Analysis of Union Budget 2023-24 : Proposals on Indirect Taxes

(i) As per the current provisions, if a recipient does not make the payment of the value of supply to the supplier within 180 days, he would be required to add the ITC availed to his output tax liability. To align with the return filing system, the amended proviso to section 16(2) of the CGST Act 2017 provides for ITC reversal along with interest u/s 50 in such cases. The respective change in the corresponding rule 37 had already been carried out vide Notification No. 19/2022 - CT dated 28.09.2022 w.e.f 1st October 2022.

(ii) Further, after making payment of such amount, one can re-avail the credit without any time limit. To clarify further, it has been provided that re-availment would only be allowed if the said value of supply has been paid to the supplier. This may bring into question cases where a recipient makes the payment of the value of supply to any other person other than the supplier (e.g., disputed rent paid under the Rent Control law, direct payment to the Government instead of the creditor as part of recovery provisions under section 79 etc.)

(i) Warehoused Goods ITC Overturn: It seems that the explanation to section 17(3) is proposed to be amended to overturn the decisions of Sandeep Patil v. UOI [2019(31) GSTL 398-Mum] and CIAL Duty Free [2020(42) GSTL 481-Kerala], wherein it was held that supply of warehoused goods before clearance for home consumption would not preclude the supplier’s claim of ITC.

(ii) Retrospective vs Prospective Litigation Risk: However, the amendment may give rise to litigation as to whether the same will have prospective or retrospective effect. In the case of Commissioner v. Prakash Shree Processing [2017 (345) ELT 178 (SC)], the Hon’ble Apex Court held that amendment made by way of insertion of explanation seeks to clarify the existing provision of law and thereby construed as being applicable retrospectively. However, in this case, the amendment increases the scope of the provision and is not merely clarifying the existing provision.

(iii) High Sea Sales Distinction: It may be worth mentioning that high sea sales (i.e., goods sold after dispatch from the port of origin outside India before clearance for home consumption) would still not be treated as an exempt supply for the purpose of ITC reversal.

(iv) CSR Historical Debate: It has always been a matter of debate whether ITC would be eligible to companies in respect of goods or services or both used for meeting the obligations of Corporate Social Responsibility under section 135 of the Companies Act 2013. It was argued that the same not be considered as a gift which is gratuitous and without any contractual obligations and hence, the disallowance under section 17(5)(h) could not be attracted.

(v) Final CSR Dispute Resolution: However, all such dispute have been put to rest by the proposed amendment which provides that such obligations met by eligible companies as part of their CSR would not be eligible to avail ITC. Since this amendment is prospective, one can take a stand that ITC on such expenses would be eligible before this amendment stands notified. It may also be noted that only the companies mandated for CSR under section 135 of the Companies Act, 2013 would be affected by this amendment.

(i) During the introduction of GST, there was a concept of provisional ITC till the same stood matched and accepted by the recipient. Since the one to one matching of ITC by recipient in GSTR-2 was never implemented, this only remained a theoretical concept under the law. Hence, this provision was altered, and the concept of provisional ITC was scrapped at multiple places through Finance Act, 2022. However, it was omitted to be removed from the provisional refund provisions in section 54(6).

(ii) To streamline this, the provisional refund provisions allowing 90% of claimable refunds have been modified to exclude the concept of provisional ITC therefrom. This will remove the anomaly which existed in the law as explained above.

(i) Section 56 of the CGST Act, 2017 provides for interest on delayed refund where the amount is not received within 60 days from the date of receipt of application. Currently, the law does not provide any specific manner of computation of interest and conditions / restrictions, if any, for this purpose.

(ii) Section 56 is proposed to be amended to provide an enabling provision for manner of computation of such interest on delayed refunds along with the relevant conditions and restrictions. Hence, one can expect the rules prescribing the manner and conditions/restrictions for computing the interest on delayed refund to be inserted after such provision gets notified.

(i) The responsibility has now been cast upon such electronic commerce operators to ensure that only eligible persons are allowed to supply through their portals.

(ii) In the following cases, the said electronic commerce operator would be liable to a penalty of a higher of Rs. 10,000 or the tax amount involved:

• A. Any unregistered person who was liable to be registered and not exempted by way of notification, is allowed to make the supply of goods or services through the website of such electronic commerce operators.
• B. A composition dealer (not otherwise permitted to make inter-state supply under GST) is allowed to make inter-state supply through the website of such electronic commerce operators.
• C. Fails to furnish information regarding supplies made by an unregistered person through its website in GSTR-8.

(iii) The tax amount involved in point (ii) would be computed assuming that the supply been made by a regular tax payer.

