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GST getting caught in storm of invoice mismatch! Exporters get a feel of it!

TIOL - COB( WEB) - 577
OCTOBER 26, 2017

By Shailendra Kumar, Founder Editor

THE Goods & Services Tax (GST) is a serious reform effort in India. And, unlike other taxes, it impacts indiscriminately and equally the poor and the rich both. But it holds many beneficial promises in its womb, for all the segments of the taxpayers' community. It also deserves credit for bringing multi-layered and several geographically-defined taxpayers under one umbrella. Just like 'One India One Market' it has created one Indirect Taxpayers' Community at All India level. And interestingly, this community is so large that it has by default become a powerful vote-bank for any political party to ignore it at its own peril. But, does political appeasement also require drawing analogy which is bad in taste for anything serious like GST. During his election campaign in Gujarat, the Congress vice-president Rahul Gandhi gave it a new name - Gabbar Singh Tax (GST). What I fail to understand is that on the one side, he 'cheapened' the acronym and on the other, he claimed that GST was first initiated by the Congress Party. This clearly means that he is reluctant to give up the ownership of the historic reform and give full credit to 'Mr Modi' who has been nicknamed as 'Gabbar' who was originally depicted as a villain in one of the most successful Bollywood movies - Sholay. Mr Gandhi may describe his political opponents as some sort of 'villain' but it was indecent on his part to describe a beneficial reform process as villainous. Undoubtedly, the initial business processes have not been welcomed by a large number of taxpayers, particularly small businesses, but the character of GST as a beneficial reform need not be doubted.

This brings me directly to some of the festering problems originating from the extant business processes which warrant each taxpayer to file GSTR-1, 2 & 3, in addition to GSTR-3B. I have consistently been hammering the point that there is an urgent need to review the business process which insists on matching of invoices on inward supplies and outward supplies before input tax credit is allowed by the GST Network. Conceptually speaking, there is no flaw in it. But, empirically speaking, it is a Herculean task which should be split up into many parts and many phases before it is implemented. The time period for filing GSTR-2 is upto October 31, 2017 and then begins the massive exercise of invoice matching. My deeply-felt fear is that the GSTN software is not yet fully ready to undertake this sort of exercise at the economy-level. It was also not given adequate time to run a pilot of a significant size. In this background, if it tends to block huge credit, it would create another storm of spine-chilling nature across the country and the Modi Government, embroiled in Gujarat poll preparations, will have another bout of serious political scare. And it may further lead to lingering of the 'disruptive' impact of GST.

What appears to be providing a window to such a scenario on the cards is the growing incidence of mismatches of GSTR-1 details and what is being furnished in the Export General Manifest (EGM) by exporters for claiming IGST refund. The process of refund to exporters notwithstanding a good intent of the Government and easing of the process based on the GST Council's recommendations, has hit against a wall beyond the disbursal of Rs 150 Crore so far. The total IGST refund for the month of July 2017 is estimated to be around Rs 753 Crore. Given the fact that this is a meagre sum but it has already created a wave of dissatisfaction among the exporters whose working capital is locked in the data mismatch. The CBEC efforts to issue cheques and help exporters have come a cropper despite a friendly overture to do the needful. This is what happens when the tax technology is adopted without proper preparations. There is nothing wrong with the technology but every technology is developed on certain stubborn premises which tend to draw the lines of its limitation. This is indeed a classic case of good intent vs inability to do the good!

Let me now welcome the statement of the Revenue Secretary, Dr Hashmukh Adhia, who has been in the pilot's seat right from the beginning of the GST law and business process preparations. He recently said that there is a need to rejig the tax rates. It is indeed a case of a lesson learnt hard way! Dr Adhia was aware of the fact that the Fitment Committee on tax rates had not done its homework or had done a 'casual' job by clubbing Central Excise Duty rates and VAT rates for finalising GST rates in most cases. This Committee had not developed a bouquet of rationales or principles to determine the rates for goods of mass consumption or goods, generally consumed by the well-off sections of the society. Thus, the 28% tax rate came to be notified on too many goods which created a furore in the economy. In this backdrop, it is indeed an honest admission on part of Dr Adhia that the tax rates should be fine-tuned for certain goods.

Another area which demands the Government's attention is the Subsidy Scheme announced in lieu of Excise Duty Exemption scheme granted for the industries located in the States of Himachal Pradesh and Uttranchal. The CBEC had in place the twin schemes of no duty to be paid and duty to be paid and refund to be claimed. For the States like Jammu & Kashmir and North-Eastern States, the industries used to pay duty and then claim refund. For HP and Uttranchal, it was a case of total duty waiver. Now, under the subsidy scheme, the taxpayers having units in these two hilly States will have to pay full tax rate of GST and then claim refund. But, the biggest bottleneck is going to be the ratio of 58% by the Centre and 42% by the States. Practically, it translates into paying Rs 100 as GST and claiming a refund of Rs 58 only. There is no time-frame for the States to announce similar subsidy schemes which means the 42% of the payment is left to the vagaries of political governance system followed by the States. A good number of taxpayers from HP and Uttarakhand have expressed their unhappiness with this scheme which needs to be revisited.

Another procedural issue which seeks immediate attention of the GST Implementation Committee (GIC), an informal body responsible to respond to burning issues, is the non-availability of facility to REVISE TRANS-01 as notified by the Govt. The deadline for the same is October 31 but the GSTN has failed to provide the utility so far. Since a good number of taxpayers and their professionals are busy with their tax audit and corporate tax return-filing, it would be ideal for the GIC to further extend the date for TRANS-01. As per inputs received by TIOL, a good number of professionals have made mistakes or did not mention details of their VAT Credit in their TRANS-01 form as they were not too sure. Now that they are better educated about it, they need time to do it properly but since the CBDT deadlines are so close, it would be difficult for the professionals to do justice to the trust reposed in them by their clients.

Another procedural issue which may be looked into is that since the Government has granted waiver of late fee for filing GSTR-3B and the fee paid is going to be credited back to the taxpayers' ledgers, it is important to ensure that such credit-back is not done in the HEAD which is to be used only for paying late fee. Since the GSTN has created a separate head for late fee, any credit-back would naturally be in the same head and such fund can be utilised only for paying late fee in future. It would indeed be unfair as the taxpayers were, without being informed, forced to pay late fee in cash and then once they receive back the same, the fund should go back to their cash ledger so that the same could be used for paying future tax liability.

Yet another important issue is - Now that the GSTN has offered the EXIT option to migrated taxpayers, what should be done about their NIL returns which they have not filed. The fact that more than 10 lakh taxpayers may cancel their GSTN after the registration threshold was enhanced to Rs 20 lakhs, till the time their registration is cancelled, they were expected to file their NIL returns. Since a large number have defaulted, it would be ideal for the Govt to give them exemption and an easy exit rather than penalising them. Given the fact that even filing NIL returns requires as much time as normal return, it is indeed an avoidable scenario. Let's hope these small measures are taken quickly to grant a great succour of relief to small taxpayers who are presently feeling squeezed and uncared!

 

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