COVID 19 Pandemics – What still can be done to provide Reliefs to the Dealers

We are all aware of the fact that COVID – 19 has not only posed a serious threat on the physical wellbeing of millions of people across the globe including India but has badly shaken the global economy, as well. Whilst, the Governments are being forced to increase spent on public health, sanitization, social security etc., on the other hand they are also grappling with severe shrinkage in the Revenue, in view of the country-wide lock down of economic activities in most of the sectors.

In this challenging time, the Hon’ble Finance Minister of the Country, very proactively, has announced several important and much needed relief measures on statutory and regulatory compliance matters related to several sectors, followed by immediate issuance of Ordinance/Notification/Circular etc. implementing those measures. Simultaneously, the Reserve Bank of India has also announced several stimulants to increase the liquidity in the economy. All these measures, cumulatively, will certainly go a long way to combat the ill effects of COVID – 19 on the economy and for this, the Industry, Trade and Commerce will be grateful forever. In this Article, I have tried to identify few more areas of GST, which if considered favourably, will certainly help the industry, trade and commerce to combat the unprecedented financial loss they are incurring due to suspension of economic activities without impacting the revenue buoyancy – both of which are dire need of the hour.

A. Extension of time limit for taking credit for FY: 2019 – 2020

As per provision of Section 16(4) of the CGST Act, 2020; a recipient of goods and services is not entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains to.

Due to irreversible loss of time and disruption in normal business, it will be extremely difficult for a dealer to reconcile their records with the corresponding suppliers’ records and finalize the credit which he is entitled to take for FY: 2019 – 20 within the given timeline. Hence, it is humbly requested to kindly consider:

Following the Central Goods and Services Tax (Second Removal of Difficulties) Order, 2018 introduced vide Order No. 2/2018 – Central Tax dated 31.12.2018, the relaxation in time limit for taking credit for FY: 2019-20 may please be extended till the due date of furnishing of the return under Section 39 for the month of March, 2021 or for the quarter ended March, 2021, as the case may be.

B. Extension of time limit for error or omission in Returns filed for FY: 2019 – 20

As per proviso to of Section 37(3) of the of the CGST Act, 2017, a dealer who has furnished details of outward supplies (GSTR-1) during FY: 2019-20, has got an opportunity to rectify any error or omission in such returns till furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

Due to irreversible loss of time and disruption in normal business, it will be extremely difficult for a dealer to reconcile their records with the corresponding recipients’ records and finalize the details of the outward supplies uploaded by him for FY: 2019 – 20 within the given timeline. Hence, it is humbly requested to kindly consider:

Following the Central Goods and Services Tax (Second Removal of Difficulties) Order, 2018 introduced vide Order No. 2/2018 – Central Tax dated 31.12.2018, the relaxation in time limit for making rectification in GSTR – 1 may please be extended till the due date of furnishing of the return under Section 39 for the month of March, 2021 or for the quarter ended March, 2021, as the case may be.

C. Extension of time limit for issuance of Credit Note for FY: 2019 – 20

As per Section 34(2), a supplier can issue GST credit note for tax invoice pertaining to FY: 2019 – 20, latest by 30.09.2020.

However, you will, no doubt, appreciate that amidst lockdown, in many a cases it will extremely difficult for small traders to complete all the sales returns to their suppliers for goods received under cover of tax invoices pertaining to FY: 2019-20 within next couple of months. The Suppliers also in turn need some time to verify such sales returns, reconcile the account with their customers and then issuing GST Credit. Further, many of the sectors (falling under non-essential categories) are being forced to stop their trading operations completely and it is apprehended, once the lockdown is lifted there will be a huge quantum of sales return which will hit the manufacturer suppliers badly. It is thus, a deep concern of many of such manufacturer suppliers w.r.t time limit prescribed for GST credit note and hence, it is humbly requested to kindly consider the following:

Extension of time limit for issuance of Credit Note towards a tax invoice of 2019-20, at least, till 31.12.2020 and thereafter, depending on the situation, as it may unfold over the period of time, if so required, the same may please be extended till 31.03.2021.

