Recent changes proposed under GST and Customs
CA. Neha Jain D
Member of the Institute • Contact: nehajain1180@gmail.com & eboard@icai.in
Executive Synopsis: Amrit Kaal & India@100 Blueprint
India is progressively reviving itself from the pandemic and marking its “Azadi ka Amrit Mahotsav”. As the adage declares, “A journey of a thousand leagues begins with a single step.” The Union Budget 2022 seeks to lay the foundation and provide a definitive blueprint to steer the national economy over the Amrit Kaal of the next 25 years, focusing firmly on the vision of India@100.
The strategic vision of India@100 rests upon four foundational pillars: (1) PM Gati Shakti, (2) Inclusive Development, (3) Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action, and (4) Financing of Investment. On the indirect tax front, the Finance Bill 2022 introduces radical legislative reforms focused on enhancing ease of doing business, rationalising customs tariffs, overhauling exemptions, establishing stronger digital compliance, and advancing trade facilitation.
Part I: Important Changes Proposed in Customs vide Finance Bill 2022
Policy Objectives & Commercial Data Privacy Protection
The proposed amendments in the Customs Act are anchored in four strategic goals: domestic capacity creation, providing a level playing field to MSMEs, easing raw material supply constraints, and enhancing ease of doing business.
Criminalizing Unauthorized Data Publication: To protect confidential commercial information submitted by importers and exporters in their declarations, the publishing of such trade data, unless explicitly authorized by law, is designated as a punishable statutory offence under the Customs Act.
Curbing Import Undervaluation — Section 14 Amendment
Section 14 of the Customs Act, 1962 (valuation of goods) is amended to empower the Central Government to prescribe specific obligations on importers of certain specified goods to curb undervaluation. This ensures revenue buoyancy for the government exchequer while safeguarding domestic manufacturers against predatory pricing. However, as valuation has historically been an intense battleground of litigation across tax statutes, the exact criteria specified in future notifications will require rigorous scrutiny.
Additional Responsibility on Adjudicating Officials — Insertion of Section 110AA
A notable institutional reform is the insertion of Section 110AA into the Customs Act. Under this section, where an officer conducting an audit, inquiry, search, or investigation has reasons to believe that duty is short-paid, erroneously refunded, or drawback erroneously allowed, the officer must—upon completing such inquiry, investigation, or audit—transfer the complete documentation along with a written report to the jurisdictional adjudicating officer (or the officer to whom the adjudicating officer reports).
Diligence & Bifurcation: This structural change enforces stricter compliance verification and guarantees that the functions of investigation and adjudication are cleanly segregated, demanding high institutional diligence at the adjudication level.
Putting an End to the DRI Jurisdictional Impasse (Canon India Fall-Out)
The landmark Supreme Court judgment in Canon India Private Limited (pronounced in March 2021) held that Directorate of Revenue Intelligence (DRI) officers were not empowered to issue Show Cause Notices (SCNs) or pass adjudication orders under Section 28 of the Customs Act. The Supreme Court ruled that Section 28 used the specific term “the” proper officer, and DRI officers did not qualify as proper officers under Section 2(34) and Section 5 of the Customs Act, 1962.
Retrospective Legislative Overhaul
- Empowerment under Section 2(34): The Finance Bill 2022 amends Section 2(34) with retrospective effect to formally designate DRI officers, officers of Customs (Preventive), and audit officers as “Proper Officers”, entrusting powers under Sections 5 and 6 of the Customs Act.
- Pending Disposals Validated (Clause 96): The Explanation in Clause 96 specifies that any case pending disposal as on the date of enactment will be disposed of in accordance with this retrospective amendment, plugging massive potential revenue leakages.
- Harmonization with Section 110AA: While past SCNs and actions of DRI are validated retrospectively, going forward under Section 110AA, DRI officers conducting investigations must transfer files to jurisdictional officers for issuing notices and adjudication. Thus, past DRI actions are rescued, but future direct adjudication by DRI is curbed.
Customs Duty Rationalisation & Industrial Growth Catalysts
Sunset Clause on Exemptions (Section 25(4A))
Stipulating definitive sunset dates under Section 25(4A) for conditional exemptions to protect domestic industry. Critical exclusions from automatic expiry include international commitments (FTAs, ITAs), Foreign Trade Policy concessions (Advance Authorisation), and Phased Manufacturing Programmes (PMP).
Regional Cess Exemptions
Exemption from Health Cess, Agriculture Infrastructure and Development Cess (AIDC), and Road and Infrastructure Cess (RIC) on imports from neighbouring nations (Bhutan, Nepal, Bangladesh), systematically reducing import dependency on China.
Solar Manufacturing PLI (INR 19,500 Cr)
Additional allocation of INR 19,500 crore under Production Linked Incentive (PLI) for high-efficiency solar photovoltaic modules to attain 280 GW installed solar power capacity by 2030 under Atmanirbhar Bharat Abhiyaan.
Healthcare & Rare Diseases
Aligned with the National Policy for Rare Diseases, 2021, full customs duty exemption is provided on life-saving drugs and medicines imported by designated Centres of Excellence (CoE).
Electronics PMP & 5G Rollout
Phased Manufacturing Programme (PMP) tariff structures introduced for hearables, wearables, and smart meters. Private telecom providers enabled to launch commercial 5G services within FY 2022-23.
