Implications on GST compliance and litigation during COVID-19

Introduction:

To protect human life from the spread of the COVID-19 outbreak Indian Government preferred for a complete nationwide lockdown. Due to the nationwide lockdown, the control of COVID-19 was significant but at the same time, it had a very worse impact on economic activities. Due to the decline in economic activities, the government had to bear a huge loss in revenue.

To deal with the situation the finance minister announced certain measures:

• Extension in timelines for various compliances under GST.and flexibility of delayed payment of GST with or without interest depending upon the size of business and period of delay.
• Waiver of leviable.
• Expeditious clearance of refund.
• Reduction / Waiver of interest on delay in payment of taxes.
• Simplification in manner of filling returns.
• Extension invalidity of e-way bill
• Deferment of ITC matching required under rule 36 (4)

GST is a tax on the supply of goods and services by supplier to a recipient bythe word supply it means all the transactions associated with it that is a lease, license, sale, transfer, or disposal. The Government requires information in 3 aspects from a taxpayer:

• The value which each taxpayer has made towards outward supplies.
• The data of the value which the taxpayer has received of invert supplies for which the ITC is availed.
• The tax liability which a taxpayer has to deposit either in the form of cash or in the form of ITC.

GSTR I furnish the details of outward supplies which has to be filled every month. The taxes are paid on GSTR- 3B on the 20^th of the month.

Dispute and Damages

Due to the complete nationwide lockdown, the business operations were completely disrupted as a result there were defaults in commitments of business like delay in supplying goods or cancelation of contract for the supply of goods and services. This caused a lot of damages. In business there are regular commitments like rent, lease, construction, etc. these also were affected. If there is a breach of contract or delay in the performance of a contract, the party to the contract can claim for the damages in form of interest, penalty, or fine if agreement so warrant. At the time of receipt as per section 15 of CGST as 2017, GST can apply for such damages. To analyze the implication of GST on the cancellation of the contract, it is very important to determine the time of the cancellation of the contract.

After the Tax Invoice has been issued and GST is deposited by the supplier and before the services are rendered. In terms of Section 34 of the CGST Act, 2017 the supplier has to issue a Credit Load and a liability of tax will be adjusted in return. No refund of the tax paid will be allowed to the supplier to accept where there is no output liability for adjustment.

After receiving an advance, Advance Voucher is issued and GST has been deposited by the supplier; before- issuance of an invoice in terms of section 31(2) of CGST Act 2017 and refund of advance by the supplier. In terms of section 31(3)(e) of the CGST Act 2017, the supplier has to issue a refund voucher. The supplier can apply for the refund of GST paid on such advanced under the category ‘ refund of excess payment of tax’.

Waiver of Leviable

At this time of pandemic COVID-19, humanity stands on the topmost priority and there is disruption of business is there. There is consideration of the complete waiver of suppliers of goods and services of rent, lease, construction, etc. The waiver is between the parties, in terms of schedule I of CGST Act, 2017 then entire consideration will be chargeable to tax. It is very important to document this waiver by each party involved.

Sale Discounts

Due to the continuous complete lockdown for more than 50 days, to revive business and to clear the stalk a huge discount is given to the customers. As a result of this, there is a decrease in the market value of goods, now the availability of funds, etc. The discount is allowed as a deduction under GST law if :

• A discount is given before or at the time of sale and is mentioned in the invoice.
• Post sale discount is established in terms of the agreement entered before the time of supply and especially linked to relevant invoices.
• Input tax credit attributable to the post scale discounts which are based on the documents issued by the supplier has been reversed by the recipient of the supply

Tax Dues Payment from the Customer without Receipt

Every day new commercial challenges are faced in the business due to continuous lockdown. This has lead to an increase in procurement costs coupled with unavoidable tax cost on sale of such procurement. In terms of Section 12 and 31 of the CGST Act 2017, the GST has to be paid even though the amount is not realized by the customer. This is based on the notification 35/2020 – Central Tax Dated April 3, 2020, issued for extending the time limit of compliance of any action taking place between March 20, 2020, to March 29,2020, to June 30, 2020; specifically excluding the time of supply and issuance tax invoice provision from such extended relaxation.

Relief Measures provided by ITC on Supply of Goods During Covid-19 (CSR)

In pandemic COVID-19 personal safety of individuals, as well as the safety of others, is also very important. For personal safety, it is a must that every individual must use masks, wear gloves and sanitizer, etc. These products are not easily available to the public so many organizations, non-government organizations, corporate, etc are distributing these items free of cost to fulfill their social responsibility.

The expense which is incurred for CSR is considered as eligible expenses for the deduction, under Income Tax. As per Section 17(5)(h) of CGST Act, 2017 any good which is given or disposed of in the form of a gift or free sample is not eligible for ITC. This Clause is under litigation.

