Renewed GST concerns

MOHAN R. LAVI | Updated on March 12, 2018

Before penning the Goods and Services Tax Rules, the Empowered Committee would do well to take a hard look at all the present laws that GST subsumes and their complexities.

The new Chairman for the Empowered Committee to implement Goods and Services Tax (GST) seems to have quickly taken the side of the various States and has asked the Centre to have an open mind to their concerns. The main concern of the States is the Constitution Amendment Bill that creates a GST Dispute Resolution Authority which they opine would undermine their powers of appeal. Municipal Corporations in Maharashtra depend on Octroi revenue for their sustenance and are seeking suitable compensation if GST replaces it. The Centre and the States have never seen eye to eye on the issue of compensation for the reduction in the Central Sales Tax (CST) and the differences are substantial. Though CST was supposed to be removed after the introduction of VAT, it remains on the statute book at 2 per cent.

Maharashtra VAT

VAT was also introduced through an Empowered Committee Report. VAT laws across States were supposed to be by and large similar. Recently, many State Governments have tinkered with VAT laws to boost revenues. Recent amendments in Maharashtra VAT are almost driving large automobile units nursing growth plans out of the State. Under the present Industrial Policy of Maharashtra, a number of Mega Units have set up captive distribution or marketing companies within the State to carry out their marketing & distribution activities.

These distribution companies discharged VAT on their sales within Maharashtra and Central Sales Tax (CST) on their inter-State sales after claiming setoff of the VAT paid on their purchases from the Mega Units. A distribution company, on making inter-State sales, would typically discharge tax at the rate of 2 per cent, but would get a set-off on its purchases at the rate of 12.5 per cent with the difference of 10.5 per cent being refundable.

Rule 52A introduced by the Finance Department Notification No. VAT-1511/CR-44/Taxation-1 dated March 17, 2011 spoilt the refund dreams of these companies. This Rule permitted set-off and thereby refunds only on the taxes paid or payable under the Central Sales Tax Act, 1956 on the inter-State resale of the corresponding goods and the taxes paid on the purchases of said goods, if are re-sold locally under the Act. A proviso added that nothing in this rule shall apply to the purchases of such goods that are used within the State in the manufacturing of the goods. The net impact of the Notification was that the auto companies got incentives on sales within the State, but not outside.

Bajaj Auto reflects an amount of Rs 882.35 crore in its Balance-Sheet as VAT Refund Receivable. If the above Notification was not enough of a blow, Mahindra and Mahindra got another one when the Nashik Municipal Corporation withdrew the octroi concessions granted to the company.

Do we need GST?

With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited. The best GST systems across the world use a single GST while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table. The concept of value-add has never been utilised in the levy of service as the Delhi High Court is attempting to prove in the case of Home Solution Retail while under Central Excise the focus is on defining and refining the definition of manufacture instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds as the Maharashtra Government proves and software entities that applied for refunds on excess service tax paid on inputs discovered.

The all-new Cenvat Credit Rules, 2011 do little to clarify eligibility for input credits by using general terms such as “ any goods which have no relationship whatsoever with the manufacture of a final product” and “ services used primarily for personal use or consumption of any employee”. Before penning the GST Act and Rules, the Empowered Committee would do well to take a hard look at all the present laws that GST subsumes and their complexities. It could tempt them to rethink on the necessity to draft even the preamble.

(The author is a Bangalore-based chartered accountant.)

Published on July 23, 2011

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