Finance Bill 2022:Amendments in ITC under GST Law

Last Updated On: Feb. 24, 2022, 10:11 a.m.
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FINANCE BILL: AMENDMENTS IN ITC UNDER GST

Finance Bill 2022 has proposed many changes in CGST Act,2017. The Major changes pertain to provisions relating to Input Tax credit making it more restrictive. Let us discuss the change in provision in this article

 

I. Communication of Details of Inward Supplies and ITC (Clause 103 of Finance Bill, 2022)

Sub-section(1) seeks to empower the Central Government to make rules to specify other supplies as well as the manner, time, conditions, and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto-generated statement and to do away with two-way communication process in return filing.

Sub-section (2) seeks to provide details contained in auto-generated statement i.e.,

a) Details of inward supplies in respect of which credit of input tax may be available to the recipient; and

b) Details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37.

This change is going to be harsh on taxpayers and may invite litigation.

This shall be effective from the notified date after the enactment of Finance Bill, 2022.



II. Additional Conditions for ITC u/s 16 of CGST Act, 2017

  • Finance Bill 2022 vide Clause 99 seeks to amend section 16 of CGST Act, 2017, which provides for eligibility and conditions for taking input tax credit as follows:
  • A new clause (ba) is added in sub-section (2) to mean that no registered person shall be entitled to take credit of any input tax in respect of goods or services or both unless the details of input tax credit in respect of the said supply are communicated to such registered person under section 38 has not been restricted. It thus provides that input tax credit with respect to a supply may be availed only when such credit has not been restricted in the details communicated to the registered person under section 38.
  • Since section 43A on the procedure for furnishing returns and availing input tax credit is also being deleted by Finance Bill, 2022, reference to section 43A is deleted.
  • In sub-section (4), the time limit for taking ITC is extended up to 30th November of the following financial year.

 

 

III. Change in provision related to GST Practitioners:

  • Clause 108 of Finance Act, 2022 seeks to amend sub-section (2) of section 48 of the Central Goods and Services Tax Act so as to remove reference to section 38 therefrom as there is no requirement of furnishing details of inward supplies by the registered person under the said section 38.
  • Section 48 deals with the scope of work of GST Practitioners. This amendment is in view of the proposed amendment in section 38 of the CGST Act, 2017. The substituted section 38 provides for
  • Prescribing such other supplies as well as the manner, time, conditions, and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto-generated statement and to do away with two-way communication process in return filing.
  • The details of inward supplies in respect of which input tax credit may be availed and the details of supplies on which input tax credit cannot be availed by the recipient.
  • Thus, there will be no requirement of filing returns of inward supplies.

 

IV.Allowing cash balance to be transferred to Distinct Persons

a. Clause 109 proposes to amend section 49 of the CGST Act, 2017 which deals with payment of tax, interest, penalty and other amounts

b. The proposed amendments are as follows:

  • Omit reference to section 43A in sub-section (2) as section 43A is being omitted.
  • Amend section 49(4) of the Central Goods and Services Tax Act so as to provide for prescribing restrictions for utilizing the amount available in the electronic credit ledger.
  • Amend subsection (10) so as to allow transfer of amount available in electronic cash ledger under the CGST Act of a registered person to the electronic cash ledger under the said Act or the IGST Act of a distinct person.
  • Insert sub-section (12) so as to provide for prescribing the maximum proportion of output tax liability which may be discharged through the electronic credit ledger.

c. Central Government will be empowered to make rules for the maximum proportion of output tax liability which may be discharged through the electronic credit ledger.

d. The taxpayers can now transfer the balance of credit in the cash ledger to any other distinct person (i.e., any other GST registration under the same PAN) subject to the stipulation that there is no unpaid liability in the electronic liability ledger.

e. New sub-section 12 enables and makes valid the rule 86B for mandatory payment of 1 percent of tax liability by specified persons, despite there being a sufficient balance of ITC.

 

V. Amendment in Section 168  with reference to section 38 of CGST Act, 2017

  • Clause 113 of Finance Bill, 2022 proposes to amend section 168 of CGST Act, 2017, which deals with the power to issue instructions or directions
  • In section 168(2), reference to section 38(2) is to be omitted.
  • In view of major changes in section 38 wherein two-way communication in return, filing has been withdrawn, this is a consequential amendment as no more reference to section 38 is needed.
  • Section 38 provides for auto-drafted ITC statement in Form GSTR-3B and restricts ITC availment.

 

VI: Retrospective relief in interest liability on the wrong ITC in GST: Finance Bill, 2022

a. According to section 50(3) of CGST Act, 2017, a taxable person who makes an undue or excess claim of input tax credit under section 42(10) or undue or excess reduction in output tax liability under section 43(10), shall pay interest on such undue or excess claim or on such undue or excess reduction.

b. Finance Bill, 2022 has proposed to substitute new sub-section 50(3) retrospectively, with effect from the 1st July, 2017, so as to provide for levy of interest on input tax credit wrongly availed and utilized, and to provide for prescribing manner of calculation of interest in such cases.

This amendment would result in the following :

  • No interest is leviable if the wrong ITC availed but not utilized
  • Interest to be levied only when ITC is both, availed and utilized
  • No new litigation on this issue
  • The rules will prescribe the manner of calculation of interest The amendment will have retrospective effect from 1.7.2017.

 

VIII. Two-way communication in returns:

This amendment seeks to omit section 42 of the Central Goods and Services Tax Act relating to matching, reversal, and reclaiming of input tax credit so as to do away with the concept of “claim” of an eligible input tax credit on a “provisional” basis and subsequent matching, reversals and reclaim of such credit. It further seeks to omit section 43 relating to matching, reversal, and reclaim of reduction in output tax liability so as to do away with the two-way communication process in return filing. It also seeks to omit section 43 A.

Thus, with this amendment, two-way communication in return filing will be done away with as the matching mechanism has been prescribed in section 41 of CGST Act, 2017 now.

 



 

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