Ever since its introduction in July 2017, the Goods and Services Tax ( GST ) Law has taken the center stage as far as taxation in India is concerned. Before its introduction, Income Tax Law used to be the subject matter of discussions and attracted more public attention Indirect taxes like Service Tax, VAT etc used to be relatively less in the limelight. However this changed with the introduction of GST ; all the States came under one roof along with the Centre, as far as Indirect Taxes were concerned and the concept of One Nation One Tax was implemented.
GST has had many positives, such as a single law and set of rates for the entire country, abolition of check posts, online processing of most of the applications, ranging from registration to refund, to name a few. However there have been a lot of bottlenecks from the point of view of implementation. Frequent changes in the rules and a large number of clarifications via Circulars and Press Releases, have complicated matters. While the list of issues under GST, will be a big one, this Article, has tried to point out a few sticky issues, which need changes in the Act /Rules or clarifications by the Central Board of Excise and Customs. A few issues and the possible solutions are highlighted below :-
i Refund under inverted duty structure – not allowed on goods lying in stock
As per Section 54(3) of the CGST Act, refund of unutilized input tax credit is available to the taxpayer where such unutilized input tax credit arises on account of the rate of tax on inputs being higher than the rate of tax on output. The formula for calculation of such refund has been prescribed under Rule 89 (5) of the GST Rules. However it is seen that some GST Officers are denying refund of such input tax credit in respect of output /goods lying in stock ie which have not been sold.
It may be noted that there are no such restrictions prescribed anywhere under the GST Act/Rules. Further the various Circulars issued by the Central Board of Indirect Taxes and Customs(CBIC) from time to time have clearly spelt out the method of calculation of refund as prescribed under Rule 89(5) and also the documents required to be annexed along with the refund application. It is an established legal principle that the Department Officers are bound by the Rules and Circulars issued by the CBIC.
The above artificial restriction imposed by certain Officers, is causing serious hardships to the taxpayers, blocking their genuine refunds, especially in these challenging times. A specific clarification from the CBIC, that no refund of tax under inverted duty structure,due under Section 54(3),shall be blocked in respect of goods lying in stock, will greatly help in avoiding unnecessary litigation.
ii, Refund of Unutilized Input Tax Credit on Exports restricted to FOB Value
In its Circular number 37 of 2018, dated 15th March 2018, the Central Board of Indirect Taxes and Customs (CBIC ), clarified that in the case of refund of unutilized input tax credit on account of export of goods, where there is discrepancy between the value of GST invoice and the invoice value declared in the shipping bill, the refund has to be sanctioned on the basis of the invoice value declared in the shipping bill.Based on the above Circular, the Department is now restricting refund on the basis of FOB value declared in the shipping bill.
It may be noted that in a shipping bill, the FOB value as well as the Invoice value have to be declared. Where the export is on CIF basis, the invoice value will include freight charges etc billed to the foreign customer. As per Section 15 of the GST Act, transaction value shall includes “incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services. The above Circular itself states that transaction value should be recorded in the shipping bill/bill of export.
Restricting the refund based on FOB value is in violation of the valuation principles laid down under the GST Law. Moreover, the Circular referred to above, nowhere refers mentions FOB value. Hence a suitable clarification from the CBIC issued in this regard stating that the refund should be sanctioned on the basis of the transaction value declared in the shipping bill and not FOB value, will help.
iii. Refund of Input Tax Credit Denied Even for Invoices Reflected in GSTR 2B
The Central Board of Indirect Taxes and Customs (CBIC ), in its Circular 135 of 2020 has clarified that “the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant”. This basically implies that refund of accumulated input tax credit will be allowed or should be allowed in respect of those invoices which are reflected in GSTR 2A of the applicant. However, the Department in many cases is denying refund of accumulated input tax credit even in respect of those invoices which are reflected in GSTR 2A of the applicant, on the ground that the Supplier (the applicant’s supplier ), has not filed his GSTR 3B and hence the input tax credit is ineligible under Section 16(2(c ) of the CGST Act 2017.
