GST: Whether Baby Finally Out of the Cradle ? (Analysis With Respect to the Success Till Date , Loopholes And Way Forward)

Goods And Service Tax (GST): Whether Baby Finally Out of the Cradle ? (Analysis With Respect to the Success Till Date , Loopholes And Way Foreword)

At the stroke of the midnight on July 1 2017; very ardently; one of the most ground breaking reforms in indirect tax arena i.e. Goods and Service Tax was rolled out in Independent India. Introduced with the taglines “Good and Simple Tax” and “One Nation, One Tax and One Market “; the Goods and Service Tax truly heralded a new era in the field of Cooperative Federalism within the Indian contours with the Indian States coming together in an unprecedented manner cutting across the political spectrum and willingly ceding most of their taxation powers for the larger economic good of the nation. Evaluating after its almost half a decade stint in the Indian economic sphere , beyond all doubts the GST has reformed the much needed domain of Indirect Taxation in India by ushering in transparency, accountability and tax automation. Besides this; the whopping contribution of almost 28 percent to the Government Exchequer is hard to ignore. However in the midst of all this fanfare, the silver lining still remains the challenges and loopholes which the GST continues to grapple with. The problems range from framework flaws to an inability to stop scams and handle compensation. Additionally, the present practise of having four GST bands gives special interests plenty of room to influence politicians and officials on their behalf, defeating the purpose of accountability. The fact that goods such as liquor, gasoline, and fuel are still exempt from the GST is an intriguing topic of debate. It is critical that policymakers recognise the need for a strong and efficient conflict settlement mechanism as a component of the forthcoming GST measures in order to meet one of the sector’s requests. Further decriminalization is another area to be paid heed to. In view of aforesaid, the present paper revolves rubric to explore the concept of GST in finer details, detailed evaluation of its success till date , analysis of the loopholes , comparison with other countries across the Globe and way forward . Authors strongly feel that rejigging to GST and bringing about GST 2.0 is the need of the hour to leapfrog growth across the country.

Keywords: GST, GST Tribunal , GST –Council , One Nation –One Tax, decriminalization , E-invoicing etc.

PROLOUGE

“Chanakya’s words summarize the whole GST process – ‘even if something is very difficult to be achieved, one can obtain it with penance and hard work’. If we take into consideration the 29 states, the 7 Union Territories, the 7 taxes of the Centre and the 8 taxes of the states, and several different taxes for different commodities, the number of taxes sum up to a figure of 500! Today all those taxes will be shred off to have ONE NATION, ONE TAX right from Ganganagar to Itanagar and from Leh to Lakshadweep”

………..SH. NARENDRA MODI, PRIME MINISTER OF INDIA, DEDICATING GST TO THE NATION – 1ST JULY 2017; CENTRAL HALL, PARLIAMENT OF INDIA

The Old India was economically fragmented. New India will create one tax one market and one nation. It will be in India where Centre and States work together towards the common goal of shared prosperity.”

…………..LATE SH. ARUN JAITLEY, FORMER FINANCE MINISTER

The above quotes by the stalwarts of the Indian Democracy very aptly sum up the objective and rationale of the game-changing legislation of GST. Sh. Vishwanath Pratap Singh initially suggested the GST in 1985 or 1986, and it wasn’t until July 2017 that it actually became a reality. In India, the production, trade, and purchase of products and services are all subject to the extensive indirect taxation known as the Goods and Services Tax. It is a singular indirect tax for the entire country with the goal of creating an integrated national economy . It has superseded approximately 16 fiscal charges, including 9 regional duties. In light of the foregoing context, as this ground-breaking act concludes its over a half-decade voyage, let’s examine it with additional detail and complexity to determine if it has matured from its “baby” phase into a secure and contemporary piece of statute. A number of professionals and parties firmly believe that GST 2.0 is in the works as a result of tax receipts fluctuating in the most current quarters of 2022 and 2023 and legal requirements decreasing. Another group, however, believes that there is still much more to be accomplished before the law is considered to have met its goals and lived up to its name as a “Good and Simple Tax,” and that it continues to be in the early stages of development.

2. Accomplishments Till Date

2.1. Whopping Revenue Collection and Increasing the Tax Base GST has generally lowered the total indirect fiscal strain on buyers and increased the competitiveness of goods abroad. The tax pool has significantly grown, which has led to higher income receipts. While the Union Budget for FY21–22 projected revenue collections of INR 22.17 trillion, pre-actual data showed income receipts at INR 27.07 trillion, nearly INR 5 trillion more than the budget estimates. According to reports, this represents an increase in revenue collection of 34% over the prior year, with indirect taxes accounting for 20% of the increase. Additionally, FY 2021–22 has the greatest tax-to-GDP ratio at 11.7%, with indirect taxes accounting for 5.6% of GDP.

