Clause by Clause Analysis of Decisions of The 48th GST Council Meeting

[Vivek Jalan]

The video relating to this article can be accessed at:

https://youtu.be/_kmOQw1BFCk

Trade Facilitation Measures –

1. Refund to unregistered persons: There is no procedure for claim of refund of tax borne by the unregistered buyers in cases where the contract/ agreement for supply of services, like construction of flat/house and long-term insurance policy, is cancelled and the time period of issuance of credit note by the concerned supplier is over. The Council recommended amendment in CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases.

Our Comments -  

This is a very big and welcome change for consumers of services like persons buying house under construction. For Eg. Incase a person purchased a house worth Rs.1 Crore under construction on 31st March 2022 and paid GST of Rs.5 Lakhs on the same. However, on 17th Dec 2022 he cancelled this deal. Now, since the time barring period to issue credit note for the builder expires on 30th November 2022, therefore the consumer would loose this Rs.5 Lakhs of GST paid.

Now, in a significant step and among the very few cases in the GST regime, the GST Council has decided that these consumers would directly get the refund from the Government. The procedure regarding this would be set up in time to come.

2.The Council has recommended to amend sub-rule (1) of rule 37 of CGST Rules, 2017 retrospectively with effect from 01.10.2022 to provide for reversal of input tax credit, in terms of second proviso to section 16 of CGST Act, only proportionate to the amount not paid to the supplier vis a vis the value of the supply, including tax payable.

Our Comments –

We discussed the impact of amendment to Rule 37 of The CGST Act 2017 in our video on the link as provided –

https://www.youtube.com/watch?v=OI0Mxt-bfTc

The GST Council has accepted the recommendation and has clarified that in terms of Rule 37, the proportionate Credit of payment to suppliers within 180 would continue to be available. Reversal would be required only to the extent of proportionate non-payment in 180 days.

3. Decriminalization and Compounding -

A. Decriminalization under GST: The Council has recommended to - raise the minimum threshold of tax amount for launching prosecution under GST from Rs.One Crore to Rs. Two Crores, except for the offence of issuance of invoices without supply of goods or services or both;

B. decriminalize certain offences specified under clause (g), (j) and (k) of sub-section (1) of section 132 of CGST Act, 2017, viz.-

- obstruction or preventing any officer in discharge of his duties;

- deliberate tempering of material evidence;

- failure to supply the information.

C. reduce the compounding amount from the present range of 50% to 150% of tax amount to the range of 25% to 100%;

Our Comments -  

There are 12 offences under Section 132(1) of The CGST Act 2017. Out of these certain offenses are non-bailable and others are bailable after they are cross certain threshold. These offences would be considered here if the tax alleged to be evaded is Rs. 1 Crore and above. Now this threshold has been increased to Rs.2 Crore. However, the offence of “issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax” would still continue with a lower threshold of Rs.1 Crore only.

Further it is expected that 3 offenses may go off this list as follows as these were subject to varied interpretations by field officers –

(g) obstructs or prevents any officer in the discharge of his duties under this Act – It is easy to allege but difficult to prove

(j) tampers with or destroys any material evidence or documents – again it can be easily alleged

(k) fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; - Even filmsy non-supply of information could have been alleged under this clause and criminal action could be taken. Say for example, even if the purchase register of 1 month out of 1 year could not be provided, then this clause could be invoked and criminal prosecution could be launched. Hence to eliminate the subjectivity, this offense seems to be decriminalised.

4. Third Country Exports, High Seas Sale and Bond Sale to be non taxable w.e.f. 1.7.2017 - Paras 7, 8(a) and 8(b) were inserted in Schedule III of CGST Act, 2017 with effect from 01.02.2019 to keep certain transactions/ activities, such as supplies of goods from a place outside the taxable territory to another place outside the taxable territory, high sea sales and supply of warehoused goods before their home clearance, outside the purview of GST. In order to remove the doubts and ambiguities regarding taxability of such transactions/ activities during the period 01.07.2017 to 31.01.2019, the Council has recommended to make the said paras effective from 01.07.2017. However, no refund of tax paid shall be available in cases where any tax has already been paid in respect of such transactions/ activities during the period 01.07.2017 to 31.01.2019.

Our Comments –

Field officers were raising doubts, but now the case is clear that Third Country Exports, High Seas Sale and Bond Sale would be non-taxable w.e.f. 1.7.2017. It is pertinent to note that no ITC reversal shall also be required as per Section 17(3) in these cases.

5. The Council recommended to insert Rule 37A in CGST Rules, 2017 to prescribe the mechanism for reversal of input tax credit by a registered person in the event of nonpayment of tax by the supplier by a specified date and mechanism for re-availment of such credit, if the supplier pays tax subsequently. This would ease the process for complying with the condition for availment of input tax credit under section 16(2)(c) of CGST Act, 2017.

Our Comments –

This is a significant relief for recipients. Incase, the suppliers did not file their GSTR 3B, then the department raised demands and made the recipients reverse their ITC. However, this ITC was not reinstated even after the suppliers paid their taxes thereafter. Now such amount can be reclaimed and there would not be consequential ITC loss to the recipients.

