GST would be completing 5 years of its implementation. The Journey of these 5 years have been roller coaster ride with few things missing the target others hitting the bulls eye! GST is a complex procedural oriented law with Online Portal complicating the problems. Thus, the life GST has never been a smooth ride.
Let’s understand the GST journey so far with some misses:
1. Complex Procedural Law
GST is a complex procedure-oriented law. If you miss any procedure either your Output Tax Liability with enhance or your Input Tax Credit will be reduced. Poor Drafting of GST law complicated the problem as many opinions were possible on each and every issue. Government brought more than 1000 Amendments in the Law through Notifications, Circulars, Removal of Difficulty Orders, Press Releases etc. This created chaos and till date law never got the stability. Plus, Revenue Officers have their won set of interpretations that is always pro-revenue and solution was far away from actual problem.
2. Missing GST Tribunal
As you all remember GST was launched as with fanfare in mid-night session of Parliament. This was called India’s biggest taxation reform in the history of Independent India. But certain basic elements were found missing. One of them is GST Tribunal. GST Tribunal was proposed of two types under Centre National Bench with Regional bench and under States State Bench along with Area Bench, but nothing has been materialized in these 5 years. Recently 47th GST Council has agreed to refer this matter to GOM’s.
3. Conflicting AAR/AAR Orders
As you all are aware every State have their own AAR & AAAR, AAR & AAAR were introduced in GST with a sense to reduce complexities, but conflicting Orders have added a new dimension to this. It is important to note that the rulings of the AAR don’t establish a judicial precedent, but they do are persuasive in the assessment process. The rulings, when tested in higher courts, the judgement could give a sense of closure.
4. Linking Input Tax Credit (ITC) with Vendor Returns
GST when proposed have 3 Returns (Statements) for normal taxpayers. GSTR-1, Statement for Outward Supplies, GSTR-2 Statement for Inward Supplies and GSTR-3 GST Return. But due to glitches in Portal only GSTR-1 is being filed and instead of GSTR-3, GSTR-3B is filed. Now the Credit of a taxpayer is linked with Return of his Vendor / Supplier. Thus, a Self-Assessed GST Regime has been converted into “Vendor-Assessed” ITC. This has impacted Cash Flows of Purchaser because of Mistake of his Supplier / Vendor.
5. No distinction between the Honest & Dishonest Taxpayers
In erstwhile Indirect Tax Regime, the ITC could be disallowed to dishonest taxpayers after thorough investigation. Whereas in GST, the concept to honest & dishonest is removed and eligibility of ITC has become more of data visibility of the GST portal. Thus, even when there are genuine cases the ITC is disallowed, and genuine buyer is punished. GST needs to provide this demarcation and law should be drafted as such that only dishonest persons are punished.
6. Section 16(4): The Giant Killer!
Section 16(4) is about time limit to claim Input Tax Credit (ITC). This is procedural aspect and legality of this provision is not in doubt. But everything that is Legal doesn’t mean its result are good. If Government can relax these provisions for initial few years that would have helped the business. Also, GST Amnesty was provided without relaxing these provisions and therefore, it couldn’t be said that a true GST Amnesty was provided.
7. GST Amnesty for Revocation of Registrations
There are many instances where GST Registration was cancelled/suspended but the concerned person could not file revocation application within time prescribed. It would be great help to Medium & Small Enterprises (MSME’s) if such amnesty is announced as one time measure specially covering the period during covid.
8. GST Amnesty for Final Return
If one’s GST Registration is cancelled, then they are required to file Final Return (Form GSTR-10) providing certain details. Practically many taxpayers have missed this and now they carry risk of penalty for non-filing the same. Government could announce one time amnesty for the same which is needed considering that people have missed this filing in mass.
Future of GST
GST was promoted as biggest tax reform in the taxation history of India and panacea against all taxation evils. Yes, it still holds merits in all these. Future of GST is as bright as of any other intelligent student who doesn’t study at all. But as a Tax Professional I don’t have crystal ball to predict the future but could only drew few signals what could unleash to us in our future:
A. Automation is the Key
Technology is driving the world crazy, and Taxation Laws are no exception. Automation & Integration would drive the future of GST. I believe GSTR-1 (Statement of Outward Supplies) and GSTR-3B (GST Returns) would be computed & pre-filled automatically in future with the help of e-Invoice, e-Way Bills and GSTR-2A/2B. GST Returns in Future would be like FASTAGS in future where we would just be needed to fill few codes/OTP or give standing instructions to the Banker for payment of Taxes Due and our returns would be filed automatically. Those who are involved in Compliance Practices would find it hard to sustain their revenues.