The above objection is in violation of the Circular issued by the CBIC, which should be brought to its notice. Else the Circular will fail to achieve its purpose.
iv. CA Certificate – Circular in violation of Rules
As per Rule 89(2) (m) of the CGST Rules, a Certificate issued by a Chartered Accountant or a Cost Accountant to the effect that incidence of tax has not been passed on to any other person, by the applicant, is required to be furnished along with a refund application, where the refund applied for exceeds Rs 2 lakhs.. However,proviso to the Rule, provides that such certificate is not required to be furnished in respect of cases of refund covered under clauses (a), (b),(c), (d) and (f) of the CGST Act 2017.
However Circular 125 of 2019 issued by the CBIC dated 18th November 2019, requires the above certificate to be produced along with all refund applications where the refund claim exceeds Rs 2 lakhs. It has been held by the Hon’ble Courts in a number of decisions that a Circular cannot override the Rules. Hence a suitable amendment may be made to Circular 125,providing that the above certificate is not required in cases referred to in the proviso to Rule 89(2) (m).
B. E-WAYBILL /DOCUMENTS IN TRANSIT RELATED ISSUES
i) Detention on the ground of classification issues
In many cases, it is seen that the goods are detained in the course of transportation, on the ground that wrong HSN code has been used or the GST rate charged is wrong. The Hon’ble Courts in the country have consistently held that once the documents in transit are found to be in order, the goods should not be detained on the ground of any other issues; in the case of classification related disputes, the matter has to be referred to the concerned jurisdictional officer and the goods should not be detained further. The judgements of the Hon’ble High Court of Kerala in the case of Daily Fresh Fruits India Private Limited. Vs Asst. State Tax Officer (Kerala High Court) (WP(C) No. 3431 of 2020), Podaran Foods India (P.) Ltd. v. State of Kerala –  123 taxmann.com 282 (Kerala), N.V.K.Mohammed Sulthan Rawther and Sons and Willson Vs Union of India ( 101 taxmann.com 24 (Kerala) have clearly laid down the aforesaid principles
Despite the judgements of the Hon’ble Courts, the taxpayers are harassed on the ground of classification and GST rates. A Circular from the CBIC, as well as directions ( to the Officers ) that once the documents are found to be in order, the goods should not be detained further, will be of great help to the taxpayers in the smooth transportation of goods.
ii. Expiry of E-way bills
A number of cases are seen where the validity of e-way bills is expired due to reasons beyond the control of the transporter ; at present only 8 hours are available within which, the validity can be extended. The time limit is too short ; in most of the cases, the transportation happens during night ; so if a break down happens at 11pm, the validity of the e-way bill has to be extended within 8 hours which is 7 AM, the next day. In such a situation, it is very difficult for the transporter or the taxpayer to extend the validity of the e-way bill and the goods end up being detained by the Department. The taxpayer has to shell out a huge amount, being the applicable tax and an equivalent amount as penalty, to get the goods released. Both these amounts cannot be claimed as credit and end up being a cost to the taxpayer.
A possible solution will be to extend the validity of the e-way bill to 12 hours from the present 8 hours or a Circular may be issued providing for a nominal penalty in such cases, where the only issue involved is the expiry of the e-way bill.
C. INPUT TAX CREDIT
i) Rule 86 A – Disallowance of Input Tax Credit Reflected in Electronic Credit Ledger
As per Rule 86 A of the CGST Rules, the Commissioner or an officer authorized by the Commissioner in this behalf, not below the rank of Assistant Commissioner, may disallow utilization of input tax credit reflected in the electronic credit ledger, which has been availed fraudulently, by such means as have been prescribed under the Rules. The Rule gives complete discretion to the Department, without even providing an opportunity of being heard to the taxpayer, who has availed such credit in the electronic credit ledger. It has been seen in the past that such powers have been used indiscriminately in many cases, without even examining the merits of the case. There have been a number of decisions by the Hon’ble Courts, which have held that any action taken by the Department, without adjudication proceedings are void.
In order to ensure fairness to the taxpayer,a provision be made under the Rules, to provide the taxpayer with an opportunity of being heard, before disallowance of input tax credit. Also the power to disallow such credit may be subject to prior approval from the Commissioner, in each case.
i) Reverse Charge Liability – Separate Registration Regarding
As per Section 24 (iii) of the CGST Act, a person liable to pay GST on reverse charge basis, has to be get compulsorily registered under the GST Law, irrespective of his aggregate turnover. Once a person gets registered under the GST Law, he has to comply with all the provisions under the Law including collection of GST on all taxable outward supplies.
