Circular No. ES/420/2020-21 3rd February, 2021
To: Members of the Council
Sub: Amendments carried out pertaining to GST Act, Companies Act and Income Tax Act through budget announcements
Please make a note of the following amendments carried out pertaining to GST Act, Companies Act and Income Tax Act through budget announcements:
Appearance of transaction in GSTR-2A/2B – a mandatory condition for availment of ITC (Input Tax Credit):
Till now, the conditions for availment of ITC were only dependent on the supplier to the extent whether he has actually paid the taxes charged to the government. To a certain extent, this condition is not always possible to verify in the hands of the recipient particularly where the supplier has mis-declared or not declared the correct tax values in GSTR-3B.
On the other hand, there was no clause to deny ITC based on the matching of the details declared by the supplier in his GSTR-1 and actual ITC availed by the recipient. Thereby, the credit matching between GSTR2A and 3B was not a pre-condition for availment of ITC under Section 16(2). In order to mandate availment of ITC based on GSTR-2A / 2B, the law now prescribes a pre-condition that ITC on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in his GSTR-1 and it is communicated to the recipient in GSTR-2A / 2B.
Annual accounts to be audited by Specified professionals/ Self certification of reconciliation statement by the registered person:
The mandatory requirement of getting the reconciliation in GSTR-9C certified by a Chartered Accountant/ Cost Accountant is proposed to be removed. Any registered person would be able to furnish the annual return along with a self-certified reconciliation statement reconciling the values between annual return and financial statements.
Interest on net tax liability to be retrospective:
Interest due to late furnishing of GSTR-3B was made applicable on the net tax liability i.e. on the amount paid from the electronic cash ledger only through the Finance Act, 2020. However, this provision was given a prospective effect w.e.f. 1st September 2020. Now, this relaxation has been given a retrospective effect from 1st July, 2017 i.e. from the advent of GST.
Detention and Seizure to be separate from the Demand / Recovery provisions:
This amendment has been brought in to make the proceedings of the detention, seizure and confiscation of goods and conveyances in transit separate from the demand and recovery proceedings under Section 73 and74 of the CGST Act 2017.
Direct recovery without SCN upon furnishing of details in GSTR-1 without tax payment in GSTR-3B:
It has been provided that if a supplier only provides outward supplies inGSTR-1 without including such supplies in GSTR-3B, then the government can directly opt for recovery of taxes under Section 79 without issuance of any show cause notice u/s 73 or 74.
Provisional Attachment upon initiation of proceedings and increased coverage of beneficiaries or masterminds of fake invoicing:
Earlier only upon pendency of certain proceedings of assessment, inspection, search and seizure and demand / recovery, the power to exercise provisional attachment of property could be exercised. Now, Section 83 has been modified to allow provisional attachment of property wherever any proceedings of assessment, inspection, search and seizure and demand / recovery have been initiated. Such provisional attachment will remain valid from such initiation of proceedings till the expiry of one year from the date of order.
Also, the provisions of provisional attachment of the property have been extended to include those persons who are the beneficiaries or at whose instance the fake invoicing transactions are carried out as provided under Section 122 (1A) of the CGST Act 2017.
Filing of appeal against detention order upon payment of 25% penalty:
Before this amendment, a person can file an appeal against a detention order passed u/s 129(3) of the CGST Act 2017 only upon payment of 10% of the tax in dispute. This was leading to mis-utilization of this provision by the tax payers.
After the proposed amendment, against the adjudication order for detention or seizure of goods or conveyance u/s 129(3) of the CGST Act 2017, an appeal can now be filed only upon payment of 25% of the levied penalty under Section 129.
Payment of only penalty for release of goods and Increased penalty amount for detention and seizure proceedings:
Upon detention and seizure of goods and conveyance u/s 129, assessee had to pay the tax along with the penalty in order to get the goods released. After this amendment, only the penalty amount needs to be paid in order to secure release of goods whereas the tax amount would continue to be paid throughGSTR-3B of the relevant month. However, the penalty amount under this provision has been modified for non-exempted goods as follows:
Where owner comes forward for payment of penalty, it was 100% of the tax payable which has been revised to 200% of the tax payable
Where owner does not come forward for penalty payment, it was 50% of the value of goods less tax paid, the amended provision is, higher of:
50% of the value of goods
200% of the tax payable
9. Release of goods on security:
The requirement of following the provisions of Section 67(6) for release of goods on provisional basis upon execution of bond and security as per the specified manner and quantum has been removed. However, the allowance of release of goods upon furnishing of security u/s 129(1)(c) still stands.
Time limit provided for issuance of notice and order u/s 129:
The law now prescribes a time limit for issuance of notice and passing the order of detention or seizure. The time limit of issuance of notice has been provided as 7 days of such detention or seizure and that of order is 7 days from the date of such notice.
Direct disposal of goods upon non-payment of penalty for detention:
Earlier non-payment of tax and penalty within 14 days of detention and seizure u/s 129 led to introduction of confiscation proceedings u/s 130. Now, upon non-payment of penalty within 15 days (or less for perishable/hazardous goods) of receipt of order copy of detention, the detained goods or conveyance can directly sold or disposed of in the prescribed time and manner. Further, the transporter has been given an option to get his conveyance released upon payment of applicable penalty or Rs. 1 lakh whichever is less.
