 "GST: Preparing for tax litigation")
Commercial disputes may arise if existing contracts not updated
V Lakshmikumaran
The hope of the goods and services tax (GST) being implemented has revived with the model GST law being put out in the public domain for comments and the support of virtually every state for the GST in the last empowered committee meeting.
The model GST law with 184 sections and four schedules is longer than each of the laws relating to indirect taxes that the GST seeks to subsume. But it is still incomplete.
There is a mention of another schedule in the charging section, but this unnumbered schedule is yet to be made available. Some of the schedules also mention the list therein is only indicative, revealing the model GST law is still a work in progress.
While many of the existing areas of dispute may continue, I see potential for new avenues opening up for disputes between taxpayers and tax authorities. Let me illustrate:
Harishanker Subramaniam
The last few days have seen a flurry of activity around the goods and services tax (GST) - the convening of the empowered committee with Union Finance Minister Arun Jaitley and the release of the model GST law by the ministry of finance.
The unveiling of the model GST law assumes significance in our chequered GST journey. The model law provides an important window for industry to understand the proposed framework and engage with the government in a collaborative and consultative manner to shape a final law that is robust, provides certainty, and is easy to comply with.
With the release of the draft law it is now clear several existing concepts like maximum retail price (MRP)-based valuation are being done away, with the subsuming of excise duty under the GST. Valuation of goods and services, according to the model GST law, will be governed by the concept of transaction value. This concept has been largely borrowed from existing excise and customs legislation.
This requires a great amount of expertise to understand and implement. The challenge will be more significant for services. The state authorities will equally find it challenging to deal with this new concept. This can be a significant area for potential disputes, more so if the GST is applicable on stock transfers. Many in the industry will recall the advent of MRP-based valuation in excise for several products or sectors to avoid contentious disputes under the transaction value concept, but the clock will turn back.
Other potential disputes could be around tax adjustments for trade discounts and schemes - what would qualify as subsidies for valuation purposes, credit eligibility, transitional credits, place of supply interpretations, and classification. Several of these continue to be contentious even under existing laws of service tax, excise and the value-added tax (VAT). While today the services sector only deals with the Centre over disputes, going forward it will have to deal with both the Centre and the states where they operate.
However, a positive step has been the provision for advance rulings for both proposed and existing supplies of goods and services, a window that can be explored for certainty. The proposal for 80 per cent provisional refunds for exports and notified taxable persons is also welcome if it is expeditious and electronic, but stringent scrutiny for final determination will still remain contentious.
Sudipta Bhattacharjee
The model goods and services tax (GST) legislation includes a whole chapter on e-commerce and has prescribed strict information-disclosure requirements plus a tax collection at source model for both goods and services. This is a refinement to what the Karnataka government sought to do after the Amazon fiasco.
E-commerce operators have been made liable not only for paying the GST on their facilitation services, but also GST collection at source that individual suppliers would have ordinarily been liable for. The consequent compliance hazards have already been widely commented upon.
Ideally, e-commerce operators should only be responsible for the GST on their facilitation services. E-commerce is quite transparent, where revenue officials can easily verify the suppliers and customers. Casting responsibility of collection at source when tracking or taxing individual suppliers is not difficult.
What is praiseworthy is that a clear distinction has been made between assessees actually supplying goods and services, whether through their own electronic platform or otherwise, and assessees merely providing the electronic platform to facilitate such suppliers - an oft-forgotten distinction under extant state value-added tax (VAT) and entry tax laws. This is consonant with conditions under Press Note 3 for e-commerce marketplace players, ensuring that marketplace players remain marketplaces in the true sense. The following litigation impact of this can be foreseen:
nIn the litigation before the Delhi High Court against e-commerce marketplace players, the petitioners alluded to the fact that sales through such players were treated as retail sales by state governments. This argument will stand significantly diluted.
nThe Kerala government tried to - unsuccessfully, so far - fasten liability on a renowned marketplace player by arguing that even if that player was not a seller, it would still be liable to the VAT since its online portal could be treated as an intangible shop. Such attempts will become baseless and irrelevant under the GST.
nHowever, this may not have any direct impact on litigation under state entry tax laws, as the main challenge there is relating to the constitutional validity of entry tax provisions.
In the specific context of aggregators of services, like aggregators of taxi services, doubts had been expressed by experts vis-a-vis the constitutional validity of current service tax provisions dealing with payment of service tax by such aggregators on behalf of drivers, since the concept of aggregators was not included in the main service tax legislation. This aspect has been dealt with by the model law by incorporating the concept of aggregator in the legislation itself, thus pre-empting any such litigation.
V Lakshmikumaran
The hope of the goods and services tax (GST) being implemented has revived with the model GST law being put out in the public domain for comments and the support of virtually every state for the GST in the last empowered committee meeting.
The model GST law with 184 sections and four schedules is longer than each of the laws relating to indirect taxes that the GST seeks to subsume. But it is still incomplete.
There is a mention of another schedule in the charging section, but this unnumbered schedule is yet to be made available. Some of the schedules also mention the list therein is only indicative, revealing the model GST law is still a work in progress.
While many of the existing areas of dispute may continue, I see potential for new avenues opening up for disputes between taxpayers and tax authorities. Let me illustrate:
- The GST seeks to tax supply of goods and services. The question of whether a supply will be supply of goods or of service will remain contentious if and so long as there is a tax rate differential between goods and services.
