SEPTEMBER 05, 2018

By Dr G Gokul Kishore

GST is the tax of the day. One year of GST has been discussed in too many articles and equally too many fora. Let us, therefore, set the agenda for the second year. The issues discussed in this article are merely indicative and the agenda will be further expanded and discussed in subsequent articles.

Trade jolted by advance rulings

There was much disappointment when there was considerable delay in constituting Authority for Advance Rulings. The industry was waiting for an institutional mechanism to provide statutorily binding ruling on a variety of issues and AAR was seen as the body to dispel the confusion surrounding host of issues. The wait was over when State-level AARs were constituted towards the end of last year. With over 200 reported rulings now and a good majority not concurring with the view of the trade, the euphoria and interest in seeking such remedy have started dissipating. The situation appears to be no better for the industry with Appellate Authority for Advance Rulings also as most of the rulings appealed against so far have been affirmed by AAAR. Considering the fact that in a few cases, conflicting stand has been taken by different AARs, as per reports, moves are afoot to constitute such authority at the central level. This may require substantial amendments to the CGST Act and SGST Acts. If contra views are expressed by AARs in more number of cases, voices demanding such change will get louder and may eventually get implemented in the second year of GST.

Price control through anti-profiteering

Not a day passes without a media report on particular companies being asked to prove their compliance with Section 171 of CGST Act relating to anti-profiteering. While post 14th November, 2017 GST rate reduction, such inquiries were confined to informal discussions with identified companies by National Anti-Profiteering Authority (NAPA), the present rate reduction of 27th July, 2018 has resulted in field formations of both CGST and SGST administrations taking up investigations ostensibly under the directions of NAPA. Press reports indicate that NAPA is not accepting most of the measures that the trade has adopted to ensure the benefit of rate reduction is passed on to recipients. Such measures like increase in quantity (commonly grammage), special schemes, additional discounts, reimbursements to next in the supply chain, etc., are reportedly being rejected by NAPA on the ground that GST law does not accommodate them.

Absence of any guidelines, statutory or otherwise, as to how benefits should be computed has resulted in adoption of divergent approaches to compute benefits and also methodology to pass on the benefit to the recipients. Considering the sweeping powers of NAPA which includes precipitative action like cancellation of registration, second year of GST should see framing of guidelines to achieve the twin objectives of ease of doing business and GST benefiting the common man. One only hopes that the beneficial legislation of anti-profiteering is not converted into a code conferring police powers to the tax administration.

Refund of ITC - More amendments than refunds

One of the provisions that has witnessed maximum number of amendments in the first year itself pertains to refund of accumulated input tax credit arising out of inverted tax structure. By use of ambiguous terms (not defined in law) like 'inputs' in Section 54(3) of CGST Act, service providers in many cases have been discriminated against as specified job work services are under 5% GST rate while most procurements attract default rate of 18%. Notwithstanding the recent relaxation to manufacturers of woven fabrics [as refund restriction under Notification No. 5/2017-Central Tax (Rate) has been removed for them from 1st August, 2018], the formula after multiple amendments today effectively excludes input services from computation of refund affecting adversely those who have inverted tax structure. It will be against one of the basic canons of GST i.e. business decisions should be tax-neutral if it is advocated that additional line of business not involving inverted tax structure should be explored by such affected parties. Tax policy is sub-set of economic policy and, therefore, when the thrust is on seamless credit and wherever there is accumulation, refund of the same is to be provided.

In the coming year, one more amendment to the provisions should be effected to ensure the objectives of GST are implemented through provisions. In fact, Notification No. 5/2017-Central Tax (Rate) should be rescinded as it is a piece of subordinate legislation running contrary to the legislative intention of GST law.

Supplies between distinct persons - State revenue v. business friendly regime

One of the major issues having significant implications for businesses with presence or operations in multiple States is the issue of taxing of services provided or deemed as provided by the head office or corporate office in one State to places of business in other States. While the rationale or statutory basis lies in Schedule I to CGST Act whereby transactions sans consideration between distinct persons are deemed as supplies and therefore, liable to GST, the recent ruling of AAR [Columbia Asia Hospitals - Karnataka AAR, Ruling dated 27-7-2018] [2018-TIOL-113-AAR-GST] seeking inclusion of employee cost (read salary cost) in such cross-charging has unnerved the industry.

The concept is new and the trade is yet to reconcile to such taxing of intra-company services. Cross-charge is defended on the ground of yielding revenue to States and providing ITC to the industry. Availability of ITC is not an attractive argument to win the hearts of members of the industry as initial pay-out and compliances are seen as dampeners. Even though valuation provisions cater specifically to supplies between distinct persons, absence of clarity on the entire gamut of issues on cross-charge is bound to lay a fertile foundation for litigation. This is one of the natural issues arising out of dual GST structure we have opted for, involving concurrent taxation by both federal and regional governments. The issue is too complex to be left to a few taxpayers and advance rulings and it will not be unreasonable to expect a detailed circular from a pro-active tax bureaucracy which has issued numerous circulars in the first year of GST.

...to be continued

(The author is a Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are personal.)

GST - Agenda for the second year - III

GST - Agenda for the second year-II