|Decisions of the 40th GST Council meeting and other recent updates
The 40th GST Council meeting was held on 12 June 2020 through video conferencing. With the economy slowly gaining pace due to phased lifting of the lockdown, the Council discussed a number of issues such as reducing compliance costs of taxpayers, inverted duty structure in the textile industry, and the shortage of funds to pay compensation cess to the States. The decisions of this meeting and other key recent updates have been captured in this alert.
Relief for small taxpayers (annual turnover up to INR 50 million) in case of late filing of returns due to COVID-19
Reduction in interest liability (February 2020 to April 2020)
Extension of due dates for subsequent tax periods (May 2020 to July 2020)
The Council has also decided to extend the due dates in a staggered manner for the filing GSTR-3B by such small taxpayers for the duration of May 2020 to July 2020 till September 2020. The exact due dates will be notified in due course.
- Earlier, the extended due dates in a staggered manner (up to 6 July 2020) were notified for the filing of GSTR-3B for the duration of February 2020 to April 2020 by small taxpayers with an aggregate turnover in the previous financial year of up to INR 50 million. There was no liability to pay interest if the GSTR-3B was filed by such extended due dates.
- Now, as a further relief measure, it has been decided that in case of further delay in filing GSTR-3B, interest would be charged at a concessional rate of 9% p.a. (instead of 18% p.a.) for the period starting from the extended due date (say, 6 July 2020) till 30 September 2020.
Reduction in late fee for past returns
The GST Council has announced the following measures in relation to waiver/reduction in late fees to clean up the pendency in the GST return filings for the period from July 2017 to January 2020:
The above benefit would be available to taxpayers furnishing their GSTR-3B between 1 July 2020 to 30 September 2020.
One time extension in period for seeking revocation of cancellation of registration
- Nil late fee if there is no tax liability;
- The maximum late fee has been capped to INR 500 per return if there is any tax liability.
It has been decided to provide an opportunity for the filing of an application for the revocation of the cancellation of registration up to 30 September 2020. This will be applicable in all cases where registrations have been canceled till 12 June 2020.
Amendments to the CGST and IGST Acts from 30 June 2020
It has been decided to bring into force certain amendments to the CGST Act and IGST Act, which were approved in the Finance Act, 2020, with effect from 30 June 2020. The details of exact provisions to be brought into force are awaited.
Other recent amendments
Salary paid to directors not liable to GST
The government vide Circular No. 140/10/2020-GST dated 10 June 2020 has finally clarified the GST implications on remuneration being paid to directors in the form of salary or otherwise. The clarifications issued are as follows:
Remuneration paid to independent directors and other directors not in employment of the Company
Remuneration paid to directors who are also the employees of the Company
- Given that such directors are not employees of the Company, their services do not qualify as ‘services provided by an employee to the employer in course of or in relation to his employment’ as per Schedule III of the CGST Act, 2017.
- Accordingly, the Company being the recipient of such services is liable to pay GST under the Reverse Charge Mechanism (RCM) in accordance with Notification No. 13/2017-Central Tax (Rate) dated 28 June 2017.
In the case of directors who are employees of the Company, the following dual implications can arise:
Clarification in relation to GST refund of accumulated ITC pertaining to invoices not appearing in GSTR-2A
- The director’s remuneration, which is declared as ‘salaries’ in the books of the Company and subjected to TDS under Section 192 of the Income Tax Act, 1961, is not taxable to GST in terms of Schedule III of the CGST Act, 2017.
- The part of employee director’s remuneration which is declared separately other than ‘salaries’ in the Company’s accounts and subjected to TDS under Section 194J of the Income Tax Act, 1961 as Fees for professional or Technical Services should be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is, therefore, taxable. The Company is liable to discharge GST on the same under RCM.
- Earlier, the government vide Circular No. 135/05/2020-GST dated 31 March 2020 (the ‘old Circular’) had stated that the refund of accumulated Input Tax Credit (ITC) should be restricted to invoices appearing in GSTR-2A of the applicant.
