Government made Aadhaar Authentication and few Sections of Finance Act 2021 effective from January 01, 2022

Table of Contents: 

1. Aadhaar Authentication for already registered persons in specified cases

2. Retrospective amendment in the definition of supply to make ‘Principle of Mutuality’ redundant

3. Introduction of a new condition for availing Input Tax Credit

4. Making Seizure and Confiscation of goods and conveyances a separate proceeding

5. Recovery of Tax in respect of transaction declared in Form GSTR 1

6. Widening the scope of provisional attachment of property including bank account

7. Penalty to be deposited before filing an Appeal to Appellate Authority for the detention of Goods/Conveyance

8. Amendments relating to Detention, Seizure and release of goods & conveyances in transit

9. Amendments relating to Confiscation provisions

Taxmann Indirect Tax Research and Advisory Team

Dated – December 22, 2021

In continuation to decisions taken by the GST Council in its 45^th meeting, the Government on September 24, 2021 has notified Central Goods and Services Tax (Eighth Amendment) Rules 2021. These Rules introduced several amendments under the Central Goods and Services Tax (‘CGST’) Rules, 2017 to provide amendment in provisions relating to registration, refund etc. one of the key amendment was the Aadhaar authentication for existing registered persons. Though the Government had notified the said amendments but it was not made effective. Now, the Government has made these amendments effective from January 01, 2022.

Apart from above, the Government has also made few sections of Finance Act 2021 effective from January 01, 2022.

In this note, Taxmann (Indirect Tax) Research and Advisory Team has simplified such amendments and its implications.

1.  Aadhaar Authentication for already registered persons in specified cases

(Effective Date: January 01, 2022)

1.1 Scenarios where Aadhaar Authentication would be mandatory

• The existing registered persons are required to do Aadhaar Authentication of their registration in the following cases:

(a) Revocation of cancellation of registration;

(b) IGST refund on export of goods under Rule 96 of CGST Rules; or

(c) Refund under rule 89 of CGST Rules

• Consequent amendments have also been made in the above provisions (e.registration, refund etc.) to provide that Aadhaar Authentication would be a pre-requisite for filing applications

1.2 Whose Aadhaar would be required to be authenticated

• Following persons are notified whose Aadhaar would be required to be authenticated:

(a) Authorized Signatory of the registered person; and

(b) A specified individual as per below table

1.3 e-KYC where Aadhaar is not available

• Where Aadhaar number has not been assigned to an individual, e-KYC would be required to done
• Following documents are required to be submitted for e-KYC:

(a) Aadhaar Enrolment ID slip, and

(b) Any document such as

(I) Bank passbook with photograph; or

(II) Voter identity card issued by the Election Commission of India; or

(III) Passport; or

(IV) Driving license issued by the Licensing Authority under the Motor Vehicles Act, 1988

• Further, Aadhaar authentication would be required to be done within 30 days from the date of allotment of Aadhaar number

1.4 Notified category of persons who are not required to do Aadhaar Authentication

• The following registered person are exempted from the requirement of Aadhaar authentication:

(a) A person who is not a citizen of India

(b) Department or establishment of the CentralGovernment or State Government

(c) Local authority

(d) Statutory body

(e) Public Sector Undertaking

(f) Person to whom Unique Identification Number is granted.

TAXMANN’s Comments:

The Finance Act, 2019 had made amendment in the CGST Act and inserted the requirement for the Aadhaar authentication. The functionality in this regard had already been deployed on the GSTN portal w.e.f. January 06, 2021.

Now, the CGST Rules are amended to provide scenarios where Aadhaar authentication would be required. Notably, the requirement of having Aadhaar authentication or E-KYC (along with Aadhaar authentication) is a pre-requisite if the person want to avail the said facilities (i.e. refund, revocation of registration) under the GST law. Therefore, it is highly recommend that all the concerned existing registered persons should comply with the given requirement on priority.

