Authored by CA Vikas Shenoy
The Budget for the financial year 2021-22 was presented by the Hon’ble Finance Minister without much pomp. Many were taken by surprise that there were no hikes in the tax rates and that there were no major tax related announcements. Others suspected that the devil would lie in the fine print. Certainly, the fine print did have changes that were required to be analysed. To be analysed whether they are indeed devil or not. In this article, key changes proposed under GST vide the Finance Bill, 2021 (“the Bill”) have been discussed.
The Members’ Club dilemma
Taxability of services provided by a members’ club to its members in the service tax regime was a long fought battle that was won by and settled in favour of the clubs. In the case of Calcutta Club Ltd, the Apex Court had interpreted the law and held that the concept of mutuality would squarely apply.
However, by the time the dust settled under the service tax regime, GST was introduced, and the issue resurrected. Experts opined that even though the term “business” was defined very widely to include provision of facilities or benefits by a club, association, society, or any such body to its members, GST would not be leviable as the concept of mutuality still continued to apply under GST.
Accordingly, to remove the anomaly, the Bill proposes to bring the activities or transactions by a club to its members within the ambit of “supply” and to clarify that notwithstanding any judgement of any Court to the contrary, a club and its members are distinct persons. Effectively, the proposed retrospective amendment tries to throw the concept of mutuality into the trash can.
Even though the amendment has been drafted in a fool-proof manner by stating that such transactions would constitute supply if it is “for cash, deferred payment or other valuable consideration”, the taxability of supplies by a members’ club to its members is yet to undergo the test of “consideration”, as was observed by the Hon’ble Court in the case referred supra.
Input tax credit – road ahead becomes narrower
GST was formulated and implemented based on the concept of seamless flow of credit. This was coupled with ease of doing business and initially, availment of input tax credit (‘ITC’) was allowed to be taken by a taxpayer on a self-assessment basis without too many restrictions. However, with the increasing cases of fraudulent claim of ITC based on fake invoices generated by shell companies, the government was forced to impose additional conditions and restrictions. While these measures are vital to curb ITC related frauds, honest taxpayers are strained into additional compliance and are penalised for no fault of theirs.
Whilst the taxpayers are still managing to adapt to the restrictions such as the mandatory one percent cash payment requirement under Rule 86B or the limit of five percent on availing unmatched ITC under Rule 36(4), the budget has given another jolt to the businesses by proposing to introduce a pre-condition for availing ITC that the details of such inward supplies must be furnished by the supplier in its GSTR-1.
It is apt to note here that the introduction of new condition as above vindicates the position taken by various tax advisors including the author that there is no such pre-requirement until the amendment is made effective. Also, it would be interesting to see whether the amendment proposed conforms to the legislative intent and the principles laid down by the Hon’ble Supreme Court in the matter of ITC.
Export benefits under control
As borrowed under the GST law from the erstwhile indirect tax regime, export benefit under GST is allowed to exporters under two modes at the option of such exporter. An exporter can either claim refund of unutilised ITC pertaining to exports effected by him during a period or he can pay tax on such exports by utilising ITC and claim refund of such taxes paid. Any person who has practically tried both these modes of export benefit, will state that the latter option of paying tax and claiming refund thereof (‘rebate option’) is convenient of the two. Also, under the rebate option, an exporter could encash more ITC than under the former option.
The Bill proposes to make the rebate option available only to a class of persons or a class of goods or services as would be notified by the government subsequently. Further, with respect to the other option of refund of unutilised ITC pertaining to exports, a condition has been proposed which requires exporters of goods to pay back any refund received along with interest to the government in case export proceedings are not realised within 30 days of the time specified under FEMA.
With stringent measures as above, the export community is pushed into uncertainty and is evaluating schemes such as the Customs Bonded Manufacturing scheme with a view to do away with issues such as accumulation of ITC and regulatory uncertainty.
Other key changes proposed
Apart from the above, the Bill proposes following changes that could impact the taxpayers under GST.
- The requirement of certification of the reconciliation statement in Form GSTR-9C by a Chartered Accountant or Cost Accountant has been removed. In lieu thereof, a self-certified reconciliation statement is proposed.
- The issue of applicability of interest on net cash liability retrospectively is now settled by making the amendment retrospective.
- Other changes such as expanding the scope of provisional attachment of properties; delinking of seizure and confiscation provisions; and empowerment of Commissioner to call for information from any persons have also been proposed.
This article was published in February 2021 issue of the KCCI Journal
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