LexCognito

Vide Notification 2/2019 Central Tax Dated 29 January 2019, the Government has brought into force the Goods and Service Tax (Amendment) Act, 2018. Accordingly, several amendments to the Central Goods and Service Tax Act, 2017 have been enforced with effect from 1 February 2019.

All State Governments will also effect parallel amendments in their respective SGST Acts (either by passing such amendments in the State legislatures or through the ordinance route) and will make them effective from 1 February 2019.

Similarly, vide Notification 1/2019 Integrated Tax Dated 29 January 2019, several amendments have been given effect to the Integrated Goods and Services Act, 2017 as proposed in the Integrated Goods and Services (Amendment) Act, 2018, with effect from 1 February 2019.

We have attempted to summarize certain major amendments to the GST law which are effective from 1 February 2019.

I. Changes in Schedule III

Schedule III of the CGST Act enumerates transactions which are treated neither as supply of goods nor supply of services. The following additional transactions/activities have been added to Schedule III at item nos. 7 and 8:

Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
Supply of warehoused goods to any person before their clearance for home consumption.
Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption in India.

The above amendments have clarified important aspects of trading transactions. Thus, no GST is leviable on sale of goods if such goods do not physically enter into India, even if the supplier is located in India. Further, sale of goods before their clearance from Customs Bonded Warehouse will not attract GST. Similarly, High Seas Sale transactions also will not attract levy of GST. Of course, IGST will continue to apply on importation of goods.

Importantly, an Explanation has been added to Section 17 (3), whereby it is declared that activities mentioned in Schedule III (except sale of land or building) will not be treated as "exempt supply". As a consequence, the liability of proportionate credit reversal under Rule 42 and 43 will not apply if any activities mentioned in Schedule III are carried out by any taxable person.

II. Place of Supply for Job Work on Imported Goods

In terms of sub-Section (3) (a) of Section 13 of the IGST Act, where a person situated outside India sends his goods for job work in India, the place of supply of such job work service shall be in India, thereby attracting GST. But if goods are imported into India only for the purposes of “repair” and re-export no GST is payable. Now, the benefit of this concession has been extended to goods imported for job work as well.

Thus, if a person in India imports goods for job work and returns the finished goods to a place outside India, he is not liable to pay GST on his job charges.

III. Changes in Reverse Charge Mechanism (RCM)

Section 9 (4) of the CGST Act, 2017 provides that if any goods or services or both are supplied by an unregistered person to a registered person, the recipient of the supply shall be liable to pay tax under RCM. Notification 8/2017 CT (Rate) Dt. 28.06.2017 had provided an exemption from applicability of above provision if the per day expenditure on account of procurements from unregistered persons is for a value below Rs. 5,000/-. Subsequently, since the exemption limit of Rs.5,000 per day was considered by the GST Council as too low, another Notification 38/2017 C.T. (Rate) Dt. 13.10.2017 was issued which provided exemption from payment of GST under RCM in case of procurements from unregistered suppliers without any limit (the limit of Rs.5,000 per day was removed) and this exemption was made applicable upto 31 March 2018, which was extended from time to time and the last extension having been granted upto 30 September 2019. As a result, the applicability of RCM in case of procurements from unregistered suppliers was in effect suspended till 30 September 2019.

Now, Section 9 (4) of the CGST Act has been amended and the amended Section (4) provides that the categories of registered recipients for whom such RCM would apply and also the nature of goods and services for which such RCM would be applicable, will be notified by the Government. It is important to note that so far no such notification has been issued.

Since Notification 8/2017 C.T. (Rate) Dated 28 June 2017 has now become redundant, it has been rescinded vide Notification 1/2019 C.T. (Rate) Dated 29 January 2019, with effect from 1 February 2019. Kindly note that in view of amended sub-Section (4) of Section 9, recession of Notification 8/2017 C.T. (Rate) does not lead to application of RCM to all supplies received from unregistered persons from 1 February 2019.

Similar changes have been effected in RCM obtaining under IGST law.

IV. Revised Composition scheme

As per amendments effected in Section 10 of the CGST Act, a supplier of goods who is also involved in supply of any services would also be entitled to opt for Composition Scheme, if the value of supply of services is less than 10% of his total turnover or Rs.5 lakhs, whichever is higher. Thus, a small trader, who is also having rental income and hence was earlier not at all entitled to opt for composition scheme, he can now opt for composition scheme if his rental income is below 10% of his total turnover or Rs. 5 lakhs, whichever is higher, in the preceding financial year.

V. Modifications to Input Tax Credit (ITC) Provisions

Changes have been effected in Sub-section (5) of Section 17 which deals with the goods or services or both, for which ITC is not admissible.

For period prior to 1 February 2019, ITC was not available on motor vehicles, unless they were used (i) for further sale / rental / leasing of such vehicles; or (ii) for transportation of passengers; or (iii) by a driving school; or (iv) for transportation of goods. In other words, ITC was not available on vehicles if a taxable person bought them for transportation of its own personnel.

Now, it has been provided that the above restrictions would apply only in case of passenger vehicles having a total seating capacity upto 13 passengers including driver. In other words, now a taxable person is entitled to avail ITC on a vehicle having a seating capacity of more than 13 which has been bought for transportation of its own personnel.

