Key Amendments to India's GST Legislation Effective February 2019
This article details the significant changes introduced by the GST (Amendment) Act, 2018, which became effective from February 1, 2019. It covers modifications across various sections of the Central GST Act 2017 and the Integrated GST Act 2017, including updated definitions, revised scope of supply, changes to composition levy, and new rules for input tax credit and registration. The amendments aim to refine the GST framework, addressing aspects from tax collection and refunds to appeals and transitional arrangements.
The President of India granted approval on August 29, 2018, for amendments to several GST laws. These include revisions to the Central Goods and Services Tax (CGST) Act 2018, the Integrated Goods and Services Tax (IGST) Act 2018, the Union Territory Goods and Services Tax (Amendment) Act 2018, and the Goods and Services Tax (Compensation to States) Amendment Act 2018.
The GST Council, during its 31st meeting on December 22, 2018, announced that these amendments to the GST Acts of 2018 would take effect from February 1, 2019.
Latest Updates on GST Law
The Central Board of Indirect Taxes and Customs (CBIC) confirmed through notifications that all changes to GST Law discussed in this article became applicable from February 1, 2019.
Effective from the same date, certain Central tax rate and Integrated Tax Rate notifications clarified that the Reverse Charge Mechanism (RCM) under Section 9(4) for purchases from unregistered suppliers would apply to all intra-state supplies, removing the previous daily limit of Rs 5000 per supplier. Furthermore, Section 9(4) was modified to reference only specified goods and services notified by the Government, rather than all supplies; however, the specific list is yet to be announced.
The GST Rules were also updated to align with the changes introduced in the Act, as detailed in various Central Tax and Integrated Tax notifications.
Modifications to the Central GST Act 2017
Significant changes were introduced in relevant sections of the CGST Act 2017 through the Central GST Amendment Act 2018.
Definitions within CGST Act 2017
Section 2(4). Adjudicating Authority: The definition was updated to clarify that an “adjudicating authority” is any body authorized to issue orders or decisions under the Act, explicitly excluding the Central Board of Indirect Taxes and Customs, Revisional Authority, Advance Ruling Authorities, Appellate Authority, Appellate Tribunal, and the authority mentioned in Section 171(2).
Section 2(17)(h). Business: The definition was revised to include activities of a race club, such as totalisator operations or licensed bookmaker activities, within the scope of ‘business’.
Section 2(18). Business Vertical: This definition was entirely removed from the Act.
Section 2(35). Cost Accountant: The definition of a “cost accountant” was updated to refer to clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959.
Section 2(69)(f). Local Authority: The definition was expanded to include Development Boards established under both article 371 and article 371J of the Constitution.
Section 2(102). Services: The definition of “services” was revised to mean anything other than goods, money, and securities, but specifically includes activities involving the use or conversion of money (by cash or other means) for which a separate consideration is charged. An explanation was added to clarify that “services” also encompasses facilitating or arranging transactions in securities.
Section 7. Scope of Supply
This section, pertaining to the scope of supply, was amended to provide greater clarity.
Clause (1)(b) was replaced to state: “import of services for consideration whether or not in the course or furtherance of business and”. The word “and” after “business” was considered always omitted.
Clause (1)(c) was replaced to include: “the activities specified in Schedule I, made or agreed to be made without a consideration”.
The earlier clause (1)(d), which referred to activities treated as supply of goods or services as per Schedule II, was entirely deleted.
A new sub-section (1A) was inserted after sub-section (1) of Section 7, clarifying that activities constituting a supply under sub-section (1) shall be treated as either supply of goods or supply of services as outlined in Schedule II.
Sub-section (3) was replaced to state that, subject to sub-sections (1), (1A), and (2), the Government may, based on the Council's recommendations, specify transactions to be treated as either a supply of goods (not services) or a supply of services (not goods).
Section 9. Levy and Collection
This section was modified to limit the application of tax on a reverse charge basis under Section 9(4). This now applies only to the receipt of specific categories of goods or services by notified classes of registered persons from unregistered suppliers, as recommended by the Council. This differs from the previous provision, which applied to all purchases from unregistered suppliers.
