Finance Bill, 2022

GST Proposals

Gabhawalla & Co.

Chartered Accountants
 Finance Bill, 2022 – Key GST Amendments
 Further Restrictions in Availment / Utilisation of Input Tax Credit by Recipients
 Ensuring Better Compliance by the Suppliers
 Course Correction in Return Filing Process
 Beneficial Provisions
 Extension in Time Limit for Certain Actions
 Permission to transfer ECL
 Interest only on Wrong Availment & Utilisation of Credit
 Relevant Date defined for SEZ Refund Applications
 Retrospective Exemptions
Input Tax Credit:

18 Step Process
 ITC : 18-Step Process

1. Procure the Goods or Services – S. 16(2)(b)

• Allegations of Fake Invoicing
• GRN / EWB / Fasttag / Delivery Challan
• How to establish receipt of service?
• Subsequent Write-off (as such?)
• Credit needs to be reversed – S. 17(5)(h)
 ITC : 18-Step Process

1. Procure the Goods or

Services

2. Obtain a Valid Tax

Invoice
 ITC : 18-Step Process

2. Obtain a Valid Tax Invoice – S. 16(2)(a)

• Mandatory Fields - R. 36(1) / 36(2)
• Relevance of POS?
• Should be IRN Compliant if applicable to the vendor – R. 48(5)
• Bill of Entry for Import of Goods – R. 36(1)
• RCM – Self Invoice – R. 36(1) r.w. S. 31(3)(f)
• Special Situations – BFSI, Airlines, GTA – Rule 54
ITC : 18-Step Process
1. Procure the Goods or
Services

2. Obtain a Valid Tax

Invoice

3. Entry in Books of
Accounts
 ITC : 18-Step Process

3. Entry in Books of Accounts

• Capital Assets- No Simultaneous claim of depreciation and ITC – S. 16(3)
• Revenue Items – No specific provision - Exclusive/Inclusive Method of
Accounting
• Requirement to maintain ITC Ledger – S. 35(1)(d)
• Whether GL Reco. Mandatory?
• Indicator of Compliance / Non Compliance with timelines?
ITC : 18-Step Process
1. Procure the Goods or
Services

2. Obtain a Valid Tax

Invoice

3. Entry in Books of
Accounts

4. Use in Course or
furtherance of business
 ITC : 18-Step Process

4. Use in the Course or furtherance of business -

• No direct nexus with output required
• Interpretation of “business” – S. 2(17)
• CSR related expenditures
• Employee related expenditures
• Investment related expenditures
• Mixed use – S. 17(1) r. w. R. 42(1)(j) – 5% of C2
ITC : 18-Step Process
1. Procure the Goods or
Services

2. Obtain a Valid Tax

Invoice

3. Entry in Books of
Accounts

4. Use in Course or
furtherance of business

5. Whether credit blocked

or not?
 ITC : 18-Step Process
5. Whether credit is blocked or not? – S. 17(5)
a. Motor Vehicles related
b. Specific Supplies like F&B, Mediclaim, Club, etc.
c. Works Contract Services for Construction
d. Goods & Services used for Construction
e. Tax Paid under Composition
f. Non Resident Tax Payer
g. Personal Consumption
h. Goods Lost, Stolen, free samples, etc.
i. Tax paid consequent to allegation of fraud
ITC : 18-Step Process
1. Procure the Goods or
Services

2. Obtain a Valid Tax Invoice

3. Entry in Books of Accounts

4. Use in Course or furtherance

of business

5. Whether credit blocked or

not?

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process

6. Whether used for taxable/exempted supplies – S. 17(2)

• Meaning of exempted supplies
• Also includes securities, land & building & RCM
• Excludes interest, ocean freight, Schedule III items, zero rated supplies
• Classification of Credit as Common (C2) /Exempted (T2) /Taxable (T4)
• Provisional and Final Expense Off Ratio (D1) – R. 42
• Interest on Reversal on account of Final Expense off Ratio
ITC : 18-Step Process
1. Procure the Goods or 7. Matching with
Services GSTR2B

2. Obtain a Valid Tax Invoice

3. Entry in Books of Accounts

4. Use in Course or furtherance

of business

5. Whether credit blocked or

not?

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process

7. Matching with GSTR2B –S. 16(2)(aa)

• Tolerance limit under Rule 36(4) phased out w.e.f. 01.01.2022
• Can appear in GSTR2B of earlier period
• Not Applicable for Imports, RCM and ISD
• Elaborate Process of Transaction level matching – exact, forced matches
• Control of mismatches
• Applicable for Invoices, Debit Notes, Credit Notes
• Non accounting of Invoice as well as Credit Note - Implications
ITC : 18-Step Process
1. Procure the Goods or
7. Matching with GSTR2B
Services

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts

4. Use in Course or furtherance

of business

5. Whether credit blocked or

not?

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process

8. Tax Paid by Vendor – S. 41(2)

• How to ensure payment
• Retention of tax
• Write Back – Implications
• High Court Rulings – how relevant?
• Section 41 Reversal along with interest and reclaim later (Interest lost)
• When will reversal be triggered?
• Garnishee Proceedings – whether revives right of claiming back
ITC : 18-Step Process
1. Procure the Goods or 7. Matching with
Services GSTR2B

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance

of business

5. Whether credit blocked or

not?

