GST law change/amendments in Finance Act,2020

The government has notified several changes in the GST law and has also put into effect several amendments brought in vide the Finance Act, 2020. This alert covers the key changes notified in the GST law.

Key changes brought in Goods and Service Tax Rules, 2017 through Notification No. 94/2020-Central Tax dated 22 December 2020- 

Restriction on the utilization of ITC available to the extent of 99% of the outward tax liability

[w.e.f 1 January 2021]

Rule 86B has been inserted to restrict the utilization of Input Tax Credit (ITC) to the extent of 99% of tax liability for the relevant period for taxpayers having taxable supply (other than exempt supply and zero-rated supply) in a month exceeding INR 5 million. This restriction is not applicable to taxpayers fulfilling any of the following criteria:

  • The taxpayer itself, or specified persons such as the Proprietor, Karta, Managing Director, Whole-time Directors, or any of its two Partners, Members of the Managing Committee of Associations or Board of Trustees, as the case may be, who have paid more than INR 1 lakh as income tax under the Income-tax Act, 1961 in each of the last two financial years;
  • The taxpayer has received a refund of unutilized ITC exceeding INR 1 lakh in the preceding financial year on account of either zero-rated outward supplies made without payment of tax, or inverted duty structure;
  • The taxpayer has discharged GST liability by way of cash exceeding 1% of the output tax liability, applied cumulatively, up to the relevant tax period in the current financial year; or
  • The taxpayer is a Government Department, a Public Sector Undertaking (PSU), a local authority, or a statutory body.

Thus, the taxpayers with taxable supplies exceeding INR 5 million in a month and not satisfying the aforesaid criteria will be required to pay at least 1% of the monthly GST liability by cash even if they have sufficient credit in their ECL.

Tightening of restrictions on availing ITC under Rule 36(4) [w.e.f 1 January 2021]

  • Now, the claim of ITC cannot exceed 105% of the eligible ITC available in respect of invoices furnished by the vendors in their GSTR-1 [earlier this limit was 110%];
  • Also, now only the invoices ‘furnished’ by the vendors would be eligible to calculate the revised limit of 105%, i.e. if the invoices have been ‘uploaded’ by the vendors but the GSTR-1 is not filed, then such invoices cannot be considered for determination of the ITC limit under Rule 36(4);
  • In view of the newly introduced Quarterly Return Filing and Monthly Payment (QRMP) scheme, ITC shall also be allowed in respect of invoices furnished the Invoice Furnishing Facility (IFF) introduced for quarterly return filers.

Revised procedure for verification at the time of new GST registration

  • Rule 8 has been amended to provide for biometric-based Aadhar authentication along with a photograph or KYC documents based registration;
  • Further, an applicant will also have to visit a notified Facilitation Centre for verification of the original copy of the documents uploaded, and the application process will be completed only after the completion of such verification.

Cancellation/Suspension of GST registration in certain cases

The government has amended Rule 21 to provide for the following additional cases in which the GST registration will be liable for cancellation:

  • The taxpayer has availed ITC in violation of Section 16 of the CGST Act;
  • Outward supplies furnished in GSTR-1 are in excess of outward supplies declared in GSTR-3B for the same period;
  • Taxpayer violates provisions of Rule 86B (explained above).

Further, in addition to the existing powers, proper officer has been granted powers to immediately suspend (and not cancel) the GST registration under Rule 21A without giving the taxpayer an opportunity of being heard in cases where –

  • On Comparison of GSTR-1 and GSTR-3B of the Taxpayer; or
  • On comparison of GSTR-3B of the Taxpayer and GSTR-1 of its supplier; or
  • Other analysis carried out on the recommendation of the GST Council

display significant differences or anomalies indicating contravention of the provisions of the GST law, leading to the cancellation of registration. The proper officer can also revoke the suspension of registration anytime during the pendency of proceedings for cancellation if he deems fit.

Blocking of GSTR-1 due to non-filing of GSTR-3B

  • Similar to the Rule for blocking of e-way bills in case of non-filing of GST returns, a new Rule 59(5) has been inserted wherein a taxpayer shall not be allowed to file GSTR-1 if he fails to file GSTR-3B for two subsequent months. In case GSTR-1 is to be filed quarterly, then GSTR-1 is not allowed if GSTR-3B is not filed for the preceding tax period.
  • Also, a taxpayer who is restricted from availing ITC as per Rule 86B shall not be permitted to file GSTR-1, where GSTR-3B is not filed for the preceding tax period.

Other key amendments

  • The time limit available to the officer to approve new GST registration has been revised to 7 working days, from the current limit of 3 working days;
  • The validity of the e-way bill has been reduced by way of an increase in distance to be covered by the conveyance per day. As per the revised norms, an e-way bill will be valid for 1 day for every 200 kilometers distance or part thereof, instead of the erstwhile limit of 100 kilometers;
  • An additional restriction has been imposed whereby taxpayers whose registration is suspended will not be able to generate Part A of the e-way bill;
  • The Finance Act, 2020 had introduced several amendments to the CGST Act, some of which were yet to be notified. Now, the Government Notification No. 92/2020-Central Tax dated 22 December 2020 has made the following key amendments effective from 1 January 2021: 
  • The time limit for availing ITC by the recipient in relation to a debit note issued by the supplier has been de-linked from the date of the original invoice. In other words, the recipient can now claim ITC pertaining to a debit note till September of the year following the year in which such debit note has been issued;
  • Earlier, penal and imprisonment provisions for certain offences were applicable only to the person committing those offences. Now, the scope has been expanded to include persons who cause to commit and retain the benefits arising out of such offences, i.e., recipients causing the suppliers to issue an inflated invoice and claiming higher ITC, brokers involved in frauds related to ITC, etc.
  • Imprisonment provisions have been amended to include taxpayers availing fraudulent ITC without any invoice/bill;
  • Schedule II of the CGST Act has been amended whereby the phrase “whether or not for a consideration” has been deleted from Para 4 of the said Schedule, which provides for categorization of transfer of business assets into ‘supply of goods’ and ‘supply of services.’ It appears that this amendment intends to harmonize Schedule II with the ‘supply’ definition, as activities to be treated as ‘supply’ even in the absence of ‘consideration’ have been specifically provided under Schedule I.

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