CBIC clarification vide Circular No.137/07/2020-GST due to COVID-19 pandemic decodified.

Mohammad Salim*

LL.B, FCA, B.Com (Hons)

1. Introduction:

Due to outbreak of COVID-19 the Government has come up with various compliance reliefs to the tax payers through Notifications No. 30/2020-CT to 35/2020-Central Tax, dated 3-4-2020. Further in order to evaporate the doubts in the minds of the tax payers arising in regard to implementation of such reliefs, Circular No.136/06/2020-GST, dated 3-4-2020 was issued, wherein clarifications were provided in respect of eleven issues. It is worth noting here that the clarifications are generally issued subsequent to the notification, based upon issues faced by tax payers in its implementation. However it was really appreciable that in this case the Notifications along with clarifications thereon were issued on the same date i.e. 3-4-2020.  

However as is said that in tax, doubts always remain and thus even after issuance of clarification on 3-4-2020, certain challenges were still faced by taxpayers in adhering to the compliance requirements under various provisions of the CGST Act on account of the measures taken to prevent the spread of Novel Corona Virus (COVID-19).

Accordingly considering the same the Government has come up with another set of clarifications through Circular No.137/07/2020-GST issued on 13-04-2020.

2. Clarifications issued vide Circular No.137/07/2020-GST

By means of Circular No.137/07/2020-GST, clarification has been issued on six issues out of which three issues (Issue No. 4 to 6) are connected to compliance relief accorded by Notifications No. 30/2020- CT to 35/2020- CT. The remaining three issues (Issue No 1 to 3) are pertaining to refund / adjustment of tax and clarifications have been provided keeping in view of the existing law on the matter and these are not directly connected to said COVID 19 relief notifications.

The clarifications along with analysis thereof on all the six issues covered by said Circular are discussed below:

Issue No.1:

Refund / adjustment of tax paid on advance received for a service contract which got cancelled and for which invoice was issued before supply of service

Issue:

An advance is received by a supplier for a service contract which subsequently got cancelled. The supplier has issued the invoice before supply of service and paid the GST thereon. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns?

Clarification with Analysis:

The above issue caters to an interesting position i.e. invoice has been issued without any supply being made. We all know that as per Section 31 of the CGST Act read with Rule 47 of the CGST Rules, tax Invoice in respect of supply of services is required to be issued within 30 / 45 days of date of supply of service. Thus supply of service is an event prior to issuance of invoice. In order to cater to situations where advance has been received and supply not yet made, Sec 31(3)(d) of the CGST Act mandates issuance of “receipt voucher” (no invoice) which would also include tax charged (as advances received towards supply of services are taxable).

Taxpayers should desist from issuance of invoice without supply as it would result in accounting issues in booking of income for the supplier as well as ITC issues for recipient, as credit cannot be availed till he receives the goods or services or both (Section 16(1) of the CGST Act).

 Anyways coming back to the issue, it has been clarified that in case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim.

Although the matter has been clarified by CBIC and is now binding on GST Deptt but in my personal view if we make a plain reading of Section 34 it appears that in regard to services, credit note can be issued only where the taxable value or tax payable in a tax invoice is found to exceed the taxable value or tax payable in respect of such supply, which is not the case here as no supply itself has been made. However it appears some sort of COVID-19 relief has been provided to tax payers on this issue.

Further it has been clarified that in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01. 

It is pertinent to mention here that credit note should be issued within the time prescribed under Sec 34(2) of the CGST Act viz not later than September, following the FY when supply was made or date of furnishing relevant annual return, whichever is earlier. It is interesting how this law will apply in instant case, where no supply has been made. Taking the date of invoice may be the jugaad to apply the above limitation rule in instant case, considering that the credit note will anyway be linked to such an invoice.

Issue No 2:

Refund of tax paid on advance amount received for a service contract which got cancelled subsequently

Issue:

An advance is received by a supplier for a Service contract which got cancelled subsequently. The supplier has issued receipt voucher and paid the GST on such advance received. Whether he can claim refund of tax paid on advance or he is required to adjust his tax liability in his returns?

Clarification with Analysis:

In case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, it has been been clarified that such a supplier is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules. It is pertinent to mention here that as in this case invoice was not issued, credit note cannot be issued as per the provisions of Section 34 of the CGST Act.

Further it has been clarified that the taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”. It may be noted here that in this case adjustment of tax paid is not permissible.

Issue No 3: Refund of tax paid on goods returned by recipient

Issue:

 Goods supplied by a supplier under cover of a tax invoice are returned by the recipient. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns ?

Clarification with Analysis:

In such a case where the goods supplied by a supplier are returned by the recipient and where tax invoice had been issued, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim in such a case.

Further it has been clarified that in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.  The above clarification is similar to that issued for Issue No. 1 which we has already discussed supra.

 Issue No 4: Zero rated supply without payment of GST after expiry of LUT.

Issue:

Letter of Undertaking (LUT) furnished for the purposes of zero-rated supplies as per provisions of section 16 of the IGST Act, 2017 read with rule 96A of the CGST Rules has expired on 31.03.2020. Whether a registered person can still make a zero-rated supply on such LUT and claim refund accordingly or does he have to make such supplies on payment of IGST and claim refund of such IGST?

Clarification with analysis:

It has been stated in the clarification that Notification No. 37/2017-Central Tax, dated 04.10.2017, requires LUT to be furnished for a financial year. In this regard we may also refer to Circular No. 8/8/2017-GST dated 4.10.2017 wherein inter alia it was clearly stipulated that the LUT shall be valid for the whole financial year in which it is tendered and further that LUT/Bond is a priori requirement for export, including exports to a SEZ developer or a SEZ unit.

