MARCH 16, 2018

Shailesh Sheth, Advocate and Founder, SPS LEGAL

THE 26th Meeting of the GST Council was held on 10th March 2018 at New Delhi. The Meeting was perceived to be crucial for more than one reason. One, it was being held after a gap of nearly two months since the last meeting held on 18th January 2018. Second, it was to be the first meeting after the presentation of the Union Budget, 2018. Since there was no proposal whatsoever in the Budget on the GST front, the stakeholders were harboring many expectations from the Meeting. Third, an uncertainty was already in the air, particularly when the financial year was nearing an end, over the temporarily suspended Reverse Charge Mechanism in respect of supplies from the unregistered suppliers and its re-introduction, implementation of E-Way Bill regime, work-in-progress on simplification of the Return filing process, etc. Last, but not the least, the Council was expected to announce some concrete measures for the clearance of the badly-stuck refund claims of the exporters across the country as the situation was becoming more and more worrisome by the day!

The meeting was, thus taking place amidst the heightened expectations and apprehensions.

Council's Recommendations - Implementation imbroglio:-

There is no denying that a myriad of statutorily prescribed mandates and the related procedural formalities are proving to be a 'bane' for the smooth implementation of GST regime which otherwise was perceived to be a 'boon' for the Indian economy! Multiple and Complicated Returns, cumbersome Return - filing process, ill-conceived statutory requirements reflecting revenue-oriented, rigid and 'I-don't-trust-you' attitude coupled with hopelessly ill-prepared GSTN Portal have ensured that the GST implementation and the compliances by 'more-than-willing' taxpayers is anything but smooth…! The situation has reached such a passé that the whole system appears to be running on extensions, promises and assurances! The latest recommendations of the Council on certain 'sore points' of the GST implementation process as discernible from its Press Releases only prove this point as we shall see in the ensuing paragraphs.

1. Return filing process - "Search is on for the solution…!"

Council's Recommendations:-

The Council has recommended that the present system of filing of GSTR-3B and GSTR-1 be extended for another 3 months i.e. April, to June, 2018 till the new system is finalized. An assurance is also given that a new model was discussed extensively and Group of Ministers (GOM) on IT has been asked to finalize the same.

Comments:-

The readers are aware that the filing of GSTR-2 (and consequential GSTR-3), considered to be the 'backbone' of much-hyped but equally dreaded Invoice-matching system, has been put on the back burner as the GSTN is found to be simply not geared up for the same. As a result, the taxpayers are asked to file only GSTR-3B and GSTR-1 Returns and the relaxation was to be in force till 31 st March 2018. In the meantime, the GOM on IT was tasked with finding a solution to simplify whole process of Return-filing including the formats and contents of the Returns. It, however, appears that the solution is still eluding the GOM! Under these circumstances, the Council is compelled to recommend the extension of present system of filing of GSTR-3B and GSTR-1 Returns by another 3 months i.e. upto 30th June, 2018. What is, however, interesting is the Council's assurance that 'a new model' was discussed extensively and the GOM on IT has been asked to finalise the same.

Now, what is this 'new model' and how soon will be it finalized? Even as this piece is being written, the headlines have hit all the major newspapers that 'the Government is grappling with nearly Rs.34,000 Crores mop-up puzzle….!' The difference is reportedly based upon the scrutiny of GSTR-3B Returns and its comparison with GSTR-1 Returns for July, 2017 to December, 2017 period as also alleged tax evasion by the importers by resorting to under valuation. The Revenue Officers appear to have pre-concluded that there is a rampant 'tax evasion' under the GST Regime and are reportedly keen to have a return filing system in place that ensures that the tax is paid before the input tax credit is given! Some discussion appears to have taken place on this alternative suggestion but has apparently remained inconclusive.

