Indirect Tax Alert - CBIC issues notifications giving effect to Budget proposals and consequential amendment to the CGST Rules

A. CBIC notifies the date of applicability of the GST Budget Amendments

CBIC vide notification no. 18/2022-Central Tax dated 28 September 2022 has notified that the Budget 2022 amendments in the context of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) (viz., Sections 100 to 114 of the Finance Act, 2022 (‘FA 2022’)) would be effective from 1 October 2022 subject to the following exceptions which were already notified with effect from 5 July 2022:

• Section 110(c) of the FA 2022: Amending Section 49(10) of the CGST Act for providing a facility to the taxable persons for transferring the CGST balances lying in Electronic Cash Ledger as IGST or CGST to its distinct person (i.e., separate GST registration of a legal entity)
• Section 111 of FA 2022: Amendment to Section 50(3) of the CGST Act for levying interest on ITC which has been ‘wrongly availed and utilised’

The key amendments which have been notified effective 1 October 2022 are summarized below:

• Section 16 of the CGST Act:
  • Additional restriction to avail ITC introduced; ITC can be availed only if the same is not restricted under Section 38 of the CGST Act (i.e., as per the details communicated in Form GSTR-2B)
  • The Time limit to avail ITC in respect of invoices / debit notes issued during a financial year has been extended till 30 November following the end of the financial year or the date of furnishing of annual return, whichever is earlier
• Section 34 of the CGST Act:
  • Time limit for issuing Credit Notes has been extended to 30 November following the end of the financial year in which the supply was made or the date of furnishing of annual return, whichever is earlier
• Section 37 of the CGST Act:
  • The Time limit for rectification of error or omission has been extended till 30 November following the end of the financial year in which the supply was made or the date of furnishing of annual return, whichever is earlier
  • The facility for furnishing Form GSTR-1 will not be available if the taxpayer has not furnished the details of outward supplies for any of the previous tax periods
• Sections 38, 42, 43 and 43A of the CGST Act:
  • The existing provision stipulating a two-way communication process for claim of ITC and submissions of form GSTR 2 and GSTR 3 has been omitted
  • Consequently, the existing provisions of Sections 42, 43 and 43A of the CGST Act have been omitted
  • Moreover, Section 38 of the CGST Act has been substituted to provide the manner, conditions and restrictions for communication of the details of inward supplies and ITC to the recipient by an auto-generated statement in Form GSTR-2B
• Section 54 of the CGST Act
  • The time limit to apply for refund of tax paid by the specified international organisations on inward supplies of goods or services or both has been increased to two years (instead of six months). Consequential amendment has been made by rescinding notification no. 20/2018-Central Tax dated 28 March 2018 which had provided an enhanced time limit of 18 months

B. Amendment to the CGST Rules

CBIC vide notification no. 19/2022-Central Tax dated 28 September 2022 has made certain amendments to the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) effective 1 October 2022. The key amendments to the CGST Rules are set out below:

• Rule 21 of the CGST Rules: The GST registration of a person may also be cancelled in following situations:
  • A registered person liable to file Form GSTR-3B on a monthly basis, fails to furnish the said return for a continuous period of 6 months; or
  • A registered person who has opted for Quarterly Return Monthly Payment (QRMP) scheme, fails to furnish quarterly returns in Form GSTR-3B for a continuous period of 2 tax periods
• Rule 36 and 37 of the CGST Rules: Amendment has been made on rules related to reversal of ITC on account of failure to pay an invoice value beyond a period of 180 days:
  • Reversal of ITC for failure to pay an invoice beyond a period of 180 days from the date of invoice will not attracted in the case of procurements attracting GST liability under RCM
  • Further, in case of nonpayment of consideration, the entire amount of ITC would need to be reversed, instead of on a proportionate basis earlier
• Omission of Rules 69, 70, 71, 72, 73, 74, 75, 76, 77 and 79 of the CGST Rules, and consequential changes in Rules 38 and 96 of CGST Rules due to amendment in CGST Act:
  • Consequent to omission of the provisions concerning two-way communication inter se between periodical GST returns, all the Rules concerning with the matching of ITC as prescribed in Rule 69, 70, 71, 72, 73, 74, 75, 76, 77 and 79 have been omitted
  • Further, consequential changes due to amendment in the CGST Act have been made in Rules 38 and 96 of CGST Rules
• Rule 89
  • For claiming refund of the balance in the electronic cash ledger, an application in Form RFD-01 is required to be made.

BDO Comments

The aforesaid notification effectively seeks to notify all the Budget amendments proposed in the FA 2022. While such implementation is a welcome move as it relaxes various provisions inter alia including the time limit for availing ITC, issuing Credit Notes, undertaking rectification or omission in Form GSTR-3B, it also brings in further stringent provisions for claiming ITC under section 38 of the CGST Act. The change in the rules are just consequential changes arising due to amendments in the Act. There seems to be some lack of clarity in interpreting the exact due date for availing credit of the past year and the industry would look forward to clarification on this aspect.

[Notification no:18 & 19/2022–Central Tax dated 28 September 2022]