Himanshu SinhaPartner
Samyak JainSenior Associate
Shreetama GhoshAssociate
Key Developments
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Goods and Services Tax regime amended to provide a streamlined procedure for initiating proceedings, an amnesty scheme, regularisation of unpaid taxes, and extension of certain timelines
The Finance Bill (No. 2), 2024 made several amendments1 to the Goods and Services Tax (GST) laws to enhance the ease of doing business by providing an amnesty scheme and streamlining the procedure for GST proceedings, and to allow special relief to taxpayers on issues that have been undergoing extensive litigation. The key amendments include:
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Streamlined procedure for initiating proceedings:
Section 74A has been introduced in the Central Goods and Services Tax Act, 2017 (CGST Act), outlining the procedure for initiating proceedings relating to:
- unpaid or short-paid taxes,
- erroneous refunds, and
- wrongfully availing or utilising input tax credit (ITC),
pertaining to financial year (FY) 2024-25 onward.
With this insertion, Sections 73 and 74 of the CGST Act, which govern the initiation of proceedings either not involving or involving fraud, wilful misstatement or suppression of facts, respectively, have been restricted to proceedings for the period up to FY 2023-24.
The key changes proposed are:
- a show cause notice (SCN) can be issued by the proper officer within 42 months from the due date for furnishing the annual return for the relevant FY, or from the date of erroneous refund, as the case may be; and
- an adjudication order must be passed within 12 months (which may be extended for an additional period of six months) from the date of issuance of the SCN.
Thus, Section 74A attempts to standardise the timelines for GST proceedings, irrespective of any allegations of fraud, wilful misstatement, or suppression of facts.
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Amnesty scheme for GST proceedings pertaining to the period of 1 July 2017 to 31 March 2020:
A newly inserted Section 128A in the CGST Act introduces an amnesty scheme for proceedings pertaining to the period of 1 July 2017 to 31 March 2020. Section 128A provides for the waiver of interest on delayed payment of tax and any penalties if the taxpayer pays the full tax demand by 31 March 2025 for these proceedings, excluding erroneous refunds. This waiver applies to cases where:
- SCN was issued under Section 73 without allegations of fraud, wilful misstatement, or suppression of facts, but no adjudication order has been passed;
- an order under Section 73 is under appeal but not yet decided by the appellate authority; or
- an appellate authority’s order is under appeal before the appellate tribunal without a final order.
Additionally, for SCNs issued under Section 74 involving fraud allegations, the waiver can be sought within six months of the adjudicating authority’s order if higher authorities find the allegations unsubstantiated. The waiver is not available if the relevant proceedings are not withdrawn by 31 March 2025, and any interest and penalties already paid by the assessee will not be refunded in this scheme.
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Allowing regularisation of unpaid or short paid GST on notified goods and services:
Section 11A has been added to the CGST Act, enabling the government to regularise GST that remains unpaid or short-paid on the supply of certain notified goods and services for past periods. This regularisation is based on a generally accepted industry practice regarding the levy of GST on such supplies during the relevant period.
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Extension of limitation period for claiming ITC:
The time limit for claiming ITC under Section 16(4) of the CGST Act has been extended as under:
- For invoices and debit notes for the supply of goods and services pertaining to FYs 2017-18 to 2020-21, ITC is allowed to be claimed in the returns filed within 30 November 2021.
- Taxpayers whose GST registrations were cancelled and subsequently restored can claim ITC in respect of invoices and debit notes prior to such cancellation, so long as ITC was not restricted due to expiry of the time limitation prescribed in Section 16(4) on the date of the order for cancellation of registration.
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Supreme Court upholds constitutional validity of input tax credit blockage in case of construction of immovable property; provides conditions for treating a building as a ‘plant’ for claiming input tax credit
The Supreme Court upheld the constitutional validity of Section 17(5)(c) and (d) of the CGST Act, which refer to blockage of ITC in respect of works contract services, and other goods and services received for construction of an immovable property.2 An exception has been provided for ITC blockage under Section 17(5)(d) for goods and services received in respect of construction of - ‘plant or machinery’.
