OCTOBER 07, 2016

By Harsimrat Brar

AFTER much delay, the move to introduce GST is finally back on track with the passage of Constitution Amendment Bill in both the Houses and the granting of Presidential assent to the same. The GST Bill has also been passed in required number of State Assemblies and more are expected to follow in the coming months. GST Council has been constituted and has held its first meetingon 22-23.09.16 which has been reported to be held in a very cordial, frank and receptive atmosphere and has resulted in final agreement on the fixation of the threshold limit. The Central Government is making all out efforts to implement the GST from the next fiscal. A lot of efforts are being made in many directions in an attempt to cover all the bases and to ensure a smooth transition from the present taxation system to a radically different system under GST.

I see three probable hurdles which should be tackled to ensure a successful implementation of the new taxation system.

The first hurdle can be the GST Network itself. It is supposed to be much much bigger than the ACES and the presently operating systems of some of the States. Some estimates put it to be able to cater to 300 crore transactions per month by 80-90 lakh assessees. This is a mammoth set of data and to handle the traffic, to ensure its security, to manage the linkages with the banks, the Central and State Governments, to process it and send the details of mismatches and shortcomings to each assessee will be a herculean task, to say the least.

The task has been entrusted to Infosys, one of the pillars of the Indian IT industry. It is hoped that they would stand up to the challenge and present it as a showcase of their capabilities. A sufficiently large and powerful server, thorough attention to details while developing the software, rigorous dry runs and prompt support services would go a long way in overcoming this pitfall.

The second hurdle in the successful implementation of GST can be the manner of handling the mismatch in the input/output tax detected during the reconciliation of the sales/purchase figures uploaded by each assessee. As per the presently available information, an assessee would be eligible to avail the input credit based on the information uploaded by him. It would be matched with the corresponding data uploaded by the other party,and the mismatches would have to be reconciled in the next month failing which the credit would become irregular. Now, the first question arises, would the government rely on the seller's declaration and declare the credit irregular or rely on the buyer and allow the credit but demand tax from the seller. The second question arises that, suppose due to some reason the transaction is genuine but the same could not be reconciled during the period of one month, would the buyer be denied the credit. There can be a hundred probable reasons for the same, viz., dispute between the assessees, unforeseen happenings with one of them, delay in filing the reconciled data etc. The monthly transaction volume is 300 crore transactions and taking the mismatches to be 0.01%, the number of transactions would come to 3 lakhs. If an average transaction involves a credit amount of Rs. 10,000/-, the amount of credit under dispute would be Rs. 300 crore per month. Let us add another if. If 95% of the data is reconciled within the next month, the disputed amount would dwindle to Rs. 15 crore per month and the number of show cause notices required to be issued would be 15,000 per month. During the first few months, these figures are expected to be significantly higher and they should settle down to a lower level with time. However, it is important to note that the buyer would be at a much higher risk of denial of credit than under the present system.The long-term outcome of the said hurdle would be the accumulation of litigation at different levels, most of which would fail at higher appellate levels as is observed in similar cases involving irregular CENVAT credit under the present taxation system.

The solution to this vexatious problem could lie in an antique document, namely, ‘Annexure-D'. A module could be developed, where the buyer, after the expiry of one month, can upload the document(s) on the basis of which he had availed the credit which remains disputed which would show up in the pendency of his jurisdictional officer. The buyer's jurisdictional officer can then send a query to both the seller and his jurisdictional officer. The seller can admit its correctness and update his data and he can upload his copy of the said document.The seller's jurisdictional officer can then verify the same and send the report to buyer's jurisdictional officer. Alternatively, the seller may deny the same based on documentary evidence and the buyer's jurisdictional officer can then reject credit. This will help in reducing a lot of litigation, especially in the initial phase when a large number of such cases can crop up due to the unfamiliarity of the system.

The third and the most vexatious hurdle would be the operation of the Dispute Resolution Mechanism. How will the same transactions be viewed by the Central and State Assessing officers? How will it be ensured that both of them arrive at a consensus as to the stand of the respective Governments? Will law be supreme or the consenting view point be given primacy? How will an assessee be protected from the narrow/incorrect view point of one set of officers?Would the other set of officers be forced to initiate similar proceedings just to be in consensus with the former? If not, what would be the fate of the proceedings initiated by the first set of officers? These are some questions which I believe the framers of the laws and architects of the GST must have been brain-storming on.

This problem can be sorted out by setting up of Committees on the pattern of the Committee of Commissioners and Chief Commissioners, which review the adjudication/appellate orders of Customs, Central Excise and Service Tax. Such Committees could be formed at various levels of hierarchy. For each level of adjudicating authority, a Committee comprising of one officer each of State and Central government could be set up which could vet the proposed notice. In case of difference of opinion it can be sent to the next higher level of Committee. If the second level of Committee also does not reach a consensus on the launching of proceedings, the proposed proceedings should not be initiated. This is a radical solution, but the problem at hand can be best handled by adopting this methodology.

Smooth implementation of GST needs not just the physical infrastructure, but also the concerted efforts of the implementers, both at Central as well as Sate Government level. As noted by the Chairman, CBEC in his D.O. letter dated 17.09.16, the huge practical experience of the implementers is being utilised while framing of the laws and procedures. To develop a policy, say, for the upliftment of the poor, which proves to be a flop at the implementation stage, only results in the intended benefit not accruing to the target segment and wastage of public money. On the other hand, a faulty taxation system can not only cause loss to the government exchequer by availment of undue benefit by some wily assessees, but also ruin some of the assessees who are denied a benefit or dragged into litigation leading to blockage of capital in disputes, due to any loopholes/ambiguities creeping in while framing of the laws/procedures.The placing of the draft law in public domain is a step in the right direction and active discussion on each aspect of the law and procedure among all the stake holders, namely, framers/implementors, tax practitioners and assessees, would result in framing of equitable, logical and practical legal framework.

Let us keep our eyes and ears open to absorb all the aspects of the GST and make sincere concerted efforts to ensure its smoothest possible implementation.

(The author is Superintendent, Central Excise and the views expressed are strictly personal.)