Welcome GST Flight Delayed But Expected To Land Safely

Introduction of GST has been one of the most important items
on the agenda in various sessions of parliament. And it will be of prime
importance in the upcoming session. As the Government of India is committed to
replace the existing system of various types of indirect taxes, being levied at
present by Central and State Governments, with only one tax called Goods and
Services Tax (GST). All efforts are being made to implement it at the earliest.
We have been waiting for long to welcome its arrival. Although it was expected
from 1^st April 2017, but whenever there is something new, certain
precautions are necessary. It is for the first time that the Centre and States
are coming together to administer a law on taxation of goods and services. It
was necessary, therefore, to understand the role and responsibility of each
other individually as well as collectively so as to have a smooth navigation.
It is in this background that a conscious decision has been taken to begin it
from 1^st July 2017. We are sure that keeping in mind the impact of
amendment made to the Constitution of India, the Centre as well as States will
work out appropriate strategies to implement GST well before the appointed date
i.e.16^th September 2017. Thus, in the present circumstances, 1^st
July 2017as the implementation date is most appropriate. As it seems
certain, one can say ‘Although the flight is delayed but expected to land
safely’. Let’s hope to see ‘Der Aaye Durust Aaye’.

The delayed arrival may prove to be a blessing in disguise.
The period of delay may well be utilised in completing the unfinished task of
preparations. The draft law is yet to be finalised. Although, several
suggestions have already been considered in the revised version of Model GST
Act, a few are yet to be incorporated. We hope now that the important one will
not be missed out. Once the final draft is approved, Rules and Forms will
follow. As trade and industry will need at least three months to prepare
them-selves for the new regime, it is expected that the final draft of CGST
Act, SGST Act and IGST Act will be made available to the people by 28^th
February, and, the Rules & Forms etc., well before 31^st
March 2017.

As the Indian law on GST is being enacted after considering
VAT and GST laws of various other countries, it is expected that Indian GST Law
will be most fair and transparent, which is easy to understand and free from
all kinds of complexities. We wish the proposed Law will take care of all
aspects such as:

(1) Adequate
Revenue to Government

(2) Clarity of Law

(3) Ease of Administration

(4) Ease of Compliance

(5) (No Extra Burden on Businesses (particularly
small businesses)

(6) Due Care of Consumers (who are the ultimate tax
payers)

Apart from finalising the Model GST Law, the GST Council will
have to take a coordinated decision on rates of tax and list of items falling
in each of such rate schedule. This may prove to be a herculean task as it will
have direct impact on the ultimate tax payers i.e. the consumers. Whatever may
be the design of law, if consumer is dissatisfied, if the consumers (who are
the real tax payers) oppose, it would not be possible for any Government to
enforce such a law. It would be necessary, therefore, to decide the rates of
tax and brackets thereof with utmost care.

Another segment which has to be taken care is that of small
and medium size businesses, which constitutes more than 80% of the assessees
base of indirect taxes. The Government may be collecting 80% of its indirect
taxes revenue from 10 to 20% of total number of assessees. The remaining 80 to
90% assessees play a most important role in the production and distribution of
goods, as well as services, in our country. Ignoring the views of such a large
segment may be fatal for any VAT based system of indirect taxation. It is necessary,
therefore, that sincere efforts be made to mitigate the hardship likely to
cause to such small dealers and service providers.

Suggestions to mitigate hardship likely to cause to small
dealers and service providers:

Threshold for Registration

As per Schedule V, appended to revised draft of Model GST
Law, “Every supplier shall be liable to be registered under this Act in the
State from where he makes a taxable supply of goods and/or services if his
“aggregate turnover” in a financial year exceeds twenty lakh rupees:…”

It would be necessary to clarify that the threshold of Rs. 20 lakh should apply to taxable supplies only.
As such the turnover limit of Rs. 20 lakh is too low a limit and if the
exempt/taxfree supplies are also included therein then a very large number of
people will become liable for registration without any substantial revenue to
the Government. It may be necessary, therefore, to use the words “aggregate turnover of taxable supplies”
instead of “aggregate turnover”.

