Fourteen amendments to GST law takes effect from today

CGST Amendment Act, 2018 effective from 01 February, 2019, appears to countenance Government’s agenda of promoting ease of doing business in India.

Reduction of compliances, simplification of procedures and liberal credit regime are some noticeable positives of the changes coming into effect.

Applicability of reverse charge on purchase from unregistered dealers, which initially contemplated to tax all procurements from unregistered persons, has been curtailed to tax only notified procurements made by notified persons.

Option to obtain multiple GST registrations in same State basis multiple place of business would now be available. Further, issuance of one consolidated credit note against multiple tax invoices issued in a financial year is likely to provide operational convenience to taxpayers.

Amendments in input tax credit provisions to provide additional credit for business expenses like tax paid on motor vehicles (more than 13 seaters), travel benefits extended to employees under statutory obligation etc. would be effective to contribute to reduction in overall tax cost.

Also, increase in composition threshold from INR 1 Crore to INR 1.5 Crores, allowing traders/ manufacturers availing composition scheme to provide services below a threshold are some other key provisions, coming into effect which are likely to provide impetus to the MSME sector.

"The Government has now notified the proposed changes which is also the first amendment to the GST Act after the implementation of this historic tax regime.

The amended provision to allow single credit/debit notes against multiple invoices will aid to the ease of doing business from GST perspective.

The amendment puts a brake on the controversies related to reversal of ITC on the high seas sales and merchant trade transactions with such transactions being kept outside the definition of exempted supplies.

The amendments further brings cheers to MSME sector, where the threshold limit for composition scheme is increased to 1.5 crore from the existing limit of 1 crore.

Under the amendments several genuine employee related expenses such as catering, renting of motor vehicle, health and life insurance services, which were earlier out of the bracket of input tax credit (ITC) will now be covered provided the same is obligatory for an employer to provide under any existing law in force.

Certain other amendments like the facility to have multiple registration in same state under same PAN and deletion of general reverse charge provision from unregistered vendors, restricting it to the specific class of persons, to be notified later will surely bring considerable degree of comfort to the Industry.”

The amendment to the IGST Act are most welcome and only reiterates the legal position. The amendment to Section 7 of the CGST Act with retrospective effect has now ensured that Schedule II is only a classification platform and nothing beyond that. While the amendments to Section 17 are significant, it is time that we go beyond artificial restrictions in ITC. When rent from a warehouse / building attracts GST there is no logic in denying ITC on construction. Many of the amendments are in response to representations which indicates a very healthy trend. However, change in the GST legislation will be a challenge going forward since matching amendments are required in the State GST Laws. The fact that GST (Amendment) Act, 2018 received the assent on 29.11.2018 and is effective only from 1st February is testimony to this.

“Permitting issuance of a single credit/ debit note against multiple invoices comes as a big relief for various businesses especially the automobile sector with retro-pricing is a common phenomenon. Explicit exclusion of high seas sale and merchant trading from the ambit of supply of goods and supply of services would help the long drawn ambiguity on taxability of these supplies and requirement of ITC reversal attributing to such supplies. With credits being allowed on food expenses incurred by businesses in scenarios where the same was obligatory under any law to be provided, businesses may explore this opportunity.  With companies now being allowed to obtain separate registrations in a State for different places of business vis-à-vis the earlier restriction of this being possible only for separate business verticals, companies could consider decentralizing GST compliances for each of their Units if they wish to.  Amendments for SEZ registrations could possible allow one single GST registration for multiple SEZ’s in a state.  An aspect of worry though for businesses could be the requirement of necessarily utilizing IGST credit first for payment of taxes under GST; entailing a possible impact on cash flows of a business”

The 28th GST Council meeting on 21.7.2018 had, inter alia, approved several amendments to the GST laws [namely Central Goods and Service Tax Act, 2017 (“CGST Act”), Integrated Goods and Service Tax Act, 2017 (“IGST Act”), Union Territory Goods and Service Tax Act, 2017 (“UTGST Act”) and the Goods and Service Tax (Compensation to States) Act, 2017 (“GST Compensation to States Act”)]. The said amendments were placed before the Parliament (and the State legislatures) for carrying out amendments in the respective GST legislations – the Ministry of Law and Justice published that the amendment bills to all the GST laws received presidential assent (after being passed by the Parliament) on 29th August 2018. However, it is only now, on 1st February, 2019 that these amendments will come into force – even then, about six of those amendments are not being notified, as per Notification No. 2/2019-Central Tax F.No.20/06/16/2018-GST (Pt. II) Dated 29th January, 2019 (and corresponding State GST notifications).

