Union Budget Analysis of Amendments to Central Goods & Services Tax Act, 2017 (CGST Act).

Anivesh (ALC) Comments:

• The proposed amendment in Section 2(61) as well as Section 20 of CGST Act redefines Input Service Distributor (ISD) to include the distribution of ITC in respect of inter-state RCM supplies.

• The provisions of ISD mechanism in Section 20 of CGST Act were amended vide Finance Act, 2024. Among other changes, it was specifically mentioned that RCM transactions will be covered under the ISD mechanism. However, inadvertently only intra-state RCM transactions were covered under ISD. After this amendment, both intrastate and inter-state RCM transactions will be covered under ISD.

• Distribution of ITC of common input services obtained from third parties to distinct persons through ISD mechanism has been made mandatory from 01.04.2025. Thus, all the taxpayers having multiple registrations under same PAN are required to obtain ISD registration and distribute ITC of common services to its branch units.

Issues:

• How ITC of expenses which cannot be distributed through ISD mechanism e.g. inputs, capital goods and internally generated services (as mentioned in Circular 199/11/2023 dated 17.07.2023) will be distributed?

• Taxpayers might be required to distribute ITC of some services through ISD and some services through cross charge mechanism leading to unnecessary complexities and litigation

(69) “local authority” means––

(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; …………

(69) “local authority” means––

(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal fund or local fund;

Explanation.– For the purposes of this sub-clause–

(a) “local fund” means any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Panchayat area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called; 

(b) “municipal fund” means any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Metropolitan area or Municipal area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called. …………

Anivesh (ALC) Comments:

• The proposed amendment to sub-clause (c) of Section 2(69) replaces the term “municipal or local fund” with “municipal fund or local fund.”

• Additionally, an Explanation is to be inserted to define the terms “local fund” and “municipal fund” as used in the definition of “local authority”, clarifying their scope and applicability to remove any ambiguities related to these terms

12 (4) In case of supply of vouchers by a supplier, the time of supply shall be-

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases

12 (4) In case of supply of vouchers by a supplier, the time of supply shall be-

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

13 (4) In case of supply of vouchers by a supplier, the time of supply shall be––

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

13 (4) In case of supply of vouchers by a supplier, the time of supply shall be––

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

Anivesh (ALC) Comments:

• Vide Circular No. 243/37/2024 dated 31.12.2024 pursuant to 55th GST Council Meeting, it was clarified that transaction in vouchers shall neither be treated as goods nor treated as services under GST.

• After said clarification, Sections 12(4) and 13(4) have become otiose (irrelevant) as vouchers themselves are not taxable. Consequently, these sub-sections have been omitted.

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation 1.––For the purposes of clauses (c) and (d), the expression “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Anivesh (ALC) Comments:

• Section 17(5)(d) of the CGST Act is proposed to be amended to replace the words “plant or machinery” by “plant and machinery” with retrospective effect from July 1, 2017.

• Such amendment aligns with the recommendations of 55th GST Council Meeting. The proposed amendment is being introduced with an objective of overturning the recent judgment pronounced by the Hon’ble Supreme Court in the case of Safari Retreats [Civil Appeal No. 2948 of 2023 dated October 03, 2024] wherein the Hon’ble Court had inter alia held that the restricted definition of “plant and machinery” provided in the Explanation to Section 17(5) cannot be applied to the expression “plant or machinery” used in Section 17(5)(d) of the CGST Act.

• Accordingly, the Hon’ble Supreme Court inter alia held that the word ‘plant’ will have to be interpreted by taking recourse to the functionality test and any building may also be treated as a plant which is excluded from the purview of the exception carved out by Section 17(5)(d) of the CGST Act as it will be covered by the expression ‘plant’ in the phrase ‘plant or machinery’.

• However, the expression ‘plant or machinery’ was put in Section 17(5)(d) by a clerical mistake which is now corrected retrospectively. As a result, ITC of goods and services only used in the construction of “plant and machinery” as defined in Explanation to Section 17 will be available.

(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under subsection (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.

(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 of this Act or under subsection (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act, 2017, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.

(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under subsection (3) or sub-section (4) of section 9 of this Act or under subsection (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017, paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Provided that no reduction in output tax liability of the supplier shall be permitted, if the––

(i) input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or

(ii) incidence of tax on such supply has been passed on to any other person, in other cases.

Anivesh (ALC) Comments:

• Benefit of reduction in output tax liability on issuance of credit notes under Section 34 has been linked with mandatory reversal of ITC by the registered recipient. Earlier such condition was provided only in case of credit notes issued for post supply discounts under Section 15(3) of the CGST Act.

• This would create an additional responsibility for the supplier to make sure that ITC in respect of the said credit note is being reversed by the recipient of the supply. It would be prone to litigation as it is nearly impossible for the suppliers to ensure that the recipients have reversed such ITC.

Issues:

• What would be sufficient documents required for supplier to substantiate the ITC reversal made by the recipient?

• Whether GST department can directly approach the supplier without raising demand of ITC reversal on the recipient first?

• Whether acceptance of credit note by recipient in its Invoice Management System (IMS) and reflected on the supplier’s portal will suffice the requirement of the amended proviso? What will happen if recipient has not taken any action on the said credit note?

(1) The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and an autogenerated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

(2) The auto-generated statement under sub-section (1) shall consist of––

(a) details of inward supplies in respect of which credit of input tax may be available to the recipient; and

(b) details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37,––

(i) by any registered person within such period of taking registration as may be prescribed; or

(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or 

(iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said sub-section during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or

(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or

(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or

(vi) by such other class of persons as may be prescribed

(1) The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and a statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

(2) The statement referred in subsection (1) shall consist of––

(a) details of inward supplies in respect of which credit of input tax may be available to the recipient;

(b) details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient including, on account of the details of the said supplies being furnished under sub-section (1) of section 37,––

(i) by any registered person within such period of taking registration as may be prescribed; or

(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or

 (iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said subsection during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or

(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or

(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or

(vi) by such other class of persons as may be prescribed.

