The GST (Good & Services Tax) is an indirect tax that was introduced subsuming various indirect taxes in India, including VAT, service tax, excise duty, etc. Despite the government’s intention to simplify the indirect tax system with GST, things have become complex for taxpayers. Therefore, in the upcoming meeting of the GST Council, it is expected that the Council will focus on simplifying and rationalising the rate structure under GST.
To further smoothen this process, one of the key decisions taken by the GST Council is the constitution of a Group of Ministers (GoM) headed by BS Bommai, Chief Minister of Karnataka, which is expected to give its report recommending changes in the GST.
As per reports, the GoM is likely to recommend the merger of tax slabs (merging 12 per cent and 18 per cent GST rates into a single slab), review of the exemption list (reviewing GST exempt services), revision of tax rates and rationalisation of inverted duty structure (where GST rates imposed on inputs are higher than outward supplies).
These recommendations will be considered by the GST Council in its upcoming meetings.
These amendments by the GST Council intend to raise more resources for the government and reduce classification and tax rate related disputes between the assessee (taxable person) and the Revenue Department. It is unclear whether these disputes will be reduced with these changes, but they will certainly hinder the interest of customers, by increasing their tax burden.
Therefore, little could be achieved with mere changes in tax rates. The GST Council should instead focus on administrative reforms in GST which shall go a long way to establish an assessee friendly tax regime.
Just revising the tax rates and merging tax slabs cannot bring efficiency to the existing tax administration. To overcome the issues of dispute related to GST and increase efficiency in tax administration, there is a need for a robust dispute redressal mechanism.
Dispute redressal mechanism
Under the current GST regime, the dispute redressal mechanism is considered non-existing because the GST Tribunals — which are considered the final fact-finding authority — are yet to be constituted, even after almost five years of GST enactment.
Despite having the provision under the GST law, there is no clarity if these Tribunals will ever be constituted. Non-constitution of the GST Tribunals forces taxpayers and the Revenue Department to approach the High Courts for redressal of their disputes.
As High Courts are already burdened with a backlog of cases, they should not be reduced to becoming the final fact-finding authorities. Thus, both taxpayers and Revenue Department are suffering in the absence of a proper redressal mechanism and such issues can be resolved only by way of administrative reforms and not by way of any rate or tax slab revisions.
Another area that requires immediate attention is the system of advance rulings under GST. Advance Ruling by definition means to take a ruling in advance so that the taxpayer does not enter into a dispute later on. GST laws not only provide for the constitution of an Authority for giving advance ruling but also provides for an appellate authority. This defeats the whole purpose by taking away the finality of Rulings being passed.
Moreover, there are instances where the orders passed by the appellate authority are further challenged before High Courts by way of a writ petition. High Courts are also not uniform in their approach to entertaining such writ petitions. Thus, the advance ruling under the GST has turned into an Alternative Dispute Resolution mechanism, with a life cycle of its own, which is contrary to the purpose for which it was constituted.
There is no statutory mechanism under the GST regime that could ensure uniformity in the rulings passed by the Authorities. That is why people frequently find contrary rulings given by different Advance Ruling Authorities of different States on the very same issue.
Notably, under the former excise laws, appeals involving issue pertaining to the rate of tax was to be filed directly in the Supreme Court. This was to ensure uniformity in the orders, which may be passed. However, the lack of such provisions in GST laws shows that they have failed to take positive aspects of the former excise law, which results in increasing burden on taxpayers.
Therefore, to overcome these challenges, GST requires administrative reforms which will establish a robust mechanism to redress such irregularities and will also remove gaps in the provisions of advance rulings under the GST law.
The manner in which assessment, investigation, enquiry, etc. are conducted by the jurisdictional officers also highlights a need for administrative reforms in GST policies. GST Administration has been taken over by Central Authorities (excise or service tax officers) as well as State authorities (VAT officers).
The mode of administration of the former Central and State laws varied immensely, and this disparity is now being seen and felt by assessees who have been assigned a former VAT Commissionerate or a former Excise Commissionerate. There is a significant difference in the manner in which the assessment, investigation, enquiry, etc. are conducted by a Central Officer and a State Officer.
Central Officers, who come from the excise and service tax background, have been trained to formulate the case against an assessee in a systematic manner by way of Show Cause Notice and seek replies from the assessee.
However, State Officers focus on attaching bank accounts first and then they issue a vague notice to assessee while giving them limited time to respond to such notices. Such stark difference in the method of working of GST officers needs to be ironed out immediately by educating officers, giving them rigorous training and adopting best practices in both Central officers and State officers.
To conclude, periodically revising the tax rates and slabs have not achieved the objective behind introducing such revisions. Therefore, instead of focusing on introducing periodical revisions, the emphasis should be on launching administrative reforms in GST, which will achieve goals, such as reducing disputes and increasing resources for the government.
Charanya Lakshmikumaran IS Partner and Narasimhan IS Principal Partner Lakshmikumaran & Sridharan Attorneys