Updates in Indirect Tax – Interim Budget 2024

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Published Date:  09-02-2024   Author:   ca-gitesh-bajaj
captainbiz updates in indirect tax interim budget

Executive Summary

Input Service Distributor

captainbiz input service distributor

  • The office receiving invoices for or on behalf of distinct persons shall be REQUIRED to get registered as Input Service Distributor (ISD) and distribute the credit of GST to such distinct persons through the prescribed document.
  • Consequential amendment has been made in the definition of Input Service Distributor.
  • ISD shall distribute the ITC in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

Offence related provisions

captainbiz offence related provisions

  • Registered person manufacturing pan masala, chewing tobacco and other tobacco-related products are required to follow special procedure under GST for registration of the machines used in packaging of such goods.
  • New penalty provision is introduced for non-registration of such packing machines by manufacturers in addition to other applicable penalties.
  • A penalty of INR2 lakh (INR1 lakh each under CGST and SGST Act) shall be payable for every machine not so registered.
  • In addition to the above, such machines shall also be liable for seizure and confiscation, unless
  1. The penalty so imposed is paid.
  2. Such machine is registered within three days of the receipt of the order of penalty.

Customs Act 1962

There are no changes relating to the Customs law, proposed in the interim budget.
captainbizdetailed insight

From the speech of Hon. Finance Minister

Indirect Taxes

90. By unifying the highly fragmented indirect tax regime in India, GST has reduced the compliance burden on trade and industry. The industry has acknowledged the benefits of GST. According to a recent survey conducted by a leading consulting firm, 94 per cent of industry leaders view the transition to GST as largely positive. According to 80 per cent of the respondents, it has led to supply chain optimisation, as elimination of tax arbitrage and octroi has resulted in disbanding of check posts at state and city boundaries. At the same time, tax base of GST more than doubled and the average monthly gross GST collection has almost doubled to ₹ 1.66 lakh crore, this year. States too have benefited. States’ SGST revenue, including compensation released to states, in the post-GST period of 2017-18 to 2022-23, has achieved a buoyancy of 1.22. In contrast, the tax buoyancy of State revenues from subsumed taxes in the pre-GST four-year period of 2012-13 to 2015-16 was a mere 0.72. The biggest beneficiaries are the consumers, as reduction in logistics costs and taxes have brought down prices of most goods and services.
91. We have taken a number of steps in Customs to facilitate international trade. As a result, the import release time declined by 47 per cent to 71 hours at Inland Container Depots, by 28 per cent to 44 hours at air cargo complexes and by 27 per cent to 85 hours at sea ports, over the last four years since 2019, when the National Time Release Studies were first started.

Tax proposals

92. As for tax proposals, in keeping with the convention, I do not propose to make any changes relating to taxation and propose to retain the same tax rates for direct taxes and indirect taxes including import duties…

Proposals under Indirect Taxes

(To be effective from the date as the Central Government may, by notification in the Official Gazette, appoint)

Input Service Distributor (ISD) Mechanism to be made mandatory!

  • Change in definition of ISD –  Section 2(61)

Old Definition

Proposed New Definition –

Substituting earlier definition

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“Input Service Distributor” means

· an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services

and

·issues a prescribed document for the purposes of distributing the credit of Central tax, State tax, Integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;

“Input Service Distributor” means

·an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25,

and

·liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;

  • Amendment in Section 20 of CGST Act 2017-  Manner of distribution of credit by Input Service Distributor.

 

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Old Section 20

Proposed Substitution of Section 20

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:-

a. the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;

b. the amount of the credit distributed shall not exceed the amount of credit available for distribution;

c.  the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

d. the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;

e. the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.

(1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, SHALL be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices

(2)   The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

(3)   The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed

  • Analysis : ISD Made Compulsory and Scope of RCM Included

  1. Initially, the definition of Input Service Distributor (ISD) under Section 2(61) has been revised, broadening its scope to encompass offices that obtain tax invoices for input services, either directly or indirectly, for entities sharing the same PAN. This expansion now includes services subject to tax under Reverse Charge Mechanisms (RCM) as outlined in sections 9(3) and 9(4) of the CGST Act. Earlier it was limited to invoices on which tax has been charged by the suppliers (i.e. Forward Charge).
  2. An update to Section 20 mandates any office receiving tax invoices for input services on behalf of entities with the same PAN to register as an ISD and distribute credit accordingly.
  3. This modification stems from recommendations made during the 52nd GST Council Meeting and aims to enforce the mandatory distribution of credits for input service invoices received by the Head Office through the ISD framework.
  4. Previously, the ISD framework was optional. However, with these amendments, the flexibility to cross charge input services invoiced by third parties will be removed.
  5. Nevertheless, the option to cross charge for services produced internally will remain. As a result, the choice between cross-charging and utilizing the ISD mechanism, as mentioned in point 1 of Circular No. 199/11/2023-GST dated 17th July, 2023, will no longer be valid. (The Detailed Circular is covered at the end of Update).
  6. Additionally, it is implied from the proposal that ISDs receiving invoices subject to RCM may need to pay GST under RCM and issue a self-invoice if necessary. It is important to note that an ISD’s primary function is to ‘avail’ and ‘distribute’ Input Tax Credit (ITC), without making direct tax payments. Since the current GSTR-6 form, used for credit distribution by ISDs, lacks a provision for RCM liability payment, it requires revision to allow ISDs to manage RCM liabilities. Following payment of such liabilities, the credit for RCM paid should be distributed to other branches or entities with the same PAN via ISD invoices.
  7. Finally, new rules will be established to outline the updated procedure for distributing ISD Credit, moving away from the previous practice of detailing these processes within the Section itself.
  • Impact

