The monthly collection of GST reached its zenith last month — crossing the Rs 2 lakh crore mark for the first time. The exclusive focus on collections must not lead to a neglect of several chronic irritants and glitches in the day-to-day implementation of GST laws. One such problem is what can be called the time-limit conundrum in taking input tax credit.
At the core of this one nation, one tax philosophy is the merger of several central and state indirect taxes with the attendant benefit of seamless availment of credit on the tax paid on all inputs. The right to take such credit eliminates the cascading effect of levying tax twice.
A simple example illustrates the problem that needs urgent redress. A manufacturer has to pay a monthly tax of Rs 1,00,000. In making his final product, he has used several inputs on which he has paid GST of Rs 60,000. After taking credit of this amount, the manufacturer now has to pay the balance of Rs 40,000 in cash while filing his monthly return, GSTR-3B. But this assessee, like many, has a cash crunch as his clients have not paid his dues. He has only Rs 10,000, resulting in tax arrears of Rs 30,000 for that month. The problem now begins. The GST portal, in its current avatar, will not accept his monthly return till the entire tax is paid. If this manufacturer again faces a shortfall the next month, he will be unable to file a return for that month. In fact, no monthly return can be filed till the previous month’s return is filed.
The time limit for availing of the input tax credit is November 30 of each year. If this manufacturer is not able to pay the balance amount of tax by that time, he permanently loses the benefit of the input tax credit. In the example given above, the manufacturer will lose the credit of Rs 60,000, which is the input tax already paid by him. The inability to pay a shortfall of Rs 30,000, results in a tax liability of Rs 1,00,000.
There is no doubt that taxes cannot remain due indefinitely. But when the law permits the levy of interest on delayed payment of tax, there is no justification for refusing credit on tax already paid on inputs that have been used in the manufacture of final products.
There is an urgent need to alter the GST portal to permit the acceptance of monthly returns even when the full tax is not paid. The portal can record the tax arrears for that month. In the example given, the monthly return can be accepted, noting the shortfall of Rs 30,000 on which interest has to be paid till the dues are cleared. This enables the manufacturer to at least take the credit on the inputs on which tax has been paid.
It is common knowledge that several small and medium enterprises do not receive payments despite the limit of 45 days imposed under the Micro, Small and Medium Enterprises Development Act, 2006. In several cases, supplies made to government agencies remain unpaid for months with no effective legal recourse. The time-limit conundrum is simply a matter of practical difficulty and need not await any judicial interpretation.
The injustice can be illustrated by an income tax example. The tax liability is on the net income, which broadly means the total sales receivables minus the total expenses. If an assessee is unable to pay the income tax within the time limit, it will be highly unfair to make him pay tax on the total sales and disallow the expenditure on purchases. All that the law can provide is interest and penal action if the default persists. Equally, a manufacturer, on purchasing duty-paid inputs, acquires a right to take credit for such duty. This right ought not to be denied because he is not able to pay the remaining tax in cash. In reality, it compounds the problems of beleaguered assessees, sometimes leading to a point of no return.
The refusal to accept returns till the entire tax of each month is paid has affected thousands of taxpayers. The GST portal needs to be modified so that all returns are accepted, with those in arrears being subject to interest. The law can mandate the clearance of tax arrears by November of each year, and the failure can be subject to higher interest and penalty.
The GST Council must act urgently to redress this monthly injustice practically because the default is not deliberate in most cases but due to adverse business circumstances that are beyond the control of thousands of small and medium taxpayers. Till the GST Portal accommodates monthly returns even with a shortfall, the time limit of November 30 prescribed for availing input tax credit should not be enforced.
The writers are advocates and members of the Tamil Nadu Advisory Council.
Views are personal
