MARCH 09, 2020

By P G James

THANKS to the muddled thinking of GST Council and to soothen the worry of falling GST collections month by month, contriving methods for a higher collection was resorted from October 2019 onwards. It started with imposing restriction of 20% in ITC offsetting (Notification No. 49/2019-CT dated 9-10-19) and with effect 01.01.2020 it was reduced to 10% (Notification No 75/2019-CT dated 26-12-19) as a New Year bonanza.

Let it be any percentage, such quixotic restriction and imposts breaks the chain of seamless flow of ITC and enervates the very spirit and purpose of GST.

As an additional stroke, new Rule 86A has been inserted in CGST Rules vide Notn. No 75/2019-CT imposing a restraint for ITC availment wherein supplier has not paid tax.

As per the new provision, if the supplier has not paid tax, Commissioner or an officer authorised by him in this behalf may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability. They may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit and such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.

The expressions in the Rule as to "satisfying" the authorities that supplier has paid tax, "may allow such debit" etc. reminds of the bitter experiences of the erstwhile regime of ‘Inspector Raj' and are prompting the taxpayers either to seek the mercy of authorities or to wait for the expiry of one year provided the ITC eligibility do not get lapsed as per Sec 16(4) of CGST Act. Many taxpayers were shocked and surprised to see that Department initiated automatic block of the ITC available in the Electronic Credit Ledger simply for the reason that there is mismatch in the figures of GSTR-2A owing to non-filing of Returns or delayed filing of Returns.

The concept of erstwhile Modvat, Cenvat or the present ITC in GST is an instrument for meeting tax obligations. The most obvious method of doing so is payment from the accumulated value which by universal acclaim is measured as money. As per RBI Act, 1934 money or rupee is accorded the statutory status as exchange for all kind of transactions. The so-called ITC is having an identical statutory recognition though it is restricted to the payment of tax. Failure to perceive this context and its versatility limits the vitality of this tool, causes distortion in tax administration and relegates legislative intent to the bin of broken promises. The above golden rule with regard to ITC claim was enunciated by Hon Tribunal in Infosys Technologies Ltd vs CCE, Pune-I - 2016-TIOL-2237-CESTAT-MUM

Another disparity at this juncture is that for qualifying the entitlement to ITC, the tax charged in respect of the supply has been actually paid to Govt as per Sec 16(2)(c) of CGST Act. Both Notifications are issued under Sec 164 of CGST Act which provides that a person can claim certain percentage of the ITC for which neither GSTR-1 nor tax payment through GSTR-3B is filed. Here the pertinent question is can the Rule override the provisions of the Act?

As per the legal maxim, "Testis unus, testis nullus", one witness is not a witness. When two Returns are prescribed, when only GSTR-1 is filed, how the compliance is said to be fulfilled in its fairness?

The Dept cannot, artificially by acting contrary to the fundamental spirit and object of the law, contrive ways to deny the benefit, which the substantive provisions of the law confer on the tax payers- Pitambra Books Pvt Ltd vs UoI - 2020-TIOL-206-HC-DEL-GST

As per Hon Supreme Court judgement in Tata Motors vs State of Maharashtra - 2004-TIOL-46-SC-CT, even though State has enormous powers in the matter of legislation and in enacting fiscal laws, action taken by the State cannot be so irrational and so arbitrary as to introduce one set of rules for one period and another set of rules for another period by amending the laws in such a manner as to withdraw the benefit that had been given earlier resulting in higher burden to the assessees.

Another classic example of the abuse of power resembling the whim and caprice of an absolute monarch is the decision to collect interest on gross tax liability under Sec 50(1). In the greed to collect the highly imaginary and falsified sum of Rs 46000/- crores purported to be interest on the alleged default of tax payment, automated notices were issued to taxpayers pan India which sometimes contained nil amount or amount in several decimals without even a rupee. Neither artificial intelligence nor common sense is made use of here. Common-sense justice is also at par with natural justice as opined by Hon Allahabad High Court in Swastik Traders vs State of UP - 2019-TIOL-2173-HC-ALL-GST.

In many cases, DGGI too issued notices and initiated investigations and harassments for the collection of said interest. Due to the quirky behaviour of GST portal, last date of filing GSTR-3B has been extended several times from 20th of the succeeding month ranging from 2 to 5 days. But the so-called demand and the astonishing sum of Rs 46000/- crores has apparently been computed based on the due date as 20th disregarding the extension of due dates granted in various months.

