Dear Reader,
Kindly find below updates of the decisions taken on the 27th meeting of the GST Council.
The meeting has considered the below main subjects for discussion:
- New Return Design system
- Incentives for Digital Payments
- Sugar and Ethanol
- GSTN to be a fully owned Govt. company
The detailed analysis of each subject is as below:
A) New Return Design system: Following changes are proposed in the return system:
1. One Monthly Return:
Decision: All taxpayers (excluding Composition and dealers with NIL transaction) shall file one monthly return. Return filing dates will be staggered based on the turnover of the taxpayer to manage the traffic loan on the GST server.
Composition and dealers having NIL transactions shall have facility to file quarterly return.
Analysis: It has been proposed that there will be only one monthly return. However, it is interesting to note that the Govt. focus is still on the matching concept (as evidenced from the below points) which is also very crucial for checking input tax credit then how a single return will do the same. At least there must be two returns or may be called as one return and one statement.
Remember that at the time of approving the return forms of GSTR 1, GSTR 2 and GSTR 3, it has been said that there is only one return i.e. GSTR 3 and rest two i.e. GSTR 1 and GSTR 2 are only statements.
So, it will be very interesting to see that how a single monthly return will also consider the matching concept or it would be like the mismatch will be automatically increase the output liability for the next month. Interesting!!!!
2. Unidirectional Flow of invoice:
Decision: There shall be unidirectional flow of invoices uploaded by the seller on anytime basis during the month which would be the valid document to avail input tax credit by the buyer. Buyer would also be able to continuously see the uploaded invoices during the month. There shall not be any need to upload the purchase invoices also. Invoices for B2B transaction shall need to use HSN at four digit level or more to achieve uniformity in the reporting system.
Analysis: It would mean that the supplier can upload invoices on real time basis. Recipient would also able to see the same on real time basis.
Recipient is not required to upload inward supply invoices. So, it means there is permanent suspension of GSTR 2.
Also, Govt. is insisting on using of 4 digit HSN code on B2B transaction, so what about the threshold limit declared for using HSN of two digits.
It is very much interesting to note that in the Press Release, still the words like ‘Seller’, ‘Buyer’, ‘Purchase’ etc. have been used. However, there are no such terminologies in the GST regime. It would be ‘Supplier’, ‘Recipient’, ‘Inward Supply’, ‘Outward Supply’ in the GST regime.
It is also not like that to have easy understating of reader, they have used these phrases. If such concept is there then we might have a different GST law.
3. Simple Return design and easy IT interface:
Decision: The B2B dealers will have to fill invoice-wise details of the outward supply made by them, based on which the system will automatically calculate his tax liability. The input tax credit will be calculated automatically by the system based on invoices uploaded by his sellers. Taxpayer shall be also given user friendly IT interface and offline IT tool to upload the invoices
Analysis: It has been proposed to give user friendly IT interface to the taxpayers. So, finally after a period of almost one year, are they admitting the fact that the present system is not user friendly!!!!
4. No Automatic Reversal of credit:
Decision: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
Analysis: At present, the law states that if seller (Supplier) has failed to pay tax then the buyer (Recipient) will not be able to get the credit.
The decision not to have an automatic reversal of credit is very major partial relief to the taxpayers.
The reason why we are using the term as the ‘partial relief’ is that in extraordinary circumstance like missing dealer, closure of business by supplier or supplier not having adequate assets etc, the tax will be recovered from the recipient of the credit.
Now when there is extraordinary situation for GST Department, a body which is available with the full information of all the responsible person of the business, address of the business, residence addresses of promoters etc. and still not able to trace him or recover from him then how a recipient would be able to recover the same from supplier.
Till date, no such situation has happened that credit is denied because the supplier has not paid the tax because of the fact that the assessment has not been started nor matching concept is there in the present system. So, whenever such situation will arise, the recipient may surely go the court of law and will plead that how recipient would be set in default when he is in possession of valid invoice, paid the tax to the supplier as recorded in the books with evidences.
5. Due process for recovery and reversal:
Decision: Recovery of tax or reversal of input tax credit shall be through a due process of issuing notice and order. The process would be online and automated to reduce the human interface.
