clerl.tax

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  • Chewing Tobacco Manufacturer Evades GST Using Decoy E-Way Bills

    In an elaborate scheme to sidestep Goods and Services Tax (GST) regulations, a Western Uttar Pradesh-based chewing tobacco manufacturer has been exposed for employing decoy e-way bills. The strategic evasion, amounting to nearly ₹500 crore, highlights the vulnerabilities within the current tax enforcement framework.

    Tobacco products, including chewing tobacco, are subject to a substantial GST rate of 28 percent and an additional cess of 0.56 times the retail sales price, making them prime targets for tax evasion. Despite new measures to combat such fraud, this manufacturer innovatively distributed its products to bypass the hefty tax obligations.

    Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC), revealed that officers from the Directorate General of GST Intelligence (DGGI) launched an investigation following specific intelligence. The investigation focused on a clandestine manufacturing unit in Western Uttar Pradesh, suspected of illicitly clearing chewing tobacco.

    Surveillance operations at the manufacturing site tracked multiple vehicles using misleading e-way bills for other commodities. These vehicles deviated from their declared routes to discreetly unload untaxed chewing tobacco at various warehouses in the Delhi NCR region. This sophisticated maneuvering was designed to evade detection and avoid the significant GST and cess.

    The subsequent comprehensive search operations at the manufacturing unit, warehouses, and associated business and residential premises uncovered detailed records and unaccounted cash. The operation unveiled a massive duty evasion totaling nearly ₹480 crore. This case, according to CBIC officials, is one among numerous instances of tax evasion that have surfaced in recent years.

    In response to the pervasive tax evasion within the tobacco industry, the Government, acting on the GST Council’s recommendations, issued a notification in January mandating additional compliance measures for taxpayers dealing in products like pan masala and tobacco. This includes two new forms – GST SRM-I and GST SRM-II – which cover registration and disposal of machinery, and monthly input-output information respectively. Initially slated for April 1, the implementation of these forms was deferred to May 15.

    The Finance Act 2024 further tightened the regulatory framework, stipulating penalties up to ₹1 lakh for manufacturers of pan masala, gutka, and similar tobacco products who fail to register their packing machinery with the GST authorities. Although the penalty provisions have not yet been notified, this amendment underscores the government’s resolve to curb tax evasion.

    Under the new procedures, manufacturers of specified tobacco products are required to report their packing machines within 30 days of the new regulations taking effect on May 15, 2024. Any additional machines installed must be reported within 24 hours. Furthermore, monthly statements detailing packing activities must be submitted by the tenth day of the following month, ensuring continuous oversight and compliance.

    This rigorous approach aims to close loopholes and enforce stringent accountability among tobacco product manufacturers, mitigating the rampant evasion and ensuring equitable tax collection.

  • GST Council’s Strategic Deliberations—Easing Compliance and Facilitating Trade for MSMEs

    In an upcoming session, the GST Council is poised to tackle a comprehensive agenda aimed at streamlining compliance and enhancing trade facilitation, particularly for micro, small, and medium enterprises (MSMEs). Central to these discussions is the proposal to amend the GST framework, introducing significant relief measures for sectors such as online gaming, casinos, and horse racing. Key considerations include the potential inclusion of a new Section 11A in the CGST Act, akin to Section 11C of the Central Excise Act, which would enable the government to forgo recovery of excise duty not levied due to prevailing practices. This amendment is anticipated to mitigate the substantial tax burdens currently faced by these industries.

    Additionally, the Council will scrutinize the establishment of monetary thresholds for filing appeals before GSTAT, High Courts, and the Supreme Court. Sources suggest that the proposed limits might be set at ₹20 lakh for GSTAT, ₹1 crore for High Courts, and ₹2 crore for the Supreme Court. This aligns with the National Litigation Policy, aiming to curtail government litigation and concentrate legal resources on high-revenue cases and pivotal policy issues.

    A significant focus will be on the waiver of interest and penalties for the initial years following the GST implementation. Errors and oversights during the fiscal years 2017-18, 2018-19, and 2019-20, primarily due to unfamiliarity with the new provisions, might be addressed by granting conditional waivers. Taxpayers would be required to settle their full tax liabilities by a notified date, excluding cases involving fraud or willful misstatements, and erroneous refunds. Importantly, already-paid interest and penalties would not be eligible for refunds.

