Tax Experts react to 40th GST Council meeting announcements
Amidst huge Industry expectations, the announcements made by GST Council’s 40th meeting on June 12, were a 'sombre' one, being largely procedural. Big decisions on the manner of compensation that would be given to the states and inverted duty structure has been postponed/deferred. Further, much awaited clarification on various debated issues such GST credit on donations, GST waiver of bad debts, etc., have been given a 'miss'.
As a measure to expedite return filing for pre-COVID, Council has announced the late-fee waivers/relaxation and additional moratorium for smaller businesses including interest reduction. Whilst these announcements undoubtedly give a sigh of relief to the taxpayers given the pandemic, however there are certain open questions and issues bothering the Taxpayers/Businesses which still remain unaddressed.
While the industry was probably expecting some big relief measures on GST to provide some liquidity support, the decisions of the Council were largely procedural.
Interest exemption for small tax payers (upto 5 Cr turnover) by another three months (if return is filed by September 2020) provides some relief, so does the reduction in interest rate from 18% p.a. to 9% p.a. for the period February to April 2020 by September 30, 2020.
Capping of late fee to INR 500 per return (as against INR 5000 per return each under Central and State GST law) for late filing of GSTR-3B by taxpayers having a tax liability (for the return period July 2017 till January 2020) may encourage taxpayers to file pending returns.
While there was not much for larger businesses, the late fee waivers and additional moratorium for smaller businesses is quite a welcome move. With the current financial flu, smaller businesses were aggressively seeking stimulus and some of their requests have been well considered by the Council. Issues like GST credit on donations, GST waiver of bad debts, non-reversal of GST credit on destruction/ writing off of perishable goods, etc., were some immediate concerns of businesses and they were looking forward for relief on these as well. While these were not discussed/ approved in the current meeting, businesses have been looking forward to a relief soon being announced on these concerns.
One of its kind meeting conducted through web-conferencing, the GST Council was the recipient of plenty of expectations from the industry today, who were looking out for some rescue measures during the pandemic. The Council has made some comforting announcements to the taxpayers, most suitable for small taxpayers having a turnover below rupees five crores.
The relief to small taxpayers is twofold, which cuts the interest to a lower rate and waives of late fee penalty for GSTR-3B returns. At the same time, the Government is also battling prolonged default in returns to be filed from the beginning to GST. To combat and expedite this delinquency, late fee has been waived off for GSTR-3B returns from July 2017 to January 2020 (pre-covid period). Returns that have NIL tax liability would be given a complete waiver, whereas those returns which have a tax liability will be charged a maximum late fee of five hundred rupees. To expedite the filing, the exemption is available only if filing is done between July to Sep 2020. Relevant to note that the late fee was capped to ten thousand rupees as per the current provisions.
Though these announcements give a sigh of relief to the taxpayers, a lacuna in reading is apparent. First, the exemptions are only given to GSTR-3B returns. It leaves an open question on waiver of all other GST returns. Similarly, what happens if the pre-covid returns are filed in the month of June 2020, will the waiver be available? A notification from the Government would clear this ambiguity.
Next on, the elephant in the room was the manner of compensation that would be given to the states. Just recently, the Centre released some compensation to the states to bridge the shortfall. However, the manner of balance compensation payable is the bone of contention now, which is of great interest to the general consumers as well. The Finance Minister has decided to defer the discussion to a special meeting to be held in July 2020 with all the state council members. In any event where the decision taken by the Council involves increase in levy will add some pressure on the taxpayers. Another aspect that the taxpayers looked forward to, was clarity on inverted duty structure. A large amount of ITC is accumulated and blocked due to inverted duty. This decision has also been postponed by the Council.
An interesting question raised by the media was towards the continuously increasing petroleum prices. A rise in fuel prices automatically increases all other costs. Recollecting the brief intention expressed by the government to include natural gas under GST, we anticipate a future communication or discussion from the Government in this regard.
40th GST Council meeting has been a big disappointment. Except for cosmetic changes for small taxpayers (applicability of 9% interest for delay in tax payment and waiver of late fee for furnishing of returns), the Council has not done anything. Nothing has been done for regular taxpayers. The Council missed big opportunity to play its “catalyst” role in bringing economy back on track. COVID-19 has put economy on back burner and all business entities are facing existential issues. The Council could have improved affordability of goods and services (by reducing rate of tax) as well as liquidity of business entities (deferring due dates of payment of tax without charging interest, collecting tax on receipt basis instead of accrual basis etc.). Though such measures would have a direct strain on tax collections, these were much needed in overall interests of the country. In nut sheet, the business entities need to be “Atmanirbhar” and should not expect any support / relief from the Council.
In such a dynamic tax changing environment with an added flavour of economic slowdown, it becomes essential to maintain a fair balance to support businesses and augment tax revenues. The endeavour of our Government is clearly to support Indian businesses with a focus on indigenous supplies.
