Who's Who of Tax World reacts to 21st GST Council announcements on September 9

In its second meeting post implementation of GST, the Council hiked the Cess on mid, large and sports utility vehicles by 2%, 5%, and 7% respectively, but reduced the GST rates in respect of 40 items. Terming the technology glitches as “transient challenges”, FM Arun Jaitley announced an extension in the deadline for filing GST Returns for the first month while proposing to set up a 5 member group of Ministers to monitor GSTN.

Tax Experts share their views on the announcements of GST Council pursuant to its meeting at Hyderabad on September 9.

The 21st GST Council meeting set the tone and sent out clear hopes for future changes, but only if an absolute must for all.

The meeting, the second since the implementation of GST, reviewed the functioning of GST Network - the IT backbone and portal for registration and tax returns under the GST regime, as well as the rates on certain essential goods including the cess rates of the Automobile sector.

Finance Minister Arun Jaitley told reporters at the press briefing that this was in an effort to maintain equivalence. He also pointed out that despite the increase in tax burden, some relief has been allowed for consumers.

Thirty daily-use items to cost cheaper under GST.

Food grains sold loose manage to hold on to the Zero tax benefit while Branded food grains (under registered trademark) can’t pass through the same sieve anymore, and have to pay 5% GST.

Some manufacturers reportedly started deregistering their trademarks and sold their goods to gain a zero tax advantage the FM said.

Hence, the GST Council has made an amendment to say that if food stuff being sold falls into any one of the two categories, the applicable tax rate would be 5 percent.

Brand Khadi fabric and handicrafts Artisans and traders to get a big boost.

Hitherto, i.e after GST roll out there was a problem of Khadi fabric having a possibility of suffering a small 5% tax but now that goes if sold through KVIC Chain. The main attraction of handicrafts was the geo-culture tag it had. Unfortunately, post GST any cross-border trade despite its uniqueness had to come under IGST regulations of registration and tax liability from rupee one, despite threshold exemption otherwise available up to 20/10 Lakhs for intra-state trade.

Now, the GST Council has made an amendment to the following effect to overcome the above cited problems.

Handicraft traders who sell to other states will not have to register if their turnover is below Rs 20 lakh.

Khadi fabric sold through KVIC stores will be exempted from GST.

Cess on luxury cars hiked but small cars spared

Car prices had dropped by up to Rs 3 lakh as the tax rates fixed under the GST that came into effect from July 1, were lower than the combined central and state taxes in the pre-GST days. To fix this anomaly, the Council raised the cess.

GST Council decided to levy an additional 2 to 7 per cent cess on luxury cars and SUVs but exempted small and hybrid cars from any hike therefrom. If there was still some benefit for the small car buyers over the pre GST rates by 3%, let them enjoy the benefit, was reportedly the view of the FM.

Even though we had a headspace of hiking cess by 10 per cent, it has been hiked by 7 per cent, said the FM. The date of implementation of the additional cess, however, is hoped to be notified later.

When the Portal is not ready, postponement of due dates for filing returns is but the only option. Hope it really starts kicking in now.

GSTN on two-three occasions got overloaded. These are transient challenges and glitches in technology. The Council has decided to appoint a ministerial level committee to interact with GSTN for smooth transition, the finance minister said.

Since the work is huge, the period of filing of returns has been extended. The deadlines for Filing GST Returns were extended so many times that people have stopped keeping a count of it. Hope it is not one of those this time as well.

The meeting ended on a euphemistic note by the FM that overall GST collections have been robust with over 70 per cent of eligible taxpayers filing returns of about Rs 95,000 crore.

The overall feeling one gets from all these meetings is that the Government is proactive and quick to act on various issues affecting the common people by constant engagement with the members of the Council.

Hope it leads to a smoother transition into the new GST reform whose benefits are claimed to be many to especially benefit of the ultimate consumers which are none but you and me.

When the entire business community and professionals have spent the last couple of weeks in front of the computer monitor and there are celebrations if there is an error free filing in the GSTN, then it tells a very significant tale. While the decision to extend the due dates was on the cards and the rate reduction reflects a proactive approach, I think it is time for a complete pause in so far as the multiple filings are concerned. The new GSTR 3B should be the only return till 31st March 2018. Further GSTR 3B must be enabled to capture the transitional credit based on a self-declaration. This time should be used by the Government to completely set right all technical glitches and issues faced by the GSTN and enhance its capabilities and capacities. A full robust test of all filings based on the changed set of rules must be carried out. The Council should also explore creation of a committee to address various interpretation issues arising out of the law itself and provide solutions through Removal of Difficulty Orders.

