Changes Proposed in the GST Act by the Finance (No. 2) Bill 2024

The Finance (No. 2) Bill, 2024, introduces significant amendments to the Central Goods and Services Tax (CGST) Act, 2017, aiming to refine and enhance the GST framework. Below is a detailed analysis of the proposed amendments:

1. Amendment of Section 9: Expansion of Taxable Goods (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 9(1) expands the scope of exclusion of taxable goods under GST to include "un-denatured extra neutral alcohol or rectified spirit used for the manufacture of alcoholic liquor, for human consumption.". This amendment is likely to impact industries involved in the production of alcoholic beverages, which may need to adjust their pricing strategies to account for the additional tax burden.

2. Amendment of Section 10: Inclusion of Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

Section 10(5) has been amended to include references to Section 74A instead of “section 73 or section 74”.

3. Insertion of New Section 11A: Power to Not Recover GST (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The introduction of Section 11A empowers the government to waive the recovery of GST in cases where a general practice has led to non-levy or short-levy of central tax. This provision provides the government with flexibility to address widespread industry practices that may have led to unintentional tax evasion. By allowing such waivers, the government can foster goodwill and encourage voluntary compliance, especially in sectors where practices have been long established and accepted. Section 11A is reproduced as under for ready reference-

“11A. Notwithstanding anything contained in this Act, if the Government is satisfied that —

(a) a practice was, or is, generally prevalent regarding levy of central tax (including non-levy thereof) on any supply of goods or services or both; and

(b) such supplies were, or are, liable to, –

(i) central tax, in cases where according to the said practice, central tax was not, or is not being, levied, or

(ii) a higher amount of central tax than what was, or is being, levied, in accordance with the said practice,

the Government may, on the recommendation of the Council, by notification in the Official Gazette, direct that the whole of the central tax payable on such supplies, or, as the case may be, the central tax in excess of that payable on such supplies, but for the said practice, shall not be required to be paid in respect of the supplies on which the central tax was not, or is not being levied, or was, or is being, short-levied, in accordance with the said practice.”

4. Amendment of Section 13: Clarification on Time of Supply (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendments to Section 13(3) clarify the time of supply for services, particularly in cases where the recipient is responsible for issuing the invoice. The addition of clause (c) ensures that the tax point is explicitly defined, reducing ambiguity and potential disputes between suppliers and tax authorities. This amendment ensures clarity in cases of Reverse charge mechanisms, specifying the date of issue of the invoice by the recipient as the relevant date. Now the amended relevant extracts of provision of Section 13(3) is read as under-

“13(3) In case of supplies in respect of which tax is paid or liable to be paid on Reverse charge basis, the time of supply shall be the earlier of the following dates, namely:-

(a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or

(b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier by the supplier, in cases where invoice is required to be issued by the supplier; or:

(c) the date of issue of invoice by the recipient, in cases where invoice is to be issued by the recipient:;

5. Amendment of Section 16: Extension of ITC Entitlement (Applicable from 27.09.2024 by Noti. No. 17/2024-CT)

Section 16 is amended to extend the period during which Input tax credit (ITC) can be claimed for certain financial years (2017-18 to 2020-21) until November 30, 2021. This retrospective amendment provides relief to businesses that may have faced challenges in claiming ITC within the originally prescribed timeframe, thereby supporting cash flow management.

6. Amendment of Section 17: Limitation on ITC in Fraud Cases (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

In section 17 of the Central Goods and Services Tax Act, in sub-section (5), in clause (i), for the words and figures “sections 74, 129 and 130”, the words and figures “section 74 in respect of any period upto Financial Year 2023-24” shall be substituted.

7. Amendment of Section 21: Inclusion of Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

Similar to Section 10, the amendment to Section 21 incorporates references to Section 74A.

8. Amendment of Section 30: Conditions for Revocation of Registration Cancellation (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The addition of a second proviso to Section 30(2) introduces conditions and restrictions on the revocation of cancellation of registration. The relevant provisions are reproduced as under-

“Provided further that such revocation of cancellation of registration shall be subject to such conditions and restrictions, as may be prescribed.”

9. Amendment of Section 31: Specification of Invoice Issuance Period (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 31(3)(f) introduces a provisions for prescribing time period for the issuance of invoices by a registered person who is liable to pay tax under sub-section (3) or subsection (4) of section 9 on supplies received from an unregistered suppliers. This clarification is crucial for ensuring timely compliance with invoice-related requirements, particularly in transactions involving unregistered suppliers. Further vide insertion of Explanation scope of “Unregistered person” in clause (f) has been clarified as under-

“Explanation.—For the purposes of clause (f), the expression “supplier who is not registered” shall include the supplier who is registered solely for the purpose of deduction of tax under section 51.”

10. Amendment of Section 35: Extension to Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 35(6) includes references to Section 74A, aligning the provisions related to records and documents with the new section introduced to deal with tax discrepancies for periods beyond FY 2023-24.

11. Amendment of Section 39: Monthly TDS Return Requirements (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The substitution of Section 39(3) mandates that every registered person required to deduct tax at source (TDS) must furnish a monthly return, even if no deductions have been made during the month. This change reinforces the accountability of TDS deductors, ensuring that all transactions are reported regularly.

12. Amendment of Section 49: Extension to Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 49(8) incorporates Section 74A instead of “section 73 or section 74”.

13. Amendment of Section 50: Extension to Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 50(1) aligns the interest provisions with the introduction of Section 74A, ensuring that consistency.

14. Amendment of Section 51: Extension to Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 51(7) extends the applicability of TDS provisions to Section 74A instead of “section 73 or section 74”.

15. Amendment of Section 54: Restrictions on Refund of ITC for Zero Rated Supply (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendment to Section 54(15) introduces a significant restriction on the refund of unutilised ITC or integrated tax paid on Zero-rated supply of goods that are subject to export duty. This change could impact exporters who previously benefited from such refunds, potentially leading to a re-evaluation of export pricing and strategies.

16. Amendment of Section 61 to Section 66: Extension to Section 74A (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

Amendments to Sections 61, 62, 63, 64, 65, and 66 incorporate Section 74A instead of “section 73 or section 74”.

17. Amendment of Section 70: Introduction of Sub-Section (1A)

The new sub-section (1A) introduced in Section 70 mandates that persons summoned under this section must attend either in person or through an Authorised representative and provide truthful statements or documents as required.

18. Amendment of Section 73 and 74: Temporal Limitation on Tax Determination (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The amendments to Sections 73 and 74 introduce a temporal limitation, restricting the application of these sections to periods up to Financial Year 2023-24. This is a significant transition in the GST assessment framework with the adoption of Section 74A for periods beyond FY 2023-24.

19. Insertion of New Section 74A: New Framework for Post-2024 Tax Determination (Applicable from 01.11.2024 by Noti. No. 17/2024-CT)

The newly inserted Section 74A introduces a comprehensive framework for determining tax discrepancies for periods from FY 2024-25 onwards. This section covers various scenarios, including non-payment, short payment, erroneous refunds, and incorrect ITC claims, and prescribes specific penalties and timelines for compliance.

Conclusion

The amendments proposed under the Finance (No. 2) Bill, 2024, reflect a concerted effort to refine the GST framework by addressing existing gaps, introducing new compliance mechanisms, and enhancing the overall robustness of the tax system. The inclusion of Section 74A, in particular, signals a shift towards a more structured and timely approach to tax determination and recovery.