- within Compliance topic(s)
Mixed Supply
A key challenge that has emerged post GST 2.0, is the distinction between 'composite supply' and 'mixed supply' and their tax treatment, due to widening of the GST rate gap to 13%. While as a concept, mixed supply has emerged way back in matured legislation like Australia, Malaysia and the EU, approach adopted by India differs completely. In India, even a minor ancillary item in a bundled price can tip the entire bundle as a mixed supply and attract the highest tax rate. Other countries have safeguards to prevent such anomalies. Given the importance of promotional schemes to business, we expect appropriate clarifications or amendments in the upcoming Budget addressing minor promotional items bundled with main product.
State Schemes
Currently, state incentive schemes reimburse taxpayers based on the Net Cash GST paid, that is, the tax actually paid from the electronic cash ledger after exhausting the credit ledger balance. With recent GST rate reductions in GST 2.0, output tax liabilities have fallen significantly for many industries, leading to significant balances in the electronic credit ledger. As a result, state incentives are anticipated to be reduced or may be wiped out entirely. The Government should recognise these challenges and consider appropriate amendments to state schemes or provide for refunds of ITC on capital goods and input services to ensure that incentives remain effective.
Refund in case of closure of business
As of today, the GST law does not provide any provision for the refund of accumulated unutilised ITC upon closure of business, leaving significant credit trapped with taxpayers who often feel compelled to maintain registration in the hope of utilising it. The Division Bench of the Sikkim High Court has held that refund is not available in such cases because the statute does not recognise business closure as a ground for refund. While courts in the pre-GST era granted such refunds, the current legal position creates uncertainty and undermines ease of doing business. To support ease of doing business, appropriate amendments or clarifications in the GST law are required in the Budget to allow legitimate ITC refunds on closure.
Rationalization of Custom Duties
The Government, with a view to develop India as a manufacturing
hub for the global market has introduced Phased Manufacturing
Program to promote indigenous manufacturing and assemblies of
various goods. To encourage the 'Make in India' campaign,
the curtailment of import duties surrounding more products such as
electronics, pharmaceuticals, healthcare products, medical
equipments and home appliances may be seen in this budget.
It is expected that budget may also focus on simplifying the
customs duty structure to minimize rate multiplicity, and reduce
classification disputes.
Amnesty Scheme: Clearing the backlog under Customs
A much-needed amnesty scheme under the Customs Law to resolve
long-pending indirect tax disputes is expected. With litigation
tying up crores and burdening businesses, a structured resolution
mechanism would help companies, particularly small enterprises to
clear past dues and move forward. This will not only ease pressure
on courts and customs authorities, but will also enhance ease of
doing business and investor's confidence.
GST Council Recommendations
The industry expects that the key amendments recommended by the 56th GST Council, such as rationalising Section 15 and Section 34 for post-sale discount schemes and omitting the intermediary services place of supply rule will be implemented through legislative changes in the upcoming Budget.
Duty Inversion
While High Courts have granted refunds where ITC accumulated due to different GST rates on the same product at different times, the Government, through FAQs and circulars, has repeatedly denied such refunds. Additionally, with GST 2.0, many businesses are facing increased ITC accumulation, and those with the same rate on inputs and outputs are particularly burdened by credits on services and capital goods that remain unutilised. The industry is, therefore, looking for relief on refund of ITC on services and capital goods in the upcoming Budget.
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