The CBIC has issued CGST Notification No: 39 dated: 21.12.2021 which notifies the Sections 108, 109, 113 to 122 of Finance Act, 2021 will be enforced effective from 01.01.2022.
The important changes that will be affect businesses, particularly MSME and Small businesses are related to ITC condition and Detained Vehicle releasing conditions.
Let us see what the new conditions says and how it impacts business:
Section 109 of Finance Act, 2021
In section 16 of the Central Goods and Services Tax Act, in sub-section (2), after clause (a), the following clause shall be inserted, namely:
"(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;".
Impact to Businesses
As per the new insertion of Section 16(2)(aa), a Recipient cannot avail Input Tax Credit (ITC) for the Invoice issues by the Supplier, if the Supplier has not filed that Invoice in his GSTR1 Returns.
So, as a Recipient, even if he has received the goods or services in full, have a valid document, properly accounted in his books and the goods or services not blocked by Section 17(5), he cannot claim the credit till Supplier files his GSTR1.
This will lead to manual reconciliation of GSTR2A/GSTR2B data with Purchase Register to find out which are the Invoices not filed by the Suppliers and keep them aside for claiming ITC later. Also the GSTR2A / GSTR2B data will be generated after the due date of filing GSTR1 returns i.e.: 13th of Every month and the Recipient has to prepare reconciliation statement and pay his taxes before 20th the same month. This 7 days’ time limit will be a very short time for the Small & MSME Businesses which depends on consultants / Auditors for filing their returns. Also this is insufficient time businesses which are having huge volume of transactions.
This new section will also increase the cash flow of the Tax payer despite having eligible claimable Credit in books.
For small traders having occasional transactions, they will be forced to make payment of tax in cash despite eligible credit, and wait for the supplier to file his GSTR1 for claiming the ITC. This increases the Working capital requirement and loans for tax payment which is not a good for any business.
Section 117 of Finance Act, 2021 (Multiple changes as given below)
Substituting Section 129(1)(a) of CGST Act, 2017 as
"(a) on payment of penalty equal to two hundred percent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two percent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;
Substituting Section 129(1)(b) of CGST Act, 2017 as
(b) on payment of penalty equal to fifty per cent. of the value of the goods or two hundred per cent. of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five percent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;";
Impact of the above two amendments
If a vehicle was detained by the GST Officials, the same has to be released by making the below payment as penalty
If payment made within time limit - Two times of the Tax payable of the Goods detained.
If payment not made within time limit - Two times of the Tax payable or 50% of the Value of the Goods detained, whichever is higher.
With the above modification of Act, the Tax payer has to spend more money to release the vehicle if the same is detained by the GST Officials. The payment made for releasing the detained vehicle will be under "Penalty" and hence the same cannot be claimed as ITC.
Removal of Section 129(2)
As per Section 129(2)
"The goods so seized ……. shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be."
This provision is now removed effective from 01.01.2021
Impact of the above removal
The option of submitting Bank Guarantee or Security Bond is now removed and only Cash Payment has to be made for releasing of Goods. Again the cash outflow of the Tax payer will be getting increased, as Bank Guarantee charges are very less.
Substitution of Section 129(6) as
"(6) Where the person transporting any goods or the owner of such goods fails to pay the amount of penalty under sub-section (1) within fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3):
Provided that the conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less:
Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of fifteen days may be reduced by the proper officer.".
Impact of the above substitution
If the Tax Payer has not made payment of Penalty within 15 days from the date of receiving notice, the GST Officials can seize and sell / dispose the goods detained. This will put pressure on the Tax payer to make payment within 15 days.
Considering the vast geography of India, this 15 days’ time limit is very less, if the consignment moving from Madurai in Tamilnadu state to Ludhiana in Punjab State and the vehicle is getting detained in Rajasthan State. The Tax payer from Tamilnadu has to collect the fund and make payment within 15 days even without seeing the condition of the goods / discussing with officials. This may lead to paying more and more penalty from Tax payer for multiple vehicles for releasing detained vehicle even for minor issues.
Also if the Transporter need to release the vehicle, they can release the vehicle by unloading the goods, and making payment of Rs. 1 Lac. This also impacts not only the tax payer but also the Logistics sector as they unnecessarily need to make payment for no fault of theirs. The condition of the unloaded consignment, its damages during loading/unloading also affects Industries as they need to replace the goods if damaged in Detention.
New provision to Section 107(6) as
"Provided that no appeal shall be filed against an order under sub-section (3) of section 129, unless a sum equal to twenty-five per cent. of the penalty has been paid by the appellant.".
Impact of the above insertion
If there are any vehicle detained on wrong reason, we need to make payment of 200% of Tax amount (two times of Tax amount) for releasing the vehicle.
Apart from that, we can appeal against the detention order to higher authorities and for the same we have to make another 25% of the Tax amount for filing appeal.
The cost of such litigations for getting the case quashed when the GST official erroneously detained a vehicle is higher, which impacts the Tax payer at large.
Summary
Effective 01.01.2022, the Tax payers need to shell out more money to GST authorities either for releasing vehicle or to comply Tax payments. This will increase the cash flow of already suffering MSME Sectors and small businesses. Also the Logistics sector will be facing severe issues if vehicles are detained and the tax payers not paying within 15 days. Their trucks will be in halt for long time impacting their business, even if the Logistics sector is not at fault.
Altogether the upcoming GST amendments dents the "Ease of Doing Business" concept of the Government and make the honest tax payers suffer for their Suppliers / Transporters faults.
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