Recent Figures:

The total gross GST collection gathered in January 2023 was Rs. 1,55,922/- crore, out of which the CGST is Rs.28,963/-, SGST is Rs.36,730/-, IGST is Rs.79,599/- (including Rs.37,118/- collected on import of goods), and cess is Rs.10,630/- (including Rs. 768 crore collected on import of goods). As part of a standard transaction, the authorities paid CGST and SGST a total of Rs. 32,624 crore and Rs. 38,507 crore, respectively. After standard payment, the total income for the CGST and SGST for the month of January 2023 is Rs 67,470 crore and Rs 69,354 crore, respectively. Only the collection recorded in April 2022 is higher than 2023. In comparison to the last year, the receipts for the present fiscal year up to January 2023 are 24% higher. In comparison to the same time last year, the income from regional transactions, which includes the import of services, is up 22% and the income from imported commodities is up 29%. The amount of GST collected in the present fiscal year has surpassed Rs. 1.50 lakh billion for the 3rd season. Only the total recorded in April 2022 is higher than the GST collection in January 2023. During the month of December 2022, 8.3 crore e-way bills were generated, which is the highest so far and it was significantly higher than 7.9 crore e-way bills generated in November 2022.

Numerous initiatives to broaden the revenue base and enhance enforcement have been undertaken over the past period. Thereby, the revenue collection has mainly increased as a result of compliance measures. Over the years, there has been a considerable improvement in the proportion of GST returns and summary of bills that are filed by the month’s end. 2.42 crore GST reports were submitted in total between October and December 2022 as of the end of the month, up from 2.19 crore during the same period the previous year.

Uniformity and elimination of structural inefficiencies Simplicity, transparency and stability are the key cornerstones of any reform, particularly one like GST. Often, the aspect of structural simplicity brought in by GST in India is not emphasised enough. The merger of multiple Central and state tax laws into a common and comprehensive legislation has resulted in significant uniformity in tax administration and promoted ease of doing business. Removal of state-specific road permits, declaration forms and filing requirements coupled with reduction in physical interactions between taxpayers and authorities have allowed businesses to spend more time on value-added activities. It has also led to the harmonisation of certain other allied laws (such as customs), resulting in reduced ambiguity and complexities. India was to become a “united marketplace” with uniform taxation, according to the government. The elimination of checkpoint-based border inspections has increased logistical efficiency while also reducing clearing line-ups.

Digital India

With the setting up of the GST Network (GSTN) and efforts to make the IT infrastructure robust in the last five years, there has been significant progress in automation of most compliances to be undertaken by taxpayers. Introduction of key initiatives such as the e-waybill mechanism, e-invoicing and auto-population of returns has helped in reducing the compliance burden on taxpayers. The smooth implementation of the e-waybill and e-invoicing mechanism, which included a trial phase and saw continuous stakeholder interaction, has been appreciated by the industry. As on 31 March 2022, approximately 1.4 billion Invoice Reference Numbers (IRNs) and 2.7 billion e-waybills have been generated and these measures have contributed significantly to increased tax compliance and tax collections. In addition to simplification of compliances, automation has also helped the Government to use data analytics for detection of tax frauds/revenue assurance as well as statistical insights. Going forward, increased integration and sharing of data with the Central Board of Direct Taxes (CBDT) is likely to be a key aspect of our tax administration.

Cooperative federalism between Centre and states

The GST Council, in the true essence of cooperative federalism, was formed with representation from both the Centre and state governments for decision making on issues relating to legislation, rates, procedures, etc. While this has ensured stability and uniformity of GST laws across India, the GST Council has also been redressing legitimate concerns of taxpayers, micro, small and medium enterprises (MSMEs) and the common citizen. The departure from the earlier scheme of distribution of fiscal powers has not been entirely smooth but establishing a common forum of decision making has largely been fruitful.

Tax rate reduction

The primary reason for implementing the GST was to eliminate the cascading impact of taxes with freely flowing credits, and it has done so successfully, leading to a general decrease in the cost of products and facilities. The weighted GST rate has been in the range of 11–12%, while the revenue neutral rate (RNR) (recommended by the RNR Commission) was 15.3%. After five years of the GST, the economy’s inflationary rate and manufacturing bills have decreased as a consequence of the smooth finance stream,, increasing both the regional and global competitiveness of Indian commerce and industry.

