E-commerce cos fret over Madras HC ruling on GST refunds on service inputs

 Businesses such as e-commerce, which face higher goods and services tax (GST) on raw materials than on finished goods, are now in a quandary over whether or not they will get refunds on taxes paid on services.

Contrary to an earlier Gujarat verdict, the Madras high court has held rule 89(5) inserted by the government under the CGST Act on restricting such input tax refunds as valid.

This means that companies facing inverted duty structure--raw materials drawing higher GST rates than finished goods-- won't be able to get refunds of tax credits for the service inputs they used, but will get it for merchandise inputs.

The government had brought in the rule in 2018 by amending an earlier one that allowed all kinds of credits, regardless of whether the taxes were paid on goods or on services.

Delivering a verdict on a batch of petitions filed on the issue, the Madras High court upheld the validity of the rule as well as the main section of the GST Act.

ALSO READ: Mismanaging GST

The department of revenue argued that goods and services form distinct class and legislature has wide latitude in matters of taxation in terms of granting of refunds and can pick and choose whom they can or cannot grant refund

On the other hand, petitioners argued that the main section and the rule create a distinction between two categories of assessees.

Earlier, the Gujarat High Court had allowed a footwear company to claim credit for taxes paid on service inputs under the GST regime.

The court had struck down an explanation given under Rule 89(5) under the CGST Act.

The court, while hearing a petition filed by VKC Footsteps India, had said that the intent of the government by framing a rule restricting input tax credit cannot be the intent of law.

Footwear attracts GST at the rate of 5 per cent whereas majority of the inputs and input services attract GST at the rate of 12% or 18%, which results in accumulation of unutilised credit. Hence refunds of this credit become critical for this business.

With two opposite rulings by high courts, the matter gets complicated. While the rulings by the two high courts will run in their separate states, what will happen to those running their businesses in other states? Now either the higher benches of high courts or the Supreme Court will have to settle the matter. Both the Gujarat and Madras high court rulings were given by two-member bench each.

ALSO READ: Fan manufacturers want GST for sector to be lowered to 5% from 18%

"This (Madras) ruling would come as a jolt to the hopes of many dealers who post the VKC Gujarat High Court ruling, were intending to get the refund of accumulated input services,” said Harpreet Singh, Partner, KPMG.

Abhishek Jain, tax partner at EY, said the ruling would come as a substantial setback to businesses including those in the mobile phone, fertilizer, government business space, and now industry would await a final verdict from the apex court to settle this ambiguity.

“Many dealers may still decide to file the refund claim for input services, but getting the same from tax authorities may not be easy on account of these two diametrically opposite rulings by two different High Courts,” Singh said.

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GST collection slips below Rs 1 trillion in March after four months

Goods and services tax (GST) collection fell below the Rs 1-trillion mark in March after a gap of four months, even as disruptions caused by the coronavirus-induced lockdown will get captured only in the coming months.
The numbers pertain to GST paid in February but collected in March, suggesting that collections might turn grimmer going forward.

The GST mop-up in March stood at Rs 97,597 crore, down 8.4 per cent on a year-on-year basis, the data released by the Ministry of Finance showed on Wednesday. The government had targeted a collection of Rs 1.25 trillion in March. GST collection grew by a meagre 3.7 per cent in the full fiscal year 2019-20.
The dismal collection in March is despite the stringent anti-evasion measures introduced by the government, including the blockage of e-way bill and restricting input tax credit to 10 per cent in the case of failure of invoice uploads by suppliers.
Already hit by an economic slowdown, the country went into a 21-day lockdown from March 24 to prevent the spread of Covid-19. All industries that were struggling have become non-operational, which will reflect in the April GST collection figures.
Kerala Finance Minister Thomas Isaac told Business Standard that the April numbers, which would essentially be transactions in March would only be about 15-20 per cent of the March figures.
Pratik Jain, partner, PwC India, said, “It seems that many businesses may not have been able to pay GST because of liquidity issues being faced after the lockdown. As the second half of March 2020 has been significantly impacted due to the Covid-19 outbreak, collections in April are likely to be substantially lower.”
In a major relief for businesses facing lockdown due to coronavirus, the last date for GST return filing for March, April and May 2020 has been extended to June 30, with no interest, late fee and penalty, for companies with up to Rs 5 crore turnover and subsidised interest of 9 per cent, and no penalty or late fees for bigger companies.
M S Mani, partner, Deloitte India, said it was necessary for businesses to conserve cash in order to enable resumption of operations once the lockdown ends. Hence, any deferral of the GST payment timelines by a few months would significantly assist them in this process, Mani said.
Central GST collection for FY20 at Rs 4.95 trillion fell Rs 18,188 crore short of revised estimates for the fiscal year. The finance ministry, in Union Budget 2020-21, had lowered the CGST collection target for FY20 to Rs 5.13 trillion from Rs 5.26 trillion estimated in July.
Of the Rs 97,597-crore revenue in March, the central GST collection stood at Rs 19,183 crore, state GST at Rs 25,601 crore and integrated GST at Rs 44,508 crore, which included Rs 18,056 crore collected on imports, the finance ministry said in a statement.
chart
GST collection on domestic transactions witnessed an 8 per cent decline, while GST collection on imports posted a negative growth of (-)23 per cent, indicating the beginning of Covid-related supply and demand disruption.
In order to plug revenue leakages, the Council allowed blocking of input tax credit in the case of fraudulent invoices and blocking of e-way bills in the case of non-filing of returns for three straight months.
The Council in its meeting on March 14 deferred the new simplified returns and e-invoicing till October, which was to be launched from April 1. Meanwhile, in order to improve collections, the government is aiming to correct inverted duty structure. It raised the GST on mobile phones to 18 per cent from 12 per cent, bringing the rate on a par with the inputs.
Lower-than-expected revenues are also putting pressure on the Centre to compensate states for the revenue shortfall. The compensation cess collection stood at Rs 8,306 crore during the month, much smaller than the approximately Rs 14,000-15,000 crore compensation required by states on a monthly basis. States are up in arms with the Centre over a delay in payment of compensation dues and are planning to drag Centre to the Supreme Court.

