SEPTEMBER 08, 2018

By Shailesh Sheth, Advocate and Founder of M/s SPS LEGAL

"COME September" and the Central Board of Indirect Taxes & Customs ('Board') has gone into overdrive! The Board has, on September 04, 2018, carried out numerous amendments in the CGST Rules, 2017 ('the Rules') and has also issued a number of Circulars containing the clarifications/instructions on various aspects, namely, scope of principal-agent relationship in the context of Schedule I of the CGST Act, 2017 ('the CGST Act'), recovery of arrears of wrongly availed CENVAT Credit and inadmissible transitional credit, refund related issues, processing of refund applications filed by Canteen Stores Department (CSD) and E-way Bill in case of storing of goods in transporter's godown.

The amendments in the Rules [Eighth amendment in the current calendar year!] are carried out vide Notification No. 39/2018-CT dated 04.09.2018. The amendments, unless otherwise specified, have come into force on September 04, 2018.

In this article, the said amendments in the Rules and the clarifications/instructions issued by the Board vide its various Circulars are briefly explained.

I. Amendments in CGST Rules - Not. No.39/2018-CT dated 04.09.2018:

Significant amendments are made in the CGST Rules vide the subject Notification No. 39/2018-CT (ibid). These amendments are analysed below:

a. Rule 22 - Cancellation of registration - "Taxpayers! redeem thyself!"

Amendment:

In sub-rule (4) of Rule 22, the following proviso is inserted:

"Provided that where the person instead of replying to the notice served under sub-rule (1) for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29, furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST-REG 20.".

The amendment has come into effect from September 04, 2018.

Comments:

Under sub-rule (1) of Rule 22, if the proper officer has reason to believe that the registration of a person is liable to be cancelled under Section 29 of the Act, he can initiate the proceedings for the cancellation of registration by issuing a show cause notice (Form REG GST-17) to the person concerned. Sub-rule (2) provides for the filing of the reply by the Noticee within the specified period (7 working days) in Form REG-18. Sub-rule (4) provides that if the reply is found satisfactory, the proper officer shall drop the proceedings and pass an order in Form GST REG-20.

Under sub-section (2) of Section 29 of the Act, the proper officer is empowered to cancel the registration of a person from a specified date or even retrospectively under certain circumstances. The contraventions specified in clause (b) and clause (c) relate to the non-furnishing of the returns for three consecutive tax periods by a composition taxpayer and the non-furnishing of returns for a continuous period of six months by all registered persons (other than a composition taxpayer). Under either of these situations, the proper officer may proceed to cancel the registration of the person concerned by issuing a notice as provided under Rule 22 of the Rules.

Consequent upon the insertion of the above proviso in sub-rule (4), the defaulting registered person may be able to save himself from the ignominy and severe consequences of the cancellation of his registration. It is now provided that such person, who has been served a notice in terms of Rule 22(1), may, instead of replying to the notice, furnish all the pending returns and make full payment of the tax dues along with applicable interest and late fee whereupon the proper officer shall drop the proceedings for cancellation of registration and pass a suitable order in Form GST REG-20.

While the amendment is welcome, its contours and contents are bit baffling! Firstly, is there really need to prescribe the non-filing of reply in the nature of pre-condition for the defaulter who wishes to come clean and discharge his past liabilities as also furnish the returns for the past period? Obviously, a person, even while filing a reply to the notice issued to him under Rule 22(1), can and ought to be allowed to settle his dues and furnish the returns so as to save his registration. In fact, his reply to the notice itself can declare his intention to do so. If a person furnishes his explanations, through his reply, in respect of the contraventions alleged against him, can that fact by itself debar him from settling the matter in terms of the proviso inserted as above? Secondly, sub-rule (1) of Rule 22 provides a rigid time limit of 'seven working days' from the date of service of the notice, for furnishing the reply by the person concerned. Does this mean that even the payment of the tax dues with interest and late fee as well as furnishing of the returns for the past period shall also be completed within a period of seven days from the date of service of the notice if the person wishes to avail the benefit of the proviso? This is a crucial aspect as in all probabilities, the departmental authorities would insist upon the adherence to the time limit of 'seven working days' for the payment of the past dues as well as furnishing of the returns by the defaulting registered person as well. It is sincerely hoped that the Board would issue suitable instructions in this regard.

b. Rule 36 - Deficient tax invoices - "Relief from the past re-appear….!"

Amendment:

In sub-rule (2) of Rule 36, the following proviso has been inserted:

"Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-state supply, input tax credit may be availed by such registered person."

The amendment has come into effect from September 04, 2018.

Comments:

GST, as an indirect tax policy intended to mitigate the cascade of tax, operates through 'invoice credit method'. Therefore, invoice is a central document around which the implementation of the policy revolves. Elaborate provisions are, therefore, made in the law in so far as the issue and contents of the invoice and the availment of input tax credit (ITC) thereon are concerned. Clause (a) of sub-section (2) of Section 16 of the CGST Act mandates the availability of the tax invoice or debit note or any other prescribed document with the registered person as a pre-condition for availing the ITC. Section 31(1) of the CGST Act, inter alia, provides that the tax invoice shall contain the description, quantity and value of goods, the tax charged thereon and other prescribed particulars. Rule 46 of the CGST Rules provides the particulars to be contained in the tax invoice issued by a registered person.

