Rajiv Gupta
It is not that you are devising a taxation system for the first time in this county despite the fact that GST is dubbed as the biggest reform. The bitter fact is that you have run taxation systems both at the centre as well as the state & local level but then you have failed to learn & make improvement for hassle free implementation. It is pertinent to point out that only technology can prove to be successful in collection of the taxes & not very lately, this work may be completed through artificial intelligence leaving aside uploading preparation of invoices & uploading of data therefore there should be no need of consultants for any guidance or filing of the returns. As a matter of fact, all assesses in the system should take advantage of the grace period & leniency in case of bonafide errors to do things on their own & get over with the fear of the GST in their minds. However, it is essential for the government of the day to ensure transparency & minimize human intervention by reducing scope for interpretation & consequent harassment.
The first & the foremost requirement of a robust taxation system is transparency & clarity in the minds of the users of the system for compliance. The GST miserable fails in Specifying the classification system based on which the tax is to be collected. The important point to note is that India has followed the HSN classification in the Customs as well as the Excise for long & taken it to 8 digits level for implementation then why the HSN system of classification should not be adopted in the GST law so that the worries in the minds of the users of the system are put to rest. It is not that there is no reference to the HSN in the GST law but then that is resulting in sheer confusion rather than providing a relief to the users because at certain places 4 digits of the code are used whereas at other places, the use of 6 or 8 digits is made. I have several cases where there are serious issues in terms of rates to be applied already & there is bound to be disputes going forward based on classification based on the way tariff is laid out. Any person with little experience of dealing with the Indian bureaucracy knows that what dangers follow in such situations. Further, please note that the business of the manufacturer is not changing in terms of the product therefore the ITCHS code being used by the manufacturer could be continued without any issue. The traders will be able to use the codes, which are mentioned in their supply invoices & for the stock in hand they should use the classification to be used by their suppliers & obtain the same from them to avoid any serious problems. Please note that HSN code used in the invoice will be one of the control points for the input Tax credit validation in the system as per the scheme of things. Therefore, it is of utmost significance to claim the credits. Is it not then difficult to understand that why the North Block mandarins used the HSN code to fix the tariff rates for the collection of the taxes under the GST. Why they failed to recognize this very basic requirement & which will be subject to litigation for long. Remember, classification disputes were in plenty when there was no approval of the classification lists & this may turn out to be one of the biggest pitfalls of the system. The users may be caught on the wrong foot & issued notices just because different manufacturers are using different classification codes. Was this stupidity of not specifying the classification system not undermining the GST reform?
GST is a technology driven system. The system is adopted per force because it is not humanly possible to organize the tax collection efficiently & minimize leakages. However, by increasing the number of rates within the product in itself they have unnecessarily created scope for adjustments. The policymakers say that the system is robust but if the system is robust enough then the strength of the system should have been used to facilitate the users particularly the exporters. The point is simple that that exports including deemed exports are zero rated. Therefore, the GST on imports related to the exports should have never been collected in the system. Please see the irony that you believe in the system for collection, validation & refund of the taxes wherever applicable but don’t believe in it for the purpose of grant & monitoring of exemption. Anybody with little common sense will realize that nothing can be more ridiculous than this for the reason that whatever does not belong to the GOI in terms of taxes should be collected in the first place & then refunded because there is no free lunch in this world. Not only this, the payment of taxes initially & refund thereof has several drawbacks in the terms of capital outlay as well as the costs associated with it. Therefore, why the bureaucracy has failed to run a system which will ensure that the exports, which is a priority for the nation & a substantial portion (around 20%) is taken care off & relived off the burden through exemption itself. Another irony is that they continue with the exemption of BCD through the Advance Authorization route then why the complete exemption could not be permitted because there was manual check as well as GST system check both feasible. Thus this is a massive failure on the part of the mandarins sitting in North Block & abject surrender by those sitting in Udyog Bhawan. The bureaucracy should also remember that refund in excess of the duty suffered by the inputs is actionable subsidy & subject to countervailing duty therefore why the Indian bureaucracy should put Indian exporters into jeopardy? Is it possible that the North Block & Udyog Bhawan officials are not even aware of these basics despite the fact that Countervailing duty has been levied on Indian exports in the past?
