APRIL 05, 2019

By Sumit Dutt Majumder

THE votaries of Goods and Services Tax (GST) who were having doubts about what would be the stand of Congress, the major opposition party, in the post-election scenario with regard to the ongoing implementation of GST, must have heaved a sigh of relief after going through the Congress manifesto. The manifesto makes it clear that even in the likelihood of Congress taking over power, GST is going to stay, albeit with some changes promised in the manifesto. In its first para of the chapter on GST, the manifesto has promised as follows:

"Goods & Services Tax 2.0

01. Congress promises to review and replace the current GST laws with the GST 2.0 regime that will truly reflect the intent and purpose of a non-cascading, value-added, indirect tax".

It is noteworthy that the manifesto has named it GST 2.0 meaning that it will be a new second version of GST with certain basic changes in its form and structure.

Paragraphs 2 and 3 that deal with GST rates have to be read together. These are reproduced below.

"02. The GST 2.0 regime will be based on a single, moderate, standard rate of tax on all goods and services. The rate will be revenue neutral to the current indirect tax revenues of the Central and State Governments and will take note of the potential of GST 2.0 to boost their tax revenues.

03. The GST 2.0 regime will levy a special rate of duty on demerit goods".

At present GST has broadly four rate slabs - 28%, 18%, 12% and 5%. Some experts were of the view that the two slabs of 18% and 12% could be merged into one rate and that finally, there could be three rates - one standard rate for most of the goods, one higher rate for demerit and luxury goods and one lower rate for the goods of consumption by the poor. But, the Congress Manifesto has effectively gone for 'a single, moderate, standard rate of tax' where most of the goods would be covered and one 'special rate of duty on demerit goods'. It is obvious that this special rate will be a higher rate, the goods being demerit goods like Tobacco, Alcohol, Petroleum products Colas, SUVs etc., as is the international practice.

Since there is no proposal of a third slab with lower rate of duty for the goods of consumption by the poor, it is expected that all such goods would be exempt from GST. An indication of this is there in para 6 which reads as under:

"06. Essential goods of mass consumption (such as food grains, lifesaving drugs, vaccines, etc.) and essential services will be exempted from GST 2.0 or zero-rated".

Paragraph 5 that lays down the promise to bring a few more items under the GST is reproduced below:

"05 Congress promises that Real Estate (all sectors), Petroleum Products, Tobacco and Liquor will be brought within the ambit of GST 2.0 in a manner and time period not exceeding 2 years agreed to in the GST Council".

While most of the sectors of Real Estate like construction materials, services related to construction, sale and purchase, renting etc. are already under GST, the matters relating to the land like stamp duty on transactions in Real Estate are still within the jurisdiction of the states only. Bringing of all sectors including those relating to the land within GST would spell great relief to the Real Estate sector.

Constitutionally, Petroleum Products are already within the ambit of GST. In terms of the amended Article 366 (12A ) of the Constitution, GST has been defined as follows:

"Goods and services tax means any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption".

Thus, what is excluded from GST is only Alcoholic liquor for human consumption and not Petroleum products or Tobacco.

However, as for Petroleum products, the amended Article 279 A (5) of the constitution reads as follows:

"Article 279 A (5) The Goods and Services Tax Council shall recommended the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel".

Thus, through the foregoing clause, the levy of GST has been deferred on the five Petroleum Produces till the time the GST Council decides to start levying GST on these items. So, this promise can be fulfilled without much difficulty, once the Council decides so.

Levy of GST on these Petroleum items will restore the input tax credit chain for the supplies wherever any of these items that are essential for the industry are used as inputs. This will give a boost to the entire manufacturing and service activities of the country.

Tobacco is already under the ambit of GST, and it is being levied at the highest tax slab of 28%, it being demerit goods.

As mentioned, 'Alcohol for human consumption' has been kept outside GST, constitutionally. So, inclusion of this item within GST will require an amendment of Constitution, the process for which is quite time consuming as has been our experience in the past. However, it will be a great idea to bring Alcohol in GST for the simple reason that the input tax credit chain would be restored for the entire supply chain for manufacturing Alcohol, a demerit goods, but whose raw materials are not demerit goods

In paragraphs 8 and 9, the manifesto promises support for the Small Business which is very well conceived. These paras are reproduced below:

"08. Congress promises that threshold exemption for small businesses will not be affected by inter-state supply of goods or services.

09. In order to support small, unregistered businesses that supply goods and services, there will be no GST liability on the purchaser through the reverse charge mechanism".

