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September 2, 2021

GST Circulars Incongruous with Ease of Doing Business

by CA Shivam Jaiswal in GST

GST Circulars Incongruous with Ease of Doing Business

Chartered Accountants Association, Surat

Ref: CAAS/Representations/2021-22/06                                                

Date: 26-08-2021

To,

The Chairman,

Central Board of Indirect Taxes & Custom,

The Ministry of Finance, New Delhi – 110001

Sub: GST Circulars Incongruous with Ease of Doing Business

Respected Sir,

With reference to the above captioned subject, we at Chartered Accountants Association Surat (CAAS) representing Chartered Accountants, Tax Practitioners, their staff members and businesses (hereinafter referred to as “Stakeholders”) would like to draw your attention towards the incongruous circulars pertaining to GST registration, which are presently choking the economic growth of India. Do have a patience reading to know how.

Our Representation:

With the amendment of Rule 9 and 25 of CGST Rules 2017 w.e.f. 21st August 2020, India ushered to a post-COVID growth era marked by expedited GST Registrations granted through Aadhar Authentication. Stakeholders were happy with the ease of doing business, however their happiness was short-lived. While many upcoming start-ups and businesses intended to get under the GST Tax Net and honestly comply with the GST Law, the crippling approach of the GST Officials stemming out from various stiff circulars and orders, land these honest entrepreneurs in a retreated position. Once such bottleneck document is Instruction No.4/3/2020 dt.27th November 2020 laying the SOP for verification of new GST Registrants, with a primary aim of reducing fake invoicing. However, the level of this hare-brained instruction can be understood from the below mentioned Questionnaire of Absurdness which fails to meet its intended objective and instead making the remedy worse than the disease itself. Let us talk openly on the tabooed topic:

Questionnaire of Absurdness(Para 4.2 and 4.3 of Instruction No.4/3/2020 dt.27-11-2020)

Sr. No.SOP QuestionWhat If.? Not compliedDoes it help in countering bogus billing.?
1In case the applicant intends to carry out manufacturing activity, whether capital goods, if required for the said manufacturing activity, have been installed.Not all manufacturing activities require machineries. In some start-ups, GST Registration is required prior to procuring machinery to avail the GST Credit e.g. Import of machineries, import of services. In some other cases, where the machines are required, it is not necessary for the Principal Manufacturer to invest in the machinery, but instead get the manufacturing done on job work basis. This process is already clarified in Sec.143 of CGST Act. The production thus achieved can be also directly supplied to the customers from the premises of the job worker. Hence, this question is irrelevant.   Pertinent question here is – will such manufacturers be denied registration, simply because of no machinery.?No.   Still a fake biller can temporarily install rented machinery to the satisfaction of the officer concerned.

