SEPTEMBER 18, 2018

By Dr G Gokul Kishore

LET us have a quick recap of the topics discussed in the first two articles in this series. We started with our observation on most of the advance rulings not concurring with the views of taxpayers and indirect price control through anti-profiteering provisions. Refund of input tax credit being subject to more amendments than refunds and supplies between distinct persons causing tremors of cross-charge by HO on units in other States were also discussed. In the second part, certain thoughts were shared on the complicated mechanism of reversal of ITC when capital goods are commonly used for taxable and exempted supplies, unreasonableness of ITC restriction on free samples and denial of transitional credit of cesses. Let us now visit a few more issues which need to be addressed in the second year of GST.

ISD - Bearing the cross of distribution

Section 140(7) of CGST Act is the sole provision dealing with transitional credit in respect of input service distributor (ISD). Initially, there was no column in TRAN-1 form for carrying forward credit lying with ISD as on the date of transition to GST. Later CGST Rules were amended to include the same. For ISDs, there was no concept of migration of registration and registration had to be obtained afresh in GST regime if a person was desirous of acting as ISD. During the initial months of GST, ISD registration was not operational in the GST portal. To add to such teething troubles, the provision cited above was miserly as it hardly provided any guidance. It simply spoke about the situation of services received before 1 st July, 2017 by an ISD and invoices received after such date. It stated that in respect of such services, credit shall be admissible for distribution after this date as if such credit is ITC under CGST Act. Cenvat credit balance having been transitioned and new registration having been taken by ISDs in GST regime, such transitioned credit having been bestowed the status of ITC under GST law, it is logical that ISD under GST will distribute such transitioned credit using new ISD number and new ISD invoices to various GST registrations. But it was an eternal wait for ISD registration to be operational.

ISDs constitute a unique species among registered persons as they do not effectively pay any tax but only serve as channelizing or distribution mechanism when invoices are received by them for services received in different locations. ISD does not avail ITC on his own account as he does not use the inputs. Objections are being raised on transition of Cenvat credit balance by ISDs citing these grounds besides the fact that they do not have an electronic credit ledger but only use GSTR-6 (ISD return) coupled with ISD invoices to distribute credit. Credit is profane for the department and transitional credit is still more blasphemous as GST revenue gets dented.

The provision relating to transitional credit insofar as ISD is concerned should not be so frugal as to visualise only one situation that an ISD will encounter during the transition. ISD being a special category of registered person, the provisions should have been drafted better. At least, rules should have been framed to take care of ISD credit distribution post-GST implementation. It is surprising that ISD being the one of the few mechanisms of service tax regime being retained in GST regime has to undergo such trial by fire. As usual, we only hope that the second year of GST will be used to remedy the issues arising out of poorly drafted provisions.

Returns - A long term project

First year of GST has been eventful insofar as filing of various returns is concerned. The online filing mechanism became a fiasco to the extent that statutory returns like GSTR-2 and GSTR-3 had to be abandoned. Responsiveness to grievances on difficulties faced while filing returns online is not to be confused with system failure as eloquently evidenced by introduction and sustenance of ad hoc GSTR-3B. GSTR-6 is another nightmare for ISDs as data flow from GSTR-1 to GSTR-6 has been erratic. Reports indicate that such data flow has been stopped for now. If half of your purchase invoices are visible in GSTR-2A then you belong to a privileged class of taxpayers under GST. If one were to include due date for filing various returns for various periods by different categories of taxpayers as the final question in a quiz competition, rest assured that none will win!

It was rather ambitious to prescribe so many returns for millions of taxpayers with populous data being auto-populated. Having same due date for most of the returns for majority of taxpayers ensured that the IT system crashed beyond recovery. GST Council is a Constitutional body and it had to deliberate in several meetings on how to remedy the situation spiralling out of control. GSTN officials have gone on record assuring that the new returns will be as simple as income tax returns and it will be unveiled in this second year of GST. Philosophy alone can provide succour in these trying times - bad karma is past us and it is time for good deeds to bear fruit.

E-way bill - Tax administration to work overtime

Learning from the costly lessons in return filing issues, e-way bill system has been introduced with threshold limit. Initially, this system too crashed but the administration was quick to keep it in abeyance and re-introduced it later. If one were to compare the number of press reports on anti-profiteering with e-way bill related stories, it appears e-way bill system is stabilizing. There are reported orders passed by High Courts when zealous revenue officers detain vehicles and seize goods for either want of e-way bill or e-way bill not being in proper format. CBIC, through circulars issued in April and June, 2018 sought to streamline the process of interception of vehicles, detention, release and confiscation of goods. The latest circular issued on 14 th Sep., 2018 further seeks to relax or advise field formations to take a lenient view when minor infractions are noticed. But this circular instructs imposition of penalty of Rs. 1000 for every consignment involving such minor defects in documents. Seeking reports from field formations is one of the time-tested control methods of bureaucracy and this circular also seeks weekly reports on such penalties imposed.

E-way bill system is designed to perform the role of an invisible eye over movement of taxable goods so that evasion is kept under check. Imposing penalty for minor defects in the documents can only be seen as revenue generation exercise. If spelling mistake or one or two digits being mentioned incorrectly is to attract penalty, then policy makers can breathe easy when it comes to revenue collection. Let us hope, second year is devoted to taking the e-way bill system on the tech highway by installing RFID devices in vehicles and making the system less intrusive and more robust.

…to be continued

See: Part -I , Part - II

(The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are personal.)