Advance Rulings Validity & Overhaul of IGCR Rules, 2017
3-Year Sunset on Customs Advance Rulings
Previously, customs advance rulings remained valid indefinitely until there was a change in law or facts. The Finance Bill 2022 restricts validity to 3 years (or till change in law/facts, whichever is earlier). For existing rulings, validity is capped at 3 years from presidential assent. Importers must strategically weigh advance rulings against direct assessments based on dispute longevity.
Import of Goods at Concessional Rate (IGCR) Rules, 2017
IGCR Rules mandate export of value-added products manufactured using duty-exempt inputs within six months. Key reforms include:
- Digital Compliance via ICEGATE: Transition to end-to-end digital compliance; review intervals reduced from quarterly to monthly.
- IIN & Continuity Bond: Importers must submit an Import of Goods at Concessional Rate Identification Number (IIN) and continuity bond details on the bill of entry (operating as a running debit ledger).
- Capital Goods Clearance: Capital goods used for specified purposes can be cleared on payment of differential duty with interest on depreciated value, with depreciation rates formally prescribed.
- Practical Bottlenecks: Ambiguity remains on whether EOUs operating under B-17 bond (Notification 52/2003-Customs N.T.) require a separate continuity bond, and differences between IGCR depreciation rates and Notification 52/2003 norms require official clarification.
Customs reforms balance stricter border vigilance with global supply chain integration, embodying “vocal for local and local for global”.
Part II: Important Changes Proposed in GST vide Finance Bill 2022
5-Year Trajectory of Input Tax Credit (ITC) & Scrapping of Matching Provisions
GST was conceived to ensure seamless credit flow via an automated tripartite return architecture (GSTR-1 supplier -> GSTR-2 recipient -> GSTR-3 monthly return). Due to IT infrastructure limitations, the matching provisions under Sections 42 and 43 were never operationalized. To curb fake invoicing, Rule 36(4) of the CGST Rules was inserted on 9th October 2019, capping provisional credit at 20% over GSTR-2A, subsequently reduced to 10% (January 2020) and 5% (January 2021). The Finance Act 2021 mandated that credit could be availed only if declared by the supplier and tax remitted, sparking widespread judicial challenges under the doctrine of impossibility.
Formal Repeal of Matching: The Finance Bill 2022 officially removes the defunct matching concept by doing away with Sections 42 and 43 of the CGST Act, 2017, replacing it with a hardcoded statutory return mechanism.
Insertion of Section 16(2)(ba) — Hardcoding Auto-Generated Statements
A decisive amendment is the insertion of Clause (ba) into Section 16(2). ITC can now be availed strictly on the basis of an auto-generated statement (GSTR-2B) appearing on the common portal, reflecting invoice details uploaded by suppliers in GSTR-1, explicitly classifying credit into eligible and ineligible streams.
Self-Assessment & Outward Reconciliation
Credit can only be claimed on a self-assessment basis (provisional credit eliminated). Outward supplies reported in GSTR-3B cannot be lower than those declared in GSTR-1 of that month, guaranteeing tax remittance.
Vendor Vigilance & Credit Blockage Risk
Recipient’s credit is tied to supplier tax payment and correct ITC declaration. Non-filing by vendors causes immediate credit blockage, demanding rigorous vendor screening and communication.
Retrospective Overhaul of Section 50(3) — Interest on Wrongly Availed & Utilised ITC
Consequent to scrapping matching under Sections 42 and 43, Section 50(3) of the CGST Act is amended retrospectively. Interest on ineligible ITC will be levied only when credit has been wrongly availed AND utilised.
Major Taxpayer Relief: If an assessee merely availed ineligible ITC in the electronic credit ledger without utilizing it to discharge outward tax liabilities, no interest penalty can be imposed retrospectively, bringing long-awaited closure to contentious litigation.
Extended Cut-Off: 30th November
The statutory time limit for availing input tax credit and issuing credit notes or debit notes pertaining to a financial year has been extended from 30th September to 30th November of the subsequent financial year. This provides two additional months for annual reconciliation, vendor communications, and adjustments before final balance sheet finalization.
Cross-Registration Fungibility (PMT-09)
Amendment to the cash ledger mechanism allows transferring balances available in the electronic cash ledger (tax, interest, penalty, fee) between different GST registrations of the same PAN across states (IGST and CGST), provided no liability is pending in the transferor’s electronic liability register.
Automated Registration Cancellation & SEZ Framework Overhaul
Automated Registration Cancellation
Beyond traditional suo moto cancellations under Section 46 for 6 months default, registration cancellation will now be automated where a return is not filed beyond 3 months from the due date in a financial year, protecting revenue and eliminating non-compliant fly-by-night operators.
Revamping SEZ Laws & Refund Timelines
A new comprehensive SEZ legislation is slated by 30th September 2022 to optimize infrastructure. SEZ compliance will be monitored via the Customs portal. For GST refunds on SEZ supplies, the relevant date is fixed as 2 years from the due date of furnishing GSTR-3B under Section 39.
Conclusion: Amrit Kaal Reforms for India@100
The Finance Bill 2022 indirect tax proposals present a coherent matrix of trade facilitation and anti-evasion safeguards. Providing additional time for ITC availment, cash ledger fungibility across states under the same PAN, retrospective interest relief under Section 50(3), digitization of IGCR rules, rationalisation of customs tariffs, and revamping SEZ laws collectively advance India’s ease of doing business and litigation reduction. As these legislative changes stabilize during Amrit Kaal, the seeds sown today will yield substantial economic dividends for India@100.