Skip to main content

GST: Preparing for tax litigation

The hope of the goods and services tax ( GST) being implemented has revived with the model GST law being put out in the public domain for comments and the support of virtually every state for the GST in the last empowered committee meeting.
The model GST law with 184 sections and four schedules is longer than each of the laws relating to indirect taxes that the GST seeks to subsume. But it is still incomplete.
There is a mention of another schedule in the charging section, but this unnumbered schedule is yet to be made available. Some of the schedules also mention the list therein is only indicative, revealing the model GST law is still a work in progress.
While many of the existing areas of dispute may continue, Isee potential for new avenues opening up for disputes between taxpayers and tax authorities. Let me illustrate: The GST seeks to tax supply of goods and services. The question of whether a supply will be supply of goods or of service will remain contentious if and so long as there is a tax rate differential between goods and services.
While the classification scheme has not been clearly spelt out in the model GST law, so long as the rate structure is not simplified and unified, there can be disputes regarding classification of goods between tariff items having different rates. Similar will be the position in case of services.
The model GST law seeks matching of documents between supplier and receiver for allowing input tax credit (ITC). In case of a mismatch and where the supplier has not made the tax payment, the ITC shall be reversed with interest. But what if the mismatch is on account of, say, some system glitches? The receiver should not be disallowed the ITC so long as he can establish his eligibility to take credit otherwise.
The provision relating to valuation is quite complex and contains a number of specific inclusions and exclusions. But it requires clarity on the circumstances to reject transaction value between two unrelated parties, valuation for captive consumption, valuation of services between branch and head office, valuation in case of cost allocation of common services, and trade or volume discounts and business practices, which are potential areas of dispute and litigation.
Elaborate provisions have been made for transition from the existing law. But still the question remains unanswered about eligibility to credit on certain pre- GST taxes such as credit of excise duty or service tax in respect of duty- paid invoices lying with the erstwhile valueadded tax ( VAT) dealer, or of credit of central sales tax- and excise duty- paid stock held by the trader.
There is no discussion on how the area- based exemptions and other timebound exemptions or concessions will be grandfathered.
Otherwise, there could be a challenge on the grounds of promissory estoppel.
When there is a change in law, commercial disputes may arise between parties if adequate clauses are not included in the contracts according to the new law.
Business Standard New Delhi, 20th June 2016

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...