Five action-packed years. Forty-seven Council meetings. Multiple tax rates. Many restrictions on availing input tax credit. Appellate Tribunals yet to be up and running. Adverse assessment orders. This is a summary of half-a-decade of GST laws. Five years is also a good time to ask the question: Has GST been the game-changer that it was proclaimed to be? Irrespective of who is asked the question, the response is not expected to be an overwhelming ‘Yes’.
To be fair, GST law has had its successes. Save for a few aberrations, especially in the 28 per cent slab, the rates of GST are at acceptable levels. The glitches in the portal have been rectified over a period. Payment of taxes has worked like a dream since GST made its debut.
GST collections are robust and filing of returns can be done without burning the midnight oil. Removal of check-posts has enabled faster truck movements. Multiple taxes are a thing of the past and there has been no perceptible impact on inflation. The system of e-invoicing has tackled the menace of fake invoices. Yet, there are major disappointments.
Input tax credit
A pan-India GST will work well only if there is across-the-board availability of input tax credit (ITC) over the entire supply chain — this was the USP of the law when introduced. Innumerable and frequent changes in the provisions regarding availing ITC have diluted the USP.
As the law stands today, availing ITC depends on the tax behaviour of the supplier, there are blocked credits and there is a limit on how old an invoice on which ITC is claimed should be. That apart, there is a formula to avail ITC proportionately when there are exempted sales and taxable sales. Some taxpayers need to pay a portion of their taxes in cash. The final nail in the coffin is driven by State tax assessing officers who deny ITC on some invoices because no tax is paid in that State.
It is possible that the menace of fake invoicing forced CBIC (Central Board of Indirect Taxes and Customs) to impose so many restrictions on availing ITC. But then, it can always be argued that fake invoicing surfaced because availing ITC was not subject to any checks and balances for some time — all that the taxpayer had to do was to fill in the relevant amount in the relevant column in his monthly return.
The GST Council must take a considerate view on availing ITC and remove the restrictions that are in place now. The present Section 17(5) that lists out blocked credits and a time limit for the invoice should be the only restrictions on availing ITC.
Taxing transport
It is praiseworthy that check-posts have been removed in the GST era. However, there are numerous examples of State tax officials intercepting transporters and demanding tax for the respective State government though IGST has been paid. They demand the tax from the driver of the transport vehicle who in turn speaks to the recipient and “settles” the transaction.
The driver has no clue about the intricacies of GST — he would prefer to ask the recipient to pay the tax and get the vehicle moving at the earliest. It is imperative that CBIC publishes detailed instructions to their staff that GST is now a national tax and once there is a genuine tax paying document in place, there should not be another demand for the same amount of tax.
Cautious Council
In a recent decision in the Mohit Minerals case, the Supreme Court ruled that the recommendations made by the GST Council can only have a persuasive value and cannot be binding on the Union. The impact of the decision can be seen in the recent recommendations made by the GST Council at its 47th meeting.
It was widely expected that the GST Council would provide recommendations on the rates of GST on casinos, race-horses and gambling, setting up of GST Appellate Tribunals and IT reforms. Displaying a cautious approach, the GST Council decided to refer all three matters to a Group of Ministers (GoM).
With three major decisions deferred, the Council went about tinkering with the rates of taxes, removing GST exemptions that some regulators such as RBI were enjoying and making a few administrative changes. The Council corrected the impact of inverted duty structure on 17 items and cooled down ice-cream parlours, which were bearing the brunt of a retrospective tax of 12 per cent.
Two areas where the GST Council missed the bus were easing the restrictive conditions on availing input tax credit and setting up of Appellate Tribunals. GST rates have been streamlined and filing is no longer the ordeal that it was.
These will work well only if there is across-the-board availability of input tax credit and the taxpayer has a forum to appeal against orders made by trigger-happy tax officers. GST is a journey that continues with its share of spills and thrills.
The writer is a chartered accountant