How Union Budget changes GST law to move onus away from professionals to taxpayers

Updated: March 27, 2021 11:31 AM

Indirect Taxes Budget 2021 was crucial because of the collocation of two contrasting situations in the current economic scenario, namely the government's endeavor to make India a $5 trillion economy by 2025 and the economic slowdown of the worldwide COVID-19 pandemic.

Taxpayers can use ITC to discharge GST dues for March: Finance MinistryThe economy is witnessing a "V" shape trajectory in the GST revenue collections.

By Rajat Mohan

The Union Budget 2021-22 was presented on February 1, 2021, by the Union Finance Minister Nirmala Sitharaman. While all eyes are on the popular sops expected under the income tax slabs and reliefs, one must also stay updated about the main source of revenue for the government, which is Goods and Services Tax (GST). Indirect Taxes Budget 2021 was crucial because of the collocation of two contrasting situations in the current economic scenario, namely the government’s endeavor to make India a $5 trillion economy by 2025 and the economic slowdown of the worldwide COVID-19 pandemic.

The economy is witnessing a “V” shape trajectory in the GST revenue collections as from October 2020; the collections are consecutively above Rs. 1 lakh crore because of the ease of the compliances and all the restrictions impacted by Covid -19. In light of this recovery, let us understand the impact of GST provision changes in lucid language.

Scope of Supply extended.

A new clause has been added retrospectively with effect from July 01, 2017, due to which tax will be levied on transactions involving the supply of goods or services by any person to its members for a valuable consideration.  Thereby, the persons and their members will be treated as two separate persons. Now retrospective amendment has been proposed to ensure levy of tax on the amounts collected from the members towards the supply of goods/services.

Eligibility of ITC further restricted

A new clause has been added which states that ITC on invoice or debit/ credit notes can be availed only when the details of such invoice or debit/ credit notes have been furnished by the supplier in its GSTR-1.

From now on, the credit can be taken based on the invoice to invoice matching otherwise, ITC will be disallowed.

Mandatory audit by professionals has been omitted

Section 35(5) of the CGST Act is proposed to be omitted to remove the mandatory requirement of getting annual accounts audited and reconciliation statements submitted by specified professionals. New Section 44 of the CGST Act now provides for furnishing a reconciliation statement duly verified by the taxpayer himself, thus shifting the onus back to him.

Businesses need to note that GSTR-9 and GSTR-9C still need to be filed; relaxation is only on account of shifting the onus back on the taxpayers.

Tax Recovery proceedings enabled incase of mismatch in GSTR-3B and GSTR-1

An explanation to sub-section (12) of section 75 of the CGST Act is being inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished in GSTR -1, but not included in the GSTR -3B.

This is a draconian provision giving the exclusive powers to the GST department to initiate tax recovery proceedings in case there is a short liability reported in GSTR-3B than that appearing in GSTR-1. Section 75(12) overrules Section 73 and Section 74 and states that where any self-assessed tax either wholly or party or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of Section 79 that specifies the various modes of recovery.

We believe that this amendment is unfair and has also overlooked earlier Circular No. 26/26/2017-GST dated December 29 2017 which stated that since GSTR-3B do not contain the provisions for reporting of differential figures of past month(s), the said figures may be reported on net basis along with values for current month itself. Further, it also provided for making adjustment in the next months for the unadjusted amount due to the limitation of GSTR-3B of not accepting negative values.

The said amendment will cause hardship to genuine taxpayers, and departmental harassment at lower levels is expected. This will be another area of litigation for the next few years.

Unrestricted power to collect information

Section 151 of the CGST Act is being substituted to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the Act.

Earlier, the powers under Section 151 were restricted relating to matter in respect of which statistics is to be collected. Further, the said power could have been exercised by him by way of notification. However, with this amendment, the powers have been widened to call for any information any time to any person on any matters concerned with the Act. This will be another hardship for the genuine taxpayers.

It seems that powers go beyond the “registered person”. Literally meaning a tax officer can also serve notice on minor to seek any information related to his distant relative’s business.

Zero-rated Supply

First change in respect of zero-rated supplies is that supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit will be treated as zero-rated supply only when the said supply is for authorized operations.

Second change is in Section 16 which has been amended to restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services.  Legally speaking, the option of a refund in case of zero rates supply with payment of tax has been withdrawn from the GST law. Now, this benefit may come back only for specified categories of taxpayer or a list of specific goods or services by way of a notification.

If this amendment is approved then, many businesses would be back old scheme for claiming a refund.

Budget 2021 has made a couple of important changes in the GST laws, which will have far-reaching impact on businesses. Higher responsibility is placed on the taxpayers for compliance of the GST laws, and the onus has been moved away from the professionals in this respect. It is crucial for the government to align its underlying policies, one of which says minimum government and maximum governance. The involvement of independent verification and assurance professionals is need of the hour in GST law. Tax collections have jumped to an all-time high of INR 1.20 Lakh crores on the back of unearthing severe tax frauds, and the economy is now on the verge of stabilising. Removal of professionals from the GST assurance services would further worsen the compliance environment. Let us now wait and watch for the next council meeting to give some remedial measures on the GST code to improve the overall health of a taxpayer.

(Rajat Mohan is a Senior Partner at AMRG & Asscoiates. The views expressed are the author’s own.)

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