IMPLICATIONS ON GST COMPLIANCE AND LITIGATION DURING AND AFTER COVID

Reading time : 8 minutes

ABSTRACT

In light of the spread of the Covid-19 pandemic, various countries got affected by this including India. It causes a huge loss to the lives and the economy of every country. The outbreak of novel coronavirus also puts a negative impact on every sector of the Indian economy. The financial sector of India is also influenced by this situation. The government of India has taken various steps to prevent the spread of this virus. Lockdown is one of the measuring of steps taken by the Government. This brief study has addressed the various indirect tax amendments of GST. In Addendum, researchers have also suggested some tax relief options given by the Government.

INTRODUCTION

The COVID-19 pandemic has dealt a severe blow to an already stressed global economy. The severity of the pandemic across the globe has pushed countries and organizations into unchartered territories. The macro-economic impact of COVID-19 could result in a significant dip in GDP growth, an adverse impact on fiscal deficit and a substantial erosion of investor wealth. While the path to recovery is unpredictable, a prolonged “see-saw” shaped recovery looks most likely for India, leading to a “new normal”. To cope with the crisis, the government initially in the year 2020 announced a stimulus package amounting to INR 20.97 lakh crore, that was around 9.8% of FY21 estimated GDP. Of this package, only 9.7% was the additional burden on the centre’s FY21 budget. An analysis carried out by EY’s Tax and Economic Policy Group shows that, the centre’s fiscal deficit in FY21 may be estimated at 7.1% if this additionality in the recently announced stimulus is to be provided for and the budgeted level of expenditures is to be protected. The pandemic’s impact on Indian economy and finding our way through the new normal. The article on world trade post COVID discusses the potential new environment where countries may start to protect their vital supplies and increase tariff and non-tariff barriers while defending their existing domestic industries through trade remedies measures. As this disease was new in the world and took the entire globe by storm, fewer studies were conducted in so far related to its impact on the fiscal sector; researchers have reviewed some papers to know the implications of this virus on countries economy, review of some papers have been given below.

Balajee, A., Tomar, S., &Udupa, G. in their study entitled, “Fiscal Situation of India in the Time of COVID-19” and found that the Central government has declared package of Rs. 1.7 trillion for mitigating the effects of shut down of the economy. Researchers have also suggested that subsidy rationalization can reduce the fiscal deficit. This study forecasted that fiscal deficit will be as high as to 8.4%”.

Venkateswaran, A. researched, “The Impact of Covid-19 on India” and focuses to know the attitude and awareness level of new viruses among the public. Researcher has also focused on the role of Government, politician, and healthcare officers. This study also suggested that tax concession should be given to small industries, GST relief, guarantee of wages, and, easy accessibility of credit. This research found that coronavirus put a destructive effect on every country of the world.

Every study concluded that it put a negative impact on each sector. Researchers have found that various researches that have been done on coronavirus, but none of the studies has been done related to GST amendments or relaxation during this Covid-19 pandemic.

Objectives: To counter the impact of this new virus on the economy, Government has taken various measures. Relaxation packages of GST is one of the measures. The Central Government has introduced various concessions and relaxation in GST compliances to provide relief to affected persons. The article’s objective is to determine whether the relaxations and relief provided by the Government fulfils its purpose.

Pertinent Questions:

  1. What has been the current impact, of the lockdown due to Covid-19, in the GST litigation space?
  2. What are the changes in the substantive laws that have come about?
  3. What are the changes in procedural laws that have come about?
  4. What are the disputes that may arise or the loopholes that might cause a problem in the future due to these changes?

 Implications on GST compliance during COVID-19 crisis

The last two quarter year have had even the strongest economies across the world struggle with the coronavirus crisis. India is no stranger to economic challenges but a pandemic of this degree is on the verge of crippling several industries and businesses in the country. When a business crumbles, the tax system that generates revenue because of said business will also face challenges. India’s indirect tax system, the Goods and Services Tax is still in its development phase having been implemented merely three years ago in July 2017. Before looking at the GST aspect, looking at the economical aspect is more feasible. The lockdown due to Covid-19 has brought all the economic corporations to a halt, a month-long shut down for a 2.6 trillion dollar economy implies a loss of 217 billion dollars which roughly translates to about 1.4 lakh crores and if the stimulus is seen which is the central government has released which is to the tune of 1.7 lakh crores which clearly shows that Covid-19 disease has put a serious dent in the economy already it was only inevitable that the government would announce to defer the compliances under the GST law and other laws, many measures also include some concessions in other areas of the law example Insolvency and Bankruptcy Code. If we go chronologically on March 19th Prime Minister came before the public and announced the Janta curfew on March 20th, 2020, returns GSTR-3B was required to be filed and subsequently on March 24th, 2020 the Prime Minister again announced the lockdown for 21 days accordingly it was imperative that returns were deferred. On March 24th, our Finance Minister in reference to this lockdown due to the outbreak of COVID-19 they declared certain concessions in a press release. On March 24th the government made some announcements with respect to the indirect taxes, then on 31st March the President came out with the ordinance that was related to taxation and other laws, then finally on 3rd April, the Central Government issued various notifications to bring into effect some proposed concessions.

