Budget 2024 : GST Updates
Amidst the backdrop of upcoming elections, the anticipation is amplified, with businesses and the general public eagerly awaiting the unveiling of financial strategies and initiatives. Led by the capable hands of Finance Minister Smt. Nirmala Sitharaman, the Interim Budget for this year brings forth a wave of expectations and potential changes on 1st February 2024 that could significantly impact various sectors. In this pivotal moment, the nation awaits with curiosity and expectation, eager to discern the economic roadmap that will guide India’s financial course in the foreseeable future.
In the discourse on pivotal modifications concerning the Goods and Services Tax (GST) law, the Union Budget 2024 introduces substantial alterations, focusing notably on the Input Service Distributor (ISD). In alignment with the recommendations put forth by the GST Council, proposed amendments to Section 2(61) and Section 20 of the CGST Act, 2017, are poised to influence the obligatory status of ISD.
Interim Budget 2024: GST Updates
Amendment in respect of Input Service Distributor:
ISD new definition:
In the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the Central Goods and Services Tax Act), in section 2, for clause (61), the following clause shall be substituted, namely:––
Amendment of section 2.
‘(61) “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;’.
Old definition:
(61)”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;
Amendment in Section 20 of the CGST Act, 2017:
For section 20 of the Central Goods and Services Tax Act, the following section shall be substituted, namely:
“20. (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.”.
Old provision:
- (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.
Analysis and Impact of amendment in Section 2(61) and Section 20:
- Earlier, the Head Office (HO) had an option to distribute ITC in respect of such common input services either by following ISD mechanism or cross charge. After applicability of new amendment, common ITC can be distributed through ISD only and it will be mandatory to take the input service distribution registration for registered persons having more than one registration on same Permanent Account Number.
- New provisions specifically prescribe that services liable to tax under reverse charged shall also be distributed through ISD, however, there was lack of clarity whether credit of reverse charged can be distributed through ISD because ISD was unable to pay tax under reverse charged mechanism through GTR-3B.
- Old definition of “input service distributor” requires issuing a prescribed document for credit distribution, however, new definition of ISD does not require to issue prescribe document, but emphasizes compliance with the distribution process outlined in section 20. Moreover, Section 20(3) states that tax shall be distributed by way of issue of a document containing the amount of input tax credit. Hence, for distributing the tax ISD would be required to issue document containing the amount of input tax credit.
Penalty for failure to register certain machines used in manufacture of goods as per special procedure.
After section 122 of the Central Goods and Services Tax Act, the following section shall be inserted, namely:––
122A. (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 and Impact of Insertion of Section 122A (1) and (2):
Section 148 of the CGST Act 2017 empowers the government to designate specific classes of registered individuals and prescribe distinct procedures applicable to them. These procedures encompass various aspects such as registration, return filing, tax payment, and overall administration. Pursuant to this provision, Notification No. 30/2023-Central Tax, dated 31st July 2023, was issued. This notification delineates special procedures for the registration of details pertaining to packing machines utilized by registered individuals engaged in the manufacturing of specific goods, such as Pan Masala and tobacco.
In alignment with the aforementioned Notification No. 30/2023-CT, dated 31.07.2023, a new provision, section 122A, has been incorporated. This section stipulates that a penalty of Rs 1 lakh under the CGST Act and an equivalent amount under the SGST Act will be imposed for the failure to register the machinery. This penalty is additional to any penalties specified under Chapter XV (Demand and Recovery) or any other provisions within Chapter XIX – Offences and Penalty.
