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Tax Vista Your weekly tax recap Edn. 2 - 29 June, 2020 By Dr. G. Gokul Kishore |
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Third Anniversary of GST
Goods and Services Tax (GST) is completing three years this week. Like us, law too grows and evolves, refined by amendments, disciplined by interpretation and enriched by jurisprudence. GST law is no exception. As it learns to walk, it trips and needs to be helped by notifications and clarifications. This explains the responsiveness of the GST Council and the tax administration by issuing more than 396 notifications (CGST - rate and non-rate) and 141 circulars, not including those issued under SGST Acts.
Within this short span, hundreds of judgments have been delivered by various High Courts and some of them being celebrated as landmark. Numerous orders have been passed by National Anti-Profiteering Authority though majority of them not in favour of taxpayers. The same perception is shared by stakeholders in respect of hundreds of advance rulings but that has not deterred many from approaching Authority for Advance Rulings in various States and also filing appeal before Appellate AAR. Countless extensions for various compliances and rate changes have spun a web of complexities to blur the goodness and simplicity in Good and Simple Tax.
The time cannot be more appropriate than now to thoroughly re-examine the provisions and procedures and conduct a performance evaluation of systems and processes. The findings or learnings from such exercise will provide the GST Council with valuable ground report on where GST stands today. The Council can then deliberate on re-designing or rejigging the framework - both statutory and procedural - wherever there is a crying need and recommend launching of GST 2.0, the GST regime prepared to meet the challenges in the next five years.
Unrelenting Covid-19 - Last date for issuance of notices and orders, filing of appeals & various compliances extended again
In view of massive disruption caused by Covid-19 pandemic, Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 was issued on 31-3-2020 to relax the last date for various action to be initiated by the tax department or compliance to be ensured by taxpayers.
The Ordinance inserted new Section 168A in CGST Act to empower the government to issue notification (based on recommendations of GST Council) to extend time-limit where various actions or compliances could not be completed due to force majeure and such term was defined to include epidemic. Exercising the power under this provision, Notification No. 35/2020-Central Tax was issued on 3rd April, 2020 to extend the time-limit to 30th June, 2020 for issuance of notices, filing of appeals, passing of orders, etc., under CGST Act in those cases where such time-limit fell between 20th March and 29th June, 2020.
As the pandemic continues to spread, the government has further extended such dates. Notification No. 55/2020-Central Tax dated 27th June, 2020 issued now amends the above notification to cover time-limits till 30th August, 2020 and to extend the last date to 31st August, 2020. Such extensions do not cover action or compliances under specified provisions like those pertaining to time of supply, invoicing, registration, filing of GSTR-1, monthly return, detention and seizure, etc.
Similar extension has been granted for passing refund order under Section 54(5) read with Section 54(7) of CGST Act. Notification No. 56/2020-Central Tax dated 27th June, 2020 has been issued to amend Notification No. 46/2020-Central Tax dated 9th June, 2020 issued earlier. If the time-limit for passing order falls till 30 August, 2020, the same will stand extended till 15 days of receipt of reply to notice by the claimant or 31 August, 2020, whichever is later.
The Ordinance further provided that in case of completion of action or compliances as prescribed under Central Excise Act, 1944, Customs Act, 1962 (except certain provisions), Customs Tariff Act, 1975 and Finance Act, 1994 (Service Tax provisions), where time-limit falls between 20th March, 2020 and 29th June, 2020, the same stood extended to 30th June, 2020. As per notification issued on 27th June, 2020, for the time-limits falling till 29th September, 2020, the due date or end date for completion or compliance of action under the above statutes has been extended to 30th September, 2020.
Covid-19 related relaxations for various compliances
GST Council in the last meeting held on 12th June, 2020 had recommended more relaxations in respect of compliances like filing of returns particularly for small taxpayers. It had also recommended one-time amnesty scheme for those who have not filed returns since implementation of GST.
