The first interface with a new fiscal legislation that public has, while transiting from the old, is always through the transitional provision in a new enactment. If the changes are major, the transit provisions are required to be more elaborate. Since the draft GST law is the outcome of convergence of various fiscal legislations at the state and central levels, therefore provisions relating to transit are explained in an elaborate manner. These provisions figure in Sections 141 to 162E of the law. There are 27 sections devoted to transition only.
Reportedly, another version of draft legislation has been circulated to the states, but the same has not been put in the public domain, as yet. Therefore, at this moment, we can only analyse the version that is available to us. Transition provisions serve a restricted purpose of envisaging various situations that may arise while moving to a new legislation and gradually become of historical importance with the passage of time. In the draft GST Bill, they broadly, and inter alia, provide for continuity of officers with their previous designations, both under the central and state legislation pertaining to tax on goods and services, automatic migration of existing taxpayers to GST, etc. It also provides that the Cenvat credit, as indicated in the last VAT, central excise or service tax returns shall be eligible to be carried forward, if it is otherwise permissible under both the old and the new law. Therefore, for the business, last return under the old law has to be prepared and the credit has to be properly documented. This is of paramount importance, as claims later may become difficult to sustain. Since there will be quite a few assessees who will come in the tax net for the first time due to lowering of SSI excise limit from Rs 1.5 crore to Rs 25 lakh (as approved by the GST Council), it has been provided that such units shall be entitled to take credit of inputs/goods in stock as on the last day of operation of old law, provided they are in possession of invoice which is not earlier than 12 months from the appointed day.
Similar provisions exist for persons opting out of composition scheme under the new law; they can also claim Cenvat credit after the appointed day (i.e. the date on which new GST law comes into force), provided they possess the relevant invoices which are not more than 12 months’ old.
To the contrary, a person who is switching over to ‘composition scheme’ from the normal tax regime shall be required to reverse credit to the extent of existing stock/inputs. Similarly, there are other transit provisions dealing with stock position, supplementary invoice, debit or credit note, pending refund claims, etc, during transition, which answer most doubts, if not all. Since there can be various situations, the Central Board of Indirect Taxes can issue clarifications, which hopefully it will be promptly doing based on difficulties experienced and feedback received.
Efficiency in issuing clarifications and advice to field officers to put the issues on hold till clarifications are issued in order to avoid litigation will be a welcome move. However, in the ultimate analysis, a smooth transition is always achieved through a taxpayer-friendly approach and thorough understanding of tax authorities. Implementation of Finance Act, 1994, is an example in this regard. The service tax was popularised through the ‘voluntary compliance’ approach and, in the beginning, internal instructions of least searches/summons were issued, and thereafter, stringency in and around 2012 was brought in and arrest provisions introduced. The introduction of the Finance Act, 1994, was smooth enough and ultimately service tax has become a big revenue earner for the central exchequer. The draft GST law has strong enforcement provisions. It is understandable also because this is a switch over of the old taxes to the new, rather than a new one being introduced. The pressure of earning enough revenue, on central/state officials from the initial stage itself, will be phenomenal. As legislation is not meant to generate additional source of revenue like fresh Finance Act in 1994 was. It is incumbent upon authorities to maintain and augment the revenue, which was being generated till the cut-off year both by central and state governments. This can bring in a tendency to use enforcement stick extensively right from the beginning, which may make the whole tax regime unpopular.
Therefore, officers have to be properly trained for a balanced approach, striking a middle path between voluntary compliance and enforcement which is just appropriate to sustain normal buoyancy in revenue collection, in the transition stage. Again, in transition, there are various procedural lapses that happen from the side of the assessee due to lack of knowledge. These are generally liberally viewed even by courts. The normal tendency of revenue officials is to litigate at every point of procedural lapse and allow it to be decided by courts, who with near unanimity deal with such procedural lapses with disdain if they seek to deny substantive benefits, otherwise permissible. But all this results in avoidable litigation swelling up in numbers. The best way forward is to appoint chief commissioner/commissioner-level officers as the authority for condoning such procedural lapses, with or without imposing a nominal fine up to Rs 20,000, so that litigation and resultant compliance cost do not swell for small business enterprises. By resorting to such matters, both central and state governments can considerably reduce the fear factor of new tax regime and can transition smoothly.
The author is advocate, Amicus Rarus, and former commissioner of customs & excise.
Views are personal