GST UPDATE ON ENHANCING THE POWERS OF PROPER OFFICERS

As we are all aware that during the pandemic times GST Council has provided full support by way of extension in due dates and as well as provided relaxation in the compliances that were required to be met by date. But now Council amended a few rules which has led to extension of powers of GST Officers. This amendment has been issued vide Notification No. 94/2020 - Central tax on 22^nd of December 2020. In this update, we shall be discussing the powers extended to the officers.

Rule 21 of CGST Rules deals with registration to be cancelled in certain cases. After clause (d) the following clauses have been inserted

“(e) avails input tax credit in violation of the provisions of section 16 of the Act or the rules made thereunder; or

(f) furnishes the details of outward supplies in FORM GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or

(g) violates the provision of rule 86B”

Coming to clause (e) it requires that the provisions Section 16 are to be complied while availing Input tax credit. One of the provisions that is Section 16(2)( c ) states that “the tax charged in respect of such supply has been actually paid to the Government either in cash or through utilization of input tax credit admissible in respect of such supply”. How will a taxpayer know that the GSTR-3B of that particular month has been filed by his supplier until and unless he sees the GSTR-2B which shall be generated in the next month GSTR-2B. Let us understand with the help of an example. Say an assessee is filing the return for the month of January, as per the above stated provision of Section 16, he has to ensure that the supplier have filed their returns and tax has been paid to the Government. The supplier will file GSTR-1 on 11^th and it will come in GSTR-2A in portal of assessee. But GSTR-3B will be filed by 20^th wherein the tax will be paid by supplier. Hence it will be reflected in GSTR-3B after 20^th only i.e in the next month. But at the same time, asseesee has to file return GSTR-3B. He will have to take credit on the basis of figures reflected in GSTR-2A only. But on the date of filing, nobody will know whether GSTR-3B has been filed and tax is paid by supplier. Hence, it will be very difficult to comply with this condition and cancellation of registration without hearing the assessee is against the principle of natural justice and it will be challenged in court of law and will definitely increase the litigation.

Understanding the next clause of Rule 21, it requires that the details of outward liability in GSTR-1 are to match with GSTR-3B. If it doesn’t then the proper officer has the power to cancel the registration. For instance, if a taxpayer says A has mistakenly failed to show invoice number 25 dated 25/11/2020 in GSTR-1 but has discharged his tax liability correctly in GSTR-3B for the month of November, and then there shall not be a question of cancelling registration. Now option lies with him to show this invoice 25 in GSTR-1 of December 2020 but tax on the same is paid in November then he will not show the same in GSTR-3B of December 2020. But the department officer will invoke cancellation provision without any hearing as the provision of hearing under Rule 21A has been deleted. Hence, it will be cancelled without hearing whereas there is no contravention on part of taxpayer. He is following the route available to him as prescribed by Board. If this happen then he will stopped from running business. Will this be a reason for cancellation of registration by Proper Officer?

The third newly inserted clause has been explained in our other update “GST Update on Rule 86B” as this Rule 86B has itself been newly inserted by way of this notification. We have prepared a detailed update on the same and given to all our netizens.

The above discussed clauses which shall form the basis for cancellation of registration shall not be points to ponder unless and until the taxpayer had been given an opportunity of being heard before cancellation. GST Council by way of amendment in Rule 21A has omitted the words “after affording the said person a reasonable opportunity of being heard” in sub rule (2) of this Rule.

Not to stop here, GST council has inserted sub Rule (2A) in this Rule 21A which reads as below

“(2A) Where, a comparison of the returns furnished by a registered person under section 39 with

(a) the details of outward supplies furnished in FORM GSTR-1; or

(b) the details of inward supplies derived based on the details of outward supplies furnished by his suppliers in their FORM GSTR-1,

or such other analysis, as may be carried out on the recommendations of the Council, show that there are significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder, leading to cancellation of registration of the said person, his registration shall be suspended and the said person shall be intimated in FORM GST REG-31, electronically, on the common portal, or by sending a communication to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said differences and anomalies and asking him to explain, within a period of thirty days, as to why his registration shall not be cancelled.

The highlighted portion requires that the credit to be availed in GSTR-3B shall not be in excess of 5% of GSTR-2B (as per the amended Rule 36(4)). Analysing this with the help of an example, If the goods are in transit, and the supplier has uploaded in the month of June itself and it gets reflected in GSTR-2B in that month, but the receiver has not availed credit as he has not received the goods (as it leads to contravention of section 16 of CGST Act 2017). Now the receiver while filing the return for the month of July shall also consider the credit which was already reflected in earlier GSTR-2B. Will this availment of credit lead to contravention of law and shall be eligible for suspension of registration.

The above amendments have led to increasing the burden on the taxpayer of maintaining accounts and also replying to the notices being issued by the department. But the cancellation of registration without hearing is very hard step. If the registration is cancelled then the business of taxpayer will be stopped. Even if he applies for revocation then also it will take time to restore the registration after reply, personal hearing and decision by officer. Meanwhile, the poor businessman will not be able to continue the business. We think that these amendments should be reconsidered by Government or it will compel the poor taxpayers to knock the doors of Courts and increase the litigation.

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GST UPDATE ON ENHANCING THE POWERS OF PROPER OFFICERS

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