JUNE 12, 2019

By Dr G Gokul Kishore

AS per reports, GST Council will meet on 20th June. Demands and expectations dominate dailies. Though we have been discussing the agenda on changes required since September, 2018, let us discuss, in this 41st part, certain important issues which should get the attention of the GST Council this time.

E-invoice can wait - System issues need resolution on priority

E-invoice or electronic invoice which will be generated on a centralized government portal is under consideration now. The Finance Ministry is stated as batting for turnover threshold of Rs. 50 crore which means bigger taxpayers will be mandatorily required to generate such e-invoices. It may obviate the necessity of reporting outward supplies separately through GSTR-1. However, the electronic system and processes including issues relating to returns and refund are yet to settle down. Even when GSTR-2 is not in operation, GSTR-2A data is being sought to be compared with GSTR-3B in Annual Return GSTR-9. There is no clarification on how to reconcile differences between credits availed in GSTR-3B and the data reflecting in GSTR-2A. Short payment of tax can be paid through DRC-03 at the time of filing of Annual Return but it will not be correlated with such return. It is not known how it will be recognized at the back-end and how taxpayers should inform the department of such payment. All such issues need to be resolved first.

E-invoice may be a tool for plugging revenue leakage but for taxpayers the same is not a priority. They expect the GST Council to give directions to resolve all technical glitches and issues arising out of e-implementation of GST. Now that two years is almost complete, the Council should seek a report from GSTN, float a white paper on implementation including issues yet to be resolved and based on stakeholders' feedback, the system should be rejigged. GSTN has commenced providing free accounting and billing software with facility to generate returns for MSMEs with turnover upto Rs. 1.5 crore. Such processes should be publicised and awareness on use should be built. The turnover is very less, and the amendments earlier proposed to MSME Act suggested turnover upto Rs. 75 crore as small enterprises. GST Council should consider increasing the threshold to at least Rs. 10 crore for availing such free software facility.

ITC restriction - Providing option

A lower rate of tax always comes with strings attached. Prominent among them is restriction of input tax credit (ITC). Passenger transportation by railways attracts 5% GST but ITC on goods used in supplying such service cannot be utilized for paying tax on such output service. For restaurants, the ban is comprehensive i.e. credit of tax paid on both goods and services cannot be taken to the extent they are exclusively used for such services and in case of part use, proportionate credit reversal will be required. Similar condition has been placed for transportation by certain contract carriages. The latest to join this list is residential real estate sector with total restriction on ITC when 5% rate has been mandatorily fixed. We have discussed in a few parts earlier in this series about lack of option i.e. higher rate with ITC which is a deviation from the Central Excise regime. As the GST Council is meeting shortly and the restaurateurs have sought a dual rate structure - 12% with ITC and 5% without ITC, it is time serious discussions are initiated on this subject. Blocking credit can never be part of GST system for a sector as a whole.

Exemption to cross charge payment

Charging of tax on support services provided by head office of a company to its branch offices in other States is mandated by Schedule I of the CGST Act. Many in the industry are not able to reconcile such statutory position. However, after advance rulings, it appears that the department will not only implement such provision stringently but also seek inclusion of costs like salary of employees sitting in head office or corporate office. It has been highlighted earlier that norms / standards on inclusions and exclusions from taxable value in such cases should be provided. It may be prudent to consider granting exemption in such cases as the tax paid in HO will be availed as credit by the branch office in other State. Being an IGST transaction, the destination State will get its share of tax revenue but the same will be utilised by the branch office when it makes further supply thus not resulting in any revenue ultimately. Considering the talk about big data and data analytics these days, figures on tax paid on such transactions and net revenue realisation over a period of time should be analysed and decision on exemption should be taken. The forthcoming GST Council Meeting may consider recommending such exemption.

Net ITC amendment - Provide relief to past cases

GST Council in its 31 st meeting had recommended amendment to CGST Act (and SGST Acts) to the effect that interest will be payable on delayed payment of that portion of tax which is paid through electronic cash ledger. This means that interest will not be payable if sufficient ITC is available. Such amendments will be normally prospective in effect. GST Council may consider providing retrospective effect to such amendment. This may provide relief to taxpayers particularly in the light of huge interest liability as seen in the case before the Telangana High Court [Megha Engg. & Infra Ltd. v. Commissioner, - 2019-TIOL-893-HC-Telangana-GST. The rationale for such demand is that when credit is available the taxpayer could not have an intent to evade and deliberately pay lesser amount as tax.

Larger agenda to cover important issues

It will be ideal if the GST Council starts deliberating on the mega changes like bringing natural gas within GST net. Aviation Turbine Fuel is also being mentioned for such inclusion. It will be a good beginning if, in the third year of GST, such goods come within GST fold. Methodology for passing on benefits out of rate reduction or increased ITC to be compliant with anti-profiteering provisions should also be prescribed on priority. Arrest, detention and seizure of goods and conveyances, composite and mixed supplies, etc., are some of the issues which need clarity by way of circulars to be issued based on the recommendations of GST Council.

(…To be continued)

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

See Part 40