Cut the clutter

Mohan R Lavi | Updated on January 16, 2018


The Model GST law should not lose its focus

It is clear that we are headed for taxing times in the years to come. The demonetisation dialogue is increasingly moving towards the conclusion that it has become a monetisation opportunity for the tax department. It seems the tax department is angry with a few who have evaded tax and is reacting by taking revenge on many. The byline “Minimum Government, Maximum Governance” is being replaced with the old “Raid Raj”.

In the midst of the demonetisation days, the Government revealed Version 2.0 of the Model GST law. Version 1.0 was drafted in a tearing hurry and left more questions than answers. Obviously, the Government received many suggestions to improve the Model GST law; only some of which have found their way into Version 2.0. While the revised version is certainly an improvement over the first one, there are still a few provisions that signal that we are moving towards an era of tax terrors.


Clause 163 of the Revised Model GST law is a new insertion. It states that the Centre may by law constitute an authority, or entrust an existing authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.

The authority shall exercise such functions and have such powers, including those for imposition of penalty, as may be prescribed in cases where it finds that the price being charged has not been reduced as aforesaid. In commercial lingo, this is termed as an anti-profiteering measure.

There are multiple issues with this measure. The obvious one is whether such a measure is required for a new law that is still subject to a lot of ifs and buts. The impact that GST would have on many industries remains only a guess since neither have the rates of tax been frozen nor has the law been cast in stone.

Such measures are best introduced a couple of years after the complete impact of the law is understood. It is easy to ascertain if a reduction in the rate of tax has resulted in reduction in the end-price. Existing indirect tax laws had a somewhat similar concept, “unjustified enrichment”, which mandated that no tax payer could make a profit out of taxes.

The scope of the anti profiteering clause is much wider than that of the unjustified enrichment clause. The provision that input tax credits availed should result in a reduction in the end-price is, to say the least, bizarre. Input tax credits have had a long and bumpy ride under Indirect laws.

Although Version 2.0 of the Model GST law has made some improvements regarding input tax credits over the erstwhile version, they are far from clear. The anathema to provide credit on outdoor catering continues despite Tribunal decisions mandating that the department should not get so finicky. Often, the department disallows input tax credit for the most frivolous reasons, expecting a reduction in prices every time is going to be a nightmare for the tax payer and a delight to the authority to check if prices are being reduced proportionately.

Framers of the GST law is making the mistake of trying to put every possible provision in the versions of the model laws. They should focus on essentials; they will have plenty of time to look at the rest of the provisions.

The writer is a chartered accountant

Published on December 08, 2016

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