Delinking of Detention and Confiscation proceedings:
The confiscation provision no longer overrides any other provision of the Act. The proceedings of confiscation stands delinked with the penalty proceedings due to detention of goods.
Also, the minimum aggregate fine and penalty for confiscation was provided to be the penalty for detention under Section 129. This has now been modified to provide the amount to be equivalent to 100% of the tax payable on such goods.
Supply to SEZ for authorized operations only to be treated as a zero rated supply:
Earlier all supplies made to SEZ unit were covered under the definition of Zero Rated Supply. However, Rule 89(1) of the CGST Rules, 2017 provided that refund would be allowed to be claimed by a supplier only when such supplies have been admitted for authorized operations. The department in its circular used to take reference of this rule to conclude that a supply to SEZ would be zero rated only when it is admitted for authorized operations. This conclusion however did not have any statutory backing. Thus, the aforesaid amendment was carried out to include only supply on account of authorized operations as zero rated supplies.
Export with payment of tax – Recovery of refund with interest:
Rule 96B provides for recovery of refund in case of non-realization of sale proceeds in case of export of goods. Till now, there was no empowering provision for this rule under the Act. Now, the Act itself provides that the registered person making zero rated supplies in case of non-realization of sale proceeds within the specified time is liable to deposit the refund received alongwith interest. The time limit provided is 30 days after the expiry of time limit prescribed under the FEMA Act 1999 for receipt of foreign exchange remittances.
Export with payment of tax to be allowed to notified persons or notified goods/services only:
It is proposed that the benefit of export with payment of tax would not be allowed in cases. The government has been empowered to notify class of persons or class of goods/services on which the benefit of claiming refund of export with payment of integrated tax will be allowed.
Power to Call for Information - from any Person:
The Commissioner or an officer authorised by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as may be specified therein.
Transaction between a person (other than an individual) to its members for consideration to be treated as a supply:
There had been an area of dispute regarding the taxability of transactions carried out between the members and the association of persons / partnership firms / joint ventures. This was particularly after the Hon’ble Supreme Court judgement in the case of Calcutta Club Ltd (Civil Appeal No. 4184 of 2009) recently. It was held that the club / association and its members are not distinct persons and that there would be no leviability of service tax on any services provided by the club to its persons following the concept of mutuality.
This amendment aims to put a deeming fiction effective from 1st July 2017 within the law providing that the person (other than an individual) and its members should mandatorily be treated as two separate persons. Also, the activities or transactions carried out between such person and the members for consideration should mandatorily be treated as a supply leviable to tax under GST. The above position of the law is overriding all the provisions of GST and any other law and even the judgements of any Court, Tribunal or any other authority.
Direct Tax/Income Tax Proposals
The individual and corporate tax rates for FY 2021-22 (AY 2022-23) was left unchanged.
The limit for tax audits under section 44AB has been increased from Rs 5 crore to Rs 10 crore (only where 95% of payments are digitised), providing relief to many corporate houses.
IT relaxation for senior citizens of 75 years age and above:
It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source.
Reduction in time for IT Proceedings:
Except in cases of serious tax evasion, assessment proceedings in the rest of the cases shall be reopened only up to three years, against the earlier time limit of six years.
Constitution of ‘Dispute Resolution Committee:
Assessees assessed with a taxable income of up to Rs.50 lakh (for small and medium taxpayers) and any disputed income of Rs.10 lakh can approach this committee under section 245MA, the objective being prevention of new disputes and settle the issue at the initial stage.
National Faceless Income Tax Appellate Tribunal Centre:
Provision is made for faceless proceedings before the Income Tax Appellate Tribunal (ITAT) in a jurisdiction-less manner, so as to reduce the cost of compliance for taxpayers and increase transparency in the disposal of appeals.
Tax incentives to startups:
The tax holiday for startups has been extended by one more year up to 31st March, 2022.
Pre-filing of Returns:
Pre-filling of Returns will be allowed for salary, tax payments, TDS, etc. Further, details of capital gains from listed securities, dividend income, etc. would be prefilled.
Advance Tax on dividend income:
Advance tax will henceforth be applicable on dividend income only after its declaration.
Disallowance of PF contribution:
In case the employee’s PF contribution was deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.
Amendment to Section 43CA:
The stamp duty value can be up to 120% (earlier 110%) of the consideration if the transfer of “residential unit”, which means an independent housing unit is made between 12th November 2020 and 30th June 2021.
Company Law Proposals
Easing Compliance requirements of Small Companies – Threshold increased to Share Capital upto Rs.2 crore and Turnover upto Rs.20 crore
One Person Companies (OPC) to grow without any restriction in Share Capital or Turnover. NRIs will be allowed to set-up OPCs. NRI’s presence in India of 120 days in a year sufficient to start an OPC.
Launching MCA Version 3.0, thereby simplification of provisions relating to E Scrutiny, E-Adjudication and Compliance management.
Decriminalization of LLP Act, 2008
Tribunals to be rationalized