Anivesh (ALC) Comments:

• The expression “Auto generated” with respect to statement of input tax credit has been omitted. It is an enabling provision for the Invoice Management System (IMS) as erstwhile Section 38(1) only provided for “Auto generated statement” [i.e. GSTR-2B] while amended Section 38(1) provides for “statement” which can include IMS, GSTR 2B as well as any other statement. However, it is pertinent to note that no direct reference of IMS is being mentioned in Section 38(1) of the CGST Act.

• The scope of details mentioned in the statement regarding non-availability of ITC proposed to be made wider and inclusive.

• Other details may also be made available to the recipient as per proposed Section 38(2)(c) of the CGST Act.

Anivesh (ALC) Comments:

• The provision has been amended to empower the government to prescribe conditions and restrictions for filing of GSTR 3B.

• It may potentially provide the legal backing for hard-locking of autopopulated data in GSTR-3B preventing unauthorized modifications.

107 (6) No appeal shall be filed under sub-section (1), unless the appellant has paid-

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute arising from the said order subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.

Provided that no appeal shall be filed against an order under subsection (3) of section 129, unless a sum equal to twenty-five per cent. of the penalty has been paid by the appellant.

107 (6) No appeal shall be filed under sub-section (1), unless the appellant has paid-

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute arising from the said order subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.

Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent. of the said penalty has been paid by the appellant

112 (8) No appeal shall be filed under sub-section (1), unless the appellant has paid––

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him, and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute, in addition to the amount paid under sub-section (6) of section 107, arising from the said order subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.

112 (8) No appeal shall be filed under sub-section (1), unless the appellant has paid––

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him, and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute, in addition to the amount paid under subsection (6) of section 107, arising from the said order subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.

Anivesh (ALC) Comments:

• Mandatory pre-deposit @10% of penalty amount for appeals before Appellate Authority as well as Appellate Tribunal (Total 20% (10+10) up to Tribunal) in cases involving only demand of penalty without any tax demand.

• The objective is to protect revenue’s interest particularly in situations where tax has been paid late but penalties or interest are still demanded.

• By introducing 10% pre-deposit requirement, the Government aims to ensure that appeals are filed in good faith and to deter frivolous or unnecessary challenges to penalty decisions.

122B. Notwithstanding anything contained in this Act, where any person referred to in clause (b) of subsection (1) of section 148A acts in contravention of the provisions of the said section, he shall, in addition to any penalty under Chapter XV or the provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees or ten per cent. of the tax payable on such goods, whichever is higher

Anivesh (ALC) Comments:

• The taxpayer is liable to pay the penalty of Rs. 1 lakh or 10% of tax payable of such goods, whichever is higher for contraventions of provisions related to the Track and Trace Mechanism under Section 148A to be inserted under CGST Act in addition to other existing penalties.

148A. (1) The Government may, on the recommendations of the Council, by notification, specify,–

(a) the goods;

(b) persons or class of persons who are in possession or deal with such goods,

to which the provisions of this section shall apply.

(2) The Government may, in respect of the goods referred to in clause (a) of sub-section (1),––

(a) provide a system for enabling affixation of unique identification marking and for electronic storage and access of information contained therein, through such persons, as may be prescribed; and

(b) prescribe the unique identification marking for such goods, including the information to be recorded therein.

(3) The persons referred to in sub-section (1), shall,––

(a) affix on the said goods or packages thereof, a unique identification marking, containing such information and in such manner;

(b) furnish such information and details within such time and maintain such records or documents, in such form and manner;

(c) furnish details of the machinery installed in the place of business of manufacture of such goods, including the identification, capacity, duration of operation and such other details or information, within such time and in such form and manner;

(d) pay such amount in relation to the system referred to in sub-section (2), as may be prescribed.

Anivesh (ALC) Comments:

• This amendment enables the legal framework for the Council's recommendations for developing Track and Trace Mechanism for specified evasion prone commodities (likely industries to be tobacco, liquor, pharmaceuticals and luxury goods etc.)

• A new provision, Section 148A under the CGST Act, 2017 along with corresponding penal provisions is being inserted, by which Government can notify the goods or class of persons, where supplied goods shall carry ‘unique identification marking’ so that they can be identified at the place of storage or during the transit.

• The proposed system shall be based on a Unique Identification Marking (e.g. QR code, RFID or Serial number) which shall be affixed on the said goods or the packages thereof. This will help in implementation of mechanism for tracing specified commodities throughout the supply chain.

• Similar practices are prevalent in some commodities in foreign countries (e.g. 2D barcodes on medicine packs in European Union)

(aa) Supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area;

Explanation 3.––For the purposes of clause (aa) of paragraph 8, the expressions “Special Economic Zone”, “Free Trade Warehousing Zone” and “Domestic Tariff Area” shall have the same meanings respectively as assigned to them in section 2 of the Special Economic Zones Act, 2005

Anivesh (ALC) Comments:

• Supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area shall be treated neither as supply of goods nor as supply of services under Schedule III of the CGST Act w.e.f. 01.07.2017.

• As a result, warehouse in a SEZ or in a FTWZ zone will be at par with a customs bonded warehouse.

No refund shall be made of all such tax which has been collected, but which would not have been so collected, had section 128 been in force at all material times

Anivesh (ALC) Comments:

• No refund of tax already paid will be available for the aforesaid activities or transactions referred to in Clause 128.

• Whether such provision can enable the government to retain the amount which was not payable at all (after retrospective amendment) in violation of Article 265 of Constitution of India?