The Supreme Court distinguished the usage of the term ‘plant and machinery’ in other provisions of the CGST Act from the usage of ‘plant or machinery’ in Section 17(5)(d). It was held that the specific use of ‘plant or machinery’ means that the exception to Section 17(5)(d) is with respect to construction of either a ‘plant’ or ‘machinery’. As the word ‘plant’ is not defined under the GST law, the Court observed that whether a building qualifies as a ‘plant’ is a question of fact, determinable as per the functionality test (i.e., if a building is planned and constructed to serve a taxpayer’s special technical requirements). If a building qualifies as a ‘plant’, ITC can be availed against the supply of services in the form of renting or leasing such building, subject to other conditions under the GST law.
Accordingly, the Supreme Court remanded the case of Safari Retreats Pvt. Ltd. back to the Orissa High Court to determine whether the mall in question satisfies the functionality test of being a ‘plant’ and adjudge the matter accordingly. The Orissa High Court had earlier read down the restriction provided under Section 17(5)(d) to hold that if the taxpayer is required to pay output GST on the rental income from the mall, it is entitled to claim ITC of GST paid on construction of the mall.3
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Supreme Court dismisses review petition against its earlier judgment regarding imposition of interest and penalty on delayed payment of countervailing duties
The Supreme Court upheld its earlier decision in the Mahindra and Mahindra case,4 dismissing the revenue department’s review petition.5 The Mahindra and Mahindra ruling stated that interest and penalty cannot be imposed on delayed or short payment of additional duties of customs (including countervailing duties, surcharges, etc.) levied under Section 3 of the Customs Tariff Act, 1975, in the absence of a specific enabling provision.
With this dismissal, the Mahindra and Mahindra judgment has attained finality, providing relief to many assessees who have been or would have been charged interest and penalty on such additional duties of customs.
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High Courts hold that issuance of a single show cause notice consolidating multiple tax periods contravenes the provisions of the Goods and Services Tax law
The Karnataka High Court quashed6 a common SCN that grouped multiple FYs, relying on a decision of the Supreme Court,7 which held that if an assessment order encompassed different assessment years, each assessment order can be distinctly separated and must be treated independently. The High Court observed that Section 73(10) of the CGST Act links the limitation period for furnishing annual return to the financial year to which the tax due pertains. Therefore, the High Court held that the principles of the Supreme Court judgment applied to the GST law, and issuing a single SCN consolidating multiple tax periods contravenes its provisions.
This decision aligns with previous ruling of the Madras High Court in multiple cases stating that bunching together of SCNs for multiple FYs is against the GST law.8 These judgments are likely to ensure that GST authorities issue separate SCNs for tax dues of separate FYs to prevent any issues relating to the limitation period applicable to the SCN, which has been a source of increased litigation in recent years.
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Gauhati High Court quashes notification extending limitation period for certain proceedings issued without the Goods and Services Tax Council’s recommendation
The Gauhati High Court quashed a central tax notification9 extending the limitation period under Section 73 of the CGST Act (relating to determination of unpaid, short paid or erroneously refunded tax and wrongly availed ITC).10 The High Court observed that the notification was issued under Section 168A of the CGST Act, which empowers the government to extend limitation periods in case of force majeure events on the recommendation of the GST Council. Since the notification in question was issued without a GST Council recommendation, the Court held it to be legally invalid.
This decision may impact the outcome of various writ petitions challenging this notification, and other similarly issued notifications, which are pending before other High Courts.
[1] Notification No. 17/2024 - Central Tax, dated 27 September 2024
[2] Chief Commissioner of CGST and Ors. v Safari Retreats Pvt. Ltd. and Ors., TS-622-SC-2024-GST
[3] Safari Retreats Pvt. Ltd. v Chief Commissioner of GST, TS-350-HC(ORI)-2019-NT
[4] Union of India & Ors. v Mahindra and Mahindra Ltd., 2023 (8) TMI 135 – SC Order
[5] Union of India & Ors. v Mahindra and Mahindra Ltd., TS-279-SC-2024-CUST
[6] Veremax Technologie Services Limited v The Assistant Commissioner of Central Tax, Bengaluru, TS-602-HC(KAR)-2024-GST
[7] State of Jammu and Kashmir and Ors. v Caltex (India) Ltd., AIR 1966 SC 1350
[8] Uno Minda Ltd v The Joint Commissioner of GST and Central Excise, TS-624-HC(MAD)-2024-GST; and Titan Company Ltd v The Joint Commissioner of GST & Central Excise and Ors., TS-707-HC(MAD)-2023-GST
[9] Notification No. 56/2023 - Central Tax, dated 28 December 2023
[10] Barkataki Print and Media Services v Union of India, TS-588-HC(GAUH)-2024-GST
