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Brief Overview of GST

The Goods and Services Tax (GST) is a tax on goods and services. It is an indirect tax that has mostly superseded many other indirect taxes in India, such as excise duty, VAT, services tax, Entertainment tax, Luxury tax etc. The Goods and Service Tax Act was passed by Parliament on March 29, 2017, and on July 1, 2017, it came into force.

In India, GST (Goods and Services Tax) is a single domestic indirect tax law that applies to the entire country. It is a consumption tax on goods and services that is destination-based. It is levied at all stages, from manufacture through ultimate consumption, with a set-off allowed for taxes paid at prior stages. In a nutshell, only value addition is taxed under the GST framework, and ultimately, the end consumer has to bear the tax burden. The concept of a destination-based tax on consumption means that the tax would be collected by the taxation authority that has jurisdiction over the place of consumption, also known as the place of supply.

The term GST is defined in Article 366 (12A) to mean
“any tax on supply of goods or services or both except taxes on supply of the alcoholic liquor
for human consumption”.

So, alcohol for human use is exempt from GST under the constitution’s definition of GST. However, presently apart from alcohol petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel have been temporarily excluded from GST, and the GST Council will determine when they will be included. Furthermore, electricity is exempt from the GST. Though the central Govt favours to include petroleum and electricity under GST thereby reducing the heavy tax burden on consumers yet the final decision to be taken by the GST council where the state government is also its member and a significant number of states are ruled by the party who is not in power at Centre.

Framework of GST system: Legal, Policy and Administrative

Legal Framework

The legal framework of the GST is governed by four central statutes – the Central Goods and Services Tax (CGST) Act, the Integrated Goods and Services Tax (IGST) Act, the Union Territories Goods and Services Tax (UTGST) Act, and the Goods and Services (Compensation to States) Act), as well as independent state statutes (the relevant State Goods and Services Tax (SGST) Act of each State. Despite the fact that there are multiple SGST legislations, the basic features of the law, such as chargeability, definitions of taxable event and taxable person, classification and valuation of goods and services, collection and levy procedures, and so on, are uniform in all SGST legislations to the extent possible. This is important and required to keep the essence of the dual character of GST. This is because of the country’s federal structure, India has implemented a dual GST approach. As a result, the Centre and States impose GST on taxable supplies of goods or services (or both) made inside a State or Union Territory at the same time.

Policy Framework

The policy of taxation in the GST system is based on a mechanism that assigns different rates to different types of sales which are – 0 per cent, 5 per cent, 12 per cent, 18 per cent, 28 per cent and additionally 0.25 per cent for precious stones and 3 per cent for gold. Harmonized System of Nomenclature (HSN) codes are assigned to every item and rates created for each HSN code is decided by the GST council. HSN code is introduced to classify goods uniformly & systematically. Precious stones, for example, are included by HSN code chapter 71 of the GST commodity tariff schedule. There is a different set of rules and applicability conditions for HSN codes for different traders on basis of annual turnover.

Note: These tariffs are reviewed and updated on a regular basis.

Administrative Framework

The basic administrative framework of the GST system is that the GST is administered in tandem by the Central and State GST administrators, with shared auditing and administration functions. To assist in the management of taxation and taxpayers, the GST Network (GSTN) has been established as a unified national IT backbone through which all tax returns must be processed. The Goods and Services Tax Network (GSTN) has developed an Indirect Taxation portal for GST to assist Indian taxpayers in preparing, filing, and paying indirect tax liabilities, as well as other compliances. It provides IT infrastructure and services for the Goods and Services Tax (GST) implementation make the reader understand that GST applies if in India to the Central and State Governments, taxpayers, and other stakeholders. It provides efficient Backend Services to the Tax Departments of the Central and State Governments on request. Nevertheless, the GSTN network assists Tax authorities in improving Tax compliance and transparency of the Tax Administration system.

Understanding the applicability of GST under different circumstances with some examples

Let us consider some below examples:

• An individual purchases a scooter for personal use and then sells it to a  dealer after a year. This is not a GST sale because there is no advancement of business.
• A refrigerator dealer transfers one refrigerator from his inventory to his home for personal use. This is treated as a supply, and GST is applied.
• The provision of goods or services by a society club trust or other entity to its members will be viewed as a business transaction. GST is applied because it is a supply.
• Supply of goods on hire purchase shall be treated as supply of goods as there is the transfer of title,
• albeit at a future date.
• The transfer of the right to use goods is viewed as a supply of service because there is no transfer of title in such supplies. Such transactions are particularly treated as a supply of service.
• Contracts for work and catering services shall be recognised as the supply of service.

