APRIL 04, 2017

By G Mohana Rao

SECTION 9(4) of the CGST Bill was introduced and passed by Lok Sabha appears to have been issued in a hurry. The section reads -

"The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both."

Thus, whenever any registered person procures anything from an unregistered seller, he will have to pay GST on reverse charge basis. The proposition is ridiculous to say the least. Let's take the following illustration. I have a small shop which I have given to a Bank for an ATM. It's a very small shop. Therefore, I need not register even today in any of the state as the amount is miniscule. Now,comes the GST in July, 2017. The Bank will have to pay tax on the rent being received by me, and it will get credit of only 50%. A straight cost for them.

A registered person orders two cups of tea for his clients from a tea vendor. The company will have to pay GST on reverse charge because the poor tea vendor is not registered. The taxman will call on all the companies and will ask to pay GST on all sundry expenses because these will invariably be for something procured from unregistered vendors . Companies takes a host of services from unregistered persons namely, consultants, advocates, brokers, commission agents, electricians, plumbers etc and probably,most of whom may not be registered. The companies will,first of all, have to keep record of such expenses, issue bill of supply and pay GST. Most of such vendors would have purchased tax paid inputs for which there would be no ITC available resulting in the direct cascade of taxes. This would add to the costs of companies and discourage them from buying from unregistered persons. There would be a huge shift from unorganised and informal sector to formal sector resulting in very high unemployment levels in the country. Neither the government no r the private organised sector can take care of the employment needs of the country. This is not the GST which India needs or it may not be the real intention of the law-makers. I would love if each and every small businessman voluntarily adopts technology, registers in GST, pays taxes and contributes to his growth and ultimately to that of country. But not this. This provision of section 9(4) appears (to me) completely illogical.

T he move will force all small companies even below the threshold limit to register or they will simply be out of business. May be we will have not one but five crore assessees. Can the administration handle it? How will assessee companies handle such purchases from unregistered sellers? In fact, it calls for real research to find out how such provisions were suggested and what the arguments behind such suggestions have been. Do the big corporates have a role in it? Do they want to kill the small business man?I have no clue but would love to read the arguments for it as this provision was never in the earlier two drafts of Model GST Laws which were released in public domain in the months of June and November, 2016. I felt that it was truly a participative era where the comments of the trade were being sought while drafting the law and, therefore, the final product would be a much better version. I don't think anyone from the trade would have suggested such a provision. It is difficult to fathom such a suggestion?

I pray and hope that better sense prevail s in the power echelons of the law makers and a reversal of this particular provision will do a world of good for the small self employed persons and our nation. This is one U-turn that the nation can ill afford to accept.

(The author is Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal.)