What's New - Tax Insights

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What’s New

Tax Insights

2 January 2023

CBIC issues circulars, notifications pursuant to recommendations made at the 48th GST Council Meeting

In brief

In f urtherance to the announcements made at the 48^th GST Council Meeting, the CBIC has issued notifications making key amendments to the Central Goods and Service Tax Rules, 2017 (CGST Rules) and the statutory f orms therein. The GST Council discussed various aspects such as clarifications on certain GST rat es, measures f or trade facilitation and streamlining of compliances. Some of the key recommendations of the GST Council are summarised below.

In detail

Key amendments to CGST Rules¹

Sl. No. Rule Amendment

Registration

1. Rule 8: Application for registration

Rule 9: Verif ication of application and approval

• The CGST Rules are amended to provide that the registration application should be updated with the mobile number and email address that are linked to the Permanent Account Number of the applicant.

• To conduct a pilot study in the State of Gujarat for tackling the menace of fake and fraudulent registrations, amendment has been made to implement biometric-based Aadhaar

authentication and risk-based physical verification of registration applications for certain applicants.

1 Notification Nos. 26/2022 & 27/2022-Central Tax dated 26 December 2022

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Sl. No. Rule Amendment ITC reversal

2. Rule 37: Reversal of input tax credit (ITC) f or failure to pay the supplier within 180 days

Rule 37 of the CGST Rules has been amended to provide that the recipient would be liable to reverse ITC only on proportionate basis, i.e. with respect to the value of supply not paid to the supplier.

3. Rule 37A: Reversal and re- availment of ITC in case of non- payment of tax by the supplier

New rule 37A of the CGST Rules has been inserted to provide the below-mentioned mechanism with respect to ITC availed on an invoice or debit note on which tax is not paid by the supplier:

• Reversal of ITC without interest by the recipient on or before 30 November f ollowing the end of the FY to which such invoice or debit note pertains in respect of which the supplier has not f urnished the return in Form GSTR-3B.

• Reversal of ITC with interest as per section 50 of the Central Goods and Service Tax Act, 2017 (CGST Act) by the recipient af ter 30 November f ollowing the end of the FY to which such invoice or debit note pertains in respect of which the supplier has not f urnished the return in Form GSTR-3B.

• Re-availment of ITC in a subsequent tax period once the supplier has furnished the return in Form GSTR-3B.

Outward supplies and invoice related

4. Rule 46: Tax invoice Suppliers of taxable service by or through an electronic commerce operator or of an online inf ormation and database access or retrieval services to a recipient who is un-registered have to issue a tax invoice containing the name and address of the recipient along with its PIN code and the name of the state irrespective of the value of such supply. Such address will be deemed to be the recipient’s address on record.

5. Rule 46A: Invoice cum bill of supply

Single invoice-cum-bill of supply issued to an unregistered person to contain the particulars as specified in other rules, i.e. rules 46, 54 and 49 of the CGST Rules as applicable.

6. Rule 59: Form and manner of f urnishing details of outward supplies

Insertion of new rule 88C, after rule 88B: Manner of dealing with dif ference in liability reported in the statement of outward supplies and in the return

• Form DRC-01B has been introduced to intimate the taxpayer electronically on the common portal and via an email, the dif ference in the amount of tax payable f or a tax period as per Form GSTR-1 if it exceeds the tax paid for the said tax period vide Form GSTR-3B.

• The taxpayer to pay the differential tax liability along with interest under section 50 of the CGST Act, through Form GST DRC-03 or to f urnish a reply electronically on the common portal, incorporating reasons for the non-payment, if any, within a period of seven days.

• Failure by the taxpayer to pay the differential amount as intimated or to f urnish the reasons f or such non-payment will disable the taxpayer f rom f urnishing Form GSTR-1 or the

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Sl. No. Rule Amendment

requisite details using the invoice f urnishing f acility f or the subsequent tax period.

• Moreover, in case of failure by the taxpayer in paying the dif ferential amount or f urnishing the reasons f or such non- payment or where the reason provided is not f ound to be acceptable by the proper officer (PO), recovery proceedings will be initiated as per the provisions of section 79 of the CGST Act.