There is no denying the fact that the Small Businesses were badly hurt after the introduction of GST because of three primary reasons. First, the threshold for coverage under GST was kept very low at Rs. Twenty Lakhs of annual turnover. The argument was to bring maximum possible number of people within the ambit of GST. But, the international practice was otherwise. Internationally, the threshold varies between Rs. Eighty Lakhs to One Crore equivalent. Then, as if that was not enough to hit the Small Business, there was a policy decision that there would be no threshold exemption for inter-state trade. It meant that the moment someone did inter-state supply like, say, from Okhla in Delhi to Gurgaon in Haryana, he would forfeit the benefit of threshold exemption of Rs. 20 Lakhs, and he would have to pay GST and do all the compliance requirements. So, most of such small businesses decided to stop inter-state trade; but, in the process, they lost business in a big way. Their business shrank for another reason. By application of Reverse Charge Mechanism, the big businesses were mandated to pay GST and do all compliance requirements on behalf of the unregistered suppliers (read small business below threshold). The result was that the big businesses stopped transactions with small suppliers. Coming soon after 'demonetization', this broke the backbone of small businesses. One may remember, on a rough estimate, the small businesses contribute around 75-80% of total employment in the country. This impacted employment sector adversely.

In this context, the Congress promises alleviating the woes of the Small Business through relaxations in GST laws, as indicated at Paras 8 and 9 of the Manifesto and would be very much welcome by the trade and industry.

Paragraph 10 of the manifesto lays down the Congress promise to abolish e-way bill and strengthen other means to check tax evasion. Para 10 reads as follows:

"10. Congress promises to abolish the e-way bill. Tax evasion will be detected through the risk management mechanism and strengthening the intelligence machinery".

A few points worth noting about the E-Way Bill. In the pre-GST regime, different states had different rates of State VAT, and, therefore, there was a system of check posts at inter-state border for checking inter-state movement of goods. Coupled with this was a system of a Way Bill which was basically a receipt issued by the carrier of the goods giving details relating to the shipment that included names of consignor, consignee, the points of origin and destination of the goods and its route etc. Since in the GST regime, all the states and Centre have the same rate of GST for particular items, no need was felt to continue with the Way Bill in any form. But, well into the implementation stage, when the GST revenue was continuously falling short of target, two or three states broached the idea of reintroducing Way Bill system as its electronic avatar. Initially, there was lukewarm response; but finally it caught the imagination of most of the states. Thus, EWB was introduced from April 1, 2018, nine months after implementing GST, for interstate movement of goods. For intra-state movement, it was introduced in phases, and by July, 2018 all the states implemented it.

E-Way Bill is basically a compliance mechanism wherein by way of a digital interface, the person causing the movement of goods uploads the relevant information prior to the commencement of movement of goods and generates EWB on the GST portal. It is said to be a mechanism to ensure that the goods being transported comply with the GST laws, and thus it will be an effective tool to track movement of goods and check tax evasion.

Rules 138 A to 138 D deal with the enforcement provisions like documents and devices to be carried by a person-in charge of the conveyance, interception of conveyance and verification of documents, examination of conveyance, verification of goods, uploading of information regarding detention of conveyance etc.

The provisions relating to interception of conveyance and examination of documents and goods at the highways have been causing concerns for the trade in general and the transporters in particular. Reportedly, there have been cases of harassment during such interceptions at the remote places on the highways, notwithstanding detailed Circular regarding the procedure for interception, issued by the Central Board of Indirect Taxes and Customs.

Cases of tax evasion reported in media suggest that almost all the cases were detected based on prior intelligence, either by the Directorate General of GST Intelligence (DGGSTI) or the anti-evasion / enforcement wings of the GST Commissionerates. No worthwhile cases seem to have been booked through interceptions in the context of E-Way Bill.

In this backdrop, the promise to abolish the e-way bill will be well accepted by the trade in general and transporters in particular. The main complaint of the Trade with regard to e-way bill system is routine interception of trucks at random by the officers on the remote highways and attendant harassments. Stoppage of such random interceptions will cheer up the trade. But interceptions based on specific information or risk based intelligence will have to continue.

Thus, the concern regarding tax evasion has also been acknowledged in para 10 of the manifesto. It has been asserted that the intelligence machinery will be strengthened and tax evasion will be detected through risk management mechanism. While on this issue, it may be useful to collect data, now being contemplated through e-way bill system, through some other simpler scheme and use these data in generating risk based intelligence for enforcement actions.

In Paragraph 12, the Manifesto has promised a simplified Return filing procedure. The said para is reproduced below:

"12. Congress promises that a taxpayer will be required to file a simple, single quarterly return for his/ her business and an annual return. Every tax payer will be subject to assessment by a single authority based upon turnover".

Right since introduction of GST in 2017, the GST Council, in its many meetings have been continuously bringing in changes in Return Formats. In its meeting in July, 2018 , the Council had decided to have simplified Return Forms named 'Sahaj' meant for businesses which make supplies only to Consumers (B2C) and 'Sugam' meant for business making supplies to both businesses (B2B) and consumers (B2C). These were to be rolled out on a pilot basis from April, 2019. However, the pilot project has been deferred. Therefore, promise of simple returns will be welcome to the taxpayers.

This paragraph 12 also covers the issue of single authority for assessment and other related compliance matters. Even currently, a single authority is assigned to a taxpayer by the GST Net on a random basis. The manifesto has promised assignment of that single authority based upon the annual turnover. Although it has not been elaborated further, the idea seems to be distribution of one segment up to a particular turnover, say Rs. Five Crore to either Centre or State and the other sector beyond that turnover to the other tax authority. There is a flip side to it. The number of taxpayers below that particular turnover would be enormous whereas the number will be much less for the slab above that turnover. This will bring up the issues of redistribution of manpower between Centre and the States.

