Representation on GST Challenges related to Section 128A & 16(4) ITC Disallowance

Karnataka State Chartered Accountants Association (KSCAA) submitted a detailed representation to the Union Finance Minister addressing challenges faced by taxpayers under GST provisions, particularly Sections 128A and 16(4). Key issues include eligibility under Section 128A for cases without appeals, waiver of interest for delayed return filings, and treatment of multi-year notices. KSCAA also seeks clarification on converting Section 74 notices to Section 73, reinstating appeals after rejected scheme applications, and expediting rectification applications under Section 161. Additionally, concerns were raised over inconsistent practices in applying Section 16(5) for relaxing time limits under Section 16(4). The association recommends uniform procedures for adjusting pre-deposits, amounts paid under protest, and tax recovered from third parties to ensure fair application of the GST scheme. It urges prioritization of appellate hearings to help taxpayers make informed decisions. These recommendations aim to simplify compliance, reduce taxpayer hardships, and uphold the GST regime’s principles of fairness and efficiency.

Karnataka State Chartered Accountants Association (R)

To,
Smt. Nirmala Sitharaman,
Hon. Union Minister of Finance and Chairperson of GST Council, Government of India

Date: 17 ^th December 2024
Ref No: 006/2024-25

SUBJECT: REPRESENTATION ON PRACTICAL CHALLENGES AND CLARIFICATIONS REQUIRED IN RELATION TO SEC 128 A & SEC 16(4) ITC DISALLOWANCE

The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’), established in 1957, is a premier association representing the Chartered Accountancy profession in Karnataka. With a focus on upholding professional ethics and advancing the interests of the business community. KSCAA has consistently contributed through seminars, workshops, representations, and consultations on policy matters impacting trade, commerce, and industry.

We take this opportunity to bring to your kind attention several genuine difficulties being faced by taxpayers and professionals with respect to the interpretation and implementation of certain provisions under the GST framework, particularly in light of introduction of Section 128A & Sec 16(5) of the Act, and the associated circular. We believe these challenges warrant urgent intervention and clarification by the authorities to ensure the smooth functioning of the GST regime and to uphold its objectives of simplicity, equity, and efficiency.

KEY ISSUES AND SUGGESTED CLARIFICATIONS

1. Eligibility under Section 128A for Orders Passed but appeal not filed

The reading of provisions of Sections 128A(b) and (c) seem to suggest that only cases where order is passed u/s 73(9) and an appeal is filed before the Appellate authority u/s 107, or where an order is passed u/s 107 and an appeal is filed before the Hon’ble Tribunal u/s 113, will qualify for the benefit under the scheme. Therefore, cases where an order is passed under Section 73 and no appeal is filed before the Appellate Authority, or where the order is passed under Section 107 and no appeal is filed before the Hon’ble Tribunal, would not qualify for the benefit under the scheme.

However, in the spirit of the scheme, the benefit should extend to all orders passed, irrespective of whether a further appeal is filed or now. This is corroborated by the Circular no. 238/16/2024 dated 15.10.2024 issued u/s 128A, which states that tax recovered can also be considered for scheme purposes, implying coverage of orders classified as arrears.

We request a clear clarification that allows all such cases to be filed under the scheme, thereby providing equitable relief to taxpayers.

2. Benefit of Waiver of interest for Delayed Filing of return

In FAQ No. 4 of Circular No. 238/16/2024 dated 15.10.2024 issued u/s 128A, it has been stated that the benefit of the scheme is not available in cases relating to interest and penalty demanded on account of delayed filing of returns or delayed reporting of any supply in the return.

At the outset, this scheme is intended to address notices/orders as a whole and provide waiver of interest and penalty for specific tax period. The benefits under the scheme should not be contingent upon the nature of issue comprised within the notice/order.

Restricting the waiver of interest for delayed filing of returns or delayed reporting of supplies as provided in FAQ No. 4 of the Circular, undermines the overarching purpose of the scheme and causes undue hardship to taxpayers.

We request the authorities to extend the waiver of interest for delayed filings of returns and delayed reporting of supplies uniformly for all eligible cases under the scheme.

3. Treatment of Multi-Year Notices and Erroneous Refund Cases

Certain notices/orders span multiple years, including periods beyond 2019-20, or may involve erroneous refunds. Current provisions necessitate payment of taxes and interest for other years/refund portions, which imposes an undue burden on taxpayers.

We request clarification to allow taxpayers to avail of the scheme’s benefits for the period covered under the scheme while permitting the remaining issues (such as other years/refund matters) to be pursued separately.