The plausible challenges that India’s indirect tax reform is currently facing because of the Covid-19 economic crisis, have been demarcated below:

  • Falling revenue collection: Tax collections have suffered in wake of the coronavirus pandemic and consequent lockdown. Union Finance Minister, Nirmala Sitharaman announced that collections for the month of April and May were 45% lower than the usual range. There could be an up in the revenue numbers since the deadline for filing returns has been extended to September 30th, 2020. GST collections for the month of March, 2020 stood at a five-month of Rs. 97,500 crores, falling short of its target of Rs. 1,25,000 crores.
  • Challenges in meeting GST liabilities: The lockdown has disrupted business operations across the nation. Challenges like shortage of raw materials, hiked prices, slowdown in demand, liquidity crisis and delayed payment cycles are likely to cause a lot of issues while filing GST liabilities, even after an extension in deadlines file returns, waiver of late fees and reduction in rate of interest on late filing charges,
  • Demand for rate cuts: Experts have reckoned that the economic crisis caused due to the Coronavirus pandemic is likely to cripple a number of industries especially hospitality, travel and tourism. Obviously, a number of industries are going to demand rate cuts and exemptions. This is going to be quite a challenge for the Government, both Centre and State as any spry of rate cuts will lead to lower revenue collections. On the other hand, no GST exemptions or rate cuts are likely to lead to failure in payment and a build -up of output tax liabilities.
  • Possible disputes while expanding GST ambit: If the Centre Takes on recommendations from certain ministries and other experts and brings certain commodities like crude oil, oil and gas, aviation turbine fuel and natural gas which are taxed under VAT system, under the GST ambit, it could help with revenue collection. But this is likely to fuel the ongoing dispute between States and the Centre who are already knocking heads with the Centre for delayed compensation.

Relaxation in GST compliances during Covid-19 circumstances

To counter the impact of this new virus on the economy Government has taken various measures. Relaxation packages of GST is one of the measures. Due to sudden lockdown taxpayers and professionals are facing various challenges for fulfilling the tax activities. The Central Government has introduced various concessions and relaxations in GST compliances to provide relief to affected persons. All the GST relaxations have been discussed below. For instance:

  • Due Dates of GST returns: The Central Government has taken this lead to give more time to taxpayers for filing the returns. As per the notifications number 30/2020 to 36/2020 issued by the Government in the view of the novel coronavirus, the time limit of indirect tax returns has been extended.
  • Waiver of late fees: Late fees for filing the returns: has also been waived by the Government, till the date of extended due dates of tax returns,
  • Waiver for the Interest: The Government has also waived the interest, if all the return will be filed by the extended due. If a taxpayer unable to file the return within the extended deadlines then interest will be levied at the rate of 9% and 18%.
  • Opting Composition Scheme: Due to this crisis the central government has issued an advisory which states that registered taxpayers who already in the composition scheme are not required to register themselves again for the financial year 2020-21. The date for opting composition scheme has also been increased to 31st March, 2020, for new taxpayers who want to opt the composition scheme through GST CMP-02. ‘
  • Reduces the Compliances: As per the rule 67A a registered tax person can file his amount tax return (GSTR-3B) by typing a typing a short message from a registered mobile number. This return will be verified through the EVC (Electronic Verification Code). Through this no login required, just by SMS return will be filled.
  • EVC Return Filing of Companies: Previously GST return-3B under section 39 of the companies were filed through DSC (Digital Signature Certificate) only, but now the indirect tax returns of companies can be filed by EVC also till 30th June, 2020.
  • Unclaimed Transition Credit Date Extended: The Central Government has extended the date of TRAN-1 till 30th June, 2020. A registered person, who has not taken the transition input or unclaimed ITC by not filing the TRAN-1, will be allowed until 30th June.
  • Validity of EWB: As per the notification no. 40/2020: Central Tax, the validity of an E-Way Bill has increased till 31st May 2020. It will apply to those e-Way Bills, which have been generated before 24th March, 2020 and its expiry is in between 20th March to 15th April, 2020.
  • IRP/RP Registration Time Limit Extended: As per the notification no. 39/2020-Central Tax, the time limit of registration of Interim Resolution Professional (IRP) and Resolution (RP) has been increased to 30th June 2020 or within 30 days of the appointments of IRP/RP whoever is later.
  • Merchant Exports: A merchant exporter has to export within the 90 days of invoice date, but due to lockdown they are unable to export. In view of this the Central Government has issued a circular, which states that merchant exporters will get the extension to 30th June, 2020. It will applicable to those exporters whose 90 days period comes in between 20th March to 29th June, 2020.
  • Validity of LUT: As per the circular 137/7/20, the validity of a LUT (Letter of Undertaking) has also been extended. A LUT, which has been expired on 31st March, 2020, it will be valid up to 30th June, 2020. Changes in procedural and substantive law brought during covid19.

