TIOL - COB( WEB) - 943
OCTOBER 24, 2024

By Shailendra Kumar, Founder Editor

FOR a large swathe of the taxpayers' community, tax laws are strange and unfathomable commodities! For many, it is like a 'meat grinder' or a swamp of bile! A good chunk tends to romanticise about remedial amendments if 'glitches' are widely acknowledged as a dumpster fire! Limitation period to spark off tax demand is one such incendiary issue in the briskly-evolving indirect tax laws of GST. Tax professionals and the industry tend to borrow the spirit embedded in the erstwhile regime of Central Excises & Salt Act of 1944, when the limitation period used to be three months. An effervescent reference is made about it with a tongue-in-cheek remark - It was so sober when we were a British-ruled colony! Now that, we are a tech-enabled welfare state, the GST policy-makers are expected to be more considerate and justiciably fair! More dopamine-minded! This is how the curtain was raised by the moderator of the third technical session at TIOL Tax Congress 2024, Mr Jai Kumar of Swamy Associates. Referring to the limitation period of suppression and non-suppression cases in the context of new Section 74A, he observed that the merger of the limitation period under the two types of cases to make it 42 months from the date of annual return, effectively makes it 61 months which is overwhelmingly egregious for genuine taxpayers, having iffier issues like classifications and coin-toss interpretational differences.

With such a vinegary backgrounder, Mr Jai Kumar volleyed his first question to Mr M S Mani, Partner, Deloitte India LLP, and Mr Mani was very firm in his view when he said that there cannot be two views as the extended period of limitation infringes the canons of fair play. He further elaborated that unlike the bygone era of Central Excise, the GST is a tech-enabled regime, and he fails to support his senses as to why should assessment get kick-started only after the annual return is filed! When two returns are filed regularly and the data is in electronic clothes, assessment may be initiated much earlier so that longer time-span is not needed in the legal provisions. He also classified taxpayers' errors under the rubric of bona fide and mala fide. The former accounts for over 90% cases as the GST laws and rates changed multiple times; the GSTN, during its initial years, suffered bouts of concussions; advance rulings failed to advance the just cause, and the GST Tribunal continues to be a surreal mix of fact and fantasy! In the shadow of all these factors, the businesses were susceptible to making errors, he added. So, he recommended that the Government needs to be more empathetic towards the initial year cases. With the GST collections being on the upswing, more trust is required to be injected into the taxpayers for their cooperation and better compliance track record. Ergo, he added, the right period of limitation for bona fide cases should be maximum 12 months. Referring to the on-going audit for four financial years which is giving blowdown times to both the Revenue as well as taxpayers, he also called for another chance to correct bona fide errors.

To clear the fog of misgivings over the merger of limitation periods for suppression and non-suppression cases, the CEO, GSTN, Mr M K Sinha, 'surmised' that such a decision was perhaps taken on the basis of some empirical leaves of wisdom and experiences. For instance, he insisted that in any adjudication, the first thing which is decided is - whether extended period is liable to be invoked or not? He further observed that adjudication is an intricate exercise based on the doctrine of preponderance of probability but the judicial history reveals that penalty is never decided based on this doctrine and Revenue is mandated to bring irrefutable evidence on record - as good as the one required under criminal laws! So, once the distinction between normal and extended period is ousted, adjudication moves like a rat up a drainpipe. Secondly, it implicitly reins in presently ballooning litigation. He further added that it also saves energy of tax administration and infuses certainty in tax collections. Since penalty and prosecution become diluted, tax laws also become, um, more civil to that event, he added as an afterthought.

When Mr Jai Kumar reiterated that the industry's main gripe is 42 months with interest in non-suppression cases, the ASG, Mr N Venkatraman, took the 'hot' mic and explained that since the GST Council has permitted availment of ITC, even for the limitation period of 42 months, the liability of any nature is going to be a pass through cost, and that should be viewed as a sumptuous equaliser. Moving forward to the recently notified first amnesty scheme under the GST, the moderator pointed out that such a scheme has been designed to envelope cases under Section 73 whereas an avalanche of notices is being issued under Section 74 - almost over 98% of all notices! As per the provisions, he further added that if an adjudicator finds that there is no suppression, the case survives u/s 73. But, since it would take time, a taxpayer would miss the bus of amnesty! Voila! A sort of 'anaconda' scheme! Responding to it, the ASG pointed out that this issue was debated in the GST Council but some of the States were coy about it. Since each federating partner has a right, Section 74 was kept at arm's length, he added. Secondly, the ASG clarified on the issue of 'missing the bus' - It is a policy call, and all schemes are in the nature of a contract and every contract has a time-frame, cannot be open-ended.