Section 10. Composition Levy
Amendments to this section increased the statutory turnover threshold for taxpayers eligible for the composition scheme from Rs 1 crore to Rs 1.5 crores. Additionally, composition taxpayers are now permitted to supply services (excluding restaurant services) up to a value not exceeding ten percent of their turnover in the preceding financial year or five lakh rupees, whichever is higher.
Section 12. Time of Supply of Goods
This section underwent a drafting amendment.
Clause 12(2)(a) was replaced to refer to “the date of issue of invoice by the supplier or the last date on which he is required, under section 31, to issue the invoice with respect to the supply; or”, omitting the phrase “under sub-section (1) of”.
Section 13. Time of Supply of Services
Similar to Section 12, this section also received drafting amendments.
Replaced clauses include: (a) “the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or” (b) “the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or”
The phrase “under sub-section (2) of” was removed from both clauses.
Section 16. Eligibility and Conditions for Taking Input Tax Credit
This section was amended to allow input tax credit in scenarios involving a “Bill-to-ship-to” model for services. The amendment also incorporates provisions related to the new return format, as specified in the proposed Section 43A, for claiming input tax credit.
Section 17. Apportionment of Credit and Blocked Credits
This section was revised to broaden the scope of eligibility for input tax credit.
A new explanation was inserted in Section 17(3), clarifying that the expression “value of exempt supply” does not include the value of activities or transactions specified in Schedule III, with the exception of those mentioned in paragraph 5 of the said Schedule.
Section 17(5) was amended, with clauses (a) and (b) replaced by (a), (aa), (ab), and (b).
The replaced clauses specify conditions under which input tax credit is available for: (a) Motor vehicles for passenger transportation with a seating capacity of up to thirteen persons (including the driver), except when used for further supply, passenger transport, or driving instruction. (aa) Vessels and aircraft, except when used for further supply, passenger transport, training (navigating/flying), or goods transportation. (ab) General insurance, servicing, repair, and maintenance services related to the motor vehicles, vessels, or aircraft mentioned in clause (a) or (aa). ITC is available if these are used for specified purposes, or if received by a taxable person manufacturing such items or supplying general insurance for them. (b) Specific goods or services, including food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing/renting/hiring of specified motor vehicles/vessels/aircraft (unless used for specified purposes), life insurance, and health insurance. ITC is available when an inward supply of such items is used by a registered person for an outward taxable supply of the same category or as part of a taxable composite/mixed supply. This also covers club memberships, health and fitness centers, and travel benefits for employees (like leave or home travel concession), with ITC available if the employer is legally obligated to provide them.
Section 20. Manner of Distribution of Credit by Input Service Distributor
This section was amended to exclude certain tax amounts from the ‘turnover’ calculation for credit distribution purposes.
Replaced clause (c) of the explanation now defines “turnover” (for a registered person supplying taxable and non-taxable goods) as the value of turnover, reduced by any duty or tax levied under entries 84 and 92A of List I of the Seventh Schedule and entries 51 and 54 of List II of the Constitution.
Section 22. Persons Liable for Registration
The threshold turnover for registration in special category states such as Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim, and Uttarakhand was increased from ten lakh rupees to twenty lakh rupees.
Section 24. Compulsory Registration in Certain Cases
This section was amended to mandate compulsory registration only for e-commerce operators who are required to collect tax at source under Section 52 of the Act. Previously, it applied to all e-commerce operators.
Section 25. Procedure for Registration
This section was amended to allow persons with multiple business locations within a State or Union territory to obtain separate registrations for each. It also introduced provisions for separate registration for a person with units in a Special Economic Zone (SEZ) or an SEZ developer, distinct from their other units outside the SEZ in the same State or Union territory.
A newly inserted second proviso under sub-section (1) specifies that an SEZ unit or developer must apply for a separate registration, distinct from their business located outside the SEZ in the same State or Union territory.
The proviso to Section 25(2) was replaced to allow a person with multiple places of business in a State or Union territory to be granted separate registration for each, subject to prescribed conditions.
Section 29. Cancellation of Registration
This section was amended to include provisions for the temporary suspension of registration during the cancellation process.
