Analysis of Indirect Tax provisions in new Finance Bill
CA. Neha Jain D
Member of the Institute | Contact: nehajain1180@gmail.com, eboard@icai.in
“Being the first budget in the Amrit Kaal, India has laid its foundation to steer the economy for India@100. The ‘Sabka saath, sabka prayas’ moto of the government has driven the economy despite the global slowdown on account of the war and Covid-19. As it is rightly said, ‘A step in the right direction is better than 100 years thinking about it’. With the key vision, India@100, the Budget 2023 is set on 7 priorities ‘the Saptarishi’– Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power, and Financial Sector. On the indirect tax front, the Finance Bill 2023 focuses on consistency, certainty and proposes radical changes around various aspects such as ease of doing business, rationalization of duties and taxes, review of existing exemptions, speedier clearance of litigation, stronger compliance and trade facilitation measures.”
Part A: Important Changes Proposed in Customs vide Finance Bill 2023
The proposed amendments in the Customs laws are based on the key intent of ‘Make in India’ and to make India a global brand. It focuses on enhancing the ease of doing business by providing a level playing field to MSMEs, boosting domestic manufacturing, enhancing domestic value addition, and encouraging green energy mobility. Also, measures have been taken to boost key sectors such as chemicals, marine products, lab-grown diamonds, and electronics.
1. Removing the 2-Year Validity Sunset on Conditional Customs Exemptions (Section 25)
In line with the budget intent, Section 25 of the Customs Act, 1962 has been amended to remove the rigid 2-year statutory validity review clause under Section 25(4A) for specific strategic imports/exports.
- Excluded from Automatic Expiry: Bilateral/multilateral Free Trade Agreements (FTAs), temporary imports or re-imports, and Foreign Trade Policy schemes (such as EPCG and Advance Authorisation).
- Scope of Review: The mandatory 2-year review is now restricted exclusively to Basic Customs Duty (BCD). Other levies—such as safeguard duties, anti-dumping duties, and IGST—are exempt from mandatory 2-year expiry, providing policy certainty for long-term industrial investment.
2. Swifter Dispute Resolution under Customs Settlement Commission (Section 127B)
To eliminate protracted litigation delays, an amendment fixes a strict time limit of nine months from the last day of the month in which an application under Section 127B is made. If proceedings are not completed within 9 months, the settlement process abates and the case stands referred back to the adjudicating authority as if no application had been filed.
3. Strategic Rationalisation of Duties Across Key Growth Sectors
- Make in India Raw Materials: Removal of redundant exemptions to eliminate inverted duty structures and incentivize domestic value addition.
- Lab-Grown Diamonds: Basic customs duty reduced on seeds used in manufacture to establish global leadership and offset natural diamond depletion.
- Marine Products: Duty reductions on key imported feed inputs to support coastal aquaculture farmers and augment marine export competitiveness.
- Green Mobility & Energy: Complete exemption extended on import of capital goods and machinery for manufacturing lithium-ion cells for electric vehicle (EV) batteries.
4. Anti-Dumping & Countervailing Duty Determinations (Sections 9, 9A, 9C)
Amendments recognize the ‘determination’ or ‘review’ by the designated authority as valid for extending CVD or anti-dumping levies. Crucially, orders and determinations of the designated authority are made appealable before the CESTAT with retrospective effect from 1st January 1995.
Part B: Important Changes Proposed in GST vide Finance Bill 2023
Goods and Services Tax was introduced to fulfill the ‘One Nation One Tax’ vision. While value addition across supply chains has accelerated, the Finance Bill 2023 introduces targeted statutory realignments and compliance guardrails:
1. Restriction of Input Tax Credit on CSR Expenditures [Section 17(5)(fa)]
Under Section 135 of the Companies Act, 2013, companies meeting statutory thresholds (Net Worth $ge$ ₹500 Cr, Turnover $ge$ ₹1,000 Cr, or Net Profit $ge$ ₹5 Cr) must mandatorily spend at least 2% of average net profits on Corporate Social Responsibility (CSR).
(fa) in Section 17(5) of the CGST Act, 2017 explicitly classifies goods or services used or intended to be used for activities relating to CSR obligations under Section 135 as ineligible blocked credit.
Tax Implication: Disperses judicial divergence comparing CSR to mandatory canteen expenses. Because this amendment is prospective, taxpayers maintain a tenable legal position that ITC on CSR incurred prior to this amendment remains legally allowable.
