Notification no. 92/2020 dated 22-12-2020
There are few material changes made by Central Government in GST Laws which are applicable from January 01, 2021.
To be very specific, provisions of sections 119, 120, 121, 122, 123, 124, 126, 127, and 131 of the Finance Act 2020 shall come into force w.e.f. January 01, 2021.
Let’s discuss the provisions of these sections in simple language:
Section 119: Negative List for Composition Scheme
Section 119 is to amend Section 10 (2)(b),(c) & (d), meaning thereby, the words ‘or services’ have been added after the words “of goods” in order to include services providers in the negative list for the purpose of opting the Composition Scheme.
Result
As a result of this amendment, a person is not eligible for a composition scheme if
- he is engaged in making any supply of goods or services which are not leviable to tax under this Act;
- he is engaged in making any inter-State outward supplies of goods or services;
- he is engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;
Section 120: Time limit to claim Input ITC on Debit Note
The words ‘invoice relating to such’ are omitted in section 16 (4) of the Central Goods and Services Tax Act.
Result
- The time limit to claim ITC on Debit Note is now not linked to the date of the original Tax invoice. Therefore, the date of debit note is now relevant for determining the last date to avail of ITC
- ITC on Debit Note which is raised on or after January 01, 2021, can be availed
- For example: Where an invoice was issued on 20-03-2020 and a Debit note against this invoice is issued on 01-01-2021. Prior to the amendment, assesse was not allowed to take ITC but as a result of this amendment, assesse can now avail ITC on Debit note irrespective of the date of Tax invoice.
- Now Section 16(4) allows the registered persons to claim ITC of the debit notes relating to the previous year issued in the current year even if such debit notes are issued after the due date of Sept GSTR 3B or Annual return which-ever is earlier.
Section 121: Cancellation of GST Registration of Voluntarily registered persons
Previously, a person who was voluntarily registered under GST laws was (theoretically) not allowed to cancel their GST registration, however, practically cancellation was allowed to be done in GST Portal.
Now, Section 29 of the CGST Act, 2017 has been amended to allow the cancellation of GST voluntary registration.
Section 122: Time Extension for Revocation of Cancellation of Registration (section 30 of CGST Act):
Previously, where the proper officer, on his own, cancels the registration of a registered person then such registered person was entitled to apply for revocation of cancellation of registration within 30 days.
Result
Now, The Additional / Joint Commissioner has the power to provide additional 30 days (30+30) for filling applications for revocation of registration and the Commissioner can further extend the delay for 30 days for filing applications for revocation of registration making it a total of 90 days for filing such application.( 30+30+30=90)
Section 123: Amendment in Tax Invoice Provision for Services (section 31(2) of CGST Act)
- Now, the Central Government may issue a notification to prescribe the time and manner in which Tax Invoice shall be issued by Service providers.
- Presently, the Service Providers are required to issue Tax Invoices within 30 days but the companies like Insurance, Banking, and NBFCs were already given a Time limit of 45 days to issue Tax Invoices.
Result
Like, in the case of Goods, Central Government is now expected to bring notification to specify categories of services and supplies on which e-invoice may be issued.
Section 124: Certificate of Tax deduction at source (Section 51 of CGST Act)
Previously, the deductor of TDS was required to issue a TDS Certificate despite the fact that such TDS was reflected in GSTR-7A.
Result
Now, the TDS Deductor is not required to issue a TDS certificate to Deductee, and therefore the provision of late fees for non-sharing TDS certificate has been deleted.
Section 126: Penalty imposed on a person (Kingpin) who is retaining the benefit of fraudulent transactions (New section 122(1A) of CGST Act)
With the insertion of new Section 122(1A) of the CGST Act, any person who is the mastermind of any fraudulent transaction and advise the ways to do a fraudulent transaction or retains the benefits of such fraudulent transactions, then such person shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.
However, there is another thought of school, and according to them such mastermind shall not only be penalized under this new Section 122(1A) but shall also be liable to be penalized under Section 122(1).
Example: Suppose Mr. A advises Mr. B to raise fake invoices in order to get fraudulent ITC then in such a case not only Mr. B shall be liable but Mr. A shall be liable under this new section.
Section 127: Inclusion of Persons Retaining Benefit for Imprisonment Clause
This is in continuation of Section 122 and now there is a provision of imprisonment for not only the person who is engaged in issuing fraudulent invoices or fraudulently availing ITC but the person who is advising for such fraudulent activities or the person who is getting benefit out of such transaction shall also be liable for imprisonment.
