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Indirect tax dept issues notices to companies over late input credit claim under GST frame

Indirect tax dept issues notices to companies over late input credit claim under GST frame

The indirect tax department has issued notices to thousands of companies that had claimed input tax credit under the goods and services tax framework after missing the deadline to do so, and asked them to reverse the transaction.

These companies had claimed the input tax credit for fiscal 2018 and 2019 after missing the September deadline. The tax department has asked them to reverse the transactions and pay interest on the wrongly claimed credit, people in the know said.

Input tax credit is a mechanism whereby companies can set off GST paid on raw materials or input services against future tax liabilities.

“It is noticed that you have filed returns after the due date specified for availing (of) input tax credit for discharging your tax liability. You shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date for furnishing of returns,” a tax notice seen by ET reads.

Tax experts said these notices could be challenged in the court.

The timelines cannot be treated as mandatory for availing of credit, as the right accrues at the time of procurement of supply and making a payment, said Abhishek A Rastogi, a partner at law firm Khaitan & Co. “This is enough to challenge the validity of the restriction.”

According to the people, several companies based in Maharashtra, New Delhi, West Bengal and Tamil Nadu were served with such notices. These companies can either pay up the amount or challenge the demand in courts.

Separately, the Central Board of Indirect Taxes and Customs has so far blocked some ?40,000 crore of tax credits due to mismatch in return filings. All these mainly deal in cases where suppliers to a company that is claiming input tax credit had not uploaded invoices. As per current regulations, companies can claim 10% of such missing invoices.

Source: Economic-Times

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Non-compliance in GST payments may be burning a Rs 5 tn hole in revenues

Non-compliance in GST payments may be burning a Rs 5 tn hole in revenues

The government may be losing Rs 5 trillion in indirect tax revenue a year, amounting to 40% of its goods and services tax (GST) collection target, because of defaults and evasion, according to the Fifteenth Finance Commission’s (FFC), confirming policymakers’ fears that businesses are not paying their fair share of taxes.

In a recent presentation made to the GST Council, FFC has assessed that the revenue loss was equivalent to 2.4% of gross domestic product. This works out to Rs 5 trillion if one goes by the first advance estimate of nominal GDP for FY20 released earlier this month. This is as much as 40% of the GST revenue centre and states together may collect this year, going by the trend of an average Rs 1 trillion a month GST revenue in the first nine months of the current fiscal.
In the nine months to 31 December, central and state governments have collected more than Rs 9 trillion in GST and hope to collect an additional Rs 3.55 trillion by end of March.

FFC’s estimate of revenue loss from non-compliance is giving a strong backing to the tax administration’s bid to tighten enforcement at a time they are struggling to meet the revenue targets for the year. According to the FFC, India’s overall tax-to-GDP ratio is about 17.2%, which as per its calculations, should be about 22.6%.

There is a gap of about 5.4%, of which, GST compliance gap accounts for about 2.4% of the GDP, according to the FFC presentation, the highlights of which are now available in public domain from minutes of the meeting.

Source: Hindustan-Times

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Taxman may get to block doubtful input tax credit

Taxman may get to block doubtful input tax credit

The government is set to amend Section 49 of the Goods and Services Tax (GST) law that would allow tax officers to block input tax credit of companies if they suspect fraud, an agenda note for the GST council meeting circulated to all state finance ministers and senior tax officials indicated.

“Fraudulent ITC (input tax credit) availment based on fake invoices has become quite rampant. As investigations get initiated, if the utilisation of such suspected credit continues, the investigation efforts get frustrated,” the government document reads.

“The commissioner or an officer authorised by him on this behalf, may restrict utilisation of full or part amount from the credit available in the electronic credit ledger for making any payment towards output tax or claiming input tax credit refund,” part of the amended section reads.

Industry trackers said giving additional powers to the tax officers may create problems in the coming days. Senior tax officers would be able to partially or fully block input tax credit of companies henceforth. This comes at a time when indirect tax officers have been arresting promoters if they suspect “circular trading” with an aim to avail input tax credit.

“Giving arbitrary and unfettered powers to commissioners to reject or withhold input credit claims based on whims and fancies will lead to harassment and eventually impact the already traumatised economy. There is a problem in the law which needs to be changed, but to propose to amend a section without actually coming out with regulations on how to determine whether the input tax credit is actually fake, will only add to the existing problems,” said Sujay Kantawala, high court advocate who also represents several promoters arrested by indirect tax officials.

Tax experts also question what would happen in cases where a company challenges taxman’s stand and wins a case in the court. “It is important to understand whether in cases where credit has been wrongly blocked, the taxpayer will get the interest for the delayed period of non-utilisation as the tax payer should be appropriately compensated for delay in utilisation of credit,” said Abhishek A Rastogi, partner at Khaitan & Co.

