CBIC issues new GST circular: Big change in strict rules of sending notices and registration, direct relief to businessmen by ban on arbitrariness

New Delhi. In order to provide relief to small and big traders, exporters and Micro, Small and Medium Enterprises (MSMEs) across the country and to curb the arbitrariness of tax authorities, the Central Board of Indirect Taxes and Customs (CBIC) has issued comprehensive circulars and detailed guidelines. Since the implementation of GST, the biggest complaint of traders has been about unnecessary show-cause notices (SCN), unnecessary postponement of hearings and arbitrary imposition of heavy penalties. By removing these flaws, CBIC has made the entire system of dispute resolution, demand assessment, appeal process and new GST registration transparent. These new guidelines will strengthen the 'Ease of Doing Business' and will drastically reduce the unnecessary GST cases pending in the courts.

CBIC has taken a tough stand on the tendency of tax authorities to directly serve huge show-cause notices without any preliminary interaction:

• Pre-SCN Intimation: Before issuing any formal show-cause notice under section 73, 74 or 74A, it has been made mandatory for the authorities to give prior intimation of proposed tax liability to the taxpayer through Form GST DRC-01A (Part-A).

• Solution by negotiation: The taxpayer will get an opportunity to present his/her case before the notice is issued or if there is a genuine error, to end the dispute at the initial stage by paying the tax along with interest. This will free both parties from formal legal disputes.

• Prohibition on imposition of arbitrary penalty: It has been asked to strictly follow the general principles of imposing penalty under Section 126. Officials will not be able to directly impose maximum penalty for minor omissions or clerical mistakes. If a tax demand is rejected, the officer must record clear reasons in the order.

It was often seen that the officials either did not give adequate opportunity to the businessmen for personal hearing, or kept the case pending for years by giving repeated dates. CBIC has set clear standards for:

• Maximum 3 Adjournments: Under Section 75(5), the hearing cannot be postponed more than a maximum of 3 times. Any officer will have to give a maximum of 4 opportunities to the taxpayer before passing the final order.

• Right to Virtual Hearing: Instructions have been given to provide the option of virtual hearing (Video Conferencing) to traders and their authorized representatives (CAs/Tax Advocates) to save them from physically visiting the offices.

• Appearance of authorized representatives: The presence of the authorized representative appointed by the taxpayer under Section 116 will be given full legal importance and the officer will not be able to insist on the personal presence of the businessman unnecessarily.

For new entrepreneurs and startups applying for new GST number, CBIC has issued a circular to completely limit the scrutiny process of the authorities:

• Ban on demand for unnecessary documents: The officers can ask for only the mandatory documents prescribed in Form GST REG-01. No authority can reject or hold the registration application on the grounds of not having Udyog Aadhaar or MSME certificate.

• Presumptive Queries Strictly Banned: The Board has imposed a complete ban on raising objections based on fabricated and personal notions like 'Business cannot be run from home', 'The size of the shop is small', or 'The applicant is a resident of another state'.

• Clarity on co-working spaces and family property: For freelancers and consultants working from a co-working space or shared office, only the membership agreement and related property documents will be considered sufficient. For work on property in the name of parents or relatives, work will be done only with consent letter and valid electricity/municipal corporation receipt.

• Registration in 3 to 7 days: Eligible small traders will have to settle within 3 working days in the simplified regime and Aadhaar-authenticated regular applications within 7 working days. After the expiry of the deadline, you will get the benefit of Deemed Approval.

The Board has issued a number of policy clarifications resolving long-standing practical difficulties of the industries:

1. ITC on demo vehicles to automobile dealers: Eligibility for input tax credit on demo vehicles kept by car and vehicle dealers for trial and test drives to customers has been recognized under the agency model.

2. Section 17(4) for Banks and NBFCs: Technical anomalies in the options and reporting processes for 50% ITC reversal by banking and financial institutions have been removed.

3. Payment set-off for exporters: The rules related to set-off and realization of foreign exchange payments received against export of services and goods have been clarified, which will eliminate the problem of stuck refunds.

4. End of Rule 96(10): With the removal of old rules that complicate refund processes, exporters doing international trade will get direct benefit of working capital.

This step of the GST Council and the Finance Ministry will prove to be a major milestone in curbing tax terrorism and improving the ease of doing business environment in the country. Taxpayers are advised to protect themselves from unfair action by referring to these official circulars in their pending cases and during new registrations.