GST Relief Measures for SMEs on Account of COVID-19: Analysis and Way Forward

1. Introduction

Small & Medium Enterprises (SMEs) are the backbone of our industrial structure as they provide a variety of non-traditional, low technology products, and are also engaged in the processing, preserving, manufacturing & service activities and play a vital role in balanced and sustainable economic growth. The contribution of SMEs to the Indian economy in terms of employment generation, reducing regional imbalances, promoting inter-sectorial linkages, magnifying exports and fostering equitable economic growth potential has been quite marvellous. Therefore, SME in a developing country like India occupy a special place in the industrial sector.

2. Relief Measures Adopted by the Government of India in View of Pandemic Crisis

The Government of India in order to fight against the pandemic and to aid MSMEs in its fight issued various relief measures like tax reliefs, refunds, relaxation by regulatory authorities like RBI, financial help, extension of statutory limitations, etc. However, for the present, we shall be concentrating on the various steps in respect of Indirect taxes including GST.

3. Indirect Tax Reliefs (Taxation and Other Laws Ordinance, 2020)

Immediately after the lockdown, the Government of India announced various measures including issuance of Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020. The said ordinance provides following reliefs in respect of indirect taxes:

• A. Central Excise Returns: Last date of furnishing of the Central Excise returns due in March, April and May 2020 has been extended to 30th June, 2020.
• B. Proceedings and Compliances: Wherever the last date for completion or compliances like completion of any proceedings, issuance of any order, filing of appeal, reply or application, etc., under the Central Excise/ Customs/ Service tax, is from 20th March 2020 to 29th June 2020, the same has been extended to 30th June 2020.
• C. Sabka Vishwas Scheme: The date for making payment to avail of the benefit under Sabka Vishwas Legal Dispute Resolution Scheme 2019 has been extended to 30th June 2020 thus giving more time to taxpayers to get their disputes resolved.

4. Relief Measures under GST (Notifications 30/2020 to 36/2020 dated 03.04.2020)

CBIC has issued various relief measures relating to statutory and regulatory compliance matters under various provisions of GST Law. A brief analysis of the Notifications 30/2020 to 36/2020 dated 03.04.2020 issued in this regard, are summarised hereunder:

A. GSTR-3B – Relief from Interest Payable on Delay Payment of Tax and Waiver of Late Fee Payable under Section 47 of CGST/SGST Act

* If return is filed after such specified dates - Interest shall be payable @ 18% from due date till date of filing of return and no waiver of late fee shall be available.

B. Extension of Due Date for Filing GSTR-3B for the Month of May 2020

C. GSTR-1 – Waiver from Late Fee Payable under Section 47 of CGST/SGST Act

* If return is filed after such specified dates - No waiver of late fee shall be available.

D. Extension of Due Date to 30.06.2020 for Returns Due Between 20.03.2020 to 29.06.2020

• a. S. 39(3): Return for Tax Deducted at Source u/s 51
• b. S. 39(4): Return for Input Service Distributor
• c. S. 39(5): Non-Resident Taxable Person

E. E-way Bill Validity Extension

E-way Bills generated whose period of validity expires during the period 20th day of March, 2020 to 15th day of April, 2020, the validity period of such e-way bill shall be deemed to have been extended till the 30th day of April, 2020.

F. Restriction of Input Tax Credit under Rule 36(4) for February to August 2020

• i. The restriction laid in sub-rule (4) of Rule 36 relating to maximum 10% of eligible ITC that can be claimed by registered person in respect of invoices, debit notes etc. which have not been uploaded by supplier.
• ii. The said condition shall apply cumulatively for the months of February, March, April, May, June, July and August, 2020 and accordingly, the return in FORM GSTR-3B for the tax period of September, 2020 shall be furnished with cumulative adjustment of input tax credit for the said months in accordance with the condition under rule 36(4).

G. Extension of Time Limit for Certain Compliances & Exclusions

i. Where any time limit for completion or compliance of any action, by any authority or by any person, has been specified in, or prescribed or notified under the said Act, which falls during the period from the 20th day of March, 2020 to the 29th day of June, 2020, and where completion or compliance of such action has not been made within such time, then, the time limit for completion or compliance of such action, shall be extended upto the 30th day of June, 2020, including for the purposes of:

• a. The above extension is inclusive of completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval or such other action, by whatever name called, by any authority, commission or tribunal; or
• b. filing of any appeal, reply or application or furnishing of any report, document, return, statement or such other record, by whatever name called, under the provisions of the CGST, IGST, UTGST Acts.