Indian GST and International Scenario : How Indian GST Regime Compares With Other Countries Across The Globe and Lessons to be learnt so Far.

As on 1 January 2023, 174 countries across the globe have implemented VAT or GST so far. Since the first introduction of a Value Added Tax in France in 1954, it has now been adopted by 174 countries around the world. This follows the adoption of VAT / GST by Suriname, Palau and Guinea-Bissau. It would not be overstatement to say that the GST concept is not entirely novel to the globe as, as of 2023, roughly 174 nations will have chosen this method for combining many tax rates into one. Although it is considered a novel institution in India, it actually has a lengthy history in other nations, which we will examine in the lines that follow. In 1954, France became the first nation to establish the GST/VAT. Since then, nearly 174 additional nations have implemented this tax structure in one manner or another. To name a few, the GST is used in countries like Canada, Vietnam, Australia, Singapore, the United Kingdom, Spain, Italy, Nigeria, Brazil, and South Korea. The United States of America does not have GST since it upholds a high level of state independence and uses a distinctive VAT structure of tax.[4] The majority of European nations implemented GST in the 1970s and 1980s. More than 160 countries have proposed the GST, and the GST was actually invented more than half a century ago by the European tax system.

A singular, uniform tax system is currently the norm in world finance. The dual GST concept in India is the main distinction between it and similar taxes in other nations. Several nations have a singular, unitary GST system, but others, like Brazil and Canada, have a dual GST system where the federal and state or provincial governments each levy their own GST. The Indian approach of the indirect tax policy finds parallels with the dual GST (central and state) established in Canada in 1991. The GST was first implemented in Canada in 1991 at a rate of 5%. Under the Canadian GST model, provinces can choose to implement state- or central-level GST. A dual GST is in place in India as well, where the taxable sum of any transaction involving the supply of goods and services is subject to both a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST).

Comparison with other Countries

The taxation system is a well-liked and well recognised topic of taxation in the Asia Pacific region. The most significant and controversial conclusion from this discourse is that there are presently more than 40 different GST application methods operating in the systems of different economies around the globe, each with its own unique set of laws and regulations. Let’s look at the larger economies and how they implemented the GST:

• GST India Vs. GST New Zealand

In New Zealand, the GST was introduced in 1986, and from that point until 2010, it applied taxes to all goods and services at a single, flat rate of 10%. Since 2010, the tax rate was raised to 15%, and it now applies to all transactions. Housing rents and financial services are exempt from GST. In this case, firms may also claim the GST as an input expense.

• GST India Vs. GST Singapore

Singapore too has a uniform and single tariff for all purchases. Singapore introduced the GST in 1994, with the lowest market-leading flat GST rate of 3%. The GST rate was raised to 7% with effect from 2007; nonetheless, this is still far lower than the GST rates in India.

• GST India Vs. GST Indonesia

Indonesia imposes VAT and GST on imports, however most exports are immune from these taxes. If the services are rendered outside of Indonesia by foreign taxpayers, the tax rate is 10%, and some commodities are subject to a 20% tax with a 35% maximum cap. There is a 10%–50% luxury tax that is applied on imports. The majority of things, including gold, mining products, arts and entertainment, education, insurance, parking, public transportation, labour, healthcare, hotels, finances, and food and drink offered in hotels, are exempt from paying VAT.

• GST India Vs. GST China

Since the fixed cost goods and service tax in an oversea nation such as China is not subject to recoverable terms, China has retained the GST applications over goods and the conditioned facilities of repairs, handling, and replacement facilitated services after the European and Asia-Pacific markets. This also means that it is only restrictedly obtained on products which are absorbed in the manufacturing process. There are three different tax rates: 0%, 5%, and 19%.

• GST India Vs. GST Australia

Traveling overseas, the GST is a federal tax that is acquired by the highest authority in Australia and then distributed to the states without any disputes emerging during the process. When the GST was first established in 2000, the tax rate was set at 10%, and it has remained that way ever since.

• GST India Vs. GST Canada

In Canada, which serves as a model for the GST, there are three different taxation systems that are used to manage the taxation system: federal GST, joint federal, and separate federal. Federal taxation is a widely acknowledged kind of taxation. Joint federal taxation relies on the coordinated conduct of the economy and states, while separate federal taxation only relates to Quebec because of that province’s status as a quasi-independent one. Canada has a 5% GST rate on supplies of goods and services, and some states also have a 15% harmonised sales tax.

