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Indirect Tax Alert - Notifications and circulars issued to give effect to the recommendations of 48th GST Council meeting held on 17 December 2022

28 December 2022

Amendments made in the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’)

  • Rule 8 of the CGST Rules is amended to capture and use the Income Tax Permanent Account Number (‘PAN’) linked mobile number and e-mail address (fetched from CBDT database) in GST registration application and to conduct One Time Password (OTP) based verification at the time of registration by using such PAN-linked mobile number and email address, instead of using any other mobile number and email address submitted by the applicant.
  • Rule 8 and 9 of the CGST Rules are amended to provide for biometric-based Aadhaar authentication, along with verification of original copy of other documents uploaded with registration application and risk-based physical verification of premises of the applicants. Presently, these provisions are made applicable only for the applicants in Gujarat State.
  • Rule 12 of the CGST Rules is amended to enable the persons required to deduct or collect tax at source under section 51 and 52 of the CGST Act, respectively, to apply for cancellation of registration to deduct / collect tax at source.
  • Rule 37 has been amended with retrospective effect from 1 October, 2022 to provide that in case of non-payment of consideration to the supplier within 180 days, the recipient would need to reverse/repay input tax credit (‘ITC’), only on a proportionate basis, i.e. in proportion to the amount unpaid to the supplier, instead of previous provision (which was introduced from 1 October, 2022) requiring reversal of entire ITC in such cases.
  • New rule 37A has been introduced to specify the process for reversal of ITC availed where the supplier has not paid GST and reclaim of such ITC. The process is as under:
    • Where supplier has declared an invoice/debit note in form GSTR-1 or in the invoice furnishing facility (‘IFF’) but has not filed return in form GSTR 3B for that period till 30th September of the following FY in which the recipient has availed the ITC, the recipient would be required to reverse the ITC availed in form GSTR 3B, filed on or before 30th November of following the end of the year in which ITC is claimed;
    • Non-reversal of ITC by recipient as above would require the recipient to repay the ITC availed along with the interest payable under section 50;
    • The recipient can re-avail the ITC in form GSTR 3B, once the supplier has furnished the return in form GSTR 3B for the said tax period.
  • Rule 46 relating to issue of invoices is amended to provide that where any taxable service is supplied by or through an Electronic Commerce Operator or by a supplier of Online Information and Database Access or Retrieval services (OIDAR) to an unregistered recipient, irrespective of the value of supply, the tax invoice issued by the registered person should contain the name and address of the recipient along with its PIN code and the name of the State and the said address shall be deemed to be the address on record of the recipient.
  • Rule 46A relating to issue of invoice-cum-bill of supply is amended to specifically provide that such invoice-cum-bill of supply shall contain all the particulars, which are required to be mentioned on invoice and bill of supply.
  • Rule 87(8) pertaining has been amended to provide that the Electronic Cash Ledger (ECL) can be updated on the basis of e-scroll of the Reserve Bank of India, where the details as per e-scroll match with the details in challan in form PMT-06, even if bank fails to communicate details of Challan Identification Number to the Common Portal.
  • A new rule 88C has been inserted to provide for the process to deal with the difference in liability reported in statement of outward supplies in form GSTR 1 or IFF and return in form GSTR 3B. The process is summarised below:
    • If tax payable as per GSTR 1 or IFF exceed tax payable as per GSTR 3B, by specified percentage or amount, the taxpayer would be intimated of such difference in part A of form DRC-01B, directing him to either pay the differential tax or explain the difference, within seven days.
    • The taxpayer, on receipt of such form, shall pay the differential liability, along with interest under section 50 in form DRC03 or furnish a reply for the differential tax liability, remaining unpaid. The details should be submitted in part B of form DRC-01B.
    • Where the taxpayer neither pays the liability nor provides the explanation for difference or the explanation submitted by the taxpayer is not accepted by the tax authorities, such differential tax amount will be treated as recoverable from the taxpayer.

A related amendment has been made to introduce rule 59(6)(d), which provides that a taxpayer to whom an intimation in form DRC-01B has been issued for a tax period, shall not be allowed to submit form GSTR 1 or IFF for subsequent tax period, unless he has either paid differential tax or has submitted explanation for difference.

  • Rule 89(2)(ka) and (kb) are introduced to prescribe list of documents to be submitted while claiming refund by an unregistered person. Rule 89(2)(m) is also amended to prescribe that an unregistered person, who has borne the incidence of tax and has applied for refund is not required to submit a CA certificate stating that he has borne the incidence of tax.
  • Rule 108(3) and 109, dealing with filing of appeal are amended to lay down a procedure for submission of self-certified copy of the order appealed against.
  • Rule 109C has been introduced to provide for withdrawal of an appeal, before an order is passes. The application for withdrawal has to be made in form GST APL-01/03W. The application for withdrawal after receipt of final acknowledgement by Appellate Authority would be subject to approval of the Appellate Authority, who would decide such application in seven days. Further, any fresh appeal filed by the Appellant pursuant to such withdrawal would be filed within the prescribed time limits.
  • Rule 138 has been amended to provide for requirement of generating e-way bill on movement of imitation jewellery.
  • Various amendments, including consequential amendments have been made in various forms, including in form GSTR 1, and new forms have been inserted.

