July 2019


Sunil Gabhawalla
Chartered Accountant

The Editor of BCAJ assigned me the responsibility of writing an article with the above title. What a thoughtful title this is! GST was launched two years ago with much fanfare and celebrations on 1st July, 2017 and has substantially lived up to the expectations. The fireworks are now over. The benefits of GST are there for the country to see. However, as it completes two years of existence, the million-dollar question is “What next?” The question begs attention also in the context of the results of the Lok Sabha elections and the re-institution of the NDA government in its second term. With the government looking towards a “New India” and simplified taxation under the leadership of a new Finance Minister, it is now time to look at new ideas and present a wish list which could capitalise on the journey traversed so far and take India to the next trajectory in terms of consolidation, improving “Ease of Doing Business” and putting the country on the path towards achieving a $5 trillion economy. So here we go:



The success of GST is there for all to see. If, as legislators, we believe that GST has been a path-breaking reform towards simplification of indirect taxes, what forces us to exclude certain pockets of industry from reaping the benefits of this simplification? The unanimity of numerous decisions taken in the GST Council over the last couple of years has shown that the dynamics of conflicting Centre-State interests no longer takes precedence over national interest and that where there is a will, there is a way. If that be so, it’s time to step away from the easy approach of providing excuses and postponing the inevitable – and to take that bold step to include petroleum, real estate and electricity into the GST Net.


Despite all noble intentions, exemptions from payment of tax are provided under the legislation. At first brush, the industry welcomes such exemptions and resists the withdrawal of such exemptions. However, as reality sinks in, the industry realises that each exemption results in additional costs in terms of denial of credits. Also, the innovative minds of the tax administrators can result in a treatise of narrow interpretation of exemption entries resulting in virtual uncertainty and rude shocks – a recent advance ruling denying the benefit of exemption to skill development courses on a hyper-technical distinction between the words ‘course’ and ‘programme’ being a case in point. It is, therefore, time to relook at the list of exemptions and specifically identify those that primarily pertain to the B2B sector. It may make sense to engage with the impacted stakeholders and build a consensus towards moving from exemption to a preferential rate of tax with seamless credits.



That brings us to the unique selling proposition (USP) of GST – availability of seamless credits reducing the cascading impact of taxes across the supply chain. This has been talked about so often that it has perhaps lost its context. How else does one explain the deviations from this concept of seamless credits in the case of restaurants and real estate developers? Let’s look at the background of the changes in this regard. The GST rate of 12% and 18% on restaurants started impacting the consumer prices of food. The government wants to control inflation and therefore decides to reduce the rate to 5% – so far so good. But the government has revenue considerations as well and finds it easy to deny input tax credit in such cases.


While trying to balance the interests of all stakeholders, we now end up in a situation of damaging the core of the GST legislation, i.e., seamless credits. And knowingly or unknowingly, we cooked up a recipe for endless litigation – a series of advance rulings where the authorities need to interpret the distinction between a restaurant and a shop are clearly necessitated by such differential tax treatments for similar products. A similar initiative to reduce the rate of tax on under-construction units coupled with denial of credit to the real estate developer is another example, but let’s leave the analysis thereof for some other time.


The impact is loud and clear – a lower output tax rate with denial of input tax credit effectively means taking money out of businesses and putting it in the hands of the consumer. While this objective sounds laudable, we need to understand the economics of the free market which effectively nullifies this objective in the shortest possible timeframe as businesses will increase the base price to absorb the loss of input tax credit. An even louder and clearer message – there should be no case of absolute denial of input tax credit. A lower rate of output tax neither justifies nor empowers the government to deviate from the core of GST, i.e., seamless credits.


Let’s also remember that we actually started with some deviation in the form of ‘blocked credits’ right from 1st July, 2017. While the hangover of the earlier tax regimes resulted in that deviation to start with, there is no reason to continue with that deviation forever. Don’t we all (including the government) believe and agree that the earlier tax regimes were archaic and unjust? If that is the collective consensus, what makes us collectively reconcile ourselves to some traces of such archaic laws with a myopic vision? The wish list therefore is to eliminate altogether or at least prune the list of goods and services which form a part of blocked credits.


