Background.
The significant Goods and
Services Tax law (GST) was brought into place and effectuated on 1st July 2017
after adoption on 8th August 2016 of the 101st Constitutional Amendment Act,
2016. Last month marked the 3rd anniversary of the law, introduced in a midnight
session addressed by Hon’ble President Pranab Mukherjee, Prime Minister
Narendra Modi and Finance Minister Arun Jaitley in the Central Hall of
Parliament on 30th June 2017 where the game-changing economic reform
was formally announced.
Hon’ble President Sri Pranab
Mukherjee stated, ‘GST is the result of a broad consensus arrived at between
the Centre and the States and is a tribute to the maturity and wisdom of
India’s democracy”
The Hon’ble Prime Minister in his
own flair nicknamed GST as “Good and Simple Tax”.
The following are some noteworthy assertions made by him in his midnight
address:
·
The new law shall ensure ‘one nation, one tax’
which shall be executed in a standard manner in all the states. The same was
expected to put an end to much of the earlier compliance headache for
businesses from the erstwhile multiple Indirect Taxation collection system
·
It shall be a revolutionary taxation system for the
digital India. It would not merely ease doing business, but also demonstrate
the best way of managing business
·
It shall be an example of co-operative federalism which
shall facilitate inclusive growth of the nation. States shall now get equal
opportunities of development where both Centre and State play equal role in its
operations
·
It would lead to immense savings in time and cost.
Specifically, that the new law would eliminate delays at state border crossings
caused by existence of different state taxation policies
·
The law would cater to the cascading erstwhile
indirect tax regime by introduction of a simpler, more transparent modern tax
administration which would help curb corruption (including the low-level
corruption of pre-GST era) and reward honesty
In addition to the above points,
the primary objectives of this new consumption based indirect tax system
instead of erstwhile multiple taxes on manufacturing by Centre and Sale by
States known as GST has sought to achieve uniform GST procedures and seamless
Input Tax Credit (ITC). It would also increase tax to GDP ratio and revenue
surplus, reduce economic distortions, provide transparency in the taxation
system, boost employment opportunities and help in a developing a unified
national market to boost Foreign Investment and ‘Make in India. Finally it
would increase the product competitiveness in the international market; improve
the overall investment climate in the country in a uniform basis for developing
all states.
01. Achievements.
The new law has its own share of achievements.
It has considerably stopped the cascade of tax upon tax, reduced compliances in
contrast to the erstwhile indirect tax regime, and has an effectively
functioning GST Council which meets regularly to discuss important challenges
faced by the law. Further, the new law brought up the Central uniform E-Way
Bill across the country, the rainmaker policy of availability of seamless
credit has been beneficial for a number of industries while leading to the
emergence of another set of concerns stated hereinafter. The new law has
further led to a substantial decline in the number of cases of tax evasion.
While appreciating the milestones
which have been achieved by the GST law, a look back at the eventful years of
the introduction of the reform, demonstrate a swelling number of confusions and
litigations in the recent past. A surge in the legal, technical and procedural
faults has been observed. These need to be reviewed for their immediate
solutions.
02. Challenges.
The implementation of the new law
as per its design has been made substantially reliant on the efficient digital
platform-GSTN which is regrettably susceptible to technical glitches. It is the
single largest problem which needs to be strengthened and streamlined. Too much
concentration & centralization of power in the hands of few bureaucrats has
kept the extensive reform away from the people of the country. GST hasn’t
completely included areas which may require transformation and corrections in
Indian economy. GST also faced some technical hiccups, faulty implementation
and initial un-preparedness, along with repeated experiments in the framing of
GST Law; lack of consistency and sustainability which could have adversely
affected the business and industry. India lost a big opportunity to happily
feel GST as a beneficial reform. The challenges faced by the law today can
further be discussed as follows:
a.
