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Journalism of Courage
Written By Saloni Roy
The Goods and Services Tax (GST) was brought in to simplify the tax regime in India, and with the Union Budget 2024 set to be presented on July 23, it is expected that certain amendments will be made to the law, as recommended by the GST Council. Recommendations for trade facilitation, such as an amnesty scheme for the settlement of disputes for specified periods and a reduction in the amount of pre-deposit for appeals, were made before the Council at a recent meeting.
Customs is another area that generally sees amendments in every Union Budget. There is also an expectation that a new central excise law will be introduced to replace the 1944 law.
This article discusses the challenges faced by taxpayers while undertaking compliances under the GST law and Customs.
Registration-related issues
The GST law prescribes documents for submitting a registration application on the GST portal. It has been observed that at the time of scrutiny of the application, authorities seek additional documents not prescribed under law. One such case is where a No Objection Certificate (NOC) or consent letter (in case of sub-lease) is provided as proof of place of business. Authorities ask for a notarised copy of the documents and seek clarifications from taxpayers. Also, authorities sometimes demand the entire chain of documents, i.e. original lease deed, municipal tax receipts etc. which delays the registration process.
The government had previously rolled out biometric Aadhaar authentication for registration on a test basis in Gujarat, Puducherry and Andhra Pradesh. While this requirement is based on the risk assessment of a taxpayer, on the ground, this process is applied to all taxpayers. Thus, key managerial personnel (KMP), i.e. the director and authorised signatory of an entity, are required to visit the facilitation centres to complete the process. This could be a tedious task as the KMPs will be required to travel to each state where registration is being obtained.
With the pan-India rollout of the biometric Aadhaar authentication for processing of GST registration applications on the cards, the government could come up with a process where KMPs can visit any facilitation centre to complete the authentication process, thereby reducing the time taken.
With the growth in e-services such as virtual meeting platforms, online test facilities etc. where the suppliers are located outside India, there has been an increase in the taxpayer base under GST under online information database access and retrieval (OIDAR) services.
Taxpayers generally hold an overseas bank account. For payment of GST, the amount first needs to be remitted to an Indian intermediary bank. These banks then convert the amount from foreign currency to Indian rupees and the amount is then deposited with the government exchequer.
This process could lead to delays in tax payments. The government should come up with a methodology for a swift payment of GST through overseas banks.
In the case of the import of goods, the payment of Integrated Goods and Services Tax (IGST) is made on the ICEGATE portal. However, details of such payments are not available on the GSTN portal in time, and hence, these details do not get reflected in Form GSTR-2B (an auto-generated Input Tax Credit (ITC) statement of the importer). In some cases, there is a lag of more than six months.
Due to this delay, an automated notice is sent to taxpayers in Form DRC-01C to explain the difference between the ITC available in Form GSTR-2B and the ITC availed in Form GSTR-3B. The transmission of data from ICEGATE to the GST portal should be made more robust.
Under GST, one of the conditions for claiming ITC is that the vendor should have paid GST to the government. At present, there is no online mechanism available through which a buyer can determine if his vendor has remitted the GST to the government on a particular supply. In the absence of such a mechanism, buyers find it difficult to prove compliance with the said condition.
Form GSTR-2B is populated based on the invoice details filed in Form GSTR-1 by the vendor, which reports details of his outward supplies. There is no way that a recipient can prove compliance with this condition by the vendor.
Notices or demands are also being issued to taxpayers denying ITC to the recipient where the supplier is not paying GST.
There are rulings of various high courts (Calcutta and Madras) where it was held that genuine buyers cannot be punished for the vendor not depositing GST with the government. However, there are other judgments by high courts (Allahabad, Patna and Kerala) that state that in order to avail of the ITC, the buyer is required to comply with all the prescribed conditions prescribed under GST law.
The denial of ITC to buyers without any fault on their part is causing hardship to businesses. Therefore, the government should consider either suitably modifying the condition or prescribing a compliance mechanism. Alternatively, the restriction to avail ITC on non-payment could be limited only in cases of fraud or collusion so that genuine taxpayers are not subjected to unwarranted litigation.
Similarly, ITC is disallowed in cases where the vendor’s GST registration is cancelled with retrospective effect. It may happen that after procuring goods or services, the vendor’s registration is cancelled by the GST department, effective from a date earlier than the date of supply. In such cases, the department denies ITC claim to buyers. While claiming ITC, the buyer can verify from the GSTN portal if the GST registration of a vendor is active or not. However, the buyer cannot track the registration status of every vendor. This is an industry-wide issue that requires the government’s immediate attention.
Time limit for completion of SVB investigation
Where goods are imported into India from a related party overseas, an investigation is conducted by the Special Valuations Branch (SVB) of Customs to ensure that appropriate valuation of goods is maintained for payment of Customs duties.
Practically, importers face difficulties in the timely conclusion of the SVB proceedings. Even after the entire information is submitted, importers do not get the final order in time, which could stretch to 4-5 years or more, in some cases. During the pendency of the proceedings, imports are made provisionally, due to which importers are required to submit a bond with the authorities for an amount towards indemnification to the government if additional duty is payable at the time of finalisation of imports. During the pendency of the proceedings, the value of the bond could exhaust, post which, a fresh bond is required. In certain cases, the value of the bond could exceed the turnover of an entity.
There is a need for the government to prescribe a time limit for the completion of the SVB investigation and ensure that the time limit is followed diligently by the authorities.
While there have been advancements in the clearance of goods (through faceless assessment), there are still a few processes which are undertaken on a manual basis, such as filing of refund applications and filing a reply to notices, appeals etc. Considering the GST example where mostly all compliances and procedures are done online, the government should develop an online portal for Customs as well. This will reduce the time involved in filing manual applications or replies and be in line with the government’s ‘Digital Bharat’ mission.
The upcoming Budget will set the trajectory for the next five years and give a sneak peek into the focus areas of the government to continue with the momentum of making India the fastest-growing economy in the world.