2. Realignment of 180-Day ITC Reversal & Interest Mechanism [Section 16(2)]
The second proviso to Section 16(2) has been amended to remove the earlier anomaly requiring unpaid vendor ITC (beyond 180 days) to be added to output tax liability. It is now aligned with GSTR-3B disclosure as an explicit ITC reversal. Furthermore, interest liability under Section 50 applies only where such availed credit was actually utilized by the taxpayer.
3. High-Sea Sales & Warehoused Goods: Retrospective Exclusion vs. ITC Reversal
- Section 17(3) Amendment: Explanation to Section 17(3) incorporates transactions covered by Paragraph 8 of Schedule III (supply of warehoused goods before customs clearance and high-sea sales) as ‘exempt supplies’, mandating proportionate reversal of common input tax credits.
- Retrospective Exemption w.e.f. 1st July 2017: High-sea sales, merchant trade transactions, and bonded warehouse supplies are deemed non-supplies under Schedule III retrospectively from GST inception. No refunds are allowed for taxes already deposited, but open departmental audit notices on such past transactions stand regularized.
4. Strict Three-Year Outer Time Limit for Filing GST Returns
Taxpayers (including non-resident taxable persons, composition dealers, and e-commerce operators) are barred from furnishing monthly/quarterly returns (GSTR-1, GSTR-3B, GSTR-4, GSTR-8) and Annual Returns (GSTR-9/9C) after the expiry of a maximum period of three years from the statutory due date.
5. Overhaul of OIDAR Services & Non-Taxable Online Recipient (NTOR)
The scope of Online Information Database Access and Retrieval (OIDAR) services has been substantially expanded:
- Removal of Automation Threshold: The statutory clause requiring delivery to be “essentially automated and involving minimal human intervention” has been omitted. Consequently, services mediated via IT networks (such as live webinars, online coaching, and interactive digital lectures) fall under OIDAR taxability.
- Redefining NTOR: The condition that services received by an unregistered individual must be “for purposes other than commerce, industry or business” has been deleted. Any unregistered recipient (including persons registered solely for TDS under Section 24(vi)) qualifies as an NTOR, requiring overseas suppliers to discharge IGST in India under simplified registration.
6. Enabling E-Commerce Access for Composition Taxpayers
Small businesses registered under the composition levy (Section 10) are now permitted to supply goods intra-State through electronic commerce operators (ECOs).
ECO Penalties: E-commerce operators permitting ineligible inter-State supplies by composition dealers or unregistered persons face a statutory penalty of ₹10,000 or the tax involved, whichever is higher.
7. Decriminalisation of GST Offences & Compounding Rationalisation
- Decriminalised Offences: Obstruction of investigating officers, failure to supply information, and tampering with material evidence are omitted from criminal prosecution under Section 132.
- Higher Prosecution Threshold: The monetary floor for launching criminal prosecution is doubled from ₹1 Crore to ₹2 Crore (except for fake invoice generation without actual supply).
- Compounding Slabs Reduced: Compounding fees under Section 138 are substantially lowered from 50%–150% down to 25%–100% of tax involved, eliminating the ₹1 Crore restriction.
8. Place of Supply, Refund Interest & Portal Data Sharing
- Overriding Non-Registration (Section 23 vs 24): Section 23 is granted overriding effect over Section 24, exempting persons engaged exclusively in exempt supplies from mandatory registration even if receiving RCM supplies.
- Transportation Place of Supply: Section 12(8) proviso omitted; place of supply for transportation of goods outside India is location of recipient (if registered) or location where goods are handed over (if unregistered).
- Refund Interest Computation (Section 56): Interest on delayed refunds is explicitly computed for the period of delay exceeding sixty days from application receipt.
- Inter-Agency Data Sharing (Section 158A): Authorizes common portal sharing of registration, return, and e-way bill data with other government authorities.
- CESTAT Tribunal Succession: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) is formally appointed to succeed the Authority for Advance Rulings and Central Sales Tax Appellate Authority.
Conclusion: Balancing Trade Facilitation with Fiscal Vigilance
The Finance Bill 2023 solidifies India’s economic momentum in the first year of Amrit Kaal to achieve the vision of India@100. Buoyant and progressive GST collections demonstrate that government facilitation of entrepreneurship and ease of compliance is delivering robust results.
The inter-agency fungibility of portal information under Section 158A curbs fraudulent practices, while the calibrated rationalisation of Customs duties provides domestic manufacturing with the impetus needed for AtmaNirbhar Bharat. The indirect tax proposals represent a balanced yardstick for sustainable macroeconomic growth.