SEPTEMBER 26, 2018

By Vijay Kumar

If there is a reduction in GST, price has to be reduced. What happens if the tax is increased?

SECTION 171(1) of the GST Act reads as:

171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

The law is that if you get any tax benefit, it has to be passed on to the recipient of supply. What happens if you get a loss consequent to an imposition or increase in tax?

Take the following case, which is not a hypothetical example. Prior to 1.7.2017, when there was no GST, a supplier entered into a contract with a State Government Department for certain irrigation works, part of which was completed and the later part is continuing. The total VAT/ST liability at that time was 3.5% which the government department used to deduct from the bills submitted by the supplier. The contract had a clause that the rates quoted by the supplier were inclusive of all taxes. Come July 2017 and GST and this supplier was saddled with a GST liability of 18% which was later reduced to 12%. The supplier requested the government department to reimburse the additional burden. The Government Department refused stating that the contract did not provide for this. Is it legal? Is it fair? If a benefit of tax reduction is to be passed on to the buyer, is the bane of imposition or increase to be absorbed by the supplier? Isn't the recipient of service or goods liable to pay the difference? Can the Government which imposed the GST refuse to pay it in its role as a recipient of service?

Last week, the Central Electricity Regulatory Commission (CERC) passed an order on a similar issue. The Power Purchase Agreements (PPAs) had a clause for ‘relief for change in law'. Certain power generating companies approached the CERC with a plea for relief on the ground that imposition of GST was an event under "Change in Law".

The Commission held in its order dated 19th of September, 2018 that:

1.  The enactment of "GST laws" is covered as "Change in Law" under Article 12 of the PPA.

2.  The relief for "Change in Law" is allowed as a separate element on one time basis in a time bound manner.

That solves the problem for these generating companies, but what about other sectors where the government itself does not want to reimburse the additional burden of GST?

Also see - 2018-TIOL-1843-HC-DEL-ST dealing with Service Tax matter and involving an almost similar situation.

GST - Gross Chaos on account of quick changes;

In a judgement, last week, - 2018-TIOL-2868-HC-ALL-GST the Allahabad High Court observed,

1.  It appears that for the field authorities there was a gross chaos on account of quick changes in relevant provisions, hence, authorities concerned could not appreciate, what provision is supposed to be followed by concerned person and what is actual default, if any, which has been committed by such person. 

2.  It appears that legislative changes were made in such a quick succession that field authorities could not track themselves with such changes and, hence, adhered to compliance of provisions which stood already substituted by new provisions and earlier ones had become otiose.

3.  Petitioners, when goods in transit were intercepted and impugned orders were issued, met an unauthorized act and suffered illegal order.

Ignorantia legis neminem excusat - this means "ignorance of the law excuses no one." This maxim is not applicable to tax officers. For their ignorance of law, the assessees can suffer, but they can happily sail to the next case. Why can't the government make its officers learn the laws, before they ransack the field with their powers of search and seizure?

Incidentally, the High Court in the above order also observed, "Officers of State are also competent for search, seizure and imposition of penalty in respect of violation of Central Enactments. Moreover, provisions relating to search and seizure are not for the purpose of imposition of a new liability but to regulate fiscal statutory provisions in order to avoid evasion of tax." In Advantage India Logistics  case - 2018-TIOL-126-HC-MP-GST, the Madhya Pradesh High Court had also observed, "we are of the view that officers appointed under the MPGST Act are authorized to be proper officers for the purpose of IGST."

GST Dues in instalments?

Can GST dues be paid in instalments? This was the question before the Gujarat High Court last week.

Petitioner had to pay GST dues of Rs.3.85 crores (rounded off), for which, due to its financial difficulties, the petitioner has applied to the authority for instalments. Such request came to be turned down by the impugned order dated 30.08.2018 without assigning reasons.

The Counsel for the petitioner submitted that the departmental circular permits the authority in exercise of its discretion to grant suitable instalments when financial hardship is made out.

On the condition that before 17.10.2018, the petitioner deposits 20% of the outstanding amount and further continues to deposit 5% thereof between 1st and 5th of every month thereafter until any other order is passed, the High Court stayed coercive recoveries of the dues. - 2018-TIOL-125-HC-AHM-GST

What is the Law? As per Section 80 of CGST Act,

On an application filed by a taxable person, the Commissioner may, for reasons to be recorded in writing, extend the time for payment or allow payment of any amount due under this Act, other than the amount due as per the liability self-assessed in any return, by such person in monthly instalments not exceeding twenty four, subject to payment of interest under section 50 and subject to such conditions and limitations as may be prescribed:

Provided that where there is default in payment of any one instalment on its due date, the whole outstanding balance payable on such date shall become due and payable forthwith and shall, without any further notice being served on the person, be liable for recovery .

Rule 158 of the CGST Rules prescribes:

158. Payment of tax and other amounts in instalments. - (1) On an application filed electronically by a taxable person, in FORM GST DRC- 20, seeking extension of time for the payment of taxes or any amount due under the Act or for allowing payment of such taxes or amount in instalments in accordance with the provisions of section 80, the Commissioner shall call for a report from the jurisdictional officer about the financial ability of the taxable person to pay the said amount.

(2) Upon consideration of the request of the taxable person and the report of the jurisdictional officer, the Commissioner may issue an order in FORM GST DRC- 21 allowing the taxable person further time to make payment and/or to pay the amount in such monthly instalments, not exceeding twenty-four, as he may deem fit.

(3) The facility referred to in sub-rule (2) shall not be allowed where-

(a) the taxable person has already defaulted on the payment of any amount under the Act or the Integrated Goods and Services Tax Act, 2017 or the Union Territory Goods and Services Tax Act, 2017 or any of the State Goods and Services Tax Act, 2017, for which the recovery process is on;

(b) the taxable person has not been allowed to make payment in instalments in the preceding financial year under the Act or the Integrated Goods and Services Tax Act, 2017 or the Union Territory Goods and Services Tax Act, 2017 or any of the State Goods and Services Tax Act, 2017;

(c) the amount for which instalment facility is sought is less than twenty-five thousand rupees.

So, there is a facility to allow payment in instalments. Can the Commissioner reject the request to pay in instalments? Maybe he can - after all he is the Commissioner and his logic would be, "if I can allow the facility, I can as well reject it." But can he reject it without assigning any reason? Is the discretion that he has, beyond reason? Why should a Commissioner reject a plea to be allowed to pay the tax dues in instalments? If he is interested in getting some revenue for the government, he should gladly allow the instalment facility. Any way he would also get interest for the delayed payment. If this is not allowed, he may lose the entire amount. Any prudent Commissioner would gladly accept the proposal. But then government officers are not in the business of getting money for the government - they are there to implement the laws - as they understand or misunderstand.