WIRC Bulletin - February 2019

ANALYSIS OF CHANGES IN CGST ACT APPLICABLE wef 01.02.2019

ANALYSIS OF CHANGES IN CGST ACT APPLICABLE wef 01.02.2019

by CA Pratik Shah

The GST Council in its 32nd meeting held on January 10, 2019, gave approval that the changes made by CGST (Amendment) Act, 2018,IGST (Amendment) Act, 2018UTGST (Amendment) Act, 2018 and GST (Compensation to States) Amendment Act, 2018 along with the corresponding changes in SGST Acts would be notified w.e.f. February 01, 2019.

Now, since the various Amendment Acts are going to be effective from first day of February, 2019

For the ease of understanding, we are summarising herewith section-wise tabular presentation of amended CGST Act, 2017 (“CGST Act”) and IGST Act, 2017 (“IGST Act”) in comparison with the pre-amendment Acts

 

Synopsis of the CGST Amendment Act, 2018

 

Particulars Provisions as per pre-amendment CGST Act Provisions of amended CGST Act w.e.f. 01.02.2019 Effect of amendment along with analysis as to comparison
Section 2(17)(h) – Definition of ‘Business’ “business” includes––

(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and

“business” includes––

(h) services provided by activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and

This change ensures that all activities related to a race club are included in definition of business
Section 2(35) – Definition of ‘Cost Accountant “cost accountant” means a cost accountant as defined in clause (c) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959; cost accountant” means a cost accountant as defined in clause (c) (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959;  
Section 2(102) – Definition of ‘Service’ “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

Explanation. –– For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities;’.

 

This explanation provides clarity that although ‘securities’ are excluded from the definition of ‘goods’ and ‘services’ in the CGST Act, but if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged in relation to transactions in securities, the same would be a consideration for provision of service and chargeable to GST.
Section 7 – Definition of ‘Supply’ the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. Term ‘supply’ is amended to exclude activities/ transactions listed in Schedule II to ensure that the activities/ transactions as per Schedule II is to determine only whether the same is supply of goods or services. Hence, activities/ transactions listed in Schedule II (as supply of service or supply of goods) shall be taxed only when they constitute ‘supply’ in accordance with provisions of Section 7(1)(a), (b) and (c) of the CGST Act. Amendments in definition of ‘supply’ are made retrospectively applicable
Section 9(4) – Reverse charge in case of procurement from unregistered persons The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both”. Earlier Section 9(4) of the CGST Act has been omitted and instead, an enabling power is granted for the Govt. to notify a class of registered persons who would be liable to pay tax on reverse charge basis in case of receipt of specified categories of goods or services or both (as against taxable goods or services or both) from an unregistered supplier.

The details of such specified persons and specified goods/ services are to be notified in future.

 

 

 

Section 12 – Time of supply of goods 12 (2) The time of supply of goods shall be the earlier of the following dates, namely: —

(a) the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or

 

12 (2) The time of supply of goods shall be the earlier of the following dates, namely: —

(a) date of issue of invoice by the supplier or the last date on which he is required undersub-section (1) of section 31 to issue the invoice with respect to the supply; or

 

This amendment seeks to correct a drafting error and thus includes issuance of invoice/other documents contained in other sub-sections of Section 31 like continuous supply of goods, etc.
Section 16(2)(c) – Conditions for availing Input Tax Credit (c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (c) Subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and This amendment seeks to include the provisions relating to the new return format as specified in the proposed new Section 43A, for availment of ITC.

 

 

 

 

Section 17(3) – Apportionment of credit (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 17(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. It is clarified by way of explanation that no reversal of common ITC shall be required on activities or transactions specified in Schedule III (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) by excluding it from the ambit of ‘exempt supply’ for the purpose of reversal.
Section 17(5)(a) – Blocked credit on motor vehicles (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely: —

 

(a) motor vehicles and other conveyances except when they are used––

(i) for making the following taxable supplies, namely: —

(A) further supply of such vehicles or conveyances; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

 

(5) 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 the following, namely: —

(a) motor vehicles and other conveyances for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: —

(A) further supply of such motor vehicles or

(B) transportation of passengers; or

(C) imparting training on driving, such motor vehicle;

(aa) vessels and aircraft except when they are used ––

(i) for making the following taxable supplies, namely: —

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available —

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged—

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

 

Now, ITC is restricted only to the extent of motor vehicles for transportation of persons having approved capacity of not more than 13 persons (including the driver) unless used for specified purposes;

Reference of ‘other conveyances’ while disallowing credit on motor vehicles has been omitted. This amendment makes it clear that ITC would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles;

It is clarified that no ITC shall be available for services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels and aircraft for which the credit is not available;

 

Section 17(5)(b) – Other blocked credits (b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

 

(b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply

ITC in respect of food and beverages, health services, renting or hiring of motor vehicles, vessels and aircraft, travel benefits to employees etc., can be availed where the provision of such goods or services is obligatory for an employer to provide to its employees under any law for time being in force.