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process
9. Credit is not restricted – S. 38(2)
• Situations
i. within prescribed period of taking registration
ii.who has defaulted in payment of tax beyond a prescribed period
iii.whose output tax payable in GSTR1 exceeds the output tax paid in GSTR3B by a prescribed limit
iv.whose credit availment in GSTR3B exceeds the un-restricted credit by a prescribed limit
v. whose proportion of output tax discharged through credit exceeds the prescribed limit
vi.Any other class of persons as may be prescribed
• Situations – Reclassification from restricted to unrestricted whether permissible?
• Impact on Systems, Accounting and Business Processes
ITC : 18-Step Process
1. Procure the Goods or 7. Matching with
Services GSTR2B

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or

not?

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process

10. Timeline for Claiming the Input Tax Credit – S. 16(4)

• Earlier – Due Date of Filing the return for September
• Now – 30 November
• When is credit availed
• Accounting in Books?
• Period for which the credit is claimed in returns?
• Actual date of filing the return?
ITC : 18-Step Process
1. Procure the Goods or 7. Matching with
Services GSTR2B

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

common supplies
 ITC : 18-Step Process

11. File Return within prescribed timeline

• Relevant only if it is held that availment of credit
happens only when the return is filed
• Could have interest implications
• Proviso to S. 50(1) – only on ECL Component
ITC : 18-Step Process
1. Procure the Goods or 7. Matching with
Services GSTR2B

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process

12. Pay Vendor within 180 days – Second proviso to S.

16(2)
• Interpretation of ‘fails to pay’
• Includes book adjustment
• Not required for branch transfers
• Reversal along with interest
• Reclaim of reversed credit on actual payment
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process

13. Retrospective Cancellation of Vendor Registration – S. 29(2)

• Circumstances
• Contravention of the Provisions of the Law
• Not Furnished Returns – Composition (3 months), Others (6 months/ to be prescribed)
• Not commenced business within six months after taking voluntary registration
• Registration obtained by fraud
• Safeguard – Screenshot of return filing status
• LGW Industries
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

14. Denial of Credit on flimsy

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor
grounds

3. Entry in Books of Accounts 9. Credit is not restricted

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process
14. Denial of Input Tax Credit on flimsy grounds – Some Experiences (NOT
BACKED BY LAW)
• HSN Based Disallowance
• GSTR2A-3B Mismatch
• Table 8 of GSTR9 Mismatch
• Inward EWB < ITC
• ICEGATE Mismatch
• Supplier filed delayed returns
• Explanation not found satisfactory
• Documents not submitted
• No response submitted
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

14. Denial of Credit on flimsy

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor
grounds

15. Utilisation for output tax

3. Entry in Books of Accounts 9. Credit is not restricted
payment

4. Use in Course or furtherance 10. Avail Credit within

of business prescribed timelines

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process

15. Utilisation of Input Tax Credit

• For self assessed output tax – S. 49(4)
• Not for RCM purposes
• Whether dues as per annual return can be paid from ECR?
• Whether pre-deposit of service tax can be paid from ECR?
• Whether pre-deposit of GST can be paid from ECR?
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

14. Denial of Credit on flimsy

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor
grounds

15. Utilisation for output tax

3. Entry in Books of Accounts 9. Credit is not restricted
payment

4. Use in Course or furtherance 10. Avail Credit within 16. Refund of Accumulated ITC
of business prescribed timelines if eligible

5. Whether credit blocked or 11. File return within prescribed

not? timelines

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process

16. Refund of Accumulated Input Tax Credit –S. 54

• On making zero rated supplies – inputs and input services
• In case of inverted rate structure – only inputs
• Relevant date
• Clarification for SEZ Units/Developers
• What happens if business is transferred?
• What happens on closure of business?
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

14. Denial of Credit on flimsy

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor
grounds

15. Utilisation for output tax

3. Entry in Books of Accounts 9. Credit is not restricted
payment

4. Use in Course or furtherance 10. Avail Credit within 16. Refund of Accumulated ITC
of business prescribed timelines if eligible

5. Whether credit blocked or 11. File return within prescribed 17. Carry forward accumulated
not? timelines credits

6. Used for taxable/exempted/

12. Pay vendor within 180 days
common supplies
 ITC : 18-Step Process
13. Retrospective Cancellation of
1. Procure the Goods or Services 7. Matching with GSTR2B
Vendor Registration

14. Denial of Credit on flimsy

2. Obtain a Valid Tax Invoice 8. Tax Paid by Vendor
grounds

15. Utilisation for output tax

3. Entry in Books of Accounts 9. Credit is not restricted
payment

4. Use in Course or furtherance 10. Avail Credit within 16. Refund of Accumulated ITC
of business prescribed timelines if eligible

5. Whether credit blocked or 11. File return within prescribed 17. Carry forward accumulated
not? timelines credits

6. Used for taxable/exempted/

12. Pay vendor within 180 days 18. Blockage of ECR Balance
common supplies
 ITC : 18-Step Process

18. Blockage on Utilisation of Input Tax

Credit
• S. 49(4) / R. 86A – maximum period of one year
• S. 49(12) / R. 86B – Restriction of utilisation
beyond 99% through ITC, in certain cases
Other Amendments
 Other Amendments
 Course Correction in Return Filing Process
 No Two Way Communication between Supplier and Recipient
 GSTR1 - GSTR2B - GSTR3B – GSTR9
 Ensuring Better Compliance by the Suppliers
 Sequential Filing of Returns
 Beneficial Provisions
 Extension in Time Limit for Certain Actions – claim of input tax credit, B2B Amendments, Credit Notes, GSTR3B Amendments, TCS
Particulars
 Permission to transfer ECL from one GSTIN to another
 Interest only on Wrong Availment & Utilisation of Credit
 Relevant Date defined for SEZ Refund Applications
 Retrospective Exemptions
Thank You