News Update

 
IRS Association writes to PM; calls for Centralised Registration for telecom, banks & insurance

By TIOL News Service

IRS AssociationNEW DELHI, FEB 26, 2017: IN an exhaustive and comprehensive representation to the Prime Minister the IRS Association of Customs & Excise has escalated the issue of injustice being done to the Central Govt employees by the GST Council. And the trigger points are the cross-empowerments under the CGST, SGST and IGST; division of the tax base below Rs 1.5 Crore threshold in the ratio of 90:10 and treatment of supplies to territorial waters as intra-state supplies.

The key highlights of the representation are:

++ GST Council has been created under Article 279A and has assigned functions under clause (4). The word “administration” does not find mention in list of responsibilities cast upon the Council. The residuary clause (h), does empower the Council to take decision on any matter relating to GST, however it is only a residuary clause and important item of the administration can not be construed as included in this clause. It is therefore submitted that recommendation of GST Council in relation to administration of CGST and IGST should not be treated as binding on the Central Government.

++ Delegation of power by Central Government to State Government under Art. 258 is an extraordinary power which can be used only where the Central bureaucracy is not available. In the present instance, there exists a bureaucracy appointed through UPSC process and is appointed at the pleasure of the President. Delegation of Central indirect tax related assessment function would amount to appointment of State officers indirectly without undergoing through the UPSC selection. CBEC officers are capable of discharging the duty cast upon them and it is submitted that they be allowed to continue with such functions.

++ Adjudication proceedings under a fiscal law has never been delegated by the Centre to the State or vice-versa under Art. 258 or 258A, as the case may be. The Government to which a particular tax accrues administers that tax. This has been the tax administration philosophy of all taxes in the past. It is submitted that this philosophy be applied for administration of CGST and IGST also.

++ IGST is a union levy as per Art. 269A. It has been decided to be cross-empowered to the State Government officers by the GST Council contrary to the opinion of Ministry of Law. It is submitted that the opinion of Ministry of Law be placed before the GST Council and the opinion be honoured. It is submitted that it would only be appropriate that this opinion be first overruled by the Central Government before any contrary decision is taken.

++ The issue of parliamentary oversight has not been addressed by the GST Council while taking decision on dual control. IGST assessment errors by State Government officers would go outside the oversight of CAG and PAC. CAG and PAC submit reports to the parliament, to which the CBEC tax administration is answerable. However, such oversight collapses once the powers under IGST is delegated to the States and effectively leads to grant of power without any accountability. This is constitutionally impermissible.

++ There is also issue of jurisdiction of CBI. Once a Central Act and Central Levy is being administered by any officer of State in his deemed capacity as CGST and IGST officer, such officer should come under the jurisdiction of CBI. This is particularly important due widespread evasion of VAT as a tax. It is submitted that this issue needs to be addressed so that there is clarity that power and accountability go hand in hand.

++ GST is destination based consumption tax. Delegation of IGST powers to the States means empowering originating State to adjudicate on revenue which belongs to the consuming State and the Centre. Such adjudication would take place after the monthly fund settlement has taken place for cross-utilization of IGST against SGST and vice-versa. Therefore, from the perspective of design philosophy also IGST delegation to States is not warranted.

++ A supply arising in a Coastal State and reaching territorial waters is inter-State supply. Converse of such supply would also be a inter-state supply. It appears that Council has decided to make the same supply as intra-state supply to continue with the old practice which is not correct as there is no promissory estoppel in taxation law. Art. 269A (5) does give powers to the parliament to define, what constitutes inter-State supply, however use of such power to convert inter-state supply to and from territorial waters which is a Union Territory into intra-state supply is the coastal State may not be a fair exercise of such power.

++ Even if it is assumed that such exercise of power is possible, there is a more difficult situation with supplies originating and getting consumed in the territorial waters. Draft IGST law has provided that supplies originating and consumed within the territorial waters be treated as intra-state supply in the Coastal State to which the territorial water touches. Quite clearly such supplies are intra-State supply in the Union Territory. Even under Art.269A(5), no such powers vests with the parliament to convert intra-state supply in a UT an Intra-State supply in another State. Supplies originating and getting consumed in the territorial waters, which is intra-state within the Union Territory supply cannot even by legislation be deemed as intra-state supply in the Coastal State as no part of the sale takes place in the Coastal State and thus there is no nexus of any of the events of the sale with the Coastal State. For nexus to exist at least some element of the four events namely, signing of contract, passing of property, delivery of goods or payment of consideration must take place in the State where it is proposed to be taxed. In the transaction under examination no nexus exists with the Coastal State.

