JULY 12, 2018

By Pritam Mahure, CA

THE draft copy of the proposed amendments to CGST Act, IGST Act and Compensation to States Act is made available by the Government (on 9th July 2018) for public consultation and comments. The amendments proposed in CGST Act are expected to be mirrored in respective SGST Acts. This draft, which proposes forty-six amendments, is a twenty-eight page document specifying the amendments along with the rationale.

Few amendments are procedural in nature, few have far reaching impact and few others are taxpayer friendly measures (elections on the horizon).

Lets decode these proposed amendments.

1. Supply - Corrective amendment

As per section 7 of CGST Act, 'supply' includes the activities to be treated as supply of goods or supply of services as referred to in Schedule II. This inclusive clause was leading to an interpretation that where an activity listed in Schedule II would be deemed to be a supply even if it does not constitute a supply as per section 7 (1) (a) or (b) or (c).

Now, through a new sub-clause (1A) to section 7 of CGST Act, its proposed that certain activities or transactions, when constituting a supply in accordance with the provisions of sub-section (1), shall be treated either as supply of goods or supply of services as referred to in Schedule II.

2. Import by 'person' made liable!

 At present, import of services by 'taxable person' from a related person is liable for GST (sr. no. 4 of Schedule I of CGST Act). Thus, in case an entity was un-registered then GST liability may not have triggered. Given this, the term 'taxable person' is proposed to be substituted by 'person' to ensure that GST liability is triggered in these cases.

3. No GST on 'out of scope' supplies!

Clarity was eluding for out of scope supplies i.e. cases where a person in India procures goods (say from China) and supplies the same directly (say to USA). Recently, in the advance ruling of BASF India Ltd ( 2018-TIOL-82-AAR-GST ) the advance ruling authority stated that these kind of transactions will not attract IGST, however, it was also stated that no credit of GST paid will be available as these transactions will qualify as 'exempt supplies'.

Now, 'out of scope' supply (i.e. (supply from non-taxable territory to another non-taxable territory) is sought to be excluded from the GST net (by including it in Schedule III of CGST Act). Further, it is proposed to allow availment of ITC in case of out of scope supplies. This amendment is certainly welcome and is in line with VAT provisions across the world.

4. No dual levy of GST on high seas sale!

In case of supply of goods as high seas sales and sale of warehoused goods, before being cleared for home consumption, IGST was being levied twice, once at the time of import and second time, on clearance for home consumption. Through a Circular, clarity was provided that dual levy will not be applicable in such cases. Now, this ambiguity is set to rest by covering the same in Schedule III of CGST Act.

5. Ambit of URDRCM curtailed!

One of the highly debated provisions in GST regime was domestic reverse charge mechanism (RCM) in case of supplies by un-registered vendor to registered vendors. Since 13th October 2017, this domestic RCM provision is suspended till 30th September 2018.

Now, it appears that this RCM is proposed to be made applicable only for a certain notified class of registered persons (and not all registered persons). This amendment will be welcomed by those lucky taxpayers who would be excluded from the clutches of the RCM. However, the un-lucky ones will still bear the brunt of this provision and its compliance. Certainly, this amendment proves the proverb that all taxpayers are equal in the eyes of law and others are more equal !

Additionally, for certain taxpayers, like banks and financial institutions, this will lead to additional cost (as they are supposed to reverse 50 per cent credit). Thus, the Government should clarify this aspect (like second proviso to section 17 (4) of CGST Act).

6. Input tax credit - An 'interest'ing amendment proposed!

In case a taxpayer avails input tax credit but fails to pay to the supplier the value of supply along with tax payable within a period of 180 days from the date of issue of invoice, then taxpayer is required to reverse the credit along with interest. Now, the taxpayer will be required to only reverse the credit availed without any interest. This is a welcome relief.

7. ITC denied/ allowed!

Now, a relief is provided, as input tax credit will not be denied in respect of motor vehicles if they are used for transportation of money for or by a banking company or a financial institution.

Further, at present, input tax credit is not available in respect of food and beverages, health services, travel benefits to employees etc. Now, in cases where it is obligatory under any law for an employer to provide these facilities to its employees, it is proposed to be provided that the input tax credit in such cases shall be available. This is a welcome provision and will bring relief to factories, IT, BPO sector etc.

Additionally, the proposed amendment specifically states in cases where input tax credit of procured motor vehicles, vessels and aircraft is not available then input tax credit will also not be available in respect of general insurance, servicing, repair and maintenance of them.

8. Now, SEZ can claim credit / refund of GST paid!

At present, in cases of supply of goods/ services by a vendor to SEZ, refund is permissible to such vendor. Now, it is proposed to allow input tax credit to SEZ developer or SEZ unit and thus, now, supplier in DTA may recover the tax amount from such SEZ unit, etc.

9. Now, consolidated DN/CN is permissible!

At present, a credit/debit note which is issued by the registered person is required to be issued invoice-wise. Now, it is proposed to allow issuance of consolidated credit/debit note in respect of multiple invoices issued in a financial year without linking the same to individual invoices.

10. Returns can be amended!

In earlier Excise, Service Tax and State-VAT era, revision of returns was permissible. However, in GST regime, revision of returns was not possible. Now, it is proposed that the taxpayers can amend returns to correct inadvertent mistakes in the returns.

Additionally, GST Council is set to revamp the GST return filing process. Thus, to enable and provide a specific provision, a new section is being introduced (section 43A) to provide for new mechanism / procedure for furnishing details of tax invoices, for availing of input tax credit by the recipient, its verification etc. The taxpayer expects that the new returns mechanism 'actually' brings simplification!

11. Outward international transport not liable to GST!

Now, it is proposed that the transportation of goods from a place in India to a place outside India by a transporter located in India would not be chargeable to GST, as place of supply will be outside India. This is a big relief to the entities engaged in international logistics.

12. Appeal pre-deposit amount capped!

Presently, the appellant is required to pay a sum equal to 10 per cent of the tax in dispute and 20 per cent (in addition to the amount paid), before the Appellate Authority and Appellate Tribunal respectively. This section is being amended to provide a ceiling of INR 25 crore and 50 crores respectively.

13. Job work time limit simplification!

The prescribed period of bringing job worked goods (one year for normal goods and three years for capital goods) can be extended, on sufficient cause being shown, by Commissioner by a period of one or two years respectively.

14. Export realization in INR permissible (Nepal and Bhutan)

It is proposed to allow receipt of payment in Indian rupees in case of export of services where permitted by the Reserve Bank of India (particularly in case of exports to Nepal and Bhutan).

15. Composition dealers can cheer!

Composition threshold is proposed to be raised from Rs. 1 crore to Rs. 1.5 crore.

Further, at present, registered persons engaged in the supply of services (other than restaurant services) are not eligible for composition scheme. Now, its proposed that composition scheme can be opted if taxpayer supplies services of value not exceeding 10 per cent of the turnover in the preceding financial year in a State/Union territory or Rs. 5 lakhs, whichever is higher.

Way forward -

Public consultation of proposed amendments is certainly a welcome step as it enables taxpayers to share suggestions and concerns with the Authorities. Only time will tell which of these amendments will be prospective and which ones are made retrospective.

(The Author is a Chartered Accountant and has authored books on GST and Gulf VAT.)