clerl.tax

Category: GST Opinion

  • Game Changer — The GST has revolutionized India’s economy.

    This Post discusses the perspectives of Arun Goyal, a retired Indian Administrative Service officer, who is now a member of the Central Electricity Regulatory Commission. Notably, he played a crucial role as an additional secretary during the GST Council’s launch of the Goods and Services Tax (GST), showcasing his deep experience in regulatory matters and commitment to driving impactful change in India’s economic landscape.

    Six years after the implementation of the Goods and Services Tax (GST), it is evident that this reform, with its unique features such as the Dual GST structure and the Integrated GST mechanism, has indeed yielded substantial benefits for the Indian economy. The GST Council, functioning as a model of cooperative federalism, has facilitated decisions on tax rates, exemptions, and revenue-sharing, showcasing a collaborative effort between the central and state governments.

    The commendable performance of the Goods and Services Tax Network (GSTN) in providing a seamless interface for taxpayers and governments has resulted in significant formalization of the economy. This is demonstrated by the remarkable increase in GST registrations, contributing to higher revenues. The growth from ₹8.76 trillion in 2018-19 to ₹13.25 trillion in 2022-23 is a testament to the effectiveness of the GST regime.

    While the initial concept of invoice matching faced challenges, subsequent measures such as e-way bills and e-invoicing have been introduced to curb GST leakages. The standardization of electronic invoice formats and the adoption of these mechanisms have contributed to minimizing fraudulent GST invoices and ensuring proper claim of input tax credit.

    However, it is essential to acknowledge that India’s GST system still faces certain concerns. The multiple tax slabs, particularly the high peak rates of 18% and 28%, have been critiqued for their complexity and potential to promote tax evasion. Comparing this to other countries with simpler GST structures, the need to reduce the number of slabs and peak rates becomes apparent.

    The next phase of GST reforms should prioritize streamlining the number of tax slabs and reducing peak rates to achieve tax buoyancy, aligning with the positive trajectory observed in India’s direct tax rates. This approach will not only simplify GST administration but also enhance the effectiveness of the GST system in driving economic growth and reducing tax evasion.

  • GST Refunds for Cancelled Contracts — Supplier Obligations

    Government entities or suppliers consistently aim to have an advantage in their interactions with private businesses. When contracts are nullified, a common concern arises about managing the previously paid GST, particularly if there’s no applicable outward tax liability. Addressing this matter, Serial Number 3 of Circular Number 137/07/2020-GST dated 13/4/2020 outlines the subsequent details —

    Situation 01

    An instance arises where a supplier receives payment in advance for a service contract, which later gets canceled. The supplier had already sent an invoice before actually providing the service and had paid the corresponding GST on it. Now, the question is whether the supplier can get a refund for the tax paid, or if they need to manage their tax obligations differently in their records.

    When a supplier pays GST on the advance received for a service that was later canceled, and if this advance was tied to an invoice issued even before the service was given, the supplier needs to generate something called a “credit note.” This process is defined in section 34 of the CGST Act. The supplier should include all the specifics of this credit note in the tax return for the month in which the credit note was produced. The tax responsibility will then be adjusted within this tax return, all according to the terms outlined in section 34 of the CGST Act. Importantly, this doesn’t require a separate application for a tax refund. However, if there’s no tax obligation against which this credit note can be balanced, individuals registered under GST can go forward and initiate a claim for any “Excess payment of tax,” if applicable. This can be done using FORM GST RFD-01.

    Situation 02

    Imagine a situation where a company gets paid in advance for a service they were supposed to provide. But later, the plans change, and the service doesn’t happen. The company already paid a tax called GST on that advance money. Now, the company wants to know if they can get that tax money back or if they have to adjust it against their other taxes.

    If a company pays GST on the money they got in advance for an event that got canceled, and they didn’t give an official bill (invoice) as per the GST rules, they need to make a special note (a “refund voucher”) as per the rules. Then, they can ask for the GST money back by filling out a form called GST RFD-01, saying they paid too much tax.

    Calcutta High Court

    Now, let’s think about when the company gets the GST money back. There was a case with a company called IRCTC. They got paid by someone for a service, including GST, and then the plans got canceled. IRCTC said they’d give back the GST money, but only if the government also gives them money back. This is even though the person who paid said they didn’t use that GST money for any tax benefits.