Exclusions from above extension:

The above extension referred to para G above however, shall not apply for compliance of following provisions:

• a. Chapter IV – pertains to time and value of supply
• b. Section 10(3) – Lapse of composition scheme if aggregate turnover exceeds limit; Section 25 – Procedure for Registration; Section 27 – Special provisions relating to Casual Taxable Person and Non Resident Taxable Person; Section 31 – Issue of Invoice; Section 37 – Furnishing details of outward supplies (GSTR-1); Section 47 – Levy of Late Fee; Section 50 – Interest on delayed payment of tax; Section 69 – Power to arrest; Section 90 – Liability of partners of firm to pay tax; Section 122 – Penalty for certain offences; Section 129 – Detention, seizure and release of goods and conveyances in transit
• c. Section 39 - Furnishing of returns, except returns under: (i) S. 39(3) – Return for Tax Deducted at Source u/s 51; (ii) S. 39(4) – Return for Input Service Distributor; (iii) S. 39(5) – Non-Resident Taxable Person
• d. Section 68 in so far as e-way bill is concerned - Inspection of goods in movement
• e. Rules made under the provisions specified at clause (a) to (d) above

H. Specific Clarification for Taxpayers Collecting Tax at Source (Section 52)

i. The said class of taxpayers has been allowed to furnish the statement specified in section 52, for the months of March, 2020 to May, 2020 on or before the 30th June, 2020.

I. Extension of Time Limits under Composition Scheme

• i. Intimation CMP-02 & Statement ITC-03: A registered person opting to pay tax under composition levy (section 10) for the financial year 2020-21 shall electronically file an intimation in FORM GST CMP-02, duly signed or verified through electronic verification code, on the common portal, on or before 30th June, 2020 and shall furnish the statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44 upto 31st July, 2020.
• ii. Statement CMP-08: Due date to furnish statement of self-assessed tax by composition dealer in Form CMP-08 for the quarter ending 31st March, 2020, is extended to 07th July, 2020.
• iii. Return GSTR-4: Due date to furnish return in Form GSTR-4 Financial Year ending 31st March, 2020, is extended to 15th July, 2020.

J. Expedited Customs and GST Refunds

Ministry of Finance by way of a press note dated 08.04.2020 informed that they have decided to issue all pending GST and Customs refund. CBIC has also issued a circular in this regard.

5. Suggested Way Forward under the GST Regime

As can be seen from above, Government has taken lot of initiatives for ameliorating the situation of the businesses especially the SMEs to strengthen them in their fight against the situation posed by the Covid-19 pandemic. However, still much needs to be done regarding the same. Considering the nature of Pandemic, the Government needs to do much more. It can hardly be over-emphasised that Covid-19 has created an exceptional situation, and exceptional situation warrants exceptional solution. We therefore suggest the following immediate steps so that the position of SMEs can be strengthened:

A. Procedures to be Eased

a. Efficient and Professional GSTN:

Procedural difficulties have made GST a challenging task, instead of being a good and simple tax. Even though structurally GST has been well accepted by the industry, its implementation has been with quite a few glitches. Goods & Services Tax Network (GSTN) is purely service providing entity and is only a platform for the management of everything related to Goods and Services Tax throughout India. However, there have been occasions when GSTN has not worked properly, and the sufferer has been mainly SMEs sector since it does not have the best of the professional help and has resource constraints. Few illustrations of such challenges on the GSTN are as follows:

• (i) Consolidated Credit/Debit Notes under Section 34: The Central Goods and Services Tax (Amendment) Act, 2018, amended Section 34 of the CGST Act w.e.f. 01.02.2019, and allowed registered persons to issue consolidated credit/debit notes in respect of multiple invoices issued in a Financial Year. However, till date the said amendment has not been incorporated in the portal and the Portal does not allow the registered person to issue consolidated credit/debit notes in respect of multiple invoices in a financial year. This is clear defiance of law by the GSTN, which is only a portal to implement the law.
• (ii) Clubbing of Financial Years for Refunds (Circular 135/05/2020): The Government vide Circular No. 135/05/2020, in pursuance to the direction of the Hon’ble Delhi High Court in W.P(C) No. 627 of 2019, removed the restriction of not allowing to club two Financial Years for the purpose of filing refund application. However, till date it has not been incorporated on the GSTN Portal.