  • Cross charge would apply instead of ISD only in the case of services provided by one office to another being distinct persons i.e., having separate GST registrations under a common PAN (internally generated services) and not for services received from third parties.
  • Where RCM credit needs to be distributed, it is to be ensured that the ISD receives the invoice from the supplier with GSTIN of the ISD. Also, since the ISD would be required to discharge RCM in cash, necessary working capital needs to be considered for the ISD registration.
  • It should be strictly remembered ISD is only for ‘Input services’, so no ITC can be ‘availed’ or ‘distributed’ for any ‘Input goods’ or ‘Capital Goods’.

Insertion of new penalty provision

Old Provision

Insertion of new Section 122A – Penalty failure for to register certain machines used in manufacture of goods as per special procedure.
(1)    Notwithstanding anything contained in this Act, where any person, who is engaged in the manufacture of goods in respect of which any special procedure relating to registration of machines has been notified under section 148, acts in contravention of the said special procedure, he shall, in addition to any penalty that is paid or is payable by him under Chapter XV or any other provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees for every machine not so registered.

(2)   In addition to the penalty under sub-section (1), every machine not so registered shall be liable for seizure and confiscation:

Provided that such machine shall not be confiscated where––

(a) the penalty so imposed is paid, and

(b) the registration of such machine is made in accordance with the special procedure within three days of the receipt of communication of the order of penalty.

Analysis

  • A new procedural mandate for manufacturers of tobacco products was announced through Notification 04/2024-CT on January 5, 2024, which is scheduled to take effect on April 1, 2024. Consequent to this announcement, it is proposed to introduce a new section aimed at penalizing non-compliance with the aforementioned special procedure. (The complete notification is covered at the end of Update)
  • The proposed section seeks to levy a penalty of INR 1,00,000 for each packaging machine not registered in accordance with the special procedure.
  • Beyond the monetary penalty, such non-registered machines may also be subject to seizure and confiscation. However, this action is contingent upon the payment of the imposed penalty and subsequent registration of the machine within three days following the issuance of the penalty order.
  • This initiative stems from the 50th Council meeting in July 2023, which led to the issuance of Notification 30/2023-CT on July 31, 2023. This notification established special procedures and compliance requirements, including the necessity for manufacturers to report details of packaging and filling machines and to submit special monthly returns.
  • However, Notification 30/2023-CT was revoked by Notification 03/2024-CT, effective from January 1, 2024, and replaced by Notification 04/2024-CT on January 2024. The latter introduced streamlined procedures, effective April 1, 2024, aimed at reducing the bureaucratic burden by decreasing the number of forms and consolidating disclosures. This change offered a transition period from January 1, 2024, to March 31, 2024, to facilitate manufacturers’ adaptation to the new requirements. Notably, until these changes, the legislation did not specify penalties for non-compliance.
  • The imposition of a penalty, specifically detailed in the 2024 Budget, underscores the government’s commitment to strict enforcement of these new procedures starting from the new fiscal year. This enforcement is dependent on the central government announcing an effective date for these penalties and the incorporation of corresponding amendments into the State Governments’ GST Acts.

Impact :

  • The special procedure notified in Notification 04/2024-CT provides additional compliance burden to the manufacturers of tobacco products (similar to compliance existed in the pre-GST regime). These procedures need to be followed the said manufacturers from FY 2024-25. The proposed penal provisions

Disclaimer :

  • This material and the information contained herein prepared by me is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. I am not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.
   
CA Gitesh S. Bajaj
Practicing Chartered Accountant
Aurangabad
Mo – 9403586219 
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Gitesh Bajaj

Chartered Accountant specializing in Indirect Taxation and GST, registered with ICAI. Experienced in managing GST Annual Returns for corporations, conducting GST-focused Internal Audits, and filing various GST returns. Knowledgeable in SEZ, EOU & FTP Compliances.

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