Through Notification No 02/2019- Central Tax of January 29, the Central Board of Indirect Taxes and Customs (CBIC) implemented most of the provisions proposed in the CGST Amendment Act, 2018. Three schedules and 28 sections of the CGST Act have been amended while the amendment of five sections has been deferred. The amendments that have got folks talking are the amendments to Section 49 and the new clauses 49A and 49B.
If read sequentially, the three sections read as follows: Provided that the input tax credit on account of state tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, state tax or union territory tax shall be utilised towards payment of integrated tax, central tax, state tax or union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.
Notwithstanding anything contained in this chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the government may, on the recommendations of the GST Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, state tax or union territory tax, as the case may be, towards payment of any such tax.
Changes in set-off
Not surprisingly, the wordings of the sections have left everyone flummoxed. A plain reading of the section is not possible due to the manner in which they have been drafted. Going by what we think CBIC intends, it would appear that the sequence of IGST/CGST/SGST to set-off credits would not change. What would change would be the fact that some taxes may have to be paid in cash due to non-availability of set off from the other balances.
A tailor-made example could be an output tax liability of Rs 100 each in I/S/C and input tax credit of Rs 200, Rs 50 and Rs 50 each in I/S/C. As per the present set-off rules, no tax would need to be paid in cash since the output liability equals the input tax credit of Rs 300 and can be sequentially set off. As per the CGST Amendment Act, 2018, 50% of the SGST portion would need to be paid in cash and 50% of the CGST portion would be carried forward.
The lack of examples to explain the amendments to section 49 and the new sections 49A/49B is bound to lead to multiple interpretations and possible litigation. Litigation could also arise on a very basic question: can CBIC impose restrictions on the manner in which taxpayers utilise credits? It would lead to a situation of ‘one nation, one tax, restricted credits.’ Rs 1 lakh crore has been set as a sort of a minimum threshold for monthly GST revenues and actual monthly collections are mapped against this. If GST revenues cross this magical benchmark over the next few months, it could be attributed to the combined effects of sections 49, 49A and 49B.
High-sea sales
There was quite a bit of confusion on the treatment of high-sea sales under GST. The confusion has been put to rest now with an amendment to Schedule III (transactions that would not be considered to be supply of either goods or services) to the CGST Act which has included transactions such as “supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India and supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.”
The Amendment Act also closes an existing loophole in input tax credit as per which credit could not be claimed on a motor vehicle but could be claimed on services of general insurance, servicing and repairs and maintenance of these vehicles. Credit on these services can now be claimed only if credit can be claimed on the motor vehicle. CBIC has also learnt a few new phrases such as “shall be inserted/omitted and “shall always be deemed to have been inserted/omitted”. It’s just an elaborate way to say, retrospective amendment.
Real estate
Considering the give-away mood of the government on the eve of elections, one can expect the GST rate for real estate to be reduced to 5% at the next meeting of the GST Council. If the government is in a very good mood, they may even reduce the rate of tax on cement from 28% to 18%.
Cost of concessions
While these concessions are normal in an election year, there is no clarity on how these concessions are going to be funded. Even after 18 months of GST, not many are aware of exactly how the financial statements of GST are. While the central government keeps insisting that GST is the best thing that has happened to the nation after Independence, many state government budget speeches have had complaints about dwindling revenues post-GST.
Already, the Comptroller and Auditor General (CAG) has pointed out irregularities in the way a part of GST revenue was transferred to states in 2017-18. It said the devolution of IGST, which is collected on the inter-state supply of goods and services and imports, to states did not happen according to the provisions of the law.
The central government, which has been under flak for lack of transparency in recent times, can gain some goodwill by asking the GST Council to disclose to the public everything that has come in, gone out and has been shared with the states after the implementation of GST.
(The writer is a Bengaluru-based tax expert)
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