What is, however, surfacing is that two alternate models viz. 'Invoice-based Credit Model' and 'Tax Payment-based Credit Model' are being debated by the Council. Whereas, the former model is already in vogue effectively, the latter is being seriously proposed by the Revenue Officers who seem to be alarmed with the quantum of perceived tax evasion. However, one can only fervently hope that the Council doesn't succumb to the temptation of any knee-jerk reaction and seriously, dispassionately and pragmatically weigh the pros and cons of the 'Pay now, Credit Later ' model!

Suffice to say that considering the given business scenario, any such embargo, if put into effect, will prove to be the proverbial 'last straw on the camel's back', particularly for the MSME Sector.

The issue of 'New Model' for simplifying Return-filing process also raises many questions. Will the new model be selected before June, 2018? Will it be put to 'dry tests' before it is implemented? Will the taxpayers, in particular, be provided sufficient time and opportunity to get familiarized with the new system? Will we witness a re-run of the fiasco that was seen when the taxpayers were struggling to file GSTR-2 Return?

2. Reverse Charge Mechanism (RCM) - S.9(4) - "Please let it be history…!"

Council's recommendations:-

The implementation of the RCM in respect of the supplies from the unregistered suppliers has been deferred by the Council till 30th June, 2018. It is further assured that the GOM will look into the modalities of its implementation to ensure that no inconvenience is caused to the trade and industry.

Comments:-

Sub-section (4) of S.9 of the Central Goods and Services Tax Act, 2017 ('CGST Act') found its way in an unobtrusive manner in the final version of the legislation that was ultimately enacted. The provision was absent in the 'Draft Model GST Law' released in June, 2016 and also in its revised version issued in November, 2016. The provision providing for the levy of GST under RCM in respect of the supplies obtained by a registered person from the unregistered suppliers did not initially attract the kind of attention it deserved. However, when the provision was actually implemented vide Not. No. 08/2017-CT (Rate) dt. 28.06.2017 effective from 01.07.2017 and the attendant complex formalities became apparent to the taxpayers, it came as a rude shock for them and they were jolted out of their slumber!

No doubt, the blow was sought to be softened a bit by providing an exemption upto Rs. 5000/- per day to a registered person in respect of the intra-state supplies obtained by him from any or all unregistered persons. However, the proviso in the Notification granting this exemption was framed in an extremely rigid and impractical language. In any case, the quantum of exemption was found to be woefully short of expectations and merely cosmetic in nature by the taxpayers who continued to express their strong displeasure against the provision. The demand for its complete withdrawal grew by the day. Finally, the Council, sensing the mood of the agitated minds, relented and at its 22 nd Meeting held on 6th October, 2017 recommended an effective suspension of the operation of the provision of S. 9 (4) of the CGST Act by providing total exemption from payment of tax in respect of taxable supplies obtained by a registered person from an unregistered person. This was accomplished by omitting the 'Proviso' in para 1 of Notification No. 08/2017-CT (Rate) Ibid vide Not. No. 38/2017- CT (R) dated 13.10.2017 (corresponding IGST Not. No. 32/2017-CT (R) dated 13.10.2017 was also simultaneously issued) and effectively granting exemption without any limit to the registered person till 31st March, 2018.

It was, thus, obvious that a Damocles sword was kept hanging over the heads of the taxpayers as the exemption was being made available only upto 31 st March, 2018. Mercifully, the Council has now extended the exemption by another 3 months i.e. upto 30th June, 2018.

It is, indeed, unfortunate that just as this is the case with GSTR-2, the Government also appears to be quite obsessive with the idea of RCM for the supplies from the unregistered suppliers!

The three-fold objective behind this provision seem to be:

- to make a show of not disturbing the small taxpayers by allowing them to avail exemption upto Rs. 20 lakhs without any hindrance;

- to ensure, at the same time, that the revenue is not jeopardized in any manner by putting the burden of tax under RCM on the registered persons obtaining supplies from the unregistered persons; and

- to create a robust and extensive database of the people engaged in taxable supplies (though exempted) through the registered persons subjected to RCM.

Whatever may be the justification for this provision, isn't it highly obnoxious, impractical, cumbersome and dispute-prone? The taxpayers would rather wish that they are relieved of the burden under this provision for good and its painful experience is left behind forever…!

