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Central GST busts fake invoice racket worth R14cr

Central GST busts fake invoice racket worth R14cr

A fake Goods and Services Tax (GST) invoice scam of Rs 14 crore was unearthed by the Central GST commisionerate where the suspects used it for fraudulently claiming input tax credit (ITC).

The scam came to surface during the course of action by the squads of the Central GST where a Chandwad-based firm M/s Gonglu Agro Pvt Ltd had received fake GST invoices worth Rs 5.58 crore.

Later, the Central GST commisionerate found that this firm was also involved in issuance of fake GST invoices. “During investigation we found that this Chandwad-based firm was involved in issuance of fake GST invoices. The firm has issued fake GST invoices of around Rs 70 crore to facilitate passing on bogus ITC of Rs 8.4 crore,” an official from the Central GST department said.

The Central GST department has arrested the managing director of the company, Rahoul Jain, and is investigating the case to find whether other firms are also involved in such practices of providing fake GST invoice to facilitate bogus claims of the ITC.

The Nashik divisional office of the Central GST (erstwhile office of Central excise, service tax and customs) has jurisdiction across five districts — Nashik, Ahmednagar, Dhule, Jalgaon and Nandurbar.
There are over 1.10 lakh businesses registered in the district of which 60,000 businesses are registered with the Nashik divisional office of the state GST, while remaining 53,591 are registered with the divisional office of the Central GST.

The new tax regime GST came into effect from July 1, 2017 replacing the multiple indirect taxes and traders with turnover of below Rs 20 lakh were exempted from GST, while those with annual business turnover up to Rs 1 crore are eligible for composition scheme.

The GST council made several changes in the past following introduction of GST and the exemption limit had was increased from Rs 20 lakh to Rs 40 lakh and only those businesses with turnover of above Rs 40 lakh are under the tax net.

Source: Times-Of-India.

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GST fraud unearthed; arrest made in fake invoices scam worth over Rs 100 crore

GST fraud unearthed; arrest made in fake invoices scam worth over Rs 100 crore

The Directorate General of GST Intelligence (DGGI) has arrested two persons for being involved in fake invoices racket. The taxable value of these invoices were Rs 931 crore and they fraudulently availed the Input Tax Credit (ITC) amounting to Rs 127 crore through a complex web chain of various entities, said a statement by the Ministry of Finance. The two persons – Gulshan Dhingra, resident of Ramesh Nagar, New Delhi and Sanjay Dhingra, resident of Punjabi Bagh, New Delhi — were arrested by the Gurugram Zonal Unit of the DGGI. The accused are said to have formed separate entities in the name of their employees or dummy persons and generated fake invoices without actual movement of goods, namely ferrous/ non-ferrous scrap, ingots, nickel cathode, etc., thereby causing loss to exchequer by evasion of GST.

The statement also says that Gulshan Dhingra and Sanjay Dhingra availed this fraudulent ITC to offset their GST liability and also passed on such fraudulent ITC to further buyers who availed the same to discharge their GST liability against their outward supplies with a motive to defraud the Government exchequer. During the course of the investigation, their employees and dummy persons did not admit to knowing about the movement of the above mentioned goods.

The above crime has been classified as cognizable and non-bailable offences and after producing the accused before Judicial Magistrate in Gurugram Court on 07 October 2019, they have been sent them to judicial custody till 19 October 2019 for further investigation.

The incident has come to light only three days after a racket of generating fake GST invoices for fraudulently claiming the input tax credit on non-supplied goods was busted in Pune, where two persons were taken into custody. The alleged fraud was believed to be around Rs 700 crore. The two firms – M/s Reliable Multi trading and M/s Himalaya Tradelinks- had obtained GST registrations and together issued fake GST invoices of approximately Rs 700 crore with the GST component of Rs 54 crore to facilitate bogus input tax credit.

