GST ISSUES REQUIRING ADDRESS BY GST

[Dr. Sanjiv Agarwal]

Even after close to eleven months since GST was launched in India w.e.f. 1st July, 2017, trade & industry and taxpayers / professionals are confronted with various issues which are required to be sorted out, clarified by CBIC or redressed. Moreover, we have now Authority for Advance Ruling which is also contributing to the confusions.

Here are few issues and concerns identified to be addressed/ redressed by appropriate forum, sooner the better.

1. The last date for filing of TRAN 1 was 27.12.2017, but many of the taxpayers failed to file TRAN-1 due to genuine reasons other than IT glitches. Though for IT related compliance, additional window has since been opened vide Circular No. 39/2018 dated 03.04.2018, there are large number of cases wherein TRAN-1 could not be filed due to ignorance or other reasons. One more option may be provided to the assessees, as it causes undue hardship to the taxpayers like in all other returns dates have been extended several times. TRAN-1 is a one-time compliance and as such the extension is desirable to avoid hardship to taxpayers.

2. Export growth is important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth. Therefore, to encourage taxpayers to involve in exports delay in refund to exporters should be examined and ensured that exporter’s money locked in taxes should be released within the least time.

3. Matching/reconciliation system should be started at the earliest i.e. before the difference become impossible to manage due to longer period and more transactions, more particularly when the accounting year has changed.

4. Where the person fail to make payment of GST on due date, penalty at specified rate is to be paid, currently amount of such penalty is calculated manually by the taxpayer which involves a huge risk of wrong calculation therefore, such penalty/ interest / debits may be generated by GSTN System only instead of doing manually.

5. Currently the benefit of composition scheme is available to limited taxpayers, therefore, the composition scheme should be extended to service providers and for Inter-state supplies also.

6. There are certain wherein Advance Ruling Authority (AAR) have ruled on taxability of those transactions, for e.g.:

• Supply of motor vehicles as scrap after its usage is considered as an activity of ‘supply’ in course or furtherance of business and such transaction would attract GST (AAR). This should not be treated as supply or be exempted from GST.

• Recovery of food expenses by employer from the employees for the canteen services/working lunch provided by business entity is considered as 'Outward Supply' and hence taxable (AAR). It may be considered as part of CTC or as a perquisite & should not be taxed.

• The composite supply of works contract service for maintaining railway tracks would be taxable at the rate of 18% GST (AAR). Such contracts are Government contracts, as railways are monopoly of Government and therefore, should attract lower rate of atleast 12%. Huge projects are underway throughout the country.

• The supply of food and other goods in train shall be taxable at the respective rates of individual goods (AAR). However, Press Release No. 147 dated 06.04.2018 has clarified that all catering (mobile /static) shall be charged @ 5%. This confusion should be settled.

• Supply of turnkey Engineering, Procurement and Construction (EPC) contracts for construction of a solar power plant wherein both goods and services are supplied is to be considered as a works contract (taxable @ 18%) and hence cannot be treated to be a Composite Supply (AAR). In renewable energy sector, solar power is a major business activity and as such lower rate of 5% is desirable.

• Supplies provided to SEZ employees may not be treated as supply to SEZ (AAR). Supplies related to SEZ are zero rated and since SEZ/SEZ units are artificial judicial persons, they will always be acting through natural persons and as such, keeping in mind the legislative intention of zero rating in case of SEZ’s. A suitable clarification is immediately required.

        Query: Since there is no appellate mechanisms against AAR ruling at the moment assessee are stuck up  for proper legal guidance & clarity

        Suggestion: GST Council should setup a review mechanism for review of such rulings and avoiding different rulings by different States AAR.

      The time life for pronouncement of advance ruling may be shortened.

7. Credit of motor vehicle used for business purposes should be allowed to all business entities. Purchase of vehicle for business purposes is a capital asset and forms part of gross block. Like any other capital good, motor vehicles are also crucial as a huge amount of ITC lapses even when assets are used for business purpose.

8. Restaurants located in the premises of hotels having tariff less than 7500 per unit per day should be provided an option to choose rate i.e. either 18% (with ITC) or 5% (without ITC). This would enable them to take ITC on their inputs or else they will be paying 5% GST with all ITC getting lapsed.

9. It has been clarified vide Circular No 44/18/2018-CGST that transfer of tenancy rights to a new tenant against consideration in the form of tenancy premium is taxable. In service tax also, upfront premium was not liable to service tax, which has been judicially affirmed also. Tenancy premium should not be considered in the nature of consideration for any leasing activity.

10. Coaching institutes are taxed at the rate of 18% whereas educational institutional are exempt from GST. Coaching institutes are a crucial part of Indian education system and is an integral part of education; its input and output both are linked to education. There is case for reducing the rate of GST, if not fully exempting it. Coaching is an important revenue earner for  many States in many ways.

11. To promote tourism in the State, GST Council may be approached to reduce the GST rates on admission tickets.

12. Presently medical implants (e.g. Jaipur foot) are taxed @ 5%. Keeping in view noble services provided in the State; it deserves a better tax treatment by exempting the same.

E-way Bill System

1. Training in relation to e-way bill should be provided for smooth implementation. Majority of pending litigation is an account of seizure and detention of goods. In almost all cases, courts have ordered for release of goods / vehicle.

2. Most of the transporters (GTA / GTO) are in unorganized sector and also not adequately educated. To ensure successful implementation of e-way bill system necessary training need to be imparted to transporters and drivers in Hindi / Regional Language.

3. Since the implantation is new it should be ensured that atleast in this initial period :
   1. Penalties are not imposed
   2. Vehicles are not intercepted & detained
   3. Goods & vehicle should not be seized

in normal course of business

4. The time limits for validity of e-way bill has no connection with the revenue leakage and deserves to be omitted. In a competitive market, who would be interested in delaying the transportation.

5. Generation of / amendment in e-way bill in transit may be avoided for smooth & error free implementation, as it will be very difficult for drivers in Indian context.

6. E-way bill mechanism may be exempt for local transportation / distribution irrespective of value, if transported in small vehicles such as tamp, pickup vans etc upto a particular engine CC limit.

7. Some sort of exemption or relief is desirable in case of small transportations / business.

8. In case of automobile dealer two wheeler, four wheeler & other vehicles are delivered from showroom against delivery challan in case of retail sale. There is a clarity required as to whether e-way bill is required to be generated by showroom dealer or not.