Tax Experts react to 27th GST Council meeting announcements of May 4

The proposed introduction of sugar Cess, if implemented, will be the setting a precedent of distorting the GST law. If this proposal is accepted by the council, it will undermine the credibility of the GST.

Converting GSTN into a 100% Government Company is welcome. I hope it will not affect its functional efficiency and ability to take quick and pro-active decisions to address the tax payers concerns.

The decision to adopt new single simplified GST return model is a welcome step. However, the liability to deposit GST, once collected from the buyer, shall be of the selling dealer. The government should completely change the current system of penalizing the buyer, if the seller defaults in GST payment.

Return simplification process approved by the GST Council depicts pragmatism in the approach of the governments. Time of six months provided for software development/modification is the most welcome part of the process. This six months’ time will enable consideration of inputs and designing of the system, testing and so on to make the process smoother. Also, the time of six months thereafter, to match invoices is also a tax payer friendly measure and addresses practical difficulties.

ITC ought to be allowed on provisional basis on an ongoing basis with provision for completion of matching process over three months. Adjustment and correction mechanism is also a must and may have been considered and if not, ought to be considered.

To my mind, Form 3B could be converted to a return-cum challan form and, thereafter, tax payer could be asked to file GSTR 1 and make up shortfall, if any, with interest, if the output tax as per GSTR – 1 is more than the output tax as per 3B return-cum- challan. ITC and any other adjustments could be  through an adjustment cum correction module. If this is done, monthly return could be done away with and one could have only an annual return. An unbelievable or unthinkable measure at the moment!

GST is a simple tax and temptation to add cess(es) must be avoided; such temptation would take us back many steps from the forward move that we are witnessing today.

Its good to see a decision finally on Return simplification.  As expected, the consensus seems to be for 'fusion model' wherein a single monthly return needs to be submitted but credit to businesses would be limited to the extent of invoices uploaded by the vendors.  This means that invoice matching continues but needs to be done by the buyers offline.  

A transition period of 6 months given to GSTN for working out the modalities followed by another 6 months of provisional credit system should mean that process of change would be gradual, for the Government as well as industry.  It has also been mentioned that authorities would proceed against the sellers in case of non payment of tax but can ask the buyers to reverse the credit in exceptional situations only.  It will be interesting to see how this is implemented and whether it will need a legislative change.  

Change in ownership of GSTN should not impact its functioning particularly because the existing terms of current staff is protected for 5 years and flexibility of operations is intended to continue, atleast for now.  Incentivizing digital payments through GST is an interesting idea and it's good that Group of Ministers have been given a task to work out the details, given the implementation challenges it might encounter.

While decision of sugar cess has been deferred for now, it would be ideal if it is not introduced given it was abolished when GST came in and GST was expected to subsume all such levies. If there is need for revenue augmentation, it can be done by increasing the GST rate rather than distorting the overall structure.

GST Council has favourably considered the need to simplify return filings under GST. Staggered implementation of simplification is a well thought through approach. While allowing credit based on upload by seller would work in an ideal scenario, issues with respect to wrong upload, correction of the said errors and non availability of credit due to non compliance of vendors are still a concern. Correction of invoices uploaded due to inadvertent errors is an important remedy sought by the industry which also needs to be addressed. Issue of single log on for all registrations under a single PAN is also imperative to make the process more simpler. GST Council needs to address the entire GSTN structure thoroughly, any other approach can only be cursory and not alleviate the burden of compliance.

Simplification of return filing is a welcome move by the council. Complete details are not readily available, however it is heartening to see that the authorities are not implementing any of these proposed changes with immediate effect. Hence the trade and industry will have enough time to understand these proposals and if permitted can suggest changes wherever required before rolling out the final version before implementation. It is a good move to delink the payment by buyer to seller for invoiced amount for finalizing the provisional credit taken. Phase wise implementation is really a good strategy. There are many other serious issues where clarity is needed from authorities and the current GST helpline is not equipped to handle such issues. Hope the Government will address these concerns by convening meetings with trade and industry as trade representations are not yielding results.

