Union Budget 2024-25: Lightening the indirect burden on taxpayers

The Budget has taken up several welcome measures for their benefit and overall trade facilitation

The Economic Survey, being a precursor to the Union Budget, acknowledged the important role played by indirect tax in the Indian economy. It acknowledged that Goods and Services Tax (‘GST’) has reduced logistics cost significantly with a 30 per cent reduction in travel time.

The gross GST collection reached Rs 20.18 trillion in FY24, marking 11.7 per cent increase from the previous year. Over the last seven years GST has matured with significant efforts being made by the government to streamline the procedures. According to the Economic Survey, more than 13 million entities are registered under GST and file returns.

 

Finance Minister Nirmala Sitharaman, in her speech, said that GST is a success. It has decreased tax on the common man, reduced compliance burden for trade and industry and enhanced revenues of the central and state governments. She also committed to support domestic manufacturing and promote export competitiveness by changes in customs duties and exemptions. It has been proposed to undertake a comprehensive review of the customs rate structure over the next six months to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes.

GST relief for taxpayers

GST was introduced in July 2017 and taxpayers were faced with a challenge in implementing the new tax regime as it was complex and a shift from what they were used to under legacy laws. Many interpretational and procedural hurdles were faced by trade and industry which were addressed by the government by way of clarification, notifications and amendments. The pace at which the tax officials tried to bring out clarifications was unprecedented. The repercussion was that the taxpayer was required to keep pace with the changes. Also, there were many interpretation issues which lingered for a while and got sorted either by an advance ruling or High Court Order, as many writs were filed by trade and industry on GST matters. On a cumulative basis, there were various inadvertent errors committed by the taxpayer which thereafter resulted in tax demands.

In a bid to lighten the burden of tax disputes, the government has introduced provisions which waive interest and penalty relating to tax demands raised for the initial years of GST implementation, subject to fulfilment of specified conditions.

The period covered is Financial Years 2017 to 2020. However, cases involving fraud, suppression, or willful misrepresentation do not qualify for this benefit. This is a step in the right direction, considering the challenges encountered by taxpayers during the initial implementation phases of GST, which resulted in inadvertent errors. The government's decision to offer taxpayers the chance to rectify these mistakes by promptly settling their tax liabilities, with waivers on interest and penalties, comes as a long-awaited opportunity. It signifies a proactive approach towards easing compliance burdens and fostering greater tax transparency.

Taxpayers opting for this beneficial provision can resolve their case by paying outstanding tax at any stage up to the commissioner’s appeals level, without paying any interest and penalties. However, if an appeal is already pending before appellate authorities, it must be withdrawn, including a writ before the court. Further, once the waiver is accepted and proceedings are concluded under, the taxpayers are barred from filing further appeals.

On the contrary, an appeal can be filed by the revenue authorities against the order of its lower adjudicating/ appellate authorities and in such cases, the taxpayer shall have to pay additional tax amount as per the revised order within three months of such order to continue enjoying the benefit under this provision. It's important to note that the waiver of interest and penalty does not apply to demands arising from erroneous refunds. Further, no refund shall be available to taxpayers of interest and penalty which have been already paid during closure of assessments. 

Trade facilitation

Since the implementation of GST, there have been instances where the tax was not applied or applied at a lower rate based on the trade practices prevalent in the industry. The premise of these practices is based on understanding of a particular transaction by the trade. These practices evolve over time and became an established norm. In view of the same, a provision has been introduced empowering the government to regularize such past tax position and granting powers not to recover taxes not levied or short-levied.

There was a similar provision under the erstwhile Service Tax and Excise law. Trade groups made representations to introduce this provision under GST and the government has heard the request of businesses. A plethora of litigations would get addressed and it would potentially reduce the financial strain and uncertainty associated such common tax positions.

Single timeline for GST assessments

In a move to settle dual timelines under the GST law for completing assessments in cases involving fraud, willful misstatement and suppression of facts, the government has scrapped old timelines and introduced a single timeline for assessment beginning FY25. The key changes introduced in the new section are:

·        Show Cause Notice (SCN) can be issued now within 42 months from the due date of filing the annual return for any financial year.

·        Assessment to be completed within 12 months of the issuance of SCN. However, this time limit can be extended further by additional six months

·        Overall on can expect to get the assessment completed within five years.