Analysis: As the recovery of tax or reversal of input tax credit is online so it’s great in a sense that there will be less human interface.
6. Supplier side control
Decision: Unloading of invoices by the seller to pass input tax credit who has defaulted in payment of tax above a threshold amount shall be blocked to control misuse of input tax credit facility. Similar safeguards would be built with regard to newly registered dealers also. Analytical tools would be used to identify such transactions at the earliest and prevent loss of revenue.
Analysis: It will be interesting to see such system and the time when it will be developed and implemented.
7. Transition:
Decision: There will be a three stage transition to the new system.
Stage I shall be the present system of filing of return GSTR 3B and GSTR 1. GSTR 2 and GSTR 3 shall continue to remain suspended. Stage I will continue for a period not exceeding 6 months by which time new return software would be ready.
In stage 2, the new return will have facility for invoice-wise data upload and also facility for claiming input tax credit on self-declaration basis, as in case of GSTR 3B now.
During this stage 2, the dealer will be constantly fed with information about gap between credit available to them as per invoices uploaded by their sellers and the provisional credit being claimed by them.
After 6 months of this phase 2, the facility of provisional credit will get withdrawn and input tax credit will only be limited to the invoices uploaded by the sellers from whom the dealer has purchased goods.
Analysis: For better understanding, the same is presented in simple tabular manner:
| Sr. No. | Stage | Time Line | Analysis |
| 1. | Stage I: | Period not exceeding six months, so from April, 6 months may be considered as the end of September 2018 | Present system is to be continued. |
| 2. | Stage II: | For a period of 6 months after completing Stage I
So, probably from October 2018 to March, 2019 |
– New Return system.
– Real time upload of invoices – Provisional credit allowed even if supplier has not uploaded invoices but it will reflect the mismatch between credit claimed and credit in respect of invoices uploaded. |
| 3. | Stage II: | Probably From April, 2019 | – Return system same as Stage II
– Credit allowed only if invoices are being uploaded by supplier – It means no provisional credit. – April, 2019 month will have an election fever. – So this stage might be postponed to July 1, 2019. |
B) Incentives for Digital Payments
Decision: To move towards a less cash economy (Even though presently the printing of Rs. 500 notes has been increased to three times), the Council has discussed in detail the proposal of a concession of 2% in GST rate [where the GST rate is 3% or more, 1% each from applicable CGST and SGST rates] on B2C supplies, for which payment is made through cheque or digital mode, subject to a ceiling of Rs. 100 per transaction, so as to incentivise promotion of digital payment.
Analysis: Maximum discount is Rs. 100 only and that is available only for B2C supplies.
So, just for Rs. 100/-, Govt. is intending the URD not to make payment in cash to RD.
The accounting and follow up compliance of the supplier will increase due to this.
So, let’s wait for the analysis done by the Group of Ministers.
C) Sugar and Ethanol
Keeping in view the record production of sugar in the current sugar season, and consequent depressed sugar prices and build-up of sugarcane arrears, the Council discussed the issue of imposition of sugar cess and reduction in GST rate on ethanol in great detail.
Group of Ministers will decide the matter in detail.
D) GSTN to be a fully owned Govt. company
As of now the Central Government owns 24.5 per cent stake in GST Network or GSTN and a 24.5 per cent stake is held by state governments collectively. Totalling to 49% held by Government and remaining 51 per cent with five private financial institutions — HDFC Ltd, HDFC Bank Ltd, ICICI Bank Ltd, NSE Strategic Investment Co and LIC Housing Finance Ltd.
It is said that it is not in the national interest that the owner of company will be the private players who would have access to all the data of the taxpayers.
Dr. Subramaniam Swamy, Member of Rajya Sabha from BJP has raised the same issue repeatedly that the Private Players should not own the GSTN.
Even Advocate Kapil Sibbal, Member of Rajya Sabha from Congress has also raised the same issue. However, he forget the GSTN was constituted when Congress was in power and it was then Finance Minister Mr. P Chidambaram who has approved the Private Players to own the GSTN.
The Central and State will collectively hold the ownership.