Budget 2021 – GST Things You Must Know!

Budget 2021 – GST Things You Must Know!

Section 7. Scope of supply (To be amended w.e.f. 1.07.2017)

For the purposes of this Act, the expression “supply” includes —

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment, or other valuable consideration.

Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another

Calcutta Club Ltd [2019 (29) GSTL 545 (SC)] – What Apex Court said!

Members club

• Members are owners

• No Shareholders – No Dividend – No distribution of profits

• Even if the legal entity (constituted or not) – No difference

• Member Club cannot be treated as separate from members

Principle of Mutuality, there is no sale between the club and its members

• One cannot profit from oneself

• Young Men Association relied upon

• Even 366 (29A) (f) has no application to member club

• Doctrine of mutuality is not been done away with by 366 (29A) (e)

We have seen how in the judgment relating to Sales Tax, the fact is that in members’ clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply to all fours when we are to construe the definition of “service” under Section 65B(44) as well.

Consequently, show cause notices, demand notices, and other action taken to levy and collect Service Tax from incorporated members’ clubs are declared to be void and of no effect in law

Analysis of the change

• Whether the retrospectivity could be construed as excessively harsh!
• This amendment is expected to impact societies, clubs, RWA, etc.
• In case the position of non-payment of GST has been adopted based on Calcutta Club judgement, then the same may be revisited!
• To align with the change in Section 7, Schedule II of the CGST Act is also amended!

Section 16. Eligibility and conditions for taking ITC

• Notwithstanding anything contained in this section, but subject to the provisions of section 36, no registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless,-

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying document(s) as may be prescribed;

‘(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37”

(b) he has received the goods or services or both

Analysis of the change

• Now, recipients also need to ensure that vendors have ‘furnished’ GSTR-1
• Whether same being reflected in GSTR-2B/2A?
• This is an additional condition

Section 35. Accounts and other records

(5) Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under subsection (2) of section 44 and such other documents in such form and manner as may be prescribed

Analysis of the change

• There would be no compulsory Audit from GST perspective (i.e. GSTR-9C)
• But it also comes up with the risk that there could be differences in GST vis-à-vis Financial Statements which could go unnoticed
• It could lead to higher interest and penal consequences during Audit by Tax Authorities

Section 44. Annual Returns

Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person, and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed:

Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section:

Provided further that nothing contained in this 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.

Analysis of the change

• Section 44 is substituted with new provisions
• Now there is a possibility that a taxpayer can “Self Certified” the reconciliation statement
• Such reconciliation would be GSTR-9 (Annual Return) vis-à-vis Audited Financial Statement

Read & Download the full copy in pdf: