I. ITC related changes – Capping of ITC availed for missed invoices at 5%
Rule 36(4) has been amended to the effect that the registered person is restricted from availing the ITC in excess of the 5% (earlier it was 10%) of the eligible ITC for which the concerned suppliers have furnished the invoices. Readers are advised to peruse the attached sample calculation sheet to understand the implications. Said 5% restriction shall come into effect from 01.01.2021 and hence the same shall apply to even the ITC availed for December 2020.
II. Tax payment related changes – compulsory payment of tax of at least 1% by cash (subject to exceptions)
New Rule 86B has introduced restrictions on the use of an amount of ITC available in electronic credit ledger. As per the said Rule, a registered taxpayer (where the value of taxable supply other than exempt supply and zero-rated supply exceeds INR 50 lakhs/month) cannot discharge his liability in excess of 99% by utilizing the ITC. In other words, such taxpayer shall be required to discharge at least 1% of the liability only by way of cash. However, the rule provides for the following exceptions (wherein the entire liability can be discharged by utilizing the ITC):
(a) the said person or the proprietor or Karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than INR 1 lakh as income tax in each of the last two financial years for which the time limit to file the return of income has expired; or
(b) the registered person has received a refund amount of more than INR 1 lakh in the preceding financial year on account of the unutilized input tax credit on account of zero-rated supplies (exports + SEZ); or
(c) the registered person has received a refund amount of more than INR 1 lakh in the preceding financial year on account of the unutilized input tax credit on account of inverted rate structure; or
(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year; or
(e) the registered person is – (i) Government Department; or (ii) a Public Sector Undertaking; or (iii)a local authority; or (iv)a statutory body.
Commissioner or an officer authorized by him on this behalf is granted the power to remove the said restriction after such verifications and such safeguards as he may deem fit. Referred provisions shall come into effect from 01.01.2021.
III. Suspension/cancellation of GST Registration
Rule 21 is amended to provide that the registration of a person can be suspended in the following additional situations:
(a) avails input tax credit in violation of the provisions of section 16 of the Act or the rules made thereunder; or
(b) furnishes the details of outward supplies in FORM GSTR-1 for one or more tax periods which is in excess of the outward supplies declared by him in GSTR 3B for the said tax periods; or
(c) violates the provision of rule 86B
Wide powers have been granted by virtue of the said amendment to permit the suspension of registrations in cases where a person avails ITC in violation of the law (e.g. in excess of 5% of the eligible ITC reflected on the portal) or declare the outward supplies in GSTR 1 for one or more periods in excess of the outward supplies declared in GSTR 3B or fails to pay the tax of at least 1% by cash (Rule 86B).
Further Rule 21A has also been amended to permit the officer to suspend the registration without affording the said person a reasonable opportunity of being heard. Hence it is only after the suspension of the registration that an opportunity will be afforded to the concerned person to submit his reply and seek the revocation of the suspension. It may also be noted that the person in question cannot make any taxable supplies or cannot generate E-way bills during the period of suspension. Hence very harsh provisions have been introduced which may lead to serious issues at the end of genuine taxpayers on account of bona fide errors (as there are several genuine situations where anomalies may occur).
Further new sub-rule (2A) has been inserted in Rule 21A to permit the suspension of registration in situations where the comparison of data between GSTR 1 of the person in question and GSTR 1 of the vendors of such person show “significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder”. Again the subjective language used without affording an opportunity to the taxpayer (before suspending the registration) to explain the anomalies is harsh.
Taxpayers therefore are expected to take extreme care in ensuring the compliance not only of themselves but also of their vendors to avoid the rigors of the given provisions.
Further, no refund shall be granted to the taxpayer whose registration has been suspended.
If the registration is suspended, the officer shall send a communication on the portal or by email seeking an explanation for the anomalies which needs to be replied to within 30 days. The suspension can be revoked only if the officer deems fit. In other words, the suspension will lead to cancellation if the officer is not satisfied with the justifications.
IV. New GST Registration
Rule 8 and 9 have been amended to provide for the biometric verification (Aadhaar authentication and taking photograph or taking biometric information, photograph and verification of such other KYC documents) for the applications for new registration. Also, the period for granting the registration has been increased from 3 days to 7 days. However, in cases where a person fails to undertake the said biometric verification or where the proper officer, with the approval of an officer authorized by the Commissioner, not below the rank of Assistant Commissioner, deems it fit to carry out physical verification of places of business, the registration shall be granted within a period of 30 days instead of the normal 7 days. A similar process will apply for an additional place of business.
V. Suspension of the filing of GSTR 1
Rule 59 has been amended to NOT permit the taxpayer to file GSTR 1 if,
(a) he has not furnished the return in FORM GSTR-3B for the preceding two months (for a taxpayer filing monthly returns);
(b) he has not furnished the return in FORM GSTR-3B for the preceding tax period (for a taxpayer filing quarterly returns)
(c) he is required to discharge the tax liability of at least 1% by cash (see the discussion on Rule 86B) and he has not furnished the return in FORM GSTR-3B for the preceding tax period (instead of two months under (a)).
VI. E-way bill – Available travel time curtailed by 50%
Rule 138(10) has been amended w.e.f. 01.01.2021 to curtail the available travel time by 50%. As an illustration, let us say that a dispatch to the destination (located at a distance of 550 km) has taken place on 01.01.2021. As per the existing rule, the validity of the E-way bill generated on 01.01.2021 would have expired on 07.01.2021 (i.e. one day for 100 km starting from the midnight of the generation of the E-way bill). Now as per the amendment, the same will expire on 04.01.2021 and hence the goods must reach the destination within the said time frame. Alternatively, an extension can be sought (within the prescribed time), but difficult to get, for special reasons if the vehicle has not been able to reach the destination within the validity of the E-way bill.