Several promoters have challenged in different forums indirect tax officials’ right to arrest them. ET on December 11 reported that several promoters had filed a joint writ petition in the high court, challenging the validity of the GST statutory provisions related to arrest and freezing of bank accounts.

Source: Economic-Times

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GST refunds denied to MNC back offices

GST refunds denied to MNC back offices

A host of back offices of multinational companies in the financial sector face a tax whammy, with Goods and Services Tax authorities denying them refunds of amounts paid on inputs, saying the work done for parent companies can’t be considered as exports and will be counted as a service for the same entity.

GST authorities have rejected refunds on these grounds across states, including Haryana, Maharashtra, Tamil Nadu and Karnataka. The denial of refunds running into hundreds of crores of rupees to these outfits can derail their business model and may impact India’s attractiveness as the world’s back-office hub, especially with the emergence of low-cost sites in the Philippines and East Europe.

“Rejection orders are based on the premise that the services are provided by the local entity to its overseas affiliate company, which is the ‘same entity’ and therefore, the said services do not qualify as exports,” said an industry official privy to the development. Industry has approached the government for expeditious resolution of the issue. Individual companies will approach appellate bodies to seek relief.

Typically, tax paid on inputs that are used for exports is refunded. According to a clarification provided by the Central Board of Indirect Taxes and Customs in the form of frequently asked questions, where the Indian arm is set up as a liaison office or a branch, they would be treated as establishments of the same entity and hence, supplies between them will not qualify as export of services. “However, if the Indian arm is set up as a wholly owned subsidiary company incorporated under the Indian laws, the foreign company and the Indian subsidiary would not be governed by the provisions of distinct person or related person as both are separate legal entities,” it said.

Experts said the law is very clear on this aspect and this principle was followed even under the previous service tax regime. “It is essential to clarify without any ambiguity that global delivery centres operating in India for foreign customers are not liable for GST on services provided by them and are fully entitled to claim input tax refunds,” said MS Mani, a partner at Deloitte India. “From the law, it’s very clear that services provided to a separate legal entity would qualify as export of services.

Only services by one office to another of the same legal entity doesn’t qualify as export. It’s unfortunate that such fundamental issues are still being raised even after more than two years of GST implementation,” said Pratik Jain, national leader, indirect taxes, at PwC. Bipin Sapra, a partner at EY, agreed. “There is no ambiguity in law that a subsidiary of an overseas company can supply services to their overseas parent and qualify as export. Any challenge to this will be increasing the cost of delivery of such services from India,” he said.

The issue appears to have been raised largely by state tax authorities. “Hope the government takes urgent notice of this and comes up with a clarification so that the issue can be put to rest. This also means that state authorities need comprehensive training on taxation of service sectors, which was earlier administered by central government authorities,” Jain added.

Source: Economic-Times

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Indirect tax board removes circular on GST, but confusion remains.

Indirect tax board removes circular on GST, but confusion remains.

The indirect tax board had removed a “controversial” circular that imposed goods and services tax (GST) on post-sale discounts by dealers, but it has done little to clear the confusion around the many issues that arose with the circular.

In June, the Central Board of Indirect Taxes and Customs (CBIC) had issued a circular which said that dealers will have to pay 18 per cent GST on the post-sale discount that they get from the suppliers of goods, if the supplier asks them to pass on the concessions to the end consumer.

The circular came out with different situations where GST should be paid and where it should not.

For instance, imagine that a company sells a car to a dealer for Rs 10 lakh and later gives a discount of Rs 50,000. In doing so, the firm did not put any obligation on the dealer to pass on the benefit. So, the dealer need not pay any GST on Rs 50,000. However, if the company asks the dealer to pass on the benefit to the customer, then the dealer has to pay GST on the entire amount, including Rs 50,000.

The Confederation of Indian Industry (CII) had said This had irked industry, particularly the auto sector, which has already been reeling under the pressure of subdued demand.

this circular violated the cardinal principle of GST that the tax cost is to be borne by the ultimate consumer.

“This principle means that the supply of goods or service should suffer the tax only to the extent of consideration paid by the ultimate consumer,” the CII had said, demanding that this provision in the circular be changed.

It said additional discounts are generally given to liquidate the old inventories or push products under weak market conditions.

Following the hue and cry, the CBIC recently said: “Numerous representations were received expressing apprehensions on the implementation of the said circular. In view of these apprehensions… the Board… hereby withdraws, ab initio, the circular.”

But even after the withdrawal of the circular, the controversy over it has not ended. Experts demanded that a clarification be issued that there would be no GST on post-sale discounts as field officers continue to harass dealers.

