While the goods and services tax (GST) regime is designed to ensure a non-intrusive taxation system, with minimal interface between the taxman and the taxpayer, there are early signs of some states violating this principle thanks to the intransigent local bureaucracy. The issue will be taken up by the Centre at the GST Council meeting in Hyderabad on September 9, official sources told FE. “Physical verification shall be done in every case (of GST registration), as in the initial stage, maximum registration certificates have been auto-approved,” the additional excise and taxation commissioner (GST) of Haryana recently wrote to field formations. This runs contrary to the GST Council’s rules, which said, “Physical verification is to be resorted to only where it is found necessary in the subjective satisfaction of the proper officer. If at all, it is felt necessary, it will be undertaken only after granting the registration, and the verification report along with the supporting documents and photographs, shall have to be uploaded on the common portal within fifteen working days.”
Haryana’s guidelines hold tax officials responsible for verifying documents related to “solvency, credentials and genuineness” of the person (who has resgistered on GSTN) and his business. Experts said even the income tax department usually takes months to verify such parameters, and if the rules are implemented, it would make it extremely cumbersome for taxpayers. “It would be nearly impossible for the state tax department to physically verify lakhs of registrants. This would clearly lead to harassment of taxpayers, corruption and potential rent seeking behaviour of tax officials,” Rajat Mohan, partner, AMRG & Associates, said.
Under the GST regime, state governments are empowered to assess/audit 90% of taxpayers with a turnover of Rs 1.5 crore or less and the remaining such taxpayers by the Centre; above this turnover threshold, the Centre and states will share the assessee base in a 50:50 ratio. The registration process for the GST is online, and eligible businesses are required to submit relevant information on the common GST portal, GSTN. A tax official has to either raise a query online or grant registration within three working days failing which, registration would be deemed to have been approved.
This is meant to minimise a businesses’ physical interaction with the tax department. As FE had earlier reported, after the GST rollout, some states like Tamil Nadu and Maharashtra have tweaked local taxes not subsumed in the GST, undermining the objective of the new indirect tax, which is meant to be comprehensive and militate against cascading of taxes. In the state VAT regime also, there were instances of many states violating the principles of multi-point tax on value addition with seamless input tax credit across B2B transactions.
A government official told FE that the Central Board of Excise and Customs was aware of the Haryana government circular and said it was totally out of whack with the rules prescribed by the GST Council. He said the matter could be taken up only in the GST Council as the Centre didn’t have jurisdiction over the circular issued by a state government. The Council, he said, might indicate to all states that such violation of rules would not be allowed to pass. The official said the CBEC hadn’t yet come across instances of such intrusive regulations proposed by other states. An official in Bihar said the state government had taken a very liberal view with regard to compliance under the GST regime.