JULY 13, 2018

By R K Singh, Member CESTAT (Retd.)

THE Government has a few days ago proposed 46 ( broadly welcome) amendments to GST laws and has put them in public domain for comments/feedback. Given below are some comments/feedback which deserve some consideration:

1. As has been confessed in the 'Rationale/Remarks' column of the table of the proposed amendments circulated by the Government, a large number of these amendments have been proposed to correct inadvertent typos/drafting errors/inherent contradictions in the GST laws. As a logical consequence, therefore, such amendments should be given retrospective effect, of course, without prejudice to anything which may have been done/not done in the wake of these laws in their unamended form. Similarly some of the amendments which are described as taxpayer friendly measures should also be given retrospective effect as that will also be a trade friendly measure.

2. The provisions relating to input tax credit are incorporated in the GST statute and, therefore, any changes therein would require amendments to be passed by Parliament. As the past experience with regard to input tax credit provisions in the erstwhile Central Excise/Service Tax regime has shown, changes in the input tax credit provisions would be continued to be required to deal with the unforeseen/ emerging situations. Therefore, it will be better to hive off the input tax credit provisions into rules which are easier to amend. Indeed historically input tax credit provisions have always been part of the rules.

3. One of the proposed amendments allows rectification of omissions or incorrect particulars in the returns but debars such rectification if it is discovered as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities. Such debarment is certainly retrograde inasmuch as under the Central Excise Act 1944/ the Finance Act 1994, even if short payment was pointed out by the Department during scrutiny/audit etc, the assessee was allowed to make good the short payment along with interest without any show cause notice or penalty; save when such short payment was the result of wilful misstatement or suppression of facts et cetera. The GST laws being new, it is even more likely that there would be unintended omissions/ incorrect particulars in the returns and therefore not allowing rectification thereof merely because they were discovered as result of scrutiny/audit/inspection/enforcement activity by tax authorities is in clear disharmony with the Government's intention of making things good and simple and providing benign hand holding of the assessees.

4. The existing GST laws provide for pre-deposit of 10% of the tax while filing the first appeal and further 20% of tax while filing the second appeal. It is only in August 2014 that after due deliberation, requirement of pre-deposit at the rate of 7.5% of the duty at the level of first appeal and further 2 ½% at the level of second appeal was incorporated in the Customs, Excise and Service Tax laws. It is difficult to fathom as to what has so drastically changed in the intervening years to justify raising that 2.5% to a whopping and onerous 20%. This provision certainly deserves to be revisited.

Also, there was cap of Rs 10 crores on pre-deposit in respect of Service tax/Central Excise appeals. As the GST laws combine VAT also, the limit could plausibly be raised to Rs. 20 crores. Seen in this light, cap of Rs. 50 crores seems unreasonably high. Incidentally, some may also argue that putting a cap on predeposit is favourable for the large evaders and unfavourable for the SMEs which in turn gives credence to the criticism that GST laws are unfriendly to SMEs.

5. While nearly 80% of the registrants are eligible for composition scheme, the fact that only about 20% are availing of it is a clear indication of the scheme's unattractiveness. One of the reasons for such low acceptance of the scheme may well be the non inclusion of interstate supplies in its ambit. In the technology driven environment, some way is certainly possible to be found by which interstate supplies, may be to a limited extent, could be covered under the composition scheme.

6. It is mentioned at serial number 29 of the table referred to in para 1 above that these amendments (mentioned against the said sr. no.) are required (i) since the GST portal has placed certain restrictions on the utilisation of input tax credit and(ii) to minimise final settlement on account of IGST. It gives an impression that these amendments, which will cause inconvenience to the assessees, are proposed to avoid inconvenience to machine (computer). As the accountal of utilisation of various input tax credits and the fund settlement on account of IGST are totally computer system driven, it will be better to tone up the computer system rather than inconvenience the assessees.

7. The definition of 'supply' (S. 7 of the CGST Act) continues to be inclusive. The ground that in some other countries also the definition of supply is an inclusive one is not a good enough justification because in India the judicial interpretation of an inclusive definition is that it is not exhaustive. As 'supply' is the taxable event in GST laws, its definition can hardly brook any uncertainty or ambiguity. It will be in the interest of clarity and certainty that the word 'includes' is replaced by the word 'means' in the said definition.

8. The issue regarding levy of IGST on import of goods also needs to be addressed. As of now, even if the proviso to S. 5(1) of the IGST Act is deleted, duty equal to IGST will continue to be levied on import of goods under S. 3(7) of the Customs Tariff Act which clearly means that the said duty is not levied under the IGST Act. Further as the duty levied under S. 3(7) of Customs Tariff Act is not an 'eligible' duty, input tax credit thereof will not be admissible. (Incidentally, in Cenvat Credit Rules 2004, duty equal to Excise duty levied under S. 3(1) of the Customs Tariff Act was included in the list of eligible duties for the purpose of cenvat credit.)

[Readers may please note that the above points have been mentioned in somewhat summary form as they are essentially intended for the persons who are familiar with the relevant laws.]

(The views expressed are strictly personal.)