21 states accept Rs 97,000 cr borrowing proposal to meet GST shortfall

Source: Financial Express, Sept 20, 2020

As many as 21 states, mostly ruled by BJP or parties which have supported it on various issues, have opted to borrow Rs 97,000 crore to meet the GST revenue shortfall in the current fiscal, sources said on Sunday.

The states and union territories (UTs) which have intimated their decision to the Centre are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.

Finance Ministry sources said Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal to decide their options.

The states which do not submit their borrowing options before the due GST Council meet on October 5, 2020 will have to wait till June 2022 to get their compensation dues, subject to the condition that the GST Council extends the cess collection period beyond 2022, the sources said.

GST Council with full presence of states and UTs needs, as per the GST Act, only 20 states to pass any resolution, in case voting is required on any issue, the sources added. In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall.

Of this, as per Centre’s calculation, shortfall of about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is due to the impact of COVID-19 on states’ revenues. The Centre late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from market, and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

The sources said few more states are also to intimate their borrowing option in a day or two. They added that Manipur, which had earlier opted to borrow Rs 2.35 lakh crore, later changed its preference to the Rs 97,000 crore option.

The non-BJP ruled states are at loggerheads with the Centre over the issue of funding shortfall. The chief ministers of six non-BJP ruled states — West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu — have written to Centre opposing the options which require states to borrow to meet the shortfall.

While these states want Centre to borrow to meet the shortfall, Centre has argued that the revenue accruing from GST compensation cess goes to the states and the Centre cannot borrow on the security of the tax it does not own.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss.

The Attorney General for India K K Venugopal had given his legal view on the compensation cess issue where he has opined that there is no obligation on the Centre under the GST laws to compensate for loss of revenue. He had opined that the GST Council has to find ways to meet any revenue shortfall arising out of GST implementation.

The payment of GST compensation to states became an issue after revenue from imposition of cess started dwindling since August 2019. The Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19 to pay the states.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation.

However, the amount of cess collected during 2019-20 was Rs 95,444 crore.The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18. During April-July of current fiscal, the total compensation due to states stands at over Rs 1.51 lakh crore.

Rift over GST compensation sets stage for showdown between Centre, states

Source: Business Standard, Sept 10, 2020

India’s government has failed to pay states the compensation it promised for supporting a nationwide tax reform, setting the stage for a showdown between Prime Minister Narendra Modi’s administration and the provinces.

The dispute is over 3 trillion rupees ($41 billion) that Modi’s government owes states this year, because the account from which the funds are disbursed is short by about 2.35 trillion rupees. For now, the federal administration is encouraging states to borrow the shortfall amount, promising to resume payments as tax revenue improves when the economy fully reopens from the coronavirus-induced lockdowns.

Some states ruled by opposition parties have rejected this offer and have threatened action including urging the courts to intervene.

“The law says that if there’s a dispute in the council a dispute resolution mechanism will have to be put in place,” said Manpreet Singh Badal, finance minister of the northern Indian state of Punjab and a member of the Goods and Services Tax Council that administers the indirect tax rates. “If need be, we would go to Supreme Court. But we will exhaust this option of approaching the Parliament first.”

The dispute comes at a critical time for India’s economy, which posted the biggest contraction among major economies last quarter, and can crimp public expenditure — further delaying a recovery. India’s 29 states rely on fund transfers from the federal government to pay salaries, subsidies, and infrastructure creation after they gave up the bulk of their tax-making powers to allow the introduction of GST in 2017.

Badal said Punjab has already deferred capital expenditure because of the delays — which was described as “act of sovereign default” by Hemant Soren, the chief minister of Jharkhand state. Thomas Isaac, the finance minister of the southern Indian state of Kerala, said the federal government should borrow to compensate the states.

Embed this tweet (FMs of Punjab, Delhi, W Bengal, Chhattisgarh,Telengana and Kerala agreed to reject the Centre’s options on GST compensation .Our option: Central Govt to borrow entire compensation due regardless of acts of gods, humans or nature , to be paid back by extending the period of Cess: Thomas Isaac, August 31)

The GST law requires the federal government to compensate states for five years through March 2022 for any revenue loss on account of the new tax.

India’s constitution requires states to deliver health care. In the middle of a coronavirus epidemic that this week became the second largest in the world with more than 4.3 million infections, the states need all the funds they can get to ramp up the country’s rundown health system.

While federal Finance Minister Nirmala Sitharaman last month said that tax collections were strained due to “an act of god,” one of her secretaries later said the administration isn’t relinquishing its responsibility because of this “act of force majeure.” “We are due to pay the whole amount, but the attorney general has also confirmed that we are only due to pay when the cess is available,” Expenditure Secretary T. V. Somanathan said in an interview to BloombergQuint.

