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No Input Tax Credit if a supplier has not filed returns

Section 16 allows taxpayers’ to claim an input tax credit based on GSTR-2A and 2B. However, a new clause (aa) has been inserted in the aforesaid section, adding one more condition to claim of ITC. Henceforth, ITC on invoices and debit notes can be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies i.e. GSTR-1 or through Invoice Furnishing Facility (IFF) and such details have been communicated to the recipient of such invoice or debit note. Details to be communicated to the recipient of the supply, can be seen under User Services > Communication between taxpayers. Going forward, the recipient may be required to accept the same and in case of discrepancy communicate with the supplier for amendments. Though the earlier amendments already restricted ITC based on filing status and 5% provisional ITC over and above the actual ITC received, as reflected in GSTR-2B statement, the new amendment seals off any loopholes that were left – a final bullet into the hearts of the taxpayers! While the legitimacy of the aforesaid condition of availing ITC is still under question ad, this is the law to be followed. Do note, the earlier amendments before the budget, allow tax officials to even suspend GST registration if the conditions of section 16 are not complied with.

No GST audit, file annual return on self-certification basis

Taxpayers with turnover exceeding INR 2 Crore are required to file GSTR-9 Annual Return and GSTR-9C Reconciliation Statement certified by an auditor, commonly referred to as ‘GST audit’. This requirement of an audit by specific professionals such as Chartered Accountants (CA) and Cost and Management Accountants (CMA) is now being removed from the GST law. Section 35 and 44 have been amended in this regard. As per the amendment, only GSTR-9 annual returns on a self-certification basis need to be filed on the GST portal by taxpayers, completely removing the requirement for GSTR-9C, i.e. the reconciliation statement. However, the financial year and date of applicability are yet to be clarified by the government. As per the latest clarification, this amendment does not affect FY 2019-20 and the taxpayers must continue to file GSTR-9C up to the said period.

Difference between GSTR-1 and GSTR-3B is Self-Assessed Tax

Section 75 (12) of CGST Act provides that any amount of self-assessed tax per GSTR – 3B remaining unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid is liable to be recovered under the provisions of sectio 79. The new amendments now clarify the meaning of self-assessed tax by inserting an Explanation to Section 75 (12), which states that self-assessed tax includes the tax payable in respect of details of outward supplies furnished as per GSTR-1 and not included in GSTR 3B. Thus, due care needs to be exercised while filing GSTR–1, as any difference with GSTR-3B would amount to self-assessed tax not paid. Besides, the self-assessed tax liability is required to be paid within 30 days of becoming due, or a penalty shall be levied even if paid before issuing show-cause notice.

Late payment interest only on net cash liability

Section 50 of the CGST Act has been amended to provide for a retrospective charge of interest on net cash liability, with effect from 1st July 2017. Thus, in case of a delayed payment of taxes, interest shall be liable to be paid only on the net tax payable in cash, while the balance portion paid by utilising input tax credit shall not be liable to interest.

25% upfront pre-deposit of the penalty amount

For a taxpayer to appeal before an appellate authority, he has pay the amount of tax, interest, fine, fee and penalty, as is admitted, in full and pre-deposit a sum equal to 10% of the tax in dispute, subject to maximum INR 25 crore CGST and SGST each. However, the aforesaid section 107(6) has been amended whereby taxpayers will now have to pay 25% of the penalty amount upfront, concerning orders received on detention and seizure of goods and conveyance. Date of applicability of this amendment is yet to be notified.

Supply of goods or services by associations to its members taxable

Activities or transactions involving the supply of goods or services by clubs to its members have long been a subject matter of litigation under various tax laws. However, section 7 of the CGST Act has been amended to include a new clause under the definition of supply. Activities or transactions involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration falls under ‘supply’ and will be liable to tax. Judgment overruled: State of West Bengal vs Calcutta Club Limited, where it was held that there cannot be a sale transaction between an incorporated and unincorporated members’ club and its members. Under the doctrine of mutuality, there is no legal distinction between a club and its members, however, the same has now been included under supply and thereby taxable.

200% penalty in case of transporting goods in contravention of GST laws

If a person transports goods in contravention of provisions, such goods and the conveyance are be liable for detention and seizure and released only on payment of penalty. These rules have been made more stringent. If the owner of the goods comes forward, this penalty amount shall be 200% of the tax payable as against 100% earlier. In the case of exempted goods, this penalty remains to be 2% of the value of goods or INR 25,000 whichever is lower. In cases where the owner of goods does not come forward, the penalty shall now be equal to 50% of the value of the goods or 200% of the tax payable whichever is higher and in case of exempted goods, 5% of the value of goods or INR 25,000 whichever is less.

Orders shall now be passed within 7 days from the date of issuing the notice. Further, there will be no opportunity of being heard in respect of tax and interest payable. Taxpayer’s plea shall only be heard for penalty levied, in such cases. This is harsh and probably would be challenged in the court of law in near future.

Recovery in case of seizure and confiscation of goods, and conveyance in transit, to proceed separately

As per section 64 of CGST Act where the taxable person is not ascertainable and the liability pertains to supply of goods, the person in charge of such goods is deemed to be liable to pay tax and any other amount due. Thus, notice is issued to the person in charge of goods for conveyance in transit, while the owner of the goods is a different person altogether whose goods are seized and confiscated. Now, section 74 of the CGST Act deals with the assessment of a person in case of fraud, wilful misstatement, etc. As per explanation 1, where the notice under such proceedings is issued to the main person liable to pay tax, and such proceedings against the main person have been concluded, the proceedings against all the persons liable to pay penalty is deemed to be concluded. However, with the amendment through Finance Bill 2021, the tax recovery shall be separately proceeded with for detention, seizure, the release of goods and conveyances in transit, and confiscation of goods or conveyances and levy of penalty.

Scope of provisional attachment enlarged

As per section 83 (1) of the CGST Act, the provisional attachment can be done during the pendency of any proceedings under section 62, 63, 64, 67, 73 or 74 for assessment of non-filers, unregistered persons. for summary assessments or inspection, search and seizure. However, with the amendments, if the Commissioner believes that to protect the interest of the Government, it is necessary to provisionally attach the assets, property including bank accounts, belonging to the taxable person or any person who retains the benefit of the transaction, he may proceed to do so. Such provisional attachment shall remain valid for a period of one year from the date of an assessment order being passed.

Judgments overruled: Proex Fashion Private Limited vs. Government of India and others, where Delhi High Court had held that action under section 83 is dependent on the pendency of assessments under section 62, 63, 64, 67, 73 and 74 and therefore, provisional attachment for any other proceeding is not valid. Also, Kaish Impex Private Limited vs Union of India where Bombay High Court held that Section 83 does not provide for an automatic extension of an inquiry to other persons related to the person being inquired and also held that bank accounts cannot be attached by summons under section 70.

Miscellaneous amendments

The Jurisdictional Commissioner can now call for information from any person relating to any matter under Section 151, together with section 168. Further, an opportunity of being heard before using information obtained under Sections 150 or 151 of the Act shall be given to such person.Section 16 of IGST Act defining zero-rated supplies has been amended to state that (1) supply to SEZ units/developers will be zero-rated only if the operations are authorised, (2) only notified persons or suppliers of goods/services can avail the status of zero-rated when IGST is paid. (3) Foreign exchange remittance will be linked in case of export of goods with the refund.

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