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Warning - GST Ahead - No Diversion

MARCH 17, 2017

By TIOL Edit Team

YESTERDAY the GST Council approved the SGST and UTGST draft laws and now all the five laws relating to GST namely

1. Central GST,

2. Integrated GST,

3. Union Territories GST, and

4. The GST (Compensation to the States for Lossof Revenue) Act

5. State GST,

have got the stamp of approval from the GST Council.

The next step is approval of the first four laws by the Union Cabinet and getting them passed in Parliament. The State GST has to be approved by the cabinets of all the 29 States and passed by their legislatures. The Union Finance Minister and Chairman of the GST Council, Mr. ArunJaitley believes July 1 is a possible date for the launch of the mega tax event that is GST.

Apart from the above Acts several Rules are proposed and approved by the Council. These are:

1. Return Rules

2. Refund Rules

3. Invoice Rules

4. Payment Rules

5. Registration Rules

Some rules like the following are yet to be approved.

1. Composition Rules,

2. Valuation Rules and

3. Transition Rules

And the rates and classification also need revelation.

By July 01, traders (lovingly called assessees), lawyers, consultants and officers are expected to be thorough with all these statutes for as they say, ignorance of law is no excuse and more so ignorance of law on the part of the assessee.

The traders are expected (nay, bound) to know

1. Whether they are liable to pay the tax,

2. If so, at what rate,

3. Where to pay the tax,

4. How to pay the tax,

5. When to pay the tax and

6. What obligations on records and returns are to be complied with?

The last few years have produced so many pundits on GST out of the massive ignorance widely distributed. It was an ABCD situation - Any Body Can Discuss. Now, we have to make a progressive elimination of the mass of ignorance to arrive at somewhere near reasonable knowledge.

For a country that learned to live without money for a couple of months, GST may not be very chaotic and the Indian businessman has an incredible capacity to face any hurdle, law, tax or even taxmen. He has so far overcome all the catastrophic confusion created with routine regularity all these years with the lofty aim of enhancing the ease of doing business for him, but ultimately causing him more harm and harassment than what he was facing before the blessing was showered on him. Through returns and raids; assessments and arrests; audits and appeals; bribes and brawns; laws and outlaws; cases and courts; losses and loans, he has survived and even succeeded to a large extent. So, he is ready - for GST, being already in dark, he can only get light. Is the Government ready?; is the GSTN ready?; Is the infrastructure ready? Are the officers ready?

The serious discussions, especially among the officers are tuned towards, "what will happen to me?". The GST system will have to support a huge army of nearly four lakh tax officers belonging to the States and the Centre and they will ensure that all concerned - like themselves, lawyers, IT experts, book sellers, knowledge portals, retired and re-tyred economists - all will thrive. The ideal GST of one Nation, One Tax, One Rate will happen in Utopia not India. We will have many taxes, many rates, many laws and it seems even the dreaded check posts which are real roadblocks to India's economic progress will continue, merrily scuttling our speed. The Nation is on the move, except in check posts.Do we need such a huge army to collect a tax that will be mostly paid voluntarily and through electronic means? In its latest report to Parliament last week, the CAG has pointed out that in the year 2015-16, out of the 2,87,149 crore rupees of excise duty collected, 5,027 crore is collected due to departmental efforts which is only 1.75per cent of total revenue. And the 5000 crore includes collection through Audit, Anti-Evasion, Adjudication, scrutiny and Recovery of arrears and CAG has serious doubts about the figures given by the department on collection through these heads as different figures are given in different reports.

Is GST good ? You can't really predict the future. Your astrologer is a better guide than your economist, but then economics is all about predictions and economists can go wrong even in predicting the past. Tim Worstall, a Fellow of theAdam Smith Institute in London says that ‘you know it's a good tax when tax officers protest too much about losing work' (as the Indian Tax officers are doing). We should only hope that GST does not reinvent the wheel of litigation and we end up in courts on all kinds of disputes like the famous jaffa cake case in UK.

The Jaffa Cake case : In the much cited Jaffa Cake case in the UK, McVities believed their Jaffa Cake to be a cake liable to zero VAT, but the VAT authorities thought it was luxury biscuit chargeable to VAT. The issue reached the Tribunal and the issues considered were:

++ The product's name was a minor consideration.

++ Ingredients: Cake can be made of widely differing ingredients, but Jaffa cakes were made of an egg, flour, and sugar mixture which was aerated on cooking and was the same as a traditional sponge cake. It was a thin batter rather than the thicker dough expected for a biscuit texture.

++ Cake would be expected to be soft and friable; biscuit would be expected to be crisp and able to be snapped. Jaffa cakes had the texture of sponge cake.

++ Size: Jaffa cakes were in size more like biscuits than cakes.

++ Packaging: Jaffa cakes were sold in packages more similar to biscuits than cakes.

++ Marketing: Jaffa cakes were generally displayed for sale with biscuits rather than cakes.

++ On going stale, a Jaffa cake goes hard like a cake rather than soft like a biscuit.

++ Jaffa cakes are presented as a snack, eaten with the fingers, whereas a cake may be more often expected to be eaten with a fork. They also appeal to children, who could eat one in a few mouthfuls rather like a sweet.

++ The sponge part of a Jaffa cake is a substantial part of the product in terms of bulk and texture when eaten.

Taking all these factors into account, Jaffa cakes had characteristics of both cakes and biscuits, but the tribunal thought they had enough characteristics of cakes to be accepted as such, and they were therefore zero-rated.

How many Jaffa cakes will we have to face! Maybe we can start with whether GSTN is liable to pay GST?

More than a year ago, Finance Minister Mr. Jaitley said, "A delayed GST is better than a flawed GST."

Now the thinking seems to be "any GST is better than no GST" or are we going to have a delayed and flawed GST?

The GST KISS : Keep It Simple Sir.


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