• GST India vs GST Brazil

When it comes to the Brazilian GST model, it is much more autonomous and unconstrained than those of other countries and has a law that divides taxes between the provincial and the federal government. The six tax brackets in Brazil are 0%, 1.65%, 2%, 7%, 12%, and 17%.

• GST India vs GST USA

In the US, which is a federal republic, local, state, and federal establishments do not share tax revenue. State and local governments in this country impose taxes ranging from 0% to 13.30% of the total income that is taxable, while federal tax rates are between 10% and 39.6% of taxable income.

•  GST India vs GST UK

In The United Kingdom, there are three different tax rates that apply to both goods and services: 0%, 5%, and 20%. The majority of the commodities are subject to 20% tax charges. Postage stamps, financial and real estate transactions, the majority of foods, and children’s clothing are all excluded from VAT.

• GST India vs GST France

In 1954, France introduced the GST for the first time with four tax rate levels. The charges in this area can be paid in increments of 2.1%, 5.5%, 10%, and 20%. The typical tax rate in France, which is applied to the majority of items, is 20%.

•  GST India vs GST Ukraine

The VAT value is added to the price of products and services in Ukraine, where the usual tax rate is 20%. Certain supplies are further subject to reduced rates between 0% and 7%. Pharmaceuticals, medications, and medical equipment are often subject to a 7% rate, while exports of goods and services are subject to a 0% VAT.

• GST India vs GST Malaysia

With effect from April 1, 2015, Malaysia imposed the GST at a constant rate of 6%. Here, the differing tax rates for sales tax and service tax are 10% and 6%, respectively. The first 200 monthly units of electricity, transportation services, highway tolls, and health services are only a few of the things that are exempt from taxes.

In all cases, GST tariffs are always prefixed at 16 to 20 percent, and India has apparently accepted these hints to record a similar trend. Additionally, it is anticipated that the Indian economy will grow rapidly since the tax-paying population is predicted to grow by 5 to 6 times the present rate.

3. Analysis of The Major Loopholes/Challenges in GST Regime In India : Need To Restructure and Revitalize Inspite of the lofty and gigantic achievements, which the GST surely has in its kitty, many experts do feel vociferously that the current Indian GST framework does have serious fundamental quandaries or rather birth defects, which need to be cured direly to make GST a real progressive and perfect tax legislation. To be realistic, the GST in India, now more than five years old, has not been so much successful as it was intended to be, nor has it been a failure as happened in Malaysia, which experimented with the tax for three years before dumping it. Like much of what the Indian Government tries to do, the GST has its own set of achievements and loopholes/challenges which need to be directly plugged in so that objectives of this ambitious tax reform are really met. Let us in this section analyse the major loopholes which the GST is grappling with.

Acrimonious Relationhip Between Centre and States : Blow to The Coopertive Federalism One of the most significant challenges, which the GST grapples with is the Trust Issue inter-se the Centre and the State Governments. The Centre and the State Governments came together in a rare move and in an unprecedented manner through this legislation, with the states almost abandoning their fiscal autonomy through this taxation system. But now, after more than half a decade stint of this ambitious tax reform, bitter and acrimonious relationships have developed between states and centre and states are feeling themselves to be cheated. Let us in finer details analyse this issue.

Decision Making In GST Council- Highly Imbalanced And Skewed In Favor Of Centre. The GST Council encompasses of 31 State Finance Ministers (including the Finance Ministers of Delhi and Puducherry) and the Union Government is represented by the Finance Minister and the Minister of State for Finance. Each State Finance Minister is entitled to one vote, and the Union Government is also entitled to a single vote. Clause (9) of Article 279A prescribes the voting pattern to be adopted by the GST Council As per Clause (9) every decision of the GST Council shall be taken by not less than three-fourths of the weighted votes of all members. Every state and union territory in the GST Council has been given one vote in the decision making of the council and the combined total strength of the vote of all the state and union territories is two-third, but the Central government’s vote alone will carry a weightage of one-third of the total votes cast It is also been provided under the amendment that the council’s decisions will require a three-fourths majority, according, thereby, apparent veto power in the favour of the Union. Thus in view of aforesaid , concerns have been raised by the manufacturing states that, there revenue would likely to get affected adversely because irrespective of being a manufacturing states they have been provided one vote in the final say of GST council ‘recommendation’. Consumer states will always vote in their own interests Thus, in this way they would always be at disadvantageous stage.

