GST – Intended to be One Nation One Tax – In practice it is One Center and Several States with different interpretations – Various aspects that need immediate attention
Introduction: The Goods and Services Tax (GST), aimed at being “One Nation One Tax,” faces challenges in its implementation. Despite having a unified framework, differing interpretations by various states, legal intricacies, and administrative hurdles have resulted in significant issues. This article delves into the critical aspects demanding immediate attention for a more effective and streamlined GST system.
It is One tax since the Act and Rules of CGST and SGST/UTGST are identical. But, it is administered by One Center and Several States/Union Territories in their own fashion. It has become a new wine in the old bottle. The law is drafted in a complex manner, with a liberty to multiple interpretations, resulting in huge litigation. Litigation has increased compared to previous Central Excise/Service Tax/VAT regime.
Bank accounts are attached immediately after passing the assessment orders, not allowing the tax payers to file 1st It is practice of the State Tax administration, in the States of Bihar, Jharkhand etc., to attach bank accounts as soon as the assessment orders are passed, without even waiting for filing of appeal by the assesses. The State GST officers are following the same age old practice even during GST regime also. While the statute provides for appeal, recovery of the disputed demands even before filing appeal is totally illegal. Circulars should be issued on this aspect, advising the officers not to attach bank accounts, since the law provides for filing 1st appeal by depositing 10% of the disputed tax demand.
Since Tribunal is not yet operational, even after nearly seven years of implementation, tax payers are forced to approach High Courts, incurring huge expenditure and agony. Even though Tribunal is not operational, in some of the States bank accounts of the tax payers are attached, once the adverse appellate order is passed. While the provisions permit filing of 2nd appeal by depositing 20% of the disputed tax demand, recovery notices are sent to banks for payment of entire amount of demand as per the assessment orders, confirmed in the appellate order. Several of such cases are reported in the State of Bihar, Jharkhand, Uttar Pradesh, Orissa etc. This is the practice followed by State Tax administration(s) even during Sales Tax/VAT regime. They are resorting to same practices during GST regime also. This shows the poor administration of taxation in the Country, forcing the tax payers to approach High Courts. Circulars should be issued on this aspect also, advising the departmental officers not to attach bank accounts, since Tribunal was not yet formed. They should insist for payment of 20% of disputed tax demand wait for the balance till the Tribunal is operational. Few States have circulars accordingly. But, many States are silent still on this aspect. While every State is organizing investor summits and boasting investments of lakhs of crores of rupees, without ease of doing business, practically the proposed investment does not get into reality. Few days back, another case is reported wherein bank account is attached after 1st appeal order is passed, even though Tribunal is not formed. The High Court has directed for deposit of 20% of disputed tax demand, subject to final decision of the Tribunal once it is formed.
GSTINs are cancelled without any natural justice, with retrospective effect. Many cases are reported even on this aspect also. GSTINs are cancelled, with one sentence in many cases. High Courts have directed the departmental officers to restore the GSTINs in some cases and to follow principles of natural justice in other cases and then take proper action. High Courts also directed that orders relating to cancellation of GSTINs shall be self speaking. However, there seems to be no improvement. Everyday, one or more cases are reported on this aspect. Instructions are required to be issued on this aspect also, advising the departmental officers to pass orders, in a detailed manner, with thorough discussion on the submissions of the tax payers and after following the principles of natural justice.
Vehicles are detained indiscriminately, following same age old and corrupt practices as were prevalent during sales tax/VAT regime. Vehicles are detained for frivolous reasons. Orders are passed for payment of Demand of tax and penalty without considering the submissions of the tax payers. Every day, one or more case relating to vehicle detention is reported. Even though the CBIC has issued circular advising the departmental officers not to detain the vehicles on frivolous grounds, at ground level there is no improvement. State GST officers are orally telling that CBIC circular is not binding on them. Vehicles are detained if there are typing mistakes in vehicle numbers. Vehicles are detained if the driver by mistake chooses wrong route. Vehicles are detained for valuation reasons, which is beyond the jurisdiction of the mobile squads. Submissions made by the tax payers are not at all considered and mechanical orders are passed, demanding equal amount of tax and penalty. In many cases, High Courts have directed that mens rea has to be there for levy of penalty in detention cases. But, State GST officers are not bothered. They pass one line orders stating that the submissions of the tax payers are not accepted and the case laws relied upon by them are not relevant to the facts of the case. State GST authorities orally tell the tax payers to go on appeal. That’s all. Circulars should be issued instructing the departmental officers not to detain vehicles on frivolous reasons, to consider the submissions made by the tax payers and pass orders in a reasoned manner.
