A STEP AHEAD IN THE DIRECTION OF UNANIMOUS GST

[Nagesh Bajaj]

The comments of the Department of Revenue (DOR) on the ‘First Discussion Paper on GST’ reflect the inclination of Centre on different contradicting issues related to Goods and Services Tax (GST). On some issues the DOR agrees with the recommendations of the Empowered Committee of State Finance ministers (here-in-after referred as EC) while on some varies with it.

Comments of ‘DOR’ on different significant issues and their consequences are as under:

GST Model

The ‘DOR’ is agreed with the dual GST model having two components: CGST (Central GST) and SGST (State GST), recommended by the EC with appropriate binding mechanism to harmonise the various important aspects of the GST like rate structure, taxation base, exemption etc. between the centre and states.

In addition, IGST (Integrated Goods and Services Tax) on inter-state transactions should also be levied and collected by the centre. SGST on imports should also be levied and collected by the centre. Centre should pass on SGST collection on imports to concerned states on the destination principle.

The Central GST and the State GST should be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Also the ‘DOR’ is of the view that there should be a common base for taxation between Centre and States.

Accounts where CGST, SGST and IGST should be paid

Ministry’s view:

CGST should be paid to the accounts of the Centre.

SGST should be paid to the accounts of the states.

IGST should be paid to the accounts of the Centre.

Account-heads for all good and services would have an indication whether it relates to CGST or SGST (with identification of the state to whom the tax is to be credited).

Input Tax Credit

The Centre is agreed with the states recommendations on input tax credit. It means that the taxes paid against CGST should be allowed to be taken as input tax credit (ITC) for CGST and could be utilized only against the payment of Central GST. The same principle will be applicable for the SGST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Cross utilization of ITC between the central GST and the state GST should not be allowed expect in the case of inter-state supply of goods and services under the GST model. 

Credit accumulation on account of refund of GST should be avoided both by the centre and state except in some cases as of (a) export, (b) purchase of capital goods, (c) input-tax at higher rate than output tax etc. Refund /adjustment should be completed in a time bound manner. 

It wouldn’t be easy to assure refund in a time bound manner. 

Procedure for collection of Tax

The ministry agreed with the recommendations of states that an uniform procedure for collection of both CGST and SGST may be prescribed in the respective legislation for CGST and SGST, to the extent feasible. ‘It is proposed to prescribe a common registration form, common registration number, common return format, common service centers for acceptance of registration applications and return for Central GST and State GST.’said Sushil Solanki, Commissioner, Central Excise.

Threshold limit

The ‘DOR’ is of the view that there should be a uniform threshold for goods and services for both SGST and CGST. This annual turnover threshold could be ₹ 10 lakh or even more than that. The threshold should not apply to dealers and service providers who undertake inter-state supplies.

A problem of dual control may arise and an opposition would come primarily from the traders. Although they are subject to state VAT, the implementation of GST will mean that they would have to pay the central levy in addition to the state GST. Also they would be required to invest in Information Technology to maintain records as also with compliance.

This type of problem may be handled by facilitating a provision of compounding scheme as well as administrative simplifications for small dealers through measures such as:

a) Registration by single agency for both SGST and CGST without manual interface.

b) No physical verification of premises and no pre-deposit of security.

c) Simplified return format.

d) Larger frequency for return filing, through certified service-centres / CAs etc.

e) Audit in 1-2% cases based on risk parameters.

f) Lenient penal provisions.

LAWCRUX TEAM