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How GST interest notices causing hardship

Introduction

GST interest notices are causing hardship on taxpayers. Bulk notices are issued by the department post Megha technologies Judgement.

 

GST interest notices

GST interest notices

GST interest noticesProvision related to eligibility of input tax credit in CGST Act:

Section 16 (2) of CGST Act provides for the basic conditions to avail ITC. The provisions of this section laid down four basic conditions to be fulfilled to avail input tax credit in GST. One of these conditions is that the Input tax credit will be available only when the taxpayer files the return.

The relevant part of section is reproduced here:

“(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(c) subject to the provisions of section 41or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39”

Scenarios causing the hardship on taxpayer:

Filing of return on GST portal was not smooth in initial months. Even in recent months dates are extended to handle the crowd of taxpayers. There were many reasons for delay in filing of returns. Many of these reasons were outside the control of taxpayer. Many taxpayers failed in filing of return due to following causes:

  • Non-awareness on how to file the return on portal because the return, which was proposed, and the one, which was live, was different from each other.
  • In initial phase the adjustment of tax with ITC was shown after click on submit return and once you click on submit the data got freeze. Many taxpayers filled the wrong figures and then data got freeze due to click on submit. Then payment of huge liability was compulsory to file that return. Many taxpayers were not having that much of money. E.g. The taxpayer entered Rs. 100,000 as Rs. 1000,000. Now they had not other option but to pay this amount.
  • Taxpayers were not having proper knowledge of various fields in GST return. The return, which was floated, was not made live by the portal.
  • Initially there were any technical glitches on the portal. It was unable to take a load of taxpayers and collapsed many times.
  • Which added worst into it was the due date of filing of first return was there and liability for tax payment was there but no mechanism to claim ITC was on place. This made it impossible for many taxpayers to fie their return. E.g. ABX ltd, A manufacturing company had a transitional input tax credit of Rs. 5 Crores. On their first return their liability was to pay 7 crore of tax. Now they cant pay it because their transitional credit was not available. In our country there is no proper funding mechanism to cater the short-term financial needs. They had not other option but to wait for tran 1. This made them holds their return. But they were not aware of hat it will make them liable of interest on full amount of Rs. 7 crores.

In light of all of the above difficulties it is very detrimental for the business to bear this burden as our entire manufacturing sector suffer from cash crunch.

Impact on businesses of GST interest notices

Recently a ruling of Telangana High court clarified that as per the provisions of GST interest will be chargeable on full amount. In simple language, if you have a liability of 5 Crores and have input tax credit of Rs. 4.5 Crores but you skipped your return on due date. You will be liable to pay interest on full amount of Rs. 5 Crore. The rate of interest under GST is 18%. This kind of provisions is going to have fatal impact. After this ruling many notices are issued to taxpayers. In some of the cases their bank accounts are also freeze. This resulted in a condition of shut down of business, as the poor taxpayers had no option but to accept demand if they want to continue their business.

 

Acknowledgement by GST Council for amendment in GST interest provisions 

This hardship was also communicated to GST council. It is important to make it clear that as per the 101st constitution amendment Act GST council is the prime body to recommend the various provisions in GST. CBIC is then supposed to acknowledge them and make proper provisions to ensure their implementation. But in this even after the in principal approval of this issue in 31st GST council meeting, it was not taken up by CBIC. This is causing a state of confusion and despair in taxpayers. The issue is when GST council and CBIC both understand this issue, why it is being dragged. Above all issuing bulk GST interest notices is making it even worse.

Desired resolution

A quick resolution for this issue is required from both CBIC and GST council to take cognizance of this issue as soon as possible. Businesses are facing a lot of hardship and if bulk notices and bank account freezes will be there, it will hamper many industries having working capital crunch. Issues were from the side of GSTN portal also. GST was just introduced in India. This will be against the principal of natural justice to force the taxpayers to pay interest on full amount. It also worth mention that it was not deliberate, neither the taxpayer was trying to evade tax. Only issue was that they were suffering some technical glitches and cash crunch. It is requested from the government and CBIC to take following steps immediately:

  • Official instructions to all officers to unfreeze bank accounts seized due to interest demand
  • Issue an instruction to keep all interest related demands on hold and stop issuance of further GST interest notices.
  • A proposal from CBIC to GST council to find a proper solution to this issue.
  • A proper resolution after discussion with major industry bodies and consultants.
  • Amendment in CGST Act wherever required.
  • At least keep these notices on hold till these steps are taken.

These GST interest notices are making the survival of some industries harder. It is requested that these notices should be reconsidered along with the provisions of CGST Act.

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Profile photo of CA shafaly girdharwal CA shafaly girdharwal

CA

New Delhi, India

CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.

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Opinions & information presented by ConsultEase Members are their own.