Union Budget 2022-23
The much awaited Union Budget has been presented by the Hon’ble Finance Minister. The FM has tabled the Finance Bill 2022 which will become Finance Act 2022 after it receives the Presidential Assent.
The Hon’ble FM made a departure from a prepared speech to share her joy about the all-time high collection of GST.
The FM also made specific pointers in relation to customs national portal where the focus is going to be only on higher facilitation and just risk based checks. The changes in Customs are vide ranging and will impact different industries and sectors at different points of times based on the effective date being brought in.
In a move that resonates with Aathma Nirbhar, the FM also made it clear that major concessional duties by way of exemptions or by way of project imports are being withdrawn, especially where such capital goods are available in India.
Almost 300 line item based exemptions are to be rescinded with effect from 01.05.2022 leading to a simplified tariff based approach.
We, at Novello Advisors are delighted to share our thoughts on the impact of the Union Budget 2022 in the space of GST, Customs and Central Excise.
Impact on Goods and Service Tax
The Finance Bill seeks to bring in certain far reaching changes in the GST Ecosystem. The same shall come into effect from a date which is yet to be notified.
On Input Tax Credit (ITC)
In Section 16 of the CGST Act a new clause, clause (ba) is proposed to be inserted after clause (b) in subsection (2) to the extent that the details of the Input Tax Credit in respect of the said supply communicated to such registered person under Section 38 has not been restricted. This would envisage that the Input Tax Credit can be availed only if the same has not been restricted.
Section 16 of the CGST Act has also been amended by virtue of replacement in sub section (4) providing for an extended time for availment of ITC by a registered person till thirtieth day of November instead of September.
Novello Comments:
Over a period of time, Section 16 in relation to Input Tax Credit has undergone monumental changes. One more additional caveat has been introduced by saying that the ITC can be availed only if the same has not been restricted. This also leads to a situation where there would total dependency on GSTN portal based Form GSTR 2B. We can only hope that this is not the beginning of a fresh set of changes but puts rest to the various contours seen over a period so that India Inc can move on with decisions being taken on business strategies than tax strategies.
While it is most welcome that the time limit for availing credit has been extended the said extension comes with an insertion of the date as thirtieth day of November instead of month of September. While it was a month of September it was established that the cut-off date would be the return filing date for September that is October 20th. Instead of mentioning return of November, since it was mentioned as 30th of November this by itself might open a pandora box.
The concept of Provisional credit being scrapped
Section 41 of the CGST Act shall be substituted to render the concept of provisional credit redundant. The credit of input tax availed where the tax payable has not been paid by the supplier shall be reversed along with applicable interest with the proviso of re-availment of ITC reversed by him after the said supplier makes the payment of the tax payable.
Novello Comments:
This might hurt India Inc in the short term and mid-term. This also creates an efficient and effective functionality of the portal. With the effective date of addition to section 16 being 01.01.2022, the concept of scrapping the provisional credit is only consequential to tightening of ITC being entitled on the basis of Form GSTR 2B.
On Cancellation
Amendments are proposed in Section 29 of the CGST Act vide clause (b) and (c) of subsection (2) to provide for cancellation of a registration under the following two scenarios:
- A person who has not furnished the return for a Financial Year beyond 3 months from the due date of furnishing the said return.
- A person who has not furnished a return for such continuous tax period as maybe prescribed.
Novello Comments:
How much of Principles of natural justice will be followed in cancellation of registration is the moot point. Less than a week back, the GSTN portal based posturing conveyed that anyone who has used more than 10% of ITC in terms of form GSTR 2b for setting off their liability in GSTR 3B would face cancellation of registration. It is very much required that we need to do business that adheres to utmost compliance but at the same time, a genuine business cannot be run under threat.
On Credit Notes
Subsection (2) of Section 34 of the CGST Act is sought to be amended to provide for an extended time of issuance of credit notes made in a financial year up to the thirtieth day of November of the ensuing financial year instead of September.
