Decoding Notification No. 39/2021 – GST dated 21st December 2021.

GST_Update – Notification No. 39/2021 – Central Tax dated 21st December, 2021

Union Budget 2021 has presented various amendments to the GST Law through Finance Act, 2021. However, the same were not notified at that time.

Now, the department has issued Notification No. 39/2021 – Central Tax on 21st December, 2021 notifying the applicability of the majority of the of the amendments with effect from 1st January, 2022. (Except Section 7(1)(aa) and Section 50 – which are retrospective from 1st July, 2017).

However, it is interesting to note that the similar amendments are also to be notified by respective State Govt. else we will have two different GST laws.

The notification has also made the draconian provision i.e. Section 16(2)(aa) (100% matching of invoices with GSTR 1 filing) effective from 1st January, 2022.

We have tried to cover the same in our analysis.

  1. Section 7(1)(aa) – Activities / Transactions by a club / association with its members:

The bare provision is produced as below:

“(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]”

The Principle of Mutuality states that one cannot supply goods or services to oneself.

The same concept was also upheld by Hon’ble Apex Court in the landmark judgement of Calcutta Club Limited in the erstwhile regime of indirect taxes.

However, the legislator has introduced a retrospective amendment in the law effective from 1st July, 2017 by insertion of Section 7(1)(aa) that the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration will be treated as ‘Supply’.

Further, with an explanation, they have clarified that club / association and its members will be two separate persons.

Therefore, the services / goods supplied by an association / club to its members are now under the jurisdiction of GST and that too with effect from 1st July, 2017 and thereby they are required to determine the liability.

While determining the liability, the core issue will be the claiming of ITC (due to Section 16(4) restriction) and interest applicable on it.


  1. Section 16(2)(aa) – Conditions for taking input tax credit.

“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”

Presently, Rule 36(4) prescribes the condition for availability of ITC in excess of 5% of eligible ITC for which the invoices have been furnished by the corresponding suppliers in their GSTR 1.

On 9th October, 2019, the provision was introduced with a limit of 20% which is down to 10% and presently, it is 5%.

However, it was just specified in the Rule but no where in the Act or in Section 16(2), such condition was prescribed for taking the ITC and it is established principle of law that a rule cannot override an act.

And thereby, it was also challenged before the various High Courts.

Now, Section 16(2) has been amended by inserting the clause (aa) which states that if supplier has furnished details of invoice / debit note in his GSTR 1 then only the recipient will be able to claim the ITC of the same.

However, the good thing is that the said provision is inserted w.e.f 1st January, 2022 i.e prospective in nature and not retrospective from 1st July, 2017.

With insertion of Section 16(2)(aa), the rule got its powers from the Act for the implementation and now the limit of 5% may also be scrapped i.e. it has to be 100% matching to claim ITC.

However, furnishing of invoice by the supplier is out of the control of recipient and same may get constitutionally challenged before the courts of law.

Also, it will create transitional difficulties like invoice issued before 1st January, 2022 but ITC availed on or after 1st January, 2022 etc.


  1. Section 50 – Interest on delayed payment of tax

Earlier, it was specified that interest on tax shall be payable on gross basis which was not fair as the balance of ITC is already with Govt.

Various representations have been made to the Ministry about this unfairness.

The representations have been accepted and a press release was issued for the same.

However, till the consequential amendments are being done in the Act itself, the press release holds no legality and also it will be uncertain that field officers will be bound by such press release.

In Finance Act, 2021, Section 50 has been amended to provide that interest on delayed payment of tax on the net basis.

The amendment has been done with retrospective effect from 1st July, 2017 which is a good move.


  1. Section 75 – Self Assessed Tax – GSTR 1

An explanation in Section 75 has been inserted to wider the scope of ‘self-assessed tax’.

“[Explanation.-For the purposes of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.]”

Many registered persons were following the practice of filing only GSTR 1 and not GSTR 3B.

By doing so, they can declare their outward supply and thus recipient can avail ITC as per his GSTR 2A/2B but at the same time, supplier was not filing GSTR 3B and thus avoids payments of tax.

To curb that practice, an explanation in Section 75 has been inserted to define that the tax details furnished in GSTR 1 by the supplier will be treated as ‘self-assessed tax’ only.

It will now enable the department to directly initiate the proceedings for the recovery.

  1. Others:
  • Section 73/74 – Proceedings initiated u/s 129 and 130 (i.e. e way bill non- compliance provisions) will be independent and separate proceedings.
  • Section 83 – Earlier provisional attachment can be initiated only during the pendency of specified proceedings which can be now undertaken after initiation of proceedings under Chapter XII, XIV or XV provided other conditions are specified.
  • Section 107 – For filing the first appeal, a pre-deposit of 10% of the disputed tax amount is mandatory. Now, with the amendment, for orders passed u/s 129(3) regarding e-way bill violations, the pre-deposit will be 25% and not 10%.
  • Section 129 & 130 – The penalty has been amended u/s 129 from tax + penalty equal to tax to now penalty as 200% of tax payable. Further, detention / seizure provisions have been delinked between 129 and 130. Further, now even a transporter can release his vehicle by payment of specified sum.
  • Section 151 & 152 – For calling of information and other matters