Budget 2020’s Indirect Tax Moves To Boost Domestic Business
A truck sits parked next to shipping containers at the Jawaharlal Nehru Port, operated by Jawaharlal Nehru Port Trust (JNPT), in Navi Mumbai, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

Budget 2020’s Indirect Tax Moves To Boost Domestic Business


Woven around three prominent themes, of ‘Aspirational India’, ‘Economic Development’ and ‘Caring Society’, the Union Budget has given plenty to ponder upon on the income tax front such as incentives in personal income-tax; removal of 15 percent dividend distribution tax; modification of concessional tax schemes for domestic companies; rationalisation of provisions for startups by way of increasing the threshold and periodicity to claim 100 percent deduction on profit; rationalisation of provisions relating to tax audit by increasing the turnover threshold from Rs 1 crore to Rs 5 crore; and a “Vivad Se Vishwas” scheme—on the lines of last year's “Sabka Vishwas” scheme—to clean up direct tax litigation.

However, the measures announced around indirect taxes, albeit few, are no less worthy of taking note of.

GST Law Changes

The government has, like last year, proposed certain amendments to the GST law through the Finance Bill.

Some of the most significant amendments are listed below.

1. It has been proposed to allow input tax credit vis-à-vis a debit note in the year of its issuance, instead of the year of the debit note’s underlying tax invoice.

With this, credit in respect of a debit note issued in say FY19 for an invoice pertaining to FY18 can now be claimed by the recipient by the due date of September 2019 return or Annual Return of FY19, whichever is earlier.

This is a welcome move, for it aligns the credit entitlement provisions with prevailing business practices.

2. A penalty is sought to be levied on any person who retains the benefit of a fraudulent supply of goods and/or services (fake invoices or supplies without issuance of any invoices) or fraudulent input tax credit (without actual receipt of goods and/or services) and on a person at whose instance such fraudulent transactions are executed. This penalty will be equivalent to the tax evaded or ITC availed of or passed on.

3. The offence of a fraudulent availing of input tax credit without invoice or bill has been proposed to be made cognisable and non-bailable, while the persons who retain the benefit of such transactions and at whose instance such transactions are conducted, shall be liable to punishment.

Such amendments have come in light of various high-value bogus billing scams and rackets being unearthed by the government’s investigating agencies in some parts of the country.

But it would be expedient for the enforcement authorities to ensure that bonafide persons or recipients do not have to pass through the rigours of such stringent provisions.

4. The central government would be empowered to prescribe a time limit and the manner for availing transitional credit against certain unavailed credit under the existing law.

Such a move would certainly help those taxpayers whose legacy credit was stuck owing to say technical glitches, improper documentation or non-disclosure in the returns.

It would further cut down on various disputes being raised before the High Courts vis-à-vis the inability to carry forward eligible credit.

Customs Duty Changes

On the customs front, the budget proposals focus on measures to curb injury to the domestic economy on account of uncontrolled import or export of goods. These come in the backdrop of India’s quantum leap in the ‘Trading Across Borders’ parameter of the Ease of Doing Business rankings by the World Bank. India’s rank on this parameter has improved from 146 to 80 in 2018 and further to 68 in 2019.

Some of the prominent amendments to the Customs law include:

1. The introduction of stringent checks on rising imports under free trade agreements which include adherence to rules of origin requirements. This would ensure that no undue claims are made by the importers.

2. Strengthening of the provisions regulating surges in the dumping of goods, and imports of subsidised goods and empowering the central government to apply safeguard measures such as the imposition of safeguard duty, application of tariff-rate quota or such other measures to check increased import of an article.

3. The withdrawal of customs duty exemptions which have outlived their utility, with a further review in September 2020.

4. A provision for recovery of duty from a person against the utilisation of instruments that have been obtained fraudulently under any other law or scheme of the central government, in addition to the Foreign Trade (Development and Regulation) Act.

5. The introduction of an additional 'Health Cess' of 5 percent on the import of medical devices which shall be used for financing the health infrastructure and services.

The health cess has been introduced with twin objectives of giving further fillip to domestic manufacturing of medical equipment and generating resources for health services.

6. Import duty rates have also been hiked for goods like electric motor vehicles, footwear, furniture, and electrical appliances to synchronise the ‘Assemble-in-India’ pitch with the ‘Make-in-India’ anthem.

In addition to these, the government has sought to introduce a “ledger for duty credit” under the customs law where the government shall issue duty credit –

  • (a) in lieu of remission of any duty or tax or levy, chargeable on any material used in the manufacture or processing of goods or for carrying out any operation on such goods in India that are exported; or
  • (b) in lieu of such other financial benefit subject to such conditions and restrictions as may be specified therein. Such duty credit shall be maintained in the customs automated system in the form of an electronic duty credit ledger of the recipient, and the same can be used towards the payment of customs duties.

With a view to boosting exports, the government has proposed a scheme for reversion of duties and taxes on exported products that will be launched this year.

Under this scheme, it is proposed to digitally refund to exporters the duties and taxes levied at the central, state and local levels, such as electricity duties and VAT on fuel used for transportation, that are not getting exempted or refunded under any other existing mechanism.

The new foreign trade policy is also expected to be announced by the beginning of the new fiscal and the government has the task of ensuring that the new and tweaked schemes thereunder align to WTO norms.

As a separate revenue measure, the Finance Minister has also proposed to raise excise duty by way of the National Calamity Contingent Duty on cigarettes and other tobacco products.

Back on GST, it seems the government has missed the bus by not introducing certain clarificatory amendments in the GST laws, which are the need of the hour, like tweaking of the definition of “intermediary” which has been plaguing a majority of companies engaged in backend support services.

Jigar Doshi is Executive Director, and Aditya Nadkarni is Manager, at SKP Group (Nexdigm).

The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.

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