    The Calcutta High Court looked at a similar case involving Griham Food and Hotel Private against the government. The Court said that there’s no reason why the GST money shouldn’t be given back to the petitioner. The Court didn’t agree that IRCTC should always get money back from the government. IRCTC couldn’t show why they waited so long to deal with the petitioner’s request for a GST refund. If the government should give money back to IRCTC will depend on the law. But it’s clear that the petitioner should get the GST money back from IRCTC. So, IRCTC was told to give the GST money back to the petitioner quickly.

  • GSTN Considers Increased Public Disclosure of GST-Related Data

    New Delhi: According to a recent statement by the industry association Assocham, the Goods and Services Tax Network (GSTN), the entity responsible for processing GST returns, is considering the release of additional tax-related data concerning geographical and industrial aspects. The Chief Executive of GSTN, Manish Kumar Sinha, expressed this potential development.

    A dedicated committee is actively discussing the expansion of public data to encompass more dimensions, enhancing insights into geographical and industry-specific nuances through the lens of GST data. Speaking at an event, Sinha highlighted the committee’s endeavors.

    The meticulous information available through GST data can offer valuable insights into the regions that prominently partake in exporting, consuming, and engaging in inter-state trade of diverse goods and services. The application of such insights holds great promise for businesses in fine-tuning their operational and logistical strategies. Furthermore, the academic and policy-making circles could also leverage this data to their advantage.

    During the same event, Shashank Priya, a Member (GST) of the Central Board of Indirect Taxes and Customs (CBIC), indicated that the number of registered taxpayers has surged to approximately 1.40 crore from the initial count of 67.83 lakhs at the inception of GST.

    “The indigenously developed GST law has now attained stability. What once appeared intricate at the outset is now comprehended proficiently by both the trading community and officials,” remarked Priya, underlining the evolution of the GST law.

  • Uncertainty Surrounds Intermediary Services

    The taxation of intermediary services has long been a topic of contention and differing opinions. Traditionally, the point at which these services were subject to taxation rested on the recipient, aligning with the prevalent global practice of place of supply. This approach was maintained until 2014 when the CBEC unexpectedly shifted its stance due to the influence of an overly enthusiastic officer.

    Unfortunately, this change lacked the tax neutrality observed in other countries. The introduction of GST further complicated matters, particularly in relation to the provisions regarding the place of supply. This article delves into the profound implications of the significant Dharmendra M. Jani case ruling in the esteemed Bombay High Court and outlines the potential paths ahead for such service providers.

    Key Provisions under Examination

    • Section 13(8)(b) of the IGST Act: Designates the place of supply as the location of the service provider.
    • Section 7(5)(a) of the IGST Act: Pertains to Inter-State Supply transactions where the supplier is in India, but the place of supply is outside India.
    • Section 8(2) of the IGST Act: Addresses Intra-State Supply transactions, where services are supplied within the same State or Union territory.
    • Section 2(6) – Definition of ‘Export of Service’: Involves scenarios where the supplier is in India, the recipient is outside India, and the place of supply of service also lies outside India.

    Intermediary Services in a State of Uncertainty

    The issue at hand stems from the interpretation of Sections 2(6) and 7 of the IGST Act. By the plain reading of these sections, the transaction could be categorized as an inter-State supply. However, due to the influence of section 13(8)(b), it is classified as an intra-State supply, consequently attracting taxation.

    In 2021, one Judge declared these provisions as ultra vires (beyond the legal power or authority) in nature. However, another Judge took a dissenting stance, leading to the pivotal larger bench decision that ensued.

    Recent High Court Ruling Analysis on Taxation

    The High Court has taken a thoughtful approach to interpreting and aligning the legal provisions to ensure their effective implementation. They recognize the presence of a dual perspective. The underlying purpose of these provisions is not to spark conflicts and legal battles but rather to facilitate a seamless and clear operation within a strong taxation framework. Ultimately, the court deems the transaction in question to fall under the category of inter-State supply.

    The petitioner firmly contends that Section 13(8)(b) of the IGST Act should not be applied to the CGST Act or the State GST Act in a way that indirectly imposes taxation on the export of services. The High Court’s analysis concludes that both Section 13(8)(b) and Section 8(2) of the IGST Act stand in accordance with the Constitution.

