Changes in CGST Act and IGST Act made vide Finance Act, 2021

Introduction

Nirmala Sitharaman, Minister of Finance, Government of India, presented Budget 2021-22 on 1-2-2021 at 11.00 AM.  Finance Bill, 2021 was also presented. The Finance Bill, 2021 has been passed by Parliament. The provisions will be effective from date to be notified.

Changes in GST law made by Finance Act, 2021

The changes in CGST Act and IGST Act are as follows.

Services supplied by association or club to its members taxable w.r.e.f. 1-7-2017 – There was dispute about tax liability of service supplied by club or association to its members. To remove ambiguity, section 7(1)(aa) of CGST Act has been inserted vide Finance Act, 2021 w.r.e.f. 1-7-2017 to provide that for purposes of CGST Act, the expression ‘supply’ includes 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.

To remove any ambiguity or doubt, a ‘deeming’ provision has been made, vide Explanation to section 7(1)(aa) of CGST Act inserted vide Finance Act, 2021 w.r.e.f. 1-7-2017, stating that for the purposes of clause (aa), 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.

In view of insertion of the deeming provision, paragraph 7 of Schedule II of CGST Act (which stated that supply of goods by unincorporated association to is member for consideration shall be treated as supply of goods) has been omitted w.r.e.f. 1-7-2017.

Many clubs and associations had not collected GST on basis of judgment of Supreme Court and decisions of AAR. With the retrospective amendment, clubs or associations will have to pay GST w.r.e.f. 1-7-2017 @ 18% plus interest at 18%. This may be very difficult for many clubs or associations as they may not be able to recover the amounts from members.

The amendment with retrospective effect is highly unfair.

Really, BJP Government had specifically promised that there will be no retrospective amendment in tax laws.

ITC eligible only if supplier uploads details of his outward supply in his GSTR-1 and recipient accepts the same – ITC will be eligible only if supplier uploads details of his outward supply (invoices, debit note, credit note and revised invoice) in his GSTR-1. Recipient will get these details in his GSTR-2A and GSTR-2B. The recipient is required to accept the same as per section 37(2) of CGST Act. As per section 16(2)(aa) of CGST Act inserted vide Finance Act, 2021 w.e.f. date to be notified, registered person shall not be entitled to avail input tax credit, unless the details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies [GSTR-1] and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37 of CGST Act [in GSTR-2A and GSTR-2B of recipient].

Provision of Audit report with reconciliation statement omitted – Provision of Audit report with reconciliation statement in form GSTR-9C has been omitted – section 35(5) of CGST Act omitted vide Finance Act, 2021 w.e.f. date to be notified. Instead of audited reconciliation statement, self-certified reconciliation will have to be submitted as per section 44 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Annual return with self-certified reconciliation statement – Annual return with self-certified reconciliation statement will have to be submitted. Commissioner in Board [not jurisdictional Commissioner) can exempt any class of registered persons from filing annual return. Department of State Government or Central Government or local authority whose accounts are subject to C&AG audit are not required to submit such annual return – section 44 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Interest payable on net amount payable in cash i.e. after adjusting ITC – There was controversy whether interest for late payment of GST is payable on net amount of tax payable (i.e. after adjusting ITC available) or gross amount of tax payable (without adjusting ITC available). The controversy has been set at rest vide proviso to section 50(1) of CGST Act substituted vide Finance Act, 2021 w.r.e.f. 1-7-2017. It is made clear that interest for late payment of GST is payable on net amount of tax payable (i.e. after adjusting ITC available). The provision is retrospective from 1-7-2017. However, this provision applies only when tax with interest is paid on its own and not when proceedings of notice, demand and recovery are commenced under sections 73 or 74 of CGAT Act.

Recovery of tax if outward invoices uploaded in GSTR-1 but liability not shown in GSTR-3B return – Some times, the supplier uploads details of tax invoices and debit notes in his GSTR-1 (so that recipient can avail ITC) but does not include that turnover in his GSTR-3B return. Hence, explanation  to section 75(12) of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified, provides that ‘self-assessed tax’ includes tax payable on details of outward supply furnished in GSTR-1 but not included in GSTR-3B and recovery under section 79 of CGST Act can commence, without issuing notice under sections 73 or 74. Thus, if outward invoices are uploaded by taxable person in his GSTR-1 but liability is not shown in his GSTR-3B return.

Scope of provisional attachment of property and bank accounts for protection of revenue widened – Scope of provisional attachment of property and bank accounts to protect interests of Government revenue has been widened and some of decisions of High Courts have been nullified. The revised provision is as follows – Where, after the initiation of any proceeding under Chapter XII [Audit by tax authorities and special audit – sections 65 and 66), Chapter XIV (Inspection, Search, Seizure and arrest – sections 67 to 72) or Chapter XV (Demands and recovery – sections 73 to 84) , the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in section 122(1A) of CGST Act [person who is retaining benefit of specified transaction and at whose instance the transaction is conducted – transactions relating to bogus invoices and bogus ITC], in such manner as may be prescribed –section 83(1) of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Thus, property of following can be provisionally attached – (a) person who is availing bogus Input Tax Credit (b) Person to whom SCN has been issued under sections 73 or 74, or recovery proceedings under section 79 have been commenced (c) Audit, search, seizure or arrest is under progress].

