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RECENT DEVELOPMENTS IN GST

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RECENT DEVELOPMENTS IN GST
By: Dr. Sanjiv Agarwal
October 2, 2021
All Articles by: Dr. Sanjiv Agarwal       View Profile
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According to economists, it is opined that while Indian economy is slowly returning to pre-Covid levels on various parameters, it would at best return to pre-Covid levels two years back. GDP may hit that level in Q3 of financial year 2021-22. Few recent policy announcements like on bad bank, retrospective taxation, relief to telecom sector etc will act like enabling boosters. Lower rainfall may affect sectors such as mining, construction, electricity and agri-based sectors. The fact remains that India needs to grow at a faster and sustainable level, not just return to pre-Covid scenario.

According to NCAER, Indian economy is likely to grow @ 10% during the current fiscal 2021-22 as India expects fewer Covid linked supply disruptions and buoyancy in the global economy. India is also on the paced vaccination drive which will facilitate economy to be back on the track and normalcy soon. However, sustaining growth of over 7% will be a challenge in near future.

The much awaited 45 th meeting of the GST Council was held on 17 th September, 2021 in physical mode at Lucknow, an important state capital going to polls in near future. Though the agenda was crucial, no decision was taken for inclusion of petroleum products in GST fold. The tenure of National Anti-profiteering Authority got extended by one more year amid rumors of its getting merged with Competition Commission of India.

Compensation Cess also gets extended till 2026 now. Its consequences are going to be grave for Union Government as it may shake its fiscal balance in today’s erratic economy in the back drop of Covid pandemic.

The GST Council took various decisions inter alia, including exemptions, rate rationalization, extension of relaxations to Covid supplies, exports, ITC, debit notes, late fees, inclusion of some goods / services in tax net and so on.  All such recommendations shall be implemented in due course. CBIC has already issued Notification Nos. 35 and 36-CT dated 24.09.2021 and few Circulars (Nos. 159 to 162) providing the much needed clarifications based on GST Council recommendations.

45TH GST COUNCIL MEETING RECOMMENDATIONS ( 17.09.2021)

        100% ITC matching under Section 16(2)(aa)

Rule 36(4) notified from 9th October, 2019 provides for restriction on ITC availment upto 120% of the ITC reflected in GSTR-2A/ B. This was later reduced to 110% from 1st January 2020 and 105% from 1st January 2021. It has been clarified that once section 16(2)(aa) gets notified, Rule 36(4) would be amended to restrict ITC to the extent the invoices/ debit notes are communicated to the registered person in FORM GSTR-2B.

No Interest on ITC availed but

Interest is to be paid by taxpayer only on ineligible ITC availed and utilised at the rate of 18% w.e.f. 1st July 2017 under Section 50(3) of the CGST Act. On ineligible ITC availed but not utilised, no interest would be applicable.

Transfer of CGST/IGST Cash ledger balances between two GSTINs under same PAN

Unutilized balance in CGST and IGST cash ledger may be allowed to be transferred between distinct persons (entities having same PAN but registered in different states), without going through the refund procedure, subject to certain safeguards.

Clarification on scope of Intermediary services

Circular 107/26/2019 dt.18/07/2019 clarified the doubts related to supply of IT enabled services and intermediaries but this circular was withdrawn later due to numerous representations. A fresh circular for explaining the scope of intermediary services has been issued.

Clarification on Interpretation of merely establishment of distinct persons for export of services

Till now, the department used to deny the benefit of export of services due to the reason that, the person incorporated in India and that outside India belonged to the same group of companies. This was irrespective of the fact that they were separate legal entities. Now it has been clarified that they would not be treated as merely establishments of distinct persons and would be considered under export of services.

No carrying of physical copies of E-invoices

It  has been clarified that during the time of transportation there would be no requirement of carrying physical copies of E-invoices generated under Rule 48(4) of the CGST Rules, 2017

Refund not to be denied if export duty is not payable

Under Section 54(3), refund of accumulated ITC is not allowed if any goods are subject to export duty. In many cases, where export duty had been notified as NIL/exempt, the department deny the refund u/s 54(3) on the ground that NIL rate of export duty is also a kind of export duty.  It has been clarified that refund would be restricted only when export duty is required to be paid on the relevant goods.

Relevance of date of debit note for limitation u/s 16(4)

Section 16(4) restricts availment of ITC upto the due date of filing September return of subsequent financial year or actual date of filing of annual return. This is based on the date of document issued by the supplier. It has been clarified that date of debit note, and not the date of underlying invoice would be considered for the purpose of determining the aforesaid period of limitation prescribed under Section 16(4) of the CGST Act. (w.e.f. 1.1.2022).