    The Council is also expected to deliberate on refund mechanisms for additional IGST paid due to price adjustments post-export. Another notable proposal involves reducing the pre-deposit amounts necessary for filing appeals, potentially lowering the ceiling from ₹50 crore to ₹40 crore for appellate authority cases, and from ₹100 crore to ₹40 crore for appellate tribunal cases. These measures are anticipated to ease the financial burdens on businesses, facilitating a smoother litigation process.

    Overall, the GST Council’s forthcoming meeting is set to address crucial compliance and facilitation issues, proposing strategic amendments and relief measures that could significantly impact the operational landscape for MSMEs and specific sectors like online gaming, casinos, and horse racing. The outcome of these deliberations will be pivotal in shaping the future of tax administration and compliance in India.

  • Reconstitution of the GST Rate Rationalisation Panel—Bihar’s Deputy CM Takes the Helm

    In a significant move, the GST Council has announced the reconstitution of the Group of Ministers (GoM) tasked with recommending GST rate rationalisation. Bihar’s Deputy Chief Minister, Samrat Chaudhary, has been appointed as the new convenor, succeeding Uttar Pradesh’s Finance Minister, Suresh Khanna.

    The official memorandum, although dated February 27, has only recently been posted on the Council’s website. It lists the new panel members, which include Suresh Kumar Khanna from Uttar Pradesh, Goa’s Transport Minister Mauvin Godinho, Rajasthan’s Medical and Health Services Minister Gajendra Singh, West Bengal’s Finance Minister Chandrima Bhattacharya, Karnataka’s Revenue Minister Krishna Byre Gowda, and Kerala’s Finance Minister K N Balagopal. This reconstitution was necessitated by the recent change in Bihar’s government, where the JD(U)-BJP alliance saw Samrat Chaudhary taking over the finance portfolio from Vijay Kumar Chaudhary.

    The seven-member GoM now comprises four representatives from the NDA and three from opposition-ruled states. Importantly, there is no alteration to the committee’s terms of reference. Initially established with a mandate to report within two months, the committee’s objective remains to recommend measures that can be swiftly implemented, as well as to chart out a roadmap for medium and long-term reforms.

    Key Proposal for Rate Rationalisation

    Central to the GoM’s mandate is a pivotal proposal to reduce the number of primary GST rates from four to three. This could potentially be achieved by merging either the 12 per cent and 18 per cent rates to a new 15 per cent rate or combining the 5 per cent and 12 per cent rates to an 8 per cent rate. While this consolidation might render some items cheaper, it is anticipated that numerous goods would shift to a higher tax bracket, potentially triggering inflation. This balancing act has historically deferred rationalisation efforts, posing a substantial challenge to the current panel.

    Objectives and Tasks Ahead

    The GoM’s reconstitution comes with a critical mission: to streamline the GST rate structure, rectify the inverted duty structure, review exemptions, and ultimately boost GST revenues. Originally constituted in September 2021 under then Karnataka Chief Minister Basavaraj Bommai, the panel submitted an interim report in June 2022, suggesting specific changes in tax rates for certain goods and services.

    The newly formed panel under Chaudhary is expected to deliver a final report to the GST Council, outlining proposed adjustments to tax rates and slabs to foster comprehensive reforms. Currently, the GST framework operates with four primary tax slabs of 5, 12, 18, and 28 per cent, alongside special rates of 0, 0.25, 1.5, 3, and 6 per cent, with a cess on luxury and demerit goods at the highest 28 per cent rate.

    Upon the panel’s submission, the Fitment Committee will scrutinise the recommendations and finalise the agenda for the GST Council. Following the Council’s deliberations and decisions, the Centre and States, including the three Union Territories with legislative assemblies, will proceed to notify the new rates, thus embarking on a path to potentially transformative GST reforms.