The members of the GST Council include the Union Finance Minister, the Union Minister of State for Finance, and the Finance Ministers of all State Governments. The Finance Minister of India and the Minister of State for Finance act as representatives of the Central Government. On the other hand, the Finance Ministers of each State Government act as representatives of their respective States. Under clause (4) of Article 279A, the GST Council has the power to make ‘recommendations’ on a wide array of policy matters, which inter alia include – deciding the taxes, cesses and surcharges that shall be subsumed into the ambit of the GST, determining the GST rate for different goods and services, and enlisting the goods and services that are exempted from the purview of GST. The GST Constitutional Amendment Act does not clearly specify whether the ‘recommendations’ made by the GST Council are binding on the Union and the State Governments – and whether any deviation is permissible. The word ‘recommendation’ is used at four distinct places in the Amendment Act.9 But, clause (9) of Article 279A,10 which talks about the voting pattern in the GST Council – uses the word ‘decision’. This has led to confusion over whether States can deviate from the recommendations of the Council. In the authors’ view, as the purpose of establishing the GST Council is to take collective decisions on a range of policy matters, the ‘recommendations’ of the GST Council are equivalent to a ‘decision’ – and shall be binding on the Centre and the States.
Fiscal Imbalance & Issue of Compensation to the States

Disparity Amongst Centre & States:

The Union government is endowed with more tax powers than the States, while the States are assigned more expenditure responsibilities than the Union government. This gives rise to a vertical fiscal imbalance (VFI) between the Union and State governments. The unequal tax base with unequal expenditure requirements between the States creates horizontal fiscal imbalance among the States.

Increasing vertical fiscal imbalance (VFI):
For the last three Finance Commissions (2005-06 to 2020-21), the VFI ratio shows an increasing trend. For the latest period of 2015-16 to 2020-21, the ratio was 0.530, which means that only 47% of the States’ own expenditure was financed by their own revenue in that period.

Veto for Union Government:
The GST Council gives the Union government a veto to thrust its preferences on the States.

Way Ahead

Reassigning of Tax Powers:

The Union government has exclusive power to levy excise duty on petroleum products, and the States have exclusive power to levy excise duty and sales tax on liquor. All other commodities fall under the GST.

The CGST and the excise duty on petroleum products could be assigned to the States so that the entire GST is assigned to the States. There is a need to bring all commodities, including petroleum products, under GST.

Harmonisation of GST:

The Union government should continue to collect IGST only to settle revenue on a destination basis.

This will ensure harmonisation of GST across States. GST shall continue as a tax determined by the GST Council.

Commodity taxation should be moved to State List II of the Seventh Schedule of the Constitution, with a rider that harmonisation of commodity taxation should be maintained.

Removing Veto Power of the Union government:

The veto power of the Union government should be removed. Then, the GST Council will truly become a body by the States to settle tax issues among themselves, with the Union government facilitating the arrival of consensus among the States on tax issues.

This may once again require some constitutional amendments.

Benefits of Reassignment:

The assignment of excise duty on petroleum products to the States will hasten the process of integrating taxes on petroleum products into GST and remove the cascading effects of the current excise duty on petroleum products.

This will reduce the tax potential of the States, but higher buoyancy of GST should compensate for this revenue loss. The positive aspect of this reassignment of tax will be the increase in the tax revenue of the States. This will also improve accountability of the States to their people on fiscal matters.

Addressing horizontal fiscal inequality:

The Union government should effect equalization transfers to address the issue of horizontal fiscal inequality.

The revenue surplus of the Union government after this tax reassignment should be enough to provide for this equalization transfer to the States. Further regarding the issue of the Compensation Fund, some States have argued that their revenues have not been recovered yet, having been battered by the pandemic and the lockdown imposed to contain it and accordingly they have sought an extension of GST compensation, some wanted it to be extended for another five years, till the situation improved. At least 12 States sought an extension of the compensation mechanism beyond June 30, 2022, during the GST Council meeting in Chandigarh. But the Centre has refused to grant the funds further, this has also lead to the acrimonious relations between the duo. Furthermore another issue which GST grapples with is the disparity between the Producing states and Consuming States. ‘Producing states’ and their Governments were resistant to a last-point tax since they feared losing out on revenue to the ‘consuming’ states. The more advanced states produce proportionately more than the less advanced states and sell more to the latter. Thus, the less-developed states were expected to collect proportionately more GST though less in absolute terms. In view of above, revised outlook towards the GST Compensation Fund can be made.