Sr. No.SOP QuestionWhat If.? Not compliedDoes it help in countering bogus billing.?
2Electricity connection, bills paid in the relevant period.Payment of electricity bills is no such criteria of a genuine business. During the times of pandemic and even thereafter, various businesses stretch their best in juggling the cash flows, whereby taking full advantage of credit and paying on the last date. Even if such things are lethargic and indisciplined, such a criterion to judge a business is totally absurd.   Will the registration of such applicant be rejected simply for non-payment of electricity bills, which is never the purview of GST Officials.?No.   A fake biller would take premises on hire where electricity bills are fully paid.
3Size of the premises – whether it is commensurate with the activity to be carried out by the applicant.Size of the premises is such a complex question that not even the entrepreneur can answer it correctly. It depends on the business model, stage of the business, product life cycle, demand and supply. More importantly, this question is based on technical expertise and best judgement of one’s own business. A GST Official is not competent to question the sufficiency of the size of premises or propriety of its selection.   Will the registration of such applicant be rejected merely due to smaller premises during starting phase of the business or the registered address being an office situated at a residence.?No.   A fake biller may take huge premises on hire to show-off his fake business as a big one.
Sr. No.SOP QuestionWhat If.? Not compliedDoes it help in countering bogus billing.?
4Whether premises is self-owned or is rented and documents relating ownership/ registered lease of the said property. In case of doubt, enquiry may also be made from the landlord/ owner of the property in case of rented / leased premises.Despite having full ownership of the premises, the applicant is required to furnish NOC from the President/Chairman of the Society in which the premises are situated. When the ownership is not doubtful, then asking for such NOC is totally absurd.   Will the registration application of such applicant be rejected on the grounds of not furnishing such NOC, despite he being the sole and clear owner of the premises.?No.   A fake biller might fetch a fake land lord as well to the satisfaction of the GST Officials
5No of employees already employed and record of their employmentIn most proprietary concerns, where proprietors are self-employed even employment is not required. The proprietor himself supplies goods or services e.g. Accountant, Engineer, handicrafts and handlooms, small ECO Participant, freelancer, job worker, tuition-classes, videography services etc. Also, there may be cases like providing services of an Independent Director which does not require employment to anyone else. In other cases where the business is in its starting phase, there are no employees recruited. GST registration is required for availing GST credits on capital goods or even on smallest benefit from purchases in the form of ITC. Mandating an such question as a part of stereotyped questionnaire is totally absurd.   Will the registration application of such applicant be rejected on the grounds of not recruiting any employees.?No.   A fake biller would create a fake employee salary register as well and may even produce these fake employees.
Sr. No.SOP QuestionWhat If.? Not compliedDoes it help in countering bogus billing.?
6ITRs of the company / LLP from the date of incorporation or for last three financial years, whichever is less. ITRs of proprietor, partners, Karta, etc. may be taken in other cases.A new entrepreneur may not have any Income Tax background. Besides, GSTN being a PAN-centric system, return filing status can be directly fetched by the GST system from the IT Portal. However, the officials should refrain from asking this kind of questions, especially when the Income Tax Portal is not working.   Will the registration application of such applicants be rejected if they are non- filers (either wilfully or due to low income) under Income Tax Act and want to do business and grow themselves.?No.   A fake biller would first file Income Tax Return and match the Turnovers and ITC under both Income Tax and GST laws.
7The status of activity from the date of registration of all the bank account(s) linked to registration; the same may be taken through a letter / undertaking from the applicant.                          Phone number declared / linked to each of the bank accounts may also be obtained.In newly opened bank account, there are hardly any transaction entries to show any activity. At times phone numbers linked to the bank accounts are not functional, or wrongly mapped or mapped with the main family member who looks after the finances of a proprietary concern.   Will the registration application of such applicant be rejected just because of mis-mapping of mobile numbers linked to the bank account.?No.   A fake biller would periodically update the bank accounts with the mobile numbers with fake SIM Cards

Sr. No.SOP QuestionWhat If.? Not compliedDoes it help in countering bogus billing.?
8Quantum of capital employed/proposed to be employed.   In case of own funds, also check the audited balance sheet for previous financial year, where available, in addition to the Income Tax Returns mentioned above.An ordinary MSME entrepreneur would never know how much capital he has employed on an upto date basis and also it is a tough ask for him to furnish a forecast of proposed capital. Even if answered, the same need not be the correct answer.   Will the registration application of such applicant be rejected just because of lower capital employment or his failure to correctly spell out his future proposed capital employment to the GST Officials.?No.   A fake biller would already have planned the capital employed and would be answering as per the preset forecasted Project Report
9Loan Funds: (indicate the names, complete address, PAN and amount borrowed from each such lender separately).   In case of loan funds check the proposal submitted to the Bank/FI for approval of the loan and the maximum permissible bank finance as per such proposal, where the amount is proposed to be borrowed from a Bank and/or FI.Asking such intrusive questions is only allowed by law to be asked by the Income Tax Officials or by Lending Banks by virtue of an agreement. Asking such questions is outside the purview and authority of the GST Law. The same question may be answered if suitable amendment be brought in the statute.   Thus, pertinent question is – will the registration application of such applicant be rejected on the grounds of not providing full details of Loan Funds like name, address, PAN, Amounts borrowed on the site during the verification.?No.   A fake biller would already be having fake Loan funds for which all details would be handy

From the document it is evident that the Government does not seem to let new entrepreneurs come out and join the trade and industry community in the guise of countering the menace of fake invoicing. It requires a plethora of details from the new registrant similar to Project Report submitted to a banker for availing credit facilities. This was not a situation the trade and industry had subscribed for, at the time of happily accepting the GST law. The process of obtaining new registration under GST is one of the biggest impediments in ease of doing business. Further, despite demanding so many clarifications, it is not guaranteed that the risk of fake billing would be mitigated. In such a scenario, the best option is to trust your countrymen.

Whenever we represent any issues, we are asked for the practical instances. However, the core focus of the officials while comprehending the respective instances is to resolve them and put a green tick for their task is complete. However, we are sharing an illustrative list of instances without revealing the names of the applicants to save them from future harassment, with the sole aim to bring to the notice of all concerned that such cases of harassment are happening during the process of GST Registration across various cities of Gujarat by the State GST Offices on the basis of policy instructions issued from CBIC. Unless these policy matters are not resolved quickly at the top levels, the grip of these choking hands would slain the economy. Have a look at the 59 instances of absurd GST Registration queries in Annexure-A (Click Here) covering instances from cities of Surat, Ahmedabad, Mehsana, Ankleshwar and Vapi. These are the results of a flawed departmental instruction which has mutated to a next level of harassment. Types of queries raised against which we have the following objections:

1. Affidavits and Notarized Consent Letters:

The Department of Administrative Reforms and Public Grievances under The Ministry of Personnel, Public Grievances and Pensions had vide Letter No. D.O.

