Before GST bugle blows


By Sanjay Kumar

THE GST Act and Rules are yet to be framed and biggest challenge would be in synchronization of the three types of taxes that would presumably be subsumed. The current rate of service tax @ 14%, excise duty @ 12.5%and VAT rates ranging upto 12.5% require to be brought down to a uniform lower level of 10% for CGST and SGST each. It needs mention that Japan and Germany with moderate rates at 8% to 10% have been successful in implementing GST.

Considering the complexities that exist in the present indirect tax laws, the GSTlaw must be drafted in a manner that a common man understands the same while going about his business of doing business.

(A) The provisions:

1.Basic tenets of the Act to be aired clearly :The disputes arising out of the definition of the terms “Place of removal”, “Time of removal”,”delivery at the time& place”,”transaction value” in sec 4 of the CEA, 1944 are not settled even today. Similarly, sec 5A has also become the bone of contention for EOUs/STPs and SEZs in terms of its applicability. And this is why the judicial forums have time and again gone beyond the definition to interpret the same and in few cases have fallen short of terming the present provisions redundant. Thus, the basic tenet must be drafted in line with the judicial pronouncements that could resolve such issues.Same is the case with the ST Valuation Rules and the POPS Rules. Such confusing and complicated provisions give rise to unwarranted litigations causing avoidance of tax unintentionally but assessees are penalized heavily when caught. Further, the penal provisions are required to be rationalized.

2.Point of taxation :POT as it was existing prior to April, 2011 i.e. receipt basis, needs to be restored as against the present provisions of payment of taxes on accrual basis i.e. even without actual receipt of money. The industry people seem to very unhappy with the POT Rules, 2011 as it creates a huge burden on the assessees for payment of taxes first and that too without having realized the money and ending up in paying heavy interest to the Bankers which negatively impactsthe cash flow.GST provisions must address this business hazard for generating faith in the system.

3.Cenvat credit scheme to be regulated properly : Cenvat/set off scheme is the backbone of the tax system to undo the cascading effects. For example, the credit on the initial set up, outward transportation and other essential expenses incurred on the employees including business expenditures mandated as per the other regulatory provisions such as Factories Act, ESI Act, WCS Act etc. must be allowed as input service credit which is not the case at present. Similarly, rule 2(k) of the CCR, 2004 restricts the input credit on LDO, HSD, foundations/structures, etc. and causes a cascading effect when loaded in the cost of goods or services which is against the basic tenets of indirect taxes.

3.1. Rule 4(7) of the CCR, 2004 imposes many restrictions while taking credit on input services on the ground of non-payment of the value to the service provider. Further, Rule 9ibid proposes to disallow credit, if the duties are collected or levied beyond the ‘normal period’. Thus, whereas the authorities are enabled by the law to collect duties beyond the said normal period and impose mandatory equivalent penalty, the law disallows the credit of the same to the buyer. This is a double whammy to the assessee and the Government should reconsider this provision.

3.2. Far more disturbing is rule 6 of the CCR, 2004 which provision is still a cause of heartburn to the assessee. The rule needs to be simplified by taking into account the ground reality rather than incorporating formulae which even the Tribunal finds fault with. The CESTAT, Mumbai in the case of Thyssenkrupp Industries [2014-TIOL-1825-CESTAT-MUM] observed – If the formula leads to an anomalous situation, the remedy lies in amending the provisions of the statute and the judiciary is helpless.

4.Refund and drawback system to be streamlined : The present system of pre-audit, sanction and post-audit mechanism do not suit the pledge taken by the CBEC to address such issues within 3 months which itself is too long a time to restore cash flow. There is an urgent need to detach the ‘direct connection’ and ‘follow up system’ with the departmental officers for their own money. Not only will this result in faster refund and help curb corruption but also save the time of the assessees.

(B) Equally important for successful implementation of tax laws is the competence of the executives in the administration.

Following manpower issues are also required to be looked into considering the competitive environment in the business:

1. The present administration existing at the Range and Division level has been reduced to a clerical one where days and nights are spent in calculation of the figures in several innovative ways for spectacular presentation at the next level and assessments& compliances are totally ignored. This “report generation” requires to be done away with at once. Similarly, the Audits have also proved to be a failed mechanism for they almost always raise objections which usually do not have the wherewithal to cross even the lower appellate level. Cases booked by the investigative teams are few and far in between and have not curbed evasion. One of the reasons for the same is that the officers posted lack experience or for that matter guidance & training never comes their way. Both these core functions must be assigned to the senior level officers in the hierarchy of the organization and not left to the ground staff.

2. The Adjudication system in the present form has time and again proven to be unsuccessful for rendering justice. Guidelines and instructions given by the Board are not in line with the promised deliverance of justice as it has made the adjudicators to press the safe button.It wouldn’t be a bad idea if the adjudication process is carried out by a Committee of adjudicators (of three or five members)having officers from the level of Superintendent to Commissioner at the Commissionerate level, depending upon nature of offence such as classification, valuation, etc.

3 . Last but not the least, the new Revenue Secretary’s statement that his priority would be to identify bad elements in the department because of whom the department has got a bad name and to take care of those elements so that they do not anymore spoil the name of the department must be implemented in letter & spirit in order to have transparency and repose faith of the taxpayers in the system. In my view, this is a very bold statement but it wouldn’t be a cakewalk to remove such elements and/or demote undeserved and non-performing officers but nonetheless has to be implemented without much delay.

(The author is a Consultant and the views expressed are strictly personal.)

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