GST and dispute resolution

Topics Ease of Doing Business | GST | CBIC

India’s climb on the “Ease of Doing Business” ranking has been deservedly applauded. But equally important is the ease of paying taxes. Some research shows that improvement in the ease of paying tax can help improve compliance especially for lower tax segments. Not withstanding these disputes do divert taxpayers’ attention from more important productive tasks. 

Broadly, any tax system must have the following five distinctive features. First, disputes must be clearly defined, and non-serious infringements should be kept out of the domain of disputes. Second, uniformity of practice in assessment must be ensured by facilitating those who draft the law to interpret it. Third, the system must ensure speedy adjudication of cases within definite time lines. Fourth, taxpayers should be encouraged to settle disputes without resorting to litigations. Finally, non-intrusive mechanisms of interaction must be created between the taxpayer and the tax department. 

Translated on the ground what can the Central Board of Indirect Taxes and Customs do immediately? The low-hanging fruit here is that there are a number of minor procedural cases which clog the dispute resolution system. These need to be listed and subject to administrative levies which may be capped. A similar amendment has recently been done on the corporate law side which can be replicated here. This suggestion would require the GST law to be amended in which a list of minor penalties may be included and junior officers could be allowed to decide them. 

A major pain point in the GST dispute resolution mechanism is the failure to make a conceptual distinction between “offence cases” and “assessment cases”. Offence cases are periodic in nature and do not have any recurring implications whereas assessment cases relate to principles of classification, valuation and eligibility of input tax credit and therefore have recurring implications. The suggested course of action is that while field officers could be allowed to decide on offence cases on the basis of facts available, a centralised system of binding instructions should be put in place for field officers to follow in assessment matters. Such a provision was earlier available in pre GST. For this purpose, both the Centre and states can create a “technical secretariat” which could be empowered to issue such binding instruction on assessment matters to ensure uniformity of practice. At the central level, this could be located in the TRU where the tax laws are drafted and fittingly therefore those who draft the law must also interpret the law. The creation of a technical secretariat at the Centre and the states would facilitate discussion between tax officers at annual or biannual conferences. Such conferences/forums would forge the bond of fiscal friendship between the officers. Taxpayers would benefit from certainty in the assessment matters. This will be especially beneficial to the states in the area of service tax, for states would require some handholding (pre GST, service tax was levied and collected by the Centre). 

The other important change is to do away with the distinction between “suppression” and “non-suppression” cases in the GST law and prescribe one uniform period of three years to complete adjudications. The suppression aspect could be addressed in the adjudication order on the basis of facts and a higher penalty could be imposed. Therefore, the penalty route may be a better way of dealing with this distinction rather than through a time period difference. This amendment will considerably reduce litigation as many taxpayers are incensed by wrong invocation of the suppression period and, therefore, opt to litigate rather than pay the tax. 

While the set of suggestions outlined would help to improve the dispute resolution system within the GST, there is also a need to have another institutional mechanism where trade and industry can air their implementation grievances to senior state and central officials. Many of these issues are non-policy issues and therefore would not warrant going to the GST Council. It is therefore suggested that the time is now ripe to create a new institution in the form of the GST Secretariat in each State. This should be a registered body just like the Empowered Committee of State Finance Ministers consisting of senior Central and State GST officials who will hear the problems of trade and industry. These grievances could feed into policymaking. This will address much of the discomfort presently experienced by the trade as they had the opportunity in the pre-GST era to separately meet central and state officials. This body could be created after a suitable resolution is passed by the GST Council and its terms of reference decided and thereafter the cabinet secretary could write to the chief secretaries of all the States to commence its creation. 

Just as the GST Council (later avatar of the Empowered Committee of State Finance Ministers) designed and delivered the GST, the institutions of technical secretariat and GST Secretariat in the states could help to provide the institutional support post GST. 

In many ways, the measures suggested above would ensure that the “rule of law” prevails over the “rule of thumb” and also prod the triumph of “principles” over “principals”. 

The author is a retired member CBIC and national leader, Tax and Economic Policy Group, EY India Views expressed are personal


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