RECENT DEVELOPMENTS IN GST

(Recent Developments in GST is a new feature
starting this month. It will cover select important proposals, notifications,
amendments, circulars, advance rulings, etc. in the field of Goods and Services
Tax. The column by the same authors titled ‘VAT’ is discontinued)

DECISIONS TAKEN IN 39^TH MEETING OF GST COUNCIL

The GST Council, on 14^th March, 2020, took several
important decisions. Here are some key ones:

®   The E-invoice and QR code requirement deferred
to 1^st October, 2020. [Notification Nos. 13/2020 and 14/2020
dated 21^st March, 2020.]

®   New returns implementation also deferred to 1^st
October, 2020.

®   Date of filing Annual Return in Form GSTR9 and
Audit Reconciliation Statement in GSTR9C for F.Y. 2018-19 extended till 30^th
June, 2020. [Notification No. 15/2020 dated 23^rd March, 2020.]

®   New facility to ‘Know Your Supplier’ to be
introduced on site.

®   Restrictions to be brought in on passing of
ITC in case of new registrations.

®   Time for filing applications for revocation of
cancellation of registrations to be extended till 30^th June, 2020
for all cancellation orders passed on or before 14^th March, 2020.

®   Refund claims allowed across financial years
to facilitate exporters.

®   Extension of present exemptions from IGST and
Cess on the imports made under the AA/EPCG/EOU schemes extended up to 31^st
March, 2021.

®   Special procedure for corporate debtors under
the provisions of the IBC, 2016 who are undergoing the Corporate Insolvency
Resolution Process so as to enable them to comply with the provisions of GST
laws during the CIRP period.

®   Finalisation of e-Wallet scheme up to 31^st
March, 2021.

®   A few changes are also proposed in the GST
rates.

CIRCULARS

(a) Apportionment of ITC in cases of
business reorganisation u/s 18(3) of the CGST Act read with Rule 41(1) of the
CGST Rules.

[Circular No. 133/03/2020 dated
23^rd March, 2020.]

(b) Appeals during non-constitution
of the Appellate Tribunal.

[Circular No. 132/02/2020 dated
18^th March, 2020.]

(c) Special procedure for corporate debtors
under the provisions of the IBC, 2016 undergoing the Corporate Insolvency
Resolution Process.

[Notification No. 11/2020 Central
Tax dated 21^st March, 2020 and Circular No. 134/04/2020 dated 23^rd
March, 2020.]

CGST RULES AMENDMENTS

(i)  Procedure
for reversal of ITC in respect of capital goods partly used for affecting
taxable supplies and partly for exempt supplies under Rule 43(1)(c).

[Sub-Rule amended w.e.f. 1^st
April, 2020. See Notification No. 16/2020 dated 23^rd March,
2020.]

(ii) GSTR9C (furnishing of audited
annual accounts and reconciliation statement) for F.Y. 2018-19 applicable to
only those registered persons whose aggregate turnover during F.Y. 2018-19 has
exceeded Rs. 5 crores.

[Amendment to Rule 80(3) of CGST
Rules, 2017.]

(iii) Ceiling to be fixed for the
value of export supply for the purpose of calculation of refund on zero-rated
supplies.

[Amendment to Rule 89 of CGST
Rules, 2017.]

(iv) To allow for sanction of refund
in both cash and credit in case of excess payment of tax.

[Amendment to Rule 92 of CGST
Rules, 2017.]

(v) To provide for recovery of
refund on export of goods where export proceeds are not realised within the
time prescribed under FEMA.

[New Rule 96B inserted in CGST
Rules, 2017.]

(vi) To operationalise Aadhaar
authentication for new taxpayers.

[Sub-Rule 4A inserted in Rule 8
of the CGST Rules, 2017 w.e.f. 1st April, 2020. Rule 9 and Rule 25 also amended
from the same date.]

RELIEF MEASURES

A press release dated 24^th
March, 2020 announced certain relief measures relating to statutory compliances
in view of COVID-19:

1. Those
having aggregate annual turnover less than Rs. 5 crores can file GSTR3B due in
March, April and May, 2020 by the last week of June, 2020. No interest, late
fee or penalty to be charged.