Source: Financial-Express

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Govt set to crack down on GST defaulters

Govt set to crack down on GST defaulters

A government panel will discuss on Tuesday ways to intensify enforcement activities against goods and services tax (GST) defaulters who have been identified by a fraud detection software, amid GST collections dropping to a 19-month low in September.

This marks a shift from handholding businesses in the transition phase of the new indirect tax regime to cracking down on tax evaders. Revenue secretary Ajay Bhushan Pandey will be present at the first meeting of the 12-member panel comprising central and state government officials set up last week to boost revenue collection, a person privy to the development said on condition of anonymity.

The panel will discuss ways to check abuse of the lenient approach taken by the government so far.

Data analytics will be used extensively and action will be taken against entities that have been flagged by the software system, said the person, adding that the IT system enables surveillance in a non-intrusive manner to identify offenders. The panel will give its report in 15 days to the GST Council.

“Fake claims of input tax credit and tax evasion at the retail level are two major areas of revenue leakage that are likely to be in regulatory focus. Some steps have been taken recently to ensure that tax credit is not taken without actually paying the taxes,” said Abhishek Jain, tax partner at EY India.

“The new return filing format that will come into force from April 2020 and e-invoicing from January 2020 are steps in the direction of plugging revenue leakage.”

Indirect tax authorities have started comparing sales reported by businesses and traders under GST with what they have reported to income-tax authorities for mismatches. Steps will be taken to check wrongful claims of tax credit, one of the most common ways of tax fraud.

“The panel will have access to a significant amount of comparable data for the past two years on taxpayer compliance and revenues—these should be used to work out ways to enhance revenues without any disturbance to compliant businesses,” said M.S. Mani, partner at Deloitte India.

The GST Council had last week curtailed the provisional tax credit that buyers of goods and services can claim to 20% of the taxes they have paid if the seller does not upload the invoice details and pay the tax collected from the buyer to the government.

The Union government is trying to check tax evasion and make GST more revenue-efficient as it is obligated by law to compensate states for their revenue shortfall irrespective of it meeting revenue targets. The panel will explore ways of raising revenue and widening the tax base without any increase in tax rates. In September, the Centre and states collected ₹91,916 crore in GST, a decline of 2.67% from what was collected in the same month a year ago. This was the first time monthly collections fell below year-ago levels this year.

Source: Live-mint

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Input tax credit under GST regime restricted to 20% of claims: CBIC

Input tax credit under GST regime restricted to 20% of claims: CBIC

Businesses will have to pursue their vendors on a monthly basis to upload their invoices to enable them to take the entire input tax credit (ITC) after the indirect tax board came out with a notification to restrict these credits to 20 per cent of the claims.

Concerned at dwindling revenues, the Central Board of Indirect Taxes and Customs (CBIC) put this condition on the claims where vendors have not uploaded their invoices within a month.

Experts said it would block cash flow of businesses and increase their compliance burden.

Though theoretically, businesses have to reconcile their ITC within 60 days, this clause was never implemented since the auto-populated form of purchases by suppliers — GSTR2 — has been suspended.

As such, businesses are supposed to reconcile their input tax credit at the time of annual returns. However, the deadline of annual returns even for the first year of the GST rollout — 2017-18 — have been deferred a number of times. This means that there was no restriction on the businesses to claim their input tax credit, provided they have the invoices to support their claims.

Now, businesses have to follow-up with non-compliant vendors on a monthly basis to upload their invoices in the form GSTR 2A.
Harpreet Singh, partner at KPMG, said, “Restriction of mismatched ITC by 20 per cent would necessitate undertaking monthly reconciliation of purchase, credit register with GSTR 2A, and hence may increase the monthly compliance burden.”

He said the move would also restrict credit, which was rightly availed of but did not get reflected in the GSTR 2A form, on account of default by vendors may result in adverse cash flow impact.

The GST collections fell to a 19-month low of Rs 91,916 crore in September, pointing towards deepening economic slowdown. It was the second straight month of revenue collections falling below the Rs 1-trillion mark, compounding the government’s revenue woes amid steep collection target for the fiscal. The target is over Rs 1.1 trillion a month.

