GST: Here’s why legal terms must reflect ‘fundamentals’ agreed by GST Council

Published: February 24, 2017 5:06 AM

In India, the goods & services tax (GST) cannot be activated without the efforts and recommendations of the GST Council.

‘Post the legal vetting, the GST Council has formally approved the Compensation Law and the same would now be tabled before the Cabinet for approval.’

In India, the goods & services tax (GST) cannot be activated without the efforts and recommendations of the GST Council. A body constituted in September 2016 by the president of India, under the Constitution, it is chaired by the Union finance minister and clutched by various ministers in charge of finance or taxation for each state government. According to its mandate under the Constitution, the GST Council shall be guided by the need for a harmonised structure of GST and for the development of a harmonised national market for goods and services.

Before meeting in Udaipur recently, the GST Council had coxed nine meetings in Delhi to fulfil this mandate, while clearing the maze around the proposed threshold, sharing of administrative powers between the Centre and states, multi-tier rate structure for goods, model GST laws and compensation laws, among others.

The GST Council is a legislative body. The Council, in its previous meetings, had approved GST laws. So, the ‘fundamentals’ were all agreed upon. However, the language needed a legal vetting and, accordingly, GST laws were forwarded to the legal committee. The legal vetted draft was placed before the GST Council in Udaipur. This gave birth to further issues that required clarifications in areas like constitution of appellate tribunals, definition of agriculture, exemptions to be given during the transition phase, delegation of powers, treatment of works contracts, and issues around composition scheme for taxpayers. During the day-long meet, all the issues were discussed and a consensus reached upon.

Since GST laws would be the basis and foundation for tax treatment in the GST era, it is crucial that the legal terminologies reflect the actual ‘fundamentals’ agreed by the GST Council. A critical aspect while drafting any statute is that the language should be simple. The importance of punctuation cannot be undermined. We all are aware that currently the vast basket of tax litigation in India is largely due to interpretation issues arising out of the statute. So, the endeavour indeed should to be take care of these aspects at the outset itself. Although as much as any lawmaker can try, issues on interpretation would remain, albeit reduced.

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Post the legal vetting, the GST Council has formally approved the Compensation Law and the same would now be tabled before the Cabinet for approval.

With regard to other GST laws (CGST, SGST and IGST), the same would be presented in the next meeting of the GST Council scheduled to be held on March 4-5 in New Delhi.

Post that, a major meeting would be held where fitment of rates for various goods would be presented before the GST Council and approved. This is a very important aspect that industry is eagerly awaiting. Although the rates for goods have been announced, the categorisation of goods would help the trade to determine the impact of GST on their business.

Another area that the industry is keenly following relates to the ‘anti-profiteering’ clause. The November 2016 version of the draft GST law has an enabling provision, which states that if due to increased credits or reduced tax rates a benefit accrues, such a benefit should be passed on by way of reduced prices of goods/services. However, the mechanism has to be prescribed. Unfortunately, the GST Council meeting did not address this aspect.

The finance minister noted that July 1, 2017, would be the GST implementation date, and the same looks like a strong possibility now. Major steps have been taken by the government. For a successful transition from the current regime to GST, it is important that all the pending tasks are completed at a fast pace; for example, detailed methodology be prescribed under the rules, and sharing of such draft rules with trade and industry to take inputs on the practical aspects. In a statement made by the Revenue Secretary earlier this month, by March, the rules will be ready. The GST rate for services has still not been announced. The services sector is sceptical as to whether abatements will also be prevalent as they are under the service tax laws. Clearly, much information is needed on the anti-profiteering measure provisions, the governance of such a clause, the agency who will be assigned the job of administering it, etc.

The direction and movement is positive for the GST to be implemented with effect from July this year. Industry has enough and more to do if they are to be GST-ready, as it has only a few months before the D-Day.

Rastogi is partner (indirect tax) and Singh is consultant (indirect tax), PwC. Views are personal

Anita Rastogi & Preetam Singh

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