GST portal does not accept monthly returns until the entire tax is paid

Relevance: GS Paper III

Why in News?

The author talks about the inconsistency in availing the input tax credit under the GST regines which possesses a significant challenge due the time limit.

More About the News: For the MSMEs  cash flow constraints can lead to a situation where businesses are unable to pay the entire tax liability, risking the loss of input tax credit. Hence the author suggests modifying the GST portal to allow acceptance of monthly returns even with a shortfall in tax payment seems practical and necessary.

Key Points: 

• April 2024 saw a significant milestone in GST collections, surpassing the Rs 2 lakh crore mark for the first time. However this achievement cannot overshadow the persistent issues and operational challenges in the day-to-day implementation of GST laws. One pressing concern is the "time-limit conundrum" regarding input tax credit.
• The core philosophy of the GST implementation was the integration of various central and state indirect taxes, aiming for seamless credit availability on all input taxes paid. This mechanism aims to eradicate the cascading effect of double taxation.
• However the  entitlement to credit eradicates the cascading effect of taxing goods or services multiple times. 
• Example: Consider a manufacturer facing a cash crunch. Let's say they owe Rs 1,00,000 in monthly taxes and have already paid Rs 60,000 in GST on inputs. After claiming this credit, they still owe Rs 40,000 in cash when filing their GSTR-3B return. However, due to financial constraints, they can only pay Rs 10,000, leaving a tax arrear of Rs 30,000 for that month. 
• Here lies the issue: the current GST portal won't accept their return until the entire tax is settled. Consequently, if this shortfall persists the next month, they won't be able to file subsequent returns until the previous month's dues are cleared.
• Unwanted Tax Liability: The deadline for availing input tax credit is November 30 each year. If the manufacturer fails to clear the balance tax by then, they forfeit the benefit of the input tax credit. In the example provided, they'd lose the Rs 60,000 credit already paid on inputs, resulting in a tax liability of Rs 1,00,000. 

• Need for review: While taxes can't remain outstanding indefinitely, considering the provision for levying interest on delayed payments, it seems unjust to deny credit for taxes already paid on inputs used in manufacturing final products. 
• There's an urgent need to amend the GST portal to allow acceptance of monthly returns even if the full tax isn't paid, noting the outstanding amount for that month. 
• This would enable manufacturers to claim credit on taxed inputs, despite arrears, with interest accruing until dues are settled.
•  Many small and medium enterprises face delayed payments, exacerbating the situation. This conundrum doesn't necessarily require judicial interpretation but practical resolution.
• The analogy with income tax illustrates the unfairness: Income tax liability is on net income, allowing for interest and penalties on delayed payment, rather than disallowing expenditures. 
• Similarly, manufacturers acquiring duty-paid inputs should retain the right to credit, regardless of their ability to pay remaining taxes in cash. The refusal to accept returns until full tax payment has affected numerous taxpayers. 
• The GST portal needs adjustment to accept returns with arrears, subject to interest, while mandating arrears clearance by November each year, with failure incurring higher penalties.

Conclusion:

The GST Council must urgently address this practical injustice, acknowledging that defaults are often due to adverse business circumstances beyond the control of many small and medium taxpayers. Until the GST Portal accommodates monthly returns despite shortfalls, enforcing the November 30 deadline for availing input tax credit seems unjust.