Taxmann's Analysis | Changes Proposed Under GST in the Finance Bill 2024

Changes proposed under GST in the

Finance Bill 2024

Changes proposed under GST in the

Finance Bill 2024

Contents 1.

2.

Changes in the provisions relating to Input Service Distributor

6

1.1.

Background

6

1.2.

Amendments proposed by the Finance Bill 2024

7

Penalties on Tobacco Manufacturers for Non-Registration of Machines under Special Procedure

7

2.1.

Background

7

2.2.

Amendments proposed by the Finance Bill 2024

8

Changes proposed under GST in the Finance Bill 2024

Finance Minister Nirmala Sitharaman presented the Interim Budget for 2024-25 in the Parliament on February 01, 2024. The emphasis of the 2024 Interim Budget was on empowering youth and women, developing infrastructure, supporting agriculture, promoting green growth, and enhancing the railway sector.

No significant tax announcements were proposed, with only a few necessary proposals introduced concerning GST. The changes proposed in the Finance Bill 2024 have been discussed below:

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Changes proposed under GST in the Finance Bill 2024

1.

Changes in the provisions relating to Input Service Distributor 1.1.

Background

The GST law1 contains the provision for the distribution of Input Tax Credit (‘ITC’) in respect of common input services using the Input Service Distributor (‘ISD’) mechanism. This is done for the ease of distribution of ITC where services are procured by the head office or at a single office but are consumed at various offices registered under the same PAN. (a)

(b)

The existing definition2 of ISD provides that it is an office of supplier of goods or services or both that receives a tax invoices issued under Section 31 towards the receipt of input services and issues a prescribed document for the purpose of distributing the ITC to the persons having same PAN as that of the ISD. Thus, to fall within the scope of ISD the two criteria provided below should be satisfied: •

It should be an office of the supplier that receives the tax invoices (i.e. invoice issued by the service provider at the ISD GSTN), and

•

It should issue prescribed documents for distribution of credit (i.e. ISD invoice)

However, the existing provision of ISD mechanism does not cover the methodology for transfer of credit on those common input services on which tax has been deposited under the reverse charge mechanism. Also, from the perusal of the provisions3 providing the manner of distribution of common credit using ISD mechanism, it emerges that it is not mandatory to distribute the common credit using the ISD mechanism. Reference may be drawn to the following extracts of the provision: ‘Input service distributor may distribute credit subject to the prescribed conditions’.

Given the above, the industry was following the mixed practice for distribution of common credit either through ISD mechanism or via cross charge mechanism through a tax invoice raised on the respective locations to whom such credit is being distributed. Given the above anomaly, the Council, in its 50th meeting, in respect of the same, recommended to clarify that ISD mechanism is not mandatory for the past periods and also recommended that it should be made mandatory for prospective period. Following this recommendation, a circular4 was issued to clarify that ISD is not mandatory for transferring/distributing the ITC for the past period.

1 2 3 4

Section 2(61) of the CGST Act read with Section 20 of the CGST Act Section 2(61) of the CGST Act Section 20(2) of the CGST Act Circular No. 199/11/2023-GST, Dated 17-07-2023

6

Changes proposed under GST in the Finance Bill 2024

1.2.

Amendments proposed by the Finance Bill 2024

The Finance Bill 2024 has proposed to amend the definition of ISD and manner of distribution of common credit using ISD mechanism. As per the proposed definition, the condition of issuing the prescribed documents has been removed. Hence, where an office receives input services on behalf of deemed distinct persons, it would be considered as ‘ISD’, and thus it would become liable to comply with the relevant provisions for distribution of common credit.

The impact of the proposed amendment is as under: •

The person who receives common ITC for the deemed distinct persons would be required to obtain mandatory registration as ISD

• For the distribution of ITC of the services liable to RCM, tax is required to be paid by the normal registration in the State of ISD The said proposed amendment, when made effective, would mandate the distribution of common ITC on services through ISD mechanism only. This would also require parallel amendment in rules to provide for the mechanism of distribution of ITC.

2. Penalties on Tobacco Manufacturers for NonRegistration of Machines under Special Procedure 2.1.

Background

To plug the revenue leakage in the tobacco industry, the Government has recently notified5 a special procedure for the registered persons engaged in manufacturing of specified goods such as Pan Masala, tobacco and similar goods (list of goods is annexed at the end of this para). The given special procedure is prescribed under Section 148 of the CGST Act with the recommendation of the GST Council6.

