Introduction
GST Council met for the record 50th time on 11th July 2023 and deliberated upon various issues faced by the taxpayers as well as tax collectors. Press release issued pursuant to the said meeting is available in the public domain. In this blog, we have made an attempt to list down important recommendations along with their likely impact.
A. Sector-wise Impact of Proposed Changes
Recommendation for Goods Transporters
Goods Transport Agency(GTA) charging GST on a forward charge basis will now be spared from filing yearly declarations. Unless opted out such GTA shall be presumed to be under forward charge even for subsequent years.
Further, GTA can now exercise the forward charge option for a year by filing a declaration between 1st January to 31st March of the preceding financial year. E.g. if any GTA is presently in the reverse charge option for F.Y. 2023-24 and wants to opt for the forward charge option for F.Y. 2024-25 he can do so by filing a declaration between 1st January 2024 to 31st March 2024.
Likely Impact
Proposed amendment shall reduce the compliance burden of GTA and avoid unnecessary litigation on account of procedural violations. Further, the time period for filing such a declaration has been extended.
Recommendation for Services Rendered by Directors to Company
Services rendered by the directors to the company in a capacity other than the director of the company are clarified as no longer being under reverse charge.
Likely impact
Directors providing other services in a personal capacity (e.g. Renting of Property, Car, etc) to the company may have to take GST Registration if the value of supply exceeds the Registration threshold and charge GST on a forward charge basis to the company. Confusion created by the earlier CBIC circular is now put to rest.
Recommendation for Cinema/Multiplex Industry
Independent supply of food and beverages (other than combo pack) in the cinema hall will be taxable as restaurant services ie 5% GST without Input Tax Credit (ITC). Whereas combo packs where price of food and beverage is included in the price of the cinema ticket will continue to attract GST at the rate applicable to the service of an exhibition of cinema.
Likely impact
Principal of Composite supply and independent supply is correctly followed in the above recommendation.
Recommendation for Casio, Horse Racing, and Online gaming industry
No relief for Casio, Horse Racing, and Online gaming. All three will continue to be taxed @ 28% on Gross Gaming Revenue (GGR).
Likely impact
GST @ 28% will be applicable on the face value of the chips purchased in the case of casinos, on the full value of the bets placed with the bookmaker/totalisator in the case of Horse Racing and on the full value of the bets placed in case of the Online Gaming. It appears that this amendment intend to overrule the recent Karnataka High Court judgement in Gamescraft Technology Private Limited reported in [2023] 150 taxmann.com 252 (Karnataka).
Recommendation for Gold and Precious Stone Industry
Rule 138F will be inserted in CGST/Applicable State GST Rules (hereinafter “Rules”) prescribing E-way bill requirements for the movement of Gold/ Precious stones for their intra-State movement.
Likely impact
It will be interesting to see whether all states uniformly prescribe rules in this regard. In the past industry has opposed such moves as any leakage of information may increase the chances of theft/robbery and loss of human life.
GST Changes Relating to the Automobile industry
Vide entry at S. No. 52B of notification No. 01/2017 Compensation Cess (Rate), dated 28th June 2017 compensation cess is prescribed @ 22% for the supply of Sports Utility Vehicles (SUVs). It has been recommended to amend entry 52B in the said notification to include all utility vehicles by whatever name called in the said entry provided they meet the parameters of Length exceeding 4000 mm, Engine capacity exceeding 1500 CC, and having Ground Clearance of 170 mm & above. Further, it is proposed to be clarified by way of explanation that ‘Ground clearance’ means Ground Clearance in an un-laden condition.
Likely impact
All utility vehicles are now covered in Entry No. 52B and the phrase “Ground clearance” is now explained for the removal of doubts.
B. Welcome Clarifications likely by way of Circulars
To clarify various apprehensions raised by trade it is now proposed to issue circulars for the removal of doubts on the following issues:
Clarification on ISD & Cross Charge
To clear the confusion created by Advance Rulings and FAQs, Circular is likely to be issued to clarify that Input Services Distributor (ISD) mechanism is mandatory only from the prospective effect for the distribution of ITC of common input services procured from third parties.
Considering the long demand of the industry, a circular is likely to be issued to clarify issues regarding the taxability of internally generated services provided by one distinct person to another distinct person (ie Cross charge).
Likely impact
Cross charge is presently the talk of the town. Suitable clarification will save taxpayers from costly litigation.
Clarification on Warranty Replacement
A circular is likely to be issued to clarify that no GST is chargeable by the manufacturer on the replacement of parts and/ or repair service provided during the warranty period and also, no reversal of ITC is required to be made by the manufacturer for such replacement/repair services.
