Delay in constitution of GST Appellate Tribunal with national, regional, state and area benches has compelled taxpayers to file writ petitions against appellate orders passed by departmental officers.
By G Gokul Kishore
GST has completed two years. GST Council has met 36 times, taken 1,064 decisions (till 34 meetings) and 1,006 decisions have been implemented, according to GST Concept and Status. As issues like rate rationalisation and return filing are getting settled, the department has started issuing demand notices in cases of non-payment and short payment of tax or irregular availment of input tax credit (ITC).
Till July this year, orders in 66,067 cases have been passed, involving tax demand of Rs 4,199 crore. Taxpayers in 32,630 cases have opted to pay and the amount paid aggregates to Rs 502 crore, as per GST Council. The data indicates that roughly half of the cases where orders have been passed are not appealed further and amounts are paid. However, such amounts paid are just one-eighth of the demands confirmed against taxpayers. It seems that taxpayers tend to pay up to give quietus to the proceedings in low value cases while in high value cases, they choose to contest by filing appeals. An amount of Rs 4,199 crore in disputes is modest and does not ring any alarm. But, the fact that issue of demand notices has not yet become a routine affair and audit process is yet to commence indicates that such numbers are bound to explode. A look at the position adopted by the department before Authority for Advance Rulings (AAR) reveal that several issues are contentious, and the department is likely to litigate.
As many as 80,613 instances of voluntary payment of tax, involving Rs 1,18,526 crore, have been recorded. Department has issued e-acknowledgement to such payees in 488 cases and has issued necessary order on conclusion of proceedings in 83 cases. The amount of voluntary payment is higher due to a host of reasons. Voluntary payments arise when the taxpayer notices defects like short payment of tax, payment of incorrect type of tax (IGST instead of CGST and SGST and vice versa), wrong availment of ITC and availment of ineligible refund. The amount paid through this method is more than 5% of the total GST collections of Rs 19.17 lakh crore since July 2017.
The very low number of issue of acknowledgement by department accepting voluntary payments can be attributed to two reasons. First, the relevant Rule 142 of CGST Rules refers to payment of tax by taxpayers on their own before issue of demand notices. Payments made in other cases are not covered by Rule 142(3) for such e-acknowledgement and acceptance by the department. Second reason could be the fact that functionalities like e-acknowledgement through GST portal became operational much later. This essentially calls for both amendments to rules to provide for e-acknowledgement in all cases of voluntary payments (not restricting to only cases of demand notices) and also to close the gap in making functionalities fully operational.
As against 4,90,094 applications filed for refund of tax amount of Rs 89,108 crore, the department has processed 52,172 claims involving an amount of Rs 13,618 crore. Export refunds are not included in this data as they are processed automatically, based on shipping bill itself, without a separate claim. While time limit for filing refund claim is two years for the taxpayer, the department is required to issue refund order within 60 days from receipt of complete application. The department may seek more documents and the time-limit can get extended leaving the same to the discretion of the tax administration. The data shows that around one-tenth of the refund claims have been processed. Considerable delay on the part of the department in processing claims despite statutory time-limit has led to huge backlog of claims. The refund amount sanctioned so far presents a better picture vis-à-vis the amounts claimed. One reason could be high value refunds are diligently pursued by claimants to ensure that the application is complete in all respects leaving no room for objections by sanctioning authorities.
Demands tend to rise when the department and taxpayer are not able to agree on interpretation of a statutory provision and consequently the practice adopted. Advance ruling mechanism in GST law has been provided to resolve issues at the initial stage of business or before they become full-blown disputes. This facility is available not only for proposed activities but also for current business activities. But, the AAR has remained less attractive. The bodies were set up little late, after implementation of GST. Almost all the states have constituted these bodies. In around 18 months’ time, 976 applications for advance rulings have been filed (till May 2019) in all the states put together. In most of the North Eastern states, Assam and J&K, no application has been filed so far. The figures indicate that just about one tenth of applicants use Appellate Authority for Advance Rulings (AAAR). It is a fact that AAR is manned by bureaucrats and most of the rulings have not been in favour of the taxpayers. Appellate AAR is also a body comprising members drawn from tax administration. The perceived revenue bias of these bodies has a deterrent effect on the taxpayers.
Delay in constitution of GST Appellate Tribunal with national, regional, state and area benches has compelled taxpayers to file writ petitions against appellate orders passed by departmental officers. With two technical members drawn from tax administration and only one from the judiciary, the provisions relating to tribunal are under challenge in various High Courts. While notification has been issued for establishment of such tribunal, the same is also sub-judice. GST Council should frame a comprehensive litigation policy under GST before issues spiral out of control.
(The author is Advocate, Lakshmikumaran & Sridharan Views are personal)