GST profiteering: Delhi HC comes to the rescue of Nestle, grants stay

Coming to the rescue of fast-moving consumer goods giant Nestlé, the Delhi High Court has again stayed National Anti-profiteering Authority’s (NAA’s) order to recover Rs 73 crore by March for not passing the benefits of the goods and services tax (GST) rate cut to consumers.
The stay, granted through an order issued on February 10, was given on grounds that Nestlé had already paid Rs 16.58 crore of the total demand of Rs 89.73 crore.

The NAA had in December upheld profiteering allegations on the ground that the firm had not passed on the benefits of reduction in GST in respect of various products.
Nestlé had challenged the order on the ground that the NAA had passed the same suo motu and not on the basis of written complaint, which was impermissible. Besides, it argued that while the matter was heard by four members, the NAA order was signed by only three members and was passed beyond the mandatory period of three months.
The NAA noted that the methodology adopted by Nestlé to pass on GST rate cut was “illogical, arbitrary, and illegal, which has resulted in unfairness and inequality while passing on the benefit of tax reduction”.
M S Mani, partner, Deloitte India, said the absence of a prescriptive methodology for determining profiteering had made it difficult for conducting businesses.
“They will hope for some relief considering the practical challenges faced during the initial period of GST introduction,” he said.
According to the anti-profiteering rules under GST, “benefits of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices”. The next date of hearing is May 20.
A Nestlé India spokesperson told Business Standard earlier that “…the benefits largely have been passed on by way of reduction of MRP or by way of increase in grammage. On SKUs (stock-keeping units), where it was not practicable to pass on the benefits, say for example Nescafé single-serve packs for Rs 2, or Maggi noodles Rs 5 packs, the benefit has been passed on other pack sizes within the same product category”.
The Delhi HC on Tuesday also stayed a show-cause notice by NAA to Johnson & Johnson for allegedly profiteering by not passing on the benefit of rate cuts. J&J argued that the calculation of profiteering of Rs 42.7 crore was based on “arbitrary, unreasonable and capricious methodology”.

Rs 81,043 cr GST compensation released to states for Apr-Sep: Govt to RS

The Centre has released Rs 81,043 crore as GST compensation to states for April-September 2019, Minister of State for Finance Anurag Singh Thakur said on Tuesday.
In a written reply to a question in the Rajya Sabha, he said GST compensation cess collection has shown upward trend since October 2019.

GST compensation cess of Rs 7,607 crore was collected in October, Rs 7,727 crore in November, Rs 8,331 crore in December and Rs 8,637 crore in January.
For 2019-20, the amount targeted to be collected from cess in GST was Rs 1.09 lakh crore. Of this, Rs 70,534 crore has been collected between April-December 2019.
The amount of GST compensation released to states for April-September 2019 stood at Rs 81,043 crore, Thakur said.
For 2018-19 fiscal, the net collection of GST compensation cess stood at Rs 95,081 crore as against the target of Rs 90,000 crore. For full fiscal, the government had released Rs 81,141 crore to states as compensation.
For 2017-18, the net collection from cess stood at Rs 62,612 crore, as against the target of Rs 61,331 crore. The compensation amount released to states was Rs 48,785 crore.
Under GST law, states were guaranteed to be paid for any loss of revenue in the first five years of GST implementation, which came into force on July 1, 2017.
The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.
"For providing such compensation to states, compensation cess is being levied on certain luxury and demerit goods as per provisions in Section 8 of the GST (Compensation to States) Act, 2017, and compensation cess is being credited into a non-lapsable Fund known as Goods and Services Tax Compensation Fund which forms part of the Public Account of India," Thakur said.

Tax Dept raises GST revenue target to Rs 1.15 trillion for Jan-Feb

The tax department on Friday raised GSTcollection target to Rs 1.15 trillion over the next two months and Rs 1.25 trillion for March month by checking fraudulent input tax credit claims.
The decision in this regard was taken in a high-level meeting chaired by Revenue Secretary Ajay Bhushan Pandey held on Friday, sources said.

Last month, the department had raised its GST tax collection target to Rs 1.1 trillion per month with Rs 1.25 trillion for a single month for the remaining period of this financial year while the direct tax target was to remain at Rs 13.35 trillion sans the corporate tax relief of Rs 1.45 trillion.
The meeting was attended by all the very senior officials of CBIC and CBDT to devise an action plan and make the field functions more efficient to achieve the collection aims without any overreach, sources said.
According to sources, it is learnt that GST authorities would look into the mismatch of supply and purchase invoices, data analytics of mismatch in GSTR-1, GSTR-2A and GSTR-3B, failure of filing returns, over invoicing, recuperation of fake or excess refunds availed beyond the permissible limits, patching the tax leakages, action on checking fake or huge ITC claims, data analytic review of all the refund under inverted duty structure, etc.
Sources further said that SMSs and emails will be sent to all such fraudulent or excess ITC claimants, targeted defaulters, non-filers and those who provide mismatched information in their returns or over invoice or who have been identified through data analytics for tax evasion by duping the system through rogue modus operandi.
Taxpayers who have taken ITC wrongfully can voluntarily repay amount equal to inadmissible credit before verification and punitive action is taken against them, they said.
The electronic communications to such identified targeted taxpayers and fraudulent refund seekers and over-invoice users would be followed by visits from the GST field formations to make them abide by the law and pay due taxes in time, sources said, adding, the field formations would be required to report on daily basis.
Weekly high level review of revenue augmentation measures and efforts made or actions taken against these targeted gamers, fraudulent ITC seekers and identified default taxpayers would be done by the Revenue Secretary.
Around 40,000 companies have been red-flagged for excess or fraudulent ITC availment and other tax related wrongful issues through data analytics, out of 1.2 crore GST registrants and focus would be on these identified taxpayers, sources said.
Field formations have been directed to conclude ITC recuperation without any overreach but in a stipulated timeframe, sources added.
Sources emphasised that the permissible ITC limits have been further reduced to 110 per cent of the declaration made by the suppliers from January 1, 2020 and the taxpayers filing their return for the month of December 2019 should take this into consideration while filing their FORM GSTR-3B, to avoid any punitive action by the authorities.