The GST Council and GOI have taken a very considerate and a right decision in extending the dates for July GSTR1 to 3 Returns. While the GSTN is scaling up its efforts to handle the entire nation as such, considering that all had teething troubles in accessing the website, this decision is pragmatic. It is also urged that an overall focus on electronic system alone is not enough and sufficient time must also be given for technologists to prepare and test this mammoth electronic platform.

The other decision on rates are welcome and so is the decision on relaxation for handlooms and handicraft dealers to sell inter- state and still protect their Composition status.

The extension of deadline to file the returns is welcome. But it will serve desired purpose only when the woes of trade are addressed on priority by GSTN. The queries are not answered, the system is slow in response, all invoices submitted are not appearing while downloading the error report, the option to amend core fields like change in authorised signatory etc are not yet enabled, DSC are repeatedly not being accepted and the core committee formed needs to consider these problems while giving their recommendation. Though these may be “transient challenges”, but they do have their impact on the working capital for the industry as any mistake in uploading these details will result in denial of input credit and thereby the consequences of interest and penalty follow. Too often adjusting the GST rates is not good for the economy and the current buoyancy is due the fact that TRAN-1 are not yet filed by many traders and certainly it cannot be reason to consider adjusting the GST rates in short term. Consistent and long term tax policies will give certainty to business and government should avoid tinkering with policies too often.

The 21st meeting of the GST Council held on 9.9.2017 has announced a lot of changes, after much deliberation. Compliance deadlines have been extended after witnessing “technology glitches” of the most challenging kind in the recent past. This move is a testimony to a proactive Government and is indeed laudable.

Extension of compliance deadlines and the formation of a five Member Group of Ministers to monitor GSTN work is a welcome step as it does not in any way affect the substantive law that has already been enacted.

However, the changes such as expansion of the definition of “works contract” definition, not to mention the earlier Notifications like the one in which GTA has been given an option to adopt direct charge instead of RCM, are changes to substantive law that has been passed by the Parliament after conducting several lab tests in the form of Model GST Acts.

The draftsman has to keep in mind that frequent changes to the substantive law which is barely few months old, not only makes it unstable but also displays skepticism in the mind of the draftsman about his own drafting.

Social compulsions can and should influence a set of laws when they are being enacted but not as an afterthought. Request by the Head of one State which has resulted in alteration of the definition of “works contract” should not serve as an encouragement to Heads of other States to suggest changes and get them codified into the already enacted law, by way of frequent amendments.

The reason for the above statement is obvious. It instills a sense of fear in the minds of the business community of frequent unprecedented moves by the Government and also creates a lot of confusion.

On a more positive note, the move by the Government to “iron out the wrinkles” is one to be appreciated. The sooner the wrinkles are ironed out, the better, so that we can be sure about the final structure of the GST law, once for all.

It seems that substantial time of the council was spent on discussing GSTN related issues, which underlines the importance of technology to determine the success of GST. An inter-ministerial committee has been set up to monitor the GSTN related issues, which will perhaps help resolve the issues on a timely basis.

Extending the deadline for filing the GSTR 1 for July 17 by another one month is indeed a welcome step, which gives much needed time to the industry as well as GSTN to sort out the system and process related issues. Also, the fact that schedule for filing the detailed returns for August 17 onwards has not been laid out, for now, does indicate that Government wants to adopt a cautious approach in this regard. If need be, it won't be surprising if due date for filing of detailed returns is deferred further, given that summary return in Form 3B will now continue to be applicable tillDecember 17 and GST would be collected on a monthly basis.

Also, the facility of filing and amending the TRAN 1 form (for claiming opening credit) is also a welcome relief as many companies could not file it properly, given that it had to be done manually on the portal.

The other significant decision is to tax all branded food products at 5%, so long as the brand entitles the businesses to make an actionable claim against others. This should ensure that all branded food products have the same treatment, so long as brand owner wants to legally protect it.

Inter-state job workers and artisans will not need to be registered now, if their turnover is below the threshold of 20 lacs, which provides relief to these small service providers.

Proposal to set up a committee to examine the issue for export community is also a good move, as exporters in few sectors such as textile have argued that GST has led to a higher incidence of tax.

Reduction of rates on about 30 items shows that Government can be flexible to review the rates, if GST collection continues to be healthy. Increase in Compensation cess on automobile is less than what industry was fearing and small cars have been spared, so overall industry would be relieved.