Likely impact
Though there are positive advance rulings on this matter a binding circular will put to rest all the controversies on warranty replacement.
Clarification on Restriction on Refund of ITC to only those credits appearing in GSTR-2B
W.e.f. 1st January 2022 ITC eligibility in GSTR-3B is linked to credits appearing in GSTR-2B. However, as of now, there is an anomaly as far as Refund is concerned as CBIC Circular No. 135 is restricting the quantum of refund to ITC appearing in GSTR-2A.
Likely impact
Refund eligibility may now be synchronized with credits appearing in GSTR-2B instead of GSTR-2A.
Clarification on Restriction on Refund to FOB Value of Exports
Vide Notification No. 14/2022- Central Tax dated 5th July 2022 value of zero-rated supply of goods [Numerator in Rule 89(4) formula] is linked to Free on Board (FOB) value of such exported goods. A circular is likely to be issued to clarify doubts as to the working of “adjusted total turnover” [Denominator in Rule 89(4) formula].
Likely impact
Clarification on the same lines as that of CBIC Circular No. 147 may be issued.
Clarification on Refund where there is delay in Realisation/Export of goods
In terms of Rule 96A of the Rules exporter exporting goods without payment of IGST (ie on LUT) is mandated to export goods within 3 months from the date of issuance of export invoice. Further exporter exporting services without payment of IGST (ie on LUT) is mandated to collect payment of such services in convertible foreign exchange or in Indian rupees (wherever permitted by the Reserve Bank of India) within a period of 1 year from the date of export of such services. In case of default, exporter is required to pay the applicable IGST within 15 days from the date of aforesaid default.
Likely impact
As of now, there is no prescribed procedure for the admissibility of a refund if the exporter has paid applicable IGST on the occurrence of aforesaid defaults and said defaults are subsequently cured. A circular is likely to be issued to clarify the admissibility of refund in such cases.
TCS liability in case of Multiple ECO
Trade has raised apprehension about the applicability of Tax Collected at Source (TCS) where multiple E-commerce Operators (ECOs) are involved in a single transaction of supply of goods or services or both. A circular is likely to be issued to provide clarification regarding TCS applicability in such cases.
Likely impact
Most probably beneficial view would be taken in the clarification and TCS applicability would be restricted to a single stage.
E-Invoice for Government supply
A circular is likely to be issued to clarify that the registered person who is otherwise required to issue E-invoice is also required to issue an E-invoice for the supplies made to Government Departments or establishments / Government agencies / local authorities / PSUs, etc., registered solely for the purpose of TDS.
Likely impact
Presently many taxable persons who are otherwise required to issue E-Invoice are facing a dilemma when it comes to the issuance of e-invoices to Government Departments who are registered in GST solely for the purpose of TDS. Clarification will streamline varied practices followed by the trade in this regard.
Combined ITC position for Interest calculation
Since IGST ITC is to be first consumed for payment of any outward GST liability many times in case of wrong availment of IGST ITC such IGST ITC is automatically utilised however there exists a sufficient balance in CGST ITC and SGST IT) ledgers. The plain reading of Rule 88B in its present form suggests that even in such a situation IGST interest liability shall arise for wrong availment and utilisation of such IGST ITC. It is now proposed to clarify that in such cases, the balance of ITC in the electronic credit ledger, under the heads of IGST, CGST, and SGST taken together, has to be taken into consideration while calculating such interest liability as per rule 88B of CGST Rules.
Likely impact
If there is a sufficient balance in the electronic credit ledger, under the heads of IGST, CGST, and SGST taken together then interest liability shall not arise for wrong availment and utilisation of ITC.
Holding securities per se is not a Supply
Few officers have contemplated levy of GST on holding companies treating the act of holding securities as a supply to the subsidiary company. Further in the case of a foreign holding company even reverse charge liability of GST was contemplated. It is proposed to issue a circular clarifying that the mere holding of securities of a subsidiary company by a holding company is not a supply of services and not subject to levy of GST.
Likely impact
Circular may put an end to likely Paper demands and unnecessary litigation on the said issue.
C. Amendments Suggested in Act and Rules
Setting up of GST Appellate Tribunal
Provisions pertaining to GST Appellate Tribunal will be notified with effect from 1st August 2023. Further, rules governing the appointment and conditions of the President and Members of the proposed GST Appellate Tribunal are recommended.
Likely impact
This will pave the way for the setting up of the much-awaited Goods and Services Tax Appellate Tribunal.