Considering the above legal facts a person cannot make zero rated supply in FY 2020-21 without payment of tax, till submission and acceptance / deemed acceptance of LUT. However it has now been clarified that, in terms of notification No. 35/2020 – Central Tax dated 03.04.2020, where the requirement under the GST Law for furnishing of any report, document, return, statement or such other record falls during between the period from 20.03.2020 to 29.06.2020, has been extended till 30.06.2020. 

Therefore, in terms of Notification No. 35/2020-Central Tax, time limit for filing of LUT for the year 2020-21 shall stand extended to 30.06.2020 and the taxpayer can continue to make the supply without payment of tax under LUT provided that the FORM GST RFD-11 i.e. LUT for 2020-21 is furnished on or before 30.06.2020. Further it has been clarified that taxpayers may quote the reference no of the LUT for the year 2019-20 in the relevant documents.  

Issue No. 5:

Due date of deposit of TDS subsequent upon extension of due date of filing of GSTR-7

Issue

While making the payment to recipient, amount equivalent to one per cent was deducted as per the provisions of section 51 of CGST Act, 2017 i. e. Tax Deducted at Source (TDS). Whether the date of deposit of such payment has also been extended vide notification N. 35/2020-Central Tax dated 03.04.2020?  

Clarification with Analysis:

Circular No. 136/06/2020-GST dated 03-04-2020 inter alia states that in terms of notification No. 35/2020- Central Tax, dated 03.04.2020, the tax deductors have been allowed to furnish the returns specified in section 39 (3) of the said Act, for the months of March, 2020 to May, 2020 on or before the 30th June, 2020

However the above circular was silent upon whether the due date of payment of TDS has also been extended or not. The dilemma in this regard was further aggravated in view of fact that Notification No 35/2020-CT excludes Section 39 (except sub-section (3), (4) and (5)) from its purview which means sub-section (7) which governs payment of tax is kept out of the benefit, accorded by said notification. Thus a view appeared that payment of TDS is to be made by 10th of next month only and no extension has been granted. However such a view would have been absurd in view of following facts.

In terms of Section 39(7) of the CGST Act, 2017, every registered person, who is required to furnish a return inter alia under section 39(3), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return. Thus the due date of payment hinges upon the due date of filing of return, meaning thereby if the due date of filing of return is extended, as has been done currently the due date of payment shall also be extended consonantly.

Further in terms of Rule 85(4) of the CGST Rules,2017 the amount deducted inter-alia under section 51, shall be paid by debiting the electronic cash ledger maintained as per Rule 87 and the electronic liability register shall be credited accordingly. Thus in case only payment of tax has been made (without filing of GSTR-7), which has been credited to electronic cash ledger, it will not amount of discharge of liability and liability will be discharged only at time of filing of GSTR-7 by debiting the electronic cash ledger. From above it is aptly clear that even if we make payment of TDS now, it won’t serve any purpose as anyways Government doesn’t get any money as money is lying in your account.

The above view has been corroborated by Circular No.137/07/2020-GST which states that as per notification No. 35/2020-Central Tax dated 03.04.2020, where the timeline for any compliance required as per sub-section (3) of section 39 and section 51 of the CGST Act, 2017 falls during the period from 20.03.2020 to 29.06.2020, the same has been extended till 30.06.2020. Accordingly the date of filing of FORM GSTR-7 by tax deductors for the months March, 2020 to May,2020 was extended to 30th June,2020.

 Accordingly, the due date for furnishing of return in FORM GSTR-7 along with deposit of tax deducted for the said period has also been extended till 30.06.2020 and no interest under section 50 shall be leviable if tax deducted is deposited by 30.06.2020. This benefit will be available for filing of GSTR-7 along with payment thereof for the months of March,2020 to May,2020.

 Issue No. 6:

Whether benefit of Notification No. 35/2020-CT will be available in respect of due date of filing of refund application

Issue:

As per section 54 (1), a person is required to make an application before expiry of two years from the relevant date. If in a particular case, date for making an application for refund expires on 31.03.2020, can such person make an application for refund before 29.07.2020?

Clarification with Analysis:

As per notification No. 35/2020-Central Tax dated 03.04.2020, where the timeline for any compliance required as per sub-section (1) of section 54 of the CGST Act, 2017 falls during the period from 20.03.2020 to 29.06.2020, the same has been extended till 30.06.2020. Accordingly, the due date for filing an application for refund falling during the said period has also been extended till 30.06.2020.

In regard to above it is submitted that in case the period of two years from the relevant date has expired on or before 19.03.2020, such a delay won’t be cured by notification No. 35/2020-Central Tax as same transgresses the date limits provided in said notification viz 20.03.2020 to 29.06.2020.

 3. Clarifications – At a glance

For ready reference the clarifications are summarized as under:-

Issues 1 to 3: Refund / Adjustment of tax in following situations:

Issue No 4:

Taxpayer can continue to make the supply without payment of tax under LUT (on basis of LUT filed for 2019-20) provided that the LUT for 2020-21 is furnished on or before 30.06.2020.

Issue No 5:

The due date for furnishing of return in FORM GSTR-7 (by tax deductors) along with deposit of tax deducted for months March,2020 to May,2020 has been extended till 30.06.2020 and no interest under section 50 shall be leviable if tax deducted is deposited by 30.06.2020.

Issue No 6:

Where the due date of filing of refund application falls during the period from 20.03.2020 to 29.06.2020, the same has been extended till 30.06.2020.

*The author is the Member, Indirect Taxes Committee of PHD Chamber of Commerce and Industry and is author of three sucessful books on GST published by Taxmann Publications.

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Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.