GST-A Simple Law or A Riddle

Goods and Services Tax (GST) law has completed two years in our Country and entered into third year. Since very beginning there was a demand from various sectors to make this law simple and easy. Though Govt., from time to time made efforts for simplification of this law. But it is a matter of great concerns that even after completing two years we are demanding GST simplification. Let us first try to understand what steps initially Govt. took for simplification of this law? The key points are:

A. Steps initially taken by Govt. for simplification of GST law

• Originally proposed three returns viz: GSTR-1, GSTR-2 & GSTR-3 were restricted to only two returns i.e. GSTR-1 & GSTR-3B.
• Rationalized and streamlined the provisions of RCM and made applicable only on selected Goods & Services.
• Abolished GST payment on advances receipt against sales of goods.
• Reduced GST late fee amount applicable on delay in filing of returns.
• Reduced tax rates on various goods and services and made them more rational.
• Enhanced threshold limit applicable to Composition tax payers and extended the benefit of scheme on services also.
• Waived late fee on several occasions and extended due date of filing returns from time to time.
• Kept E-way Bill in abeyance in the initial period of GST.

Apart from the above measures, the Govt. has taken some more steps and tried to make the procedural aspects as simple and practical as possible. But inspite of all these changes made, this law still cannot be called as simple law by any means. The problem is not with the law but with the impractical procedures framed for compliance. The same are not only complex but completely out of one’s mind. After implementation of GST, the Govt. abolished all the check-gates and this resulted into quick movement of goods from one place to another. Earlier it took weeks to procure materials from outside the State but now in 2-3 days it is being delivered. So in such a scenario the Govt. had its own limitations to not to make the law so simple which would have resulted into tax evasion. Further in the initial period the movement of goods was also without E-way bill. So it was a big challenge for the Govt. to make a balance between simplification and controlling of tax evasion. But unfortunately, we are getting cases of wrongful Input claim and bogus invoices etc. on every alternate day. GST collection /revenue of the Govt. is also declined. Overall, there is an economic slowdown in the Country. Trade & Industry are citing GST as the main reason for this slowdown. The Govt. also seems to be very serious on the constant fall of their revenue. Thus there is a huge hue and cry for further simplification of the GST law. The biggest positive of the present Govt. is that whenever there is any problem the Govt. acts immediately. I remember the Hon’ble Finance Minister somewhere in August, 2019 visited various cities just to know and understand the problems of tax payers and tax practitioners on GST. This type of one to one meeting was first of its kind by any FM in the Country. As a result, the Govt. in recent past has made so many announcements /changes etc. in the process of simplification of GST. A gist of such changes can be summarized as:

B. Recent announcements /changes etc. in the process of simplification of GST

• Simplification of Annual Return (GSTR-9) & Audit report Form (GSTR-9C) by making various Tables/Fields optional.
• Simplification and Integration of refund related provisions
• Removal of disparity in tax rates of goods and services and rationalization thereof.
• Postponement of implementation new returns from 01.10.2019 i.e. from mid of the year and introduction thereof w.e.f.01.04.2020 only.

C. New rule 36(4) of CGST Rules, 2017- A new cause of concern

Inspite of making so many changes towards simplification the Govt. has made some new rules without understanding, without consulting Trade and Industry and without testing the same. As a result the same has now again becomes the cause of concern. It appears that GST is now a difficult riddle or puzzle to crack. It is beyond the understanding not only of taxpayers and tax consultants but also of the departmental/ revenue officers. The Govt. on the one hand gives relief by making clumsy rules/forms simple and on the other hand introduces some unwanted rules in a hurried manner which creates problems for the Trade and Industry. In this chain, very recently, on 09.10.2019 the Central Govt. has come out with a notification no. 49/2019 whereby rule 36(4) of CGST Rules, 2017 is made effective. Under this new rule the Govt. tried to restrict the unmatched Inputs. But this rule is not only impractical but also illogical and illegal. Further the Govt. has also issued a circular on 11.11.2019 clarifying certain doubts on this newly inserted rule. But unfortunately this circular has also miserably failed to solve the puzzle of this rule. Before moving ahead let us first try to understand what is this new rule 36(4) all about and what will be its impact on the tax payers?

