JULY 02, 2019

By Dr G Gokul Kishore

SECOND anniversary of GST is being celebrated by the tax administration. GST as a tax reform remained elusive for many years and it is not only a reality now but is settling down. For a developing country with different political groups at the helm of affairs at the Centre and some of the States, tinkering with a sensitive and delicate subject like public revenue source is not a mean task. All stakeholders deserve to be congratulated - taxpayers, policymakers, tax administration and tax practitioners. To coincide with such event, CBIC has issued a few circulars on 28th June, 2019. Two of them need frugal discussion and this 44th part caters to the same along with an important amendment to the CGST Rules.

Discount as consideration for service - Resuscitating pre-GST issue

Several issues on includability of discounts in taxable value were clarified earlier and now CBIC has issued Circular No. 105 intended to clear the air on some more issues. This time the emphasis is on admissibility of secondary or post-supply discounts. Section 15 of CGST Act provides for exclusion of such discounts from taxable value subject to certain conditions. However, tax administration seeks to place caveats when such exclusion is claimed. The present circular clearly manifests such approach. The officers have been instructed to examine the nature of post-supply discounts as to whether they are given for activities like sales promotion campaign to be undertaken by the dealers. The test for exclusion, according to the circular, will be absence of obligation i.e. the dealer is not required to perform any activity to be eligible for such discount. If the distributor or dealer is required to undertake special marketing efforts based on which such post-supply discount is offered, then the same will get characterized as consideration received by dealer for providing service of sales promotion to the original supplier. Needless to mention, manufacturer-supplier will be entitled to avail ITC when tax is paid on such discount by the dealer and when he raises tax invoice.

The position adopted by the department now is not new as similar arguments were advanced before CESTAT in several cases under Service Tax. The department had argued that such discounts/incentives given mostly to automobile dealers were in the nature of consideration for sales promotion services. However, the Tribunal had held in favour of the dealers CST v. Sai Service Station - 2013-TIOL-1436-CESTAT-MUM. To the extent pre-GST issue is sought to be resuscitated, the present circular does not advance the cause of the department or the taxpayers.

In this circular, CBIC has clarified in favour of taxpayers also as to ITC availability when post-supply discounts are offered through commercial credit notes without taking adjustment of GST originally paid. ITC need not be reversed in such cases as per the clarification. This could have been a potential area of dispute. But for this clarification, department would have taken the stand that ITC proportionate to the discount value should be reversed.

Transfer of amounts within cash ledger - Fungibility is taxpayer's right

As per the latest amendments to CGST Rules, sub-rule (13) has been inserted in Rule 87 relating to electronic cash ledger. This sub-rule enables a taxpayer to transfer amount lying in one account in cash ledger to another account. The date of effect of this amendment is yet to be notified. Once this change comes into force, amount lying under major heads of CGST, SGST, IGST or cess can be transferred to any other head of tax. As per the Form PMT-09, the amounts paid towards tax or interest or penalty can also be inter-changed with such other minor head. These amounts can also be transferred to major heads of CGST or SGST etc. The form further states that the amount from one minor head can also be transferred to another minor head under the same major head.

This amendment should be notified without further delay. After all, cash ledger belongs to taxpayers and till the time, amounts are paid and appropriated towards tax or other statutory dues, government has no right or claim over the same. Therefore, permitting transfer of such amounts intended to be paid towards particular type of tax or interest should not arise at all and fungibility should be taxpayer's inherent right. A similar amendment sought by us pertains to adjustment of payment of one type of tax to another when the type of tax is incorrectly adopted at the time of payment (Part - XV). Though interest is not attracted as per Section 77 of CGST Act, compelling taxpayer to make payment again of the correct type of tax is not rational.

Refund sanction by non-assigned authority

Taxpayers have been divided among the Centre and States for the purpose of administrative jurisdiction. Considering the implementation blues and software glitches during this initial period, some of them have been wrongly assigned or rather mapped in the GST portal. Though jurisdiction-wise, these taxpayers are under Centre, the portal reckons them as assigned to State and vice versa. As everything is conceived to be online in GST, refund applications filed online are transferred to the wrongly mapped officer and such officer cannot re-assign to his correct counterpart as the online system does not have re-assignment functionality. CBIC by Circular No. 104 has clarified that the officer to whom refund application goes should process it though he is not in-charge of the taxpayer. Refund should not be held up because of system issues which are beyond the control of both the taxpayer and the tax officer (in this case). According to the instructions, the officer should inform the web managers of GST portal to correct the wrong mapping of jurisdictional officer so that prospective applications are processed by the actual jurisdictional officer.

Taking note of system created hardships and issuing pro-active instructions so as to provide solutions has been a welcome departure of tax administration. This author has been rather uncharitable of indirect tax administration for the past several years highlighting bureaucratic blunders and travails of taxpayers. A ray of change can now be seen with almost real-time and practical solutions being implemented. One more step in this direction which calls for the attention of GST Council relates to common refund authority without the requirement of following up processes for refund of CGST and SGST separately. Back-end adjustments through the system has been suggested and it is time the next meeting of the Council recommends the same.

[…To be continued]

[The author is an Advocate. Views expressed are strictly personal.]

See Part 43.