Whether Centralized Assessment possible under GST atleast for LTUs? – a dream or can be made as a reality?
Present situation for Large Tax Payer Unit
A number of tax administrations in the world have established special systems to administer their large taxpayers. In the 1950s and 1960s, several OECD countries introduced special tax audit operations for large corporations. Following the international practice, the Centre Government has also adopted the concept of the Large tax payer unit in the year 2006.
Presently, LTU is being set-up in Bangalore, Chennai, Delhi, Kolkata and Mumbai. The units having income tax/ excise/ service tax payment beyond threshold limit and presently liable to income tax/corporation tax under the Income-tax Act, 1961 in any of the five cities can be registered as a LTU at the respective locations.
Besides other procedural benefits such as single window clearance, uniformity in taxability/ classification, etc., one of the key benefit to be registered as LTU is that all assessments of Income tax/ Central Excise/ Service tax would be undertaken by one single office irrespective of the location of the operations/ factory. Further, the additional benefits of registration as LTU can be read at http://ltu.gov.in/index1.htm.
Present situation under Model GST
The Model GST law envisages that an assessee (the service provider/ manufacturing unit/ traders) is required to take separate registration in each State in which he is so liable to pay taxes. The same has been clarified by the FAQ issued by CBEC. Hence, an assessee having multiple operations all over India is required to take separate registrations in each states and every registration would be considered as a different taxable person.
The Model GST law further provides that the Commissioner or his representative may undertake audit of the business transaction of any taxable person at the place of business of the taxable person.Therefore, an assessee having multiple registrations would be audited by the respective authorities separately for each registration.
For e.g. a bank having head office in Maharashtra and branches all over India and serving the customer from therein would be required toregister in the respective States and comply therein. In such scenarios, the said bank would be audited by the respective States vs present situation where it is getting audited only at centralized location in Maharashtra.
In respect of auditing/ assessment of the assessees, the GST Council has recently recommended that that an assesses with turnover of over Rs. 1.5 crore would be examined either by officers from the Centre or State to avoid dual control. However, the assessment of the existing service tax assessees who are currently assessed by Centre, would remain with it till the time State officers are trained. However, GST Council has not provided any recommendation/ direction with respect to the Status of current LTU Assessees or continuity of the LTU mechanism.
Considering the above, as on date, it is clear that there would be multiple audits for an entity (including service entity) having business operations/ registrations in respective States. Given the said scenario and the new GST law, the likely chances of different positions being taken by the different State assessing authorities cannot be ruled out.
For example, in case loan is given in respect of an immovable property situated in Rajasthan by Pune Branch of bank to it’s Pune based customer. For the taxable amount received (such as processing fees) in respect of the said loan irrespective of the fact that whether the same would to be taxable as intra-State or Inter-State, the underling question is whether all States will agree that its either an intra-State or Inter-State?
Also, typically, in case financial institutions while the relevant papers/ documentation would be collected at branch situated in various States, however, the decision whether to sanction a particular loan or not is taken by analyst team located centrally at head office. Further, once loan is approved, the amount would be disbursed from the bank account situated at head office. Also, the customer support is provided from team centrally located. Again the question here would be who would be the service provider whether branch or head office. Irrespective of the technical position, whether all States would agree for the same position?
To avoid the challenges in future, the GST Council should recommend the continuity of the concept of large tax payer unit under the GST Scenario which would benefit the industry in many ways such as:
- All India audits would be undertaken from single location only (may be by dedicated officers team only);
- As the audit would be undertaken by dedicated officers team, the likely chances of different stand in different states will not arise;
- Taking different stand by different State authorities for the valuation issues for inter-branch transactions may not be there;
- Saving in operational cost from audit perspective, manpower post at each States; etc.
To protect the interest of the respective states, the GST Council may recommend that the officer bearers of the Large Tax Payer should also include the tax officers from respective states.
Disclaimer – The view expressed in this article are personal.