    The assertion that the taxation of intermediary services has an extraterritorial character and goes against Article 245(2) of the Indian Constitution is found to be unsupported. This is particularly so, given that Section 13(8)(b) pertains to an inter-State supply.

    Furthermore, the High Court determines that neither Section 13(8)(b) nor 8(2) of the IGST Act infringes upon the provisions of Article 14, 19(1)(g), 245, 246, 246A, 265, 269A, and 286 of the Indian Constitution. It emphasizes that Section 13(8)(b) should be confined solely to the IGST Act and should not be extended to have any implications under the CGST and State GST laws.

    The “Department-Related Parliamentary Standing Committee On Commerce” expressed a viewpoint in its 139th Report on GST that the place of supply for intermediary services should be placed under the residual clause of Section 13(2) of the IGST Act. This adjustment would enable the export of services and create consistency on a global scale. The High Court acknowledges that this perspective should have been taken into consideration by the Parliament.

    Regarding the ruling in the case of Material Recycling Associations of India – Gujarat High Court, where intermediary services were deemed subject to CGST and SGST, the High Court finds that this verdict does not align with the current case and cannot substantiate the Revenue’s stance.

    The Confronting Opinions

    The Honorable High Court judges view the transaction as an export of service, classifying it as a supply during inter-State trade or commerce. This stance diverges from the established export of service guidelines, which stipulate that the place of supply must lie outside India. According to Section 13(8)(b), the place of supply corresponds to the service provider’s location.

    Several nations, including Thailand, Sri Lanka, and the European Union, have successfully implemented destination-based taxation. This approach facilitates service exports and minimizes the risk of double taxation.

    Numerous businesses have relocated their operations beyond India’s borders to evade supplementary taxes. Unfortunately, this maneuver has a ripple effect, negatively influencing both our international competitiveness and overall economic stability.

    Way Forward – Intermediary Services

    The matter of validity is extensively discussed and addressed.

    However, individuals who had been paying taxes according to CGST & SGST are not required to make IGST payments for their previous transactions.

    According to Section 77(1) of the CGST Act, coupled with Section 19(2) of the IGST Act, it is clarified that in cases where CGST & SGST were inadvertently paid for a transaction assumed to be within a single state but was actually an interstate transaction subject to IGST, the incorrect tax payment will be reimbursed once the accurate IGST taxes are settled. No interest will be charged in these situations.

    It can also be inferred that only upon confirmation (via a notice or departmental audit) by the department that the case falls under such circumstances, should the payment and refund processes be initiated.

    Considering that this matter might escalate to the Supreme Court and there are no additional interest expenses, taxpayers are advised to await the final decision before taking any action.

    Those who haven’t yet paid for intermediary services can opt to do so under protest, following a consultation with an expert who can provide precise details.

    Proposed Changes in GST Law (personal viewpoint)

    We should remove section 13(8)(b) and connect it to the general provision, which is section 13(2) of the IGST Act. Furthermore, it’s advisable to issue a notification under section 13(13) of the IGST Act in order to prevent dual taxation. This would ensure that taxation doesn’t occur both in India and in the foreign country, by defining the place of supply as the recipient’s location.

    Services Based on Principal-to-Principal Relationship

    Services provided directly rather than through intermediaries should be considered as services on a principal-to-principal basis. Such services would be categorized as export of services, falling under section 13(2) of the IGST Act, and not under section 13(8)(b).

    The Circular 159/15/2021-GST issued by CBIC on 20th September 2021 further clarifies the distinction between intermediary services and the contrasts between services provided on one’s own account versus subcontracted services.

    Key Legal Precedents for Such Situations:

    1. McDonald’s India Pvt Ltd – Delhi High Court – W.P.(C) 11430/2022
    2. Ernst and Young Ltd – Delhi High Court – W.P.(C) 8600/2022
    3. Universal Services India Pvt Ltd 2016 (42) STR 585
    4. GoDaddy India Web Services Pvt Ltd 2016 (46) STR 806

    Final Thoughts

    The High Court’s ruling seems to have caused some confusion due to the way they reached their conclusion. However, it’s too early to decide on any business actions using this ruling. It would be wise to wait for the Supreme Court’s decision and follow the best practices outlined earlier.

    Moreover, properly categorizing services and aligning contract structures with the actual services provided is crucial. This should be done while considering tax regulations in order to ensure compliance.

