“In case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note,” the indirect tax Board said in a circular dated April 13.
“In cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any,” the circular added.
Similar principle will also apply where goods have been returned to the supplier but GST has been paid on the sale to the government.
Sector watchers said the move is set to benefit several companies across the board that have issued full refunds to consumers due to cancellations, either from the company side or the consumer side, to prevent the spread of Covid 19.
“This is expected to benefit the tourism, hospitality and entertainment industry… Additional flow of funds to the industry would ease their liquidity position and also could be used to keep up the economic pace pushing across the number of jobs that are in the line of fire,” said Rajat Mohan, senior partner at AMRG Associates.
While the clarification allows for adjustment with tax liabilities, experts added that the adjustment would be difficult in the near future due to a temporary breach of business continuity.
The government is going all out to make sure that any sum of extra taxes stuck in government machinery should be reviewed, re-validated and cleared for benefit of trade and commerce, experts added, pointing to the other clarifications issued by the Board last week that extended compliance deadline to June 30, 2020.
On Monday, the Board added that time limit for filing of letter of undertaking for exporters, for the year 2020-21, has also been extended to 30 June, 2020 and the exporters can now continue to export goods and/or services without payment of tax.
This will benefit numerous small and medium-sized exporters.
Further, government entities have also been given an extension for furnishing of return in FORM GSTR-7 along with the deposit of tax deducted till June 30, and full relief from interest has also been granted in case such tax is deposited by the extended deadline.