APRIL 04, 2017

By H S Brar

THE implementation of the GST regime, after the passage of the GST Bills in the Parliament, is in the final stages. The Presidential assent to the Bills is expected to be received shortly. The GST Council has approved the final draft of Rules on Registration, payment of tax, filing of returns, invoicing and refund and tentative approval has been granted to rules pertaining to calculation and availment of input tax credit, valuation of supply of goods and services, composition levy scheme and transitional provisions. The CBEC has finalized the locations of its formations under the new regime. The last date for migration of registration by the current assessees to the GST has been extended to April 30th . It is time to ponder over the implementation process and the areas/issues which may need to be addressed for the smooth transition and working of the new regime during the initial days.

The decision to divide the assessees, by cross empowering the State/Central tax administrations to levy and collect the Central/State taxes, was a laudable step as it spared the prospective assessees from scrutiny by two sets of officers monitoring the same set of transactions. However, the decision of the Central Government to agree to the handing over control of 90% of the assessees having turnover below 1.50 crore and 50% of those above it, to the States, caused much heartburn amongst the various cadres of CBEC as it was perceived that there would be widespread cuts in sanctioned strength and reduction in the promotional prospects. So much so that all the cadres, from Group C to Group A came together and formed a Joint Action Committee to fight for what was perceived as gross injustice to the officers of CBEC who had been at the forefront of the planning, drafting and implementing the GST regime. However, after a meeting with the Finance Minister, the matter was resolved amicably and assurances given that there will be no reduction in the sanctioned strength of any of the cadres. Although, the number of Commisionerates have been reduced but there is an increase in the number of Divisions and Ranges, the intent being to open/upgrade offices in town and cities, lagging in manufacturing entities, where there are now expected to be a sufficient number of assessees under GST. The Group A officers have been rehabilitated by increasing their strength in the various Directorates. The resolution of the grievances of the CBEC officers was essential as they would be one half of the implementors of the GST, the other being State taxation officers.

The new GST formations, under CBEC, are expected to be notified in the first week of May, 2017 and expected to be operational by the first week of June, 2017 to be in time for implementation of GST w.e.f. 01 st of July, 2017. Directions have been issued to search and finalize office accommodations in towns and cities, where no offices earlier existed, by the end of April, 2017. Hiring of accommodation, within a short span of one month, will be a herculean task as it entails issuance of advertisements inviting bids/offers, comparing of offers by visiting the proposed locations, ensuring that the rent asked for conforms to the CPWD rates and finally, entering into a rent agreement with the landlord. In case, proper accommodation is not offered by the bidders, fresh bids/offers have to be invited. Even after an accommodation has been finalized, there is need for some modifications in fixtures and fittings before which the offices can be shifted/set up in the new accommodation. It is suggested that all out/sincere efforts should be made to find appropriate accommodation, however, if the same cannot be finalized for a location, instead of compromising and going in for an accommodation which is found inappropriate/unsuitable later on, the office concerned may be set up temporarily in the nearest existing Central Excise office or the State authorities may be requested to provide accommodation in one of their premises, at the said location, as a stop gap measure.

Migration of Central Excise, Service Tax and VAT assessees to the GST is going on at a fast pace. The problem in monitoring and migration is that an assessee can be registered under VAT, Central Excise as well as Service Tax. If he migrates to GST using any one of the three registration particulars, there is no mechanism to update his status under the other two as there is no cross matching of data under GSTN, VAT networks and ACES. Manual cross-verification is a tedious process and involves interacting with the assessee, which is against the spirit of GST. It is suggested that cross-matching of data be done at a centralised level and jurisdiction-wise lists be circulated periodically to avoid utilisation of manpower in wasteful follow-ups with the assessees. Further, there are a large number of dormant/non-filer assessees under Service Tax most of whom have no/obsolete contact particulars. It is practically impossible to follow-up/pursue such assessees, especially, if they are located in geographically widely-distributed areas. It is suggested that specific teams should be set up and in case of non-filers beyond a specified time-frame, they should be recommended for de-registration and taken out of the list of those proposed to be migrated. In any case, no one will be able to work under the new regime without getting themselves registered. As a precautionary measure, lists of assessees proposed to be de-registered may be put up in the offices as also published in the local newspapers.

The process of migration has also thrown up the short-comings in the preparedness. The number of CBEC officers who are well versed in handling the GSTN systems is lesser vis-a-vis those aware of the broad framework of GST. Concerted efforts should be made to upgrade the soft skills of the officers. Also, some problems are being faced in the actual process of migration by assessees, inasmuch as at times the system becomes too slow or gets hung up. Presently, we are migrating a few tens of lakhs of assessees over a period of more than three months. The same system is expected to handle hundreds of crores of transactions on monthly basis. The robustness of the system is the pivot over which the whole GST regime is expected to rotate. Any weakness in the same can be a cause of headache once the system becomes active. It is suggested that the working of the GSTN system should be regularly monitored and the technical glitches/speed-issues should be immediately attended to and the reasons thereof ascertained to prevent recurrence of the same. A trial run of the system is proposed to held in May and June and is a step in the right direction.

Another issue which is expected to attract the maximum attention during the first few months of new regime will be the mismatch in the input/output tax detected during the reconciliation of the sales/purchase figures uploaded by each assessee. The new regime prescribes that an assessee can avail the input credit based on the information uploaded by them only if it matches with the corresponding sales data uploaded by the sellers. The mismatches, if any, would have to be reconciled in the next one month failing which the credit would become irregular, and recoverable. There can be a variety of reasons for the mis-matches, viz., dispute between the assessees, unforeseen happenings with one of them, delay in filing the reconciled data etc. During the first few months, there are expected to be significant number of data mismatches. This will put the buyer at a risk of denial of credit even in cases of genuine transactions and initiation of avoidable litigation. The immediate outcome of the said hurdle would be the blockage of precious working capital of the buyer, in depositing of tax which would have not been payable, if a longer time-frame had been provided for reconciliation. It is, therefore, suggested that the period allowed for reconciliation may be extended from one to three months, say for the initial period of six months, i.e., upto December, 2017.

A motivated team of well-trained officers, a robust IT infrastructure and a little bit of liberty to the assessees in the initial period of implementation of the radically different tax regime, will ensure a smooth transition with minimal birth pangs.