  • The intertwined harmony of GST Act and the Indian Contract Act, 1872

    1. Relevance to GST

    The cornerstone of GST lies in its direct connection to valid contracts. Every form of supply covered by GST is essentially a contractual agreement. Consequently, any transaction that fails to meet the requirements of a valid contract is automatically excluded from the treatment afforded by GST.

    It would be a disservice to this discourse to overlook the vast array of knowledge available in the field of Contract law, established long before the advent of GST.

    Vinculum juris embodies the binding legal obligations willingly undertaken by contracting parties, and it is not within anyone’s authority, not even a court’s, to deny parties their agreed-upon terms and the protection it provides in case of default. The transactions involving supply all stem from contractual commercial arrangements, with only a few exceptions mandated by law. A comprehensive comprehension of Contract law is imperative for any student wishing to fully grasp the intricacies of GST.

    Delving into the works of no less than five distinct authors on the Indian Contract Act will facilitate the exploration of topics that permeate the entire scope of supply within GST law. Additionally, publications that draw upon English Contract law, particularly the notable works of Anson and Chitty, can be included to enrich the understanding of this subject matter.

    It is crucial to grasp that parties may engage in an agreement, yet the transformation into a bona fide contract solely hinges on its lawful enforceability. Solely only those agreements that abide by the prevailing laws possess the potential for legal enforceability to become a contract.

    2. Capacity to Contract

    2.1 Validity of contract

    The achievement of Parties engaging in trade relations with each other is insignificant if their contract is deemed invalid, rendering their efforts futile. Numerous factors influence the validity of these relations, compelling Parties to exercise great caution. The law unequivocally delineates what undermines the validity of a contract.

    To assess a contract’s validity, one must meticulously scrutinize each validating component outlined in this legislation. Furthermore, when a contract is purportedly enforceable, a presumption arises in favor of its validity, unless an incurable or inseverable flaw, such as a minority or mistake, is discovered. Parties who intended to establish binding legal obligations cannot deny the existence of their contract. The presence of consideration suggests the validity of the contract or the terms constituting a binding agreement.

    It is essential to comprehend that a contract is not merely a formal document but an agreement reached on the object and the expectation of its enforceability in case of breach or threatened breach.

    2.2 Legal or Lawful Authority

    The ability to enter into a contract encompasses the fundamental requirement of having the rightful power to do so. Without legitimate authority, no individual can claim to be engaging in a contractual agreement. Authority extends not only to the person making the contract but also to the person entering into the contract. The precise and explicit definition of ‘Recipient’ in section 2(93) of the Central GST Act allows the terms “Beneficiary” and “Recipient-Contractee” to be used interchangeably.

    Asserting any claim based on factual circumstances necessitates the possession of legal authority to substantiate such claims. Whether it pertains to a medical facility, a charitable organization, an educational institution, or any other relevant entity, the absence of lawful authority renders any further examination of the specific nature of the activities performed unnecessary. A person providing substandard care with lawful authority falls within the definition, whereas someone offering high-quality care without lawful authority does not. The ability to undertake any action presupposes the existence of lawful authority to do so.

  • Pine Labs The Emerging Force in Indian FinTech, but no IPO in the current situation says CEO Amrish Rau

    Pine Labs, a prominent player in the realm of digital payments, has now aligned itself with the emerging trend among technology enterprises to defer their initial public offerings (IPOs). In an exclusive interview with ET, Amrish Rau, the CEO of Pine Labs, firmly expressed his decision to withhold the planned IPO, citing the tumultuous state of global markets. With sagacious foresight, Rau asserts that the present juncture does not provide a conducive window for an IPO endeavor, a statement imbued with unwavering conviction.

    Unwavering in its financial fortitude, Pine Labs stands in a position of fiscal robustness, having already garnered a substantial influx of more than $1.1 billion. Rau confidently reaffirms the company’s steadfast stance to refrain from hastily pursuing an IPO, remarking that there is no urgency to embark on such a venture. The fiscal year 2023 concluded on a prosperous note for the company, boasting net revenues amounting to Rs 1600 crore and a commendable positive EBITDA. Such fiscal accomplishments reflect the company’s sound financial foundation, which Rau eloquently expounds upon.