Abhishek Jain, partner at EY, said industry expects that with the withdrawal of the circular, the government has accepted the industry’s position and this would put an end to the investigations and litigation at the field level.

Also, there is the issue of input tax credit.

ClearTax chief executive officer Archit Gupta said now there is confusion over how the situation of post-sale discounts should be dealt with.

The tax on the original invoice could have still been claimed as input tax credit and be adjusted using the credit note. This is now not perceived so by the withdrawal of the circular, he said.

“The festive season is here, and hence, there is a dire need for the CBIC to come back with a clear message for the businesses and the dealers in the supply chain to deal with the circular,” he said.

Source: Business-Standard.

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E-way bills for gold under consideration

E-way bills for gold under consideration

The government is considering a proposal to make e-way bills necessary for transportation of precious metals like gold to stop malpractices and check revenue leakage, two officials said requesting anonymity. Under the GST’s e-way bill system, the movement of goods requires registration from pickup to drop points.

The GST Council, an apex federal body for matters related to indirect taxes, is expected to consider the proposal at its meeting in Goa on September 20. The Union finance minister chairs the GST Council and it has state finance ministers as its members.

The officials said Kerala has mooted the proposal of making e-way bills mandatory for movement of precious stones and metals even as the Law Committee rejected an idea for doing so citing “security and law and order” in June. In July, the matter was again sent for the reconsideration of the committee, which is an advisory body of the GST Council. The panel has about two dozen members, mainly tax officials. Email queries sent to the Central Board of Indirect Taxes and Customs and the Union finance ministry about the proposal went unanswered.

The officials cited above said Kerala has repeatedly flagged the issue and is unconvinced that e-way bills for gold and other precious items will pose security threats and create law and order problems. Kerala has sought e-way bills to check revenue leakages.

According to the officials, the Law Committee has put up two options before the GST Council. The first option is to make e-way bills mandatory through encrypted mode. Under this option, data related to the movement of such goods will be stored in a server and only authorised officials could have access to it. This will address the security concern.

The other option is to continue with the existing exemption from the requirement of e-way bills as these goods are often transported personally or privately through the traditional couriers called ‘angadia’. It has been underlined that insistence on e-way bills for these items will increase the compliance burden for workers, the officials said.

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Source: Hindustan-Times
Seven indirect taxation-related laws being amended: FM Nirmala Sitharaman 

Seven indirect taxation-related laws being amended: FM Nirmala Sitharaman 

Finance Minister Nirmala Sitharaman Thursday said seven legislations under indirect taxation are being amended to ensure greater simplicity, as she moved the Finance Bill in the Lok Sabha. She told the Lower House that amendments to laws are being made through the Finance Bill in five major categories, including in the Goods and Services Tax (GST).

Apart from seven Acts related to indirect taxation being amended, the government would also be bringing changes to seven laws related to direct taxation. The changes would ensure that indirect taxation-related matter would have greater simplicity and be effective, she said. About proposed amendments to direct taxation-related laws, Sitharaman said those are being done for furthering the agenda of Make in India, adding the country needs a lot more manufacturing activities.

The GST alone has five different amendments that would also make compliance easier for the MSME (Micro, Small and Medium Enterprises) sector, she added. According to her, eight Acts pertaining to financial markets, including Sebi Act, are being amended. RSP member N K Premachandran objected to the Finance Bill having the provisions to amend a number of laws, including Benami Act, Sebi Act and PMLA Act, and urged Speaker Om Birla to disallow it.

A Finance Bill can only have taxation proposals, Premachandran said, soon after the finance minister stood up to move the bill for consideration and passage.

He also accused the government of bypassing Parliament to avoid discussion and scrutiny for amending existing laws by including them in the bill.

Sitharaman said rules and constitutional provisions cited by Premchandran do not rule out non-taxation proposals for inclusion in the Finance Bill but only say that it should be done only when imperative.

“The government considers it very imperative,” she asserted.

Birla, in his ruling, disallowed Premachandran’s objections and said there have been occasions earlier as well when non-taxation proposals were included in the Finance Bill.

Source: Economic-Times.

Budget 2019: Amnesty scheme to resolve legacy tax issues

Budget 2019: Amnesty scheme to resolve legacy tax issues

The government has unveiled an amnesty scheme to resolve excise and service tax disputes pertaining to the period before the introduction of the goods and services tax to clear the backlog of cases and improve the ease of doing business. Even two years after the indirect tax regime was replaced by GST, the litigation doesn’t seem to die down and there is a huge pendency, tax experts said.

“The announcement relates to the legacy dispute resolution scheme, which intends to reduce the pending service tax and excise litigation of the pre-GST regime. It is expected that the scheme will support businesses where there are various ambiguous issues pending before the tribunals,” said Abhishek A Rastogi, a partner at Khaitan & Co.

