Explained: How the GST Council aims to address retrospective tax demands via Section 11A

NSE

The GST Council on Saturday, June 22, paved the way for the industry to seek relief from retrospective demands. Due to a lack of clarity, the industry has been paying taxes at a rate different from what the government later prescribed in clear terms. The GST Council approved amendments to the Goods and Services Tax (GST) law, including a new section 11A. These amendments are likely to be introduced in the upcoming monsoon session of Parliament, sources said."Following Parliament's approval, the section will be implemented through a notification. This move will enable the council to consider using the rule whenever and wherever it deems appropriate," they added.Simply put, this section allows sectors that have paid GST at a lower rate than what was later applied by GST authorities to seek relief from retrospective actions or demands. It ensures that the government cannot levy higher GST rates when a lower rate was paid due to common trade practices across the industry, not just isolated cases.Furthermore, this section provides relief from retrospective actions or demands for lower tax payments made by entire sectors. It empowers the GST Council to consider refraining from raising retrospective tax demands where industries paid a lower GST rate due to unclear or unspecified rates.In addition, the amended GST law will prevent GST refunds or cess in cases where higher GST payments have already been made. This measure aims to prevent demands against companies for past compliance based on prevalent trade practices and tax uncertainties.Sources say that “After Parliament nod and notification, this Section 11A can be used after sector-based discussion in GST Council as and when required.Section 11A will give legal backing to the government to use this section as and when the Council decides for a sector.”Experts said this move by the GST Council may help the government evaluate and offer companies relief from retroactive action for lower tax payouts. Saurabh Agarwal, Tax Partner, EY said, "The GST Council's recommendation to introduce Section 11A in the Central Goods and Services Tax (CGST) Act signifies a positive step towards achieving a more equitable tax environment. This new provision empowers the Central and State Governments, acting on the Council's recommendations, to waive uncollected or under-collected GST dues arising from prevalent industry practices. It is crucial to emphasise that Section 11A addresses past instances of non-compliance. Businesses will not be eligible for refunds of GST already paid. However, this amendment offers a mechanism to rectify past errors in tax assessments, potentially benefiting businesses that operated under ambiguities or established industry practices that were later deemed non-compliant."He added, "The effectiveness of Section 11A hinges on a clear definition of "general practice" and the implementation of well-defined guidelines surrounding it. Careful consideration of these aspects is essential to ensure the provision achieves its intended purpose. Furthermore, Section 11A has the potential to expedite the resolution of past disputes in sectors like online gaming, co-insurance, and deemed imports of services by foreign shipping lines and airlines. This can lead to a more streamlined and predictable tax environment for these industries."Pratik Jain, Partner, PwC is hopeful that the retrospective exemption may give relief to online gaming as well.“I think the government is perhaps contemplating using that provision to provide relief to certain sectors, perhaps online gaming as well. What has happened in this Council meeting is that they have now approved the enabling provision which allows the government to provide retrospective exemption. That kind of provision was there in a pre-GST era in excise laws, etc. That was not in the GST law. Now that provision will be there once the amendment is passed, which is likely to happen in the budget session.”MS Mani, Partner-GST, Deloitte India, said, “There is a genuine desire now on the part of the government to recognise trade practices and business practices which may not be aligned with GST. And trade practices, business practices are unique to each industry. It's too much to expect businesses—all businesses across a sector to change their trade practices just because the GST law cannot be interpreted in a straitjacketed manner. Having a provision which says that we henceforth will recognise trade practices, business practices, provided it is uniform, is to me a great step that they have taken this time.”On online gaming, Mani added, “We will obviously have to wait and watch in terms of what exactly is a notification and how they interpret this for them.”