MARCH 16, 2020

By Dr G Gokul Kishore

GST Council has taken several decisions in the past to smoothen the rough ride experienced by taxpayers. The latest meeting held on 14th March, 2020 will be remembered for several key decisions to address certain key pending issues. Some of them having significant implications are analysed in this 77th part.

Interest on net tax liability

The amendment to Section 50 of CGST Act providing for charging of interest on delay in payment of tax only on net tax liability i.e. tax payable in cash after adjusting the input tax credit available is yet to be notified and, therefore, it has not come into effect. The delay in notifying benevolent provisions was highlighted in this series. The recent direction from the CBIC to recover interest on delayed payment of tax with the figure being put out as more than Rs. 46,000 crore has set in motion hyper-activity at the field level. Letters are being issued as if they were show cause notices and without following any procedure, ITC is being blocked. Principles of natural justice have become part of history and taxpayers are at the mercy of the department when blocking of ITC and unblocking can be made by the department using their interface. There are reports that to go lightly on such front, favours are being sought. Despite all tall claims of reduction of interface with taxpayers, e-governance, etc., taking favours is still widely spoken about.

In the meanwhile, Madras High Court in Refex Industries Ltd. v. Asst. Commissioner - 2020-TIOL-382-HC-MAD-GST expressed the view that the non-notified amendment will be retrospective in operation. While the basis for such conclusion may not be entirely sustainable, GST Council has stepped in now to recommend that the amendment will be given retrospective effect. This is a commendable decision which will save taxpayers from the pressure mounted by the tax administration to pay interest on short paid taxes notwithstanding the fact of input tax credit being available in the ledger.

CBIC should now issue instructions so that recovery action is not initiated seeking interest till the time amendment is made with retrospective effect. It takes considerable time from the time of recommendation of GST Council till the stage of passing an amendment as corresponding amendments in all State GST Acts are also required. In this series, we have noted using removal of difficulty order for the interim period when such taxpayer friendly amendments take time to be implemented.

Annual Return relaxation for MSMEs

The GST Council has recommended removal of requirement of filing reconciliation statement in GSTR-9C for small taxpayers with turnover below Rs. 5 crores. This is a welcome move. In fact, annual return i.e. GSTR-9 itself should have been removed for such smaller assessees. The requirement of annual return is doubtful as it consumes significant amount of time of industry in justifying every mismatch or discrepancy between declared information through monthly returns, documents issued, credits taken and the figures shown in books of account. Departmental audit in all cases require study of balance sheet and annual report and discrepancies found out during such exercise will be sufficient to tighten compliance and recover any short-paid taxes or irregularly availed credits. Shifting such onus on to the taxpayers and their advisors ought to have been avoided in the first place. Procedural relaxations should start with elimination of such additional return related compliances.

KYS norms to be announced

Like KYC used by banks, Know Your Supplier (KYS) norms or facility has been recommended. As per the press release, this will enable taxpayers to obtain some basic information about the suppliers with whom they conduct or propose to conduct business. In this series, requiring taxpayers to verify compliances by supplier to protect their ITC without implementing mechanism like compliance rating has been discussed before. It appears that compliance rating may border on ‘name and shame' method which may not stand judicial scrutiny. Therefore, placing basic information about every registered taxpayer in public domain will not be viewed as disclosure of commercial and confidential information and may not pose any challenge. KYS should be implemented without delay. Over-enthusiasm to display action proposed against taxpayers even when demand has not crystallised should be avoided.

Destressing the stressed

In Part-66, the order of NCLT, Chennai was discussed wherein the Tribunal had ordered opening of the GST portal to enable the corporate debtor (the company under resolution as per Insolvency and Bankruptcy Code - IBC) to pay the current GST dues instead of insisting on dues pertaining to pre-admission period. Access to GST portal was blocked for the applicant on failure to pay taxes for earlier period. The NCLT held that tax authorities are operational creditors and they may file claims before the Resolution Professional (RP) instead of insisting the RP to pay pre-admission dues before accepting tax payments for the period of Corporate Insolvency Resolution Process (CIRP). [NCLT, Chennai Order dated 28-11-2019 / 5-12-2019 in the matter of Kiran Global Chem Ltd. =  2019-TIOLCORP-12-NCLT.

In the above part, it was noted that no exception has been created to allow a person to pay tax and file return even if there is a default for the part period and such exception should have been created visualising directions from courts and the same should be created now. GST Council has now recommended prescribing special procedure for such corporate debtors under CIRP to enable them to comply with GST law during CIRP period. After all, a company already under stress is coming forward to pay some tax and in these times of depressing revenue collections, it is only prudent to amend the provisions so as to accept such tax payment instead of being hyper-technical.

This should not be interpreted as advocating condonation of defaults in payment of tax. It is an exception for those who are facing acute financial difficulties because of which they are compelled to go through the restructuring process under IBC. We hope this recommendation is implemented with sufficient legal backing so that challenge by other normal taxpayers on the ground of discrimination can be avoided or defended.

[To be continued…]

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

See Part 76