It seems that the draft law provides for voluntary registration but there is no such concept as a voluntary registration in practical as person loses Input Tax credit on capital goods which have been purchased prior to the date of registration even though he was not liable to be registered in the law prior to that date. The law is forcing the persons to take registration from the date when they think that business is to be started and then the condition for mandatory PAN without providing any relaxation period only increases the burden on the businesses.
This update would discuss about how delay in obtaining PAN by new entities may result in delayed registration and consequentially loss of Input Tax Credit. The law forces persons to obtain registration even if they think about doing business. There needs to be a mechanism wherein a person does not lose Input Tax Credit in case of non-availability of PAN (with a proof for applied for) in case of new registrations.
CBEC has released revised Draft GST Law on 26th November 2016. The law is slated to be presented before Loksabha in the coming days. It’s not the final blueprint and is bound to change on the basis of suggestions received from various quarters. In this series of updates, we would be putting forth various issues in the Revised Draft GST Law which needs consideration. The entire objective is to bring before the readers certain issues in the present revised GST Law which may be raised at appropriate platforms.
5.1 Section 23(4) of the Revised Draft GST Law provides that
Every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961) in order to be eligible for grant of registration under sub-section (1), (2) or (3):
5.2 It has been amply made clear in the document that PAN would be the bedrock on which entire GST structure would be based. However, as PAN would be the bedrock for registration in GST, Registration under GST would be the bedrock for the claim of Input Tax Credit.
5.3 The dealer is liable to file application of registration within 30 days of the date when he becomes liable for registration. Further, as per present proposed draft, dealer would be allowed Input Tax Credit from the date he becomes liable to registration in case he has filed the application and has been granted registration within 30 days of occurrence of event and no input tax credit would be allowed if the application is filed beyond the period of 30 days.
5.4 It is also a known fact that PAN is not mandatory for every citizen of India. Therefore, it’s not expected that every person would be having PAN and in case of new concerns it would be mandatory for them to first apply for PAN and then apply for registration under GST. In some cases, there is no threshold available for registration and registration has to be applied in case any supply is made. Thus it would be a long drawn process, and if for any reason allotment of PAN is delayed then the person would be suffering from loss of Input credit and penalty for delay in filing of application would also be levied on him.
5.5 If registration is applied and granted beyond the period of 30 days from the date when the person becomes liable to be registered in GST, then the person suffers from the loss of Input Tax Credit on the stock lying with him on the date he became liable for registration in GST.
5.6 Not only the above issue but if a person although not liable for registration in GST, but he is not able to get PAN in due time and for that reason, filing of application for registration is delayed, then he loses claim of Input Tax credit on Capital Goods on purchased prior to the date of registration. Loss of Input Tax Credit on the Capital Goods would be an even bigger loss.
5.7 Thus, the entire issue boils down to the fact that, it an agreed and acceptable argument that PAN should be the bedrock for GST. However, a temporary registration can be granted to a person in case he has applied for PAN and he could be asked to update the PAN within a prescribed time on the portal. The concept of Temporary Registration is present in enforcement cases. The business process document provided for temporary registration in case of enforcement cases and then converting the temporary registration to PAN based registration.
Comment: It is suggested that as was provided in the draft report to allot temporary registration in case of enforcement cases and then converting the temporary registration to PAN based registration. A temporary registration may also be allotted in normal cases till PAN is allotted with a maximum time period of 15 days to update PAN and subsequently converting the temporary registration to PAN based.