Detailed analysis of the recent notifications and circulars

Amendment in CGST Rules¹

• To operationalize Aadhaar authentication for new taxpayers with effect from 01.04.2020.
• Physical verification of business premises in case of failure of Aadhaar authentication before the grant of registration shall be done by the officer.

• Manner of determination of input tax credit in respect of capital goods
1. It is clarified that useful life of any capital goods shall be considered as five years from the date of invoice.
2. Procedure for reversal of input tax credit (ITC) on capital goods, which are partly used for taxable supplies and partly used for exempt supplies has been prescribed with effect from 01.04. 2020.(Rule 43(1) – Revised mechanism has been prescribed under Rule 43 to calculate the ITC reversal for situations wherein capital goods used exclusively for non-business purpose or for exclusively making exempted supplies or for exclusively making taxable supplies are subsequently used in making exempted as well as taxable supplies (mixed use). In a nutshell the ITC attributable for the period (calculated @ 5% per quarter) for which the given capital goods were used exclusively in making exempted/non-business supplies shall be added to the output tax while allowing the credit of full ITC for such capital goods when brought for the mixed use (i.e. for exempted as well as taxable supplies). Further provisions of Sec. 18(4) of the CGST Act, 2017 shall not apply for such capital goods to avoid double reversal.
• Registered person whose aggregate turnover during the financial year 2018-2019 exceeds five crore rupees shall get his accounts audited as specified under subsection (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C. Thus GSTR-9C has been made optional for taxpayer having the turnover less than Rs 5 crore. Further turnover limit has been increased from Rs 2 crore to Rs 5 crore for GSTR-9C.

Clarification in respect of apportionment of input tax credit in cases of business reorganization²

• Circular has been issued to clarify certain aspects related to the calculation and the manner for apportionment and transfer of ITC on account of business reorganization in the nature of demerger or transfer of business. The same is discussed below:

• In case of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, the person is  required to furnish the details in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.

• Further in case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

• The value of assets of the new units is to be taken at the State level (at the level of distinct person) and not at the all-India level.

• The transferor is required to file FORM GST ITC-02 only in those States where both transferor and transferee are registered.

• Formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities.

• The ratio of value of assets, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applied to the total amount of unutilized input tax credit (ITC) of the transferor i.e. sum of CGST, SGST/UTGST and IGST credit.

• The apportionment formula shall be applied on the ITC balance of the transferor as available in electronic credit ledger on the date of filing of FORM GST ITC – 02 by the transferor.

• For the purpose of apportionment of ITC under rule sub-rule (1) of rule 41 of the CGST Rules, the ratio of the value of assets should be taken as on the “appointed date of demerger”.

Procedure prescribed for registered persons who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016³

• The registered persons who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016, undergoing the corporate insolvency resolution process and the management of whose affairs are being undertaken by interim resolution professionals (IRP) or resolution professionals (RP), to follow the following special procedure, from the date of the appointment of the IRP/RP till the period they undergo the corporate insolvency resolution process, as mentioned below

1.  Registration- Such registered persons with effect from the date of appointment to be treated as a distinct person of the corporate debtor, and shall be liable to take a new registration in each of the States or Union territories where the corporate debtor was registered earlier, within thirty days of the appointment of the IRP/RP.
2. Return – Such registered persons after obtaining registration file to first return under section 40 of the CGST  Act, from the date on which he becomes liable to registration till the date on which registration has been granted
3. Input tax credit – Such registered person in his first return, be eligible to avail input tax credit on invoices covering the supplies of goods or services or both, received since his appointment as IRP/RP but bearing the GSTIN of the erstwhile registered person.
4. Registered persons receiving supplies such registered person, for the period from the date of appointment of IRP / RP till the date of registration as required in this notification or thirty days from the date of this notification, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the erstwhile registered person.
5. Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP/RP to the date of registration shall be available for refund to the erstwhile registration.
6. Circular has also been issued to clarify certain aspects related to compliance for companies under Insolvency and Bankruptcy Code, 2016.

Extension of due date for various return are given as follows⁴

Miscellaneous Amendments:-

Deferment of E-invoice and QR code

• QR Code implementation to be effective from 01.10.2020⁵
• E-invoice implementation to be effective from 01.10.2020⁶

Clarification in respect of appeal in regard to non-constitution of Appellate Tribunal⁷

• Circular has been issued clarifying that the prescribed time limit to make application to appellate tribunal will be counted from the date on which President or the State President enters office. It also mentioned in the circular that the appellate authority while passing order may mention in the preamble that appeal may be made to the appellate tribunal whenever it is constituted within three months from the President or the State President enters office.

Furnishing of form GSTR – 1 for 2019-2020 waived for specified tax payers⁸

• The person registered under composition scheme who have furnished details in form GSTR-3B instead of form CMP-08  for the tax periods in the financial year 2019-20  shall not be required to furnish the details  of outward supply of goods or services or both in FORM GSTR-1⁸.Thus the requirement for furnishing FORM GSTR-1 for 2019-20 for taxpayers who could not opt for availing the option of special composition scheme under notification No. 2/2019-Central Tax (Rate) has been waived by government.

Special procedure for registered persons in Dadra and Nagar Haveli &Daman and Diu during transition period, consequent to merger of the UTs w.e.f. 26.01.2020; transition to be completed by 31.05.2020.⁹

Date has been notified as April 1, 2020 from which an individual shall undergo authentication, of Aadhaar number in order to be eligible for registration.¹⁰

List of specified class of person who shall be exempted from aadhar authentication¹¹

Specify class of persons, other than individuals who shall undergo authentication, of possession of Aadhaar number in order to be eligible for registration¹¹

Extension of due date of Annual Return and Reconciliation Statement¹²

• Extended till 30th June 2020