This article is written by Palak Shah, pursuing a Certificate course in Advanced Corporate Taxation from Lawsikho.com.

Introduction

Introduced in India on 1st July 2017, the Goods and Services Tax (“GST”) replaced a host of indirect taxes imposed by central and state governments that changed the tax landscape. The underlying theme was to have ‘One Country One Tax’ and to bring all the Indian Indirect Taxes under one umbrella, that would make it easier for taxpayers to do business, promote accountability, ensure timely enforcement, and ultimately reduce the common man’s tax burden. Since its launch, the journey has been nothing short of a taxpayers’ roller coaster ride.

“GST has been one of the proactive steps by the government and the way the concerns are addressed by the Council makes it one of the most effective mechanisms,” said Mahendra Singhi, president of the Cement Manufacturers Association (CMA).

The COVID-19 pandemic has severely affected the GST collections. Rs. 90,917 crore is the gross revenue for June 2020 and the pattern of ‘below 1 lakh crore level’ may continue for the next few months.

Current status of GST  

GST is currently levied on all products except for petroleum, alcohol, tobacco, and real estate stamp duties in four slabs of 5, 12, 18, and 28 percent. Most of the items used daily have zero GST as per last year’s most recent revision of the tax rates.

97.5 percent of items are covered by a GST slab of 18 percent or less. Under the previous system of Value-Added Tax (VAT), the regular rate of taxation was much higher. Currently, only luxury and sin products are taxed at the highest GST rate of 28 percent.

Below is the summary of hits and lows of GST in the past 3 years.

Hits in the GST

• GST has got a wide base of taxpayers

By the end of March 2020, the number of GST registrations had risen nearly twice that of around 64 lakh taxpayers who had migrated from the previous regime in July 2017. The number of taxpayers registered for GST was 1.23 crore in three years, as of 31 March 2020.

• GST council stands as a pillar for GST implementation

“A key highlight of the new indirect tax system, has been the way the GST Council, the nodal body deciding rates and procedures, has addressed industry’s concerns and modified rules to make the system easier. This has given Indian business confidence that even in a regularly changing tax system, their difficulties would be eased by the council.” said various trade bodies.

From time to time the GST Council continues to take critical decisions for the smooth implementation of GST law. The CBIC (“Central Board of Indirect Tax”) notified nearly 80-90 percent of the GST Council’s decisions. Taxpayers’ woes have been dealt with on most occasions in a timely and effective manner. On several instances when the states and center were at loggerheads, fair decisions were passed showcasing the Council’s nature of cooperative federalism.

Till date, the GST Council has held 34 meetings where significant decisions and recommendations have been made to the government on issues such as the taxpayers’ enforcement burden, providing sector-specific relief measures, etc. Among the main recommendations made by the GST Council are:

1. Rationalization of tax rates – Certain goods held in the high tax class (18-28%) have been checked and the tax rate has been lowered considering things such as essentials rather than luxuries. Currently, only a few products remain at the highest 28 percent tax limit.
2. Compliance for a section of taxpayers – has been simplified by extending the due dates, filing annual returns and reconciliation statements, introducing a simplified return filing system, introducing a nationwide e-way bill, etc.
3. Taxpayers have accepted relief measures for micro, small and medium-sized enterprises (MSME Sector) – by increasing the threshold for registration, implementing composition schemes, and extending the composition scheme to service providers.
4. To improve the real estate sector by proposing a reduced GST rate for under-building properties @1% (for affordable housing) and 5% (for the non-affordable segment).
5. The GST Council also recommended the creation of a Group of Ministers (GoM) to research the revenue trend, to evaluate the reasons for systemic trends affecting income collection in some of the states, to examine the tax rate and issues in different sectors such as real estate, lottery, and other GST issues.

• Three years of successful completion of the E-way billing program

The e-way billing program completed two years after its introduction across India from 1 April 2018 to April 2020. It has led to the integration of permit bill systems across the country, enabling logistics to withstand lesser hurdles on the distribution path. In reality, the use of technology has provided a smooth movement of consignments and less friction with officials.

• Technology based

It is technology-based that makes its approach to taxpayers punctual and effective. Technology has no mercy even for a single day late taxpayer, who will have to pay a fine,. Via data processing and data reviews a nicety error is pinpointed. Its stringent checks and balances make it a nightmare for tax evaders. It is because of the technology government that has been able to break the fake billing scam in India and get the rightful taxes due.

