I scrutinised the GST law, the draft of which has been circulated. I gather that about 30 officers belonging to the Centre and states have drafted it. No wonder many distortions have remained. What they have done is that they have incorporated every past provisions lock, stock and barrel.
I talked to some of them, but their clarification is most unsatisfactory.
The main problem is that those who have drafted it do not know what GST is conceptually. They have forgotten that the taxable event is not the act of manufacture or the act of sale or supply of service but just supply of goods and services. So there is no question of defining a manufacturer in Section 2 (66) which has been lifted from the Central Excise Act, 1944. The definition there is in terms of manufacture, First Schedule, Third Schedule and many other things which were relevant when the taxable event was manufacture. When taxable event is supply, the question of having a definition of manufacture and manufacturer does not arise. The definition of manufacture is relevant only where the GST is not applicable. So it need not be written in the GST law.
Similarly the definition of capital goods as in Section 2 (20) and exclusion of capital goods from the definition of input as in Section (54) are absolute distortions as there is no need to distinguish capital goods and other goods and raw materials. This is totally meaningless and will create untold complications. Certainly there will be no separate duty for capital goods. The logic of such distinction in GST is beyond the concept of GST. It seems that the draftsmen have simply copied whatever was there in the Rules earlier. The idea of GST is different from the concept when the taxable event was manufacture. Moreover, when such distinction between capital goods and raw materials in input has not been made in the Integrated Goods and Services Act and rightly so, then why there should be such a distinction be made in the GST Act?
The third big damage to the GST law is the retention of the law of unjust enrichment in the Section 38 on refunds .This will continue to retain one of the most contentious issues which has led to litigations all around. In practice, refunds are not given on the plea that the tax payer is not able to prove that he has not passed the burden of higher tax to the consumer. This sort of law prohibiting profit is not there in Canada and other capitalist countries . So when the whole law is being changed, this is the correct time to bid a good buy to this nefarious law which was introduced because of the Public Accounts Committee when the Communists had the Chairman's post . I know it very well.
There are many other distortions in the GST law. (a) One is that the input credit system has been made far too strict. (b) Words such as "primarily" used for personal consumption in the Section 9 (b) will lead to litigation. (c) Audit has been defined as detailed scrutiny which makes no sense since the word scrutiny is enough. (d) There is no definition of tax in the IGST Act as there is one in the GST Act.(e) In the provision for Advance Ruling, there is a new provision for appeal which will delay the whole proceeding. The purpose of Advance Ruling was that before making an investment, the investor should get a ruling. If now an appellate stage is introduced, the department as we know, will simply go on filing appeal and the investment will be delayed. The whole purpose of an advance ruling has been nullified. The dictum of "Make In India" by the Prime Minister has been given a quiet burial.
The whole big exercise of writing the GST law has been done in the most unimaginative manner. We need to get some genuine experts (not bureaucrats) who know about the Canadian GST law and the laws in many other countries to examine and suggest measures to make a proper GST law. Such people are there. We have only to request them to help.
The writer is retired member of the Central Board of Excise and Customs
smukher2000@yahoo.com
