The GST Council (for brevity, ‘Council’), in its 39th meeting held on 14.03.2020, made certain recommendations on GST law and procedures. In this article an attempt is made to provide a gist of the Council recommendations made on 14.03.2020 along with the relevant changes made in the Act / Rules (wherever amendments have been made).

1. Interest for delay in payment of GST: The council recommended that the interest for delay in payment of tax should be on the net cash liability with retrospective effect from July 01, 2017. This is welcome recommendation as there were many litigations faced by the trade and industry on this aspect as to whether the interest for delayed payment of tax declared in belated return should be computed on total tax (i.e. before adjustment of input tax credit) or net cash liability (i.e. amount payable through electronic cash ledger).

Conflicting judgements by various Honourable Courts are given below which are leading to many disputes

a. The Honourable Telangana and Andhra Pradesh High Court in the case of Megha Industries and Infrastructures Ltd. 2019 (4) TMI 1319 held that liability to pay interest under Section 50 of the CGST Act, 2017 is on total tax liability and not just on net tax liability. The Honourable High Court has noted the recommendation of GST council in it’s 31st meeting with regard to amendment in section 50 (interest would be leviable only on the amount payable through the Electronic Cash Ledger), but refrained from interpreting the recommendation in favour of the assessee as the recommendations were still on paper.

b. The Honourable Madras High Court in the case of Refex Industries Limited 2020 (2) TMI 794 held as follows

‘Proviso to Section 50(1), as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus be read as clarificatory and operative retrospectively’

Further, the amendment made to Section 50 (1) of the CGST Act, 2017 vide Finance (No. 2) Act, 2019 (which is yet to be notified) which provides that where there is delay in filing the return, interest shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger does not clearly state whether the amendment is prospective or retrospective.

The above-mentioned recommendation of the Council giving retrospective effect in the CGST Act, 2017 is awaited.

A question arises as to what happens where interest is has already been remitted / appropriated. The author is of the view that where such interest has already been remitted without any protest, refund may not be granted. Where the same has been remitted under protest, there is a good chance to get the refund.

2. Revocation of cancelled registration: The Council recommended that where registrations have been cancelled till 14.03.2020, application for revocation of cancellation of registration can be filled up to 30.06.2020 (extension of period of application as one-time measure to facilitate those who want to conduct business). This is a welcome measure. Relevant notification in this regard is yet to be issued.

However, it may be noted that time limit prescribed for filing application for revocation of cancellation of registration is “thirty days” from the date of service of cancellation order (Section 30). Finance Act 2020 has inserted proviso under Section 30(1), whereby the time limit for filing application of revocation of cancellation order can be extended by the Additional Commissioner “thirty days” and additionally by Commissioner, for further period not exceeding 30 days.

3. Annual return relaxation and extension for financial year 2018-19: The Council recommended relaxation from filing reconciliation statement in Form GSTR 9C to tax payers having aggregate turnover below ₹ 5 crore. The Council further recommended extension of due date of filing annual return and reconciliation statement for financial year 2018-19 to 30.06.2020.

Vide Notification No. 16/2020-Central Tax dated 23.03.2020, Rule 80(3) of the CGST Rules, 2017 has been amended to provide that a registered persons whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) does not exceed 5 Crore for financial year 2018-19 are not required to get their books of accounts audit under GST law and furnish reconciliation statement in Form GSTR-9C. This amendment will help reduce small traders from compliance cost.

Further, vide Notification No. 15/2020-Central tax dated 23.03.2020, the time limit for furnishing Annual Return in Form GSTR-9/ Form GSTR-9A and Reconciliation Statement in Form GSTR-9C for the financial year 2018-19 from 31.03.2020 to 30.06.2020. The said notification uses the phrase ‘annual return specified under section 44 of the said Act read with rule 80 of the said rules’ and does not mention about ‘Reconciliation Statement’. Since the said notification gives reference to Section 44 of the CGST Act, 2017 as a whole, in the author’s view the said notification also covers Reconciliation Statement in Form GSTR-9C, since Section 44 (2) requires filing of annual return and reconciliation statement electronically.

Additional comment – Notification No. 47/2019 Central Tax dated 09.10.2019 provides that a registered person whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) in a financial year does not exceed ₹ 2 crore for financial years 2017-18 and 2018-19 have an option to file annual return (i.e. filing of annual return is not mandatory). However, it must noted that a registered person whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) during the financial year 2018-19 is more than ₹ 2 crore but upto ₹ 5 crore is required to file annual return on or before 30.06.2020 though filing of reconciliation statement in Form 9C is not required. Considering that the audit and filing of reconciliation statement in Form GSTR 9C for financial year 2018-19 has been enhanced for aggregate turnover (under same Permanent Account Number, to be computed on all India basis) upto ₹ 5 crore, it is recommended that similar relaxation should also be extended for filing annual return for financial year 2018-19 so as to reduce the compliance cost to small traders.

