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Union Budget 2021: How Nirmala Sitharaman expanded powers of tax authorities

Union Budget 2021: Most of the proposed amendments find their roots in the agenda notes of the 39th GST council meeting.

To the government’s credit, the disinvestment and privatisation plan is much more granular and has specific timelines for completion in this Budget.
GST has been criticized for multiple compliances that prove challenging for taxpayers, especially for small and medium-sized businesses.

By Surbhi Premi

GST related proposals made in the Union Budget pivot around enhanced enforcement to safeguard the interest of revenue by removing anomalies and plugging the loopholes in the law leading to tax evasion or wrongful availment and/or utilization of ITC. Further, some of the changes aimed at helping businesses by reducing the compliance burden etc.

Most of the proposed amendments find their roots in the agenda notes of the 39th GST council meeting held on March 14, 2020, just before the outbreak of the Covid-19 pandemic.

The key changes that were announced –


Safeguarding the levy of GST on supplies by an association or body of persons to its members

GST on supplies of goods or services by an unincorporated or incorporated entity to its members has always been a subject matter of litigation. There are a bunch of conflicting rulings by AARs and AAARs on the subject matter. Now the controversy on this issue has been put to rest by amending the scope of “supply” under GST law retrospectively by introducing a deeming fiction considering club and its members as separate persons. This was specifically introduced to over the Supreme Court decision in the case of Calcultta Club Ltd.

The amendment has taken away the doctrine of mutuality and all supplies of goods and services by various clubs and RWAs to their members shall be leviable to GST retrospectively from 1st July 2017.

ITC available to recipient only when details of relevant invoices/debit notes are furnished by suppliers in their GSTR-1

Due to poor filing of FORM GSTR-1, there are large gaps between credit available under FORM GSTR-2A and self-assessed credit under FORM GSTR-3B. Earlier, the department was issuing notices to taxpayers for restricting ITC to the extent reflected in GSTR 2A. Now those actions of department have been given a statutory force prospectively. However, it is yet to be clarified whether the additional ITC of 5% (provisional ITC) shall be available even if the suppliers have not furnished details of relevant invoices/debit notes in their GSTR-1. Also, there is doubt prevalent in the Industry as to ascertainment of ITC basis GSTR-2A or GSTR-2B. Further, the applicability of amendment needs to be examined for invoices raised prior to amendment but received post amendment.

Changes pertaining to Zero Rated Supplies

The amendment has been proposed to provide that supplies to a SEZ developer or a SEZ unit to qualify as zero rated supply only when the said supply is for authorized operations.

Further, the option to make zero-rated supply with payment of IGST and then, claim refund of the tax so paid has been restricted only to notified class of persons or notified class of goods or services. This amendment has been made to bring uniformity with international practice and put a check on utilization of fraudulent credit for payment of IGST on exports. However, this will hit those exporters who have no domestic supplies since the ITC on capital goods shall not be available for refund and shall become a cost to them.

Refund of unutilized ITC to persons making zero rated supply of goods linked to realization of sale proceeds in foreign exchange. This amendment has been proposed to give statutory force to rule requiring realization of foreign exchange and in lines with the earlier central excise regime.

Quantum of penalty doubled for release of taxable goods and conveyance upon detention or seizure

Post amendment, detained or seized goods are to be released upon payment of penalty equal to 200% of the tax payable on such goods instead of 100% of the tax payable and there is no need to pay applicable tax under these proceedings. This amendment puts to rest the disputes pertaining to payment of tax twice for the same transaction in some cases such as transportation of tax paid goods, requirement to pay tax in correct GSTIN through GSTR-3B even after payment of tax in temporary ID etc. However, the provision needs to be tested before the courts on the ground of Constitutional validity considering liability to pay 200% penalty regardless of the nature of the dereliction.

Further, detention and seizure proceedings have been delinked from confiscation proceedings to make them operational independently.

Self-assessed tax in GSTR-1 which remains unpaid in GSTR-3B can be directly recovered without issuance of Show Cause Notice

It was brought to the notice of the GST Council that for a number of GSTINs, the GSTR-1 details are considerably larger than GSTR-3B. Furthermore, a lot of cases have been noticed where GSTR-1 has been filed without filing the corresponding GSTR-3B. Therefore, it has been proposed to clarify that scope of self-assessed tax shall include tax payable on outward supplies reported in GSTR-1 which remains unpaid in GSTR-3B. Such amount shall be directly liable to be recovered even without issuance of Show Cause Notice. However, the proposed amendment would put even the genuine taxpayers into trouble for the reason that difference between GSTR-1 and GSTR-3B can occur on account of various genuine reasons as well unintentional reporting errors.

Scope of provisional attachment widened

For protecting the interest of revenue, the budget has proposed for provisional attachment of property, including bank account belonging even to those persons at whose instance the subject transaction has been carried and who has been benefitted out of transaction. Earlier the provisional attachment was applicable only in respect property, including bank account belonging to taxable persons.

Further, provisional attachment can be made after initiation of specified proceedings such as inspection, search, seizure etc. The requirement of pendency of any proceedings is no more a precondition for provisional attachment.

Also, the scope has been widened by allowing provisional attachment even after scrutiny of returns. 


Removal of requirement of GST Audit and reconciliation statement by professionals

GST has been criticized for multiple compliances that prove challenging for taxpayers, especially for small and medium-sized businesses. The budget has proposed to remove the mandatory requirement of furnishing audited annual accounts and reconciliation statement for registered persons having turnover more than specified threshold. Filing of the annual return including reconciliation statement shall be done on a self-certification basis.

It may be noted that the proposed amendment shall come into effect from a date to be notified later. For Financial Year 2019-20, the existing provisions shall continue.

Interest on Net Cash Liability

Finance (No.2) Act, 2019 inserted provision stating that interest is leviable only on that portion of output liability which is discharged by way of cash. Now that provision has been proposed to be given a retrospective effect from 1st July 2017.

Therefore, the hallmark of the 2021 budget is enlarging the powers of tax authorities. The only expectation is that the same is not misused by them against genuine taxpayers.

(Surbhi Premi is the Joint Director at Lakshmikumaran & Sridharan Attorneys. The views expressed are the author’s own.)

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