2. Others
can file returns due in March, April and May, 2020 by the last week of June,
2020 but the same would attract reduced rate of interest @ 9 % per annum from
15 days after due date (current interest rate is 18 % per annum). No late fee
and penalty to be charged if complied before / till 30^th June, 2020.

3. Date
for opting for composition scheme is extended till the last week of June, 2020.
Further, the last date for making payments for the quarter ending 31^st
March, 2020 and filing of return for 2019-20 by the composition dealers will be
extended till the last week of June, 2020.

4. Due
date for issue of notice, notification, approval order, sanction order, filing
of appeal, furnishing of return, statements, applications, reports, any other
documents, the time limit for any compliance under the GST laws where the time
limit is expiring between 20^th March, 2020 and 29^th June,
2020, shall be extended to 30^th June, 2020.

5. Necessary
legal circulars and legislative amendments to give effect to the aforesaid GST
relief shall follow with the approval of the GST Council.

INTEREST ON NET CASH LIABILITY

One of the important decisions taken
at the 39^th meeting of the GST Council is about liability to pay
interest by registered persons. Under the GST laws, interest is levied u/s 50
of the CGST Act. Section 50 reads as under:

‘(1) Every person who is liable
to pay tax in accordance with the provisions of this Act or the rules made
thereunder but fails to pay the tax or any part thereof to the Government
within the period prescribed, shall for the period for which the tax or any
part thereof remains unpaid, pay, on his own, interest at such rate, not
exceeding eighteen per cent., as may be notified by the Government on the
recommendations of the Council.

(2) The interest under
sub-section (1) shall be calculated in such manner as may be prescribed from
the day succeeding the day on which such tax was due to be paid.

(3) A taxable person who makes an
undue or excess claim of input tax credit under sub-section (10) of section 42,
or undue or excess reduction in output tax liability under sub-section (10) of
section 43, shall pay interest on such undue or excess claim, or on such undue
or excess reduction, as the case may be, at such rate not exceeding twenty-four
per cent, as may be notified by the Government on the recommendations of the
Council.’

The issue arose mainly on the
interpretation of section 50(1) which contemplates the levy of interest on
failure to pay tax within the prescribed period. The GST authorities interpreted
the above section to mean that interest is payable on gross outward liability.

Due to adjustment of ITC against
outward liability, the actual cash payment may be nil or less than the outward
liability. However, the authorities (mis)interpreted this to levy interest on
gross outward liability, i.e., without adjustment of ITC, for delayed period.

The matter had gone to different
High Courts. The Telangana High Court in the case of Megha Engineering
& Infrastructures Ltd. (2019-TIOL-893-HC Telangana-GST) upheld the
view of the GST authorities. The Court was of the opinion that ITC becomes due
to the taxable person upon filing return and not before. Therefore, the Court
held that the gross tax remained payable till the filing of return and,
accordingly, upheld interest liability on gross outward liability.

However, the Madras High Court took
a different view in the case of Refex Industries Limited
(2020-TIOL-382-HC-Mad-GST) and, considering the amendment in section
50(1), held that the interest is payable on cash payment and not on the ITC
component.

In the CGST Act an amendment has
been effected in section 50(1) by inserting the following proviso in
2019; it reads as under:

‘Provided that the interest on
tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after
commencement of any proceedings under section 73 or section 74 in respect of
the said period, shall be levied on that portion of the tax that is paid by
debiting the electronic cash ledger.’

However, the said section has not
yet been brought into operation. Therefore, confusion prevailed, more
particularly about the period up to implementation of the above proviso
as there is no mention about the date of application of the same. Besides,
although the proviso debars the application of the said proviso
in case of proceedings under sections 73 and 74, it is felt that there should not
be such exclusion in the matter of interest.

In its above meeting, the GST
Council has taken the decision to make interest payable on net cash liability
and also clarified that the said position will apply from 1^st July,
2017.

CONCLUSION

The above decision about interest is
most welcome and has been long awaited. Taxable persons have already started
receiving notices for huge amounts as per interest calculated on gross
liability. However, now the issue has been cleared and will bring much-awaited
respite to taxable persons.

Keeping in view
the intention of charging interest on net cash liability, it is also expected
that the said position will be made applicable even if the proceedings are u/s
73 or 74. We have to wait for the actual provision for clarity. The authorities
should bring in the provision concerned or make necessary changes in the above proviso
at the earliest.