Talking Point. GST shouldn’t spook taxpayers

The Government has put in the public domain the Model GST law. While this is a welcome step, it appears that there are certain provisions which are spooking the taxpayers.

The Model GST law casts the onus of determining whether a transaction is an ‘intra-State’ or ‘inter-State’ on the assessee. So, the assessee decides whether the payment is a Central GST (CGST) plus State GST (SGST) or Integrated GST (IGST), respectively. In this regard, section 53 of Model GST law provides that if an assessee wrongly determines an intra-State transaction as inter-State transaction and, in turn, pays IGST, then he will have to pay the correct applicable tax i.e. CGST plus SGST (may be along with interest and penalty!) again and claim refund of wrongly paid IGST. But it is pertinent to note that the time limit for claiming refund is only two years whereas such wrong payments may get highlighted during assessment by tax authorities which will typically happen in the fifth year, effectively nullifying the possibility of getting a refund.

So, the scope for wrong determination increases considerably for a pan-India player, in approximately 22 scenarios laid out in the Model GST law (a Catch-22 situation indeed!).

Thus, ideally, instead of making the taxpayer deposit the taxes again and asking him to go through an onerous refund process, the GST law should provide for automatic transfer of such GST payments between Centre and States.

Similarly, another important reference from the Model GST law is that the liability to pay GST will arise as per ‘time of supply’. Herein, two sections (Section 12 and 13) of the law adds to the further peril of the assessee by adding 30 scenarios explaining the time of supply of goods and services. These provisions in Model GST law are a complete contrast to current provisions such as in Excise law (which provides for only one time of supply for payment of excise i.e. removal of goods). Given this, paying GST as per these provisions and maintaining re-conciliations could prove to be nightmarish for taxpayers. If the Centre truly intends to improve the 'ease of doing business', the law should be modified to provide for one single time of supply.

For enabling the buyer to claim input tax credit, the Model GST law prescribes that the vendor should pay GST as well as file GST returns. Effectively, through this provision, the buyer of goods/services is burdened with the responsibility of ensuring that all his vendors pay GST and file returns. Typically, once the taxpayer has obtained goods/services from a GST-registered vendor, and if he possesses a valid GST invoice, then the taxpayer should be made eligible for claiming credit which is in line with current CENVAT Credit Rules (in Excise and Service Tax law). Besides, taxpayers will have to take into consideration the increase in tax compliance. For example, a service tax assessee currently files two returns on an annual basis. Now, in GST regime, service tax assessee could be required to file as many as 61 returns (five returns per month plus one annual return).

Also, the current Model GST law is silent on upfront exemption from GST on procurement by Special Economic Zones (SEZ) and exporters. Removal of upfront exemption has potential to increase cost of operations and may impact India’s competitiveness in the global market, resulting in decline in exports.

Clarity on upfront exemption to SEZ and exporters will improve Indian Industries’ competitive advantage in domestic manufacturing, service sector and in the export market.

Given the benefits GST is expected to bring, one hopes the Government positively re-visits and tweaks the challenging provisions to ensure GST does not become a G(ho)ST spooking the taxpayers.

The writer is a Pune-based Chartered Accountant

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