Example: Suppose Mr. A advises Mr. B to raise fake invoices in order to get fraudulent ITC then in such a case not only Mr. B but Mr. A shall be liable for imprisonment.
This Section is amended that Person who causes to commit and retain the benefits arising out of, any of the offenses shall be liable for imprisonment depending on the amount of tax evaded.
Section 131: Amendment to Schedule II- Scope of Supply
To understand this, let’s recapitulate the CGST Act first.
Section 7 of the CGST Act, states the scope of supply and refers to Schedules of the Act.
Schedule I covers those transactions which will be considered as Supply even if there is no consideration, whereas, Schedule II covers those transactions which shall be treated as supply of goods or services.
Now, the word ‘whether for consideration or not’ has been deleted from both the clauses of entry no. 4 of Schedule II which deals with the transfer of business assets.
Practically, there are no implications of this amendment it’s more clarificatory in nature.
Notification no. 93/2020: Waiver of Late Fees for GSTR-4
For Composition Dealers (whose principal place of business is in the Union Territory of Ladakh): Late Fees for the delay in filing of GSTR 4 are waived off for FY 2019-20 if they file GSTR-4 of FY 2019-20 in between 01.11.2020 to 31.12.2020.
Notification no. 94/2020: Amendment to CGST Rules 2017
GST Registration
- Time limits extended for GST Registration :
- Where there is AADHAR based Authentication: Time Limit to grant GST Registration by GST Authorities increased to 7 days from the date of filing of the registration application.
- Where there is no Aadhaar based authentication or where the department feels necessary to carry out physical verification: Time limit to grant GST registration by GST Authorities shall be 30 days
Note: In the case of Aadhaar based authentication, the time limit for granting GST registration is extended whereas in other cases time limit has been curtailed.
- Power of GST Department to cancel GST registration has increased (Rule 21): Below said additional grounds for cancellation of GST Registrations are introduced:
- Irregular availment of ITC: Where the taxable person has availed any input tax credit which is in violation of the provisions of section 16 of the Act or the rules made thereunder
- Where GSTR 1> GSTR- 3B: Where the taxable person has furnished the details of outward supplies in FORM GSTR-1 for one or more tax periods which is in excess of the outward supplies declared by him in GSTR-3B for the said tax periods
Practical issues: The implementation of these provisions might create practical difficulties as many times corrections are made in GSTR-3B which may result in lower tax liability as compared to GSTR-1. Similarly, it might also happen that liability has been paid in GSTR-3B but the taxpayer forgot to record in GSTR-1 of the current period and record it in GSTR-1 of the succeeding period.
- Failure to pay tax in cash: Where the taxpayer violates the provision of rule 86B, i.e., payment of tax liability of 1% through cash ledger (will discuss Rule 86B in detail later)
- Suspension of GSTIN without the opportunity of being heard: In case, where Proper Officer has reasons to believe that GST Registration of the taxpayer shall have to be suspended then the opportunity of being heard shall not be given to a taxpayer for such suspension We believe that this amendment is against the concept of Natural Justice which our Constitution provides to us.
- Cancellation if there are discrepancies in GSTR3B and GSTR-1(Rule 21A(2A) inserted): Where there are Significant deviation/anomalies in between details of
- outward supply between GSTR 3B and GSTR1 or
- inward supplies (ITC) between GSTR 3Band GSTR 2B (GSTR-1 vs GSTR-3B vs GSTR-2B)
which indicates contravention of Act,
then in such cases department shall now serve a notice in FORM GST REG 31 to call explanation and the Taxpayer shall be required to submit his reply within 30 days of such notice being served to him.
- No refund if GSTIN is suspended (Rule 21A(3A) inserted) ⎯ Where GSTIN is suspended by GST authorities then in such cases refund shall not be allowed. In such a case, the taxpayer has to ensure closure of Suspension proceedings of GST registration and then have to apply for a refund.
CBIC issued a clarification titled “MYTHS VS FACTS” with regard to GST registration cancellations and other steps taken for plugging tax evasion
Myth 1
No opportunity of being heard will be given if the proper officer believes that registration is liable to be canceled.
Fact 1:
GST registration is liable to be canceled for those who have not filed 6 or more returns. It is, therefore, wrong to say that the cancellation will be done without reasons. To protect the interest of revenue, this provision has been put in the law so that fraudsters do not runway with GST collected from their customers.