    The annals of Pine Labs’ history are embellished with its association with Sequoia Capital and Mastercard, which have significantly bolstered its position in the payments domain. It is noteworthy that the unicorn, backed by these stalwart entities, has now shed light on its IPO strategies. The veil of secrecy shrouding its intentions was lifted when it submitted a confidential IPO filing worth $500 million to the US Securities and Exchange Commission in January 2022. Akin to a wise mariner, Pine Labs has steered its course with deliberation, postponing its listing plans as the global economic landscape took a somber turn.

    The visionary ethos governing Pine Labs’ course of action has been unequivocally articulated by Rau. Cognizant of the tempestuous nature of the financial realm, he opines that Pine Labs, akin to a ship of substantial worth, should not set sail in stormy waters. The prevailing sentiment is to await a propitious breeze and a favorable climate for the IPO. Rau’s leadership, culminating in his ascension to the CEO role in 2020, has steered the fintech group with prudence and circumspection.

    Amid the contemporary landscape where regulatory scrutiny has enveloped Indian fintech giants like Paytm and PayU, Pine Labs’ strategic decisions have been sagaciously calibrated. While the decision to shift its corporate domicile remains pending for the Singapore-domiciled Pine Labs, the determinants are poised to be rooted in pragmatic considerations. Rau astutely differentiates between the calculus of valuation and taxation and the overarching vision of global versus domestic market orientation. Such discerning insights are emblematic of Pine Labs’ judicious approach, poised to discern the optimal course of action for the company.

    The company’s choice of listing, whether on domestic or global bourses, is intrinsically linked to the epicenter of its revenue streams. A careful examination reveals that nearly 15% of Pine Labs’ revenues emanate from the expansive domains of global markets, continuing to serve as lucrative profit pools. The subtle interplay between revenue dynamics and market orientation is deftly explicated by Rau, further emphasizing Pine Labs’ strategic acumen.

    In the prevailing macroeconomic context, where many fintech entities have adopted a defensive posture, Pine Labs emerges as a beacon of assertive growth. With strategic acquisitions spanning the years 2021 to 2022, the company has demonstrated an unwavering commitment to expansion. Bolstering its endeavors, Pine Labs intends to introduce its gift card issuance service, a pivotal revenue source, alongside its payment installment stack and QR code payment services, to the geographies of the United States and Europe. Rau, with his characteristic clarity, elucidates the imminent establishment of sales outposts in these regions, envisaging a dedicated push for the company’s technology.

    Pine Labs’ global aspirations are underscored by its recent foray into the United Arab Emirates, building upon its presence in five Southeast Asian countries. Rau’s narrative hints at a future marked by calculated growth strategies and judicious market entries, a testament to Pine Labs’ evolutionary trajectory. The company’s proactive stance in considering additional acquisitions for expansion resonates as a testament to its pursuit of new horizons.

    In a landscape where peers are pursuing lending licenses foray into the credit domain, Rau remains steadfast in Pine Labs’ distinctive course. With an eloquent negation, he dismisses any immediate inclination toward procuring an NBFC license, underscoring the company’s focused agenda. The strategic direction steered by Rau speaks volumes about Pine Labs’ clarity of purpose and its unwavering commitment to its chosen trajectory.

    While Pine Labs’ acquisition-driven strategy has momentarily deferred its path to positive PAT, Rau unveils the strategic intent to rectify this course by the culmination of the ongoing fiscal year. His candid assertion underscores that Pine Labs’ EBITDA profitability, currently standing at an impressive 20%, is a harbinger of the company’s resolve. The interplay of acquisitions and organic growth manifests in Pine Labs’ upward revenue trajectory, with Rau attributing a substantial 7-8% of growth to acquisitions in the fiscal year 2023.

    As Pine Labs endeavors to diversify its revenue streams, it tactfully steps beyond the confines of the PoS business. The company’s revenue matrix is enlivened by robust lines of revenue from gift card issuances, installment payment services, and payment gateway operations. Rau, with sagacious foresight, forecasts the impending fiscal year to be marked by nuanced strategies, optimizing EBITDA growth while navigating the challenges that macroeconomic conditions present.

    Pine Labs’ narrative, though adorned with achievements and astute strategies, anticipates a phase of tempered growth in the fiscal year 2024. Rau’s forthright admission reflects the company’s maturity in understanding the cyclical nature of markets. Sacrificing low-margin revenues in favor of high-margin pursuits, Pine Labs is poised to steer its course with prudent financial stewardship.

