UNION BUDGET 2022: KEY GST TAKEAWAYS

GST-related proposals in the Budget pivot around rationalizing various statutory provisions to give full force to the existing return system and introducing new conditions for regulating Input Tax Credit ('ITC') to safeguard the interest of revenue

Recognizing the GST regime as fully IT-driven and progressive, Finance Minister Nirmala Sitharaman proposed to meet the ongoing challenges in the coming year through striking a right balance between facilitation and enforcement for better compliance.

GST-related proposals in the Budget pivot around rationalizing various statutory provisions to give full force to the existing return system and introducing new conditions for regulating Input Tax Credit ('ITC') to safeguard the interest of revenue.

The key takeaways are as follows–

Rationalization of GST Return filing process

GST was introduced with the vision of three-step return filing process vide forms GSTR-1, GSTR-2 and GSTR-3 involving two-way communication between the supplier and the recipient vide GSTR-2A and GSTR-1A under Sections 37, 38 and 39. However, the said mechanism could never be implemented due to GSTN portal limitations. Now amendments have been proposed to be made to these sections to provide for the manner as well as conditions and restrictions for furnishing details of outward supplies, communication thereof to recipient, and furnishing of return while doing away with two-way communication. Further, Sections 42 and 43 providing for matching mechanism have been proposed to be omitted.

These amendments have been proposed to be carried out to give statutory force to the existing return system whereby the supplier furnishes details of outward supplies in form GSTR-1 which are communicated to the recipient in form GSTR-2B basis which the return is furnished in form GSTR-3B for payment of tax. At present, this system of return filing is made effective through various amendments in rules and portal functionalities, but the GST Acts still provides for the dormant matching mechanism, which was causing ambiguity.

New safeguards around taking ITC

A new clause (ba) is proposed to be inserted in Section 16(2) to provide that ITC with respect to a supply can be availed only if such credit has not been restricted in the details communicated to the taxpayer under Section 38. The newly substituted Section 38 proposes to place several restrictions on ITC of the recipient on account of non-compliance by the suppliers, such as default in payment of tax for prescribed period, difference of output tax between GSTR-1 and GSTR-3B beyond a threshold, difference between ITC availed in form GSTR-3B and that available in GSTR-2B beyond a threshold. There could be bonafide reasons for non-reconciliation of output tax in GSTR-3B with GSTR-1 and ITC in GSTR-3B with GSTR-2B. How the rules and portal functionalities would recognize such genuine differences is a big question. Also, the provision is silent for availment of ITC if the said defaults are made good by the supplier.

Further, clause (c) of Section 16 which provides for eligibility of ITC in the hands of the recipient based on payment of tax by the supplier to the government has been proposed to be amended. Constitutional validity of this provision was challenged before various high courts inter alia on the ground of absence of matching mechanism as envisaged under the law. This provision was subject to Sections 41 and 43A. Section 41 provided for provisional claim of ITC under matching mechanism which was never brought into force and Section 43A was referring to a new return system which never got notified. Now reference to Section 43A has been proposed to be omitted and Section 41 has been proposed to be substituted to provide for reversal of ITC along-with interest in case of non-payment of tax by the supplier. However, ITC can be re-availed upon payment by supplier, but interest will become a cost in the hands of the recipient. The interesting fact is that the Government would earn interest from the supplier for delayed payment of tax as well as from the recipient upon wrong availment and utilization of ITC.

Enhanced enforcement

Registration of errant supplier is proposed to be canceled upon non-furnishing of return beyond 3 months from due date if the supplier is operating under the composition scheme and upon non-furnishing of returns beyond prescribed period in case of other suppliers.

It is also proposed that GSTR-1 for current period cannot be furnished if GSTR-1 of any of previous tax periods has not been furnished. GSTR-3B would be allowed to be furnished only after furnishing GSTR-1 of the said period. This would ensure sequential filing of statements and returns and ensure better compliance.

Late fee is proposed to be made payable by E-commerce operators also in case of delayed filing of TCS return in form GSTR-8 under Section 52.

All types of refunds due to a person under Section 54 are proposed to be withheld or adjusted if such person has defaulted in furnishing any return or if any tax, interest or penalty is due from such person. As present, such restrictions are placed only in context of refund of unutilized ITC.

Trade Facilitation Measures

Timelines have been proposed to be extended up to 30th November of following financial year for availment of ITC, declaration of credit note, rectification of any omission or incorrect particulars in returns. At present, these are to be done in the September month return of the following financial year. It provides one more month to taxpayer to carry out such activities.

Amount lying in cash ledger is proposed to be made transferable from one GSTIN to another GSTIN of the same legal entity under various heads barring SGST and UTGST. At present, transfer is permissible from one head to another including CGST, IGST, SGST and UTGST but within the same GSTIN of a legal entity.

It has been proposed to provide retrospectively from 1st July 2017 that the interest under Section 50 shall be payable at the rate of 18% on wrongful availment of ITC only to the extent of utilization which is a welcome step. The taxpayers who wrongly availed and utilized ITC can be divided into three categories, those who discharged interest at the rate of 18%, those who did at the rate of 24% and those who did not discharge any interest at all. This amendment would require payment of interest by all those taxpayers who were not paying any interest on the ground that Section 50 does not provide for payment of interest in such cases since the amendment is retrospective in nature. However, it is yet to be seen whether refund would be eligible for differential interest to the taxpayers who discharged interest at the rate of 24% either suo moto or upon insistence by the department.

No tax would be liable to be paid on liquor license fees and on supply of unintended waste generated during the production of fish meal, except fish oil retrospectively from 1st July 2017. However, the budget proposal clearly provides for no refund of tax which has already been collected.

To sum up, the Government seems to be ambitious and aspires to leave no stone unturned to prevent revenue loss despite admitting the fact that the GST revenues are buoyant despite the pandemic. The buyers would be in dire straits for non-compliances by their vendors. The budget has proposed only a few business-friendly amendments whereas the taxpayers were hoping for more in the difficult times.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.