News Update

GST - Omission of Tax Audit - Will crock-of-bile tears turn FM soppier!

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FEBRUARY 11, 2021

By Shailendra Kumar, Founder Editor

THE pandemic Budget 2021 will go down in history for a raft of reasons. One of the normally-villainised ones is the unstoppable fiscal yawning which necessarily cries for immediate pick-up of fiscal firehoses. But, instead, the Finance Minister was seen snazzily dealing with gargantuan resource allocations like a fiscal savant! As her announcements kept on unfolding more details, it had become starkly clear that she had learnt the art of not haggling over a few loose hundreds of billions of rupees! A close examination of the sectoral allocations unmistakably yields the stunning fact that she did not cave in to the much-talked about fiscal deficit hawkery and speed bumps and paved her way to a new genre of fiscal stewardship! Keeping in mind her resolve to once again 'green' the economy which has been turned into savannah by the lashing pandemic, she not only treated the current fiscally ballooned expenditure with a rare instance of levity but also peddled her support for larger doses of expenditure to resuscitate consumption in the economy. Stubbing all possible allegations of flatulent oratory, she stuck to her understanding not to indulge in fiscal flattery but do loosen the grip of the government on key sectors of the economy! This is how the economy is expected to recover at a prodigious pace!

Apart from fiscal daredevilry, the Finance Minister and the GST Council deserve plaudits for not 'gyrating' to the narrow games of lobbyists and walking the tricky tightrope upright on the legislative amendment front. One of the key amendments proposed in the Finance Bill is to do away with tax audit a la GSTR-9C. As per Section 35 of the CGST Act, 2017, taxpayers above certain turnover threshold are required to get books audited and submit a reconciliation certificate by a Chartered Accountant or a Cost Accountant. Implementation of this provision in the past three years tangibly showcases an ailing trail of history!

Let me explain it more lucidly! As soon as the GSTR-9C return format was made public, darkening shadow of doubts-bearing clouds loomed large over many columns which were found to be undoable. Juberous amendments to answer such objections further muddied the waters. Non-compliance with the deadline followed a spiral pattern, resulting in extension of timelines, as many as seven times for the FY 2017-18. The sticky history continued for the subsequent FYs. Meanwhile, the cost of such audit also kept following the soaring tax audit complexities in lockstep. Parallel to it, one particular set of professionals whose efforts to get themselves included in the list of professionals under Sec 35 had gone down the plughole, kept shedding crock-of-bile tears! When the temperature of lobbying soared and finally degenerated into a defiant jab of outlandish whataboutism, the policy makers, having received inputs about a sort of extortive professional fee tag from a large swathe of notified professionals, rightly decided to play Beethoven to soothe the ruffled feelings of the taxpayers.

The GST Council in its meeting on March 14, 2020, had recommended - Omission of sub-section (5) of Sec 35 and Omission of sub-section (2) of Sec 44. Such an amendment makes eye-watering amount of sense because the law has prescribed provisions for special audit. Here, one may argue that removal of CA Certification may put extra burden on taxpayers! But the truth is that even if professionals are required to certify, the final onus lies with the taxpayers for any omission or commission of errors.

A word of caution for the Union Finance Minister is that with many associations of professionals across India finding their knickers in a twist are learnt to have set up a very big tent of supporters to build pressure on the Government for reversal of this amendment! Bookended by political support within BJP, they may even succeed in swelling the pressure to plutocratic proportions. Aha! I just overheard in the corridors of 'bureaucratic whales' that if the omission cannot be undone, let there be a cunning insertion necessitating a CA certification for annual return GSTR-9! Before any such fiddling is even contemplated, the Union Finance Minister should sotto voce ask herself - Will such a decision be in favour of the taxpayers? If not, she should mimic a sphinx or err in favour of the taxpayers and not all those who exist for the taxpayers but have axed their own feet by indulging in conspicuous abuse of market pricing mechanism!

The second most quibbled amendment is about plugging the faucet of IGST refund. The GST laws provide two barrels for claiming refund - 1) LUT / Refund of Accumulated ITC, and 2) IGST Refund. The latter one is very popular among exporters because one simply pays taxes on export goods and claims refund through the shipping bill filed in Customs for exports. Over 95 % of exporters prefer it because it saves their costs, dealing with just one agency - their paid brokers. If such a tap is plugged, it would certainly hurt exports. No matter how pressing or genuine reasons may rest with the policy makers, shutting down the entire convenient route of refund to stymie attempts of fraud by a few blacksheeps is certainly not a good example of efficient policy-shepherding! India's exports are already down in dumpster fire and such a legislative measure may prove to be an expensive whopper!

The backgrounder for such a stultifying amendment in Sec 16 of the IGST Act, 2017 are several instances where, in export of few specific commodities, gigantic ITC frauds have been detected. Secondly, internationally, refund of IGST paid on export is not available. So, it was felt by the Council that the process may be amended so as to halt purloining of tax refund on overvalued exports. It would also tone up the commercial glutes of Indian exporters who need to get out of the gilded room of incentives and face the 'rebuke' of bellicose international markets! With such amendments in place, the entire process of obtaining refund of ITC may consume anywhere between three to four months!

Thirdly, in erstwhile indirect tax laws, the practice was to zero-rate to SEZ Developer or unit only for authorised operations and all other supplies were taxed at normal rates. Since the present practice of making it zero-rated for all supplies is omissive, an amendment may set it right. In addition, it was also proposed to link foreign exchange remittance against export of goods with refund so that instance of abuse could be capped to the minimum. Though many of these reasons may be kosher but would not sand down 'frictions' among the exporters. The need of the hour is to gum up the policy canvas for higher exports rather than punishing all for a few decadent fraudsters! However, linking refund to forex remittance is a wise step and it should be enforced with a deft touch! Since States may take more than eight months to pass these amendments, the CBIC has rightly amended Rule 96B to support the linking of IGST refund with bank receipt of forex remittances on export of goods.

Though there are many more interesting amendments but the one which has soared up the temperature among the taxpayers is relating to provisional attachment of bank accounts. After the Gujarat High Court decision in M/s Kushal Ltd (2019-TIOL-2943-HC-AHM-GST), the GST Council gave its nod for the proposed amendment to protect the interests of Revenue. So far so good! What about protecting taxpayers from undue and excessive harassment? So many High Court decisions have come against blatant abuse of such powers. As a safeguard, the HCs have recommended a Standard Operating Procedure (SOP) and I sincerely hope that the Member (GST) in the CBIC is not caught napping over it as so aghast are the Benches in the High Court that I am at my wits' end that they have not yet warranted presence of the Revenue Secretary in the court! A second round of examination of all the 16 proposed amendments may reveal that such a bid would not be a case of gilding the lily! Though tightening the screw against errant taxpayers is an ancient administrative wisdom but what goes hand in hand with it is the hand-holding measures tinged with empathy!