No. K-11022/67/2012-AR dt.17th July 2014, had initiated process for abolition of affidavits/certification and adoption of self-certification. Hence, demanding notarized consents for GST registration tantamount to invoking actions restricted by the GOI. Such ultra-vires actions should be avoided.

1. Documents not legible:

Even though a lot of documentation is asked by the GST Officials at the time of registration, yet a limited 100 kb and/or 1.99 MB submission is allowed. Despite these odds of file compression, when documents are properly submitted, remarks of documents not being legible are raised, just to harass the applicants which should be avoided. This submission limit should be enhanced to 20 MB.

2. Demand for Business Registration Certificate / Gumasta Dhara Certificate:

  • Business/Shop registration/Gumasta Dhara Certificate details are not required vide your internal instruction No.4/3/2020 dt.27/11/2020 and should not be asked for during the registration process.

3. Asking for details of CA/Consultants and their KYC Documents:

Why such kind of details pertaining to CA or consultant is asked for. Is it that CAs or consultants would be doing the business on behalf of the applicant.? Such kind of absurd questions should never be asked whether or not required in your internal instruction No.4/3/2020 dt.27/11/2020.

4.Concerns raised for Commercial activity from Residential premises:

Any kind of business can happen anywhere. Even the PMO and Health Ministry had been promoting Work From Home (WFH). Also, post GST implementation, by virtue of Sec.143 of CGST Act, 2017, now Principal Manufacturers having office at residential place may purchase goods, deliver it to job worker and also remove the same directly to their customers. Hence, barring the use of any premises simply on the basis of its nature is absurd and short sighted. Further, while the entity is in starting phase, commitments for warehouses or expensive godowns is simply a luxury for small tax payers. Further, GSTIN is a prerequisite for starting any business. A proponent of business or profession first takes GSTIN and then moves ahead with other formalities in order to save commitment costs and loss of ITC on initial purchases. Such absurd questions on the feasibility of business should never be asked for whether or not required by your internal instruction No.4/3/2020 dt.27/11/2020. The tax payer is asking for registration under GST and not seeking high end approvals from GST department under explosive license, environment, factory license or fire and safety. Besides, these questions are outside the scope and authority of the GST law.

5. No Specification or remark of the deficiency:

Due to such rejection without sufficient remarks, the applicant becomes clueless about what had gone wrong for taking the registration and what has to be resolved. Adequate clarification should be made in GST REG-03.

Bottlenecks in the present GST Registration Scheme are:

  1. If Aadhar Authentication fails or is not opted, a physical verification has to be conducted on the premises mentioned in the application. However, due to paucity or perhaps lethargy of manpower especially in State GST Offices, physical verifications are delayed by converting either into time passing queries or straight way rejections.
  2. As per amended Rule 9(5), GST Registration has to be granted automatically on deemed basis if no queries are raised within 7 working days of application or submission of clarification to queries. However, this time limit does not apply to non-Aadhar authentication cases, for which a lengthy 30 days’ time limit is given. This time limit again increases in case queries are raised by the department.
  3. Instruction No.4/3/2020 dt. 27th November 2020 is altogether absurd and impractical. Yet taking the shield of the said instruction most GST officials delay or reject the grant of GST registrations by raising absurd and irrelevant queries outside their scope and authority.

Talking of the impact of such absurd instructions on the registration; it has hit the Proprietors, Partnership firms and such other MSME forms of constitutions, the most. To understand this, we have the total GST collection since implementation and the number of cumulative registrants till 30th June 2021 as follows:

Constitution of BusinessActual Tax PayersTotal Collection   (Rs. In Crores)
Public limited Company75,29511,42,985
Private Limited Company7,79,2199,00,969
Proprietorship1,03,98,8934,33,255
Public Sector Undertaking2,7952,87,004
Partnership13,80,4412,38,446
Others29,57383,638
Society/Club/Trust/AOP1,19,94144,683
Limited Liability Partnership85,08134,981
Government Department7,38233,573
Statutory Body1,03617,183
Foreign Company1,78412,858
Hindu Undivided Family82,7638,385
Local Authority6,3386,457
Unlimited Company95342
Foreign Limited Liability Partnership11041
Any other body notified by Committee8811
Total1,29,70,83432,44,811

*Source: https://www.gst.gov.in/download/gststatistics

From the above table it can be inferred that proprietorship entities are in highest number and forms more than 80% of the total actual tax payers and also rank 3rd with 13.35% contribution towards the total collection of revenue. Yet the proprietorship concerns are neglected while granting ease of doing business.