    In culmination, Rau’s narrative weaves a tale of strategic prowess, grounded in a sagacious understanding of the financial realm. Pine Labs emerges not only as a fintech entity but as a deliberate navigator, charting its course amidst global market ebbs and flows. Amrish Rau, at the helm of Pine Labs, personifies a steward steering the company with acumen and resolve, embodying the spirit of prudent growth and strategic finesse.

  • Resolving Pending GST Disputes — A Call to Action

    The Goods and Services Tax (GST), a cornerstone of India’s economic reform, aimed to streamline the nation’s indirect tax structure, fostering a unified marketplace for goods and services. Yet, its success hinges on an effective dispute resolution system, a crucial element for minimizing litigation costs while ensuring efficient dispute resolution.

    Disputes under GST often arise from disparities between tax payments by taxpayers and the authorities’ calculations of tax liability. The reasons are multifaceted, stemming from assessment, audits, and record scrutiny—varying tax rates, claims of tax exemptions, input tax credit disputes, erroneous place of supply determination, nature of supply concerns, and the classification of goods and services. Although GST aimed to simplify tax administration, initial experiences suggest a contrary trend.

    As tax authorities and taxpayers continue to stand on opposing sides, the contours of litigation reveal a worrisome pattern based on historical trends. Disagreements stemming from interpretations of the law, unsatisfactory advance ruling processes, and a revenue-centric approach by tax authorities have propelled litigation. Addressing this trend is essential, and several critical measures must be implemented.

    A much-needed GST Amnesty Scheme must be introduced to aid sincere taxpayers who may have inadvertently erred during GST’s early stages. Given the complexity of this monumental tax reform, both taxpayers and authorities faced challenges aligning internal systems and training personnel, leading to numerous unintentional mistakes. Now, these errors are being subjected to departmental audits and scrutiny, causing a surge in tax demands, interest, and penalties.

    It is rumored that the government is contemplating a GST dispute settlement scheme, offering a one-time opportunity for businesses to settle tax cases. This scheme, likely similar to the 2019 ‘Sabka Vishwas Scheme,’ is expected to exclude cases of willful tax evasion and ongoing enforcement agency scrutiny. Such a scheme could provide much-needed relief for taxpayers while contributing to a more efficient tax administration.

    The long-awaited Goods and Services Tax Appellate Tribunal (GSTAT), despite five years since GST’s introduction, has yet to become operational. This absence forces taxpayers to resort to High Courts, straining an already overburdened justice system and causing delays in delivering justice to genuine taxpayers. The immediate establishment of GSTAT and expeditious dispute resolution is paramount.

    The Authority of Advance Ruling (AAR) was established to offer tax certainty in advance, aiming to reduce litigation. However, AAR’s limited scope and its binding nature only for the applicant and the concerned jurisdictional officer in the respective state GST Acts have led to divergent rulings and increased litigation. Centralizing AAR authority and addressing critical aspects like ‘place of supply’ can significantly reduce disputes and restore confidence in the system.

    Furthermore, exploring Alternate Dispute Resolution (ADR) mechanisms, such as arbitration and mediation, can further minimize unwarranted litigation. The introduction of the Settlement Commission, allowing delinquents to resolve disputes more efficiently, can play a pivotal role in this process.

    It is imperative that the government, in collaboration with the GST Council, take bold and decisive steps to address the mounting GST disputes. A robust dispute resolution mechanism, coupled with policy interventions, can not only curb the proliferation of litigation but also foster confidence among taxpayers, ensuring the realization of GST’s true potential as a catalyst for economic growth and simplicity in tax administration.

  • Arrests within the realm of GST enforcement still linger in a zone of uncertainty.

    At the core of taxation lies the well-being of the populace. While indirect tax laws primarily aim at recovering revenue and imposing fines, they also grant the authorities the power to take stringent actions, including making arrests, against those who exploit the provisions of these laws. The ability to arrest an individual traces its origins back to the period before the advent of GST. This provision has invited controversy due to instances where its application remains legally debatable.

    Under the GST regime, a commissioner holds the authority to apprehend or authorize the apprehension of an individual if there exists substantial “reason to believe” that the said person has engaged in unlawful activities. These activities encompass:

    1. Supplying goods or services (or both) without proper invoicing, with the intention to evade taxes.
    2. Issuing invoices or bills without actual supply, leading to improper utilization of input tax credit or fraudulent tax refunds.
    3. Illegally claiming input tax credit, with or without relevant invoices or bills.
    4. Failing to remit collected taxes for a period beyond three months.