  • Editorial—Essential Reforms in GST Rates and Procedures

    Since its establishment nearly seven years ago, the Goods and Services Tax (GST) has unequivocally demonstrated its prowess as a transformative fiscal reform. The consolidation of state levies has provided businesses with a more efficient taxation framework, and the advent of transparent e-filing mechanisms has curbed revenue leakages, thereby augmenting tax collections. Remarkably, the gross GST revenue for FY24 has surged past the ₹20-lakh crore threshold, marking a notable 11.5% increase over the previous year and an impressive 71% growth since FY19, despite the economic disruptions caused by the pandemic. As the GST Council convenes for its 53rd session, the inaugural meeting under the new administration, it is imperative that the focus shifts to pivotal reforms such as rationalising tax rates, integrating alcohol and fuel into the GST framework, and eliminating punitive tax collection strategies.

    One of the critical items on the agenda is the rationalisation of GST rates. The council is expected to address sector-specific tax issues, including the 28% levy on online gaming and the inverted duty structures in sectors like textiles, footwear, medicines, and fertilizers, which impede input tax credit claims. Additionally, exorbitant tax rates on everyday items such as cement and two-wheelers warrant urgent reassessment. While the Council has previously rectified some anomalies, substantial progress in contentious areas like rate rationalisation and the inclusion of new taxable items will require navigating the complexities of electoral politics and coalition dynamics.

    The paramount objective of GST rate rationalisation is to enhance business facilitation. However, there are concerns about its inflationary impact. Proposals under consideration include a revised rate structure—8% instead of 5% and 12%, and 15% instead of 12% and 18%, with a potential reduction of the 28% rate to 18%. The deliberations of the fitment committee, composed of central and state tax officials, will be crucial. The adept consensus-building abilities of BJP’s state ministers, particularly within the multi-party group of ministers led by Uttar Pradesh Finance Minister Suresh Khanna, could prove instrumental in achieving these reforms. GST’s success as a consensus-driven reform in a diverse polity must be preserved and advanced.

    Procedural reforms present a more straightforward pathway for immediate action. The establishment of GST tribunals is urgently needed to expedite dispute resolution. Addressing delays in disbursing input tax credits is also critical, especially those stemming from discrepancies in tax filings by sellers, which can cascade into higher costs for buyers. Recent directives from the Central Board of Indirect Taxes and Customs aim to curb excessive zeal among tax officials, but the issue of harassment, particularly for MSMEs, remains pressing. Controversies surrounding the powers of arrest under Section 132 of the GST Act highlight the necessity of ensuring that GST facilitates rather than hinders business operations.

    Ultimately, the overarching goal of GST is to streamline and simplify business processes. Ensuring that the tax system evolves to support this objective will be pivotal in maintaining the momentum of this landmark reform.

  • Doctor Triumphs in Legal Battle Against Bank Over Faulty CIBIL Score—Critical Lessons Learned

    When paying a credit card bill, the minimum expectation is that the issuer will promptly settle your account or notify you of any issues. However, for Dr. Bhalla of South Bombay, the situation took a distressing turn. Despite clearing his credit card debt in 2003, the bank reported him as a defaulter, leading to a significant drop in his CIBIL score by 2012.

    This severe decline in his CIBIL score caused AMEX to reduce his credit limit by 22.5% and deny him a new credit card. On investigation, Dr. Bhalla discovered an unresolved debt of Rs 5,640 from 2003, which had ballooned to Rs 2.17 lakh due to accumulated interest.

    Dr. Bhalla, armed with his bank statement proving the payment, embarked on a seven-year legal battle. He approached the banking ombudsman, district consumer commission, state consumer commission, and ultimately, the National Consumer Disputes Redressal Commission (NCDRC), seeking justice.

    Initially, Dr. Bhalla’s attempts to resolve the issue via email with the bank’s nodal officer went unanswered, prompting him to file a complaint with the Banking Ombudsman. The NCDRC order, dated April 9, 2024, noted that Dr. Bhalla had indeed paid Rs 5,640 to Standard Chartered Bank, as evidenced by his savings account transactions.

    Despite this, the bank maintained that they had not received the payment, directing Dr. Bhalla to Axis Bank, with whom he had no relationship. It was a letter from ICICI Bank, Vadodara Branch, on March 7, 2013, that became pivotal. This letter confirmed the payment had been made via UTI Bank (now Axis Bank) and cleared through an arrangement with ICICI Bank.

