GST completing 1 year, will procedures ease?

Time flies. Even before the country could grapple with the nitty-gritties of the Goods and Services Tax (GST), we will be celebrating the first anniversary of GST. Without any doubt, it has been a tumultuous year with innumerable issues and challenges. Slowly, things seem to be settling down a bit — this can be derived from the fact that the meetings of the GST Council are becoming infrequent and shorter. Critical issues such as whether to levy GST on petroleum products are being discussed offline even before placing it as an agenda item before the GST Council.

Every now and then, there have been talks of bringing petroleum products under GST. After the sudden spurt in oil prices over the past few months, there is a school of thought that bringing petroleum under GST would reduce their prices in addition to acting as an effective hedging tool against the pricing strategies of Opec (Organisation of Petroleum Exporting Countries).

The necessary provisions are already in place; Section 9(2) of the Central GST Act states that “the central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.”

Reduction in prices of petroleum products after they are absorbed into GST would depend on a number of factors such as the rate of GST, whether the Centre is prepared for a further slippage in fiscal deficit, whether state governments would levy a local tax over and above GST, and whether the GST Council would succumb to the temptation to enforce a cess over and above the peak GST rate of 28%.

Levying a petroleum cess just to bring parity between the current rates and those under GST would also not serve any purpose — prices are not going to reduce since tax rates would almost be the same and input tax credit cannot be claimed on the cess component. In the present structure, Central excise duty and VAT constitute a significant amount to the final price of petroleum products; in states such as Karnataka, the VAT on petroleum products is 30%.

State governments would demand compensation for loss of revenue on introduction of GST. Compensation to states has been a highly disputed topic due to the lack of authentic data — the disputes would only get further complicated if GST subsumes VAT on petroleum products. Permitting state governments to levy a local tax over and above GST is also a no-brainer — it would only create a further disparity in prices of petroleum products between states.

The GST followers report that the tax may first be introduced on natural gas and aviation turbine fuel (ATF) — products that are not as sensitive to prices as diesel. Even before thinking of doing this, the finance ministry should have data on the impact the introduction of GST (without any cess) would have on the fiscal deficit and compensation outflow. If the benefit to the consumers is minimal, the Council should seriously reconsider its decision of bringing petroleum products under GST.

Errors in returns

With the introduction of the single GST form pushed to September, taxpayers continue to file their monthly returns in GSTR 3B/GSTR 1. Recently, many taxpayers received notices asking for a reconciliation of input tax credit from their GSTR 3B and the GSTR 2A that is auto-generated from the counter parties GSTR 1.

There are bound to be differences in the case of every taxpayer since what the counterparty does is not in the control of the taxpayer — differences can arise because of entry of wrong data, entering data late, or non-filing of GSTR 1. It is also not clear what would happen once the reconciliation statement is given.

Under these circumstances, the Council should seriously consider permitting taxpayers to revise their GSTR 3B once it is filed and under specific circumstances. Taxpayers continue to make unintentional errors in their GST returns and need to be given a change to set them right without having to pay taxes and do the long wait for refunds.

Recently, the Ministry of Culture did a big favour to langars by authorising refund of CGST and the Central government’s share of integrated GST on inputs used. While this is a move that has to be welcomed, the benefit to the langars would be complete only when the state government refunds the state GST component that has been paid. It is noteworthy that the above is not an exemption provided by the Council but an order for reimbursement of taxes paid at the input stage.

The past year has raised issues for both the taxpayer as well as the Department. Taxpayers have had to grapple with a law that changed ever so frequently, a moody portal and an eternal wait to get their refunds. The position is much better now although obtaining a refund seamlessly still poses many a challenge.

Due to the inability of the authorities to implement the concept of an automatic matching of invoices, they have had to face the issue of artificial claims of input tax credit. The GST intelligence team at Mumbai unearthed a scam in which two GST-registered entities were exchanging sales and purchases invoices of Rs 128 crore with the sole intention of claiming input tax credit though the actual sale/purchase transaction never took place.

Over the next one year, it is expected that return filing and refunds would be made easier and working with the portal will not be a test of patience. The concept of compliance rating may be introduced while the anti-profiteering rules should slowly fade into oblivion. However, considering that recently GST officers seem to be trigger-happy in issuing notices, it is expected that litigation should commence.

There are still too many rates of taxes, artificial restrictions on input tax credit and a bewildering array of notifications and circulars. Veterans from the Central Excise and Service Tax era would probably be saying “The more things change, the more they remain the same”.

(The writer is a Bengaluru-based tax expert)