The amendments have been made effective from date of publication of notification in official Gazette, except where specified otherwise.

Circulars issued to give effect to recommendations made in the 48th meeting of the GST Council

a. Circular no: 183/15/2022-GST dated 27 December 2022:

  • It seeks to clarify how difference in Input Tax Credit (ITC) between GSTR-3B vis-à-vis GSTR-2A for FY 2017-18 and 2018-19, noticed during scrutiny/audit/investigation, need to be dealt-with by the taxpayer/field formation.
  • Four specific situations, as given below, are sought to be addressed by following certain procedures:
    • supplier failed to submit declaration in Form GSTR-1
    • supplier failed to report a particular supply in Form GSTR-1
    • supplier reported a B2B supply as B2C in Form GSTR-1
    • supplier declared the supply under a wrong GSTIN in Form GSTR-1

As per above circular, the proper officer will follow below process/steps:

i. Seek details of ITC not reflected in GSTR-2A from recipient
ii. Validate the following:

  • Whether the credit has been taken within the time limit
  • Whether the recipient has availed ITC on restricted items or has reversed ITC, wherever applicable
  • Whether recipient has paid the value of supply along with GST
  • Whether recipient has received said goods or service
  • Whether recipient possess invoice/debit note covering the supply

iii.If difference in ITC in respect of a supplier is in excess of INR 500,000/-, the recipient would be required to submit a Certificate from a Chartered Accountant or a Cost Accountant, stating that the said supply has been actually effected by the said supplier and applicable taxes have been paid.

iv. If the difference is less than Rs.500,000/-, the supplier can self-certify it.

  • For FY 2017-18, aforesaid relaxations shall not be applicable to the claim of ITC made in form GSTR-3B filed after the due date of furnishing return for September 2018 till the due date of furnishing return for March 2019, if supplier had not furnished details of the said supply in his FORM GSTR-1 till the due date of furnishing FORM GSTR 1 for the month of March 2019.

b. Circular no: 184/16/2022-GST dated 27 December 2022:

  • It clarifies the ‘Place of Supply’ (PoS) and ITC eligibility on Transportation of goods including by mail or courier, where the Supplier and the Recipient are located in India.
  • It is clarified that where transportation of goods is to a place outside India (say USA), and where the supplier and recipient are located in India, PoS would be the concerned foreign destination where the goods are transported (i.e. USA).
  • The aforesaid supply is an inter-State supply in terms of section 7(5) of IGST Act since location of the supplier is in India and the place of supply is outside India. Therefore, integrated tax (IGST) would be chargeable on the said supply.
  • Recipient of service shall be eligible to avail ITC, subject to fulfilment of other conditions under section 16 & 17 of CGST Act.
  • The Supplier shall report PoS by selecting State code ‘96- Foreign Country’ from the list of codes in the drop-down menu in the common portal while declaring transaction in GSTR-1.

c. Circular no: 185/17/2022-GST dated 27 December 2022:

  • This circular clarifies what is the time limit for re-determination of tax liability under section 75(2) of CGST Act, where an Appellate authority concludes that an SCN issued invoking larger period of 5 years (alleging fraud, wilful misstatement or suppression of facts – “fraud” in short) is not sustainable.
  • As per section 75 (3) of CGST Act, the proper officer is required to issue an order within two years of the date of communication of the order by the said appellate Authority/Tribunal/Court.
  • Where the proper officer himself is required to issue an order, in cases not involving fraud under section 73 of CGST Act, the time limit for issuance of the order is 3 years from the due date of submission of annual return for the respective year. The said section also mandates that SCN is required to be issued at least within 3 months prior to the 3-year limit specified to pass an order – in other words within 2 years and 9 months of the time limit for passing an order, SCN must be issued. 
  • Thus, amount of tax not/short paid, or ITC wrongly availed/utilized or erroneous refund claim, along with interest and penalty, can be determined under section 73 of CGST Act relating to such financial years, where SCN was issued within 2 years and 9 months. If a notice is issued invoking the larger period of 5 years and the appellate authority/tribunal/court concludes that the invocation of larger period is not sustainable, any demand beyond 2 years and 9 months shall have to be dropped.

d. Circular no: 186/18/2022-GST dated 27 December 2022:

