CODISSIA members meet Nirmala Sitharaman, Minister of Finance

Coimbatore: The following issues were represented to Nirmala Sitharaman, Minister of Finance by M.V. Ramesh Babu, President, CODISSIA during the meeting.

GST Issues

Increase in Turnover criteria for registration and taxability

• The turnover limit for registration and taxability under GST to be increased from the existing limit of Rs.40 Lakhs to Rs.1 Crore for supply of goods and from Rs.20 Lakhs to Rs.60 Lakhs for supply of services.

Exemption for Job Work

• Since job work amounting to manufacture was exempted from Service Tax in the previous regime, the government should –

a) Continue the same policy and provide exemption for the services by job workers (or)

b) Allow the job workers the option of Composition Scheme up to a turnover of Rs.5 crores.

c) Input Tax Credit benefit to be available for Construction of Industrial and Factory Buildings

d) Government should implement three slab GST rates for all the commodities since at present it has four slabs.

Relaxation in supply of services under Composition scheme

• A dealer opting for composition levy may supply services of value not exceeding 10% of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

The limit for the supply of services to the extent of 10% of the turnover in a State or Union territory in the preceding financial year shall be increased to 60% of the turnover in a State or Union territory in the preceding financial year. This will enable the manufacturer to switch over to the job work mode, when he does not have sufficient orders for the supply of goods in the form of sale.

Collection of Tax under the Composition Scheme by Service Providers

• Notification No. 2/2019-Central Tax (Rate) dated 7th March 2019 provides for the levy 6% (3% CGST + 3% SGST) for the service providers. One of the conditions for availing this reduced rate of GST is that “The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.” This condition effectively takes away the benefit conferred by the notification. 

Since the service providers is not allowed to collect tax from the recipient, the recipients are not able to claim ITC on the supply of services made by these persons. So, the big manufacturing unit are not giving the job works to the registered persons who opt of the Notification No.2/2019-Central Tax (Rate).

We seek any one of the following changes in the Notification No.2/2019:

a) The Condition No.3 in the notification shall be amended provided that the service provider shall not take ITC, but he can collect tax from the recipient. In this manner, he will be able to pass the credit to the other manufacturers.

The big manufacturing units too will be able to take ITC in respect of the job works done by the registered persons opting for the notification No.2/2019-Central Tax (Rate) (or)

b) If this is not possible, then just like the rate of tax under the Composition Scheme, the GST rate shall be reduced to 1% (0.5% CGST plus 0.5% SGST)

Eligibility to use Duty Credit Scrips for payment of GST

• Duty Credit Scrips to be allowed for using payment of IGST and also at the time of imports, importers should be allowed to use duty credit scrips for the payment of IGST and all taxes at the time of importation.

Ambit to GST to include Electricity & Petroleum Products

Cost paid towards fuel and power is a very significant cost for MSME industries. The Electricity Duty being paid on the Electricity Charges to be allowed as Input Tax

• Credit under GST. The tax component involved in the cost of fuel should also be allowed as Input Tax Credit under GST.

• A renewable energy company engaged in installation of Windmill and Solar power plants and distribution of power under group captive arrangement or third party sale should be allowed to claim Input Tax Credit on the capital expenditure and pass on the benefit to the actual consumers of power. This would substantially reduce the cost of power which is a significant cost for MSME manufacturing industries.

Eligibility of Input Tax Credit to be widened

• Industrial and Factory Buildings – India is on the path towards development of Infrastructure. The investment in Industrial Infrastructure by the MSMEs will be a backbone for Indian Industrial Development. Therefore, industrial buildings used by MSME Units for manufacturing purposes should be allowed the benefit of Input Tax Credit.

• Accommodation services outside the State – Marketing is a crucial aspect for every MSME business. With the introduction of GST, the taxation system has been the same across the country incentivising pan-India business for MSME. 

However, though accommodation services are generally eligible for ITC, the accommodation services outside the state are NOT eligible for Input Tax Credit since the hotels charge CGST & SGST even in respect of inter-state supplies. Suitable amendment to be made to the Place of Supply provisions to address this lacuna in law and allowing the claim of Input Tax Credit.

Changes in Rates of Tax

• GST rates for Cement and Automobiles should be brought down to 18%.

• Government should implement two slab GST rates for all commodities.

Reduction in Tax Liability for Bad Debts

• Bad Debts result as a consequence of non-payment of the consideration by the recipient of goods/services. Bad Debts are a huge loss for MSME Units. Though amount was not received, GST amount would have been paid. Hence in case of bad debts, GST paid on the same must be eligible to be reduced.

Departmental Audit and Notices

• GST departmental audit for the year 2017-18 and onwards should be taken only after 1st April 2021. As initially promised at the time of GST implementation, the Audit process for the 1st year must be industry friendly. Suitable clarifications and guidelines for departmental Audit must be issued which clearly specify that the departmental audit officers do not resort to high-pitched assessments on frivolous legal ground.

• Summons should be issued by departmental officers only on confirmed cases of suppression or collection of particular details.