INDIAN GST ONE OF THE MOST COMPLEX IN WORLD : RATIONALISATION IS THE NEED OF THE HOUR

The Gujarat High Court while hearing a case on 11th February; 2022 remarked that It is easier for us to reach the moon than to understand the Intricacies and policies of GST. It is beyond our capacity to understand. This direly points towards the need for immediate revamp action. Currently, India has a four-slab rate structure-5%, 12%, 18% and 28%. Add to this, 0% exempt category and 3% on gold and additional cess charged on certain products, effectively makes GST a 7 tax-slab structure, thus making it one of the most complex structures across the Globe. As per a World Bank report, Indian GST is one of the most complex with the second highest tax rate in the world among 115 countries which have a similar indirect tax system. Thus rationalization of the slabs is the need of the hour.

Contradictory Rulings of the AAR

As GST was a new and different law for the taxpayers and tax practitioners, the concept of Advance Ruling was introduced just like it existed under the pre-GST regime. The purpose of Advance Ruling is that an applicant, before undertaking any business transaction for which he has doubts about the applicability of GST, may take clarity from the GST authorities. However, even after more than 5 years of GST Authorities of Advance Ruling (“AAR”) existence in India, it seems that Advance rulings pronounced by GST Authorities had even created more jeopardy for the taxpayers for the reason that firstly, advance rulings are applicable only for the applicant who applied for it and secondly, these advance rulings have limited jurisdiction as they are applicable for the state in which they have been pronounced. Centralised Advance Ruling Authority (AAR) – Centralised AAR must be set up in view of the aforesaid considering contradictory rulings and to achieve the objective of ‘One Nation, One Tax, One Market’.

Role of GSTN Collection, compilation and conclusion of all GST-related data have been bestowed by the government to a private entity, the GST Network (GSTN), created in 2013, with shares of 24.5% to central government; 24.5% to state governments together and 51% to five private firms. Some of these private firms are controlled to the extent of 75 per cent by FIIs. Questions have been raised inside and outside Parliament about the confidentiality and security of the data collected by the GSTN on trade and business, including of public sector enterprises and services, which may be easily available to others including foreign firms. Yet, as reported by the news agency PTI on 25 November 2016, the government admitted that no security clearance was obtained for the private institutions that hold stake in the GST Network. Being a private enterprise, the GSTN remains outside the ambit of audit by the CAG. Recently, the GSTN refused to give CAG access to its network. How then CAG auditors will have access to GST data?

Teething Digital Predicaments

To add to the aforesaid problems, teething problems have been riddled in GST. Problems of transition etc. have been rampant. Several flaws were detected in the working of the system, with glitches on the GST portal experienced by frustrated taxpayers, time and again. And while a single form for the upload of returns was promised, it ended up being a total of 36 returns to be filed by a taxpayer each year. Some of these were rescinded, however, the setbacks kept mounting. Consumers also did not end up seeing the benefits of lower prices of goods. This was something that was promised, taking into account the cascading effects of taxes under the erstwhile tax regimes, a problem GST wouldn’t have.

Impact on The MSME’s and Small Traders

State has put in place a number of programmes under the GST system to assist MSME market expansion. For instance, the state has simplified certain regulations for MSMEs, like raising the original waiver ceiling for commodities from Rs 20 lakh to Rs 40 lakh. Likewise, the composition plan ceiling has been increased to Rs 1.5 crore for commodities and Rs 50 lakh for services. Composition traders are now permitted to offer services. Last but not least, favourable charges are given to products employed or manufactured in the MSME industry. For marginal tax-paying citizens with annual revenue up to a specific threshold, the GST Composition Levy Scheme offers a different way of revenue collection. Marginal citizens can spend a set revenue percentage under this straightforward, hassle-free, and optional programme while avoiding time-consuming GST procedures. Nevertheless, individuals who choose the above option are not permitted to claim tax credits for input payments or to collect revenue from recipients. Apparently, the present qualifying requirements for the programme disqualify those who make interstate transfers or provide services or products that are not liable to GST under the law. It is proposed to address the above requirement by making the composition mechanism equitably accessible to all manufacturers of products or services in India. Alternatively, industry-specific composition plans can be created to serve various industries. In order to help MSMEs, the composition program’s ban on interstate deliveries must be lifted.

