During her February 1 “digital” budget speech, Union Finance Minister FM Nirmala Sitharaman briefly touched on the GST headwinds while praising the highest revenue collection of 1.4 trillion rupees in January 2022.
However, the details are in the fine print, and the 2022 Finance Bill leaves enough room for tax practitioners to put the proposals under a microscope.
The GST proposals appear to introduce stringent restrictions on the use of credit by tying it to precise and timely compliance, use of credit and payment of tax liability on the supplier side, upon which the recipient has no control.
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This can lead to disputes between the recipient and the provider as well as with the government. The Union budget also gives effect to the recommendations of the GST Council regarding the applicability of interest only on the cancellation of credit used and used, the transfer of the balance in the electronic ledger within separate entities.
The extension of the deadline until 30 November of the following financial year for the communication of details of the credit note, the modification of invoices, the TCS declarations and the use of the input tax credit seems to align the respect of the due dates for statutory audit and transfer pricing.
The SEZ law is about to receive radical reforms, allowing states to become partners in the “development of business and service clusters”. The customs administration in the SEZ would be entirely IT-driven, focusing on greater facilitation and risk-based controls.
This reform, which should be implemented from September 30, 2022, will certainly facilitate the conduct of business by the units of the SEZ for the promotion of exports. It will be interesting to see developments on this front over the next 8-9 months.
As in the past two years, the tariff proposals align with the government’s ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives, aimed at promoting domestic sourcing and manufacturing.
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FM Sitharaman has proposed phasing out preferential rates on imports of capital goods and projects and instead applying a moderate tariff of 7.5%.
Customs duty rates would be calibrated to provide a graduated rate structure to facilitate domestic manufacturing of electronics. This could potentially lead to price increases for various electronic devices over the next few months.
One of the important changes proposed on the customs legislative front is the empowerment of customs officers (preventive), customs officers (audit) and the general directorate of fiscal intelligence (DGRI) to recover uncollected/incomplete customs duties against imports.
This proposal appears to reverse some of the recent judgments of the Apex Court, for example, in Canon India Pvt Ltd. and Sayed Ali, where these officers were deemed to lack powers because they were not qualified as “real officers”.
Another notable change is the applicability of the advance ruling obtained under customs law. An advance ruling will now remain valid for a period of three years or until there is a change in the law or facts of the case.
This gives an expiration date to the advance ruling even if there is no change in the law or the facts so that the government and taxpayers are not bound by the same for eternity.
The government appears to have walked a tightrope in balancing growth support with fiscal consolidation in this year’s Union budget, reinforcing and boosting ‘Make in India’ by taxing imports.
(The author is Executive Director, Indirect Taxes – Nexdigm.)