GSTR-9/9C for FY 2022-23
No changes are made in Form 9/9C for FY 2022-23. Relaxations provided in FY 2021-22 in respect of various tables of FORM GSTR-9 and FORM GSTR-9C are to be continued for FY 2022-23. Further taxpayers having an aggregate annual turnover of up to Rs. 2 Crores are exempted from filing GSTR-9. The threshold limit for filing GSTR-9C remains the same at an aggregate annual turnover of Rs. 5 Crores.
Likely impact
Thankfully no additional details/requirements are sought in the Annual compliance of FY 2022-23.
Mechanism in case of mismatch of ITC
In a few scenarios involving a mismatch of ITC between GSTR-2A and GSTR-3B CBIC Circular no. 183 dated 27th December 2022 has prescribed a Certificate mechanism for FY 2017-18 and FY 2018-19. The said mechanism is now extended up to 31st December 2021. Please note w.e.f. 1st January 2022 ITC is statutorily linked to GSTR-2B and hence this benefit is restricted only up to 31st December 2021.
Likely impact
Earlier Karnataka High Court in Wipro Ltd. v. Assistant Commissioner of Central Taxes – [2023] 148 taxmann.com 216 held that CBIC Circular No. 183(supra) is applicable even for rectification of bona fide and inadvertent mistakes committed at the time of filing returns of FY 2019-20. It appears that the council has accepted this decision.
Only Name of the state is sufficient in case of supply made to an Unregistered Person
Rule 46(f) is proposed to be amended from date to be notified to provide that in case of supply of
a) taxable services are made
b) by or through an E-commerce operator(ECO) or by a supplier of Online Information Database Access and Retrieval (OIDAR) services
c) to un-registered person and
d) the value of the taxable supply is less than fifty thousand rupees
then only the name of the state of such an unregistered person to be mentioned on the invoice.
Likely impact
If all 4 conditions are cumulatively fulfilled then the requirement of mentioning the name and full address of the unregistered recipient shall be dispensed with, only name of the state is sufficient.
Manual filing of Transitional Credit appeals and appeals under other specified circumstances
Pursuant to Hon’ble Supreme Court judgment in the case of Union of India vs Filco Trade Centre Private Limited (2022 SCC OnLine SC 912) taxpayers were given an additional opportunity to file TRAN-1/TRAN-2 claims. Further, such claims were to be adjudicated by the department in time bound manner. A special procedure is now to be proposed in Section 148 of CGST/Applicable State GST Act (hereinafter “Act’) to enable manual filing of appeals against rejection orders of said Transitional credits. Further Rules 108 and 109 of GST Rules are to be amended to provide for manual filing of appeals under certain specified circumstances.
Likely impact
Many High Courts in the past have directed departments to accept manually/physically filed GST appeals in special situations. With the above amendments, all such inconsequential issues would be solved at the department level instead of the High Court.
Extension of Amnesty Scheme
Amnesty schemes providing an extension of time/capping of late fees for non-filers of FORM GSTR-4, FORM GSTR-9 & FORM GSTR-10 returns, revocation of cancellation of registration, and deemed withdrawal of assessment orders issued under Section 62 of the CGST/Applicable State GST Act has ended on 30th June 2023. Now all such deadlines are further extended to 31st August 2023.
Likely impact
One more additional opportunity is provided to set right past compliance defaults to the taxpayers.
Alert for default in filing GSTR-9
To improve discipline in filing annual returns, an alert in FORM GSTR-3A shall be issued to the registered taxpayers in case of their failure to furnish Annual Returns in FORM GSTR-9.
Likely impact
Like monthly compliance, such an alert is likely to improve annual compliance.
Introduction of GSTR-5A for OIDAR services
In case registered persons avails OIDAR services, such registered person is required to pay applicable GST on a reverse charge basis. Like GSTR-2A it is now proposed to auto-populate details of the inward supply of OIDAR services in FORM GSTR-5A.
Likely impact
Like other reverse charge transaction alerts such an alert will enable the taxpayer to pay an applicable reverse charge in time and simultaneously avail ITC, if eligible.
ITC reversal in case of purchase from DFS at the arrival terminal
When an arriving passenger purchases goods from a Duty-Free Shops (DFS) at the arrival terminal of an international airport, the supply of goods takes place before clearance for home consumption (Territory of India) and is therefore not subject to GST. It is now proposed to prescribe that the value of supply of goods from DFS at arrival terminals in international airports to the incoming passengers be included in the value of exempt supplies for the purpose of reversal of ITC.
Likely impact
Though more of a clarificatory amendment DFS will have to ensure ITC reversal compliance in case of supply of exempt goods to passengers at the arrival terminal.