    Standard Chartered Bank finally acknowledged the payment after receiving this letter. However, this did not rectify the damage to Dr. Bhalla’s credit history or low credit score. When a legal notice to the bank went unanswered, Dr. Bhalla took his case to the district consumer commission, which dismissed it in January 2016. Persistence led him to the Mumbai State Commission, where his case was accepted in July 2019, culminating in a favorable order from the NCDRC in April 2024.

    The NCDRC found Standard Chartered Bank guilty of service deficiency and ordered them to compensate Dr. Bhalla with Rs 2 lakh for mental anguish and Rs 10,000 in litigation costs, plus interest from July 2019, totaling Rs 2.60 lakh. The Commission criticized the bank for misleading the Banking Ombudsman and negatively impacting Dr. Bhalla’s CIBIL score.

    Kalindhi Bhatia, Partner at BTG Advaya, emphasized that banks can be held accountable if their errors damage a customer’s credit score, under the Credit Information Companies (Regulation) Act, 2005. Customers can seek redress through the Consumer Protection Act and the Banking Ombudsman.

    Shiju PV, Senior Partner at IndiaLaw LLP, noted that while customers remain liable for their debts, they are not responsible for penalties arising from bank errors. In cases of unresolved disputes, he advises maintaining thorough records, promptly reporting issues, and seeking legal counsel if necessary.

    This case underscores the importance of vigilant financial record-keeping and proactive dispute resolution, particularly in the era of digital payments. Regular monitoring of credit reports and timely communication with financial institutions are crucial to safeguarding one’s credit score and financial integrity.

  • Revamping India’s Tax Landscape— Urgent Reforms for Fairness and Growth

    The imperative for reform in India’s personal income tax regime looms large as we approach the Union Budget for 2024-25. The shift of domestic companies to a lower tax bracket five years ago has notably increased pressure on individual taxpayers, who now bear the brunt of tax collections with peak rates surpassing 40 percent. This disparity has accentuated disenchantment among the middle-class, feeling neglected by successive governments in terms of tax relief.

    The current tax structure, despite offering an exemption-free alternative, fails to entice taxpayers away from the old regime, where deductions and exemptions still hold sway. A strategic overhaul is essential, necessitating sunset clauses for these antiquated benefits while significantly elevating the standard deduction to ₹1.5 lakh. Such measures not only align with the rising cost of living, particularly in urban centers, but also cater to the diverse needs of non-salaried professionals.

    Furthermore, adjustments to income slabs are overdue; the current threshold of ₹3 lakh is inadequate against inflationary pressures, demanding an increase to at least ₹5 lakh. Similarly, the 30 percent tax rate threshold must be revised upwards to ₹20 lakh, acknowledging the evolving economic landscape and easing the burden on middle-income earners.

    In parallel, provisions like Section 80C warrant reevaluation, their relevance diminished in a market-oriented savings environment. A robust standard deduction would empower savers, encouraging investment in instruments aligned with personal financial goals, rather than mandating traditional savings vehicles.

    In addressing concerns over wealth disparity, the retention of surcharges on high incomes above ₹50 lakh remains pertinent, ensuring equitable distribution without resorting to more draconian measures. This levy underscores a commitment to welfare spending, vital for social equity and sustainable economic growth.

    Looking forward, the Union Budget must embrace these reforms to realign India’s tax policy with contemporary economic realities, fostering fairness and incentivizing economic participation across all strata of society.

  • Gujarat’s ₹96,000 Crore Power Play

    Gujarat, a state renowned for its pioneering spirit in renewable energy, has embarked on an ambitious journey to bolster its transmission infrastructure. Recognizing the exponential growth in renewable energy capacity, particularly in wind and solar power, Gujarat Energy Transmission Corporation (GETCO) has committed a staggering ₹96,000 crore over the next eight years. This strategic investment underscores the state’s unwavering commitment to seamlessly integrate and distribute clean energy to its burgeoning population.