One more deviation from the core of GST is the concept of ‘reverse charge mechanism’. While a cross-border reverse charge mechanism is understandable, a domestic reverse charge mechanism is perhaps unique to India. To what extent is it logical to shift the burden of levy from the supplier to the recipient? How far is it correct to expect the recipient to not only pay the tax but also maintain extensive documentation in the form of payment vouchers and ‘self invoices’ – a term invented specifically for this context? And while expecting the honest tax payer to do all this, we must not lose track of the fact that all of this dilutes and interferes with the fundamental principles of GST like credits, exemptions and the like.


Well, it’s time to accept that you cannot travel long distances in a vehicle that’s in reverse gear – an accident is in the making. Can we not eliminate all cases of domestic reverse charge mechanism? Remember, excise law never had the reverse charge mechanism and many VAT laws had, out of experience, dumped the obnoxious purchase tax (a simpler cousin of the reverse charge mechanism) and the administrators were able to administer the law without these crutches.



Legislatures in India have been known to possess wide powers of delegation. However, the legislature cannot delegate, in the words of the Supreme Court, “unchannelised and uncontrolled power”. Thanks to the long-drawn process of bringing about an amendment, the last two years witnessed only one legislative amendment. However, what is important and bewildering is the countless changes brought about through amendments in rules, removal of “difficulty” orders, notifications and the like (averaging at more than one a day – see the next point for statistics). Whether it be suspension of tax on advances for goods, or the composition option provided to service providers, the substitution of the return filing process, or a fundamentally new scheme of apportionment of credit based on carpet area for real estate developers, all of these conveniently found place through such non-legislative processes.


History is full of situations where courts have interfered and placed a very low priority on such provisions not contained in the Act but in the rules and notifications. It’s time to learn from such experiences and not place the cart before the horse. It really is time to comprehensively review the legislation and bring about amendments in the law to simplify processes, realign to ground level realities and synchronise the government intent with that prescribed in the law. At the end of the day, the law is the best reflection of government intent.



The journey of two years resulted in the issuance inter alia of 179 Central tax notifications, 87 Central tax rate notifications, 19 integrated tax notifications, 90 integrated tax rate notifications, 101 Central tax circulars, four integrated tax circulars, 17 Central tax orders and ten removal of difficulty orders. Coupled with UT tax notifications and circulars, ignoring state tax notifications and circulars to avoid duplication, we still end up with a total count of 773 documents at an average of more than one per day!


We are yet to factor in the sector-specific booklets, FAQs, press releases, Twitter responses, flyers and what not! Time and again, governments have realised that such overdose has resulted in chaos rather than clarity. The concept of master circulars and notifications is not alien to our legislators. Before things really go out of control, it is time to have one master notification covering all exemptions and concessions and one master clarification (like an education guide) replacing all existing circulars and clarifications.



Along with the comprehensive review of the legislations and the amendments, it is also time to have a relook at the policy. As accountants, we understand the concept of materiality. In management parlance, we say “look at the big picture”. If there are hardly any exemptions or exclusions, does it make sense to have a complicated mechanism to determine the proportion of ineligible credits? How does one reconcile to the requirement of reverse credits on account of transactions in securities? What is the revenue generated by the government and whether the time and efforts of millions of tax payers, their accountants and consultants is justified in generating this revenue? Can we not liberate ourselves from these shackles? What is the rationale of demanding interest on gross tax before utilisation of credit? Why can’t the processes for export refunds be simplified? Why is such an elaborate definition of “business” required?


At one point of time, we had wealth tax and it was observed that the cost of collecting wealth tax was more than the revenue it generated. Naturally, wiser counsel prevailed and we scrapped the tax itself. While there is no case for scrapping GST, it’s definitely time to carry out an analysis of each of the provisions of the law and review the revenue generated vis-à-vis the time and efforts involved in compliance with every specific provision. The data will speak for itself and guide us on the way forward for substantial simplification in the law and processes.