If a company’s aggregate turnover in the preceding year was not more than Rs. 15 million, they may opt for the composition scheme. This scheme requires a manufacturer or trader to pay a turnover tax of 1% on the value of their turnover, while restaurant service providers are taxed at 5%. In the GST system, suppliers must file electronic tax returns and pay taxes monthly. This scheme aims to reduce the cost of tax compliance for MSMEs. However, suppliers under this scheme are not allowed to collect tax from the recipient of their supplies or claim ITC, resulting in the loss of the VAT chain. If a supplier is registered under GST, they are likely to prefer procuring goods from another registered GST supplier rather than one who has opted for the composition scheme. Therefore, suppliers who have chosen the composition scheme may lose clients if they operate in a business-to-business environment. The “aggregate turnover,” as defined in the CGST Act, includes the value of goods and services otherwise exempt from GST, such as rent from residential property. If a supplier’s aggregate supply exceeds Rs. 150 million due to the additional value supplied in the form of exempted goods or services, they cannot benefit from the composition scheme for taxable goods valued under Rs. 150 million. Small-scale manufacturers of ice cream, pan masala, tobacco, and other related products are not eligible to participate in the composition scheme due to regulatory limitations. This has led to many small-scale ice cream manufacturers being unable to bear compliance costs, leading to the suspension of production or procurement from larger brands. The revised GST rate of 18% has imposed a considerable tax burden on small-scale manufacturers, who previously paid a 0.25% tax on their turnover. Suppliers who choose the composition scheme are not permitted to make interstate supplies of goods or supply goods through e-commerce platforms without registering in each state, increasing their fixed costs. A report from an Indian Parliamentary committee recommends that online sellers with a turnover of up to Rs 1.5 crore be eligible for the GST Composition Scheme, which would help incentivize MSMEs to adopt e-commerce. To benefit the MSME sector, suppliers in the composition scheme should be permitted a certain percentage of turnover for interstate supply of goods. In addition, the threshold limit for GST registration should exclude exempt supplies. Additionally, the GST Council should simplify the tax system by reducing the number of GST rates and resolving the inverted duty structure. Free training programmes and help desks should be established to assist MSMEs with using the GSTN portal. By resolving these issues, the GST Council can support the MSME sector, which can generate significant employment opportunities.

Not a “ One –Nation , One Tax “ In Real Sense

The much touted GST was introduced with the agenda of the One Nation –One tax and has replaced a slew of central and state levies, transforming the nation of 125 Crores people into a customs union. The aforesaid has been claimed by the Government time and again, however on deeper analysis, the reality turns out to be something else. The Constitution has engaged simultaneously with Center and the states to impose GST on the supply of goods as well as services inside the state. In this way, it has brought about one central law on GST (CGST) and around 29 state laws on GST (SGST) as every state has one SGST. Promote, the Center has been enabled to impose GST on the supply of goods and additionally services over the span of inter-state exchange or trade (IGST). The net consequence of this is 31 legislations of GST (CGST, IGST, and 29 SGSTs). The Constitutional alteration has not by any means supplanted the current direct expenses and has acquired a portion of the current circuitous assessments like Value Added Tax (VAT) and Central Excise Duty (collected by the Center on make of goods) on indicated items, for example, petrol, diesel, flight fuel and sin goods. Notwithstanding GST, sin goods will be subjected to Central Excise Duty too. Hence, what we wind up is 31 GST legislation, 29 VAT legislation and a union enactment on Central Excise. This is certainly long ways from “one country, one expense”.

Tax Evasion and Frauds , Still a Major Concern

Tax evasion is the illegal attempt through which the taxpayers try to reduce their tax liability but in tax avoidance taxpayers reduce their tax liability through the legal attempt. Tax evasion and tax avoidance both attempt to reduce the tax compliance of the taxpayers and also the revenue of the government. In the previous indirect tax regime, the administration of tax compliance of taxpayers was costly and also not easy because of a multiplicity of taxes that’s why GST was implemented to transform the Indian economy into “one nation and one tax and one market”. But the taxpayers also creating hurdles in the achievement of reducing tax evasion in indirect tax structure through exploiting the loopholes of the GST framework and making attempt to find improved and innovative ways to evade their tax liability. The research highlights by various tax experts have brought into arena several methods through which the taxpayers are following after the GST’s implementation to reduce their tax liability in the GST regime. These include ,Evasion through Separate Registration, Evasion through Branded or Non-Branded Goods Trading, Evasion through Sales under report , Evasion through fake or wrong invoices etc.

