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The Union Budget for 2024-25, presented by the Hon’ble Finance Minister Nirmala Sitharaman, comes at a crucial juncture for India's economic landscape. Amidst global uncertainties, the budget seeks to propel the India’s roadmap of ‘Viksit Bharat’, through strategic investments and reforms across various sectors to reinforce government’s commitment to inclusive growth, stability and resilience. Therefore, a significant thrust of this year's budget is towards employment, skilling and providing support to the MSME, women and ‘anndata’ (Farmers).
On the indirect tax front, a comprehensive array of changes has been introduced under the Goods and Services Tax (GST) and Customs laws, which echoes the government's ongoing endevours to streamline tax compliances, enhance clarity, and support various sectors of the economy. These changes primarily aim to reduce legal complexities, provide extensive relief to taxpayers, and facilitate trade across multiple industries. This article delves into the key proposals under the indirect tax and their implications, offering a detailed overview of the major amendments brought forth in this budget.
Under GST, earmarked by the 53rd GST Council, Section 74A has been introduced to overhaul the demand and recovery procedure for both fraud and non-fraud cases from FY 2024-25 onwards, by establishing a common time limit for the issuance of demand notices and orders. Accordingly, Section 73 and 74 which govern the demand and recovery procedure for fraud and non-fraud cases respectively, under the current GST framework have been restricted to cases till FY 2023-24. The intention of the government is to do away with the long prevalent and litigious differential timelines for issuance of show cause notice and orders for fraud and non-fraud cases, while retaining the underlying differentiation. Accordingly, a common time period of 42 months for issuing the show cause notice and 18 months (including a ‘6-month’ extension) for issuing order has been devised, while retaining the differentiation between fraud and non-fraud cases through differential penalty in a move which sets a thematic of killing two birds with one stone.
While this approach aims to simplify and unify procedures, it could create challenges for honest taxpayers. The existing three-year period for non-fraud cases, will be extended to 5 years, including extension, which may be seen as excessively long. Additionally, treating fraud and genuine cases similarly could discourage compliance among honest taxpayers and potentially encourage deliberate non-compliance.
Similar to Section 74A, introduction of Section 128A for providing a conditional waiver of interest and penalties for non-fraud cases pertaining to previous fiscal years is another earmarked amendment. This provision (or ‘amnesty scheme’) on one hand, aims to ease and allay the financial burden of taxpayers who suffered from discrepancies and vulnerabilities in the initial years of GST implementation. On the other, seems like an ordeal for the diligent tax payers who had timely deposited interest and penalty by specifically denying refund, which may become a point of contention between such diligent tax payers and department premised on Article 14.
Another important amendment has been brought in the ITC provisions, Section 16 in particular, to streamline the time lime for availing ITC for the FYs 2017-18 to 20120-21 to 31 March 2021. The time restriction for availing ITC has been challenged time and again before the jurisdictional high courts in various cases[1], with issue also pending deliberation before the Apex Court[2]. Recently, the Madras High Court[3], similar to all other high courts, upheld the constitutional vires of the provision although as a measure of relief extended the cut-off date for availing ITC for the past years considering the time limit for availing ITC for the subsequent FYs had been extended. Accordingly, in line with the judgement and 53rd GST Council’s recommendation, the time limit for availing ITC for the previous years has been extended. The benefit is again on an ‘as is where is’ basis and refund or re-availment in cases where the ITC has been reversed due to delayed availment has been specifically disallowed which might be irksome for the diligent assessees.
To further ease the financial burden of the taxpayers, reduction in the amount of mandatory pre-deposit for filing appeal under GST has also been proposed. Moreover, to provide full three months for filing appeal before the GST Appellate Tribunal, the start date of time limit for filing appeal will be notified bringing to rest the ongoing confusion and deliberations on account of Justice (Retd.) Sanjaya Kumar Mishra taking oath as the president of the GSTAT. In addition to the above, as a measure to make GST more equitable, government will be empowered to refrain from recovering duties that were not levied or short-levied as a result of a general practice thereby allowing sectors that have paid GST at a lower rate than what was, to seek relief from retrospective actions or demands.
On the Customs front, the budget introduces amendments to the Customs Act and Customs Tariff Act, focusing on trade facilitation, retrospective exemptions for SEZ units, and sector-specific duty adjustments. Notable changes include the acceptance of various types of proof of origin, empowering the government to specify prohibited operations in warehouses, and periodic reviews for countervailing duties. The legislative proposals aim to not only enhance trade facilitation but also support key industries, and align India’s customs framework with global standards.
The Budget has brought forth several pivotal changes to customs rates, strategically aimed at supporting various sectors of the economy and aligning with India's broader trade policies. Significant adjustments include the reduction of the Basic Customs Duty (BCD) on cellular mobile phone chargers and adapters from 20% to 15%, gold and other precious metals from 15% to 6%.
Since India is playing a crucial role in shaping the sustainable energy future by providing renewable energy solutions to the world and under its leadership of the International Solar Alliance, India has exemplified its commitment to sustainable energy solutions and environmental stewardship. Through technology transfer, capacity building initiatives, and bilateral agreements within the ISA framework, India continues to promote global adoption of affordable and sustainable solar energy solutions. Accordingly, to foster the growth of solar sector, BCD on capital goods for manufacturing solar cells or modules has been reduced from 7.5% to nil, alongside an increase in BCD on solar glass from nil to 10%, effective October 1, 2024.
Moreover, the healthcare sector sees a notable reduction in BCD on X-ray tubes and flat panel detectors for X-ray machines, now set at 5% until March 31, 2025, with a gradual increase to 10% by April 2026. Additionally, the budget extends various conditional BCD exemptions for essential sectors, such as electronics, electric vehicles, fostering growth and innovation. These targeted rate changes not only provide financial relief but also encourage the development and competitiveness of domestic industries.
Overall, these changes reflect a strategic approach to simplify tax laws, support key industries, and promote economic growth. Businesses must stay informed and adapt to these amendments to optimize compliance and benefit from the provisions introduced in the Union Budget 2024-25.
(With contribution from Ajay Jha, Consultant, Grant Thornton Bharat)
This article first appeared in Taxmann on 29 July 2024.
[1] Thirumalakonda Plywoods (WP No. 24235/2022) - Andhra Pradesh HC; Gobinda Construction (CWP No. 9108/2021) - Patna HC; M/s. BBA Infrastructure Limited (MAT No. 1099/2023) - Calcutta HC; Jain Brothers (WP(T) No. 191/2022) – Chhattisgarh HC)
[2] Shanti Motors (SLP (C) No. 4410/2024)
[3] M. Trade Links (WP (C) No. 31559/2019)
