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CA Kishore Kumar, Director – GST & Customs
CS Ashima Agrawal, Specialist – Indirect Tax, PwC India

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Relief measures and Policy relaxations under Indirect Taxes to support India Inc. during Covid-19

Print Document  28 Apr 2019

Entire nation is grappling with Covid-19 situation and Economic wheel has come to a standstill. On 24 March, India shut its $2.9 trillion economy, issuing strict stay-at-home orders to more than a billion people. The decision to close all businesses, suspending Air, Road and Rail transport systems is well intended to prevent the Pandemic taking a giant leap as witnessed in the Western side of the globe. The Indian economy which was already witnessing downward trend since demonetization in 2018, was expected to grow at the rate of 5.3% before the outbreak of the global Corona crisis. The GDP is now expected to grow at 2.5% during this fiscal year as per Moody's report.

During this Pandemic situation, the Government is making all possible efforts to support India Inc. in the form of policy relaxations or incentive schemes to attract new investments into the country or amnesty schemes to settle past pending disputes.

This article aims to discuss some of these relief measures which have been recently announced by the Government under the Indirect tax laws.

On April 01, 2020, The Ministry of Electronics and Information Technology (MeitY) has notified two schemes namely, Production Linked Incentive Scheme (PLI) to boost large-scale electronic manufacturing and Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). Both the schemes aim to address the challenges faced by manufacturers of components and semiconductors. The PLI seeks to provide an incentive in the range of 4% to 6% on notified electronic goods manufactured in India. The list of goods include mobile phones, printed circuit boards (PCBs), photopolymer films etc. Notable that these incentives are linked to the incremental sales and are subject to fulfilling the threshold investment criteria laid down by MeitY in the Scheme.

Likewise, SPECS offers an incentive in the form of reimbursement to the tune of 25% of the capital expenditure incurred for manufacturing of select electronic components in India. The Scheme provides for investment threshold for different categories of components as eligibility criteria to avail the capital subsidy.

These schemes will not only provide fiscal stimulus to ease off the struggle of mobile phone manufacturers in India but will also help to build the entire eco-system around cellular phone industry.

Another important development for mobile phone manufacturers is that the Government has addressed their long pending issue of inverted duty structure. Despite the introduction of GST, the mobile companies were grappling with inverted duty structure leading to credit blockages. The mobile phones were liable to GST at the rate of 12% whereas, some of their critical components and accessories such as battery, charger, power bank, earphones etc. were pegged at 18% GST. Effective April 01, 2020, the Government has increased the GST rate on mobile phones from 12% to 18%, to bring the GST rate on mobile phones at par with its components and accessories. While an increase in the GST rate may lead to hike in prices of mobile phones but it will certainly address the inverted duty structure being witnessed by the industry.

Furthermore, in order to incentivizing the domestic aircraft maintenance, repair and overhaul (MRO) industry, the Government has reduced the GST rate on these services from 18% to 5% with full input tax credit. The reduction in the GST rate is a welcome move and is likely to bring new investments in developing the infrastructure for the MRO industry in India.

During the nation-wide lockdown which has already run in phase two, the entire economic machinery has come to a halt. Every sector of the economy be it agriculture or industrial manufacturing, or construction, is undergoing a turbulent time.

Amidst Covid-19 situation, the government has decided to go slow on introduction of new requirements under the GST law. For instance, the new return formats (ANX-1, ANX-2) to replace existing returns GSTR-1 and GSTR-3B, introduction of e-invoicing & QR code requirements have been deferred to October 01, 2020. These new requirements were initially planned to be introduced from April 01, 2020. The benefits under Merchandise Exports of India Scheme (MEIS) will now be available upto December 31, 2020. These benefits were supposed to end by March 30, 2020 pursuant to WTO ruling pronounced in later part of the previous year. The ruling observed that India's export subsidy schemes, including the SEZs, MEIS, EOU and the EPCG Scheme were inconsistent with the WTO's global trade norms and that India's export subsidy practices stood in violation of WTO's rules. Also, the due date for filing of SEIS scheme for the financial year 2018-19 has been extended to December 31, 2020.

The due date for filing of ISD return (in form GST 6) for the months March 2020 to May 2020 has been extended to June 30, 2020. While the due date for filing of GSTR-1 for corresponding months have not been extended, the Government has provided relief in the form of waiver of late fee where the returns are filed upto June 30, 2020. Likewise, the due date for filing GSTR-3B for the months of February, March and April 2020 has not been extended. However, the Government has provided relief from interest and late fee for delayed filing of return. No interest and late fee will apply in case the delay is upto 15 days from the due date. Where the delay is beyond 15 days, but the returns are filed upto June 24, 2020, the reduced interest rate of 9% p.a. will apply.

With the vehicles stranded on the roads during the lockdown, the Government has extended the validity of E-way bills expiring during March 20, 2020 to April 15, 2020 till April 30, 2020. Also, to facilitate exports of goods and services, the time limit for filing LUT for the year 2020-21 has been extended to June 30, 2020.

To avoid working capital blockages due to expected shortfall in production and sales during first two quarters of the year, the Government has eased the input tax credit provisions under GST. The restriction cap of 10% notional input tax credit over and above the matched credit has been lifted till September 30, 2020. The businesses are allowed to make the cumulative adjustment of 10% credit for the period February to August 2020 in the month of September.

The Central Board of Indirect Taxes and Customs ('CBIC') has initiated a 'Special Refund and Drawback Disposal Drive' to mitigate the hardship caused to the taxpayers (especially MSME's) due to COVID-19 Pandemic. The Principal Chief Commissioners/Chief Commissioners have been instructed to release all GST refunds, Customs refunds and Drawback claims pending as on April 7, 2020.

The State Governments have also announced series of measures to provide relief to tax-payers. For instance, Kerala has announced Kerala Amnesty Scheme 2020 to settle pre-GST regime disputes under its laws namely, Kerala VAT, CST, Kerala Surcharges, Luxuries Tax, and Kerala Agriculture Income. The scheme seeks to provide 100% waiver of interest and penalties and 60%/50% of tax arrears depending on the payment mode opted by the taxpayer (lump sum or in installments). The scheme is available for a limited window till July 31, 2020. Likewise, West Bengal has extended its amnesty scheme from March 31, 2020 to June 30, 2020. This scheme seeks to provide waiver upto 80% of the disputed tax under West Bengal VAT, CST and Entry Tax. Also, some state Governments have taken cognizance of the lock-down situation and extended the timelines of time barring assessment under State VAT and CST laws. The noticeable states are Uttar Pradesh (time-limit for FY 2016-17 has been extended from March 31, 2020 to June 30, 2020), Karnataka (time-limit for FY 2015-16 has been extended from March 31, 2020 to September 30, 2020) and Goa (time-limit for FY 2016-17 has been extended from March 31, 2020 to June 30, 2020).

Today, even the developed economies have been stricken or forced into isolation. They are grappling to find ways to deal with a crisis which will have economic and social shockwaves unseen since World War II. The lockdown measures have confined more than two-fifths of the globe's population to their homes. During this testing phase, both the Central as well State Governments in India have come together to provide all necessary support (social, economic and emotional) and policy relaxations in the form of  easing of input tax credits restrictions, waiver of late fee, extension of timelines for compliances and introduction of amnesty schemes to settle pending disputes. The actual loss can be measured once the lockdown ends and economy is put on tracks, the immediate ask from the Government is to 'Stay Home-Stay Safe'.



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