++ Further, the provisions of Art. 297 of the Constitution provides that the minerals in the sub-soil of territorial waters belong to the Centre. It would need to be examined whether converting supplies within Coastal Waters to intra-state supply in the Coastal State infringes on the such ownership of the Centre when the minerals are extracted as extraction and sale would amount to supply under GST law.

++ Finally, Art. 245 puts a bar on States from acquiring extra-territorial jurisdiction. Therefore, it may not be possible even by legislation to grant such rights to the Coastal States.

++ Taxing powers constitute basic structure of the constitution and it may not be open even by legislation to convert intra-state supplies outside coastal State into intra-state supplies within the Coastal State. It is therefore submitted that the decision in relating to Coastal Waters be reversed and a legally valid decision be taken in this regard.

++ At present, a big service tax assessee in sectors like Aviation, Telecom, Insurance or similar sectors has just to face one stop single assessment point with one tax administration. However, in the proposed GST Administrative Architecture, they will have to take around 30 separate registrations, thereby making them face 30 different tax administrations. This belies the promise of ‘One Nation One Tax’. Also, states have no experience of Service Tax which is very different as a concept. In such a scenario, divergent views on similar tax issues may emerge across states leading to a plethora of litigations. Prior to the 6th GSTC meeting, Service Tax assessee were supposed to be with the central government for the initial period of three years. This could have been adequate time for the State Tax administration to evolve the requisite skills to handle Service Tax assessee. Further, these sectors have made several representation to allow for centralized registration.

++ Service providers in the Banking, Insurance, Logistics, IT & ITES and Aviation sectors are operating under a single Centralised registration of Service Tax at present. That means, at present, they have to file 3 Service Tax returns in one year. In GST era, they will have to file 61 Returns per State, per year, after taking Registration in each State in which they have presence. So, a major Bank like SBI, which has branches in all 35 States / U.T.s, will end up filing over 2000 (61*35) Returns annually. This does not seem to be in the spirit of Ease of doing business, as it will lead to severe rise in compliance costs.

Therefore, in the National interest, the GST Council needs to convince the States to allow Centralised Registration for certain sectors, as their business model warrants the same.

++ There is a reported failure rate of 30% in Karnataka’s invoice matching. In the proposed GST Architecture, Invoice Matching is a central means of establishing the sanctity of tax credit chain. Such a massive failure rate of 30% will lead to tax anarchy whereby due to machine failure, tax assessees will be denied legitimate credit.

++ Any Order passed under the VAT Laws can be revised by the Department even after 5 years (even after 6 years in some States). These powers of Revision don't bring finality and closure to the tax implications of any transaction for a very long time. The procedure under the Central Indirect Tax Laws is different and provides an identical time frame to the taxpayer and to the Department to file appeal against any Order of any Officer of CBEC. This time limit is 3 months. However, the provisions relating to Revision by the Departmental Officer have been retained in the draft GST Law at the insistence of the States. GST Council needs to convince the States on this.

++ Settlement Commission has been providing an alternate dispute resolution mechanism for nearly two decades now on the Central Indirect Tax side too, thereby reducing the load on the Tribunal and Courts. The States need to be convinced by the GST Council that the proposal of CBEC to have a Settlement Commission for GST is a win-win proposition

++ In relation to distribution of assessee in the ratio of 90:10 below 1.5Cr, the ratio is unfair and reduces the legitimate work and career aspirations of the officers of CBEC. This decision would lead to the assessee base of CBEC becoming extremely small bringing into risk very survival of the department. Taxes subsumed in GST are almost equal, but the division of work is not equal, the number of assessing officers available with Centre and State are almost equal ( 30,000), but the division of work is not equal. The number of non-assesing officers in States and number of traders joining GST base may be high, but that should not become the sole criteria for distribution of work in favour of the States, when the Revenue subsumed of Centre and States are nearly equal ie 52% vs 48%.

The officers of CBEC have long standing expertise of dealing with various laws of the country than a generalist IAS and are working on complex GST law for 10 years from conception to execution and imparting training to State VAT officers as well as to state IAS officers.

++ In the vertical split with 90% of assessees of less than 1.5 cr turnover have been entrusted to the states. Here it is prudent to mention that the cost of collection of revenue is way low in the Central Government’s tax machinery in comparison to that of states. Such an arbitrary and unscientific split may increase Government’s administrative burden of tax collection. States have already started demanding extra fund for infrastructure to manage huge Tax base.