ITC Issues and Delay in refunds

Apart from above , many taxpayers have also complained about the imposing of an arbitrary monetary limit on availing input tax credit through Rule 36(4) and mandating that a certain percentage of GST has to be paid in cash. These laws are making life difficult for even the most honest taxpayers are making life difficult for even the most honest taxpayers. Further refunds have been delayed significantly by the authorities , causing Working Capital woes for the small traders.

5. Future Outlook of GST and Way Forward :: Being Ready With GST 2.0. Beyond all doubts, GST has been game-changer and recent revenue collections, also point towards the fact that Government indeed has taken the cogent steps to alleviate the GST. Still today, the impact of the pandemic has not completely faded away and in general, all the sectors have been demanding that the government should concentrate on increasing tax payer liquidity, take specific demand-side initiatives in order to increase consumption in various sectors. Industries were also of the view that the upcoming Budget of 2023 should adopt a holistic approach to boosting economic conditions for every person, in addition to focusing on strengthening the nation’s economy. Some of the much needed demands have been heed to by the Government in the recent Finance Bill, 2023 and during 49th GST Council meet.

Decriminalization :

The minimum threshold for prosecution under GST is proposed to be raised from Rs. 1 crore to Rs. 2 crore, except for the offense of issuance of invoices without supply of goods, or services, or both. The compounding amount range is proposed to be reduced as follows:

Minimum from 50 percent to 25 percent Maximum from 150 percent to 100 percent Following offences are proposed to be decriminalized:

Obstruction or preventing any officer from discharging his duties.

Tampering with or destruction of material evidence or documents.

Failure to supply information required under law or supplying false information.

(Source: Clause 138, 139 and 140 of Finance Bill, 2023)

Consent based sharing of Information.

Finance Bill, 2023 has further proposed to insert new section 158A which provides for consent based sharing of information furnished by taxable persons. It provides for prescribing manner and conditions for sharing of the information furnished by the registered person in his return or in his application of registration or in his statement of outward supplies, or the details uploaded by him for generation of electronic invoice or E-way bill or any other details, as may be prescribed, on the common portal with such other systems, as may be notified. Conditions include : Particulars furnished in the application for registration under section 25 or in the return filed under section 39 or under section 44. The particulars uploaded on the common portal for preparation of invoice, the details of outward supplies furnished under section 37 and the particulars uploaded on the common portal for generation of documents under section 68. such other details as may be prescribed. Such sharing shall be subject to consent to be obtained. No action shall arise against the Government or common portal for any liability arising consequent upon such sharing. (Source: Clause 141 of Finance Bill, 2023)

GST Appellate Tribunal

The GST Appellate Tribunal has been proposed , which would be a a quasi-judicial body proposed to be established to resolve disputes related to the Goods and Services Tax (GST) in India. It will function as an independent body to hear appeals against orders passed by the GST authorities or the Appellate Authority. The tribunal will be composed of a national bench and various regional benches, headed by a chairperson appointed by the central government. The proposed tribunal is expected to help expedite the resolution of disputes related to GST and reduce the burden on the judiciary. Under GST, if a person is not satisfied with the decision passed by any lower court, an appeal can be raised to a higher court, the hierarchy for the same is as follows (from low to high):

Adjudicating Authority

Appellate Authority

Appellate Tribunal

High Court

Supreme Court

Why need for such a Tribunal?

Unburden judiciary: GST Appellate Tribunal will help resolve the rising number of disputes under the 68-month old indirect tax regime that are now clogging High Courts and other judicial fora.

Improve efficiency of GST System: Overall, the establishment of the GST Appellate Tribunal is expected to improve the efficiency and effectiveness of the GST system in India.
Independent mechanism: The proposed Tribunal will provide an independent and efficient mechanism for resolving disputes related to GST.

Avoid tax evasion: It will help to expedite the resolution of disputes, reduce the burden on the judiciary, and promote greater certainty and predictability in the GST system.
Issues with present litigation

Compliance issues: The GST system is relatively new in India, having been implemented in 2017, and there have been several issues with compliance and interpretation of rules and regulations.
Complex adjudication hierarchy: The current dispute resolution mechanism involves multiple layers of adjudication, starting with the GST officer and as mentioned above.

Time consuming process: This process can be time-consuming, costly, and burdensome for taxpayers, especially small and medium-sized enterprises. Thus in a nutshell , without a doubt GST has been made with good intent , but has been marred by the tech glitches & some design flaws. Thus even its strongest supporters agree that the GST regime is still a work in progress and there is a need for many structural changes for a more stable and hassle-free system. Indeed the GST saga has been a Story of Extraordinary National Ambition.