(i) Decriminalized Offences: Through the proposed amendment in section 132 of the CGST Act 2017, the following offences would be decriminalized and no prosecution would be launched against them:

• a) Obstruction or prevention of an officer in discharge of his duties;
• b) Tampering with or destroying any material evidence or documents;
• c) Failure to supply information or supplying false information required under the law.

(ii) Monetary Prosecution Threshold: Further, the limit for prosecution is proposed to be increased from Rs. 1 crore to Rs. 2 crores for all the offences except if the person is engaged in the issuance of fake invoices without actual supply of goods or services. Only for the issuance of fake invoices, the limit of Rs. 1 crore would still continue for the purpose of prosecution.

(i) Procedural Relaxation: Section 138 of the CGST Act 2017 allows for the compounding of certain offences upon payment of the applicable amount and offers protection from further proceedings under the GST law. The following amendments have been proposed to such provisions:

• a) Value limit of Rs. 1 crore for supply in respect of compounding of certain offences is proposed to be removed.
• b) Earlier, a person accused of committing an offence under any other law could not apply for compounding. This restriction is proposed to be removed.

(ii) Alignment with Prosecution: Certain offences are proposed to be removed from prosecution provisions (as provided in point no. 14 above). Therefore, there would not be compounding for such offences for which prosecution is not provided under law.

(iii) Revised limits for compounding amount: Section 138(2) of the CGST Act 2017 provides the minimum and maximum limit for compounding of offences. The limit for compounding is proposed to be revised as below:

(i) Serial No. 7 and 8 of Schedule III of the CGST Act 2017 has been proposed to be applicable retrospectively from 1st July 2017. These entries are as follows:

(ii) The aforesaid transactions are popularly called as high sea sales, sales from customs bonded warehouses and merchant trading sales i.e. where sales take place before clearance for home consumption. Such supplies have been considered as neither a supply of goods nor a supply of services under Schedule III of the CGST Act 2017 effective from 1st February 2019. Due to persisting debates and doubts for the earlier period i.e., 1st July 2017 to 31st January 2019, Schedule III is proposed to be amended to provide that this amendment would be applicable for the said period also.

(i) General Definition: The OIDAR services are defined under section 2(17) of the IGST Act to mean services such as, advertising on the internet, providing cloud services, e-books, movie, music, software, gaming, etc.

(ii) Significant Expansion of OIDAR Scope: The scope of OIDAR services was restricted to cases which were essentially automated and not involving human intervention and were impossible to ensure in absence of information technology. The definition of online information and database access or retrieval services has been amended to omit the condition that the supply should be essentially automated and involving minimal human intervention. After the amendment, the only condition would be that the supplies are impossible to ensure in absence of IT. Without checking for automation or minimum human intervention, the supplies would be classified as OIDAR if they cannot be supplied without the assistance of information technology. Thereby, the scope of such OIDAR services seems to have been significantly expanded.

(iii) Non-taxable online recipient (NTOR): Where services are provided in the nature of ‘online information and database access or retrieval services’ (like internet ads, cloud services, online e-books/music/movie/software/digital content/gaming etc.) and the same are received by a non-taxable online recipient for purposes other than commerce, industry or business, the tax is liable to be paid by the supplier even if located outside India.

(iv) Elimination of Commerce/Industry Filter: Further, the condition that it should not be for business purposes is proposed to be removed. Therefore, any unregistered person taking such services for business purposes would not be liable to register under GST and pay taxes under RCM. Such taxes would continue to be discharged by the foreign supplier.

(i) Historical Background: With effect from 1st February 2019, proviso to section 12(8) was inserted to provide the place of supply in case of transportation of goods as the destination of goods where the location of the supplier and recipient were in India and the destination of goods was outside India.

(ii) Billing Issues & Circular 184: Therefore, the logistics company taking goods out of India have been invoicing with IGST by showing the place of supply as ‘Other territory’ or ‘Foreign Country’. Thus, the revenue from such supply has not been accruing in the favor of the state where the recipient is located. In such cases, these have been disputes with regard to ITC. Recently a clarification has been issued vide Circular no. 184/16/2022-GST dated 27th December 2022 that the ITC would be fully available in such cases.

(iii) Revenue Shift & Anomaly Removal: Despite this clarification, the recipient state (i.e. where the exporter is located) would be incurring a loss because it would not receive the revenue directly from the original supply but still provide ITC benefit to the exporter. To remove this anomaly and confusion regarding ITC availability, the place of supply provisions has been amended.

(iv) Reformed Place of Supply Rules for Export Freight: The place of supply even where the destination of goods is outside India would be as follows for the transportation of goods: