Why current GST Amnesty is Goldmine for Government & Graveyard for Tax Payers?

GST Law’s backbone is the free flow of input credit. This allows for tax-free transactions and eliminates cascading effects.

“Amnesty” means a General Pardon for Offenses or an act of forgiveness for past offenses.

As per Cambridge Old Dictionary, Amnesty means “a fixed period of time during which people are not punished for committing a particular crime”. As per Cambridge Academic Content Dictionary, Amnesty means “a decision by a government to forgive people who have committed particular illegal acts or crimes, and not to punish them.”

As per Merriam Webster Dictionary, Amnesty means “the act of an authority (such as a government) by which pardon is granted to a large group of individuals often before a trial or conviction.”

GST Amnesty Scheme

The GST Amnesty Scheme was first notified to cover periods from July 2017 up to September 2018. A one-time extension to the time limit was provided then. Taxpayers could file these pending returns on or before 31st March 2019.

CBIC implemented the GST Amnesty Scheme for the second time through a Central Tax notification number 19/2021 issued on 1st June 2021. It applies to all the pending GSTR-3B returns of previous tax periods between July 2017 and April 2021. The GST amnesty scheme applied from 1st June 2021 to 31st August 2021.

As per the latest Central Tax notification number 33/2021 issued on 29th August 2021, the validity of the GST amnesty scheme stands extended up to 30th November 2021 from the earlier deadline of 31st August 2021. It means that taxpayers who have pending GSTR-3B between July 2017 and April 2021, can file such returns on or before 30th November 2021 with a reduced maximum late fee.

The taxpayers will get a concession in the late fee payable under the GST Amnesty Scheme. The maximum late fee is restricted to Rs.1,000 per return (i.e. Rs.500 under CGST and 500 under SGST) for GSTR-3B with any tax liability other than a nil GSTR-3B filing.

On the other hand, the maximum late fee payable for a nil GSTR-3B is fixed at Rs.500 per return (i.e. Rs.250 each under CGST and SGST). In other words, the late fee payable for such a return will be lower of the following two amounts. These are the total late fees as calculated under the Act for every day of delay and the maximum late fee as mentioned above.

Issues with Current GST Amnesty Scheme

Those having tax liability and who didn’t file GSTR-3B are not given a waiver of interest. Still, only the maximum late fee is relaxed for filing it before 31st August 2021. Thus Government received Tax, Late Fees and Interest.

The GSTR-1 return is not covered under the scheme. So there is no late fee waiver or relief to file pending GSTR-1 for the same tax period as the GSTR-3B that the taxpayer intends to file.

But the real goldmine is non-admissibility of input tax credit. Government has made huge money because of Section 16(4) time limits for admissibility of ITC.

Extracts of Section 16(4)

Section 16: Eligibility and condition for taking input tax credit

“16(4) A registered person shall not be 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 or furnishing of the relevant annual return, whichever is earlier:

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.”

In simple words for any financial year I+TC can be availed before filing of Next Year’s September GST Return or GST Annual Return whichever is earlier. As you all are aware that GST Annual Return are being filed late as their time has been extended since start of GST, in this scenario GST Return of September becomes crucial.

Let’s understand this with the help of an example:

Mr. A supplies an item to Mr. B at Rs. 100/- plus 18% GST. Mr. B supplies that item to Mr. C at Rs. 150/- plus 18% GST. Mr. C finally supplies that item to end consumer at Rs. 200/- plus 18% GST. Mr. A, Mr. B and Mr. C are Registered Persons, and everyone pays the Tax duly and files returns properly and in-time. Let’s see the Tax collected:

[All amount in Rs.]

Therefore, Total end sale was of Rs. 200/-+ and Tax on which was Rs. 36/-. The same was paid in Cash to the Government by A, B & C (18+9+9 = 36).

Thus, the things work perfectly fine here but let’s take this example further and say Mr. B defaulted in paying taxes and now Mr. files his return in GST Amnesty.

Let’s see what happens when Mr. B files his return in Amnesty and Section 16(4) restrictions are there what is the impact of Tax Collections:

[All amount in Rs.]

Thus, due to Section 16(4), with denial of ITC, Government received Rs. 81/- (18+27+36) as tax along with relevant Interest and Late Fees.

*After application of Rule 36(4) and checking Eligibility of ITC GSTR-2A/2B, Mr. C would be able to take credit 5/10/20% over what is visible in GSTR-2A.

Conclusion

Admissibility of ITC under this scheme is a genuine concern. Although the amnesty scheme allows tax payment pending for previous periods, it denies ITC claims in the same return of that preceding financial year. This GST Amnesty has not pushed the time limit for claiming ITC for the same periods. So it legally disallows a taxpayer from reporting ITC while filing GSTR-3B of the past tax period. The recipient cannot claim such ITC under the amnesty scheme.

The taxpayers must be provided with the full advantage of the scheme by allowing ITC of past periods where the time limit has expired. The government must suitably take note of these anomalies and correct the legal gap at the earliest else this GST Amnesty scheme is a goldmine for the Government and graveyard for Tax Payers & Businesses.