B. Artificial Intelligence & Machine Learning
Role of Artificial Intelligence and Machine Learning is increasing leaps and bound. They are going to play a vital role in GST in future. Recently concluded 47th GST Council Meeting have given a green signal to this. Relevant extracts from the press release of the meeting:
“The GoM on IT Reforms, inter alia, recommended that the GSTN should put in place the AI/ML based mechanism to verify the antecedents of the registration applicants and an improved risk-based monitoring of their behavior post registration so that non-compliant tax payers could be identified in their infancy and appropriate action be taken so as to minimize risk to exchequer.”
CBIC has already entered into a partnership with M/s IBM for transforming its current Enterprise Data Warehouse (EDW) to a new generation data platform in order to leverage the capabilities of data science and advance analytics for more efficiency. This project is called ADVAIT (Advanced Analytics in Indirect Taxes). ADVAIT helps in Advanced Data Mining and Data Visualization to generate user friendly reports. With the help of high-performance data mining, predictive analysis, risk scoring and text mining it has the capabilities to perform Entity and Fraud related analytics with the goal to reduce fraud and tax leakage. Broadening of tax base is also one of its desired goals.
Text Mining: Text mining helps in extending CTH (Customs Tariff Heading) Granularity beyond 8 digit based on specification like brand, grade, model. It can also predict Inputs/Finished Goods by analysing HS/CTH Code or Description.
Pattern Recognition: Entity Clustering based on parameters like tax paid, commodities imported, services provided, and goods manufactured. Detect shifts in Dwell time/Volume /Commodities/Port of Origin/ Ratios. Identification of Structural shifts pre and post notifications.
Predictive Analysis: Based on Risk rules defined by DG-ARM, predicting that an entity is a probable missing / Carousal Trader. Based on analysis of Offence Database Modus Operandi Circular, selection of cases for investigation.
C. Registrations
Getting GST Registrations has become a challenge today because of Frauds and Fake Invoices issued by many. Few of them have been arrested and are behind the bar. This matter has been discussed in 47th GST Council Meeting and they discussed about the role of AI/ML in registrations and monitoring. (discussed in earlier paragraphs).
Many missed their returns or other compliances and later their registrations are suspended or cancelled. Revocation of GST Registration has become a new battle ground between Department and Assessee and matters are reaching High Courts. We would see growing cases of more and more Writs before High Courts in future related to Registration issues. When Registration is linked with Article 21 of the Constitution i.e. Right to Life and Right to Livehood I feel more and more Court Judgements would come in favour of Assessee.
D. Restrictions on Input Tax Credit
GST was started with Seamless Credit as its soul and for removal of cascading effect. In 5 years journey it seems that GST Department is more concerned about the availability of ITC and they want to be double sure that whatever credit a person is availing is genuine. But the root cause of contention between GST Department and the Assessee is that GST Laws while disallowing Credits does not distinguish between honest and dishonest taxpayer. Therefore, the number of cases are increasing daily. Similarly the restrictions on credits is also increasing.
E. Litigations
One of the objectives of implementing GST was to reduce Litigation. GST has so far failed to achieve this goal or objective. The reason for this is Vague and poorly drafted tax legislations, Arbitrary interpretation by the Revenue Officers, Frequent / Retrospective amendments, Confusing clarifications &/or judicial pronouncements. Wide scale ‘Tax Frauds’ leading to stringent action which also ends in Litigations. Recently 47th GST Council Meeting has provided few clarifications with respect to taxability of Developed Plots/Land or change in formula as per Rule 89 and including Input Services in Inverted Duty Structure etc. Cases with respect to Transition of credit from earlier IDT regime to GST are still going on. I see huge Litigation in Future on aspects of Mixed Supply or Composite Supply and Valuation issue.
Few other areas of Litigations in future that I could visualize are:
- GST on Supply of Electricity (They have given clarification for refund of ITC on Export of Electricity)
- GST on Restructuring of Business
- GST on Liquidated Damages
- GST on Supplies by Clubs to its members
Conclusion
Future of GST is bright with more and more automation. Litigation would rise to an extent but simplification would be more. Procedural restrictions on ITC could increase. We can say “Achhe Din” of GST are on the way!!!
Author Bio
Supply (of goods and/or services) by a supplier to a recipient implies- (1) exchange of rights from the supplier to the recipient in accordance with the law relating to contract and/or sale of goods; and (2) transfer of “income” from the recipient (who pays for the supply out of her/its current/future income) to the supplier (who seeks income from the profits and gains of business/profession). Since the July 2017 reform has been a “stand-alone” reform of select indirect taxes without a simultaneous reform of the manner of levy of taxes on agricultural and other incomes, there is likely to be many disharmonies which imply violation of the constitutional guidance on harmony in Article 279A (6).