7. Rule 87: Electronic Cash Ledger (ECL)

This rule has been amended to provide that if the bank fails to communicate the details of the Challan Identification Number to the common portal, the ECL will be updated based on the E- scroll of the Reserve Bank of India where such cases are in conf ormity with details of the challan.

Adjudication appeals, recovery, etc.

8. Rule 108: Appeal to Appellate Authority

Rule 109: Application to Appellate Authority

Rule 109C: Withdrawal of appeal

• Amendment made to eliminate the requirement for the submission of certif ied copy of decision or order appealed against in case the same is uploaded on the common portal in which case the date of issue of the provisional acknowledgment will be considered as the date of filing of appeal. Similar facility has also been extended to the application filed by the Revenue against the orders of the adjudicating authority.

• A new rule has been inserted to provide for the facility to withdraw appeals during the pendency of the proceedings bef ore the Appellate Authority. However, where the appeal has been admitted, the withdrawal of appeal will be subject to the approval of the Appellate Authority who will decide within seven days of filing such application.

9. Rule 138: Inf ormation to be f urnished prior to

commencement of movement of goods and generation of e- way bill

Amendment has been made in rules extending the e-way bill requirement f or movement of imitation jewellery.

Changes in rate of tax for goods² (changes applicable from 1 January 2023)

Items Old

rate

Revised rate

Remarks

Ethyl alcohol supplied to petroleum ref ineries for blending with motor spirit (petrol)

18% 5% Earlier, 5% rate was applicable when these goods were supplied to oil marketing companies. Now, 5% rate has been made applicable when goods are supplied to petroleum refineries as well.

2 Notification Nos. 12/2022-Central Tax (Rate) and 13/2022-Central Tax (Rate) dated 30 December 2022

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Items Old rate

Revised rate

Remarks

Husk of pulse including chilka, concentrates including chuni or churi, khanda used as cattle feed

5% Nil These goods are specifically exempted with ef f ect from 1 January 2023. As a relief measure, f or the past period, it was stated in the 48^th GST Council’s Press Release that non- payment of tax by taxpayers on account of conf usion or doubts would be regularised.

Fruit pulp or fruit juice-based drinks (except carbonated beverages of fruit drink or carbonated beverages with fruit juice)

12% 12% Earlier, ‘Carbonated beverages of fruit drink or carbonated beverages with fruit juice’

(Carbonated Beverages) was specifically listed under the 28% rate schedule. To bring more clarity, carbonated beverages have been excluded from the 12% rate entry.

Pencil sharpeners used as paper-based stationary

12% 18%

Changes in reverse charge items: Supply of ‘Mentha arvensis’ by unregistered person to registered person has been brought under the purview of reverse charge with effect from 1 January 2023³.

Circular clarifying manner to deal with difference in ITC availed in Form GSTR-3B as compared to the amount detailed in Form GSTR-2A for FYs 2017–18 and 2018–19⁴

The circular provides clarifications relating to the manner of dealing with the difference in ITC availed by the registered persons in Form GSTR-3B vis-à-vis the amount as appearing in Form GSTR-2A during FYs 2017–18 and 2018–19 considering that Form GSTR-2A could not be made available to taxpayers on the common portal during the initial stages of implementation of GST and that the restrictions placed under rule 36(4) of the CGST Rules were also introduced at a later date. The clarifications provided by the circular are listed below.

Scenario No.

Scenarios due to which supplies do not get reflected in Form GSTR-2A

Clarification

1. Supplier failed to file Form GSTR-1 but f iled Form GSTR-3B for the tax period.

• The PO will seek details regarding invoices on which ITC has been availed and not ref lected in Form GSTR-2A.

2. Supplier filed Form GSTR-1 and Form GSTR-3B f or the tax period but failed to report a particular supply in Form GSTR-1.

• Moreover, the PO will ascertain the fulfilment of the conditions of section 16 read with sections 17 and 18 of the CGST Act as applicable, including if the ITC has been availed within the allowed timelines.