Such provisional attachment can continue upto one year from date of order – –section 83(2) of CGST Act.

Pre-deposit of 25% of penalty if goods are seized in transit – Section 129 of CGST Act makes provisions for detention and seizure of goods in transit. Penalty equal to 200% of tax payable can be imposed under section 129(3) of CGST Act, if goods are transported in contravention of provisions of CGST Act and Rules. If appeal is filed against order imposing penalty, no appeal shall be filed unless a sum equal to 25% of the penalty has been paid by the appellant – proviso to section 107(6) of CGST Act inserted vide Finance Act, 2021 w.e.f. date to be notified.

Really, there is no provision for provisional release of goods seized under section 129 of CGST Act. In fact, there is provision of sale of goods if goods are not released within 15 days from receipt of order imposing penalty. Thus, the provision of 25% penalty seems meaningless. Person has no option but to pay 200% penalty, get goods released and then file appeal.

Provisions relating to detention, seizure and release of goods and conveyances in transit are revamped – Provisions relating to detention, seizure and release of goods and conveyances in transit, if goods are transported in contravention of provisions of CGST Act and Rules, as contained in section 129 of CGST Act have been revamped. The revised provisions are as follows. These will be effective from date to be notified.

• Proceedings under section 129 have been de-linked from provisions in sections 73 and 74 of CGST Act, relating to determination of tax not paid or short paid
• Penalty equal to 200% of tax payable can be imposed – section 129(1)(a) [presently, there is provision of payment of tax plus penalty equal to 100% of tax payable]
• Provisions of release of seized goods on bond and security as contained in section 67(6) of CGST Act shall not apply to goods seized under section 129
• Notice of seizure of goods or conveyance shall be issued within seven days and order for penalty shall be issued within seven days from date of notice – section 129(3) as substituted
• Sale or disposal of goods if person fails to pay penalty within 15 days from date of receipt of order imposing penalty. This period of 15 days can be reduced in case of hazardous goods or goods that are likely to deteriorate  – section 129(6) of CGST Act
• No provision for provisional release of seized goods – thus, payment of 200% tax as penalty mandatory for release of seized goods
• Appeal can be filed on payment of 25% of penalty imposed. However, there is no provision for provisional release of seized goods.  In fact, there is provision of sale of goods if goods are not released within 15 days from receipt of order imposing penalty. Thus, the provision of 25% penalty seems meaningless. Person has no option but to pay 200% penalty, get goods released and then file appeal.
• No provision for confiscation of goods or conveyance [section 130 de-linked from section 129].
• Conveyance can be released on payment of penalty of Rs one lakh – first proviso to section 129(6) of CGST Act as substituted
• Provisions of confiscation of goods or conveyances and penalty as contained in section 130 of CGST Act will not apply to detention and seizure under section 129 of CGST Act

Power to call for information – Jurisdictional Commissioner has been empowered to call for information from any person relating to matter connected with CGST Act – section 151 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Supply to SEZ unit or SEZ developer zero rated only if for authorised operations – Supply to SEZ unit or SEZ developer will be zero rated only if supply is for authorised operations  – section 16(1)(b) of IGST Act amended vide Finance Act, 2021 w.e.f. date to be notified.

General provision for making payment of IGST on zero rated supply and claiming refund restricted – Present section 16(3) of IGST Act provides for two options in case of zero rated supply – (a) Pay IGST on zero rated supply and claim refund of IGST paid through customs procedure (b) Make zero rated supply under bond and LUT without payment of IGST on outward supply and claim refund of Input Tax Credit corresponding to input goods contained in supply of zero rated goods or services.

The first option is easy and simple with minimum hassles. Moreover, refund of GST paid on input services and capital goods can be availed by using this route.

The second option is clumsy and getting refund is very difficult. Some excuses are found to reject refund claim and huge amount is blocked. Further, refund of GST paid on input services and capital goods cannot be availed by using this route.

However, the first method is being misused by claiming ITC on basis of bogus invoices and making payment of IGST on zero rated supply and getting refund.

Hence, the general provision for making payment of IGST on zero rated supply and claiming refund has been restricted.

As per section 16(3) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified, normally, person making zero rated supply shall follow only second option i.e. make zero rated supply under bond and LUT without payment of IGST on outward supply and claim refund of Input Tax Credit corresponding to input goods contained in supply of zero rated goods or services.

Further, the amount received as refund shall be liable to be paid back, if payment for supply is not received in foreign exchange, within time specified under FEMA – proviso to section 16(3) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Option of paying IGST on output supply and claiming refund of IGST paid on output supply will be available only to specified class of persons making zero rated supply and class of goods or services which may be exported on payment of IGST and claiming refund – section 16(4) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.