3. TDS/TCS deferred - "Future shock awaits…!"

Council's recommendations:-

The Council has decided to suspend the provisions of S.51 and S. 52 of the CGST Act dealing with 'Tax Deducted at Source (TDS)' and 'Tax Collected at Source (TCS)' respectively, till 30th June, 2018. In the meantime, the modalities of linking State and Central Government accounting system with GSTN will be worked out so that seamless credit is available to the registered traders subjected to such TDS or TCS.

Comments:-

S.51 and S. 52 of the CGST Act dealing with TDS and TCS respectively are two more provisions whose operation are on hold at present. It may be pointed out here that both the above provisions have not at all been implemented as the requisite Notifications in terms thereof notifying its implementation have not been issued till date. Now, the implementation of these provisions is further deferred till 30th June, 2018. However, let us hope that before the provisions are actually implemented, the taxpayers are given sufficient time and opportunity to acclimatize themselves with the process.

4. Grievance Redressal Mechanism - "Lending a sympathetic ear…!"

The Council has tasked the GST Implementation Committee (GIC) with the work of redressing the grievances caused to the taxpayers arising out of IT glitches.

Comments:-

The innumerable, seemingly insurmountable and never-ending IT glitches plaguing the GST implementation process from its inception have rendered the GST regime an extremely frustrating experience for the taxpayers and tax professionals! The situation reached such a nadir that substantial compliance for the desirous taxpayers became difficult only because of technical glitches! The 'Help Desk' of the Government is found to be wanting in handling the flood of queries and problems raised by the taxpayers. It is indeed unfortunate that the helpless taxpayers were forced to knock the doors of the Hon'ble Courts, seeking its intervention in matters, which essentially is an administrative issue.

In one of such well-publicized interim order dated 06.02.2018 passed by the Hon'ble Bombay High Court in the case of Abicor and Binzel Technoworld Pvt. Ltd. vs. UOI - 2018-TIOL-2748-HC-MUM-GST, the Hon'ble Court made the following scathing observation s:

"8. On all these materials, we inquired from Mr. Mishra in the pre­recess and post­recess sessions as to how this Court could redress the grievance of the parties like the petitioner and make the system operational and functional for them. It is not the business of this Court to grant such access as is claimed by the petitioner. It is for the authorities to work out the necessary mechanism and set that in place. It must also set up and establish a grievance redressal mechanism. I t is no answer that such issues, as are projected in the petition, would be taken up before the Goods and Services Tax Council at its next meeting.

9. …… …

10. We do not think that these are satisfactory state of affairs. A tax like Goods and Services Tax was highly publicised and termed as popular. We had yet not seen a celebration of New Tax regime, but that has followed with great hue and cry. These celebrations mean nothing. The special sessions of Parliament or special or extraordinary meetings of Council would mean nothing to the assessees unless they obtain easy access to the website and portals. The regime is not tax friendly. We hope and trust that those in charge of implementation and administration of this law will at least now wake up and put in place the requisite mechanism. This is necessary to preserve the image, prestige and reputation of this country, particularly when we are inviting and welcoming foreign investment in the State and the country. We hope and trust that such petitions are rarity and the Court will not be called upon to administer the implementation of the law, leave alone monitoring and supervising the working of the individual officials, howsoever high ranking he may be."

(Emphasis provided)

It appears that the Council is forced to take due note of the above stinging observations of the Hon'ble Court and the recommendations for the setting up of a 'Grievance Redressal Mechanism' is apparently a direct fall-out of these observations.

It is, however, felt that the IT glitches facing the system are not likely to be sorted out any time soon. At the same time, new system-related problems are likely to surface at regular intervals. It is, therefore, essential that while all such technical bottlenecks are being removed, the taxpayers are advised and allowed to take recourse to manual filing of Returns, etc. if required, and the field officers are also sensitized about the need for guiding the taxpayer in such situations.

Notably, the days of hand holding have not really begun and it would be unfair to say that they are over!

(To be concluded…)