In line with the earlier announcements from the Finance Ministry, GST Council has given its formal sanction to the relaxations announced in filing GST returns during the COVID crisis. Reduction in interest liability rates for MSMEs has been a much-needed respite during these difficult times. The Government has been kind enough to extend amnesty to defaulters in filing GST returns. This will encourage businesses to put their compliance in order and boost GST collections. Those filing nil returns are rightly given complete exemption from late fee, and those with tax liability can now regularise their returns by paying a small amount. Over a period of time, there were many disputes concerning cancellation or registrations due to non-compliance and non-restoration of license owing to breach of limitation period prescribed in the GST Act. These disputes will be put to rest as assessees have been provided one last opportunity to get their registrations restored. Some of the amendments in the GST Act will be notified with effect from 30 June 2020.
The much awaited 40th GST Council meet was over on the expected lines. The meeting chaired by the FM did not take up any issue related to the rate cuts which was little disappointing. The Government is also contemplating on borrowings to compensate the Statese in the next meeting. The discussion on inverted duty structure was deferred to a later date.
The major relief of course is the waiver/capping of late fee payment for non-furnishing of GSTR3B for the period from July 2017 to January 2020. There would be no late fee if there was no tax liability and the maximum late fee has been capped at INR 500 per return if there was any tax liability. It will be interesting to watch as to what happens to the late fee already paid by some of the assesses.
For small tax payers, (of turnover less than 5 crores) for supplies effected for the months of February, March and April, if they are to file the return beyond the notified dates (end of June to first week of July), the interest rate beyond the period is reduced from 18% to 9% if the return are filed before 30th September 2020. The last date of filing the GST3B return for small tax payers for the months of May, June and July, the last date for filing the returns is extended till 30th September.
A deferment of the date of filing for Annual Return and Audit certification process and the introduction of e-invocing launch date is also expected. A clear cut set date will help India Inc. to plan for the same esp for the latter, since additional investment in technology will be quite difficult except for the very large cash rich corporates.
India Inc also awaits a moratorium period across all industries for the payment of GST as the same is to be paid even before the consideration is received against the supply and considering the liquidity crunch and cash flow situation. It is also hoped that the Government will refrain from imposing any kind of Covid Cess since India Inc is not in a position to take any additional tax burden.
In an attempt to aid the small taxpayers of pandemic COVID-19 hit economy, the Government has announced major procedural reliefs under GST in its 40th GST Council meeting, held for the first time after lockdown. For small taxpayers, with aggregate turnover up to Rs 5 crore, there is reduction in interest rate for late furnishing of return for the months of February, March, and April this year, beyond specified dates (staggered up to July 6) from 18% to 9% per annum till September 30 this year. That is, small taxpayers will not be charged any interest till the notified date of relief and thereafter 9% interest PA will be charged till the end of September.
Also, for waiver of late fees for pending filing of GSTR-3B returns from July 2017 to January 2020, full waiver of late fees is announced in case there is no tax liability and the maximum late fee has been capped to Rs 500 per return in cases when there is tax liability (It means that there would be interest @ 18% PA on delayed payment of tax for the stated period) but, this benefit is available only if GSTR-3B for this period is filed from 1-7-2020 to 30-09-2020. Further, this waiver of late fees for those filing delayed return of July 2017 to January, 2020, now in July -September 2020, creates bias and spread discouraging message towards those taxpayers who have already filed their returns with appropriate late fees. There should be some mechanism to refund such late fee to them as well.
While the above reliefs are sure to bring some joy to the majority of small taxpayers, but, the reeling economy was looking for more substantial changes. Considering that the businesses are hit worse with all-time low sales and disrupted production, there should be complete waiver of interest for all liabilities discharged till September 30 and that too for all taxpayers.
Decision is also made to bring into effect certain clauses of the Finance Act, 2020 amending CGST Act 2017 and IGST Act, 2017 from June 30, 2020. Interestingly, in an attempt to undo the effect of decision of Delhi HC in Brand Equity Treaties Ltd. & Ors. v. UOI which allowed transitional credit to be availed till June 30, 2020 as per the Limitation Act, the government notified Section 128 of the Finance Act, 2020, in isolation, in between lockdown on May 18, 2020, retrospectively (w.e.f. 01.07.2017) amending Section 140 of the CGST Act. Accordingly, against this judgment, an SLP is also filed by Revenue before the Hon’ble SC.
However, as of now pending amendment of the Finance (No. 2) Act, 2019, in Section 50(1) of the CGST Act, stipulating payment of interest only on net amount after adjusting ITC, is not yet made effective. Such clarificatory amendments should have been made effective retrospectively on similar line, as revenue has done for transitional credit u/s 140(1) of the CGST Act.
All eyes are now on July's GST meet to see some more concrete reliefs as the GST Council postponed rationalisation of GST rates for textiles, footwear and fertiliser, even though principally all members agreed that the duty rates need to be corrected as these products faced inverted duty structures.
