RECENT DEVELOPMENTS IN GST

[Dr. Sanjiv Agarwal]

According to RBI, Indian economy remains resilient amid global economic outlook and tensions. The World Bank has raised India’s growth forecast for financial year 2025 to 7% in the backdrop of monsoon and private consumption.

Recenlty, Finance Minster had stated that there is no friction on GST with the states and that simplifying and easing compliance on taxpayer is a priority rather than raising revenue. Further, efforts must be made to avoid evasion and addressing the concern so much so that taxpayer starts thinking that it is better and easier to comply than to evade.

New section 128A in CGST law provides for waiver of interest and penalty in eligible cases which also aims for reduction of tax litigation. The Finance (No. 2) Act, 2024 was enacted on 16 August, 2024 but the said section as well as relevant rules have not yet been notified. Since the last date is already announced (31.03.2025), it is desirable that the same is open at the earliest.

54^th GST Council meeting took place at New Delhi on 9^th September, 2024. It formed two Group of Ministers for life insurance & health insurance and for continuity of compensation cess beyond March, 2026 and discussed the status on rate rationalization and taxation of online gaming. The Council approved regularization of taxation on ‘as is where is’ basis on certain issues such as affiliation fees, film distribution, airlines etc. It also tweaked the rates and exemptions in respect of few goods and services, besides bringing reverse charge on commercial renting and metal scrap supply. The next (55^th) GST Council meeting may take place now in November, 2024 to take call on the unfinished agenda including rationalization of GST rates, exemption to life insurance and health insurance, compensation cess etc.

Of late, it has been that the all empowered GST Council has been simplifying the things by way of regularizing the existing or past non-compliances on ‘as is where is’ basis. While this practice enables the ease of doing business besides putting a full stop to the ongoing disputes, it may also encourage such other non-compliances to continue in the hope of getting regularized in future. It is desirable that such issues should not arise in first place for which suitable clarification must be issued at the initial stage itself and the tax authorities should also be advised accordingly. However, regularization on ‘as is basis’ ensures reduction in litigation, better compliance without any extra cost as no refunds are supposed to be made on taxes already paid.

Also, GST Council should focus on core reforms and macro issues leading to tax efficiency, better tax administration, widening the scope of supply, rates rationalization, cess etc. It should not be dealing with interpretational issues and approving clarifications which should be left to tax administration and policy makers. Tweaking the tax rates and exemptions or changing the clarifications should be left to tax legal and judicial bodies. It should focus on reforms and improvement in architecture of GST framework.

Bringing commercial renting into reverse charge basis may add to tax revenue but it will become cumbersome for taxpayers as even small businesses who use immovable property on rental basis, may have to register for reverse charge under GST.

CBIC shall introduce Invoice Management System w.e.f. 1^st October, 2024 to enhance input tax credit eco system by way of new Invoice Management System (IMS). This will allow recipient taxpayers to either accept or reject invoice or to keep it pending. The accepted invoices will become part of their GSTR 2B and eligible credit.

GST Council 54^th Meeting: Major Takeaways

GST Council met for its 54^th Meeting on 9^th September, 2024 and deliberated / decided / recommended on the following issues:

• Group of Ministers (GoM) for:

• GST on life & health insurance
• GST rate rationalization
• Future of Compensation Cess

• Clarifications to be issued on:

• Flying training courses conducted by DGCI to be exempt.
• Affiliation services provided by University are taxable
• ITC on demo vehicles
• Place of supply of data hosting services
• Place of supply of advertising services to foreign entities.

• New Rule 164 in CGST Rules, 2017 for procedure under section 128A for waiver of interest / penalty to be inserted w.e.f. 01.11.2024.
• Recommended mechanism for rectification of orders for wrong availment of ITC under section 16 (5, 6) of CGST Act, 2017.
• Exemption to supply of research and development services (R & D) by Government entity, research association, university etc.
• Renting of commercial property by unregistered person to registered person under reverse charge mechanism.
• Ancillary services by GTA to be considered as composite supply and taxed as GTA.
• Exemption to ancillary services in relation to electricity supply to be treated as composite supply and exempt.
• Regularization of GST liability of film distributors
• Affiliation services to be taxable @ 18% and are not exempt. Prospective exemption for Government boards / Government schools.
• Preferred Location Charges (PLC) to be taxed at same rate of underlying construction service.
• Roll out of pilot project for B2C e-invoicing
• GST on metal scrap to be under reverse charge mechanism
• Car seats to be taxed at 28%
• Transport of passengers by shared helicopter @ 5%
• Reduction in GST rate to 5% on cancer drugs.
• Reduction in GST rate to 12% on namkeens and extruded / expanded savory food items.

