OCTOBER 15, 2019

By Dr G Gokul Kishore

FOR more than a year now, through this series, various issues and concerns, faced in the initial phase of implementation of GST, have been highlighted. Not only the pain of taxpayers has been discussed but also implementation hurdles for the tax administration have been made subject of discussion in various parts. All the articles have focussed on the doable suggestions or those which need further brainstorming. The GST Council Secretariat has announced that the government has constituted a committee of officers to suggest various measures to improve revenues and address other issues. This 59th part is intended to provide the committee a prioritized, non-exhaustive agenda.

Correcting the starting point - Setting realistic targets

The foremost mandate of the committee is to suggest measures to improve GST collections. Except for three months, GST revenues have not crossed Rs. 1 lakh crore mark. This is perceived as a major headache for the Central Government since it has to compensate States for loss of revenue. Though compensation cess itself is dedicated to such purpose, a reason for worry is lesser collections from such cess also. While best economic brains must have laboured to fix revenue targets, an immediate need is to re-visit the basis for fixing the targets. Base correction and reckoning factors which have an impact but were kept out initially should be the starting point. It may be utopian to chase unrealistic targets and then to blame the industry for poor compliance.

The noise over evasion should not drown the requirement for ruthless re-assessment of revenue projections. The Finance Minister has admitted there may be flaws with an apparent reference to both the design and implementation. The fundamental flaw or the starting point is correcting the projections. Getting the numbers right should be the first priority.

Ease of administration versus ease of compliance

Linked to the above issue of revenue targets is input tax credit. One of the major omissions in this exercise could be the lack of information on the extent of use of input tax credit. Compared to pre-GST laws, credit has been largely liberalised in GST regime, a fact which is too obvious but not amenable to reasonable quantification. This might have adversely impacted revenues.

A manufacturer, in the earlier period, would not have ever thought of availing credit on computers, photocopiers and AC used in offices. Today, GST has opened up lot of credits on all such items. IT expenditure dominates whether for ERP licenses or other capital and recurring expenditure. Though construction of immovable property has been kept out of ITC under Section 17(5) of CGST Act, whole lot of plant and machinery including foundation or support for such plant and machinery are in the eligible category for credit. These are the real progressive elements of GST. Having introduced such credit system, revenue is bound to take a hit. Increased ITC is the backbone of GST system. It cannot but impact net tax collections.

Trying to introduce curbs on ITC availment based on uploading of invoices by suppliers are examples of ill-advised measures without comprehending both the real issue and its gravity. Indian public finance cannot witness spectacular rise based on such knee-jerk or misdirected steps. Even otherwise, casting the burden on recipients of supplies to ensure that his suppliers have complied with law diligently and then avail credit, is not fair. If a recipient has tax paid invoice, received the input supplies and intends to use the same for business, then Section 16 should prevail over artificial fetters like the yet to be implemented Section 43A. Credit restriction to frustrate the original or initial mandate of GST law cannot be justified on the ground of plugging evasion. Such conditions were not prescribed even in the earlier regime known for limited credits and they increase the compliance burden and impact working capital of taxpayers tremendously. Ease of administration cannot be at the cost of ease of compliance. This should govern the committee's deliberations.

Addressing issues raised in writ petitions

Taxpayers have been compelled to file hundreds of writ petitions in various High Courts. Majority of them relate to IT glitches, enabling filing of TRAN-1 form and such related issues. If court process has to be set in motion for rectifying government's IT system, then definite ground exists for the committee of officers to discuss the factors and suggest corrective measures. An IT audit and complete overhaul of various processes and sub-processes will certainly alleviate the pain of taxpayers fighting with the portal every month while filing GSTR-1 or GSTR-3B. The uncertainty over portal becoming non-responsive midway cannot be anything but frustrating. Clogging the system by large number of taxpayers at the eleventh hour can be easily blamed but businesses do not relax only to file returns on the last day. The system should be capable of withstanding such load and it is not impossible as the e-way bill system has demonstrated.

The committee may obtain a list of major issues on which writ petitions have been filed and wherever there is a genuine case for amendment in law, the same be recommended. One example can be the judgment holding ultra vires the provision on lapsing of balance ITC when refund of unutilized ITC was allowed to textile manufacturers. Another issue which should be considered favourably is allowing transition of education cesses and roll-back of the retrograde retrospective amendment made in this regard. Taxpayers are saddled with notices now for interest even if cesses transitioned are paid back.

Exempting cross-charge, clarifying discounts and issuing master circulars

Advance rulings may be in favour of the government on inclusion of salary cost for cross-charging by head office or corporate offices on other registrations in different States. Schedule-I may deem services inter-se between distinct persons as taxable even when ostensibly they are provided without consideration. Two issues need to be addressed on priority by the committee of officers. First, the feasibility of exempting services provided by head office or corporate office of a company to other units in different States should be examined. As noted earlier in this series, instead of amendments to the law, granting exemption is eminently implement able. The rationale of taxing such transaction that the recipient is anyway entitled to input tax credit holds equally good for not taxing the same. When the recipient gets the entire tax paid by its HO as credit, the situation is ultimately revenue neutral. An open-minded assessment of net revenue gained by the government from taxing intra-company transactions can provide vital clues to the committee for extending exemption.

Circular No. 105 on post-sale discounts had to be withdrawn [Ref. 112/31/2019 - GST Dated: October 3, 2019]. The responsiveness of the GST Council and the government to the cries of taxpayers is laudable. But such circulars also clarify certain other issues which are taxpayer friendly. Instead of rescinding the circular in toto, an amended circular can be issued with such useful clarification.

Another exercise for the committee can be to get a list of issues arising out of all the circulars issued so far which have created unintended difficulties for the taxpayers and issue master circulars clubbing homogenous issues. The RBI issues master circulars on major subjects and periodically amends it. CBIC had also issued master circulars (dated 23-8-2007) to clarify both technical and procedural issues under service tax. Similar circular (dated 10-3-2017) was issued under central excise clarifying the basics and important points relating to show cause notices, adjudication and recovery. Such practice should be emulated by the GST administration also and such measure should be recommended by the committee now.

Granting more time to the committee

The committee has a short time to come up with suggestions/recommendations. The urgency to address depressed revenue collections is palpable. The committee should be provided at least a month's time so that genuine concerns of the industry as expressed in the huge number of representations already submitted are also taken into consideration. Discussions with stake-holders cannot be relegated either. A hurried exercise to resolve major implementation issues on the mega tax reform will be half-done and will not help in achieving the intended objectives.

[To be continued…

[The author is an Advocate. The views expressed are strictly personal.]

See Part 58