No cancellation of registration would be done without giving the proper opportunity of hearing to the taxpayer.
Immediate action for suspension is necessary in cases where unscrupulous operators seek to pass on huge fake credit by gaming the system. Such action will not affect genuine taxpayers and will provide them a level playing field.
Moreover, the suspension may be revoked by the officer based on the taxpayer’s representation.
Myth 2:
Even if there is a clerical error in filing returns, GSTIN will be canceled. No option to correct your mistakes.
Fact 2:
This is absolutely not true. Only in fraudulent cases where there are significant discrepancies based on data analytics and sound risk parameters, and not mere clerical errors, the action of suspension and cancellation will be taken up.
An example of a fraudulent case and serious discrepancy is where one has passed on Crores of Rupees of Input Tax Credit and not filed GSTR3B returns, nor has he filed Income Tax returns or disclosed very little liability in Income Tax returns, etc,
Myth 3:
The proposed change will impact the ease of doing business.
Fact 3:
Not True. Fraudsters are misusing the system to the detriment of the interest of genuine taxpayers. Consequently, data-driven targeting of the fraudsters is the need of the hour. The data is being collected from Income Tax, Banks, Customs and necessary matching are being done to identify fraudsters and take action of suspension and cancellation after following due process of law.
Input Tax Credit
- Restriction in claiming ITC –Rule 36(4): Where the corresponding vendor has not furnished its invoice then the claim of ITC in respect of such invoices which are not furnished by the corresponding vendors has now been restricted to 5% of the credit available in GSTR 2B.
And any claim exceeding the specified limit shall result in a violation of the CGST Act read with rules which may result in the suspension of GST Registration.
Here, the word “uploaded” is substituted by the word “ furnished”
Comment: Simply uploading of invoice in GSTR-1 shall not be sufficed in order to avail ITC but the return has to be mandatorily filled by the corresponding supplier.
The provision is effective w.e.f. January 01, 2021.
Practical issue: Suppose, a Supplier in Delhi sent goods to Chennai and issued an Invoice on December 31, 2020, and this consignment is reaching the recipient in Chennai on January 07, 2021.
In this case, the Supplier in Delhi will show this transaction in his GSTR-1 of December 2020 whereas the Recipient will consider this ‘same transaction’ for the purposes of claiming ITC in his January month’s GSTR3B.
Resultantly, ITC claimed by the recipient of Chennai in its Jan’21 GSTR3B will not be available in GSTR2B of Jan’21 but shall be available in Dec’20 GSTR2B.
And, therefore the question is that in the present case, the Recipient has done nothing wrong, and even if he should lose his ITC? Further, the Recipient is not entitled to claim ITC in his December GSTR3B as the goods were still in transit as of December 31, 2020, as claiming ITC without receiving consignment is again a violation of Section 16, which may also lead to cancellation of GSTN.
Therefore, it is not always feasible to do the Month on Month matching of GSTR3B vs GSTR2A/2B and even if it is reconciled on monthly basis then Recipient may get a lesser ITC than what he is actually eligible for under the GST Act.
- Restrictions on use of amount available in electronic credit ledger (Rule 86B)
The registered person shall not use the amount available in the electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine percent of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees.
Therefore, with the introduction of this new Rule 86B, an assessee should pay 1% of his liability mandatorily through the CASH ledger even if he has adequate ITC in his CREDIT ledger.
Example: Suppose, Mr. A has a taxable supply of Rs. 60Lakhs in Jan’21. His output tax liability @12% is Rs. 7.2 Lakhs, then he is mandatorily required to pay Rs. 7,200 through cash ledger.
Exceptions: The above-said restriction shall not apply, in case :
- The proprietor of Karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees:- have paid more than one lakh rupees as an income tax under the Income-tax Act, in each of the last two financial years for which the time limit to file the return of income under the said Act has expired; or
- The registered person :
- Who has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (i) of the first proviso of section 54(3)(means export without payment of tax,i.e., bond or LUT) or
Practical issues: This newly inserted rule will badly affect a person who is exporting for the first time
- Who has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilized input tax credit under clause (ii) of the first proviso of section 54(3) (means inverted duty structure); or
Practical issues: This newly inserted rule will badly affect a person who has just started the business. Further, under the inverted duty structure, there is already an issue of accumulated ITC which will lead to a cash burden on assesses.
