Reducing pre-GST load - Budget follows theme of minimum and relevant changes

The new finance minister has approached the Budget in a balanced way, adopting a taxpayer friendly approach and opening avenues to increase tax collections mystified in litigation during the pre-GST regime. 

The selective focus on driving “Make in India” has been continued to give a boost to the domestic industry. This has been done by using a three-pronged approach—announcing exemptions for raw materials and capital goods for manufacture of specified products; increasing rates for products imported into India (as well as manufactured) to create a level playing field (tariff barrier); granting end use based exemptions to incentivise the manufacture of specified products to encourage higher value addition in India.

Customs has also seen the introduction of anti-abuse provisions with regard to circumvention of countervailing duty against subsidy (Section 9 of the Customs Tariff Act). Further, prosecution has been made applicable to cases where duty scrips or drawback is obtained or utilized fraudulently. 

On excise and service tax, the changes have been minimalistic. Predominantly the focus has been closure of litigation cases pending across the levels. To bolster ease of doing business and unlock taxes stuck in tax disputes, a settlement scheme “Sabka Vishwas Legacy Dispute Resolution Scheme” has been proposed. It will cover disputes in legacy regulations of Central Excise, Service Tax and 26 Other Specified indirect taxes.

The scheme would come into force from a date to be notified and shall be applicable to pending matters up to 30 June 2019. Certain exception has been carved on the applicant to be eligible for the scheme, for instance those who have filed an application before the Settlement Commission; who have been convicted for any offence punishable under any provision of the indirect tax for which he intends to file a declaration. 

The relief under the scheme varies from forty percent to seventy percent of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved. The scheme also purports to provide relief from payment of interest and penalty. For voluntary disclosures, the relief is regarding waiver of interest and penalty on payment of full tax dues disclosed. The scheme also provides that once the person discharged under the scheme shall not be liable for prosecution. The procedural details and rules regarding the Scheme shall be notified at a later date.

This is a fantastic opportunity for taxpayers to review all their pending litigation matters. The scheme covers the entire spectrum – from matters in court, to matters at show cause stage, to matters under investigation or audit, or even to voluntarily identified cases of non payment of taxes. 

On the GST front, certain changes have been proposed to the CGST Act to carry out the amendments that have been approved by the GST Council. The plan to roll our e-invoicing from 1 January 2020 has been reiterated. One significant change proposed under the CGST regulations relates to anti-profiteering. Section 171 is proposed to be amended to suggest that in case the amount determined as “profiteered” has not been deposited by the taxpayer within 30 days, an additional penalty of 10% will apply. Most of the anti profiteering assessment orders are currently in dispute in High Courts, where the provisions have been challenged on various counts, including their validity, sufficiency and enforceability. 

Finance minister affirmed in the Budget speech through various measures (Prescription of electronic mode of payments; Mandating acceptance of payments through prescribed electronic modes and TDS on cash withdrawal to discourage cash transactions), that Government is focused on leveraging on technology and digitalisation which will lead to less-cash economy. 

Overall from an indirect tax stand point, the two key takeaways are the push to “ Make in India” agenda, and the Dispute Resolution Scheme under excise, service tax and multiple other regulations. The theme of making minimum and relevant changes through the Budget process has been continued. 

Divyesh Lapsiwala, Partner Indirect tax, EY India