31 January 2019

Impact of amendments in GST Law on the business


The amendments in GST law as recommended by the GST Council were passed by the Parliament by enacting the CGST Amendment Act, 2018 and IGST Amendment Act, 2018 on 30 August 2018. These amendments have been made applicable with effect from 1 February 2019 by issuing a notification in this regard.

The significant amendments and their impact on business are as follows: 
Particulars  Amendments  Impact on business / Action required
Services in relation to ‘securities’ taxable

Section 2(102) of CGST Act
The following clarificatory explanation has been inserted in the definition of ‘service’ -

For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities. 
This is a clarificatory amendment according to which any service charges, service fees, broking fees, etc., charged in relation to securities would attract GST as it is a consideration for the provision of service.
Activity not to be considered as ‘supply’ merely because it falls under Schedule II 

Section 7 of CGST Act 
It has been clarified that merely because an activity falls under ‘Schedule II (which specifies if an activity is to be treated as goods or service), it does not necessarily qualify as a supply. Businesses should re-evaluate the positions adopted by them in respect such supplies which are covered under Schedule II of the Act. 
RCM on procurements from unregistered dealers applicable only in notified cases

Section 9(4) of CGST Act
Section 9(4) mandated that a registered person is liable to pay tax under reverse charge on purchases from an unregistered supplier. This section was under suspension.

The provision has now been diluted by providing an enabling power to the government to notify class of registered persons who would be liable to pay tax under reverse charge on procurements of taxable goods or services from unregistered suppliers. 
Presently, no class of persons have been notified and accordingly businesses would not be required to pay tax under RCM on procurement from unregistered suppliers. However, businesses should closely monitor the decisions of the GST council in respect with the class of taxpayers to be notified under this section.

The amendment may also impact the vendor selection criterion adopted by businesses at the time of implementation of GST.
No interest liability on ITC reversed because of failure to pay consideration to the supplier within 180 days

Second Proviso to Section 16(2) of CGST Act
As per Second Proviso to Section 16(2), where a recipient fails to make payment to the supplier within 180 days from the date of issue of invoice, he should add an amount equal to input tax credit (ITC) availed in respect of such supply to his outward tax liability, along with interest thereon.

The requirement to pay such interest has been done away with.
The GST Council has re-visited the provision of levying interest on such outward liability and has deemed it as too onerous and therefore removed the provision. This would result in a lower GST interest cost for businesses.
ITC available to the party billed in respect of services provided directly to a third person

Section 16(2)(b) of CGST Act
One of the key conditions for availing of ITC by a registered person is that such the person should have received such goods or services.

In case of ‘bill-to-ship-to’ transactions, where the goods would be directly sent to a third person, a deeming fiction has been provided to allow the person in whose name the invoice is raised to avail ITC without actually receiving such goods. Now, a similar deeming fiction has been provided in case of services.
This amendment should allow ITC benefit to a registered person even when the services are provided by the supplier to a third person on the direction of and on account of such registered person.
Sale of goods from Customs bonded warehouse, High sea sales and drop shipments not taxable

Schedule III of CGST Act
The following transactions have been inserted in Schedule III of CGST Act, 2017:
  • Supply of goods from customs bonded warehouse to any person before clearance for home consumption
  • Supply of goods by the consignee to any other person, by the endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin outside India but before clearance for home consumption, i.e., high seas sales
  • Sale of imported goods outside India, without such goods entering into India at any stage, i.e., drop shipment
This is in line with the position adopted by the advance ruling authority and the government in the advance ruling and circular. Amendment in the law should bring further clarity for businesses and protect them from any adverse action by the jurisdictional authorities.
ITC in relation to Schedule III supplies not to be reversed

Section 17(3) of CGST Act  
Activities or transactions specified in Schedule III of the CGST Act, other than the sale of land have been excluded from the ambit of ‘exempt supply’ on which ITC is blocked. The amendment should allow businesses to avail ITC in respect of outward supplies covered under Schedule III resulting in savings of tax costs.
Credits in relation to motor vehicles liberalized

Section 17(5)(a) & 17(5)(aa) of CGST Act 
ITC would be allowed in respect of motor vehicles for transportation of persons having an approved capacity of more than thirteen persons including driver when they are used for purposes as are specified.

