Liberal GST Relaxations recommended in Sec 16(4) and Appeal in the 53rd GST Council Meeting

The 1st GST Council meeting under the 3rd term of Shri Narendra Modi's NDA government was expected to bring relief to some painful aspects of GST law, and the government paid heed to the demands of the taxpayers, who were diligently represented by the tax professionals.

On numerous platforms, the last government was apprised of the extremely harsh outcomes of some of the provisions of the GST Act and its rules. And thankfully, in the first meeting of the council, liberal relaxations were recommended by the council in the 53rd GST Council Meeting.

Beneficial changes effecting a large number of taxpayers relating to Sec. 16(4) and appeals are being discussed here.

1. Relaxation in the condition of Section 16(4) of the CGST Act: In respect of the initial years of implementation of GST, i.e., Financial years 2017-18, 2018-19, 2019-20, and 2020-21

The GST Council recommended that the time limit to avail input tax credit in respect of any invoice or debit note under Section 16(4) of the CGST Act, through any return in FORM GSTR 3B filed up to November 30, 2021, for the financial years 2017-18, 2018-19, 2019-20, and 2020-21, may be deemed to be November 30, 2021.

It remains to be seen what will happen to the demand order already issued in the following situations:

• Demand already deposited: The notification should specify whether a refund will be granted in such cases.
• Order issued for which an appeal has been preferred: The order will be quashed in the appeal.
• Order issued but appeal not preferred, and the time limit to file an appeal has not lapsed. The notification should clarify whether rectification could be allowed in these circumstances.
• Order issued but appeal not preferred, and the time limit to file an appeal has lapsed. The taxpayer should approach the Hon'ble High Court to condone delay and quash the order of the taxpayer.

2. Insertion of Section 128A in the CGST Act to provide for a conditional waiver of interest, penalty, or both relating to demands raised under Section 73 for FY 2017-18 to FY 2019-20

Considering the difficulties faced by the taxpayers, during the initial years of implementation of GST, the GST Council recommended, waiving interest and penalties for demand notices issued under Section 73 of the CGST Act for the fiscal years 2017-18, 2018-19 and 2019-20, in cases where the taxpayer pays the full amount of tax demanded in the notice upto to March 31, 2025. The waiver does not cover the demand for erroneous refunds.

Many demand orders in the case of ITC mismatch cases were issued because the rate of interest was 18% and most of the orders were issued in FY 2024, i.e., after a gap of 4-6 years. This resulted in interest in the range of 72% (4*18%) to 108% (6*18%) of the amount of tax, depending on whether the taxpayer was at fault or not, and an additional penalty of 10% or Rs. 10,000, whichever is higher, was also levied.

This is a welcome relief, but its implementation remains to be seen, and the scenarios detailed above should be applicable in this case as well.

3. Amendment in Section 107 and Section 112 of the CGST Act for reducing the amount of pre-deposit required to be paid for filing appeals under GST

The GST Council recommended reducing the amount of pre-deposit for filing appeals under GST to ease cash flow and working capital blockage for the taxpayers.

4. Time for filing appeals in the GST Appellate Tribunal 

The GST Council recommended amending Section 112 of the CGST Act, 2017 to allow the three-month period for filing appeals before the Appellate Tribunal to start from a date to be notified by the government in respect of appeal or revision orders passed before the date of said notification.

Earlier, a ROD (9/2019-CT dt. 3-12-19) was issued, which extended the time-line to a later of 3 months from the date of the communication of the order or the date on which the President or State President enters office. But there was difficulty in the interpretation of this ROD in view of the swearing in of the President of GSTAT and GSTAT not becoming effective. The government will issue relevant notifications to address this issue.

5. Relaxation in the condition of Section 16(4) of the CGST Act: with respect to cases where returns have been filed after revocation

The GST Council recommended a retrospective amendment in Section 16(4) of the CGST Act, to be made effective July 1st, 2017, to conditionally relax the provisions of Section 16(4) of the CGST Act in cases where returns for the period from the date of cancellation of registration or the effective date of cancellation of registration until the date of revocation of cancellation of the registration are filed by the registered person within 30 days of the order of revocation.

This clarification only covers cases where a return has been filed within 30 days. If the return is not filed within 30 days of revocation, the paper writer's mind extension till November 30, 2021, as per point no. 1 stated above for FY 2017-18, 18-19, 19-20, 20-21 shall still be applicable.

6. Clarification regarding the applicability of provisions of Section 16(4) of the CGST Act, 2017, in respect of invoices issued by the recipient under the Reverse Charge Mechanism (RCM)

The Council recommended clarifying that in cases of supplies received from unregistered suppliers, where tax has to be paid by the recipient under the reverse charge mechanism (RCM) and the invoice is to be issued by the recipient only, the relevant financial year for the calculation of the time limit for the availment of input tax credit under the provisions of Section 16(4) of the CGST Act is the financial year in which the invoice has been issued by the recipient.

In many cases, during the audit by the department, some expenses on which RCM liabilities were to be discharged, which were missed by the taxpayer, used to be highlighted.

Even on such a deposit of tax, the eligibility of ITC was disputed by the department.

Through this recommendation, the government has sought to put an end to this dispute and has stated that ITC shall be eligible on the basis of the date of the invoice.

To elaborate, the taxpayer is under the obligation to issue a self-invoice in cases of RCM liability on inward supplies. The taxpayer can issue an invoice (belatedly) in the year in which the error is highlighted by the department or on self-discovery, discharge liability, and claim the ITC before the last date as per Sec. 16(4). The only actual liability on the taxpayer in this case will be that of interest on tax payable.