GST heading for Avalanche of Litigation!
TIOL - COB( WEB) - 578
NOVEMBER 02, 2017
By Shailendra Kumar, Founder Editor
FOR the historic GST it is return-filing season. And, going by a large, unbroken chain of technical glitches, not only preventing taxpayers from filing their returns but also demotivating and convincing them about the poor design of the business processes, it may also be called a still-born or a premature baby. The two facts which emerge from the prevailing hopeless situation, are - one, the taxpayers' community is getting frustrated with the mechanism prescribed to file returns; and two, the law makers are certainly not coy about demonstrating a shade of dogma in favour of the faultline-triggering business processes. October 31 was the original deadline for filing GSTR-2. As against 48 lakh GSTR-1 filed for the month of July, only about 20 lakh GSTR-2 could be filed by October 31, including a good number of erroneous returns as taxpayers and half-educated professionals did not know what to do. More than 45 Crore sale invoices have been uploaded and they are to be matched with the purchase invoices to allow credit. The GSTN software did work but only to frustrate the return filers! The GSTR-2 is indeed a very complicated return demanding multiple hours to fill one return with multiple mistakes as clarity eludes most taxpayers. Secondly, it threw too many errors. And the Government has simply extended the due date to November 30, 2017. The GIC and the GST Council continue to put their faith behind the GSTR-2 and invoice matching matrix to plug possible misuse of ITC.
There is nothing wrong about the INTENT of the law makers but what is wrong is that their obduracy to do invoice-matching right in the beginning of a new tax reform is evidently killing the attractiveness or the veneer of GST being a simple tax system. At this stage when the economy has decelerated and the size of the industry's working capital has shrunk, doing anything which may result in artificial or wrongful blockage of input credit may trigger another round of hullabaloo in the economy. And each round of such commotion may have adverse impact on foreign investment for which the Prime Minister has indeed worked hard by selling India as the most attractive destination. Even a quantum jump in the Ease of Doing Business index may not attract many investors on this count alone.
Secondly, what may trigger a spurt in litigation against GST is the implication of the recent Delhi High Court decision in the case of DVAT. In the case of In Quest Merchandising India Pvt Ltd (2017-TIOL-2251-HC-DEL-VAT ), the Delhi VAT authorities had denied ITC to purchasers for the failure of the registered sellers of goods to deposit tax for certain reasons. While deciding this case the Delhi HC has ruled that the remedy for the Department would be to proceed against the defaulting selling dealer to recover the tax and not to deny ITC to the purchasing dealer. Relying on the Apex Court decision in the case of Corporation Bank (2008-TIOL-258-SC-CT), the HC further noted that the selling dealer collects tax as an agent of the Government. Therefore, the bona fide buyer cannot be put in jeopardy when he has done all the law requires him to do so. The purchasing dealer has no means to ascertain and secure compliance by the selling dealer.
The ratio of this decision clearly applies to the scenarios emerging in the case of GSTR-2 where a good number of taxpayers have found that although they have paid tax to the suppliers but the suppliers have not deposited the same. But this is what the GSTR-2 intends to achieve - a successful matching of purchasers' input credit invoice with the suppliers' sale invoice before the ITC is allowed. The fact that the purchasers cannot exercise any shade of control over the behaviour of the suppliers who may decide to upload certain invoices in subsequent months for reasons best known to them or one may not even deposit tax and upload invoice, in such a scenario, for no fault of the purchaser, the ITC is going to be blocked. This does not happen anywhere in the world. Conceptually, such an idea to safeguard the interest of the Exchequer is fine but certainly not at the cost of those who have paid taxes and complied with the procedures. Punishing them by blocking their ITC may not go long way in earning trust for the GST laws. The new tax reform must flourish on the foundation of justice and fairness. Denying credit for no fault of the purchasers is certainly not going to be taken kindly even by the judiciary. My live fear is that once the judiciary is activated on this issue, it may strike it down as there cannot be a procedure or law which may force one to do something which is impossible to do. YES, such process may be made legally sustainable only if some method is found to enable purchasers to exercise control over the suppliers. As rightly held by the various courts, when a purchaser pays taxes to supplier, the latter collects the same on behalf of the Government and it then becomes the responsibility of the Government to ensure that the persons collecting such taxes deposit the same in the government account. And if the supplier fails to do so, the purchaser can simply not be punished for other's offences.
This brings us to another issue which may trigger an avalanche of tax litigation. And it is the lack of coordination between the CGST and SGST officials across the country. Based on the GST Council's recommendations, the Union of India issues amending Notifications and clarifications on a particular date but the SGST officials tend to be tardy and issue the same on a date which creates a baffling gap between the two dates. Now the issue is - when every intra-State transaction is subjected to CGST and SGST levies, how such an aberration is to be interpreted if a taxpayer decides to challenge the 'lazy notifications' issued by the States. This is more serious particularly in the case of tariff notifications. Any time gap means a serious hiatus in the taxing laws which means no tax can be collected without the authority of law for the period of time gap. My fear is that the day some taxpayers find time away from the regular return-filing, a few writ petitions are going to be filed before different High Courts on this issue. One latest example is - the RCM postponement notification was issued on October 13 by the CGST authorities, after the GST Council recommended it on October 6, but some States did it on 14th October. Some States are yet to formally issue it. Only easy solution for the States would be to notify the CGST Notifications as deemed to apply to SGST as well. By a legal fiction it can be done and it would make the life of taxpayers much easier rather than doing constant follow-up with each SGST authority.
The RCM example raises yet another issue - Shouldn't tax authorities take into consideration the convenience costs of the taxpayers? Had they planned it a bit better the notification should have come into effect from October 1, 2017 so that taxpayers were not required to keep two different accounts - one with RCM invoices and another without it. Come November and all taxpayers which have issued RCM invoices would have to again struggle with the GSTN and I am sure the GSTN has not taken into account such a battle gathering incremental storm in the weeks ahead.
When we talk about the RCM under Section 9(4), the issue of double taxation has also cropped up. Given the fact that a good number of industries have been including the GST in their MRP tags and if tax is to be paid again under Sec 9(4) if they are purchased from unregistered suppliers, it amounts to double taxation. It leads to cascading of taxes. It appears that such cascading of taxes was perhaps not the INTENT of the law makers but it seems to have escaped the 'eyeballs' of their thinking mind. They indeed need to find a solution to this issue which may haunt taxpayers in the coming months.
Let's now visit yet another burning issue which is likely to see serious litigation - the Budgetary Support Scheme of the DIPP which has been issued as a 'measure of goodwill' in lieu of the Central Excise Exemption granted to certain States. Though the State of Jammu & Kashmir has decided to notify the remaining 42% refund benefit as against 58% promised by the Centre but it is obvious that all the States may not come forward so soon. The legal issue that has come up in this background is the invocation of Doctrine of Promissory Estoppel. Many legal pundits believe that what has been announced by the Centre is evidently unfair and not a shade of what was promised and announced when the industry was encouraged to set up plants in the exempted hilly States. Refund of tax paid in cash is not being seen as an incentive or commensurate subsidy for what the industry was getting earlier. A good number of taxpayers are contemplating filing writ petitions before the High Court and it does not bode well for a baby tax which is unfortunately already caught in the eye of a technical hurricane which threatens to puncture the trust of the taxpayers in the collective ability of the Central and State Finance Ministers to roll out a simple and good tax! Let's hope the GST Council at its next meeting would do something more to earn back the trust of the taxpayers and the GSTN's vendor Infosys would match the Council's trust in its IT prowess to bring the IT-enabled business process back on rail!