India: Highlights Of The Proposed Amendments To GST Laws

Last Updated: 18 July 2018
Article by SKP  

The GST Council has published a list of proposed amendments to the GST legislation on www.mygov.in and has invited comments from various stakeholders and the public at large by 15 July 2018. Certain key proposed amendments and their potential effect have been highlighted below.

Proposed amendment*

Effect of the proposed amendment

Remarks

Services of facilitating or arranging transaction in securities proposed to be taxable

Inserting an explanation to expand the definition of 'services' - Section 2(102)

Securities have been specifically excluded from the definition of 'goods' and 'services' in the CGST Act.

Earlier, the Central Board of Indirect Taxes and Customs (CBIC) had released an FAQ specifically for the Banking Sector wherein it was clarified that any service charges, service fees, broking fees, etc. charged in relation to the transaction in securities, would be chargeable to GST as it is a consideration for the provision of service.

Now, it has been proposed to incorporate this in the GST law vide an explanation in the definition of service.

The proposed amendment seeks to clarify that the expression "services" includes facilitating or arranging transaction in securities bringing these into the GST ambit.

Activities in Schedule II not to qualify as supply automatically

Deletion of a clause in the definition of 'supply' - Section 7

  • Schedule II of CGST Act, 2017 intends to distinguish certain supplies as either a supply of goods or a supply of service.
  • Clause (d) of Section 7 states that activities to be treated as a supply of goods or services in certain cases are referred to in Schedule II.
  • The drafting of Section 7 may lead to an inference that an activity listed in Schedule II would be deemed to be a supply even if it does not fulfill the other criteria to qualify as a 'supply.'
  • Suitable amendments have been proposed to clarify that merely because an activity falls under Schedule II, it does not necessarily qualify as a supply.

The proposed amendment seeks to clarify the intent of the GST Council that Schedule II merely distinguishes a supply as either supply of goods or a supply of service. Whether an activity qualifies as a 'supply' will depend solely on whether it fulfills the criteria laid down in Section 7(1).

Drop shipment and intermediate supplies from customs bonded warehouse outside GST

Inserting clauses to Schedule III - Activities which are to be treated neither as a supply of goods nor supply of services

Sale of imported goods outside India (Drop shipment)
The Authority for Advance Ruling (AAR), Kerala had held that sale of imported goods outside India, without such goods entering into India at any stage, would not be taxable under GST since the goods cannot be said to have been imported in India in accordance with the provisions of the IGST Act, 2017.

Now, the government has proposed to specifically exclude such sale from the ambit of 'supply,' thereby confirming the view adopted by AAR.

Supply of goods deposited in Customs bonded warehouse
The government vide Circular No. 3/1/2018-IGST dated 25 May 2018 had clarified that IGST should be collected on the supply of goods deposited in Customs bonded warehouse only at the time of their clearance for home consumption. Any intermediate supply when the goods are deposited in such warehouse would not be chargeable to GST.

Now, the government has proposed to specifically exclude such intermediate sale from the ambit of 'supply' by adding it to Schedule III.

  • Sale of imported goods outside India and goods deposited in Customs bonded warehouse have been proposed to be specifically excluded from GST.
  • Another amendment has been proposed to specify that there should be no reversal of Input Tax Credit (ITC) in respect of such sales.

RCM on inward supplies from unregistered dealers only if specifically notified

Amending - Section 9(4)

Section 9(4) mandates that all persons registered under GST should pay tax under Reverse Charge Mechanism (RCM) on their inward supplies from an unregistered dealer. This provision is currently under suspension till 30 September 2018.

Now, it has been proposed to dilute the scope of the said provision by providing an enabling power to the government to notify such specific category of registered persons who need to pay tax under RCM in accordance with this provision.

Addressing the concerns raised by the industry, it has been proposed to permanently suspend the provision of RCM on inward supplies from unregistered dealers to the extent that they apply to all registered persons. Now, the government may notify certain select category of registered persons who will be required to adhere to this provision.

Interest not applicable on the reversal of ITC on account of non-payment to the supplier within 180 days

Amendment - Second Proviso to Section 16(2)

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 ITC availed in respect of such supply to his outward tax liability, along with interest thereon.

Now, an amendment has been proposed whereby interest would not be required to be paid in such cases.

The GST Council has re-visited the provision of levying interest on such outward liability and has deemed it as too onerous and therefore proposed its removal.

No reversal of ITC required in case of activities covered in Schedule III

Amendment to the value of exempt supply for reversal of ITC - Section 17(3)

It has been proposed that value of exempt supply for the determination of the amount of reversal of ITC should exclude the value of activities or transactions covered under Schedule III, except in case of sale of land and building.

As a taxpayer-friendly measure, it has been proposed to allow availment of ITC in respect of activities specified in Schedule III by excluding it from the ambit of exempt supply on which ITC is blocked.

