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When GST came calling …

JUNE 03, 2020

By Vijay Kumar

GST is almost three years old. You know how it is today - The Prime Minister even now believes that GST is a good and simple tax - the trade bodies, political councils and bureaucracy, obviously don't tell him the truth. Let's just go back a little and see what our honourable parliamentarians said about GST when it was discussed in the Parliament in 2017.

Shri. Arun Jaitley - FM: So, the States have pooled in their sovereignty to the GST Council, the Centre has pooled in its sovereignty to the GST Council. So, the GST Council is India's first federal institution where sovereignty of the Centre and the States in relation to indirect taxes has been pooled together in a federal institution. Now, to create India's first federal institution, it is incumbent on all of us to make sure that the federal institution works.

if you said that a Hawaii chappal and a BMW car have one rate, then it will be a regressive tax. That is not possible.

In the very first year, we will take up the issue of real estate whether we have to bring it within the consideration itself or not. Same is the position with regard to petroleum products.

So, today, petroleum has been constitutionally within the GST, but its GST will be zero-rated. Once the experiment of GST moves forward, the Council will have an opportunity without amending the Constitution to decide what is to be done with regard to the petroleum products itself. They are already a part of the Constitution; you would not have to amend the Constitution. It is now, for the Executive decision of the Council as to when they take it.

You know the position today.

SHRI Jairam Ramesh: Sir, the imperfections of the GST, which I pointed out, which every speaker has pointed out, has one implication. The Finance Minister has repeatedly said for the last two years that GDP will increase by 1.5 to 2 percentage points on account of GST. Sir, today, I will categorically say, as somebody who knows this subject, that GDP cannot increase by 1.5 to 2 percentage points with this GST because that number comes from an NCAER Report which is based on a single tax, which is based on no exemptions. But what we are passing is something entirely different. So, please let us not use words like 'revolution', 'game-changer'. These are, I think, very, very colourful words.

In December 2019, Bibek Debroy, the chairman of the Economic Advisory Council to the prime minister said, "Goods and Services Tax (GST) is a work in progress; when it was introduced, there were people who said the new indirect tax regime would lead to incremental GDP growth of 1.5-2 per cent. This is regarding the fact that the estimate was done by NCAER (National Council of Applied Economic Research) for the ninth Finance Commission for terminal ideal GST, whereas GST -- which is work in progress - may take 20 years. It is not that you are going to get 1.5-2 per cent."

Writing in "The Week" in February 2020 he said, " When the GST was launched in July 2017, many people welcomed it and suggested it would lead to incremental GDP growth of 1.5 to 2 per cent. I have no idea where those figures originated and was castigated when I said this. The only estimate I know is the one done by the National Council of Applied Economic Research for the 13th Finance Commission. To quote from the commission's report, "It (NCAER model) estimates that implementation of a comprehensive GST across goods and services will enhance the nation's gross domestic product (GDP) by between 0.9 and 1.7 per cent." Note this is after a complete and comprehensive GST, which is still a distant goal. GST is a work in progress."

Shri. Veerappa Moily: They have brought in anti-profiteering clause under the GST. The authorities are proposed to examine whether any reduction in a business' cost base or tax rate due to the implementation of GST is passed on to consumers in the form of appropriately reduced prices. There is no clarity on how this provision would be implemented. This is a market economy where demand and supply play their role. The Malaysian Government informed industries and other concerned stakeholders regarding the implementation of this provision much in advance. You are suddenly bringing it. How can you invoke it in a market economy? Ultimately, there are a number of people who can be put inside jails for no reason. Somebody may have paid in excess and somebody may not have paid. Because of their ignorance of law, they may not abide by that. The anti-profiteering penal provision in this GST Bill is far too vague and draconian. It could discourage companies from making efficient improvements in supply chains as they are required to pass on the entire benefit to the consumer.

A very important sector like real estate that is supposed to be the area which generates a lot of black money has been ignored by you. You have not included it. I do not know whether any lobbies have played the game or innocently you could not do it or you may be thinking of some other strategy.

The GST implementation policy is meant to be a self-policing act. But the provision of the harsh scrutiny is not substantially different from the present system. Taxation of self-supplies proposes all inter-state movement of goods and services between two divisions of the same legal entity would be subject to tax. It will lead to significant compliance difficulties insofar as these provisions are concerned. In fact, any movement of goods and services from one State to another becomes subject to tax. The head office interacting with its production plant or distribution centre in another State will now be considered to be rendering services which need to be valued, recorded in the books of account, and then tax remitted.

I can explain to you that ultimately this will be a technological nightmare.

On Tribunal: I would like to submit that a fundamental mistake has been committed and it will be struck down by the Judiciary. It is because every Tribunal should have at least 50% members from the Judiciary and that has not been adhered to. In fact, that is a case for striking this down by the Judiciary. The Government cannot do this because it goes against the tenets which have been laid down in the R. Gandhi case and in many other cases like in the case of the Madras Advocates Association and in income tax matters also.