• The CBIC has been actively solving various problems and giving effective solutions to the taxpayers

The Central Board of Indirect Taxes and Customs (CBIC) has played an active role in giving effect to the recommendations of the GST Council, providing the taxpayers with various Suo-moto reliefs in terms of extending the due dates for specific returns, providing waivers of interest and fine, etc. In addition, CBIC has released numerous clarifications and FAQs to resolve the market and sector-specific concerns. Some of the CBIC ‘s key clarifications over the last year include:

1. Non-inclusion of tax collected at source (TCS) for the purpose of assessing the value of the supply under GST, as it is an interim levy which does not have a tax character;
2. Clarification of tax implications/payment and input tax credit in relation to different sales marketing practices provided by companies such as gift delivery or free samples, purchase one get one free deal, care for main and secondary discounts, etc.;
3. Tax consequences for the importation of the outsourced facilities on reverse charge basis;
4. Do away with the requirement that documents be physically submitted in the case of export refunds.

An ‘IT grievance redress mechanism’ facility has also been introduced by the CBIC along with a helpdesk facility to resolve taxpayers’ difficulties due to technical failures on the GST portal.

• Transparency

That’s GST’s exquisiteness. One can track online on GST Portal whether it is supplies shown by the supplier or not through GSTR-2A and the status of the application for registration, application for a refund, etc. All of the procedures under GST system is transparent and there is an audit trail for everything for e.g., in the GST portal  one can get basic information about a person by knowing his or her PAN or GSTIN  only by putting the PAN or GSTIN number in the option – “Know the taxpayer” he or she knows about their total number of registrations, basic profiles and details of the return filing.

• Authority for advance ruling (AAR) 

The Advance Ruling Authority (AAR) established in various States has issued important rulings over the year providing clarification on issues such as the classification of goods/services for the determination of the GST rate, the determination of the time and value of the supply of goods/services, the registration requirements, etc. An advance decision provides clarity in assessing the tax liability since both the claimant and the tax authorities are bound by the AAR’s judgment. It also helps to prevent long-drawn-out and lengthy litigation at a later date. The decision of the AAR can be appealed to an Appellate AAR. These decisions, while only applicable to the claimant, provide a compelling value for other taxpayers engaged in similar transactions. Taking into account AAR’s conflicting rulings on some of the crucial issues and representations made by taxpayers, the government has recently notified the establishment of a National Bench for Goods and Services Tax Appellate Tribunal, which will further contribute to ensuring certainty and clarification on various GST matters and thereby reduce litigation.

• National Anti-Profiteering Authority (NAA) 

 NAA ensures that the benefit of the rate of tax on products or services, or the benefit of the input tax credit, is passed on to the consumer through a commensurate price reduction. The NAA has dealt with a few cases over the last year in which fines were levied on a cross-section of taxpayers for not passing on the tax gain to customers.

Drawbacks of GST

1. Implementation of the latest GST return system delayed

There is an imperative need to ease the complexity surrounding procedures, especially with regard to registration and return filing, in order to build on the gains of the past two years. There has been a certain pause in putting into effect the new return scheme. Due to the delay, it is important to relook the present return method for efficient filing and processing of returns. With the COVID-19 pandemic in 2020, a full-fledged introduction of the current return method is only feasible by next year. In the present method, there are many difficulties for taxpayers, such as the manual approach for reconciling the input tax credit, no automated connection between GSTR-1 and GSTR-3B for data flow, capturing uploaded export information in GSTR-1, revision of unauthorized GST returns, etc. Such holes were constantly being plugged into GSTN. With more time for taxpayers to upload GSTR-1 and GSTR-3B at no late cost, GSTN will resolve these issues easily under the new return framework. The latest system and API updates such as the Zero filing of GSTR-3B and GSTR-1 via SMS, the inclusion of more information in GSTR-2A return such as GSTR-1 filing date, the GSTR-3B filing status of each supplier and invoice modification information, the auto-calculation of liability in GSTR-3B from GSTR-1 info, etc. are obvious.

2. Registration under GST

There is a confusion regarding who needs to register under the GST regime earlier it was very simplistic and was based on the threshold limit of ₹20 lakh turnover a year, but now, the threshold has changed, and it also depends on whether you are a business in products or a business in services where you are based, whether you are online. It is not so easy for freelancers or companies to decide quickly whether they need a GST registration or not.

Further, there is a need to ease compliance burden on the taxpayers and a need to introduce similar mechanisms as the former service tax rule, centralized GST registration. The State-wise registration has increased the cost of compliance.

3. Simplify and streamline GST rate structure

The GST Council will soon call for the reduction of the number of slabs in the GST rate structure from the present five to two or three. It may be due to the dropping monthly GST collections due to the COVID-19 situation, but the matter needs to be thoroughly investigated before being resolved. Around 50 percent of the items fall under the tax bracket of 18 percent. It is recommended that raw materials be taken down to 12 percent or lower tax rates on different critical industries and important sectors. In addition, the sectors facing delays in reimbursement due to the inverted rate structure must be discussed in the forthcoming Council sessions, and the adjustments must be sped up. No new cess should be introduced.