Purchases, imports and SEZ supplies to be auto-generated under GST system

Source: Business Standard, Aug 30, 2020

New Delhi: GST taxpayers can now see their imports and inward supplies from special economic zones as these would now be auto populated. Also, various kinds of purchases would be auto populated in the new form– GSTR 2B.

Currently, taxpayers file GSTR1, which is a seller form and GSTR3B. However, purchases are not auto populated from GSTR1.

“The present data upload has been done on a trial basis to give a feel of the functionality and to get feedback from the taxpayers on the same,” said Abhishek Jain, partner at EY.

He said the system was currently displaying import data up to August 6.

“The system currently does not contain import information for bill of entries filed at non-computerised ports and imports made through courier services/post offices. This will be done shortly,” Jain said. While taxpayers can edit these forms at present, authorities will keep a check on any irregularities on that front, Jain cautioned.

Now, businesses can get GST registration within 3 days! Here’s how

Source: Financial Express, Aug 23, 2020

Businesses which will provide Aadhaar number while applying for registration under the Goods and Services Tax will get the approval in three working days. The Central Board of Indirect Taxes and Customs (CBIC) last week notified Aadhaar authentication for GST registration with effect from August 21, 2020.

The notification also provides that in case businesses do not provide Aadhaar number, then GST registration would be granted only after physical verification of the place of business. Finance Ministry sources said the GST Council in its 39th meeting held on March 14, 2020, had approved operationalisation of Aadhaar authentication for new taxpayers.

However, its implementation was postponed due to the lockdown on account of COVID-19 pandemic. For a person opting for Aadhaar authentication for new GST registration would get it within just three working days, if no notice is issued and would not need to wait for physical verification.

While applicants not opting for Aadhaar authentication for GST registration would be granted it only after physical verification of the place of business or documentary verification which may take up to 21 working days or more if notice is issued, sources said.

Sources further said that keeping the COVID-19 pandemic in view, it has been provided that the officer may, if the circumstances warrant, opt for asking for additional documents in lieu of the pre-registration for physical verification of the premises. Aadhaar authentication is expected to facilitate genuine and honest taxpayers while at the same time keeping fake and fraudulent entities away from GST, sources added.

E-way bill generation showing green shoots of economic recovery: GSTN

Source: Business Standard, Jul 05, 2020

New Delhi: E-way bill generation has signalled that the process of economic recovery has begun, GSTN said on Sunday. The IT infrastructure provider for GST said the data substantiates the indications given by the surge in GST collections in July.

In a statement, the Network said June 30, the last day of Unlock 1.0, ended with the generation of 1.83 million E-way bills worth over Rs 54,500 crore, which is the highest since the lockdown was enforced.

Bill generation, which used to be around two million a day normally, had drastically come down after the lockdown was enforced.

March 2020 recorded the steepest fall, plunging to a low of approximately 50,000 on the 25th of the month, the lowest on the first day of the nationwide lockdown, GSTN said.

Month-on-month, April had a sharp dip as the numbers reached 8.45 million bills worth Rs 3.90 trillion totally. As restrictions were eased, the number grew rapidly between May and June.

“The data substantiates that the Indian economy is gathering pace with the movement of goods rebounding close to pre-lockdown levels and goods and services tax (GST) collections rising sharply,” GSTN said.

GST collections stood at Rs 90,917 crore in June, recovering from Rs 62,009 crore the previous month and Rs 32,294 crore in April. However, a part of the reason for the surge in collections is that businesses filed the previous months dues in June due to relaxation in the filing schedule given by the government.

The upwards trend means Unlock 2.0 is going to have more reasons to cheer, the Network said.

“Based on the current trend, it is expected that the cargo movement will further accelerate in the Unlock 2.0, which along with other indicators is a healthy sign of an early economic recovery and stability,” it said. E-way bill is required to be generated by a registered GST taxpayer for the movement of goods if the value of the consignment exceeds Rs 50,000 for inter-state movement. For intra-state movement, limits vary from state to state.

GST mop-up bounces back in June; crosses ₹90,000 cr

Source: The Hindu Business Line, Jul 01, 2020

New Delhi: The Finance Ministry on Wednesday released the GST collection data for the first three months of the current fiscal. The June collection exceeded ₹90,000 crore, but it was 9 per cent less than the mop-up in the same month last year. This is the first GST data after the pandemic crippled the economy.

The collection was ₹90,917 crore in June, ₹62,009 crore in May and ₹32,294 crore in April. “The GST (Goods and Services Tax) collection for the first quarter of the year is 41 per cent less than the revenue collected during the same quarter last year. However, a large number of taxpayers still have time to file their return for May, ” the statement said.