2. Retrospective amendment in the definition of supply to make ‘Principle of Mutuality’ redundant

(Clause 108 and 122 of Finance Act, 2021 – Effective Date: January 01, 2022 with retrospective effect from July 01 2017)

• • Section 7 of the CGST Act2017 provides the scope of supply which, in general, includes within its scope all forms of supply of goods or services or both such as sale, transfer, barter, , made or agreed to be made for a consideration by a person in the course or furtherance of business
  • The provision has been amended with retrospective effect from July 01, 2017, to provide that activities or transactions by a person, other than an individual, to its members or constituents or vice versa made would be treated as ‘Supply’
  • An explanation has also been inserted in Section 7 to provide that the person and its members or constituents shall be deemed to be treated as two separate persons and the supply of activities or transactions inter-se shall be deemed to take place from one such person to another. The amendment provided that it would have an overriding effect over the other statues, any judgement, decree or order of any Court, Tribunal or Authority
  • Supply of goods by any unincorporated association or body of persons to a member which is currently the part of Schedule II of the CGST Act has been omitted. The impugned activity would get covered in Section 7 (Supra).

TAXMANN’s Comments:

Consequent to this proposed amendment, the litigation around mutuality may be put to rest. Retrospective amendment in the definition of supply is unfair in nature, as it will lead to undue financial pressures on clubs to recover GST from its members.

3. Introduction of a new condition for availing Input Tax Credit

(Clause 109 of Finance Act, 2021 – Effective Date: January 01, 2022)

• • Section 16(2) of the CGST Act provides certain conditions on fulfilment of which the registered person would be entitled to claim the Input Tax Credit (‘ITC’) of GST charged on the inward supply of goods or services or both. The conditions include possession of the relevant document, payment of tax, furnishing of returns,
  • The Finance Act 2021 has made an amendment in the above provision to provide a new condition for availing the ITC.
  • It has been provided that ITC on invoice or debit note can be availed only when the details of such invoices/debit notes have been furnished by the supplier in its Form GSTR 1 and the same is communicated to the recipient in the manner specified in Section 37 of the CGST Act
  • As a result of this amendment, the registered person would be eligible to claim the ITC only when the details of invoices/debit notes are uploaded by their vendors in their Form GSTR 1 and the same reflects in Form GSTR 2A

4. Making Seizure and Confiscation of goods and conveyances a separate proceeding

(Clause 113 of Finance Act, 2021 – Effective Date: January 01, 2022)

• • Explanation 1(ii) of Section 74 of the CGST Act provides that where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under Section 73 or Section 74 of the CGST Act then the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 of the CGST Act are deemed to be concluded
  • Finance Act 2021 has made amendment in the above explanation to exclude Section 129 and 130 of the CGST Act from its purview. The said made to make seizure and confiscation of goods and conveyances in transit a separate proceeding from the recovery of tax

5. Recovery of Tax in respect of transaction declared in Form GSTR 1

(Clause 114 of Finance Act, 2021 – Effective Date: January 01, 2022)

• • Section 75 of the CGST Act provides the general provisions relating to the determination of the tax. Section 75(12) of the CGST Act prescribes about the recovery of self-assessed tax. Where a self-assessed tax or interest thereon remains unpaid according to supplies furnished in Form GSTR-3B the same is recovered as per the provisions of Section 79 of the CGST Act
  • The Finance Act 2021 has defined the meaning of the term self-assessed tax. The self-assessed tax has been defined to include the tax payable in respect of outward supplies furnished in Form GSTR-1, but not included in Form GSTR-3B. Therefore, if a person has furnished details of outward supplies in Form GSTR-1 but has not discharged the tax liability e., not furnished the details of outward supplies in the GSTR-3B, then the same would qualify as self-assessed tax and recovery proceedings under section 79 of the CGST Act may be initiated by the proper officer. The proposed amendment ensures that tax declared in Form GSTR 1 must actually be paid by the supplier.

6. Widening the scope of provisional attachment of property including bank account

(Clause 115 of Finance Act, 2021 – Effective Date: January 01, 2022)

• In terms of Section 83 of the CGST Act, the commissioner may provisionally attach any property including bank account of the registered person if he is of the opinion that it is necessary to attach the same to protect the interest of the Revenue. The attachment can be made only during the pendency of proceedings in the below cases:

(a) For assessment of non-filers of returns under Section 62

(b) Assessment of unregistered persons under Section 63

(c) Summary assessments under Section 64

(d) Power of inspection, search and seizure under Section 67

(e) Determination of tax not paid or erroneously availed input tax credit due to fraud or wilful misstatement as dealt under section 74 or any other reason as dealt under section 73

• The Finance Act 2021 has provided an amendment to widen the scope of provisions relating to the attachment of the property including bank accounts to protect the interest of the Revenue. The Commissioner has been empowered to attach the property under various provisions of the CGST Act from the initiation of the proceedings under Chapter XII, Chapter XIV or Chapter XV of the CGST Act.

