Practical difficulties faced by taxpayers & professionals in GST

In Majority of the cases, compliances related to GST are being carried out by the tax professionals on behalf of their clients. As the last date to claim ITC for a particular FY almost co- incides with the due date of Income Tax Audit and filing of returns, compliance of section 16(4) becomes difficult due to the paucity of time.

As per proviso to Rule 23 of CGST Rules, 2017 in cases where registration has been cancelled on account of failure of the registered person to furnish returns, application for restoration can be filed only when such returns are furnished and all due liabilities arising in such returns have duly been paid. In Other cases of cancellation, application of restoration has to be filed within 30 days from the date of service of cancellation order. But the GSTN portal calculates 30 days from the date of service of cancellation order even in cases where registration is cancelled on account of failure of registered persons to furnish returns. Thus in such cases, assesee has got no option but to seek alternative remedy of filing an Appeal which takes too much time and it is not even cost-effective

In GSTR 3B, figures of relevant period for which 3B is filed as well as any previous year adjustment needs to be aggregated and reported on consolidated basis.

For eg If GSTR 3B is being filed for the July 2021, ITC of Rs 150 relates to July 2021, whereas unclaimed ITC of Rs 100 for FY 20-21 also needs to be claimed in 3B of July 2021, then a total of Rs 250 would be reported under ITC section of GSTR 3B with no bifurcation of Rs 250. Same case also applies with outward supplies.

This has led to the following problems-:

a. Preparing of needless reconciliations by the taxpayer

b. Issuance of Notices by department for mismatch between GSTR 1/2A and GSTR 3B which will unnecessary increase compliance cost of department and harassment of taxpayers.

c. Unnecessary increase in workings of taxpayer and professionals by way of giving reply to such notices

d. Department unable to focus on vital areas of tax evasions and emphasizing more on mere reconciliation of figures.

After filing of Form GST APL-01 electronically, taxpayer has to submit the documents related to appeal manually in the department as per Rule 108 (3). Only after the manual submission, final acknowledgement indicating appeal no. is issued in Form GST APL-02. Thus the taxpayer have to visit the department several times i.e firstly for submission of documents and secondly and thereafter for personal hearing. Thus the requirement of manual submission leads to unwarranted increase in time for conclusion of appeal.

Even though after the launch of fully electronic refund process vide CBIC Circular 125/44/2019, it has seen that in majority of refund cases, application is not scrutinized for its completeness within the given timeline of 15 days as per Rule

90. This unnecessary leads to delayed refunds which in turn leads to working capital block of taxpayers.

Even though physical intervention has totally been ceased by CBIC vide issuance of above of mentioned circular,

eventhough dept. officers are insisting on submission of documents (In addition to those prescribed under Rule 89 and above circular) manually.

This will pave a smoother path for fully electronic refund module.

In case of composition dealer being a manufacturer or a Supplier making supplies referred to in clause (b) of Para 6 of Schedule II or a person eligible to opt for composition levy u/s 10 (2A), (Not Trader) tax is computed in accordance with Rule 7 even on exempted supplies (except interest). This levy of tax on exempted supplies results in unfair treatment to composition taxpayer when compared with regular taxpayer.

Payment of tax on RCM basis leads to certain problems for composition taxpayers which are as follows-:

a. Blockage of funds as ITC of tax paid on RCM basis is not available.

b. Determination of place of supply which itself is a very laborious task.

c. To remain timely updated with RCM provisions and related notifications, which is generally not possible for small taxpayers.

d. To determine the GST rate of supply.

e. To comply with the time of supply provisions as given in section 12 to section 14.

f. To raise a tax invoice and payment voucher in accordance with section 31.

A taxpayer generally opts for composition scheme in order to exempt himself from complying with the complex provisions of indirect taxes such as classification, maintenance of stock records, monthly payment of taxes, place of supply etc etc. Imposition of RCM liability has led to departure from the main objective of composition scheme i.e ‘Simplicity’

As per section 23 read with Notification 10/2019-Central Tax, any person who is engaged in exclusive supply of goods and whose aggregate turnover in the F.Y does not exceed Rs 40

Lakhs is exempted from obtaining the registration, subject to certain exceptions as given in the above said notification. However, the benefit of such notification is not available to person who is supplying service even of Rs 1 (Except Interest on deposits, loans, advances etc). This has resulted into limited application of above notification due to the following reasons-:

a. In today’s advanced businesses and developments, there would be very nominal no. of persons who are not even providing even 1 Rupee of service.

b. Provision of services has now become an integral part of the business as in today’s era customer not only values the goods provided by entity but also values the after sales services.

