OPERATIONAL IMPACT OF CORONAVIRUS OUTBREAK ON GST

India has been in lockdown mode
in response to the coronavirus pandemic since 24^th March, 2020. It
all started on 30^th January when Kerala confirmed the first case of
the disease. In most of the states a semi-lockdown situation started on 12^th
March with the closure of schools, colleges and cinema halls, malls, night
clubs, marriages and conferences as a precautionary measure. In Maharashtra,
the provisions of the Epidemic Diseases Act, 1897 were invoked on 13^th March.
The impact on business houses started when the State Government ordered private
offices to operate with less than 50% of total attendance and allow the rest to
work from home. The orders were given on 17^th March and the
restrictions further tightened on 20^th with the announcement of the
closure of all workplaces excluding essential services.

And on the 24^th of
March, 2020, the Government of India issued a nationwide lockdown order for
containment of the Covid-19 epidemic to be effective for 21 days from the 25^th
of March. This lockdown was further extended up to 3^rd May. It is
thus seen that the lockdown started affecting trade and business operations in
most of the states from 15^th March, a period which coincided with
the compliance period (GST payments and filing of returns) under GST for the
month of February, 2020.

It will not be incorrect to state
that in a country like India, considering the present tax rate structure, tax
collection is one of the indicators of the economic growth of trade and
commerce. The indirect tax, which is a tax imposed on consumption, reflects
directly on the economic health of trade and commerce. With the introduction of
the Goods and Services Tax from July, 2017, the tax rate structures of various
commodities and services have been rationalised multiple times to ensure steady
growth in revenue collection. Over the past few months, the GST has been
contributing over Rs. 1 lakh crores in the indirect tax receipts of the Centre
and the states. However, in March, 2020 the GST collections slipped below the
said psychological mark – a fall that may partially be attributable to the
Covid-19 situation (the government announcement extending the due dates for
making payment of GST for the said month came very late). It is, however,
important to note that the GST collections for March, 2020 are at Rs. 97,597
crores and are still higher as compared to the numbers for September and
October of 2019. Considering the economic lockdown in the entire month of
April, 2020, the collection for this month is certainly going to be a
challenge.

The Hon’ble Finance Minister has
announced various tax compliance-related reliefs / measures for the next few months
to enable the trade and businesses to effectively address this unprecedented
situation while managing their tax compliances and cash flow. Some of the
important relaxations made are given below:

(i) Extension of time limit for filing of GSTR3B for the months of
February, March and April to 30^th June, 2020 for assessees having a
turnover of less than Rs. 5 crores.

(ii) For assesses with a turnover more than Rs. 5 crores (large
assessees), the rate of interest for delayed payment of tax has been conditionally
reduced from 18% to 9% p.a. from 15 days after the due date. However, there is
no extension of the due date. No late fee / penalty shall be charged for delay
relating to this period.

(iii) Time limits for notices, notifications, approval orders, sanction
orders, filing of appeals, furnishing applications, reporting any other
document, etc., or for any other compliance (barring a few exceptions) expiring
between 20^th March and 29^th June are extended to 30^th
June, 2020.

(iv) 24/7 clearance at all customs stations till 30^th
June, 2020 to address any congestion, delay or surge on account of the
prevailing conditions.

(v) RBI extended the time period for realisation and repatriation of
export proceeds for export of goods or software made up to or on 31^st
July to 15 months (from the existing nine months) from the date of export.

(vi) (For a detailed note on GST amendments refer to Recent
Developments in GST in the BCAJ issue dated April, 2020).

The extension in payment of GST
for the months of February to April, 2020 is certainly a big relief to the
taxpayers. However, it is strongly felt that it would have been more
appropriate for the government to completely waive off the interest for those
making the payments for the months of February to May on or before 31^st
July, 2020. As per the said extension, for assessees having a turnover of more
than Rs. 5 crores no interest will be charged if they make the payment on or
before 4^th May. Considering that the lockdown has been extended from
the earlier 14^th April to 3^rd May, a further 15 days’
extension in the said date is the least that trade and commerce can expect.

The lockdown was implemented
without any advance announcement, as a result of which a lot of practical
problems have arisen.

(a) The problem of Invoice / E-way bill
generation and printing: As we all know, under GST the movement of goods is
allowed only with proper supporting documents such as Invoice / E-way bills,
etc. Any goods not accompanied by proper documentation are liable to be seized
and attract a heavy penalty. During the lockdown period and the related mandate
to work from home, many have experienced difficulties in printing invoices /
generating E-way bills due to the lack of a printing set-up at home. In a few
cases, as a temporary measure the transportation was done without adequate
documentation based only on oral information about Invoice No. and E-way bill
Nos. provided by the supplier to the transporter.

(b) Possibility of clandestine movement of goods: There is
a high risk of clandestine movement of goods by certain anti-social tax evaders
during the lockdown period, especially since the tax authorities may not be in
a position to keep a check on in-transit movements of goods due to scaling down
in the mobile squad staff during this period. The government, perhaps in
anticipation of this issue, has not relaxed the requirement of generating E-way
bills and issuing invoices.

