Much awaited authoritative information on Goods & Service Tax (GST) from the Empowered Committee of the State Finance Ministers, came to be known through the first Discussion Paper published on 10th November, 2009. While introducing the budget for 2007-08, the then Finance Minister, Shri P. Chidambaram, had announced that GST would be introduced from 1st April, 2010. Since then the Empowered Committee of the State Finance Ministers had series of meetings and a detailed study exercise was made through joint working groups. The report prepared by those groups were again considered by the Empowered Committee and forwarded to Government of India on 30th April, 2008 for its comments. The views of the Secretaries and the Commissioners of Commercial Taxes were called for, whereafter the present Finance Minister, Shri Pranab Mukherjee, had interactions on 19th October, 2009 in regard to the model to be adopted and the compensation that can be expected by the States on account of repeal of the Central Sales Tax Act.

The first Discussion Paper invite suggestions from the Industry, Trade, Agriculture as well as consumers. It is astonishing to note that the Empowered Committee, for no plausible reason, have overlooked the class of experts practising in either of the branch of taxation, possibly because the expertise knowledge possessed by them can be availed of through the representatives of Industry, Trade, etc. who in their turn may not be able to appreciate the repercussions of the proposed levy of tax on goods and service. We hope that we Practitioners as a class will be actively connected while drafting the actual enactment.

Considering the fact that we have only four months at our disposal for all follow-up actions including the Constitution amendment, publication of second Discussion Paper and the actual text of the law to be enacted by the Parliament as well as by individual State legislatures; we are of the opinion that the targeted date of 1st April, 2010 may not be possible to be adhered to. It is worthwhile to note in that regard that on 30th October, 2009, the Union Finance Minister for the first time admitted that there may be delay of a few months in introducing the new indirect tax regime. We, on our part, however, feel that even a few months after 1st April, 2010 would not be enough for the aforesaid necessary steps, because every stage at the Government level, delayed action is a rule rather than exception.

Structure compromised

Cursory reading of the Discussion Paper show that the country is about to experience yet one more dose of changes of vital nature, through adoption of a compromised structure of the GST model. What is planned is a method to ensure that the transition from present multi faceted VAT system to the uniform GST does not adversely affect the revenue collections of the cash starved State Governments having bottomless treasuries.

Considering the main object of introducing the uniform Goods & Service Tax for removing the cascading effect on account of Cenvat, State VAT and other indirect taxes on Goods & Services, the common GST will provide for full set-off right from the stage of original producers or service providers to ultimate retailer. In actual practice, however, based on our past experience, we can visualise that the authorities administering GST would be very slow in granting the input tax credit, with the result the tax-payers may have to face a situation of blocking up of their funds without any purpose.

One of the departures proposed to be made in the new law is regarding valuation by authorities. This, in our view, would be an avenue of corruption and harassment to tax-payers. As regards the consideration for sale of goods, it is possible that there may be litigations all over the country. Same would be the position in regard to the valuation of services. There may be more than one reason for supply of goods or services in a given case for a lower consideration. However, the authorities may not accept even a reasonable explanation.

Though major indirect taxes are proposed to be subsumed, it may be pointed out that the Custom duty on imports and the octroi presently levied by Municipal Corporations will continue, with the result the wholesome object of having only one tax for the supply of goods and services as is prevailing in the countries covered by European Union, would not be witnessed in India.

The Discussion Paper is again very vague in regard to inter-State transactions. The GST rate, the items for various rates and the question about levying Purchase Tax still remain to be thrashed out amongst the States and the Centre. Possibly that may be the reason for issuing series of Discussion Papers instead of White Paper issued before implementation of VAT system.

Considering the overall position, we are completely disappointed with the contents of the first Discussion Paper. We, the professionals, can offer constructive suggestions after studying the actual text proposed to be drafted for the uniform GST and cannot effectively do so on the basis of a general statement on any aspect of GST made in the first Discussion Paper. We hope before finalisation of actual text of the law, the professionals as a class, would also be taken into confidence.

P. C. Joshi
Advocate
Member, Editorial Board