The Central Government introduced the Budget for FY 2021-22 with
an underlying theme to boost the economic growth amidst the
COVID-19 pandemic. While on the tax front, the Hon'ble Finance
Minister's speech focused largely on digitalization and ease of
doing business for the taxpayers, an analysis of the Finance Bill
2021 indicates that there is more to it than that meets the
While it is given that the Government could not accommodate all the industry expectations from indirect tax standpoint, we look at some of the hits and misses vis-à-vis this year's Budget announcements.
- The proposals, in essence, are aimed at aligning the parent enactment with the provisions introduced in the CGST Rules, thereby putting an end to some of the ongoing litigation as well as mitigating the possibility of undue disputes in the future. For example, the conditions to claim Input Tax Credit under the CGST Act have been amended to allow credit only once the details of the invoice or debit note have been furnished by the supplier / vendor his GSTR-1 and the same are communicated to the recipient. This, in substance, is now in sync with the restriction prescribed in Rule 36 of CGST Rules (albeit an amendment will be required to do away with the additional 5% allowance under the Rules).
Similarly, in case of goods, the requirement of export realisation within time limit stipulated under FEMA 1999, which hitherto flowed only from Rule 96B of CGST Rules, has now also been inserted in the CGST Act.
- The levy of interest on delayed payment of tax has been a subject matter of concern for the taxpayers considering the inconsistencies in the stand adopted by the Government as well as by the High Courts.
While the provision for interest on 'net tax liability' was inserted in the GST law through the Finance Act, 2019, the same was brought into effect only from 1 September 2020, that too prospectively, although the GST Council had recommended otherwise. However, the CBIC, by way of a Press Release, had quickly assured that recoveries will not be made for the past period. Despite such assurance, questions were raised regarding the legal validity of Press Releases and hence, the retrospective amendment through Finance Bill 2021 has come at an opportune time.
- The requirement of filing Annual Return along with a Chartered / Cost Accountant certified Reconciliation Statement in Form GSTR-9C was proving to be a huge compliance burden with multiple representations being made for extension of timelines, especially during the pandemic. As a surprise to all, the requirement of such third-party certification is proposed to be dispensed with and instead, a self-certified reconciliation statement may be uploaded along with Annual Return, reconciling the values of supplies with audited financial statements. This would be a relief to the tax payers as they don't have to appoint an auditors, who typically asked for more information, clarifications and evidences to get satisfied with the reconciliation between financials and GST returns. However, this would also mean a flurry of enquiries, notices, data from tax office for conducting scrutiny of the reconciliation statements filed. Hence, from effort point of view all the back up documents supporting the reconciliation statement of GSTR 9C should anyway be kep ready.
- The ambiguities surrounding the qualification of supplies to SEZs as "zero-rated supplies" have been addressed with a clarificatory amendment to the IGST Act to provide that they shall be considered only if they are made for the purpose of authorized operations of such SEZ.
- As a move towards digitalization of compliances and paperless processing of documents, the Finance Bill, 2021 has proposed to grant powers to the CBIC to notify 'Common Customs Electronic Portal' for facilitating registration, filing and amendment of Bills of Entry (BoEs), shipping bills, other documents and forms, payment of customs duty and issuance of notices, orders / decisions. While there already exists the ICEGATE portal which caters to the trade, carriers and other stakeholders, it has some inherent limitations which the Government now wants to address. The new common portal should serve the dual purpose of easing the documentation processes, including amendments, and reducing the time lag in communication with Customs administration thereby expediting assessments, investigations, audits etc. under the Customs law.
Let us now turn towards the 'misses' in this Budget.
- The manufacturing sector plays a crucial role in promoting the vision of the present Government, viz. "Aatmanirbhar Bharat" and "Make in India". However, in present times, this sector (especially the electronics, chemicals, textiles and automobile industries) has been burdened with the issue of inverted duty structure, where the inputs are taxed at higher rates than the final product thereby leading to accumulation of input tax credit. Though such accumulated input tax credit is refunded back to the taxpayers, it may be noted that such remission is only to the extent of taxes paid on 'inputs', and not 'input services' / 'capital goods'. This ultimately results in increase in the selling price of final product and in some cases, absorption of costs which impact the profit margin.
Moreover, the differing views of the High Courts have only added to the taxpayers' woes and we will now have to wait for the Apex Court to finally settle this issue.
While the Hon'ble Finance Minister, during her speech, assured the House that the Council will remove the anomalies such as the inverted duty structure, only time will tell as to when the manufacturing sector will breathe a huge sigh of relief.
- The Government could have addressed the concerns of the healthcare sector, where owing to the present GST exemption on various healthcare services, the tax paid on inward supplies becomes a cost. This is because under the law, input tax credit is reversible / inadmissible against exempt supplies. In order to make healthcare affordable to the public at large, proposals could have been introduced to tax such services at Nil or concessional rate of 5% or 12% with eligibility to input tax credit.
- In an unexpected move, the Government has decided to notify the class of persons as well as goods and / or services who shall be allowed to export on payment of IGST. While the intent seems to curb fraudulent encashment of input tax credit against fake invoices through refunds, the amendment would hamper the genuine and bona-fide exporters, who would now have to resort to exports against LUT and claim refund of unutilized input tax credit which is limited to 'inputs' and 'input services'. This will certainly have an impact on the liquidity of such taxpayers.
- In line with the amnesty schemes under erstwhile Indirect tax laws, the Government could have announced a scheme under the Customs as well as GST laws, giving an opportunity to bona-fide defaulters to resolve the pending disputes.
- Besides the above, the Budget proposals could have addressed some of the contentious issues plaguing the industry at large, such as dispensing with interest on reversal of input tax credit owing to non-payment to supplier within 180 days (which was also recommended by the GST Council), clarity on taxability of intermediary services, acceptance of Foreign Inward Remittance Advice (FIRA) in lieu of FIRC for the purpose of refunds, entitlement to credit on CSR expenses etc.
- Clarification on some of these matters would have provided an additional impetus to the GST collections and only helped in reviving the economy.
- It would be interesting to see the manner in which some of these measures are put in place over the next one year, and how the GST Council tackles the unresolved issues of the industry.
Originally published in Taxsutra
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