The administration is in place to implement the law in a manner that justice is not only seen to be done but inspires the people to be fully compliant with the law. The basic requirement for this purpose is that the law should be clear & simple to understand leaving no scope for interpretation & abuse of authority & the users should have faith that if any anomalies are pointed out then that will be examined & justice done so that the honest tax payers do not suffer in any case. However, it appears that the miraculous Indian bureaucracy does not believe in these principles & therefore the law is written like a double meaning dialogue, which leaves ample room for several interpretations for abuse. You pick up any law & you will find that the position remains the same i.e. interpretations of the official in position is the law unto himself & thus he has the leeway for abuse. The position takes a turn for the worse because there is no responsibility & accountability in the system. This vicious circle is so strong that if anybody in the system tries to go beyond the established norms then that person will not be able to survive. The GST is touted as the biggest game changing reform, which has been implemented but then refunds of the exporters remain stuck & nobody including the Finance Minister seems to be bothered a wee bit. In the first instance the problem is pinned on the exporters themselves. Therefore, denial of the existence of a serious problem at the level of the government in the right earnest is the way out. Under this kind of scenario any hope for justice is the casualty. Every businessman knows what the truth is but no one has the spine to stand up & call out the hypocrisy.
In this story, we talk about how the administration indulges into daylight robbery & kills the small & medium enterprises & just be not even bothered about it. The case in point is about Cenvat credit in respect of the goods stored in a warehouse after completing the import clearance as permitted in terms of the Central Excise law. Under the C. Ex. Regime, the assessee was allowed to bring such goods into the factory of manufacture within 1 year in lots & allowed to claim the credit as & when the last lot is received in the manufacturing facility. It is pertinent to point out that the same legal provision prevails under the new GST regime also.
Let’s see this by way of a case study to understand the full implications of what is happening & how this can kill the small & medium enterprise. A small enterprise operating under the name & style XYZ in Mumbai is registered under Central excise & migrates to GST under the provision of the law. The said enterprise has a small amount of Cenvat credit of Rs. 90,000 as per the last return filed on 30.6.2017. This is because the goods are consumed & the available credit is utilized for the payment of duty liability. However, the said SSI unit has imported raw materials lying in a warehouse, which was cleared after the payment of the applicable duties. The raw materials could not be taken to the manufacturing facility because of the lack of storage facility. The Cenvat duty element involved in these imported raw materials cleared on 5.4.17 from JNCH Customs lying in the warehouse is Rs. 10.80 Lakhs. The assessee has brought these goods in the manufacturing facility on 30.8.17, 12.9.17, 12.10.17 & 21.11.17 i.e. within the full compliance of the erstwhile C. Ex. Law & also as per the provision contained in the GST law & used the same in the manufacture of goods & on which GST liability is discharged. Please note that the assessee has paid CVD duty @ 12.5% & SAD of 4%.
Now, the position is as under:
The aseessee filed the ER-3 return for the period June, 2017. The assessee filed the GST 3B, GSTR 1, GSTR 2A, GSTR 2A as required from time to time. Further, the assessee filed the TRAN-1 for the transitional credit to be claimed but to his horror finds that there is no column in the TRAN-1 to claim the credit in respect of the goods stored outside the manufacturing facility in a warehouse before 30.6.2017 & received in the manufacturing facility in several lots for consumption. Not only this, the assessee has been compelled to pay the GST of 18% on the goods manufactured & supplied. Thus the assessee has suffered from double jeopardy i.e. they were not allowed the credit of the duty paid & then they were forced to pay the complete tax on the goods manufactured & supplied. This is a colossal loss several times the small profit earned by the assessee. To any person with a little common sense, the first question would be that how can the MoF rob the assessee like this? Why should the assessee be subjected to such losses & grin & bear those losses? For sure, nobody is doing manufacturing & supply to serve the interest of the GoI in this manner!
In terms of the basic principle of the value added taxation system propounded as basis of taxation, it is essential that the credit of taxes paid is allowed to mitigate the cascading effect of taxation. This is the very basis of the Value added taxation system & cannot be flouted under any circumstances when the activity of the assesssee is held to be in full compliance of the law both under the C. Ex. as well as the GST law. However, this is not to be & all thanks to the miraculous Indian bureaucracy.
