Indirect Tax Alert - Recommendations made by the GST Council in its 48th meeting held on 17 December 2022

Amendments proposed to the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and Integrated Goods and Services Tax Act, 2017 (‘IGST Act’)

  • With respect to the provisions dealing with initiating prosecution proceedings under Section 132 of the CGST Act, it has been proposed to–
    • Increase the minimum threshold for launching prosecution from INR 1 crore to INR 2 crores (except in cases involving fake invoicing);
    • Decriminalize the following offences under the GST law:
      • Obstructing or preventing any officer in discharge of his duties (Section 132(1)(g) of the CGST Act);
      • Deliberate tampering of material evidence (Section 132(1)(j) of the CGST Act); and
      • Failure to supply the information (Section 132(1)(k) of the CGST Act).
  • The provisions concerning compounding of offences (Section 138 of the CGST Act) has been proposed to be amended by reducing the compounding amount from the existing range of 50% to 150% to 25% to 100%.
  • To give effect to in-principle approval granted in the 47th GST Council meeting for allowing unregistered suppliers and composition taxpayers to make intra-state supply of goods through E-Commerce Operators (‘ECO’), suitable amendments in GST laws and rules have been approved. The aforesaid scheme has been recommended to be implemented from 1 October 2023.
  • The following provisions are proposed to be amended to restrict filing of returns/statements to a maximum period of 3 years from the due date of filing the relevant return/statement:
    • Section 37 (Furnishing details of outward supplies);
    • Section 39 (Furnishing of returns);
    • Section 44 (Annual return); and
    • Section 52 (Collection of tax at source)
  • The following entries were included in Schedule III to the CGST Act (Activities or transactions which shall neither be treated as a supply of goods nor a supply of services) vide the Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 1 February 2019:
    “7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.”
    8. (a) Supply of warehoused goods to any person before clearance for home consumption;
    (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
    It has been proposed by the GST Council that the aforesaid entries would be made effective from 1 July 2017. However, it has been clarified that no refund of tax paid would be available where the tax has already been paid in respect of such transactions/activities during the period 1 July 2017 to 31 January 2019.
  • Definition of “non-taxable online recipient” and “Online Information and Database Access or Retrieval Services (OIDAR)” under Section 2(16) and 2(17) of the IGST Act respectively, have been proposed to be amended to reduce interpretational issues and litigation on taxation of OIDAR services.

Amendments proposed under the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’)

  • Rule 12(3) of the CGST Rules is proposed to be amended to enable the following class of taxpayers to apply for cancellation of registration:
    • Persons required to deduct tax at source under Section 51 of the CGST Act; and
    • Persons required to collect tax at source under Section 52 of the CGST Act
  • Rule 37(1) of the CGST Rules is proposed to be amended (with retrospective effect from 1 October 2022) to provide that the recipient would be liable to reverse input tax credit (‘ITC’), due to non-payment of consideration within the prescribed period (180 days from the date of issuance of invoice), only on a proportionate basis to the amount not paid to the supplier vis-à-vis the value of supply.
  • A new rule 37A is proposed to be inserted in the CGST Rules to provide for a mechanism for reversal of ITC in case of non-payment of tax by the supplier within a specified date and mechanism for re-availment of such credit, on subsequent payment of tax by the supplier.
  • A new rule 88C and Form GST DRC-01B are proposed to be inserted in the CGST Rules to provide for intimation to the taxpayer about the difference between the liabilities reported in Form GSTR-1 and Form GSTR-3B, where such difference exceeds a stipulated threshold and enabling the taxpayer to either pay the differential tax liability or explain the reason for such difference.

It is also proposed to insert a new clause (d) to Rule 59(6) of the CGST Rules to restrict the facility to furnish Form GSTR-1 for a subsequent tax period where the taxpayer has neither deposited the aforesaid differential tax liability nor has furnished a reply explaining reasons for such difference.

  • Rules 108(3) and 109 of the CGST Rules are proposed to be amended to clarify the requirement of submission of a certified copy of the order appealed against and the issuance of final acknowledgement by the appellate authority.
  • Rule 109C and Form GST APL-01/03 W are proposed to be inserted in CGST Rules to provide the facility for withdrawal of an application of appeal (upto a specified stage).
  • Form GSTR-1 is proposed to be amended to provide for reporting of supplies made through ECOs covered under section 52 and section 9(5) of the CGST Act by the supplier and reporting by ECOs in respect of supplies made under Section 9(5) of the CGST Act.
  • CGST Rules are proposed to be amended to enable an unregistered buyer to claim refund of tax borne by him/her in cases where the supply of services is cancelled and the time limit for issuing credit notes has expired. Along with the amendment, the CBIC would also issue a Circular prescribing the procedure for filing refund application by an unregistered buyer.

