Since the introduction of Goods and Services Tax (GST) in India, taxpayers have faced a number of interpretational problems and uncertainties related to the determination of tax rates. In many cases, traders and businesses either did not pay taxes or underpaid them. To address such problems and provide clarity, the GST Council has issued circulars and recently inserted Section 11A under the CGST Act, 2017, empowering the government to regularise non-levy or under-levy of GST based on normal trade practices.
Background:
The Goods and Services Tax (GST) was introduced on July 1, 2017. This new tax system strengthened the concept of a national market, but it also brought complexities and confusion to taxpayers. Many taxpayers did not pay or underpaid GST erroneously based on past trade practices. In view of this, the GST Council issued a number of circulars that tried to regularise transactions where taxpayers had made mistakes in interpreting the rules.
Formulation of Section 11A:
Section 11A, recently added to the CGST Act, 2017, aims to empower the government to waive the levy of GST in cases where tax is not levied or is short levied due to normal business practice. This provision is particularly useful in situations where taxpayers find it difficult to understand the legal section or GST is not levied based on the normal course of business activities.
Key points of the 53rd meeting of the GST Council:
The 53rd meeting of the GST Council was held on June 22, 2024, in which the important suggestion of insertion of Section 11A was considered. It was aimed at reducing the burden of tax compliance and reducing the risk of litigation. Under this section, the government has been empowered to resolve cases of non-GST recovery arising out of normal business practices.
Important changes:
Section 11A proposed under the Finance (No. 2) Bill, 2024 has been made effective from November 1, 2024. The purpose of this section is to ensure that traders are not subjected to undue pressure in case of inadvertent non-payment of GST due to normal business practices. This change will have a positive impact on businesses, especially in cases where taxpayers did not pay GST on the basis of prevailing business practice.
Related sections:
As per Section 11A, if the government feels that GST recovery on a business activity has not been made due to normal business practice, then it can waive the recovery of that tax. This section also covers business activities which were not taxed or had lower tax rates. This arrangement provides relief to traders from past compliance problems and also protects them from the threat of litigation.
Benefits and disputes for taxpayers:
While this section provides clarity to resolve issues related to GST compliance, it may also give rise to some legal disputes. In particular, there is still ambiguity over the question of refund of wrongly levied taxes on transactions between July 1, 2017 and October 31, 2019. Section 11A does not allow refunds for wrongly deposited taxes during this period. This situation may cause discontent among taxpayers who have paid taxes during this period and now consider it unconstitutional.
Legal effect of Section 11A:
Section 11A empowers the government to provide exemption from the levy of GST on the basis of prevailing trade practices. This ensures that traders are not burdened with unnecessary taxes. This section will be used especially in cases where taxpayers did not pay GST wrongly but on the basis of normal trade practice. At the same time, this provision also protects taxpayers from undue tax burden who did not pay GST correctly.
Challenges and potential litigation:
Under this section, refunds are not allowed for wrongly paid GST during the period from July 1, 2017 to October 31, 2019, which is a contentious issue. This situation can create difficulties for taxpayers and can be seen as a violation of Article 265 of the Constitution, wherein the issue of validity of tax collection can be raised. In this context, it can be said that if tax has been wrongly collected, it should be refunded.
Conclusion:
The introduction of Section 11A will provide relief to the business community and help resolve many issues related to GST compliance in the past years. However, some contentious issues still exist, especially with regard to tax refunds. Thus, the provision of Section 11A is a positive step towards regulating business practices but at the same time, it also reflects the Government’s commitment towards ensuring fair tax collection practices.
Author Bio
