Uncertain times for GST practitioners, and Industry- Section 35(5) consigned to flames (to be consigned!!)

Before coming to the topic, let’s stop and ponder over what is happening around us. Budget has been laid, with Fiscal Deficit for 2020-21 at 9.70%, a tiny notch below 10%. This means spending pressures did mount upon the government due to the virus, with no respite in sight. Neighborhood is in turmoil and we might need to up our defense spending, as was witnessed last year when the Revised Estimates shot up substantially compared to Budgeted Estimates, due to skirmish at North and Western front. Recently there was a coup at Myanmar too, which will affect our Eastern frontier as well. Government needs money!

Coupled with this, an evolving law, trying hard to stand on its feet with wounds and plasters all over its famished body, dragging along the Indian trade which was already marred with economic slowdown and ever-growing colossus of international players in India.

And lastly, a helpless tax practitioner, who is always on the receiving end, cannot help but be amused by the turn of events since the implementation of as good a law as the GST, commenced. It’s been a thrilling ride ever since!

With target moving all the time, one has to shoot and reload and more often than not, one has to reset the entire strategy, employ new troupes, and buy new ammo to deal with the ever-changing enemy tactics, only to realize later that all the meticulous preparations are Gone With The Wind.

Now one has to think what else to do with the baggage and the hordes,  than jettisoning the dead weight! Poor chap!! He knows that he will be asked to get off the bus but when? Should he keep his baggage or throw it away now?

In these times, ‘Certainty’ is a rare virtue. We have seen enough the theatrics of the “Notification”. This devil simply doesn’t die. Hasn’t the industry as well as the consultants already been bested by it?

Similar fate shall befall on us in the case of omission of the Sec 35(5). It will end but when? We worked hard to get over the learning curve, strained our staff day in and out to meet the deadlines despite the virus, only to know it will all be rendered futile. How will an employer justify his increased staff cost when the compulsion is gone? How will a consultant justify his cost?

Advisory for Industry:-

Shallow as it may sound, the businesses do benefit from audits. It is a full dress rehearsal for the fateful day when the Department comes knocking at the door. Since both the Business and the consultant have already gone through the grind, both know the facts to put up a good defense. Now this opportunity will vanish.

An audit is not merely an expense only for the heck of a legislation but also a chance to reset the faulty lines, which everyone misses or chooses to miss in the pressure and routine of execution. New laws are fluid and ever evolving. It is rather difficult to be abreast with implications of numerous legal decisions that help a law be what it was intended to be.

To check oneself should not always be out of external compulsions.

Anyways, the kind of law GST has now become will make consultants indispensable for any industry. Every effort of the government is entangling the noose even more.

Audit is a self-financing process. It earns for itself by saving a company from the future hassles at the hands of Authorities. The businesses have already saved a fortune in the form of Input Tax Credits which were lost in the earlier regimes. They have blocked Working capital alright but hasn’t this been a net gain situation already?

Lets now expect the GST regime to be like the Excise regime. With Mens-rea presumed, one can extrapolate that the fiscal deficit shall be met out of taxation, with the Department doing the audits itself. Not far is the day when the officials will again pre-authenticate the invoices and will practically own the manufacturing and supply points. The Govt. is short by Rs 15 L Crore and has to fill its coffers sooner.

A word for the fraternity:

Was it worth it?!

Anyone who knows how S.122(1A), S.132 and S. 83 are worded (S.83 to be amended shortly), would think thrice before accepting an assignment of Audit u/s 35(5) r/w S. 44 of the CGST Act 2017. Doesn’t one know of the cases where the business owners get away with the excuse that the counsel did everything of his own discretion without asking them!

– The proposed amendment to S. 83 states(abridged):-

I. Where during the pendency of any proceedings under

i. Chapter XII – Assessment ( S. 59 to 64)

ii. Chapter XIV- Inspection, Search, Seizure and Arrest (S.67-69)

iii. Chapter XV – Demand and Recovery(S.73-84)

II. The Commissioner may attach provisionally

i. Any Property

ii. Including Bank Account

III. Belonging to

i. The taxable person, or

ii. Any person specified u/s 122(1A)

IV. In such manner as may be prescribed.

– S. 122(1A) is already in force since 1/Jan/2021 and provides for Penalty both on

• • Any person who retains a benefit wrongfully, AND
  • At whose instance such transaction is conducted (very vaguely worded and therefore very wide implications)

• for non-payment of tax collected beyond 3 months from due date of payment
• for supply of goods without tax invoice
• for wrong or fraudulent ITC claims etc.

– S. 132 was ever present too- Punishment for certain offences (fine AND imprisonment)

• • To whosoever commits, or
  • Causes to commit and retain the benefits owing to given offences

– Explanation to S 132 states that ‘Tax’ shall include Tax evaded as well as wrong ITC.

– Is it not simple for the assessees to simply plead ignorance of the wrongdoing and blame everything on the consultants? And is it that simple for a consultant to defend himself stating that he did not retain any profits himself? And will his audit fee amount not be questioned by the authorities as being a share of profit earned by the Assessee?

Similarly worded provisions have been introduced in the Income Tax Act too, vide S.271AAD (corresponds with S 122- Penalty) and the Finance Bill 2021 has introduced S 281B (corresponds to S 83- Attachment of property).

But while the IT Act limits itself to the Assessee only, the GST law leaps forth to include “any person at whose instance the breach happened!”. This needs to be borne in mind by every practitioner.

Conclusion:

So dear friends, it is a blessing in disguise for the consultant-clan, as even the professional immunity would not come to rescue a fairly circumspect professional, who might miss to notice a fraud or an error. It is not easy and practical to vouch for the genuine-ness of an invoice and hence ITC cannot be guaranteed to be blemish-free in all cases.

And lets be sanguine that opportunity shall return in the guise of some other provision. GST law, as it presently is, tests the wits out of even most seasoned professionals. Can a small or medium business prepare the reconciliation at its own risk?

“When opportunity doesn’t knock, build a door.”

Lets tread ahead………..!