4. Facility of ‘Know Your Supplier’: The Council recommended introduction of Know Your Supplier facility to enable every registered person to have some basic information about the suppliers with whom they conduct or propose to conduct business. This recommendation is to enable the businesses to check the compliance rating of the suppliers which will help them partnering with suppliers who are compliant with GST and also help in timely availment of input tax credit. The new facility is to be implemented. Section 149 of the CGST Act, 2017 has envisaged Goods and Service Tax rating mechanism, however, the same is yet to be implemented.

5. Waiver of filing GSTR 1 for FY 2019-20 for tax payers under special composition scheme: The Council recommended waiver from furnishing Form GSTR-1 for financial year 2019-20 for tax payers who could not opt for availing the option of special composition scheme under notification No. 2/2019-Central Tax (Rate) dated 07.03.2019 by filing FORM CMP-02. In this regard Notification No. 12/2020 Central Tax dated 21.03.2020 has been issued providing that registered person availing benefit of concessional rate of tax have been waived from filing Form GSTR-1 and Form GST CMP-08 (payment of self-assessed tax) for the financial year 2019-20, if the said person has furnished a return in Form GSTR-3B for all the tax periods in financial year 2019-20.

6. Special procedure for registered person undergoing the corporate insolvency resolution process: The Council recommended special procedure for registered persons who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 and are undergoing the corporate insolvency resolution process (CIRP), so as to enable them to comply with the provisions of GST Laws during the CIRP period. In this regard Notification 11/2020 Central Tax dated 21.03.2020 has been issued which provides that a new registration should be taken in each of the States or Union territories where the corporate debtor was registered earlier to the date of appointment of IRP / RP. Reference can be made to the Notification 11/2020 Central Tax dated 21.03.2020 and Circular No.134/04/2020-GST dated 23.03.2020 for the special procedure to be followed for registration, filing of returns and availment of input tax credit in such cases. It is pertinent to note that the said notification brings in a deeming fiction as such corporate debtors from the date of appointment of IRP/RP shall be treated as distinct person of the corporate debtor.

7. Bunching of refund claims allowed across financial years to facilitate exporters: To overcome the refund problems in respect of filing of single application covering tax periods across two financial years the Council recommended allowing of bunching of refund claims cross financial years to facilitate exporters. In this regard the CBIC vide circular No. 135/05/2020 – GST, dated 31.03.2020 has provided that the exporters can file a single refund application for any number of tax periods without any restriction including periods covering more than one financial year. This is a welcome step for exporters who were facing hardship in claiming refund on such issues.

8. Deferment of E-invoice and QR Code: The Council recommended date of implementation of e-invoicing and QR code till 01.10.2020.

E-invoicing was to be implemented with effect from 01.04.2020. It was mandatory for all registered persons whose aggregate turnover in a financial year exceeded ₹ 100 Crores. Further, quoting of the Quick Response (QR) code in the tax invoice on B2C supplies was mandatory from 01.04.2020 for all registered persons whose aggregate turnover in a financial year exceeded ₹ 500 Crores. Vide Notification No. 13/2020-Central tax dated 21.03.2020 and Notification No. 14/2020-Central tax dated 21.03.2020 E-invoicing and QR code has been deferred to 01.10.2020. The CBIC has also notified certain class of registered person to whom the above would not apply, albeit, breach of turnover thresholds.

Registered Persons

E-invoice

QR Code

Insurance companies, Banking companies, Financial institutions (including NBFC), GTAs, Passenger transport agencies, Multiplex screens for exhibition of cinematograph films

x

x

Online information and database access or retrieval services (OIDAR Services)

x

x

This a good move as the testing on GSTN portal is still in progress and further since the trade and industry are still in the testing phase, this would give them ample time to ensure smooth implementation of E-invoicing and QR Code.

9. Extension of the present exemptions from IGST and Cess on the imports made under the AA/EPCG/EOU schemes up to 31.03.2021: The Council recommended the extension of exemptions from IGST and Cess on the imports made under the AA/EPCG/EOU schemes up to 31.03.2021. Vide (Notification No. 16/2020 – Customs dated 24.03.2020 and Notification No. 18/2020 – Customs dated 30.03.2020 exemption from levy of Integrated Tax (IGST) and GST Compensation Cess on goods imported by an EOU / STPI / EHTP unit/s and imports under Advance Authorization scheme and Export Promotion Capital Goods (EPCG) Scheme has been extended till 31.03.2021 which was hitherto available till 31.03.2020.