Further ITC on renting or hiring of motor vehicles, vessels or aircraft is allowed when they are used for purposes specified in clause (a) or (aa).

Section 22(1) second proviso – Persons liable for registration 22 (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

 

Same as per Pre Amendment CGST Act

 

Provided further that the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified.

Proviso is inserted under Section 22(1) so as to enable government to enhance the threshold limit of registration in special category states from ten lakh rupees to maximum twenty lakh rupees
Section 22 Explanation (iii) – Persons liable for registration Explanation (iii) to section 22 the expression “special category States” shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution except the State of Jammu and Kashmir. Explanation (iii) to section 22 the expression “special category States” shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution except the State of Jammu and Kashmir and States of Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand. The threshold turnover for registration in special category States of Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand is increased from ten lakh rupees to twenty lakh rupees
Section 24 – Compulsory registration in certain cases (x) every electronic commerce operator. (x) every electronic commerce operator who is required to collect tax at source under section 52. Now, only those e-commerce operators who are required to collect tax at source under Section 52 would be required to take compulsory registration.

Other small e-commerce operators would now be eligible for availing the threshold exemption limit benefit for registration purposes.

Section 25(2) – Procedure for registration 25 (2) A person seeking registration under this Act shall be granted a single registration in a State or Union territory:

Provided that a person having multiple business verticals in a State or Union territory may be granted a separate registration for each business vertical, subject to such conditions as may be prescribed.

25 (2) A person seeking registration under this Act shall be granted a single registration in a State or Union territory:

Provided that a person having multiple business verticalplaces of business in a State or Union territory may be granted a separate registration for each such business verticalplace of business, subject to such conditions as may be prescribed

 

Proviso is substituted to allow persons having multiple places of business in a State or Union territory to obtain separate registrations for each such place of business, if they wish so. Thus, the requirement of having multiple business vertical for obtaining separate registration is dispensed with
Section 29(1) – Cancellation or Suspension of Registration 29 (1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where, ––

(c) the taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24.

 

Same as per Pre Amendment CGST Act

Provided that nothing contained in this sub-section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.

This amendment provides for suspension of registration during pendency of proceedings relating to cancellation of registration. This would relieve the taxpayer of continued compliance burden under the law till such time as the process of allowing cancellation of registration is completed.
Section 34 – Debit and Credit Notes 34 (1) Where a tax invoice has been issued for supply of any goods or services or both 34(1) Where a tax invoice has one or more tax invoices have been issued for supply of any goods or services or both The amendment seeks to permit a registered person to issue consolidated credit / debit notes as prescribed under Section 34 of the CGST Act in respect of multiple invoices issued in a Financial Year without linking the same to individual invoices.
Section 49A – Utilisation of input tax credit subject to certain conditions NA 49A – Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment. A taxpayer would be able to utilise credit on account of CGST, SGST/UTGST, only after exhausting all the credit on account of IGST available to him. This is being done to minimise fund settlement on account of IGST.

Therefore, the manner of utilisation of GST credits is as follows:

Credit of IGST to be utilised first for liability of: IGST – CGST – SGST

Then,

– Credit of CGST to be utilised for liability of: CGST/ IGST (If any)

– Credit of SGST to be utilised for liability of: SGST/ IGST (if any)

Section 49B – Order of utilisation of input tax credit NA 49B. Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax. This Section provides an enabling power for the Government to prescribe any specific order of utilization of ITC for payment of taxes.

This provision is subject to clause (e) and (f) of Section 49(5) i.e. CGST and SGST/UTGST cannot be cross utilized.

 

Schedule I – Supply made without consideration 4. Import of services by a taxable person from a related person or from any of his other

establishments outside India, in the course or furtherance of business.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. Import of services by entities which are not registered under GST (say, they are only making exempted supplies) but are otherwise engaged in business activities shall be liable to tax when received from a related person or from any of their establishments outside India.
Schedule III – Activities or transactions which shall be treated neither as supply of goods nor supply of services 6. Actionable claims, other than lottery, betting and gambling. 6. Actionable claims, other than lottery, betting and gambling.

7. 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.

8. (a) Supply of warehoused goods to any person before clearance for home consumption;

(b) 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.

 

The scope of Schedule III is expanded to include merchant trading, supply of goods in the course of High Seas Sale and Sale of imported warehoused goods. Thus, these transactions shall nether be treated a supply of goods nor supply of services.

Further, there shall be no reversal of common credit on account of these supplies

 

  2 (6) “export of services” means the supply of any service when, ––

 

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange;

(6) “export of services” means the supply of any service when

 

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian Rupees wherever permitted by the Reserve Bank of India;

This amendment allows receipt of payment in Indian rupees in case of export of services wherever permitted by the RBI. This is a taxpayer-friendly measure.

 

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