Under this new rule, a taxpayer is entitled to claim unmatched input /ITC which is not appearing in 2A on the due date of filing GSTR-1 of its vendor only to the extent of 20% of the matched ITC. It means if the input on the purchases of goods or services is not appearing in GSTR-2A then the tax payer can claim maximum of 20% of the matched ITC reflecting in GSTR-2A on account of such input. Let us understand this provision with the help of an example:-

Let us assume in the month of October (w.e.f.09.10.2019) the tax payer is having total input as per his books of accounts Rs 10.00 lakhs. However, the input appearing in GSTR-2A on 11^th November on account of such inward supply of goods and services is only Rs 6.00 lakhs. So the tax payer can fully claim matched input which is Rs 6.00 Lakhs and for the input which is not appearing in GSTR-2A the tax payer can claim maximum ITC to the extent of Rs 1.20 lakhs (20% of Rs 6.00 lakhs). So the total ITC to be claimed in GSTR-3B for the month of Oct’2019 would be Rs 7.20 lakhs as against the amount appearing in the books of accounts Rs 10.00 lakhs. The remaining input of Rs 2.80 Lakhs (10.00 lakhs – 7.20 lakhs) out of the balance unmatched amount of Rs 4.00 Lakhs will be claimed in the next month(s) as and when it will appear in GSTR-2A. Now, this rule has become a riddle in itself. It has raised so many questions for the tax payers and tax practitioners. The key issues are:

D. key issues arising from new rule 36(4) of CGST Rules, 2017

i. Is this new rule 36(4) legally valid?

The Govt. is empowered to make rule 36 only under the provision of section 43A of the CGST Act, 2017. But however, section 43A has not been yet notified by the Govt. and it is expected to come into play w.e.f.01.04.2020 only. So when the parent section itself is not yet notified so how can rule there under be notified at an earlier date? In view of legal experts it is absolutely wrong, unwarranted and without the authority of law.

ii. Do new rule 36(4) going to eat business of small and medium enterprises?

Under this new rule a tax payer needs to check GSTR-2A every month and eligible to take maximum of 20% of such credit appearing in 2A on account of unmatched invoices. It means if a tax payer is purchasing goods or services from a small and medium enterprise who have got the option to file GSTR-1 on quarterly basis then the tax payer can take input of such goods or services only after 4 month when its vendor files his GSTR-01.In this scenario no one will be interested in making purchases from quarterly filers else vendors convert themselves into monthly filers. Thus the Govt. on the one hand offered the facility of quarterly filing and on the other hand taking it back by making such a draconian rule. So this rule is going to affect SMEs badly.

iii. Is new rule 36(4) creating additional workload on tax payers?

This rule seeks to match ITC of last month on every 11^th of the next month from GSTR-2A. This is going to create additional work load for the taxpayers. Further in case of inward supply from quarterly filers one need to match the same on the last date of next month from the end of a particular quarter. So until and unless one matches each and every bill one will not be in a position to know which vendor has not uploaded invoice or whose ITC is actually missing. Under GST the concept of self assessment is in vogue so the Govt. has given onus on the shoulders of tax payers to claim correct ITC. Any minor mistake on account of wrong input claim will be a costly affair. So this new rule has increased the work load emphatically.

iv. Is new rule 36(4) demanding more working capital?

The theme of the new rule allows a tax payer to claim maximum of 120% of the ITC reflected in GSTR-2A. It means input which has not appeared in GSTR-2A has to be borne by the tax payers. So this will act like a double edge sword and put double burden on the tax payers. On the one hand they need to pay tax to their vendor while purchasing and on the other hand due to non uploading/quarterly uploading of invoice by such vendor the tax payer will again saddled with tax liability for the same. So this will impact their cash flow negatively and block working capital.

v. Do new rule 36(4) going to curb Bogus Invoice & Wrongful ITC?

The main intention behind introduction of this rule appears that the Govt. wants tax payer to claim only matched Input so that no excess ITC is taken. But the possibility of filing GSTR-1 without filing GSTR-3B & payment of tax cannot be ruled out still. Thus there is a strong belief that until and unless GSTR-3B & GSTR-1 are integrated the unscrupulous tax payers will keep on filing GSTR-1without payment of tax and the data uploaded by them will also reflected in GSTR-2A of the buyers. So this rule is not of much help in curbing wrongful claim of ITC.

