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GST Changes by Budget 2023 (Explained)

Version - 0.3 (Published on 01 Feb, Last updated on 08 Feb)

1. Section 10 - Removal of restriction on Composite Dealers for supply goods through e-commerce operator.  

Background : Section 10 deals with composition dealers and provides restriction on composite dealers to not to supply any goods or services through e-commerce operator.

Changes: Section 10 of CGST Act has now been amended to remove such restriction on composite dealers for supply of goods through e-commerce operator. However restriction for supply of services shall continue as earlier. 

To give effect the above change, the words "goods or" have been omitted from clause (d) of sub-section (2) and clause (c) of sub-section (2A).

Another important aspect is whether composite dealers will be allowed to sell goods outside state through e-commerce operator or not? The answer is negative. There is no change in these provisions and composite dealers will not be allowed to sell their goods outside state as earlier. So this is going to be a challenging task before e-commerce operators.

Penalty on e-commerce operators if they allow composite dealers selling their goods outside state?

A new penalty clause has been inserted in Budget 2023 vide sub-section (1B) in section 122 of CGST Act to penalize the e-commerce operators, if they allow composite dealers selling their goods outside state. These penalty provisions have been discussed in detail in the later part of this article. Kindly scroll down for more details on it.

Refer : Finance Bill & Memorandum Explanation for more details.


2. Section 16(2) - Language correction to align it with the existing return filing system as per Act.  

Background : Second Proviso of section 16(2) of CGST Act deals with the reversal of ITC by taxpayer upon failure to pay the amount to the supplier within 180 days of date of invoice. 

And Third Proviso deals with the re-availment of ITC reversed on subsequent payment by taxpayer to the supplier.

Changes : A slight correction has been made in the legal language of these two provisos to align it with the existing return filing system as per Act.

In Second Proviso, it was earlier mentioned that on failure to pay the amount within 180 days by taxpayer, previous ITC claimed shall be added to the output tax liability of taxpayer, however there was no automatic mechanism in place to add the same in output tax liability of taxpayer by GSTN. Taxpayers were paying this liability at their own only. So now it has been corrected and the words "shall be added to the output tax liability" have been replaced replaced with the words "shall be paid by taxpayer". As a effect, taxpayers will need to continue paying this liability at their own. There is no practical effect of this amendment. This is just a language correction in the law to align this section with the existing return filing system.

Third Proviso has been amended to include the words "to the supplier", to ensure that payment has been made by the taxpayer to the supplier only and not any third person. Previously there was a lacuna in the law, which has now been removed. There were instances and possibility, where payment was done by taxpayer to third person, but supplier did not actually receive the same. The said amendment aims to target that lacuna.

Refer : Finance Bill & Memorandum Explanation for more details.


3. Section 17 - Inclusion of High Sea Sales under value of exempt supplies to restrict availment of proportionate ITC on the same.  

Background : Section 17(2) & 17(3) provides restriction on availment of proportionate ITC on exempt supplies when taxpayer is engaged in supplying taxable and exempt supplies both.

Changes : Changes have been made in Explanation of Section 17(3) to restrict the availment of Proportionate ITC on transaction covered in para 8(a) of Schedule III (i.e. High Sea Sales) by including it in the value of exempt supplies. So as a result taxpayer will need to reverse more ITC. 

ITC on CSR Activities:

Further, sub-section (5) of said section is also being amended so as to provide that ITC shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility (CSR) referred to in section 135 of the Companies Act, 2013. This was quite a debatable issue and the government now aims to settle it with this amendment.

Refer : Finance Bill & Memorandum Explanation for more details.

  4. Section 23 substituted to uphold its enforceability over section 22 & 24 in case of any contradiction.   .......
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Feb 8, 2023


By: Brahmani River Pellets Limited | Dt: Feb 2, 2023
very good
By: Bishprof Gyanserv | Dt: Feb 2, 2023
Best Explaination
By: Ravindra Sonar | Dt: Feb 3, 2023
Very good presentation . Please prepare likewise for income tax also.
By: Priyanka | Dt: Feb 2, 2023
Great... Very detailed analysis. Thank you
By: Narayan Shah | Dt: Feb 2, 2023
Very useful presentation.
By: Batmanabane | Dt: Feb 2, 2023
Thank you all amendments are provided in simple language
By: Vaideesvaaran Narayanaswamy | Dt: Feb 2, 2023
This is a great work sir. The amendment have been explained in good length. Keep up the good work.
By: Ca Shalini Verma | Dt: Feb 3, 2023
Great explanation.
By: Thyagarajan | Dt: Feb 4, 2023
Superb... Thank you for this detailed analysis of GST Budget.
By: Nityam Sharma | Dt: Feb 4, 2023
Superb. Explanation to the point and in simple language. Good work 👍
By: Ram Dutt Tibrewala | Dt: Feb 8, 2023
Excellent. This can be very much useful.
By: Nagabhushana Rao | Dt: Feb 8, 2023
At S. No. 03 of this article, high seas sale has been shown as included in definition of exempt supply for the purpose of reversal of ITC. High seas transaction has been mentioned at pera 8 (b) of schedule-III. While the Budget is talking about pera 8 (a) of schedule-III (Supply of warehoused goods). Kindly clarify.

Further, It will lead to higher reversal of ITC. What is the logic behind this.
By: Ca Aakash Gupta | Dt: Feb 9, 2023

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