CBIC removed 5% Provisional ITC; Only ITC Reflecting in GSTR-2B can be taken from 1st Jan 2022

The Central Board of Indirect Taxes and Customs [CBIC] issued Notification No. 39/2021–Central Tax on December 21, 2021, which specifies the date on which the provisions of Sections 108, 109, and 113 to 122 of the aforementioned Act will take effect on January 1, 2022.

Section 108 of the Finance Act of 2021 aims to amend section 7 of the CGST Act by adding a clause after clause (a) in sub-section (1), namely “(aa) the activities or transactions, by a person other than an individual, to its members or constituents for cash, deferred payment, or other valuable consideration, by a person other than an individual.” It is hereby clarified that, for the purposes of this clause, 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, notwithstanding anything contained in any other law currently in force or any judgement, decree, or order of any Court, tribunal, or authority;”. (Retrospective change to mitigate the impact of the Supreme Court‘s decision in the Calcutta Club case)

As per Section 109 of the Finance Act 2021, Clause (aa) is inserted below section 16(2) (a) of the Finance Act, 2021, stipulating that an input tax credit on an invoice or debit note is available to a recipient only if the details of such invoice or debit note have 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. Suppliers are now required to provide the details of outward suppliers through their returns under Section 37. This modification makes it essential for beneficiaries to claim ITC as well. (Amendment to make GSTR 2 A a requirement for ITC)

In clause (ii) of section 74, section 113 of the Finance Act of 2021 proposes to replace the words and figures “sections 122, 125, 129, and 130” with the words and figures “sections 122 and 125.” (For Sections 129 and 130, the deemed termination of proceedings will not apply.)

Section 114, which amends section 75 – The following Explanation shall be inserted in section 75 of the Central Goods and Services Tax Act, in sub-section (12): ‘Explanation. — For the purposes of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.’ (Tax declared in GSTR 1 can be recovered directly without the need for a SCN.)

“(1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV, or Chapter XV, the Commissioner is of the opinion that it is necessary to do so for the purpose of protecting the interest of the Government revenue, he may, by order in writing, attach provisionally any property, including bank accounts, belonging to the taxable person,” says section 115 of the Finance Act of 2021. (Section 83’s applicability has been broadened)

“Provided that no appeal shall be taken against an order under sub-section (3) of section 129, unless the appellant has paid an amount equal to twenty-five per cent of the penalty,” says section 116 of the Finance Act of 2021. (For appeals against orders issued under Section 125, a pre-deposit of 25% of the penalty is required.) Detention and seizure are dealt with in section 129.)

Section 117 of the Finance Act of 2021 seeks to amend section 129 by substituting the following clauses for clauses (a) and (b) in sub-section (1): “(a) on payment of a penalty equal to two hundred percent of the tax payable on such goods and, in the case of exempted goods, on payment of an amount equal to two percent of the value of the goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment (b) on payment of a penalty equal to fifty percent of the value of the goods or two hundred percent of the tax payable on such goods, whichever is higher, and in the case of exempted goods, on payment of an amount equal to five percent of the value of the goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;”(3) The proper officer detaining or seizing goods or conveyance shall issue a notice specifying the penalty payable within seven days of such detention or seizure, and thereafter, pass an order for payment of penalty under clause (a) or clause (b) of sub-section (1) within seven days from the date of service of such notice.”; (iv) for sub-section (4), the words “No tax, interest, or penalty” shall be substituted; (v) for sub-section (5), (6) If the person transporting the goods or the owner of the goods fails to pay the penalty under sub-section (1) within fifteen days of receiving a copy of the order passed under sub-section (3), the goods or conveyance so detained or seized may be sold or disposed of in any manner and within such time as may be prescribed in order to recover the penalty payable under sub-section (1). (3). The conveyance shall be freed upon payment of the penalty under sub-section (3) or one lakh rupees, whichever is less, by the transporter. The aforementioned period of fifteen days may be decreased by the proper officer if the detained or seized commodities are perishable or hazardous in nature, or are likely to degrade in value with the passage of time.” (Various changes in the procedures relating to detention and seizure of goods and conveyances).

The following modifications to section 130 are proposed by section 118 of the Finance Act of 2021: (a) in subsection (1), in the second proviso, for the words, brackets, and figures “amount of penalty leviable under sub-section (1) of section 129,” the words “penalty equal to one hundred percent of the tax payable on such goods” shall be substituted; in subsection (2), in the second proviso, for the words, brackets, and figures “amount of penalty leviable under sub-section (1) of section 129,” the words “penalty equal to one hundred (There have been a number of adjustments to the procedures for seizure and levying penalties.)

“Power to call for information: The Commissioner or an officer authorised by him may, by order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner as may be specified therein,” according to section 119 of the Finance Act of 2021. (The scope of the power to demand information has been expanded.)

Section 120, which modifies section 152. — a) In sub-section (1) of the Central Goods and Services Tax Act, the words “of any individual return or part thereof” are omitted; (ii) following the words “any actions under this Act,” the words “without giving the person concerned a chance to be heard” are inserted;

b) The second sub-section is omitted. (Procedural amendments to the provisions relating to the prohibition on information disclosure)

Section 121, which modifies section 168 – In sub-part (2) of section 168 of the Central Goods and Services Tax Act, —

(i) the words, brackets, and figures “sub-section (1) of section 44” shall be replaced with the words and figures “section 44”;

(ii) the words, brackets, and figures “subsection (1) of section 151” are deleted. (Additional modifications relating to the authority to issue instructions or directives)

Amendment to Schedule II, Section 122. — Paragraph 7 of Schedule II of the Central Goods and Services Tax Act must be omitted and assumed to have been omitted with effect from July 1, 2017. (Due to the retrospective revision in Sec. 7, this clause is no longer necessary and has been removed.)

Previously, CBIC added sub-rule (4) to Rule 36 of the 2017 CGST Rules. The provisional tax credit (without invoices on GSTR-2B) can be claimed in the GSTR-3B up to 5% of the eligible ITC indicated in the GSTR-2B, according to the rule.

From January 1, 2021, the overall ITC that can be claimed in GSTR-3B is 105 percent of the qualifying ITC appearing in the GSTR-2B for that period. On November 11th, 2019, Circular 123/2019 was issued, explaining the difficulties surrounding the execution of original regulation 36(4).

However, it was reduced to 10% from January 1, 2020 to December 31, 2020, after being restricted to 20% from October 9, 2019 to December 31, 2019.

Documentation requirements and circumstances for obtaining an input tax credit are outlined in Rule 36.

[As per Rule 36(4), the eligible credit available to a registered person in respect of invoices or debit notes whose details have not been [furnished] by the suppliers under sub-section (1) of section 37 [in FORM GSTR-1 or using the invoice furnishing facility] shall not exceed 5[5 percent.] of the eligible credit available in respect of invoices or debit notes whose details have been 6[furnished] by the suppliers under sub-section (1) of section 37 [in FORM GSTR-1

[Provided that the said condition applies cumulatively for the months of February, March, April, May, June, July, and August 2020, and that the return in FORM GSTR-3B for the tax period of September 2020 is furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.]

[Provided, further, that such condition shall apply cumulatively for the months of April, May, and June 2021, and that the return in FORM GSTR-3B for the tax period ending June 20, 2021, or quarter ending June 20, 2021, as the case may be, shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.]