Compounding off Offences
Rule 162 deals with the procedure for compounding offenses. It is now proposed to insert sub-rule (3A) to prescribe the compounding amount for various offenses under section 132 of the Act.
Likely impact
This amendment will pave the way for the compounding of offenses listed under section 132 of the Act on payment of applicable compounding fees.
Consent-based sharing of information
Section 158A of the Act deals with consent-based sharing of certain specified information available with GST portal with such other systems as may be notified by the Government. It is now proposed to insert Rule to provide for the manner and conditions of consent-based sharing of information. Further “Account Aggregators” are now notified as the systems with which information shall be shared by the common portal.
Likely impact
Henceforth details of outward supplies of the taxpayer can be shared with the accounts aggregators e.g. HDFC Bank, ICICI Bank, Axis bank, Kotak Bank, SBI etc. This move is likely to improve the quality of lending as such lenders would be in a position to cross-check details submitted by the borrowers with details made available by the portal.
Setting up of State level Coordination Committee
It is now proposed to form a State level coordination Committee comprising GST officers from both State and Central GST administrations for knowledge sharing on GST matters and coordinated efforts toward administrative and preventive measures.
Likely impact
Coordinated efforts may help in curtailing GST fraud and improve overall GST Compliance.
Third-party data for risk management
Various measures are recommended by the Council to control the flow of fake ITC down the supply chain including more and more use of third-party data for risk management.
Likely impact
Department is likely to use details available with third parties e.g. Income Tax, and other revenue departments to tackle the menace of fake ITC.
Furnishing of Bank details post GST Registration
It is now recommended that details of bank account, in name and PAN of the registered person, to be furnished within 30 days of the grant of registration or before filing of statement of outward supply [ie GSTR-1/IFF(Invoice furnishing facility)] whichever is earlier. Non-furnishing of bank details shall lead to automatic suspension of GST Registration. Further, such a taxable person shall not be allowed to file GSTR-1/IFF until bank details are furnished on the portal.
Likely impact
The time limit for furnishing bank details post GST registration is now reduced and without furnishing such details new registrant shall not be allowed to file GSTR-1/IFF.
Physical Verification
To overcome various judgments favouring taxpayers it is now proposed to do away with the requirement of physical verification of business premises in the presence of the applicant. Further, in case of high-risk cases (likely to be notified), GST registration shall be granted only after physical verification even where Aadhaar has been authenticated.
Likely Impact
Authorities are now empowered to carry out physical verification of business premises without any prior intimation and such verification can be conducted even in the absence of a taxpayer. Getting GST Registration nowadays is a herculean task, and this task will now be even more difficult for high-risk applicants.
Risk-based bio-metric based Aadhar Authentication
To deal with the issue of bogus registration (on the basis of stolen documents) presently pilot project for risk-based biometric-based Aadhaar authentication of registration applicants is underway in the state of Gujarat. Such a project will now be extended to the Union Territory of Puducherry and thereafter to the State of Andhra Pradesh.
Likely Impact
Such an authentication process may minimise cases of bogus registration based on bogus/stolen identity documents.
Place of supply to unregistered persons
There was a considerable dispute as to the Place of supply in case of supply of goods to an unregistered person. In the past, this matter was referred to Law Committee. It is now proposed to insert Section 10(1)(ca) in the IGST Act to clarify the place of supply in respect of the supply of goods to unregistered persons.
Likely impact
Such clarification will put an end to the controversy about whether such supply to an unregistered person is Intrastate or Interstate.
Reduction in GST Rates
For a few goods and services, GST rates are reduced or fully exempted. Further in deserving situations where there was confusion in trade as to the correct rate of GST council has proposed to regularize such a situation on “as is basis”. Such a pragmatic approach is laudable as it will put an end to past issues. Readers may please read press release to track such changes.
Conclusion
Many clarifications proposed in the 50th GST Council meeting may bring in a wave of relief for the taxpayers. Author would like to strike a note of caution that the above recommendations are yet to be notified/explained by way of a formal circular. Taxpayers are advised to await such formal communication and till then may have to tread the path cautiously!
Disclaimer
The views expressed herein are strictly personal to the author and should not be construed as advice/ legal opinion. The contents of this article are based on the interpretation of the facts, relevant legislation, rules, notifications, circulars, judgments/rulings, etc. on the date of publishing of this article. One should not act upon the information in this article without obtaining specific professional advice. Author of this blog is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission pertaining to this article. Further, the said article is only for information and guidance purposes and should not be construed as any kind of advertisement or solicitation of work.
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