6. Sub-rule (3) of rule 108 and rule 109 of the CGST Rules, 2017 to be amended to provide clarity on the requirement of submission of certified copy of the order appealed against and the issuance of final acknowledgment by the appellate authority.

Our Comments –

This would facilitate timely processing of appeals and ease the compliance burden for the appellants.

7. Rule 109C and FORM GST APL-01/03 W to be inserted in the CGST Rules, 2017 to provide the facility for withdrawal of an application of appeal up to certain specified stage.

Our Comments –

It has been advocated that this would help in reducing litigations at the level of appellate authorities. However, the fine prints need to be seen as we believe that such facility is already available to a taxpayer who wishes to withdraw its appeal.

8. Circular to be issued to clarify that No Claim Bonus offered by the insurance companies to the insured is an admissible deduction for valuation of insurance services.

Our Comments –

This is a big relief for the insurance companies as many field officers we not allowing such deduction from taxable value. However under Income Tax it needs to be seen whether such amount would be considered for TDS u/s 194R in certain cases.

9. Circular to be issued for clarifying the issue of treatment of statutory dues under GST law in respect of the taxpayers for whom the proceedings have been finalised under Insolvency and Bankruptcy Code, 2016. Rule 161 of CGST Rules, 2017 and FORM GST DRC-25 also to be amended for facilitating the same.

Our Comments –

The interplay of IBC and GST needed to be clarified and we expect that this circular would do the same.

10. Sub-rule (3) of rule 12 of CGST Rules, 2017 to be amended to provide for facility to the registered persons, who are required to collect tax at source under section 52 or deduct tax at source under section 51 of CGST Act, 2017, for cancellation of their registration on their request.

Our Comments –

Rule 12(3) states as under -

(3) Where, upon an enquiry or pursuant to any other proceeding under the Act, the proper officer is satisfied that a person to whom a certificate of registration in FORM GST REG-06 has been issued is no longer liable to deduct tax at source under section 51 or collect tax at source under section 52, the said officer may cancel the registration issued under sub-rule (2) and such cancellation shall be communicated to the said person electronically in FORM GST REG-08:

Provided that the proper officer shall follow the procedure as provided in rule 22 for the cancellation of registration.

This rule would be amended to provide for application of suo-moto reversal

11. Facilitate e-commerce for micro enterprises: GST Council in its 47th meeting had granted in-principle approval for allowing unregistered suppliers and composition taxpayers to make intra-state supply of goods through E-Commerce Operators (ECOs), subject to certain conditions. The Council approved the amendments in the GST Act and GST Rules, along with issuance of relevant notifications, to enable the same. Further, considering the time required for development of the requisite functionality on the portal as well as for providing sufficient time for preparedness by the ECOs, Council has recommended that the scheme may be implemented w.e.f. 01.10.2023.

Our Comments – unregistered suppliers and composition taxpayers can make intra-state supply of goods through E-Commerce Operators (ECOs), subject to certain conditions w.e.f. 01.10.2023.

12. Circular to be issued for clarifying the issues pertaining to the place of supply of services of transportation of goods in terms of the proviso to sub-section (8) of section 12 of the IGST Act, 2017 and availability of input tax credit to the recipient of such supply. It has also been recommended that proviso to sub-section (8) of section 12 of the IGST Act, 2017 may be omitted.

Our Comments –

Section 12(8) states as under –

“(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––

(a) a registered person, shall be the location of such person;

(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.

1[Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.]”

On 30-9-2022, exemption have seen sunsets leaving the services i.e., outbound ocean freight taxable @5% subject to the condition that ITC on goods (other than on ships, vessels including bulk carriers and tankers) has not been taken.

In Section 12(8) on POS, a proviso has been inserted w.e.f. 1-2-2019 vide amendment in IGST Amendment Act, 2018 in case of outbound freight services where both transporter and exporter is in India which states that where the transportation of goods is to a place outside India, the POS shall be place of destination of goods. Since the POS is outside India, as per section 7(5)(a) it shall be treated as interstate supply and hence, IGST is to be levied.

From the perspective of exporters who are exporting on C.I.F. basis by availing services from domestic transporter, IGST needs to be paid and can be claimed as ITC and refunds thereof. However, the dilemma which arises is that the place of supply in the instant case would have to be selected as “other territory” (code 97) whereas the recipient’s location would not be “other territory”. Though there is no explicit bar on the recipient availing credits of IGST paid under the provisions of the GST laws if the place of supply is not shown as the recipient’s State yet challenges may have arisen in taking refunds as the POS in such cases was not the recipient’s State. This has sought to be corrected by proposing to remove the proviso to section 12(8) of the IGST Act, 2017 restoring the POS as the location of the registered recipient to iron out the issue.

13. Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

a. Procedure for verification of input tax credit in cases involving difference in input tax credit availed in FORM GSTR-3B vis a vis that available as per FORM GSTR- 2A during FY 2017-18 and 2018-19.

b. Clarifying the manner of re-determination of demand in terms of sub-section (2) of section 75 of CGST Act, 2017.

c. Clarification in respect of applicability of e-invoicing with respect to an entity.