The marginal heading was updated to “Cancellation or suspension”.
A proviso was inserted after clause (c) in sub-section (1), stating that during the pendency of a registered person’s application for cancellation, registration may be suspended for a prescribed period and manner.
Another proviso was inserted after the existing proviso in sub-section (2), allowing the proper officer to suspend registration during the pendency of cancellation proceedings for a prescribed period and manner.
Section 34. Credit and Debit Notes
This section was amended to permit registered persons to issue consolidated credit or debit notes for multiple invoices issued within a financial year. This was achieved by replacing phrases like “Where a tax invoice has” with “Where one or more tax invoices have”, and similar changes for credit and debit notes.
Section 35. Accounts and Other Records
A new proviso was inserted, stating that certain departments of the Central or State Government or local authorities, whose accounts are audited by the Comptroller and Auditor-General of India or an auditor appointed for local authorities, are exempt from the requirement to have their books of account audited by a Chartered Accountant or Cost Accountant.
Section 43A: Procedure for Furnishing Return and Availing Input Tax Credit
A new Section 43A was inserted, outlining the procedure for furnishing returns and availing input tax credit.
Key provisions include: (1) Registered persons must verify, validate, modify, or delete supply details provided by suppliers in their Section 39(1) returns, notwithstanding Sections 16(2), 37, or 38. (2) The procedure for recipients to avail and verify input tax credit will be as prescribed, notwithstanding Sections 41, 42, or 43. (3) The procedure for suppliers to furnish outward supply details on the common portal for recipient ITC purposes will be prescribed. (4) A prescribed procedure will govern availing ITC for outward supplies not furnished under sub-section (3), potentially limiting the maximum ITC to twenty percent of the available credit based on supplier-furnished details. (5) The tax amount from outward supply details furnished by a supplier under sub-section (3) is deemed payable by them. (6) Suppliers and recipients are jointly and severally liable for tax payment or ITC availed for outward supplies furnished under sub-section (3) or (4) but for which no return was filed. (7) Recovery for sub-section (6) will follow a prescribed manner, which may include non-recovery of wrongly availed tax or ITC not exceeding one thousand rupees. (8) Procedures, safeguards, and tax amount thresholds for outward supplies details furnished under sub-section (3) are prescribed for registered persons: (i) within six months of registration; (ii) who have defaulted on tax payment for over two months from the due date.
Section 48, concerning Goods and Services Tax Practitioners, was amended to expand their functions to include filing refund claims, cancellation of registration applications, and other prescribed duties.
Section 49. Payment of Tax, Interest, Penalty, and Other Amounts
This section was amended to stipulate that credit for State tax or Union territory tax can only be used to pay integrated tax if the balance of input tax credit for central tax is unavailable for integrated tax payment.
Sub-section (2) was replaced to state that self-assessed input tax credit in a registered person’s return will be credited to their electronic credit ledger in accordance with Section 41 or 43A.
New provisos were inserted below clauses (c) and (d), stating that ITC on State tax/Union Territory Tax shall be used for integrated tax payment only if central tax ITC balance is not available.
Section 49A: Utilisation of Input Tax Credit Subject to Certain Conditions
This newly inserted section specifies that a taxpayer can only use input tax credit from central tax, State tax, or Union territory tax after fully exhausting all available integrated tax credit for payment of integrated tax, Central tax, State tax, or Union territory tax.
Section 49B: Order of Utilisation of Input Tax Credit
This new section grants the Government the authority to specify the order in which input tax credit from any of the taxes must be utilized for the payment of any tax.
Section 52: Collection of Tax at Source
This section was amended to include a reference to Section 39 of the CGST Act 2017 regarding the furnishing of returns.
Sub-section (9) was replaced to state that if the outward supply details furnished by an operator under sub-section (4) do not match the corresponding details provided by the supplier under Section 37 or 39, the discrepancy will be communicated to both parties in a prescribed manner and timeframe.
Section 54. Refund of Tax
This section was amended to apply the principle of unjust enrichment to refund claims arising from supplies of goods or services to a Special Economic Zone (SEZ) developer or unit. It also permits the receipt of payments in Indian rupees for export of services, where allowed by the Reserve Bank of India.