The GST Council in its 27th Meeting today has in principle approved the contours of the new return design; the said being in a phased manner with GSTR1 and GSTR 3B continuing for six months, single return with possibility of provisional credit for another six months and only a single return with credits of only invoices uploaded by supplier thereafter. Some of the highlights being a single return with staggered due dates basis turnover, real time credit eligibility basis invoices uploaded by suppliers, no reversal or recoveries in most scenarios from buyer on non- payment of tax, etc. While some of these ideas are welcome, impossibility of the buyer uploading missing invoices or to take provisional credit may lead to losses for businesses where the suppliers are not traceable and tax has been paid to them. It may also impact cash flows on account of delayed credit in case of delay in upload of invoices by the sellers. 

Further, the GST Council approving acquisition of the non-Government held stake in GSTN; enatiling GSTN becoming a Government company with equal stakes of Centre and State is a welcome measure especially with a blend of it having ensured the taxpayers data residing in the Government’s hands only as well as continuation of some required flexibilities like contractual hirings, unchanged terms and conditions for existing employees, etc

The simplified return mechanism is a welcome move, however, creates cash flow issues for a B2B customer if he is not vigilant around booking his procurements and ensuring that the supplier has filed his returns. Another issue is around penalising the customer for non payment of tax by the supplier. It will have to be seen as to how the position on law around this evolve considering Writs being filed in the past regime on the issue. On the input side, critical is that Corporates bring their house in order and ensure that bookings and credits are tracked online and not delayed. Methodologies such as witholding tax payments may be adopted. On the output side, important is to ensure that the outward returns are filed in time as otherwise, a customer would not get immediate credits and this could also result in a business continuity issue with the customers if the non filings are regular. Clearly, technology will play an important role.

The thought of levying a Sugar cess is clearly against the fundamentals of a single tax regime that was contemplated of GST.

Incentive for payment through the digital mode is a welcome move and would further digitisation.

The simplification of return process includes –

(i)      Next six months: Phase I - continuation of existing process of filing returns;

(ii)    For six months thereafter: Phase II - new system of single monthly returns (except for specified dealers) WITH the facility of provisional input tax credit; and

(iii)   Thereafter: Phase III - implementation of actual new GST return system WITHOUT any provisional input tax credit.

Where the seller after having uploaded the details of outward supply does not pay GST to Government treasury, there would not be any automatic reversal of input tax credit for the buyer. The Government would have an option, after following due process of law, to recover the amount from the buyer in situations like missing trader, seller not traceable, etc.

Implementation of above would require changes to be made in the GST law.  It would be apt if all the stakeholders are consulted for the new provisions in law, the new format of the return, the new process of filing returns and the steps for transition from one phase to another.

Currently, only 70% of the registered persons are filing returns.  It was stated that 30% of the returns filed are Nil returns.  That would mean that only 50% of the registered persons are paying GST.

The much anticipated announcement by the GST council on return simplification seeks to balance all competing interests, that of protecting government revenue and introducing simplification. Single monthly return, auto-generated returns and offline reconciliations undoubtedly the positives for the industry vis-à-vis the system introduced initially. However, factors such as wholly system-dependent input tax credits, making recipient liable in case supplier defaults in paying taxes to government, and reliance on an IT system which has behaved erratically in the past do remain big concerns for the industry

Allowing provisional credits in the first six months is a welcome move as it will give time to gauge the magnitude of the mis-matches thrown by the system and tax payers ability to resolve it. If this phase moves smoothly, then one can expect a semblance of success in the full implementation of the system.

The other decision of the council mainly to defer the decisions on sugar cess is a big relief. Had this been approved, the very raison d'être of GST ie of replacing multitude of taxes with a single one would have witnessed a reversal of sorts.

The GST Council giving an in-principle approval for a single monthly return is expected to bring cheer to the industry at large reeling under the onslaught of tedious and costly compliances. Further, the decision to stop automatic reversal of credit in case of default in payment by the vendor is a welcome step. This will ensure businesses do not suffer for the sins of their vendors.

While the decision with respect to increasing Government stake in GSTN may not affect assessees directly, it will give greater comfort with respect to sanctity of the data uploaded.

The rate reduction on digital payments will give a fillip to e-commerce players such as Amazon and Flipkart and merchants supplying through such platforms.

The GST Council has deferred the decision with respect to the sugar cess. In my opinion, introducing such cesses will again make the GST regime as complex as the earlier one. I hope the Council considers this and drops the proposal completely in subsequent meetings.