GST Law Amendments - Many Ray Committee recommendations ignored!
TIOL - COB( WEB) - 615
JULY 12, 2018
By Shailendra Kumar, Editor
ALTHOUGH the GST is heading for its second reboot but what recently caused a 'mini-storm' was one of the statements given by the Revenue Secretary, Dr Hashmukh Adhia, on completion of the first year of the game-changing reform. He was first reported to have said that the technology had initially failed the GST. Later, he clarified that he was not referring to the quality of the manpower in the GSTN. While reacting to his comments, one of the well-known technocrats tweeted that it was wrong to blame the technology. He asked - who created complex filing system coupled with confusing tax slabs?
In the background of facts, both may sound politically correct. There was nothing wrong with the quality of GSTN manpower except the top leadership which kept on promising that it would be done rather than explaining the impossibilism. Secondly, a complex filing process was put in place but not adequate time was given to either the taxpayers or to tax professionals to do the needful. Since the changes in the design were made too rapidly, the GSTN backend team could not keep pace with the expectations of the taxpayers. For Dr Adhia, it was a politically-mandated assignment and he had no time for preparations. The dominant thought at that point of time was that one needs to swim with the current and if the current becomes adverse, take a few steps to manoeuvre out of unpleasant situations.
Whatever happened in the beginning, no doubt, it was a great learning for all the stakeholders of GST. The great respite which may be derived is that the GST is largely settled now. And, with the GST Council proposing to make several changes in the GST laws, it is all set for a grand second round of reboot. Since the Council was briefed about many legal hiccups and politically-required changes in the laws, it had set up a Law Review Committee which was given the mandate to interact with the Law Committee and finalise the amendments. To assist the Law Review Committee, another committee consisting of noted domain experts was set up to cull out inputs from the industry and trade and it was called the Gautam Ray Committee. This Panel had worked hard and submitted a report in a short span of time. It had recommended as many as 68 amendments in the legislation. Though the Law Review Committee agreed with most of them but the original drafters of the law did not see eye to eye with them and thus, the issue probably landed in the court of top leadership which appears to have hurriedly picked up many amendments and left out some of the supposedly necessary ones.
One sector which has suffered unwanted blows and needed quick 'dressing' of their wounds has been the MSME Sector. Their contribution to generate employment cannot be undermined even if one may discount their share of 8% of the GDP. The Ray Committee had recommended allowing ITC to the extent of 25% of the total GST charged or 50% of the CGST, on the outward supplies made by MSME units up to a turnover of Rs 3 Crore. This scheme was proposed to be made available only to manufacturers and was aimed at promoting 'Make in India' mission. The Committee had also called for a composite drawback scheme covering both the BCD as well as ITC of GST paid on materials or inputs used in manufacture of export goods.
The Ray Committee on the issue of valuation of intra-entity transfer of services, had recommended that in case of supply of services between distinct entities, valuation rules should not apply as both are registered distinct persons and there is no revenue loss as the output for one will be the input for the other. So, declared transaction value should be accepted by the Revenue but the proposed amendments do not include this recommendation.
Two other important recommendations of the Committee which have been ignored are the reduction in the interest rate on late payment of tax or reversal of ITC to 12% and allowing ITC on capital goods received after the Appointed date. This panel had also called for capping pre-deposit in case of filing appeals and the need for National Advance Ruling Authority at the appellate level. The GST Council at its next meeting is likely to give its approval for such a forum with four Regional Benches. The fact that the taxpayers will be filing their annual returns by December, 2018, the process of assessment would also begin in early 2019. To narrow the space for erratic exercise being undertaken, the Panel had recommended that the return to be scrutinised must be limited to either 0.5% or 1% as decided by the Council. Given the fact that the number of returns being filed is steadily growing every month, even if 70 lakhs annual returns are filed, scrutiny of 7000 potential cases selected based on computerised risk parameters would be an arduous exercise for the Revenue.
Anyway, let's leave behind what has been left out and focus on what has been proposed. If we keep aside some of the procedural or error-rectifying amendments in addition to a few relating to ad hoc acquisition of IGST and CESS funds and also inclusion of Panchayat in the definition of 'local authority', there are about 28 good changes proposed - many would favour the taxpayers. Let's give credit to the Council that a good number of restrictions imposed on availing of ITC have been eased. Though some blocked credit regime would continue but the overall percentage of ITC would go beyond 90% once these amendments are passed by the Parliament.
Besides approving these amendments the agenda for the Council's meeting is likely to include tax rate rationalisation on many items (from 28% to 18%) and construction industry may be a key beneficiary; finalising of single page GST return and draft audit format; approval may be granted to the draft format of annual return and constitution of a National AAR with four regional benches. In addition, the Council is also going to defer a decision on incentivising digital payment as recommended by the GoM. Omission of Section 9(4) or retention of this section only for the Composition dealers is a good decision as it was largely a pain for most taxpayers. Let's hope the GST's second reboot takes off well and expedites the process of 'healing' for many distressed sectors of the economy!