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Main Issues with revised Model GST Law

In my last my take

I wrote GST is good economics but demonetization was perhaps not.  Today, I repeat the same thing.  If GST is deferred the “differential advantage” that the Union Government wanted to possess, is simply gone.  States also must realize this.  Today’ GST Council sixth meeting ended in an “impasse” and perhaps this was expected due to politics being played between West Bengal and the Central Government and between Opposition v Central Government

Well friends the final GST Law has been released.  I have prima facie gone through and I find there are provisions that must not exist in law of this nature – notwithstanding the importance of such provisions

A.             Are we going to tax the Agriculture indirectly in GST?

Are we going to tax agriculture activities indirectly in view of the definition of Agriculture in Section 2(7) read with Section 2(8)?  The exclusive definition of Agriculture brings into tax ambit the activities of dairy farming, poultry farming, stock breeding into GST net.  Similarly for claiming exemption from agriculture activity the Agriculturist is required to cultivate land PERONSNALLY to remain in exemption clause in Section 2(7).

Suggest this should be looked into as it would cause irreparable damage to agriculture sector that Is already going through rough weather.

2.   The definitions of “Composite Supply appearing in Section 2(27) and Mixed Supplies in Section 2(66) shall be the cause for huge litigation on account of their interpretation.  It is suggested that in classification in tax schedules this could be considered appropriately.  In FMCG sector, especially during festival times, such composite supplies or mixed supplies are resorted to. 

The definition of “principal supply” in Section 2(78) is another area of interpretative definition.  This could be discussed to be made more simple to understand in practice.

3.   Section 9 deals with composition – a much hyped relief to the small traders.  Delhi shall be affected substantially.  This is applicable to supply of goods only and contains a number of restrictions.  It is suggested that the laudable objective behind this section should be followed.  Irrespective whether the taxable person is involved in supply of goods or services, this section should be made applicable. Except supply in the course of interstate, all other restrictions should be removed.  If this is done, it is thought, the purpose of this Section shall be widely accepted and small traders of goods or service providers shall get relief.  The drycleaners; ticketing agents, beauty parlors, gyms and such other professionals will get relief.

4.   The provision of sub-section (3) of Section 15 of the Model Law needs to made simple.  This could be made more simple and understanding.  So many conditions to be fulfilled.  This would give wide discretion to the officers and hence more litigation in times to come especially for FMCG; Hardware; Electronics, Paints, Batteries etc. sectors.  The Section should simply say that all discounts on invoices are allowed and if given through credit notes, the corresponding invoice number be mentioned.  However, discounts linked to post sale turnovers are not allowed.  In any case the Act has a provision that reduction in output tax liability through discounts via credit notes will not be allowed unless the recipient has reduced his input tax credit to the extent of tax adjustment given by the supplier on credit note.

5.   The powers given in sub-sector (5) of Section 15 giving powers to the Government to fix the value of supply should not exist.  The value of supplies should be free to be determined by seller and buyer subject to law contained in Section 15.

6.   Section 16 of the Act has redrafted once again.  It should be made clear whether the input tax credit for the CAPITAL GOODS is to be allowed or not keeping in view the proviso to sub-section (1) to Section 16 that now allows ITC only for telecommunication related activities.  ITC for capital goods now stands deleted.  This will have huge negative impact on Delhi trade especially as credit for capital goods was allowed under DVAT Act.  Not only people will lose capital goods credit that may lie un-used in their returns as on 31.3.2017 but also affect their businesses in future.

The provisions of sub-clause (b) and (c) of Sub-section (2) to Section should be discussed once again.  The law contained here shall be subject to challenge.  How can law shift onus to the tax payers who receives supply of goods or services to ensure that the suppliers of goods or services pay actual tax or lawfully set off and also file their returns and if they do not do, the recipient of supply of goods or services is denied the ITC?  Such a law shall be challenge and in my views may be declared ultra vires.  A provision that will prove very expensive for the Government  especially when it involves interstate supplies of goods and/or services..