    The crux of this infrastructural endeavor lies in bridging the geographical gap between energy generation and consumption. As Mr. Jai Prakash Shivahare, Managing Director of Gujarat Urja Vikas Nigam Ltd (GETCO’s parent company), astutely observed, a significant portion of wind and solar farms are strategically positioned in sparsely populated regions like Kachh and northern Gujarat. Conversely, the state’s major industrial hubs and urban centers, including Ahmedabad, Morbi, Rajkot, and Vadodara, represent the primary energy consumption centers. This geographical disparity necessitates a robust and sophisticated transmission network capable of efficiently channeling power from generation sites to consumption hubs, ensuring a reliable and uninterrupted energy supply.

    Gujarat’s renewable energy aspirations are nothing short of ambitious. With an existing capacity of 11,823 MW of wind and 14,182 MW of solar power, the state has set its sights on significantly augmenting its green energy portfolio. Projections indicate an additional 22,546 MW of wind and 24,694 MW of solar capacity between 2024-25 and 2030-31, culminating in a total renewable energy capacity of 73,245 MW. This aggressive expansion necessitates a parallel emphasis on transmission infrastructure to accommodate and distribute this surge in green energy effectively. Recognizing this critical need, GETCO has adopted a proactive approach, assuring investors and developers of guaranteed grid connectivity for new renewable energy projects. This commitment instills confidence and encourages further investment in Gujarat’s burgeoning renewable energy sector.

    Furthermore, Gujarat has demonstrated remarkable foresight in addressing the intermittent nature of renewable energy sources through battery storage solutions. Recent tenders for battery-based energy storage have yielded highly competitive levelized costs, with the most recent bids reaching a remarkable ₹3.67 per kilowatt-hour. This strategic investment in energy storage not only enhances grid stability by mitigating the intermittency of renewables but also presents a cost-effective alternative to conventional gas-based peaking power plants. This forward-thinking approach solidifies Gujarat’s position as a leader in the transition towards a cleaner and more sustainable energy future.

  • India’s gold and silver imports from UAE surged by 210% to $10.7 billion in 2023-24, according to GTRI.

    In an extraordinary development, India’s importation of gold and silver from the United Arab Emirates (UAE) has surged by an impressive 210%, reaching a staggering $10.7 billion in the fiscal year 2023-24. This significant increase comes even as the nation’s overall imports experienced a decline of 9.8%, totaling $48 billion for the same period, according to data compiled by the Global Trade Research Initiative (GTRI).

    The Directorate General of Foreign Trade (DGFT) has been instrumental in this surge by imposing restrictions on gold jewellery imports from all countries except the UAE. This strategic move has notably contributed to the spike in imports from the UAE, as highlighted in the GTRI report.

    Reassessing Concessional Customs Duty Under India-UAE CEPA

    The report emphasizes the urgent need to revisit the concessional customs duty rates under the Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE. This revision is essential to mitigate the arbitrage opportunities driving the import surge and to address the current account deficit by curbing excessive imports.

    The facilitation of gold and silver imports through the India International Bullion Exchange (IIBX) in Gift City has further fueled this import boom. Previously, only authorized agencies were permitted to handle such imports, but the new policy allows private firms to participate, thereby amplifying the volume of imports.

    The High-Stakes Trade in Precious Metals

    Ajay Srivastava, a former Indian Trade Service officer and the founder of GTRI, pointed out the inherent risks in the trade of gold, silver, and diamonds. These commodities, due to their low volume but high value, are particularly susceptible to misuse, especially given the high import duties in India.

    “Low tariff imports of gold and silver primarily benefit a select group of importers who capitalize on tariff arbitrage, without passing on the benefits to consumers,” Srivastava noted.

    Under the India-UAE CEPA, which was enacted in May 2022, India agreed to import 200 tonnes of gold annually from the UAE at a 1% tariff concession, reducing the duty to 14% compared to the 15% Most Favoured Nation (MFN) tariff. This seemingly minor 1% difference translates to a substantial ₹71,000 per kilogram of gold, making it highly profitable to import gold bars from the UAE. Consequently, gold imports from the UAE surged by 147.6%, from $3 billion in FY2023 to $7.6 billion in FY2024, resulting in a revenue loss of ₹635 crore for India in FY2024.