Over 1,200 exporters untraceable; govt saves Rs 350 cr fake IGST refund

Revenue Department using its data analytics has discovered a fraud in GSTrefunds with as many as 1,200 exporters, who have have claimed Rs 350 crore refunds, are now untraceable.
The department has reasons to consider that nefarious elements among the customs broker community may be connected with these frauds, involving fictitious entities, existing only in virtual space through identity thefts with fake and morphed documents, according to sources.

The detection of fraud has resulted in saving the exchequer over Rs 350 crore of refunds, they added.
Central Board of Indirect Taxes and Customs has obligated customs brokers under their licensing conditions to independently verifying the KYC of exporters, the sources noted.
However, going by the cases detected in recent months, at least 50 customs brokers have been found to have dealt by and large with such exporter entities which are untraceable at their registered addresses and such custom brokers are also under the lens, the sources said.
As investigators probe deeper, newer modus operandi are surfacing, they said, adding that a company by the name of SSR Export was investigated and led to discovering a fraudulent refund claim of Rs 9.88 crore.
As per the investigation, the firm was ostensibly exporting readymade garments to an special economic zone (SEZ).
Now, with newer techniques of data analytics-based risk management being available to officers, the taxpayer was selected for physical scrutiny and found non-existent at his declared address, they noted.
Using a web of fake invoicing of over Rs 847 crore, the firm created a fraudulent credit of Rs 195 crore and investigations led to discovering untraceable suppliers.
Department of Revenue is carrying out continuous risk evaluation of exporters with the help of predictive modelling, the sources said, adding regular strategy meetings are being held at a very high level by the Revenue Secretary himself with data analytic experts, state and centre tax investigators.
Over 800 entities have been interdicted during the last five months while exporting overvalued merchandise of Rs 1,500 crore to claim fake IGST refunds have been suspended in these cases.

States face over Rs 1 trillion revenue gap post GST compensation withdrawal

States might be facing a consolidated revenue gap of up to Rs 1.23 trillion on account of withdrawal of compensation after the five-year GSTtransition period ends on June 30, 2022, says a report by economic think tank NIPFP.
At the time of implementation of the Goods and Services Tax (GST) on July 1, 2017, the Centre had promised to compensate states for loss of revenue for five years at an agreed formula.

"If the GST compensation is withdrawn after June 30, 2022, consolidated revenue gap of states would vary between Rs 1,00,700 crore to Rs 1,23,646 crore depending on expected tax buoyancy and reliability of data sources," the report said.
"This implies that states will need to either generate an equivalent amount of revenue from exiting sources to continue with committed expenditures and/or cut down expenditures to cope up with revenue shock in 2022-23," it added.
Due to the ongoing shortfall in overall GST collection as well as rising revenue gap between GST compensation requirement and GST compensation cess (GSTCC) mobilisation, timely release of GST compensation has become a matter of contention between the union and state governments.
The report said that the withdrawal of GST compensation and fall in overall State Goods and Services Tax (SGST) collection will have substantial impact on state finances of Punjab, Odisha, Goa, Chhattisgarh and Karnataka, among major states.
Among minor states, substantial revenue gap is expected for Himachal Pradesh, Uttarakhand, Tripura and Meghalaya.
Given the ongoing shortfall in GST collection and uncertainty associated with revenue on account of SGST collection, many states have approached the 15th Finance Commission for possible extension of the GST compensation period by another three years, i.e. up to 2024-25.
"Any shock to state finances due to withdrawal of GST compensation after the GST transition period may have profound impact on India's fiscal management and thereforemacroeconomic stability," the report noted.
It pointed out that even if the GST compensation period is extended beyond June 30, 2022, the Centre may not have adequate fiscal space to provide GST compensation to states at the ongoing annual growth rate of 14 per cent, unless either tax buoyancy and/or nominal growth rate of GDP improves.
To provide GST compensation to states, GST Compensation Cess (GSTCC) was introduced along with GST on some specific items to mobilise resources for the GST Compensation Fund.
The union government manages the fund.

GST facelift: Electronic invoicing, new returns to be introduced in 2020

Two things that will change the way transactions are reported under the goods and services tax (GST) system in 2020 are electronic invoicing and new returns.
While both of these will be introduced mandatorily from April 1, e-invoicing would be implemented on a voluntary basis by those having an annual turnover of above Rs500 crore from January 1. Those with an annual turnover of over Rs100 crore can use e-invoicing from February 1. Finally, those with annual turnover of over Rs100 crore will have to use e-invoicing system from the beginning of the next financial year.
In the e-invoicing system, the invoices are authenticated electronically by GST Network (GSTN) for further use on the common GST portal. Two procedures are required in e-invoicing system — generation of invoices in standard format and reporting it on to a central portal system.
The new system requires invoice details to be uploaded on the government site — Invoice Registration Portal or IRP — on real-time basis. Based on the uploaded details, a unique invoice reference number (IRN) will be allocated against an each invoice. IRN would be get validated through IRN portal and GSTN.
According to GSTN Chief Executive Officer Prakash Kumar, e-invoices are generated by large number of businesses even today. However, they all use the format as provided by the ERP or billing software they use. Lack of a standard leads to a scenario where e-invoice generated on one billing software can’t be read by another, requiring manual data entry from electronically generated invoice. “All this means lots of engagement in maintenance of invoice, manual feeding in system, a pile of paper work, and lot of transcription errors,” he said. Here comes a system that does away with much of paper, human error, transcription error, saves time and gives you a format which is compatible to all. He said no changes are required as far as the businesses are concerned as they will continue to use the same software with same user interface to generate the e-invoices such as ERP, accounting and billing software, excel based billing system etc. The companies, which have developed the ERP or billing software, will have to make changes in their software codes to make them conform to the approved standards, he said.
Abhishek Rastogi, partner at Khaitan & Co, said the phased manner of implementation of e-invoicing will enable adequatetesting of the system before it is made mandatory. Harpreet Singh, partner at KPMG, said: “In the long run, e-invoicing should be the only data collection point for the tax authorities replacing e-waybills and multiple returns.”
However, new simplified returns would be implemented from April 1.
The GST Council had earlier decided to defer the implementation of these returns from the planned staggered manner from October this year.
In the new returns, there would be one main form — GST RET-1, which will contain details of all supplies made, input tax credit availed, and payment of taxes. This return will have two annexures — GST ANX-1 and GST ANX-2.
Form GST ANX-1 will have details of all outward supplies and form GST ANX-2 will contain details of all inward supplies. Currently, taxpayers are filing two returns: GSTR-1, which contains details of all outward supplies made, and GSTR-3B, which is a monthly self-declaration of outward supplies, input tax credit availed, and taxes paid.
Archit Gupta, CEO of ClearTax, said the e-invoice system would be integrated with the new return filing system for filing e-way bills and new return formats. Initially, businesses had a fear that their cash flow would be blocked because there was a proposition of only allowing credits to those invoices that were uploaded by vendors and tax discharged. To address the issue, the government had proposed allowing businesses to avail of input tax credit on the basis of self-declarations in GSTR-3B for initial months even under the new mechanism.
GST facelift: Electronic invoicing, new returns to be introduced in 2020

