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6-month GST payment freeze for worst-hit sectors, a lower rate for realty among COVID options mulled

6-month GST payment freeze for worst-hit sectors, a lower rate for realty among COVID options mulled

India is considering a goods and services tax (GST) relief package to counter the impact of Covid-19 and help prop up the economy, said people with knowledge of the matter. The package being considered could include a six-month suspension of GST payments for the worst-hit sectors such as restaurants, aviation and hospitality as well as a lower rate for the real estate sector.

Other proposals include a switch to a cash-based principle of levying tax from the current invoice-based system and providing GST relief on sales for which payment is not received due to the lockdown by treating those as bad debts.

These measures are expected to ease the liquidity pressure on businesses that are strapped for cash, said the people cited above. A final decision on the proposals will be taken by the GST Council, which is the apex decision-making body for the tax.

“There is a thinking that for these service sectors, the government should at least spare its dues,” a government official told ET.

The government could also consider exempting them from other statutory charges for some time.

Though there has been a demand for complete GST exemption, the government is veering around to the view that suspending the tax will work better, the official said. Exempting a sector from tax would mean breaking the credit chain, leading to further problems down the line.

Need for Liquidity
A cash-based system will mean businesses pay GST when they get the money and not when the invoice is raised, ensuring they don’t have to pay the tax out of their pocket and get squeezed on working capital. This is most relevant for services where payment is received with a lag after bills are raised.

Most service providers are facing delays in payments from clients but are saddled with GST liabilities. Another option is exempting these from GST, treating them as bad debt.

“The idea is to provide some help to businesses to sail through this crisis,” a second official said, adding that it is expected that states will back the move in view of the unprecedented economic situation.

Tax experts said liquidity is among the immediate needs of industry.

“At this time, industry needs more liquidity and hence deferment in payment of GST for next few months (without interest) should be considered,” said Pratik Jain, national leader, indirect tax.
While providing selective exemption is an option, it often creates complications as input credit gets blocked, aside from coping with the rigours of anti- profiteering provisions, he said.

“Since the point of taxation in GST is effectively the issue of invoice, the suppliers pay the GST to the government exchequer before they actually collect it from the customers,” said Bipin Sapra, partner, backing a cash-based system.

Source: Economic-Times

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Customs, GST relief to give Rs 60,000-cr boost to defence

Customs, GST relief to give Rs 60,000-cr boost to defence

India’s defence budget will be augmented by more than Rs 60,000 crore over the next five years owing to exemptions from customs duty and goods and services tax (GST) that kicked in on October 1, said people aware of the matter.

They said estimates by the Rajnath Singh-led defence ministry show that the twin exemptions will significantly impact its budget and free up resources for modernisation and replenishment of equipment.

The defence ministry had been hit by the imposition of customs duty in 2016 on all imports of military equipment, followed by the GST the next year. Although the two levies were aimed at promoting indigenous production of defence equipment, it soon became evident that there was a lack of capability to produce certain items locally.

With the ministry forced to spend a significant chunk of its budget on imports, the twin taxes reduced the availability of modernisation budget, leading to the armed forces cutting back on plans to acquire new systems.

“A case was taken up with the finance ministry to reinstate the exemption on customs duty and exempt GST as well for imported defence items for which there is currently no domestic production capability,” said one of the persons, who spoke on condition of anonymity.

A key factor in the exemption is that it has been provided for a select number of defence items and for a limited period of five years, during which it is estimated that domestic production will not be available. This would safeguard interests of the Indian industry and allow it to provide alternatives after the fiveyear window, said the person.

Officials said that around Rs 25,000 crore will be saved over the next five years on account of the rollback of customs duty on the import of defence equipment that is not manufactured in India while GST exemptions will augment the defence budget by Rs 35,000 crore.

As reported by ET, the withdrawal of customs duty on imported defence items that are not manufactured in India will improve cash flow, but the services are still short of resources to take forward their modernisation plans.

The defence allocation this year is pegged at Rs 3.18 lakh crore, with capital expenditure of Rs 1.08 lakh crore. The inadequate capital acquisition means that the three armed forces will fall short of almost Rs 18,000 crore on their committed liabilities to pay for equipment already purchased.

This gap could mean delayed payments to public sector units and a further delay in purchasing equipment.

Source: Economic-Times

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Goods bought at duty free shops exempt from GST: Bombay HC

Goods bought at duty free shops exempt from GST: Bombay HC

In a relief to duty free shops at the Chhattrapti Shivaji International Airport, the Bombay high court has held that the state or central government cannot charge GST on goods sold at these shops.

The high court was hearing a petition filed by a duty free shop (DFS) opposing a show cause notice and criminal case against by the sales tax department.

The court held that though duty free shops were in India they did not come under the taxable territory and hence were exempt from paying GST.

A division bench of Justices Ranjit More and Bharati Dangre while hearing a criminal application filed by Sandeep Patil, a petitioner in a previous public interest litigation, was informed that the application was filed for a review of the order in the PIL. The high court had dismissed the PIL that sought directions to the deputy commissioner of sales tax department to refund the GST collected from the duty free shop.

The court was also seized of two petitions filed by Flemingo Travel Retail Limited which runs duty free shops at the airport seeking similar reliefs as Patil.

The petitioners informed the bench that as per the Customs Act the shops were involved in sale of goods that were imported both for arriving and departing passengers.

The petitioners pointed out that as the goods sold to departing passengers were not taxed they were able to provide them at international rates.

They also submitted that the duty free shops were paying a consideration to MIAL to run the business and hence the additional tax in the form of GST would render it impossible for them to offer goods at prevalent rates internationally.

The counsel for GST argued that as the duty free shops were operating in the state of Maharashtra they were liable to pay GST.

The petitioners then referred to a Karnataka high court judgment which held that duty free though functioning on state land, technically were beyond the customs frontiers and outside taxable territory and hence exempt from GST.

After hearing the submissions, on October 7 the court held that it was clear that both arriving and departing passengers were either importing goods or exporting goods. However as the goods being bought from the duty free shops were to be construed as being brought from abroad, as per Baggage Rules under duty free allowance they were exempt from paying GST on crossing the customs frontiers.

The court also said as the departing passengers were taking goods from duty free shops that were beyond the customs frontiers and they too were exempt from paying GST.

Source: Hindustan-Times

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