GST
Law is not well drafted, it is cut and paste of erstwhile three main Indirect
Tax Laws which make it a combination without clarity, simplicity, transparency
and intelligence of its own. During this three year’s period, GST has seen in
the year 2017, 256 Notifications, 29 Circulars, 12 Orders and 1 Removal of
Difficulty Order (ROD) while in the year 2018, 192 Notifications, 56 Circulars,
4 Orders and 4 ROD as well as in the year 2019, 174 Notifications, 50
Circulars, 2 Orders, 13 ROD and 11 Corrigendum were issued. In the current year
of 2020, we have already seen 73 Notifications, 11 Circulars, 1 order and 1
ROD. In total 695 Notifications, 146 Circulars, 19 Orders, 19 ROD and 11
Corrigendum were issued in addition to numerous Notifications and Amendments in
the GST Law which comprised of three Acts & their corresponding Rules i.e.
CGST, SGST and IGST. Further, the taxpayer needs to understand and implement
the law after considering the interpretation and observations made in more than
1,000 Judgments rendered by various High Courts creating more chaos than
bringing clarity
b.
Whether
the businessman can keep track of such large number of Notifications,
Circulars, Clarifications, ROD, etc. while performing his other business
duties. Can it still be called a ‘Simple’ Law? Even a tax professional having
requisite educational qualification, knowledge, and experience is worried every
moment that whether what he is advising the client or implementing the Law
while filing of returns or performing any usual compliance is correct
in-accordance to the law. The genuine and vigilant businessman including their tax
advisors are just spending un-productive time in keeping track of extended
dates, waving of late fees or fines and interest rather than focusing on real
issues facing GST and its long-term success
c.
The
difficulty increases when the Law is driven absolutely through the complex notifications
issued everyday by the Government and complicated circulars by Central Board of
Indirect Taxes and Customs
d.
Rule
of Law in GST is absolutely missing in the country, which is a serious question
in a seasoned democracy like India. The Government has been regularly
collecting around ` 1 Lakh crore every month as GST revenue, but no judicial forum
has yet been put in place for the genuine taxpayer for resolving their grievances.
Every time they have to knock the doors of the High Court or Supreme Court
which is practically not possible for small or medium dealers. Lack of judicial
forum like Tribunal and Appellate Authorities as prescribed and provided by the
Parliament in the GST Law has placed the taxpayers in the precarious situation since he cannot take
any legal action to safe guard his interest
e.
Probably,
GST Council which itself is one of the finest examples of Cooperative
Federalism, has not realized the essential requirement of proper judicial
forum. Probably, bureaucracy responsible for implementing GST Law wants no or
minimum interference so that their arbitrary actions and pro-revenue approach
could continue even at the detriment of the country wide business. Imagine the
plight of the repressed taxpayers in a democracy for last three years, the
Government could not establish and start the ‘GST Tribunal’ neither the ‘Central
Advance Ruling Authority’ while the local AARs manned with junior officers
deficient in legal acumen are creating
havoc with their revenue biased interpretations of law in most cases
f.
Even
as the time-gap arrangement of filing the 1st Appeal, the procedure is too much
complicated, tedious and time consuming. As per the present instructions in the
various States after uploading/filling of appeal online, hard copies must be
submitted before the 1st Appellate Authority. What is the benefit of filling
appeals online? Certified Copy of the questioned Order is separately needed to
be filed manually
g.
GST
was expected to integrate the entire value chain starting from raw materials to
finished products, this one advantage itself should have been a huge economic
benefit for India, but GST grossly failed due to numerous arbitrary riders
placed in the law. Thus the aim of removal of cascading effect in the economy
could not be achieved to the desired level, nor the business could become
globally competitive, neither the prices of the finished products consumed by
the citizens could come down due to the restrictions on Input Tax Credit
adjustment seamlessly through-out the supply chain.
h.