Composition Scheme/s

The revised Model GST Law, at present, provides for only one
Composition Scheme, which is applicable to certain dealers having turnover up
to Rs. 50 lakh a year. It does not provide for any kind of composition scheme
for service providers. It may be worth noting here that the activities of ‘works contracts’, ‘leasing’, ‘supply of food and beverages in a hotel/
restaurants’, etc. will now fall in the category of ‘supply of service’.
With several restrictions embedded in the proposed Scheme, it may not be of any
practical utility.

If one looks at the VAT/GST laws of other countries, they are
very liberal in designing such composition schemes. Even in the VAT laws of
various States, within our country, we find several such schemes – some are
general and some of them are sector specific. For example in Maharashtra, at
present, we have the following Composition Schemes: 

1. Retailers Composition Scheme: Applicable to all
registered dealers having total turnover up to Rs. 1 crore. Composition amount
is 1% of total turnover. No input tax credit and no passing of the 1%
composition amount. It is working fine.

2.  Restaurants, Clubs, Hotels and Caterers
Composition Scheme: Applicable to all such establishments, serving
food/beverages for human consumptions, having gradation of less than 3 stars.
There is no turnover limit. Tax (composition amount) payable is 5% of turnover
of sales. No input tax credit and no Tax Invoice. Most of the small hotels,
restaurants and eating houses have opted for this composition scheme.

3. Bakers Composition Scheme: Applicable in a
specified manner.

4. Second Hand Motor Car dealers Composition
Scheme: Applicable to all dealers in respect of that part of business which is
related to reselling of old motor cars after refurbishing, etc. (without any
limit of turnover).

5. Mandap Decorators Composition Scheme: No
turnover limit, composition amount 1% or so. No ITC and no Tax Invoice.

6. Builders/developers Composition Scheme: No
turnover limit, tax @ 1% of agreement value, no ITC and no Tax Invoice.

7. Works Contract Composition Schemes: There are
two different composition schemes for ‘works contractors’. One is applicable to
notified construction contract where composition amount is 5% of total turnover
(total value of contracts). And another is for other works contracts where the
rate of composition is 8% of total turnover (total value of contracts). These
composition schemes are most popular in Maharashtra. (Similar composition
schemes have been designed by other States also). In these schemes, the
contractor is eligible for ITC on his inputs but it is restricted by way of
certain percentages. But, the unique feature is
that the contractor can pass on the tax to his principal. He can charge the tax
separately and can issue ‘Tax Invoice’. The purchaser (principal), if entitled,
can claim input tax credit on the basis of ‘tax invoice’ issued by the
contractor.

In the light of the above, it may be suggested that the GST
law should provide for 3 or 4 or if necessary more such composition schemes
which a dealer/service provider may opt.

Time of Supply:

Section 12, in Chapter IV, defines ‘Time of Supply of Goods’
as follows:-

“12. Time of supply of goods

(1) The liability to pay CGST / SGST on the goods shall arise
at the time of supply as determined in terms of the provisions of this section.

(2) The time of supply of goods shall be the earlier of the
following dates, namely,-

(a) the date of issue of invoice by the supplier or the last
date on which he is required, u/s. 28, to issue the invoice with respect to the
supply; or

(b) the date on which the supplier receives the payment with
respect to the supply:

PROVIDED that ……

Explanation  1.-
For the purposes of clauses (a) and (b), the supply shall be deemed to have been
made to the extent it is covered by the invoice or, as the case may be, the
payment.

Explanation 2.- For the purpose of clause (b), “the
date on which the supplier receives the payment” shall be the date on which the
payment is entered in his books of accounts or the date on which the payment is
credited to his bank account, whichever is earlier.”

It may be suggested that sub clause (b) may kindly be
deleted and the explanation 1 and 2 may also be modified accordingly.

