FEBRUARY 02, 2023

By CA Vaishali Kharde

IN this article, we seek to decode the proposed amendments -

1. Restriction of ITC related to CSR Activities 

In order to deny Input Tax Credit (ITC) related to expenses made for corporate social responsibility (CSR), Section 17(5) of the CGST Act is being proposed to be amended. Business will be significantly impacted by this shift. It's critical to recognize that even while the law mandates that companies make CSR investments, ITC disallowance would lead to an increase in cost as a result of such investments.

Alternately, in our viewpoint, it might be claimed that ITC related to CSR activity is available prior to the amendment in Section 17(5) of the CGST Act. Certain issues such as the availability of ITC on expenses incurred for CSR activities over and above the obligation as set forth in Section 135 of the Companies Act of 2013, as well as ITC-related expenses incurred towards CSR activity without any obligation, still need to be addressed and may result in litigation.

2. ITC reversal in case of Exempt Supply

When the goods or services are utilised by a registered person to make both taxable and exempt supplies, Section 17 of the CGST Act restricts the amount of ITC proportionately. The sale of land is one of the exempt supplies for this purpose. Now through the amendment it is proposed to include supply of warehoused goods before clearance for home consumption as exempt supply. This will amount to further restricting the ITC for a person making supply of warehoused goods.

3. Reversal of ITC on account non-payment to vendor within 180 days 

At present, as per Section 16 (2) of the CGST Act, the recipient is required to add his output tax burden, along with interest thereon, in the event of an ITC reversal when the recipient fails to pay the supplier along with GST within a period of 180 days from the date of supplier's invoice.

In order to reverse the ITC with interest in accordance with section 50 of the CGST Act, it is currently proposed to amend section 16(2) of the CGST Act. Therefore, if ITC availed remains unutilised, then no interest is applicable following said change. However, the said amendment is prospective, and the methodology for calculating interest for non-reversal of ITC remains unreasonable for the earlier period.

4. Penal consequences to ECO

A new sub-section (1B) in section 122 of the CGST Act proposed to insert so as to provide for penal provisions to E-Commerce Operator (ECO) in case of contravention of provisions relating to supplies of goods or services made through them by unregistered persons or composition taxpayers.

Accordingly, in order to prevent legal repercussions, ECO should be required to collect data accurately and be cautious while handling transactions through their platform.

5. Decriminalization of certain offenses

It is proposed to increase the monetary threshold from one crore to two crore for launching prosecution for prescribed offences. However, it excludes the offences related to issuance of invoices without supply of goods or services or both.

Thus, prosecution for fraudulent bills will continue in its current form. Fake invoicing is currently the cause of many prosecutions, and this trend will continue.

6. Compounding of certain offences

Reduce the compounding amount from the present range of 50 per cent to 150 per cent of tax amount to the range of 25 per cent to 100 per cent.

Thus, proposed to rationalise the amount for compounding of various offences by reducing the minimum as well as maximum amount for compounding.

7. Amended definition under IGST Act

Clause (16) of section 2 of IGST Act is proposed to be amended to revise the definition of "non-taxable online recipient" by removing the condition of receipt of OIDAR services for purposes other than commerce, industry or any other business or profession so as to provide for taxability of OIDAR service provided by any person located in non-taxable territory to an unregistered person receiving the said services and located in the taxable territory.

Additionally, Clause (17) of section 2 of IGST Act is proposed to be amended so the words 'automated and involving minimal human intervention' have been deleted from the definition of OIDAR services.

Both these amendments appear to be aimed at closing the gap wherein service receivers were not paying GST and used the aforementioned exceptions as justifications.

8. Amendment in Place of supply

It is proposed to omit the proviso contained to section 12 (8) of IGST Act which determined the place of supply of services by way of transportation of goods.

This will have implications in respect of place of supply of services by way of transportation of goods, where supplier of services and recipient of services are located in India notwithstanding that the destination of such goods is outside India.

9. Miscellaneous Amendments

Other proposed changes in addition to those already listed are -

- GST registration is not mandatory for persons engaged in supply of exempted goods and/or services. This will resolve the question of levy of RCM in case of unregistered person.

- Retrospective amendment to treat certain transactions (high sea sales, bonded warehouse sales etc.) as no supply since July 2017

- At present, there is no cut-off date for filing a GST Return. Now, it is proposed that GST-1, GSTR-3B, GSTR-9 and TCS return can be filed up to 3 Years. 

- Composition taxpayers engaged in the supply of goods would be allowed to make intra-state supply through E-commerce operators.

- Section 56 of the Act is being amended so as to provide for an enabling provision to prescribe manner of computation of period of delay for calculation of interest on delayed refunds.

- A new section 158A in CGST Act is being inserted to enable sharing of the information furnished by the registered person in his return or application of registration or statement of outward supplies, or the details uploaded by him for generation of electronic invoice or E-way bill or any other details on the common portal, with other systems in a manner to be prescribed.

However, the establishment of an Appellate Tribunal and a GST Amnesty Scheme, both of which were expected by businesses, went unanswered. Overall, the budget from a GST standpoint has a negative effect by restricting ITC, whereas decriminalising various offences is the only silver lining.

(The Author is a Chartered Accountant, Founder and CEO of CA Vaishali B Kharde and Company. The views expressed are strictly personal.)