The GST Council in its 53rd meeting, held in June 2024, recommended insertion of Section 11A in the Central Goods and Services Tax Act 2017 (CGST Act) to grant the government powers to regularise the non-levy or short levy of Goods and Services Tax (GST), where tax paid was short or not paid due to common trade practices.

Though such a provision has not been in place, the GST Council has been recommending issuance of clarifications for regularising applicability of GST on supply of certain goods and services for on as is basis, in view of multiple interpretations and genuine doubts.

Case for further change

The need for insertion of a new provision arises because the present Section 11(1) of the CGST Act only provides for granting either absolute or conditional exemption from payment of tax through notifications, while Section 11(2) of the CGST Act provides for issuance of special order under exceptional circumstances to exempt goods and services. The law, as it stands today, does not specifically grant power to regularise the past practices of the industry (although arguably, Section 11(2) is wide enough to cover the same).

It is worth noting that earlier, the government issued notifications and introduced Section 117 and 120 of the Finance Act 2022, to provide retrospective exemption for supply of unintentional waste produced during the fish meal production process.

Given the complexities of GST laws and multiple tax rates, providing relief and guidance to the industry by having a dedicated provision in law may not only help in taking corrective actions but also reduce litigation.

Central excise provides the inspiration

The idea seems to be borrowed from Section 11C of the Central Excise Act 1944 (CE Act), which grants power not to recover duty of excise not levied or short-levied as a result of general practice. The provision has been used verbatim in the draft Central Excise Bill 2024 which is supposed to replace the existing CE Act. One can therefore take a cue that the government intends to grant similar relief to taxpayers under GST regime as well.

As on date, the GST Council has recommended exemption for various goods such as cattle feed ingredients, renewable energy projects, fibre drums, ice-cream, etc. to regularised non-payment of tax on as is basis. As per the recent recommendations, it appears that similar benefit is also proposed to be granted in respect of sprinklers, poultry keeping machinery, co-insurance premium apportionment, ceding commission, reinsurance services, etc.

Denying refunds

The most important take away from the regularisation process followed under GST regime is that the taxpayers who have discharged higher taxes, either on their own or on insistence from the authorities, are not allowed to claim refund of the taxes so paid. This is one striking contrast as compared to the provision under the central excise regime, where the duty paid in excess of that payable on goods can be claimed as refund within six months from the date of issuance of notification.

Under central excise regime, the notifications issued under Section 11C of the CE Act enabled the duty not to be levied based on the prevalent practice to bring uniformity across the trade. Consequently, the assesse could seek relief not just from payment of excise duty but also from additional duties. In some cases, the confirmed demands have also been set aside and refunds were permitted where duty was collected prior to issuance of notification. However, the Supreme Court had drastically curtailed the applicability of notifications issued under Section 11C of the CE Act only to cases involving non-payment or short payment of duty.

How to sync practice with law

Some of the issues that may require immediate attention of the government for issuance of notifications once Section 11A of the CGST Act is introduced and notified are:

* Demand for repayment of refund of tax paid on export of goods where the inputs or capital goods are imported under the claim of exemption from payment of Integrated Tax in terms of Rule 96(10) of the Central Goods and Services Tax Rules 2017 (CGST Rules), particularly for the period from 13 October 2017 to 8 October 2018.

* Demand for payment of tax on issues relating to internally generated services, corporate guarantee and secondment of expats, where input tax credit is not fully available in terms of second proviso to Rule 28(1) of the CGST Rules up to the date of issuance of clarification through circulars.

* Demand for repayment of refund of input tax credit on input services and capital goods for products with inverted tax structure in terms of Rule 89(5) of the CGST Rules for the period up to 30 September 2022.

* Demand for retrospective payment of tax at the rate of 28% on the face value of bets placed or the chips purchased on companies engaged in providing online gaming and casino, in terms of Rule 31B and 31C of the CGST Rules for the period up to 30 September 2023.

At present, the industry is hoping for implementation of a provision which allows refund of the taxes paid in excess to the government. This would ensure that the taxpayers are not discriminated based on their appetite to contest any tax demands with the expectation of relief under Section 11A of the CGST Act notifications or some amnesty schemes. One can expect clarity over the issue based on the wordings of the provision to be inserted in the finance bill in the upcoming union budget, scheduled to be presented in this month.