The process of passage of the Constitution Amendment Bill to implement the Goods and Services Tax (GST) received overwhelming support from both houses of Parliament. This makes the political consensus towards this most critical impending economic reform, self-evident. It becomes imperative for the industry to gear up and understand the nuances woven into the current Model GST Law which may have a significant influence on the final GST laws implemented in the country.

While the Model Law has efficaciously laid down the overall construct of GST, reading the fine print one can identify various missing links. Therefore, it becomes relevant to address these gaps in order to bring in more robust final laws. Representations from various organisations and forums are presently being made before various Government forums seeking to address specific concerns. The Government is also actively involved in deliberating these issues with various stakeholders. Broadly, the industry representations are focused on issues relating to fundamental GST concepts, stringent compliance requisites and transition issues which may pose practical difficulties.

Supply, service, valuation

A lot is being debated on the broad scope of the term ‘supply’. The whole fundamental of GST framework relies on the scope of the term ‘supply’, the scope of which has been provided in an inclusive manner in the Model Law. From a reading of the law, the scope of supply can be interpreted to encompass more than what has been the stated intent of GST. This wide terminology could be extrapolated to cover every possible act which may not even be an economic transaction per se. To add to this, the term ‘service’ has been defined to mean anything other than goods and specifically includes actionable claims. This could possibly bring activities within the scope of GST that have hitherto not been subject to transaction taxes in India.

Another aspect under the model GST law that can be a source of immense litigation is the valuation mechanism requiring goods and services to be valued based on comparable goods/services, leaving wide discretion with tax authorities for arriving at the correct tax base. Some of the areas which would be greatly impacted by this would include valuation of free supplies and consignment transfers as the industry is largely unaware of the mechanics of taxing these transactions. The rationale of carry-over of provisions from the current excise and customs laws to include the any incidental charges to arrive at tax base on supply of goods is also not clear. This could potentially lead to continuation of dual taxation on such charges once as part of sale price of goods and also as a consideration for service.

Compliance and transition

Apart from the substantive provisions of the Model law, industry is also apprehensive of the stringent compliance requirements envisaged. Furthermore, in large organisations, invoices are sometimes processed after a time lag of 1-2 months and status of receipt of invoices is not known till the time invoices are booked in the system. Keeping in mind the rigorous time of supply provisions, businesses may be faced with serious compliance issues and potentially harsh penalties. Further, requirement of input credit matching with vendors/customers would become an extremely cumbersome process and could entail penal consequences.

Last but not the least, an important area for consideration are the provisions for allowing smooth transition to GST. While the transition provisions under the Model Law are geared towards addressing some critical concepts, they do not seem to have envisaged all possible transition issues. As an instance, while the Model law allows transition of credits for taxpayers exempted under the present regime, it does not allow transition of taxes pertaining to excisable stock lying with traders/dealers. Additionally, there is no clarity around the fate of pending statutory forms post entering into the GST regime.

The Government is certainly working towards gathering much needed feedback from the industry for achieving this target soon. This proactive approach keeps the trust of India alive that the policymakers will come out with a more clear and vigorous GST Law.

The writer is Leader, Indirect Tax, BMR & Associates LLP; With inputs from Poonam Harjani and Nimisha Chaudhary