The collection in June this year is 91 per cent of the GST revenue in the same month last year. The revenue collected from import of goods was 71 per cent of the revenue from the same source in June last year. Revenue from domestic transactions in June 2020 (including import of services) is 97 per cent of the revenue collected under this source during the same month last year.

In June, returns of February 2019, March 2019, and April 2020 have been filed in addition to some returns of May 2020 as the government has allowed a relaxed time schedule for filing of GST returns. Some returns of May, which would have otherwise got filed in June, will get filed during the first few days of July . Commenting on the numbers, Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co, said the increase in GST collection in June is a positive sign and it is an indication that the economy is slowly recovering.

However, it is important to note that many companies paid GST for March, April and May also, in June due to the partial moratorium extended by the government.

“It will be interesting to wait and see how much GST is collected for supplies made in June after unlock 1.0, which will be the true indicator of the economic situation post-lockdown,” he said.

“One fact to be taken into consideration while looking at these collection numbers is that revenue collections are post announcement of government schemes, which were aimed to relax the collection of revenues. These all-cumulative scenarios signify that domestic consumption is back on track, as also the strong comeback of SMEs,” said Kapil Rana, Founder and Chairman, HostBooks Ltd.

Centre releases Rs 36,400-crore GST compensation to states

Source: Business Standard, Jun 04, 2020

New Delhi: Ahead of the Goods and Services Tax (GST) Council meeting next week, the Centre on Thursday released compensation worth Rs 36,400 crore to states for three months up to February 2020.

The much-delayed compensation comes at a time when state finances are under severe stress due to the Covid-19 lockdown.

“Taking stock of the current situation due to Covid-19 where state governments need to undertake expenditure while their resources are adversely hit, the central government has released the GST compensation for the period between December 2019 and February 2020 on Thursday,” the Ministry of Finance said in a release.

The GST compensation of Rs 1.15 trillion for April-November 2019 was released earlier, the government said. This stands against Rs 95,551 crore collected as cess in the compensation fund in 2019-20 (FY20).

The compensation mechanism to states under GST has come under strain due to inadequate cess collection amid bleak consumer demand.

Under the law, if states’ GST revenue does not grow by at least 14 per cent over the base year of 2014-15, the Centre pays them the difference, on a bi-monthly basis for the first five years of GST implementation.

States have been up in arms with the Centre over non-payment of compensation dues, while the Union government has conveyed its inability on account of cess shortfall.

Besides dwindling cess collection in the compensation fund, the rising dependency of states on the promised GST compensation amid sharp fall in revenue due to the Covid-19 pandemic has compounded the challenge.

In FY20, the Centre used Rs 47,271-crore surplus cess from 2017-18 and 2018-19.

The compensation cess is levied on luxury and sin items such as aerated drinks, coal, paan masala, cigarettes, and automobiles over the peak rate of 28 per cent.

The government is exploring a slew of options, including borrowing from the market and extending the cess period further, to repay.

The monthly GST compensation requirement is estimated at Rs 20,250 crore in 2020-21, against Rs 13,750 crore last year.

Under the GST structure, taxes are levied under 5, 12, 18, and 28 per cent slabs. The GST Council in its meeting held in March deliberated on whether it could go for borrowing if the compensation cess collections fall short of the requirement of states. It will seek opinion on various legal issues – who will give guarantee to the borrowing, how will it be repaid, how interest is to be paid, impact on the fiscal responsibility and budget management Act, etc.

Double whammy for service companies: Required to pay GST on defaults, bad debts

Source: The Economic Times, Jun 04, 2020

MUMBAI: As customer defaults mount due to the Covid-19 crisis, Indian services companies have been dealt a twin blow: Of unpaid bills, and Goods and Services Tax (GST) liabilities on those incidents on non-payment.

Under the current GST framework, there is no provision to allow adjustments of GST paid on supplies for which recoveries are not made. Companies have to pay GST when they raise the invoice or generate the bill, which often is at least a month or two before the customer pays the money.

As companies struggle with cash flows, they have to pay GST out of their own pocket even when the customer has defaulted. So, companies are seeking relief.

“The absence of a provision for allowing adjustment of GST paid on supplies for which recoveries are not made (bad debts) is a double whammy for businesses,” said Abhishek Jain, Tax Partner, EY. “It leads to a loss on account of consideration for supply not being received, coupled with an outflow of GST from their own pocket. While this has been a concern for businesses historically, in the current economically depressed times, the government should consider relief on this aspect.”

Customer defaults have been on the rise due to the Covid-induced job losses, salary cuts, business closures, and a general breakdown in corporate payment cycles.

