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Division of GST Assessee-base - CBEC officers rightly in pain - FM needs to apply balm!

TIOL - COB( WEB) - 538
JANUARY 26, 2017

By Shailendra Kumar, Editor

SLUMPED in deep dejection!! A bout of sudden heartache!! An open demonstration of tsunami-like fury coupled with extreme shade of despondency!! A strong feeling of let down, back-stabbing and betrayal!! No trust in CBEC leadership!! Demanding even VRS Scheme!! - An acute existential crisis, indeed!!

This is how one may like to paint the spectacle which emerged within the confine of the auditorium at India Islamic Cultural Centre in New Delhi on Monday evening. And the distinguished gathering was that of over 300 IRS officers of Customs & Central Excise of all ranks minus the Board Members except the CBEC Chairman. And the host was the IRS Association which had called for an emergency meeting over the GST Council's decision to concede about 82% of the assessee-base to the States at its last meeting. The two major components of the Council's decision are - 1) 10% of the assessee-base below Rs 1.5 Crore threshold; and 2) 50:50 above Rs 1.5 Crore of the tax base to the Union of India.

When the proceedings of the Council over the ticklish issues of dual control, cross-empowerment and jurisdiction in territorial waters were not moving even an inch, a sense of desperation was seen predominantly in the Central Government camp led by the duo of Union Finance Minister Arun Jaitley and Revenue Secretary Dr Hashmukh Adhia. Unmistakably, they looked under head-spinning pressure to find a solution so that the logjam could be broken. But, evidently, what others from the States could see clearly, the CBEC top officials could not see at all. They continued to relish their positions of pride and always believed that nothing can be decided without their consent! The CBEC war-room was watching, from ring side, the proceeding empty-handed - virtually blank armoury! Out of the five alternatives they had authored JUST ONE which was of course rejected by the States about two months back as State VAT Commissioners wanted clear division of the tax base and the CBEC was aiming at gaining access to the entire base.

As soon as the death hour of the proceeding commenced, one of the VAT Commissioners confided that the CBEC popped up a proposal for 20:80 ratio for below Rs 1.5 Crore threshold. This was indeed a strong indication for the political leadership that a compromise can be hammered out by losing a few more percentage points. And, thus, 10:90 ratio was looked at as an appeasing formula. A quick wave of happiness spread in the opposite camp of States as against the spectacle of 'open mouth' in the CBEC camp. Some of the VAT Commissioners admitted that they were expecting a way out in the range of 30:70 ratio but when the negotiation itself unfolded with 20:80 ratio they knew that a little more pressure for the last mile gain may fetch them a couple of more percentage points. And it was a huge windfall, indeed! The Centre conceded 10% more as it was after all a battle, less administrative and more political in nature. In a hurry to wrap up the negotiations so that the GST Bills could be tabled in the Parliament during the Budget Session, the leadership knew that it was perhaps the last crucial leg to be swum across. Bitten by the deleterious demonetisation bug which has resulted in one per cent lowering of the projected growth rate, Mr Jaitley knew that the GST alone can offset the contraction in the growth projections.

The battle was thus lost by the CBEC. As soon as the news spread across the field formations throughout the country, a sense of frustration and gloominess took them over. The dejection is more palpably visible on the face of IRS probationers and young officers who have joined the service in the recent years. Even senior officers are feeling let down. And they have several valid reasons. The CBEC has been in the leadership position ever since the work on GST evolution rolled out. Its officers have been closely working on various components of the GST system. If one takes the example of GST Model Laws, a major chunk of homework can rightly be claimed by them. If one talks about training, its officers and its Academy (NACEN) have been burning midnight oil to train State VAT officials. Even in the GST Council, its officers have proven their credentials and command over complicated technical issues.