Novello Comments:
While it is most welcome that the time limit for issuance of Credit notes has been extended, the said extension comes with an insertion of the date as thirtieth day of November instead of month of September. While it was a month of September it was established that the cut-off date would be the return filing date for September that is October 20th.
On Outward Supplies
Section 37 of the CGST Act, in terms of “to be” introduced subsection 4 after subsection 3 restricts a registered person from furnishing the details of outward supplies if the details of the outward supplies for any of the previous tax periods has not been furnished by him. The government may also provide exceptions.
Any rectification of errors in respect of outward supplies may be done on thirtieth day of November of the following fiscal year instead of the current September.
Novello comments:
With the squeeze on availment of Input Tax Credit in place, technically a person will be able to avail the credit based on form GSTR 2B which is a static snapshot of credit available for a month. If a registered person who has already effected an outward supply to another person restricting him from furnishing the details of outward supplies for the reason that he has not filed his returns for the previous tax periods will unnecessarily burden the buyer from availment of credit, since in terms of the new restrictions to Section 16 this would be treated as a restricted credit.
While it is welcome that the time limit for rectification of errors in respect of outward supplies has been extended, the said extension comes with an insertion of the date as thirtieth day of November instead of month of September. While it was a month of September it was established that the cut-off date would be the return filing date for September that is October 20th.
ITC in relation to GSTR 2B
Section 38 of the CGST Act is sought to be substituted, the essence of changes to be brought in are under:
- The details of outward supply furnished by the registered persons and an auto generated statement containing the details of ITC shall be made available electronically to the recipient of such supplies.
- The Auto generated statement shall consist of:
- Details of inward supplies in respect of which ITC may be available.
- Details of supplies in respect of which such credit cannot be availed either wholly or partly, on account of the details being furnished
- by a registered person who has defaulted in payment of tax,
- by a person where the output tax payable exceeds the output tax paid by him,
- by a person who has availed credit of ITC that exceeds the credit that can be availed by him,
- by a person who has defaulted in discharging his tax liability.
Novello comments:
The restriction of ITC which can be taken by a person stands crystallised. Between tracking details in GSTR 2A ensuring such tracked details figure in GSTR 2B to reconciling the credit that figures in GSTR 2B now but has already been taken in terms of relaxation in terms of section 36(4), India Inc has a long way to go in reconciling and to ensure the availment of the entitled credit, right from 2017 onwards.
Furnishing Returns
Section 39 of the CGST Act is being amended.
- That non-resident taxable shall furnish the return by 13th day of the following month instead of 20th as it stands now.
- To provide an option to a registered person furnishing a return under proviso to subsection (1)
- To provide an option to pay an amount equal to the tax due taking into account inward and outward supplies, ITC availed, Tax payable or an amount determined in such manner to be prescribed in lieu of the above.
Since Section 38 of the CGST act has been amended reference to the same stands omitted from Section 47, to provide for levy of late fee for delayed filing of return under section 52 which is sought to be inserted.
Section 49 of the CGST Act seeks to prescribe restriction on utilization of amount available in the electronic cash ledger and such transfer shall be deemed to be a refund from the electronic cash ledger, such transfer shall be allowed only if the person has any unpaid tax liability in his electronic liability ledger. Section 49 seeks to add subsection (12) which is a non obstante clause to specify the maximum proportion of output tax liability which may be discharged through the electronic credit ledger as may be prescribed.
Interest on ITC wrongly availed and utilized
Sub section 3 of Section 50 is proposed to be substituted to give affect for a registered person to pay interest on such ITC wrongly availed and utilised at such rate not exceeding 24% as may be notified in such manner as may be prescribed.
Novello Comments
It is very pertinent to mention here that the word “and” has been added in between the words “wrongly availed” and “utilised”, it is only in those cases where the ITC has been utilised will this proposed section apply. While interest rate has been capped at the rate of 18% which has been made as one of the retrospective changes it is very critical to reiterate that an ITC should not only have been wrongly availed but utilised as well to invoke this provision.
