BUDGETARY CHANGES IN GST ACT

[DR.MARIAPPAN GOVINDARAJAN]

The Finance Minister, on 01.02.2025 submitted the national budget for the year 2025-26.  Many a change has been brought in direct taxes, indirect taxes and some other acts.  In this article we may discuss what are the amendments brought in Central Goods and Services Tax Act, 2017.  The amendments have been made in the following areas-

• Definitions.
• Time and supply.
• Input tax credit;
• Credit and debit notes;
• Returns;
• Appeals;
• Penalties;
• Track and Trace mechanism;

Definitions

The Finance Bill, 2025 made changes to the following definitions-

Input service distributors

Section 2(61) of the Act defines the expression ‘Input service Distributors’.  The Bill amends this section.  After amendment this section provides that the Input Service Distributor is an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.

Local Authority

Section 2(69) of the Act defines the expression ‘Local Authority’.  Section 2(69)(c) defines the expression  ‘local authority’ as a a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal *fund or local fund.

The Bill introduces two explanations to Section 2(69) (c) which defines ‘municipal fund’ and ‘local fund’. The expression ‘municipal fund’ is defined as any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Panchayat area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called;

The term ‘local fund’ is defined as any fund under the control or management of an authority of a local self-government established for discharging civic functions in relation to a Metropolitan area or Municipal area and vested by law with the powers to levy, collect and appropriate any tax, duty, toll, cess or fee, by whatever name called.

*the word ‘fund’ is inserted.

Unique Identification mark

The Bill inserted a new Section 2(116A).  The new section defines the expression ‘unique identification mark’ as the unique identification marking referred to in clause (b) of sub-section (2) of section 148A and includes a digital stamp, digital mark or any other similar marking, which is unique, secure and non-removable.

Time and supply

Section 14 (4) provides the time of supply in case of vouchers.  The time of supply shall be-

• the date of issue of voucher, if the supply is identifiable at that point; or
• the date of redemption of voucher, in all other cases.

Section 17(4) of the Act provides the time of supply in case of vouchers.  The time of supply shall be-

• the date of issue of voucher, if the supply is identifiable at that point; or
•  the date of redemption of voucher, in all other cases.

The Bill omits the above said sections 14(4) and 17(4).

Input tax credit

Section 17(5) (d) of the Act provides that Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.   The bill substituted the word ‘plant and machinery’ for the words ‘plant or machinery’.  This change will come effect from 01.07.2017 i.e., the date on which the provisions of GST are implemented.

The Bill further inserted a second explanation after the existing explanation (explanation 1).  This explanation provides that for the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery”.

Distribution of input tax credit

The Bill inserted some words and phrases as shown as below-

• Section 20(1)- Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9 *of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
• Section 20(2) - The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 * of this Act or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

*Inserted vide Bill.

Credit and debit notes

Section 34 of the Act deals with credit and debit notes.  The proviso to Section 34(2) if substituted by a new proviso.  The new proviso provides that no reduction in output tax liability of the supplier shall be permitted, if the––

1. input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or
2.  (ii) incidence of tax on such supply has been passed on to any other person, in other cases.

Returns

Section 38 of the Act deals with the Communication of details of inward supplies and input tax credit.  After incorporating the changes made in the section the said section 38 will be read as below-

Section 38(1) - The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and **statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

Section 38(2) - The **statement under sub-section (1) shall consist of––

1. details of inward supplies in respect of which credit of input tax may be available to the recipient; and
2. details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37.

**The word ‘statement’ is substituted for the words ‘auto-generated statement’.

Section 39(1) of the Act provides for filing returns.  Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars, in such form and manner, and within such time *and subject to such conditions and restrictions, as may be prescribed.

*Inserted by the Bill.

Appeal to First Appellate Authority

Section 107 of the Act provides the procedure for filing appeal before the First Appellate Authority. Section 107(6) of the Act provides that before filing an appeal before the First Appellate Authority, the appellant is to pay in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him and a sum equal to 10% of the remaining amount of tax in dispute arising from the said order subject to a maximum of Rs. 20 crores, in relation to which the appeal has been filed.

The proviso to Section 107(6) provides that no appeal shall be filed against an order under sub-section (3) of section 129 (detention, seizure of goods and conveyances in transit), unless a sum equal to 25% of the penalty has been paid by the appellant.

The Bill substituted a new proviso to the existing proviso to Section 107(6) of the Act. The newly substituted proviso provides that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to 10% of the said penalty has been paid by the appellant.

Appeal to Appellate Tribunal

The bill inserted a new proviso to Section 112(8).  The new proviso provides that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to 10% of the said penalty, in addition to the amount payable under the proviso to sub-section (6) of section 107 has been paid by the appellant.

Track and Trace mechanism

The Bill introduced a new Section 148A which deals with the ‘Track and Trace’ mechanism for certain goods.

Section 148A (1) provides that the Government may, on the recommendations of the Council, by notification, specify-

• the goods;
• persons or class of persons who are in possession or deal with such goods,

to which the provisions of this section shall apply. 

Section 148A (2) provides that the Government may, in respect of the said goods-

• provide a system for enabling affixation of unique identification marking and for electronic storage and access of information contained therein, through such persons, as may be prescribed; and
• prescribe the unique identification marking for such goods, including the information to be recorded therein.

Section 148A (3) provides that the persons stated in Section 148(2) shall-

• affix on the said goods or packages thereof, a unique identification marking, containing such information and in such manner;
• furnish such information and details within such time and maintain such records or documents, in such form and manner;
• furnish details of the machinery installed in the place of business of manufacture of such goods, including the identification, capacity, duration of operation and such other details or information, within such time and in such form and manner;
• pay such amount as may be prescribed.

The Bill inserted a new Section 122B which provides penalty for failure to comply with the track and trade mechanism.  The said section provides that Notwithstanding anything contained in this Act, where any person referred to in sub-section (1) of section 148A acts in contravention of the provisions of the said section, he shall, in addition to any penalty under Chapter XV or the provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees or ten per cent. of the tax payable on such goods, whichever is higher.

Amendment to Schedule III

Section 128 of the Finance Bill brings amendment to Schedule III of the Act.  The Schedule III of the Act provides that list of activities or transactions which shall be treated neither as a supply of goods nor a supply of services.  Para 8(a)  of the schedule provides that supply of warehoused goods to any person before clearance for home consumption shall come under this schedule.  The Bill inserted clause (aa) which provides that Supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area.  This amendment would take effect from 01.07.2017.

The Bill inserted a new explanation to this schedule.  The newly inserted explanation 3 provides that for the purposes of clause (aa) of paragraph 8, the expressions “Special Economic Zone”, “Free Trade Warehousing Zone” and “Domestic Tariff Area” shall have the same meanings respectively as assigned to them in section 2 of the Special Economic Zones Act, 2005.   

No refund of tax

Section 129 of the Bill provides that no refund shall be made of all such tax which has been collected, but which would not have been so collected, had Section 128 been in force at all material times.