In the first six months till September, GST grew by 4.9 per cent year-on-year.

The government in August had extended the date for filing annual GST returns for 2017-18 and 20018-19 by three months to November 30, as taxpayers were facing technical problems in furnishing returns. In fact, the government postponed the deadline a number of times. The original deadline of filing these returns were December 31, 2018.

GSTR-9 is an annual return to be filed yearly by taxpayers registered under the GST. It consists of details regarding the outward and inward supplies made or received under different tax heads.

The form GSTR-9C is filed by those with an annual turnover of above Rs 2 crore. It is a statement of reconciliation between GSTR-9 and the audited annual financial statement, while GSTR-9A is the annual return to be filed those who have opted for the Composition Scheme under GST.

The deadlines were extended after the businesses and experts complained about the complex nature of filing these returns and reconciliation of audited accounts with these returns. For instance, tax and legal consultants had said hundreds of amendments, notifications and circulars have made the GST Act very complex.

Officials of the Tax Bar Association, a body of over 400 members of chartered accountants, company secretaries, cost advocates and tax consultants, had said that the government has made the entire GST procedure and filing of returns very “confusing with hundreds of changes in the rules and taxes”.

Source: Business-Standard.

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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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Participation Fees for Conference Organized by Educational Institutions leviable to GST: AAR

Participation Fees for Conference Organized by Educational Institutions leviable to GST: AAR

The Madhya Pradesh Authority of Advance Ruling in an application filed by M/s Emrald Heights international School held that GST shall be leviable on consideration received by the school for participation in a conference organized.

The issue before the Authority is whether the consideration received by the school from the participant school(s) for the participation of their students and staff in the conference would be exempted under Entry No. 66/1/80 of the Notification No. 12/2017-Central Tax (Rate). The second issue is concerning the applicable tax rate if the supply is not exempted.

The bench constituting of Hon’ble Members Shri Rajiv Agrawal and Shri Manoj Kumar Choubey held that the activities of holding Educational conference/ gathering of students, faculty and staff of other Schools are not exempt under relevant clauses of Entry 66/1/8 of the above-mentioned notification for the simple reason that the education conference does not fall under any of the categories so listed. Hence, GST shall be chargeable on the consideration received by the school from the participant school(s) for the participation of their students and staff in the impugned conference.

The Hon’ble Bench further stated that various services provided for organizing an educational conference/gathering of students and staff of other Schools, shall be liable to tax at the rate applicable to the respective services. For example, the catering services shall be liable to tax @ 5% without eligibility for Input Tax Credit.

Source: Taxscan

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CBIC issues Clarifications to allow Re-Filing of Refund Claim where NIL Refund Claim was filed inadvertently under GST

CBIC issues Clarifications to allow Re-Filing of Refund Claim where NIL Refund Claim was filed inadvertently under GST

The Central Board of Indirect Taxes ( CBIC ) has issued Clarifications to allow Re-Filing of Refund Claim where NIL Refund Claim was filed inadvertently under Goods and Services Tax ( GST ).

In a Circular issued by CBIC said that, “Whenever a registered person proceeds to claim a refund in FORM GST RFD-01A/RFD-01 under a category for a particular period on the common portal, the system pops up a message box asking whether he wants to apply for ‘NIL’ refund for the selected period. This is to ensure that all refund applications under a particular category are filed chronologically. However, certain registered persons may have inadvertently opted for filing of ‘NIL’ refund. Once a ‘NIL’ refund claim has been filed for a period under a particular category, the common portal does not allow the registered person to re-file the refund claim for that period under the said category”.