• In many situations, Audit and Notices are initiated by departmental officers not having jurisdiction over the assessee. This results in harassment for the MSME Units where all aspects are handled directly by the entrepreneur. Therefore, clear instructions must be given to the departmental officers for initiating audit or issuing notices.

Relaxation in e-Way Bill blocking

• E-Way bill must be blocked only if the GST returns are not filed for a continuous period of 90 days from the due date of filing return.

Pre-Deposit for Appeals

• The Appeal provisions provide that any Order issued by an Officer of the department can be appealed against to the First Appellate Authority. The First Appellate Authority being an officer of the department, there should not be any pre-deposit for filing of Appeals before the First Appellate Authority. 

Therefore, pre-deposit should be only for Appeals before the Tribunal. This would greatly deter harassment from the department towards the cost of pre-deposit on high-pitched assessments on frivolous legal grounds.

Merchant export:

• Currently for merchant export, the time given for the export of goods is within 90 days from the date of invoice, so that the goods can be cleared at the rate of IGST : 0.10%. We request the GST Council to increase the time period from 90 days to 180 days due to COVID 19 lock down & non availability of containers for the year 2021-2022. 

The Micro and Small Enterprises (MSEs) play a crucial role in providing employment opportunities for more than 12 crores in India, but they struggle to get easy access to funds when needed. Over 70% of the funds needed by small businesses is in the form of working capital. The current set of loan products offered by Financial Institutions are limited in nature.

Moreover, MSEs do not get access to short term unsecured loans easily. 

• MSMEs should be treated as a priority sector.

• A Committee should be formed to examine the difficulties MSEs are facing in the present banking/NBFC sectors.

• Ease of financing at present especially during and after COVID is not there. We request the Standing Committee on Finance to have an overhaul of the entire financing pattern for MSEs which is the only way to give them relief permanently.

• At present, all the ratios calculated for large industries and for MSMEs are the same, which should be changed and 

suitably modified for the MSE sector.

• With regard to CIBIL rating, the banks are directly following the report of CIBIL. On our findings, there are a number of wrong entries entered in CIBIL which changes the companies’ overall ratings. When MSEs approach CIBIL to correct the wrong entries, it is taking a minimum 90 days to correct and after that only banks are ready to accept the new ratings, which is really a hardship for MSEs. We need to find a solution for the above.

BANKS AND FINANCIAL INSTITUTIONS

• For Micro and Small Industries, the present margin money is 25% and we request for a reduction to 10%, which will pave the way for more entrepreneurship and generate employment.

• DSCR compliance ratio for availing loans should be reduced for MSEs, but currently it is maintained at par with Corporates. 

• At present, the working capital loans are sanctioned, on the basis of 20% of the Company's annual turnover. Now, the present regime of GST and the payment receivable to MSEs are around 90 to 120 days. They request the banking sector to increase the sanction limit to 40%.

• To release the outstanding payment from PSUs and other Government sectors immediately to MSEs.

• To Revise the loan eligibility, limit up to Rs.100 crores from the existing Rs.50 crores for loan restructuring.

• Banks provide loans to MSEs up to 3 Crores without taking any collateral security.

• Pre-closure charges should not be levied to MSEs during pre-closure of loans.

• Few banks are charging NEFT, RTGS, IMPS and ATM charges and few banks are not charging. Hence, they requested the Reserve Bank of India to formulate a uniform policy of not levying the above charges and it should be made mandatory for all banks. It will encourage more online transactions.

• All other banking charges should be waived off for MSEs.

• NPA norms of 80 days should be maintained. 

• For Micro Industries doing job works with investment of Rs.25 lakhs, a special working capital loan scheme should be introduced.

• In spite of RBI guidelines for clearing of cheques on the same day, still all the banks are taking minimum 2/3 days to clear the cheques.

• MSEs' request for bill discounting / factoring service limit to be fixed by the banks to avail easy working capital.

• Loans should be sanctioned under the Mudhra scheme to eligible units within 15 days from the date of application.

• To consider sanctioning loans to MSE's, holding Current A/c with other banks, other than their regular lending banks for making statutory payments.

• For MSEs, Minimum average balance should be allowed to maintain as Rs.3,000/- for Current Accounts. For shorter duration of period say, within a week, if the minimum balance is less, the charges to be avoided. 

• To consider waive off the bank charges for the cash deposits above Rs.2 lakhs in current account and savings account of MSEs.

• Special capital subsidies up to 30% should be provided to all manufacturing industries (new or for expansion) which generate employment opportunities in Coimbatore.

• Loan Interest rates for MSEs should be below 6% for 7 years’ term.

• For availing loans, at present, MOD Charges are levied by the respective State Governments, which is a high burden for MSEs. We request to adapt a simple equitable mortgage system with the bank itself which will avoid charges paying to the Registrar Office as documentation and stamp charges. Otherwise, a one-time mortgage is more than enough and you should not insist on an additional mortgage for further loans. 

• Accelerated Depreciation for three years to be extended to all MSEs which go for expansions and modernisation.