Refunds
Section 54 of the CGST Act provides for prescription of refund claim of any balance in the electronic cash ledger to be made in such form and manner to be prescribed.
Provision of time limit for claiming refund of tax paid on inward supplies under Section 55, as 2 years from the last day of the quarter in which the said supply was received.
In case of a zero rated supply of goods or services or both to an Sez developer/ Unit, where a refund of tax paid is available, the due date for furnishing of return under Section 39, in respect of such supplies.
Certain retrospective changes relating to GST
GST being exempt on supply of unintended waste generated during production of fishmeal except fish oil for the period from the time of GST inception till 30.09.2019, subject to the condition, if the tax has already been discharged, the same shall not be available as refund.
GST being exempt on supply of service by way of grant of liquor license, as the same has been declared as an activity that shall be treated neither as a supply of goods nor as a supply of service, for the period from the time of GST inception till 30.09.2019, subject to the condition, if the tax has already been discharged, the same shall not be available as refund.
Notification of rate of interest under subsection 3 of Section 15 of the CGST Act as 18% with effect from 01.07.2017.
Impact on Customs
The Finance Bill seeks to bring in certain changes under Customs. Let us understand the amendments that forms part of the Customs Act which is introduced vide Finance Bill 2022.
- The definition of proper officer and class of officers stands recontoured with the proposed amendment to customs to section 2 substitution of section 3 and amendment of section 5.
- The principal chief commissioner customs, the Principal Chief Commissioner Customs (Preventive) Principal Director General of Revenue Intelligence Principal Commissioner of Customs (Audit) and the Principal Commissioner of Customs (appeals) and their underlying officers are being contoured as class of officers of customs as maybe appointed for the purpose of customs act.
- The Principal Commissioner of Customs or Commissioner of Customs, by order, as he deems fit, may assign such functions to an officer of customs who shall the proper officer in relation to such functions
Novello Comments:
While the class of officers of Customs, Customs (preventive) and DRI and their underlying officers are being contoured as Class of Officers, unlike GST ecosystem where DGGST, Central authorities and state authorities try to assume jurisdiction when it comes to litigation, it is hoped the same would not happen in Customs.
Valuation
A new clause is sought to be inserted after clause (iii) to second proviso in subsection (1) of section 14 of the customs act to provide for additional obligations to the importer in respect of any class of imported goods and the checks are to be exercised as the board may specify, where the board has reason to believe the value of such goods may not be declared truthfully or accurately.
Novello Comments:
With a very innocuous new clause it is pertinent to understand what the additional obligations on the importer would be and whether the set of obligations would be within the parameters of being discharged by the importer remains to be seen as and when the board specifies the same.
Customs – Advance Ruling
Section 28H is sought to be amended to enable applicant to withdraw his application at any time before an advance ruling is pronounced as opposed to the current 30 days from date of application. The form, manner and fee is also sought to be recontoured.
The subsection 2 of Section 28J also seeks to retain the validity of an advance ruling for 3 years or till a change in law or facts.
Novello Comments:
The changes proposed are most welcome in relation to advance ruling in Customs.
A new Section “110A” is sought to be introduced where, if an officer of customs has reasons to believe any short levy, short payment or duty not paid or an erroneous refund of any duty or erroneous refund of any drawback or interest short levied, short paid or not paid, may cause enquiry investigation or audit and transfer the relevant documents with report in writing to the proper officer having jurisdiction in respect of assessment of such duty or to the officer who allowed such refund or drawback or in case of multiple jurisdiction to an officer to whom the board assigns such matter.
A new Section 135AA is to be inserted to protect data and from prohibiting a person from publishing any information in relation to data.
In furtherance to this, certain effective rates prescribed by notifications are being moved to tariff and the same shall come into effect from May 1, 2022.
