Two years on, still not a good and simple tax: What ails the GST regime

The last GST Council meeting had given a two-year extension to the National Anti-profiteering Authority (NAA), postponed the deadline for filing annual returns by two months, and avoided voting by deferring the contentious issue of GST rates on lotteries. All these issues tell a story of unresolved matters in the indirect tax system, now entering its third year.


Then there are issues concerning authorities of advance ruling (AARs), which have in a number of cases given contradictory rulings.


This is not to say that the GST system is all problematic and no progress has been made. Had it been so, tax collections would not have crossed Rs 1-trillion mark for three months in a row despite rate cuts.


The NAA, the term of which was to expire in November this year, got the extension as it is currently investigating about 354 cases. Now a bit less than midway into its existence, the NAA does not have clear-cut norms on methodology to compute profiteering. This has led to litigation in various courts. “The quantum of profiteering is difficult to calculate in the absence of a clear mechanism to determine profiteering,” said Abhishek Rastogi, partner at Khaitan & Co, who is arguing dozens of such cases in courts.


The primary issue is the interpretation of “commensurate” reduction in prices that companies have to give to consumers following the rate cuts in GST or the input tax credit benefits, according to Section 171 of the Central Goods and Services Tax (CGST) Act, 2017. Experts point out that “commensurate” reduction of prices may not be equal to the aggregate reduction of tax rates and enhanced credits.


While the last date of filing annual returns — GSTR9 — has been postponed till August 31, companies are finding it difficult to fill these forms. The original date for filing returns for 2017-18 was December 31, 2018, which was deferred a couple of times.


According to Archit Gupta, CEO, ClearTax, GSTR-9 continues to pose a challenge for businesses as there is lack of clarity on how to go about reconciliation between GSTR-1, GSTR-3B (forms filed currently) and how to manage the differences. Reporting of a certain transaction effected in FY19 but pertaining to FY18 is not clear in GSTR-9, such as input tax credit (ITC) reversal done by users, taxes paid under reverse charge and ITC on IGST paid on import of goods, he added.


Experts said there are also problems associated with the GST Network, which is responsible for IT framework of the GST system. Ranjeet Mahtani, partner, Dhruva Advisors, said the IT backbone has been insufficiently robust (ignoring the initial teething phase) and has often been unable to handle the flow of filers, not keeping up with the changes in the rule-book (the amended ITC set-off mechanism was not updated in the GSTN, resulting in delay of its implementation). Initially, deadlines for filing forms had to be suspended because the GSTN system could not take the load. Also, the initial implementation of e-way bills could not be taken up as the portal had collapsed.


However, the administrators of the Network did not agree with these views. According to GSTN CEO Prakash Kumar, there is no problem with the portal now. “Have you heard of any problem for months now?” he asked.


Advance tax rulings play a critical role in companies setting up production units. However, industry is of the view that since both the AAR and its appellate body, the AAAR, under the GST regime only have tax officers as members, the rulings in most cases are tilted towards the government.


Also, there was confusion around many of the rulings of AARs. The New Delhi Bench of the AAR had in March last year held that duty-free shops at airports are liable to deduct GST from passengers, creating confusion since these shops were exempt from service tax and central sales tax in the earlier regime. Similarly, the solar industry was left in a vexed situation when the Maharashtra AAR said that 18 per cent GST rate would be levied for installation works, but the Karnataka AAR went for 5 per cent.


To deal with the situation, the GST Council had approved setting up of the Centralised Advance Ruling Authority, which would resolve the issue of varied orders by AARs. However, it is yet to be set up. “There are two critical issues on this. First, the issuance of contradictory advance rulings by state authorities on duty-free shops, solar power projects, etc. Second is the issue of ‘Coram non-judice’ — the absence of judicial members in advance ruling authorities,” said Harpreet Singh, partner at KPMG.


The issue of GST rates on lotteries has been referred to Attorney General K K Venugopal. However, whatever may be the advice, there is a division in the GST Council on whether to go for uniform rate or have the present system of differential rates — 12 per cent on state-run lotteries and 28 per cent on state-authorised ones. It may not be easy for the new finance minister to ensure consensus-driven decision making in the Council.

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