Union Budget 2021:  #Ditched “Bahi Khatta” #First Digital Budget #First Budget of the Decade

The Union Budget 2021-22 was presented on February 1, 2021, by the Union Finance Minister Nirmala Sitharaman. It focused on 6 pillars – Health,  Well-being, Inclusive Development, Human Capital, Innovation, and R&D.

Appreciating the fact that India can now stand by with its two vaccines in the fight against Corona. And, with two more on its way, Rs. 35,400 crores were allocated for COVID vaccination.

At one end, the budget focused on raising funds by allowing FDI investments in the Insurance sector, divestments of 2 PSU banks, and 1 general insurance company. The other end committed missions like Jal Jeevan Mission, Urban Swachh Bharat Mission 2.0 and roll out of Infrastructure projects in Tamil Nadu, Kerala, West Bengal, and Assam, National Rail Plan upto 2030, and much more.

There are twelve proposals in this union budget 2021 impacting the indirect tax arena which are decoded below.

1) Compliance convenience by scrapping requirement of GST Audit i.e. GSTR 9C

Now, just furnish a self-certified reconciliation statement of values declared in GSTR 9 vis-a-vis reported in audited financial statements.

Section 35(5) required every registered person whose turnover during a financial year exceeds Rs. 2 crores to get his accounts audited by a chartered accountant or a cost accountant, to submit a copy of the audited annual accounts with the reconciliation statement under GSTR 9C, is proposed to be removed

The bill seeks to propose a new section for section 44, so as to remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professionals and to provide for filing of the annual return on a self-certification basis. It further empowers the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return

However, taxpayers shall maintain more vigilance while filing such self-certified statements, in order to safeguard from penal provisions or departmental Audits.

In the last four years from 2017 to 2021, the taxpayers filed GSTR-9C for two consecutive years i.e., 2017-18 and 2018-19

2) Stringent controls on ITC claim to the extent available in GSTR 2A & 2B of recipient

In order to claim ITC (Input tax credit), Section 16 requires taxpayers:
(a) To be in possession of a tax invoice or debit note issued by a supplier
(b) has received the goods or services or both

The new clause (aa) to be added to section 16, ITC in respect of invoices and debit notes shall be available only to the extent they are reported in GSTR-1 or using Invoice furnishing Facility by the supplier and thus appearing in GSTR-2A & GSTR-2B of the recipient.

Considering recent announcements on ITC Claims, effective from 1st January 2021:

1. Certain taxpayers are disallowed to utilize their electronic credit ledger in excess of 99% of the total tax liability for the tax period as per a new rule 86B.

2. The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).

3. The recipients can claim the provisional input tax credit in GSTR-3B to the extent of 5% of the total ITC available in GSTR-2B for the month.

It appears provisional ITC will be completely disallowed and moreover complete utilization of ITC will also be subject to GSTR 2A, 2B & Rule 86B.

3) Clarifying – Interest on delayed payments payable on net cash liability

The Long pending recommendation, to charge interest on delayed payment considering net cash liability as base instead of gross tax liability, is now applicable retrospectively w.e.f. 1st July 2017.

The legislative and judicial history of the said amendment is as follows:

Date	Amendment to Section 50	Remarks
22nd Dec 2018	31st GST Council meeting	GST Council recommends providing that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible ITC.
1st Aug 2019	Finance (No. 2) Act, 2019 amends Section 50	The Finance (No .2) Act, 2019 amended the CGST Act as recommended by the GST Council, but the amendment was to come into force from a notified date.
14th Mar 2020	GST Council recommends a retrospective amendment to Section 50	The GST Council, in its 39th meeting, recommends that the amendment to Section 50 should be done retrospectively from 1 July 2017.
25th Aug 2020	Section 100 of Finance (No. 2) Act, 2019 notified with effect from 1 September 2020	CBIC notifies amendment to Section 50 of the CGST Act to come in force from 1 September 2020
26th Aug 2020	CBIC issues press release clarifying its stance	CBIC clarifies that the amendment has been made prospectively in view of technical limitations. Also explains that no recoveries will be made for the past period to provide retrospective relief as decided by the GST Council

Kindly note the government in the press release dated 26th August 2020 announced the amendment could not be made retrospective due to technical limitations. Since this amendment was not made retrospectively in law, technically, the taxpayers who have already paid interest on a gross basis were denied a refund of excess interest.