Goods and services should be treated at par with each other. Moreover notifying separate threshold limit of registration for goods and for services increases the complexity of law. Increasing the complexity where it is not required, will not make GST ‘A Good & Simple Tax’.

While vide Notification no. 66/2017-Central Tax the time of supply in case of supply of goods has been linked to earliest of the following dates i.e date of issue of invoice or last date to issue invoice as per section 31, the same is not in cases of composition taxpayers and provision of services. In such cases GST liability arises even on advance receipt of consideration before provision of services or delivery of goods, as the case may be. This advance collection of GST has resulted in lack of funds availability due to payment of GST on advances. This has resulted into various issues being faced, mainly by small taxpayers, such as-:

a. Mainly the advances are given, to ensure timely completion of services with no compromise in quality, to ensure procurement of inputs, raw material, goods etc etc in desired quantities. But the collection of GST on advances has resulted in shortages of funds mainly to small taxpayers. This completely hinders the growth potential of small taxpayers.

b. Moreover such GST on advance payment is to be furnished in GSTR 1 in separate dedicated table i.e Table 11A and subsequently adjusted in Table 11B and when provision of services/goods gets completed. This makes the return filing process difficult and time consuming.

c. A wrong impression of Indian economy, emphasizing more on growth of goods sector than the services sector, is being communicated worldwide.

d. Increased complexities of law

There arises funds shortages mainly on account of two reasons-:

a. Creation of Inverted duty structure as majority of works contract services to Govt. attracts GST @ 12% whereas inputs used in such works contract attracts GST @ 18%/28%.

b. In addition to TDS under Income Tax Act, Govt. Deducts TDS @ 2% u/s 51 of CGST Act if the contract value excess 2.5 Lakhs. Such GST TDS gets credited in electronic cash ledger of supplier and remains unutilized as the input tax credit balance is available in excess.

Besides the funds shortages, burden of compliance cost gets increased as the taxpayer has to file separate refund application u/s 54, for accumulated ITC on account of inverted duty structure and for balance of GST TDS available in cash ledger.

May also take steps to minimize the creation of inverted duty structure by making appropriate amendments in GST rates.

Reversal of ITC in the hands of recipient who fails to pay consideration for supply to supplier within 180 days from date of issue of invoice, safeguards the interest of supplier. But levy of interest on recipient is totally unjustified. There can be genuine cases of financial hardships on the recipient.

Moreover in the pandemic period, even the reversal of ITC on non-payment of consideration should be done away with by passing an appropriate ‘Removal of difficulties order’ u/s 172 of CGST Act, 2017.

Even though the intention of taxpayer is not to evade payment of taxes, but the department officers are invoking the draconian provision of section 129 in every other case without any logical application of mind. “To err is human” sometimes a minor/procedural gets unintentionally committed by taxpayer while generating e-way bill or a tax invoice. Ultimately the taxpayer bears a huge cost u/s 129 even for such minor mistakes. Cost not only comes in the form of monetary terms, but the mental condition of taxpayer, ease of doing business also gets affected.

CBIC vide its circular 64/2018 clarified the conditions in which proceedings u/s 129 may not be initiated by dept. officers. But such circular fails to cover the ultimate litmus test of “intention to evade”

rationale laid down by the Hon’ble Gujarat High Court in the case of Synergy Fertichem Pvt. Ltd.(C/SCA/4730/2019), may be issued which may clarify that, if the taxpayer proves that the intention was not to evade payment of taxes and mistake committed was unintentional, then the draconian provision of section 129 should not be invoked.

Taxpayer has to download GSTR 1/2A/3B on a monthly basis and then manually consolidate such monthly GSTR 1/2A/3B into an annual GSTR 1/2A/3B. This makes the reconciliation of GSTR 1/2A/3B with the books of accounts and preparation of GSTR 9 for a relevant F.Y, very hectic, time consuming and difficult. Moreover such manual consolidation for monthly statements/returns are prone to human errors which ultimately will lead to incorrect reconciliations and thereby resulting in wrong reporting of figures in GSTR 9. Needless to say GSTR 9 is the last opportunity available in the hands of taxpayers to correct all their errors and mistakes committed in filing of GST statements/returns.

In absence of a consolidated summary, matching, on a one to one basis, of each and every eway bill with the transactions recorded in books of account is nearly impossible task considering the voluminous transactions being undertaken in today’s businesses. Such matching on one to one basis is not even possible in departmental audit. Thus taxpayers and the dept. officers has to resort to sampling procedures which may lead to certain mistakes/errors go unnoticed.