Clarification on refund of taxes paid under the wrong head

There has been a lot of confusion regarding the procedure and time limit for filing of refund for wrongly taxes paid as CGST/SGST instead of IGST and vice versa. [Notification No. 35/2021-CT dated 24.09.2021 and Circular No. 162 dated 25.09.2021 refers]. Provisions for removal of such ambiguities is proposed to be notified through amendment in the CGST Rules, 2017

Aadhar authentication made mandatory for refund claim and revocation of cancellation  of registration

Aadhaar authentication of registration to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration.

Late fees of GSTR-1 to be collected through next GSTR-3B

Presently, though the GST law prescribes late fees for GSTR-1 the same is not auto populated on the GST portal. The late fees for GSTR-1 would be auto populated in the next open GSTR-3B.

Refund to be issued only in bank account linked with correct PAN

Refund will be disbursed in the bank account, which is linked with same PAN on which registration has been obtained under GST.

Restriction on delayed filing GSTR-1 if GSTR-3B of previous month

Currently Rule 59(6) of the CGST Rules does not permit filing of GSTR-1 if a registered person does not file GSTR-3B for preceding 2 months/preceding quarter. W.e.f. 01.01.2022, a registered person shall not be allowed to furnish FORM GSTR-1 if he has not furnished the return in FORM GSTR-3B for the preceding month itself.

Petroleum Products to remain outside GST net for the time being

High Court of Kerala had directed the GST Council to consider the coverage of petroleum products within the ambit of GST.  The same was discussed and the Council was of the view that it may not appropriate to do so for the time being.

Transportation of passengers through e-commerce platforms like Uber, Ola etc.

Earlier, only services of transportation of passengers provided by a radio-taxi, motorcab, maxicab and motor cycle were covered under Section 9(5) wherein the person liable to pay taxes was the e-commerce operator. Now, services of transport of passengers, by any type of motor vehicles through e-commerce platform would be covered under Section 9(5) and the person liable to pay tax would be such e-commerce operator

Inverted Duty structure for Footwear and Textiles sector

GST rate changes in order to correct inverted duty structure, in footwear and textiles sector, as was discussed in earlier GST Council Meeting and was deferred for time being and will be implemented with effect from 01.01.2022.

Extension of time for levy of Compensation Cess

The applicability of compensation cess has been extended till April 2026

Clarification on GST rates relating to goods

  • Pure henna powder and paste, having no additives, attract 5% GST rate under Chapter 14.
  • Brewers' Spent Grain (BSG), Dried Distillers’ Grains with Soluble [DDGS] and other such residues, falling under HS code 2303 attract GST at the rate of 5%.
  • All laboratory reagents and other goods falling under heading 3822 attract GST at the rate of 12%.
  • Scented sweet supari and flavored and coated illachi falling under heading 2106 attract GST at the rate of 18%
  • Carbonated Fruit Beverages of Fruit Drink" and "Carbonated Beverages with Fruit Juice" attract GST rate of 28% and Cess of 12%. This is being prescribed specifically in the GST rate schedule.
  • Tamarind seeds fall under heading 1209, and hitherto attracted nil rate irrespective of use. However, henceforth they would attract 5% GST rate (w.e.f. 1.10.2021) for use other than sowing. Seeds for sowing will continue at nil rate.
  • External batteries sold along with UPS Systems/ Inverter attract GST rate applicable to batteries [ 28% for batteries other than lithium-ion battery] while UPS/inverter would attract 18%.
  • GST on specified Renewable Energy Projects can be paid in terms of the 70:30 ratio for goods and services, respectively, during the period from 1.7.2017 to 31.12.2018, in the same manner as has been prescribed for the period on or after 1 January 2019.
  • Due to ambiguity in the applicable rate of GST on Fibre Drums, the supplies made at 12% GST in the past have been regularised. Henceforth, a uniform GST rate of 18% would apply to all paper and paper board containers, whether corrugated or non-corrugated.
  • Distinction between fresh and dried fruits and nuts is being clarified for application of GST rate of “nil” and 5%/12% respectively;
  •  It is being clarified that all pharmaceutical goods falling under heading 3006 attract GST at the rate of 12% [ not 18%].
  • Essentiality certificate issued by Directorate General of Hydrocarbons on imports would suffice; no need for taking a certificate every time on inter-state stock transfer

Changes in relation to supply of Brick Kilns

  • Brick kilns would be brought under special composition scheme with threshold limit of ₹ 20 lakhs, with effect from 1.4.2022
  • Bricks would attract GST at the rate of 6% without the benefit of ITC under the scheme. However, GST rate of 12% with ITC would otherwise apply to bricks.

