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The RFMLR Editorial Board recently interviewed Mr. Shubham Vijay, Associate Partner, Lakshmikumaran & Sridharan on the topic. "Reforms Required in the Indian GST Regime."
Shubham Vijay has over 8 years of specialized experience in Indirect Taxes, having worked across a wide range of industries, including Real Estate, E-Commerce, Manufacturing, Telecommunication, Hospitality, Tourism, Power, Education, and Healthcare. His expertise includes providing indirect tax advisory services, particularly in transactional advisory, tax structuring, due diligence, and tax reviews. Shubham has participated in PAN India investigations led by central and state authorities, as well as the Directorate General of GST Intelligence (DGGI). He is also experienced in handling lower-level litigation, such as appearances in adjudication and commissioner appeals, and has represented matters before the GST Council. In addition, he offers compliance support and review services to ensure adherence to tax regulations.
The Group of Ministers (GoM) on Rate Rationalisation in its meeting on 22 August 2024 has said that there is no need to change the GST slabs for now. How far do you agree with the view of the committee?
Answer: An overly complicated tax structure hinders with the ease of doing business and as such, the ease with which a person can comply with tax laws contribute to a country’s ranking on the Ease of Doing Business Index. Multiple tax slabs are generally seen as one of the factors which contribute towards complicating the tax structure.
Having said that, our tax slabs have been devised in such a manner that the essential goods and services are either taxable at “Nil” rate or 5 per cent, and it is only the luxury/sin goods and services which falls under the purview of 28 per cent tax slab. A uniform tax rate cannot cater to such a situation.
Moreover, it is not necessary that a change in tax slabs would necessarily result into simplification of tax structure. There are multiple aspects which needs to be taken into consideration before effecting any rate change, particularly any rate change must be done keeping in mind the overall impact on the supply chain.
Yes, there are some problems associated with multiple tax slabs, particularly issues in relation to classification of goods and services. However, the government is continuously working towards rationalizing the GST rates without altering the scheme of multiple tax slabs. Recent recommendations made in the 54th GST Council Meeting showcases the approach of our government towards rate rationalization across various sectors.
Last but not the least the ministerial panel on GST rate rationalization is set to meet again in last week of September for discussing tweaking of tax slabs. It would be interesting to see the outcome of the meeting considering that some of the members believe that the tinkering with GST slabs would cause unwarranted disturbance with the GST system, which has now been somewhat stabilised.
There have been representations suggesting that the Input Tax Credit (ITC) Ledger should be permitted for use in making tax payments under the Amnesty Scheme. Additionally, in cases where disputes exist for the time-barring period of ITC under Section 16(4) of the CGST Act, it has been proposed that amounts under this section should be deducted from the disputed amount to benefit from the Scheme. How do you view these representations, and what impact might they have on the effectiveness and fairness of the Amnesty Scheme?
Answer: In previous Amnesty Schemes, settlement of tax amount via cash was only allowed in order to avail the benefit of Amnesty Scheme and also, refund of any prior payments made in connection with the issue in Amnesty Scheme was not allowed. However, under GST law, a taxpayer is allowed to utilize the eligible ITC for making payment towards the tax demands confirmed by the tax authorities. Further, Courts have consistently held that the balance of eligible ITC is to be considered as an amount available to the government. Thus, considering the overall scheme of GST, there should not be any cognizant reason to limit the settlement of tax amount via cash to avail the benefit of the Amnesty Scheme specially wherein the demand itself pertains to ineligible ITC.
Further, in the present Amnesty Scheme, if ITC is allowed to be utilized for the settlement of tax amount, then it could ease the liquidity constraints of the businesses, particularly those taxpayers who are having accumulated ITC and are otherwise ineligible for a refund. As such, in certain cases, the decision of the taxpayers to avail the benefit of the Amnesty Scheme may also hinge on this particular factor.
Recently, in the 54th GST Council Meeting, it was recommended to introduce machinery provisions to provide for the procedure and mechanism to avail the benefit of the amnesty scheme. Thus, we need to wait for the final print before we can be sure if ITC can be utilized for payment of tax to avail the benefit of the amnesty scheme.
GST taxpayers have had difficulties in the past owing to ambiguities and interpretational concerns, which frequently resulted in unpaid or underpaid taxes. The government addressed these issues with circulars, although this strategy has raised concerns about its legitimacy. The proposed inclusion of Section 11A in the CGST Act aims to formalize the government's ability to regulate prior conduct. How do you see this affecting the transparency and fairness of GST compliance, especially on the 'as is basis' regularization and its implications for taxpayers who have already paid taxes as opposed to those who have not?
Answer: Under GST law, prior to the insertion of Section 11A, there was no enabling provision for the government to regularize the past practice based on common trade practice. However, the government basis recommendation of GST Council used to do the same by way of issuance of circulars. Further, the circulars never provided for the refund of any tax paid prior to the regularization.