Vide Instruction no. 2A annexed to Form GSTR 9, values pertaining to preceding F.Y shall not be reported in GSTR 9 of relevant F.Y.

If preceding year values are not allowed to be reported in GSTR 9, then the complete process and the objective of GSTR 9 loses its relevance and become futile.

To illustrate, let’s say we are filing GSTR 9 of FY 20-21 for which Input tax credit amounts to Rs 200 which has duly been availed in GSTR 3B. Further ITC of FY 19-20 amounting to Rs 100 has been availed in 3B of April 20 and such ITC would have been reported in Table 8C of GSTR 9 of FY 19-20. Now by abiding the above instruction we will report Rs 200 in Table 6 of GSTR 9 of FY 20-21. But in Table 6A of GSTR 9 of FY 20-21 ITC will be autopopulated as Rs 300 (200+100). There will arise a negative difference in Table 6J reflecting excess availment of ITC in GSTR 3B when compared with the ITC recorded in books of accounts. This is turn will lead unwarranted notices by dept. This is only a illustrative case, there can various other cases in respect of outward tax liability and ITC.

This will again lead to following issues-:

a. GSTR 9 not able to serve the ultimate purpose of reconciliation within itself and taxpayer has to prepare additional reconciliation thereby leading to duplicity of work.

b. By mere analysing of GSTR 9 without any other separate reconciliations, department will issue notice of mismatch to taxpayers which would have been avoided had there been a proper provision of spill over effect in GSTR 9.

c. Unnecessary wastage of time and resources of both the taxpayers and the dept.

d. Department unable to focus on vital areas of tax evasions and emphasizing more on mere reconciliation of figures.

Even though there is no express provision in the Act restricting filing of GSTR 3B with partial payment of taxes then also the common portal does not allows to file GSTR 3B until taxes are paid in full.

This has led to the following issue being illustrated through an example-:

Let’s say we are filing GSTR 3B of June 2021 for which outward tax liability amounts to Rs 1 crore and ITC amounts to Rs 80 lakhs. Assuming no opening balance of ITC in electronic credit ledger, taxpayer now has to pay Rs 20 Lakhs in cash upto the due date i.e 20/07/2021. But the taxpayer has the funds to the tune of Rs 10 Lakhs.

If the portal would have allowed filing of GSTR 3B with partial payment of taxes then taxpayer would have save his interest liability u/s 50 on Rs 10 Lakhs. But since portal doesn’t allows to file 3B with partial payment of taxes, taxpayer now has to incur interest liability on entire amount of Rs 20 Lakhs.

Taxpayer has to make payment of taxes monthly and for making payment of taxes monthly, he has to do tax computation working monthly which involves the same time and effort as was required under previous returns system.

Even after 4 years of roll out of GST, the learned professionals are still in a process of understanding the practical applications of such rules. Therefore it would be unjustified to expect the understandability and practical application of such rules amongst the general public. This has led to hurdles in making GST a ‘Good and Simple Tax’

Credit note u/s 34 in relation to supply of goods or services made in a relevant F.Y, can be issued lastly upto 30^th September following the end of such relevant F.Y.

In today’s processes of business transactions, contract terms between supplier and customer atleast extends to 1 year or more. This leads to issuance of credit note after 30^th September without any reduction of GST liability, which is normally called as a ‘financial credit note’. This has caused undue hardships affecting ease of doing business both to the supplier and his customers.

The main conditions to classify two or more supplies as a composite supply as per section 2(30) are as follows-:

a. There must be two or more taxable supplies

b. Such supplies shall be naturally bundled and supplied in conjunction with each other in the ordinary course of business

c. Out of such supplies, one should be principal supply There are no defined framework in law as to what is the meaning of naturally bundled or what is the meaning of supplied in conjunction with each other.

This has led to the varied approaches being followed across the nations hampering the objective of ‘One Nation One Tax’.