Credit on Input Tax of Destroyed and Employee Welfare Expenses Goods in Lockdown Period

The sudden lockdown did not give time to anyone including business for recalibration and designing. A number of companies dealing with practicable raw materials and finished products suffered a huge damaged. Under GST ITC of taxes paid on the procurement of raw materials or finished goods has allowed to set off against the future liabilities. Section 17(5) of the CGST Act 2017 restricts the ITC of taxes paid on procurements of goods and finished goods that are stolen, lost or destroyed.

Our Hon’ble Prime Minister, Narender Modi has proactively dealt with pandemic by announcing the complete lockdown. The Union Government has called on its power under the Disaster Management Act (DMA), 2005 and Epidemic Diseases Act (EDA), 1897.

Under provisions of Disaster Management Act (DMA), 2005; the Ministry of Home Affairs has issued order number 40-3/2020 dated April 15, 2020, for containment of epidemic in the country which includes the standard operating procedure for social distancing in workplace offices factories and establishment. New guidelines are necessary to restart the business. To sustain business following expenses has to be taken care of some of them are:

• Transpiration facility from home to workplace and vice versa.
• Expenditure for sanitation facilities like PPE, sanitizer, gloves, etc.
• Stay arrangement if required
• Arraignment of food
• Mediclaim insurance.

According to section 16 of the CGST Act, 2017 ITC of taxes paid on expenses required for employee is allowed.

Section 17(5)  of CGST Act 2017 stipulates the categories of expenses on which ITC is not available but it provides an exception to it which is :

“Provided the input tax credit in respect of such goods or services or both are available then it is necessary for employer to provide the same to his employees under the law for the time it has been imposed.

Extension of E-Way Bills

Due to lockdown, the vehicles were standard on the roads, the business was seeking relaxation on the compliances with these standard vehicles. The e-way bills of these standard vehicles had expired and procedural updation was not possible. The government notified the extension of validity for e-way bills expiring between March 20, 2020, and April 15, 2020, till April 30, 2020; thereby addressing the business’s conference on unwarranted interception on standard vehicles and completion of journey post upliftment of lockdown. 

Some of the tax, legal and compliance changes made during this pandemic period were :

• Announcement on regulatory relaxation during the lockdown. In press note realized by the finance minister on March 24,202; relaxation was given in various things to ease the tension of missed deadlines which were coming under different statutory provisions and schemes. On March 31, 2020, the government brought an ordinance that provided an extension of various time limits under taxation and the Benami Property Acts.
• Board meetings were allowed to be held for three months by video conferences. On March 18, 2020, the Ministry of Corporate Affairs issued a notification that allowed companies to hold board meetings regarding matters like approval of financial statements, boards report decisions on mergers, amalgamation, and take over’s for over a period of 3 months by video conferencing. 
• Litigation strategies shall be revisited due to restricted functioning by courts across India. in March Supreme Court as well as High Courts of several states notified that only urgent matters will be taken. The urgency has to be explained and justified by litigants, otherwise the court will finalize the party.  
• Extraordinary general meetings to be held through video conferences or other audiovisual means. On April 8, 2020, the ministry of corporate affairs allows companies to hold extraordinary general meetings by video conference or other audiovisual means. All the resolutions passed in such a meeting had to be filled with the registrar of the companies within 60 days of the meeting.
• Legal action for knowingly spreading the corona virus.
• COVID-19 related expenses are recognized as CSR. The World Health Organization has declared COVID-19 as pandemic and the government of India treated it as a disaster. On March 23, 2020, the Ministry of Corporate Affairs made it clear that spending of CSR funds for COVID-19 related relief work is eligible CSR Activity.
• New compliance of web form car for all companies/ limited liability partnerships (LLPs). On March 20, 2020, the ministry of corporate affairs MCA released, and advisory with the objective to ensure and generate awareness and confidence on readiness to deal with the pandemic situations. All companies/ limited liability partnerships were requested to fill the form CAR the filling of the form is voluntary and there is no penalty or enforcement.
• Impacts on duties and responsibilities of the employer and the employees way forward. To provide a safe and proper working environment to an employee to prevent infection is the duty of every employer. Employers should take proper measures according to every day’s updated risk assessments which include, allowing the employees to work from home where ever it is possible. As per the provisions of the Epidemic Disease Act, safety precautions must be installed. Such as maintain social distance between employees, disinfecting and cleaning the workplace regularly, providing masks, sanitizers, etc.
• Review of insurance cover. The specific insurance cover should be viewed by the companies to identify the business losses during the pandemic that has been covered in there insurance policies. If it is covered appropriate steps must be taken in this matter and should be intimated to the insurance company.

Conclusion

The relaxation given by the government is much-awaited relief for businesses, as people were looking for alternative methods to cope up with the loss in business and also to protect themselves from COVID-19.

India’s policymaker has understood the problems which the people were facing and to deal with the current pandemic situation they have taken pro-active steps to ease the burden of businesses to a very large extend. The Central, as well as State government, introduced new compliances to minimize some of the advert effect of the lockdown and made regulatory changes which help companies to survive economic shock in the pandemic situations.