No Claim Bonus given by Insurance Companies:

  • The circular seeks to clarify certain doubts with respect to taxability of ‘No Claim Bonus’ (NCB) offered by Insurance companies and applicability of e-invoicing mandate as regards an entity.
  • It is clarified that an insured person procures insurance policy to indemnify himself against any loss/injury arisen out specified perils covered in the policy document and is not under any contractual obligation not to claim insurance during any period, in lieu of NCB.
  • Therefore, there is no supply by the insured to the insurance company in form of agreeing to the obligation to refrain from the act of lodging insurance claim; NCB cannot be considered as a consideration for any supply provided by the insured to the insurance company.
  • The insurance companies make disclosure to the insured about availability of discount in form of NCB, subject to certain conditions, in the insurance policy itself and hence the deduction of NCB is in the form of discount under Section 15(3)(a) of CGST Act, which cannot be subject to GST.

E-Invoicing mandate

  • In terms of notification no:13/2020-CT dated 21 March 2020 (as amended), certain entities/sectors have been exempted from mandatory generation of e-invoices under Rule-48(4) of CGST Rules, 2017 and this exemption is for the entity as a whole and not restricted by the nature of supply being made by the said entity.
  • Thus, for example, a Banking company is exempt from mandatory issuance of e-invoice for all supplies of goods and services.     

e. Circular no: 187/19/2022-GST dated 27 December 2022:

  • The circular deals with treatment of statutory dues under GST law, in respect of the taxpayers against whom proceedings under Insolvency and Bankruptcy Code, 2016 (IBC) is under finalization.
  • As per Section 84 of CGST Act, if government dues against any person is reduced as a result of any appeal, revision or other proceedings, then an intimation for such reduction of government dues has to be given by the Commissioner to such person and to the appropriate authority with whom the recovery proceedings are pending. Further, recovery proceedings can be continued in relation to such reduced amount of government dues.
  • The word ‘other proceedings’ is not defined in CGST Act. Adjudicating authorities and Appellate authorities under IBC are quasi-judicial authorities constituted to deal with civil disputes pertaining to insolvency and bankruptcy.
  • Proceedings under IBC also adjudicate the government dues pending under the CGST Act and the same appear to be covered under the term ‘other proceedings’ in Section 84 of CGST Act.
  • Thus, where a confirmed demand has been issued by tax authorities on a corporate debtor, against whom proceedings have been finalised under IBC to reduce the amount of statutory dues, the jurisdictional Commissioner shall issue an intimation in FORM GST DRC-25 reducing such demand, to the taxable person as well as the appropriate authority with whom recovery proceedings are pending.

f. Circular no: 187/20/2022-GST dated 27 December 2022:

  • This circular prescribes the manner in which an unregistered person, who has suffered the burden of GST, but the contract has been cancelled later (e.g. Construction contract or long-term Insurance policy, where the supplier is bound by the statutory time limit to issue credit note with GST), file application for refund of GST.
  • Procedure has been prescribed as to how the unregistered person can obtain a temporary GST registration to claim refund of GST, which is briefly captured below:

i. New functionality has been introduced in the GST common portal to obtain temporary registration in the supplier’s State and apply for refund under the category ‘Refund for Unregistered person’
ii. Unregistered person would be required to undergo Aadhaar authentication and enter his bank account details in which he seeks to obtain the refund
iii. Refund claim shall be filed in FORM GST RFD-01 on the common portal which cannot exceed the GST charged on the invoice
iv. Upload documentary evidence to establish that he has borne the tax incidence
v. Where time limit for issue of Credit Note has not expired at the time of cancellation/termination of agreement/contract, the concerned suppliers can issue credit note and pass on the benefit.
vi. Date of cancellation of contract/ agreement for supply will be considered as the relevant date for ascertaining the time limit.
vii. Refund application would be not entertained, if the claim is less than INR 1,000/-

[Source: Notification no:26/2022-Central Tax and no:27/2022-Central Tax, dated 26 December, 2022 and circular no:183 to 188 dated 27 December, 2022.]

BDO Comments

The amendments have been made in CGST Rules and various clarifications are issued to give effect to the recommendations made by the GST Council in its 48th meeting.

While the amendments have been largely self-explanatory, proper clarifications are required to address the practical challenges arising out of introduction of rule 37A and rule 88C. e.g. in rule 88C, if the officer is not satisfied with the explanation provided by the taxpayer, the amount of differential liability becomes recoverable under section 79 of the CGST Act, without giving further opportunity to the taxpayer to address the concerns of the officer. Ideally, the taxpayer should be given an opportunity to respond to any objections raised by the officer. Similarly, the industry should identify such other practical aspects requiring clarity and represent to the Government for obtaining clarity.