GST Makes Taxation Simple In 8th Year, But Not Entirely Hassle-Free

The Secretariat dives deep into the anatomy of GST structure, and finds out those concerns as well as the benefits.

What Are The Benefits Of GST?

India, before the GST, had a plethora of indirect taxes. These taxes were subsumed under a unified regime for indirect tax. 

Under earlier central taxes, various central and additional excise duties, countervailing duties, service tax, central surcharge and cess were subsumed within GST.

Within state territory, state value-added tax, sales tax, luxury tax, entry tax, entertainment and amusement tax, taxes on advertisements, state surcharge and taxes were subsumed under GST.

Basic Customs Duty, tax on petrol and diesel, tobacco and alcohol, stamp duty on property, electricity duty, vehicle tax, and property tax are still outside the ambit of GST.

Getting rid of multiple taxes resulted in cheaper products for the end consumers. GST has also expanded the scope of tax credit. Previously, credit of a tax paid under one type of tax was not available in another type of tax.

Now, getting input credit is easier and simpler. Consolidating taxes under GST simplifies tax management, benefiting businesses with easier compliance and operational efficiency in inter-state business.

Axat Vyas, founder chairman of the National Association of Tax Professionals, said that GST has enabled a sharp increase in the number of taxpayers - a testimony that businesses trust this tax regime. "By and large, the officials manning the department want to promote a transparent and fair tax regime in the country," he said.

Revenue Generation: Future Is GST

Chartered Accountant and former co-chair of Gujarat Chamber of Commerce and Industry (GCCI), Nitesh Jain, told The Secretariat that bringing multiple taxes under the GST umbrella has reduced classification of taxes, brought a single procedure and has made the entire process online. By bringing most state taxes and central taxes under one roof, the GST brought major relief for businessmen having operations in multiple states of the country.

“If a client has businesses in (say) Gujarat, Tamil Nadu and West Bengal, there were different laws to follow, different forms to fill and different registrations needed for different state governments. With GST, all these complications are gone - a major simplification of the tax regime,” said Jain.

Know The Challenges & Issues With GST

However, experts have also said that despite claims of simplification, a lot needs to be done.

Nayan Sheth, a senior advocate in the Gujarat High Court and chairman of the Indirect Tax Committee of GCCI (Gujarat Chamber of Commerce and Industry), argues against the simplicity of GST.

“It is technically and legally very complicated law, and difficult for a normal person to follow. Its provisions are clumsy. The prevalent perception that it is simpler because it is online is wrong. What is acceptable on the portal is not always permitted under the law,” said Sheth.

The Achilles’ Heel: Input Tax Credit

Input Tax Credit (ITC) is a cornerstone of any value-added tax that ensures transparency and compliance, leading to higher tax recovery. Every purchaser is entitled to ITC on the goods purchased. However, delay and denial are frequent, leading to problems for the businessmen.

There are cases where the seller has not deposited the tax, and the buyer, who is entitled to ITC, cannot claim it. “The denial is rampant. The situation was worse 5-6 years back, but even today, we continue to face this problem,” said Sheth.

“Tax authorities have to be vigilant, especially concerning the returns filed in new registrations. Anomalies, if any, can be found in the first few years. Many suppliers have suddenly wound up operations without paying taxes. Buyers, with no fault, are deprived of ITC. While purchasing goods, they ensure that the seller has GST registration. It is beyond their means to ascertain that the supplier would turn out to be fraudulent,” he added.

Vyas said, “If the buyer has invoice, bank statements and evidence of transport of goods, ITC cannot be denied to him just because the seller has failed to file the return or deposit the tax. If the credentials of the buyer are bona fide, then the action should be taken against the seller and not the buyer.”

Jain said, “GST authorities not only make efforts to collect the tax from the seller, but they also serve notices to the buyer to return the credit. Suppose the goods fall under the 18 per cent category, the tax authorities try to get the credit back from the buyer and force the seller to pay the tax. Thus, getting 36 per cent tax instead of 18 per cent.” 

Traders also complain that ITC is offset only against their tax liability. So, if there is surplus ITC but no tax liability, then the money will lie with the government and the traders will be deprived of their money. This has robbed businessmen of their liquidity, who have to take loans to operate day-to-day business, increasing their debt and cost burdens.

Arbitrary Actions Cause Litigations

Many old problems have been removed, but the new regime has new problems. The two major areas are interpretation and litigation. Some officers are using informal means to harass the businesses, which goes against the GST, often termed as ‘First Professional Law of Digital India’.

No provision under the law empowers the officials to seek documents, account details and other information informally through an e-mail, phone or documents without a Document Identification Number (DIN).

“If the e-mail is unanswered, then phone calls with threats of summons or raid follow. This brings a bad name to the tax administration. The traders start avoiding the queries of genuine officials, delaying the legal process. The businessmen have to face the brunt of one-sided actions,” said Vyas.

Courts have mandated mentioning the provisions of law under which the information is sought in cases of audit, special audit, inspection/search/seizure.

Bone Of Contention: Refunds

In case of non-payment or under-payment of taxes, GST officials are entitled to issue a demand notice under Articles 73 and 74. Article 73 is enforced only in case of discrepancy in the returns filed or if the tax is not paid or underpaid. Article 74 is a direct allegation of intentional tax evasion.

The penalty or punishment is minor under Article 73. However, the penalty and punishment are higher under Article 74. “Authorities often issue notices under Article 74, even though Article 73 applies. This is a misuse of authority by tax officials. This conduct is seen more by Central GST authorities than State GST authorities,” said Jain.  

Sheth told The Secretariat that often businesses know that they can challenge the tax officials’ arbitrary demand for higher taxation, but accept it, fearing that litigation would lead to higher expenditure and waste of time.