We are given to understand that the GST reform is in the best hands i.e. IIT & IIMs, who are members of the elite IRS cadre. Off course, the GST will represent the combined wisdom of all those sitting in the North Block & others involved through the GST council but the bitter fact is that they miss out on the very obvious basic requirements in the system to ensure justice. If this is an omission then it is really bad & if it is on purpose then this is a case of broad daylight robbery & therefore unacceptable. Now, let us see, why we come to that conclusion:
The position is that the assessee could not avail the Cenvat credit in respect of the imported goods as the goods were stored outside the factory premise after the completion of imports on payment of duty. As per the extant legal provisions we were under obligation to being the last lot of the goods into the manufacturing facility within a maximum period of 1 year from the date of importation & thereafter avail the said Cenvat credit as per the vested rights in terms of the applicable C. Ex. law. However, there is a change in the taxation regime & GST has replaced the C. Excise law as such. The GST regime also contains a similar legal provision. Therefore, any reader with little common sense will conclude that the legitimate Cenvat credit of the importer cannot be misappropriated under any circumstances. It is pertinent to point out that the subject goods have been received in the manufacturing facility in full compliance of the law & consumed in the manufacture of the finished goods both in terms of the erstwhile C. Ex. Law & the GST law as such. It is significant to point that why the policymakers will allow the goods to be stored outside the manufacturing facility in a warehouse under the C. Ex. As well as the GST law. It is important to recognize the fact that practically it is essential to allow the facility of storage outside the manufacturing facility & therefore both the C. Ex. as well as the GST contain the said provision in substantially the same form. The moot question which arises then is that how during transition from one taxation regime to another, the misappropriation of tax can be acceptable? Why should you kill the SMEs by misappropriating the legitimate Cenvat credit entitlement?
The basic principle of Value added taxation system is that the recipient should get the credit of taxes paid in case of a B2B supply to set off the taxes paid & this principle cannot be violated in any case. However, the miraculous Indian bureaucracy believes that the principles are good for showcasing & that is that & when it comes to formulating the law & implementation thereof, they are law unto themselves therefore they can misappropriate your legitimate entitlements & no assessee is in a position to pin them down for this grave injustice as they are not subject to accountability.
For any lawmaker it was important to look for provisions that will go beyond the filing of the last return under the Central Excise in terms of the existing law so as to ensure that the assessee does not lose their legitimate entitlement under any circumstances. This is not the solitary instance where the bureaucracy is short changing the industry, another instance is where the credit forward of the Cenvat credit is restricted to purchases within one year from the date of the GST implementation & yet another one is that there is no provision to claim credit in respect of the C. Ex. duties or Service Tax paid now in respect of old liabilities or where refund is arising out of an order. Can you really believe that the Indian bureaucracy simply forgets their responsibility only in respect of the benefits due to the assessee but only bothered about collecting about taxes. Can this way of functioning be termed morally & legally acceptable? Why no auditing agency ever point out such wrongs committed by the policymakers & why the administration is never willing to take these culprits to task! What kind of inspiration these actions provide to the users? Is it not that avoid paying the taxes wherever like the GoI does in terms of grant of legitimate credit. Therefore, will it not be more meaningful if the government shows a little more honesty in grant if credits wherever it is due to the assessee?
Is the MoF not able to comprehend that the credit of taxes paid cannot be denied & then fresh tax collected on the goods manufactured & supplied & if this is inflicted upon the SMEs then where from those taxes have to be paid & how can these SMEs then survive? Is the omission not but obvious & needs to be taken care off.
Last but not the least important is the fact that the CBEC introduced the concept of Anti-profiteering i.e. the industry should pass on the benefit to the consumers in case of the reduction of tax incidence. Anyone can complain & that will subject the offender to a show cause notice. Does this not apply to the government & the Indian bureaucracy too? I am complaining through the public domain that denial of Credit as permissible under the erstwhile law to be carried forward by way of omissions is a manipulative way of misappropriating the legitimate credit of the assessee therefore actionable offence. The culprits need to be identified & taken to task like the industry offenders, who are indulging into profiteering. Why the law should be differently applied to the industry & the policy makers. As a matter of fact, the bureaucracy should be held accountable stringently like the industry & swift action taken. In a rule based open & transparent software driven approach, there is no room for such errors at all. However, as you will see & experience, nobody in the bureaucracy is least bothered & therefore this would continue as of nobody ever complained about it!
If you will see, there is no dearth of laws in this country. However, it is always a case of very haphazard implementation. The administration is never able to deliver in time. There is a lesson for all of us in this. It is essential to spell out the law in advance in a very clear & transparent manner so that the users can read & comprehend the same. Further, in case of transition from one regime to another, it is better to run the system offline for some time so that the users become familiar with the requirements of the law & format filling & then complete a few assessment cycles through online processing & then take the system online so that all are on the same page. However, as on date, even these basics were avoided. They are in a rush to launch the e way bills so as to maximize the revenue but then the moot point is that the GoI should be more attentive to serve the GST assesses & impart justice rather than being simply collection oriented. The GST council tried to collect brownie points by decreasing the taxation rate on proactive basis but then these structural issues, which do not require any deep thinking as they are simply governed by common sense & rationale needs to be attended on priority so that people have faith that the system is just & responsive.
(Author Rajiv Gupta can be reached at firstname.lastname@example.org)