The CBIC also clarified that a registered person who has filed a NIL refund claim in FORM GST RFD-01A/RFD-01 for a given period under a particular category, may again apply for refund for the said period under the same category only if he satisfies the following two conditions:

  • The registered person must have filed a NIL refund claim in FORM GST RFD-01A/RFD-01 for a certain period under a particular category; and
  • No refund claims in FORM GST RFD-01A/RFD-01 must have been filed by the registered person under the same category for any subsequent period.
    It may be noted that condition (b) shall apply only for refund claims falling under the following categories:

1.Refund of unutilized input tax credit (ITC) on account of exports without payment of tax;

2.Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax;

  • Refund of unutilized ITC on account of accumulation due to inverted tax structure;

In all other cases, registered persons shall be allowed to re-apply even if the condition (b) is not satisfied

While concluding the Circular, the CBIC also said that, “Registered persons satisfying the above conditions may file the refund claim under “Any Other” category instead of the category under which the NIL refund claim has already been filed. However, the refund claim should pertain to the same period for which the NIL application was filed. The application under the “Any Other” category shall also be accompanied by all the supporting documents which would be required to be otherwise submitted with the refund claim”.

“On receipt of the claim, the proper officer shall calculate the admissible refund amount as per the applicable rules and in the manner detailed in para 3 of Circular, No.59/33/2018-GST dated 04.09.2018, wherever applicable. Further, upon scrutiny of the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as the refund, he shall request the taxpayer in writing, if required, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05”, the department also added.

Click Here for Circular

Source: TaxScan.

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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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The GST’s initial premise should be revisited

The GST’s initial premise should be revisited

When the GST was launched in July 1, 2017 with the promise to simplify our incredibly complex indirect tax system and unify the country through a single indirect tax, the nation supported the new disruptive tax regime the way it had supported demonetisation, setting aside the creeping doubts that were upsetting many businesses. The GST system was built on the simple premise of automatic matching of the invoices submitted by suppliers and buyers, enabling automatic processing of input tax credits (ITC) and refunds by the Infosys-built GST Network (GSTN) portal, the IT architecture that is the backbone of implementation. The GSTN was supposed to minimise frauds, curtail evasion, end harassment of taxpayers and corruption, and bring in transparency, leading to an increase in revenues, which would enable the government to lower rates and converge slabs, finally culminating in a single rate, one nation-one tax system, making it truly a “good and simple tax”.

Two years down the line, most of the promises, however, still remain only on paper. The GSTN has turned out to be miserably inadequate to fulfil its role due to the inefficiencies of the software. The automatic matching of invoices was junked only after a few months, when the returns for outward supplies (GSTR-1) and inward supplies (GSTR-2) could not be matched by the GSTN, and hence the refund of the ITC could not be processed, blocking scarce capital for millions of taxpayers. For easier transition to the new regime, a simple return — the GSTR 3B — was introduced only as a temporary measure while the GSTR-2 was suspended, so that the ITC refund could be made by using only the GSTR-1 and GSTR-3B.

The 3B return, however, has no validation whatsoever in the system, making it open to frauds and evasion that the automatic and complete matching between the GSTR-1 and GSTR-2 was supposed to have eliminated. In fact, the CAG, citing numerous instances of false ITC claims in his Report No, 11 of 2019 has said as much, emphasising that the rollback of invoice matching without any safeguards had rendered it prone to frauds. The self-correcting mechanism of complete invoice matching is a critical requirement of the system, in the absence of which the ITC is claimed by the taxpayer purely on a self-assessment basis without any system validation.

Curbing tax evasion

There have even been efforts to rationalise the incompetence of the system and institutionalise its inefficiencies. A former member of the Central Board of Indirect Taxes & Customs (CBIC) has argued that no country in the world has a complete invoice-matching system which is impractical. It is further asserted that major taxpayers such as public enterprises and private players like the Tata group, the Birla group, Mahindra & Mahindra, Hero, Infosys etc, who together pay 80 per cent of the GST, are not tax-evaders; hence, instead of wasting system resources on universal invoice matching, an intensive audit of their accounts equally serves the purpose.

