GST’s tariff troubles

One of the main areas of litigation under the Central Excise Act is classification of goods under the detailed but over-exhaustive Central Excise Tariff. Among other things, tax tribunals and courts in India have debated at length whether parts of an air-conditioner are air-conditioners and whether a saree should be classified as a saree or a ready-made garment.

The devil was always in the details in winning these classification battles. A question that was popping up now and then was whether it was necessary to go down to the minutest detail in classifying tariff items.

Some months ago, the GST Council came to an agreement on four rates of GST; namely, 5 per cent, 12 per cent, 18 per cent and 28 per cent. The transition to GST provided an excellent opportunity to lawmakers to substantially shorten the Central Excise Tariff and fit the shortened tariff into these four rates. An easy way to do so would have been to fix GST rates on the Chapter Headings instead of going into the detailed contents of each Chapter.

Like in most other things in the GST law, the lawmakers have decided to use existing laws as the foundation on which to frame GST instead of thinking afresh. In fact, they have made it even more exhaustive by adding a classification list of more than 800 services classified into about 100 groups.

The new tax rates have generally pleased most people since essential items such as sugar, edible oil, normal tea and coffee attract a GST rate of 5 per cent while items such as cereals and jaggery have been exempted. Hair oil, toothpaste and soaps will be taxed at 18 percent, much lower than the present 28 per cent. The council was unable to come to an agreement on the rates of taxes for two highly sensitive sectors: gold and textiles.

While there was a general expectation that the tax rate on services would be 18 per cent, the council has allocated services among the four main rates of taxes. The other aspects of the service tax law such as exemptions and reverse charge have been carried over to the GST regime.

Wood features in all categories of taxes. Firewood, fuelwood and wood charcoal come in at 0 per cent; wood in chips or particles, sawdust and wood waste and scrap, whether or not agglomerated in logs, briquettes, pellets or similar forms are taxed at 5 per cent; hoopwood, split poles, piles, pickets and stakes of wood (pointed but not sawn lengthwise), wooden sticks roughly trimmed but not turned, bent or otherwise worked, are at 12 per cent. Wood in the rough, wood sawn or chipped fall in the 18 per cent bracket and particle board, Oriented Strand Board and similar board (for example, wafer board) of wood or other ligneous materials fall in the 28-per cent bracket. The question is how many tax officers can identify with wooden sticks that are roughly trimmed but not turned or stakes of wood that are pointed but not sawn lengthwise?

Hair-splitting on such intricacies can lead to some unique situations; the prasadam given in temples is not taxed but the vessel in which the prasadam is given is taxed at 18 per cent. This has also resulted in errors: Tender coconut water put up in unit container and bearing a registered brand name appears in both the Nil and 5-per cent categories.

There was a school of thought that litigation under GST was a couple of years away. With the GST tariff in its present form, it is certain that litigation will commence from the very start itself.

The writer is a chartered accountant