A
new problem has unfortunately erupted and faced by taxpayer. Suppose during the
movement of goods from Gujarat to Punjab if goods are verified & seized by
Mobile Squad Authority in Rajasthan, all legally required solutions like filing
of clarifications, written reply etc. Even the filling of Appeal against the
Tax & Penalty Order have to be completed before the proper Authority in
Rajasthan i.e. at the remote place of seizure itself which is entirely new
State or a unknown place for a normal consignor of Gujarat or consignee of
Punjab. Such tedious procedure forces the harassed consignor or consignee to
succumb before the arbitrary, illegal, and un-justified huge demand of security
deposit in Rajasthan. This is leading to corruption rather than removing the
corruption, as envisaged earlier by the Government before implementation of
GST. The present bureaucracy is absolutely sitting upon this very sensitive
issue and no solution is being found out by GST Council in spite of repeated
representation by Trade, Industry and Professional Bodies
i.
Classification
of Goods for applying the tax rate has many complications. In respect to same
commodities Custom officer depends on their own Custom Classifications based on
old thinking resulting in different views than GST Officer as per HSN Code. The
custom duty calculated and paid at ICEGATE i.e. web portal of customs and GSTN
i.e. web portal of GST both managed by Central Government have different
interpretations and applications creating huge uncertainty for the import
business. To develop and maintain transparent price structure by a business
which is importing the goods as well as manufacturing the goods of similar
brand in the country is a big issue due to this variance in thinking of the two
Central Departments. Even after three years of implementation, the Government
has utterly failed to integrate the windows of two Central Departments under
Central Board of Indirect Taxes &Customs
j.
Blocking
of fund due to lack of integration as well as riders placed in process of
refund/adjustment has further aggravated the financial problems of the export
or import business
k.
The
rationalization of GST rates has also been taken by the Government in a big
way, the number of entries in 28% GST Tax slab has been reduced from the
earlier 228 items to only 37 items as well as some 500 items have seen rate
tweaks over a period of 3 years which is certainly a good start, but still, we
have at least seven GST slabs. This defeats the principle of simplicity and
also introduces inverted tax structure. The classifications tend to be
arbitrary, which means that slab allotment is susceptible to political
patronage and undesirable lobbying
l.
In
the recent time of COVID-19, the businesses have come across an intricate
controversy about the applicable HSN code and accordingly the GST Tax rate on
face mask, sanitizer, medical consumables & tools and other such items of
essential requirements for fighting the pandemic. Similar such issues are
erupting time and again to complicate the business in various fields
m.
The
problem of fake registration under GST could not be tackled by the Government in
spite of the availability of large number of State as well as Central Officers.
Rather this laxity is increasing both the evasion and corruption to the great
disadvantage of genuine business inducing tax distortions
n.
Due
to in-efficient digital infra-structure the pre-requisite of matching of GSTR-
1 (Outward Supply) and GSTR-2 (Automatic updating of Inward Supply) could not
be put in place which is detrimental to the very ethos of GST; defeating the
advantage of ‘Self-Policing’ feature. Now, with an aim to cover-up the failure,
the Government is giving some limited benefits to the registered dealers knowingly that such leniency is certainly
susceptible to misuse by unscrupulous registered dealers as well as
independently detrimental to genuine business which is conducting all its
transactions after recording in the books of accounts and payment of due taxes.
o.
The
Goods and Services Tax has many anomalies in its present form, inputs are taxed
at higher rates than final products, this phenomenon known as ‘Inverted Duty
Structure’ resulting in blockage of fund which has become a very common and
general problem of several Industries & Trade. It is tough to get even the
top-most bureaucracy understand the real issue for its solution, further every
time the industrial or trade body cannot approach High Court for obvious reason
as their action of adopting judicial route being characterized as against the
Government
p.
One
of the important aims of GST was to allow seamless credit of tax paid at the
earlier stage from the Outward Liability to remove cascading effect, but large
number of direct and indirect restrictions has been imposed on allowing ITC.
