Ahead of GST Council meeting on August 4, which would exclusively focus on the issues / hardships faced by MSME, CBIC is collating grievances/issues related to GST and suggestions thereof for mitigating such issues for MSME taxpayers.
Following suggestions were compiled by Mr. Bimal Jain, Chairman, Indirect Tax Committee, PHD Chamber of Commerce towards making GST Law as Good and Simple Tax for SME/ MSME sector forming heart of Indian Economy, which have been submitted to the Government for their kind consideration:
Definition of ‘aggregate turnover’ as per Section 2(6) of the CGST Act, 2017 (“CGST Act”) inter alia, means aggregate value of all taxable supplies, exempt supplies, exports and inter-state supplies of persons having the same Permanent Account Number, to be computed on all India basis.
As per Section 7(1) of the CGGT Act, “For the purposes of this Act, the expression “supply” includes––…………..”. GST Council in their draft of 46 amendments in the GST Law (“GST amendments”) has proposed to be amended the definition to exclude activities/ transactions listed in Schedule II to ensure that the activities/ transactions as per Schedule II is to decide only whether the same is supply of goods or services. Hence, activities/ transactions listed in Schedule II (as supply of service or supply of goods) shall be taxed only when they constitute ‘supply’ in accordance with provisions of Section 7(1)(a), (b) and (c) of the CGST Act, 2017.
Further, Section 2(30) of the CGST Act defines Composite supply as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
The current composition scheme is applicable only for manufacturers, traders and restaurant service providers. In the GST amendments, it has been proposed by the GST Council to enable registered manufacturers and traders to opt for composition scheme u/s 10(1) of the CGST Act even if they supply services of value not exceeding 10% of the turnover in the preceding FY in a State/Union territory or Rs. 5 lakhs, whichever is higher.
GST Council has proposed to defer existing Section 9(4) of the CGST Act till September 2019 but, granting an enabling power for the Govt. to notify a class of registered persons who would be liable to pay tax on reverse charge basis in case of receipt of taxable goods or services from an unregistered supplier. The details of such specified persons are to be notified in future.
In terms of Section 24(vii) of the CGST Act, persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise, are required to compulsory register in GST.
Further, as per 2(5) of the CGST Act, “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another”.
In terms of Rule 10(3) of the CGST Rules, 2017 (“CGST Rules”), where an application for registration has been submitted by the applicant after the expiry of 30 days from the date of his becoming liable to registration, the effective date of registration shall be the date of the grant of registration.
Further in terms of Section 18(1)(a) of the CGST Act, a person who has applied for registration under this Act within 30 days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.
Section 129 of CGST Act validates detention and seizure of goods/conveyance and consequently levying penalty as high as 100% of tax payable along with tax payable for any contravention of provisions of GST Act and Rules made thereunder irrespective of there being any intent to evade taxes or not.
Wide powers conferred under this provision is causing harassment of taxpayers specially when there is some error or incomplete details in E-Way Bill. Recently Madhya Pradesh HC in the case of Gati Kintetsu Express Pvt. Ltd. Vs. Commissioner, Commercial Tax of MP & Ors [TS-307-HC-2018(MP)-NT], upheld penalty to the tune of INR 1.32 crores for not filing Part B of E-Way Bill.
Notification No. 12/2017 – Central Tax dated June 28, 2017 provides that a registered person whose annual turnover in the preceding financial year is less than Rs.1 .5 crores is not required to mention the digits of HSN codes in a tax invoice issued by him. However, in GSTR-1, every assessee is required to give the details of stock sold HSN code wise.
Further, such small tax payers are required to mention 4-digit HSN Code for generation of E-way Bill for movement of goods, having consignment value more than Rs. 50,000/-.
These divergent provisions and procedures are creating obstacles towards ease of business for SME/ MSME Sectors.
GST Council in its 28th meeting has recommended quarterly returns for businesses having turnover up to Rs 5 crore instead of monthly filings. However, tax payment would be monthly.
Suggestion(s): It is suggested that both the processes being interlinked with each other, should be made quarterly for SME/MSME sector instead of following two different systems for payment and returns filing.
GST Council has proposed under Section 107(6) of the CGST Act to put a ceiling on the limit of the amount to be deposited before filing an appeal to the appellate authorities which is 10% of the disputed tax amount subject to maximum limit of Rs.25 crores. Further, it is also proposed under Section 112(8) of the CGST Act, the maximum amount to be deposited to file appeal from the appellate authority to appellate tribunal is 20% of the disputed tax amount along with the amount deposited u/s 107(6) subject to maximum of Rs. 50 crores.
It is suggested that, pre-deposit amount under GST also should be 7.5% at first level of appeal and 2.5% at second level, totalling together 10% of disputed tax amount subject to maximum of Rs. 10 Crores.
Prior to implementation of GST, while traders were only allowed refund of Special Additional Duty (SAD), manufacturers were allowed the benefit of both Countervailing duty (CVD) and SAD component, creating encouraging position for manufacturers when compared with traders of finished goods. With advent of GST, CVD and SAD got subsumed in IGST, credit of which is allowed to both traders and manufacturers. This has brought manufacturer as well as traders of imported goods at par level affecting adversely the ‘Make in India’ initiative of Prime Minister Shri Modi. Resultantly, Indian markets are flooded with cheap imported products, especially from China, causing pain for domestic manufacturers who creates enormous employment for Indian population and backbone of Indian economy
For example, there are a large number of small scale units who are into manufacturing of high quality wooden lacquered boxes which are used for packaging of Jewellery, Watches, Tea, Tie, Cufflink, Hankies, and Wedding Gifts etc. Post GST, most of their customers started importing the same from China as the effective duty on imports has reduced by around 16%. The Pre-GST & Post-GST duty structure is as under:
|Special Additional Duty||4%|
As imports of finished goods have become cheaper on par credit available to both manufacturer/ Trader, the domestic manufacturers are closing their operations and impacting adversely towards ‘Make in India’ drive & there is loss of jobs in small scale units.
Presently, only a assessee/ taxpayer can file an application with the Hon’ble Authority for Advance Ruling. Such application cannot be filed jointly by an association representing the entire Industry.
Considering the rigorous procedure involved in Advance Ruling provisions, filing of application on behalf of association representing its members in a State may be permitted. This will benefit small taxpayers not being able to adopt this route for seeking certainty of their GST issues. Such application can be accompanied with list of all the members with their GSTIN on whom such ruling shall be applicable.
As per GST amendments recently proposed under Section 54(3) of the CGST Act, allows filing of refund claim for the unutilized ITC on Inputs & Input Services by due date for furnishing of returns under Section 39 for the period for which the claim for refund of ITC arises, which is presently the end of the financial year.
In GST amendments, it is proposed that no reversal of common ITC shall be required on activities or transactions specified in Schedule III (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) by excluding it from the ambit of ‘exempt supply’ for the purpose of reversal.
Section 35(5) of CGST Act provides that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant. In this regard, Rule 80(3) of the CGST Rules states that every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C.
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