GST: Many loose ends to be tied

Legal and tax experts share some concerns about the revised model GST law

Anti-profiteering clause: The intention of the anti-profiteering clause is to pass on the benefits accruing on account of GST implementation to the final consumer. However, the element of subjectivity over the issue has left both industry and tax experts divided. Section 163 of the revised model GST law gives powers to the central government to constitute an authority to examine whether the benefits enjoyed by business while transitioning to the GST regime such as additional input tax credit, effective rate reduction on the output side have been passed on to the consumer. It provides for penalty in cases where such benefits have not been passed on.

Experts point out that there are a number of parameters that affect the pricing of a product or service. “If a company becomes profitable due to operational efficiency then whether such benefits will have to be passed on is a matter of debate,” says Smita Roy, partner, indirect tax, BDO India.

Sujit Ghosh, partner and national head of Advaita Legal, asks whether an anti-profiteering provision is required at a tax-policy level. Experts complain that there is ambiguity around what constitutes “commensurate reduction in the price”. 

There is also lack of clarity on whether the provisions will be applied on application from the affected parties or through suo motu investigation by the relevant authority. “The government needs to be careful while framing the rules to bring objectivity in deciding whether the benefit has been passed on to the customers or not,” says Bipin Sapra, tax partner, EY India.

Advaita’s Ghosh feels the anti-profiteering provisions are susceptible to a constitutional challenge. “From a technical-legal perspective, the provision appears to suffer from the vice of excessive delegation,” he says. 

Apportionment of shared services costs/ services between branches of the same company: Any such stock transfer of service will attract the integrated GST (IGST) rates. However, the valuation and identification of such services are likely to pose significant challenges, say tax experts. “Imposing a tax on stock transfer of goods is justified. However, a similar treatment is uncalled for in the case of services,” says L Badri Narayanan, partner, Laksmikumaran & Sridharan. This provision will lead to unnecessary complications and backdoor taking of salary costs, which otherwise is outside the GST net, he adds.

Ghosh is in favour of specific guidance for determination of place of supply for such provisions. “Given that the ‘place of supply’ for certain services will be different under the GST regime as opposed to the current service tax treatment, certain sectors may be adversely affected post-GST,” says Ghosh.

Unpredictability arising from dual control: Tax experts point out that under the current law an assessee deals with the same tax administration institutionally. This provides some level of predictability and certainty to outcomes. Under the dual-control model the same assessee can be assessed by the central government one year and by the state government another year.

Experts feel the government should clarify that once an assessee has been allotted to an authority, central or state, they should continue to be assessed by the same authority. “It is everybody's case that under dual-GST the taxpayer should interface with only one tax authority, either the Centre or the state concerned. That is how the concept of cross-empowerment was brought in, but it has to be in accordance with constitutional provisions,” says Sumit Dutt Majumder, GST expert and former chairman, Central Board of Excise and Customs. 

Compliance-related issues arising from state registration: Legal experts expect a lot of disputes to arise while determining the place from where supply is provided. “The concepts of fixed establishment, permanent establishment and place of business will be tested to determine whether a business ought to obtain registration in a state,” says Badri Narayanan.

For e-commerce players the model law is not clear on whether they are required to obtain registration in all states where they operate or can they discharge their TDS liability through registration in a single state where their headquarters is located.