Gupta said the pain point involved in frequent matching of invoices was that the taxpayer had to allocate time from his daily business activities or he has to appoint personnel to do the same. There is also an issue of tracking and reporting of missing in

Those not filing GST returns may face attachment of property, bank accounts

Those not filing GSTreturns could face attachment of their properties, including bank accounts, by tax officials.
According to the standard operating procedure (SoP) issued by the Central Board of Indirect Taxes and Customs (CBIC), the GST commissioner may resort to provisional attachment under the section 83 of the Central GST Act.

Subsequently, he may also cancel registration in cases where the return has not been furnished for a "specified" period, according to the SoP. The duration of the specified period is yet to be decided.
Under the section, the commissioner can attach any property, including bank account of assessees. For this, he needs to pass an order in the specified form to that effect mentioning the details of property which is attached.
However, experts say that under the pre-GST state-level value added regime, cancellation of registration rarely happened. Tax officials used to make the registration dormant in case of non-filing of returns for more than one year. As such, cancellation of registration is too harsh under SoP, they said.
The SoP was issued to adress the issue of divergent practices being followed by the tax department of the Centre and states in case of non-furnishing of GST returns.
Under it, a clarification was issued to ensure uniformity in respect of the appropriate procedure to be followed in case of non-furnishing of returns.
SoP clarified that the notice to a defaulter is to be issued in GSTR-3A and no separate notice is required to be issued for best judgment assessment.
The circular says that a system-generated message will be sent to registered persons three days before the due date to nudge them to file returns and the notice in GSTR-3A will be issued five days after due date of furnishing returns.
"Having a standard procedure in department initiated proceedings is always good, as it leaves no room for divergent practices or any personal bias,” said Harpreet Singh, Partner, KPMG.

GST Council to set up grievance redressal mechanism for taxpayers

The GSTCouncil will set up a grievance redressal mechanism for taxpayers.
The decision was taken at the 38th meeting of the GST Council held on December 18.

It has decided that a structured grievance redressal mechanism should be established for the taxpayers under GST to tackle grievances on GST-related issues of specific and general nature, an official statement said on Wednesday.
The council will set up the Grievance Redressal Committee (GRC) at zonal and state levels consisting of both central tax and state tax officers, representatives of trade and industry and other goods and services tax (GST) stakeholders.
The committee will be constituted for a period of 2 years and the term of each member will be for likewise, said the statement.
If any member of the panel would be absent for three consecutive meetings, without adequate reasons, the member will be replaced with a fresh nomination by the principal chief commissioner/chief commissioner of central tax in consultation with the chief commissioner/ commissioner of state tax.
Functions of the committee include examining and resolving all the grievances and issues being faced by the taxpayers, including procedural difficulties and IT-related issues pertaining to GST, both of specific and general nature.
The committee will meet once every quarter or more frequently as decided by the co-chairs.
"For time-bound handling of grievances and accountability, GSTN shall develop a portal for recording all such grievances (including their scanned images) and their disposal.
"It shall be the responsibility of the co-chairs of the grievance redressal committees to ensure timely entry of the grievances and updating the status of their disposal on the portal," the statement said.
The details of action taken on all issues will be displayed on the portal, which shall be available for viewing to all stakeholders to check the status of the resolution, it added.

NAA fines J&J Rs 230 crore for profiteering from cut in GST rates

The National Anti-Profiteering Authority has imposed Rs 230.41 crore penalty on global healthcare major Johnson and Johnson (J&J) for profiteering from cut in goods and services tax (GST) rates.
“The methodology adopted by the respondent (J&J) while computing the benefit of tax reduction was illogical, unreasonable, arbitrary, and incorrect, and hence cannot be accepted,” the authority said in the order.
According to the authority, "the respondent (J&J) denied the benefit of tax reduction to customers in contravention of Section 17(1) of CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the Act."
In its response, J&J submitted saying: “In the absence of any guidelines to compute and pass on the benefit of GST rate reduction by way of commensurate reduction in prices, the company discharged statutory obligation through various methods”.

J&J has been ordered to deposit the amount within three months.

No possibility of GST rate hike till revenue stabilises: Sushil Modi

Days after the Goods and Services Tax (GST) Council refrained from hiking the tax rates, Bihar Deputy Chief Minister Sushil Kumar Modi said there was no possibility of any such move till revenue stabilised. He said the Council had decided to consider changes in the rates once a year, and not in each and every meeting.
A hike in GST rates, he said, would have hampered consumption amid the economic slowdown. “I want to assure you that not a single state, as well as the Union government, is ready to raise tax rates,” he said, speaking at FICCI’s 92nd annual convention. Also, there wasn’t scope to cut rates now till GST revenue stabilised, despite falling consumption, he said. “At a time when the economy is in a slowdown, if you cannot cut the tax rate, do not increase the rates, to boost consumption. At these times, you cut duties and tax rates, and not increase them,” he said.

