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Disunion between goods may percolate to GST

Disunion between goods may percolate to GST

 

Actions under lock down:

COVID-19 has entirely changed the lifestyle of every human being. The emergence of this pandemic has incited the whole country to be under lockdown. This pandemic altered various activities like how we work, how we shop and notably physical communication with people. This pandemic enforced to maintain social distancing for a long stretch. Many businesses are impacted at an unparalleled scale which includes all the sectors of retail, wholesale, consumer markets and others.

Consumer are pilling stock of essential goods such as groceries, fruits & vegetables, packed food products, and hygiene products. As the country is under lockdown with several rules and regulation, the consumers are pilling the essential goods in massive quantities. In contrast, luxury goods and fashion merchandise observed an enormous decline in their sales in the past 2 months.

Due to plunging demand for discretionary goods, many sellers from this category are giving enormous discount like buy one get one, bulk discount, cash discounts, vouchers, coupons and many more. To clear up the spilled stock, many retail sellers from this category are also offering discounts on a large scale.

 

Effect in taxation:

The trend of consumer has wholly changed and consumption of essential goods on a large scale is observed. The consumption of non-essential goods have abruptly declined and this is likely to drain the taxation regime as well. As a result, tax concerns resulting in cost-saving steps, credit allocation, etc. will come into the new category of “must-haves” vis- a – vis routine enforcement and filing problems, which do not require considerable attention or time for management.

Accordingly, it will become crucial to examine these schemes from a Good and service tax (GST) perspective, i.e. if reversal of the input tax credit (ITC) is needed under GST on supplies produced under these schemes, particularly since issues are litigious. Moreover, GST impacts on marketing instruments such as vouchers, cash cards, discount coupons for example, timing of payment of taxes in the case of vouchers, whether those instruments qualify as actionable statements will also be important.

 

The chaos of perishable goods:

The perishable goods and goods with shelf life are impacted critically in this pandemic. If goods with a certain shelf life does not sell in a stipulated time period, then it turns to direct loss as the product turns into unusable. GST provides provision for reversal of Input tax credit (ITC) on destroyed goods. There is a provision in GST that if goods are destroyed or expired, then there will be credit reversal for such products. There is some dispute, as to whether ITC reversal is only needed for goods that have been completely written off from account books or even for goods that have been partially written off from account books.

 

The rise of a new online world:

Media reports noted, due to this pandemic they observed huge traffic in consumption of goods and services through e-commerce websites in the month of March and April 2020. Considering the ongoing situation and lasting effect of this pandemic, the retailers need to shift their business model to online up to some extent. Doing offline business may not fetch hefty gains, as maximum consumers will shift to online shopping as a precautionary method and to maintain social distancing. The maximum category of products like groceries, fruits & vegetables, hygiene products and many more will be consumed through online buying.

All the GST compliance related to online business will be properly managed by online businesses. The demand for consumer goods are at peak whereas manufacturers and retailers can’t make undue advantage by increasing price of essential goods and services as the government has kept all these activities under surveillance. They should be mindful of the anti-profit provisions pursuant to GST rules, which require the passing of any benefit obtained due to rate reduction or additional ITC to consumers by way of a commensurate price reduction.

 

Doing legal business:

It is significant for all businesses that they should follow all rules and regulation protocols and ensure legal practice in their business. Furthermore, businesses in consumer markets need to evaluate and enforce cash management steps such as deferred tax liability by deferred invoice issuance period, flexible vendor payment terms for reverse charge transactions, and timely refund filing. It will be hard to predict how events for the consumer business sector will unfold in the future. Nevertheless, some pro-activity review and introduction of tax reforms may help not only to save money but also to prevent needless tax conflicts and exposures.

 

 

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Pre-GST CENVAT credit available till 30th June revised

Pre-GST CENVAT credit available till 30th June revised

On Tuesday, Delhi’s High Court allowed people enlisted under the Goods and Services Tax to claim outstanding CENVAT credits from the pre-GST system before 30 June, 2020. The advantage of the transitional credit will extend for a term of three years, which is the duration laid down in the Limitation Act. Businesses with pre-GST tax credits will be entitled to claim them by 30 June of this year. The Delhi High Court rejected the arguments of the revenue department that they should have been considered within three months of introduction of the indirect taxation system.

 

Timeline and benefits:

Abhishek Rastogi, partner of Khaitan & Co., refers to Rule 117 of the CGST Act, which placed a time limit of 90 days to claim a transitional CENVAT credit. The court concluded that the deadline laid down in the law was clear and not compulsory. At a virtual hearing, the court concluded that a timeframe of three years will be available to claim these credits under the terms of the Limitation Act. By filing the TRAN-1 form, taxpayers were permitted to bear input tax credits from the excise and service tax system, under the GST Act. Even though the first cutoff time terminated in September 2017, a few augmentations were given by the Government until December 27, 2017.

Taxpayers were permitted to claim due till 31 March 2020 that were unable to do so due to technical issues. The Court also said that the three-year extension will apply not only to the applicant but also to all persons with CENVAT credit until 30 June 2017. According to market analysts, there are as many as 10,000 such entities. Rastogi claimed that Rule 117 of the CGST Act is unfair, unlawful, and in breach of the right to equality established in Section 14 of the country’s constitution. It is to the point that it places a time limit on the allocation of tax benefits from the existing indirect tax system. Although, Rule 117 of the GST Act requires a time limit to obtain a refund. Taxpayers protested in court that an input tax credit was a privilege and not a tax compromise.

 

Relief to taxpayers:

At the simulated hearing conducted today by the Delhi High Court, it was specifically mentioned that the specified time limit would not apply because it is a directory and not a compulsory one. The court also ruled that the prolonged duration of three years would refer not only to petitioners but also to all those petitioners who are experiencing problems with transitional credits. The Government has ensured since the launch of the GST that an enormous amount of transitional credit has been misused. An examination of almost Rs 2 lakh crore of transitional credits was announced before the underlying cutoff time was completed by the indirect tax department.

 

 

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