RNM: Indirect Tax Alert May 2024

GST Calendar –Compliances for the month of May’2024

Nature of Compliances	Due Date
GSTR-7 (Tax Deducted at Source ‘TDS’)	June 10, 2024
GSTR-8 (Tax Collected at Source ‘TCS’)	June 10, 2024
GSTR-1	June 11, 2024
IFF- Invoice furnishing facility (Availing QRMP)	June 13, 2024
GSTR-6 Input Service Distributor	June 13, 2024
GSTR-2B (Auto-Generated Statement)	June 14, 2024
GSTR-3B	June 20, 2024
GSTR-5 (Non-Resident Taxable Person)	June 20, 2024
GSTR-5A (OIDAR Service Provider)	June 20, 2024
PMT-06 (who have opted for the QRMP scheme)	June 25, 2024

Rules for Commencing Recovery Actions within Three Months after the Demand Order is Issued.

In Instruction No. 01/2024-GST dated May 30, 2024, the CBIC has outlined the timelines for starting recovery proceedings. According to Section 78 of the Central Goods and Services Tax Act, 2017 (CGST Act), there is a mandatory 3-month waiting period before recovery proceedings for unpaid tax dues can begin after the taxpayer has received the order. However, the proviso to Section 78 allows tax authorities to shorten this period in exceptional circumstances, provided they document their reasons in writing. The proper officer can then initiate recovery proceedings under Section 79 of the CGST Act.

To ensure the consistent application of this provision, the Central Board of Indirect Taxes and Customs (CBIC) has issued the following clarifications:

1. The 3-month waiting period mandated by Section 78 of the CGST Act is generally required before initiating recovery proceedings for unpaid tax dues.
2. In exceptional cases, the waiting period can be shortened by the tax authorities if they provide written documentation of the reasons.
3. Recovery proceedings under Section 79 of the CGST Act can be initiated by the proper officer once the waiting period is either completed or shortened as per the provisions.
4. The CBIC emphasizes the need for uniformity in the application of these rules to avoid discrepancies and ensure fairness in the recovery process.

While recovery proceedings under Section 79(1) of the CGST Act are generally undertaken by the Deputy Commissioner (DC) or Assistant Commissioner (AC), there are provisions for exceptional circumstances. When it is deemed necessary to initiate recovery proceedings before the completion of the 3-month waiting period from the date of service of the order, the following steps should be followed:

1. Referral to Principal Commissioner (PC) or Commissioner (C):
   • The DC/AC must present the case, including the reasons and justification for expedited recovery, to the PC/C.
2. Examination by PC/C:
   • The PC/C will promptly review the reasons provided by the DC/AC. If the PC/C is convinced that initiating recovery before the 3 months is in the interest of revenue, they must document the justification in writing.
   • The written justification should specify why the taxable person is required to pay the dues within a period shorter than 3 months.
3. Issuance of Directions:
   • After recording the reasons, the PC/C may direct the concerned taxable person to pay the specified amount within the newly defined period.
   • A copy of these directions should be sent to the DC/AC.

These measures are designed to ensure that expedited recovery actions are justified, documented, and approved at the highest levels, ensuring transparency and accountability in the process.

In exceptional circumstances where early recovery of dues is necessary, the following steps should be meticulously followed:

1. Provision of Specific Reasons by PC/C:
   • The Principal Commissioner (PC) or Commissioner (C) must clearly outline the reasons for requiring early payment of dues from the taxable person. These reasons should detail the circumstances prompting such action.
   • Potential reasons may include:
     • High risk to revenue if the 3-month period is observed, such as apprehensions that the taxable person may soon cease business operations.
     • Likely default on dues due to the taxable person’s deteriorating financial conditions or impending insolvency.
     • Anticipation of proceedings under the Insolvency and Bankruptcy Code.
   • Such reasons must be based on credible evidence, which should be documented and kept on record whenever possible.
2. Provision of Specific Reasons by PC/C:
   • The Principal Commissioner (PC) or Commissioner (C) must clearly outline the reasons for requiring early payment of dues from the taxable person. These reasons should detail the circumstances prompting such action.
   • Potential reasons may include:
     • High risk to revenue if the 3-month period is observed, such as apprehensions that the taxable person may soon cease business operations.
     • Likely default on dues due to the taxable person’s deteriorating financial conditions or impending insolvency.
     • Anticipation of proceedings under the Insolvency and Bankruptcy Code.
   • Such reasons must be based on credible evidence, which should be documented and kept on record whenever possible.
3. Procedure Following Issuance of Directions:
   • If directions are issued under the proviso to Section 78 of the CGST Act and the taxable person fails to make the payment within the specified period, the DC/AC shall proceed with recovery actions under Section 79(1) of the CGST Act.

These measures ensure that expedited recovery actions are justified, well-documented, and issued with due consideration to both the revenue interests and the business environment, ensuring fairness and accountability in the process.

The High Court has affirmed the validity of GST notifications that extend the time limit for passing orders for the financial year 2017-18.

FACTS

The Kerala High Court (HC) has issued a judgment upholding the validity of GST notifications that extend the timelines for passing orders under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act) for the financial year 2017-18.

According to the petitioner, the extension of the time limit can only be notified under Section 168A of the CGST Act when actions cannot be completed due to force majeure. The challenged notifications do not specify any force majeure event affecting the passing of orders within the time stipulated by the CGST Act.

Rulings

The GST Council, during its 47th meeting, acknowledged the impact of the COVID-19 pandemic and endorsed the recommendation of the Law Committee. The discretion to determine the duration of the extension, considering the pandemic, lies with the Executive, which acted upon the suggestion of the GST Council. The government is fully authorized to prolong the limitation for concluding proceedings and taking action under Section 73 by issuing a notification under Section 168A in the event of force majeure. COVID-19 constituted a force majeure event, and after considering various factors, the time limit was extended accordingly.

The High Court held that the impugned notifications, which extend the time limit for passing orders under Section 73 for the financial year 2017-18, do not contravene the provisions of Section 168A of the CGST Act.

The Punjab and Haryana High Court has temporarily halted the implementation of a circular that clarifies the taxability of corporate guarantees.

This Alert highlights a recent interim decree from the Punjab & Haryana High Court (HC), halting the enforcement and effects of a Circular regarding the tax treatment of corporate guarantees.

In the Circular, the Central Board of Indirect Taxes and Customs (CBIC) clarified that providing corporate guarantees by an entity to banks or financial institutions for extending credit facilities to other related entities, even without any consideration, constitutes a service supply between related parties under Schedule I of the Central Goods and Services Tax Act, 2017 (CGST Act). Moreover, it specified that following the incorporation of Rule 28(2) into the Central Goods and Services Tax Rules, 2017 (CGST Rules), such services must be valued according to Rule 28(2).

An assessee filed a writ petition before the HC, arguing that the Circular seeks to usurp the adjudicatory powers of the Assessing Authority and the Appellate Authority by clarifying provisions akin to adjudication, invoking a Supreme Court precedent in support.

The HC suspended the enforcement and effects of the Circular concerning the aforementioned clarification and directed the Appellate Authority to adjudicate the case of the assessee without being influenced by said clarification.