GST Highlights of Budget 2025

This article covers GST Highlights of Budget 2025 detailing proposed amedments to GST Act applicable at mentioned date or at date of enactment.

Highlights are as under:

1. Proposed amendment in the Definitions under CGST Act 2017.
2. The provision for determining the time of supply for vouchers is being omitted.
3. ITC of goods used for construction of Plant or Machinery is retrospectively disallowed from 01-07-2017.
4. Amendment is being proposed to modify the manner of distribution of ITC for ISD.
5. Restriction is being imposed on supplier to reduce output tax liability.
6. Certain amendments in section 38 i.e GSTR-2B.
7. Proposed conditions and restriction in filing return.
8. The pre-deposit requirement for penalty-related e-way bill cases is being reduced.
9. 10% pre-deposit of the penalty for appeals to GST Appellate Tribunal is proposed.
10. Penalty are being imposed on violation of Track and Trace mechanism under section 148A.
11. New section 148A is being introduced for the implementation of the Track and trace mechanism.
12. A new clause is being inserted for amendment in Schedule III.

Proposed amendment in the Definitions under CGST Act 2017.

The provision for determining the time of supply for vouchers is being omitted.

• The Finance Bill proposes to omit section 12(4) & 13(4) of CGST Act,2017 related to time of supply (goods and services) for transactions involving vouchers will be removed. The reason for these changes is that vouchers are now being classified as neither supply of goods nor supply of services.
• This will applicable on the issue of the notification in Official Gazette.

ITC of goods used for construction of Plant or Machinery is retrospectively disallowed  from 01-07-2017

• The term “Plant or Machinery” in clause (d) of Section 17(5) of the CGST Act, 2017 is being substituted with “Plant and Machinery”.
• The landmark Supreme Court judgment in the Safari Retreats case had allowed Input Tax Credit (ITC) on goods and services used for the construction of Plant or Machinery. To nullify the effect of this ruling, the government has introduced the term “Plant and Machinery” with retrospective effect from July 1, 2017, ensuring that ITC remains disallowed for construction used in leased properties.
• By making this change, the government has effectively overruled the Supreme Court judgment, making it legally irrelevant.

Amendment is being proposed to modify the manner of distribution of ITC for ISD

• The government has proposed changes to the definition of Input Service Distributor (ISD) and the distribution of Input Tax Credit (ITC) under Section 20, allowing the distribution of ITC on inter-state supplies where tax is paid under the Reverse Charge Mechanism (RCM). This is achieved by incorporating relevant provisions of the IGST Act, 2017.

• This will come into force from 01-04-2025.

Restriction is being imposed on supplier to reduce output tax liability

• The Finance Bill 2025 proposes an amendment to the proviso of Section 34(2) of the CGST Act, 2017, which governs the reduction of output tax liability by the supplier upon issuing a credit note.
• Currently, Section 34(2) allows a supplier to reduce their output tax liability when a credit note is issued. However, the proposed amendment substitutes the existing proviso, introducing new conditions under which a supplier cannot reduce their tax liability:

1. If the recipient has claimed ITC on the original invoice and has not reversed the corresponding ITC after receiving the credit note.
2. If the incidence of tax has already been passed on to another person in any other case.

          This will be effective from the date of notification issued in the Official Gazette.

Certain amendments in section 38 i.e GSTR-2B

• Certain Amendments has introduced in section 38 of CGST Act, which deals with ITC Statement (GSTR-2B) available to the taxpayers.
• The Key amendments are:1. Omission of the term “auto-generated” from sub-sections (1) and (2)
  • Previously, the statement of ITC was described as being “auto-generated” based on the details uploaded by suppliers.
  • This removes the assumption that ITC statements will always be fully system-generated, allowing for manual interventions or additional verification mechanisms via Invoice Management System (IMS).

         2.Modification of sub-section (2)(b) – Making ITC restrictions more inclusive

• • The phrase “by the recipient” is modified by inserting the word “including”, making the provision more comprehensive.
  • This change ensures that ITC restrictions apply not only to specific cases but to any scenario where ITC is disallowed under other provisions of the Act.

         3.Insertion of a new clause (c) in sub-section (2) – Additional details in ITC statements

• • A new provision is added to enable the inclusion of additional details in ITC statements.
  • This gives the government the power to prescribe other relevant information that should be available to taxpayers regarding ITC eligibility, restrictions, and conditions.

