FEBRUARY 25, 2019

By Dr G Gokul Kishore

IN the Central Excise regime, field formations used to send queries requiring clarification to the then CBEC. Those assessees who had credit of good karma used to get clarification in the form of circular or Section 37B order though the same may be after one or two years and may not be in favour of such assessee. New tax has also meant change in methods. CBIC is now pro-active in issuing circulars. In less than two years, 91 circulars have been issued. While these circulars seek to address issues, we discuss in this 26th part, certain issues referred in three of the recent circulars.

Are taxpayers employed to implement law?

Circulars No. 89 and 90 both dated 18-2-2019 have been issued ostensibly to draw the attention of taxpayers to proper compliance with the law. The former states that information on inter-State supplies made to unregistered persons are not being reported in Table 3.2 in GSTR-3B return.The latter highlights omission of certain taxpayers to mention place of supply in tax invoices. In both the circulars, CBIC has cautioned taxpayers that such non-compliance with provisions which require such information to be provided in return / invoices will lead to penal action under relevant provisions of CGST Act.

Both the circulars state that to ensure uniformity in the implementation of provisions of law across field formations, the instructions (as contained in such circulars) are being issued. The powers to issue such instructions are derived from Section 168(1) of CGST Act as per these circulars. Section 168(1) empowers CBIC to issue orders, instructions or directions to Central Tax officers and all other officers and persons employed in the implementation of the CGST Act. All these officers and employees will be required to observe and follow such orders, instructions or directions. The circulars under discussion expressly mentions 'It is instructed that the registered persons… '.

As per the definition, 'registered person' means a person who is registered under Section 25 and does not include a person having UIN. Registered persons are taxpayers and they are neither officers nor employees engaged by the government to implement GST law. Section 168(1) does not empower the CBIC to issue instructions to registered persons / taxpayers. The reason is obvious as the provision is intended to ensure field formations follow uniform practice in assessment and implementation of the law and therefore, department officers are required to follow instructions issued by the Board to ensure such uniformity. While absence of any power to instruct the taxpayer is patent, even otherwise, the Board cannot 'instruct' taxpayers on proper implementation of law as they can only be requested to cooperate by complying with the law.

Treating industry as partners in progress by tax department cannot mean members of industry can be issued administrative orders on implementation in the guise of circulars. It may be advisable to follow the language used in circulars like No. 23 which invokes power from Section 168(1) but only 'clarifies' the issue involved. Certain major drafting errors in circulars have been discussed in this series in the past also. Changing such methods (of drafting) can also be a priority in the second year of GST.

Deeming fiction extends to compliance

Circular No. 91 dated 18-2-2019 is taxpayer friendly. In respect of in-bond sales, for the period between July, 2017 and March, 2018, GST was held as payable by the department. The type of tax applicable was IGST but many taxpayers had paid CGST plus SGST. This was because the portal did not have facility to accommodate the same when both the supplier and recipient were located in the same State. This circular states that, as one time exception suppliers, who had paid such incorrect type of tax would be deemed to have complied with the provisions of law in so far as payment of tax is concerned.

The above circular has also been issued deriving powers from Section 168(1) of CGST Act. It is not clear as to whether this provision empowers the Board to issue instructions to deem compliance in cases of infractions or omissions. The provision, as noted in the earlier part of this article, is intended to ensure uniformity in implementation of law and to achieve such objective, instructions can be issued to departmental officers. Deeming compliance by taxpayers using such provision may be subject to question during audit by even departmental officers. Such audit takes place after three or four years when the Board itself may not have any remedy to offer.

Compelling taxpayers to default in compliance due to system issues is certainly an area which deserve attention and action. However, legal validity of granting amnesty to such infractions through such circulars is not beyond doubt. Proper course of granting immunity to taxpayers who have paid tax in such cases may be to issue Section 11C type notification to exempt such transactions from IGST for the said period, subject to the condition CGST and SGST were paid.

The second issue arising out of this circular is - if the administration can condone such mistakes which occurred due to no fault of taxpayers, then there are numerous such issues faced by taxpayers due to glitches in the GST portal which can also get same treatment. All these issues have been time and again represented and discussed in public space also. Before the Board stopped replying to queries, social media was flooded with such issues. The kind of legal device which can address such 'deemed compliance' is not conclusively suggested here. But CBIC may consider issuing a comprehensive notification or circular to address those mistakes which were / are solely because of system related constraints or issues. It is significant to note that the above said circular mentions the ground of the situation being revenue neutral. Revenue neutrality is one of the most contested grounds where department and taxpayer could not see eye to eye in the pre-GST regime. Recognizing the same to condone certain mistakes which are beyond the control of taxpayers is a welcome step. We hope this process is carried forward in the second year but with a stronger legal basis.

(To be continued)

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

See Part XXV