TP - Mere dissatisfaction with factual findings of ITAT regarding selection of comparables after application of quantitative/qualitative filters cannot be contested u/s 260A: HC (See 'TOG Latest')I-T - Assessee is eligible to claim exemption u/s 54 where possession of flat held by him since date of allotment is handed over & capital gain is paid on transfer of property 'held': ITAT (See 'TOG Latest')Customs - Classification of imported goods cannot be decided based on internet search results when Department could have obtained expert opinion or technical write-up: CESTAT (See 'TOG Latest')Central Excise - Demands cannot be raised under rent-a-cab service where Department is unable to prove that vehicle was capital goods of assessee & was registered in its name: CESTAT (See 'TOG Latest')ISA - India to host first general conclave (See 'TOG News')New convention & expo centre to reflect economic progress: Modi (See 'TOG News')TP - When agreement between two resident companies does not provide for any markup on total cost then no addition is permitted by applying margin of international transactions: ITAT (See 'TOG Latest')I-T - If interest income does has no direct link with eligible business or business activity then it can be considered for deduction claimed u/s 80IB & 80IC: ITAT (See 'TOG Latest')Central Excise - Cenvat credit be availed on supplementary invoices rasing demand for 'royalty charges' & 'stowing excise duty', 'paryavaran upkar', 'vikas upkar', 'forest fee' & 'Entry tax': CESTAT (See 'TOG Latest')Service Tax - Extended period of limitation cannot be invoked where issue of taxability of commission received from banks was contested during period of dispute: CESTAT (See 'TOG Latest')Govt launches Swachhata Hi Seva campaign to promote cleanliness (See 'TOG News')Govt launches Swachhata Hi Seva campaign to promote cleanliness (See 'TOG News')Delhi Govt inks pact with Seoul for better infrastructure & public health (See 'TOG News')Govt launches star rating based on efficient energy use (See 'TOG News')DTAA - Tax Residency Certificate constitutes sufficient evidence for accepting status of residence as well as beneficial ownership for seeking treaty benefits: ITAT (See 'TOG Latest')I-T - Pre-deposit of duty demanded from cooperative institution can be waived off considering that its members come from marginal sections of society: ITAT (See 'TOG Latest')Customs - Duty exemption under Notfn No 46/2006-Cus can be denied where entire quantity of imported goods were not used to manufacture final product: CESTAT (See 'TOG Latest')Central Excise - Cenvat credit cannot be allowed on Outdoor Catering service which is utilized for personal use by employees & has no nexus with manufacture of final product: CESTAT (See 'TOG Latest')
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THE INSIGHT

GST: A Frightening but Fascinating Future world…! – Part II
By Shailesh Sheth, Adv.
Jun 20, 2018

Indian GST – Fault lines become visible

However, the fault lines inherent in the design and structure of the country's GST system soon became visible!

Exclusion of several key commodities from GST and resultant distortion of credit chain, significant restrictions placed on the entitlement of Input Tax Credit (ITC) resulting into cascading effect of tax, multiple rates, long list of exemptions, low threshold and ill-conceived business processes are but only a few ills that plagued the Indian GST design from its inception. The biggest 'let-down' turned out to be the GSTN Portal! Multiple and complicated returns, cumbersome Return-filing process, ill-conceived statutory requirements reflecting revenue-oriented, rigid and 'i-don't-trust-you' attitude coupled with hopelessly ill-prepared GSTN portal have ensured that the GST implementation and compliance by 'more-than-willing' taxpayers are anything but smooth! The situation has reached such an impasse that the whole system appears to be running on extensions, promises and assurances!

Indian GST design –What lies ahead?

While the GST Council continues to strive hard to fix the various problems and issues afflicting the GST system, the moot question is: 'What does the future behold for Indian GST?'

Reforms must bring simplicity and not disruption. GST was an opportunity for India to reform its cobweb like Indirect taxation structure and reboot the system afresh. Unfortunately, the ground realities suggest otherwise. The chaos witnessed since the day of the GST roll-out also exposes the unpreparedness of the implementation machinery.

It is, therefore, not surprising that in a short span of just 10 months since its introduction, Indian GST as a 'Tax Reform' finds itself at the crossroads! For the law makers and the GST Tax Administration, it may sound so true and realistic that every reform has to perhaps go through such churning of the new tax system till it really matures and provides relief to the taxpayers as well as the exchequer.

