Changes proposed in Goods and Service Tax | Union Budget 2020-21

The Finance Minister has presented the Budget for the financial year 2020-21, on 1st of February 2021. Here are Extractions of amendments in Indirect Taxes of the Union Budget.

1. Supplies to SEZ Developer or SEZ unit would be qualify as Zero rated turnover only for authorised operations, (Clause-114 of the Finance Bill, 2021)

• Earlier, supply to SEZ Developer or SEZ unit was considered as export irrespective of the fact whether the same supply is made for authorised operations or not.
• However, amendment has proposed that only supply for authorised operations shall be considered as “Zero Rated Supply”.

2. Refund ITC refund along with interest if exporter fails to receive foreign exchange remittance for supply of goods within prescribed time 

• Under the existing regime, if Zero rated supply is made without  payment of IGST under cover of a Bond or LUT then the exporter is entitled to claim refund of unutilised ITC according to Section 54 of CGST Act. 
• Unlike export of service, In case of export of goods, there is no linking made between actual supply made and amount received in convertible Foreign exchange.
• However, Section 16(3) has been amended to provide that if exporter fails to receive foreign exchange remittance for supply of goods within prescribed time limit then he is required to refund corresponding refund amount within interest within 30 days after expiry of such specified time limit.

3. IGST route of exports would be allowed only for class of persons and class of goods, i.e. all other exporters will be required to export goods under LUT/Bond.

• Under the existing regime, all exporters are entitled to export goods on payment of IGST, subject to rule 96(10) of CGST Rules, and then refund can be claimed for IGST paid on outward supply. An automatic refund application is filed on filing of shipping bill.
• Finance Act has proposed that this window of export shall be limited to class of person and class of goods or services as may be prescribed by Government in consultation with GST Council.
• Therefore, all other exporters will be required to export goods under LUT/Bond and application for refund of unutilized ITC shall be filed in form GST RFD-01.

4. Increased penalties to release the detained conveyance and goods (Clause 108 of the Finance Bill, 2021)

4.1 Where the owner of the Goods comes forwards for payment of tax and penalties

• Penalty payable to release the detained conveyance and goods has been increased from 100% to 200% in cases where the owner of the goods comes forward for payment of such tax and penalty .
• However, the requirement of pre-deposit of tax amount has been removed.

4.2 Where owner of goods does not come forward for payment of tax and penalties

• Where the owner of the goods doesn’t come forward for payment of  penalty, earlier, payment of tax amount and 50% of the penalty was required to be paid to release the goods.
  1. However, through Finance Act, higher of the following amount is proposed to be paid:
     1. 50% of the penalty amount; or
     2. 200% of the tax amount

4.3 Further In case of detention and seizure of conveyance and goods, Appeal can be filed only after pre-deposit of 25% of penalty amount, (Clause 107 of the Finance Bill, 2021)

• As per Existing Provisions, before filing an appeal before Appellate Authority, the appellant is required to pre-deposit 10% of the remaining tax amount in dispute.
• However, as per amendment, in case of detention and seizure of conveyance and goods, Appeal can be filed only after pre-deposit of 25% of penalty amount in addition to 10% of Tax amount in dispute.

4.4 Seized Goods can be released only after payment of entires pananties only

• As per earlier provisions, seized goods could be released on a provisional basis, upon execution of a bond and furnishing of a security.
• However, Finance Act, 2021 has proposed to remove this option and therefore, the entire penalty amount is required to be paid in cash only.

4.5 Time limit of 7 days’ has been inserted to issue from date of detention or seizure

• A time limit of 7 days’ has been inserted to issue from date of detention or seizure. Further, an order shall be passed in 7 days from date of service of  such notice.
• Under existing provisions, no such time limit is provided.

4.6 Only a penalty is required to be paid to release detained goods

• For release of goods detained under section 129, taxpayers were required to  pay tax amount and penalty.
• However, the proposed amendment removed the requirement of payment of tax and interest. Therefore, only a penalty is required to be paid to release detained goods.

4.7 The goods or conveyance detained or seized shall become liable to be sold or disposed off in case the payment of imposed penalty is not made within 15 days

Section 129 has been delinked from Section 130-”Confiscation of goods or conveyances and levy of penalty”. 

• As per existing provision, if a taxpayer fails to pay tax and penalty within 14 days of seizure, the conveyance and goods detained were liable for confiscation as per Section 130.
• However, amendment has proposed that the goods or conveyance detained or seized shall become liable to be sold or disposed off in case the payment of imposed penalty is not made within 15 days from the date of receipt of copy of the order imposing such penalty.

5. Supply of services made by clubs, societies etc. to its members has been brought under purview of GST with effect from 1st July 2017

Insertion of New Section 7(1)(aa)-“Scope of Supply” (Clause 99 of Finance Bill,2021) and Deletion of Para 7 of Schedule II of CGST Act

• Scope of Supply has been expanded by inserting a new Clause (aa) to Section 7(1) of CGST Act.  By virtue of Clause (aa), supply of services made by clubs, societies etc. to its members has been brought under purview of GST.
• For the purpose of taxability, the person and its members or constituents shall be deemed to be two separate persons.
• This specific inclusion has been given to remove the effect of jurisprudence of Hon’ble Supreme Court in the matter of state of West Bengal & Ors. V Calcutta Club limited [2019 (29) G.S.T.L.545 (S.C.)] where it was held  that there cannot be any sale of goods or provision of services made between unincorporated private clubs/associations and its members owing to the principle of mutuality which treats such clubs/associations and its members as the same person.