In summary, a good day in office for GST council and industry will be happy and also hopeful that GST would settle in quickly.

The national IT backbone built by the GST Network (GSTN), designed to handle over 3 billion transactions every month, is facing severe teething troubles. Whilst a significant amount of data has already been uploaded into the system, everyday one hears about hardships being faced by the business community. The GST Council has progressively extended dates for filing returns by almost 2 months now. To its credit, the GSTN IT network successfully handled the migration of over 80 lac registered dealers of VAT and Service Tax. GSTN has also done a commendable job in facilitating a record collection of taxes of over INR 92,000 crores, under CGST, SGST, UTGST, & IGST. The filing of nearly 45 lac GSTR 3B summary returns, along with a relatively smooth availment of the transition credit is also no mean achievement. Considering the mammoth and unprecedented IT exercise that this is, systemic issues are being faced due to insufficient time for testing, multiple changes in defined processes, as well as the last-minute rush to file returns. We should keep this overall context in mind while judging GSTN. To avoid a repeat of these problems, the GST Council has staggered the various deadlines over a longer period of time, and different deadlines have been set for small and large taxpayers. Large taxpayers need to file GSTR1 by 3^rd October, which will release more bandwidth for smaller taxpayers to complete this by 10^th October. A five-member group of ministers has also been formed to monitor and review the performance of the IT infrastructure, which should improve performance further.

It is expected that the system will start stabilizing in some time, and settle down into a regular monthly routine. We have seen in the past the automation of filing income tax returns also following a similar pattern. However, it might be advisable for the Council to extend usage of summary returns in Form GSTR-3B, and use it as a replacement to Form GSTR3 and not an additional form, till the time the system stabilizes.

The Council also recommended a reduction in the rate of taxes on a variety of common use items, which shows a continuous effort to remove anomalies and reduce the impact of GST on prices. At the same time, it also recommended increasing the compensation cess on mid-segment, large and SUV cars, without changing the cess on small and hybrid cars. This was proposed to bring the overall tax incidence under GST at par with pre-GST rates. The proposed amendment relating to widening the definition of works contract also needs to be evaluated, once it is available in the public domain.

Decisions of the GST Council at the meeting of 9 September, 2017 signifies pragmatism; desire to ensure that one of its kind IT platform for administration of GST in a vast country like ours becomes a pleasant experience for all stakeholders. This approach especially, extending the date for filing GSTR-1 by a month , continuation of Form 3B( summary return) by four months is most welcome step. The response of Mr. Adhia, Revenue Secretary, post the meeting was most reassuring that the Government would like the system to settle and function well for July 2017 ( the first month of GST implementation) and would not like to rush.

We do hope that this pragmatism continues even for the transition issues and the challenges of interpretation and application of the law. And, this is bound to happen when a reform of this massive scale is taken up; all possible situations could not be addressed. Attending to those issues must now be taken up on priority basis.

My suggestions, in this context, the top three ones, are:

1. Task specific persons to assist trade and industry in resolving technology related aspects – some areas where the filers need guidance and some areas where the system needs tweaking. Designated one week time say, starting from next week, will help identification of issues.

2. The GST Implementation Committee, a high level Group, should examine all issues and prepare a comprehensive list of changes required – in law and in procedure – the Group to be independent of the current groups working on several aspects of law/rules/regulations. This Group could act as 4 eyes test – effectively, independently examining suggestions and provide clarity - the Group be instructed to be practical in approach – keep in mind that ease of doing business is paramount – the Group to be common contact point for all issues and provide report within given time frame, a reasonable one. Based on the Report of the Group, take up all amendments to law/rules- add those which are missed out – retrospectively, if required. Go easy during this period – charge interest for shortfall but not penalties.

3. Set up mechanism by which an amendment in CGST Act/Rules could apply to all SGST and UTGST Acts/Rules so, each State does not have to issue Notifications for change – keeping track adds significant time and cost of compliance and affects our ranking, in terms of ease of doing business – tax payment and compliance is one of the key items considered for ranking.

Big relief for the industry due to extension of GST Return filing dates. Because of issues with the GST Network, industry was struggling to file their GSTR 1 and the deadline of September 10 was impractical and has appropriately been extended by the GST Council. Also setting up of an inter-ministerial committee to look into the GSTN issues is welcome as bug free working of GSTN is absolutely essential for a successful GST implementation in India.