ITC accounts are blocked mercilessly, forcing the tax payers to run pillar to post. This is another draconian power given to the tax administrators. Some of the officers call the tax payers and tell them that if the ITC is not reversed, as per the notice issued, ITC account will be blocked and no amount can be utilized. Many cases are reported where ITC accounts are blocked, even without issue of notice, without providing an opportunity to personal hearing. Tax payers are forced to approach the High Courts and get the relief. This issue also needs to be addressed by issue of circulars, advising that the blocking of ITC should be the last resort and should be used only against fraudulent tax payers who are involved in ITC manipulations, but not on tax payers who are regularly filing returns and paying huge amount of taxes.
Cryptic orders are passed without any discussion on the submissions of the tax payers. Principles of natural justice are grossly violated in issue of notices, granting personal hearings and passing of orders. Number of cases are reported in the States of Bihar, Jharkhand, Tamil Nadu and UP etc where orders are passed without any reasoning. Submissions of the tax payers are not considered. Orders are passed, by simply observing that the submissions of the tax payers are not found suitable or not acceptable. In many cases, no reasons are mentioned in the show-cause notices for the proposed demand or reversal of ITC. In many cases, orders are passed without issue of personal hearing. High Courts of Madras, Jharkhand, UP have passed orders stating that granting of personal hearing is mandatory, once the adverse order is intended, whether the tax payers has opted for personal hearing or not. The case laws relied upon by the tax payers are not considered at all. In many cases, the case laws are brushed aside with one observation that they belong to Excise/Service Tax/VAT regime and therefore not applicable to GST period. Detailed circulars should be issued advising the field formations to pass reasoned orders, to discuss the case laws relied upon by the tax payers and then indicate why they are not applicable to the facts of the case, instead of brushing them aside, to consider the factual position submitted by the tax payers and discuss the same in detail in the order, follow the principles of natural justice etc. This should help in reducing the huge unwanted litigation, forcing the tax payers to approach High courts, against unreasonable orders.
Audits are conducted similar to previous regimes calling for huge records, without basing on data available on GST portal. During GST regime, the officers should call for minimum records, since the data is available on GST portal. Sales data is uploaded on GST portal with full invoice details. Tax payers are providing turnover reconciliation with annual accounts, while filing GSTR-9 and 9-C. Therefore, there is no need for calling for copies of invoices. The primary aspects to be verified are – whether tax is paid on sales and whether ITC availed is correct. As far as sales are concerned, same can be verified by comparing the sales declared in GSTR-1 and annual accounts. In case of multi-state, multi-location entities, turnover as per GSTR-1 can be verified with the turnover reconciliation provided in GSTR-9C. As far as ITC is concerned, same can be verified with the suppliers data available on GSTR-2A/2B. But, the department audit teams are calling huge records which are not relevant. Audit procedures suggested by some of the States provides for calling 30 to 40 records from the tax payers. Department has not dispensed with age old practice of calling unnecessary records, raising unnecessary queries and issue of show-cause notices resulting into huge litigation and resultant burden on the tax payers. The system is not changed during GST regime also, even to a minor extent, which is sad part of our tax administration.
GST portal is still not ready on several fronts, leading to confusion and stress on the tax payers. GST portal is not responsive in many aspects. The query system created for logging grievance does not contain all the alternatives required. The team dealing with grievances do not have any knowledge of GST. Therefore, they are unable to understand the queries on many occasions. Tax payers do not know whom should they contact in case the grievance is not properly addressed to. The HSN codes available on GST portal does not match with HSN codes as per Customs. Whether the HSN codes on GST portal are backed by any legal criteria! There was lot of confusion till recently as to the tab that is to be used for finding out notices received. Tax payers are forced to approach the High Court as they were not aware of the notices issued, as the notices were uploaded under the tab “additional notices”, while tax payers were searching under the tab “notices”. Sometimes, mails are received stating that notice is issued, but same is not visible on GST portal. All these technical issues are being resolved one by one, but tax payers are the sufferers as the department is not bothered about the technical issues on the portal. ITC reconciliation is not yet operational on GST portal. If Invoice-wise matching is operational on GST portal, much of the fake invoicing can be arrested.
