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GST: One Nation, Many Taxes, And Many More Rates

The Goods and Services Tax (GST) rate schedule for goods runs into 223 pages with a detailed Harmonized System Nomenclature (HSN) classification at the 4-digit level. This will ensure that classification disputes will stay on as the rates differ from one product to another. Further, the government has issued classification of services with a detailed coding system which needs to be captured into the invoice. This classification of services runs into 36 pages as compared to the existing 5 pages.

There are certain provisions in the GST law which are vague and need to be addressed by the government before roll out on July 1, 2017:

  • Pharmacy products are taxable at a rate of 5 percent or 12 percent depending upon the HSN code under which they will fall; whereas health care services are exempted from GST. As per section 8 of the CGST/SGST Act, in case of composite supplies, the tax rate applicable shall be the rate which is applicable for the principal supply. In the instant example of health care services, the principal supply is health care which is exempt. Does this mean that medicines sold during the course of health care service are also exempt?

  • As per Section 9(4) of the CGST/SGST Act, in case of purchase of goods or services by a registered person from an unregistered person, the tax shall be paid by the buyer of such goods or services. This is bound to create absurd situations. For example, where during a business meet, if tea is ordered from a small tea shop whose owner is not registered, it seems that the business entity who is buying tea shall pay GST as the goods are purchased from an unregistered dealer.

  • In Section 16 which is an enabling provision for availing of input tax credit, unless the registered purchaser files the return, he or she will not be entitled to take input tax credit. That means unless GST Return (GSTR) 1 is filed by the 10th of the month, GSTR 2 by the 15th and GSTR 3 by the 20th following the tax period are filed, an assessee is not eligible to take credit. Therefore, it may so happen that in respect of all goods purchased – let us say – during the month of July 2017 for which assessee files return on August 20, the credit accrues only on or after August 20. Accordingly, the assessee cannot utilise the taxes paid on goods purchased in July for discharging the output tax of that month. There is, thereby, a delay of one month in claiming the credit relating to a particular tax period, which poses a significant working capital burden on the trader.

  • Further, Section 16 says that unless the goods are actually received by the buyer, he or she is not eligible for input tax credit, where as per the Time of Supply of Goods Rules, the buyer is liable to pay GST even on advances. Let us say X gives an advance to Y for the purchase of goods and Y charges GST on the same, but X cannot claim input tax credit of tax so paid, since the goods are yet to be received. Therefore tax paid now can be availed after the receipt of the goods which takes place in the future, and which may even turn out to be bad debt.

  • There is no enabling provision in the current law as to what happens if tax is paid on raising the invoice, but subsequently the transaction does not succeed and the seller does not receive either the sale price or tax. There should be a mechanism that in such a cases the seller should be either refunded the tax paid or should be able to claim input tax credit in respect of the tax so paid.

  • Accounts and Records Rules require the assessee to maintain a separate set of records for manufacturing activity, trading activity, service activity, and further requires such a person to maintain commodity-wise records. This poses huge compliance burden on the assessee. When the taxable event is the supply of goods, what is the necessity of maintaining separate records for manufacturing, trading etc? These provisions could be further simplified to limit the number of records to be maintained to the lowest possible.

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