Further, the auto industry would be largely happy as the GST Council only marginally increased the cess for mid-size, large cars and SUVs and did not increase it by 10 percent which was the upper cap approved by the Ordinance.

The extension of return filing deadlines by the GST Council will certainly make the taxpayers breathe a collective sigh of relief.

However, this move also reveals the hurriedness in GST implementation and consequent unpreparedness of its IT systems. This sort of repeated last-minute extensions gives an impression of ad hoc-ism which dents investor confidence in India as an economy. Vis a vis the rate revisions of various commodities, it is heartening to note the Government’s willingness to accede to taxpayers’ representations. However, one wishes that such reductions had been factored before July 1 through wider consultations – all such changes will need to be reflected in IT systems across businesses leading to considerable recalibration time and efforts on an overall basis.

Further, the GST Compensation Cess for large cars and SUVs have been increased so that the effective rate of indirect tax on such items becomes almost the same vis a vis the pre-GST regime. It would be interesting to see the effect on such cesses in the backdrop of the ongoing case of Mohit Minerals v. Union of India where the Delhi High Court has found prima-facie merit in the challenge to the constitutional validity of the GST Compensation Cess Act.

Lastly, specified works contract services supplied to Government are now proposed to be subjected to a GST rate of 12%. Earlier, service tax on such works contract services supplied to the Government was exempt while VAT was leviable. It appears that the levy of GST at 12% on such specified supplies to Government is with the intent of continuing with similar indirect tax impact even under GST and to ensure that there is no revenue loss under GST as compared to the VAT revenue that used to accrue on such contracts in the pre-GST era.

Extension of date for return filing purposes is a welcome move. Form GSTR-1 filing deadline is extended till October 10 (October 3 for assesses having turnover of more than hundred crores) for GSTR2 till October 31 and 3 till Nov 10. This is for the return period of July. It should be further noted that Form GSTR-3B is extended by 4 months and is applicable till December 2017 but without any extension of time for filing.

Some impact on rates for branded food items has been recommended to ensure that non-registered trademark or name with actionable claim does not get any beneficial tax treatment. The much awaited decision on cars was also taken. Mid segment cars to be taxed at 45% with an increase of 2%, large cars to be taxed at 48% with an increase of 5% and large utility vehicles to be taxed at 50% with an increase of 7%. This appears to be a balanced approach. However, constitutional validity of cess remains a subject matter of dispute.

Further, changes have been suggested for Government WCT. Lastly, some items of handicraft would get benefit with respect to the rates and registration requirements for interstate transactions.

& Shivendra Dwivedi

With the frequent downtimes and sluggish behaviour of the GST online portal, the relaxation in deadlines to file GSTR-1, 2 and 3 for July 2017 is a step in the right direction. This will give the industry a breather and lower the pressure on the IT infrastructure which presently appears ill-equipped to handle large volumes of data and lakhs of simultaneous users. The 25 day window to file GSTR-2 (11-31 October) will also give time to resolve mismatches. The downward revision in the rates of 40 items is a step towards rationalisation. The rates were set initially with strict adherence to the equivalence principle which led to many items of mass consumption such as kitchenware, pots, brooms, raincoats, etc. in the higher tax brackets.

The most keenly watched development was the hike in cess on cars which seems moderate considering the fact that tax incidence is still lower under GST than under the previous tax regime. It is not that initial challenges to implement such a mammoth project were not anticipated. The approach of the Government here seems to roll out with a particular measure and respond as it unfolds on the ground. This approach is a trade-off between quick decision-making and stability in taxation policy which is critical. This will succeed as long as the response is quick and effective.

It is no secret that in the last few weeks, the network glitches and technical errors with half-baked GSTN have tested the tolerance of industry players, consultants and State tax authorities, who have till now been supporting the otherwise commendable GST reform patiently. This time around the displeasure of the parties was more vocal and it was imperative that the GST Council demonstrates sensitivities towards the challenges faced by the stakeholders.

The GST Council chaired by the Union Finance Minister did realise the gravity of situation at ground and the same is evident from the fact that the GST Council in its 21^st meeting spend maximum amount of time discussing the readiness of GSTN. Tacitly admitting for the first time that GSTN needs a lot more work before it can be said to be running smoothly, the GST Council has decided to form a group of ministers to look into the IT challenges and has simultaneously extended the last date for filing GSTR -1, 2 and 3 for the month of July to 10^th October (3^rd October for assesses having aggregate turnover of 100 crore at PAN level), 31^st October and 10^th November, respectively.

