GST returns: No clear picture yet

There were expectations that the May meeting of the GST Council would end with an announcement regarding the simplified return form that has been much spoken about in recent times. While the nitty-gritty of the form itself was not announced, a broad structure of what to expect was intimated. There will be one return per month for taxpayers except for composition dealers and nil taxpayers. Taxpayers will have to mention entire turnover for B2B transactions. For B2B businesses, taxpayers will have to show all invoice details. Based on taxpayers’ calculations, they will be allowed to claim provisional credit for six months. Input tax credit will be given only if the seller has uploaded an invoice. If the seller does not pay tax, the government will recover tax liability from the seller. If the tax cannot be recovered from the seller, efforts will be made to recover the tax from the buyer as per law. It was stated that the return form would be introduced in six months time - till then, the present system of filing 3B and GSTR 1 would continue.

From these details, one can reach a conclusion that the concept of matching of invoices has been shelved at least for now. One of the risks of not having an online matching of invoices is that it could subject taxpayers to needless scrutiny by the department (which was not the original objective of the GST laws). Confirming the fact that the officers of the department would come visiting can be seen in the statement that in case GST cannot be recovered from the seller, it would be recovered from the buyer. One is left wondering why the buyer would accept to pay GST on behalf of the seller. Though the present system of 3B/GSTR 1 is convenient, there are no checks and balances on the input tax credit. In addition, the laws are silent as to whether an annual return has to be filed. Another issue that is debatable is whether introducing a form from the middle of the financial year is the ideal thing to do. The Council stated that the transition to the new filing system would be done in three stages.

A major criticism on the present shareholding structure of the GST Network (GSTN) has been addressed by the Council. Critics questioned the necessity for private financial institutions such as HDFC, ICICI, LIC and NSE to hold a combined 51% equity in GSTN. Since GSTN is privy to loads of confidential data of taxpayers, there is an imminent threat of misuse of the data. The Council has rightly decided to ask the private financial institutions to divest their shareholding in such a manner that the central and the state governments would each hold an equal stake in GSTN. The GST Council also decided to form a panel consisting of five people to consider incentives for digital payments. The need for this can be attributed to the longing of the present government to reduce cash transactions in the country. While the idea is welcome, implementing this in India is going to be a challenge, especially considering the fact that demonetisation did not go the way the government intended. The Council deferred the decision to levy a cess on sugar. There are expectations that the cess could be around Rs 3 per kg.

With the GST Council not taking any major decisions over the past couple of months, the Central Board of Indirect Taxes and Customs (CBIC) has resorted to issuing circulars on various aspects of the law. In response to queries as to how assessments under the earlier laws would play out in the GST regime, the CBIC has issued Circular No 42/16/2018-GST dated April 13, 2018, to “ensure uniformity in the implementation of the provisions of the law across the field formations”. One would have thought such a circular would detail how such issues would be solved under the erstwhile laws and which would be transitioned to the GST era. The circular disappoints by stating that for claims over Cenvat Credit and recovery of arrears shall, unless recovered under the existing law, be recovered as central tax liability to be paid through the utilisation of amounts available in the electronic credit ledger or electronic cash ledger of the registered person, and the same shall be recorded in Part II of the Electronic Liability Register.

No more friendly officers

It is time CBIC recognises Central Excise, Service Tax and VAT as erstwhile laws and not existing laws. In addition, even after this circular, the taxpayer is not clear whether these issues would be sorted out under the erstwhile laws or the GST laws. Taxpayers across the country have experienced that the assessing officers in the GST era are not necessarily their erstwhile friendly officers in the neighbourhood. In the absence of clarity on how issues in the erstwhile taxes would be settled in the GST era, it is possible for a taxpayer to receive notices under both the taxation regimes. The circular goes on to clarify that in case returns have to be filed for the previous period, the go-to portal would be the Aces portal but the mode of payment of tax in the GST regime would change to “Icegate” from “Easiest”. Recovery of arrears from assessees under the erstwhile laws in cases where such assessees are not registered under the CGST Act, 2017, would be in cash.

With GST laws, collections and the GST portal exhibiting some signs of stability and consistency, the focus would shift to the manner in which GST audits and assessments would be done. Taxpayers are expecting a very comfortable environment for assessments with no tax terrorism. There can be no two opinions on the fact that the nature of tax assessments would be directly related to GST collections. Being a new law in which the fine print is still to be read thanks to numerous changes, notifications and circulars, the GST Council can earn a few brownie points by issuing a circular as to how audits and assessments under GST should be done.

(The writer is a tax expert based in Bengaluru)