The denial of Cenvat Credit on the ground of deficient invoices has always been a subject matter of dispute in the erstwhile Cenvat Credit regime. Whereas, the judicial pronouncements have been by and large consistent that any minor defects in the invoices cannot be a ground for the denial of substantial benefit of Cenvat Credit, the disputes have been never-ending. Sub-rule (2) of Rule 9 of the erstwhile Cenvat Credit Rules, 2004, as substituted w.e.f. 01.03.2007 vide Notification No. 10/2007-CE (NT) dated 01.03.2007, emphatically provided that no Cenvat Credit shall be taken unless all the prescribed particulars are contained in the relevant documents on the basis of which Cenvat Credit is being claimed. The proviso to sub-rule (2), however, diluted the vigour of this condition prescribed. It was provided vide the proviso that even if a document did not contain all the particulars but if contained the following particulars, the Deputy/Assistant Commissioner of Central Excise may allow the Cenvat Credit if he was satisfied that the goods or services covered by the document have been received and accounted for in the books of account of the receiver:

a. Duty or service tax payable

b. Description of the goods or taxable service

c. Assessable value

d. Central Excise or service tax registration No. of the person issuing the invoice

e. Name and address of the factory or warehouse or premises of the first or second stage dealer or provider of output service

Thus, even in case of the deficient invoice, the Cenvat Credit was allowed provided it contained the minimum prescribed particulars and the divisional authority was satisfied about the receipt of the goods or services covered by the invoice and its accounting by the recipient.

However, neither the CGST Act nor the CGST Rules, till now, provided any such relaxations in the matter of the particulars to be contained in the tax invoice. Viewed against these statutory provisions, it can be said that any deficiency in the tax invoice may render the invoice invalid for the purpose of availment of ITC. Now, with the insertion of the above proviso in sub-rule (2) of Rule 36, the mandate of the prescribed particulars in the tax invoice is diluted. It is provided that even if the tax invoice does not contain all the specified particulars but contains the following details, the ITC shall be available to the registered person:

a. Details of the amount of tax charged;

b. Description of goods or services;

c. Total value of supply of goods or services or both;

d. GSTIN of the supplier and recipient; and

e. Place of supply in case of Inter-state supply.

As will be observed, the proviso inserted in Rule 36(2) is pari materia the proviso to Rule 9 (2) of the erstwhile CCR referred above. There are, however, two important differences between the erstwhile provisions and the present proviso. One, in case of Cenvat Credit, the availability thereof in case of deficient invoices but containing the minimum prescribed particulars was subject to the satisfaction of the Deputy/Assistant Commissioner of Central Excise about the receipt of the goods or services covered by the document and its accounting in the books of accounts by the recipient. The proviso inserted in Rule 36(2) for the grant of ITC in case of a deficient document, mercifully, does not bring into play the subjective satisfaction of the tax officer about the receipt of goods or services and its accounting by the recipient. Second, in case of the erstwhile provisions, the mention of the central excise/service tax registration no. of the recipient of the goods or services was not prescribed in case of a deficient invoice. However, the proviso under discussion, inter alia, prescribes the mention of the GSTIN of the supplier and recipient as mandatory in case of the deficient invoice. Yet another additional requirement prescribed vide the current proviso is the mention of the place of supply in case of inter-state supply [refer clause (n) of Rule 46 of the CGST Rules]. This requirement can be understood considering the nature of GST which is described as 'destination-based consumption tax' and also the dual GST regime prevalent in the country.

The taxpayers will heave a sigh of relief at the relaxations provided in the matter of the prescribed particulars to be contained in a tax invoice. These are still early days of the GST regime and considering the fact that a large number of new taxpayers have entered the mainstream, the errors in the issue of the tax invoice or other prescribed document cannot be ruled out. At the same time, it must be pointed out that the need to fall upon such relaxing provisions should arise only as an exception and should not become a routine practice! The taxpayers, therefore, need to be extremely vigilant in the matter of issue of the tax invoice and the particulars prescribed therein and ensure that there are no lapses therein.

c. Rule 55 - Transportation of goods without invoice - Scope widened

Sub-rule (5) of Rule 55 of the CGST Rules has been amended so as to insert the words 'or in batches or lots' therein.

The amendment has come into effect from September 04, 2018.

Comments:

Rule 55 of the CGST Rules provides for the transportation of goods without issue of invoice in certain specified circumstances. Sub-rule (5) of Rule 55, inter alia, provides for the manner of the transportation of the goods in a semi knocked down or completely knocked down condition. Now, this facility has been extended in case of the transportation of the goods even in batches or lots.

The amendment will address the practical difficulties being experienced by the taxpayer in transporting the goods in batches or lots against a single order as he will not be required to issue separate invoice batch-wise or lot-wise.

To be continued….

(The views expressed are strictly personal)