Himanshu SinhaPartner
Shashank ShekharCounsel
Tushar JoshiSenior Associate
Key Developments
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Clarifications by way of circulars
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Mismatch between ITC availed in FORM GSTR- 3B and reflected in FORM GSTR- 2A for Financial Year 2017-18 and 2018-19
Since FORM GSTR-2A (system-generated statement of inward supplies for recipients) was not made available to taxpayers on the common portal during the initial stages of implementation of the Goods and Services Tax (GST), numerous discrepancies arose between amounts claimed as Input Tax Credit (ITC) by the recipients in FORM GSTR-3B (consolidated summary return of inward and outward supplies) and the details of inward supplies auto-reflected in FORM GSTR-2A.
Accordingly, the Central Board of Indirect Taxes and Customs (Board) issued a clarification on how such discrepancies are to be dealt with by the GST Department. The Board clarified that the tax officers are required to seek details from the taxpayers of the invoices based on which ITC has been availed by them, ascertain the fulfilment of conditions for availment of ITC and also verify if reversal of ITC is warranted under the Central Goods and Services Tax Act, 2017 (CGST Act). For this, the GST Authorities can seek certificates from Chartered Accountants or Cost Accountants or from the suppliers (depending upon the quantum of difference between ITC claimed and available) certifying that the underlying supplies were actually made to the recipients and that tax on the supplies had been paid by the suppliers.
This clarification issued by the Board to GST Authorities will help assessees in resolving ongoing proceedings in cases of mismatch of ITC claimed by them under FORM GSTR- 3B and the ITC available to them as per FORM GSTR-2A.
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Entitlement of ITC where the place of supply is outside India
Under the Integrated Goods and Services Tax Act, 2017 (IGST), the place of supply of services is outside India where (a) there is supply of services by way of transportation of goods, including by way of mail or courier, (b) the supplier and the recipient of services are located in India and (c) the transportation of goods is to a place outside India.
Since the transaction envisaged above entail movement of goods to a foreign destination, while the services of transportation are supplied by a supplier to a recipient both located in India, there was a doubt regarding the availability of ITC for such services.
The Board has clarified that supply of services will be treated as inter-state supply and the recipient located in India shall be eligible to avail ITC in respect of IGST charged by the supplier. This clarification should abate disputes regarding eligibility of such ITC.
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Re-determination of tax liability by GST Department
The Board has issued a clarification on the scope of Section 75(2) of the CGST Act which provides for re-determination of tax liability of an assessee by the GST Department if a higher forum later holds it as a ‘non-fraud case’. In such cases, where a higher forum holds an earlier show cause notice (SCN) issued to an assessee to be unsustainable on charges of fraud, wilful misstatement or suppression of facts, a re-determination is possible under Section 75(2). The tax liability is then to be determined as a ‘non-fraud’ case.
The Board has clarified that under Section 75(2) of the CGST Act, the order of re-determination of tax, interest and penalty has to be issued within two years from the date of communication of order of the higher forum. The Board has further clarified that amount of tax, interest and penalty to be re-determined in such cases will be restricted to so much amount of tax, interest and penalty as would be covered by a show cause notice (SCN) issued for ‘non-fraud cases’. Since the normal period of limitation of two years and nine months from the due date of furnishing annual return for the respective financial year is invoked in case of non-fraud cases, the entire proceedings will have to be dropped where the tax demand amount pertains to a period beyond the normal limitation period of two years and nine months.
In cases where a higher forum holds an earlier proceeding to be a ‘non-fraud’ case, the clarification is likely to prevent arbitrary re-determination of tax, interest and penalty liability by the GST Authorities.
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Taxability of No Claim Bonus offered by insurance companies
The Board has clarified that in cases where No Claim Bonus (NCB) is offered by insurance companies to the insured, there is no supply of a service by the insured to the insurance company in the form of agreeing to refrain from lodging insurance claim during the previous year and accordingly the NCB cannot be construed as consideration for the same. The Board has further clarified that NCB is a permissible deduction/discount for the purpose of valuation of insurance services and therefore, GST is payable by the policy holder to the insurer after deduction of the NCB mentioned in the invoice.
It is expected that in light of the above clarification from the Board, the taxability and valuation of NCB under GST will not be litigated by the GST Department.
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Reduction of tax dues under GST after finalisation of IBC proceedings
In cases where a tax demand has been confirmed by the GST authorities against a tax payer/corporate debtor and under the Insolvency and Bankruptcy Code, 2016 (IBC), the proceedings against such tax payer/corporate debtor have been finalised and the amount of statutory dues payable by the corporate debtor to the government under the CGST Act have been reduced, the Board has clarified that the tax demand so confirmed against the tax payer/corporate debtor shall also be reduced and intimation to that effect be sent by the jurisdictional Commissioner to the tax payer/corporate debtor and the authority with whom the recovery proceedings are pending.
The above clarification is a step in the right direction as it is likely to reduce litigation arising from the IBC proceedings when the amounts due to the government by corporate debtor (against whom tax demand under CGST Act have also been confirmed) are reduced.
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Amendments to CGST Rules
- Rule 37 of CGST Rules has been amended to provide for reversal of ITC, where the recipient fails to make payment to the supplier for the supply of goods or services, proportionate to the amount unpaid by the recipient to the supplier towards the value of supply.
- A new Rule 37A has been inserted to provide for the mechanism of reversal/re-availment of ITC by the recipient in cases where the supplier fails to pay tax and furnish corresponding FORM GSTR-3B by 30 September of the financial year following the financial year to which the ITC relates.
- New Rules 59(6)(d) and 88C have been inserted which provide that in case of mismatch of reporting of outward supplies in FORM GSTR-1 (statement of outward supply) and FORM GSTR-3B of the supplier, an intimation will be sent to the supplier about the difference, if the difference exceeds a specified amount/percentage. Upon such intimation, if the supplier fails to pay the amount as intimated or fails to furnish an explanation for the unpaid amount, filing of FORM GSTR-1 for the subsequent tax period for the supplier will be restricted.
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Rate Changes
- In yet another step taken by the government to further the implementation of the Ethanol Blended Programme throughout the country, the GST rate of ethyl alcohol supplied to oil marketing companies or petroleum refineries for blending with petrol has been reduced from 18% to 5%.
- Fruit pulp or fruit juice-based drinks, other than carbonated beverages of fruit drink or carbonated beverages with fruit juice, are chargeable to GST at the rate of 12%. This amendment to the relevant entry of the rate notification has been made to expressly clarify that only fruit pulp and fruit juice-based drinks which are not carbonated beverages will fall under 12% rate bracket. This comes in the backdrop of disputes over the classification of fruit-based drinks, since carbonated beverages with fruit juice or carbonated beverages of fruit drinks are chargeable to GST at 28% along with compensation cess of 12%.
The above clarifications, rate changes and amendments to the GST laws are beneficial developments and are expected to streamline the procedure pertaining to ITC availment and reversal as well as cases of mismatching of returns. Also, while it was widely anticipated that issues of setting up of GST Appellate Tribunal and the rate of tax for online gaming would be taken up in the 48th GST Council Meeting, decisions in this respect were not taken. Both these issues are now likely to be taken up in the next GST Council meeting in the coming months.