Furthermore, ITC in respect of services of general insurance, servicing, repairs and maintenance in respect of above motor vehicles should also be available.
Businesses who use vehicles (more than 13 seating capacity) such as buses, etc. for transportation of employees should be eligible for ITC.

ITC should now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles. The amendment should allow businesses which deploy such vehicles to claim ITC in respect of them.
ITC to be available in respect of blocked credits if facilities provided to employees is mandated under any law

Section 17(5)(b) of CGST Act   
ITC would be available in respect of food and beverages, health services, travel benefits to employees, etc. where the provision of such goods or services is obligatory for an employer to provide to its employees under any law for the time being in force. This provision would particularly benefit businesses which are required to provide canteen facilities to their employees in accordance with the Factories Act.

Businesses can avail ITC benefit in respect of such input services when the same is mandatory to be provided as per regulations.
Suspension of registration for which application of cancellation is under process

Provision to Section 29(1) of CGST Act 
Once a registered person has applied for cancellation of registration, the GST officer may temporarily suspend the registration of the person till the procedural formalities for cancellation of registration subject to certain conditions and limitations are completed. This measure will reduce the compliance burden on the business (with respect to entities where registration is to be canceled) during the period when the application for cancellation of registration is under process.
Option to businesses to raise consolidated credit/debit notes

Section 34(1) & 34(3) of CGST Act
The registered person would be allowed to issue consolidated credit/debit notes in respect of multiple invoices issued in a financial year without linking the same to individual invoices.  The requirement for issuance of invoice wise debit/credit note is removed, and the facility of consolidated credit/debit notes for multiple invoices is to be allowed. 

This should especially help such businesses where year-end discounts are provided on the basis of the value of transactions undertaken during the year and one to one nexus with invoices is not possible.

GST portal needs to be updated to enable this functionality.
Enabling provision to provide facility to amend GST returns

Section 39(9) of CGST Act
The taxpayers would be allowed to amend their filed returns by way of an amendment return. Though the modalities of the amendment mechanism are yet to be released, this might be helpful in the following:
  • Correcting inadvertent mistakes in the returns filed.
  • Possibility for the recipient to match the credit claimed and resolve the mismatches.
Unjust enrichment applicable to refund claims pertaining to SEZ supplies

Section 54(8)(a) of CGST Act
It has been provided that the principle of unjust enrichment will apply in case of refund claim arising out of supplies of goods or services made to SEZ developer/unit. The principle of unjust enrichment ensures that a taxpayer does not claim a refund of an amount which has been already passed on to another person.
Services to qualify as an export even if consideration is received in Indian rupees, subject to RBI regulations

Section 2(6)(iv) of IGST Act
The criteria for service to qualify as ‘export of services’ has been relaxed to allow receipt of payment in Indian rupees, provided it is permitted by the Reserve Bank of India (RBI). The government had already relaxed this condition for exports to Nepal and Bhutan through notification. This has been further strengthened through amending the Act.
Transport services for goods transported outside India to qualify as export

Section 12(8) of the IGST Act
The place of supply in respect of transportation of goods from a place in India to a place outside India by a transporter located in India will be outside India. This will provide a level playing field to the domestic transport companies in India and will reduce the transportation cost to the businesses with respect to the export of goods.

 
Notes 
  1. The government has not notified the amendments relating to the new return filing mechanism which is expected to be implemented from April 2019.
     
  2. Certain amendments were passed in the provisions of transitional credit to provide that “eligible duties” for the purpose of determining eligible CENVAT credit allowed to be carried forward to the GST regime does not include cesses levied under the erstwhile laws. However, concerns were raised that language of certain amendments may result in disallowance of carrying forward of the service tax credit under the GST regime. In view of this, the government vide Circular No. 87/06/2019-GST dated 2 January 2019 had clarified that it does not intend to deny carrying forward of the service tax credit to the GST regime and accordingly has not notified the impugned provisions. 
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