Clarifications recommended by the GST Council

  • Incentives paid by Central Government to Banks under the scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions are in the nature of subsidy, and hence, not taxable.
  • No GST is payable where the residential dwelling is rented to a registered person in his personal capacity for use as his own residence and on his own account and not on account of his business.
  • In respect of the following issues, suitable clarification would be issued by the CBIC, vide circulars:
    • No Claim Bonus issued by the insurance companies to the insured is an admissible deduction for valuation of insurance services;
    • Treatment of statutory dues under the GST law in respect of the taxpayers for whom proceedings have been finalised under the Insolvency and Bankruptcy Code, 2016. As a consequential amendment, Rule 161 of CGST Rules and Form GST DRC-25 would also be amended;
    • Issues pertaining to place of supply of services for transportation of goods under proviso to Section 12(8) of the IGST Act and availability of ITC to the recipient of such supply. It is also proposed to omit proviso to Section 12(8) of the IGST Act;
    • Procedure for verification of ITC in cases involving difference in ITC availed in form GSTR-3B vis-à-vis as available as per form GSTR-2A during FY 2017-18 and FY 2018-19;
    • Manner of re-determination of demand under Section 75(2) of the CGST Act; and
    • Applicability of e-invoicing with respect to an entity.

 

GST rate changes and reverse charge mechanism (‘RCM’) liability proposed/clarified by the GST Council

  • Following are the proposed GST rate changes:

 Description

Existing rate

Proposed rate

Husk of pulses including chilka and concentrates including chuni/churi, khanda *

 5%

NIL

Ethyl alcohol supplied to refineries for blending with motor spirit (petrol)

18%

5%

*The transactions starting from the period 3 August 2022 (i.e. the date of issuance of circular) to be regularised on ‘as-is basis’ due to genuine doubts.

  • Following clarifications have been issued qua GST rates:

Description and classification of goods

GST rate

Rab (rab-salawat) – CTH 1702

18%

Fryums manufactured using the process of extrusion– CTH 19059030

18%
  • Higher rate of GST Compensation Cess (of 22%) is leviable on the motor vehicles fulfilling all of the following conditions:
    • It is popularly known as SUV;
    • It has an engine capacity of exceeding 1500 cc;
    • It has a length exceeding 4,000 mm; and
    • It has a ground clearance of 170 mm or above.
  • Goods falling in lower rate category of 5% under schedule I of notification No. 1/2017-CTR imported for petroleum operations will attract lower rate of 5% and the rate of 12% shall be applicable only if the general rate is more than 12%.
  • It is proposed that supply of ‘Mentha arvensis’ would attract GST liability under the RCM.

Measures for streamlining compliances in GST approved by the GST Council

  • It is proposed to conduct a pilot in State of Gujarat for Biometric-based Aadhaar authentication and risk-based physical verification of registration applicants. To facilitate the same, rule 8 and rule 9 of CGST Rules would be amended.
  • It is proposed to capture and record Income Tax Permanent Account Number (‘PAN’) linked mobile number and e-mail address (fetched from CBDT database) in GST registration application in FORM GST REG-01 and to conduct One Time Password based verification at the time of registration on such PAN-linked mobile number and email address to prevent misuse of PAN of a person in obtaining registration without knowledge of the said PAN-holder.

[Source of information in the alert: Press Release dated 17 December 2022. The exact language and effective date of the proposed amendments would be as per the amendment act / notification / circular, as and when issued and made effective.]

BDO Comments

While a number of clarifications and amendments to the procedures have been approved by the GST Council in this meeting, the setting up of GST Appellate Tribunal was not deliberated. As a result, the industry would have to further wait for setting up of the GST Appellate Tribunal. Similarly, the online gaming industry would also await the clarity on tax treatment.

Some of the amendments, such as increase in threshold limit for prosecution and decriminalization of some offences or amendment pertaining to re-claiming ITC by a recipient, who had to reverse the credit due to non-payment of tax by the supplier, after tax payment by the supplier, or the determination of place of supply of goods, etc. are welcome. However, the introduction of Rule 88C, mandating the taxpayer to explain the reasons for difference between liability as per Form GSTR-1 and Form GSTR-3B, and the provision to restrict the supplier from filing Form GSTR-1 for the subsequent period in the absence of such explanation or payment of differential tax can lead to practical challenges and the industry would look forward for clarifications on implementation of the rule to avoid such challenges.

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