(Source: MoF Press Release ID No. 2053233 dated 09.09.2024)

Guidelines on Adjudication Proceedings - Tamil Nadu

• Tamil Nadu Government has issued guidelines on the adjudication proceedings highlighting the qualities of a good order, show cause notice, proceedings etc including even the covering letter.
• These guidelines relate to :

• Qualities of a good GST order
• Role of adjudicating authority
• General contents expected in a show cause notice
• Points to be noted before issuance of orders
• Points to be noted while drafting the orders
• General contents of a model order arranged in logical sequence

• Further, these guidelines are meant for Adjudicating Authorities and shall not be cited by any Proper officer as reference in the show cause notice or in any order.

(Source: Circular No. 8/2024 (A1/553/2024/Ease of Business Cell) dated 29.08.2024

issued by Government of Tamil Nadu)

GSTN Advisory for Reporting Supplies in GSTR 1 and GSTR 5

• GSTN has issued an Advisory on Reporting of supplies to un-registered dealers in GSTR 1/GSTR 5 returns.
• Vide Notification No. 12/2024-CT dated 10.07.2024, CBIC had reduced the threshold limit for reporting of invoice wise details of inter-state taxable outward supplies made to unregistered dealers from 2.5 lakh to 1 lakh  to be reported in Table 5 of Form GSTR-1 and Table 6 of GSTR-5.
• Presently, GSTN is in the process of upgrading / development of this function on its portal which may be completed shortly.
• It has been therefore, advised that till the time the functionality is made available on portal, it is advised to continue reporting the invoice wise details of taxable outward supplies to unregistered dealers which are more than 2.5 Lakhs in the Table 5 of Form GSTR-1 and Table 6 of GSTR-5.

(Source: GSTN Advisory dated 03.09.2024)

New Invoice Management System (IMS)

• GSTN is bringing a new Invoice Management System (IMS) on the portal to effectively communicate invoice corrections / amendments by the taxpayers with their suppliers.
• This shall facilitate taxpayer in matching of their records/invoices vis a vis issued by their suppliers for availing the correct Input Tax Credit (ITC) and shall allow the recipient taxpayers to either accept or reject an invoice or to keep it pending in the system, which can be availed later.
• Now, only the accepted invoices by the recipients would become part of their GSTR-2B as their eligible ITC.
• IMS will provide the taxpayers an opportunity to review the genuineness and authenticity of the received invoices. Once the suppliers save any invoice in GSTR 1 / IFF / 1A /the same invoice would be reflected in the IMS dashboard of the recipient.
• On the basis of action taken by the taxpayer, invoices/records can be categorized as follows :

• No action taken: These are the invoices/records where no action has been taken by the recipient these will be treated as deemed accepted at the time of GSTR-2B generation;
• Accepted: There are the accepted records and will be part of GSTR-2B generation;
• Rejected: These records will not be considered for GSTR-2B generation;
• Pending: These records will not be considered for GSTR-2B generation for the month, same will be carried forward in IMS itself for further action in subsequent months.

• No Action records shall be considered as Deemed Accepted and the taxpayer’s intervention will only be required in case a record need to be Rejected or kept Pending.
• The records/invoices saved or filed through IFF by a QRMP taxpayer will flow to IMS for the recipient, and will become part of GSTR-2B, as per action taken by the recipient in IMS on the same.
• All the outward supplies reported in the GSTR 1 / IFF / 1A shall populate in the IMS of recipients for taking the actions such as accept / reject / pending.
• This facility shall be available to the taxpayer from 1^st October, 2024 onwards on the GST portal.

(Source: GSTN Advisory dated 03.09.2024)