Besides, it is claimed that in sectors like automobiles, steel or services, there is no scope for evasion since components and final products, or contracts and purchases, match perfectly. It is only in the sectors that sell products piecemeal, like soaps or toothpastes, that universal matching should be made mandatory; for all others, an intelligence-based checking, along with comprehensive auditing, should be far more effective than universal invoice matching. The alleged large-scale falsification of invoices has been dismissed as “absurdly illogical” and “only good English”.

Fake invoices

The arguments are as vicious as they are absurd. If universal invoice matching was impractical in the first place, why was the system designed upon this very premise? The argument that big players are all virtuous and small players are all evaders is dangerous to say the least — it is an inevitable step towards lobbying and patronage distribution, unfettered discretion, harassment and extortion — in fact, it is an insane prescription to institutionalise corruption and perpetuate very aberrations the GST regime was designed to thwart. There is also complete ignorance of the huge frauds and evasion resulting from fake invoices, which tax officials are struggling hard to curb.

In fact, the Minister of State for Finance has himself stated in Parliament that frauds amounting to ₹45,683 crore were unearthed since the launch of the GST. The CBIC Member (Investigation) had admitted that between April 2018 and February 2019, evasion of ₹20,000 crore was detected, of which ₹10,000 crore were recovered. A thriving ecosystem of fake companies using fake invoices has grown luxuriantly for claiming ITC; no sooner are the refunds claimed that these companies disappear into the thin air.

Only last week, ₹470 crore of evasion and fake invoices of ₹3,500 crore were uncovered by the tax authorities. There is something much more serious than “good English” at stake here, and the focus should be on addressing these serious structural deficiencies.

Source: The-Hindu-Business-Line

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GST: Restrictions on ITC claim if you do not file GSTR 1 on time

GST: Restrictions on ITC claim if you do not file GSTR 1 on time

The GST Council, in its 37th meeting held at Goa, has come up with various proposals to simplify and strengthen the tax filing system and one such decision is aimed at ensuring taxpayers file their GSTR 1 in time.

“In order to nudge taxpayers to timely file their statement of outward supplies, imposition of restrictions on availment of input tax credit by the recipients in cases where details of outward supplies are not furnished by the suppliers in the statement under section 37 of the CGST Act, 2017,” a statement said. This means when taxpayers do not file a GSTR 1, they would not be able to claim input tax credit.

According to Archit Gupta, Founder and CEO – ClearTax, there will be restrictions on ITC claim for those who fail to submit GSTR-1. “ITC will only be allowed to be claimed where outward supplies have been reported by your suppliers. This is an important step to ensure validity of ITC claim in the system and sets the stage for the new simplified return filing mechanism. Those whose suppliers do not submit GSTR-1 will be restricted from availing ITC credit,” says Gupta.

Incidentally the Government on Friday said, the New return system that was to be introduced in October 2019, would now be introduced from April, 2020. This is in order to give ample opportunity to taxpayers as well as the system to adapt and accordingly specifying the due date for furnishing of return in FORM GSTR-3B and details of outward supplies in FORM GSTR-1 for the period October, 2019 – March, 2020.

“With the Government now showing full intention to plug ITC leakages, businesses cannot do without a robust mechanism that will keep suppliers in check and make sure they are complying in a timely manner,” says Gupta.

Other announcements:

The GST Council provided much-needed relief to MSMEs by allowing them waiver to file GSTR 9 and GSTR-9A. Announcing the relaxation in filing of annual returns for MSMEs for FY 2017-18 and FY 2018-19, a statement said waiver of the requirement of filing FORM GSTR-9A for Composition Taxpayers for the said tax periods will be provided.

Additionally, filing of FORM GSTR-9 for those taxpayers who (are required to file the said return but) have aggregate turnover up to Rs. 2 crore made optional for the said tax periods.

Other important decision taken at the Council meeting include setting a Committee of Officers to examine the simplification of Forms for Annual Return and reconciliation statement and extension of last date for filing of appeals against orders of Appellate Authority before the GST Appellate Tribunal as the Appellate Tribunals are yet not functional.

Source: Economic-Times.

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