Manufacturers of tobacco, pan masala, and similar goods are required to adhere to this special procedure, which primarily includes the registration of machines and the submission of special monthly returns. For registration of machines, the details pertaining to existing packing machines, newly installed machines, and removed machines must be furnished in Form GST SRM-I along with the packing capacity of these machines. These details must be certified by a Chartered Engineer in Form GST SRM-III. The said procedure is set to be implemented with effect from 01-04-20247.

5 6 7

Notification No. 04/2024–Central Tax, Dated 05-01-2024 read with Notification No. 30/2023–Central Tax, Dated 31-07-2023 50th GST Council meeting Notification No. 04/2024–Central Tax, Dated 05-01-2024

7

Changes proposed under GST in the Finance Bill 2024

2.2. Amendments proposed by the Finance Bill 2024 The Finance Bill, 2024 has proposed the introduction of new Section 122A within the Penalties Chapter, specifying penalty for any person engaged in the manufacture of specified goods who fail to register the machines in accordance with the special procedure. The proposed provisions prescribe a penalty of Rs. 1 lakh for every machine not registered as per the special procedure. Notably, the said penalty is in addition to any penalty paid or payable under Demand and Recovery provisions or any other sections of the Penalties Chapters. Thus, multiple penalties may be imposed by the proper officer under the GST law for the non-compliance in respect of the special procedure.

In addition to the penalty, machines not registered shall also be liable for seizure and confiscation. However, confiscation can be avoided where the penalty is paid by the manufacturers or if the machine is registered within three days of receiving the penalty order.

The above proposed amendment is in line with the recommendations of the 50th GST Council meeting recommendations, wherein the council recommended to prescribe a heavy penalty for running any unregistered machine.

Annexure The Notification provides8 that the manufacturers of the following goods would be required to follow the special procedure: Sl. No.

Chapter / Heading /

Description of Goods

Tariff Item 1.

2106 90 20

Pan-masala

2.

2401

Unmanufactured tobacco (without lime tube) – bearing a brand name

3.

2401

Unmanufactured tobacco (with lime tube) – bearing a brand name

4.

2401 30 00

Tobacco refuse, bearing a brand name

5.

2403 11 10

‘Hookah’ or ‘gudaku’ tobacco bearing a brand name

6.

2403 11 10

Tobacco used for smoking ‘hookah’ or known as ‘hookah’ tobacco or ‘gudaku’ not bearing a brand name

7.

2403 11 90

Other water pipe smoking tobacco not bearing a brand name

8.

2403 19 10

Smoking mixtures for pipes and cigarettes

9.

2403 19 90

Other smoking tobacco bearing a brand name

10.

2403 19 90

Other smoking tobacco not bearing a brand name

11.

2403 91 00

“Homogenised” or “reconstituted” tobacco, bearing a brand name

8

12

2403 99 10

Chewing tobacco (without lime tube)

13.

2403 99 10

Chewing tobacco (with lime tube)

14.

2403 99 10

Filter khaini

15.

2403 99 20

Preparations containing chewing tobacco

Notification No. 04/2024–Central Tax, Dated 05-01-2024

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Changes proposed under GST in the Finance Bill 2024

Sl. No.

Chapter / Heading /

Description of Goods

Tariff Item 16.

2403 99 30

Jarda scented tobacco

17.

2403 99 40

Snuff

18.

2403 99 50

Preparations containing snuff

19.

2403 99 60

Tobacco extracts and essence bearing a brand name

20.

2403 99 60

Tobacco extracts and essence not bearing a brand name

21.

2403 99 70

Cut tobacco

22.

2403 99 90

Pan masala containing tobacco ‘Gutkha’

23.

2403 99 90

All goods, other than pan masala containing tobacco ‘gutkha’, bearing a brand name

24.

2403 99 90

All goods, other than pan masala containing tobacco ‘gutkha’, not bearing a brand name

9

Changes proposed under GST in the Finance Bill 2024

Our Associations

Income-tax Department

Indian Institute of Banking & Finance

Income-tax Appellate Tribunal

National Institute of Securities Markets An Education Initiative of SEBI

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Changes proposed under GST in the Finance Bill 2024

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Changes proposed under GST in the Finance Bill 2024

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