·        Further, a taxpayer shall get the opportunity to pay penalty as follows:

It is important to note that the assessment for the period up to FY24 shall be governed by the existing provisions which provides different timelines for cases involving frauds or not involving frauds.

Expansion of GST exclusion list

The charging section of GST law has been amended to exclude undenatured extra neutral alcohol or rectified spirit used in the manufacture of alcoholic liquor for human consumption from GST levy. State duties or VAT will apply instead.

Following insurance sector friendly entries are to be inserted in schedule III to exclude them from the ambit of supply:

·        Services of apportionment of co-insurance premium by the lead insurer to the co-insurer for the insurance services which are supplied jointly by lead insurer and the co-insurer to the insured persons.

·        Services by insurer to the reinsurer, where a ceding commission or reinsurance commission charged from reinsurer.

Reform in summons

Proper officer has power to summon any person whose is considered necessary for any inquiry in same manner as provided in the case of a civil court under the Code of Civil Procedure. And, the said inquiries are deemed to be a “judicial proceeding” within the meaning of Section 193 and 228 of Indian Penal Codes, which provides for fine and prosecution for non-compliances.

In the past couple of years, various instances have been observed where the Investigating authorities were resorting to issuance of summons for instructing the appearance of MD / CEO / CFO / similar officers in the first instances. This was actually not warranted and in fact to ensure the exercise of power for issuance of summon judiciously and with due consideration, the Board had earlier issued certain guidelines in 2022 as well.

Now, the government has proposed an amendment to give an option that an authorised representative can appear on behalf of the summoned person before the proper officer in compliance of summons issued by the said officer.

Public interest and Customs law

Boosting of domestic production, making domestic product cost effective to increase export competitiveness and product affordable for general public and strengthening of strategic sectors such as nuclear energy, renewable energy, space, defence etc., are key factors which accounts for building the economic strength of the country. To provide a further impetus to such factors, the government has proposed custom duty rate cuts /exemption on the following key products:

·        Mobile phones / cellular devices and its related parts

·        Exemption on few cancer medicines

·        X-ray tubes & flat panel detectors for use in medical x-ray machines under the Phased Manufacturing Programme

·        Exemption / reduction of BCD on 27 critical minerals such as Lithium, copper, cobalt etc.

·        Marine products such as shrimps, fish feed etc.

·        Gold and Silver

·        Leather and textile products

·        Metals such as ferro nickel and blister copper

Environment, domestic Manufacturers 

Keeping a focus on protecting the environment from plastic, non-biodegradable and hazardous products, the BCD on import of such products is proposed to be increased from 10 per cent to 25 per cent. 

Further, to incentivize the domestic manufacturing of telecommunication equipment, the BCD is proposed to be increased from 10 to 15% on PCBA of specified equipment’s. 

The budget has taken a step forward in facilitating the growth of domestic aviation and boat and ship MRO by extending the period for export of goods imported for repairs from six months to one year.

On a similar line, the time limit for re-import of goods for repairs under warranty has been extended from three to five years. Additionally, an amendment has been proposed in the provisions for claim of preferential rate of duty to enable the acceptance of different types of proof of origin as provided in new trade agreements which also includes self-certification.

Unfinished agenda

We can see that the government has taken multiple welcome measures for the taxpayers benefit and overall trade facilitation. But there are few aspects which should have been addressed in this Budget.

Amnesty scheme under Customs is really needed to reduce the pending disputes. Further Advance ruling is a good mechanism where the businesses get certainty on duty implications on trans actions. At the moment, India has only two Advance ruling benches in Delhi and Mumbai. It will helpful if two more Benches are set up in East and South regions.

Further, the government may look into extending the validity of Advance rulings beyond 3 years under Customs unless there are changes in the facts or legal provisions just like the changes made in the proceedings of Special Valuation branch for related party imports.

Under GST, although each State has an Advance Ruling authority, there are instances where on the same transaction, divergent views have emerged. This warrants an establishment of a National Appellate Authority for Advance ruling.

Further, keeping the foundational objective of GST that allows seamless credit to businesses, a simplification of input tax credit norms is desired. All business expenditures should be allowed as credit.

Overall, it has been a budget which has given a lot of relief to trade and industry and the expectation is that the unfinished agenda is also deliberated by the Government.

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By Anita Rastogi, subject matter expert