Presently, As per Section 10(1) of CGST Act, 2017 if the aggregate turnover of preceding F.Y is upto Rs 1.5 crore then a person is eligible to opt for composition scheme. This composition scheme of Section 10(1) is mainly known as composition scheme for persons other than service providers. However the turnover limit in case of composition scheme for service providers i.e Section 10(2A) is only Rs 50 Lakhs. This has resulted in following issues-:

a. Turnover of Rs 50 Lakhs is very inadequate in today’s modern era

b. Discrimination to service providers and thereby hampering their growth potential

c. Reducing the competitiveness of small service providers when compared with the giant players.

d. Increased compliances on small service providers by way of monthly payment of taxes, deal with classification and place of supply issues, maintenance of records, complying with the conditions of ITC, increased litigations. Small service providers also does not have adequate resources to meet with the increased compliances

One of the conditions for availment of ITC is that the supplier must have paid the taxes to the Government. There exists no facility till date to verify whether payment of taxes have duly been made by supplier or not. Further it is well established principle of law that-:

“ You can’t compel a person to do something which is impossible”

There may arise several cases where CGST and SGST has been paid on an interstate supply on which IGST needs to be paid. This case may arise vice versa also. In such cases amount of tax needs to be paid under correct heads and tax paid under wrong heads shall be claimed as refund as per Section 77 of CGST Act read with Section 19 of IGST Act. Practically every time claiming of refund is not possible.

This will also lessen the unnecessary workload on dept. officers.

Providing of free samples has now become the part and parcel of modern businesses without which it is very difficult to grow in the cut throat competition. However GST law discourages the giving of free samples by blocking the ITC on such free samples. Growth of business gets affected which is turn proves to be detrimental to the Indian economy.

As per section 56 a taxpayer is entitled to interest amount if any amount ordered to be refunded is not refunded within 60 days from the date of receipt of refund application. In many cases the payment of refund amount gets delayed beyond the legal timeline, however no interest is being paid on such delayed refund. Taxpayer has to manually apply for refund of interest amount, which generally majority of taxpayers fails/avoid to file.

In absence of GST Appellate Tribunal, majority of the taxpayers avoid to file an appeal before the Jurisdictional High Court against the adverse decision of Appellate Authority. Such avoidance is due to the fact that approaching High Court involves considerable time, effort and may not be cost effective to the taxpayer.

Further High Court and Supreme court only entertains the cases which involve the ‘Substantial question of law’. Thus in absence of GSTAT, appellate authorities becomes the last fact finding authority.

This has resulted into the following issues-:

a. Piling up of GST cases in High Courts and Supreme Courts when they could have been resolved by the Tribunal

b. Injustice to small and medium taxpayers who generally avoid to file an appeal in High Court against the adverse decision of Appellate Authority considering the time, cost and effort involved. Forcefully the adverse decision has to be accepted.

c. If Appellate Authority has erred on some facts, then it becomes binding on the taxpayer as factual issue is not entertained by High Courts. There is no other alternative but to accept the injustice being done on the taxpayers. However High Courts can remand back the matter to Appellate Authorities.

It has been seen in few no. of cases that dept officers are arbitrarily invoking the powers conferred under Rule 86A by blocking the amount available in electronic credit ledger of taxpayer for discharge of any liability u/s 49 or for claim of any refund of any unutilised amount.

Such arbitrary exercise of powers are violative of principles of natural justice.

To illustrate let’s say outward tax liability for June 21 is Nil. However a credit note has been issued in June 21 on which reduction of output tax liability amounts to Rs 100. Thus net output tax liability for June 21 amounts to -100 (minus 100). This negative figure cannot be entered in GSTR 3B of June 21 and has to be adjusted in GSTR 3B of subsequent months GSTR 3B as and when there arises a positive output tax liability. Thus every time the adjustment of negative liability needs to be kept in mind till such liability gets fully adjusted. This dependence on human memory may lead certain error/ mistake being committed in filing of GSTR 3B as a human tends to forget things.

Waiver of late fees have been only given to such persons who have not filed returns of certain specific prior period and are now willing to file returns so as to avail the benefit of amnesty scheme in respect of late fees.

However, the taxpayers who have already filed their returns of certain specific prior period by paying the applicable late fees are not provided the benefit of waiver of late fees. No waiver of late fees to honest taxpayers is gross injustice being done.

A taxpayer generally maintains his books of accounts in such a manner that will assist him in preparation and filing of GSTR 1 and 3B. In GSTR 3B no bifurcation of ITC in Inputs, Input services and Capital goods is required. Thus the taxpayer also records the entire ITC in its books without any such bifurcation being made in books of accounts.

However at the time of preparation and filing of GSTR 9, again a purposeless exercise of bifurcation of ITC needs to be done.

Or

Amendment in Form GSTR 9 should be made in such a way that such bifurcation of ITC is dispensed with.

The immediate consequence of this judgment is that the level playing field, which was given to Indian Shipping Lines by making importer liable to pay GST on ocean freight charged by foreign shipping lines from foreign exporter under RCM, is no longer available to Indian Shipping lines. Therefore, there is a need to find out a way to continue to provide level playing field to Indian Shipping lines despite the judgment.