- While the classification scheme has not been clearly spelt out in the model GST law, so long as the rate structure is not simplified and unified, there can be disputes regarding classification of goods between tariff items having different rates. Similar will be the position in case of services.
- The model GST law seeks matching of documents between supplier and receiver for allowing input tax credit (ITC). In case of a mismatch and where the supplier has not made the tax payment, the ITC shall be reversed with interest. But what if the mismatch is on account of, say, some system glitches? The receiver should not be disallowed the ITC so long as he can establish his eligibility to take credit otherwise.
- The provision relating to valuation is quite complex and contains a number of specific inclusions and exclusions. But it requires clarity on the circumstances to reject transaction value between two unrelated parties, valuation for captive consumption, valuation of services between branch and head office, valuation in case of cost allocation of common services, and trade or volume discounts and business practices, which are potential areas of dispute and litigation.
- Elaborate provisions have been made for transition from the existing law. But still the question remains unanswered about eligibility to credit on certain pre-GST taxes such as credit of excise duty or service tax in respect of duty-paid invoices lying with the erstwhile value-added tax (VAT) dealer, or of credit of central sales tax- and excise duty-paid stock held by the trader.
- There is no discussion on how the area-based exemptions and other time-bound exemptions or concessions will be grandfathered. Otherwise, there could be a challenge on the grounds of promissory estoppel.
The writer is managing partner, Lakshmikumaran & Sridharan
Transaction value an area for potential disputesHarishanker Subramaniam
The last few days have seen a flurry of activity around the goods and services tax (GST) - the convening of the empowered committee with Union Finance Minister Arun Jaitley and the release of the model GST law by the ministry of finance.
The unveiling of the model GST law assumes significance in our chequered GST journey. The model law provides an important window for industry to understand the proposed framework and engage with the government in a collaborative and consultative manner to shape a final law that is robust, provides certainty, and is easy to comply with.
With the release of the draft law it is now clear several existing concepts like maximum retail price (MRP)-based valuation are being done away, with the subsuming of excise duty under the GST. Valuation of goods and services, according to the model GST law, will be governed by the concept of transaction value. This concept has been largely borrowed from existing excise and customs legislation.
This requires a great amount of expertise to understand and implement. The challenge will be more significant for services. The state authorities will equally find it challenging to deal with this new concept. This can be a significant area for potential disputes, more so if the GST is applicable on stock transfers. Many in the industry will recall the advent of MRP-based valuation in excise for several products or sectors to avoid contentious disputes under the transaction value concept, but the clock will turn back.
Other potential disputes could be around tax adjustments for trade discounts and schemes - what would qualify as subsidies for valuation purposes, credit eligibility, transitional credits, place of supply interpretations, and classification. Several of these continue to be contentious even under existing laws of service tax, excise and the value-added tax (VAT). While today the services sector only deals with the Centre over disputes, going forward it will have to deal with both the Centre and the states where they operate.
However, a positive step has been the provision for advance rulings for both proposed and existing supplies of goods and services, a window that can be explored for certainty. The proposal for 80 per cent provisional refunds for exports and notified taxable persons is also welcome if it is expeditious and electronic, but stringent scrutiny for final determination will still remain contentious.
The writer is national leader, indirect tax, EY India. The views expressed are personal
Entry tax concerns remain for e-commerceSudipta Bhattacharjee
The model goods and services tax (GST) legislation includes a whole chapter on e-commerce and has prescribed strict information-disclosure requirements plus a tax collection at source model for both goods and services. This is a refinement to what the Karnataka government sought to do after the Amazon fiasco.
E-commerce operators have been made liable not only for paying the GST on their facilitation services, but also GST collection at source that individual suppliers would have ordinarily been liable for. The consequent compliance hazards have already been widely commented upon.
Ideally, e-commerce operators should only be responsible for the GST on their facilitation services. E-commerce is quite transparent, where revenue officials can easily verify the suppliers and customers. Casting responsibility of collection at source when tracking or taxing individual suppliers is not difficult.
What is praiseworthy is that a clear distinction has been made between assessees actually supplying goods and services, whether through their own electronic platform or otherwise, and assessees merely providing the electronic platform to facilitate such suppliers - an oft-forgotten distinction under extant state value-added tax (VAT) and entry tax laws. This is consonant with conditions under Press Note 3 for e-commerce marketplace players, ensuring that marketplace players remain marketplaces in the true sense. The following litigation impact of this can be foreseen:
nIn the litigation before the Delhi High Court against e-commerce marketplace players, the petitioners alluded to the fact that sales through such players were treated as retail sales by state governments. This argument will stand significantly diluted.
nThe Kerala government tried to - unsuccessfully, so far - fasten liability on a renowned marketplace player by arguing that even if that player was not a seller, it would still be liable to the VAT since its online portal could be treated as an intangible shop. Such attempts will become baseless and irrelevant under the GST.
nHowever, this may not have any direct impact on litigation under state entry tax laws, as the main challenge there is relating to the constitutional validity of entry tax provisions.
In the specific context of aggregators of services, like aggregators of taxi services, doubts had been expressed by experts vis-a-vis the constitutional validity of current service tax provisions dealing with payment of service tax by such aggregators on behalf of drivers, since the concept of aggregators was not included in the main service tax legislation. This aspect has been dealt with by the model law by incorporating the concept of aggregator in the legislation itself, thus pre-empting any such litigation.
The writer is principal, tax controversy management, Advaita Legal. Views expressed are personal