• To ensure the fulfilment of the condition of clause (c) of sub-section (2) of section 16 of the CGST Act that the tax has been paid, the PO may take the f ollowing action:

A. Difference between ITC claimed in Form GSTR-2A v. Form GSTR-3B exceeds 0.5 Million: The PO will ask the registered person to 3. Supplies made to a registered person

reported as Business to Customers (B2C) in Form GSTR-1.

3 Notification No. 14/2022-Central Tax (Rate) dated 30 December 2022

4 Circular No. 183/15/2022-GST dated 27 December 2022

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Scenario No.

Scenarios due to which supplies do not get reflected in Form GSTR-2A

Clarification

produce a certif icate f rom a Chartered Accountant (should contain the Unique Identif ication Number) or a Cost Accountant certif ying that the supplies in respect of the said invoices of the supplier have actually been made by the supplier to the registered person and that the tax on such supplies has been paid in their return in through Form GSTR-3B.

B. Difference between ITC claimed in Form GSTR-2A v. Form GSTR-3B is upto 0.5 Million: The PO will ask the registered person to produce a certif icate f rom the concerned supplier to the effect that supplies have actually been made by them to the registered person and tax has been paid by the said supplier in their return through Form GSTR-3B.

However, the aforesaid relaxations would not be available to the claim of ITC made in Form GSTR-3B f or FY 2017–18 after the due date of furnishing return f or the month of September 2018 till the due date of f urnishing return for March 2019, if the supplier had not f urnished details of the said supply in their Form GSTR-1 f or FY 2018–19 till the due date of

f urnishing Form GSTR-1 f or the month of March 2019.

4. Supplies reported in Forms GSTR-1 and GSTR-3B but reported under an incorrect GSTIN in Form GSTR-1.

It is f urther clarified that if the supplier has reported incorrect GSTIN in their Form GSTR-1, the PO of the actual recipient will intimate the concerned

jurisdictional authority of the registered person, whose GSTIN has been mentioned incorrectly, that ITC on those transactions is required to be disallowed if claimed by such recipients. This action will be pursued by the authorities independently, and allowance of ITC to the actual recipient will not be denied while awaiting the outcome of such independent action.

The circular f urther states that the af oresaid clarif ications are applicable to bonafide errors committed in FYs 2017–18 and 2018–19 as per the actual facts and circumstances of each case and will apply only to the ongoing proceedings in scrutiny, audit, investigation, etc. f or FYs 2017–18 and 2018–19 or any adjudication or appeal proceedings that are still pending and not to completed proceedings.

Circular clarifying entitlement of ITC where place of supply is determined in terms of the proviso to section 12(8) of the IGST Act, 2017⁵

Sl. No. Issue Clarification

1. The provisions of sub-section 8 to section 12 of the Integrated Goods and Service Tax Act, 2017 (IGST Act) provide that the place of

It has been clarif ied that if the goods are delivered outside India, but the recipient is located in India, such transaction will be treated as inter-state supply of

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Sl. No. Issue Clarification supply of services by way of transportation of

goods, including by mail or courier where the supplier and recipient are in India, would be the location of such registered person.

However, the proviso inserted w.e.f . 1 February 2019 to the af oresaid section provided that where the transportation of goods is to a place outside India, the place of supply of such goods will be the destination of the goods.

Issue: In the said situation, since the recipient is located in India and the goods are delivered outside India, ambiguity prevailed as to whether the supply is intra or inter-state, whether ITC is eligible since the recipient had not received the goods and about what is the appropriate state code to be selected to report in Form GSTR-1.

services in terms of section 7(5) of the IGST Act and integrated tax is to be charged.

The provisions of sections 16 and 17 of the CGST Act do not restrict ITC to the recipient located in India, where the place of supply is outside India.

The supplier of such service will report such supply in Form GSTR-1 by selecting the state code as 96 – Foreign Country.