Our Suggestions: For making SMEs more efficient so that they can cope with the current threat posed by Covid-19 is that GSTN must be made fully accountable to complete the tasks entrusted to them. Further, GSTN can be made a professional organisation with experts of tax, law, accounting and technology manning it, so that it acts like a service provider which is the purpose for which it is set up under the GST Act.

b. Simplified Quarterly GST Return:

The need of the hour is simplified quarterly GST Return. The one proposed by the Government is highly complicated and would increase the already heightened compliance burden.

B. Export Related Issues

Exports help to increase the GDP, contribute towards foreign exchange and are vital for employment generation. However, under GST, the exports have been badly affected. In many cases, despite the recipient of the supply being a person situated outside India, the supplies are charged to GST leading to export of taxes making Indian exports uncompetitive. Further, even when the exports are zero-rated, the procedures for granting of export benefits are such that there are delays and much needed liquidity is not available to the said businesses. We are highlighting herein below the various such issues which need immediate attention of the Government:

• (i) Removal of Irrational 1.5x Capping on Export Valuation: For the purpose of refund on exports the Government has capped value of zero-rated supplies at 1.5 times the value of similar goods supplied in the domestic territory by the same or similar supplier. The restriction or the capping does not have any rational and is loss of earning in Foreign Exchange for India. For Example: Items like Pashmina Shawl / Alphonso Mango / Spices etc. are priced far more in the international market in comparison to Indian Domestic Market. 1 kg of Alfonso in season, can fetch 3-4 Pound foreign exchange when sold in the International Market which is almost Rs. 300-350/Kg. However, in domestic market this price would be anywhere between Rs. 100-150/Kg. Putting a cap of 1.5 times, would restrict the pricing of the mango to around 2 Pounds. Therefore, the capping is without any rationale and should be removed.
• (ii) Zero-Rating of Raw Materials for Exports: Raw materials used in the manufacturing of product for export should be zero-rated, as they were in the pre-GST regime. Since the exporters have to buy the GST paid inputs, input services, and capital goods, the need for working capital requirement has increased manifold in comparison to the pre-GST regime.
• (iii) Easing Place of Supply Rules for Services: Provision of determination for Place of Service should be eased and only criteria for same should be receipt of foreign exchange. By having extremely complicated rules for determining place of supply, it is not only difficult for the SMEs, but more importantly in many cases they are actually providing services to the recipients outside India, which do not qualify as exports. In such cases despite earning foreign exchange they end up paying GST. This makes Indian suppliers uncompetitive in the international market.
• (iv) Repeal of Onerous Rule 96B: The newly inserted Rule 96B which provides for the recovery of refund of unutilised ITC or integrated tax paid on exports of goods where exports proceeds are not realized within the period allowed under the Foreign Exchange Management Act, 1999, should be removed. In such times, when the exporters are taking extra risks and in many cases are unable to receive payments from buyers, to also subject them to pay back GST, is making things more difficult for them.
• (v) Mandatory Provisional Refunds within 7 Days: There are huge delays in issuing of refund of unutilised ITC, and in not more than 5% cases provisional refunds are granted. It is important to note that GST law mandates issuance of 90% of refund on provisional basis to exporters within 7 days. It is suggested that Government should mandate the Authorities to issue provisional refunds within 7 days of issue of Acknowledgment unless the officer has any specific grounds of not issuing provisional refunds, and which he should record in writing.
• (vi) Checking Administrative Excesses: The government should also constantly monitor the problem of exporters and check whether refunds are not being issued for administrative excesses.

C. Measures to Improve Liquidity

Current crisis requires that immediate steps be taken to improve the utilisation of the existing resources and to improve liquidity of the businesses. Following are our suggestions in this regard:

6. Conclusion

SMEs are the lifeblood of Indian economy especially from point of view of employment generation, entrepreneurship and equitable distribution of wealth. Much has been done by the Government for them to cope with the present crisis. It is good that the policy makers are focussing on the SMEs. However, the need of the hour is that the problems faced by the SMEs especially of liquidity and arduous procedural requirements must be continuously understood and pragmatic solutions be provided to meet these challenges. It is important that government continuously monitors whether the policy has been implemented and whether it is giving the desired results. This will help in making improvements in overall implementation of GST in the country.