++ GSTN has been manned by non-IRS officers at senior levels. There are security and financial concerns in GSTN, which could have been avoided by giving this work to DG, Systems, CBEC. CAG and Home Ministry gave already raised concerns regarding GSTN.

In this background, the IRS Association has urged the Prime Minister to consider the following issues:

++ Revision of the division of assessees below 1.5 Cr also in the ratio of 50:50. This would mean a vertical split of the entire assessee base in the ratio of 50:50.

++ Role in Audit: If the base split in the ratio of 90:10 of the small taxpayers is non-negotiable, it may be seen that the 10 % base does not provide the adequate sample space for selection for 5% audit. Therefore, it is absolutely necessary that risk base selection for audit, of a number not exceeding 5%, be allowed to the Centre below 1.5 Crore. To accommodate the concerns of the State the selection of units to be audited may be placed in the following hierarchy – Service providers, Manufacturers, Deemed Goods suppliers and pure traders. This would almost completely eliminate audit of traders by the Centre. There is no mechanism of Audit available with States, while the Centre has evolved a complete audit procedure manual EA-2000 for risk based audit. This will help ease of doing business as well as quality audit to curb black money and revenue leakage.

++ Decision of IGST cross-empowerment may be rescinded and be placed with Centre, as it is not constitutionally valid.

++ In the spirit of the Constitution, exclusive role of Centre in Territorial waters.

++ Role in dispute resolution: With cross empowerment, the dispute resolution process needs simplification and multiple layers in the dispute resolution should be avoided.

++ First stage appeal- in cases where revenue involved is above say Rs 25 lakhs, must lie with Commissioner level officer. Appeals vertical in States are not well developed and CBEC officials at the level of Commissioner and above can be productively used for dispute resolution of these cases.

++ Member (Technical) in Tribunal should be common for CGST and SGST, taking into account the cross empowerment, and he should be Commissioner level officer. This would obviate need for a three Member bench. The bench can be two Member and consequently CBEC officials at the level of Commissioner and above can be productively used for dispute resolution of these cases. The administrative set-up of tribunal may be so constituted that the dignity of Group A officers and nature of IRS Service is preserved. Commissioner of CBEC proposed to be posted in Tribunal cannot be done unless the States also post officer of equivalent rank in the tribunal.

++ Advance Ruling be given at the level of Commissioner as such Rulings will have wide ramification in GST for Ease of Business and will often have all India implication.

++ Revival of Settlement Commission

++ Ease of Business - Further for Ease of doing Business, the assessees from Sectors like Banking, Insurance, Telecom, Aviation, Information Technology, Railways, e-commerce are required to be retained under Centralised Registration.

++ The Chairman, CBEC may be considered for ex-officio Secretary to GSTC and Revenue Secretary and Member, GST, CBEC as permanent invitees.

++ Additional Secretary, GSTS may be considered an IRS officer, who are expert in Administration equipped with technical knowhow.

++ IRS officers may kindly be considered for GST Commissioners in States, instead of IAS.

++ The Chairman and CEO, GSTN be from IRS, serving or retired or GSTN kindly be placed under CBEC.


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Multiplicity of agencies in CBEC

On one side the IRS association speaks about the problem to be created by revision power and that in VAT officials are not proficient in Audit. To this the CBEC first look into themselves. The assessee dealing with CBEC are the always fearful of opening their assessment by a new agency. In state a particular assessee is assessed by one officer who passes proper assessment order after which there are no disputes unless that order comes under Revision by Commissioner. In dispute there are very simple appelate procedure. But in CBEC an assessee is always fearful about the multiplicity of tax wings of the department. First there is Range, then Divisional Enforcement wing, Commissioner's enforcement wing, Audit wing, DRI, DGCEI, CAG and no body is final. Return filed by them are never assessed nor any assessment order passed. The assessee is never sure in cbec whether his assessment is final or not. Any issue closed by Range may be opened by Enforcement wing of division or Commissioner. Even after scrutiny by Audit wing he can be asked by CAG, DRI or DGCEI to produce records for scrutiny. So the assessee is always uncertain about his tax liability. This should be stopped in GST by adopting state's like mandatory assessment system with proper assessment order and which are final unless reviewed by GST Commissioner in exceptional cases.

Posted by CHANDRA SHEKHAR