1108, Sri Krishna, Opp. Laxmi Ind.

SARAWGI SHRIDHAR Estate, New Link Road, Andheri (w),

&ASSOCIATES Mumbai 400053.
Tel.: 91 [22] 2632 2141 / 2632 2142
CharteredAccountants E-mail: SSandCA@gmail.com

The Finance Bill, 2021 was introduced in Lok Sabha on 1 st February, 2021 and passed by both the houses of
Parliament. Further, the said Bill received assent of the Hon’ble President of India as well on 28 th March,
2021.

Highlighting the important changes made under the GST Law:

Central Goods and Services Act, 2017

1. Amendment of section 7 - Widening the scope of supply so as to include transactions between a

person (AOP/BOI) and its members [Section 7 of the CGST Act]

In order to widen the scope of supply, a new clause (aa) to sub Section (1) of Section 7 of the CGST
Act has been inserted to include tax activities or transactions involving supply of goods or services
by any person, other than an individual, to its members or constituents or vice – versa within the
scope of ‘supply’. Such transactions shall be liable to GST irrespective of whether it is for cash,
deferred payment or other valuable consideration.

The amendment will be made effective retrospectively from the date of introduction of the CGST
Act i.e. 01.07.2017.

Explained: Taxability on supply of service or goods by any association of person such as club or
society has been a contentious issue both, in pre and post era of GST. As per the principles of
‘doctrine of mutuality’, any supply made to self and consideration thereof would not qualify as
consideration. We have a couple Supreme Court judgement wrt to these transactions, it was held
that the services rendered by an unincorporated clubs to its members are exempted from service
tax. In order to negate the effect of Supreme Court decision and avoid similar litigation in the
GST regime with respect to taxability of any activities or transactions by clubs / societies to its
members or constituents, the government has bought the said amendment in the provisions of
Section 7 of the CGST Act.

2. Amendment of section 16 - Additional condition introduced to avail ITC [Section 16 of the

CGST Act]

To ensure uniformity and consistency between Rule 36(4) and the CGST Act itself, it is proposed to
add a new condition for availing ITC by inserting a clause (aa) to Section 16(2) of the CGST Act.
The said amendment intends to allow ITC only when details of underlying invoice or debit note is
appearing in the outward supplies of the said supplier and such details have been communicated
to the recipient of such invoice or debit note.

The amendment shall take effect from 01.04.2021

Explained: Recently, the government had introduced Rule 36(4) of CGST Rules which intends to
restrict the availment of ITC only after matching the same with the Form GSTR 2A. Further, the ITC
with respect to unmatched invoices can be availed only to the extent of 5% of the total amount of
ITC matched with Form GSTR-2A. It would be pertinent to note that the constitutional validity of
the provisions of Rule 36(4) was challenged before the couple of High Courts, especially when there
is no similar restriction under the CGST Act itself.
The instant amendment aims to bring in the provisions of Section 16 of the CGST Act in line
with the restriction under Rule 36(4) of the CGST Rules to allow credit only in respect to the
 invoices which are being uploaded on the GST portal by the supplier and communication is
made to the recipient [GSTR2A/2B].
3. Amendment of section 35(5) – Removal of mandatory requirement of getting annual accounts
audited by a chartered accountant or a cost accountant

Section 35(5) requires every taxpayer with a turnover exceeding Five Crores to get his accounts
audited and submit the reconciliation statement along with copy of audited annual accounts. This
sub-Section is proposed to be omitted thereby, removing the mandatory requirement of conducting
audit under the GST Law.

Explained: Instead of simplifying the forms and rationalizing the requirements for reporting in
GST Audit, the Government has altogether abolished the requirement of GST Audit. From the
industry perspective, it’s a welcome move and would go a long way in reducing the compliance
burden.

4. Substitution of new section for section 44 – Inclusion of Self certified reconciliation statement

Every registered person, other than an Input Service Distributor, a person paying tax under section
51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual
return which may include a self-certified reconciliation statement, reconciling the value of supplies
declared in the return furnished for the financial year, with the audited annual financial statement
for every financial year electronically, within such time and in such form and in such manner as
may be prescribed.

Explained: The responsibility of reconciliation has been shifted to the taxpayers now instead of
GST auditors earlier.

5. Amendment of section 50 - Interest to be paid on net cash liability with retrospective effect

Seeks to substitute proviso to Section 50(1) of the CGST Act so as to charge interest only on net cash
liability.

This amendment shall take effect retrospectively from July 1, 2017.

Explained: Despite the 39th GST Council’s recommendation in place with regard to imposing
interest liability retrospectively on net tax liability, the government still chose to appoint 01.09.2020
as the date when proviso to Section 50(1) of the CGST Act was made effective. Though, press
release and instructions were issued to clarify for recovery of interest on net cash tax liability
w.e.f. 01.07.2017, but still litigations were seen.

With this retrospective amendment, the issue will now finally settled.

6. Amendment of section 107 - Appeals to Appellate Authority

Seeks to insert proviso under Section 107(6) of the CGST Act to provide that an appeal against
order passed in Section 129(3) of the CGST Act i.e. in Form MOV-09 cannot be filed unless 25% of
the penalty has been paid by the appellant.

Explained: Pre-deposit requirement prior to this amendment was only to the extent of 10% of the
disputed tax liability which is now proposed to be 25% of the penalty amount in case of
detention and seizure of conveyance and goods during transit.

7. Mandatory to mention 4/6-digit HSN/SAC Code w.e.f. April 1, 2021

  The Central Board of Indirect Taxes (CBIC) issued  Notification No. 78/2020 – Central Tax, dated
October 15, 2020 to mandate 4/6- digit HSN/SAC Code on supply of goods or services on the tax
invoices w.e.f. April 1, 2021:

S. No. Aggregate Turnover in the preceding Type of Invoice Number of Digits of HSN Code
Financial Year

1. Upto INR 5 crores B2B 4

2. Upto INR 5 crores B2C Optional

3. More than INR 5 crores B2B & B2C 6

Further, it is to be noted that the above changes of mentioning 4/6 Digit HSN/ SAC code, as applicable,
are also required to be captured in Table 12 of Form GSTR-1 (i.e., details of outward supplies of goods or
services).

Integrated Goods and Services Tax Act, 2017

1. Amendment of section 16 - Supply is for authorised operations – in case of SEZ and Deposit the
ITC Refund received on account of non-realization of Export Proceeds

Section 16 of the IGST Act allows for refund to be claimed by the taxpayer in respect of zero-rated
supplies which includes export and supplies made to SEZ units and / or SEZ developers.
However, the said Section is now being amended so as to:

- Restrict zero-rated supplies made to SEZ unit / developer only when the same are made in
respect of authorized operations of the said SEZ unit / developer.

- Any registered person making zero rated supply of goods shall, in case of non-realisation of sale
proceeds will be liable to deposit the refund so received along with the applicable interest under
section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time
limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange
remittances, in such manner as may be prescribed.
Note: Time limit prescribed under FEMA – 9 months from Date of Export. fjkjfk