MAY 20, 2020

By Dr G Gokul Kishore

LOCKDOWN has opened multiple doors and windows bringing fresh ideas as carried through numerous articles and webinars. The surge seems to vindicate that home is the home of creativity. In this 81st part, let us take a look at the possible items that should top the agenda of the next meeting of the GST Council.

GST compensation - Ensuring timely release to States

GST Council has not met for the past two months. Even during pre-Covid period, some of the meetings of the GSTC were organised through video conferencing (VC). Scheduling a meeting of GSTC through VC itself should top the agenda. The government has officially stated that funds from GST Compensation Cess Fund has not been released from December onwards. Till mid-March, economic activity was chugging along and, therefore, cess amount should have got accumulated. Considering the extraordinary revenue shortfall and the primary onus of waging the war against Covid-19 being on the States, there cannot be any delay in release of such funds. This is possible only if the Council meets. Even last year, when GST revenues were not matching the apparently unrealistic targets and evasion was being cited as the reason, delay in release of funds from such cess account had caused much consternation among the States. Now, with the pandemic inflicted inertia in the economy, States are reeling under a massive revenue crisis.

States have opted to share their power to tax sales by merging it with supply along with the Centre thus hardly retaining any exclusive taxing source or power. The grand bargain was that compensation for five years for the revenue loss on account of GST will be paid out of such cess. Not having sufficient funds in cess account is different from not being able to ensure timely release. The Centre should think beyond five years as the demand for compensation after fifth year was raised last year. Cooperative federalism is attractive during peace time but the real test for such lofty concepts is during emergencies like the present one. Convening the meeting of GSTC, releasing funds to States, bringing a framework for possible extension of such mechanism beyond five years and other related issues should form the first item of the agenda.

Urgent clarification on certain issues

CBIC issues lot of clarifications by way of lengthy circulars preceded by press releases post GST Council meetings to indicate that such measures are being taken as recommended by the GST Council. Two issues which beg clarification but where CBIC has opted to maintain inexplicable silence are (a) cross-charge (b) GST inapplicability on amount paid to part-time directors. There are many more issues but these two issues have been highlighted because, the former has been left to the imagination of taxpayers and the field formations for almost three years now and the latter because of legally unsustainable rulings of Authority for Advance Rulings.

When GST law does not define the term 'cross-charge', investigations are being undertaken, summons are being issued and statements are being recorded as to why cross-charge mechanism is not being adopted. While deemed supply under Schedule-I of CGST Act is understandable, the inclusions and exclusions, the norms for adoption of value as to what may be treated as in conformity with the rules, the time-limit for such charging, etc., have been requested by the industry from multiple fora incessantly. The requirement itself is being perceived by some as not mandatory apparently due to lack of official word on interpretation of the relevant provisions and consequent liability on intra-company but inter-State support services. Advance rulings and appellate rulings have been issued on inclusion of certain elements like salary for such purpose but CBIC is yet to reveal its mind. Taxpayers will be relieved of surprises from the tax administration if the GST Council recommends issuance of a comprehensive clarification on this issue without any further delay.

Next to Covid-19, a search in the internet will throw maximum results for taxability of amounts paid to directors under GST law. Megabytes of articles and news reports have been published based on the recent advance rulings - one in favour of taxpayer and another against the taxpayer. Press reports keep flashing once in a few months of revenue intelligence agencies booking cases on remuneration to directors. But the hallucination of normalcy does not wear out for CBIC. One is frustrated to the extent of pleading for abolition of even the institution of AAR particularly when, neither a speaking order is passed on various contentions raised nor such rulings manifest any application of rules of interpretation or jurisprudence on the issues involved. When queried about the genesis or rationale of launching investigation on commission paid to CMD, an officer of revenue intelligence reportedly remarked that when news reports carry the quantum of earnings, there is no need to even investigate.

Whether the amount is paid as salary, whether TDS is deducted, whether the director is a full-time employee, whether the amount is merely variable component of remuneration, etc., these are all for authors to write, advocates to argue and may be, higher judiciary to decide. One fervently hopes that GST Council takes cognizance of the rulings and reports and recommends issuance of clarification to clear the air.

Transitional credit fiasco

GST law is the youngest among most of the laws and yet, it has witnessed substantial number of writ petitions being filed challenging not only vires of the provisions but also seeking mandamus to make the administration act. A full-fledged tragedy has been enacted in the form of transitional credit. From the romance of seemingly smooth transition of Cenvat credit as ITC under GST to skirmishes like technical glitches, the plot has got thicker with retrospective amendment on provision relating to time-limit and pushing taxpayers to mount multiple challenges like validity of such back-dated amendment to notification having nullifying effect on the judgments.

The word 'tragedy' has been used not out of choice but out of compulsion because the tax administration had the opportunity to draft a law to provide for refund of accumulated credit in Cenvat account subject to verification at the time of stepping to GST. Due to obvious revenue reasons, such refund route was not adopted but statutory re-characterisation of Cenvat credit to ITC was provided for. Thus, by constructing a bridge between the pre-GST and GST laws, many taxpayers have been pushed down the currents only to be washed away. Also, by relegating such an important facility to the mercy of IT system under development, accrued rights have been effectively reduced to matter of luck and chance. CBIC should reveal its mind on this issue so that taxpayers can prepare themselves for continuing adversity.

[To be continued…]

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

See Part 80