This is creating interruption which is against the spirit of homogeneous
integration of value chain. Government with all its might, unreasonably blocked
the transitional Input Tax Credit available as on 1st July 2017 for the
erstwhile taxes (VAT, Central Excise or Service Tax etc) paid in repealed laws
merged with GST; why so?
q.
The
GST was expected to raise efficiency in business with the aim to lower the
final prices of supply of goods and services, a goal it has largely failed to
achieve. This could be a popular advantage to the citizens after implementation
of GST. Anti- profiteering provisions of GST Law have not been rationally used
to ensure passing on differential benefit by the business to the ultimate
consumer in the larger interest of economy of the country
r. GSTN Official Web Portal of the
Government has failed in data management and analysis for accurate policy
planning of targeted growth; sectoral data is not available for the economic
activity so the business as well as Trade & Industry bodies are unable to
get the precise data to make a long term planning in their business area.
s.
Even
after 3 years of implementation of GST Law the Central & State Departmental
Officers are still untrained to analyse the transaction data and immediately
detect loss of revenue by un-scrupulous registered dealers. The training
provided by the Government has not yet equipped/skilled the Officers and staff
to the desired level as is needed for correct implementation of GST, expecting
guidance to the small taxpayers is a farfetched dream
t.
Most
important of all, range of technical glitches need to be fixed. The software
systems in use are too complex for individuals and modest businesses, and input
credits are hard to get. Moreover, the GST Authority's at the District or Zone
level or even at the State level has no power at all to resolve any of the
grievances which are increasing troubles of the taxpayers. The resolution of
the dispute even with the satisfaction and consent of the Jurisdictional
Authority at the local level is not permitted at all, the tax-payer cannot
rectify any genuine mistake happened during filing of any of the complicated
forms regularly required to be submitted online.
4.
Conclusion.
Recently,
the Government on 24th June, 2020, by Notification extended the operation of
power to issue ‘Removal of Difficulties Orders’ by a further period of two
years, beyond 1st July 2020 which proves beyond doubt that the GST Council
itself admits that GST has not yet been stabilized even-after passing of three
years, as this time period was envisaged when GST was adopted by Indian
Parliament.
The
extensive impediments which have been faced by the law have not gone unnoticed
by the eyes of various Courts of India. The bench of Madras High Court
constituting Dr. J. Anita Sumanth in the case of M/s. Samrajyaa and Co. v. Deputy Commr of GST
& CE in paragraph 5 mentions that “the era of GST is in a nascent stage and
both the Department as well as assesses are still learning the ropes … it is
common knowledge that assesses pan India are facing difficulties in accessing
the system and uploading Forms to seek transition of credit…”
Further,
the Delhi HC in the case of Sales Tax Bar Association (Regd.) v. Union of India
recognized the technical issues faced by the portal and provided further
instructions on improving the efficacy and reach of the portal. Also, in the
recent Delhi High Court decision of the Brand Equity Treaties, it was observed
in paragraph 15 that “realizing that Respondent’s network and system, and the
change, had posed multifarious problems that require a reasonable approach.
…This is palpably evident from the sheer number of cases being presented before
us, in relation to such technical difficulties and inadequacies. The benchmark,
in our view, is that the online system brought into force by the GSTN Ltd.
should be able to perform all functions and should have all flexibilities/
options, which were available in the pre-GST regime. The problems on the GSTN
cannot be wished away and have to be resolved in the right earnest. This
requires sensitivity on the part of the Government which has, unfortunately,
not been exhibited in adequate measure.”
Hence,
keeping the above extensive list of issues in mind as have been experienced by
the businesses & industries in the implementation phases, it would not be
wrong to admit that 3 years is a sufficient time for new GST regime to
stabilize, but unfortunately India is still struggling with this new law and
now onwards will be losing the precious time to firmly stand as a global
economic power. A legislative reform coupled with a robust technical
reorganization with minimal glitches, which shapes the basic machinery for
immaculate implementation of the GST law is required on the present date.
No comments:
Post a Comment