FEBRUARY 04, 2019

By Dr G Gokul Kishore

WE have been discussing in this series on how to make life under GST better in the second year. The tax administration, it appears, by remaining dormant when pro-active clarification is needed, is working to achieve the opposite. Such active dormancy along with urgent requirement for good draftsmen are discussed in this 23rd part.

RCM on supplies from unregistered persons - Avoidable confusion

Taxpayers, in general, have some difficulty in remembering sections in a statute. But when a section robs peaceful sleep, it gets etched in memory. One such provision is Section 9(4) of CGST Act. This provision seeks to make the recipient liable to tax and comply with law in respect of receipt of supplies from unregistered persons. It is (un)popularly called 'unregistered RCM'. Even before GST was implemented, the near impossibility of both implementing as well as complying with this provision was realised and Notification No. 8/2017-Central Tax (Rate) dated 28-6-2017 was issued. This notification provided exemption from such provision for value of supplies upto Rs. 5000 per day. This limit was obviously meagre for a plant having thousands of employees as procurement from unregistered vendors will run to several times such prescribed limit. The chorus over suspending such provision altogether, reached the decision-makers much later and by Notification No. 38/2017-Central Tax (Rate) dated 13-10-2017, such exemption was extended till 31-3-2018 and the limit of Rs. 5000 per day was also removed. After pushing the sunset date to 30-6-2018 and 30-9-2018 by Notification No. 10/2018-Central Tax (Rate) dated 23-3-2018 and Notification No. 12/2018-Central Tax (Rate) dated 29-6-2018 respectively, it was to have continued till 30-9-2019 as per Notification No. 22/2018-Central Tax (Rate) dated 6-8-2018.

Part-1 of the story as narrated above was thrilling and romantic as the exemption was to last till September this year. The twist in the tale came when the last-mentioned notification was rescinded by Notification No. 1/2019-Central Tax (Rate) dated 29-1-2019 with effect from 1st February, 2019. As social media devotees have the urge of sharing something always, the news spread within no time that supplies from unregistered vendors will be liable to tax under RCM from 1-2-2019 as the notification providing exemption till September has been rescinded. While the rescission of the notification is "true news", the taxability part is "fake news".

This is because the CGST Act has also been amended by CGST (Amendment) Act, 2018 and Section 9(4) has been substituted with effect from 1-2-2019. The newly substituted provision seeks to cast liability only on specified class of taxpayers who shall be liable only in respect of specified categories of goods or services received from unregistered persons. For such purpose, GST Council is required to make recommendations and the government needs to issue notification to implement the same. Neither has the Council made any recommendation nor categories of taxpayers and supplies notified for this purpose yet. Till such time these events take place, the new provision remains unimplemented or non-operational.

The panic like situation created due to non-reading of the amendments to the CGST Act and IGST Act along with rescission of such notifications could have been contained had the CBIC issued a circular along with such notifications on 29-1-2019 itself. After issuance of several notifications to be effective from 1-2-2019 and after coming into force of amendments to CGST Act and IGST Act, it was but reasonable to expect a circular from the CBIC to clarify the effect of such notifications and amendments. The pro-active tax administration went inexplicably dormant. We hope that in the second year of GST not only such clarifications are issued but certain fundamental changes are also considered.

Inclusion of preamble in the rescinding notification to refer to the amendments to the statutes as the reason for such rescission can be one such fundamental change. Though normally notifications do not contain any reason or clarification, it may be a good practice to at least include a preamble providing the objective and / or reason for issuance of such notification. The practice can well be replicated in respect of all non-rate notifications particularly when the parent notification and the amending notifications are invariably mentioned at the end.

Drafting hits a new low

Circular No. 87/06/2019-GST dated 2-1-2019 had a major drafting error as it spoke about amendment on restriction on transitioning credit of cesses to be effective from the date of notification giving retrospective effect and in Part-19 of this series, it was pointed out that such provision had come into force from 1 st July 2017 as per the amending Act itself. Such errors have been transitioned to notifications as well. Notification No. 2/2019-Central Tax dated 29-1-2019 specifies 1-2-2019 as the effective date for the amendments to CGST Act. This notification is worded negatively in part i.e. except certain specified sections, other provisions of CGST (Amendment) Act, 2018 will come into force from 1-2-2019. The sections in the exclusion portion mostly relate to new return filing system and procedures which will come into force from 1-4-2019 on pilot basis as per announcements.

Therefore, except those sections which are excluded, all other sections of the amending Act will come into force from 1-2-2019. This, however, includes those sections which have already come into force from 1-7-2017 as per the retrospective effect provided by the amending Act. Ideally, the above notification should have been positively worded to only mention those sections of the amending Act which will come into force from 1-2-2019. This would have ensured sections which have already come into force are untouched and those which will be effective from a future date are left undisturbed.

What happens if one goes to court on the ground that the provision with retrospective effect as per the statute has been given a prospective date by way of notification? Obviously, the subordinate legislation will fail judicial scrutiny. It is one thing to draft a notification which is liable to divergent interpretation and then judiciary settling the dispute in favour of the taxpayer. However, it is certainly not a good practice of drafting if subordinate legislation is patently contrary to the statute. Our hope never dries as we expect the tax administration to take extra care while drafting law based on the limited mandate of delegation given to it.

(…To be continued)

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

See Part XXII