GST administration: Remaining issues

After a year, electronic invoices and litigation remain challenges

Last month, I listed and elaborated on the guidance the Chairman, Central Board of Indirect Taxes and Customs (CBIC), issued weekly during GST’s first year, altogether 50 in my count. I indicated that the communique were helpful and direct in their instructions to officers keeping customer focus in mind. Nevertheless, I commented that success would, of course, depend on the implementation by department officers.  This month I point towards select remaining challenges, including evasion, e-way bills and litigation.

GST evasion: The Chairman reminded officers to keep track of revenue collection and that a concerted effort must be made to arrest any fall in revenue collection. Any negative deviation must be analysed and the reason(s) must be brought to the notice of superiors. It was pointed out that wrong availment of transitional credit — as the system passed from the old to the new tax — would have serious adverse implications on revenue collection and its continual monitoring and verification by field formations would remain a major area of focus of the GST administration policy. 

The Chairman highlighted the large number of pendency of Returns marked for review and correction in the Automation of Central Excise and Services Tax (ACES) system. And zonal members were asked to monitor it on a daily basis and reduce pendency to nil. Certain rules, however, need to be corrected. The cut-off period for migration should be removed. If a potential taxpayer is delayed in migrating, why should he be stopped from voluntarily entering, however late? Rather, keeping migration continually open, and steadily scaling up the penalty with the degree of lateness, makes the transition more palatable especially to MSMEs who face challenges in migration.  

E-way bill (EWB) system: No doubt this is a forward step to minimise evasion and the Chairman’s repeated directives have been to rapidly install the system from February 2018 for both inter- and intra-state transport. But trade and transporters experienced immediate technical glitches in generating EWBs. Accordingly, the Chairman indicated that the trial phase for generation and carrying of EWBs would be extended for both inter- state (up to April 1) and intra-state (up to June 1). 

The Chairman requested that all Chief Commissioners (CCs), in consultation with their State Commissioners, may decide the date of implementation of the EWB system for intra-state movement of goods in their state. It requires no emphasis that effective co-ordination between Central and State tax administrations would help smooth implementation of this challenging assignment. Another helpful measure from the Chairman was the assurance that officers could approach the Board in case any clarification in law was required or any pressing issue came up of a particular sector that needed to be addressed through an amendment.

The EWB system, however, has to be examined with a fine-tooth comb. EWB is an electronic bill requiring detailed inputting of data. It is to be carried by the transporter for intra- and inter-state transportation of goods, and is to be maintained also by supplier and recipient, both registered and unregistered. Reflecting the steps and components involved, the prevailing ceiling of Rs 50,000 for each invoice is low. Hopefully, this will be jacked up meaningfully in the next round. 
 

Electronic portals do not work perfectly; they are often overloaded. It is not rare that the towers also do not work, often jumping back with a start. MSMEs, often with a low number of employees, should not have to suffer increased compliance burdens with the GST; indeed, that burden should decrease significantly. 

The validity period for an EWB is also shorter than it needs to be. From the time of its creation, it expires after just one day for a transportation distance of less than 100 km and an additional day for each extra 100 km. Given the uncertainty and unpredictability of road travel and not just occasional inspection queues along national highways, the validity period for an EWB is unnecessarily low. 

Illustration by Binay Sinha

States provide varied GST exemptions by exercising their powers under rule 138(14) of the State GST Rules, 2017. While the Chairman urged Chief Commissioners of concerned zones to publicise the exemptions in their states, there is no way to totally avoid the confusion that they entail for taxpayers in generating EWBs. To reemphasise, the EWB life should be extended since that does not add to the probability of increased tax evasion in any significant way. 

Though the rate reduction from 28 per cent to 18 per cent for an array of FMCG or white goods in the latest GST Council meeting is in itself not being questioned, continually changing output tax rates or exemptions requires recalculations in the invoice, bill of supply, and challan of the goods consignment. On top, agents have to prove to the National Anti-profiteering Authority (NAA), the anti-profiteering watchdog, that any gain in profit has been passed on to consumers. In a nascent administrative system, the state and central policymakers should be aware of the immediate deleterious ramifications of their vacillation on manufacturers, traders and dealers.  

Minimising litigation: A genuine emerging problem is that of litigation over the place of supply (PoS) between states despite procedural improvements such as the Tax Dispute Online Tracking System (TDOTS) which is an online tracking system for monitoring tax disputes and their resolution. The real problem is structural. The Advance Ruling Authority (ARA) of different states has no jurisdiction over determining the place of supply. That is understandable since no single state should have the authority to determine the PoS that would have an effect on its own welfare over that of another state. 

But even at the central level, the ARA has no jurisdiction over the matter though, ideally, it should resolve conflicting rulings among state ARAs. Therefore, there appears to be a good possibility of litigation piling up at the Appellate Tribunal level or courts. Unless this challenge is addressed quickly, a main reform component of GST would be rapidly lost.

Corporate tax rate: GST revenue this financial year continues to be good. This provides an excellent opportunity for the corporate income tax (CIT) rate reduction promised in the 2016-17 Union Budget. While CIT rates have been reduced for companies with medium turnover, large corporations compete with foreign competitors who have benefitted from steadily declining tax rates in their own jurisdictions. Unless CIT rates are slashed in the forthcoming Budget, India would continue to languish in a rapidly transforming scenario for international trade and competitiveness.