The interim Budget for the fiscal year 2024-25 envisions ‘Viksit Bharat’ by 2047 by achieving all-round, all-pervasive and all-inclusive economic development. In line with the convention, no changes in the tax rates are proposed in the Budget, including the rate of taxes for import duties. However, certain amendments are proposed to ensure continuation of tax benefits to start-ups, sovereign wealth funds, pension funds and IFSC unit which were expiring on March 31, 2024.

On Goods and Services Tax (GST) front, certain amendments are proposed through the Finance Bill in line with the recommendations of the GST Council whereby registration as an Input Services Distributor (‘ISD’) is proposed to be made mandatory for the office of the supplier of goods or services, where the tax invoices for common input services are received. In this regard, the definition of the term ISD is also proposed to be amended to include in its ambit the input services in respect of which the tax needs to be discharged by the recipient under the reverse charge mechanism.

ISD mechanism provides for distribution of credits by a location such as a head-office which receives invoices in respect of common input services for the benefit of business as a whole and used by the branches and other locations. These services could relate to expenses incurred on auditing, legal services, advertisement and marketing, management consultancy and recruitment, etc. Given that the beneficiary of such services is not only the head-office but the other locations as well, the law provides for distribution of such credits through the ISD mechanism.

Parallel provision

However, there exists a parallel provision in the GST laws which provides for charging GST on services rendered by one location to another, even if no consideration is charged towards the same. Considering that a head-office typically would engage in providing several directions, guidelines and policy directives etc to its branches/locations, some of the businesses were cross-charging expenses incurred on such activities by the head-office and discharging GST liability on the same. This created an ambiguity, wherein both ISD as well as cross-charge mechanism were being used interchangeably to distribute such common credits and disputes were raised on the same by the authorities.

The proposed amendment clarifies the position and should put to rest any uncertainties and disputes in this regard. However, the businesses now need to review and reset their processes to ensure that they are compliant with the proposed amendments.

The Finance Bill also proposes an additional penalty for non-adherence to ‘special procedures’ prescribed for manufacturers of goods such as tobacco, pan masala, gutkha, etc. These manufacturers are presently required to register their packing machines used for filling and packing of packages containing these goods, on the GST common portal along with submission of monthly statements certified by a Chartered Engineer. Failure to do so is proposed to attract a penalty of ₹1 lakh for every unregistered machine and will make such machines liable for seizure and confiscation.

The interim Budget indicates significant economic momentum for the country and sets the field for an inclusive and sustainable growth. Accordingly, one keenly awaits the Union Budget to be tabled after the formation of the new government post the elections in anticipation that the India growth story will continue for the years to come.

Manish Mishra is a Partner, JSA Advocates & Solicitors. He is Head of Practice – Indirect tax