An ASSOCHAM delegation, including Anita Rastogi Partner-Indirect Tax, PricewaterhouseCoopers Private Limited, Shiva Nagesh AVP, DLF Ltd, Mr. T G Ramakrishnan Consultant, Indirect Taxation, Hindustan Unilever Ltd and Sujit Ghosh Partner and National Head, Advaita Legal had a meeting with Dr. Hasmukh Adhia, Revenue Secretary, Ministry of Finance for consideration under the draft GST legislation in New Delhi today.
Fundamental issues concerning Constitutional Amendment Bill on the draft GST legislation were raised during the meeting. They included the following:
a) Goods and Services both defined under the Constitution and CAB respectively. Is it therefore possible/ appropriate to carve out a separate definition of these terms in the operative legislation in derogation of the Constitution. Example - software.
b) Fate of GST on sale and consumption of electricity. While Entry 53 of List II of the Seventh Schedule of the Constitution of India has not been deleted by the CAB, there is no restrictive covenant under the CAB seeking to exclude levy of GST on electricity unlike in the case of alcohol, petroleum products. Contrary to this, the Central Government's view before Rajya Sabha Select Committee on GST indicates that inclusion of electricity is not envisaged in GST. Non-inclusion of electricity will lead to significant economic distortions.
c) Petroleum Industry will operate under hybrid tax regime and inability to claim GST credit due to temporary non-inclusion of five petro products could shore up costs. Similar would be the fate of alcohol industry. Consequently, some thinking around zero rating or concessional taxation under existing law on the inputs for these industries is warranted.
d) GST Council to provide 'mechanism' to resolve disputes. The word mechanism connotes procedures. If there is an infraction between two constitutional bodies, whether jurisdictional issues in such situation presently covered under Article 131 will be subservient to mechanism adopted by the GST Council.
e) Entry 92A and 92B of List I of the Seventh Schedule of the Constitution is retained, i.e. taxes on inter-state trade retained under the Constitution of India. Moreover, the Central Sales Tax, 1956 has not been repealed. Thus, it appears that the Centre continues to have the power to levy CST on inter-State sales. Is it an oversight? Same issue arises with regard to Article 366(29A).
The delegation also sought information and explanation of the definition and operative Issues related to the bill. They included:
a) The charging section (Section 7 of CGST law and Section 4 of IGST law) is deficient in as much as there is no reference to levy being on 'value'.
b) 'Location of supplier of goods' and 'location of recipient of goods' not defined.
c) 'Location of supplier of service' and 'location of recipient of service' needs to be relooked at in the context of practical difficulties in attributing locations directly concerned with provision/ receipt of services.
d) Intra-state and inter-State not defined in the CGST draft law.
e) No provisions dealing with supplies to SEZ. Consequential amendments needed in the SEZ Act.
On adjudication of disputes, the following issues were discussed:
a) No limitation period for issuance of show cause notice.
b) Composition of AAR and the unnecessary second appeal needs to be relooked at.
The delegation also raised issues related to the real estate sector, which included the following:
a) Input Tax Credit is not available for inputs/ input services utilised in the construction of immovable property. Tax paid on inputs/ input services would become a cost for the builders, etc.
b) The Draft Legislation does not provide for the abatement of the value of land for levy of GST.
c) Need clarity on the taxability of the development rights under the Draft GST Legislation.
Issues under valuation were also discussed and included:
a) The Draft GST Legislation provides that transaction value would include all taxes other than CGST, SGST and IGST. This would lead to tax on tax scenario. To avoid tax cascading, transaction value should be valued net of any taxes.
b) Currently 'transaction value' includes subsidies. Therefore, subsides/refunds/incentives provided under State Industrial Polices, Area based incentives as well as FTP may be included in the transaction value.
c) 'Stock transfer' - It is suggested that for the purpose of valuation of stock transfer, the method should be simple and consistent with accounting method of the Company. It would create considerable compliance difficulties if a company has to maintain extensive records to defend or substantiate the valuation used for paying tax on stock transfers.
d) Clear Valuation mechanism should be provided for taxation of FOC supplies.
The other issues raised included:
a) Definition of input service distributor enables distribution of credit of only input services by the ISD. The definition of ISD should be amended to enable the ISD to distribute credit of inputs as well.
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