The Finance Bill, 2025 has proposed several regulatory changes and enabling provisions under GST which are in alignment with the recommendation made by the GST Council in its 55th Council meeting.

The below mentioned amendments are proposed to be effective retrospectively from 1 July 2017:

 

Supply of goods warehoused in a SEZ or FTWZ to any person before clearance of such goods for exports or to the DTA shall be treated neither as supply of goods nor a supply of services

Entry (aa) in paragraph 8 of schedule III of the CGST Act, 2017 is proposed to be inserted to provide that the supply of goods warehoused in a SEZ or in a FTWZ to any person before clearance for exports or to the DTA shall be treated neither as supply of goods nor as supply of services.

The expressions SEZ, FTWZ and DTA shall have same meaning as assigned to them in section 2 of the SEZ Act, 2005. The clause 129 of the Finance Bill, 2015 proposes for no refund of already paid tax to be made available.

This brings transactions relating to supply of goods warehoused in SEZ/ FTWZ at par with the existing provision in GST for transactions in Customs bonded warehouse.

Amendment in section 17(5)(d) of the CGST Act, 2017 to substitute the words ‘plant OR machinery’ with words ‘plant AND machinery’

It is proposed to amend the existing term “plant or machinery” to be replaced with “plant and machinery” in section 17(5)(d) of the CGST Act, 2017. This clarifies that the input tax credit in respect of goods or services or both received by a taxable person for construction of an immovable property on his own account including when such goods or services or both are used in the course or furtherance of business shall be eligible only if the resultant property is “plant and machinery”. The term ‘plant and machinery’ has been explained in section 17(5) of the CGST Act, 2017.

The Hon’ble Supreme Court of India had ruled that the expression “plant or machinery” used in Section 17(5)(d) cannot be given the same meaning as the expression “plant and machinery” defined by the explanation to section 17. However, to overcome the said ruling, the Finance Bill, 2025 has proposed to substitute the term 'plant or machinery' with the term 'plant and machinery' thereby annulling the ruling of the Hon’ble Supreme Court of India. 

It has been proposed to insert the said amendment retrospectively effective from 1 July 2017 irrespective of anything contrary contained in any judgment, decree or order of any court or any other authority.

 

The below mentioned amendment is proposed to be effective from 1 April 2025:

 

Inter-state RCM transactions to be covered under ISD mechanism

Section 2(61) of the CGST Act, 2017 which seeks to define an ‘Input Service Distributor’ is being amended to explicitly provide for applicability of mechanism of the Input Service Distributor in respect of inter-state procurements of services attracting reverse charge, by adding reference to Sections 5(3) and 5(4) of the IGST Act, 2017.

Sections 20(1) and 20(2) of the CGST Act, 2017 which deals with the manner of distribution of credit by an Input Service Distributor is parallelly being amended to link the references of Sections 5(3) and 5(4) of the IGST Act, 2017 thus enabling the distribution of credit by an Input Service Distributor amongst its distinct persons in respect of common services exigible to IGST payment under reverse charge and attributable to one or more of distinct entities of the Input Service Distributor.

The said amendments would be made effective from 1 April 2025 which is in congruence with the notified date for implementation of the substituted definition and credit distribution provisions of an Input Service Distributor as recommended in the previous year’s budget and sanctioned vide the Finance Act, 2024.

The below mentioned amendments are proposed to be effective from a date to be notified by the Central Government in the Official Gazette

Omission of provision relating to time of supply for supply of vouchers

It is proposed to omit the sections 12(4) and 13(4) of the CGST Act, 2017 which specify the provisions of time of supply in relation to issuance of vouchers under GST.

The deletion of these sub-sections clearly establishes that vouchers do not qualify as either goods or services and thus the supply of vouchers shall not be leviable to GST. Consequently, it becomes essential to do away with the rudimentary provisions associated with the time of supply in relation to vouchers.

It is noteworthy that the issuance of vouchers has been a subject matter of long-standing dispute in the indirect tax regime and the prolonged debate seems to have been culminated by omission of concerned legal provisions of time of supply. The issues pertaining to taxability of vouchers also formed a pertinent topic of discussion in the 55th GST Council Meeting and the budget proposition is in conformity with the Council recommendations.

Enabling provisions for ‘Track and Trace Mechanism’ for specified commodities

Section 148A of the CGST Act, 2017 is proposed to be inserted for enabling provisions for ‘Track and Trace Mechanism’ for specified commodities. The Mechanism will be based on a Unique Identification Marking which would be affixed on the said goods or the packages thereof.

Section 2(116A) of the CGST Act, 2017 is proposed to be inserted to define Unique Identification Marking to mean Unique Identification Marking defined in section 148A and to include a digital stamp, digital mark or any other similar marking, which is unique, secure and non-removable.

Section 122B of the CGST Act, 2017 is proposed to be inserted to impose penalty of Rs. 1,00,000 or 10% of the tax payable on such goods, whichever is higher, for failure to comply with ‘Track and Trace Mechanism’. The penalty would be in addition to any penalty levied under any other sections.

Amendment to Section 34 to restrict output liability reversal owing to credit notes on non-reversal of attributable input tax credit by the recipient 

Section 34(2) of the CGST Act, 2017 is proposed to be amended to specifically provide for requirement of reversal of input tax credit as is attributable to a credit note, by the recipient, to enable the reduction of output tax liability of the supplier

 

Amendments in respect of functionality of Invoice Management System (‘IMS’)

The provisions of Section 38 are proposed to be amended to provide for legal framework in respect of generation of inward report based on the action taken by the taxpayers on the auto-populated details as per the Invoice Management System (IMS) functionality.

 

Pre-deposit for filing of appeal before appellate authorities in respect of an order passed which involves only penalty amount 

Section 107(6) of the CGST Act, 2017 is proposed to be amended to provide for 10% pre deposit of the penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any demand for tax. At present, the pre-deposit amount is 25% of the penalty amount.

 

Section 112(8) of the CGST Act, 2017 is proposed to be amended to provide for 10% pre-deposit of the penalty amount for filing of appeals before Appellate Tribunal in cases involving only demand of penalty without any demand for tax.

 

Other Significant propositions

  • The definition of ‘Local Authority’ as per section 2(69) of the CGST Act, 2017 is proposed to be amended by replacing term ‘municipal or local fund’ with ‘municipal fund or local fund’. Further, it is proposed to insert explanations of terms ‘local fund’ and ‘municipal fund’ to the definition of ‘local authority’ under Section 2(69) of the CGST Act, 2017. This would clarify the scope of these terms while being used in the definition of ‘local authority’.
  • Services provided or agreed to be provided by insurance companies by way of reinsurance services under the Weather Based Crop Insurance Scheme (WBCIS) and the Modified National Agricultural Insurance Scheme (MNAIS) are proposed to be exempted from service tax retrospectively for the period commencing from 1 April 2011 and ending with 30 June 2017 vide Clause 130 of the Finance Bill, 2025. The refund claim can be filed within 6 months from the date on which the Finance Bill, 2025 receives the assent of the President.

 

 

 

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