In works contract it is required to be clarified as to what constitutes ‘immovable property’. Works Contract in GST is restricted to contracts of ‘immovable property’. However, the history of litigations would show that there is no consensus on the question as to what immovable property is. There have been cases where a huge tank resting on the ground (without being embedded to or attached by even nuts and bolts) has been held to be immovable property. On the other hand, machines installed on civil platform with nuts and bolts have been held as moveable. A clarification would go long way in reducing uncertainty and litigations

should be available for payment of GST on GST portal.

To illustrate let us take following case-:

Application for refund was filed for Rs X, but refund was made for Rs Y only (Y< X) based on GSTR 2A data. Balance ITC (X-Y) has been re-credited to electronic credit ledger. Subsequently, the supplier has shown the supplies in GSTR 1 as a result of which ITC in GSTR 2A has increased and matches with the actual refund that was claimed i.e. Rs X. But now another application of refund for the same period and same reason cannot be filed nor it can be included with other period(s).

A taxpayer has to comply with the complex provisions of Rule 42 and Rule 43 even if his exempted supplies are minimal when compared with the taxable supplies.

Let us illustrate this issue with the help of following example

A person is exclusively engaged in making supplies which are wholly exempt of GST. Thus such person irrespective of his turnover is not liable to get registered as per section 23 of CGST Act, 2017. However if he pays freight to Goods transport agency (GTA has not opted to pay GST @12%) which is taxable on RCM basis, then there has been various advance rulings on such matter where it is held that such person is required to get compulsory registered as per section 24 (iii). Even though advance rulings are applicable only to person who has sought it, such erroneous view being taken AAR has result into unrest among the trade. Views of AAR are erroneous on the grounds that section 24 which says about compulsory registration only overrides section 22 and not section 23.

Section 23 is an independent section within itself.

As per section 24 (ix) compulsory registration has to be taken by a person who supply goods or services or both through Electronic Commerce Operator (ECO) who is required to collect TCS under section 52. However vide notification 65/2017-Central tax, a exemption has been given from compulsory registration stating that a person making supplies of services through ECO who is required to collect TCS u/s 52 is not required to take compulsory registration provided aggregate turnover of such person to be computed on PAN India level does not exceeds Rs 20 Lakhs.

However no exemption from requirement of collecting TCS u/s 52 is given to ECO. ECO has compulsory collect GST TCS in all cases failing which attract penal provisions under the Act.

For a clear understanding of anomaly being created following example can be taken-:

A Barber is supplying his services through Urban Clap (ECO). The aggregate turnover of Barber does not crosses 20 lakhs, therefore he is eligible to claim benefit of above said notification. However Urban clap has to collect GST TCS @ 1% from such barber as there is no exemption from collecting GST TCS provided to Urban Clap. Therefore Urban clap will allow only GST registered persons to get themselves registered on their platform.

A taxpayer who opts for presumptive taxation scheme under Income Tax act is not required to maintain books of accounts. Whereas such person has to maintain books of accounts without any exemption under the GST Laws.

Thus the exemption from maintenance of books conferred under Income Tax Act has no relevance unless a appropriate exemption is also given under GST Act.

In practise, it is observed that the department is issuing many notices/messages/alerts which are altogether causing unnecessary harassment to the taxpayers and their consultants, resulting in wastage of time of the taxpayers and its counsels and the department officers as well while dealing with such notices

Now a days, the sales and the outward tax liability gets autopopulated in GSTR 3B from the data furnished in GSTR 1.

Let us understand this issue with the help of an illustration-: Suppose a taxpayer issues a single B2B invoice in which taxable sales amounts to Rs 100 with GST @ 18% of Rs 18 and exempted sales amounts to Rs 150. The Taxpayer reports such invoice under Table 4 (B2B Section) of GSTR 1 with Rs 100 being shown under 18% rate column and Rs 150 being shown under 0% rate column. Rs 150 is not reported again in Table 8 (Exempted supplies section) of GSTR 1. When GSTR 3B will autopopulate data from furnished GSTR 1 then entire sale of Rs 250 gets autopopulated under taxable supplies in GSTR 3B instead of Rs 100 being reflected under taxable sales and Rs 150 being reflected under exempted sales. Even though such autopopulated sales can be edited, but GSTR 3B becomes red in colour indicating some discrepancies.

This is may lead to unnecessary issuance of notice of mismatch from the department side.