Circular on applicability of the provisions of section 75(2) of the CGST Act and its effect on limitation⁶ In terms of section 75(2) of the CGST Act where the Appellate Authorities did not find the allegations in the show cause notice (SCN) issued under section 74(1) of the CGST Act sustainable due to the absence of any evidence of fraud, suppression etc. against the taxpayer, the PO has to redetermine the tax payable deeming as if the SCN was issued under section 73(1) of the CGST Act.

Doubts were raised seeking clarifications regarding the time limit to re-determine the tax payable considering the notice as if issued under section 73(1) of the CGST Act, especially in cases where the time limit for the issuance of the order as per section 73(10) of the CGST Act has already passed. Moreover, doubts have also been expressed regarding the methodology for computation of the amount payable.

Accordingly, the CBIC has issued the following clarifications.

1. In case an SCN is issued by the PO under section 74 of the CGST Act but if the Appellate Authority or Appellate Tribunal or the court concludes that the said notice is not sustainable under section 74(1) of the CGST Act f or the reason that the charges of fraud or wilf ul misstatement are not sustainable and accordingly directs to redetermine the amount as per 73(1) of the CGST Act, what would be such time period?

The time period f or re-determination of the tax interest and penalty payable by the noticee in such case would be two years f rom the date of communication of the said direction by the Appellate Authority or Appellate Tribunal or Appellate Court.

2. How will the amount payable by the noticee be recomputed by the PO?

The amount is to be re-determined as per the provisions of sub-section (2) of section 73 of the CGST Act which provides f or the issuance of the SCN at least three months prior to the time limit, read with section 73(10) of the CGST Act which provides a time limit of three years f rom the date of f urnishing of annual return for the relevant period.

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From the combined reading, it transpires that in cases where there is no f raud or wilful misstatement, the SCN has to be issued within two years and nine months f rom the due date of f urnishing of annual return.

Accordingly, for re-computation of demand in terms of section 75(2) of the CGST Act, the f ollowing will apply.

• Where the SCN under section 74(1) of the CGST Act was issued post the time limit as per section 73 of the CGST Act i.e. two years and nine months, the proceedings will be dropped as the SCN would become time barred.

• Where the SCN under section 74(1) of the CGST Act was issued within the time limit as per section 73 of the CGST Act, i.e. two years and nine months, the entire amount of demand as per the SCN would be covered f or recomputation of demand.

• Where the SCN under section 74(1) of the CGST Act was issued for multiple FYs covering both the above situations, the demand will be recomputed only considering that the period f or which the SCN was issued within the time limit as per section 73 of the CGST Act, i.e. two years and nine months.

Clarification on various issues pertaining to GST⁷

Sl. No. Issues Clarification

1. Whether the deduction of no-claim bonus by an insurance company from the insurance premium can be considered as a

consideration for the supply provided by the insured as ‘agreeing to the obligation to ref rain f rom an act of lodging insurance claim during previous year’?

The customer or the insured procures an insurance policy to indemnify themselves from any loss or injury as per the terms of the policy, and is not under any contractual obligation not to claim insurance during the period covered under the policy.

It has been clarif ied that there is no supply provided by the insured; accordingly, the no -claim bonus cannot be considered as consideration for any supply provided by the insured to the insurance company

2. Whether such no-claim bonus can be considered as discount for the purpose of determination of value of supply of the

The no-claim bonus deduction is permissible under section 15(3) of the CGST Act since the same is pre-disclosure in the policy documents, and specific mention of the discount in the form of the

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Sl. No. Issues Clarification insurance service provided by the insurance

company to the insured?

no-claim bonus is made on the face of the invoice, thereby f ulfilling the conditions laid down under clause (a) of sub-section (3) of section 15 of the CGST Act f or the purpose of calculation of the value of supply.

Accordingly, GST will be leviable on the actual insurance premium payable after such deduction.

3. Exemption from mandatory generation of e- invoices is available for the entity as a whole or to certain supplies made by the said entity.

In terms of Notification No. 13/2020-Central tax dated 21 March 2020, as amended, certain entities or sectors have been exempted from the

mandatory generation of e-invoices. It has been clarif ied that this exemption applies to the whole of entity and is not restricted to the nature of supply being made by the said entity.