“Companies have to pay GST based on point of taxation and the tax payout precedes the receipt of consideration for the supply. Often, leads to a situation when the supplier ends up paying the tax for which consideration is either not received or received after significant delay, thereby causing great financial and working capital issues for several service sectors and MSMEs,” said Abhishek A Rastogi, partner at Khaitan & Co.
Once a services company, such as a telecom or credit card company, raises the invoice, it has to pay GST to the government.

For instance, a telecom company generates a bill of Rs 1,000 to a consumer in the month of February, and levies Rs 180 as GST on that. The tax is paid in March by the company. However, if the consumer refuses to pay or delays the payment, the company is stuck with the outgo of Rs 180 in taxes and Rs 1,000 in unrealized revenue.

FinMin notifies retrospective amendment in CGST Law

Source: Business Standard, May 17, 2020

New Delhi: The Finance Ministry has notified retrospective amendment in the Central Goods and Services Act (CGST Act 2017). With this amendment the Centre has bought itself to disburse the pending input tax credit.

With this amendment in Section 140 of the Central Goods and Services Tax Act relating to transitional arrangements for input tax credit has formally been made effective, so as to prescribe the time limit and the manner for availing input tax credit against certain unavailed credit under the existing law. This amendment shall take effect retrospectively from July 1, 2017.

This amendment is expected to pose problems to every one except the petitioner of that ruling for claiming all pending transitional credit (technically known as input tax credit or ITC) till June 30. The Notification for the amendment says: May 18, 2020 is the date on which the provisions of section 128 of the said Act (Finance Act 2020, shall come into force.

The fine print of this amendment makes it clear that the power to prescribe a timeline now emanates from a law enacted by Parliament and not from the sub-ordinate legislation (read law). Since the Delhi High Court order focusses on rule, that is why notification will impact the claim settlement for number of businesses except the petitioners in the matter decided on May 5.

Rajat Mohan, Partner with AMRG, said that Delhi High Court’s landmark decision on Transitional Credits in favour of taxpayers would lose its grip in light of the defect occurring due to retrospective amendments brought in by the Finance Act, 2020. The Court had reasonably declared that the time limit of 3 years under the Limitation Act was relevant for transitional credit benefit, enabling all taxpayers to claim legitimate CENVAT credit till June 30, 2020.

“This ruling would have a far-reaching impact on the stressed revenue streams of the exchequer, however, now with the retrospective amendments, the tax authorities have tightened their grip around transitional credit,” he said.

Transitional credit refers to use of tax credit accumulated up to June 30, 2017, that is, last day of the erstwhile central excise and service tax regime.

After the introduction of Goods & Services Tax (GST), a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. However, there were some conditions set. The credit will be available only if returns for the last six months — from January 2017 to June 2017 — were filed in the previous regime (that is if VAT, excise and service tax returns had been filed). And Form TRAN I (to be filed by registered persons under GST, may be registered or unregistered under the old regime) has to be filed by December 27, 2017, to carry forward the input tax credit which further March 31, 2019.

Later Commissioners were authorised to extend the date for submitting the declaration electronically in Form GST TRAN-1 but not beyond December 31, 2019. The Court had ruled that the time limit for transitional credit was only ‘directory’ and not ‘mandatory’ and not only the petitioner but all assessees can claim all pending transitional credit (technically known as input tax credit or ITC) till June 30. A ‘mandatory’ rule means it must be strictly complied while ‘directory’, means it would be sufficient for it to be substantially complied.

GST annual return filing for 2018-19 extended till September 30

Source: LiveMint.com, May 06, 2020

The government has extended the due date for filing GST annual return for FY18-19 to September 30, 2020.

“In exercise of the powers conferred by sub-section (1) of section 44 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as the said Act), read with rule 80 of the Central Goods and Services Tax Rules, 2017 (hereafter in this notification referred to as the said rules), and in supersession of notification No. 15/2020-Central Tax, dated the 23rd March, 2020, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 198(E), dated the 23rd March, 2020, except as respects things done or omitted to be done before such supersession, the Commissioner, on the recommendations of the Council, hereby extends the time limit for furnishing of the annual return specified under section 44 of the said Act read with rule 80 of the said rules, electronically through the common portal, for the financial year 2018-2019 till the 30th September, 2020,” the Ministry of Finance said in a gazette notification.

People registered under provisions of Companies Act 2013 can furnish their GSTR-3B through electronic verification code (EVC), according to Department of Revenue, Ministry of Finance. “A person registered under provisions of Companies Act 2013 shall, during the period from 21st April 2020 to 30th June 2020 shall be allowed to furnish the return under section 39 in Form GSTR-3B verified through electronic verification code,” read an order issued by the Revenue Department.