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Legal Opinion: 10 things that could go wrong with GST


The Goods and Services Tax (GST) is expected to be implemented from 1 April 2011 but there is a long way to go before it is actually 'implemented', argue Zeus Law's senior partner and associates.

Even though the First Discussion Paper and the Task Force Recommendations have clarified a few aspects of GST there remains ambiguity regarding a plethora of issues affecting the stakeholders. While Indian industry is hopeful that the transition from the present tax regime to the GST regime will be beneficial the uncertain issues will need to be dealt with.

1. Transitional Issues
The transition would cause ambiguity with respect to issues like treatment of "stock in hand", available CENVAT (Central Value Added Tax), credit / VAT (Value Added Tax) credit. However, these should be provided for much before the implementation of GST.

2. Exemptions
There should be a common exemption list for CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) so that there is no discrepancy in the collection of taxes. Another important issue are area-based exemptions.

A scheme for the treatment of such exemptions should be well devised so that there is no adverse affect on the industry. Though Customs will remain outside the GST regime, a large number of bonds executed by importers and exporters with Government will have to be suitably amended for changed liability in view of new GST.

3. Job Work
Issues such as what documents and records need to be prepared by the job worker and the principal and time limits for claiming CENVAT credit are to be decided. Since, the focus would be on 'supply' after the implementation of GST, the status of job workers needs to be determined.

4. Assessable Value
The calculation of assessable value under GST is ambiguous since it still unknown what the components of the assessable value are. Are discounts and other charges such as loading/unloading, freight, cartage and packing includible in the assessable value or would they be chargeable separately?

5. Place of Supply
In the GST regime, the taxable event would be 'supply' and it is very essential to understand as to where the 'supply' actually takes place. "Place of Supply" rules refers to the rules that allocate the right to tax between the states. The main concern here is which state will collect the SGST.

6. Branch / Stock Transfer
An efficient provision for branch transfer / stock transfer should be put in place under the GST regime. The system should enable the businesses to make branch transfers without payment of tax and the procedure should be simple to ensure maximum compliance and minimise disputes.

7. Return / Rejection / Replacement of Goods
There has been no clarification on the treatment of goods which are returned, rejected or replaced. A major question here is whether the treatment would be similar to the present system of reversing the credit or whether new provision would be introduced.

8. IGST (Inter-State GST)
The IGST structure is extremely complicated and no explanation has been given in the discussion paper that explains how IGST is better than the state to state input credit system without the Centre coming into the picture.

The benefit of having a longer procedure where the selling state transfers the tax to the Centre and the Centre again transfers it to the buying state is not understood and a detailed analysis of the same is called for. The most desirable structure would be a single GST throughout the country.    

9. Common Procedures    
The industry expects that there would be similar formats for registration, returns and other records for both CGST and SGST. Functions such as assessment, enforcement, scrutiny and audit should be undertaken by the authority which is collecting the tax with information sharing between the Centre and the States.

10. DTC vis-à-vis GST
A great disparity in the Direct Tax Code (DTC) and GST would defeat the purpose of PAN (Permanent Account Number) linked GST registrations as cross verification would not be possible. Since the DTC is expected to be implemented from 1 April 2011, its provisions should be in synchronisation with the GST structure to make compliance easier.

GST, if implemented efficiently, could prove to be a "Good Sensible Tax". But the Government should come up with the draft rules as soon as possible so that there is enough time for  industry to analyse the draft and make representations to the concerned authorities with their suggestions.

By Zeus Law Associates senior partner Vivek Kohli (pictured), managing associate Ashwani Sharma and associate Siddharth Tandon.

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