Challenges Ahead for GST

Goods and service Tax

By Asit Manohar

While implementing, government must know that dual control in GST is impossible

Article 246A in the Indian Constitution has been inserted with effect from September 16, 2016 to give concurrent powers to Parliament and the legislature of each state to make laws with respect to the GST (Goods and Services Tax) imposed by either centre or state.

The GST will be levied by the central and state governments on the same transaction, on same value, on the same basis and at the same time. GST rate is also expected to be uniform all over India. The Constitution has given power to make laws with respect to tax which obviously includes imposition, assessment and recovery of tax. Thus, both central and state governments will have concurrent powers of assessment of the same transaction.

There can be notices, demands, inspection, audits, surveys, search and seizures by two authorities.

It is very much possible that a taxable person (earlier termed as dealer or assesses) may receive a demand notice for the same transaction from two different authorities. It is also possible that adjudicating authorities and appellate authorities of state and union may take different views on the same transaction. This will make life miserable to the taxable persons.

Though the National Appellate Tribunal is one and the same for centre and states, it is practically impossible to approach the Tribunal for each and every tax dispute. Thus, dual control in GST is practically impossible.

At the same time, it is obvious that the revenue of both central and state governments should be protected. Both Centre and states are sovereign powers. Hence, some golden mean is required to be found.

EMPOWERING STATE, CENTRAL AUTHORITIES

It is highly advisable that a normally taxable person (earlier termed as dealer or assessee) should face only one authority – either central government or state government.

If the matter is dealt with by state government authorities, they should have powers to assess, demand and recover Central GST and Integrated GST.

Similarly, if the matter is dealt with by central government authorities, they should have powers to assess, demand and recover State GST and Integrated GST.

NO AGREEMENT IN GST COUNCIL

The issue is hotly discussed in GST Council. So far, no solution has been found.

Even in respect of taxable persons having a turnover less than `1.50 crore per annum, there is no unanimity.

DISTRIBUTION OF TAXABLE PERSONS

The best solution is to distribute powers between the central and state governments such that the taxable person will have to face either state government authorities or central government authorities. This can be done on the basis of revenue collected by Centre and states.

CGST, SGST REVENUE

The central government will get revenue from CGST and the state government will get revenue from SGST.

IGST will be collected by Central Government but IGST is only an intermediate tax. IGST is only to make adjustments between States in respect of input tax credit. Thus, IGST is not retained by the central government. IGST is not a final tax. It is a pass-through transaction. Final tax will be in form of CGST or SGST only.

It is envisaged that rates of CGST and SGST will be the same. Thus, broadly, 50 per cent of revenue will go to the central government and 50 per cent to the state government.

Though IGST is an intermediate tax, responsibility of its collection and distribution has been taken by the central government. Further, it has to be noted that the central government has taken the responsibility of compensating states for any revenue loss for five years.

Thus, the Centre has more responsibility than states in ensuring proper tax collection.

Considering these factors, it is equitable that broadly, 55 per cent of tax revenue should be under control of the central government and 45 per cent of tax revenue should be under the control of state government. This will ensure sovereignty of both Centre and states.

CENTRE, STATES TAX DISTRIBUTION

To start with, as a rule of thumb, taxable persons having business activities predominantly in one state should be under the control of state government.

Taxable persons having multi-state businesses and those predominantly in export and import field should be under the control of central government.

Industries and businesses peculiar to one state should be under control of state government e.g. jute in West Bengal, sugar in Maharashtra and UP, etc.

The reason is that state government officers already have deep knowledge of these businesses.

Businesses having national-level activities like petroleum products, banking, insurance, national couriers, telecommunication and railways should be under the control of central government.

Once such bifurcation is made, further refinement can be made on other reasonable criteria to achieve broadly the ratio of 55:45.

REVIEW OF BIFURCATION

Once the bifurcation of taxable persons is made on the aforesaid basis, it should be reviewed every three years. Frequent changes should be avoided. However, it does not mean that there should be water tight compartments.

CENTRE STATE COOPERATION

It is obvious and natural that officers of central government will have bias towards IGST and CGST while state government officers will have bias towards SGST.

To ensure that interests of both the Centre and states are protected, following measures are suggested.

Model GST Law provides for audits of assesses. If the audit team is led by central government authorities, one officer of the state government should be part of the audit team. Similarly, if audit is conducted by state government authorities, one officer of the central government should be part of audit team.

The same principle should be followed while carrying out inspection, searches and seizures.

This will ensure that in every audit, inspection, search and seizure, a one-sided view is not taken. A balanced view will be ensured.

HYPERLOCAL COORDINATION

There should be a coordination committee at state level of senior central and state authorities.

Such committees may also be formed at zonal levels, wherever possible and feasible.

The chairman of such a committee should be from the central and state governments in alternate years to maintain parity. Of course, the grade of the officer who is chairman should not be lower than others in the committee.

There should be mechanism to refer the issue to GST Council through state level committee, if there is disagreement among members of committee on a major issue. Obviously view of GST Council will prevail.

Last but not the least, If the above mentioned steps are taken and implemented in proper spirit, interests of all stakeholders, i.e. taxable persons, central government and state government, will be protected.

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