Instructions/Advisories are issued by GST Network/Portal, E-way Bill Portal/NIC which are not backed by any statutory powers. Many a time, advisories or instructions are issued by GST portal, E-way bill portal and NIC. It is doubtful whether they are backed legal authority to do so. For ex., ITC reclaim statement recently introduced. Whether there was any provision under GST Act/Rules to upload such statement is doubtful.
GSTR-3B, GSTR-9 and GSTR-9C are to be completely revamped to enable capturing of entire data and not to charge tax payers with extended period for raising demand at a later date. The main intention at the time of introduction of GST was that the system should be seamless and the tax payers need not resort to avoidable paper work and reconciliations. But, in practice, the law is made clumsy, the return forms does not contain proper tables, reconciliation is not made ready on the GST portal and genuine tax payers are the sufferers. GSTR-9 contains colums/tables different than that of GSTR-1 and GSTR-3B. This results in system generated queries. GSTR-9 should contain the same tables/columns, replicating the data as per GSTR-1 and 3B. Additional information can be sought for. GSTR-9 as on date does not capture the ITC data as per the revised Table 4 of the GSTR-3B.
Tax Administration should respond with clarifications on the issues faced by tax payers. There should be single point of contact either in State GST or Central GST. At present, tax payers do not know whom should they contact in case any clarification is required. Many State GST departments are not bothered to conduct tax payers meeting, resolving the issues raised by them, issuing clarifications etc. Even Central GST department are not conducting meetings as was done during earlier Central Excise/Service Tax regime, wherein the tax payers were expressing the difficulties on various issues and clarifications are issued through Trade notices.
Tribunal is not formed even after six years of GST regime. Tax payers are facing lot of difficulties due to this. Many of the litigative issues would have resolved by this time, had the Tribunal was put into operation. It is high time that Tribunal are formed and made operational on priority basis, with appointment of judicious persons. Many of the State Tribunal under Sales Tax/VAT regime are not that much effective and most of the time they do not function as the positions are not filled up. CESTAT on the other hand has been functioning very effectively with knowledgeable, practical and judicious members. Number of benches should be established in each State, so that cases can be resolved at the earliest. Otherwise, there will be lot of pendency and justice delay is justice denied.
The basis for selection of tax payers for audit/search should be made public and the basis should be logical. In many cases, orders for audit /search are issued without any proceedings, in a casual manner and the High Courts have quashed such proceedings. More transparency is needed in the tax administration. While the fraudster should be dealt with iron hand, genuine tax payers paying crores of rupees on regular basis, contributing to the ex-chequer and to the nation building should be treated in respectable manner.
It has been held by Calcutta High Court in many cases that department should inquire the tax payment by the supplier, before resorting to dis-allowance of ITC in the hands of recipient. But, in many cases, departmental officers are rejecting the ITC without any inquiry on the selling tax payer. Departmental officers are of the opinion that they cannot conduct inquiry of numerous selling tax payers and therefore they have no other alternative but to reject the ITC in the hands of recipient. Request for sending communication to selling tax payer is not accepted by the department. This is against the instructions of the High Court. SLP filed by the department on the judgement of the High Court is not allowed by the Supreme Court. However, still departmental officers are insisting for reversal of ITC by the recipient without any inquiry on the selling tax payer.
Various difficulties faced by the Trade and Industry should be discussed at regular intervals and department should pro-actively issue clarifications to the field formations, so that trust building will be developed which will help in ease of doing business which is the motto of the Government.
Conclusion: The challenges faced in GST implementation demand urgent attention. Reforms in administrative practices, legal procedures, and technological advancements are essential for achieving the intended goal of a unified and efficient tax system. Proactive measures, clear instructions, and a responsive approach can pave the way for a smoother GST regime, aligning with the government’s objective of promoting ease of doing business.
Author Bio
Nicely written. The author has brought all the practical difficulties being faced by tax payers under GST in one article which require urgent attention.