GST Authorities can investigate affairs of taxpayers for a long period of 5 years and 9 months. It is common experience that GST Authorities calls for details and documents for such a long period and that too within very short time.
The noble intention of GST legislation was to replace multiple indirect taxes into single uniform tax law across the nation so as to relieve tax payers from hassles of multiple taxation, high tax incidence, ambiguous tax laws, unfair tax administration, prolonged litigations, huge compliance burden, harassment, corruption etc. The curbing of revenue leakage and tax avoidance was also one of the avowed objective of bringing GST. Let us introspect whether nation has achieved the avowed objectives in GST journey of 5 years.
In spite of nation achieving buoyancy in tax revenue, can Government boast of bringing ease of doing business, reduction of harassment and corruption? The answer to this may be “No”. Unless certain unreasonable and unfair provisions are diluted and irritants are removed, GST may not achieve the objectives for which it was brought in. Some of such irritants are as under:
Multiple proceedings and overlapping jurisdiction
There are multiple proceedings such as scrutiny of returns, summary assessments, investigations by Anti-Evasion authorities, Departmental audit, access to business premises, inspections of records and accounts, inspection and interception of vehicle and goods in transit. Further, there could be investigation by Director General of GST Intelligence. It is indeed stressful for tax payers to attend multiple proceedings and the grind. This results into voluminous compliance, hampers ease of doing the business and also brings unnecessary interface between tax payer and department resulting into harassment and corruption.
Recovery proceedings and threatening of prosecution
It is observed that recovery proceedings are initiated before concluding the investigations and adjudication. The taxpayers are often threatened of prosecution even if the case involves interpretational issues. The powers are misused or used non-judiciously.
Unduly long extended period of limitation
GST Authorities can investigate affairs of taxpayers for a long period of 5 years and 9 months. It is common experience that GST Authorities calls for details and documents for such a long period and that too within very short time. The summons are issued very casually mainly to pressurize the taxpayers.
In the era of self-policing, stringent cross checking, multiple controls, artificial intelligence and electronic surveillance, such long period of limitation should be curtailed to 3 years as it was there in Service Tax and Excise legislation few years back. Long period of limitation brings lethargy in tax administration and creates lot of hardship for trade and business.
Non-Constitution of Appellate Tribunals
It is indeed unfortunate that even after 5 years of GST implementation, the Appellate Tribunals are not constituted. This leaves tax payers remediless under the Act. The tax payers are put to vulnerable situation in case of high pitched adjudication coupled with adverse orders from first appellate authority. The tax payers have to rush to the court for seeking justice resulting into unnecessary litigation cost, hassles and even clogging the courts.
Advance Ruling Authority
The authority consist of departmental officers and does not have any representation from the Judiciary. It is observed rulings are invariably delayed beyond the statutory period of 90 days. This kills the very purpose for which such Authority was constituted. Further, it is observed that the general tendency of this authority is to take pro-revenue position. There are conflicting rulings on the same issue by advance ruling authority of different States. This has created lot of confusion and chaos amongst tax payers and professionals. It may, therefore, be advisable to have a central body for advance ruling consisting of judicial members.
An aggrieved tax payer has to pay 10% of disputed tax at first appellate level and further 20% at second appellate level. The business and trade is witnessing huge tax demands. Depositing 30% of disputed tax to get appeal admitted will create financial hardship and hindrance for seeking justice. It may breed corruption at ground level.
In case of supply of service, tax is collected on advance receipts. GST levy should trigger only when supply takes place. Taxing advance means tax is collected before happening of taxable event and before tax is due to the Government.
The tax payer is practically compelled to maintain two sets of account i.e. one on receipt basis and other on accrual basis. The taxpayer faces issues such as reconciliation issues, refund and adjustment issues, allocating advance between goods and services etc. The reconciliation of financial statements and tax returns is a most cumbersome process for any business entity of reasonable size at the time of filing Annual return, Form GSTR-9C, departmental audit or scrutiny.
Legislative intent behind such provision seems to plug tax avoidance where invoices are not made against receipt of advances. Tax authorities have adequate powers to detect such malpractices. This, being an anti-avoidance provision, should be sparingly used against hard core tax defaulters. Imposing such provision across the board inflicts undue hardship on law abiding tax payers.
Non-adjustment of tax erroneously paid under wrong tax head
In case where taxpayer has paid CGST and SGST instead of IGST or vice versa, tax payer is obliged to pay the correct tax and claim refund of tax erroneously paid. This inflicts unnecessary hardship of arranging funds for paying correct tax and going through tedious process of claiming refund of tax paid. The express provision in the Act should be made enabling GST Authorities to make suo-moto adjustment without involving the taxpayer.
Denial of input tax credit (
ITC) to taxpayer in case of failure of vendor to deposit the tax
This is the most unfair and unjust provision in the Act. The supplier is a taxable person liable to discharge GST. Shifting the tax burden to buyer (by way of denial of credit) is akin to collecting tax of tax defaulter from tax abiding citizen. Here, honest tax payer is penalized for wrong doing of tax defaulter charging and collecting GST as a Government agent based on the strength of GST registration granted by the Government. The revenue loss on account of failure of Government to recover tax from defaulter should be loss of Government and it should not be passed on to honest tax payer.
Judiciary has consistently held that ITC cannot be denied to customer when vendor fails to pay the tax. Hon’ble Supreme Court has held that ITC is an indefeasible right of the tax payer and it should not be jeopardised. The Government should do away with this unjust provision at earliest.
Denial of seamless credit of input taxes
Seamless flow of input tax credit is a backbone of GST. Any hindrance in seamless flow of input tax credit will defy the object of GST.
The taxpayer having registration in one State is unable to take input tax credit in respect of hotel accommodation, restaurant services, seminars, business functions, property related services etc. availed in other States. This defies theory of one nation one tax. The Government should amend Place of supply provisions to facilitate free flow of ITC in all such cases.
Section 17(5) gives the long list of ITC credit being denied even though most of such expenditure is incurred in the course of or furtherance of business.
These services are used by business entities in the course or furtherance of business.
Above are few obstacles and irritants in smooth functioning of GST. There are other arbitrary and unjust provisions besides erratic functioning of GST Portal, huge compliance burden, high handedness and lack of accountability at ground level of GST administration. Let us sincerely hope that Government takes due cognizance of concerns of most important stakeholder i.e. taxpayer.
(The writer is Partner, N.A. Shah Associates)