Two years of GST: The past, present and expectations
Hiccups are expected in anything new, but after two years there has to be a climate of certainty with smooth GSTN network and minimum changes in law.
The GST regime has completed two years today. GST was introduced as the biggest tax reform (which is a fact) and showcased as One Nation One Tax. The initial period was very stressful for the trade and the government, but over a period of time it has stabilised to a large extent though many issues still remain unresolved. Till date there have been 35 GST Council Meetings to resolve the issues on the rate of tax, the amendments required in law, simplification of procedure etc. The past, present and expectations are analysed.
Return filing: After the initial issues and problems in filing monthly GST Returns the same has now stabilised. However, the new return filing system which is being proposed to be introduced in phased manner should not be implemented till the trade, professionals and the departmental authorities are fully conversant with the same. Change in the process in the middle of the year is cumbersome for all as accounting systems have to be amended for the same.
E-invoicing: Introduction of e-invoicing is a welcome move. However, the introduction of the same at this stage appears to be a difficult proposition. Further clarity needs to be given as to the process of generation in case of system breakdowns. Does the trade stop issuing invoices during the said period of breakdown?
Refund: The process of refund has been fairly streamlined. Exporters of goods have been receiving refund directly from the customs and exporters of service are getting 90 % of the refund immediately. The issue of working capital blockage due to refusal of GST refund in the initial period has now been fairly sorted. However, the recent clarification that authorities will verify all refund claims is creating an atmosphere of discomfort for the exporters.
Introduction of cess: Introduction of Kerala Calamity Cess has been a cause of concern for all. There is a general apprehension that other States may also follow suit and introduce cess for some of the welfare schemes.
Notices for reconciliation: Periodic notices even before the year is complete for differences in Input Tax credit claimed by the trade and as appearing in the GSTN network are putting a strain on trade and industry. Business and professionals are further confused as figures appearing in their GST Return, GSTR 2A appearing on GSTN network and figures stated in the notice sent by the department is different. The authorities also do not have any break-up on the basis of which notice has been sent.
Requirement for centralised assessment: Business with multiple locations are finding it difficult to appear for assessment or inquiries before authorities in various states. The entire tax and accounting is normally centralised in large organisations. Hence, a long standing demand of the trade with locations in various states for assessment/audit in the main state would be a welcome move.
Frequent changes: The trade and professionals are grappling with the frequent changes and notifications issued in past two years. Though changes and amendments are required for clarity, but major amendments impact the decision making capacity of the trade. One of the major amendments which impacted the working of businesses was amendments in real estate sector imposing conditions for a new scheme and old scheme of taxation on builders and developers. Every builder and developer were in a dilemma to choose between the schemes and was staring at a huge impact due to loss of past and future Input tax credit. One must appreciate the fact that the entire viability of projects with tenure of around 2 to 4 years or more is impacted due to sudden changes in the law.
Cross charging of expenses between offices in different states: In the absence of any clear guidelines or mechanism for cross charging of expenses between offices in different states, huge litigation and trouble is expected. Further, the recent advance ruling in the case of Columbia Hospitals for cross charging of head office employees cost has aggravated the matter. Relevant clarifications are required at earliest.
Writ petitions: Various writ petitions challenging the procedures and sections are pending before High Courts. The initial phase of writ petitions was on transitional credit, system issues etc. However, the recent ones pertain to aspects like allowing ITC on construction of malls, RCM on Import Ocean Freight, Interest on Gross Liability and not after adjustment of ITC, Detention of goods, Rate on Solar Equipment’s, Liability on Mineral Rights etc. All these writ petitions are very valid and have a substantial impact on the functioning. Issues for the same need to be sorted out at earliest.
Input tax credit: Eligibility of input tax credit has been a bone of contention between trade and authorities from pre-GST era. Some of the judgements were very clear about ITC being an indefeasible right of assesse, small procedural errors should not hamper them, provisions cannot be used to extract money from the assesse etc. The condition for disallowability of ITC if vendors do not pay GST or file returns is a very harsh provision and needs to be revisited.
Arrest under GST: Different High Courts taking a different stand on arrest and granting of bail for offences under GST has led to a scenario of special bench being set up by the Supreme Court for the matter. There cannot be any uncertainty in such matters.
One must appreciate the fact that GST has managed to subsume many local, state and central taxes. Hiccups are expected in anything new, but after two years there has to be a climate of certainty with smooth GSTN network and minimum changes in law. The way things are functioning it appears that the journey is still midway for the authorities and businesses and much has still to be achieved. It cannot be said that there are only negatives, there are substantial positives. The emphasis should be on expanding the tax base, checking of tax evasion, simplification of procedures and glitch free GSTN system.
Parag Mehta is Partner and Ankit Joshi is Deputy Manager N.A Shah Associates LLP.