Law and behold

Everybody connected with the implementation of GST appears to be on a mission to ensure that it is implemented on April 1, 2017. The GST Council has been set up and has had its first disagreement, a massive training exercise is being done and draft rules and forms have been issued for public comments. If the GST Council approves the rates of tax and the State legislations this month, we might be on course for an April implementation.

While this is commendable, the Government may do well to press the pause button for a while and take a re-look at some critical provisions. Any law that is ambiguously drafted tends to get into needless litigation later on, despite any number of clarificatory circulars.

Seamless granting of input tax credit is the foundation of any GST law that believes in the concept of value-added tax. The foundation of the present GST law is extremely weak because no effort has been made to rewrite the rules for availing input tax credit. By copying and pasting bits and pieces of the present input tax credit under Central Excise and Service Tax, the Government has also imported all the inefficiencies of the present tax system.

They have also managed to add to the inefficiencies by framing Section 29 of the Model GST law which is titled ‘Matching, Reversal and Reclaim of Input Tax Credit’. The details of every inward supply furnished by a taxable person for a tax period will be matched with the corresponding details of outward supply furnished by the counter party in his valid return for the same or a previous tax period and for duplication of claims of input tax credit. If these match, life moves but if they don’t, both the parties are intimated about it. An intimation received in April 2017 will have to be rectified in the return that is filed in May 2017, failing which it gets automatically added to the tax liability of May 2017.

Every supplier and buyer would now need to get into the matrimonial service of matching their invoices with each other. Differences in invoices can arise because of innumerable factors— different accounting systems, using codes for invoicing, differences in designating different types of goods and services and basic accounting errors.

A taxpayer who is prompt and correct in the payment of his taxes will now have to ensure that the rest of the population from whom he receives invoices are like him. GST is based on the fact that there is no threat of the input tax credit in the entire supply chain being broken. The ill-advised concept of matching of invoices will ensure that there will be disruptions in input tax credit due to administrative errors of the counter party.

In the mission to bring in GST from April 2017, draft forms have also been issued. Filling up any tax form in India normally requires some knowledge of the respective tax laws and loads of patience. Apart from these two qualities, filling up the GST forms for ITC Mismatch Report (GST ITC 1A,1B &1C) would also require a good degree of imagination.

The Government should see how this scheme works for a period of one year without penalising the taxpayer by disallowing his input tax credit. Else, Indian taxpayers would use their innovativeness and ensure that there are as many versions of invoices as are necessary to get an input tax credit.

The writer is a chartered accountant

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