January 10, 2018

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- Aseem Chawla, Partner [ Phoenix Legal ]
- Sarthak Garg, Senior Associate [ Phoenix Legal ]


While the GST, ever since it was implemented, has remained a topic of debate in public and private forums, the article looks at how the tax has fared for the first six months of its existence

The Goods and Services Tax (GST) was implemented in India with a premise to improve the ease of doing business, reduce overall cost of goods and services for the ultimate consumer, lessen tax compliance, enhance economic efficiency, and achieve growth and one uniform common market.

GST is India’s most comprehensive indirect tax reform since independence. It has subsumed most of the erstwhile indirect taxes, barring a few. It has remained a topic of debate in public and private forums leading to animated discussions regarding challenges posed by the unique and diverse needs of the Indian market and solutions thereof.

GST implemented in India has been a path-breaking and admirable effort. The Indian Government undoubtedly deserves the credit for bringing multilayered and several geographically defined taxpayers under one umbrella.

However, the complicated tax structure has not been easy to comprehend; also, the implementation of GST has not received much fanfare, as was expected, and it does not completely conform to the features of an ideal GST owing to India’s federal structure.

The implementation of GST has unfortunately seen apprehension about chaotic fillings of various returns and forms, high tax rates, delayed refunds, and payment of GST under the reverse charge mechanism on procurement from an unregistered dealer.

Frequent changes in the GST legislation witnessed that the new ecosystem is unsettled, and it has been widely felt by the tax community that the implementation of GST was a rushed decision, which did not achieve the various objectives for which it was introduced, and indeed, has cost the Indian economy.

Six-Month Report Card

GST is set to complete its first half year, as the calendar year 2018 sets in. The first half-year has been filled with all the vibrant promises made by the Government about GST being a ‘Good and Simple Tax’ on one hand and the taxpayers debating about the complexities and lack of clarity in the new indirect tax system.

Too many teething troubles and several technical issues have been faced by the industry, which at the same time is trying to understand the complicated tax structure.

The first and most avoidable hiccups were the glitches on the Goods and Services Tax Network online portal (GSTN), which is the IT backbone for the new indirect tax regime. Small businesses have been inundated on the GSTN in filing of returns, forms, uploading of documents, etc.

The technical glitches on the GSTN have forced the Government to extend the due date for various returns and forms on a number of occasions. This has raised concerns and questions on the functioning of the IT backbone of GST.

For instance, the due date for filing GSTR-1 (details of outward supplies of goods or services) for the month of July 2017 was originally August 10, which has been extended at various occasions. Lately, the due date for filing GSTR-1 for registered persons having an aggregate turnover of more than INR 1.5 crore for the months July - October 2017 has been extended to December 31, 2017.

The rates of goods and services and GST rules have been tinkered with time and again, which has hampered smooth transition and disrupted various sectors.

For exporters, GST has been a difficult transition. Delays in refund of input tax credit had led to working capital issues. Furnishing a bond or letter of undertaking has proved to be a huge burden for exporters, especially service providers exporting services.

Another step taken during these first six months has been the approval given by the Union Cabinet for constituting the National Anti-Profiteering Authority, which the industry has been generally skeptical about.

All these aspects pertaining to GST implementation are being brushed aside by optimists and criticized by skeptics. However, one cannot deny that the Government’s ‘Good and Simple Tax’ has become a nightmare for the taxpayers in the first half-year of its implementation.

Revamped Design and Structure

GST has been implemented in a rushed manner without any pilot-run and it is, therefore, imperative that each and every recommendation and amendment suggested by the GST Council should not be made in haste with a short-term view, rather, the focus should be to bring in stability in the overall tax structure

The Central Government responded to the criticism with a revamp in the design and structure of GST in the GST Council’s meeting held on October 6, 2017 and November 10, 2017.

The 22nd meeting of the GST Council held on October 6, 2017 proved to be a relief for exporters and small businesses. In the said meeting, various decisions and changes pertaining to return filing, composition scheme, GST rates, etc. were agreed upon.

The major changes were reduction in tax rate for various items; reverse charge mechanism on procurement from an unregistered dealer suspended till March 31, 2018; registered taxable person having an annual aggregate turnover of less than INR 1.5 crores allowed to file quarterly GST returns and quarterly GST payments starting from the quarter October 2017 - December 2017; TDS/TCS provisions postponed till March 31, 2018; and e-way bill system to be introduced in a staggered manner with effect from January 1, 2018 and shall be rolled out nationwide with effect from April 1, 2018.

Pursuant to the said initiatives, major decisions were taken by the GST Council in its 23rd meeting on November 10, 2017. The most significant was the reduction of tax rate on 178 items from 28% to 18%, which, indeed, was a welcome move for the industry and also motivated consumers.

Another significant change was the deferment of filling of GSTR-2 (details of inward supplies of goods or services) and STR-3 (monthly return) for the period July 2017 to March 2018. In this regard, a registered taxable person is now only required to file GSTR-1 besides the monthly GSTR-3B return for the period July 2017 to March 2018. Late fee was also waived in the late filing of GSTR-3B for the months of July, August, and September 2017.

GST on restaurants (other than in hotels with tariff INR 7,500 and above) was brought down to a flat tax rate of 5% without the availability of input tax credit. However, it was felt that lower rates without input tax credit is undesirable and goes against the principle for which GST was implemented. Large chains of restaurants have been protesting on credit blockage since the amendment was made.

Taking into consideration the late availability or unavailability of some forms on the GSTN Portal, the due dates for furnishing various forms including TRAN-1 have been extended.

Way Forward

A move to ease out pain-points was initiated by the GST Council in its meeting held on October 6, 2017 and November 10, 2017. However, such time-to-time ad-hoc and patchy amendments/reliefs would not pave away for a sustainable tax regime with robust foundation but would serve as a catalyst for trust deficit amongst taxpayers.

Further, the National Anti-Profiteering Authority, which has been set up for a two-year period, is mandated to ensure that the benefits of input tax credit and the reduction in GST rates on specified goods or services are passed on to consumers by way of commensurate reduction in prices.

However, one is skeptical that the National Anti-Profiteering Authority should not end up becoming a tool for harassing the industry.

In conclusion, considering that GST has been implemented without any pilot-run and it is, therefore, imperative that each and every recommendation and amendment suggested by the GST Council should not be made as a quick fix, rather, the focus should be to bring in stability in the indirect tax structure so that the halted wheels start to move.

Disclaimer – The views expressed herein are strictly personal to the author(s) and should not be construed as a legal opinion. The author(s) is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission pertaining to this article.

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