10. Continuation of existing system of furnishing FORM GSTR-1 & FORM GSTR-3B till September, 2020: The Council recommended continuation of existing system of furnishing FORM GSTR-1 & FORM GSTR-3B till September, 2020. This is a welcome move as the new return which was proposed to be implemented effective April 2020 would get tested fully before its implementation.

11. Curbing of fake invoicing and fraudulent passing of ITC: The Council recommended initiative to be taken to curb fake invoicing and fraudulent passing of ITC, restrictions to be imposed on passing of the ITC in case of new GST registrations, before physical verification of premises and Financial KYC of the registered person. In this regard Aadhar verification for grant of registration has been introduced vide Notification No. 16/2020-Central tax dated 23.03.2020, Notification No. 17/2020-Central tax dated 23.03.2020, Notification No. 18/2020-Central tax dated 23.03.2020 & Notification No. 19/2020-Central tax dated 23.03.2020. As per the said notifications Authentication of Aadhaar is mandatory for grant of registration w.e.f. 01.04.2020 and should be undertaken while submitting an application electronically in Form REG-01. This process will applicable to following category persons as under:

Category

Authentication of Aadhar

Individual

Individual himself

Hindu Undivided Family

Karta of the HUF

Partnership firm

Managing and authorized partners

Others

Authorized signatory of all types

Exception: Any person who is not a citizen of India

In case of failure of authentication, registration will be granted only after physical verification of the principal place of business in the presence of such person within 60 days from the date of application. After completing the physical verification, the proper officer shall upload the verification report along with other documents and photograph in Form GST REG-30 within a period of 15 working days of such verification.

12. Clarification in apportionment of ITC in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules: The Council recommended issuance of clarification in apportionment of ITC in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules. In this regard reference can be made to the detailed clarification issued by the CBIC vide Circular No.133 03/2020-GST dated 23.03.2020.

13. Appeals during non-constitution of the Appellate Tribunal: The Council recommended issuance of clarification in respect of filing appeals during non-constitution of the Appellate Tribunal. The CBIC vide Circular No. 132/03/2020-Central tax dated 18.03.2020 has clarified that the time limit of 3 months (6 months in case of appeals by the Government) to file appeal before the Appellate Tribunal shall be the later of the following dates:

1. Date of Communication of Order.

2. Date on which President / State President of the Appellate Tribunal enters office after its formation.

Therefore, currently the prescribed time limit to make application to appellate tribunal will be counted from the date on which President / State President enters office. Further, it is clarified that the Appellate Authorities, while passing the order, are advised to dispose all the pending appeals without waiting for the constitution of Appellate tribunal by mentioning in the preamble that the appeal may be made to the Appellate Tribunal, whenever it is constituted, within 3 months from the date when
the President / State President enters office.

14. Clarification on refund related issues: Based on the recommendation of the Council to issue clarification on refund related issues, the CBIC vide Circular No.135/05/2020 – GST, dated 31.03.2020 has issued the following clarification:

a. Reduction in rate of tax does not become a case for refund under inverted tax structure: It is clarified that that re-sale of goods subsequent to reduction in rate of tax does not entitle the supplier to refund of unutilized credit under the guise of ‘inverted tax structure’. In this regard the author is of the view that there is no such restriction under Section 54(3)(ii) of the CGST Act, 2017 and as such the same can be challenged before the Courts if refund is denied in such case. In this context the judgement of the Honourable Gujarat High Court in the case of Shabnam Petrofils Pvt. Ltd. 2019 (8) TMI 159 is relevant to be noted wherein Notification No. 20/2018 Central Tax (Rate) dated 26.07.2018 and Circular No.56/30/2018 was held ultra virus in the matter of refund of excess duty under inverted tax duty structure on man-made fiber yarns when rate of tax was reduced from 18% to 12%. The Honourable High held as follows:

i. The CGST Act itself provides for the lapsing of the ITC at Sections 17(4) and 18(4) respectively of the CGST Act. Thus, where the legislature wanted the ITC to lapse, it has been expressly provided for in the Act itself. No such express provision has been made in Section 54(3) of the CGST Act.

ii. No inherent power can be inferred from the provision of Section 54(3) of the CGST Act empowering the Central Government to provide for the lapsing of the unutilised ITC accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

iii. It is a well settled principle that the delegated legislation has to be in conformity with the provisions of the parent statute. By prescribing for lapsing of ITC, the Notification No. 05/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No.20/2018-C.T. (Rate) dated 26.07.2018, has exceeded the power delegated under Section 54(3)(ii) of the CGST Act.

b. Refund of incorrect payment of tax (other than exports and SEZ supplies): In respect of refund of incorrect taxes paid (paid as intra-State supply subsequently held to be inter-State supply and vice versa) it is clarified that that to avoid unintended encashment of credit balances, manner and proportion of refund would be the same as it was originally discharged – through the electronic credit ledger and cash ledger, respectively. Amount of tax that was discharged using input credit would be re-credited into the credit ledger and would not be granted as cash refund.

