Goods and Services Tax (GST)

In News

• Recently, the Supreme Court said that Centre and states have equal power to make laws on GST.

About 

• Article 246A: The court emphasised that Article 246A (which gives the States power to make laws with respect to GST) of the Constitution treat the Union and the States as equal units.
• Article 279A: It confers a simultaneous power (on Union and States) for enacting laws on GST.
• Relief for importers: Ending the controversy in favour of the importers and providing them great relief.
  • The Indian importer is liable to pay IGST on composite supply consisting of the supply of goods and supply of services of transportation, insurance, etc, in a Cost Insurance Freight [CIF] contract.
  • A separate levy on Indian importers for the supply of services by the shipping line would be in violation of the Central GST Act.  

Recent Controversy

• Mohit Minerals vs Union of India: the Gujarat High Court held no tax could be levied under the IGST Act on ocean freight for services provided by a person located in non-taxable territory by way of transporting goods by a vessel from a place outside India up to the Customs station of clearance in India.
• The Centre may have a larger share of power in certain instances to prevent chaos and provide security, the States still wielded power.
• The court pointed out that there are no provisions in the Goods and Service Tax Act, 2017 (GST Act) that deal with situations where there is repugnancy between the laws drawn up by the Centre and states, and it is for the GST Council to advise them suitably whenever such occasions arise.

Goods and Service Tax (GST)

• Goods and Services Tax is an indirect tax used in India on the supply of goods and services.

• It is a value-added tax levied on most goods and services sold for domestic consumption.
• It was launched in India in 2017 as a comprehensive indirect tax for the entire country.
• It is a comprehensive, multistage, destination-based tax– comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. 
• It is paid by the consumers and is remitted to the government by the businesses selling the goods and services.
• It is of three types i.e. 
  • CGST to be levied by the Centre, 
  • SGST to be levied by the States and 
  • IGST a tax levied on all Inter-State supplies of goods and/or services.  
• All these taxes are levied at rates mutually agreed upon by the Centre and the States. 
• The GST Council headed by the Union Finance Minister is the governing and key decision-making body for GST. 

Significance of Goods and Service Tax (GST)

• Better Compliance: GST helped in achieving better tax compliance by subsuming multiple taxation and reduction in taxation burden in the last four years.
• Automated tax ecosystem: It helped the country in transitioning to an automated indirect tax ecosystem. From electronic compliances, generation of e-invoices to tracking movement of goods through e-waybill – everything is now online
• E-invoice & More Revenue: The E-invoicing system helped reduce fake invoicing. Use of technology with online bill generation has resulted in smoother consignment movement and much fewer disputes with officials. After the introduction of E-invoice, GST collections have risen steadily since November 2020, surpassing the Rs. 1 lakh crore mark on several occasions.
• Logistical efficiency, production cost cut: Another major achievement of this regime is the fact that over 50% of logistics effort and time is saved since GST has ensured the removal of multiple checkpoints and permits at state border checkpoints. 
• Lesser transaction costs: After the introduction of GST, there has been a significant reduction in transaction costs. This reduction has been a huge breakthrough in the interstate movement of products, allowing the country to boast of a single national unified market for businesses. 
• Cooperative Federalism: The customs portals are linked with the GST portal for credit availing on imports constitution of the GST Council and ensuring Centre-State partnership in the decision-making process. It ensured cooperative federalism to be its major part.
• Ease of doing business: India’s ease of doing business ranking has improved significantly in the last four years. Before GST was implemented, India’s Ease of Doing Business ranking was 130 in 2016. In 2020, India was ranked 63rd on the list.
• More Freedom: Since the GST rate is the same across the country for a particular supply, traders and manufacturers in the organised sectors have gained more freedom to choose the best vendors, suppliers, and other stakeholders with better pricing, regardless of their location. 
• Improved Competitiveness: GST has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes. 

Challenges in Goods and Service Tax (GST)

• Constant amendments: Over the last few years, the GST law has seen many amendments. During this time, all these revisions often confused the taxpayer and as well the tax administrators which created misunderstandings and misconceptions. To date, more than 1,000 notifications/circulars/instructions/orders have been issued by the government machinery. 
• Non-implementation of GSTR-2: GSTR which was the only control for systemic reconciliation was never implemented. To prevent any bogus claim of ITC, reconciliations are required to be controlled by the system. However, since it was never implemented now taxpayers asked to provide self-attested offline reconciliations maintained in annual return GSTR 9 or GSTR 9C. 
• Refund delay issues: While the Government has taken many steps to smoothen the process of export refunds, automatic processing of refunds has always been an area of major concern under GST. Since there are manual approvals involved in the existing process, there are chances of a discrepancy, human error, delay in refund processing which goes against the expectations of the exporters from the system.
• Adaption & Technical Issues: Small and medium businesses are still grappling to adapt to the tech-enabled regime. The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches, 
• Complex Penalties: Many businesses are genuinely not able to monitor their vendor behaviour and feel that they should not be penalised for the tax compliance deficiencies of their vendors once they have paid the GST amounts to their vendors.
• Low Revenue: Widespread non-compliance and non-filing of GST returns was considerable in the first three years of GST which led to low revenue collections.
• Other Concerns: Further, the 15th Finance Commission, in its report, has also highlighted several areas of concern in the GST regime relating to:
  • multiplicity of tax rates, 
  • shortfall in GST collections vis-à-vis the forecast, 
  • high volatility in GST collections, 
  • inconsistency in filing of returns, 
  • dependence of States on the compensation from Centre

Way Forward

• The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the states.
  • They are recommendatory in nature. The recommendations only have a persuasive value.
• To regard them as binding would disrupt fiscal federalism when both the Union and the states are conferred equal power to legislate on GST.
• The federal system is a means to accommodate the needs of a pluralistic society.  

Source: TH