(c) Preparation of manual invoices: Many organisations did not
have sufficient IT infrastructure in place to enable access to their accounting
/ invoicing software from home. Therefore, in many cases invoices were prepared
manually (i.e., outside the regular systems), resulting in various control
lapses such as no consecutive system-generated invoice number, the challenge as
to the proper accounting thereof, etc. Further, it’s not unlikely that instead
of paying interest, the large assessees may consider filing of GSTR3B on an ad
hoc basis and prefer to reconcile the amounts later whenever the GSTR1
returns are filed, increasing the compliance burden due to added
reconciliation.

(d) Digital signature: Use of digital signature is a
must for carrying out many important compliances under GST, for example, filing
of GST Returns, making payment of GST using DRC-03, refund applications, etc.
As the duration of the lockdown period and gravity of the situation were
unknown, many employees / consultants working with the GST compliance team did
not carry the digital signature home with them which added to their compliance
hindrances during the lockdown period. To address this issue, as a temporary
measure the GSTIN has permitted filing of returns without digital signature and
only on the basis of EVC code.

(e) Transitional consignments: Many consignments were in
transit during the lockdown period. Since many states sealed their borders from
12^th March onwards, a huge volume of consignments was immobilised.
The problem relating to the expiry of the E-way bill was partially addressed by
the subsequent relief measures extending the validity of the E-way bills
expiring between 20^th March and 15^th April up to 30^th
April, 2020. However, most of the consignments, perishable in nature, resulted
in spoilage of goods. The GST law requires a reversal of Input Tax Credit on
goods lost due to damage / spoilage etc. Unfortunately, no relief has so far
been given in respect thereof. Besides, delays in delivery resulted in many
such orders being cancelled, the tax on which was already paid, adding to the
working capital woes of the trade. In cases involving stock transfers between
different registered units of the same entity, the supplying unit ended up
paying taxes, whereas the receiving unit could not avail the ITC due to
non-receipt of goods.

(f) Cancellation of services: The hospitality, tourism and
airline industries suffered a major setback due to the cancellation of their
services during the lockdown. In many cases, the advance was refunded with some
cancellation charges. The issue as to the applicability of the rate of
cancellation charges is still unsettled and hence is likely to remain in focus
during assessments dealing with the said period.

(g) Delays in processing refunds: Since the
tax department is functioning with limited staff during the lockdown period,
various refund applications are pending processing, thus adding to the
cash-flow problems of the assessees. This has also impacted various other
administrative processes, such as matters dealing with the restoration of GST
registrations, the release of bank account attachment / blockage of electronic
credit ledger, etc.

(h) Goods supplied free under CSR initiative: During
the lockdown period many entities have been involved in CSR initiatives by
donating masks, gloves, sanitizers, food packets, etc. The eligibility of ITC
on such donations is also doubtful in the light of the provisions of section
17(5)(h) of the CGST Act and no tax incentive has been provided for the same.

As part of an administrative
relief package, the time limits for notices, notifications, approval orders,
sanction orders, filing of appeals, furnishing applications, reporting any
other document, etc., as also the time limit for any other compliance expiring
between 20^th March and 29th June is extended to 30^th
June, 2020. However, certain provisions have been excluded from the purview of
such relaxations. For example, no relaxation was given for time limit stated in
section 31 for issue of invoices. Hence, in cases involving continuous supply
of services, if the event obligating the payment falls during the lockdown
period, then the issue of invoice is mandatory and shifting of liability is not
permissible.

Similarly, if during the lockdown
period the turnover of any person exceeds the threshold limit provided for
obtaining GST registration, then such person shall be required to obtain the
registration within 30 days thereof as no relaxation from the same has been
provided. And in cases where the assessee could not make the previous
compliances before the due dates on account of various reasons and the default
continued owing to inability to take any corrective action during the lockdown
period, the imposition of late fees and interest for the lockdown period will
continue. In this background, it would be interesting to see whether an
assessee can exclude the lockdown period from the limitation period citing force
majeure or impossibility of performance?

Unfortunately, in many states
such notifications were not issued by the State VAT / Commercial Tax Departments
as regards pre-GST matters. In an attempt to prevent the spread of coronavirus,
the Maharashtra State Goods and Services Tax Department issued detailed
guidelines to its officers and staff discouraging personal appearances of
assessees / their representatives and completing the time-barring assessments
by obtaining the details through emails and to pass manual orders. However, no
extension of the time limit was given for cases that were getting time-barred
in March, 2020. This may have far-reaching implications, especially where the
orders are passed ex parte and because the Maharashtra VAT Act contains
no provision for cancellation of assessment order and an appeal is not admitted
without depositing 10% of the disputed tax liability by way of pre-deposit.

It also appears that the decision
of the department in not extending the statutory due date is in direct
contravention of the order of the Hon’ble Supreme Court in the suo motu
WP (Civil) No. 3/2020 vide order dated 23^rd March, 2020,
wherein the Apex Court in the exercise of its powers under Article 141 of the
Constitution (binding on all Courts / Tribunals and authorities), has ordered
that the period of limitation in all proceedings, irrespective of the
limitation prescribed under the general law or special law whether condonable
or not, shall be extended with effect from 15^th March, 2020 till
further orders. The service tax audits / inquiries under the pre-GST laws also
continued during the lockdown period (admittedly not on a full scale)
increasing the risk of best-judgment SCNs due to the inability of the assessee
to produce proper data during the said period. In some cases, the authorities
issued notices for conducting personal hearing through video conferencing.