    The Impact of DGFT Restrictions

    The DGFT’s current restrictions on MFN duty imports are expected to channel all jewellery imports through the UAE in the near future. This policy shift adversely affects jewellery imports from other countries, such as Indonesia, which are permitted under the ASEAN-India FTA.

    A Commerce Department official explained that the recent imposition of import restrictions, including mandatory import authorizations on gold jewellery, aims to monitor the import of gold sidings—a minor component of jewellery items. “The sharp increase in the imports of gold sidings suggests potential misuse of India’s FTAs and duty concessions extended to certain countries. These import restrictions have been implemented for better oversight,” the official stated.

    However, Srivastava contended that this rationale does not fully justify the import restrictions on other jewellery items, indicating a need for a more comprehensive review of the policy.

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  • Paytm Welcomes Rajeev Agarwal as Independent Director

    In a strategic move poised to bolster its governance framework, One 97 Communications, the parent company of Paytm, has appointed the distinguished Rajeev Krishnamuralilal Agarwal as a non-executive independent director. This appointment follows the resignation of Neeraj Arora, who stepped down from the board due to ‘pre-occupation and personal commitments.’

    Rajeev Agarwal, a former IRS officer and erstwhile SEBI whole-time member, brings a wealth of experience and a formidable track record in regulatory reforms. His tenure, set for five consecutive years, was ratified during the board meeting on June 17, 2024, upon the recommendation of the Nomination and Remuneration Committee. This decision was formally communicated through a stock exchange filing by One 97 Communications.

    Agarwal’s induction is expected to infuse the board with his profound insights and regulatory acumen, particularly given his instrumental role in pivotal policy reforms within the mutual funds sector in 2012 and the seamless merger of the Forward Markets Commission with SEBI in 2015. His expertise will be invaluable as Paytm navigates the complex landscape of financial technology and regulatory compliance.

    With this appointment, Agarwal will also relinquish his membership in the Nomination and Remuneration Committee and the investment committee, thereby ensuring a focused and dedicated contribution to his new role. This strategic realignment underscores Paytm’s commitment to fortifying its governance and steering the company towards sustained growth and innovation.

  • RBI Forecasts Soaring 7.3% GDP Growth Amid Record Low CAD and Strategic Gold Reserves

    The Reserve Bank of India (RBI) is projecting a robust GDP growth rate of 7.3% for the first quarter of FY25, demonstrating a continuation of the economic dynamism witnessed in the previous quarter, where GDP surged by 7.8%. RBI Governor Shaktikanta Das, speaking at a business event, emphasized the sustained momentum as evidenced by data up to the third week of June, reflecting unwavering economic activity.

    Governor Das expressed confidence in achieving the projected GDP growth, underpinned by favorable macroeconomic conditions. He underscored that there is no indication of a deceleration in this momentum. However, he cautioned against complacency, highlighting the volatile nature of markets and the potential for unforeseen international developments that could disrupt this trajectory. Vigilance and agility, he stressed, are paramount in navigating both domestic and global economic landscapes.

    On the external front, the Governor pointed out the commendably low current account deficit (CAD), which stood at 1.2% of GDP over the first three quarters of FY24. The forthcoming figures for Q4FY24 are anticipated to reflect an even lower CAD, potentially bringing the annual figure below 1%. This positive outlook, coupled with a bolstered foreign exchange reserve of $655.8 billion, enhances investor confidence in the stability and resilience of the Indian markets. Das affirmed RBI’s strategy to opportunistically augment these reserves to mitigate market volatility and reassure global investors of India’s capacity to meet its external payment obligations.

    Regarding the RBI’s increased gold purchases, Das explained this as a strategic move to diversify India’s foreign exchange reserves. He noted the historical upward trend in gold prices, positioning gold as a reliable hedge against external economic uncertainties. While gold purchases are made judiciously, considering international price fluctuations, this strategy remains a critical component of the RBI’s broader reserve management approach.

    In sum, the Reserve Bank of India remains optimistic about maintaining robust GDP growth and economic stability, supported by prudent management of the current account deficit and strategic diversification of foreign exchange reserves. The RBI’s forward-looking approach aims to sustain confidence among global investors while navigating the complexities of an ever-evolving economic environment.