The manner in which the law is developing, the CGST/IGST Acts might as well be renamed ‘The Input Tax Credit Act’. One has lost track of how many amendments have been made to the sections and rules on input tax credit (ITC) since the introduction of GST. When introduced, there was talk of “seamless” flow of input tax credit in GST.

This has now changed to “less” flow of input tax credit, courtesy a host of restrictions on availing ITC. Budget 2022 does its bit to impose further restrictions on availing and utilising input tax credit. Dissecting the provisions on GST in Budget 2022 should be done in two parts: the speech of the finance minister and the proposed amendments to GST laws.

The difference between the two is quite stark: the Budget speech waxes eloquent on how GST has been a success in India while the amendments continue to impose further restrictions on availing input tax credit and filing of returns. In a rare occurrence, the finance minister deviated from the written script and announced extempore that GST returns for January 2022 have come in at Rs 1,40,000 crore, an all-time record.

The figure does look high if one takes into account the fact that a good population of taxpayers were either down with Omicron or were recovering from it in January 2022. It is clear that artificial restrictions on input tax credit (mandating taxpayers to avail credit only on their input invoices that show up in GSTR 2B) and aggressive tax collections by the department (pay now, rest later) have contributed to the record revenue collections.

These numbers have probably prompted the finance minister to estimate an almost 16% increase in GST to Rs 660,000 crores in the Budget Estimates for 2022-23.

The Budget estimates for 2022-23 should be met with a stronger dose of the same medicine: restrictions and aggressive assessments. The Budget speech also highlighted the fact that GST laws have now become progressive and fully IT-driven, a fact that many taxpayers and their advisers who visit the department daily would not agree with.

The proposed amendments to GST laws are a mixed bag of beneficial and not-so-beneficial proposals. Taxpayers could risk losing their registration if they do not file their returns for a period of three months (Section 29). 

One of the beneficial clauses is an extension of the time limit for issuing credit notes from September to November of the financial year. While welcoming this provision, the only question from taxpayers would have been, “Why not December?”

Similarly, the due dates to rectify errors in the furnishing of returns have also been extended till November. The “matching concept” that was proposed when GST made its ‘arangetram’ never really took off.

Budget 2022 nips this in the bud by amending the sections that mandated a two-way communication process. In short, taxpayers can only avail input tax credit on the invoices that are both in their books of account as well as auto-populated in GSTR 2B.

An amended Section 49 states that it can provide for prescribing restrictions for utilising the amount of credit available in the electronic credit ledger. It can also provide for prescribing the maximum proportion of output tax liability which may be discharged through the electronic credit ledger. It has almost become a habit for Budgets to introduce some provisions with retrospective effect.

The tax department has been showing and attempting to explain to taxpayers across the country Section 50(3) of the CGST Act, which prescribes an interest of 24% (reduced to 18% in Budget 2022) for input tax credit wrongly availed and utilised. The Section has also brought in some decent revenues.

Dreaming of a fortune, Budget 2022 makes the Section applicable with retrospective effect from 1st July 2017. They also made sure that similar amendments are made in the SGST and UTGST Acts. Late fees are going to be levied for delays in filing returns.

Missed opportunities

Annual budgets are not expected to boil the ocean as far as GST amendments are concerned; that is the task of the GST Council. With Council meetings becoming a rarity, annual budgets can be used to bring in amendments that cannot wait.

Budget 2022 has missed a trick in not taking a cue from the Direct Taxes provisions in the same Budget as far as reducing litigation is concerned and extending the same to GST.

In GST, different jurisdictional Authorities for Advance Rulings (AAR) have given contrary opinions on the same query. Budget 2022 could have brought in a structure to plug this issue. Some time back, there was talk of a National AAR but no action seems to have been taken on this. Take more, give less could well become a theme for annual budgets.

Another area where Budget 2022 missed an opportunity was to bring clarity on levy of GST on crypto-currencies, just as they have done for direct taxes. Maybe that is an agenda item for Budget 2023.

Taxpayers across the country are receiving an eclectic variety of communication from the tax authorities. Some are called ‘Endorsements’ and ask the taxpayers to produce books of accounts and documents without referencing section numbers.

Some are asking for payment of interest for delayed filing of returns without elaborating the number of days of delay. Some others state that input tax credit has been claimed though it has not been claimed.

The Central Board of Indirect Taxes and Customs (CBIC) should come out with some guidelines on the issue of notices and a proper process to seek information from taxpayers. To date, taxpayers have had a rather rough journey as far as GST laws are concerned. One can only hope that GST assessments do not become rougher.