Swishing at the practice of ITC denialism on the ground of default by the supplier even if the recipient has paid taxes, Mr Jai Kumar observed that had there been the originally-planned GSTR-3 in place, there would have been no room for litigation. He asked: Does mothballed GSTR-3 still survive in the mind-space of the policy-makers? Responding to it, the CEO of GSTN explained that GSTR-1, 2 & 3 could not be implemented because the architects of the GST design could not foresee whether technology could also embed them! Secondly, the industry represented to the government to pause its implementation! And the reason was perhaps, he further elaborated, the new discipline of reporting invoice on the portal. For the first two years, the GSTR-1 filing was barely 40%, and it was so because the industry believed that since invoice was on paper, it could simply utilise ITC even if the supplier failed to report invoices in one's GSTR-1! So, he further narrated, the first course correction was to elbow the industry to inculcate the habit of filing GSTR-1 regularly. Then came the mismatch between the values reported in GSTR-1 and GSTR-3B - it was only 70% of the value declared in GSTR-1. So, he further delved deeper into the nuances of the trend and said that what was happening was that tax was paid only partly but full ITC passed through in the system. To stymie such a debilitating trend, pre-filled GSTR-3B and GSTR-2B was given. And the third stage of evolution is where Invoice Management System has been put in place from 1st October this year.

On the question of ITC, Mr Sinha also said that credit is a legal question and there are several conflicting decisions. The court rulings in favour of Revenue state that credit is a concession which can be allowed only if all conditions are fulfilled. Adding to the gravitas of the issue, the ASG stated that the government is also trying to assess the authenticity of a transaction. For a fair transaction, both the buyer and the seller have to be genuine. He added that a purchaser cannot walk away by saying that they are not responsible for the genuineness of the seller because ITC is like cash and it would amount to revenue loss to the government. So, authenticity of transaction is the hallmark of GST era, he observed. On the issue of blocked credit, the ASG noted that the Government is revisiting this issue and a committee has been set up in this regard, for detailed analysis and also invited suggestions from the taxpayers to overcome this bump. On the same, Mr Varun Khanna, Sr VP (Finance & Indirect Tax Head), Bharti Airtel Ltd, said that he has no quarrel with blocked credit but the real challenge for a taxpayer is the inability of the ERP to recognise such credit and it has to be done manually. So, the larger question is, he asked - If such exercises are worth the pain as it casts burden on the taxpayers as well as the Revenue. On the issue of payments made beyond 180 days, interest is to be paid to the government. However, he explained, the moot question is that since interest is compensatory in nature, why is a taxpayer liable to compensate the government and for what services? If a taxpayer has not paid its supplier or there is a longer period of credit from the supplier, the taxpayer cannot be penalised for availing such credit!

Turning towards another panellist, Mr Mohan Nusetti, Global Tax Head of Lupin Ltd, Mr Jai Kumar asked about the uneven times confronted by the taxpayers under Section 6 on the cross-empowerment of the Central and State officers. Mr Nusetti observed that under the GST laws, investigation is done by one authority and adjudication is done by another. Ideally, he opined, jurisdictional officer is better suited as he also has better understanding of business of a taxpayer registered with him. He cited the example of ISD where his head office in Mumbai was audited for distributing ITC to branch offices across India. However, what unnerves him more is the request from state authorities seeking transport of all the data from HO to different state branches for fresh scrutiny! This amounts to double work not only for the taxpayer but also the Revenue. Reacting to his suggestion, the ASG commented that the point of jurisdictional officer does not carry merit because there have been many instances of collusion. Secondly, he added that the abuse of power by one authority cannot be the basis to declare the law illogical!

The last panellist, Mr Ashish Chandra, Chief Legal & Risk Officer of Junglee Games India Pvt Ltd, observed against the tall silhouette of India becoming a developed nation by 2047 - Time is ripe for India to start designing its fiscal policies for the emerging technologies because post-implementation of full potential AI in the next three years, the entire job market and skill requirement in the economy would change. He further elaborated that at present, the policy-makers tend to treat tech-intensive industry as a sin industry but there is high possibility that such industries would ascend to the pedestal of mainstream sectors in the economy. So, opportune times for India are now to make tax laws more conducive for emerging technologies. To train AI, I need blockchain and Web 3 tools but current fiscal policy eco-system is not supporting such innovations. With his observations, a wonderfully curated and stimulating session came to an end, but not without the ASG inviting meaningful suggestions from the taxpayers for both direct as well as indirect taxes to make the system more robust and efficient.