Sectionwise Analysis – GST Amendments (Finance Bill 2021)

Sectionwise Analysis – GST Amendments (Finance Bill 2021)

1. Transaction between a person (other than an individual) to its members for consideration to be treated as a supply

Source

Clause 99 of the Finance Bill, 2021.

Effective Date

With effect from the 1st day of July 2017.

New Provision

Section 7(1)(aa) of the CGST Act, 2017.

Amendment

The provision marked in green has been newly inserted:

7(1)(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;”.

Effect of the Amendment

There had been an area of dispute regarding the taxability of transactions carried out between the members and the association of persons/partnership firms / joint ventures. This was particularly after the Hon’ble Supreme Court judgement in the case of Calcutta Club Ltd (Civil Appeal No. 4184 of 2009) recently. It was held that the club/association and its members are not distinct persons and that there would be no leviability of service tax on any services provided by the club to its persons following the concept of mutuality.

This amendment aims to put a deeming fiction effective from 1st July 2017 within the law providing that the person (other than an individual) and its members should mandatorily be treated as two separate persons. Also, the activities or transactions carried out between such person and the members for consideration should mandatorily be treated as a supply leviable to tax under GST.

The above position of the law is overriding all the provisions of GST and any other law and even the judgements of any Court, Tribunal, or any other authority. The validity of such an amendment in the eyes of Courts may have to withstand the test of time.

2. Appearance of transaction in GSTR-2A/2B – a mandatory condition for availment of ITC

Source

Clause 100 of the Finance Bill, 2021.

Effective Date

Date to be notified by the government.

New Provision

Section 16(2)(aa) of the CGST Act, 2017.

Amendment

The provision marked in green has been newly inserted:

16(2)(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;”.

Effect of the Amendment

Till now, the conditions for availment of the input tax credit was only dependent on the supplier to the extent of whether he has actually paid the taxes charged to the government. To a certain extent, this condition is not always possible to verify in the hands of the recipient particularly where the supplier has mis-declared or not declared the correct tax values in GSTR-3B.

On the other hand, there was no clause to deny input tax credit based on the matching of the details declared by the supplier in his GSTR-1 and actual input tax credit availed by the recipient. Thereby, the credit matching between GSTR2A and 3B was not a pre-condition for availment of input tax credit under Section 16(2). In order to mandate availment of input tax credit based on GSTR-2A / 2B, the law now prescribes a pre-condition that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in his GSTR-1 and it is communicated to the recipient in GSTR-2A / 2B.

From a prima facie understanding, it seems that the 100% matching of the input tax credit for forward charge transactions may be introduced once this provision gets notified. However, the fate of this provision in consonance with Rule 36(4) may also be known once the provision and their respective rules are notified.

3. Annual accounts to be audited by Specified professionals.

Source

Clause 101 of the Finance Bill, 2021.

Effective Date

Date to be notified by the government.

Affected Provision

Section 35(5) of the CGST Act, 2017

Amendment

The provision marked in red have been omitted

35(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 sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed:

[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.]

4. Self-certification of reconciliation statement by the registered person

Source

Clause 102 of the Finance Bill, 2021.

Effective Date

Date to be notified by the government.

Affected Provision

Section 44 of the CGST Act, 2017.

Provision before amendment

44(1) – 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 for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year:

[Provided that the Commissioner may, on the recommendations of the Council and for reasons to be recorded in writing, by notification, extend the time limit for furnishing the annual return for such class of registered persons as may be specified therein:

Provided further that any extension of time limit notified by the Commissioner of State tax or the Commissioner of Union territory tax shall be deemed to be notified by the Commissioner.]

44(2) – Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed.

[Explanation.- For the purposes of this section, it is hereby declared that the annual return for the period from the 1st July 2017 to the 31st March 2018 shall be furnished on or before the [31st January 2020]69, and the annual return for the period from the 1st April 2018 to the 31st March 2019 shall be furnished on or before the 31st March 2020

Provision after Amendment

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.

Effect of the Amendment of Clauses 101 and 102

The mandatory requirement of getting the reconciliation in GSTR-9C certified by a Chartered Accountant/ Cost Accountant is proposed to be removed. Any registered person would be able to furnish the annual return along with a self-certified reconciliation statement reconciling the values between annual return and financial statements.

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