Ease of business in self-reliant India – Indirect tax budgetary changes

Against the background of a never seen before pandemic curtailing global economic growth and moving towards self-reliance and aatmanirbharta, the Finance Minister presented a very progressive Union Budget 2021.

The changes brought under the Customs law are in line with two key focus areas, firstly, facilitation in Ease of Doing Business by further streamlining the practices pushing towards faceless and time-bound processes. Secondly, Make in India through a protective measure to strengthen domestic production and reduce import duties of major raw materials and inputs used by indigenous manufacturers in key sectors.

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In terms of changes in effective rates of the Customs duties, the foremost exemption has been withdrawn from import of machinery, parts, and other equipment for setting up of the solar energy products. Further rate of duty on import of solar inverters and lamps, auto parts, cotton and raw silk has been raised in line with the objective of the Government to enhance domestic capacity and production in sectors like solar energy. Apart from the above, there is a reduction of basic customs duty on Naphtha and Steel Scraps which are considered critical inputs in chemicals and the iron and steel industry. These rate changes seem aligned to sectors such as solar, auto components, mobile parts, and steel where product linked incentive (PLI) schemes have been announced.

Another significant amendment that has been proposed in the Customs Tariff Act and its structure is in relation to review more than 400 old exemptions and rate rationalisation in line with the global rates. An unpredicted limitation on the validity of conditional exemptions under the Customs Act has also been proposed for two years from the date of issuance. For the exemptions currently in force, such period will be reckoned from February 1, 2021. The intent behind such an amendment is to keep an eye on the condition of the exemptions by revisiting them periodically.

In order to give assurance to the traders against indefinite/ arbitrary conduct of audit/investigations, a time limit of two years has been set on the conduct of investigation and audit proceedings. This move is in continuation with the amendment in Customs Act through the Finance Act, 2018 for time-bound issuance of Show Cause Notice and its disposal.

Further, the most relevant issue under GST regarding fake invoicing has been dealt with under the Customs Act also by putting a check on exporters who pay IGST on exports by way of utilising ITC basis fake invoices and benefit by refund of the same under GST later on. By this, the Government has attempted to strengthen its checks by introducing penalty under a new section equivalent to five times of such refund claim and granted powers to the Customs officer to confiscate such goods meant for export. Although welcome, such provisions can turn into a double-edged sword that may hit the fraudster and genuine traders if used arbitrarily.

Changes proposed in the GST Law also revolve around curbing the menace of fake invoicing and easing compliance for the taxpayers. Input tax credit (ITC) can now be availed by satisfying an additional condition in which taxpayer can avail ITC only when details of such invoices or debit notes have been furnished by the supplier in its Form GSTR 1 or reflected in the taxpayers GSTR 2A. The said condition was earlier mentioned in the GST rules, wherein the taxpayer was allowed to claim an ad hoc ITC of 105% of the invoices furnished by the suppliers. Now the said condition has been incorporated under the CGST Act itself.

In a surprising move, the audit requirement in Form GSTR 9C has been done away with to facilitate ease of compliance under the GST regime. The registered persons instead shall be required to file a self-certified reconciliation statement along with the annual return.

It would not be an exaggeration to term this budget as balanced and progressive insofar as it has aimed to cater to the interest of the domestic industry, harmonisation of rate structure and assurance to taxpayers in terms of the timely disposal of proceedings ease in compliances. The aftermath of the Covid-19 has made several unanticipated changes in the trade practices such as remote work, aggressive policies, restriction and need of the self-reliant industry. In this regard, government response through the Finance Act is apt to make a robustly growing economy. Further to say that the Finance Act and various recent Government’s policies/efforts (including during the pandemic regime) are worth noting and potentially leading India towards becoming a global power in terms of trade and standardisation of procedures.

(The writer is Partner, Indirect Tax, Customs & Trade Group at Singh & Associates)

Ease of business in self-reliant India – Indirect tax budgetary changes Ease of business in self-reliant India – Indirect tax budgetary changes Reviewed by TechCO on 2/05/2021 Rating: 5

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