The GST Council decided to remove the power to arrest under Section 69 of the GST Act at its 57th meeting. This move aims to stop harassment of taxpayers. The Council also reduced penalties for small errors and raised the prosecution threshold to ₹5 crore to help many small businesses.
The most significant decision taken by the Council meeting was to divest GST officials of the power to arrest under Section 69 of the GST Act
After having successfully overhauled slabs and rates last year, the GST Council has rightly turned its focus on process reforms. At its 57thmeeting, the Council announced changes in adjudication, registrations, return filing, availing tax credit and refunds. These reforms will not only help existing taxpayers but can also expand the taxpayer base, which is around 1.70 crore.
The most significant decision taken by the Council was to divest GST officials of the power to arrest under Section 69 of the GST Act, 2017. This will likely entail an amendment to the law. In practice, this provision was used to threaten arrest in cases of tax demands exceeding ₹5 crore. While few arrests have actually been made, the power opens up scope for misuse. The GST system allows for attachment of bank accounts and cancellation of registration, anyway, in the event of a tax demand not being met over an extended period, without its being challenged either. There is a process in place to invoke these provisions. For transgressions under Sections 73 and 74, which deal with small errors, penalties are set to be reduced from ₹25,000 to ₹10,000. The Council has sought to shield small taxpayers by raising the threshold for prosecution from ₹1 crore to ₹5 crore. With these proposed changes, the pursuit of 'revenue circle targets' will, hopefully, not lead to harassment.
The Council has also done well to recognise the hardships caused on account of blocked input tax credits and delayed refunds. Allowing input tax credits on a slew of items including health and life insurance taken for employees, telecom towers, free medicine samples, and expired stock that the law requires to be destroyed -- will help ease working capital stress. Similarly, allowing refunds on taxes paid on inverted duty structures will ease cashflow constraints -- these could apply to plant and machinery, capital goods and other services. The Council also decided on other measures which will reduce uncertainty -- time for acknowledging refunds is to be cut to 10 days, 90 per cent of refunds can be claimed in 13 days and GST rates will be reviewed only once a year. Small businesses using e-commerce platforms to sell across States have also been provided some relief, letting them use the warehouse of the e-commerce operator as their place of business to claim input tax credit in that State. This saves them the expenses involved in setting up a place of business in each State.
The faceless assessment scheme too holds out promise of a more seamless experience for taxpayers in dealing with scrutiny of returns, audits, adjudication, appeals and grievance redressal. Since the scheme will eliminate any interface between the taxpayer and tax officials, it can be faster and simpler, improving compliance. The Authority should use the experience of the first set of two lakh GST taxpayers -- registered with Central GST and with businesses in multiple States -- to improve the scheme further.