The revenue augmentation panel in the Council meeting last week recommended revisiting and restructuring the GST rate slabs, besides correcting the inverted duty structure. The panel listed 24 items, including mobile phones, footwear, fabrics, LED light, medical equipment, utensils, agri machinery, pharma, and renewable components, which have an inverted duty structure, resulting in refunds of close to Rs 20,000 crore annually. Inverted duty structure refers to higher duties on inputs than those on the final goods and services.
On broadening and rationalising the GST rates, some of the suggestions compiled by the panel included hiking rate on precious metals from 3 per cent to 5 per cent, taxing higher segments of education and health.
Revisiting rates on certain items that went down from 28 per cent to 18 per cent was also on the list.
Compared to the pre-GST period, 99 per cent of the goods and services have less taxes levied on them post-GST, Modi said. However, he added that fake invoicing had become a major issue and the government was looking at ways to check the menace.
GST mop-up
The Council meeting on Wednesday had decided to block the input tax credit for fake invoices in certain cases and further restricted the credit for invoices not uploaded in relevant forms to 10 per cent from the current 20 per cent of the eligible credit. Four of the eight months in the current financial year have yielded less than Rs 1 trillion. After plummeting to a 19-month low in September at Rs 91,916 crore, GST collection recovered to Rs 1.03 trillion in November, posting a 6 per cent year-on-year growth rate on the back of festive demand.
Despite that collection was lower than the rate needed to meet the steep target for FY20.The officers' panel had red-flagged that the Centre may be staring at a compensation cess shortfall of at least Rs 63,200 crore this financial year, which may balloon to Rs 2 trillion by 2021-22. Here, it assumed a revenue growth of 5 per cent, while the actual growth in the April-November period is 3.7 per cent. The department of revenue had earlier this week pegged the target for GST collection at Rs 1.1 trillion a month for December-March 2019-20 with one of the months yielding Rs 1.25 trillion.

GST revenue growth promised to states may be trimmed to 10-12% from FY21

The annual growth in goods and services tax (GST) revenue promised to states under the GSTlaw could be slashed to either 12 per cent or 10 per cent from the current promise of 14 per cent from next year, Business Standard has learnt.
However, this change is only under consideration and, if states agree to come on board, it could take place only in the next fiscal year, officials said on the condition of anonymity. But states would vehemently oppose such a proposal, it is being said. In fact, sources said this idea was discussed during the presentation given by N K Singh, chairman of the 15th Finance Commission (15th FC), in the previous GST Council meeting.

“Doing such a change immediately is off the table, but in the long term, it would be considered,” said a senior government official.
The GST Council meeting, currently underway, is likely to discuss this.
Under the law, the Centre is bound to “protect” a 14 per cent growth in states’ GST revenues, and if shortfall arises, compensate it to the tune of the amount of shortfall, till June 2022.
The GST Council has introduced, and levies, compensation cess on certain items over and above the GST rate to compensate states.
If the protected growth in GST revenue is reduced to 10 per cent, the Centre would save more than Rs 25,000 crore in 2020-21 if none of the states show any revenue growth.
This would nearly amount to 0.1 per cent of the gross fiscal deficit of the government. This would aid in avoiding fiscal slippage to some extent in subsequent years.
This number has been derived from the data presented by the finance ministry to Parliament.
In a way, while states would potentially lose slices of revenue “to be protected” if they fail to achieve 14 per cent growth in GST revenues themselves, the Centre would gain an amount equal to summation of slices for all states.
In the hypothetical case mentioned above, Maharashtra’s revenue to be protected will reduce the most (as it is the topper in revenue collection) by Rs 4,000 crore, and that of Karnataka and Tamil Nadu, by Rs 2,500 crore and Rs 2,000 crore, respectively.
If the guaranteed growth in revenue-to-be-protected is slashed to 12 per cent, the Centre would gain somewhat less than Rs 15,000 crore in the deal.
Experts said that such measures seem in line with the current subdued revenue trend for both the Centre as well as states.
“With slowing revenues, the Centre might not be able to guarantee 14 per cent growth every year from now on,” said Sacchidananda Mukherjee of National Institute of Public Finance and Policy (NIPFP).
Apart from states in the Northeast, which have a low share in overall national GST revenue, no other state has been able to clock a 14 per cent growth in GST revenue on its own.
There is a possibility that states would demand an extension in the compensation period beyond June 2022, and they would have to accept a slower growth in protected revenue in the bargain.
“The compensation cess and the revenue protection guarantee is the centripetal force that binds the states to the Centre in the GST Council. If the compensation and cess go away, what incentive would states have,” Mukherjee said.
Centre might save Rs 25,000 cr by trimming revenue guarantee to states
Year Revenue to be protected Centre's saving (Rs crore)
FY20 671083
FY21 at 14% 765034 0
FY21 at 12% 751613 13422
FY21 at 10% 738191 26483
Source: Parliament, Business Standard calculations

Amid falling collections, FinMin sets Rs 1.1 trillion monthly GST target

Amid concerns that the government may fall short of tax collection target in a slowing economy, the Centre has set an ambitious Rs 1.1 trillion monthly GSTtarget for the remaining four months of the current fiscal and asked taxmen to step up efforts to achieve the goal.
Revenue Secretary Ajay Bhushan Pandey held a video conference meeting with top tax officials of departments looking after both income tax and indirect taxes such as GST and asked them to step up efforts to achieve tax targets, finance ministry sources said.