From the below chart it is clearly evident that the average collection of GST per month is roughly around 1 lakh crores which after the pandemic was gradually on the rise

*Source: https://www.gst.gov.in/download/gststatistics

Without billing there is no top line and eventually no business. GST registration has become such a cardinal start-up service that if GST registration is not granted, one cannot raise invoices or run their business. We are in a situation when GST department decides whether one does a business or not. Under Article 19(1)(g) of the Constitution of India, every Indian citizen has the freedom to practice any profession or to carry on any occupation, trade or business which is legal. Where any person has not done anything illegal, a contention of restricting some business since its actions “may” result into something illegal on the surmises, is a blow to the fundamental rights of the citizens.

On one side the department is keen to run drives spending hefty money for bringing more and more businesses under the GST net, while on the other, instructions for strict verification and rejection have created a havoc and growth of new businesses is being hampered. The growth in orange bars of the above chart is organic and without participation of new entrants. Had new businesses been allowed to do business, the growth story would have been something else.

To know how many such unfortunate businesses were not entertained, have a look at the table of registrations below:

This is a policy-based issue and not a person-based issue. Amendments to laws are recommended by FMO. Rules and Instructions are issued by CBIC. The solution to this problem can be found only by taking a holistic top-down approach. Hence, the letter is escalated to the Chairman GST Council, Finance Minister, Revenue Secretary, State Finance Minister, State Finance Secretary and Commissioner of State Tax to take active cognisance of our demands based on the below mentioned hard facts:

  1. Prior to the amendment of Rule 9 of CGST Act, 2017, the overall time limit for automatic grant of registration was 3 working days if no queries were raised, without any discrimination as to Aadhar verified or not. However, physical verification has to be carried out for both Aadhar authenticated cases and unauthenticated cases. Thus, we demand that Rule 9 be suitably amended such that the time-limit for issue of registrations for Aadhar authenticated cases be reduced to same working day as application and unauthenticated cases within 7 working days. Physical verifications can take place any time to the satisfaction of the GST Officials within 15 days, and if not found satisfactory the Officials may cancel the GST Registration under Rule 22. Reason for physical verifications to get completed within 15 days is that such period is less than the maximum number of days allowed after a month to file the GST Return. Any fake registrant can be eliminated before they can spread their fake invoices, just before the cut-off of monthly GST return filing. This will ease up doing business vis-à-vis put a check on the fake billing.
  2. Necessary manpower with requisite knowledge is the purview of GOI and GOG’s personnel department. When the essential services mandated by the statute are rendered by the Government, no excuse relating to shortage of manpower is pleasant to ears.
  3. Registration should be granted with effect from the date of application and not from the date of issue.
  4. Instruction No.4/3/2020 needs to be withdrawn in the interest of trade and industry.
  5. To provide the ease of doing business, registration process should be easy and frictionless devoid of contact with the GST Officials. The intended SOP should be taxpayer friendly and in the interest of honouring the Citizens Charter. Verification should not be intrusive or offensive, that the new registrants be suspected as wrong doers. Registration under GST is a first step in winning the heart and mind of a tax payer, and accordingly the tax payers should be welcomed.

We hope that the Government appreciates the fact that not all people are wrong doers and honouring the honest would be side-lined when if one looks with the tinted spectacles. We also hope that meeting our above demands would help you achieve your goals of ease of doing business. We look forward to your response on the above.

Thanks & Regards,

For Chartered Accountants Association, Surat.

Chairman – IDT Committee | Secretary

Copy to: –

(1)Chairman GST Council 
 Tower II, 5th Floor, Jeevan Bharti Building, New Delhi – 110001– for information only
(2)Finance Minister, Ministry of Finance, 134, North Block, New Delhi – 110011.– for information only
(3)Secretary (Revenue), 
 128/A, North Block, New Delhi – 110001– for information and follow up
(4)Finance Minister (Gujarat), 
 Swarnim Sankul-1, 2nd Floor, Sachivalaya, Sector-10 Gandhinagar-382010– for information only
(5)Secretary (Finance Department), 
 4th Block, 5th Floor, Sachivalaya, CH Road, Sector-10, Gandhinagar – 382010.– for information and follow up
(6)Commissioner of State Tax (Gujarat), 
 Rajya Kar Bhawan, Near Times Of India Office, Ashram Road, Ahmedabad – 380009– to ensure co-ordination with CBIC for registration process to work under legal framework

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