In vast majority of cases, tax payment had been made on or before the due dates, but it was not getting uploaded in the Electronic Cash Ledger or unable to log in the portal to file GSTR-3B Return. Further, the very concept of ITC is the reimbursement of taxes paid by another person and there cannot be any demand of interest simply for the reason it is not appearing in Electronic Credit Ledger owing to the inherent glitches of portal which is beyond the ambit of a taxpayer. Here too, Govt has travelled in a zig zag fashion from one extreme to other inasmuch as it had amended Sec 50 to provide that interest shall be payable only on the net tax liability in case of delayed payment or delayed filing of Return, but amendment not yet notified. Hon Rajastan HC in Tax Bar Association vs UOI - 2020-TIOL-283-HC-RAJ-GST on being satisfied that there were technical bottlenecks which limited an assessee's opportunity to upload the forms, directed Govt to enable compliance of such uploading through requisite corrections on its portal. Since it is well-settled that where the last date of submission has been prescribed by law, it would be incumbent on the part of the revenue to provide for adequate facility for accepting such declarations or returns or forms within the period stipulated.

Hon Gujarat HC in Paresh Nathalal Chauhan vs State of Gujarat - 2020-TIOL-155-HC-AHM-GST emphasized the fact that since GST Acts are new enactments, Officers acting under the relevant provisions are required to study the scope of their powers under the statutory provisions under which they are acting and cannot act on the basis of presumptions or past precedents under a previous enactment. If the common man is supposed to know the law and face penalty for any infraction thereof, the officers enforcing such provisions are required to be well versed with the statutory provisions and the scope and limits of their powers and cannot take shelter behind ignorance of law to justify their illegal actions.

Another wide spread havoc made through demand of reversal of ITC and interest is on account of mismatch with GSTR-2A or non-payment of tax or non-filing of Returns by the suppliers of goods and services.

The recipient of goods or services, having paid the value thereof including taxes, his entitlement to claim input tax credit should not be tagged with the remittance of tax or filing of returns. Even if coercive measures are taken to reverse such ITC, Dept will definitely proceed to recover the taxes not paid by the seller by invoking various penal provisions under Sec 122. Hence it is trite that a bonafide taxpayer at the receiving end is punished for the disobedience of supplier and Dept is getting doubly enriched by way of making recoveries at both ends.

Denial of ITC not on account of the default committed by the purchaser but due to the failure to pay tax by the selling dealer is unsustainable in law and violative of Article 226 of Constitution. Elite Furniture Mart vs AC (ST) Coimbatore - W.P.No.4986 of 2018 W.M.P.Nos.6145 and 6146 of 2018 decided on 11.06.2018)

Hon Delhi High Court in Commissioner vs M/s. SK Steel Traders - 2017-TIOL-361-HC-DEL-VAT held that grant of ITC to the extent tax is deposited by the selling dealer is unsound and iniquitous because an onerous burden is placed on the purchasing dealer.

It has been held by Hon Karnataka HC in Onyx Designs vs State of Karnataka - 2019-TIOL-1315-HC-KAR-VAT that deposit of tax by registered selling dealer is not a condition precedent for claiming input tax credit by the assessee purchaser against a valid invoice with the tax component paid and if the assessee purchaser demonstrates the discharge of tax liability to the seller, the benefit of input tax cannot be deprived to the such buyer

It is the proclamation that India is just a few steps away from  breaking into the top 50 ranks  in the Ease of Doing Business Index. Our EoDB ranking improved from 77th position in 2019 to 63rd in 2020 as per World Bank's Doing Business 2020 report. It portrays a rosy picture of doing business in India but the real business scenario for an investor is lucidly and vividly carved out in the Red Herring Prospectus brought out by none other than the undertaking of Central Govt (IRCTC) whose promoter's name is shown as "The President of India acting through the Ministry of Railways, Government of India".

"The application of GST and other applicable laws, rules and regulations to our business now or in the future, may be subject to interpretation by relevant authorities, and, if amended or notified, could result in increased tax payments to us (prospectively or retrospectively), which could affect our business, prospects, financial condition and results of operations"

If the Govt itself is having uncertainty and finds it difficult do business with ease, the plight of a normal investor can be imagined.

Omnis innovatio plus novitate perturbat quam utilitate prodest - Every innovation disturbs more by its novelty than benefits by its utility.  

[The views expressed are strictly personal.]