Flurry Of GST Circulars: Understanding The Changes
As a result of the 47th meeting of the Goods and Services Tax Council concluded on June 29, a series of notifications and clarificatory circulars have been issued.
By and large, the recommendations have received a mixed response. Notably, while some of these recommendations seek to address the existing anomalies and iron out the difficulties faced by the taxpayers, there is a lot to cheer about. Concomitantly, there are a few burdensome compliances for which taxpayers have to prepare for, and there are some constructive proposals and reforms that aid in streamlining the procedural lapses.
What To Cheer About
Pursuant to the observation of the Supreme Court in the Union of India vs. VKC Footsteps case that the formula prescribed under Rule 89(5) for the refund of input tax credit in case of an inverted rate structure is contaminated with anomalies, the amendment introduces a favourable tweaking in the formula. The new formula allows only the deduction of a proportionate output tax credit, in the ratio of credit of net ITC on input goods to total ITC of input goods and input services.
So, if not in full, the affected taxpayers would get a partial relief in terms of higher eligibility for refund under Rule 89(5).
Unfortunately, the amendment is prospective in nature and does not touch upon the position of the previous period.
A favourable clarification has been provided to affirm the eligibility for a refund on account of an inverted duty structure where the supplier is supplying the same goods under a concessional notification. Recently, the High Court of Rajasthan in the case of Baker Hughes Asia Pacific Limited vs. Union of India and Others has granted relief to the taxpayer in respect of an identical issue.
Rate rationalisation to combat inverted duty structure has been on the cards for a long time. During this round, the GST rate on a series of goods and services has been increased to correct inversions. For instance, the GST rate on specified goods for petroleum has increased from 5% to 12%, work contract services supplied to the government or local authorities from 12% to 18%, and cut and polished diamonds from 0.25% to 1.5%.
Another potential issue which has substantially contributed to litigation is transactions involving fake invoices. It is good to see that the GST Council has addressed some of the issues revolving around the applicability of demand and penalty provisions under the CGST Act. It will certainly aid in the reduction of litigation.
The key clarifications are as under:
Situation 1: Where there is only issuance of tax invoice without the underlying supply of goods and/or services.
In such cases, in as much as there is no supply in terms of Section 7 of the CGST Act, 2017, no tax liability arises. Accordingly, no demand or recovery is warranted in terms of Section 73 or 74 of the CGST Act. However, such cases will attract penal actions in terms of Section 122 (1) (ii) of the CGST Act.
Situation 2: Where ‘A’, a registered person, issues a tax invoice to another registered person ‘B’, without the underlying supply of goods and/or services. In furtherance, B avails ITC on the basis of the said invoice.
In such cases, as B has availed ITC in contravention of the provisions of Section 16 (2)(b) of the CGST Act, therefore, he or she shall be liable for the demand and recovery of the said ineligible ITC in accordance with the provisions of Section 74 along with applicable interest thereon in terms of Section 50 of the CGST Act.
Situation 3: Where ‘A’, a registered person, issues a tax invoice to another registered person ‘B’ without underlying supply of goods and/or services. Subsequently, B avails ITC on the basis of the said invoice. Further, B passes on the said ITC to another registered person ‘C’ by issuing invoices and without underlying supply of goods and/or services.
In such specific cases, no demand and recovery of either ITC incorrectly availed or tax liability in respect of outward transaction by B to C is warranted under the provisions of Section 73 or 74 of the CGST Act.
Nonetheless, these specific cases will only attract penal actions on ‘B’ in terms of Section 122 (1) (ii) and Section 122 (1) (vii) of the CGST Act simultaneously.
The notified retrospective amendment in Section 50 (3) of the CGST Act and amendment in Section 49 (10) of the CGST Act respectively, assists in reducing the burden of a taxpayer from paying the interest on wrongly availed input tax credit which is duly reversed before utilisation. Rule 88B has been introduced in this connection.
Other positive moves:
The waiver of late fee under Section 47 of the CGST Act for a delay in filing Form GSTR-4 for the financial year 2021-22, is proposed to be extended by approximately four more weeks i.e., till July 28, 2022.
Exempt taxpayers having an annual aggregate turnover of up to Rs 2 crore from filing an annual return in Form G.
An amendment in the CGST Rules to provide for refund of unutilised ITC on account of export of electricity, to facilitate the exporters of electricity in claiming refund of utilised ITC on zero-rated supplies. A circular has been issued to provide for the procedure.
The period from March 1, 2020, to Feb. 28, 2022, to be excluded from the calculation of the limitation period for filing a refund claim under Sections 54 and 55 of the CGST Act.
Amendments in Rule 96 of the CGST rules for handling pending IGST refund claims. Hopefully, this will facilitate in expeditious disposal of the refund claims filed by the exporters.
Supplies from duty-free shops at an international terminal to outgoing international passengers to be treated as exports by duty-free shops. Accordingly, refund benefits are to be available to exporters on such supplies. Consequently, Rule 95A of the CGST Rules, Circular No. 106/25/2019-GST dated June 29, 2019, and all related notifications or circulars are proposed to be rescinded.
An amendment in Rule 21A of the CGST Rules to revoke the suspension of registration automatically once all pending returns are filed. This amendment will significantly lessen the burden of the courts where the issue absolutely pertains to procedural lapses and does not require courts’ intervention.
Exemption of IGST on import of goods under the AA/EPCG/EOU schemes will continue. However, the e-wallet scheme would be discontinued.
The value of duty credit scrips shall be excluded in the computation of the aggregate value of exempt supplies for reversal of common credit under Rule 42 and Rule 43 of the CGST Rules.
It has been clarified that perquisites to employees under a contractual agreement will not be subjected to GST.
UPI and IMPS have been notified as additional payment modes for the discharge of GST liability.
Transfer of IGST and CGST amounts in electronic cash ledger to other GST registrations under the same PAN number has been allowed.
What To Prepare For
1. Disallowance of accumulated ITC refund on account of inverted duty structure in the case of edible oils and coals.
2. Various exemptions have been withdrawn:
GST on agricultural items like packaged cereals, wheat, maize, and rice, which are unbranded but sold in a labelled package.
GST on pre-packaged and pre-labelled retail packs of curd, lassi and buttermilk.
GST up to 18% has been recommended on cheques, maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographical plans and globes printed.
3. Enhanced disclosure requirements in the GSTR-3B, including the disclosure requirements for supplies through e-commerce operators.
4. The period from March 1, 2020, to Feb. 28, 2022, is to be excluded from the calculation of the limitation period for the issuance of demand/order in respect of erroneous refunds in terms of Section 73 of the CGST Act.
5. Further, for the financial year 2017-18, the time limit has been extended till Sept. 30, 2023, for the issuance of the assessment order.
6. The GST Council has recommended revisions in GST rates for a series of products with effect from July 18, 2022.
What To Hope For
Hard-pressed to constitute GST Appellate Tribunal, the Council has called for forming a Group of Ministers to address various concerns as raised by the states in relation to the constitution of a GST Appellate Tribunal and to take necessary measures.
Directions to re-examine the issue of applicability of GST on casinos, online gaming and race course at par with gambling.
IT reforms have been recommended in GSTN by introducing artificial intelligence and machine learning-based mechanisms.
To sum up, we have observed that a flurry of notifications and circulars have been issued so far. Certainly, these amendments and clarifications will aid the respective industries and, further, be a factor in reducing the superfluous legal battles.
Gopal Mundhra is Partner, and Ankita Vashistha is Senior Associate, at Economic Laws Practice.
The views expressed here are those of the authors and do not necessarily represent the views of BQ Prime or its editorial team.