While taxmen have been asked to plug evasions, Pandey impressed upon them to achieve targets without harassing honest taxpayers.
Taxmen were told in no uncertain terms that both the GST as well as the Rs 13.35 trillion target for direct taxes for 2019-20 will have to be achieved.
In the meeting, the GST target was set at Rs 1.10 trillion every month between December 2019 and March 2020. Of these four months, Rs 1.25 trillion collections have to be achieved in at least one month, the sources said.
Gross GST collections, which include the share of both Centre and the states, crossed Rs 1 trillion mark in four out of the eights months of the current fiscal and only once was above Rs 1.1 trillion. At the current trend, the GST tax collection target is likely to be missed by at least Rs 1 trillion.
Out of the Rs 13.35 trillion direct tax collection target, about Rs 6 trillion or 45 per cent of the annual target, has been collected till October (first seven months).
For 2019-20, the Union government is targeting Rs 6.63 trillion from its share of GST revenues. GST subsumed 17 centre and state levies and the two equally split the revenues.
The sources said the revenue department in the finance ministry is taking concerted measures to augment collections in the next four collection months and has exhorted its senior officers, including Members of Central Board of Indirect Taxes and Customs (CBIC) and Central Board of Direct Taxes (CBDT), as well as other top officials to achieve tax targets both for direct and indirect taxes.
Officers have been particularly urged to ensure that during such field enforcement drive and visits, no taxpayer is overreached or troubled, they said.
Also, it was clarified to the officers that the corporate tax relief worth Rs 1.45 trillion by way of a cut in rates, should not be taken as an excuse for lesser direct tax collection.
The sources said CBIC and CBDT members, as well as principal chief commissioners and chief commissioners and other field machinery, were asked to make field visits on a weekly basis.
The revenue secretary, despite pressures of budget preparation, will himself be visiting across the regions every weekend to monitor and peruse the collections efforts, they said.
While the information on GST and income tax and other financial dealings will be analysed to check evasions, taxmen have been told to bring evaders to book.
If taxpayers have missed out on sharing correct tax information, they will be asked to file the revised return, the sources said.
They said the objective behind the meeting was to exhort officers at all levels to maximise tax collection, at the same time ensuring that genuine taxpayers are not troubled or harassed.
GST officers have been told to make sure filing of returns by taxpayers, failing which strict action such as blocking of e-way bill, stopping of input tax credits and cancellation of registration may be taken, the sources added.
The industry and traders have been advised to ask its suppliers to timely file their GST returns, including GSTR 1 failing which buyers may not able to get input tax credits on those supplies for which tax has not been paid by their suppliers.
Also, the data from GST return information will be provided to income tax departments so that the cases of any suppression of turnover and income tax can be detected and proper tax can be recovered.
Further, a drive will also be conducted to recover past arrears during the next three months, the sources noted.

Under fire, Centre releases Rs 35,298 crore GST compensation to states

Facing heat over delay in payment of GSTcompensation, the central government on Monday released Rs 35,298 crore to states to make up for the loss of revenue due to rollout of the Goods and Services Tax (GST).
When GST was rolled out on July 1, 2017, states were through legislation promised to be compensated for the loss of revenue as not just their taxes such as VAT were being subsumed in the new levy but also their right to levy taxes was being snatched.

The compensation amount was fixed at 14 per cent on top of revenue in the base year of 2016-17. The corpus for paying compensation was collected by levying a cess on top of GST rates on tobacco products, cigarettes, aerated water, automobiles, and coal.
This compensation was to be released after every two months but the same was pending since August, drawing protests from states, particularly non-BJP ruled ones.
"The central government has released GST compensation of Rs 35,298 crore to States and Union Territories today," the Central Board of Indirect Taxes and Customs (CBIC) said in a Twitter post.
This comes just days before the 38th meeting of the GST Council - the highest decision-making body of the new indirect tax regime - on December 18, where the opposition-ruled states had planned to again raise the issue of delayed payments.
Opposition-ruled states such as Punjab, West Bengal and Kerala have since last month upped the ante for the immediate release of GST Compensation Fund. Their finance ministers had also met Union Finance Minister Nirmala Sitharaman and the issue came up during the just-concluded Winter Session of Parliament.
Sitharaman had in press conferences and industry events acknowledged the dues but never mentioned timelines for making the payment.
She had in the Rajya Sabha on December 12 stated that in 2017-18, the total cess collected was Rs 62,596 crore, of which Rs 41,146 crore was released to states. The remaining Rs 15,000 crore was accumulated in the Cess Fund. In the next year, Rs 95,081 crore was collected and Rs 69,275 crore released to states but "cess accumulated in the Fund was zero," she had said, according to a verbatim transcript of her speech available on the Rajya Sabha website.
It wasn't clear how no money was accumulated in the Cess Fund in 2018-19 when, according to her, only Rs 69,275 crore out of Rs 95,081 crore was paid.
She also hadn't said what happens to the surplus that accumulates in the Fund.
According to Sitharaman, during the current fiscal year that began in April 2019, cess collections till October 31 were Rs 55,467 crore but compensation released to the states was Rs 65,250 crore. "The Government of India has released Rs 9,783 crore more than the amount raised through cess collections (this fiscal)," she had said in the Rajya Sabha.
On Monday, Sitharaman, speaking at a conference, assured states that the Centre will not "renege" on the promise of GST compensations.
The delays to pass on the money are due to slippage in collections and the states have nothing to be embarrassed about, she said. "It is certainly their right, I am not denying. At the same time, I am also making it clear to say that I am not reneging on that. States will be given. We are certainly not reneging on it. I admit that the payments which had to go the compensation head have not been given for two months slot." "I do not want them (states) to feel embarrassed because it's not their fault nor is it personally my fault," she said, admitting that GST collections have been much lower than expectations.
She attributed the dip in collections to a slip in GST filing due to natural calamities and also due to a slowdown in consumption that has a direct impact on the collections.

GST council may hike rates for various items to meet revenue shortfall

With pressure on revenue collection, the goods and services tax (GST) rates and slabs may be raised during the GSTCouncil meeting next week.
The all-powerful GST Council, headed by Finance Minister Nirmala Sitharaman, is set to meet on December 18 in the backdrop of lower-than-expected GST collection and pending compensation to many states.

