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CBIC declared effective dates for new provisions of GST in Finance Act, 2024!

Following the presentation of the interim budget on February 1, 2024, several amendments were made to the CGST Act, 2017. These changes were formalized in the Finance Act, 2024 (Act No. 8 of 2024), which introduced modifications to the definition of an Input Service Distributor, adjustments in ITC (Input Tax Credit) calculations, and revised penalty provisions for non-compliance with specific forms relevant to manufacturers.

However, the Finance Act, 2024 did not specify effective dates for these amendments. CBIC has issued Notification No. 16/2024 - Central Tax dated 06^th August 2024 to notify the effective dates for these amendments.

Let's understand the details!

Notification No. 16/2024 - Central Tax dated 06^th August, 2024

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GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

Date: 06.08.2024

Notification No. 16/2024 - Central Tax

S.O. 3161(E).—In exercise of the powers conferred by clause (b) of sub-section (2) of section 1 of the Finance Act, 2024 (8 of 2024), the Central Government hereby appoints, —

(a) The 1st day of October 2024, as the date on which the provisions of sections 13 of the said Act shall come into force;

(b) The 1st day of April 2025, as the date on which the provisions of sections 11 and 12 of the said Act shall come into force.

[F. No. CBIC-20006/20/2023-GST]

RAGHAVENDRA PAL SINGH, Director

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Section 13 of the Finance Act, 2024

This covers the insertion of new section 122A in the CGST Act, 2017. This section covers provisions related to the Penalty for failure to register certain machines used in the manufacture of goods as per special procedure.

The wordings of newly inserted section 122A are as follows:

"122A. (1) Notwithstanding anything contained in this Act, where any person, who is engaged in the manufacture of goods in respect of which any special procedure relating to registration of machines has been notified under section 148, acts in contravention of the said special procedure, he shall, in addition to any penalty that is paid or is payable by him under Chapter XV or any other provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees for every machine not so registered.

(2) In addition to the penalty under sub-section (1), every machine not so registered shall be liable for seizure and confiscation:

Provided that such machine shall not be confiscated where-

(a) The penalty so imposed is paid; and

(b) The registration of such machine is made in accordance with the special procedure within three days of the receipt of communication of the order of penalty."

Key points from the above words are as follows:

If a manufacturer is liable to fill any forms or follow some special compliance procedures w.r.t. registration of machines (e.g. Form SRM I for Pan Masala and Tobacco manufacturers) and he fails to do so, he will be liable to pay a penalty of Rs.1,00,000/- for every machine not so registered.
In addition to the penalty, every machine not so registered shall be liable for seizure and confiscation. However, if the penalty is paid in full and compliance is done within 3 days of communication of the penalty, confiscation is not applicable.

For the above provisions, the effective date is specified as 1^st of October, 2024.

Sections 11 and 12 of the Finance Act, 2024

These sections cover provisions related to Input Service Distributors (ISD). The following are the amendments:

Amendment to section 2(61) of CGST Act, 2017: The definition of “Input Service Distributor” is amended by section 11 of the Finance Act, 2024 as follows:

“Input Service Distributor” means an office of the supplier of goods or services or both that receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;”

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Earlier, it was read as follows:

“Input Service Distributor” means an office of the supplier of goods or services or both that receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document to distribute the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.”

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Amendment to Section 20 of the CGST Act, 2017: Section 20 covers provisions related to the Manner of distribution of credit by Input Service Distributor. The following text is substituted for the existing wordings:

"20. (1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.

(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) Of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

(3) The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of the issue of a document containing the amount of input tax credit, in such manner as may be prescribed."

It was earlier read as follows:

“20. (1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:

(a) The credit can be distributed to the recipients of credit against a document containing such details as may be prescribed.

(b) The amount of the credit distributed shall not exceed the amount of credit available for distribution.

(c) The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient.

(d) The credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;

(e) The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata based on the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.

Explanation.--For this section,--

(a) The "relevant period" shall be--

(i) If the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or

(ii) If some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;

(b) The expression "recipient of credit" means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;

(c) The term "turnover", about any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied ¹[under entries 84 and 92A] of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.”

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Key points of the above amendment are as follows:

Registration as an Input Service Distributor (ISD) is made mandatory in case of procurement of common input services and distribution of ITC thereof to distinct persons.
A new manner of distribution along with the restrictions and conditions is prescribed to distribute the credit of central tax or integrated tax charged on invoices received by ISD.

Both these amendments are applicable w.e.f. 01^st April 2025.

Conclusion

the amendments introduced in the Finance Act, 2024, mark significant changes in the GST framework, particularly concerning Input Service Distributors and compliance requirements for manufacturers. With the effective dates now specified by CBIC, businesses must prepare to comply with the new provisions, including mandatory registration for ISDs and adherence to the revised penalty structures. These changes, effective from 1^st October 2024 and 1^st April 2025, underscore the importance of timely compliance to avoid penalties and ensure smooth operations under the updated GST regime.

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