01.02.2024: Important Highlights of proposed GST changes by Interim Budget 2024-25; Amendment in ISD definition and Manner of distribution of ITC by ISD

The Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman presented the Interim Union Budget 2024-25 in Parliament, today i.e. February 01, 2024. The key highlights of the proposed changes under GST Law are as follows:

A. Changes relating to Input Service Distributor:

These changes are in light with the recommendations in 50th GST Council meeting held on 11.07.2023 which provides that ISD (Input Service Distributor) procedure as laid down in Section 20 of the CGST Act, 2017 may be made mandatory prospectively for distribution of ITC in respect of input services procured by Head Office (HO) from a third party but attributable to both HO and Branch Office (BO) or exclusively to one or more BOs. Further, The Council in its 52nd GST meeting held on 7th October, 2023 has recommended amendments in Section 2(61) and section 20 of CGST Act, 2017 as well amendment in rule 39 of CGST Rules, 2017 in respect of the same.

a) Amendment in the Definition of Input Service Distributor(ISD) (Section 2(61) of the CGST Act):

The amended definition of ISD reads as ” an 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, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20″.

The amendment proposed to include the ISD to distribute ITC in respect of services, the tax on which is liable to be paid under reverse charge mechanism u/s 9(3) and 9(4) of the CGST Act. 

b) Amendment in the Manner of distribution of ITC by the ISD (Section 20 of the CGST Act):

  • It is proposed to make registration as Input Service Distributor (ISD) mandatory in case of procurement of common input services and distribution of ITC thereof to distinct persons. Clause (61) of section 2 relating to the definition of ISD are proposed to be substituted for this purpose.Earlier through 50th Council Meet held on 11.07.2023, followed by a CBIC Circular No. 199/11/2023-GST dated 17-07-2023, it was clarified that the Head Office (HO) had an option to distribute ITC in respect of such common input services either by following ISD mechanism or cross charge and that the ISD route was not mandatory as per the current provisions of the CGST Act and Rules. 
  • A new manner of distribution along with the restrictions and conditions would be prescribed, to distribute the credit of central tax or integrated tax charged on invoices received by ISD. 

B. Insertion of new section 122A for levying penalty in case failure to register certain machines used in manufacture of goods as per special procedure notified u/s 148 of CGST Act (i.e. Tobacco, Pan-masala and similar items)

It is proposed to insert a new section 122A, relating to the penalty for failure to register certain machines used in manufacture of goods as per special
procedure notified u/s 148 of the Act.

According to the newly inserted section, an additional penalty of Rs. 1 lakh per unregistered machine shall be imposed. The other penalties specified under Chapter XV under the CGST Act would continue to apply. Also, there would also be a provision for confiscation of unregistered machines.

Recently, Notification No. 4/2024-Central Tax, dated 05-01-2024 was issued to prescribe new special procedure to be followed by registered persons engaged in manufacturing notified goods. The effective date for the implementation of this notification is April 01, 2024.

The Finance Bill 2024 can be accessed at https://taxo.online/wp-content/uploads/2024/02/Finance_Bill-1-Copy-1.pdf

The Press Release of the Union Budget 2024-25 can be accessed at https://www.pib.gov.in/PressReleasePage.aspx?PRID=2001136

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