OCTOBER 06, 2016

By S Ramaswamy

GST has become a reality.

Appreciate the swiftness of the Government to meet the deadline of 01 st April 2017 for the implementation of GST. The efforts are commendable. However, it appears that the entire GST law is for the central excise/ service tax department as evident from the way it is drafted. The law needs to be simple which goes with the Government's motto of Ease of Doing business.

Firstly, GST intended to have a single tax administration. However, due to political reasons, GST that shall come into force is a dual GST.

Secondly, GST intends to remove the demarcation between Goods and Services. Service tax commenced with a benign rate of 5% in 1994 and which today is at 15% (including cesses) while the Excise Duty is 12.5% and the RNR VAT rate in many states is 14.5%. There was a thought that the converged rate of excise duty and service tax shall be 16% which was proposed earlier. As the rates are going to be the same between goods and services, it is suggested that the draft law removes the distinction between goods and services.

Set off / Credit Mechanism

It appears that the definitions are the same as that in Cenvat Credit Rules. The CCR talks about the manufacture and service while the GST should be based on the supply of goods or services for the furtherance of business.

The purpose of GST is that there should be seamless movement of goods and services without any cascading of taxes. However, the credit defines inputs and input services instead of a single nomenclature (input includes input services). Even the definition of capital goods has the same restrictions as that of definition of capital goods in the cenvat credit rules. It is suggested that the assessee should be allowed to take credit of all goods and services except for some negative list as long as it is used in the course of furtherance of his business.

Therefore, it is suggested to replace Section 2 (20), 2(54) and 2(55) of the Draft GST Act and define as follows:

"Input" means any goods including capital goods and services except those termed as negative list used or intended to be used by the supplier of goods and/ or services for making an outward supply of goods or services in the course of furtherance of business.

Valuation of Goods and Services

The Valuation rules needs to be revisited under the GST law. The transaction value is the same as defined under Section 4 of the Central Excise Act. The valuation rules under the Central Excise law for the manufacturer cannot be applied to a trader. The GST law is for all manufacturers, traders (dealers), service providers etc. If this is the law for valuation, its really mind boggling for the ultimate consumer to procure any goods or services as the common man/ consumer shall not understand the price that he needs to pay for the goods or services. Since the intention of the GST law is to remove cascading of taxes, it is suggested that the GST be levied on the value of the goods or services that has been agreed between the parties(Business to Business, Business to Consumer or Consumer to Business).

Therefore, it is suggested that the Section 15 of the Draft GST Act be deleted.

This shall mitigate the number of litigations, interpretation and help in ease of doing business.

(The author is Chief Commercial Officer, Nash Industries (I) Pvt. Ltd, Bangalore & the views expressed are strictly personal.)