Clause (a) of sub-section (8) of Section 54 was replaced, referring to “refund of tax paid on export of goods or services or both or on inputs or input services used in making such exports”, changing ‘zero-rate supplies’ to ‘exports’.
Item 1 of clause (c) under point (2)-Relevant date of the explanation was replaced as follows: “In the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of–– (i) receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India, where the supply of services had been completed prior to the receipt of such payment; or (ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice;”.
Clause (e) under point (2)-Relevant date of the explanation was replaced to state: “In the case of refund of unutilised input tax credit under clause (ii) of the first proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises;”.
Section 79. Recovery of Tax
This section was amended to enable recovery from distinct persons registered in different States or Union territories, ensuring quicker recovery from other establishments of a registered person. An explanation was inserted: “For the purposes of this section, the word person shall include “distinct persons” as referred to in sub-section (4) or, as the case may be, sub-section (5) of section 25.”
Section 107. Appeals to Appellate Authority
This section was amended to set an upper limit of twenty-five crore rupees for the pre-deposit amount required to file an appeal before the Appellate Authority.
Section 112. Appeals to Appellate Tribunal
This section was amended to establish an upper limit of fifty crore rupees for the pre-deposit amount required to file an appeal before the Appellate Tribunal.
Section 129. Detention, Seizure, and Release of Goods and Conveyances in Transit
This section was amended to extend the time limit before which proceedings must be initiated.
Sub-section (6) of Section 129 was replaced to state that if the person transporting goods or the owner fails to pay the tax and penalty specified in sub-section (1) within fourteen days of detention or seizure, further proceedings will be initiated under Section 130.
Section 140. Transitional Arrangements for Input Tax Credit
This section was amended with retrospective effect from July 1, 2017, to clarify that cesses and additional duty of excise (on textile and textile articles) levied under pre-GST laws would not be part of the transitional input tax credit under GST.
Section 143. Job Work Procedure
This section was amended to authorize the Commissioner to extend the time limit for the return of inputs and capital goods sent for job work, up to a period of one year and two years, respectively.
A new second proviso was inserted into Section 143(1)(b): “Provided further that the period of one year and three years may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding one year and two years respectively.”.
SCHEDULE I of CGST Act 2017: Activities Treated as Supply Even if Made Without Consideration
Paragraph 4 of Schedule I was amended as follows: “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.”
SCHEDULE II of CGST Act 2017
The title of Schedule II of the principal Act was amended from “Activities to be treated as a supply of goods or supply of services” to “Activities or transactions to be treated as a supply of goods or supply of services”.
SCHEDULE III of CGST Act 2017: Activities or Transactions Treated Neither as a Supply of Goods Nor Services
New paragraphs were inserted after paragraph 6:
(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.”
A new explanation 2 was inserted: “For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.”
Changes in IGST Act 2017
The Integrated GST Amendment Act 2018 also introduced several modifications to the IGST Act 2017: Section 2(6). Definitions. “export of services” Section 2(16). Definitions. “non-taxable online recipient” Section 5. Levy and collection: Amended to allow the Central Government to notify classes of registered persons required to pay tax on a reverse charge basis for specific categories of goods or services received from unregistered suppliers. Section 8. Intra-State supply: The phrase “being a business vertical” was removed. Section 12. Place of supply of services where the location of supplier and recipient is in India: Amended to specify that if goods are transported to a location outside India, the place of supply is the destination of those goods. Section 13. Place of supply of services where the location of supplier or location of the recipient is outside India: Provisions of Section 13(1)(3)(a) were amended to exclude services provided for goods temporarily imported into India for repairs or other processing, and then exported without being used in India for any other purpose than the repair or process itself. Section 17. Apportionment of tax and settlement of funds: Amended to provide for the equal settlement of the integrated tax account balance between the Central Government and the State Governments or Union territories on an ad hoc basis, with adjustments against apportioned amounts. Section 20. Application of provisions of Central Goods and Services Tax Act: Amended to cap the pre-deposit amounts for filing appeals at: (a) fifty crore rupees before the Appellate Authority; (b) one hundred crore rupees before the Appellate Tribunal.