So, while we go through this painful process of evolution, it will be worth its while to briefly discuss certain crucial aspects of Indian GST system and what can one reasonably expect as a result of revamping of the whole system.

a. Excluded sectors and cascade of tax

The 'flawed' – rather than 'flawless' – design of GST is visible when it is seen that certain crucial sectors, namely, Petroleum Products, Alcohol for human consumption, Electricity and Real Estate are kept outside the scope of GST. It is understandable that these are but a few of the 'inevitable' compromises made by the Centre so as to bring the agitating states on board to ensure speedy and smooth implementation of GST. At the same time, the GST Council was also sensitive of the need to protect the revenue of both, the Centre and the States.

However, one should not lose sight of the fact that such exclusions tend to cause relative price distortions due to cascading and also create administrative complexities.

Therefore, the future roadmap should have a well-constructed milestones to be achieved with a well-defined timeframe for the inclusion of these currently excluded sectors within the scope of GST. Simultaneously, the integration of stamp duty in GST should also remain on 'priority list' of the Council.

b. Multiplicity of Rates:

Shocking though it may seem, the GST structure presently contains as many as 7 (seven) rates of tax, namely, 0 per cent, 0.1 per cent, 3 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent! Such multiple tax rates invite several problems like classification disputes, inverted tax structure, cascade of tax, etc. The existence of multiple tax rates affects the efficiency of the tax system and increases the administrative and compliance costs. 'The amplitude of multiple tax rates should, therefore, be narrowed over the years.

c. Phase out 'compensation cess':

Just prior to introduction of GST, it was unanimously agreed that all 'cesses' will be subsumed by the GST. Mercifully, the promise was kept. The levy of 'Compensation Cess', though came as a rude shock, was accepted as 'inevitable' going by the Revenue Neutral theory.

A 'Cess' being generally levied for specific purpose, are not available as credit and, hence, leads to cascading effect of tax. In an ideal VAT system whose 'core virtue' is ITC, 'cess' as such should not have any place.

The proposal to levy 'sugar cess' should, therefore, be nipped in bud at its inception stage only. Incidentally, post-introduction of GST, some 'fissures' became apparent in the fiscal cooperative federal framework over this sensitive issue.

The Council, therefore, must endeavor to phase out 'compensation cess' in a timebound manner and should not surrender to the temptation of levying any new 'cess' which after all, is a 'low hanging fruit'!

d. Exemptions:

One unwelcome legacy of the Pre-GST Indirect tax systems that has unfortunately continued in GST regime is a long list of exemptions, particularly in case of services. Wide-ranging exemptions play havoc with the smooth functioning of GST system without benefitting the exempted sector in any substantial manner whatsoever. Further, exemptions reduce the tax base, lead to cascading of tax, incentivize vertical integration, increase compliance cost and compromise the logic of GST.

The GST Council, therefore, may have to adopt a bold and pragmatic stand and prune the existing long list of exemptions in an effective and meaningful manner.

e. Input Tax Credit (ITC):

One of the fundamental goals of VAT is to mitigate, if not altogether eliminate, the harmful cascading effect of tax, an inherent feature of indirect tax. This goal is sought to be achieved by providing a seamless flow of credit to the taxpayers on all inputs and services which are used by them for effecting the taxable supplies. Any denial of or restriction on ITC would result into cascading of tax.

However, the present GST system – just like erstwhile tax regime – continues to deny ITC in some cases and also partially block it in many cases. Such legislative restrictions are incorporated in GST laws for a myriad of reasons and have to be accepted as socio-cum-politico-cum-legislative reality. Nevertheless, even while the denial of restrictions on ITC in some cases may be unavoidable, the extent thereof can certainly be kept at bare minimum and the relevant statutory provisions can be unambiguous to avoid litigation.

This is one crucial area where the GST Council may have to adopt a rather prudent, pragmatic, innovative and futuristic attitude!

[Note: The abridged version of this eight-part article was published in The Bombay Chartered Accountant Journal, BCAJ, 50 th Anniversary - June 2018 issue and BCAJ has given its consent to host the unedited version of this article on www.taxongo.com .]

...to be continued

See - Part I

See - Part III

See - Part IV

See - Part V

See - Part VI

See - Part VII