Changes in Procedural and substantive law brought during covid19

Changes in Procedural law: The government has issued 7 notifications, starting from notification number 30 to notification number 36. Now for the purposes of GSTR-3B which is the method through which we remit our tax liabilities, in respect of the concessions with the respect to GSTR-3B the government divided the taxpayer into three brackets, but has not changed the due dates and has granted concession with respect to the imposition of interest. The first bracket includes taxpayers having an aggregate turnover of more than Rs. 5 crores in the previous financial year. In the second taxpayers having an aggregate turnover of more than Rs. 1.5 Crores but less than equal to Rs. 5 crores in the previous financial year. Lastly, in the third bracket taxpayers having aggregate turnover up to Rs. 1.5 Crores in the previous financial year are included. Taxpayers falling in the third bracket have given much more concession in comparison to the taxpayers falling in the other two brackets. Basically, this is the deferment of Returns and the due dates prescribed are higher in case the turnover limit is lesser. So, an assessee having a turnover of up to 1.5 crores would have much higher benefit. These are but with respect to the changes that are on the grounds of interest and late fee for filing the returns.

Notification number 35 was also issued by the government, in terms of this particular notification all the returns under GST regime, for instance, GSTR-6 which has to be filed by the Input Service Distributor, GSTR-7 which is required to be filed by the Taxpayer Deducting Tax at Source, GSTR-5 applicable on Non-Resident Taxable Person, they have also been deferred. In earlier scenarios for GSTR-1 and GSTR-3B the due date was not extended only the concession was granted, however in case of all the other returns the government says that where was the due date with respect to any returns false between March 20th, 2020 to June 25th 2020 the government has extended has extended its due date to June 30th, 2020. Apart from this another important issue was regarding the validity period of the e-way bills, the government has extended the validity period of each e-way bill which expires between March 2020 to April 15th, 2020 it has been extended till April 30th, 2020.

Changes in the Substantive laws: The first change is the insertion of force majeure clause, Clause 8 of the Taxation and Other Laws Ordinance 2020 that has been issued by the president exercise of article 123 provides for the insertion of Section 168A in the CGST Act. Force majeure under clause 8 has been explained as a case of War, epidemic, flood, drought, fire, cyclone, earthquake, or any other calamity caused by nature or otherwise affecting the implementation of the provisions of the act.

The second change was that the government issued notification number 35, in which there is a time limit which has been prescribed in the statute in the CGST Act which prescribes that the appeal has to be filed before the appellate authority within 3 months and there is a condonable period of 1 month. Now the government stated that in terms of this notification whenever the time limit for filing replies, appeals Falls within the period of March 20th, 2020 to June 29th, 2020 was extended to June 30th 2020 and similar concessions have been granted in the ordinance with respect to excise laws and service tax laws also. The third change was added in respect to the restrictions in availing of input tax credit which were added by rule 36(4) of the central goods and services Tax rules 2017 which restricts input tax credit attributable to inward supplies the details of which do not feature in form GSTR-2A to the extent of 10%. Applicability of aforementioned restrictions in respect of ITC attributable to the month of February 2020 to August 2020 will have to be cumulatively observed while filing return for September 2020.

