Retrospective tax amendment- a financial catastrophe to the Brand India

New Delhi July 3 dmanewsdesk: At the time of inception of Goods and Service tax on 1st July, 2017, a registered taxpayer was allowed to carry forward the accumulated credits under the erstwhile indirect tax regime such as service tax, excise, value added tax. As a procedural requirement, he was required to file an online return ‘TRAN-1’ on the GST portal. Though, the said transition was not smooth enough considering the technical glitches in the GST portal, which had prevented the taxpayers in processing this filing. The due date for filing this form TRAN 1 was 27th December, 2017. Any claim which was not filed on or before this date was considered as lapsed by the concerned authorities.

Pronouncements by various courts of India have been sympathetic with the taxpayers and have ordered the government to extend the time limit of TRAN 1 filing on case to case basis owing to the technical difficulties.

In a recent judgement of Delhi High court in the case of Brand Equity Treaties Ltd. & Others Vs the Union of India, the honourable court held as under:

All the petitioners who have filed or attempted to file form TRAN-1 within the aforesaid period of three years, they shall be entitled to avail the Input Tax Credit accruing to them – They are thus, permitted to file the relevant TRAN-1 form on or before 30.06.2020 – respondents are directed to either open the online portal so as to enable the petitioners to file the declaration TRAN-1 electronically or accept the same manually – Respondents shall thereafter process the claims in accordance with law.

Retrospective Amendment – A heavy blow and will certainly affect the foreign investment and faith, triggering financial crunches in the nation.

The government has retrospectively amended the CGST Act vide Notification No. 43/2020 dated 16th May 2020 to plug the loophole in the law relating to time-limit for transitioning of input credit which may also be a stonewall for the taxpayers who wish to take advantage of this decision.  This amendment seems to negate the Court rulings which allowed credit transitioning beyond time limit, since the power to prescribe time and manner under rule 117 would now flow from section 140.

Introducing a retrospective taxation amendment into the present taxation system is hard on both ends i.e. for the government to implement and for the people to accept. It is a well-known fact that any sudden imposition of a retrospective amendment in tax resulting to imposition of tax burden, generates a huge amount of money flow in the backward direction i.e. from people to the government. The increased money flow results in lack of credit in the hands of the public and they are left helpless with a heavy tax burden on their heads.

Considering today’s scenario of Covid-19 pandemic, where the Government is looking forward to pumping liquidity in the market, the government should allow all the taxpayers who could not file, to file Tran-1 rather than prolonging the litigation unnecessarily.

The said action of the government is contrary to the statement made by the Hon. Prime Minister of India, Mr. Narender Modi himself while addressing the business leaders of France and India in presence of French President, Francois Hollande in 2016 where he said that “I am for stable governance and predictable taxation system. Retrospective amendment is a matter of past. That chapter is closed now”. His reference was focussed on tax terrorism and unpredictable tax system which were prevalent during the previous government regimes. His statement had come out as a huge boost to the industry and foreign investors as a number of multinationals had expressed interest to invest in India.

This retrospective amendment could set a wrong precedent amongst the industry and the foreign investors, who may think that in order to generate revenues the current government has again resorted to extortion through such retrospective amendments, which in the current time cannot be afforded as owing to COVID-19, a majority of multinationals are planning to leave China and are exploring India as an alternative. The government is also marketing brand India aggressively, which is evident from the current stimulus package of Rs 20 lakh crores given by the government under the ‘Atmanirbhar Bharat’ Abhiyan. To add weight to the image of building Brand India, the corporate taxes in India are one of the lowest in the world for a new manufacturer.

The accumulated CENVAT credit is an asset of the taxpayer and it is protected by Article 300A of the Indian Constitution. This cannot be taken away from a taxpayer on the basis of rules and amendments to any act. Any retrospective amendment to be valid must be reasonable and not arbitrary in nature, thus should not violate any fundamental right of a taxpayer.

There has been no denying to the fact that the GST portal has till date not been able to work as per its expectations, on several occasions the embarrassed government had to extend deadlines for various filings on GST portal owing to this. Maximum delays in not filing the TRAN-1 by the taxpayers was owing to this. By such retrospective amendment government is trying to penalise these honest taxpayers instead of those of who are responsible for managing the GST portal.

To survive, a common man is left with two options – either increase the earnings somehow or cut down on basic requirements. The businessmen to continue making profits, will increase the product prices and the consumers will be hit. Eventually, the well-set economic structure will go for a toss. The validity of such retrospective amendment statute might prevail, but it does not have any significance. It will always be referred to as a bad law.

In addition to domestic issues, International transactions will also suffer a heavy blow and will certainly affect the foreign investment and faith, triggering financial crunches. It is never wise on the part of the government to create new revenue sources by retrospective amendments against the will of people.

A very vital point to take into consideration will be the implication of retrospective amendment on the judiciary itself. By retrospective amendment, a government creates or extends the incidence of tax on public. In case of direct tax, the recovery is easier as the charge is created on the principal taxpayer only but in case of an Indirect tax the principal taxpayer has to recover taxes from the subsequent party. This will result into two situations i.e. the principal tax payer will end up losing huge amounts and incur debts for the same or he in order to recover the amount from the subsequent parties will resort to judicial help which altogether will account for a large number of recovery suits.

In my view, the government of India should immediately nullify this amendment and give benefit to the eligible taxpayers in accordance with the various pronouncements of the courts.

Author : Rahul Aggarwal LLB/CA, is practising Chattered Accounted and Lawyer.

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