Circular clarifying treatment of statutory dues under GST law in respect of taxpayers on whom proceedings are finalised under IBC⁸

In March 2020, the CBIC had instructed the authorities to not take any coercive action against corporate debtors who are under the Insolvency Resolution Process. Filed formations were inf ormed to file such claims before the NCLT in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).

Additional representations were received seeking clarif ication as to the modalities f or the recovery of GST demands against such corporate debtors after the finalisation of the insolvency resolution proceedings under the IBC.

The CBIC has accordingly issued the following additional clarifications f or the treatment of statutory dues under the GST law in respect of taxpayers for whom proceedings have been finalised under the IBC.

To bring unif ormity, it has been clarif ied that as per section 84 of the CGST Act, if the government dues are reduced as a result of any appeal, revision or other proceedings, then the Commissioner has to provide an intimation of such reduction to the taxpayer as well as to the appropriate authority with whom the recovery proceedings are pending. Moreover, it has been clarified that recovery proceedings can be continued in relation to such reduced amount of government dues.

Since the word ‘proceedings’ is not defined under the GST law, it is important to consider that Adjudicating Authorities and Appellate Authorities under the IBC are quasi-judicial authorities constituted to deal with civil disputes pertaining to insolvency and bankruptcy. As the proceedings conducted under IBC also adjudicate the government dues pending under the CGST Act or under existing laws against corporate debtors, these are to be covered under the term ‘other proceedings’ in section 84 of the CGST Act.

Accordingly, where a confirmed demand for recovery has been issued under GST and where proceedings have been f inalised against corporate debtors under IBC reducing the amount of statutory dues under the CGST Act, the Jurisdictional Commissioner will issue an intimation in Form GST DRC-25 reducing the demand, to the taxable person or any other person as well as the appropriate authority with whom the recovery proceedings are pending.

Circular prescribing manner of filing an application for refund by Unregistered Person (URD)⁹

A new f unctionality has been made available on the common portal which allows unregistered persons to file an application for refund of the GST paid by such URDs in cases where the contract or agreement for the supply of

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services of the construction of a f lat or building has been cancelled or where a long -term insurance policy has been terminated but the period f or issuance of credit note by the supplier on account of such cancellation or termination of service has expired. The circular provides the below methodology to be followed in case of refund application to be filed by URDs.

• The URD person will obtain a temporary registration at the common portal af ter providing the requisite inf ormation and completing Aadhar authentication.

• The ref und application is to be made in RFD -01 as per rule 89(2) of the CGST Rules, and the requisite statements or documents are to be uploaded. Similar amendments have been made in rule 89 of the CGST Rules to include the application of refund by the URD.

• Where the suppliers, in respect of whose invoices ref und is to be claimed, are registered in different states or Union Territory (UT) the applicant will obtain such temporary registration in each such state or UT.

• Separate applications for refund have to be filed in respect of invoices issued by different suppliers.

• If the time period for the issuance of the credit note as per section 34 of the CGST Act has not expired, the supplier will issue the credit note in which case the amount can be paid back by the supplier to the URD persons without any need for the latter to file any refund claim.

• Relevant date for such refund applications will be considered as the date of issuance of letter of cancellation of the contract or agreement for supply by the supplier.

• The ref und application will be processed in a manner similar to RFD -01 claims, and on satisfaction of the ref und application, the PO will issue a detailed speaking order.

The takeaways

The CBIC has issued notifications and circulars pursuant to recommendations made during the 48^th GST Council Meeting, has paved the way to settle long pending disputes on account of notices issued to taxpayers due to ITC mismatch. The notification and circulars have introduced a refund mechanism for f lat -buyers who cancelled contracts for various reasons and were ref used return of GST by builders, provided guidance to field f ormations on re-determination of demand pursuant to appellate orders, wherein charges such as fraud or suppression have been dropped in favour of the taxpayer, clarified the tax recovery process to be followed by the authorities against corporate debtors whose IBC process has been concluded, revised tax rates on certain items and covered menthol under RCM.

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