DECEMBER 28, 2020

By S Sivakumar, B.Sc., LL.B., FCA, FCS, ACSI, Advocate

AS TIOL readers are well aware, several major changes have been brought about in the GST Rules, in terms of the Notifications Nos 92, 93 and 94, issued on December 22, 2020, some of which are to take effect from January 1, 2021. The purpose of this piece is to try and understand the implications arising out of some of these very important amendments.

Firstly, let's take a look at the amendment to Rule 21A that deals with cancellation of registration. Rule 21A has been amended to allow the Department to suspend the registered person's GST registration, even without affording the said person a reasonable opportunity of being heard. It is only after the suspension of the registration that an opportunity will be afforded to the concerned person to submit his reply and seek the revocation of the suspension. During the period of the suspension, the concerned person's business will come to a complete halt, as he cannot effect any taxable supplies or can generate any E-way bill. Further, a new sub-rule (2A) has been inserted in Rule 21A to permit the suspension of registration in situations where the comparison of data between GSTR-1 of the person in question and GSTR-1 of the vendors of such person show "significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder".

What would constitute 'significant differences or anomalies' is anybody's guess. There could be genuine cases involving huge differences in the GSTR-1 figures and to suspend the registration without understanding the reasons thereof, is very unfair. This is a typical case of an overreach by the bureaucracy and to assume powers to suspend registration even without following principles of natural justice unconstitutional, to say the least.

Secondly… let's take a look at the new Rule 86B, imposing restrictions on the extent to which ITC can be used for payment of output GST. As per this new Rule, a registered person, whose value of taxable supplies other than exempt supplies and zero-rated supplies exceeds Rs 50 lakhs per month, is compulsorily required to discharge at least, 1% of his liability in cash, thus restricting utilization of his ITC to 99%. Of course, the Government has been kind enough to exempt exporters who have received refund of unutilized ITC of more than Rs 1 lakh in the preceding financial year as also registered persons who have received refunds of unutilized ITC on account of inverted rate structure of more than 1 lakh in the preceding financial year. This rule is also not applicable when the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year and in the case of Government departments, PSUs, local authorities and statutory bodies. The proviso to this new Rule 86B also states that the Commissioner or an officer authorised by him in this behalf can remove the said restriction after such verifications and such safeguards as he may deem fit. To leave the discretion to the Commissioner to exempt the registered person from the applicability of this rule can lead to many problems, and the registered person's fate would be left to the whims and fancies of the Commissioners. While, in a particular factual matrix, one Commissioner could take a particular view, in the same factual matrix, another Commissioner could take a different view, leading to confusion all around.

One is at a complete loss to understand the rationale behind the introduction of this Rule. This rule seems unconstitutional, in the absence of an enabling statutory provision. Moreover, to implement this rule, the registered person would need to continuously monitor his ITC availment and this is not something that would further the claim of the Government, towards 'ease of doing business'.

Thirdly…look at the amendment to Rule 36(4), in terms of which the ITC to be availed by the registered person which is not matched by the ITC reflected in the GSTR-2A (which, as we know, would depend on the GSTR-1 filed by the suppliers), has been capped at 5% of the eligible ITC. Here again, only the Babus who have effected this amendment can explain the logic behind the reduction from 10% to 5%. It would seem that, since this amendment is coming into effect from 1-1-2021, it could cover the ITC availed for the month of December 2020 also.

Fourthly… in terms of the amendment carried out to Rule 21, the registered person's registration can be cancelled, under the following additional three grounds, viz.

- when he avails ITC in violation of the provisions of section 16 of the Act or the rules made thereunder; or

- when he furnishes the details of outward supplies in FORM GSTR-1 for one or more tax periods which is in excess of the outward supplies declared by him in GSTR 3B for the said tax periods; or

- when he violates the provision of rule 86B (that we have discussed above).

As we know, Section 16(2)(c) contains a highly controversial and litigation prone requirement that, ITC can be availed by the registered person, only when the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply. How on earth can the registered person ensure that his supplier has correctly availed ITC and how can his ITC availment be linked to the fulfilment of this impossible condition? This Sub-Section has already been challenged before several High Courts and the amendment to Rule 21, in my strong view, is a back door attempt to undermine the powers of the Courts who are already hearing the constitutional challenge to Section 16(2)(c).

Fifthly…. the difference between the value of the output supplies as declared in the GSTR-3B and in GSTR-1 can vary, for several genuine reasons. To bring this element into Rule 21 is, once again, unfortunately, a bureaucratic overreach, to say the least.

I have no issues regarding the amendment to Rules 8 and 9 which provide for biometric verification for new registrations, as also to increase the time limit for granting of new registration, from 3 days, to 7 days. Nobody should also have any issues regarding the amendment to Rule 59, in terms of which, the registered person will be prevented from filing GSTR-1 when he defaults in respect of filing of GSTR-3B, etc.

I have not discussed the provisions of the Finance Act, 2020 relatable to the GST law, that would come into effect from 1-1-2021, as this piece would become too lengthy.

Before concluding…

While I would hesitate to agree with some of my lawyer friends who tend to feel that these measures are pointing out to 'tax terrorism', I cannot hide my utter disappointment that these changes are coming through the Rules, which is the exclusive domain of the Executive.

Are these developments confirming the view of some of the GST practitioners and the registered persons that the GST law is becoming a bureaucracy driven law?

These developments have predictably created some fear, in the minds of the registered persons. Realising this, the Board has sought to allay their fears by releasing some tweets on December 24, 2020 and has stated that, the amendments are essentially aimed at the fraudsters and that, genuine taxpayers would not be affected. While these amendments might be aimed at targeting tax evaders and fraudsters, it cannot be denied that, being generic in nature, the amendments would drastically affect genuine and honest taxpayers who constitute the vast majority.

By the way, why is it that the New Year always brings in a sign of despondency amongst the taxpayers? Readers may recollect the draconian Circular 967/01/2013-CX, Dated: January 01, 2013 [titled 'Recovery of confirmed demand during pendency of stay application'].

Some things never change!

[The views expressed are strictly personal.]