4. Notices issued u/s 74 and its subsequent conversion u/s 73

Notices issued by Central Tax department have predominantly been issued u/s 74. Notices issued pursuant to audits conducted u/s 65 have also been issued u/s 74 by the Central Tax department. Additionally, historically, allegations relating to fraud or suppression in Customs, Central Excise, and Service Tax cases have not been decided in favor of the taxpayer at the Adjudication and Appellate Authority levels.

Given this context, we request clarifications or guidelines for converting notices issued under Section 74 to notices under Section 73 in genuine cases.

5. Permission to file appeal / Restoration of appeal filed and withdrawn where Application is rejected.

The scheme requires that the appeal filed u/s 107/113 or Writ petition filed before Hon’ble High Court be withdrawn before filing the application u/s 128A. However, if for any reason the application is rejected, then the taxpayer should be permitted to pursue the original appeal which was filed and the appeal should be restored.

Similarly, , in cases where taxpayers have not filed an appeal u/s 107 or u/s 113 in anticipation of availing the benefit under the scheme, we request that if the application under Section 128A is rejected, the taxpayer should be allowed to file an appeal under Section 107 or Section 113 within a reasonable period.

6. Rectification application filed u/s 161

In certain cases, the taxpayer may file an application for rectification of order u/s 161 and intend to avail the benefit of the scheme after the order is rectified.

In such cases, we recommend that guidelines/directions be issued to prioritize and dispose of the application for rectification expeditiously allowing taxpayers to avail the benefit of the scheme within the time limits prescribed.

7. Appeals Filed Under Section 107 and Subsequent Scheme Selection

Taxpayers filing appeals under Section 107 are often uncertain about whether to pursue the appellate process or opt for the scheme.

We recommend facilitating a mechanism where appellate hearings are prioritized and disposed of expeditiously, allowing taxpayers to make informed decisions and choose the scheme post-hearing and receipt of order in Form APL-04.

Further, as the scheme is based on the Order issued and not on specific issue contained in the order, we also recommend that the appeals relating to the tax period 2017-18 to 2019-20 which are pending before the First Appellate authority be disposed of at the earliest so that the taxpayer can avail the benefit of the scheme for the specified period.

8. Adjustment of pre-deposit paid for filing appeal and tax paid under protest

Taxpayers have remitted 10% of the disputed tax amount while filing an appeal before the First Appellate Authority. In some cases, taxpayers have remitted the tax amount under protest and have filed an appeal. However, Circular no. 238/16/2024 dated 15.10.2024 issued u/s 128A does not prescribe any procedure as to how these amounts will be adjusted while filing the application.

We recommend that a Circular be issued prescribing the procedure for adjusting the amount paid as pre-deposit while filing the appeal and the amount paid under protest to ensure uniformity in disposing of the applications made under the scheme.

9. Adjustment of tax recovered from third parties

In certain cases, the tax demand of the taxpayer has been fully or partially recovered from third parties by issuing notice in Form DRC-13. In such cases, the portal does not contain any mechanism to reduce the Electronic Liability Register by linking the amount recovered from third parties.

We recommend that clear guidelines or clarifications be issued for such cases where the tax demand is fully or partially recovered from third parties, by outlining the procedure for filing applications under the scheme.

10. Uniform Application of Section 16(5) for Relaxation of Time Limit Under Section 16(4)

The introduction of Section 16(5) to relax the time limit under Section 16(4) has resulted in inconsistent practices across different offices in its implementation. It has been observed that orders previously issued did not question the validity of Input Tax Credit (ITC) claims under Section 16(2)(c) but were solely based on the time limit under Section 16(4).

However, Adjudicating and Appellate authorities are now requesting submission of invoices and additional particulars under the pretext of Section 16(2)(c), which was not a subject of the original order. This approach is beyond the grounds of the original order and outside their jurisdiction.

We request that Section 16(5) be applied uniformly to rectify and conclude such earlier orders, ensuring fair and equitable treatment for taxpayers while upholding the intent of the provision.

11. Conclusion

These issues are causing genuine hardship to the business community and are contrary to the intent of the GST regime, which aims to provide a seamless and taxpayer-friendly environment.

We sincerely urge the authorities to consider these challenges and issue a suitable clarification on the same ensuring that taxpayers and professionals can comply with the law in a fair and equitable manner.

We remain available for any further discussions or consultations on these matters and are committed to supporting the authorities in streamlining the GST framework.

Thanking you,
Yours faithfully,

Yours sincerely,

For Karnataka State Chartered Accountants Association ®

CC:

1. Shri Pankaj Chaudhary, Union Minister of State, Finance

2. Shri Sanjay Kumar Agarwal, Chairman, Central Board of Indirect Taxes and Customs

3. Shri Pramod Kumar Agarwal, Principal Chief Commissioner of Central Taxes, Karnataka, Government of India

4. Shri Vipul Bansal, Commissioner of Commercial Taxes, Government of Karnataka