JANUARY 01, 2019

By Dr G Gokul Kishore

WE begin this 18th part extending our wishes to taxpayers for a new year with lesser disputes, to tax administration for more revenues and to practitioners for finer interpretation of law leading to more work. Operationalising exemption through refund route and pushing taxpayers to High Court for routine compliance issues are proposed to be discussed in this part.

Free food may be tax-free but not procedure-free

One of the fundamental principles of GST system, as implemented now, is to have wider base of taxpayers. This is achieved by fixing threshold exemption at a lower level and secondly by providing least number of exemptions. In the Central Excise regime, exemptions used to be end-use based, area-based, conditional, absolute, partial or full, etc., with multiple notifications having multitude of entries and the socio-economic objectives sought to be achieved by the political establishment bore an indelible impact on tax exemptions and incentives. GST believes in pruning exemptions and, therefore, where certain objectives need to be achieved using tax policy and tax rate, the same is alternatively routed through refunds. Instead of upfront exemption, the otherwise target section is required to pay tax first and then claim the same as refund so that the economic activity gets reported and the tax administration can leverage on access to such business transactions.

Budgetary support scheme implemented to replace area-based exemption prevalent under excise and refund to UN agencies and international organizations are two prominent exemptions operationalised through refund in GST regime. This family has a new member now. Religious and charitable institutions engaged in distribution of free food to devotees in temples, gurdwaras and such other religious places have been granted exemption in respect of purchase of specified raw materials which are used to prepare such free food. The exemption is operated by way of refund of CGST and Centre's portion of IGST. It appears State Governments will provide refund of their portion of GST as well.

The above reimbursement scheme, notified by Ministry of Culture, has been explained and procedures to obtain refund have been reiterated by CBIC by Circular No. 75 dated 27th December, 2018. We do not intend to discuss the scheme per se. One of the interesting aspects is that such refund will be available on first-come first-serve basis. This means, refund will be granted as long as the budget for a particular year is not exceeded. If the same is exhausted, then the claim will be kept pending and circular does not go any further. The procedures prescribed are really onerous. One has to wade through multiple departments. First, the institution is required to register with NITI Aayog, then obtain unique enrolment number from Ministry of Culture and then get unique identity number from nodal officer (GST). Submission of self-attested copies of all purchase invoices (with UIN of the institution) and CA's certificate vouching for quantity, price, tax, etc., and refund claimed not being more than prescribed limit, etc., are required to be submitted. To be eligible, the institution must have been in existence for at least three years, should distribute free food to at least 5000 people in a month and should be an incorporated / registered body. The 'beneficiary institution' should also submit performance-cum-achievement report on annual basis which will provide information like number of persons served with free food and also 12 photographs taken on monthly basis to prove such free distribution.

The exhaustiveness of the procedures is certain to leave the institution speechless and look up to the heavens. The extent of control that the bureaucracy wishes to exercise is proportionate to the suspicion that the administration has on misuse of such scheme. We are not recommending any alternative at this juncture, rather we express the wish that such schemes need to be made lot more simpler. Prescribing various forms should first cease as a form is the first tool of harassment in the hands of administration. Let second year of GST be used to brainstorm how such refund schemes can be made less complicated.

Writ Courts for routine compliances

The spate of writ petitions witnessed in the past 18 months of GST raises a very important question - Are the Constitutional Writ Courts meant for addressing the teething troubles, routine compliance issues and rather simple grievances which the GST administration can itself resolve? Using High Courts' time and resources for such compliance issues is something that should be avoided not only to unburden the High Courts but also to retain their majesty and primacy in the judicial hierarchy and dispute settlement mechanism.

Taxpayers have to resort to writ petitions for routine compliance issues because the GST law as enacted does not have any statutory provision providing for appropriate mechanism and remedy for such issues. Provisions relating to demand with time-limits for tax, penalty and interest are meticulously drafted leaving taxpayers at the mercy of jurisdictional officers for routine issues. Being the initial stage, such officers are also helpless with neither systems in place nor provisions offering any guidance. When the administration itself is yet to prepare fully, expecting taxpayers to adhere to something is not fair. A full-fledged show cause notice and consequent adjudication may not be the answer to this issue. Section 126(1) of CGST Act provides for non-imposition of penalty in cases of minor breaches of the law or procedural requirements. The magnanimity displayed in including such provision needs to be translated into reality by devising appropriate mechanism for resolving routine procedural, compliance and system-based issues and prescribing appropriate guidelines there for so that High Courts deal with questions of law alone.

(...To be continued)

[The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are strictly personal.]

See Part XVII