Notifications No. 51 to 54/2020-Central Tax dated 24-6-2020 have been issued to implement these recommendations. The benefits include waiver of interest and reduced rate of 9% interest in case of delay in payment of tax (at the time of filing GSTR-3B) for those with turnover less than Rs. 5 crores for the period from February to July, 2020, late fee waiver if NIL returns are required to be filed and are filed before specified date for the period from July, 2017 to January, 2020, waiver of late fee applicable on delayed filing of GSTR-1 for the period March to June, 2020 and extended due date for filing GSTR-3B for the month of August, 2020, by taxpayers having turnover upto Rs. 5 crore (1st October for taxpayers having principal place of business in Southern and Western regions and 3rd October for others).
Understanding and keeping track of due dates in GST regime is one of the greatest challenges for all stakeholders. These days, a benevolent measure has been issuance of circular by CBIC to explain the changes. In the present round also, CBIC has issued Circular No. 141/11/2020-GST dated 24-6-2020 providing clarification on some of these changes along with illustration.
In addition to such circular, a line on effect of the amendments can be included at the end of the notification itself. Such practice is adopted by DGFT and it can be followed by CBIC as well. This will provide some guidance to taxpayers as otherwise one has to trace the parent notification and read multiple amending notifications together in trying to comprehend the implications of such amendments.
Procurements from unregistered persons - Form for payment of tax by developers
In April, 2019, new regime with reduced rates of tax without ITC was implemented for residential realty sector. Considering the sub-regime carved out for this sector, a separate notification would have reduced the pain in understanding the rates and conditions. But the parent Notification No. 11/2017-Central Tax was amended by inserting host of entries only to make the notification extremely unwieldy. As part of these changes, to push the sector into procuring inputs and input services from registered suppliers, minimum threshold of 80% was prescribed. If value of such purchases from registered suppliers go below such limit, to the extent value of shortfall, the purchasing promoter / developer is required to pay tax under reverse charge mechanism. This is reckoned on financial year basis and for FY 2019-20, such tax is payable by 30th June, 2020.
CBIC has now issued Instruction No. 3/2/2020-GST dated 24-6-2020 to state that Form DRC-03 may be used for payment of tax by promoters / developers. Such clarification comes more than one year after the condition was notified. It seems both the taxpayers and the tax administration become more active when last date approaches.
Anti-profiteering - Huge demands without clear rules
One of the controversial provisions in GST law pertains to anti-profiteering. Section 171 of CGST Act on anti-profiteering is frugal but the liabilities fastened on companies held as profiteered are astronomical. The orders passed by National Anti-Profiteering Authority (NAA) generally follow a pattern in so far as findings are concerned but in certain cases, the findings do not fail to surprise us.
In a recent case [Himalaya Drug Company - 2020-VIL-48-NAA], in the first round, Director General of Anti-Profiteering (DGAP) came out with the figure of Rs. 14.22 crores. The company opted to pay GST instead of reversing input tax credit in respect of promotional items given as free without receipt of any consideration (physician's samples, etc.). The DGAP in his report did not exclude such free supplies while computing profiteered amount on the ground that ITC was not reversed and tax was paid treating them as taxable supplies (value shown in returns, etc.).
NAA remanded the matter to DGAP for fresh investigation to consider CBIC Circular No. 92 clarifying that goods or services provided free of cost should not be considered as supply except those covered under Schedule - I of CGST Act. When consideration has not been received from the recipients of such free supplies, instead of remanding the matter, the same should have been excluded.
In the second round, DGAP came up with the figure of more than Rs. 27 crores as profiteered. The company argued that loss to the tune of more than Rs. 8 crore loss was suffered during initial months of GST as prices were not revised though effective tax burden post-GST had increased and margins to distributors were kept intact and therefore, when MRP was reduced from 1-12-2017, the company had borne the burden and also absorbed increased production cost, etc. Such arguments have not been accepted.