All the above situational examples are meant to make the reader understand that GST applies only if there is a commercial transaction and that transaction between the parties who are liable to pay taxes under the Act. Every Supply can’t qualify for GST even one is liable to pay tax. Only supplies made in the course or is in furtherance of a business qualify as GST supplies and attract the tax under it.

Meaning of Furtherance of Business under GST

Many a time there is confusion where a supply is within the ambit of GST or not. A simple analysis technique is to answer the below questions and if it is yes, then that supply must attract the GST.

1. Is the activity, a serious undertaking earnestly pursued?
2. Is the activity is pursued with reasonable or recognizable continuity?
3. Is the activity predominantly concerned with the making of taxable supply for consideration /profit motive?

The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.

Problems and Challenges Faced by Traders:

1. Lack of skills: Even though Government assurance to proper guidance and training related to the provisions and process related to GST and Tax filing, traders lacks the basic skills. Lack of training and complexities of the process has made them depend on third parties.
2. Heavy rush of uploading files: However, the Covid pandemic has put a break in economic activities, yet the volume of trades is not less rather being a highly growing economy, trade volume is exponentially high. It makes to upload a large number of invoices by traders on the portal thus server hanging is a common problem and causes a lot of mental frustration amongst traders.
3. Modifications/Amendments issues: No amendments or modification is allowed once uploaded to the server in GSTR 1 or GSTR 3 B. Once uploaded but by error invoices under SGST or CGST, if uploaded to IGST, one can’t modify or amend.
4. Additional Cost: In order to comply with the GST system survey indicated Traders have to spend more money on maintaining software, accountant and other equipment which increased their expenditure without any return.
5. Higher number of non-filers of returns: Many traders are unable to file returns on time and thus have to pay penalties. Non-filers of GST returns is very common. Traders are unable to file returns on time due to many complexities associated with the return filing process
6. Credit Reversal: A significant number of traders have to do credit reversal under the non-compliance of payment done to suppliers for which credit was taken within 180 days’ time limit. It is another very serious issue traders are facing.
7. Time Spent: Traders have to spend more time of their working hours fulfilling the compliances of GST than with the earlier registered tax regime.
8. Cost of compliance: It has also been found in many surveys that including done by me that there is a significant rise in cost in order to fulfil the compliances related to GST.

Apart from the above problems, there are some other challenges as observed when talking with traders especially small and medium and professionals in the field of GST :

• In the case of Pending GSTR-3B at least for the last two months, the traders are not able to file GSTR-1 as told by some of the traders. Exerts have told that such issues come in order to comply with CGST Rule 59(6)
• The most common observation one can make is the poorly maintained server leading to hanging and exponentially increasing waiting time for submission.
• The government frequently changes the rules and regulations for complying with GST provisions. It has a negative influence on the psyche of honest taxpayer traders who are not generally comfortable with technology. The latest in the series of changing rules was related to TRANS-1in September 2021, which has directed to make available all the previous records again.
• The traders do not get an input tax credit (ITC) if the supplier by mistake while filling in GSTR-2A declares supplies as B2C instead of B2B.
• It is also observed during talks with traders and professionals in the fields that many times wrong messages/notices are been sent by government officials/departments which unnecessarily leads to harassment of technically paralysed traders.
• Another striking observation was that NO GST APPELLATE TRIBUNALS has been formed to date anywhere in India which cause problems to small traders as even for small disputes, aggrieved Traders need to approach High courts which is expensive and hence unnecessary harassment.
• The next observation that one can view is denial to accept negative figures in GSTR-3B that occurs when sales returns exceed the sale during a particular month. During such a situation, adjustment is been made only to the value of the sale and the rest value is carried over till it if finally adjusted and it let to extra cost and precaution in maintaining the document till adjustment.