- Who has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year; or
Example: Suppose, Mr. A has made a taxable supply of Rs. 60 Lakhs in Jan’21 and his output tax liability @12% is Rs. 7.2 Lakhs. And in case, he has discharged his Tax liability of Rs. 10000 in cash during the period starting from Ap’2020 till Dec’2020 then he need not follow Rule 86B
- Who is Govt Department or PSU or Local Authority or Statutory Body
Provided further that the Commissioner or an officer authorized by him in this behalf may remove the said restriction after such verifications and may take such safeguards as he may deem fit”.
Comment: Our view is that now tax payer is on the mercy of officers and it may lead to corrupt practice.
Amendments related to Returns
GSTR-1 to be blocked (New Rule 59(5)): The following registered person shall not be allowed to file GSTR1:-
- If he has not furnished the return in GSTR-3B for the preceding two months;
- If he is required to furnish a return for every quarter under the proviso to section 39(1) (QRMP scheme), and he has not furnished the return in GSTR-3B for the preceding tax period;
- If he is restricted from using the amount available in electronic credit ledger to discharge his liability towards tax in excess of ninety-nine percent of such tax liability under rule 86B if he has not furnished the return in FORM GSTR-3B for preceding tax period.”
Comment: This rule is introduced to curb the practice of supplier passing on ITC to recipients by filing GSTR-1 and not to pay tax i.e. by not filing GSTR-3B.
MISCONCEPTIONS V/S REALITY ABOUT 1% PAYMENT OF TAX LIABILITY IN CASH IN GST UNDER RULE 86B
Misconception 01: A large number of taxpayers would be affected by the rule
Reality: The rule provides for various exemptions like exporters, suppliers of goods of inverted duty structure, taxpayers having a footprint in the Income-tax Database, etc. It is expected that this rule would be applicable to less than 0.5% of the total taxpayer base of 1.2 crores. The rule clearly identifies where the risk to revenue is high and imposes deterrence to the fraudsters in a multi-layered fraud of passing fake ITC. This rule would help to control such fraudsters, who issue fake invoices and show high turnovers, but have no financial credibility and flee after misusing ITC without payment of any tax liability in cash.
Misconception 02: The requirement of a cash payment of 1% liability will create a huge burden on small businesses and will increase their working capital requirement.
Reality: The cash payment of 1% is to be calculated on the tax liability in a month and not the turnover of the month. In fact, it amounts to only 0.01% of turnover. For example, if a dealer has made a sale of Rs. 1 crore of the goods whose tax rate is 12% and if he is discharging his tax liability more than 99% through ITC, then he has to pay only Rs. 12,000 under this rule. On the other hand, a composition dealer would have paid Rs. 1 lakh in cash with this volume of sale.
Misconception 03: This rule adversely affects small and medium enterprises
Reality: The new provision which restricts the use of ITC for discharging output liability is applicable to the registered person whose value of taxable supply other than exempt supply and export, in a month exceeds Rs. 50 lakhs- that means those whose annual turnover is more than Rs. 6 crores. Therefore, the rule does not apply to micro and small businesses, and composition dealers.
Misconception 04: All the registered persons will be required to pay 1% cash liability
Reality: This rule is applicable to only those registered persons whose value of taxable supply, other than exempt supply and export, in a month exceeds Rs. 50 lakhs- that means those whose annual turnover is more than Rs. 6 crores. The rule is also not applicable in the cases where the registered person:
(a) Has deposited more than Rs. 1 lakh rupees as Income Tax in each of the last two years.
(b) Has received a refund of more than Rs. 1 lakh in the preceding financial year on account of the export or inverted duty structure.
(c) Has paid output tax through cash in excess of 1% of the total output tax liability, applied cumulatively, up to the month in the current financial year.
(d) Is a government department, PSU, local authority, statutory body.
Misconception 5: This rule adversely affects genuine taxpayer
Reality: This rule is only applicable to taxpayers who have taxable supplies of more than Rs 50 lakh in a month, which amounts to an annual turnover of more than Rs 6 crore.
Besides the registered person failing in any other exempted category including paying Rs 1 lakh as income tax in each of the last two financial years or having received refund for more than Rs 1 lakh in the previous year on account of export inverted duty structure etc are also out of the purview of this rule. With this exemption and condition and precise targeting, the requirement of mandatory payment of at least one percent of tax liability in cash would apply only to risky or suspicious taxpayers and genuine taxpayers would remain excluded.
E Waybill
Earlier E Way bill used to remain valid for a distance of up to 100 km but now E Waybill shall be valid for one day for a distance of up to 200 kms.