DECEMBER 24, 2018

By Dr G Gokul Kishore

IN the first article in this series, we highlighted the need for centralized authority at the appellate level for advance rulings to resolve the divergence in the stand taken by various State-level Authority for Advance Rulings. The 31 st Meeting of GST Council held on 22 nd December, 2018 has, in principle, accorded approval for legislative amendment to this effect. We, therefore, retain our confidence and continue our discussions in this 17 th part on the pending agenda.

Normal period for demand is abnormal

We are often told that time and tide wait for none. An exception to this has been carved out in the GST law. The ‘normal period' waits for three whole years for the tax officer to peruse, understand records and invoke his powers to protect revenue. In this part, let us spend some time analysing the rationale of such provision.

Limitation in a tax statute acts as a guarantee to the taxpayer that his tax obligations will not be open ended forever. The department is required to act within the prescribed time limit if it seeks to question the self-assessment of the taxpayer and raise any consequential demand for non-payment or short-payment of tax. As per Section 73 of CGST Act, the time limit prescribed for passing an adjudication order in respect of show cause notice(s) (SCN) wherein suppression of facts is not alleged, is three years from the end of due date for filing annual return. The time limit for issuance of SCN is three months less than the time limit prescribed for passing order. As the provision reckons the starting date as end of due date for furnishing annual return, effectively, the department gets 33 months for issuance of normal period SCN. However, if time limit is reckoned on financial year basis, then the department has 42 months to issue a normal period SCN from the end of a particular financial year.

In the Central Excise regime, when all records were maintained in physical form and returns were filed manually, the time limit for such normal period demand notices used to be six months which later became one year and beyond in subsequent amendments. But in the system-driven tax regime of GST, such time limit is a good three plus years. One of the major pillars of GST as a progressive tax system, is elimination of manual intervention and implementation of e-governance solutions enabling the taxpayers to derive maximum benefit of information technology. The departmental officers have been provided interface to view the electronic credit ledger, cash ledger and tax payment details of taxpayers. As the entire administration is electronic or system based, we can presume that officers can access information filed by taxpayers on real-time basis or near real-time basis. If the department can access details furnished by taxpayers using their interface and when the system-based GST regime provides invoice-wise details of outward supplies (GSTR-1), then the obvious question will be why should the normal period for issuance of notice for recovery of tax not paid or short paid be almost three full years and why it cannot be just three or six months at the most.

One may argue that till the time annual return is filed, reconciliation at the end of taxpayer itself is not complete and, therefore, the countdown i.e. start date as provided in the statute i.e. due date for filing annual return, is correct. Another argument could be corrections allowed by way of reporting credit notes / debit notes till September of the following financial year. Monthly return (GSTR-3B) is the basis which coupled with GSTR-1 and ITC ledger details should assist the department in scrutiny and coming up with demand notices. Annual return, to a greater extent, being a consolidation of monthly returns, need not be the factor for determining relevant date for issuance of SCN. In central excise era, it was the date of filing or due date for filing monthly return which was considered as relevant date for computation of such time limit for issuance of SCNs.

To be taxpayer friendly, it is not sufficient to change the mode of filing returns or furnishing information from manual to electronic. The uncertainty that shrouds businesses as to the possibility of any tax demand at a distant date which stretches to more than three years cannot certainly be a taxpayer friendly aspect of such an advanced tax regime. We can only hope that the CBIC will take note of the patent contradiction between the policy objectives and the way provisions have been drafted so that second year of GST is used to reduce the time-limit for issuance of normal period SCNs.

Interest liability on cash payment of tax

The GST Council in its meeting held on 22 nd December, 2018 has given the nod for legislative change to amend Section 50 of CGST Act to the effect that interest will be charged only on the net tax liability after taking into account admissible input tax credit. The official press release further clarifies that interest would apply on the amount (tax) payable through cash. This appears to be a taxpayer friendly move. As long as balance equivalent to differential tax payable is available in the ITC ledger, as and when such tax is paid, interest will not be payable presumably because such amount was tax paid at an earlier stage at the time of purchase but lying unutilized to such extent. Public revenue is not impacted so long as such credit amount is not utilized. This substantiates the view that interest under Section 50 is compensatory in nature and since the exchequer is not prejudicially affected, the same is not payable. If delay in payment of tax not paid or short paid is to be penalised, then interest may be required. This issue is mentioned in this part with a hope that the amendment is well-drafted and implemented in this second year with retrospective effect from 1 st July, 2017.

(...To be continued)

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

See Part XVI