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.