In order to provide a legal sanctity to regularization of past practice based on common trade practice, Section 11A has been inserted under the GST law. Section 11A is pari materia to Section 11C of Central Excise Act, but with an exception that under Section 11C, there was a specific clause for the grant of refund in case where the taxpayers have paid tax prior to the regularization.
Further, in the erstwhile indirect tax regime, there is rich jurisprudence that in case where a taxpayer has paid the duty prior to regularization of past practice, the taxpayer shall be refunded the tax paid even in absence of a specific refund provision. However, the applicability of the same is yet to be tested in the context of Section 11A and as such, it needs to be seen how this jurisprudence will be evolved under GST law. One can only hope for better days with introduction of Section 11A otherwise from taxpayer standpoint, situation remains same as it existed earlier.
Since the Competition Commission of India (CCI) took over Anti-Profiteering cases on December 1, 2022, it has struggled, citing that it is not its core function. With only 27 cases resolved, around 140 still pending, and 184 disputes in various high courts, the GST Council has recommended a sunset clause effective from April 1, 2025, for new Anti-Profiteering applications. There is also speculation that the GST Appellate Tribunal (GSTAT) may take over this mandate if necessary. How do you view this shift in responsibility, and what could be the implications for the future of Anti-Profiteering enforcement in India?
Answer: The anti-profiteering provisions primarily ensures that a benefit arising out of any reduction in rate of tax on any supply of goods or services, or a benefit arising out of availability of ITC, shall be passed on to the recipient by way of commensurate reduction in the prices of such goods or services.
In order to determine the benefit, one need to first ascertain the tax which constituted a part of the cost to the recipient prior to reduction in tax rate, but it now constitutes a benefit to the recipient. Further, the incidence of some taxes which were not charged, and consequently constituted a part of the cost, also needs to be ascertained. Thus, the computation of benefit which was supposed to be transferred to the recipient in case of reduction in tax rate, is hyper technical in nature.
Now, considering that the GST Appellate Tribunal has been empowered to adjudicate the anti-profiteering matters, it is a welcome change as the GST Appellate Tribunal is going to be a specialised body for handling matters under GST law. However, as the constitution of GST Appellate Tribunal is already delayed and it is going to be overburdened with the cases after its constitution, DGAP will have to play an integral role in determining the anti-profiteered amount as tribunal is going to heavily rely on the report furnished by the DGAP.
Last but not the least, the future of anti-profiteering matters will also depend on the constitutionality of the provisions which is now pending before the Hon’ble Supreme Court.
With the ongoing evolution of the GST framework in India, the GST Appellate Tribunal is expected to become operational by the end of this year or early 2025. What are the reasons for the significant delay in establishing the GST Tribunals? Additionally, what impact do you anticipate this will have on India's dispute resolution system under the GST framework?
Answer: The delay in forming the GST Appellate Tribunal (GSTAT) stems from various factors, primarily involving judicial scrutiny regarding its structure. In various decisions, concerns were raised regarding the absence of judicial members, which has stressed the need for a well-balanced panel as well as need for judicial expertise to ensure Tribunal’s ability to resolve disputes in an impartial manner.
The necessary yet excessive use of writ jurisdiction by the taxpayers in absence of independent appellate tribunal has further accelerated burden on the constitutional courts. This has also increased hardships for the taxpayers including burden of interest, delay in refunds, and cash flow issues due to pre-deposits of taxes.
Pursuant to the judicial scrutiny over the Tribunal’s composition, several changes were introduced vide Finance Act, 2023, with respect to the change in structure and composition of GSTAT. The establishment of GSTAT which has now been notified with effect from 01.09.2023 once operationalized would go a long way in reducing the pendency of litigation in high courts which taxpayers had to approach in the absence of an appellate tribunal.
The Andhra Pradesh High Court recently ruled that no exemption from the payment of compensation cess under GST is available on the import of goods by units in Special Economic Zones (SEZs), as the GST (Compensation to States) Act, 2017 is not referenced in the First Schedule of the SEZ Act, 2005. This decision was highlighted in the case of M/s. Maithan Alloys, which argued for such exemptions based on Sections 7, 26, and 50 of the SEZ Act. In response, the GST Council has now recommended a retrospective exemption from compensation cess for SEZ units from July 1, 2017. Do you think the recommendation appropriately addresses the concerns raised by the court or follows the rationale behind the judgment?
Answer: Given the purpose for which SEZs have been established, the intent was always there to not levy GST Compensation Cess on the import of goods by a SEZ unit. However, the decision of Hon’ble Andhra Pradesh High Court has highlighted the legal lacunae in the provisions of SEZ Act and Customs Tariff Act, particularly that the SEZ Act merely exempts “duty of customs” and not any cess. The said lacunae have been taken care by the Government’s circular which is typically binding on them.
However, the exercise of power by the government to exempt the levy of GST Compensation Cess by way of issuance of a Circular is questionable. The power could have been exercised by the government vide a Notification issued under Section 11A of the CGST Act once it is notified.
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