7.   Second proviso to sub-sector (2) of Section 16 contains a very harsh provision.  How can Government regulate the credit periods that the buyer may agree upon?  This provision says if the supplier is not paid within three months, the recipient of supplies may lose ITC.  This is patently an illegal provision and in my view cannot stand the scrutiny of law.  This must be removed.

2.                Section 17, sub-section (4), sub-clause (d) has a provision that is far reaching.  It disallowed the credit if the tax -payers constructs immoveable property and uses the same for his business but the ITC is disallowed.  This was not there earlier.  It is suggested such a harsh provision should not exist.  If the self constructed property is proved that it is used or intended to be used in the course or furtherance of business, then ITC should be denied.

9.   Chapter VI dealing with Registration must ensure that the persons below taxable limits of 20 lakhs are not subjected to registration directly or indirectly.  The contents of Schedule V contain a lot of ifs and buts.  If exemption is to be given, the law maker should give it unconditionally.  The provisions of Schedule V are really too complicated for the common man to understand.  Based on such provisions the whole threshold limit shall lose its importance.

3.              Section 36, sub-section(2) allows utilization of ITC only for paying self assessed output tax liabilities.  It is suggested that this should be allowed to be utilized for payment of any appeal fee etc if the taxable person so desires.

4.              Section 37 dealing with matching, reversal of ITC should be looked at once again.  The provisions are very harsh as the whole onus shifts on the recipient of supplies of goods and services to ensure the suppliers file the correct returns.  This will lead to demands on recipient .

5.              The provisions of Chapter XI dealing with Refunds will cause a lot of problems to traders in Delhi whose refund will be denied.  This problem will be faced by all traders in the country and will be a cause of unrest and litigation.  It is suggested that some refund mechanism for giving cash refund to taxable persons, other than exporters, should be devised before it is too late.

6.              Power to arrest under Section 81 should be left to Police and not to the officers and that too after preliminary investigation by the Police as Cr. PC and not as per whims and fancies of tax administrators.  This is a provision that will scare the country- men.

7.              For filing First Appeal under Section 98 the amount of 10 percent of the tax in dispute is too harsh for traders.  The powers contained in Proviso can be retained.

It is suggested that the law should fix maximum time within which the appeal must be decided or deemed to have been decided like we have in DVAT Act.

Under Section 101 for filing appeal to National Tribunal the pre-deposit amount should be kept at maximum 5 percent and not 10 percent of the tax in dispute.  Since this will be in addition to the amount deposited in first appeal, the condition of 10 percent is too harsh.

The Tribunal too must dispose off the appeal within the time as ma be specified in this section.

8.              Appearance before the Tribunal should be restricted to Advocates only or at best Chartered Accountants.  The provision of Section 105 be re-examined accordingly.

9.              Advance Ruling applications as per Section 117 should be directed to be disposed off within a maximum period of 3 months.  The time limit should be put in the law.

10.          The new provision of Section163 dealing with anti-profiteering shall be self -defeating.  It will lead to harassment to tax payers and is unworkable in law.  Also this is subject to challenge as ultra vires the powers of the Government.

11.          Chapter XXVII Section 167 dealing with Transition Provisions needs to be examined afresh.  The tax credit on goods of trading community and manufacturers must be given to them.  The condition that credit will not be available if the GST law does not allow should be removed.  It is a one time measure and Government should consider this suggestion. Both the provisos to this Section also will cause undue hardship to tax payers.

12.          In Repeal and Saving a provision should be made to complete the cases in the earlier Acts within a time period.


Well I do not smell GST too soon.  And if it is delayed, friends, my take is India’s GDP will be crushed as this major tax reform would have impacted the demonetization favorably to a very large extent

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Profile photo of CA Rashmi Jain CA Rashmi Jain

New Delhi, India

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