Arbitrary relief in GST compliances for taxpayers

29 April 2020

by Arushi Jain

Due to the current lockdown, the Government has introduced certain relief measures for the industries by extending the timelines for statutory and regulatory compliances under various laws. In this regard, the Finance Ministry has issued multiple notifications on 03-04-2020. A snapshot of the notifications relevant for present discussion is as under:

Notifications Relief
Notification No. 32/2020-Central Tax (“Notification 32/2020”) Waiver of late fee for late filing of Form GSTR-3B (“GSTR-3B”) for the months of February, March and April subject to furnishing of GSTR-3B by the specified date.
Notification No. 31/2020-Central Tax (“Notification 31/2020”)

• Reduced rate of interest of 9% p.a. applicable in case of persons having turnover of more than Rs. 5 crores (“large taxpayers”) provided GSTR-3B is furnished by them by 24-06-2020.

• Interest to be calculated from the day immediately following expiry of 15 days from the due date till the date of payment of tax.

• No interest is applicable in case of small taxpayers (i.e., persons having turnover of Rs. 5 crores and less) provided GSTR-3B furnished by specified date.

Notification No. 30/2020-Central Tax (“Notification 30/2020”) Rule 36(4) of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”) to be applied cumulatively for the months of February to August. Cumulative adjustment to be done while filing GSTR-3B of September.
Notification No. 35/2020-Central Tax (“Notification 35/2020”) Extension of time limit for completion or compliance of any action for the purpose of inter alia furnishing of returns to 30-06-2020 in cases where the due dates for completion of such action falls during the period 20-03-2020 to 29-06-2020.

Even though the Government has brought in various relief measures for the taxpayers, the same are not free from arbitrariness. Let us now analyse the problems that the taxpayers may encounter in light of the aforesaid notifications.

Non-availability of input tax credit

It is a common knowledge that input tax credit is available for utilisation by the taxpayers once the same is credited to their electronic credit ledger. However, the electronic credit ledger gets credited only after GSTR-3B is filed by the taxpayers in terms of Sections 41 and 49(2) of the Central Goods and Services Tax Act, 2017 (“CGST Act”). Now, as per Notification No. 31/2020, large taxpayers are required to pay interest at the rate of 9% p.a. in case the output tax liability for the months of February to April is paid by them beyond 15 days from the due date. On the other hand, Notification No. 32/2020 allows filing of GSTR-3B by 24-06-2020 without any late fee. Accordingly, in case where the large taxpayers intend to discharge their output tax liability in order to save the interest cost, they will not be able to utilise the input tax credit in respect of the supplies received by them during the aforesaid months without filing GSTR-3B. Thus, despite the fact that the Government has relaxed the compliance in terms of filing of GSTR-3B, the same would entail working capital outflow in the hands of large taxpayers.

Issues emerging from Rule 36(4)

The deferment of applicability of Rule 36(4) of the CGST Rules for the months of February to August is a welcome initiative however, the same has its own challenges. The first issue that crops up is whether taxpayers will be eligible to take credit in respect of supplies which were received by them prior to February but tax invoices for the same were not uploaded by the corresponding vendors in their Form GSTR-1. On a reading of Notification No. 30/2020, it can be seen that applicability of Rule 36(4) is deferred from February onwards. Thus, if the notification is strictly interpreted then, credit will not be available to the taxpayers in respect of invoices issued prior to February until the same reflect in their Form GSTR-2A. This will result in further delay in availability of input tax credit and will cause undue hardship to the taxpayers.

Apart from the above, another ambiguity in Notification No. 30/2020 is in respect of applicability of interest. Although the notification provides for application of Rule 36(4) cumulatively for the period February to August, a question comes up that in case where the taxpayers utilise input tax credit in excess of the amount cumulatively arrived at for the aforesaid periods then, whether they will be liable to pay interest on such excess utilisation of credit. Further, if it is assumed that interest will be payable then, how such interest will be calculated i.e., from which date the interest will be payable.

Payment of TDS/TCS liability

This is a peculiar problem specific to persons who are liable to deduct TDS or collect TCS. Even though the time limit for furnishing Forms GSTR-7 (TDS return) and GSTR-8 (TCS statement) for the months of March to May has been extended vide Notification No. 35/2020, there is a lacuna with respect to payment of such TDS and TCS amount. As per Sections 51(2) and 52(3) of the CGST Act, the TDS amount deducted and TCS amount collected during a month is required to be paid by 10th of the next month. However, the aforesaid notification does not clarify as to whether the time limit for payment of TDS and TCS liability has also been extended or not.

Further in such a case, the issue of applicability of interest also comes into picture. Notification No. 31/2020 provides a reduced interest of 9% p.a. only in case of delayed payment of output tax liability in GSTR-3B. Accordingly, in case of late deposit of TDS/TCS liability, interest at the rate of 18% p.a. will get attracted. This will further aggravate the problems of taxpayers since, they will be left with no option but to file Form GSTR-7/GSTR-8 within the original time limit.

Having said that, it is noteworthy that the Government vide Circular No. 137/07/2020-GST, dated 13-04-2020 has clarified that the due date for deposit of TDS amount has also been extended to 30-06-2020 and further, no interest will be levied under Section 50 if TDS liability is deposited by 30-06-2020. However, similar clarification has not been issued by the Government in respect of deposit of TCS liability. Thus, the point to ponder upon is whether the persons required to collect TCS i.e., e-commerce operators can rely on the aforesaid circular and deposit their TCS liability for the months of March to May by 30-06-2020 without interest.

Interest on reversal of credit

As per Section 17(2) of the CGST Act read with Rules 42 and 43 of the CGST Rules, the taxpayers are required to reverse input tax credit which pertains to exempt supplies. Under Rule 42, the amount of credit that is required to be reversed during a Financial Year (“FY”) has to be determined finally by September of next FY. In case the amount so determined exceeds the amount reversed by the taxpayers then, such excess amount is required to be reversed along with interest. Similarly, under Rule 43, the credit pertaining to capital goods which are used for making exempt supplies is required to be reversed along with interest. The issue that arises here is whether the reduced rate of interest of 9% introduced vide Notification No. 31/2020 would also be applicable to such reversals under Rule 42 & Rule 43 or not. The notifications issued by the Government does not bring any clarity in this respect.

From the aforementioned problems, it becomes evident that the relief measures brought in by the Government involves various ambiguities which require clarification. Thus, it is imperative that the Government addresses the aforesaid problems and clarifies the same through issue of relevant circulars so as to allow effective implementation of the measures so introduced.

[The author is a Senior Associate in GST Advisory practice of Lakshmikumaran and Sridharan, New Delhi]

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