He was right, constitution of the Tribunal has been struck down.

What was the need to have a new definition of agriculture sector in the GST Bill?

Section 2(7) of the CGST Act defines …..

(7) "agriculturist" means an individual or a Hindu Undivided Family who undertakes cultivation of land-

a) by own labour, or

b) by the labour of family, or

c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family;

Shri. Bhartruhari Mahtab: Who is an agriculturist? It is a person who does cultivation by his own labour, by labour of his family, by servants on wages payable in cash and kind or by hard labour under personal supervision or supervision of any member of the family; the definition of the 'family' is there in the law. But what exclusion is there is left to the intelligence of the people.

Shri. Jayadev Galla: I would like to say that I am sure the GST will usher in a new horizon and play a crucial role in the growth trajectory of the country. I am saying this because the law is logical, clear, practical and convenient to comply with. But I only caution the hon. Finance Minister that implementation mechanism must match up with ever evolving business dynamics.

Ms. Supriya Sule: The second most important point is the 'data privacy'. Today there is a new fashionable word saying 'data is the new oil'; most people are using it quite generously. The kind of data that is going to get generated with this, through the GSTN which is a private body - only 49 per cent is the Government and 51 per cent are outside players - I am sure you have thought it through. Crores of data is going to be generated every day. What precautionary measures are you taking so that none of this data will ever be leaked? Every State is going to have its own authority for this data. There is a 1 per cent chance that in a weak moment if anybody in that system who has access to this kind of information -- I am not saying it will happen and I am sure you have thought it through - leaks it, it will be at a huge cost for our country. There is nothing specific that talks about privacy in this.

Taxation of Works Contract. The taxation of Works Contract is a rearrangement of words and because of rearrangement of words, the whole service is going to be in big trouble. So, I would request the Government to look at it. For instance, take one service say, my car has got spoilt and I sent it for servicing. If I send it for servicing and I take a mix supply of a service - suppose the tyre is changed; the tyre is in a much bigger bracket while the service is at a much basic bracket - then the higher tax will be implied on to this. Having this mixed service is going to be a huge challenge which is going to get into a lot of litigation. Probably, people will not want to pay them. So, this mixed supply bag is very critical. I would urge the hon. Minister to look at the taxation of work contract and re-think of it.

Mind boggling constitutional complexity:

A former High Court Judge and President of CESTAT said in a speech,

"When I saw the GST Bill, it is mind boggling constitutional complexity. It is neither the exclusive list nor the concurrent list; it's a fourth dimensional animal. It is post Einsteinian Physics. Heisenberg's uncertainty of quantum mechanics is elementary compared to the complexity of this. Even the political complexity of States and Union coming together on a continual basis to ratchet the policy of GST is a huge challenge. It is an economical challenge, it is a political challenge, policy challenge, an administrative challenge; it's an adjudication challenge. So that is the next animal that is waiting to pounce on you. But we have to fight, we have to survive.

In traditional law what happens is if you are a hardworking fellow, in one year you will understand the law; and you know what to speak; it will take you to the next forty years till you retire to understand when to shut your mouth. Like a history teacher - battle of Panipat - five years of hard work and the rest of your life you can cash in on that.

As far as professionals are concerned, you can no longer live on the battle of Panipat. Every day history is being written and therefore you cannot ride into your professional sunset by just memorising the battle of Panipat. That is the challenge of dynamic tax legislation.

As Justice Actin said, there is no presumption that the Judge knows the law. The legitimacy of the bar is dependent on the presumption that the judge does not know the Law. The assessee manufactures the facts, the consultant presents the facts mixed with the adversarial law. The judge is only like a server in a five star hotel who wears a glove and then whatever the cook prepares he serves it well on the table."

GST is here - Enjoy the inevitable

On 01.07.2017, I wrote in TIOL, GST is here - Enjoy the inevitable

From 0000 hours of today, every Taxpayer, rather every Indian is assumed to be fully aware of all the pristine legislative provisions, for as they say, 'ignorance of Law is no excuse', especially on the part of taxpayers. Tax officers, lawyers and judges are exempted.

As a nation, we get the tax we deserve and anyway as God runs this country, if there's a problem, He will fix it, somehow. And if you don't believe in God, soon you will.

The Prime Minister said GST is a collective effort - you can't blame anyone individually. All the decisions of the GST Council have been unanimous

Before a medicine is launched, they usually test it on rats and rabbits, but perhaps no such facility exists or is legally required before a tax is imposed. Unfortunately, unlike the bitter pill, you have no choice with taxation of refusing to swallow.

Now that GST is in force, I hope the tax officers will read (and perhaps understand) all the simple laws, before they embark upon enforcing them. I fervently hope that all the experts and consultants will read and understand those laws before they advise and preach on GST. As of now, we may also seek the help of astrologers, vaasthu experts and godmen.

Status quo ante ?

Until next week