While it is commendable that the GST Council has been open to rationalize the rate structure for goods/services which were attracting higher tax, increase in compensation cess on cars is likely to impact the credibility of the process and the sentiments of the customer / auto industry, negatively.

Further, the GST Council has finally accepted the request of food industry and has taken steps to remove the artificial market distortions which were created by the definition of registered brand name. However, the phrase ‘actionable claim’ used to remove such distortion may itself not be free from interpretational issues.

To summarize, GST continues to be a ‘work in progress’ and GST Council would need to play a pivotal role in ensuring that its implementation becomes smooth with every GST Council Meeting. It is hoped that the GST Council would take up various other pending issues such as fate of valuation for inter-office services for exempt / non-taxable sector, method of carrying forward Cenvat credit reversed on account of non-payment as prescribed under Section 140(9) of the CGST Act, meaning and scope of non-resident taxable persons, taxability of auctioneers etc. in the next meeting(s).

In the backdrop of various technical glitches being faced by the IT backbone of the mammoth indirect tax reform, GST, in the country, the GST Council in its 21^st meeting held at Hyderabad on September 9, 2017, once again decided to extend the deadline for filing the GST returns and this time extended by a month. The due date for the filing of GSTR-1 for July month has been revised to October 10from September 10 (For registered persons with an aggregate turnover of more than Rs. 100 crores, the due date shall be October 3, 2017). While GSTR-2 has a revised to due date of October 31 from September 25, GSTR-3 has been revised to November 10 from September 30. The filing of GSTR-6 by ISD has been revised to October 13, but, due date for filing returns by Composition suppliers in GSTR-4 for the quarter ending September 2017 remains unchanged at October 18.

It was further decided that summarised return in Form GSTR-3B will continue to be filed for the months of August to December, 2017. Moreover, the due date for submission of Form GST TRAN-1 for availing transitional credits has also been extended by one month i.e. till October 31, 2017, with an option of revision once. Besides, there were other key decisions as well like raising the cess on motor vehicles--mid-size cars, large cars and sports utility vehicles by 2%, 5% and 7% respectively instead of whole 10% increase effected in the law, exemption from mandatory registration in case of inter-state supply of handicraft goods made under the cover of e-way bill and in case of inter-state supply of job work services (except jewellery, goldsmiths’ and silversmiths’ wares) made to registered persons where goods move under the cover of e-way bill, reducing GST rates for 30 items, including disposable items, dried tamarind etc.

At a briefing after the meeting, Finance Minister Arun Jaitley said the glitches were “transient challenges”, and a committee had been appointed to resolve GSTN-related issues. But, the moot question as to real preparedness of GSTN network at the pace required to be, is left unanswered, leaving room for doubts in the minds of Trade and Industry for the gloomy time to come if concrete steps are not taken immediately. Exporters refund will also be held mid-way, blocking their funds, if GSTN delays in working smoothly. Envisaging, GST as Good and Simple Tax for country India, let us hope to see proper GSTN functionality soon.

Recommendations made by GST Council at its 21^st meeting on September 9, 2017 with respect to extension of filing returns is indeed a welcome relief to the tax payers who could not file their returns. It also gives time to many who were hastily preparing for returns to be filed in due course.

In the event of any short payment of tax, for any reason, on August 20, 2017, the GSTN system / portal does not allow to adjust the amount that may be available on that day in cash / credit ledger; hope the tax payer is not called upon to bear the interest until the new extended time-lines.

The extended timelines probably would put pressure on small and mid-size tax professional services organisations who support their clients for direct tax as well as indirect tax compliances.

Extension of time-lines for other months, without specifying the dates, is pragmatic in the given circumstances. Tax payers are, currently, claiming input tax credit believing that their suppliers would upload invoice details in the respective month and also pay taxes timely. GSTR-3B being extended beyond three months is likely to impact cash flows and attract interest, in the event of the supplier not undertaking the compliances and paying taxes on timely basis. It may be prudent to consider extending all such time-lines also, for initial six months period.

The additional cess as applicable to motor cars and other motor vehicles have been decided, however, for leasing of motor cars players, there is no respite yet in respect of the transition provisions.

Hope, the committee consisting of officers under the chairmanship of the Revenue Secretary, to examine the issues related to exports would recommend soon on the refunds as well as on the rates (All India) of duty drawback which has been continued for a transition period upto September 30, 2017.

Incidentally, the next meeting of GST Council has not been announced.

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