Steps to minimize the challenges and problems:

1. Building the Perception: Biggest challenge at present is to build the perception towards GST because in the last four years since its implementation the most generally the GST is regarded as very expensive. The perception can be changed if some reward or tax relaxation be provided for those who honestly and timely file e- returns.
2. Common E-return File Centre: Government should set up a common e return file centre run on the PPP model which provides free expertise (a nominal fee) to smaller traders having an annual turnover of fewer than 2 crores. It will certainly help in reducing additional costs on traders to comply with the GST provisions
3. Intensive Server Management: Due to the high volume of trades both in goods and services and exponentially increase in the volume of trades in future, the biggest challenge is the smooth, fast and effective cloud and server for 24×7 hours. It requires a very sound cloud and server management.
4. Option for Modification and amendment It is quite unfair to believe that traders will not do any mistakes during uploading invoices in either GSTR-1B or GSTR-3B. Humanely mistakes and clerkly errors are possible so, there must be an option for modification/up-gradation/amendments on the portal at least for one time. It will also help in minimising unnecessary litigation and harassment to traders and honest taxpayers.
5. Increase the minimum duration to Supplier’s Payment: Presently if the supplier’s payment is not done within 180 days of purchase, credit received as ITC need to be revered. It is disturbing the business environment as most of the traders fail to comply with this. It is suggested to increase minimum days to 360 days i.e one year.
6. Constituting of Appellate Tribunal: At present for even small disputes, traders have to approach the High court which is a costly affair. It is quite beneficial to constitute specialised tribunals related to GST as it is helpful for small traders and for the government as most of the litigation will be resolved here thus reducing the unnecessary loads on higher courts which have other more important works to do.
7. Clear guidelines on accountability of Government officials: It is suggested that officers/departments should be accountable for any message/notices sent to traders. In practice many a time, such messages/notices sent to traders are unworthy and add harassment. Any such action by officials/departments should be taken seriously and fines should be imposed if found guilty.
8. Facility for acceptance of negative figures of Sale in GSTR-3B: During pandemic times it was a common phenomenon where sales return was more than a sale, which leads to the negative value of the sale. But, no facility is there for same. So, it is recommended to provide the facility to accept negative figures in GSTR-3B at the earliest.
9. Mobile Training Centres: A real challenge infield is the absence of requisite skills among traders necessary for implementing GST provisions. Traders still look at the new regime like a foreign entity and have not been fully equipped with it. So, it is necessary to have some mobile training centres to educate and facilitate the traders.
10. Simplification of the Process: Many procedures in GST provisions are quite calculative and cumbersome, causing trouble even to professionals. One cannot expect our traders to be data scientists, or engineers or mathematicians. So, it is recommended to take steps to minimise complexities by removing thrones and thrushes of mathematical computation and technology.

Way Forward

By combining a large number of central and state indirect taxes to implement GST was a defining moment in India’s financial framework. It has smoothened the path for a unified common national market. The GST has successfully mitigated the cascading effect i.e tax on tax which was a common feature of the previous tax regime thus minimizing the tax burden on the final consumers. So, from a consumer perspective, the reduction in tax burden is the main benefit of the GST. Further, due to the entire neutralisation of input taxes across the value chain of manufacturing, the GST is making Indian products more competitive in both domestic and foreign markets.

Moreover, the introduction of e-way bills, combined with a crackdown on bogus invoicing, has aided in the collection of a significant amount of GST income that had previously been evaded or under-reported. Various initiatives, such as linking the customs portal with the GST portal for credit availability on imports, providing proper means for matching input tax credit, increasing automation of the refund procedure, and ensuring the smooth operation of the Invoice Registry Portal, have all aided in the reduction of tax compliance.

Despite the fact that India under the Modi government has set an example for the rest of the world by successfully completing one of the country’s most difficult tax reform projects yet there are many grey areas that are in urgent need to be resolved. As the challenges discussed above, the 15th Finance Commission has also raised concerns about the GST regime, including the multiplicity of tax rates, shortfalls in GST collections compared to forecasts, high volatility in GST collections, inconsistency in filing returns, and states reliance on compensation from the Centre, among other things. IT difficulties have harmed the core principles on which the GST statute was based, namely the seamless flow of input credits and simplicity of compliance. Small and medium-sized firms are still adjusting to the tech-enabled environment.

The law is still a work in progress, and the process of evolution cannot be removed in such a complex trip. In the future, the government should continue to take steps to fulfil its promise of a “Good & Simple Tax.”