4. Frequent changes

The GST law has undergone significant changes from its original form and shape. Via almost 353 daily alerts, 330 GST rate notifications, 146 circulars and 38 orders, major changes and no streamlined process and procedure is in place creating confusion in the minds of taxpayers.

5. Implementation of CGST rule 36(4) – 10 percent interim ITC

In GSTR-3B, the intent to implement the 10 percent provisional ITC restriction was noble in combating the increasing threat of bogus input tax credit claims and later avoiding administrative burden. The present GSTR-1, 2A, and 3B method, however, was complicated in implementing the same. Identifying discrepancies between GSTR-2A vis-à-vis GSTR-3B and a taxpayer’s register of transactions takes time and energy to spend each month. It also needs coordination between the manufacturer and the receiver to periodically sort out any inconsistencies.

It also caused problems with cash crunch, due to the supplier’s delay in recording invoices. The government did, however, suspend the law until September 2020. By then, most invoices will have been submitted by the suppliers beginning in March 2020. But the recipients may need more effort to resolve them. In addition, the GST refund is not allowed on accrued ITC against those invoices not reflected in the GSTR-2A. These effects would also have adverse implications for legitimate recipients.

6. Opposing advance rulings among states

There have been many cases, recently being GST on the remuneration of directors, where a decision has been given for a specific case by the regional authority for advance rulings in a state which contradicted another state. While the GST Council recommended that the National Authority be formed for advance rulings in 2019, the same has yet to be done.

Further, the NAA directed the taxpayers to deposit the amount in the Consumer Protection Fund in situations where the ultimate customer is not known. However, since the existing GST regulations do not recommend any methodology/mechanism for taxpayers to assess the number of benefits to be passed on to customers, the implementation of the anti-profit regulations has been fraught with litigation.

Reforms needed in GST

1. Registration under GST

There is a need to ease compliance burden on the taxpayers and a need to introduce similar to the former service tax rule, centralized GST registration. The State-wise registration has increased the cost of compliance.

2. Simple tax structure

There is a need to have a simple tax structure with three rate structure and correction is needed in inverted duty structure. No new cess should be introduced in the current system. Further, there is a need to have consolidated circulars, notifications and orders in the GST law.

3. Requirement for centralized assessment

Companies with various locations find it difficult to appear before officials in separate states for reviews or inquiries. In large corporations, the whole tax and accounting are usually centralized. Therefore, a long-standing trade market for assessment/audit in the main state with locations in different states would be a welcome change.

4. Simple tax fillings and assessment

Simple filling regime has not yet started. There is a need to operationalize Forms GSTR 2 and 3. Also there is a requirement of having faceless and online GST assessments.

5. Input tax credit and refunds

There is a need to speed up electronic online processing. The law should allow offset of input credit of one state against payment for another state. Further, provide refund of accumulated credits on time.

Expectations from GST

1. Improved GST platform capability and immediate problem-solving.
2. Clarity regarding burning issues such as Notice Pay Recovery, Cross Fee, Bonus Sales, Round Tripping, etc.
3. Cash / Credit Ledgers balance transfer facility through several GSTINs within a single legal entity.
4. Simplified one annual return and reconciliation form, instead of two GSTR-9 and GSTR-9C forms.
5. GST Returns and lessor simplification returns to fill in.
6. The sturdy dispute resolution process for urgent problem-solving.
7. Revision and amending of all GST returns.
8. GST must be people-friendly instead of Pro-Revenue – GST collection goals on officers must not be impractical.
9. Advance decisions – Increase the consistency of benches – representatives must be independent of the department from judicial and professional context so that justice can be administered in true form.
10. Do not threaten decent taxpayers on account of default on their suppliers. Instead of asking taxpayers ITC due to failure of the supplier to file returns – catch the supplier, not the taxpayer.

One must consider the fact that GST has succeeded in subsuming tons of local, state, and central taxes. In something new, glitches are predicted, but after three years there must be an atmosphere of stability with a smooth GSTN network and limited changes in the law. The way things work it seems the road is already halfway for the authorities and companies and much is yet to be done.  

References

• https://economictimes.indiatimes.com/small-biz/gst/two-years-of-gst-the-past-present-and-expectations/articleshow/70018693.cms
• https://economictimes.indiatimes.com/news/economy/policy/gst-3-goods-and-services-tax-regime-completes-3-years/articleshow/76718489.cms
• https://www.thehindu.com/business/Economy/news-analysis-procedural-concerns-in-focus-as-gst-enters-third-year/article28235974.ece
• https://taxguru.in/goods-and-service-tax/3-years-gst.html

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