GST Council okays single return a month; differences emerge on sugar cess

The GST Council on Friday approved a simplified return filing framework that would require a taxpayer to file only one return every month against three at present. The Council has set a period of six months for the transition to take place. 

However, there was no consensus on the proposal to levy Rs 3-a-kg sugar cess, and on incentives to promote digitisation. The former evoked sharp protests from Kerala, West Bengal, and Andhra Pradesh in the three-hour meeting via video conferencing, chaired by Union Finance Minister Arun Jaitley. There was also no consensus on reducing the GST rate on ethanol, currently taxed at 18 per cent. 

Two groups of ministers (GoMs) will deliberate further on these matters and submit their reports in a fortnight. Kerala Finance Minister Thomas Isaac, one of the vocal critics of the sugar cess, is part of the panel headed by his Assam counterpart Hemant Biswa Sarma. The other GoM, on digitisation, will be headed by Bihar’s deputy chief minister, Sushil Modi. 

“Transition to the new filing framework will take place in three stages in six months,” Union Finance Secretary Hasmukh Adhia said after the meeting.

Earlier, the GSTR-2 buyer return form and GSTR-3 input-output return form had been suspended. GSTR-1, the seller return, and GSTR-3B, the summary input-output return, were to continue till June 30. Now, says Adhia, GSTR-3B and GSTR-1 will continue till the single return replaces these in about six months. The new system will be rolled out in the second stage. In that, provisional credit will be allowed to a buyer under the GST for six months, based on his own calculations, even if the seller does not upload the deal invoices. 

In the third stage, after the system is deemed to have stabilised, no provisional input tax credit will be allowed for buyers. Input tax credit will be made available only when the seller uploads the invoice. However, liability to pay the tax will be on the seller. "If the seller does not pay the tax, the government will recover it from the seller," said Adhia. If this cannot be done, effort will be made to recover the tax from the buyer, under the law. Those having no transactions and those under the composition scheme will be filing quarterly returns.

Archit Gupta, chief executive at income tax portal ClearTax, said with this staggered approach, transition to an automatic credit claim regime should be smooth. Pratik Jain, partner at consultants PwC India, said the consensus was for a 'fusion model' wherein a single monthly return needed to be presented but credit to businesses would be limited to the extent of invoices uploaded by vendors. "This means invoice matching continues but needs to be done by buyers offline," he explained.  

Abhishek Jain, partner at consultants EY India, said the impossibility of a buyer uploading a missing invoice or to take provisional credit could lead to losses for businesses where the suppliers are not traceable after tax had been paid to them. "It might also impact cash flows on account of delayed credit in case of delay in upload of invoices by sellers," he said.

Sugar cess

Jaitley said the GST Council took note of the distress in the sugar sector, with the cost of production exceeding its market price, resulting in farmers not being paid for the sugarcane they have supplied to mills. 

"The cost of sugar has risen beyond Rs 35 per kg and the market price is between Rs 26 and Rs 28 per kg. Sugarcane farmers are in deep distress…(Hence) can we impose some kind of cess?" was the issue he posed. "After the GST has been implemented, this is the first (such) suggestion to have come up. How are such contingencies to be addressed in the GST regime -- by imposition of cess or temporarily by increasing the tax or by some alternative method of revenue raising?" 

Most states were against the proposal. The non-sugar producing states argued they would not get a portion of the cess collected from taxpayers of their states.  Amit Mitra, the finance minister of West Bengal, said the sugar levy plan violated every principle of the GST. He noted, UP and Maharashtra (the two largest producers) would benefit.

"Sugarcane farmers must be protected. The 3 per cent GST cess (proposed) will fetch only Rs 7,000 crore (Rs 70 billion). Why can't it be met from central budgets, rather than through distorting the GST? I shall agree to a cess only if similar treatment is offered to rubber," said the Kerala finance minister in a tweet after the meeting. The proposed cess will be outside the purview of the compensation cess under the GST and will require a separate law. “The cess will be imposed through an ordinance once the Council approves it,” said a source.

Currently, only compensation cess is within the purview of GST law. It is levied on a handful of 'luxury and demerit' items in the 28 per cent GST slab, to compensate states for revenue shortfall due to the GST implementation for the first five years. The proposal to incentivise digital payments by 2 percentage points was deferred for further discussion.

According to the proposal, a 2 percentage point discount will be available in the GST for those paying digitally, subject to a ceiling of Rs 100 a transaction. This was to be made available for business-to-consumer (B2C) transactions for goods and services that face a tax rate of 3 per cent or more. The incentive will comprise a 1 per cent concession on Central GST and another 1 per cent on State GST. Another view was to have a 'negative list' of items, on which this incentive would not apply.

M S Mani, partner at consultants Deloitte, said such a concessional rate on B2C transactions made digitally was a good idea but required businesses to make several back-end system changes. He felt the ceiling of Rs 100 a transaction was conservative and needed to be increased, if it was to serve as a good incentive.