    These offenses are categorized as cognizable and non-bailable if the evaded tax amount surpasses Rs 5 crore. Other arrests fall under the non-cognizable and bailable category as per the Act. A cognizable offense allows for the arrest of a taxpayer without a warrant, while in a non-bailable offense, the taxpayer must be presented before a judicial magistrate within 24 hours, who decides on their release.

    Of particular interest is the term “reason to believe,” which forms the bedrock of GST-related arrests, yet remains undefined in the CGST Act, 2017. The judiciary consistently asserts that this term does not give license to the arbitrary satisfaction of an officer; some level of subjectivity must underlie the exercise of such powers. If the GST commissioner possesses a “reason to believe” that an individual has committed an offense involving tax evasion exceeding 5 crore, they can decree their arrest. The officials then apprehend the taxpayer and present them before a judicial magistrate.

    Notably, the mechanics of arrests in the GST framework differ from conventional apprehensions. These measures have been introduced to facilitate investigations into GST-related crimes, curb tampering of evidence, and prevent suspects from fleeing. They serve as tools for investigative purposes and should only be deployed under exceptional circumstances. Their misuse for meeting revenue targets can inadvertently lead to harassment of taxpayers, counter to the intended spirit of these laws.

    It is crucial that all departments adhere to the landmark D.K. Basu v. State of West Bengal judgment, wherein the Supreme Court outlined guidelines for conducting arrests. The provisions under GST have sparked renewed conversations about tax-related apprehensions and appear to diverge from the government’s vision of fostering a tax administration that genuinely benefits and safeguards taxpayers’ interests.

  • Dual GST — A Discussion

    The Dual GST Approach

    Crafting a destination-based Goods and Services Tax (GST) system presents intricate challenges in a country like India, where the authority to tax domestic trade is divided between the state and central governments. Implementing a conventional nationwide GST without undermining state autonomy is unfeasible. This dilemma is resolved through India’s adoption of the dual GST framework, where both the central and state governments apply GST to the supply of goods and services. According to the constitutional structure of the dual GST model, the power to tax is divided between the central and state authorities.

    In certain transaction scenarios, the central government possesses the taxation authority, while in others, the state government takes precedence. This duality in taxation power within the GST framework leads to its classification as the Dual GST model. This model is embraced as a practical solution tailored to the Indian context. This discussion delves into comprehending the fundamental characteristics and operations of the dual GST model, along with its significant components.

    Understanding the Dual GST Model

    Due to India’s federal system, a dual GST model has been embraced. In this model, both the state and central governments simultaneously levy GST on the taxable supply of goods and services within a state or union territory. Consequently, taxation occurs in parallel from both the state and central perspectives. The GST imposed by states or union territories is termed as State GST (SGST) or Union Territory GST (UTGST), while the GST applied by the central government to intrastate transactions is known as Central GST (CGST). For interstate transactions, the Integrated GST (IGST) is enacted and managed by the central government. IGST aggregates the SGST/UTGST and CGST levied by the central government on all interstate supplies.

    What is the Dual GST System in India?


    Understanding the Necessity and Implementation of Dual GST
    In the context of India, a federal nation, both the states and the central government possess the authority to impose and gather taxes through appropriate legal frameworks. This arrangement addresses the dual aspect of the GST system, which has been drawn from another country’s model. Each level of governance holds distinct responsibilities, as delineated by the Indian Constitution, necessitating them to generate resources independently. Thus, a dual GST system has been instituted across the country as a well-suited model that aligns with the constitutional mandates of the nation. This system entails the simultaneous imposition of State GST and Central GST on every transaction involving the supply of goods and services, except for:

    1. Items not subject to GST.
    2. Goods and services granted exemptions.
    3. Transactions falling below the predetermined threshold limits.

    Additionally, both these taxes are levied on the same base value or price (excluding the tax value), which contrasts with the previous state VAT system where tax was applied to the value of the goods, inclusive of CENVAT.

