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Central Goods and Services Tax Act, 2017 (CGST Act)

         1. Amendment of Section 7- Scope of Supply (Section 99 of Finance Bill, 2021)

Clause (aa) has been inserted into sub-section 1 of Section 7 of the CGST Act retrospectively from 01.07.2017, to cover the activities or transaction, by a person, other than an individual, to its member or constituents or vice-versa. Further, an explanation with a deeming provision has also been inserted into the said clause to the effect that irrespective of any other law, or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another.

Comments: This amendment enlarges the already wide ‘scope of supply’, by way of deeming provision to overcome the decisions taking recourse to seemingly ‘principle of mutuality’ to hold that person and its members/constituents are not separate persons and that there cannot be a sale/provision of service by a person to its members/constituents. This amendment has far-reaching effects on the spectrum of transactions given the fact that it is retrospective, so even past transactions are open to scrutiny by the department.

         2. Amendment of Section 16 (Section 100 of Finance Bill, 2021).

Clause (aa) has been inserted in sub-section (1) of Section 16 of CGST Act, to the effect that the input tax credit (ITC) entitlement of the recipient is subject to two additional conditions, namely:

i.   the details of the invoice/debit note issued by the supplier has been furnished by the supplier in the statement of outward supplies, and;

ii.   such details are communicated to the recipient of such invoice or debit note in the manner specified under Section 37. That clause (a) of sub-section (1) of Section 16 stipulates that recipient of supply shall not be entitled to ITC unless he owns a tax invoice/debit note/prescribed document issued by a registered supplier.

Comments: This amendment adds two new conditions on the entitlement of ITC of the recipient making it subject to strict compliance by the supplier, of seemingly procedural conditions, i.e. reporting of details of invoice in statement of outward supplies and communication of outward supplies to the recipient, failing which recipient is not entitled to ITC. So, for the failure of the supplier to either mention the details of the invoice in the statement of outward supplies or to communicate details of outward supplies to recipient would disentitle the recipient from ITC of input supplies

        3. Omission of Sub-section (5) of Section 35 (Section 101 of Finance Bill, 2021).

Comments: By this omission, the stipulations requiring a registered person with turnover exceeding prescribed limit:

i. to get its accounts audited by a Chartered Accountant/Cost Accountant; and

ii. to submit a copy of audited annual accounts; along with reconciliation statement under sub-section (2) of Section 44, have been done away with.

       4.   Substitution of Section 44 (Section 102 of Finance Bill, 2021).

Section 44 has been substituted to the effect that a registered person shall furnish an annual return, which may include a self-certified reconciliation statement, reconciling values of supplies declared in the annual return with the audited financial statement electronically, within the prescribed time, form and manner.

Comments: As per the substituted Section 44, a self-certified reconciliation statement, reconciling values of supplies declared in values of annual return with the audited financial statement electronically. This amendment appears to be a move towards simplifying compliances.

       5. Substitution of proviso to sub-section (1) of Section 50 (Section 103 of Finance Bill, 2021) retrospectively from 01.07.2017.

The aforesaid proviso provides that the interest on tax payable in respect of supplies made during a tax period and declared in return for the said period furnished after the due date following the provisions of section 39, shall be payable on the tax which is paid by debiting the electronic cash ledger.

Comments: the expression ‘levied’, has been retrospectively replaced with the expression ‘payable’, is significant and clarifies the position of the Government on the applicability of interest on the tax amount payable and not levied.

        6.   Substitution of clause (ii) of Explanation 1 of Section 74 (Section 104 of Finance Bill, 2021).

In section 74 of the CGST Act, in Explanation 1, in clause (ii), for the words and figures "sections 122, 125, 129 and 130", the words and figures "sections 122 and 125" shall be substituted.

Comments: Apparently the legal position has been clarified by this amendment of Section 74, as the proceedings were hitherto initiated against a single person only.

        7.   Insertion of ‘Explanation’ to sub-section (12) of Section 75 (Section 105 of Finance Bill, 2021).

An ‘Explanation’ is inserted in sub-section (12) of Section 75 to further extend the ambit of the term ‘self-assessed tax’ to also include the tax payable in respect of details of outward supplies furnished under Section 37, but not included in the return furnished under Section 39.

Comments: That the aforesaid insertion widens the expression ‘self-assessed tax’ to also include the tax payable on outward supplies, shown as such in return furnished under Section 37 but not included in the return furnished under Section 39.

       8.   Substitution of sub-section (1) of Section 83 (Section 106 of Finance Bill,2021).

Where after initiation of proceedings of assessment, inspection, search, seizure, arrest, demands and recovery, the Commissioner is empowered to provisionally attach any property, the bank account of the taxable person specified in sub-section (1A) of Section 122, in the prescribed manner.

Comments: Commissioner has been empowered to safeguard the Government revenue with additional powers.

