As the industry applauded the government after the rates of goods and services tax (GST) were revised last Friday at the GST council meeting in Guwahati, Abhishek A Rastogi, partner, Khaitan & Co, tells ET that the promises made under the earlier tax regime can’t be broken under the new indirect tax law. Rastogi is the advocate on record in about 13 writ petitions that challenged the GST. Edited excerpts:
What do you make of the recent changes made by the government in the GST rates?
These rate cuts are based on pragmatic recommendations from diverse sectors and are indispensable as the effective tax rate increased on supplies. The rate rationalisation is likely to be a continuous process till rates are harmonised with the cumulative incidence of various taxes on each supply under the erstwhile regime. Besides, it was incumbent to check soaring inflation levels. Though it may be termed a populist measure, rate reduction will have a significant positive impact on businesses. As the price elasticity of demand is high on various supplies, demand may rise due to price reduction, leading to improved tax collections in the days to come. As a next step, the government should ensure that the anti-profiteering mechanism is implemented in full spirit to safeguard interests of consumers. Lastly, restrictions for refund of inverted duty structure should be re-considered by the GST Council.
What do you think are the main reasons for so many writ petitions being filed challenging the GST? What can the government do to address this?
The primary reason for a surge in writ petitions is violation of the principle of promissory estoppels without examining the legitimate expectancy and overriding public interest. (Promissory estoppel is a legal principle that a promise is enforceable by law, even if made without formal consideration, when a promisor has made a promise to a promise, who then relies on that promise to his subsequent detriment.) Accordingly, disputes related to Advance Authorisation benefits, entertainment tax retention and exemptions of R&D units reached different courts. The conspicuous absence of intelligible differentia has led to violation of Article 14 of the Constitution. As a corollary, disputes arose over reverse charge applicability on various transactions, IGST on ocean freights, supply of services by branch to its overseas office, transitional credits and taxation on procurements from unregistered dealers. With such a massive change in the taxation system, legislative oversight and unintended ambiguity was bound to creep in and the government could not have fathomed all the complexities while drafting the legislation. However, as a corrective and a proactive measure, the government issued various notifications and press release to address the hardship faced by industry.
On a going forward basis, the government should establish a proactive mechanism, rather than a reactive approach, by which the issues can be quickly escalated for taking spontaneous decisions. Budget 2018 will be a crucial moment to witness the necessary relevant amendments.
What is your view on the dispute resolution mechanism under GST?
Apart from the regular appellate route, various alternative mechanisms of dispute resolution such as Advance Ruling and Settlement Commission have found place in the GST Law. The scope of advance rulings has been significantly expanded to ensure disputes are preemptively resolved, saving the courts from countless rounds of litigations and reducing litigation cost. Besides, Advance Ruling can be obtained for existing businesses and provisions exist for online filing. These are certainly welcome measures towards tax certainty and will go a long way to reduce disputes. The late formation of various such authorities should be compensated by quick decision-making process so that certainty is attained at the very inception. While the pre-deposit of 10 percent is any day better than the stay hearing, the burden should be both on the business and tax officers. An equally high rate of interest on pre-deposit refunds should be granted to businesses for reducing frivolous demands by the taxmen.
There has been talks that the government could further reduce the GST slabs, how do you think that could pan out?
While the frequent amendment in rates is not a good sign for the economy and requires recalibration in the ERP/invoicing mechanism, the rationalization of rates cannot be ruled out.
The multiplicity of rates has been much debated and prognosticated and it is quite possible that the rate slabs of 12% and 18% may converge to a 16% slab. This will reduce the classification disputes as well.
Which are the areas where you see issues that could trigger further litigation against GST?
The delayed refund and erroneous rejections of claims will certainly be the issue in the days to come. The government should appraise the officers not on the basis of revenue collected but on the basis of tax throughput.
This would ensure that the officers will not be reluctant to grant refund. Issues surrounding the real estate sector, transitional credits, place of provisions for intermediaries and anti-profiteering would emerge.
Tax cascading due to denial of credits (such as motor vehicle in various cases) may reach courts as these provisions are against the principles of GST. The exceptions to any statutory provision should be minimal in the new law and accordingly e-commerce sector may raise concerns.
RATE CUT IMPACT
Demand may rise due to price reduction, leading to improved tax collections in the days to come.
Govt should ensure the anti-profiteering mechanism is implemented to safeguard interests of consumers.