Impact of change in GST rates, for past period

 

Brijesh Kothary, Associate Partner, Rohan Karia, Principal Associate & Shradha Pandey, Associate, Lakshmikumaran and Sridharan

 

Background

 

The GST Council in its 49th meeting inter alia recommended change in rate of tax on supply of the product 'Rab' from the existing rate of 18% to 5% if sold pre-packaged and labelled and to 'Nil' rate if sold otherwise. It is interesting to note that the above recommendation has come just after Circular No. 189/01/2023-GST dated 13.01.2023 which clarified that 'Rab' is classifiable under Chapter Heading 1702 with 18% GST, based on recommendation of the Council vide its 48th meeting.

 

By virtue of the above recommendation and Circular, the product 'Rab' which is presently taxable @ 18% under entry 11 of Schedule III of the Rate Notification, would be taxable @ 5% or at Nil rate from the date to be notified. The Council also recommended regularisation of payment of GST on 'Rab' during the past period on "as is basis" on account of genuine doubts over its classification and applicable GST rate. Resultantly, the suppliers who were classifying 'Rab' under Chapter Heading 1701 and discharging GST @ 5% under entry 91 of Schedule I of the Rate Notification may not be questioned.

 

Past Precedence

 

The practice of granting periodical concession or waiver from payment of duty/tax for the past period is not unheard of. The Government has issued various Notifications waiving payment of Central Excise duty in terms of Section 11C of the Central Excise Act, 1944 which empowered the Government not to recover duty of excise not levied or short-levied as a result of general practice. Under GST regime, Section 11(2) of the CGST Act empowers the Government to provide exemption under exceptional circumstances by way of a special order in each case. It is seen that the Board has issued various Circulars to clarify that the Government will not recover tax for the past period on account of genuine doubts. It is to be seen if such clarifications, which are themselves subject matter of interpretation, are followed by the tax administration without exception.

 

In view of the ambiguity, change in rate of taxes have also been carried out to provide exemption in respect of Cattle Feed Ingredients such as husk of pulses including Chilka, concentrates including Chuni or Churi, Khanda vide Notification No. 12/2022-CT(R) and Notification No. 13/2022-CT(R), both dated 30.12.2022. Circular No. 179/11/2022-GST, dated 03.08.2022 and Circular No. 189/01/2023-GST dated 13.01.2023 were also issued to clarify that the subject goods are taxable @ 5% and in view of the prevailing multiple interpretations and genuine doubts regarding the applicability of GST, the issue for past periods has been regularised on as is basis.

 

Based on the representation received from the industry from time to time, the GST Council recommended retrospective applicability of 70:30 ratio for goods and services in respect of Renewable Energy Projects for the period upto 31.12.2018 and supply of Fibre Drums @ 12% for the period upto 30.09.2021 to be treated as fully GST-paid, which was clarified by virtue of Circular No. 163/19/2021-GST dated 06.10.2021. Similarly, Circular No. 177/09/2022-GST, dated 03.08.2022 clarified that GST on supply of ice-cream by ice-cream parlors @ 5% without ITC for the period prior to 06.10.2021 is to be treated as fully GST paid to avoid unnecessary litigation.

 

Industries Awaiting Clarity

 

It is pertinent to highlight that the amendment to the Rate Notification [1/2017-CT(R)] has been carried out with effect from 01.01.2023 to prescribe that carbonated beverages of fruit drink or with fruit juice would be taxable @ 28% and Cess @ 12%. Additionally, S. No. 23A of the Service Exemption Notification [12/2017-CR(R)], which provided exemption for the services provided by way of access to a road or a bridge on payment of annuity, has been withdrawn with effect from 01.01.2023. The Board has previously issued Circulars (Circular No. 189/01/2023-GST (supra) and Circular No. 150/06/2021-GST, dated 17.06.2021) to provide some clarity on taxability of such supplies. However, majority of the taxpayers in these sectors are grappling with ongoing investigations and in some cases show cause notices have been issued for demanding differential tax in respect of the supplies made for the period prior to the amendment in notifications. Nevertheless, the GST Council seems to have taken a conscious decision not to regularise these issues for the period prior to the amendment on 'as is basis'. These industries have therefore been left out and are expected to fight their own battle for defending the practice adopted by them amid prevailing multiple interpretations and genuine doubts regarding the applicable rate of GST.

 

Restriction in Refund

 

Section 11C of the Central Excise Act, 1944 allowed for refund of excess duty paid within a period of six months from the date of issue of the exemption notification. However, the Circulars that have been issued under GST laws for providing clarification on the regularisation of payment of GST for the past period on 'as is basis', specifically restricting refund of GST if tax is already paid. Therefore, companies that took a conservative position of paying tax at higher rate in order to avoid any dispute cannot claim refund of the tax so paid. However, companies which had paid lower rate of tax or claimed NIL rate will benefit from such 'as is basis' interpretation by the GST Council thereby creating discrimination.  

 

Clause 142(1) of the Finance Bill, 2023 proposes to give retrospective effect to paras 7, 8(a) and 8(b) of Schedule III of the CGST Act. Resultantly, merchant trading transactions outside India, sale of warehoused goods and high seas sale transactions would not qualify to be supply right from inception of GST. Clause 142(2) however proposes to restrict refund of tax paid on such transactions where the Government has collected taxes. In our view, this practice of selective regularization not only creates a sense of uncertainty, but also signifies that the industry players who take aggressive tax positions may stand a chance to get rewarded over long term.

 

Parting Remarks

 

While the Government has been receptive of the industry's demand for reviewing tax rates from time to time, their selective approach in granting relief only to certain industries may create uncertainty and a sense of mistrust. These industries should bring out their concerns to the Government by way of representations. In addition, restricting refund of excess tax paid for the period prior to the change in tax rates, merely by issuing clarifications, distorts the level playing field for the industry and creates discrimination against similarly placed assessees. It would be interesting to see if the Writ Courts would come to the rescue of taxpayers who had to pay tax based on Department's insistence or issued Credit Notes in respect of the tax which was not required to be paid.

 

[Date: 21/02/2023]

 

(The views expressed in this article are strictly personal.)