The above provision results in undue hardship to small businesses, having turnover much lower than the present threshold limit of 20 /40 lakhs as the case may be. For example, a partnership firm having turnover of say R 5,00,000 pays freight of Rs 2,500 to a Goods Transport Agency. In this case, the partnership firm becomes liable to pay GST on reverse charge basis under Section 9(3) read with Notification 13/2017 -Central Tax (Rate) . Because it is liable to pay GST under Reverse Charge, the partnership firm becomes liable to get registered under Section 24 of the GST Act, irrespective of its turnover. Once registered, the firm becomes liable to collect GST on all its taxable supplies.
It may be seen above that due to the provision of compulsory registration, even very small businesses become liable to get registered under GST, thus making the turnover limit, irrelevant, which does not seem to be the intention of the enactment. A possible solution to this would be that, a separate category of registration may be provided, only for payment of GST on reverse charge, similar to what existed under the Service Tax Law, wherein there was an option register as “recipient of services “.
ii) Conflict between Section 24 and Section 23
Section 24 of the GST Act, which begins with a non obstante clause ie “ notwithstanding anything contained in sub section (1) of Section 22 “, overrides the provisions of Section 22(1). Accordingly, in the cases referred to in Section 24, a person becomes liable for compulsory registration, irrespective of the turnover threshold limit specified under Section 22(1).
Section 23 specifies cases, where a person shall not be liable for registration which includes a person engaged exclusively in making non taxable or exempt supplies and an agriculturist, to the extent of sale of agricultural produce. However, as mentioned above Section 24, overrides only Section 22(1) and not Section 23. This creates confusion in cases where provisions of both Section 23 and Section 24 are applicable, which may be explained by the following example:_
Eg: a person making inter state outward supplies of goods, is liable for compulsory registration under Section 24 ; however if such person is making only exempted supplies, he is exempt from registration under Section 23 ; in this scenario which Section will prevail is unclear. Similar situation arises in the case of a person liable to pay gst on reverse charge, who is making only exempted supplies.
A possible solution to the above conflict would be to add a non obstante clause to Section 23, by which it shall override Section 24.
iii. Electronic Commerce Operators – whether liable for both registrations
Under the GST Law, registration is available under multiple categories ie as a taxpayer, tax deductor, tax collector, etc. As per Section 24 (X) of the CGST Act, every electronic commerce operator, who is required to collect tax at source under Section 52, is required to be registered under the GST Act, irrespective of his turnover.There is lack of clarity as to whether registration as a “tax collector “, will be sufficient compliance of Section 24 or does he have to obtain registration as a tax payer as well.
Another reason for the above confusion, is on account of certain provisions relating to a person liable to deduct tax under Section 51. For example as per Notification 13/2017 -Central Tax (Rate) ., reverse charge on services received from a Goods Transport Agency(GTA ), is not applicable to a person registered under GST, only as a tax deductor ; similar provision is also applicable in the case of security services received by a person registered under the GST law only as a tax deductor. This establishes the fact that a person liable to deduct tax under Section 51, needs to register only as a tax deductor, by virtue of Section 24, if his aggregate turnover is less than the threshold limit prescribed under Section 22.
A suitable clarification may be issued under the Act, as to whether an electronic commerce operator, who is liable to collect TCS and whose turnover is less than the threshold limit prescribed under Section 22, needs to take registration as a normal taxpayer in addition to the registration as a “tax collector “
iv. Casual Taxable Person
Section 2(20) of the CGST Act, defines a casual taxable person as a “person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.
