NOVEMBER 26, 2015

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

AS things stand now, it seems impossible that GST would come into effect from April 1, 2016. This message is getting communicated by several functionaries of the Central Government. There could be several reasons for this…... right from the Congress' opposition to the current format of the GST to the fact that, more than 50% of the States would need to pass the requisite legislation related to GST. It seems unlikely that a belligerent Opposition would allow the Government to pass the GST Bill in the Rajya Sabha, especially, in the light of the NDA's humiliating defeat in Bihar. It would seem that even if everything goes well, GST may not see the light of the day till 2017.

Be that as it may...one would expect the Central Government to, at least, bring in the GST law insofar as the central levies are concerned. I would wonder as to what can prevent the Central Government to bring a common central GST law, combining the laws concerning central excise and service tax. Surely, for passing this, there is no need for a constitutional amendment bill, as no State would be involved. Moreover, there would be far less issues in getting the nod of the Rajya Sabha, which is proving to be such a big nightmare for the present Government, vis-à-vis the dual GST law.

If the Centre can successfully implement the central GST law and run this law for, let's say, a year or two, the States could be motivated to go in for the state GST. While everybody agrees that the implementation of GST is inevitable, one cannot undermine the fact that the GST has more to do with politics than economics, unfortunately. Once the Centre is able to successfully demonstrate the economic benefits flowing out of the GST, I am sure, the State Governments would become wiser economically, notwithstanding their political prejudices.

Even from a practical perspective, I would think that, it would be better to make a success of the central GST and then take up the implementation of the state GST. In any case, we are going to have two streams of legislation, one each for the central GST and the state GST.

For the assessee, whether he is a manufacturer or a service provider, it would good to have a uniform central GST, to start with. It is a fact that while manufacturer exporters are able to get refunds on a much faster basis, services exporters are just not able to get the refunds flow from the tap of the Government, for reasons, known and unknown. This is one important area which could get resolved under a central GST. Moreover, transactions such as licensing of packaged software are sought to be taxed both under the central excise law as well as under the service tax law. These issues would automatically get resolved under the central GST law. Of course, under the central GST law, the manufacturers might also have to pay Swacch Bharat cess.

Yet another big advantage that could accrue to the service provider is that, he would be able to avail of cenvat credit of the duties paid on inputs. Service providers, in my view, have been constantly discriminated vis-à-vis the manufacturers, insofar as cenvat credit is concerned. One cannot understand as to why, while a manufacturer is allowed to avail of cenvat credit of the service tax paid on input services, the service provider is not allowed cenvat credit of the duties paid on inputs. This significant discrimination can be removed under the central GST scheme.

The Government needs to know that, whether it likes it or not, the grand dual GST law cannot be implemented unless the misgivings of the States are effectively dealt with including the concerns of the ‘manufacturing' states like Maharashtra, Tamil Nadu and Gujarat involving continuance of CST @ 1%, etc.

Bringing a law for implementing the central GST should be far more simpler, given the fact that the Government only needs to look into the statutes governing the central levies like central excise and service tax.

I would strongly urge our brilliant FM to implement the central GST law. I am sure that once this has succeeded, the States would themselves push the Central Government to implement the state GST.

Before concluding...

There are several anomalies in terms of the levy of central excise duty on manufacture and levy of service tax on services including the provisions related to exemptions, availment of credit, etc. It is important for the Central Government to address these issues, which are within its control, before seeking to remove the imbalances vis-à-vis the levy of VAT by the States.

The fact that the dual GST bill has already been passed by the Lok Sabha does not mean that the Centre should not have a central GST law being passed by both houses of the Parliament.

Implementing the dual GST law isthe most important tax reform that has been tried in the post independent India. Perhaps, after running the central GST for a year or so, we would be better prepared to go in for the dual GST regime.

Between service tax and central excise, the overall collection could be around Rs 4.8 lakh crores, as against the total budgeted indirect tax collection of about Rs 6.47 lakh crores in 2015-16. If the Central Government can bring about a uniform law for the collection of indirect taxes to the tune of about Rs 4.8 lakh crores, it would be an achievement indeed, paving the way for the implementation of the dual GST law involving the States.

Mr FM Sir - I hope you will tolerate this idea.