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Covid-19 and the need for a Total Tax Moratorium
Mr. Raghavan Ramabadran (Partner, Lakshmikumaran & Sridharan)
Mr. Sai Prashanth (Principal Associate)
As policymakers across the globe struggle to combat the rapidly escalating Covid-19 pandemic, they find themselves in uncharted territory. This applies both on the medical as well as the economic front. Our Hon’ble Finance Minister Smt. Nirmala Sitharaman has swiftly reacted to the situation and has brought in a slew of changes in the tax regime to ease both statutory and regulatory compliance burden. In effect, these changes bring into effect what can be referred to as ‘tax moratorium’. But are they enough to achieve a total ‘tax moratorium’? This article delves into various such measures and also highlights the lacunae which exist as on date.
Reliefs under Goods and Service Tax regime
Under the GST regime, the Finance Minister has announced that the due date for filing of Monthly Return in Form GSTR-3B filing for months from February to April, 2020 will been extended to June, 2020. Since payment of taxes coincide with filing of Form GSTR-3B, this extension has technically postponed all such GST payments to the month of June, 2020. It has also been clarified that there will be either no or reduced interest for delay in filing of the Return depending on the turnover of the assessee and also that there will be no imposition of late fee and penalty.
In addition, the due date for issue of notice, filing of appeal, or time limit for any compliance under the GST laws where such limit is expiring between 20th March 2020 to 29th June 2020 has also been clarified to be extended to 30th June 2020.
To effectuate the above, an Ordinance has been issued on 31st March 2020 called the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, whereby the Central Government, by issuance of a notification, is empowered to extend any time limit specified in Central Goods and Service Tax Act, 2017 which cannot be completed/complied with due to force majeure.
...Such notifications can also be issued retrospectively. The expression ‘force majeure’ has also been defined to mean “a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise” .
Lacunae as regards payment of Customs, Central Excise Duty and Central Sales Tax/Value Added Tax.
While GST has predominantly subsumed the erstwhile Central Excise and Value Added Taxes, there are still certain specified goods for which these laws continue to be operational. Goods such as Tobacco, Petrol, Diesel, LPG, ATF are subjected to Central Excise and CST/VAT till date and for those assesses who manufacture and sell the above products, no relief has been given either in the form of deferment in payment of taxes /filing of returns or extension of due dates for filing appeals, etc.
As regards Customs Duty as well, there is no relief that has been provided to the importers after the advent of Covid-19. While there exists Deferred Payment of Import Duty Rules, 2016, it is restricted in its scope, requires prior intimation and suffers from a short deferral period of maximum 15 days. In a time of crisis such as now, this may lead to additional financial burden on companies. The Central Government ought to consider granting deferment in payment of Customs Duty especially for goods which are required for providing medical assistance or for R&D purposes in relation to treatment of Covid-19.
Can the department initiate recovery proceedings for non-payment of duties/taxes?
To answer this question, it will first have to be seen whether the offices of the respective Central and State departments are functional during the country-wide lockdown. While the Guidelines issued by the Central Government on 25th March 2020 seem to suggest that these offices shall be closed down, certain State Governments have issued Notifications to state that the Commercial Taxes Department of their respective states will continue to function.
...The Customs authorities also continue to function presumably in
lines with the Circular issued on 20th February 2020.
If that be the case, with no deferment for payment of duties/taxes,
there is nothing that legally stops the authorities from initiating
recovery proceedings.
The Ordinance issued on 31st March 2020 is also silent on this aspect. While Section 6 of the Ordinance extends time limits under the Central Excise Act, 1944 and Customs Act, 1961, such extension is limited to events enumerated therein namely issuance of notice, filing of appeal, returns, etc. and does not cover time limit for payment of duties/taxes.
The Hon’ble Kerala High Court and Hon’ble Allahabad High Court tried to offer solace by deferring all recovery proceedings to be initiated by tax authorities till 06.04.2020. But both these orders have now been stayed by the Hon’ble Supreme Court .
Thus, with no embargo on the tax authorities to initiate recovery proceedings, the assesses may have to approach the High Courts by filing applications and taking up the matter through video conferencing facilities, wherever available. At the end of the day, it may just boil down to the infamous dispute of legality vs. morality!
What happens to the limitation period for filing appeals and stay orders granted by the High Courts?
Another spectrum which has to be addressed to achieve tax moratorium is with respect to the litigation proceedings before the Courts. With the entire country under lockdown and the Courts not functioning full-fledged, two burning questions need to be addressed. What happens to the limitation period for filing appeals? What happens to the interim stay orders granted by the High Courts? Since the limitation period cannot be stopped, the Hon’ble Supreme Court has ordered for extension of all periods of limitation, whether condonable or not, prescribed under the Central and State statutes w.e.f.
...15th March till passing of further orders. With logistical difficulties across the country, this order provides much desired relief.
As regards extension of interim stay orders granted, various High Courts have passed blanket orders which have extended such stay orders through the period affected by Covid-19. For instance, the Hon’ble Madras High Court has extended all interim orders subsisting as on 20th March 2020 till 30th April 2020. Similar orders have been passed by the Hon’ble Chhattisgarh High Court and Hon’ble Bombay High Court as well.
A question left unanswered in all the above orders is when a conditional stay order granting stay subject to deposit of a certain sum within a period of time is passed, will such time also stand extended by this. For example, if the Court grants stay subject to an assessee paying 50% of the disputed tax by 31st March, it is unclear if such window for payment will also stand extended. A plain reading of the Orders doesn’t seem to indicate so.
Conclusion
India is doing a laudable job in controlling the spread of the epidemic in comparison to other countries. Parallelly, the Finance Minister has brought in various relief measures to ease the economy through the tough times. But to achieve a full ‘tax moratorium’, the Government, both Centre and State, will have to assess and assess swiftly the situation and bring in necessary reliefs to plug the various lacunae.
Only on doing so can the words of one Italian Government official “The virus is faster than our bureaucracy” be rendered non-applicable to the Indian economy.