As I sit down to type this article with the famed saying of Alfred Tennyson, despite the hectic schedule of GST assistance to the industry, both types of feelings gush – on the one side sadness creeps as the Central Excise as we know and we grew up with is going to be part of history . On the other side, India is on the verge of ushering in a tax revolution – an upside down change in the law, process and procedures with GST marking its entry in the Indian economic and political horizon.
GST – A great leveler
Central Excise had given an exalted status to manufacturers given their financial prowess in terms of turnover while dealers down the line despite being in vast majority could not rub shoulders with their manufacturer counterparts. Manufacturers – large, medium, small and dealers – wholesale and retail, everyone in the chain are equal in the eyes of GST law. Everyone in the chain pays the same GST, takes credit of such GST paid, uses such credit to offset his tax liability, files same set of returns and compliances are, to a large extent, common to everybody. Besides playing the role of great leveler, GST ensures that the trade is fully compliant as such compliance stems from mutual dependence for credits and proper reporting of every supply and purchase. To this extent tax administration will find its role getting morphed from one of policing to that of facilitator even while it becomes privy to all business information with every supply and purchase data available in its system. Information being a prized equity today, government will wield extraordinary power with such sensitive commercial information.
Investigations will derive great support from such information and the taxpayer will have to watch every step he takes so as to avoid mishaps in the future.
Credits – Will it be seamless flow?
One of the most used phrases with GST is ‘seamless credit’. Will the credit be seamless? The credit journey began with Modvat of excise in the eighties and travelling through ITC under VAT, tax jurisprudence is replete with landmark and not so significant disputes on credit. The goods or services on which credit is admissible has always remained an issue dividing the trade and administration. The copy of invoice for credit became a priceless asset with the department compelling the trade to engage in pitched legal battles over such trivial issues. CGST Act does provide for a negative list of goods and services on which credit will not be admissible. Except for the exclusion of plant and machinery from the ambit of immovable property, the list is carried forward from the present regime to the GST regime as such. May be, one can argue that the definition of capital goods is now so vast that from air-conditioner in office to stationery, credit of tax paid can be availed. But the restrictions like telecommunication tower and pipelines defy the basic tenet of GST i.e. credit of tax paid at every stage without artificial fetters. To deny credit on such items on the ground that they become immovable property evidences the fact that excise concepts are carried over to GST.
Valuation Rules – Will they measure up?
As any legal provision looks, on the face, valuation provisions appear innocent but when they are applied and implemented, the kind of interpretation that the department may adopt on several issues, will pose a great challenge to the industry. Though invoice declared value is deemed as open market value for stock transfers, it remains to be seen how the same is treated when the value is treated as too depressed. One may witness valuation rules down the hierarchy being given a go-by and the best judgment method as provided under the residual method of ‘reasonable means consistent with the principles and general provisions of Section 15 and these rules’ being used obsessively. The draft valuation rules seek to reckon goods or services of like kind and quality when open market value is not available. Open market value seeks to take value adopted by unrelated parties to obtain such supply at the same time as the supply being valued is made.
This leads us to the contemporaneous price issue and read with provisions on similar goods, the ground is set for another grand battle on the litigation front on valuation. This may seem pessimistic but the law, as drafted and enacted, is tilted in favour of the exchequer.
Excise classification to GST classification
Central Excise is dear to our heart. Though we had our difficult times with Excise, we have a soft corner in so far as classification of goods under the Central Excise Tariff is concerned. GST, it appears, is set to continue with more or less the same set of classification. Excise took a giant leap when most of the commodities were brought under uniform rate and classification disputes started drying up. GST commences with multiple rates and the GST Tariff may not be at 8-digit level as the table with the rates approved by GST Council indicates. One may witness re-enactment of atleast a few chapters of the drama on classification when classification becomes contentious once again. But this time, goods will have company as services also have multiple rates.
Compliances galore
GST is system-driven and therefore, it is expected to be less painful in terms of compliances. Uploading invoice details in respect of outward supplies, verifying and amending purchase details, filing ISD return, reconciling statutory returns with books of accounts so as to file annual returns, issuing self-invoice for supplies received from unregistered persons, issuance of receipt vouchers when advance amounts are received – list of new compliances under GST is endless. To help the industry, layers of intermediaries like GSPs and ASPs will be available. It was believed that goods will move across the nation without borders and therefore, check posts and way bills will become part of history but the draft e-way bill provisions indicate that these barriers will continue in electronic form. Given the threshold limit of Rs. 20 lakhs, majority in the lower and middle levels will find fulfilment of such requirements complicated, less friendly and expensive. May be, once the systems and processes get settled in a few years time, these will become non-issues.
Welcome GST
With heavy heart, we bid good bye to Central Excise, Service Tax and VAT at least from implementation angle as disputes under them may continue for few more years. With full of hope, curiosity and enthusiasm, we welcome GST. May the landmark tax reform create history by conferring more benefits to the industry, lesser price to consumers and more revenue to the exchequer.
[The author is a Joint Partner, Lakshmikumaran & Sridharan, New Delhi]