NOVEMBER 19, 2019

By Dr G Gokul Kishore

ISSUES with annual return, pendency of refund claims, ITC restrictions, valuation and discounts, High Court orders on transitional credit and education cesses, establishment of GST Tribunal stuck in litigation - the list is long-winding and worrisome. A progressive and path-breaking tax reform has become just another tax law mired in controversies and disputes. In this 62 nd part, the urgent requirement for the GST Council to devote attention on restoration of direction and balance is highlighted.

Responsiveness versus being reactionary

The mind-boggling statistics on number of amendments to CGST Rules and over hundred circulars clarifying huge number of issues coupled with relaxations on due dates for filing various returns vouch for perceptible behavioral change in tax administration. That the political leadership and the pressure mounted by the industry may be behind such responsiveness of the bureaucracy is not material. From yester-years of trade highlighting pain points in RAC meetings and the Commissioners writing to the Board and the Board issuing clarification after a few years, the change in responsiveness is palpable now. But responsiveness should not become reactionary. The panic over revenue collections is without any basis. The regime is new, the system and processes are new, industry is not doing well and there are numerous other reasons for tax collections not meeting the expectations.

Ostensibly, to contain revenue leakage, credit restriction based on invoice uploading by suppliers has been implemented. This is precisely the change which is avoidable. Tax administration should not become parental - treating the responsiveness as goodies to taxpayers so that they pay such amount of taxes that has been set as the target. The measure implemented i.e. credit restriction in the present case is ill-advised and will not serve any purpose but only complicate compliance by the taxpayers and multiply the efforts required by the taxman to monitor. These are mis-directed attempts apparently intended to resolve as major an issue as shortfall in revenue collections by plugging certain revenue leakage.

Such amendments are seen as flexing of muscles by the administration and the industry is unnecessarily dragged into disputes and litigation when somebody avails credit mistakenly a month earlier to uploading of invoice by supplier. The trust deficit widens and the process becomes cyclic - because the industry is not trust-worthy, more restrictions are necessary and because the restrictions are more, compliances become difficult and revenues fall. This trend, in the initial years of GST, is not desirable and should be reversed. While the CBIC is attempting to study compliance behaviour of taxpayers, it is time that it looks at itself in the mirror for possible course correction.

No rationale for annual return

Annual return is a new feature in GST regime. That it is a tool for the administration to crack down on potential evasion is evident from the enormity of information sought. Compelling taxpayers to get the returns reconciled with their books and certified only to provide handle to the administration to find out lapses cannot be justified as part of any progressive tax reform. When all information is filed electronically, data analytics should be used for studying the pattern and behaviour and develop strategies to counter evasion. Proliferation of returns with plethora of information is not and cannot be the solution if the administration claims superiority over pre-GST regime in terms of novelty and innovation.

Extension of due date for filing such returns is not an issue as the same is self-inflicted considering the complexities with which they were introduced. Now, discrimination has also entered since many taxpayers have filed granular information in various tables which has been made optional as per latest amendments. There is no option to revise such returns as if they are cast in stone once filed. A return is a declaration of certain information mandated by law based on certain facts and figures and when some change in figures is noticed subsequently, it is sine qua non, such return is revised. Every return should automatically have an option for revision and the same should not be selective. Even if such cumbersome returns are not abolished, tinkering them frequently should be avoided. CBIC should go through all the returns, tables, information sought, etc., and abolish, prune or modify so that industry supplies goods and services instead of only supplying information to the department.

Issues impeding smooth implementation

As authenticity of clarification (appearing in press) on inclusion or otherwise of salary cost for cross-charging by an entity in one State on its branch in another State cannot be verified, a proper circular should be issued. The circular should be categorical - salary cost need not be included when a taxpayer as a distinct person charges certain cost on its own establishments in other States. Circular No. 105 on valuation and discounts has been rescinded but the issue as to discounts not to be treated as a consideration for any service should be unambiguously clarified. The complex sub-regimes created for rent-a-cab industry and real estate sector should be re-examined and simplified. This may seem a wish-list but absence of the same impede smooth implementation of GST at the ground level. Neither the taxman at the field level is clear on such issues nor the taxpayer has any authentic clarification to rely on. A balanced view by the CBIC after comprehending business practices and expressed through proper circular will aid in improving compliance without resort to summons, detention, seizure and prosecution.

If there is a dispute, one goes to dispute settlement body like tribunal. In GST regime, such dispute settlement body itself is in dispute. With the Madras High Court quashing the provisions relating to composition of members, the government should move quickly to bring amendments in the winter session of Parliament so that the amended provisions are in line with the judicial precedents and capable of withstanding judicial scrutiny. The urge by the bureaucracy to dominantly place itself in quasi-judicial bodies should be contained if the institutions are to survive. This is an area requiring attention of the GST Council not only to recommend appropriate amendments but also restoring the direction and balance of GST regime.

[To be continued…]

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

See Part 61