JULY 09, 2019

By Dr G Gokul Kishore

UNION Budgets, after implementation of GST, are considered as containing tax proposals dealing with only income tax and customs to the exclusion of GST. This year's Budget has been an exception. The Finance (No. 2) Bill, 2019 not only contains amendments proposed in the CGST Act and IGST Act as recommended by the GST Council earlier but also a few changes which are apparently not in public domain and, therefore, new. This 45 th part intends to highlight some of these proposed amendments.

Aadhaar enters GST - Taxpayers to mandatorily provide number

Aadhaar means basis or foundation. It has become the basis for almost every process relating to public services, statutory compliances and entitlements. GST cannot remain outside the sweep of Aadhaar. Section 25 of CGST Act relating to registration is proposed to be amended to mandate authentication using Aadhaar number at the time of applying for registration. For companies such number will be required in respect of Managing Director, Director, authorized signatory, etc., and for firms, that of Partners. Alternative methods for identification can be used for such process if the applicant has not been assigned Aadhaar number. Such methods will be recommended by GST Council and a notification will follow to implement the same. For existing taxpayers also, this requirement will be applicable as sub-section (6A) uses the words ‘ every registered person shall undergo authentication… '. For such current taxpayers, registration will be deemed as invalid if such authentication / identification process fails for some reason. Proposed amendments also contain provision to empower the government to exempt specified persons from the above requirement.

Constitutional validity of Aadhaar was upheld by the Supreme Court - 2017-TIOL-311-SC-MISC-CB and for delivery of services like mobile phone or banking, the same was held as not mandatory. For identification of taxpayers, the government has now sought to make use of its ambitious unique identity system even while making provision for other options. The next meeting of GST Council will provide more clarity. Considering the fact that similar amendments are proposed in Customs Act also, it appears the intention is to prevent evasion and revenue leakage by tracking down unscrupulous elements using such identity data.

Digital push to cashless economy -Suppliers to accept e-payment

A new Section 31A is being inserted in CGST Act and corresponding amendments will be made in SGST Acts also. This new provision seeks to make it mandatory for suppliers of goods or services to provide option of payment of consideration through electronic mode. This essentially means that for the supplies made, GST registered suppliers will be required to accept payment through NEFT / RTGS, etc. Not only the transaction is routed through banking channel in this process, the electronic trail will be useful at the time of audit or investigations by the department. This measure will help in advancing one of the objectives of GST viz., encouraging the formal economy by bringing on record the unreported cash transactions.

Notification will have to be issued to specify class of taxpayers for whom such mandatory provision will apply. This may mean that a threshold based on turnover will be prescribed. The provision is compulsory for the supplier i.e. he is required to provide such facility / accept consideration paid through net banking but for the recipient of goods or services, e-payment will be optional. It is only a matter of time that for recipients also, transactions above particular value are specified for mandatory e-payment.

National AAAR to be constituted

To implement the decision of GST Council taken in the meeting held on 22 nd December last year, amendments have been proposed in CGST Act for constitution of National Appellate Authority for Advance Rulings (NAAAR). These amendments dominate the pages in the Bill insofar as GST is concerned as they deal with composition, tenure of President and Members, their qualifications, filing of appeal before NAAAR, binding nature of orders and such other matters. Jurisdiction of NAAAR will be invokable when Appellate Authority in two or more States give conflicting rulings on the same question / issue. Centralized authority for resolving conflict has been the demand of stake-holders and the GST Council also recommended the same. To this extent, the amendment is welcome. The amendments will mean that NAAAR will be at the apex in a three-tier advance ruling set-up. It was expected that the national level AAR will replace State level appellate authorities and whenever the State AARs in two or more States take divergent stand, the applicant will be entitled to approach the national level central appellate authority. But as per the amendments, the existing set-up of State level AAR and Appellate AARs will remain undisturbed and National AAAR will be placed on top of them.

Being a three-member body, NAAAR will have the power to decide based on majority in case of difference of opinion among the members. This is in contrast with the State level appellate authorities as they are two-member bodies and, therefore, difference of opinion among the members culminate in rejection of the appeal without any ruling and the applicant is rendered remediless. This has not been addressed so far. The proposed NAAAR will have the President from judiciary but the two members will be bureaucrats. This will be vulnerable to challenge as to vires as the number of judicial members should not be less than technical members in such bodies as per precedent judgments.

Mandatory penalty for profiteering

New sub-section (3A) is being inserted in Section 171 of CGST Act relating to anti-profiteering. One of the provisions to occupy the headlines of media consistently is Section 171 on anti-profiteering. The proposed amendment seeks to mandatorily impose penalty of 10% on the amount held as profiteered by the National Anti-profiteering Authority (NAA). If the profiteered amount is deposited within 30 days of passing of order, then penalty will not be payable.  So far, NAA has been directing issuance of notice separately for imposition of penalty whenever it accepts the report of Directorate General of Anti-Profiteering (DGAP) and holds the companies as guilty of profiteering. Once the new provision comes into force, penalty will be mandatorily imposed in the same order by NAA. Considering the staggering amounts held as profiteered in some of the orders passed so far, penalty of 10% will be substantially higher.

Having stringent provisions like that of anti-profiteering without any appellate remedy is one of the major lacunae in GST law. Harsher penal provisions will further push companies to High Courts seeking to invoke writ jurisdiction. The industry expected GST Council to recommend guidelines to determine profiteering but the decision is to further strengthen the provisions and the amendment proposed caters to the same. This is an area crying for major reform. Our optimism is perennial. Let us hope in the third year of GST, what is overdue is addressed.

[…To be continued]

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

See Part 44 .