       9.   Insertion of ‘proviso.’ to in sub-section (6) of Section 107 (Section 107 of Finance Bill, 2021).

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

Comments: This amendment stipulated a pre-deposit of 25% of the penalty when the filing of appeal against the order passed under Section 129(3) of the CGST Act, i.e. cases involving the detention of goods and conveyance in transit. While the pre-deposit in other cases is 10% of the disputed tax amount. Thus, differential treatment is given to detention cases in the amended provision of appeal before the first appellate authority, by requiring a higher amount of pre-deposit (25% of penalty) than the other cases where pre-deposit is less (10% of disputed tax amount)

       10. Section 129 (Section 108 of Finance Bill, 2021) is amended as follows:

(i) Substitution of clauses (a) and (b) in sub-section (1)-

-penalty equal to 200% of the tax payable on the goods and in case of exempted goods an amount equal to 2% of the value of goods or 25 thousand rupees, whichever is less, where the owner of goods comes forward for payment of such penalty;

-penalty equal to 50% of value of goods or 200% of tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to 5% of the value of goods or 25 thousand rupees whichever is less, where the owner of the goods does not come forward for payment of such penalty.

(ii) Omission of sub-section (2);

(iii) Sub-section (3) has been substituted to the effect that the proper officer detaining or seizing goods or conveyance must issue a notice within 7 days of such detention/seizure, specifying the penalty payable and thereafter pass an order within 7 days of the date of service of aforesaid notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).

(iv) In sub-section (4), the words ‘no tax, interest or penalty’, has been substituted with the words ‘no penalty’.

(v) Sub-section (6) has been substituted to the effect that goods or conveyance detained or seized are liable to be sold or disposed of in prescribed manner and time, in case the person transporting the goods or owner of such goods fails to pay the penalty under sub-section (1) within 15 days from the date of receipt of the copy of the order passed under sub-section (3). Provided that the conveyance shall be released on transporter paying either penalty under sub-section (3) or one lakh rupees, whichever is less. Further, if the detained goods are hazardous or perishable the aforesaid period of 15, the proper officer may reduce days.

Comments: Section 129 has been amended to provide only the penalty payable on clear detention of goods/conveyance for non-compliance with the e-way bill provisions. The penalty has also been steeply increased to deter the errant movement/transport of goods and force compliance.

        11. Section 130 (Section 109 of The Finance Bill, 2021) has been amended as follows:

Substitution of words "Notwithstanding anything contained in this Act, if", with the word "Where" in sub-section (1) of Section 130. The second proviso to sub-section (2) has been amended by way of substitution of words, brackets and figures "amount of penalty leviable under sub-section (1) of section 129", with the words "penalty equal to hundred per cent. Of the tax payable on such goods". Further, sub-section (3) has been omitted.

Comments: Section 130(1) has been amended to remove the non-obstante clause in the provision. Further, provision for confiscation fine has been omitted.

       12. Section 151 has been substituted (Section 110 of The Finance Bill, 2021), to the effect that Commissioner or an officer authorised by him may direct any person to furnish information relating to any matter dealt with in connection with CGST Act, within the prescribed time, form and manner as may be specified. 

Comments: The unamended provision empowered the collection of statistics, while the amended provision apparently authorises the authorities to call for information. That this provision is very widely worded and may also lead to roving/fishing enquiries.

        13. Section 152 has been amended (Section 111 of The Finance Bill, 2021), as follows:

In sub-section (1), the words "of any individual return or part thereof" have been omitted, and after the words "any proceedings under this Act", the words "without giving an opportunity to be heard to the person concerned" have been inserted. Sub-section (2) has been omitted.

Comments: This amendment provides that without consent of the concerned person in writing the information of any individual return or part thereof will not be published to enable identification of the person and the said information will not be used for any proceedings without hearing the person concerned. However, the general safeguard provided by way of limited purpose access under sub-section (2) of Section 152 has been done away with.

       14. Section 168 has been amended (Section 112 of The Finance Bill, 2021), as follows:

in sub-section (2), expression ‘sub-section (1) of section 44’, has been substituted with ‘section 44’ has been substituted, and the words, the expression ‘sub-section (1) of section 151’ has been omitted.

Comments: The provisions have introduced minor clarifications in tune with the other changes.

      15. Amendment to Schedule II (Section 113 of The Finance Bill, 2021), as follows:

Paragraph 7 of Schedule II of CGST Act has been omitted retrospectively from 01.07.2017.

Comments: This amendment needs to be read in context to the amendment of Section 7 as referred above.

Disclaimer: "The views expressed here are personal. Professional advice may be sought for any specific query/clarification and to understand applicability of above to your specific circumstances."

Author is a practicing advocate and for further discussions/clarifications may kindly be contacted at +91 8527 707 252/+91 9711 706 768 or emailed at shaubhik.gupta@outlook.com