GST rate changes in relation to Goods [w.e.f 1.10.2021 unless otherwise stated]

S. No.

Description

From

To

1

Retro fitment kits for vehicles used by the disabled

Appl. rate

5%

2

Fortified Rice Kernels for schemes like ICDS etc.

18%

5%

3

Biodiesel supplied to OMCs for blending with Diesel

12%

5%

4

Ores and concentrates of metals such as iron, copper, aluminum, zinc and few others

5%

18%

5

Specified Renewable Energy Devices and parts

5%

12%

6

Cartons, boxes, bags, packing containers of paper etc.

12%/18%

18%

7

Waste and scrap of polyurethanes and other plastics

5%

18%

8

All kinds of pens

12%/18%

18%

9

Railway parts, locomotives & other goods in Chapter 86

12%

18%

10

Miscellaneous goods of paper like cards, catalogue,printed material (Chapter 49 of tariff)

12%

18%

11

IGST exemption on goods supplied at Indo-Bangladesh Border haats

Appl. rate

Nil

12

Unintended waste generated during the production of fish meal except for Fish Oil

Nil (for 1.7.2017 to 30.9.2019)

Clarification on GST rate relating to services

  • Coaching services to students provided by coaching institutions and NGOs under the central sector scheme of ‘Scholarships for students with Disabilities” is exempt from GST
  • Overloading charges at toll plaza are exempt from GST being akin to toll.
  • The services by way of grant of mineral exploration and mining rights attracted GST rate of 18% w.e.f. 01.07.2017.
  • Admission to amusement parks having rides etc. attracts GST rate of 18%. The GST rate of 28% applies only to admission to such facilities that have casinos etc

GST changes in relation to rates and scope of exemption on Services fw.e.f 1.10.2021 unless otherwise stated

S. No.

Description

From

To

1

Validity of GST exemption on transport of goods by vessel and air from India to outside India is extended upto 30.9.2022.

-

NIL

2

Services by way of grant of National Permit to goods carriages on payment of fee

18%

Nil

3

Skill Training for which Government bears 75% or more of the expenditure [ presently exemption applies only if Govt funds 100%].

18%

Nil

4

Services related to AFC Women's Asia Cup 2022.

18%

Nil

5

Licensing services/ the right to broadcast and show original films, sound recordings, Radio and Television programmes [ to bring parity between distribution and licencing services]

12%

18%

6

Printing and reproduction services of recorded media where content is supplied by the publisher (to bring it on parity with Colour printing of images from film or digital media)

12%

18%

7

Exemption on leasing of rolling stock by IRFC to Indian Railways withdrawn.

Exempt

Taxable

Specific relief to education / coaching services

  • Coaching services to students provided by coaching institutions and NGOs under the central sector scheme of 'Scholarships for students with Disabilities" is exempt from GST.
  • Change in GST rates

 S.No.

Description

From

To

1.

Skill Training for which Government bears 75% or more of the expenditure [ presently exemption applies only if Govt funds 100%].

18%

Nil

2.

Printing and reproduction services of recorded media where content is supplied by the publisher (to bring it on parity with Colour printing of images from film or digital media)

12%

18%

3.

E Commerce Operators are being made liable to pay tax on following services provided through them

(i)   transport of passengers, by any type of motor vehicles through it [w.e.f. 1st January, 2022]

(ii)  restaurant services provided through it with some exceptions [w.e.f. 1st January, 2022]

 

S. No.

Description

From

To

1

Cartons, boxes, bags, packing containers of paper etc.

12%/18%

18%

2

All kinds of pens

12%/18%

18%

Specific relief to health care services

  • COVID-19 relief measure in form of GST rate concessions
  • Extension of existing concessional GST rates (currently valid till 30th September, 2021) on following Covid-19 treatment drugs, up to 31st December, 2021, namely-
  1. Amphotericin B -nil
  2. Remdesivir - 5%
  3. Tocilizumab -nil
  4. Anti-coagulants like Heparin - 5%
  • Reduction of GST rate to 5% on more Covid-19 treatment drugs, up to 31st December, 2021, namely-
  1. Itolizumab
  2. Posaconazole
  3. Infliximab
  4. Favipiravir
  5. Casirivimab & Imdevimab
  6. 2-Deoxy-D-Glucose
  7. Bamlanivimab & Etesevimab
  • It is being clarified that all pharmaceutical goods falling under heading 3006 attract GST at the rate of 12% [not 18%].
  • All laboratory reagents and other goods falling under heading 3822 attract GST at the rate of 12%.
  • External batteries sold along with UPS Systems/ Inverter attract GST rate applicable to batteries [28% for batteries other than lithium-ion battery] while UPS/inverter would attract 18%.
  • Change in GST rates

S. No.

Description

From

To

1.

