It’s been over a year since the initial lockdowns were imposed in response to the spread of Covid-19 in India. Since then, there has been a radical shift in the mindset of the industry, government, and the citizenry at large. With the sudden massive spike in the number of infected cases throughout the country, the hope that we may soon be back to normal seems more distant than ever.
India Inc. witnessed few sweeping indirect tax reforms during the pandemic which kept the taxpayers and the professionals busy alike. Key noteworthy developments that caught business eyes were:
Dispensing with CA/CMA certification for GST Audit
This development came as a surprise to many. The government replaced the requirement of the certification of a GST Audit for a certain class of taxpayers, by a CA/CMA with a self-certified reconciliation statement. However, what one fails to understand is whether there is a need to simplify the arduous requirements listed in GSTR-9 and GSTR-9C or do away with the CA/CMA certification. The taxpayer’s concern is not the certification, it is the simplification of the requirements followed by centralised and simplified compliances. Nonetheless, the common notion is that this development would only add more responsibility to the taxpayers who will be accountable for the completeness and accuracy of their annual return and reconciliation statement.
E-invoicing made applicable to taxpayers with turnover exceeding Rs 50 crore
The CBIC vide notification no. 05/2021-Central Tax dated 08 March 2021 mandated the issue of e-invoices for B2B supplies by all taxpayers whose turnover in a financial year exceeds Rs 50 crores, with effect from 1 April 2021.
This was expected to be done sooner or later to keep in line with the plan for phased implementation of e-invoicing. Also, following the massive success of e-invoicing in unearthing cases of GST fraud by registered persons/entities who were engaged in the issuance of fake invoices or claiming excess credit and causing loss to the exchequer, the government does not want any segment untapped. This is a much-sought relief for the government which faced a huge deficit due to the fall in GST collections owing to the dwindling consumption because of the pandemic. The government realised that the best way to ensure achieving the targeted collections was strict enforcement of the law and eliminating revenue leakages due to fraud and non-compliance. E-invoicing has been a stellar debutant in the category of measures aimed at achieving this feat.
Waiver of penalty for not incorporating QR code in B2C transactions up to 30 June 2021
With the phased implementation of e-invoicing for B2B transactions proceeding successfully, the government turned to the B2C segment. For this, the government had issued Notification No. 14/2020-Central Tax, dated 21 March 2020, requiring a Dynamic QR Code on B2C invoices issued by taxpayers having aggregate turnover of more than INR 500 crore rupees, w.e.f. 1 December 2020. The purpose of this code was for making payments by the unregistered person/consumer to such a registered person making the B2C supply, using UPI-based payment Apps by scanning the said QR Code.
However, due to various difficulties faced by the taxpayers in implementing this during the Covid-19 pandemic, CBIC had waived the penalty for not complying with this requirement until 31 March 2021. Now that the taxpayers are still facing difficulty and confusion over the incorporation of a QR code for B2C invoices, the government has further extended the waiver of the penalty until 30 June 2021. This has come as a much-appreciated relief to the taxpayers, who were still reeling with difficulties with the requirement.
Noteworthy legal developments
Further, as expected in the early days of the introduction of GST, there have been innumerable legal developments on the GST front and the list is long. Some noteworthy developments are:
The Gujarat High Court provided a ruling in the case of VKC Footsteps India (P.) Ltd. v. Union of India (2020) providing much-needed relief to taxpayers having an inverted duty tax structure.
In the said ruling, the court reviewed the provisions of the GST Rule which provide the method of computation of eligible amount for refund and held that the limitation of refund to the extent of Input Tax Credit (ITC) claimed on inputs exceeds the ambit of the base provision (i.e., Section 54 of the CGST Act). The key question addressed was ‘Can a subordinate legislation restrict the right granted under a plenary law?’. Further, the Madras High court held otherwise in another ruling.
The Court observed that the provision in section 54(3) has been wrongly interpreted in Circular No. 79/53/2018 dated 31-12-2018 to deny a refund of ITC on input services and therefore the refund of ITC on input services should also be allowed under inverted duty structure.
While the above-mentioned development could be seen as a welcome relief to the taxpayers, the next development offsets this relief.
The Supreme court of India, in the case of State of Uttar Pradesh Vs Kay Pans Fragrance (P) Ltd. (Supreme Court), observed that High Courts should refer taxpayers to the appropriate authority in instances of detention/seizure of goods for complying with the procedure prescribed under the GST Act.
It stated that the CGST Act read with Rules contains a complete code for release (including provisional release) of seized goods and the same must be followed for appropriate action to be taken. Though this ruling was delivered at the end of 2019, its effects are increasingly being felt since the lockdown in 2020, wherein the taxpayers are finding it difficult to approach jurisdictional High Courts for cases of detention of goods by the authorities.
Every new legislation takes time to evolve and stabilise. Currently, the GST law seems to be evolving more through notifications and circulars and is still far from settling down. The industry and tax professionals will have to learn to adapt to frequent changes in tax positions and associated processes.