Now, the larger question is - Has either the political leadership or the CBEC leadership failed or betrayed the Department? Perhaps, NO! It is true that the Finance Minister has been giving assurances to the IRS Association at regular intervals that its interests would be protected. And why not? After all, the interests of the Union of India are also the interests of the CBEC. But the issue before the political leadership was to find a solution to the persisting logjam. And being the torch-bearer of the indirect tax reform in the country, the Centre had greater responsibility than any State Finance Minister. So, insofar as the duo of Mr Jaitley and Dr Adhia goes, they cannot be blamed for finding a solution in the spur of the moment. Even CBEC leadership need not be blamed for everything as it was beyond them. However, the CBEC leadership would be more gracious if it admits the fact that it was not prepared for the emerging contingency scenarios. In fact, one VAT Commissioner confided that they were in touch with the Revenue Secretary more often than the CBEC!

Taking stock of the damage done, the IRS Officers Association has given a representation to the Union Finance Minister and stated that "... such skewed distribution of assessee-base does not bode well for the Centre-State fiscal balance of power, particularly when the Centre has to compensate States for five years. The ability of the CBEC to administer the tax base is also severely compromised in the process ..." It has also raised the point that the sanction of refund under cross-empowerment would not be valid as it amounts to withdrawal of money from each other’s Consolidated Fund for which there is no mandate in the Constitution. The processing of refund cannot be delegated to State Government officers without taking approval of the CAG and appropriate accounting authorities.

Though one may prima facie see merit in these objections but as the Finance Minister had stated - Necessary amendments would be made in the laws to implement the GST Council's decisions. So, all these issues of withdrawing funds from the Consolidated Funds and cross-empowerment under the CGST would be sorted out. The most challenging part is going to be the amendment in the IGST law. And the root of this challenge lies in Article 269A which reads: "Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council." Clearly, there is an element of LIMITATION even for the GST Council here. The Council can recommend but within the limitation of the words used in this Article. And the four walls are bricked around the expression "levied and collected by the Government of India". This is unlike the earlier expression "assigned to" which was used in Article 269 for CST. There is no word like 'assigned to' in Article 269A.

The second key expression is "such tax shall be apportioned between ..." There is no element of tax administration in this expression. It only talks about sharing of revenue. No doubt, constitutional solution to this problem rests with Article 258 where the President of India has the power to assign certain works of the Union to the State officers but the fact remains that it amounts to loss of turf for the CBEC officers where they had legitimate claims as per the scheme of things. Secondly, it raises a pure legal question - Why should the President of India do so when the Union of India has a permanent bureaucracy hired by another constitutional body, the UPSC and there are encadred functions for them. Interestingly, such a scenario also raises a major Constitutional issue - Can the Union of India gift its TAXING RIGHT to the States even if it desires so? Perhaps, NO. Separate taxing powers is one of the features of the basic structure of the Constitution. That is why our Constitution makers had carved out independent Union List and State List and no subject from such lists can be gifted by either of the parties, as per my limited understanding of the Constitution of India. When the territorial waters are closely integrated with the sovereignty of the Republic of India, can it really be 'gifted' to the States. If one goes by the view of the Law Minister of India, Mr Ravi Shankar Prasad, it is a clear NO. In this context, it is interesting that the Centre has not sought the view of the AG on this issue so far!

In this background, what is important is not to play the blame game but look for solutions. The Union Finance Minister and the Revenue Secretary would themselves not like to usher in a new tax regime with a demotivated workforce. This would hurt not only the cause of revenue but also assessees. The Finance Minister does need to pay extra attention to this issue on priority basis and should direct the Revenue Secretary, who is certainly more capable, to find a solution which would satisfy the aggrieved workforce of the CBEC. The top leadership of the CBEC is going to demit office on March 31, 2017 has an important task cut out for him and his logical successor also needs to come forward and interact with the officers and put balm on their wounds.

So, what is the solution? All the States are certainly not equally cantankerous and inimical to the Centre along political lines. And, therefore, a dialogue can be initiated with some of them. This would also be necessary to avoid litigation on multiple sets of issues which the helpless lot of CBEC officers may initiate out of sheer frustration. My best wishes are for the FM and the Revenue Secretary for smooth roll-out of GST. And the Finance Minister would do much better if he makes some promises to sort out the promotional & other HR-related issues of the various Services of the CBEC as early as possible.

Also See : GST Rapprochement - Is everything lost for CBEC?

Kudos to Mr Jaitley for steadily steering GST Council towards 'Destination' & Tax