ITC on motor vehicles proposed to be liberalized

Amendments to restrictions in claiming ITC - Section 17(5)

  • ITC in respect of motor vehicles and other conveyances is available only if such motor vehicles or conveyances are used in the supply of certain specific taxable supplies such as the further supply of such vehicles, transportation of passengers, imparting training and transportation of goods.
  • It has been proposed that such restriction would apply only in relation to a motor vehicle having a capacity of up to 13 persons, vessels or aircraft.
  • Another amendment has been proposed to allow ITC in respect of such motor vehicles if they are used for transportation of money for or by a banking company or a financial institution.
  • It has been proposed that where the availment of ITC is restricted in accordance with the above, any corresponding ITC in respect of general insurance, repair and maintenance of such motor vehicles, vehicles and aircrafts would also be ineligible.
  • ITC in respect of renting of such motor vehicles, vessels and aircrafts are also proposed to be restricted unless they are used for the outward supply of the same category.
  • ITC to be allowed if the goods or services is obligatory for the employer to provide under any law for the time being in force.
  • The proposed amendment seeks to clarify that ITC would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles. After the amendment is carried out, ITC would be denied only in respect of motor vehicles for transport of persons having approved seating capacity of not more than 13 persons (including the driver), vessels and aircraft when these are used for personal purposes.
  • Furthermore, allowing ITC when the goods or services provided to employees are obligatory under any law will come as a major relief to businesses.

Linkage of credit notes to specific invoices proposed to be discontinued - Sections 34(1) and 34(3)

At present, credit note and debit note are to be linked with specific invoices.

It has been proposed to allow issuance of consolidated credit and debit notes in respect of multiple invoices issued in a financial year, without linking them invoice-wise.

This amendment would provide a major relief specifically to industries where the vendors are provided year-end discounts on the basis of the value of transactions during the year.

Facility to furnish revised returns proposed - Section 39(9)

  • It has been proposed to allow taxpayers to amend their GST returns.
  • In the pre-GST regime, amendment of returns filed was permitted under various indirect tax laws.

This amendment would provide a huge relief to the industry by allowing businesses to rectify any errors or omissions in their GST returns.

Insertion of the section to introduce a new simplified return filing mechanism - Section 43A

The GST Council in its 26th meeting held on 4 May 2018 had approved the simplified return filing system which is bound to be implemented in a phased manner.

In view of this, it has been proposed to provide an enabling power to the government to notify the revised return filing procedure as may be approved by the GST Council.

This amendment would pave the way for implementation of revised return filing procedure as and when approved by the GST Council.

Refund on account of supplies to SEZ subject to the principle of unjust enrichment - 54(8)(a)

It is proposed to amend section 54(8)(a) in order to provide 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. Thus, it has been proposed to be made applicable in cases where the taxpayer located in Domestic Tariff Area has charged GST on its supplies to SEZ developer/unit.

Amendment to condition for receipt of foreign exchange to qualify as export of service - Explanation 2(c)(i) of Section 54

  • In case of exports of goods to Nepal and Bhutan, the payment is received in INR as per RBI regulations.
  • Now, an amendment has been proposed to allow receipt in INR for refund in case of such exports.
  • A similar amendment is proposed in Section 2(6)(iv) of IGST Act, 2017 to cover exports of services to Nepal and Bhutan.

The amendment has been proposed to harmonize the GST law with the RBI regulations governing exports to Nepal and Bhutan.

Amendment to pre-deposit in case of appeals - Sections 107(6) & 112(8)

An appellant is required to pay a sum equal to 10% of the tax in dispute in case of appeal before the Appellate Authority and 20% of the tax in dispute in case of appeal before the Appellate Tribunal.

It has been proposed to restrict such pre-deposit payable to INR 250 million for filing an appeal before the Appellate Authority and a ceiling of INR 500 million for filing an appeal before the Appellate Tribunal.

The amendment has been proposed as a tax-friendly measure especially in cases where the tax demanded exceeds hundreds of millions of rupees.

Inserting explanation in transitional credit provisions- Section 140(1)

It has been proposed to clarify that eligible duties and taxes excludes any cess which has not been specified and any cess collected as an additional duty of Customs under Section 3(1) of the Customs Tariff Act, 1975.

The proposed amendment seeks to clarify that cesses under the erstwhile indirect tax laws such as Krishi Kalyan Cess would not be allowed to be carried forward under the GST regime.

Insertion of proviso to place of supply in case of transportation services - Section 12(8) of IGST Act, 2017

It has been proposed that place of supply of transportation services in relation to goods being exported outside India, shall be the destination of such goods. Accordingly, such transportation services would not be chargeable to GST.

This amendment has been proposed to provide a level playing field for the domestic transportation companies and promote the export of goods.

Treatment or process on goods imported temporarily to qualify as export - Proviso to Section 13(3)(a) of IGST Act, 2017

It has been proposed not to tax job work of any treatment or process done on goods temporarily imported into India which is then exported. Accordingly, an amendment has been proposed in the place of supply provisions by which the place of supply in such cases would be the location of the recipient of services, i.e. outside India.

Earlier such benefit was available only for goods temporarily imported for repairs.

This is a taxpayer-friendly amendment to encourage skill development in the country.

* The section numbers refer to the sections of the CGST Act, 2017, unless specified otherwise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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