Now, with the retrospective amendment, such taxpayers will be in a beneficial position.

Kindly note it appears that the benefit of paying interest on net cash liability should be available only in the case of delayed filing of GST return and in case GST liability has been completely missed out in GSTR-3B and is paid in subsequent tax periods.

Also, it is important to note that this benefit will not be available in respect of any tax and interest payable at the time of proceedings initiated under Section 73 and 74 of the CGST Act.

4) Scope of Zero-rated supplies curtailed

• The goods and services supplied to SEZ unit/developer shall be eligible for the benefit as zero-rated supply only when the same is for authorized operations, thereby impacting all SEZs across the country
• Zero-rated supplies with payment of IGST to be restricted to a notified class of persons or class of goods or services.
• Registered taxpayer who is eligible and has received a refund of unutilized ITC on the supply of goods or services without payment of tax under LUT, shall in case of non-realization of sale proceeds on account of zero-rated supplies under LUT, refund unutilized ITC along with interest within 30 days of the expiry of the time prescribed under the Foreign Exchange Management Act

5) Scope of supply expanded to include transactions between Persons & members for a consideration

The term Supply has not been defined in CGST ACT 2017. Section 7(1)(a) of the CGST Act contemplates various forms of supply such as sale, transfer, barter, exchange, license, rental, lease, or disposal. These forms of supply are only illustrative and not exhaustive. The important Parameters of the scope of supply are consideration and furtherance of business.

Insertion of clause (aa) to Section 7 which is clarificatory in nature states that Supply of activities or transactions in between a person & its members or constituents or vice versa for cash, deferred payment, or other valuable consideration shall be deemed to be between two separate persons and shall be treated as a supply w.e.f. from 1st July 2017.

Note: Paragraph 7 of Schedule II, CGST Act specifying supply (of goods) by any unincorporated association or body of persons to a member as the supply of goods has been omitted retrospectively due to inclusion of an aforementioned clause in Section 7.

This amendment will impact societies, clubs, etc. since members will be treated as separate from the entity.

6) Detention, seizure, and confiscation of goods to be a separate proceeding

Detention, seizure, and confiscation of goods or conveyances shall have separate proceedings for recovery of tax and penalty.

This implies that even after payment u/s 73 / 74, the proceedings u/s 129 & 130 may continue.

Note:

Section 129 deals with Detention, Seizure, and release of goods & conveyance in transit.

Section 130 deals with the Confiscation of goods.

7) Recovery of interest on self-assessed tax

In case of short payment of liability declared in GSTR 3B vis-à-vis GSTR1, provisions of section 79 may be invoked for the recovery.

Section 75 requires

Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

Explanation duly added –– For the purposes of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.

8) Provisional attachment extended to Chapter XII, XIV, or XV

Clause 106 of the Bill seeks to substitute section 83(1) of the CGST Act so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of the order made thereunder.

Powers of provisional attachment have been extended to proceeding under Chapter XII, XIV, or XV for attachment of property including bank accounts belonging to taxable persons or persons who have retained benefits of offenses under 122(1A).

9) Appeals to appellate authority will lead to blocking more working capital of taxpayers

An appeal against an order of detention or seizure of goods or conveyance made u/s 129(3) can be filed only after payment of 25 percent of the amount of penalty.

This is in addition to the deposit of 10% tax amount.

10) Detention, seizure, and confiscation of goods

Section 129 and 130 have been amended to delink the proceedings for detention/seizure and confiscation of goods and conveyances.

11) Jurisdictional Commissioner empowered to call for information

The Jurisdictional Commissioner has been empowered to call for any information from any person relating to any matter in connection with GST Acts and Rules.

12) Restriction on utilization of information obtained u/s 151 & 152

No information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned.

So this was all about Union Budget 2021 by the Finance Ministry. You can also read Budget 2020 highlights by revisiting our blog.

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