Paragraph 7 of the Manifesto promises about zero rating of exports as follows:

"07. All goods and services that are exported will be zero-rated and not subject to GST 2.0.

Even currently, exports are zero rated; but the procedures for claiming export refunds in certain cases after payment of tax or claiming refund of unutilized ITC credit on account of inputs used in the export goods are cumbersome.

Although there is no specific mention in the Manifesto of the grievance of the exporters on account of procedural delay in getting the refunds, it is expected that the promise made in this paragraph will also entail taking corrective steps in drastic simplification of export refunds procedure.

In Paragraph 4 of Manifesto, Congress has made certain promises and assertions that the GST 2.0 regime would be easy to administer by the taxmen and that it would promote growth. The said para is reproduced below:

"04. GST 2.0 will be easy to administer, easy to understand by the taxpayer, and easy to comply with. We are confident that GST 2.0 will promote growth, new businesses and employment. The website under GST 2.0 will be re-designed and made user-friendly with inputs from the taxpayers".

The promises and assertions made in this para will be reassuring and welcomed by the trade and industry.

Paragraph 11 of the manifesto which is self-explanatory is reproduced below:

"11. Congress will endeavor to allocate a share of GST revenues to Panchayats and Municipalities".

The idea of allocating a share of GST revenues to Panchayats and Municipalities is a pious one. This will further brighten the principle of 'cooperative federalism' that is being assiduously pursued in the meetings and decisions in the GST Council. It is a fact that in some states, particularly where the political parties in charge of Municipalities and Panchayats are different from the ruling party in the state, they complain of not receiving adequate development funds from the state governments. This scheme of allocation of a share of GST revenue will ease their difficulties.

In Paragraph 14 of the Manifesto, Congress has made certain promises regarding provisions of civil penalties and, Prosecution in GST and DTC i.e. Direct Taxes Code. This is reproduced below:

"14. Congress promises that the DTC and GST 2.0 will be essentially civil laws and any violations will attract civil penalties that will be proportionate to the tax evaded. Prosecution under DTC and GST 2.0 will be only in cases of criminal conspiracy or corruption or fraud".

This promise will be well received by the Trade and Industry, in general and individual taxpayers, in particular. Here, Congress has promised to initiate prosecution only in cases of proven criminal conspiracy or corruption or fraud; in all other cases of violation of GST and DTC provisions, there will only be civil penalties proportionate to the tax evaded.

In Paragraph 13 of the Manifesto, Congress has described the role of GST Council and promised that the Council will be served by a permanent secretariat of tax economists, tax policy experts etc. the said para is reproduced below:

"13 The GST Council will be the policy-making body and will be served by a permanent secretariat of tax economists, tax policy experts and tax professionals. Its minutes will be put in the public domain".

The constitution and functioning of the GST Council have been elaborated in the amended Article 279A of the Constitution. A study of the paragraphs (4) to (6) and (8) of the said Article 279A indicates that the Council is a policy making body, and it has been functioning so. The decisions of the Council meetings are being put in the public domain soon after the meeting is over, and Press Releases are also issued in this regard. The Congress promise of putting its minutes of discussion too in the public domain will no doubt bring more transparency; but it may have certain administrative limitations too. Therefore the pros and cons of this aspect will have to be studied closely before its implementation.

The other promise of setting up of a permanent secretariat of tax economists, tax policy experts and tax professionals is a very good idea. This will bring core competency of domain experts into the policy making decisions of the Council. However, as for the structure of the Secretariat, there is already a secretariat of the GST council administered by the Centre, headed by the Additional Secretary to the Government of India in the Revenue Department of the Ministry of Finance who is from the I.A.S. cadre. He is assisted by officers in the rank of Joint Secretary and down below from the Centre viz Central Board of Indirect Taxes and Customs (CBIC) and the States.

The issue as to whether or not the induction of economists, tax policy experts etc. will need further amendment of Article 279A of the Constitution or it will be within the jurisdiction of the GST Council by virtue of Paragraph (8) of the aforesaid Article 279A will have to be critically examined. In my view, it will be covered by Para (8) of the said Article.

Finally, an important point to be noted is that implementation of all the aforesaid promises made in the Manifesto will need approval of the GST Council; in terms of Para (4) of the said Article 279A, the GST Council will make recommendations to the Union and the States for implementation of the decisions of the Council. Therefore, all these promises will have to be first got approved by the GST Council before their implementation.

Up till now, all decisions of the GST Council have been taken unanimously without the need for voting. It is expected that the same spirit of cooperative federalism continues in future too, whichever political party takes over after the upcoming general elections. Even otherwise, the option of resorting to voting will always be there.

Overall, the promises made in respect of GST by the Congress in its Manifesto are laudable.

[The author is former Chairman, CBEC and Consulting Editor, TIOL and author of the book "GST explained for Common Man". The views are strictly personal.]