MARCH 04, 2019

By Dr G Gokul Kishore

TAX matters used to be not everyone's cup of tea. Now GST is on everybody's lips and fingers as columns and articles are being flooded with comments and views on amendments, rate changes and GST Council decisions.In this series, we try to highlight issues which are marginalized without discussion and certain solutions are also suggested. However, in this 27th part, we will also discuss two topics which are trending at the moment.

Real estate – What is the real issue?

Reams of paper and substantial airtime have been devoted in the past week on the decision of GST Council to recommend 5% GST rate for non-affordable housing and 1% rate for affordable housing. Had it not been with the condition of no-ITC, this tariff change for residential under-construction flats, to be effective from next financial year, would not have dominated the debate. The lower rate of 5% without ITC is already available against a few entries in Notification No. 11/2017-Central Tax (Rate). Those are not of the same type as 'roti, kapada aur makaan' category and they have not gained much popular attention. A concessional tax rate does not come without strings attached. From Modvat / CENVAT period, the standard practice of tax administration has been to place the condition of non-availment of credit for such lower rate. But the furore this time is over denial of any option to pay tax at higher rate and avail ITC. As almost a month's time is available for the new tariff structure to come into effect, we hope the GST Council and the relevant committees take this concern into account.

The decision is seen as having lesser economic rationale vis-à-vis political motives. Arguments have been advanced that ITC is the spine of GST system, credit chain will get broken, such change will set a bad example, home-buyers will not get any real benefit, etc. The reason attributed officially is that demand is not picking up and unsold inventory has piled up beyond manageable proportions.Tax as a tool to rev up demand has clear limitations as beyond a particular point, it loses its effectiveness in this direction. Demand and supply are not solely driven by tax considerations. In recent times, price of real property has sky-rocketed which is grossly disproportionate to increase in salary and disposable income. The industry may take the rising cost of raw materials and services as its defence but that explains the reason in part. However, from no-credits in pre-GST regime to at least some credits in GST regime, realty sector has been provided opportunity to come on credit chain like any other industry. While rate change may result in reasonableness in pricing, buyers have modest expectations from the industry like cutting down delay in delivery, transparency in costing and no compromise on quality.

From yesteryears, certain commodities like metals and tobacco and sectors like realty are generally perceived by the department as evasion-prone or less compliant. Therefore, special schemes or sub-regimes have been carved out for such goods or sectors like compounded levy scheme and composition scheme. Realty, as a sector, has also been impacted adversely by benami transactions, under-valuation of transactions, etc., though laws have been made or amended to plug the same. Non-compliance or tax avoidance in this sector is traceable to several social and economic factors which are beyond the scope of this article. Tinkering of a particular tax rate may not be the panacea. May be, in the second and third years, bringing transactions in land and immovable property under GST should be seriously contemplated as discussed in Part-XXI of this series. This will eventually lead to bringing them under GST which will impart certain efficiencies in this sector.

EODB - GST also needs inclusion in the agenda

The buzz word is 'ease of doing business' (EODB). Circular No. 9/2019-Customs dated 28-2-2019 expresses the intention of CBIC to take processes intended to further EODB to the next level. This next-gen reform is named as 'Turant Customs'. An instant search on the net for the meaning of 'Turant' (under the impression this is an English word) led to the result that this is a Hindi word [] meaning 'instantly'. Leaving connotations apart, it appears that CBIC intends to usher in reforms so that delays are eliminated, interface between department and taxpayer is reduced and compliances are made easier.

Such next generation reforms in Customs should be extended to GST also. The item on the top of such agenda is to improve the GST portal. Even today, several taxpayers face issues like site not working on the last day for filing return, GSTR-2A not getting populated properly and the like. If same type of issue is faced by several taxpayers for more than a year, then serious deliberation and corrective action are required on priority. Recently, CBIC by Circular No. 91 dated 18-2-2019, to address a particular situation, stated that suppliers who had paid incorrect type of tax would be deemed to have complied with the provisions. Instances of payment of incorrect type of tax are abundant, some of them are system-induced and some due to inadvertent error.

Section 77 of CGST Act provides for refund of payment of incorrect type of tax but uses the words 'considered by him' and 'subsequently held to be'. This indicates that a particular transaction was, according to the taxpayer, intra-State supply and, therefore, CGST and SGST were paid. Later, such transaction was held to be inter-State supply which means some authority (adjudicating or appellate) has taken a different view. A proviso may have to be inserted in such section to state that where the taxpayer detects such mistake, then he may adjust from respective CGST and SGST or IGST liabilities at the time of filing monthly returns instead of seeking refund. Such taxpayer should be allowed to increase his liability for payment of right type of tax and decrease his liability in respect of incorrect type of tax paid earlier. This also ensures that ultimately, respective State gets its share of revenue. Claiming refund is a different process altogether with attendant complications. The department may have to shed the earlier position of not allowing suo motu refund / re-credit as adopted in pre-GST regime at least in the instances as mentioned above. An appropriate amendment in the ensuing year may further enhance EODB for GST registered persons also.

(…To be continued)

[The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are personal.]