Amount of refund admitted in cash would be paid in Form GST RFD-06 and amount of refund admissible in credit would be in Form GST PMT-03. Further, in this regard Rule 86(4A) and Rule 92(1A) in CGST Rules, 2017 has been inserted vide Notification No. 16/2020 – Central Tax dated 23.03.2020.

c. Refund of unutilised input tax credit limited to invoices listed in GSTR 2A: Refund of unutilized ITC on zero-rated supplies without payment of tax and refund of unutilized ITC due to inverted tax structure would be limited to the invoices that are listed in GSTR 2A – the additional 10% in terms of Rule 36(4) of CGST Rules, 2017, though would be allowed as ITC, refund would not be granted to this extent. Further, HSN / SAC wise listing of inputs and input services should be filed with the application for refund, except in cases where the supplier of such goods or services is exempted from the requirement of furnishing HSN / SAC on the invoices. It is understood that this listing will be used to distinguish inputs with capital goods.

15. Based on the recommendation of the Council for amendments to CGST Rules, the following amendments have been notified:

a. Procedure for reversal of input tax credit in respect of capital goods partly used for affecting taxable supplies and partly for exempt supplies under rule 43 (1) (c): The procedure for reversal of input tax credit with respect to capital goods has been amended by amending Rule 43(1) (c) vide Notification No. 16/2020-Central Tax dated 23.03.2020 01.04.2020 as under:

  • ITC as per the invoice to be directly credited to the Electronic Credit Ledger

  • Where any capital goods initially meant for non-business purpose / exempt supplies is later used partly for business and non-business purpose or partly for taxable and exempt supplies, the ineligible
    credit to be added to the output tax liability on the basis of reduced percentage points (5% points per quarter).

  • Such ineligible ITC to be computed separately for CGST, SGST/UTGST and IGST.

  • The useful life of any capital goods to be 60 months i.e. 5 years from the date of invoice.

Hitherto, Rule 43(1)(c) prescribed for reducing the input tax credit at the rate of 5% per quarter and only balance amount to be taken as credit. Now, after amendment in Rules, gross ITC as per Invoice should be taken and reversal of ineligible portion should be shown as output tax liability.

b. Ceiling to be fixed for the value of the export supply for the purpose of calculation of refund on zero rated supplies: Vide Notification No. 16/2020-Central Tax dated 23.03.2020 effective 23.03.2020 the ‘Value of Zero-rated supply of goods’ in the formula prescribed for the purpose of refund of unutilized input tax credit is now restricted to the lower of the following:

i. Value of Zero rated supply of goods effected in a tax period without payment of tax under LUT; or

ii. 1.5 times the value of like goods domestically supplied by the same or similar placed supplier, as declared by the supplier.

This amendment is brought about to curb the illegitimate practices of certain exporters who claim refunds by inflating the value of goods exported but have failed to realize the sales proceeds in the required foreign currency. The amendment is silent on the acceptable methodology/source from where a tax payer applying for such refund could get the details of domestic valuation of like supplies. This amendment is applicable to goods and not services. This amendment, in author’s view, is penalizing the bona-fide exporter of goods who command a good price advantage in the international market.

c. To provide for recovery of refund on export of goods where export proceeds are not realized within the time prescribed under FEMA: Vide Notification No. 16/2020-Central Tax dated 23.03.2020 effective 23.03.2020 Rule 96B has been inserted in CGST Rules, 2017 to provide that Where sale proceeds against export of goods is not realised in full / in part (within the period allowed under FEMA, 1999) and refund of un-utilised input tax credit or IGST paid on export of goods has been paid to an applicant, the applicant is required to deposit the amount so refunded to the extent sale proceeds not realised, along with applicable interest within 30 days. Failing this, such refunded amount shall be recovered along with interest. However, if the assess requests by way of permission to Reservice Bank of India (for brevity, ‘RBI’) to write off the requirement of realisation of sale proceeds and the RBI grants such permission, the refund paid to the applicant shall not be recovered.

Subsequently, when the sale proceeds are realised, and applicant produces evidence of such realisation within a period of 3 months from the date of realisation, the proper officer may grant the refund of amount so recovered to the applicant.

Conclusion

An attempt has been made in this paper to make a reader understand the basics of the GST Council recommendations made on 14.03.2020 with the relevant changes made in the Act / Rules under the GST law. This paper is written with a view to incite the thoughts of a reader who could have different views of interpretation. Disparity in views, would only result in better understanding of the underlying principles of law and lead to a healthy debate or discussion. The views written in this article is as on 10.04.2020.