6. ITC would be available only when reflecting under GSTR 2A and GSTR 2B, (Clause 100 of Finance Bill,2021)

• Insertion of the clause (aa) in section 16(2) of the CGST Act is to regulate the Input Tax Credit (ITC) on Invoice or Debit note. ITC on invoice can be availed  when details of such invoice is furnished by the supplier in GSTR-1 and details of such invoice/ Debit Note is to be communicated to the recipient, i.e., starts appearing in his GSTR-2A and GSTR-2B.
• This amendment has been made to provide backing up the Rule 36(4) which has been recently amended in vide Notification No. 94/2020-Central Tax dated December 22, 2020 w.e.f. January 01, 2021 to restrict the ITC to 5% in respect of invoices/debit notes not furnished by supplier in GSTR-1 or using IFF.

7. Certification by Chartered accountant / cost accountant in the GSTR 9C not required, (Clause 101 and 102 of Finance Bill,2021):

• Section 35(5) proposed to be removed, now there is no mandatory requirement for getting annual accounts audited under GSTR-9C by a Chartered Accountant or a Cost Accountant.
• Earlier, every registered person was required to furnish a reconciliation statement in form GSTR-9C whose Aggregate annual Turnover was exceeding INR 2 crore.( limit is 5 crores for F.Y. 2018-19 and 2019-20).

• Section 44 amended to remove the mandatory requirement of furnishing a reconciliation statement in Form GSTR-9C duly audited by the Chartered or Cost Accountant.
• Finance Act has proposed that GSTR-9 shall be filed on self-certification basis with reconciliation statements.
• Through this amendment, the responsibility of Auditors has  been shifted to Taxpayers.
• However, the Commissioner may exempt a class of registered persons from filing annual returns.

Date of Applicability:

As per  latest tweet by CBIC, amendment will Section 35 shall become effective post enactment of Finance Act, 2021. Such amendment shall be prospective and will not affect GST Audit of FY 2018-19 and 2019-20.

8. Interest on delayed payment of tax on net tax liability with effect from 01st July 2017, (Clause 103 of Finance Bill,2021):

• In case of delay in payment of GST, in absence of any clarification given in statute, earlier interest was payable on gross output tax liability without adjustment Input Tax Credit.
• However, the GST council in the 39th GST Council meeting clarified that interest should be charged on tax liability paid through electronic cash ledger only.
• Considering suggestions of GST Council, corresponding adjustments were made in Section 50(1) of CGST Act. However, such an amendment was made with prospective effect. 
• In order to put an end to any further litigation in this area, Finance Act, 2021 made such effective retrospectively from 01.07.2017.

9. Proceeding u/s 129 and 130 shall continue independently, (Clause 104 of Finance Bill,2021):

• This amendment has proposed to delink proceedings under Section 73 and 74 from proceedings under Section 129 (Detention, seizure and release of goods and conveyances in transit) and Section 130 (Confiscation of goods or conveyances and levy of penalty).
• Conclusion of proceedings u/s 73 or 74 shall tantamount to conclusion of proceedings u/s 122 and 125. However, proceedings u/s 129 and 130 shall continue independently.

10. Determination of Output tax liabilities based on GSTR 1, (Clause 105 of Finance Bill,2021) 

• Through explanation to Section 75(12) of CGST Act, Finance Act has proposed to levy GST on supplies declared in GSTR-1 but not correspondingly declared in GSTR-3B.
• Such a step is taken to curb fake invoice wherein invoices are issued without actual movement of goods. Necessary ITC is passed on by the supplier through filing GSTR-1, however, actual payment of tax is not made by avoiding filing of GSTR-3B.
• Hence in case assessee has filed GSTR 1 but fails to files GSTR 3B, Output tax liabilities can be demanded based on GSTR 1 also.

11. Proper officer has been granted power to attach property immediately after initiation of proceedings, (Clause 106 of the Finance Bill, 2021)

• As per earlier provisions, power of attachment of Bank Account could be initiated only if proceedings were pending against a person under certain sections and also power of attachment was limited to attach property of only taxable person.
• However, through amendment, now the proper officer has been granted power to attach property immediately after initiation of proceedings. Also, entire Chapters have been prescribed to enlarge the scope of proceedings under which provisional attachment can be made. 
• Earlier, provisions listed for provisional attachment were related to check tax evasions (inspection, search, seizure, adjudication of SCN). However, amended provision provides for coercive measure in case of regular proceedings also such as scrutiny of returns, assessment of non filers, access to business premises etc. 
• Further, Provisional attachment has been extended to persons specified in Section 122(1A) of the CGST Act (i.e., a person who causes to commit specified offences and retains the benefit arising out of such offences).

12. Confiscation of goods or conveyances and levy of penalty, (Clause 109 of the Finance Bill, 2021)

• Necessary amendments are made in Section 130 to delink it from Section 129.

13. Power to collect statistics, (Clause 110 of the Finance Bill, 2021)

• Through amendment, the Finance Act proposed to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the CGST Act. 

14. Opportunity of being heard to the concern person before using any information collected, (Clause 111 of the Finance Bill, 2021)

• No information obtained under Sections 150 (i.e., obligation to furnish information return) and 151 (i.e., power to collect statistics) of the CGST Act shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned.