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GST - Proposed Amendments - Union Cabinet 'mends' to aid MSMEs

TIOL - COB( WEB) - 619
AUGUST 09, 2018

By Shailendra Kumar, Founder Editor

THE gap between the 28 th and the 29 th GST Council meetings was less than 15 days, and the same produced widespread perception that the Interim Finance Minister, Mr Piyush Goyal, had efficiently managed to push the GST Council in the top gear for rates rationalisation and procedural simplification. Such a perception was seemingly not based on conjectures and surmises. Mr Goyal had indeed produced tangible results at the 28th meeting. But it seems his quick-success-appetite was not well-appreciated by many State Finance Ministers of different political hues. What was also perhaps detested was Mr Goyal's non-conventional mannersim to build consensus among some of the like-minded State Finance Ministers at a breakfast meeting. Although there was nothing wrong about such informal tete-a-tete for some concrete results (that is another issue that one of the States asked for tariff reduction for breakfast cereal but not yet granted) but some of the States-in-minority eyed it as a 'bulldozing tactic' to push through proposals at the Council.

So, when the Council meeting took off on a good note to design a special push for the MSME sector, particularly the small and micro component, which is reported to have suffered serious setbacks in terms of growth, some of the suggestions coming from all those Finance Ministers who had cereals for breakfast in the morning prior to the Council's meeting, were 'studied' with a pinch of salt. Even before a debate could ensue, one of the suspicion-gripped Finance Ministers intelligently unfolded his demand, and that was a tax relief for the Cement sector! Such a demand was no less than a 'bomb'! It stunned all present in the meeting, for the obvious reasons that cement hugely contributes to the revenue kitty and no Govt can afford to extend any tax relief at the stage where revenue shortfall has been showing tell-tale signs of stubbornness! Whether it was indeed a serious demand or just a ploy to silence other minor demands coming up from the various quarters, is not known but it did turn the course of the debate.

Whatever it was, but it changed the currents of the discussion and the Council could develop consensus only for setting up a fresh Group of Ministers (GoM) to study and then recommend sensible measures to perk up growth in the MSME sector. The only notable exception was the incentive package to digital payments. Though it is likely to cost a little over Rs 900 Crore during the current fiscal but the general view was that a pilot should first be run, and based on the ease of implementation platform, it may be offered to the States to voluntarily join such a scheme.

No doubt, no-decision meeting came as a dampener for most of the MSME units but it was not so. The Union of India had culled out huge data and demands from such units and associations across the country. All the States had also sent their own inputs. Though the data was available but there was not enough time to structure the data under concrete heads and study all possible measures with the resultant revenue implications. And that is why it was sensible for the Council to refer the issue to a GoM which has the representation of all political hues and its members are very down to earth politicians. The GoM will have adequate time to examine all possible recommendations before it tables its report before the next Council's meeting in Goa.

Some of the suggestions which were received are - Returns & payments may be made quarterly for small units; composition scheme may accommodate all service providers upto Rs 50 lakhs; Audit under the Income Tax Act may be deemed accepted under the GST; Inverted duty structure may be streamlined; refund week for MSMEs; refund within 30 days; budgetary support may be extended to units upto certain turnover; uniform regime for jobworkers; exemption to jobworkers from e-Way bills; onus on suppliers to fill up Part A & B of e-Way Bill; one-time waiver from late fee and penalties in case of late return-filing; one-time settlement of legacy cases; payment option through all banks; further simplification of the compliance matrix and duty relief on unbranded and branded items of mass consumption. These are only indicative demands as the list runs into three-digit.

Now the GoM is expected to draw the boundary lines on the GST canvas as many experts believe that the extraordinary step to aid MSME sector need not be in the form of only cash or refund. It can even be in the form of credit so that ITC chain is not broken. Secondly, any package, finally designed, would claim its own pound of flesh and the larger question would be - whether the Centre alone would bear it or the States would also be joining it. Whether such a scheme would be optional for the States or the Council would make it a collective one. It is now to be seen what would be the size of such a package in the background of grim fiscal conditions.

Meanwhile, the Centre yesterday tabled the Bills proposing amendments in the GST laws. They were last week approved by the Union Cabinet. In principle, once the Council has approved certain amendments, finalised hurriedly or otherwise, the Union Cabinet was expected to put its procedural stamp and send the same to the Parliament in the form of bills. But going by the content of the CGST Bill tabled, it appears that the Union Cabinet exercised its own discretion and struck down one of the amendments proposed, relating to REVERSAL of credit without payment of interest. Netizens may visit Sr No 15 of the proposed amendments which intended to insert second proviso in Section 16(2) - "It is proposed to remove the liability to pay interest in case where the recipient has been made liable to pay an amount equal to the ITC availed in case he fails to pay to the supplier of goods or services or both the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier. Since upon payment of the due amount to the supplier, the recipient shall be eligible to avail ITC of the said amount, it is believed that liability to pay interest is too onerous and should be removed." It is learnt that it was vetoed by the Union Cabinet with a rationale and the Council later accepted the Cabinet's view and approved the deletion of the proposed amendment at the last meeting. That is why the presentation of the Bill was delayed. Although it was listed for Tuesday in the Lok Sabha but was finally tabled yesterday.

But why did the Union Cabinet do so? My take is that the Centre later changed its mind or was sensitised by some experts that reversal of credit with interest may be onerous but it would be an efficacious compelling reason for large corporate to clear pending payments of small or medium units. Once the interest part is omitted, a major chunk of payments which is presently made within 180 days, may further be delayed. If so noble is the INTENT, it is equally important for the Union of India to insert a Column in GSTR-2A for making simple declaration relating to all such payments cleared beyond 180 days with interest. Such data may be useful for analysing the effectiveness of this provision and also may act as a 'greasing force' to speed up pending payments before the six months period lapses.

I am sure there are many more innovative ways to do something more concrete for the small and micro units which do make substantial contribution to the GDP, exports kitty and job creation for the growing army of job-seekers. MSMEs do deserve special treatment to further reinforce the equity elements in the new GST regime!

Hopefully, the next GST Council meet scheduled towards the end of September comes up with some concrete positives for the MSMEs before they gear themselves up for the festive season ahead.

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