Hola GST?

Mohan R Lavi | Updated on January 20, 2018

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Not yet; the model law has many shortcomings

After a brief hiatus, hopes of the goods and services tax (GST) being introduced in India have been revived with the Government saying all States except Tamil Nadu have boarded the GST bus. It remains to be seen whether a few changes in the law could induce Tamil Nadu also to get onboard.

Maybe to prove a point that the Government means GST, a Model GST law has also been put out. And this does not seem to be very different from a “leaked” version appeared about six months ago.

The pillars on which a good GST law should stand are a tax only on value addition (which would mean across-the-board credit on inputs), a small negative list on which tax is not payable, and a comfortable rate of GST. The negative list and the rate of GST may be worked out in the coming months. Where the model GST law disappoints most is in granting a no-questions-asked input tax credit.

The spoilsport

Section 16 of the Model GST law is titled ‘Manner of taking input tax credit’. Once the law is operational, it could well be altered to ‘Manner of not taking input tax credit’.

This is because out of the 16 sub-sections in this section, the first three use the sentence “subject to such conditions and restrictions as may be prescribed”. We know from experience that the moment such sentences find their way in a section, the lawmakers are always tempted to find a way to use it by imposing some condition or restriction or the other.

A new law such as GST should not find inspiration from the past for the purpose of imposing restrictions. Restrictions, if any, should be based on the structure of the new law. The fourth sub-section mandates that credit should be taken within one year from the date of issue of tax invoice relating to such supply. Sub-section 9 of Section 16 imposes further restrictions on credit.

No credit would be given to motor vehicles, except when certain conditions are met. The provision that credit would not be provided to goods and / or services provided in relation to food, outdoor catering, beauty treatment, health services, cosmetic surgery, club membership, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation when such goods and/or services are used primarily for personal use or consumption of any employee is a word-for-word reproduction from the existing Cenvat Credit Rules.

There are other restrictions imposed in the execution of a works contract and construction of immovable property. Sub-section 9 concludes with a flourish — credit would not be provided to goods and/or services used for private or personal use. It is unfortunate that in a critical area such as input tax credit, lawmakers have taken the convenient route of aping existing laws instead of thinking afresh.

Old law, new name

It appears that there are two separate factions working on GST. On the one hand is the Government, trying its best to introduce the law in some form or the other and leave the drafting to the bureaucrats, and on the other, are the bureaucrats who are just basing the new law on the existing one and leaving the Government to make all the announcements.

The problem is that they are not on the same page. If Section 16 of the Model GST law is not amended, the interpretational issues and litigation would only increase. Its time the Government and the bureaucrats sat across the same table and took a serious relook at Section 16 of the model GST law.

The writer is a chartered accountant

Published on June 15, 2016

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