Medicine Keytruda for treatment of cancer

12%

5%

2.

Cartons, boxes, bags, packing containers of paper etc.

12%/18%

18%

3.

Miscellaneous goods of paper like cards, catalogue, printed material (Chapter 49 of tariff)

12%

18%

4.

IGST on import of medicines for personal use, namely

  1. Zolgensma for Spinal Muscular Atrophy
  2. Viltepso for Duchenne Muscular Dystrophy
  3. Other medicines used in treatment of muscular
    atrophy recommended by Ministry of Health and Family Welfare and Department of
    Pharmaceuticals.

12%

Nil

Specific relief to hotels / restaurants

  • GST rates
  • Distinction between fresh and dried fruits and nuts is being clarified for application of GST rate of "nil" and 5%/12% respectively;
  • Scented sweet supari and flavored and coated illachi falling under heading 2106 attract GST at the rate of 18%
  • Carbonated Fruit Beverages of Fruit Drink" and "Carbonated Beverages with Fruit Juice" attract GST rate of 28% and Cess of 12%. This is being prescribed specifically in the GST rate schedule.
  • Ice cream parlor sells already manufactured ice- cream. Such supply of ice cream by parlors would attract GST at the rate of 18%.
  • Alcoholic liquor for human consumption is not food and food products for the purpose of the entry prescribing 5% GST rate on job work services in relation to food and food products.
  • Tax on cloud kitchens

Services by cloud kitchens/central kitchens (such an swiggy / zomato or like) are covered under 'restaurant service', and attract 5% GST [ without ITC].

 S.No.

Description

From

 To

1.

E Commerce Operators are being made liable to pay tax on following services provided through them

(i)   transport of passengers, by any type of motor vehicles through it [w.e.f. 1st January,2022]

(ii)  restaurant services provided through it with some exceptions [w.e.f. 1st January,2022]

Amendments in Rules

    • Amendment in Rule 10A [w.e.f. date to be notified]
    • New Rule 10B - Aaadhar authentication from for registered person [w.e.f. date to be notified]
    • Amendment in Rule 23(1) [w.e.f. date to be notified]
    • Amendment in Rule 45(3) [w.e.f. 1.10.2021]
    • Amendment in Rule 59(6) [w.e.f. 1.1.2022]
    • Amendment in Rule 89 [w.e.f. date to be notified]
    • Amendment in Rule 96(1) [w.e.f. date to be notified]
    • New Rule 96C – Bank account for credit of refund [w.e.f. 24.09.2021]

Amends Notification No. 3/2021-Central Tax dated 23.02.2021 to include section 25(6A) of CGST Act, 2017 also for exemption to class of persons notified for exemption from linking of Aadhaar.

New GST Clarifications / Circulars

Based on the recommendations of 45th GST Council meeting held on 17.09.2021, CBIC has issued following three four Clarifications / Circulars on 20.09.2021:

Scope of intermediary as defined in section 2(13) of IGST Act, 2017 has been clarified. There should be minimum three parties in the subject transaction. Principal to principle basis / sub-contracts not covered. Services to have character of an agent, broker etc.

Certain GST related issues have been clarified such as ITC u/s 16(4) of CGST act with reference to debit notes, carrying physical copy of invoice (Rule 48(4) of CGST Rules, 2017, Refund of unutilized ITC u/s 54(3) of CGST Act, 2017 in case of NIL rated exports.

Clarification related to export of services condition (v) of section 2(6) of IGST Act, 2017 clarifies that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. These two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.

Clarification relating to refund of tax wrong fully paid as inter-State supply instead of intra-State supply or vice-versa under section 77 of CGST Act, 2017 and section 19 of IGST Act, 2017. This Circular explains the meaning of term, ‘subsequently held’ and the relevant date for claiming refund of incorrect tax paid.

GSTN Advisory on Generation of EWB were supply of services is principal supply

  • There is no provision for generating E-way Bill by entering SAC (Service Accounting Code-Chapter 99) alone on the E- way bill portal in cases where principle supply is classifiable as a service.
  • GSTN has issued following advisory to taxpayers  for generation of E-way Bill (EWB):
    • As per Rule 138 of CGST Rules, 2017, every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees….”. Thus, E way bill is required to be generated for the movement of Goods.
    • Therefore, in cases where the principal supply is purely a supply of service and involving no movement of goods, the e-way bill is not required to be generated.
    • However, in cases where along with the principal supply of service, movement of some goods is also involved, e-way bill may be generated. Such situations may arise in cases of supply of services like printing services, works contract services, catering services, pandal or shamiana services, etc. In such cases, e-way bill may be generated by entering the details of HSN code of the goods, along with SAC (Service Accounting Code) of services involved.

