The Union Budget 2021 was presented on 1 February 2021. This budget focuses on strengthening the staggered nation post-COVID-19. Various provisions have been considered in this budget. Modification of GST laws is one among them.
Please note: The proposed changes will be effective from the date they are notified. The key proposals are-
Expansion Of Scope Of Supply
In the CGST Act, 2017- Insertion of a new clause (aa) after Section 7(1)(a) and omission of Paragraph 7 under Schedule II is proposed.
The new clause (aa) proposes to expand the scope of supply under Section 7 of the CGST Act 2017. Henceforth, the supply of goods or services, by a person other than an individual, i.e., a club or association, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration will attract GST. Hence, it aims to remove the principle of mutuality which treats a club/association and its members as the same person. Once notified, this clause shall take effect retrospectively (from 1 July 2017).
A similar change has been proposed under Schedule II of the CGST Act 2017 because of which Paragraph 7 has been omitted.
Eligibility And Conditions For Claiming Input Tax Credit
In the CGST Act, 2017- Insertion of New clause (aa) after Section 16(2)(a) is proposed.
The new clause (aa) proposes an additional condition to determine if the taxpayer is eligible to avail the Input Tax Credit (ITC). Henceforth, ITC will be available to a taxpayer only if the details of the relevant invoices or debit note have been furnished by the supplier in their GSTR-1 or using Invoice Furnishing Facility (IFF). Moreover, the details that have been furnished need to be communicated to the taxpayer.
Removal Of Mandatory Requirement To Get Annual Accounts Audited
In the CGST Act, 2017- Omission of Section 35(5) is proposed.
The Finance Minister has proposed to omit the mandatory requirements of:
- Getting annual accounts audited by a practising Chartered Accountant or a Cost Accountant and
- Submission of reconciliation statement in the form GSTR-9C for eligible registered taxpayers, i.e., whose turnover exceeds the prescribed limit.
Filing Of Annual Returns On Self-Certification Basis With The Reconciliation Statement
In the CGST Act 2017- Substituting the entire Section 44(1) and (2) with Section 44 is proposed.
- The suggested change is to remove the mandatory requirement of furnishing a reconciliation statement, i.e., GSTR-9C that has been duly certified by a practising Chartered Accountant or Cost Accountant. Instead of this, the taxpayer should furnish an annual return, i.e., GSTR-9 and a self-certified reconciliation statement.
- Henceforth, reconciliation will completely be the taxpayer’s responsibility. However, it has been clarified that the change in this section will not apply to any department of the Central Government or a State Government or any local authority whose books are subject to audit by the Comptroller and Auditor General of India or any auditor appointed for auditing the books of local authorities under any law.
- However, on the GST Council’s recommendation, the Commissioner can exempt specific taxpayers from the filing of the annual return under this section
Interest On Delayed Payment Of Tax
In the CGST Act, 2017- Substituting proviso to Section 50(1) is proposed.
It has been proposed to charge interest on delayed payment of tax on the net cash liability retrospectively from 1 July 2017. That means, when the notification is passed, interest on delayed payment of tax under GST will be payable on the net cash liability and not on the gross tax liability.
Recovery Of Tax
In the CGST Act, 2017 – Removal of Section 129 and 130 from the purview of Explanation 1(ii) of Section 74 is proposed.
The budget seeks to remove Section 129 (Detention, seizure and release of goods and conveyances in transit) and Section 130 (Confiscation of goods or conveyances and levy of penalty) from the purview of Section 74 of the Act.
Which means, henceforth, the conclusion of proceedings under:
- Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts) and
- Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised because of fraud or any wilful-misstatement or suppression of facts)
will be only under:
- Section 122 (Penalty for certain offences)
- Section 125 (General penalty).
That means, the conclusion of proceedings under Section 73 and 74 will not be in the purview of:
- Section 129 (Detention, seizure and release of goods and conveyances in transit)
- Section 130 (Confiscation of goods or conveyances and levy of penalty).
Clarification On Self-Assessed Tax
In the CGST Act 2017- A new Explanation to Section 75(12) is proposed to be added.
An explanation has been added to clarify the term “Self-Assessed Tax”. The scope of self-assessed tax will also include the tax payable in respect of outward supplies that have been furnished in the GSTR-1 but not included in the GSTR-3B. In addition to this, authorised officers can initiate recovery proceedings for the tax payable on the outward supplies shown in GSTR-1 as well.
Provisional Attachment On Any Property
In the CGST Act, 2017- Substituting subsection (1) in Section 83 is proposed.
subsection 1 of Section 83 of the Act has been substituted to provide that, provisional attachment made to any property, including bank account, will remain valid from the date of initiation of any proceedings under:
- Chapter XII (Assessment)
- Chapter XIV (Inspection, Search, Seizure & Arrest)
- Chapter XV (Demand and Recovery).
This attachment will be valid for a period of one year from the date of the provisional order issued under Section 83(1) of the Act.
Increase In Pre-Deposit Requirement For Appeals
In the CGST Act, 2017- A Proviso to Section 107(6) is proposed.
