MARCH 18, 2019

By Dr G Gokul Kishore

THE season is one of finalizing books of accounts. Additional flavour of this season is annual returns under GST law. Compelling cash payment for payment of additional liability at the time of filing annual return and absence of provision to refund unutilized credit when business is closed are highlighted in this 29th part.

Annual return - Additional liability to be paid in cash only?

GST returns, almost all of them, have been conferred the distinction of extension of due dates and annual return is no exception. Being the biggest return, annual return has been provided the greatest extension - the new due date is 30th June, 2019 as against the original due date of 31st December, 2018. Press release has been issued to inform taxpayers that the facility to file such return online is now available and they may start filing the same. The insistence on cash payment of tax dues has been highlighted earlier in this series. This is evident in the present annual return format also.

The return format as originally proposed did not have option to pay additional tax liability being the difference between the taxes paid as per monthly returns and the tax payable as per reconciliation exercise undertaken along with annual financial accounts. The amended format provides such facility and this is considered as helpful as short payments can be made good along with interest at the time of filing such annual return. Reconciliation between financial books and statutory returns being an exercise involving lot of numbers, errors were bound to happen, and the present format provides an opportunity to wipe the slate clean.

The description in the relevant table states that additional liability is required to be paid by cash. The instructions at the end of the form informs the taxpayer that option will be given for payment of such liability through Form DRC-03 and again it is emphasized that such liability shall be paid through electronic cash ledger only. Such condition on discharging tax liability through cash alone effectively means that input tax credit ledger cannot be used. Restricting use of ITC for payment of tax cannot be prescribed by way of instructions though they are part of statutory form and such form is part of rules when the parent statute does not place such bar. Legal validity of such condition is doubtful particularly when the same is prescribed merely by way of description in a form and instruction in such form. Section 49(4) of CGST Act, 2017 entitles a taxpayer to use the amount available in electronic credit ledger for payment towards output tax. When the annual return form seeks details of additional tax liability, the same relates to output tax only. Unless Section 49 is amended to restrict use of such credit for payment of additional liability arising out of reconciliation at the time of filing annual return, the present stipulation may not be legally sustainable.

Time-limit for availing ITC pertaining to previous year has been negatively worded to state that such credit cannot be availed after due date for filing returns for September of next financial year or filing of annual returns whichever is earlier [Section 16(4) of CGST Act]. As per Removal of Difficulty Order No. 2/2018-Central Tax dated 31-12-2018, the due date for availing credits pertaining to 2017-18 stands extended till due date for filing return for March, 2019. When time-limit for availing credit itself stands extended, it defeats reason why utilisation is to be barred. For utilisation as such, there is no time-limit and even if one is to file the return in June, 2019, he can very well use credit ledger. After all, credits cannot be used for payment of interest and penalty and the government will get cash payment on this count. This kind of restriction on use of ITC fortifies our belief that despite credit scheme being the backbone of GST system, it is always a ‘largesse' available at the mercy of tax administration. Mere change in tax law or system being electronic cannot confer the tag of progressiveness. It requires attitudinal change in bureaucracy to call the tax system modern and advanced.

Refund of unutilized credit - Aggravating bankruptcy pain

Refund of unutilized input tax credit is provided only in two situations as per Section 54 of CGST Act, 2017. Export without payment of tax and inverted tax structure are these two scenarios. Insolvency and bankruptcy dominate headlines these days and IBC is taking centre-stage among business laws. In such an atmosphere, GST law does not provide for refund of balance ITC when a taxpayer goes out of business. Though provisions require payment of tax on inputs, WIP goods and capital goods, the law is silent on refunding the amount lying in balance even after paying up all such dues. When Rule 5 of Cenvat Credit Rules did not expressly restrict such refund, judiciary came to the rescue of the industry in distress [Slovak India Trading - 2006-TIOL-469-HC-KAR-CX ] and held that such refund of unutilized credit was permissible. Despite existence of jurisprudence on this issue in the earlier regime, opportunity to cover such situation in GST law has not been used.

When business is closed, tax administration should not add to the woes and instead, it can lend a helping hand by refunding the unutilized credit. Even otherwise, when all the dues as per the law have been paid and still such credit is lying in balance, then the government cannot be said to have a right over such an amount. It may be attractive to argue that credit is provided for goods used or intended to be used for business purpose and when such goods themselves have been disposed at the time of closure of business, then the same will lapse. Unless there is an express provision for such lapsing of credit, the State may not have the right to retain such amounts lying in credit ledger of taxpayer. The State cannot have better claim over such amounts than the taxpayer. By not providing refund and effectively lapsing of such credit necessarily means it is appropriated by the State. These are extreme powers which need adequate legal backing which appears to be absent in the GST law. We are not seeking the statutory blessing for lapsing of credit rather some relief should be provided by way of refund to the industry which had to shut down due to various reasons.

This issue takes us to the point discussed in the first portion of this part. Absence of law to provide cash refund of unutilized credit on winding up of business manifests the attitude towards credit scheme. Tax administration is analysing compliance behaviour of taxpayers to plug revenue leakage. We expect it changes its collection behaviour too by relaxing credit related provisions in the second and third years of GST.

(…To be continued)

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

See Part XXVIII