The fourth change was with the respect that any taxpayer who is making Exports is required to realize the proceeds of Exports in order to avail the export benefits under the GST law and the RBI prescribes a time limit for realizing that export proceeds. Now the RBI has extended the period for realization of the export proceeds, in respect of Exports made up to July 31st 2020, from 9 months to 15 months. The negative consequence that can arise is that one would not be entitle to export incentives that basically pertains to the taxability of the transaction and admissibility of refund of the ITC.

Disputes that may arise or the loopholes that might cause a problem in the future due to these changes

All these amendments that are being made are not free from faults. So there is a possibility of a litigation that may arise in the future, if the Supreme Court’s order dated March 23rd, 2020 is considered, this order was passed in exercise of the powers conferred under Article 141 as per which the law declared by the Supreme court is the law of the land. The Court basically took Suo-moto cognizance pf the situation arising out of the challenges faced by the country on account of the outbreak by the virtue of its powers the court had ordered that a limitation period in all such proceedings irrespective of the limitation prescribed under general law or special law whether condonable or not shall stand extended from 15th March, 2020. The ordinance on the other hand, stated that any time limit for completion or compliance of any authority inclusive of filing of appeals if its appeals if it falls during the period from 20th March, 2020 to 29th June. 2020.

So, whenever an assessee is filing an appeal the appellate authority and in case is time period was to expire on or post 15th of March. The appellate authority would probably tell assessee that there was no condonation prescribed under the ordinance or under the notification and if it has not been made in such period it shall get extended to 30th June, 2020. Therefore, there is a conflict between the Supreme Court order and the ordinance passed. Therefore, an appeal to the appellate authority lies against the original order within 3 months from the date of communication of the order, furthermore, one month is also granted which is condonable by the appellate authority thereafter it is not condonable by the appellate authority and had been held in a number of judgments. But the issue which will arise would be whether taxpayer filing the appeal will be required to prefer an application for condonation of delay if such a case arises.

Apart from these there are certain other issues that may arise for instance the ordinance allows the central government to pass notifications with retrospective benefit from the date of commencement of the act and not beyond it. Therefore, we can see that there are inconsistencies between the ordinances and these notifications. There are all these amendments being made in the CGST Act now identical GST law has been framed by the state legislature also. If it is observed these ordinances are making changes in the Central law however there are no corresponding changes being made in the state law so currently there is a conflict exist the state GST law and the central GST law.

SUGGESTIONS/CONCLUSION

Temporary or short-term exemptions on essential goods: While exemptions and rate cuts don’t really help either the Government or businesses or the consumer in the long run, a temporary or short term exemption or a rate cut in the supply of essential goods and services that will help curb the spread of the novel Coronavirus is the need of the hour. Goods like soap, disinfectant and hand sanitizers have had price control imposed on them but fall under the range of 12% to 18% GST. Because the cost of manufacturing essentials has gone up due to a shortage of manpower, raw materials and logistics, a short term rate cut could help businesses continue with production. Needless to say, stringent anti profiteering measures will have to be implemented to ensure that businesses remain ethical.

Zero rated essential services: It is very common to hear consumers shelling out lakhs of rupees on healthcare especially during this pandemic, This could probably be because services are exempt from output GST. While that is a good measure, hospitals cannot claim input tax credit. Yet, they have to incur the expense of input taxes on drugs, medical equipment etc. All of these expenses are then built into the price of the services provided to the consumer. If hospital services were zero rated, they could claim input tax credit and thereby reduce the price of the service delivered to the consumer.

Optimizing flow of input tax credit: Most business sectors have stated that ITC flow is a major pain point for them as it blocks working capital. As businesses start to normalize post lockdown, the offset of input tax credit is likely to stagger, several business verticals like travel and tourism will require immediate and an optimized flow of ITC. A mechanism to ensure optimal flow of ITC will be highly appreciated.

Suspended GST on settlement: Several contractual obligations were violated because of the coronavirus outbreak and consequent lockdown. Obviously, parties will attempt to settle these liabilities through liquidated damages or arbitration. But if the Centre demands GST on settlement amounts, it is highly unlikely that resolutions of these disputes could be delayed indefinitely.

This is an opportunity for India’s biggest indirect tax reform to prove its worth as a user-friendly tax; a collaborative approach between the Centre and businesses could help normalize the situation efficiently. The Centre has been implementing reform and relief measures for various different businesses and hopefully, we should be able to drift through this crisis.

Author: PARTH TEHRI, BHARTIYA VIDYAPEETH (NEW DELHI)

Editor: Kanishka VaishSenior Editor, LexLife India.

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