Some of the amendments which are relevant from a tax controversy management perspective are discussed below in brief:

(i) Addition of Explanation to the definition of ‘Service’ retrospectively to include “facilitating or arranging transaction in securities” - a positive change inasmuch as it obviates doubts about taxability of activity of facilitating or arranging transaction in securities which emanated owing to the fact that ‘securities’ were kept outside the purview of definition of ‘goods’ and ‘services’ under the CGST Act.

(ii) Retrospective Amendment in the definition of ‘Supply’ - for any activity to qualify as a ‘supply’ under GST, mere inclusion in Schedule II (“ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES”) would not suffice; the said activity has to qualify as ‘supply’ first [under Section 7(1)] and only then it would get further classified as ‘supply of service’ or ‘supply of goods’ as per Schedule II. This will add welcome clarity to the concept of ‘Supply’ and would go a long way in affecting existing advance rulings as well as mitigating future litigation.

(iii) Schedule III changes to end confusion apropos GST liability on in-bond sales and high sea sales: Welcome as these changes are, doubt arises as to whether these will be prospective or retrospective. Unlike some of the other provisions, these provisions have not specifically been given retrospective effect in the CGST Amendment Act. However, since the aforesaid issues were clarified by the Government on earlier occasions, assessees would be tempted to apply these retrospectively (being clarificatory in nature). It is hoped that the tax authorities accept such retrospective interpretation as that would help in reducing unwarranted litigations for the past period.

(iv) Power of recovery extended to ‘distinct persons’ - Explanation 1 have been inserted in section 79 (1) of the CGST Act to provide that ‘person’ under this section shall include ‘distinct persons’ too. This is probably to ensure that tax authorities have the power of recovery of tax demands from ‘distinct persons’ present in different States / UTs in order to ensure speedy recovery from other establishments of the registered person – basically, CGST liability for a registered office in Gurgaon, Haryana can be recovered from another registered branch office in Mumbai, Maharashtra

(v) Ceiling in ‘Mandatory Pre-deposit’ provisions - Vide the amendment, a ceiling of Rs. 50 crores (factoring total pre-deposit under CGST+SGST or under IGST) is being introduced for filing an appeal before the Appellate Authority and further Rs. 100 crores (factoring total pre-deposit under CGST+SGST or under IGST) for filing an appeal before the Appellate Tribunal.

Thus, while under the erstwhile Central Excise/ Service Tax law, an assessee/appellant was required to make a mandatory pre-deposit of only 10% till second appeal stage subject to a maximum ceiling of Rs. 10 crores, under GST a comparably placed assessee/appellant would be required to deposit 30% of tax in dispute subject to an overall ceiling of Rs. 100 crores – a hike of ten-times! Such high pre-deposit provisions may be vulnerable to legal challenge through writ petitions as being ‘arbitrary, extortionate, disproportionate, a colourable device effectively nullifying the right of assessees to file appeal etc’.

Boon in High Sea Sales (HSS) and drop shipment:

Indian players were disrupted with the increase in cost of Drop shipment / High seas transaction on account of the GST input reversals associated with such transactions before the CGST Amendment. To reduce the cost of input tax reversal and to par the Indian Economy with the international trade practises, Government has amended the CGST Act, 2017 by covering the “High seas sales” including “Drop Shipment” in Schedule –III Supplies. Besides the same, the government has also inserted an explanation to section 17(3) of the CGST Act, 2017 which states that for the purpose of this section, the exempt supply shall not include the value of activities or transactions specified in Schedule III.

Meaning thereby, the entity shall not be required to reverse the Input Tax Credit in respect of drop shipment and High seas sales in terms of rule 42 & 43 of CGST Rules, 2017 resulting in boon in foreign exchange earnings from such trade transactions from India.