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Tampering with GSTR-3B may lead to 'triple dip' Disruption of Economy!

TIOL - COB( WEB) - 585
DECEMBER 21, 2017

By Shailendra Kumar, Founder Editor

TAXATION ascending to the level of becoming an electoral plank, in a Third World country, with uninspiring tax base, may sound incredible! But it has happened Twice in India. First, let me take TIOL Netizens back to 2014 General Elections where high-decibel speeches against Tax Terrorism were delivered. And all such harangues, in the backdrop of headline-hogging news about the Indian wealth parked in tax havens, had scored tangible political gains for the BJP. And, for the second time, tax reform in the form of GST, became a serious bone of contention between the political parties in the recently-concluded State elections. Although the GST excessively dominated the competitive political speeches in the beginning of the election campaigns but it finally escaped the ignominy of becoming a decisive factor for winning assembly seats. Going by the poll results of all such 'spots' where sustained rallies were organised against GST a few months back, it may appear that quick and responsive policy changes by the Central Government were taken well by the voters and the GST finally did not eat into the votes of the ruling BJP. Had it done so, it would have dented the strong will of the Modi Government to persistently pursue innovative and disruptive reforms. I strongly hope that the Central Government would now go the whole hog to successfully pilot the mid-course corrections in the GST laws and the business processes with an open mind!

But what has come as a big surprise for the entire economy is the GST Council's latest decision to advance the date for implementation of the e-Way Bill. Without going into the merit of this procedural requirement, I strongly feel that such a decision is a little premature and may prove to be a 'double dip' disruption for the economy. The trade and industry have been grappling with confidence-wracking uncertainties emanating from the present set of GST laws and business processes. Thanks to the mid-course review effort, the economy has just started limping back to its normal pace of growth. Our badly bruised exports have once again sprung back on its two legs and scored 35% growth in October even though their refund continues to be caught in systemic and procedural tunnels. At this stage, when the logistics sector is trying hard to run extra miles in a day, putting check-posts to check online-generated permits may push it back to its pre-GST point.

As per the Government's own admission (Ministry of Road Transport & Highways), trucks have begun to cover greater distances - as much as 325 km per day against 225 km a day prior to July 1, now the larger question is - whether such an efficiency gain can be sustained even after introducing e-Way Bill. Perhaps NOT! All the 'predators' of erstwhile check posts would be back in action soon. They had a dry spell of almost six months and would now try to set off their 'business losses' before the current fiscal comes to an end. Secondly, introducing e-Way Bill in a hurried manner may not do any good to the States. Tax evaders would continue to 'manage' their movements of goods and it is only the genuine trade which would suffer. Thirdly, rather than attempting a uniform e-Way Bill system, leaving it to the discretion of the States would further add to the woes of the industry.

Going by the statements of some of the State Finance Ministers, such a decision was perhaps dictated by the growing incidents of tax evasion in many States. And it was causing loss of revenue. I am sure there must be an element of truth in it but putting an iron shackle appears to be a knee-jerk reaction. First, the States should not be over-reacting to the fear of revenue loss as their revenue is virtually 'insured' by the Centre. Secondly, they should not force the Centre to run a 'horse' even before other 'players' are put in place on the chess board! When all the critical provisions of the GST laws such as RCM, TDS, TCS and many others have been deferred till March 31, 2018, there was no need to panic and trigger a chain of setbacks for the industry which is trying to recover from the disruptions in the past two years - demonetisation + ill-prepared implementation of GST.

Let me now touch the point of transitional credit. The CBEC, which is the custodian of the Centre's revenue, deserves credit for showing restraint and advising taxpayers to revise their TRAN-1 as a large number of taxpayers have claimed huge credit erroneously. A preliminary analysis of large taxpayers has revealed that a good number have erred and ended up taking ITC, much higher than what is the trend in a particular industry or what they used to claim in pre-GST era. An official view has been taken that all such excessive claim is a bona fide error and the taxpayers would be correcting the same by revising the Form TRAN-1. The last date for revising TRAN-1 is December 27, and I am sure, a good number of taxpayers would be correcting the same. And all such corrections would obviously lead to a surge in the GST revenue collections next month.

Although no large taxpayer would prefer inviting swords from the Department but a good number are also caught in a pincer-like situation as they had revised their TRAN-1 as soon as they themselves had identified some errors in their credit figures. Now, after the CBEC communication promising penal action, a second round of drill was undertaken, and predictably, more errors were pinpointed but TRAN-1 can be revised only ONCE. This is a catch-22 situation for them. Since such errors were predictable even for the CBEC, it would be in the interest of earning trust of the taxpayers that the industry is given one more chance to revise their TRAN-1. Such a condoning magnanimity would not only win the heart of the industry about the taxpayer-friendly policy but also help the cause of the treasury. Secondly, it would be a Herculean task for the Department to audit a large number of taxpayers and then recover the excess credit which would necessarily trigger litigation. And since every litigation means locking of revenue for many years, it would amount to giving birth to a vicious cycle of litigation.

Before I discuss the possible changes in the business processes, let me first extend my support to the recommendations of the Standing Committee of Parliament which has asked the Government to continue with the present Drawback benefits for exports till the time the GST system stabilises sometime mid of next year. Govt needs to run an errand of mercy to help exports which accounts for a major chunk of manufacturing growth and job creation in the economy besides bringing in convertible currencies. Given the slowdown in the global trade and toughening of the competition in the international market, exports must not be disrupted at any cost.

Before I wrap up this column I would sincerely urge Dr Hashmukh Adhia and his political bosses not to fall prey to all such ideas which may talk about scrapping of GSTR-3B and notifying a completely new return format. GSTR-3B deserves full credit for saving the interest of the treasury and also the industry which has become familiar and comfortable with its intricacies. It has helped stabilise the GST implementation. Scrapping it so early even before a new form solicits response from the taxpayers would be a horribly bad idea. If that is done, it would be the 'triple dip' disruption of the economy and whatever growth projection has come now from different agencies, may look a distant dream. Therefore, I hope the GST Council which is a bundle of diverse wisdom and experience, would not do anything that would hurt or prevent GST from settling down. The teething problems should not be allowed to run more weeks than the number of teeth gifted by Nature. The natural principle must be complied with so that GST starts delivering what is globally known for - an easy, stable and efficient tax system.

Sub: matching of invoice

Mis match invoice list should be provided by govt. on gstn portal to registered person to be matched before annual return.

Govt. has all the outward supply with them supported by so called robust IT system.

Posted by Jaiprakash Ruia