JULY 07, 2009

Issue Whate Paper on GST

By S Thirumalai, Noted Taxation Expert

WITH only 270 days remaining before the proposed implementation of the GST, it is imperative that a “white paper” encompassing the deliberations so far in arriving at the Centre /State consensus be placed in public domain within 45 days for debate and suggestions as has been promised for the direct tax code.  This would enable industry and trade to analyse the possible impact on their business models and revisit supply chains to galvanise themselves into action with a clearly laid-out timetable for the GST rollout.

The TRU letter of 28-2-2008 has clearly mentioned as explained by further letter of the CBEC that in the case of packaged software it is the levy of excise as distinct from service tax which would be applicable in the matter of customised software. The latter clarification was issued in the context of simultaneous charge of VAT and service tax on the sale of packaged software. Now on the excise side for purpose of valuation the TRU letter says that the license representing right to use the packaged software should be subject to service tax though the customs part of the TRU letter of the same date  specifies the requirement for a mechanism for exchange of information with service tax, at the same time upholding this liability under service tax. The missing piece is that both on the customs side and the excise side the question will not arise unless the software is in material form. Electronic down loads will not attract either of these levies though in some States the VAT authority has been claiming tax on the ground that electronic down loads are goods after they land on the server which is the medium. This further clarification could clear the cloud over this area. 

The amendments to the refund of input services credit in respect of export of goods vide Nofn No. 17/2009-ST dated 7-7-2009 will only add to the woes of exporters nothwithstanding the "trust based" refund scheme. What would have been ideal is to introduce a scheme to obtain the services tax free from the providers on the basis of a certain procedure instead of having to pay the tax and go in for this refund mechanism. The audit sword always will hang in this process and there is no fool proof claim given the nature of the documentation that is required. Even the audit certificate with regard to utilisation could be the subject matter of debate as we see in the context of interpretations placed with respect to Rule 2(l) of the CENVAT credit Rules 2004