There is no doubt that the changes proposed in the Budget touches every individual residing in this country, whether rich or poor, employers or employees, sellers or consumers. The policies and framework implemented in the Budget sets the roadmap for the economy for at least the coming financial year.
Indirect taxes regime of India is no exception to this. While changes in GST rates and procedures occur throughout the year after GST Council meetings, changes in its statutes are proposed only through the Finance Bill declared in the Budget session of the Parliament. Similarly, major tariff and non-tariff amendments under Customs and Central Excise laws are expected which will definitely have a huge impact on the growing impetus on indigenous manufacturing towards a self-reliant or Atmanirbhar Bharat.
Expected changes in Goods and Services Tax
Despite four years of introduction of GST law in India, there are a plethora of issues which need to be addressed which have been time and again discussed by experts, economists, and industry stalwarts. Reforms in line with the prevailing economic issues and scenarios are also the need of the hour.
It is expected that reforms may be carried out in the auto sector with abolition of GST Compensation cess on sale of two-wheelers and reduction in tax rate to 18% from the present 28%. Two wheelers are used by masses, especially in rural areas and thus, should be taxed optimally. Further in the wake of the ongoing pandemic, health insurance has become a prime necessity, and therefore, a rate reduction from 18% to 5% will give a significant boost to the insurance industry. Further as per demand of the industry specially textiles and fertilizers for a long time now, provision allowing refund of input services in case of inverted duty structure may also be on the agenda of the Finance Minister.
In recent times, GST has often been criticized for its tough compliance requirement and stringent deadlines. It is noteworthy to mention that presently, any rectifications in GSTR-3B can only be made by way of rectification in GSTR-3B of subsequent months, which ultimately makes compliances cumbersome. Therefore, an enabling provision allowing revision of GSTR-3B up to a certain point of time in the same month will provide relief for all businesses across India.
Also, the requirement set in the GST Act providing for six-month time limit for issuance of credit note needs to be reassessed in view of the demands raised by specific industries, particularly those dealing into educational and stationery products whose majority sales take place during the fourth quarter of a financial year or in case of long commercial disputes. The restriction results in difficulty to pass on tax adjustment on sales returns after September. Therefore, this period should at least be extended till the due date of filing of annual return.
There are certain issues where contrary verdicts by advanced ruling authorities and courts have caused ambiguity. One such issue is admissibility of input tax credit on CSR expenses where the words ‘in the course or furtherance of business’ have been subjected to different interpretations.
Further, there has been second advance ruling on the issue of GST liability of use of common services by head office and other branches/units. Such ambiguity is creating uncertainty on critical issues and has become a pain point of companies having an all India presence. It is time that through the Finance Bill, the scope of activities are clearly defined, and the issue is put to rest. Another similar issue is levy of GST on royalty for mining lease. It has been argued that levy of GST is unconstitutional since royalty is itself in the nature of ‘tax’ and there can be no tax on tax. Considering this, the Supreme Court has stayed payment of GST for granting mining lease and royalties in M/S Lakhwinder Singh Versus Union of India W.P. 1076/2021. However, certainty in the upcoming Budget on this issue may provide relief to the mining industry.
It is also expected that suitable decisions regarding the setting up of the GST Appellate Tribunal are taken in the Budget, especially in the wake of overburdening of high courts with GST related matters. The Supreme Court has already directed the government to take steps towards setting up of the authority which somehow has been able to evade the priorities of the lawmakers.
Proposed changes in Customs
Apart from GST, changes are also expected by way of rationalization of rate of duty on imported goods. It is expected that basic Customs duty on copper ores and concentrates is reduced from 2.5% to Nil. This will provide relief to the iron and steel sector of the country. Customs Duty should also be reduced on spare parts used for the manufacturing of medical equipment, which are currently reeling under inverted duty structure. Similarly, critical raw materials used by Aluminum manufacturers are expected to see a decrease in rate of duty. Basic Customs duty on gold is also expected to be reduced from 7.5% to 4%.
In order to ease compliances under customs, the current ICEGATE, DGFT and SEZ online portal should be integrated into a common digital platform which provides all services to users under a single umbrella. A roadmap to this expectation may be set in the coming budget.
In this background, it will be interesting to see how the Budget unfolds and sets the tone for the industry in future. It should aim to strike a balance between focusing on gross collection as well as working towards revival of the economy which is on a revival path but no doubt still reeling under adverse effects of the pandemic.
(Smita Singh is Partner and Ayush Gupta is Associate at S&A Law Offices)
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