Heavens will not fall if GST is deferred till April

Our long wait for 17 years, has finally culminated in the GST rolling out at the stroke of midnight on 30-06-2017 with Union Government celebrating it like Freedom at Midnight. Finance Minister Arun Jaitley was in a tearing hurry to serve it hot to the nation.

But who would benefit the most from the GST? The Government – No; Consumers- Very unlikely, Companies- Not really, Chartered Accountants – Quite possibly, Media- Yes, Yes … with a flush of advertisements! Who said the Government is anti-media?

Jewellers would certainly not grudge the advertising done by the Union government in trying to educate the public on GST through various media. That is why we saw a great rush in Jewellery shops as people who did not want to pay 3 per cent GST on jewellery rushed to buy them @ 1 per cent VAT before July 1. They were unaware that a hidden excise duty on Jewellery of 1 per cent with 1 per cent of VAT made the tax on jewellery 2 per cent before GST and the consumer is to pay an additional 1 per cent in the post-GST era.

The Supreme Court these days often uses the phrase “Heavens will not fall”; But our finance minister, who is a lawyer by profession, thought that Heavens would indeed have fallen if GST were not implemented before 15-09-17 as the Government of the day would lose the power to collect taxes in view of the 101st Constitution amendment.

But the FM would have been aware that there could be a 102nd Amendment also to defer the imposition of GST to 01-04-18 and in the interim, to continue with the existing tax regime till people and more importantly tax officers and business get time to familarise themselves with the new system.

There was after all little certainty with the GST Council finalising rates, anti-profiteering rules etc. as late as on June 18 at its 17th meeting. The notifications were issued as late as on 28th June 2017, and began to be issued from June 19. Not surprisingly, the states have been passing state GST laws and rules till the last week of June 2017.

One has to get familiar with not just the Act but more importantly with the rules and notifications of the states and the Centre, all of which are bound to see a spate of amendments soon, which would further complicate the situation.

Not a simple tax by a long chalk

GST is a complicated legislation made even more complex by the GST Council and the Government, distrusting business enterprises and in a bid to maximise its own revenue. Ease of doing business has thus been sacrificed in the process.

There are nearly 121 definitions defining terms like Business, Goods, capital goods, Services, works contract etc. in the Central GST ACT itself and 25 more definitions in the Integrated GST Act.

No one understands for a “One Nation, One Tax, One Market” regime, why there should be registrations in each state. One registration for one enterprise for the entire nation should have been the norm. Again, it is illogical to ask the enterprises to file an annual return when they are already required to file periodical quarterly/monthly returns.

Disputes more than likely

Concepts like “nil” rated, “zero rated” and “exempted” only add to the prevailing confusion. Even in case of exports, multiple concepts like export under bond without payment of duty, Pay tax/claim refund indicates that old habits die hard.

Though taxation in respect of works contracts might have been simplified by treating it as a service wholly, unfortunately this logic is extended only in respect of works contracts for immovable properties like construction of Roads, Buildings.

Works contracts of moveable properties like Jewellery re-Making, tyre-retreading, vehicle/computer repairs etc. have been left in the lurch. There is bound to be disputes whether above are works contracts in the Trade/Legal Parlance as understood normally as it involves using materials and labour of contractor or composite supply as per the GST ACT. Enterprises would naturally argue the way it benefits them and the tax authorities take the opposite stand.

New concepts like “composite” supply is introduced to cover tax on supplies like Laptop with a case or cover, printers with ink cartridges, books with CDs, Goods supply including insurance and freight; where the rate of tax applicable to main goods will be applicable to the whole supply of goods/services. Disputes are again bound to arise whether the works contract for supply, erection and commissioning of goods like escalators, lifts, air-conditioning /solar systems are works contracts of immovable properties or composite supply.

Toothpaste with brush or detergent with container?

Also, the new concept “Mixed Supply” like supply of different goods packed into one and sold at a single price like ‘Wheat Flour with Talcum powder’, ‘Rice with Refined oil’, hitherto taxed based on the concept of “Predominant Supply” where the tax rate applicable to goods which are intended to be bought and sold, in this case the Nil rate of tax for wheat flour or Nil rate of tax for Rice would be applied for the whole sale consideration. But under GST in case of mixed supply, the highest rate of different goods packed together would become applicable.

But there are bound to be disputes whether supplies are a composite supply or mixed supply.

For instance, when toothpaste is sold with tooth brush, detergent powder is sold with empty plastic containers etc., it can be argued both ways depending upon which concept benefits the seller.

Enterprises are not geared up and mentally not prepared for quick implementation of GST, especially as everyone thought from past experience that GST would hang around for some more months.

GST is neither a page turner nor a gripping thriller video which would enthuse people and keep them hooked till well past midnight. It is painful to understand and difficult to digest, especially for SMEs.

A majority of tax officers who have little knowledge of GST are bound to mislead and misguide the enterprises, especially SMEs. A written test to the officers to evaluate their understanding of the GST is a must before they are put on the critical job.

Companies are in the midst of annual closing and yearly audit while trying to grasp new accounting standards.

Even in this late hour, the Government could salvage the situation by deferring GST to April for enterprises with a turnover of less than Rs 10 crores. In the words of the Supreme Court, “Heavens will not fall” before April if GST is not rolled out. In any case, Central Excise Law and State VAT Law shall be in force so as to tax Petroleum Products and they cannot be repealed now.

(The author is CEO, Right India Consultancy House, Bengaluru)

The views expressed in the above opinion piece are the author’s own.