When credit notes are issued to distributors in respect of stock with pre-revised MRP so that such products can be sold by them at reduced price, effectively, Section 171 stands complied with, to the extent of such reduction. If the same amount is held as profiteered, companies are forced to pay the same amount twice. In such situations, a person not taking any action to pass on the benefit is better off than the person who has taken some positive action to pass on the benefit. One who takes efforts to comply with the law cannot be worse off than the person who deliberately or consciously chooses to be intransigent.
One of the arguments advanced before NAA pertains to increase in cost of production and overheads but price was not increased. In this case, GST implementation and tax consultant's cost has been estimated at Rs. 5.49 crores. GST Council may have to take note of the same. If the new tax regime is simple as claimed, then companies need not incur such a huge expenditure.
NAA notes that the methodology adopted by DGAP in comparing average pre rate reduction base price with average post rate reduction base price was not in consonance with the methodology approved by it. According to it, average prices of pre-rate reduction period should be compared with actual prices post rate reduction. A slight variation in such method has significant impact on the numbers involved and resultant amount held as profiteering. The industry has been demanding prescription of methodology but it seems, it could not make it to the agenda of the GST Council.
In this case, the NAA has directed DGAP to re-investigate again and this will be the third round of investigation. This raises the question - Was it not possible to note issues not considered by DGAP at the time of directing re-investigation for the first time? Even in the present order, there are no directions or observations on credit notes for which benefit has been claimed by the company.
Rule 133(4) of CGST Rules empowers the NAA to direct DGAP to further investigate but is silent on how many times such directions for investigations can be given. It appears that the time-limit in such cases does not get extended since NAA is statutorily required to pass order within six months from the date of receipt of report from DGAP. Only in cases of investigation into goods or services which are not covered initially, Rule 133(5)(b) confers the tag of "new investigation" thus providing fresh timelines.
Grey areas outnumber even the amount held as profiteered but companies have to wait before Delhi High Court comes out with authoritative pronouncement in writ petitions pending before it.
Money can be goods - ITC on cash vans available
Section 17(5) of CGST Act is a restrictive provision listing the goods, services and situations where input tax credit (ITC) will not be available. The exceptions carved out include motor vehicles used for transportation of goods as otherwise such vehicles are in the prohibited lane for credit.
Cash vans are routinely used to replenish ATMs. Ruling on admissibility of ITC on such cash vans, the Authority for Advance Rulings (AAR) answered the question against the applicant. The Appellate AAR also upheld such ruling. Appeal against such appellate advance ruling has not been provided in law. The matter was carried to Bombay High Court by the company by filing writ petition and the Court directed that Appellate AAR to consider the issue again. This was on the ground that the submissions of the company were not considered.
The department had contended that Section 2(52) of CGST Act defining "goods" excludes money and therefore, transportation of money is not transportation of goods and therefore, ITC on such cash vans should not be allowed. However, the Appellate AAR, in the second round, concluded that ITC on such vehicles will be available to the applicant as money is "goods" for such company providing cash management services [In CMS Info Systems Ltd. - 2020-VIL-37-AAAR].
Reliance placed on definition of "money" as provided in Section 2(75) was accepted to hold that in this case, money is not used as consideration to settle any obligation. The service provider does not and cannot use money as legal tender and the currency is simply transported in terms of the contract between the service provider and the bank.
Though not cited in these proceedings, it is settled law that money (cash) is treated as stock-in-trade for banking company [CIT v. Nainital Bank Ltd. - [1965] 55 ITR 707 (SC), relying on a decision of Privy Council]. Therefore, treatment of money as goods is dependent on the person handling currency.
Advance rulings are generally perceived as silent on various arguments advanced by applicants. If the ruling is non-speaking, then, to this extent, decision-making process gets vitiated. In such circumstances, judicial review of the ruling by the High Court in exercise of writ jurisdiction becomes an important remedy for the applicants.
(The author is an Advocate practising independently. The views expressed are personal)