D. Unblocking of working capital locked up in defunct GSTIN

As you are aware of, in the pre-GST regime, to avoid the cascading impact of non-creditable Central Sales Tax, many a dealers decided to take VAT registration across the States. Post introduction of GST, in view of Section 22(2) of the CGST Act, 2017; such dealers had no choice but to take so many GST registrations across the States and had to transition their accumulated credit from previous tax regime, under the respective GST registrations, in compliance with Section 140 and 142(11)(c) of the said Act. Subsequently, in view of the seamless credit flow in GST, such dealers have decided to consolidate their supply chain in fewer States to optimize their logistic cost without compromising their reach to the market. This might be one of the biggest positive outcome of GST as compared to the erstwhile tax regime.

However, in absence of any provision in the GST laws for refund of unutilized input tax credit upon closure of business, many of such dealers’ substantial working capital is blocked under various defunct GSTINs. Hence, it is humbly submitted to consider:

(a) Introduce an enabling provision in the law, on the strength of which, the said unutilized input tax credit locked up under defunct GSTINs can now be refunded to the dealers who need that money badly for their survival.

(b) Allow such dealers to transfer the said unutilized input tax credit to any other GSTIN of their choice, by introducing requisite amendment in the law, may be by widening the scope of Rule 41A to handle inter-State transfer of credit along with intra-State transfer.

E. Pre-pone sunset clause of the Anti-profiteering proceeding

Anti-profiteering measures prescribed under Section 171 was a welcome step to protect the interest of the end-consumers and not for garnering revenue. But in the present, situation, it is extremely important to revisit the said provision since, all the industries and service sectors, are bleeding profusely due to stoppage / heavy disruption of their business activity. Further, all the economic experts have already predicted to be ready for an unprecedented global recession due to huge job loss and financial sufferings to combat COVID – 19 pandemics. This will automatically put a check on the pricing, following the cardinal principle of demand – supply, in any open economy like India.

Further, anti-profiteering proceeding have already been litigated before various fora and it involves huge litigation cost for both the Dealers and the Government before they reach their finality. Such an unproductive expenditure cannot and should not be desirable, at this juncture, when, each rupee we save, can be used for revival of economy and nothing can be more important than that.

Hence, it is sincerely requested to consider:

(a) Pre-pone the sunset clause for anti – profiteering proceedings to the earliest date possible.

(b) Bring a one – time settlement scheme for the pending proceedings with complete waiver of penalty and with an option to pay the admitted profiteered amount or a certain percentage (say 25%) of the total amount (i.e. admitted and disputed) involved, as the dealer may like to opt for.

F. Allow input tax credit towards the expenditure incurred for CSR Activities in relation to COVID-19 pandemics

Keeping in view of the spread of novel Coronavirus (COVID-19) in India, its declaration as a pandemic by the World Health Organisation (WHO) and decision of the Government of India to treat this as a notified disaster; the Ministry of Corporate Affairs vide a Circular (No.10/2020) dated 23.03.2020, has clarified that funds spent on measures to tackle the Covid-19 outbreak will be counted towards the corporate social responsibility (CSR) activity of companies.

Further, in many a States, COVID-19 has been classified as epidemics under Epidemics Diseases Act 1897 and hence, any action performed under these circumstances towards containing the spread of disease either for travel, quarantine, sanitizing the premises and protection of employees and workers (by providing personal hygiene and sanitization products like, soap, disinfectants, sanitizer etc. and personal protection equipment like mask, protective eye-gear, coverall suit etc.)    shall be treated as a statutory obligation instead of voluntary care and welfare. Further, various State Governments under the powers vested by Covid-19 regulations 2020, have issued guidelines/instructions to employers/companies/institutions to carry out sanitation in their premises. The Clause 11 of the said Regulations also provides that any person/institution/organisation found violating any provisions of these regulations shall be deemed to have committed an offence punishable under section 188 of Indian Penal Code (45 of 1860).

Under the circumstance, it is humbly recommended for issuance of a clarification to the effect that:

(a) All expenditure incurred by a dealer towards CSR activities enumerated under the Circular dated 23.03.2020 issued by the Ministry of Corporate Affairs will qualify for input tax credit, and

(b) Expenditure incurred by the employers/companies/institutions to carry out sanitation in their premises and to provide personal protective gears and hygiene products to their employees will also qualify for input tax credit

G. Postponement of any new requirement in GST related compliances

The industry, trade and commerce are extremely concerned with the grave situation with the economy and grappling with their sustainability in this extreme, unprecedented challenging situation. In this situation, when they will have to put their all focus on the revival of the economic activities and all efforts to put the growth in GDP back on track, they should not be burdened with any new compliance requirement.