Concessional rates are to come in effect from February 2, 2022, vide notifications and these changes are also to form part of first Schedule commencing from May 1, 2022.
On Project Imports
The basic customs duty at concessional rates that have been extended to project imports are sought to be phased out.
| S. No | Description | Entry No. in Notn 50/2017 – Customs | BCD Rate (From) | BCD Rate (To) |
|---|---|---|---|---|
| 1 | Power Projects | 598, 599, 602, 597(iii), 597(iv), 597(v) | 0/2.5/5 | 7.5 |
| 2 | Coal Projects | 597(i) | 0 | 7.5 |
| 3 | Gas Projects | 600(a), 604 | 5 | 7.5 |
| 4 | Iron Ore Projects | 597(ii) | 2.5 | 7.5 |
| 5 | Water Supply Projects | 603 | 0 | 7.5 |
| 6 | Other Projects | 601, 605, 600(b), 606 | 0/5 | 7.5 |
New projects registered after 30th September 2022 under project imports will attract 7.5% BCD.
Projects registered till 30th September 2022 will continue to get lower rates of duty till 30th September 2023.
On Exemption from Cesses
There has been a historical interpretation whether a cess can be levied when the basic duties have been exempted. In order to comply with international agreements certain cesses are exempted towards the description items in the notifications set out below.
| S. No | Notification | AIDC exemption | Health Cess exemption | RIC Exemption |
|---|---|---|---|---|
| 1 | 104/2010 – Exempts specified goods when imported into India from Nepal, from the whole of customs duty subject to certain conditions | Yes | – | – |
| 2 | 38/1996 – exempts specified goods of Bhutanese or Indian origin | Yes | Yes | Yes |
| 3 | 40/2017 – exemption to imports from Bhutan and Nepal from Basic Customs dated 30th June 2017 Duty | Yes | Yes | Yes |
| 4 | 60/2011 – exempts specified goods from customs duty for sale in Kalaichar and Balat border haats at Indo-Bangladesh border | Yes | – | – |
| 5 | 148/1994 – This notification exempts free gifts; goods imported by Indian Red cross Society, specified goods for the treatment of victim of Bhopal gas disaster; goods for the purposes of relief and rehabilitation; goods gifted free under a bilateral agreement | Yes | Yes | Yes |
Changes in Central Excise
The following amendments shall form part of the Central Excise Act.
- Notification 01/2022 dated 01.02.2022, is issued setting out goods covered under central excise, that provides for retail sale price based valuation and prescribes an abatement as a percentage of RSP for such goods. This is more specifically made applicable to tobacco and tobacco products.
A circular dated 1.2.2022 has also been issued to ensure uniform implementation of the above.
- Ethanol blended petrol, with percentage of ethanol up to 12% and 15% confirming to new BIS specification has been issued with two new tariff items, under chapter 27 namely, 27101243 and 27101244, aligning the fourth schedule of the Central Excise Act 1944 to the first schedule of Customs Tariff Act 1975.
- An additional basic excise duty of Rs. 2 per litre on petrol and diesel intended to be sold to retail consumers without blending would be levied with effect from 01.10.2022
Snapshot on Special Economic Zone
The concept of Special Economic Zone as a delineated enclave was formalised and contoured by virtue of Special Economic Zone Act of 2005. And with its own rules which had overriding effect, SEZs made India an attractive destination for foreign direct investment.
Due to various factors including the World Trade Organisation holding SEZs as providing unfair competitive advantages, the fiscal benefits especially flowing in from section 10AA of the Income Tax act came to a standstill first for Special Economic Zones followed by the Units setup in SEZs. The sunset clause hit SEZs as on March 31, 2021.
In a move that is bound to invigorate the hon’ble FM pronounced as a part of Union Budget 2022 speech that the Government will introduce a new legislation effectively replacing the SEZ Act by enabling states to partner development of enterprise and service hubs.