Goods and Services Tax Blog

During the Annual Conference of the Chief Commissioners, the Central Board of Excise and Customs had constituted a group, comprising bureaucrats from different parts of India, to deliberate on the implementation of GST in India. Accordingly, the group submitted its report to the Central Board of Excise and Customs.

The brief areas of recommendations by the group include organizational structure to handle the huge base of tax payers, compliance management, dispute Resolution Mechanism, role of the field formations and the coordination with the State Government authorities.

The committee has suggested common PAN based registration numbers, single return of all taxes, annual filing of returns, Common facilities for filing, automatic refund mechanism, etc., There are also provisions for submission of Annual Audit Reports, beyond a certain turnover. The format could be finalized in consultation with the professional accounting bodies of the country.

The committee has also recommended development of a centralized portal for online registration, e- payment of taxes, filing of returns etc., to be in place much before the implementation of the GST. It has been recommended that a small percentage of tax payers could be selected for audit depending on the risk parameters. Interestingly, a joint audit of the Central and State agencies has also been recommended, which is a welcome move. While recommending that a strong administration is very necessary, the committee has laid emphasis on cadre review of the officials of the department.

Yet another aspect that has been deliberated by the group is the Dispute Resolution Mechanism. There could be disputes between the CGST payer and the Central Government, the SGST payer and the State Government, the IGST and the Central Government. In addition, disputes may also arise between one State Government and the other. As the issues involved could be common, it has been suggested that the appellate authority in these disputes could constitute members drawn from both the Center and the State. Adjudication orders could be challenged before the Appeal Commissionerate, then before the GST Tribunal and so on. There are strong pointers towards constitution of National GST Appellate Tribunal.

As preparatory steps towards GST implementation, the group recommends setting up of joint working committees, Common Trade Facilitation Centers and familiarizing the officers with the new scheme of taxation. These processes have to be undergone, whenever GST has to be implemented, whether April 2011, or beyond.

It is a welcome move that work goes on in both directions, one persuading the States to fall in line in implementing GST and at the same time, deliberating on various issues, forehand that may get thrown up when GST is implemented.

The preparedness of the administrators has always been questioned and it always turns out that the industry has better knowledge on the proposed implementation of Goods and Services Tax (GST) in the country rather than the Board or the administrators itself.

However, in a recent article by the TIOL News Service, it seems that vigorous steps have been taken by the Administrators of GST to prepare themselves for implementing the new regime. An ‘implementation group’ has been formed with Member (Central Excise), CBEC as its mentor and Director General (Vigilance) as its group head. According to the implementation group, the estimated tax base would be in the range of 50 lakhs assessees from the current number of 13 lakhs.

The implementation group has identified certain business processes viz., Registration process, filing of return and processing and payment of tax, information to be contained in the GST invoice and books of account of taxpayers, audit & anti-evasion, dispute resolution mechanism etc. as vital to new tax administration.

It is proposed that the registration processes for all three taxes (CGST, SGST and IGST) should be common and online and there should be single return for all the three taxes which should be filed online through a common portal. The refund amount should be credited to the claimant’s bank account.

It is also proposed that authorities for searches/seizures would be devolved separately on Central and State Governments for issuing warrants under CGST/IGST and SGST laws. Towards this end, the legal provisions under Criminal Procedure Code may be replicated with suitable modifications in the proposed legislations. Search warrants under CGST/IGST would be issued by officers of the rank of Jt./Addl. Commissioner or the Commissioner. One authority undertaking search/seizure operations should inform the other authority (CGST to SGST and vice-versa) for better coordination and conducting of joint operations. Goods and documents would be seized by the authority which actually issues search warrants.

Two models of alternation dispute resolution mechanism have been discussed and there is also a proposal for integration of adjudication and appeal processes under one single tribunal namely, the National GST Appellate Tribunal, which may be headed by a serving or retired judge of the Supreme Court.