• Further, the Commissioner apart from the taxable person may attach the property belonging to any person specified in sub-section (1A) of section 122 of CGST Act,2017 e., any person who assist the taxable person for conducting transaction like receives any goods or services without the issue of invoice, issue any invoice without the supply of goods or services, etc.
• To understand the impact of above amendment in more details refer the below link of our video presentation:

Video Presentation by: Karishma Malhan, Assistant Manager, Taxmann (Indirect Tax) Research and Advisory Team

7. Penalty to be deposited before filing an Appeal to Appellate Authority for the detention of Goods/Conveyance

(Clause 116 of Finance Act, 2021 – Effective Date: January 01, 2022)

• • Section 107 of the CGST Act provides provision relating to filing of an appeal before the Appellate Authority against the order of the Adjudicating Authority. A person may also file an appeal if the goods or the conveyance has been detained by the Proper Officer and he has issued an order under Section 129 (3) of the CGST Act
  • The Finance Act 2021 has provided that the appeal may be filed by a taxable person against the order of detention of goods or conveyance by a proper officer only if the person has deposited 25% of penalty amount as mentioned under an order issued in Section 129 (3) of the CGST Act

8. Amendments relating to Detention, Seizure and release of goods & conveyances in transit

(Clause 117 of Finance Act, 2021 – Effective Date: January 01, 2022)

• Section 129 provides that where any person transports /stores any goods while they are in transit in contravention of the CGST Act/Rules, such goods and conveyance used as a means of transport for carrying the said goods are liable to detention or seizure. The goods so seized/detained can be released on the payment tax and penalty. The payment conditions for releasing the goods and conveyance have been changed. The comparative table reads as under:

• • Further, as per the existing procedure for detaining or seizing goods or conveyances, the proper officer is required to issue a notice specifying tax and penalty. Thereafter, he would be required to pass an order for payment of applicable tax and penalty. In case the person transporting goods or owner failed to make payment of tax and penalty within 14 days of detention or seizure, proceedings under Section 130 (confiscation of goods or conveyances) are initiated.
  • Finance Act, 2021 has delinked the proceedings of Detention, seizure and release of goods and conveyances in transit with the provisions of Section 130(Supra)
  • Now, the proper officer detaining or seizing goods or conveyance shall issue a notice within 7 days. Thereafter, he shall pass an order within 7 days from the date of service of such notice for payment of penalty
  • If person transporting goods or owner failed to make payment of penalty within 15 days (proper officer can reduce this period in case of perishable/hazardous goods) of receipt of order, the goods or conveyance shall liable to be sold or disposed of in such manner and time which will be prescribed to recover penalty payable. Notably, it has also been provided that the conveyance shall be released on payment by the transporter of penalty payable or Rs.1 lac whichever is less.
  • In most of the cases transporters are not aware of the nature of the supply therefore levying of penalty on them for releasing conveyance does not seems to be fair

9. Amendments relating to Confiscation provisions

(Clause 118 of Finance Act, 2021 – Effective Date: January 01, 2022)

• • Section 130 of the CGST Act provides several circumstances under which goods/conveyances would be liable to confiscated and penalty would be levied in cases such as supplies any goods liable to tax under this Act without having applied for registration, supply or receipt of any goods in contravention of the provisions of GST legislation with the intent to evade payment of tax etc. Currently, Section 129 of the CGST provides for the penalty which shall not be less than the amount of penalty leviable Section 129 (Supra)
  • The Finance Act, 2021 has delinked the proceedings under Section 130 relating to the confiscation of goods or conveyances and levy of penalty from the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit

Disclaimer: The views/comments given in this write-up are for guidance purposes and cannot be construed as legal advisory.