This will be effective from the date of notification issued in Official Gazette.

Proposed conditions and restriction in filing return

• The government seeks to amend section 39(1) of CGST Act, 2017.The amendment introduces an enabling clause allowing the government to prescribe conditions and restrictions for filing GST returns under this section.
• These will allow the government to impose conditions and restrictions on return filing.  

This will be effective from the date of notification issued in the Official Gazette.

The pre-deposit requirement for penalty-related e-way bill cases is being reduced.

• Clause 124 of Finance Bill 2025 proposes to substitute the proviso to sub-section (6) of section 107 of CGST Act,2017. Introducing reduction in Pre-deposit amount required for filling of appeals before appellate authority for the case where the demand is related to penalties and not tax liability.

• Currently, the Pre-deposit requirement for e-way bill-related cases is 25% of the penalty amount, which is now proposed to be reduced to 10% of the penalty amount.

• This will be effective from the date of notification issued in the Official Gazette.

10% pre-deposit of the penalty for appeals to GST Appellate Tribunal is proposed.

• Clause 125 of the Finance Bill 2025 seeks to insert a proviso to sub-section (8) of Section 112 of the Central Goods and Services Tax (CGST) Act, 2017.
• This amendment introduces a mandatory pre-deposit of 10% of the penalty amount for filing an appeal before the Appellate Tribunal in cases where the demand pertains only to penalties and not to tax liability.
• Currently, the Act does not prescribe any separate pre-deposit for filing appeal before GST Appellate Tribunal where the demand pertains only to penalties not to the tax amount. However, 10% pre deposit of the penalty amount is being proposed, effective from the date of notification in the official gazette.

Penalty are being imposed on violation of Track and Trace mechanism under section 148A.

• Clause 126 of Finance bill introduces new section 122B prescribing penalty provision for violation of Track and Trace mechanism under GST.
• Section 122B says If a person violates the provisions of Section 148A(1)(b) (which deals with the Track and Trace Mechanism), they will be subject to a penalty. This penalty will be in addition to any other penalty already applicable under Chapter XV or any other penalty provisions in the CGST Act.
• The penalty amount will be the higher of: ₹1,00,000, or 10% of the tax payable on the goods involved in the violation.
• This will be effective from the date of notification in the official gazette.

New section 148A is being introduced for the implementation of the Track and trace mechanism.

Clause 127 of finance bill proposes to introduce new section of 148A for implementation of Track and trace mechanism for certain goods. The summary of the section is as under: 

1. Authority to Notify Goods and Persons [Sub-section (1)]

The government, based on GST Council recommendations, may specify by notification:

• Goods to which the Track and Trace Mechanism will apply.
• Persons or entities (e.g., manufacturers, traders, dealers) who possess or deal with such goods.

2. Implementation of the Unique Identification System [Sub-section (2)]

The government may:

• Establish a system to enable unique identification marking, with electronic storage and access to relevant information.
• Prescribe the details to be recorded in the unique identification marking.

3. Compliance Requirements for Specified Persons [Sub-section (3)]

The specified persons dealing with notified goods must:

• Affix unique identification markings on goods or packages as per prescribed norms.
• Furnish information and maintain records/documents in the prescribed format and timeline.
• Provide details of installed machinery at their manufacturing units, including: Machine identification, capacity, operational duration, and other relevant details.
• Pay prescribed charges related to the implementation of the Track and Trace system.

    This will be effective from the date of notification in the official gazette.

A new clause is being inserted for amendment in Schedule III

• New clause (aa) in Paragraph 8 of Schedule III of CGST Act is being inserted related to Supply of goods warehoused in a special Economic Zone or in Free Trade warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area which shall be treated neither supply of goods nor as supply of service.
• Explanation 3 of the schedule is being inserted for the meaning of the terms Special Economic Zone, Free Trade Warehousing Zone and Domestic Tariff Area related to clause (aa) in paragraph 8 of Schedule III of CGST Act.
• This clause will be applicable retrospectively from 01-07-2017.
• Clause 129 of Finance Bill 2025 proposes to clarify that No refund shall be made of all such tax which has been collected, but which would not have been so collected, had section 128 been in force at all material times.