[Source: GSTN (www.gst.gov.in/) dated 16.09.2021]

 

GSTN Self - service Functionality

  • GSTN has made available self service functionality on the common portal to help importers of goods and recipients of supplies from Special Economic Zones (SEZs) to search details /records such as bills of entry in the system which do not get auto populated in GSTR-2A and fetch the missing records.
  • Since  it usually takes 2 days (after reference date) for BE details to get updated on GST Portal from ICEGATE. This functionality should, therefore, be used if data is not available after this period, the reference date would be either Out of charge date, Duty payment date, or amendment date whichever is later.
  • Following steps are to be followed to fetch details :
    •  Login to GST Portal
    • Navigate to Services > User Services > Search BoE
    • Enter the Port Code, Bill of Entry Number & Date and Reference Date and click the SEARCH button. The reference date would be either Out of charge date, Duty payment date, or amendment date - whichever is later.
    • If the BoE details do not appear in the Search results, click on the QUERY ICEGATE button, at the bottom of the screen, to trigger a query to ICEGATE.
    • History of fetched BoE details from ICEGATE along with status of query are displayed after 30 minutes from the time of triggering the query.
  • Taxpayers are advised to confirm correct details either from BE documents, or using ICEGATE portal

[Source: GSTN (www.gst.gov.in/) dated 18.09.2021]

Insurance of Show Cause Notices (SCN’s) in Time bound manner

  • CBIC (GST- Investigation Wing) has issued instructions relating to issuance of show cause notices in time bound manner. While cases of ITC frauds or GST evasion are covered under the provisions of Section 74 of CGST Act, 2017 [the extended period clause], however, there may be certain other situations where issuance of a notice under Section 73 of the CGST Act, 2017 may be issued.
  • CBIC feels that if the issuance of SCNs is pushed to close proximity of the end dates/last dates, it may leave very little time with the adjudicating authority to pass orders within stipulated period mentioned in sub-section (10) of Section 73/ Section 74. This might result in a situation where either the adjudicating authority is not able to pass orders within prescribed time period or quality of adjudication suffers.
  • CBIC has therefore, issued instructions to the effect that Principal Director General / Director General(s)/Principal Chief Commissioner(s)/Chief Commissioner(s) within their jurisdiction may take stock of the pending investigation cases/other cases which warrant issuance of show cause notices and take appropriate action to ensure timely completion of investigation(s) and issuance of SCNs well before the last date.

(Source: Instruction No. 02/2021-22 (GST Investigation) dated 22.09.2021)

Group of Ministers on GST Rate Rationalization

  1. review the supply of goods and services exempt under GST with an objective to expand the tax base and eliminate breaking of ITC chain;
  2. review the instances of inverted duty structure other than where Council has already taken a decision to correct the inverted structure and recommend suitable rates to eliminate inverted duty structure as far as possible so as to minimize instances of refund due to inverted duty structure;
  3. review the current tax slab rates and recommend changes in the same as may be needed to garner required resources; and
  4. review the current rate slab structure of GST, including special rates, and recommend rationalization measures, including merger of tax rate slabs, required for a simpler rate structure in GST.
  • The GoM can suggest changes that may be implemented immediately and the roadmap for implementation for the changes that should be implemented in short and medium term. The Group may submit interim report for such immediate measures as it may deem fit.
  • Convenor of this GoM is Chief Minister of Karnataka

(Source: Office Memorandum S-31011/12/2021(NC) dated 24.09.2021)

Group of Ministers on GST System Reforms

  1. review the IT tools and interface available with tax officers and suggest measures to make the system more effective and efficient including changes in business processes;
  2. identify potential sources of evasion and suggest changes in business processes and IT systems to plug revenue leakage;
  3. identify possible use of data analysis towards better compliance and revenue augmentation and suggest use of such data analysis;
  4. identify mechanisms for better coordination between Central and State tax administration and tax administration of different States; and
  5. suggest timelines for changes recommended.
  • This GoM shall review the implementation of reform measures approved by the Council.
  • Convenor of this GoM is Dy. Chief Minister of Maharashtra.

(Source: Office Memorandum S-31011/12/2021(NC) dated 24.09.2021)

 

By: Dr. Sanjiv Agarwal - October 2, 2021

 

 

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