GST - An agenda for reforms - Part - 71- Drafting sustainable provisions in GST law
JANUARY 28, 2020
By Dr G Gokul Kishore
THE government has de-criminalised Companies Act and several provisions have been relaxed. As Budget is nearing, reports quoting Finance Minister state that Income Tax Act will also be provided with similar treatment of de-criminalisation. It appears this has become the buzzword now. But GST law has been drafted and implemented in a manner which leaves much to be desired. Let us reflect on the state of affairs in the backdrop of certain major developments in this 71st part.
GST on ocean freight struck down
Last week, Gujarat High Court, in a landmark and exhaustive judgment, has struck down notifications seeking to cast liability to GST on Indian importers for ocean freight when the transportation service is provided by the foreign service provider (shipping line) to the foreign exporter-seller. The imports being on CIF basis, freight is part of transaction value for customs duty purpose and therefore, seeking GST on the same freight cannot be defended. Reverse charge mechanism in itself is bad law but when ensuring compliance is a challenge for the tax administration, RCM can be condoned. However, when Indian importer is not a service recipient in respect of ocean freight, deeming such importer as recipient cannot stand the scrutiny of law and, therefore, the levy of GST on such freight from the importers was destined to fail and it did fail. Mohit Minerals Pvt. Ltd. v. Union of India - 2020-TIOL-164-HC-AHM-GST
It was obvious from the beginning that such levy is not sustainable. The issue was represented by industry associations and by companies individually also with the GST Council and CBIC. It is not known whether serious thought was not given for appropriate amendment or even when the same was considered, why it was not accepted, when the issue was very much in the knowledge of all the authorities. This judgment provides an opportunity for the authorities to take stock of such defective provisions and amend them in favour of the taxpayer. Because there is a power to deem nothing as something, levy cannot be indefinitely imposed in vacuum. The power to use reverse charge mechanism and deeming provisions are exceptional powers and they cannot be used as a device routinely to collect revenue.
The revenue side sought stay of operation of the judgment in the above case but the High Court refused to grant the same. While stay is sought to maintain status quo while appeal is being filed in the higher court, it does indicate the fact that the tax administration is unrelenting in adopting adversarial approach. The importers are not adversaries of the tax administration and they were compelled to go to court only because of patent error in drafting of provisions resulting in gross injustice to them. The administration should accept the verdict, not appeal further and consider seeking the nod of GST Council for appropriate amendments so that there is no GST levy on freight on such CIF imports.
Different due dates for GSTR-3B - Is it legally valid?
As per press release issued recently, GSTR-3B (monthly summary return) can be filed in a staggered manner. Different due dates are being proposed based on turnover and based on location of taxpayer. While turnover based criterion may be defensible, providing two different due dates for filing such return based on location of taxpayer may be vulnerable to challenge in the courts. There is no intelligent differentia for such stipulation. The taxpayer in, say for example Delhi having better infrastructure, will have an extended time till 24th of the following month to file this return. His counterpart, say in a remote place in Kerala, will have the due date for filing GSTR-3B as 22nd of the following month.
Having two different dates for filing a return can be considered as merely procedural. However, in GST law, return filing and payment of tax go together. The due date for filing monthly return is the due date for payment of taxes as well. Therefore, the taxpayers in Northern and Eastern States will have two more extra days to pay their tax dues while their unfortunate counterparts in Southern and Western parts of the country will have to shell out much earlier.
While notification is yet to be issued for such new due dates, the press release is clear. Providing additional time for one set of taxpayers to pay the tax without any eminent rationale, criteria or ground is bound to be challenged on the grounds of arbitrariness and bias. The notification, if issued on the same lines of press release, can be assailed by taxpayers from Southern and Western States as a colourable legislation.
From the initial days, providing different due dates for different categories of taxpayers based on turnover has been suggested considering the nascent stage of development of IT backbone and systems. However, the authorities chose either not to listen or not to implement such suggestion. Having experienced the fact that glitches and load are issues to remain for a longer time, such suggestion is being considered now. Not able to withstand the load by the IT system cannot be a justification for such differential treatment. The proposed change has a congenital issue as to legal validity as noted above. One hopes such State-wise discrimination is not made eventually when the notification is issued.
Reasons for drafting lacunae
One of the primary reasons for drafting lacunae is the eagerness to secure interest of revenue. It is laudable because tax revenue is the backbone of a nation and, therefore, laws are made to maximise such revenue. But when the eagerness morphs into suspicion and mistrust, laws become oppressive, discriminatory and discretionary. The last three decades have witnessed a major change in governmental system and processes by way of e-governance and reduction in interface with taxpayers thus shrinking rent-seeking opportunities. But the adversarial mind set is yet to change. Only if such change occurs, laws including GST law can be drafted and implemented in a manner that can truly and effectively facilitate trade, improve compliance and bring more revenue.
[To be continued…]
(The author is an Advocate. The views expressed are strictly personal.)
See Part 70
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