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29 December 2020

Amendments introduced in CGST Rules on December 22nd, 2020

The Government has made several amendments under the CGST Rules, 2017 to limit frauds related to fake invoices and to leash the bogus firms. The amendments introduced on December 22nd, 2020 pertaining to registration process, restrictions on the input tax credit, etc. have been deliberated hereunder:

A. Amendments relating to Input Tax Credit provisions

ITC restriction on invoices not furnished by vendors in their Form GSTR 1 (Rule 36(4))

  • ITC claim in respect of invoices which are not uploaded by vendors in their Form GSTR 1 or through Invoice Furnishing Facility ('IFF') will be allowed maximum up to 5% (currently it is 10%). This new limit of 5% would be applicable on ITC to be availed on or after January 01, 2021.

B. Payment of Tax

  • Taxpayers whose value of taxable supplies other than exempt supply and zero-rated supply exceeds Rs 50 lakhs in a month can use maximum 99% of the output tax liability from ITC available in the electronic credit ledger. In other words, 1% would be required to be paid in cash
  • The above restriction would not be applicable in following cases:
    1. Taxpayers or any of its 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, who have paid Income Tax of more than Rs. 1 lakh in each of the two preceding financial years
    2. Taxpayers have claimed refund of more than Rs. 1 lakh on zero-rated supplies or inverted duty structure in the preceding financial year
    3. Taxpayers have paid tax in cash/bank cumulatively exceed 1% of the total liability till the relevant month
    4. Government Department, Public Sector Undertaking (PSU), local authority or a statutory body

C. Cancellation and Suspension of GST registrations

C.1 New possible grounds of cancellation of registration
  • Presently, the department has power to cancel the registration of the taxpayer under a few specific circumstances such as in case of violation of anti-profiteering provisions, where the supplier does not conduct business from the declared place of business, etc.
  • Following new grounds have been introduced basis which the registration of taxpayer can be cancelled:
    1. ITC is availed in violation of Section 16 of the CGST Act and its underlying rules
    2. Details of outward supplies furnished in Form GSTR-1 is more as compared to Form GSTR-3B for one or more tax periods
    3. Violation of newly introduced Rule 86B

C.2 Suspension of registration without the reasonable opportunity of being heard

  • Proper officer may suspend the registration of the taxpayer without giving any opportunity of being heard if he has reasons to believe that the registration of a person is liable to be cancelled
  • Registration shall be suspended if the proper officer finds that there are significant deviation b/w outward supply as disclosed in Form GSTR 3B and Form GSTR1 or ITC between Form GSTR 3B and Form GSTR 2B. After the suspension, the proper officer shall serve a notice in Form GST REG-31 asking explanation as to why the registration should not be cancelled. Taxpayer shall be required to submit its reply within 30 days of such notice being served to him. If proper officer satisfied and if he deems fit, he may revoke the suspension.
  • No GST refund shall be granted to the taxpayer during the period of suspension

D. Changes in relation to New Registration Applicationsard

D.1 Aadhar Authentication:

Aadhaar authentication process for GST registration has been enabled w.e.f. August 21, 2020. As per the existing process of GST registration, the taxpayer has an option to follow an online Aadhaar authentication process to get itself registered. The changes made in respective provisions of Aadhar Authentication are as hereunder:

  • While submitting the registration application, Biometric-based Aadhaar authentication would be required to be done along with taking a photograph
  • In case the taxpayer does not opt for the Aadhaar authentication, it would be required to submit the biometric information, photograph and verification of such other KYC documents as notified
  • Original copies of the documents uploaded with the application of registration would be verified at Facilitation Centres to be notified by the Commissioner
  • Registration application shall be deemed to be completed only when the abovementioned process is completed
  • Exemption would be provided from the above processes to certain notified persons (yet to be notified) i.e. registration would be granted without physical verification/Aadhaar authentication etc.

D.2 Physical verification of place of business

Physical verification of place of business by the department would be mandatory in the below cases:

  1. Where the person fails to get the Aadhaar authentication done
  2. Where the person does not opt for the Aadhaar authentication
  3. Where the Proper officer (after approval of Assistance Commissioner authorized by the commissioner in this regard) deems fit to carry out the physical verification of place of business. This may apply even if the Aadhaar authentication is done.

D.3 Changes in time limits in relation to grant of GST registration

  • Time limit for granting registration, where documents are found to be in place, would be 7 days (currently it is 3 days)
  • Further, where any deficiency is found in the registration application, the officer can issue a notice in Form GST REG-3 to the taxpayer within 7 days (currently it is 3 days)
  • Time limit for registration or the issuance of deficiency notice in cases where physical verification is to be done shall be 30 days. Registration, in this case, shall be granted after physical verification of the place of business in the presence of the registered person and verification of such documents as the proper officer may deem fit.

D.4 Deemed registration

  • Application for grant of registration shall be deemed approved where the proper officer fails to take any action as per the below timelines:
    1. 30 working days from the date of submission of the application where physical verification of place of business is required
    2. 7 working days from the date of submission of the application
    3. 7 working days from the date of the receipt of the clarification, information or documents furnished by the applicant as per the notice issued in Form GST REG3

GST Returns- Blocking Form GSTR-1 for failure to file Form GSTR-3B

  • Form GSTR 1 would not be allowed to be filed where a taxpayer fails to file Form GSTR 3B for two subsequent months
  • Similarly, for quarterly return filers, the taxpayer fails to file Form GSTR 3B for the preceding quarter shall not be permitted to furnish outward supplies in Form GSTR 1 or using IFF of the subsequent quarter

F. E-way Bill provisions

  • E-way bill will not be generated where the GST returns for two tax periods are not filed by the taxpayer
  • Persons whose registration has been suspended will be restricted from generating Eway bill
  • E-way bill or a consolidated e-way bill valid for one day, which was earlier valid for distance up to 100 km has now been enhanced to 200 km. (Applicable w.e.f. 01.01.2021)

G. Enforcement of Amendments proposed in Finance Act, 2020

Following sections of Finance Act, 2020 will come into force on January 1st, 2021 as notified in NN 92/2020-CT dated 22nd December, 2020:

  • ITC in respect of a debit note can be availed till the due date of furnishing of GSTR-3B for the month of September following the end of financial year to which such debit note pertains or furnishing of the relevant annual return, whichever is earlier. (Section 16(4) of the CGST Act.)
  • Section 29(1)(c) of the CGST Act has been amended to empower GST officer to cancel registration which has been obtained voluntarily.
  • Proviso to Section 30(1) of the CGST Act has been inserted to empower the jurisdictional tax authorities to extend the time limit of 30 days.
  • Section 31 of the CGST Act has been amended to provide enabling provisions to specify:
    1. the categories of services or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed;
    2. the categories of services in respect of which any other document issued in relation to the supply shall be treated as tax invoice; and
    3. the categories of services in respect of which tax invoice may not be issued.
  • Section 51 of the CGST Act has been amended to remove requirement to issue TDS certificate and to omit the corresponding provision of late fee for delay in issuance of TDS certificate.
  • Section 122 and 132 has been amended to levy penalty and to expand its scope of punishment to persons who cause the conduct of offences listed therein and retains the benefits arising out of such offences.
  • Entry at 4(a) and 4(b) in Schedule II of the CGST Act, 2017 has been amended, w.e.f. 1st July 2017, to exclude transfer of business assets made without consideration from Schedule II.