In light of the above definition, it may be clarified whether registration as a casual taxable person is necessary in the following cases :-
a. An individual providing event management service, registered in Kerala,under the GST Law, provides event management service for an event held in Tamil Nadu. He visits Tamil Nadu for a few days in connection with the event. In this case, should he take registration as a casual taxable person, since he has provided an “occasional supply of service in a State where he does not have any fixed place of business “.
b. Would the answer to the above question be different, if the individual had no GST registration in Kerala,
c. Would the answer be different, depending on the nature of services, for example an Auditor visiting another state where he does not have a fixed place of business, for carrying out an audit
E. GST RETURNS
i. GSTR 3B Filing – to be enabled without payment of Tax
Input tax credit can be availed by taxpayers, only on filing of GSTR 3B. A major issue faced by taxpayers under the GST Law, is that they are unable to file GSTR 3B, without payment of the tax declared in the return. As per Section 16(4) of the CGST Act, input tax credit for a financial year can be availed only till the due date for filing GSTR 3B, for the month of September of the next financial year. There are a large number of taxpayers, who due to non-receipt of payment from their customers or due to the general economic conditions, are unable to pay their tax dues on time. Since the GST portal does not allow filing of GSTR 3B without payment of the tax declared, these taxpayers are unable to file their GSTR 3B before the time limit prescribed under Section 16(4) and thus lose out on their input tax credit.
The above issue was deliberated by the GST Council in its 31st meeting held on 22nd December 2018. Agenda no 7 (xx) of the minutes of the meeting, which dealt with proposal for amendment of Section 50 of the CGST Act to allow payment of interest on net cash liability, reads as under :
“ Law permits furnishing of return without payment of full tax as self assessed as per the said return but the said return will be regarded an invalid return. No such facility has been yet made available on the common portal. The inflexibility of the system increases the interest burden.”
The above remarks forming part of the minutes of GST council meeting clearly establishes the fact that the return referred to under Section 39 ( GSTR 3B ), can be filed without payment of tax and thus input credit can be claimed ; however the GST portal due to its inflexibility, does not allow the facility to file the return and claim the eligible input tax credit.
Further GSTR 2, which is the prescribed form for claiming input tax credit under the GST Law is not yet operational. It may be noted that GSTR 2 is not linked to payment of GST by the taxpayer.
In view of the above reasons,it is high time that GSTR 3B is allowed to be filed without payment of the tax declared in the return..This would not only allow the taxpayer to claim the eligible input tax credit on time, but also, encourage filing of returns and thereby declaration of tax liability on time.
ii. Revision of GST Returns
At present, none of the GST returns, once filed, cannot be revised. It has been seen over the last 3 years, that taxpayers have committed different types of errors while filing the returns and Circulars have been issued from time to time, clarifying the procedure to rectify the errors. Under the erstwhile laws, Service Tax as well as VAT, the option to file revised return was available to the taxpayers. Even under the Income Tax Law, a return can be revised multiple times.
An option to revise the GST returns, should be given to the taxpayers, at least once, after the return is filed,if not multiple times. This would save lot of time for the taxpayers as well as the department and ease the compliance burden.
F) TIME OF SUPPLY
i) Government Contracts
Certain Government contracts like for construction of roads, bridges etc are structured in a way that it is very difficult to determine the time of supply as per Section 13 of the GST Act. As per Section 31(5) (b) of the CGST Act, where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment.
It is requested that a clarification may be issued that the time of supply in the case of Government Contracts is the date of receipt of payment from the Government /Government Authorities.
G) IGST Act – Place of Supply
i) Online Training
As per Section 12(5) of the IGST Act, the place of supply in relation to training services,shall be
a) the location of the recipient of service, if he is registered or
b) the location where the services are actually performed, if the recipient is not registered
At present, online training sessions are on rise due to the restrictions necessitated by COVID 19. In respect of such training sessions, provided by a person, having GST registration, it may be clarified as to what is the place of supply in case, the recipient is unregistered. Going by the literal meaning of the provisions of Section 12(5) (b), the place of supply shall be the location from where the trainer conducts his training. However going by the inherent nature of GST, it being a consumption tax, the training services are consumed at the place of the recipient of the training session.
A suitable clarification on above is much awaited.
ii Ex-Factory Sales
As per Section 10(1) (a) of the IGST Act, where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
In light of the above provisions, it may be clarified as to what is the place of supply in the case of ex-factory sales ie where the recipient takes delivery of the goods from the factory of the supplier (located in another state ). In this case is it the termination of physical delivery at the factory gate of the supplier, which is relevant or is it the intended final destination of the goods, which is relevant for deciding the place of supply.
Hope the GST Council would deliberate the above issue as it has an impact on the revenue of the respective States and issues a suitable clarification.