GST Compendium January 2024

Key highlights of the publication

  • Important updates/announcements: The taxability of secondment arrangements has been one of the most debated issues after the apex court’s decision regarding M/s. Northern Operating Systems Private Limited. A significant development to note is that the Board has clarified via an instruction that the ratio of this decision cannot be implicitly applied to every secondment transaction. The evaluation of the various factual matrices, mainly the terms of the agreement between the foreign entity and the group company, would be the significant factor in determining the taxability of such a transaction.
  • Key judicial pronouncements: The Supreme Court dismissed the Revenue’s appeal and upheld the Calcutta HC’s decision, affirming that ITC cannot be denied due to the supplier’s default to pay tax. The HC had pertinently emphasised the trite principle that the purchasing dealer cannot be made to bear the consequences for default of the selling dealer and permitted the entitlement of ITC to the assessee.
  • Important developments in direct taxes: On the direct tax front, the Central Board of Direct Taxes has notified ITR-1 and ITR-4 for AY 2024-25, issued directions for extending the timelines for processing of ITR with refund claims for AY 2018-19 to AY 2020-21, and issued guidelines relating to TDS provisions for e-commerce operators.

Concurrent monitoring: Empowering progress, enhancing impact

What is monitoring?

Monitoring is continuous performance tracking against a scheduled timeframe throughout the project’s lifetime. Monitoring involves systematic and purposeful collection of onground information. It is a recurring process to assess project progress and understand delays, diversions, constraints, and effects (intended and unintended) on the stakeholders.

Monitoring helps maintain a project’s physical and financial health through real-time tracking and reporting. It is an integral part of any social development project and is crucial to ensure the successful implementation of the activities. Developing a customised monitoring framework is a prerequisite for project implementation and ensuring outcomes and impact.

Tax rationalisation

The issue of tax rate rationalisation is yet another area that demands attention. While GST was envisioned as a single tax rate regime, the current structure comprises multiple tax slabs. Simplifying and rationalising these rates can reduce classification disputes, improve compliance, and enhance the ease of doing business. A comprehensive review of the existing rates, considering the revenue implications and industry feedback, is essential for creating a more harmonised tax structure. This move aligns with the government’s vision of ‘One Nation, One Tax,’ providing a more cohesive and integrated tax framework.

Another crucial aspect of GST that demands attention is the inverted duty structure. Certain sectors face a scenario where the input tax credit exceeds the output tax liability, resulting in accumulated credits and financial stress for businesses. Rectifying this anomaly by revising rates or providing alternative mechanisms for credit utilisation can enhance the efficiency of the GST system.

Additionally, the implementation of an e-invoicing system has been a significant step towards digitisation and automation in the GST regime. Expanding the scope of e-invoicing to include all businesses may further streamline the tax administration process, reduce errors, and enhance data accuracy. It also aligns with the broader digital transformation agenda, promoting a technologically advanced tax ecosystem.

GST compliance

In the realm of GST compliance, the introduction of a simplified return filing system has been a positive development. However, there is room for further improvement. Businesses often grapple with the complexity of return filing, and a user-friendly, intuitive interface can go a long way in easing the compliance burden. Moreover, incorporating advanced data analytics and artificial intelligence in the GST network can help tax authorities identify potential tax evasion and streamline the audit process.

The Production-Linked Incentive (PLI) scheme has been a flagship initiative to boost manufacturing in India but aligning it with indirect tax policies is essential for its effectiveness. Integrating the PLI scheme with GST can help businesses seamlessly claim incentives and foster a conducive environment for manufacturing growth. Clarity on the tax treatment of incentives received under PLI would provide certainty to businesses and encourage investments in strategic sectors. Furthermore, extension of existing schemes as well as inclusion of new sectors would certainly help in promoting Government’s ‘make in India’ initiative.

Foreign trade policy plays a pivotal role in India’s economic landscape. Aligning indirect tax policies with the foreign trade policy can enhance export competitiveness and attract foreign investments. Simplifying export procedures, providing quicker GST refunds, and ensuring a hassle-free movement of goods across borders are essential elements to strengthen India’s position in the global market. One of the key demands from the industry is the implementation of the ‘faceless assessment’ mechanism in indirect tax administration. This initiative, which has been successfully introduced in direct taxes, aims to reduce interface between taxpayers and tax authorities, minimising the scope for discretion and corruption. Extending this concept to indirect taxes can further enhance transparency, reduce compliance costs, and instill confidence in businesses.