Apart from the above points, this rule will also give birth to so many other practical problems. The Govt. without knowing the ground reality, without consulting Trade & Industry and without taking the opinion of the experts has implemented this rule in a most hasty manner. The author got information that a Writ Petition challenging the new rule has already been filed in the Hon’ble Gujrat High Court and the matter is pending for hearing. As far as the Court rulings under GST are concerned, majority of them are against the revenue. Whether ruling related to 3B as a valid return, whether ruling related to constitution of GST Appellate Tribunal, Whether ruling related to TRANS-1 or TRANS-2, Whether ruling related to Blocked ITC etc. etc. which are in favour of tax payers. Now, a question arises what should Govt. do? On the one hand there is huge pressure of simplification and on the other hand there is a fear of tax evasion. But in the present scenario the author believes that the Govt. should think with open mind and big heart and should give priority to simplification only. The reason is that the root of tax evasion is somewhere linked to complex compliance procedures of GST. If the procedures are made simple and easy the tax payers will find it convenient to comply and tax base will also increase. The author wants to suggest the following points to the Govt. to make this law more simple and easy and purposeful. The key points are:

E. Points to the Govt. to make GST law more simple and easy and purposeful

• The Govt. should postpone /keep in abeyance the implementation of new rule 36(4). A committee of experts should be made to whom this rule should be referred for review. Once all the facts are examined and difficulty is removed then only this rule should be implemented w.e.f.01.04.2020.
• Formation of GST Appellate Tribunal after considering legal compulsion and following the statutory provision of law is an immediate requirement. This will reduce the additional load on High Courts and pending cases against the order of Appellate Authority will be taken up by Tribunal.
• Late fee on account of delay in filing GST returns /forms etc. should be reviewed again and the maximum late fee should be kept equals to tax liability of the tax payers. Further in case of NIL returns such fee should not exceed Rs 500/-.
• Complete abolition of RCM tax or keeping only corporate tax payers under the purview of the same. It will give relief to SMEs from RCM on freight, legal fee etc. etc. Moreover, RCM is a revenue neutral exercise and will not affect revenue of Govt. as well.
• New return forms (SAHAJ, SUGAM etc.) effective from 01.40.2020 should be test checked or run on pilot basis. The Govt. should take views of Experts, Trade and Industry and after understanding the ground reality only it should implement new form. It is praiseworthy to mention here that Govt. is conducting awareness cum training program Countrywide on this 7^th December for the new return forms.
• The Govt. should re-open the portal at least once for allowing TRANS-1 and TRAS-2 credit of tax payers who could not upload due to technical glitches or otherwise. It will automatically reduce the pending litigation on account of same. Since recent past it has been observed that in majority of cases the Courts are allowing Writs and directing GST Council/GSTN to open portal for filing of TRANS-1 & TRANS-2.
• Liberty/Option should be given to the tax payers to file appeal in the State where he is actually registered. Presently, if a registered taxable person of Meghalaya procures goods from Delhi and while in movement such goods are detained by the tax authorities of UP and tax and penalty is levied. In such cases the registered person has no option but to file appeal in the State where the cause of action is initiated. This exercise not only creates genuine hardship but will also saddle the tax payers with unnecessary cost of travelling and engaging local tax consultant in the other State. Nowadays, faceless assessment are in vague under direct tax law so filing appeal before the jurisdictional appellate authority under GST law will also not be a big issue for the Govt.
• Facility of Common Cash Ledger is the immediate need particularly when the economy is under recession and Trade and Industry are facing cash crunch. There should be inter-head adjustment from CGST, SGST & IGST. Not only that the sub-heads like Tax, Interest, Fee, Penalty should also be allowed to be adjusted inter-se from one head to another. Though the Govt. has announced introduction of PMT-09 long back but unfortunately it is not yet made operational.
• Immediate attention is required for doing away with the technical glitches on the GST Common portal and making the portal to work in a robust manner. Further before making any new announcement the Govt. should check whether suitable software changes are made on the GST portal. Further the changes should be checked and tested. Otherwise the same situation will repeat as we faced when the CMP-08 form was introduced first time this year.

Note: The above write up is prepared keeping in mind the recent problems faced by the tax payers & tax practitioners. The views expressed above are the personal views of the author. Thus it is requested that before acting on the basis of same, please check and confirm relevant provisions of the laws/circulars/notifications etc.

The author is based at Guwahati and can be reached at: manoj_nahata2003@yahoo.co.in