailed analysis of this issue in NITYA Outlook | Issue 15 | Eligibility of transitional credit of various cesses. Notably, in light of fact that Explanation 1 and 2 will not be notified, taxpayers may consider transitioning credit of Cesses basis recent option given by Supreme Court[1] to revise TRAN-1.

Provision

Amending Statute

Amendment

NITYA Comments

Section 16

Finance Act, 2021

Option to claim output stage refund of IGST paid on exports to be given only to specific class of taxpayers or goods / services.

This amendment would significantly increase compliance burden on goods exporters for claiming refund since claiming output stage refund is simpler and faster vis-à-vis input stage refund.

Minutes of Council meeting indicated that this amendment will be notified soon. However, basis recent discussion in Council meeting, it was agreed that since this will significantly increase compliance burden, it is prudent to wait for time being. These minutes also indicate that post amendment, AEO category exporters as well as certain Status Holders will be allowed to export goods on payment of IGST. Hence, exporters may opt for relevant Status scheme to avoid restriction to export goods on payment of IGST in future. 

Issue

Discussion

Status

NITYA Comments

Nature of tax leviable on ex-works sales

·        Place of supply of goods supplied on ex-works basis where movement of goods arranged by recipient:

• Registered Recipient: Place of registration of Recipient.

• Unregistered Recipient: Address declared on tax invoice. If not available, location of delivery to Recipient.

Referred back to Law Committee

·        Destination principle meant where supply chain terminated and not necessarily address of Recipient.

·        Proposal went beyond Section 10 of the IGST Act. Further, proposed Circular would affect revenue flowing to the States.

·        Matter to be looked afresh.

This issue is critical as this determines nature of tax (IGST v. CGST and SGST). In cases where recipient is entitled to avail ITC, recourse to Section 77 (which provides refund in case of payment of correct nature of tax) will not be available.

Taxability of activities between distinct persons

(Cross charge and ISD)

·        Mandatory for Head Office (‘HO’) to follow ISD mechanism for distribution of common ITC.

·        Services for which ITC distributed under ISD mechanism, not to be treated as supply by HO.

Expenses incurred by HO in procurement, distribution and management of services for Branch Offices (‘BOs’) is distinct from services for which ITC distributed through ISD mechanism. These need to be separately invoiced by HO to BOs.

Referred back to Law Committee

·        Issuance of this Circular would make more than 90% of taxpayers non-compliant for their past practice as the CGST Act does not mandate ISD mechanism while Circular does the same.

·        There are minimal revenue implications as ITC would be available except for recipients dealing in exempt supplies.

Distribution of ITC by way of ISD and cross charge is one of most disputed issues under GST.

This discussion fortifies NITYA’s view that present provisions do not mandate ISD mechanism. 

The Council should soon bring clarification to clear air for past and make prospective changes in law.

­Treatment of secondary post- sales discount

·        Discussion on issue whether post sales discount given qualify as separate supply or added in consideration of supply of dealer.

·        Levying tax on discounts will increase price which defeats promotional aspect of benefit given.

Referred back to Law Committee

Whole issue required holistic examination. Draft Circular was also referred to Law Committee.

This issue of dealer discounts and incentives continues to be contentious and is expected to witness substantial litigation under the GST regime. In our view, discounts should be taxable only when given for performing some additional activity (sales drive, exhibition etc.).

Reward/Incentive scheme for B2C Invoice

·        Eligibility for B2C transactions where payment done through digital mode (Cards or UPI).

·        Scheme proposed to be administered by NPCI.

·        Prize winner to be decided through random selection.

·        Reward sharing between consumer and supplier in ratio 3:1.

Deferred for detailed examination

This scheme will improve GST collections but will increase invoice compliance for B2C transactions.