If suitable modifications are not done, at this stage, that
would mean that for each and every advance received, the supplier of goods
would be liable to pay tax as and when such advance amount is received. The
Government may need to consider that there is vast difference between ‘advances
received for supply of goods’ and ‘advances received for supply of services’.
They cannot be equated. The supplies may be of various types of goods falling
under different rate schedules, the advance may be for a specific supply or an
adhoc advance for various supplies, the final sale price of goods may be
decided in advance or may be decided later. The time schedule and the place of
supply may be different for various supplies for which adhoc amount is received
as advance from time to time. In such circumstances, it may be very difficult
for the supplier to work out the exact amount of tax payable on such advance/s.
And it may lead to unnecessary complications and litigations. It may be suggested, therefore, that ‘Time of
Supply of Goods’ should always be issuance of ‘Tax Invoice’, Bill or Cash Memo,
as the case may be, in accordance with the provisions of section 28 contained
in Chapter VII of the revised draft Model GST Law.

Filing of Returns and Payment of Taxes

Chapter VIII of Model GST Law deals with provisions regarding
furnishing of returns, etc.

Section 32 therein provides for furnishing ‘Invoice wise details of all Outward Supplies’
during a month by 10^th day of succeeding month.

Section 33 provides for furnishing ‘Invoice wise details of Taxable Inward Supplies’ during a month by
15^th day of succeeding month.

Section 34 provides for
furnishing monthly return by 20^th day of succeeding month.

A combined reading of all the provisions shows that every
registered dealer (other than a composition dealer) is liable to furnish at
least 3 returns/statements by 3 different dates every month.

It may be necessary to revisit the entire chapter
concerning filing of returns/statements.

However good may be the intention behind such a proposal, it
will be extremely difficult for all such dealers to comply with the
requirements in the manner so prescribed in the aforesaid Chapter. The worst
affected will be those who fall in the category of small and medium size
‘Taxable Person’.

It may be worth noting that small and medium size enterprises
do not have adequate infrastructure and manpower to comply with such a
requirement, which may be suitable for very big organisations only. The SMEs
are depending upon part time accountants and tax consultants to compile and
upload such returns and statements, etc. At
present, most of them are filing quarterly or six monthly returns. Thus,
they are visiting their tax consultant not more than four times during a year.
But, in the proposed procedure they will have to visit thrice in a month i.e.
36 times during a year. They are also expected to visit in between to find out
and reconcile differences which may be arising in the monthly Statements
furnished by their suppliers/customers. Consider
cost of compliance to such small dealers and service providers in terms of both
time and money.

It the light of the above, it may be suggested that;

1. The requirement of filing monthly returns
should apply to those only whose annual turnover is more than       Rs. 5 crore (or 10 crore) or the net tax
payable is more than Rs. 10 lakh per annum.

2. All other dealers/taxable persons should be
asked to file quarterly returns.

3. There is
no need to prescribe separate dates for submitting (a) Statement of Outward
Supplies (b) Statement of Inward Supplies and (c) Return. All the three items
should be combined together. In fact, both these statements i.e. of Outward
Supplies and Inward Supplies should form part of the Return itself.

4. As the matching exercise can be done only after
filing of returns, there is no point in forcing the dealers to submit a return
in three parts on three different dates of the same month.

5. If one looks into the provisions of VAT/GST
laws of all those countries where GST has been implemented successfully,  almost all of them have taken due care of ease
of compliance.

6. The
success of any reform depends upon mutual co-operation. The procedural aspects
need to be designed in such a manner that all the dealers, whether big or
small, are able to comply with the requirements without any hassles.

In its recent advertisement, in Times of India, Central Board
of Excise & Customs (CBEC) has boldly highlighted various advantages of GST
under the heading “a plethora of benefits all around”. Just picking up a major
one, it states: GST – ‘One Nation One Tax’, ‘Advantage for Trade &
Industry’, ‘Benefits to Economy’, ‘Simplified Tax Structure’ and ‘Tax
Compliance Easy’.