GST exemptions disrupt input tax credit chain, will complex GST: CBIC chief

Indirect tax authorities to send intimation to businesses not complying with e-invoicing rules

Exemptions or lower rate of taxation sought by industry on some items breaks the input tax credit (ITC) chain, leading to complexity in the goods and services tax (GST) structure, Central Board of Indirect Taxes and Customs (CBIC) Chairman Sanjay Agarwal said on Wednesday.

Agarwal also said that indirect tax authorities would soon start sending intimation to businesses that do not comply with rules on e-invoicing, a mandatory requirement for availing of input tax credit (ITC).

“Industry should introspect if it wants a simpler GST structure. Complications arise when they seek exemption on two out of five five items because ITC in such cases would not be allowed on the exempted items. That would disrupt the whole ITC chain,” he said at a Confederation of Indian Industry (CII) conference on ease of doing business.

“If one of their items falls in a certain category (GST slab), they should not demand an exemption or lower slab for that particular item, as that might lead to classification disputes. To avoid litigation, carving out exemption should be avoided if items in those chapters generally fall in particular tax slabs,” he underlined.

On e-invoicing, the CBIC chief said: “We will send advisory to such taxpayers to issue e-invoices. We do not want to adopt an approach that is intimidating, so we will nudge them for electronic billing. The details furnished in e-invoice are auto populated in monthly and quarterly GST returns.”

CBIC has widened the ambit of e-invoicing for businesses by lowering over the years the mandatory turnover threshold to Rs 5 crore from Rs 500 crore under the GST regime. Taxpayers must generate invoices on their internal system or billing software and then report these to the invoice registration portal (IRP). Without this, ITC cannot be claimed.

On the proposed Development of Enterprise and Service Hubs (DESH) Bill and SEZ rules, he said that call was yet to be taken.

On Customs, he said that work was in progress to integrate SEZ and the Indian Customs Electronic Gateway (ICEGATE) for duty payment. That will ensure all documents are available in the same system.

The department was also working to reduce the time taken for Customs clearances, he said. The average time taken for Customs clearance of imports has reduced 11 per cent at air cargo complexes and 9 per cent across seaports, he added.

The National Time Release Study (NTRS), 2023, presents the average cargo release time for seaports, air cargo complexes (ACCs), inland container depots (ICDs), and integrated check posts (ICPs), which account for about 80 per cent of bills of entry and 70 per cent of shipping bills filed in the country.