Further, prior to 1 February 2019, there was no restriction on availment of ITC for insurance, repair and maintenance availed in respect of motor vehicles. Now, a restriction has been introduced to the effect that ITC will not be available in respect of input supplies of insurance, repair and maintenance of those vehicles on which ITC is not admissible.

Further, under earlier provisions, ITC was not admissible on "rent-a-cab"service, except when it is a statutory obligation for the employer to make available transport facility to its employees. The word "cab" was earlier not defined under GST law and hence there were varied interpretation being adopted. Now, it has been provided that ITC will not be admissible on renting or hiring of only those motor vehicles which are otherwise not entitled for ITC. In other words, whether a taxable persons buys a bus himself or hires a bus, ITC would be admissible of GST paid on such input supplies.

For period prior to 1 February 2019, under “Bill to Ship to” model of supplies, in terms of Explanation under Section 16 (2), where the goods are supplied by Supplier A, invoiced to Customer B but delivered directly to Party C under the instructions from B, it was customer B who was entitled to avail ITC, even though the goods were not physically received by him. Now, this facility has been extended to services also, which would imply that in situations of sub-contracting, the main contractor will be entitled to avail ITC of GST charged by the sub-contractor, though he has not received the services of sub-contractor which are directly provided to the final employer.

VI. Matching of ITC

A new section 43A has been introduced enabling the Government to prescribe a new procedure for matching of input tax credits. The Government will come up with rules in this regard.

VII. Order of Utilisation of ITC

Sub-section (5) of Section 49 prescribes the order in which ITC has to be utilised in the following manner:

ITC of IGST shall first be utilised to pay IGST and balance if any, shall be utilised to pay CGST, SGST and UTGST, in that order.
ITC of CGST shall first be utilised to pay CGST and balance, if any, shall be utilised to pay IGST.
ITC of SGST shall first be utilised to pay SGST and balance, if any, shall be utilised to pay IGST.
ITC of UTGST shall first be utilised to pay UTGST and balance, if any, shall be utilised to pay IGST.
ITC of CGST shall not be used to pay SGST or UTGST.
ITC of SGST or UTGST shall not be used to pay CGST.

Vide the amendment, the following additional conditions have been added:

ITC of SGST can be used to pay IGST, only after utilising the balance of CGST, if any, to pay IGST.
ITC of UTGST can be used to pay IGST, only after utilising the balance of CGST, if any, to pay IGST.
Before utilising ITC of CGST, SGST and UTGST for payment of IGST, the ITC of IGST shall first be utilised and exhausted for payment of IGST (new Section 49A).
The Government has been empowered to prescribe additional conditions (new Section 49B).

VIII. GST Registration

So far, one entity was to obtain only a single registration for all its places of businesses in a State. For different ‘business verticals’ (defined in CGST Act) of the same entity in the same State, separate registration for each such ‘business verticals’ was mandated.

The amendment has now permitted different places of business of same entity in the same State to obtain separate registrations, even if such places of business are not in the nature of separate ‘business verticals’. Consequently, the definition of ‘business vertical’ has also been omitted. Thus, now different units/establishments of a single entity within a State may opt to obtain separate GST registrations. The supplies of goods/services effected by such registered units/establishments will be subject to levy of GST as per law.

If an entity opts to obtain separate registration for its different units in a State as per the amended provisions, the outstanding balance of ITC with the present single registration may be distributed among all units for which separate registrations are being obtained in the ratio of value of total assets of each of such units as on the date of seeking registration and a declaration is to be made in Form ITC - 02A within 30 days of such registration (Rule 41A of CGST Rules, 2017).

Further, provisions for suspension of a registration prior to effecting cancellation thereof have been introduced.

IX. Debit Notes / Credit Notes

As per Section 34 of the CGST Act, in case of any upward revision of price, a Debit Note is required to be issued along with payment of appropriate GST. Similarly, in case of any downward revision of price or return of goods, a Credit Note was to be issued with appropriate reduction in GST already paid. So far, the GST portal did not allow uploading of consolidated Debit Notes / Credit Notes.

The amended Section 34 now enables issuance of consolidated Debit Note / Credit Note for several invoices pertaining to a financial year.

X. Changes relating to refunds

The amendments mandate that:

refund of GST paid on supplies made to SEZ units will also be subject to bar of unjust enrichment.
refund for export of services would be admissible even if the consideration is received in Indian rupees as permitted by the RBI.

XI. Transitional Credits

A maze of complicated amendments have been attempted by the Government in Section 140 to clarify its intention to not allow carry forward of the balance of cenvat credits in respect of Education Cess, Secondary and Higher Education Cess and Krish Kalyan Cess and utilisation thereof. However, certain amendments in respect of the definitions of "eligible duties" and "eligible duties and taxes" and their applicability have the effect of creating certain anomalous situations with regard to transitional credits. The Government has also acknowledged such anomalies by not notifying the amendments made in the definition of "eligible duties" and "eligible duties and taxes". This position has also been explained in CBIC's circular No. 87/6/2019.

This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.