Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part IV]

Applicability and Non-Applicability of Registration Provision

This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.

Vivek Laddha, Manish Gupta, Pooja Patwari

FAQ 1. What is the background of proposed amendment in section 23?

Law Brothers’ View: At present, the law provides section 22 and section 24 of Applicability of Registration and section 23 for situation of Non Applicability of Registration.

Just to glimpse, the background of there provisions are given below:

Consider a situation

Where any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under GST is not liable for registration [Sec 23(1)(a)] and

On another hand, if such person receives the supplies notified under RCM becomes liable for registration [Section 24(iii)].

This type of oxymoron is actually defeating the intended purpose of relaxation to the person engaged in wholly exempt supply.

To cater this peculiar issue, proposed law states thateven though a person is liable u/s 22(1) or section 24 (various situation including liability of registration based on RCM), a person will not be required to registration if person is engaged in wholly exempt supply and other cases of section 23.

FAQ 2. An agriculturist is engaged in the supply of produce cultivated from land will be liable for registration where he obtains the GTA Services.

Law Brothers’ View: GTA services are already exempted where transportation services are provided by GTA w.r.t. the produce out of cultivation. So, it was already out of the RCM being exempted supply. Herein such cases, there was not an issue of thinking of the application of section 24.

But where the situation is covered u/s 23 and 24 both then application of the proposal comes into effect.

Welcome move!!

FAQ 3. An Advocate supplies legal services to a person (other than a business entity) through ECO (say, www.lawbrothers.com) and the aggregate turnover of such advocate exceeds the threshold limit during the F.Y. Both the supplier and recipient are located in same state.

1. Whether the advocate is liable to registration?
2. Whether the business entity is liable to registration?

Law Brothers’ View:

1. Such supplies are exempted vide Notification No. 12/2017- CT(R). Section 23 overrides the section 22(1) therefore such an advocate is not required to be registered.
2. Such a person is also not liable to pay RCM (being other than the business entity)as perNotification No. 12/2017- CT(R). So, there is no question of applicability of section 24 for the recipient here.

FAQ 4. An Advocate supplies legal services to a person (a business entity having turnover exceeding the threshold limit, Running the business of agriculture produce out of cultivation of land) through ECO (say, www.lawbrothers.com) and the aggregate turnover of such advocate exceeds the threshold limit during the F.Y. Both the supplier and recipient are located in same state.

1. Whether the advocate is liable to registration?
2. Whether the business entity is liable to registration?

Law Brothers’ View:

1. Such supplies are exempted vide Notification No. 12/2017- CT(R). Section 23 overrides the section 22(1) therefore such an advocate is not required to be registered.
2. This transaction falls under RCM as perNotification No. 13/2017- CT(R)]. So, even though there is an applicability of section 24 still such a person is also not liable to registration as section 23 (wholly exempted) overrides the section 24 (RCM).

Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part III]

ITC: Blocked Credit: Dealt with the discussion of amendment in Schedule III changes.

This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.

Vivek Laddha, Manish Gupta, Pooja Patwari

FAQ 1. Is there any new entry in section 17(5) i.e. blocked credit?

Law Brothers’ View: Yes, ITC shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.

Kindly note that section 135 of Co. Act, 2013 provides that every company having

• net worth of rupees 500 crore or more, or
• turnover of rupees 1000 crore or more or
• a net profit of rupees 5 crore or more

during the immediately preceding financial year shall spend, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years.

It infers that in the case where the company spends the amount by procuring the goods or services or both for activities relating to CSR, the ITC on such expenditure is proposed to be blocked.

FAQ 2. What if such expenditure is not incurred in pursuance of the requirement of section 135 of Co. Act?

Law Brothers’ View: Strict interpretation suggests that ITC shall not be blocked in case voluntary spending in name of CSR.

FAQ 3. What is the position on the date for input tax on CSR expenditure?

Law Brothers’ View: This is very clear that it is a prospective amendment. Presently, this blocking is not in the scenario and therefore ITC can not be denied till the proposed provision is made effective.

This provision will increase the cost to the companies. Now, neither the CSR expenditure is allowed as expenditure in Income Tax nor its ITC is proposed to be allowed.

Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part I]

ITC: Eligibility

This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.

Vivek Laddha, Manish Gupta, Pooja Patwari

FAQ 1. What types of change are there in the eligibility of the ITC?

Law Brothers’ View: Though, lawmakers have put restrictions and conditions in availing of ITC time to time. But this time, there is no amendment for the purpose of availment of ITC. But yes, there are the changes for

• reversal of ITC
• reclaiming the ITC
• proportionate ITC
• block ITC

FAQ 2. What is the background of proposed amendment in ITC reversal provision incase of delayed payment under section 16?

Law Brothers’ View: Present reading:

Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon.

The wording ‘added to his output tax liability’ was written in the line of the original thought process of GSTR 1 à GSTR 2 à GSTR 3.  With shifting to GSTR 3B and omission of section 41 and 42, there does not remain the relevance of adding the amount equal to the input tax credit availed to the output tax liability. Therefore, the government has already amended rule 37 using the wording ‘shall payor reverse an amount equal to the input tax credit availed’.

This is the beauty that the Act has been aligned with the Rule!! The viewpoint is correct but the reverse process is followed where the Act should be amended first then the Rule. Amazing, isn’t it?

FAQ 3. What is the new proposition in reclaiming of ITC?

Law Brothers’ View: In our view nothing. The words ‘to the supplier’ are added.

Proviso states that

“Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.”

In fact, the second proviso also reads as ‘Where a recipient fails to pay to the supplier’. On a similar line, the words ‘to the supplier’ is added in the reclaiming of ITC related provision.

In our view, Indian Contract Act and Natural Laws will still prevail in a situation where the recipient makes the payment to third person on the instruction of supplier or as per the requirement of law, it shall be treated as if the payment is made to the supplier.

Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part I]

Composition Scheme

This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.

Vivek Laddha, Manish Gupta, Pooja Patwari

FAQ 1. What is the background of proposed amendment in composition scheme?

Law Brothers’ View: At present, a person is not eligible to opt for the composition levy if he is engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52.

Now with the proposal, the ineligibility to opt for the composition levy is restricted to the case he is engaged in making any supply of services through an electronic commerce operator who is required to collect tax at source under section 52.-

FAQ 2. Whether allowing the composition registered person to supply goods through ECO is applicable to 6% composition scheme [i.e. sec 10(2A)] which is primarily meant for the service provider?

Law Brothers’ View: Yes. Person opted to pay 6% in composition scheme is also permitted to supply goods and not only the services. It may be noted that amendment is just not introduced in section 10(2)[i.e. 1%] but amendment also opens the window to supply the goods through ECO in section 10(2A) [6%].

FAQ 3. With this proposal, can a composition registered person supply the goods through ECO throughout the India?

Law Brothers’ View: No. Person engaged in making any inter-State outward supplies is still not eligible to opt the composition levy. So he will be eligible to make intra- state supply only. In case where he makes interstate supply(directly or through ECO), he will be in the main stream by virtue of law and accordingly the other provisions of normal scheme shall come into the effect. Further, he will be entitled to get the benefit of section 18(1) of CGST Act.

FAQ 4. Where is the control required for E- Commerce Operator (ECO) in such a scenario?

Law Brothers’ View: ECO will have to put the control in place to disallow the person registered in composition scheme to deal in interstate supply to avoid the proposed penalty provision mentioned u/s 122(1B)(ii) of CGST Act. As per proposed section 122(1B)(ii),   ECO shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under section 10, whichever is higher.