Having highlighted the need to not miss the woods for the trees, it is also important to count the trees. After all, in an ocean each drop counts. Many associations and chambers including ICAI and BCAS have time and again sent representations to highlight the difficulties in the existing legislation. This article is not one where the entire laundry list can be reproduced or discussed. But an indicative sample will definitely not be out of place:


a.  Delete definitions which are obsolete and realign conflicting definitions. The legislature is not expected to miss words or to add superfluous words in the statute. Let’s align the GST legislation with this time-tested expectation. For example, how does one justify the simultaneous existence of the definition of ‘associated enterprises’ and ‘related person’?

b.  While it is notable that levy of GST is restricted to supplies made in the course or furtherance of business, the very wide definition of business, and even wider interpretation canvassed by a few advance rulings, virtually make the definition redundant. It’s time to realign the definition to what it could logically mean.

c.  The term ‘service’ is defined to mean anything other than goods. While the definition is picked up from international experiences, the framework is not comparable. In the absence of a full-fledged GST, such a wide definition of service results in indirectly taxing subjects which are outside the purview of GST (for example, development rights in land). A more specific definition like the one under the erstwhile service tax legislation may be a good reference point.

d.  The benefit of refunds on account of inverted rate structure needs to be extended to services as well.

e.  The advance ruling authority should also consist of judicial members. Similarly, the appellate Tribunal should have more or at least equal numbers of judicial and non-judicial members.



It is often said that a bad law which is administered well is better than a good law which is not administered well. Tax collection and administration processes should be such that they are simple, stable and fair. While use of technology for tax collection and administration cannot be disputed, the processes will have to consider situations where the technology or systems fail. A human touch may then be required. Having said that, the element of subjectivity needs to be kept at the bare minimum in such face-to-face interactions. Again, a lot has been said and written about the desired process improvements, but let me just take the case of returns. There is really no reason not to permit the revision of returns filed. After all, we know that to err is human. And if so, an opportunity to revise the return has to be provided.



Taxation of services always flummoxed the administrators. Fearing the risk of ridicule and censure from the CAG, it was not uncommon for the superintendents to overstretch the interpretations to factual situations. When an employee resigns from the company and the company recovers notice period pay from his full and final settlement, a view is canvassed that the company renders a service to the employee – the service of tolerating the act of the employee prematurely terminating his employment! Is this not an overstretched interpretation?


Again, when a cost-benefit analysis is undertaken, where do we see the data point in terms of cost of compliance and revenue generated? When the CFO of a company headquartered in Maharashtra attends a tax hearing in Delhi, does the Maharashtra branch render services to the Delhi branch? If yes, we enter the fragile territory of interpretations – one could even contend that the Delhi branch rendered services to the Mumbai branch by facilitating the CFO to attend the hearing. We may even end up with a maze of dotted lines with absolute zero clarity on the head or the tail of each arrow. It’s time to live naturally and not overstretch and draw unnecessary dotted lines.



It is generally understood that tax is a sub-set of business. It is expected to facilitate business and not conflict with the natural flow of business. Let’s take the case of the supply chain of pharmaceuticals. Due to the peculiar nature of the products, there is reverse logistics in the form of rejections and sales returns. Necessarily, such rejections and sales returns go on to reduce the sales of the organisation and are supported by credit notes. But a clarification in GST law permits the buyer to issue a tax invoice for such rejections. Is this not swimming against the tide? Could this have implications in terms of accounting and legal relationships? Let’s not create conflicting sets of documentation and then aim for reconciliations between them.



In one of the earlier wish lists, the problem of overstretched interpretation was highlighted. The earlier tax regimes generated sufficient baggage of litigation which still exists in the pipeline. Showing their wisdom, many state governments announced amnesty schemes to reduce litigation under the VAT regimes. It is time for the Central government to take a cue from this and announce an amnesty scheme for pending litigation under the service tax, excise duty and customs duty laws. This will help bury the past.



I can go on and on. However, the Editor has cautioned me to restrict myself to around 2,500 words. I am sure that there are many more items which could enter this wish list but I have chosen to limit myself to ten important wishes at a macro level. This article is not a balance sheet of the GST law but only suggests a few critical action points for the way forward!


Over to you, Madam Finance Minister.

Past Issues

Current Issue