Another pitfall of the GST system is that only the user is responsible & accountable but the officials have no responsibility & accountability. This has been the bane of the Indian taxation system in the past & continued in the GST therefore where you see the semblance of facilitation & reform. Just combining several taxes cannot be dubbed as the biggest reform in any case. The recipient is not entitled to the claim of input tax credit in case the supplier has not paid the same. The moot point is that the supplier is obliged to pay the GST once the goods are removed & if he does not pay then the penal provisions will come into force & the applicable tax will be recovered from the defaulter. Is this not the responsibility of the GSTN officials & are they not accountable for the same. Will the defaulter be not subject to penalty & will the GoI be not fully compensated for the default period then how & why the Input Tax Credit should be denied to the recipient on case of default by the supplier. On the contrary, the GSTN system administrator will get immediate information about the default & he should be directly held responsible for the recovery of taxes with penalty. Since the administrator is in a position to get the default information first, he should trigger immediate action & this can be implemented by Artificial intelligence & mails should go both to the defaulting supplier as well as the recipient for remedial action. It is deemed essential because like the department officials are literally not interested in doing anything by themselves then why the users should be burdened to check the data time & again & sort out the issue working for free for the GoI instead of the GoI facilitating the users in all fairness. I don’t know why in the first place nobody thought about it & really think of reforming the system for facilitation. There is everything possible through the use of intelligent software but the Indian bureaucracy should be really willing to help the users in the right spirit. Why is it that you find that the officials have to really do nothing but then claim the credits for whatever good is happening & shift the blame to the users for any issues to the users for any of the wrongs? Is this the way to run the administration truthfully? This is utmost important at least in the case of small businesses & start ups. Please note that even the principle of equity demands that the recipient cannot be put into trouble for the default of the supplier. The business in on trust & the GoI has to advance this principle & not undermine it. Please note that if my friend commits a murder, I cannot be hanged for it therefore the same principle should apply in case of the GSTN system.
Another apparent flaw in the system is that of reverse charge mechanism where in the exempt manufacturer or trader is allowed a benefit but then the recipient is burdened with the payment of tax. Therefore where is the meaning of exemption because the tax in any case is collected from the recipient? The argument is that this will kill the unregistered dealers but then is it the right thinking when the GoI has not been able to create the jobs for the burgeoning population. The point is that when the GoI is collecting the taxes one way or the other then the GoI should not be at least selfish to say that this would kill the small traders & for any reason why should they be killed in the first place by a reform. The mom & pop stores exist in the developed countries & they have their own value in the societal set up therefore killing them by burdening the recipient to kill them cannot be the right thought process in any case. Just think of it that if I do not pay the GST under the reverse charge mechanism then how will the GoI monitor & control it. Therefore, will it be not wise to sum up all the purchases from the unregistered sources & pay up the reverse charge liability by way of single entry. I mean you should facility the tax payer & that is the underlying spirit rather than make his life miserable. Just think of it in the right perspective.
The most significant point to remember is that the policymakers are never in a position to devise a goods system come what may sitting in the AC cabins because they have no inkling about practicality & the ground reality. Therefore, transparency & release of complete information well in advance is one of the very basic requirements. Even this is not met in case of GST & we are assured about the biggest reforms being successful. For this reason only, I think, it is said that the law is an ass & I am responsible for it & it has proved true repeatedly in case of Indian bureaucracy. Here again, whether the North Block & the Udyog Bhawan officials ever accept it or not, the MoF has simply taken an isolated view & this can kill the small exporters & the merchant exporters & this can be an impending disaster in waiting. I would be happy to be proved wrong.
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Really good article. I do not understand when the Govt official shall start taking respeonsibility and be proactive to ensure that compliance happen then and there. It seems Govt has accepted the facts that Govt Official shall never change and there irresponsibility is shifted to Tax payer.