The letter while emphasizing the consequences of COVID-19 borne by the economy said that the coming months may witness huge liquidity problems in the market. There will be a situation that customers/clients will ask for more credit periods as a condition of sales. Thus, businesses will experience a shortage of money for fulfilling their monthly obligation and outflows.
While addressing the hardships the letter highlighted that in the present scenario under the GST Law, the payment of GST is required to be made on an accrual basis, which means that whether the supplier of goods or services realizes the amount of supply of goods or services is immaterial.
For instance, even if no amount towards the supply of goods or services for a particular month is realized, there remains the liability to pay GST on the 20th of the next month. In the event of non-compliance or delay in payment of GST by the due date, the supplier is liable for payment of interest @18% p.a. along with the attraction of other penal provisions stated therein the law.
However, the service tax was first introduced in 1994, the liability to pay service tax was on receipt basis, in as much as a liability to pay service tax was attracted only on receipt of the value of taxable service. This provision in the statute book was in existence for more than a decade and it worked very well in the administration of tax law, said the letter
“The present developments arising due to the spread of the COVID-19 virus has warranted the need for temporary relaxation in compliance requirements under various laws. It is humbly requested that this method (receipt basis) of determining the time of supply be introduced for a limited period till the industry and business do not come out of crisis arising out of COVID-19,” the letter addressing the Finance Minister suggested.
“A supplier shall avail Input Tax Credit (ITC) proportionate to the payments made within the period of time specified of and reverse credit on nonpayment of supplies received. This interim measure will not only ensure tax compliance from the supplier side but put a simultaneous check on availment of ITC on payment basis and maintain the smooth cash flow of taxes to the exchequer,” the letter further requested.Subscribe Taxscan AdFree to view the Judgment