Indirect Tax Alert -  Effective date of amendments made vide Finance Act, 2024


Input Service Distributor (ISD) mechanism:

  • The GST Council in its 50th meeting held on 11 July 20231 had inter alia recommended that the Input Service Distributor (ISD) mechanism be made mandatory.

  • To give effect to the above recommendation, the Finance Act, 20242 had inter alia proposed amendments to the following provisions of the Central Goods and Services Tax Act, 2017 (CGST Act):

    • Section 2(61) – Definition of ISD

    • Section 20 – Manner of distribution of credit by ISD

  • However, the effective date of these amendments was not notified. In this regard, vide Notification No. 16/2024-Central Tax dated 6 August 2024, the Government has notified that the amendments proposed by the Finance Act, 2024 would come into effect from 1 April 2025.

  • It is also relevant to note that vide Notification No. 12/2024-Central Tax dated 10 July 20243, Rule 39 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) was amended to prescribe the procedure for the distribution of input tax credit by ISD. While the effective date of this amendment has not been notified yet, it is likely that the same would be in sync with the amendments proposed by the Finance Act, 2024 i.e., 1 April 2025.

Imposition of penalty for non-compliance with the special procedure relating to the registration of machines (under Section 148 of the CGST Act):

  • A special procedure for registration of machines by manufacturers of certain pan masala/tobacco products was introduced vide Notification No. 04/2024-Central Tax dated 5 January 2024 with effect from 1 April 2024 (subsequently amended to 15 May 2024)4.

  • In this regard, the Finance Act, 20245 sought to insert a new penal provision (Section 122A) to the CGST Act to provide that non-registration of machines as per the above provision would result in the following:

    • Imposition of penalty equal to INR 0.1mn for every unregistered machine; and

    • Such an unregistered machine shall be liable for seizure and confiscation.However, the machine shall not be confiscated if the penalty imposed as above is paid by the taxpayer and the machine is duly registered within 3 days from the receipt of order imposing such penalty.

    • Vide Notification No. 16/2024-Central Tax, the Government has notified that the aforesaid amendment would be made effective from 1 October 2024.

BDO in India Comments

The industry had adopted varied positions relating to the implementation of ISD framework vis-à-vis the cross-charge framework. Now with ISD provisions becoming mandatory, organisations with operations in multiple States would need to relook at their position and take suitable actions to comply with the revised provisions. The Government has given a fair amount of time for the industry to implement the amended provisions and the industry should commence the implementation at an early stage so that any practical issues arising in the course of implementation can be represented immediately and the same can be addressed before the due date.

 

1 Our alert can be accessed by clicking here

2 Our publication on the Budget proposals can be accessed by clicking here

3 Our update on this notification can be accessed by clicking here

4 Our update on this notification can be accessed by clicking here and here

5 Our publication on the Budget proposals can be accessed by clicking here