As of now, there are four slabs under the GST regime -- 5, 12, 18 and 28 per cent. Goods and services under the 28 per cent category also attract cess over and above the rate, which ranges between 1 and 25 per cent.
A group of officers from the Centre and states, which met on Tuesday to finalise recommendations for rate rationalisation, is said to have considered various options including raising rates from 5 per cent to 8 per cent and 12 per cent to 15 per cent, sources said.
A detailed presentation on rate rationalisation will take place during the GST Council meeting.
The GST Council meeting is also likely to deliberate on raising cess on some products to meet the growing need of compensation, among other issues.
The Council can explore possibility of merger of slabs to bring down the number of slabs to three, sources said.
It is likely to revisit exemption list and explore whether cess can be levied on some services, the sources added.
The Central GST collection fell short of the Budget Estimate by nearly 40 per cent during the April-November period of 2019-20, according to government data.
The actual CGST collection during April-November stood at Rs 3,28,365 crore, while the Budget Estimate is of Rs 5,26,000 crore for these months.
In 2018-19, the actual CGST collection stood at Rs 4,57,534 crore as against the provisional estimate of Rs 6,03,900 crore for the year, he said.
In 2017-18, the CGST collection was Rs 2,03,261 crore.
Meanwhile, India's GDP growth slumped to a 26-quarter low of 4.5 per cent in the second quarter of the current financial year as gross value added to the manufacturing sector contracted for the first time in nine quarters.
The last time GDP grew at a slower pace was in the fourth quarter of 2012-13, when it had expanded only 4.3 per cent.
The compensation requirements have increased significantly and are unlikely to be met from the compensation cess being collected.
This discussion is quite critical as lower GST and compensation cess collections have been a matter of concern in the past few months, according to a letter written by the GST Council to commissioner, SGST, of all states.
The Council has sought suggestions, inputs or proposals as regards measures, on compliance as well as rates that would help in augmenting revenue.

Central GST collection falls short of budget estimate by 40% during Apr-Nov

The Central GSTcollection fell short of the budged estimate by nearly 40 per cent during the April-November period of 2019-20, according to the data presented in Parliament on Monday.
The actual CGST collection during April-November stood at Rs 3,28,365 crore while the budgeted estimate is of Rs 5,26,000 crore for these months, Minister of State for Finance Anurag Singh Thakur said in a written reply in Lok Sabha.

The minister added that the data was, however, provisional.
In 2018-19, the actual CGST collection stood at Rs 4,57,534 crore as against the provisional estimate of Rs 6,03,900 crore for the year, he said.
In 2017-18, the CGST collection was Rs 2,03,261 crore.
The minister said that as many as 999 cases were registered till October in the current fiscal for GST evasion and Rs 8,134.39 crore has been recovered.
During 2018-19, a total of Rs 19,395.26 crore were recovered (1473 cases) and in 2017-18 the recovery was of Rs 757.81 crore (148 cases).
For strengthening monitoring tools to prevent GST evasion, emphasis has been laid on system based analytical tools and system generated intelligence, Thakur said.
"In this connection, the Directorate General of Analytics and Risk Management(DGARM) has been set up by the CBIC. Further, E- way bill squads have been activated for the purposes of random verification of the goods in transit," he said.
The minister also informed the house that it has inserted a new CGST rule which puts restriction that the input tax credit (ITC) availed by a taxpayer shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes.
The capping of ITC would lead to reduction in cases of fraudulent ITC availment as well as increase in payment of tax through cash thereby boosting GST collection, Thakur said further.

GST mop-up crosses Rs 1 trn in Nov over festive demand, anti-evasion steps

Goods and services tax (GST) collection recovered to a seven-month high in November, crossing the Rs 1-trillion mark on account of the festive season demand and anti-evasion measures by the government.
After two months of negative growth, GST mop-up grew by 6 per cent in November over the corresponding period last year to Rs 1.03 trillion, against Rs 95,380 billion in October, the data released by the Ministry of Finance showed on Sunday. These figures are for the month of October, collected in the month of November.

Although the collection figures come as a breather for the government, it is lower than the expected collection rate needed to meet the steep target for 2019-20 (FY20). The government’s monthly GST collection target is around Rs 1.18 trillion.
Being a festival month, GST collection on domestic transactions witnessed a 12 per cent growth — the highest during the year. GST collection on imports continued to see negative growth of (-)13 per cent, against (-)20 per cent in October.
“This is the eighth time since the inception of GST in July 2017 that the monthly collection has crossed the Rs 1-trillion-mark. Also, the November 2019 collection is the third-highest monthly collection since the introduction of GST, next only to April 2019 and March 2019 collections,” the Ministry of Finance said in a release.
Pratik Jain, partner, PwC India, said that while the increase in collection was encouraging, it is difficult to read too much into the numbers for one month, particularly because October was also a month of festivals. “We need to see what the trend is. The Centre has taken steps in the right direction by simplifying compliance, going after tax evaders with more efficient use of technology/data analytics, and not succumbing to the temptation of increasing tax rates. These efforts, coupled with the introduction of e-invoicing from next year, should lead to a gradual increase in GST collections as well, though it would also depend upon the overall economy,” said Jain.
Central GST (CGST) collection stood at Rs 19,592 crore, against Rs 17,582 crore in October. State GST collection was Rs 27,144 crore, up from Rs 23,674 crore in the previous month. The integrated GST mop-up was also higher at Rs 49,028 crore, against Rs 46,517 crore in the previous month.
“The festival season in the month of October caused the rise in revenue figures. Moreover, another major reason for the increase in revenue is the insertion of a new provision which allows credit only to the extent of 120 per cent of invoices available in GSTR-2A as maximum input tax credit. This must have forced taxpayers to discharge liability in cash instead of input tax credit, as all invoices are not uploaded by their supplier,” said Vishal Raheja, deputy general manager-GST, Taxmann.
In order to plug revenue leaks, the government in October decided to restrict input tax credit to 20 per cent of the eligible amount for an entity if its supplier has not uploaded relevant invoices detailing the payments made.
Lower-than-expected revenues are also putting pressure on the Centre to compensate states for the revenue shortfall. The compensation cess collection stood at Rs 7,727 crore during the month, which appears much smaller than the approximately Rs 13,000-crore compensation going out to states on a monthly basis. States are up in arms with the Centre over a delay in payment of compensation dues for August and September, which was to be cleared by October under the bi-monthly payment mechanism.
The exchequer is staring at an overall shortfall of over Rs 2 trillion for the fiscal year. A 12-member panel comprising officers from the Centre and the state was formed in October to recommend measures for revenue augmentation in GST. The panel is examining a mechanism to plug evasion lacunae and increase rates where necessary.
The steep growth target of 16 per cent for CGST in FY20 will likely be revised downwards in the upcoming Budget in February. The CGST collection target was, in fact, revised downwards to Rs 5.26 trillion for the fiscal year, from Rs 6.1 trillion estimated in the interim Budget, following a 9 per cent shortfall in the actual collection for the previous year.
M S Mani, partner, Deloitte India, said that crossing Rs 1 trillion in a festive month after a few months of tepid collections would act as sentiment booster and help in keeping fiscal deficit under control, hoping the trend continues in the coming months.
The total number of GSTR-3B returns filed for the month of October up to November 30, 2019, was Rs 77.83 lakh.
The government is working on measures to plug tax evasion, including data analysis, new return formats, e-way bill, e-invoicing, and mandatory e-ticketing for movie theatres.