Our Comments –

• Procedure for assessing 2A Vs 3B differences for 17-18 & 18-19 – The Govt. of Maharashtra has already issued a circular where these differences could be ironed out by declaration from the supplier or a CA that the tax has been paid to the Govt. Incase this circular would be replicated in some form, it would be a big relief for the taxpayers reeling under similar notices
• Other 2 issues seem to be more of procedural clarifications

GST Rate Changes –

1. No GST is payable where the residential dwelling is rented to a registered person if it is rented it in his/her personal capacity for use as his/her own residence and on his own account and not on account of his business.

Our Comments – Incase of a Proprietor of a GST registered business, the proprietor has the same PAN No as his Proprietorship Business. Now say he takes a house on Rent, then there was a doubt after the 47th Council meeting whether GST would be required to be paid by The Proprietor from his business account on reverse charge basis. The larger issue was that such GST Paid would not be eligible as Credit as the use of the house was for personal purpose. Now as a relief it has been clarified that this transaction would be out of GST

2.  Incentive paid to banks by Central Government under the scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions are in the nature of subsidy and thus not taxable

Our Comments - There was a doubt whether the incentive given by the Central Govt. to Banks would be regarded as a value of taxable supply or not. Now since it has been recommended that it would be treated as a subsidy, then it would be non-taxable.

3. Other Rate Changes -

Particulars	Amendment
Husk of pulses including chilka and concentrates including chuni/churi, khanda. As a relief measure, to regularise the intervening period starting from the date of issuance of Circular (3.08.2022) in respect of GST on ‘husk of pulses including chilka and concentrates including chuni/churi, khanda’ on “ as is basis” on account of genuine doubts.	5% to NIL
Ethyl alcohol supplied to refineries for blending with motor spirit (petrol)	18% to 5%
Supply of “Mentha arvensis”	Under Reverse Charge now
Rab (rab-salawat)	Classifiable under CTH 1702 @18%.
fryums manufactured using the process of extrusion	Classifiable under CTH 19059030 @18%
Motor vehicle fulfilling all 4 conditions namely 1. it is popularly known as SUV 2. has engine capacity exceeding 1500 Cc 3. length exceeding 4000 mm 4. ground clearance of 170 mm or above	Higher Compensation cess of 22% is applicable
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%
goods falling in other higher than 12% rate category of notification No. 1/2017-CTR imported for petroleum operations	Will Attract 12%

Measures for streamlining compliances in GST -

1. GSTR-1 Vs GSTR 3B mismatches to lead to non-filing of further GSTR-1 - Rule 88C and FORM GST DRC-01B to be inserted in CGST Rules, 2017 for intimation to the taxpayer, by the common portal, about the difference between liability reported by the taxpayer in FORM GSTR-1 and in FORM GSTR-3B for a tax period, where such difference exceeds a specified amount and/ or percentage, for enabling the taxpayer to either pay the differential liability or explain the difference. Further, clause (d) to be inserted in sub-rule (6) of rule 59 of CGST Rules, 2017 to restrict furnishing of FORM GSTR-1 for a subsequent tax period if the taxpayer has neither deposited the amount specified in the intimation nor has furnished a reply explaining the reasons for the amount remaining unpaid. This would facilitate taxpayers to pay/ explain the reason for the difference in such liabilities reported by them, without intervention of the tax officers.

Our Comments –

Taxpayers would recall Section 38(2)(b) implemented from October 2022. Incase there is a mismatch between suppliers GSTR-1 & GSTR 3B by a specified limit, then the recipients would be denied the ITC on such supplies.

Now, vide Rule 88C, the suppliers would also be debarred from filing further returns in such cases until they pay the difference tax.

Incase of genuine mistakes, this would lead to a tremendous hardship.

Steps for Prevention of Fake Transactions -

14. Proposal to conduct a pilot in State of Gujarat for Biometric-based Aadhaar authentication and risk-based physical verification of registration applicants. Amendment in rule 8 and rule 9 of CGST Rules, 2017 to be made to facilitate the same. This will help in tackling the menace of fake and fraudulent registrations.

15. PAN-linked mobile number and e-mail address (fetched from CBDT database) to be captured and recorded in FORM GST REG-01 and OTP-based verification to be conducted at the time of registration on such PAN-linked mobile number and email address to restrict misuse of PAN of a person by unscrupulous elements without knowledge of the said PAN-holder.

16. Section 37, 39, 44 and 52 of CGST Act, 2017 to be amended to restrict filing of returns/ statements to a maximum period of 3 years from the due date of filing of the relevant return / statement.

19. FORM GSTR-1 to be amended to provide for reporting of details of supplies made through ECOs, covered under section 52 and section 9(5) of CGST Act, 2017, by the supplier and reporting by the ECO in respect of supplies made under section 9(5) of CGST Act, 2017.

20 Amendment in definition of “non-taxable online recipient” under section 2(16) of IGST Act, 2017 and definition of “Online Information and Database Access or Retrieval Services (OIDAR)” under section 2(17) of IGST Act, 2017 so as to reduce interpretation issues and litigation on taxation of OIDAR Services.