All parties can settle the disputes, save those who face conviction and those who have moved the Settlement Commission. Relief under the scheme varies from 40% to 70% of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved.

“More than Rs 3.75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on,” finance minister Nirmala Sitharaman said.

Source: Economic- Times.

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What government is doing to improve GST compliance

What government is doing to improve GST compliance

1) What’s the direction of GST in the near term?

Central and state tax officials have until recently taken a lenient approach in administering the technology-driven tax, allowing businesses and traders time to adapt to the new regime. This is quickly making way for a tough new approach to check evasion. Implementing a new, simpler tax return filing form that will make tax evasion harder and stabilizing revenue collection top the agenda of the GST Council. Its medium-term agenda includes converging the two standard tax rates—12% and 18%—applicable on a large number of items somewhere in the middle as revenue collection improves.

2) What’s the plan to check tax evasion?

The GST Council plans to curb tax evasion by using technology and data gathered from various sources to their full extent. One of the proposals is to ask large firms to generate invoices for business-to-business transactions on a designated portal. This will help prevent instances of the buyer taking credits for taxes that the seller has never paid to the government. Identifying and plugging revenue leakage would be a priority for the GST Council, said EY tax partner Abhishek Jain. “The proposed new return form will restrict tax credit utilization to the extent the invoices uploaded by the seller will allow,” he added.

3) What about evasion at the retail level?

Selling without invoices, often with the connivance of the buyer, and the retailer pocketing the tax amount collected from the buyer instead of remitting it to the government are two ways tax evasion takes place at the retail level. Sale without invoice will require inventory more than what is shown in the records. This is often done by using the same e-way bill (electronic permit for transportation of goods) multiple times. Officials believe the plan to validate e-way bills with the data collected at toll plazas of movement of radio frequency identification-enabled vehicles will help check this problem.

4) In what way will close coordination between the direct and indirect tax administration help?

Experts say that globally, indirect tax reforms have helped improve income tax and corporate tax collections as the transparency in sales achieved by GST makes it harder to hide income. Close coordination between the two streams of taxation helps officials to connect the dots and profile assessees better.

5) How serious is the revenue shortfall?

The combined monthly target of central and state governments for this fiscal is about ₹1.14 trillion. They collected just over ₹1 trillion in May, up 6.7% from the same month a year ago but below the monthly target. Revenue shortfall implies the centre has to compensate states for their losses. The sluggish pace of revenue growth means there is not much legroom for the GST Council to cut tax rates in the near future unless revenue receipts soar.

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Source: Live-Mint.
GST revenue shortfall drags down tax revenue estimates

GST revenue shortfall drags down tax revenue estimates

Shortfall in GST revenue of an estimated Rs 1 lakh crore has forced the government to revise downwards its gross tax revenue target by over Rs 23,066 crore in the revised estimates of the current fiscal despite a better-than-expected collection on the direct tax side.

As per the Interim Budget tabled in Parliament on Friday, the government revised the Goods and Services Tax (GST) target from Rs 7.44 lakh crore to Rs 6.44 lakh crore — a gap of Rs 1 lakh crore — due to a shortfall in collections.

However, an upward revision of Rs 50,000 crore in estimates for direct taxes to Rs 12 lakh crore has made up for a significant portion of the shortfall. Total indirect taxes, including Customs and other duties, are estimated to be Rs 10.45 lakh crore, down from Rs 11.18 lakh crore.

For Financial Year 2019-20, the government has set a direct tax collection target of Rs 13.8 lakh crore (up 15 per cent from this year’s revised estimates) and indirect tax collection target of Rs 11.7 lakh crore (up 11.9 per cent).

Last week, the IANS had reported that the government may miss the GST collection target set in the Budget estimates by as much as Rs 1.5 lakh crore based on collection trends till December.

While GST collection showed a marked improvement in January, it may not be enough to restrict the deficit to Rs 1 lakh crore. However, the government is confident of meeting this year’s as well as next years’ targets.

CBIC Chairman Pranab Kumar Das, who assumed charge last month, said with compliance going up and tax net widening, it won’t be difficult to meet the revenue targets.

“The very first month after assuming charge on January 1, I have already achieved the target of Rs 1 lakh crore that I promised before taking over… I have shown this is possible,” he said.

“And with compliance going up, and a number of taxpayers going up, it is not difficult for us to get this revenue,” he added.

Das added that transparency was the key to improve compliance which would play a key role in achieving targets.

“People are interested to take advantage of this compliance level, this transparent system because they benefit if they become a part of the supply chain. So even though they are below the threshold, many of these entities are registering themselves,” he said.

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Source: Economic Times
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