GST collection up 6% in Nov, crosses Rs 1 trn after a gap of three months

GSTcollections crossed the Rs 1 trillion mark after a gap of three months in November, growing by 6 per cent to Rs 1.03 trillion aided by festival demand.
The GST collection stood at Rs 97,637 crore in the same month last year while revenue collection under this head was Rs 95,380 crore in October.

After two months of negative growth, GST revenues witnessed an impressive recovery with a positive growth of 6 per cent in November 2019 over November 2018 collections, an official statement said.
According to official sources, the number reflects pick up in consumption and improvement in compliance as well.
Non-intrusive means of tax collection has helped improved compliance, sources said.
During the month, the GST collection on domestic transactions witnessed a growth of 12 per cent, the highest during the year, it, said.
"Of gross Rs 1,03,492 crore in November, CGST is Rs 19,592 crore, SGST is Rs 27,144 crore, IGST is Rs 49,028 crore (including Rs 20,948 crore collected on imports) and Cess is Rs 7,727 crore (including Rs 869 crore collected on imports)," it said.
The statement further said that November 2019 collection is the third highest monthly collection since the introduction of GST, next only to April 2019 and March 2019 collections.
This is the eighth time since the inception of GST in July 2017 that monthly collection has crossed the mark of Rs 1 trillion.
After July this year, when GST collection was Rs 1,02,083 crore, it has crossed Rs 1 trillion in November.
The GST collection on imports continued to see negative growth at (-)13 per cent, but was an improvement over last month's growth of (-)20 per cent, the statement said.
The total number of GSTR 3B Returns filed for the month of October up to November 30, 2019 is 77.83 lakh, it said.
The government has settled Rs 25,150 crore to CGST and Rs 17,431 crore to SGST from IGST as regular settlement, it added.
The total revenue earned by Central Government and the State Governments after regular settlement in the month of November is Rs 44,742 crore for CGST and Rs 44,576 crore for the SGST.
Commenting on the latest GST number, M S Mani, Partner, Deloitte India said crossing Rs 1 trillion in a festive month after few months of tepid collections would act as a sentiment booster.
It will help in keeping the fiscal deficit under control- hoping that this trend continues in the coming months.

Finance commission chief Singh blasts frequent tinkering with GST rates

Fifteenth finance commission chairman NK Singh on Friday called for major changes in the GST structure, including reducing the cumbersome compliance procedures and also doing away with frequent rate changes, to improve collection.
He also pitched for a rationalisation in Centrally- sponsored schemes, and blamed the government for not clearly defining the role of the Niti Aayog, which as of now does not have any powers to take financial decisions.

The comments from the chief of the commission that decides on the revenue distribution between the Centre and the states, come amidst concerns about the continuous fall in GST collection which has not touched the targeted Rs 1 trillion every month barring one month.
"If you do not simplify GST, you will be defeating the very purpose and intention of why we took this far reaching step," Singh told SBI chairman Rajnish Kumar, while delivering the LK Jha memorial lecture at the RBI headquarters here this evening.
"The cumbersomeness of compliance is one of the important factors why I believe that there is a huge scope for improving the revenue realisation from GST," he added.
"Equally, I do believe the frequency with which the rates have been changed is unbelievable. You are playing with the rates of taxation, these are serious issues and these are not rates of mutual accommodation," he said.
However, he noted that despite all these issues, we have seen one of the fastest GST adoption rates and credited same to the prime minister and the then finance minister Arun Jaitley, but stressed on the need to go back to the drawing board urgently.
The changes sought will minimise the cost of compliance, make the system less onerous and finally lead to an improved trajectory of revenue collection.
Singh said the commission has visited nearly all the states in the run-up to the preparation of its report and that many of them have "complained that the fiscal autonomy has been circumscribed by GST".
"I think the GST Council needs a restructuring in terms of what is good, not only in terms of the negotiating strengths of one state versus the other, it needs to function in a manner so that the rims of India are not really seriously compromised," Singh said.
Noting that there are many as 211 Centrally-sponsored schemes on which the government spends over Rs 3.32 lakh annually, he said ideally these are subjects to be typically handled by the states like employment.
"We need a far more credible policy on rationalization of the Centrally-sponsored schemes and the Central outlays than have been possible so far...this becomes more relevant because the role of the Niti Ayog which is a think-tank and not a financial body, remains somewhat unclear in the financial sphere," Singh said.
He noted that prioritising "political expediencies" over "constitutional misgivings" has ensured that the states haven't complained against such "transgressions".
Singh also hit out against off-budget borrowings by both the Centre and the states saying such instances are "clever" ways to side-step financial reporting requirements.
There is a need to rethink the fiscal partnerships to catapult growth, and not look at it merely as a way to garner more revenue from a particular state.
"Living in a deceitful world of one-upmanship either among the states or between the states and the Centre will only detract our ability to realise our growth potential," Singh warned.
Meanwhile, in the speech that comes months after the Centre abrogated the provisions of Article 370 and the further division of the erstwhile Jammu & Kashmir, Singh seemed to support the power of the Centre to reorganise the states.
"The units of our federation have undergone multiple transformations since 1947. This is because Article 3 empowers Parliament to create new states. While such a provision can be seen as giving the Union too much powers, it has arguably been central to holding us together since it allows us to evolve and respond to sub-national aspirations," he said.
"India is an indestructible Union of destructible states," he concluded.