The budget seeks to add a proviso, that states that, if the taxpayer’s goods or conveyances have been detained or seized, they cannot file an appeal unless they have deposited 25% of the penalty amount. This pre-deposit requirement has been increased from 10% to 25%.
Change In Provisions Relating To Detention, Seizure And Release Of Goods And Conveyances In Transit
- In the CGST Act, 2017- Substitution of Clause (a) and (b) under Section 129 are proposed.
- Clause (a): The proposal seeks to let go of the tax demand and increase the penalty for non-exempted goods from 100% to 200% for the release of detained and seized goods and conveyance when the owner comes forward to pay such tax and penalty. That means the tax amount will no longer be demanded once the notification is announced.
- Clause (b): The proposal seeks to remove the earlier available option of paying the penalty for non-exempted goods and introduce a new option for release of detained and seized goods and conveyance when the owner does not come forward to pay the due tax and penalty. The new option to pay the penalty is:
- 50% of the value of the goods, or
- 200% of the tax payable on such goods, whichever is higher.
- In the CGST Act, 2017- Removal of subsection (2) under Section 129 is proposed.
- The proposed change states that goods seized will not be released on a provisional basis on the execution of a bond or furnishing security, which was earlier allowed. Henceforth, the penalty needs to be paid only in cash by the taxpayer.
- In the CGST Act, 2017- Substitution of subsection (3) under Section 129 is proposed.
- subsection (3) under Section 129 of the Act is substituted to bring in time limits to enable quick and efficient proceedings.
|Time limit for issuing notice upon detaining or seizing goods or conveyance||Within 7 days from the date when the goods or conveyances were detained or seized. The notice should also specify the penalty payable. The tax amount should no longer be demanded once the notification is announced.|
|Time limit for passing an order under Section 129||Within 7 days from the date, the notice for payment of penalty was served.|
- In the CGST Act, 2017- Substitution of subsection (4) under Section 129 is proposed.
- Tax and interest have been removed from the purview of this Subsection, i.e., only penalty will be determined after allowing the concerned person an opportunity to be heard. That means the tax and interest amount will no longer be demanded once the notification is announced.
- In the CGST Act, 2017- Substitution of subsection (6) under Section 129 is proposed.
- Tax has been removed from the purview of this subsection. That means the failure of payment of penalty alone will be considered here. If the owner of the goods which are detained or seized, fails to pay the amount of penalty within 15 days from the date of receipt of the order (as compared to 14 days from the date of detention or seizure that was stated earlier) under Section 129(3), the goods or conveyance that have been detained or seized will be liable to be sold off to recover the penalty payable. This amendment seeks to separate the proceedings under the provisions of Section 130 (Confiscation of goods or conveyances and levy of penalty) of the Act from this section.
Changes In Provisions Of Confiscation Of Goods Or Conveyances And Levy Of Penalty
In the CGST Act, 2017- Under Section 130, subsection (1) and the second proviso to subsection (2) have been substituted, and subsection (3) has been omitted.
The proposed change aims to delink the provisions of Section 129 from Section 130 of the Act. The goods and conveyances that have been detained or seized cannot be confiscated or penalised as per Section 130. Earlier, the aggregate of penalty and fines charged under this section could not be less than the penalty leviable under Section 129(1). Henceforth, the minimum limit has been set at 100% of the tax payable on such goods that have been confiscated.
Power To Collect Statistics
In the CGST Act. 2017- Substitution of Section 151 has been proposed.
Earlier, the Commissioner could provide directions for collecting statistics or call upon the concerned person to furnish the required information. Henceforth, the section authorises the Commissioner to call upon any person to furnish any information as required in connection with the matters dealt under the CGST Act 2017.
Restriction On Use Of Information Collected
In the CGST Act 2017- Under Section 152, substituting subsection (1) and omitting subsection (2) are proposed.
Information collected as per Section 150 and 151 of the Act should not be used for any proceedings under the Act without allowing the concerned person an opportunity to be heard.
Change In Provisions: Power To Issue Instructions Or Directions
In the CGST Act, 2017- Substitution of subsection (2) under Section 168 is proposed.
The section has been amended to give the Commissioner the right to exercise his power under Section 44 (Annual Return). Additionally, Section 151 (Power to collect statistics) is removed from the purview of this section.
In the IGST Act, 2017- Substitution of subsection (1) clause (b), subsection (3) and adding subsection (4) under Section 16 are proposed.
- (1)(b): Zero-rated supply will henceforth include the supplies of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit only when they are for authorised operations.
- (3): A GST registered person, making zero-rated supply, will be eligible to claim a refund, without the payment of integrated tax, under bond or Letter of Undertaking (as per the provisions of Section 54 (Refund of Tax) of the CGST Act, 2017). However, in case the sale proceeds have not been realised, the taxpayer will be liable to deposit the refund along with the applicable interest under section 50 (Interest on delayed payment of Tax) of the CGST Act 2017 within 30 days from the expiry of the time limit prescribed under FEMA 1999, for receipt of foreign sale proceeds.
- (4): The refund of integrated tax paid on zero-rated supply is now available only to notified taxpayers or notified class of goods or services. Others can only claim a refund of the unutilised input tax credit.