    Legal Framework and Administrative Mechanism

    The legal structure incorporates a single legislation – the CGST Act of 2017 – responsible for imposing the Central GST (CGST). Similarly, Union Territories without their own state-level legislation have enacted the UTGST Act of 2017 for levying UTGST. States and Union Territories, equipped with their individual legislations, have introduced GST laws for implementing the State GST (SGST). The essential components of these laws, encompassing the definition of taxable events, taxable individuals, charge ability, classification, and valuation, maintain a consistent framework across all SGST regulations, even in the presence of multiple SGST interpretations. This consistency is vital to preserving the fundamental essence of the dual GST system. The respective states and Union Territories manage and levy UTGST or SGST, while the central government administers and imposes CGST and IGST.

    What is the Dual GST System in India?

    As we’ve explored, India, functioning as a federal nation, has vested the authority to impose and amass taxes upon both states and the central government through suitable legislation. This answers the query about the origin of the dual GST model, drawn from which country’s framework. These two tiers each carry distinct responsibilities as dictated by the division of powers outlined in the Indian Constitution. This division necessitates them to generate funds autonomously. Consequently, a dual GST system has been rolled out nationwide, representing an exemplary model that aligns with the country’s constitutional requisites.

    Operatively, the State GST and the Central GST run in parallel for each transaction encompassing the exchange of goods and services, with the exception of:

    1. Goods lying beyond the scope of GST.
    2. Goods and services that have been granted exemptions.
    3. Transactions falling below the specified threshold limits.

    Furthermore, both taxes are imposed on the same value or price (exclusive of the tax amount), unlike the previous state VAT system, which was based on the value of goods, encompassing CENVAT.

    Legal Structure and Administrative Mechanism

    In the realm of legal arrangements and administrative procedures, a sole statute holds sway – the CGST Act of 2017, a tool for the imposition of CGST. Likewise, in territories devoid of their own legislative powers, the UTGST Act of 2017 has been adopted. Regions both comprising states and union territories have crafted their distinct GST legislation, under their respective legislative authorities, to apply SGST. Despite the existence of multiple rulings under SGST, fundamental tenets of the law, such as the definition of the event subject to taxation, the entity liable for taxation, the point of taxation, categorization, and assessment methods, remain consistent across all SGST legislations. This congruence is pivotal in safeguarding the fundamental principles of the dual GST system. Pertinent states shoulder the responsibility of both administering and imposing UTGST or SGST, whereas the central authority manages the imposition and administration of CGST and IGST.

    The Dual GST framework in India exhibits a set of distinctive characteristics that warrant attention and appreciation.

    01. Clarity and Simplicity in Taxation


    The Dual GST approach emerges as the most fitting solution for India, streamlining the array of taxes levied by both state and central authorities. This strategic alignment not only reduces the complexity of the tax system but also ensures its practical and efficient implementation while enhancing accountability.

    02. Reduction in Tax Burden


    Under the Dual GST model, the effective tax rates on a multitude of goods and services experience a noteworthy reduction. This shift results in a more favorable economic environment, benefitting both consumers and producers alike.

    03. Simplified Adherence


    Dual GST contributes to a simplified landscape of tax compliance by diminishing transaction costs for taxpayers. This reduction directly translates into a more straightforward and manageable process for adhering to tax regulations.

    04. Elimination of Tax Layering


    The integration of the Dual GST structure effectively eradicates the cascading impact that was inherent in the previous indirect tax system. This significant achievement aids in optimizing the tax regime’s overall efficiency.

    05. Harmonizing a Federal Nation


    The Dual Model GST aligns harmoniously with India’s diverse federal structure, fostering unity amid diversity. Contrary to a single-point GST which would amalgamate sales tax, central excise duty, and service tax, the Dual Model retains a more practicable and economically desirable approach.

    07. Striking an Equilibrium


    The Dual GST model aptly balances the imperatives of fiscal autonomy and the unification of states and the Centre. It empowers both tiers of governance to impose taxes at various stages of the supply chain, thereby promoting a harmonious coexistence.

    08. Enhanced Viability and Efficiency


    Unlike the potential for unhealthy competition that a single GST could spur among states to attract industries through tax structure manipulation, the Dual Model operates as a more effective and viable solution. Moreover, a complete withdrawal of the Centre from State taxation could disrupt symmetric revenue collection by the latter.

    In sum, the Dual GST framework stands as a testament to the wisdom of a holistic and strategic approach to taxation, offering India a system that is not only more comprehensible but also more advantageous from economic, administrative, and cooperative standpoints.