- However, it was being observed that certain officers had rejected refund claims of accumulated ITC pertaining to imports, ISD invoices, RCM, etc. which do not reflect in GSTR-2A.
- Therefore, to provide relief to taxpayers, the government vide Circular No. 139/09/2020-GST dated 10 June 2020 has now clarified that the restriction on refund of accumulated ITC as the per the old Circular does not in any way impact the refund of ITC on invoices/documents pertaining to imports, ISD invoices, and inward supplies on which GST has been paid under RCM, etc.
Extension of certain due dates under GST in view of COVID-19
Considering the difficulties arising due to the COVID-19 pandemic, the government has issued notifications to extend certain due dates as follows:
||Earlier due date
||Extended due date
|45/2020 - Central Tax dated 10 June 2020
||The time limit for undertaking special procedure in view of the merger of Union Territories of Daman and Diu and Dadra and Nagar Haveli
||31 May 2020
||31 July 2020
|46/2020-Central Tax dated 10 June 2020
||The time limit for issuance of an order on account of partial or full rejection of refund claim
||Any day between 20 March 2020 to 29 June 2020
||15 days after receipt of a reply to the notice, or 30 June 2020, whichever is later.
|47/2020-Central Tax dated 10 June 2020
||The validity of e-way bills generated on or before 24 March 2020 (whose validity has expired on or after 20 March 2020)
||As per validity of each individual e-way bill
||30 June 2020
Extension in the validity of AEO certificates
The government vide Circular No. 27/2020-Customs dated 2 June 2020 has extended the validity of all Authorised Economic Operator (AEO) certificates expired between 1 March 2020 to 31 May 2020 to 30 June 2020, except for those entities against which a negative report is received during this period.
Extension in relaxations granted in relation to Customs procedures
Earlier, the government vide Circular No. 17/2020-Customs dated 3 April 2020 had announced relaxations in the form of allowing parties to furnish an undertaking in lieu of a bond required during Customs clearance under specified provisions of the Customs law. This relaxation has now been extended till 30 June 2020 vide Circular No. 26/2020-Customs dated 29 May 2020.
Relaxation in the validity and last date of filing of duty credit scrips
The Directorate General of Foreign Trade (DGFT) vide Public Notice No. 8/2015-2020 dated 1 June 2020 has announced the following relaxation in relation to the validity and last of filing of Duty Credit Scrips:
- The validity of Duty Credit Scrips issued under MEIS/SEIS between the period from 1 March 2018 to 30 June 2018 has been extended till 30 September 2020.
- In relation to MEIS and SEIS applications, the following relaxations in due dates have been announced:
||Old due date
||Revised due date
|MEIS application which attracted a late cut as on 1 March 2020
||The period between 1 March 2020 and 30 June 2020 shall not be counted, and the last date of submission of applications with late cut should be accordingly re-determined.
|Last date of application with 10% late cut for services rendered in the financial year 2016-17
||31 March 2020
||30 June 2020 (after this date, the application will be time-barred)
|Last date of application with 5% late cut for services rendered in the financial year 2017-18
||31 March 2020
||30 June 2020 (after this date, 10% late cut will be applicable till 31 March 2020)
Further relaxation by the GST Council in relation to ongoing GST compliances is a welcome move, albeit only for small taxpayers. While it seems a decision on the inverted duty structure in the textile, footwear, and fertilizer industry has been postponed to the next regular Council meeting, the Council will hold a meeting in July 2020 with the exclusive agenda of resolving the issue of compensation cess to States.
The clarification issued on the GST implications on the director’s remuneration is in line with the industry understanding and is a timely move given the divergent advance rulings issued on the topic by various state advance ruling authorities. The extension in due dates, along with the relaxations under various other indirect tax laws such as Customs and FTP, will be received well. Such measures also indicate the government’s commitment to minimize the procedural and compliance burden on businesses in these difficult times.