There is also a proposal for setting up an authority for advance rulings whose scope may be sufficiently enlarged to bring within its ambit all categories of domestic and foreign tax payers including individuals, proprietary & partnership firms, public/private limited companies, PSUs and other categories of taxpayers.

As the date for pan India roll out of GST is set, the Group has also recommended setting up of joint working groups in each State with officers from both Central (Central Excise/Service Tax) and State (Commercial Tax) departments to exchange complete database of taxpayers, identify premises for setting up of new common-GST offices, jointly organize taxpayer education programs, organize seminars, workshops, road shows, publicity through print and electronic media, create a website for dissemination of information on GST including FAQs, brochures, leaflets/ pamphlets etc. It seems that the administrators have finally set the ball rolling to take steps to implement GST. To view the entire article, pls visit www.taxindiaonline.com

On 21st July, Finance Minister had meeting with Empowered Committee.As can be seen, the concern of industry is on 3 vital issues–

• Use of Information Technology–even for Small/Medium establishments, cost effective solution can be found so that automation is complete leading to elimination of wasteful activities.
• Exempted items–If we want to move to total compliance, exemptions need to be eliminated; exemption is a cause for corruption, concealment, etc.
• Rate structure–with 3 tier rate structure, classification disputes will continue; further when rates between goods and services are different, disputes amongst States on whether goods and services will also continue; lower rate structure for certain commodities will lead to inverted rate structure; this may result in accumulation of input credit if final commodity is subjected to lower tax.

Finance Minister in his speech talked about excitement amongst industry and also overseas investors. Industry view point need to be highlighted – that trade/Industry is for total compliance. Tax avoidance/litigation is not in the interest of Trade/Industry. If India has to become manufacturing hub, we need to have inflow of FDI; this can happen only if our tax regime is transparent, simple and without scope for litigation.

Higher manufacturing activity will lead to higher tax revenues, both for Centre and States; Higher taxes will help Government to focus more on infra spending which in turn will lead to higher inflow;

Ultimately this increase in activity will also lead to great employment potential so that in the next 10 years, India will be in a position to absorb in gainful employment our young population; Also from Government’s own side, higher revenue and greater employment will lead to more equitable society and will help Government to spend more on socially beneficial schemes.

While on importance of IT, there seems to be consensus, there is a need to restrict the list of exempted items, taking into account only very basic items which really affect rural people; this concession can continue till such time Government is able to map the total economically poorer sections and come up with alternate form of direct cash subsidy into their bank account. Time frame need to be provided for this, say maximum of 3 years.

Second the rate of tax on both goods and services should be uniform so that we don’t have classification disputes. With more than 55% of GDP from Services, the differential rate structure will only lead to disputes between trade/industry and Government on classification.

Finally nothing is said on tax administration. Though we may settle for 2 rates, viz CGST and SGST, the return/assessment etc should be by a single agency like large units may come under Central authorities while smaller ones may come under State agencies so that both Centre and States will be happy.

The Union Finance Minister Mr.Pranab Mukherjee met the Empowered Committee of the State Finance Ministers today and had detailed discussions with them on various pending issues relating to the design and implementation of the proposed GST in India. The following are the key high lights of the discussions:

• The threshold limits for both goods and services (CGST and SGST) would be uniformly at Rs.10 lakhs.Threshold for compounding for small dealers suggested at Rs.50 lakhs turnover or Rs.1 crore per annum.
• States agree to keep items such as alcohol, petroleum products, electricity and real estate outside GST.
• Two separate rates for goods and another rate for services in the first year (2011-12). Subsequently, over the next two years, depending on tax collections, the tax rates will be both lowered and compressed to one rate: 16%
• A team that will implement the technology backbone for GST. Nandan Nilekani, chairman of the Unique Identification Authority of India, has been asked to head a group of officials to oversee the task.
• 99 items currently exempt from VAT will be exempt from both components of GST.
• Government of India shall fully compensate the States for their revenue losses on account of CST reduction during 2009-2010 and the Empowered Committee`s recommendation on the CST compensation formula for the year 2010-2011 is awaited.
• Single rate structure to be achieved in the following manner