Hence, all the new developments / compliance requirements viz.  e-invoice, new Return mechanism etc. should be postponed indefinitely, till we are back on satisfactory growth track or at least, these should be postponed till 01.04.2021.

H. Postponement of Annual Return for FY: 2018 – 19

Annual return as prescribed under Section 44 of the CGST Act, 2017 is nothing but a routine statutory formality without adding any extra revenue to the exchequer. Nor it adds any economic value to the dealers, rather it takes a huge time for them to compile the data and arrange them into different tables of GSTR – 9. This also involves considerable compliance cost.

Further, with the irreversible loss of time due to COVID – 19 pandemics, the revised due date for annual return for FY: 2018 – 19 i.e. 30.06.2020, does not appear to be a feasible target to meet by most of the dealers.

At this juncture, when each of the dealers be it manufacturer, service provider or trader is fighting for their survival and revival of business activities as soon as possible, such a non-value adding activity should take a back seat, for the time being. Hence, it is humbly requested to consider:

Postponement of Annual Return for FY: 2018 – 19, at least, till 31.12.2020, if not till 31.03.2021.

I. Relaxation in the condition for blocking of e-waybill generation

Keeping in view the pan India lockdown declared by the Central Government, the Hon’ble Finance Minister has very rightly and promptly provided an opportunity to the dealers to postpone their returns (GSTR-1 and GSTR – 3B) without any late fees or interest upto a certain time limit or with subsidized rate of interest @9% beyond that time limit till end of June 2020, as the case may be. Such decisions are well appreciated and these are certainly going to help a lot to the dealers to manage their working capital in a better way. However, such delay in filing the return can deburr them from generation of e-waybill in view of the conditions prescribed under the Rule138 E of the CGST Rules, 2017 which in turn, can cause a backlash to the revival of the economy. Hence, it is requested to kindly consider:

Commensurate relaxation in Rule 138E or temporary suspension of the said Rule till normalcy is resumed, so that there is no further hindrance to the free transportation of goods to meet various demands of the society and industry.

J. Suspension of the condition for possession of tax invoice for availing credit

One of the primary conditions for availing input tax credit, as prescribed under Section 16(2)(a) is possession of tax invoice or debit note or such other tax paying documents. However, during the lock-down, in absence of any physical communication system, the vendors are unable to reach the physical copy of tax invoice, debit note etc., in original to their customers. As an alternative, where they could they have shared the scan copy of the invoice over e-mail/fax and in many a cases, they have just requested their customers to make some ad-hoc payment against supplies they have made before declaration of lock-down. This problem has arisen mainly with supplier of services who have been allowed to raise the invoice within 30 days of provision of the service.

Keeping in view, the urgent need for the money by the vendors, in many a cases, the customers have honoured such requests. However, unfortunately, the condition of Section 16(2)(a) is stopping them from taking corresponding input tax credit and this, in turn, is creating a working capital issue in the hands of the customers who actually tried to help the eco system they belong to.

Hence, for the time being some relaxation may please be granted in the said provision either by way of temporarily suspending the said provision or by providing an extended time limit for obtaining the underline tax invoice, debit note etc. without any postponement of corresponding credit.

K. Suspension of the condition of the making payment to vendor within 180 days

As per the Second Proviso to Section 16(2), a recipient is supposed to reverse the GST credit if he fails to pay the amount towards the value of supply along with tax payable thereon within 180 days from the date of the issuance of tax invoice (other than in case of RCM). And such reversals also entail an interest cost.

As you may appreciate, during this lockdown period with a restriction on physical, postal and courier movements; in many a cases even if the vendor has issued the tax invoices and uploaded the details in their GSTR – 1 return but there can be an inordinate delay in reaching these invoices at the customers’ end. After reaching at customers’ end, again it may take a longer time (than scheduled lead time) due to various rippling effects of the lock down. Hence, it is suggested:

(a) Suspend this particular proviso temporarily, at least, till 31.03.2020

(b) Amend the said proviso to the effect that 180 days should be counted from receipt of the notice by the recipient and not from the date of the issuance of invoice by the supplier

(c) Remove, at least, the provision for imposition of interest while reversing the input tax credit

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February 2021