FEBRUARY 12, 2016

By Debasish Bandyopadhyay

BUDGET-2016-17 is hopefully going to lead us to the point which can offer clear view/picture of the upcoming Goods and Service Tax (GST) as the sunrise in the cloudy sky of indirect taxation system in India. Considering the groundwork for the forthcoming GST regime, this budget may contain certain proposals signalling the smooth transition as well as prologue to the structural implementation of the GST in the country. Thus, on the expected line, key target areas of change on the central excise & service tax front such as playing with the tax rates, thinning the exemption list, working on the threshold limit etc. are the common buzz doing rounds in the minds of taxmen and related stakeholders across the country.

Let us have a look at other prominent areas where considerable attention may pave the way for a better tax administration in the form of GST implementation. We expect due consideration on the following fields from the Hon'ble FM in the budget proposals:

CENVAT Credit- complete overhauling

Most countries have already embraced seamless credit mechanism whereas in India, CENVAT credit mechanism has become the most oppressive piece of legislation. In order to make a simpler, efficient and more robust credit mechanism, a bold policy initiative or legislation is the need of the hour to address the present ailing CENVAT credit system in the country. Moreover, it is pertinent to note that mere patch work in piecemeal basis such as recent amendment in CENVAT Credit Rules, 2004 inter alia, allowing Cenvat credit on sales commission vide Notification 2/2016-CE (NT) dated 3rd February, 2016, would not serve the intended purpose in the long-run. It is high time to take in itiatives focussing primarily on CENVAT credit scheme for complete overhauling of certain provisions by the following proposal in the run-up to seamless credit mechanism in the upcoming GST regime:

+ Either abolish Rule 6 of CENVAT Credit Rules or insert a new option prescribing a flat rate of eligible input service credit on the total value of input service received by the manufacturer and/ or provider of output service during the relevant period without stipulating any complex formalities.

+ Restrictive elements in Rule 7 for distribution of credit should be done away with.

+ Restriction of time limit for availment of CENVAT credit on inputs and input services should be removed.

+ Towards creating an easier system for taxpayers and administrations to work with, incorporation of proper training mechanism for the field formations and engagement with the related stakeholders is a must for smoother implementation of GST in the country.

Procedural Simplification- a step forward

The Government has already taken some reasonably positive measures on procedural simplification and trade facilitation in the indirect tax field. To take it forward, treating the taxpayer as customer, primary objective of the government should be getting rid of certain archaic procedural formalities which have become redundant and irrelevant in this era of e-governance. In this connection, trade facilitation measures in the field of DGFT vide Trade Notice No. 14/2015, Dated January 19, 2016 is a giant step forward worth mentioning for replication in the other field as well.

Further, considering the global economic situation, in order to enhance the efficiency in export as well as to reduce the transaction cost involved thereof, certain procedural rationalization related to export such as condition of renewal of LUT annually, submission of Annexure-19 monthly etc. should be dispensed with. Moreover, moving towards paperless and personal contact free tax regime, intimations/submissions including export intimation are required to be allowed to any central excise/service tax/customs offices by e-mail to the officer/staff member concerned.

The focus on the aforesaid issues may help create a reasonably dispute free platform for launching the big ticket reform in indirect taxes in the country.