Model GST law: From draft towards finality - Dr Sanjiv Agarwal - Article published in Business Advisor, dated September 10, 2016 - http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume XVI Part 5 September 10, 2016 15 Business Advisor
Model GST law: From draft towards
finality
Dr Sanjiv Agarwal
The model GST law as released by the Government/
Empowered Committee on GST is in public domain
since mid-June 2016. The proposed provisions only
conveys the Government‘s intention to levy GST in
India and the manner in which it will be administered,
levied, collected and implemented.
However, the said proposed provisions require
refinement, improvement and changes in order to be
business-friendly and lead to ease of doing business,
boost economic growth, tax collection and balancing between inflation,
revenue neutrality and participation of citizens by way of contribution to the
exchequer in the form of goods and service tax.
It is learnt that the Ministry of Finance (MoF) has already received more
than 40,000 suggestions/ feedback/ inputs from various quarters. Also,
Empowered Committee (EC) has received numerous suggestions. Both, MOF
and EC have also held interactive sessions with various stakeholders which
inter alia, include trade & industry associations, chambers of commerce,
sectoral trade associations, professional Institutes like ICAI, ICSI, ICWAI,
etc.
It is desirable and expected that the draftsmen should consider the following
suggestions and inputs while finalising the model law in its present form.
Specific suggestions
• Multiple state-wise registrations will be a major hurdle for service
providers who operate in multiple states or all-India basis.
• Procedures proposed for registration and returns are complex,
cumbersome and regressive. Provision of classification, valuation supply
etc. also go against the principle of ease of doing business.
• Department should not have power to refuse registration ab initio which
will adversely affect the businessmen. Grant of registration must be made
obligatory as is at present.

2. Volume XVI Part 5 September 10, 2016 16 Business Advisor
• Multiple registrations of same person in different states should be done
away with. The concept of centralised registration should be provided for.
Further, the assessee should be mandated to provide in his return, the
details of all locations from which supply of goods/ services is made by
him.
• Threshold limit for registration should be common for entire country. At
present it is proposed Rs 4 lakh for North East and Rs 9 lakh for others.
Alternatively, there should be a sunset clause for this, (say 2 years).
• Definition of aggregate turnover should be suitably amended so as to
exclude the value of exempt and non-taxable supplies from aggregate
turnover to make it meaningful and objective. Otherwise the purpose of
exemption/ threshold will be defeated.
• Definition of supply should be ‗comprehensive‘ and not inclusive. It is
defined as ‗supply includes‘ rather than supply means...‘ This will add to
litigation. The supply of capital goods (whether to own depot or to the
customer) be kept outside the purview of GST, and only the leasing/
renting/ transfer of right to use the asset be subject to tax.
• Inter-state activities should exclude activities of same person. These
activities are unnecessary under the GST law, unworkable and will
tantamount to creating inter-state fiscal frontiers, impeding free flow of
goods and/ services within the common market of India.
• The definition of manufacturer should be delinked from the Central
Excise Act and an elaborate definition of the term ‗manufacture‘ be
provided to avoid litigation and interpretational issues.
• Threshold exemption limit should be kept at least at Rs 25 lakh for
services and Rs 2 crore for goods as anybody with lower limit can always
voluntarily get registered. Also, small and medium entities may find it
difficult to maintain electronic records and wish to avoid unnecessary
inspections/ litigations from the tax Department.
• Composition scheme is meant for small taxable persons like
neighborhood stores that do not keep record of their turnover and do not
issue invoices. No facility is given to them in case they are expected to
keep their turnover record. Also, the rate of tax should be percentage of
their taxable supplies (inputs), the record of which exist in electronic
ledger. Linking of rates with total turnover will distort the total scheme.
• Composition threshold should be not below Rs one crore. Disallowing
composition benefit to the persons who effect any interstate supply of

3. Volume XVI Part 5 September 10, 2016 17 Business Advisor
goods and/ or services shall work against the interest of small assessees
as there might be a possibility that in aggregate turnover of Rs 50 lakh
only a small amount constitute inter-state supply of goods or services
which will deny him of the benefit of composition scheme.
• Valuation rules are too cumbersome so as to even prescribe valuation of
services without consideration.
• Transaction value of goods and services should factor the ‗discounts‘.
There should be no tax on free supplies.
• In GST system, it is expected that the figures submitted for GST returns
will be validated with figures submitted to income tax. Given the fact that
the sale and provision of services is one of the factors for charging of tax,
the taxable figures in GST will be far different than figures in accounts or
in income tax. A system needs to be built so that the figures in other
database could be used for validation of figures in GST.
• The concept of granting input tax credits based on the matching concept
of uploading data and filing of valid returns by the supplier of such
taxable person will most certainly lead to innumerable litigations on
account of a few unscrupulous dealers.
• Input tax credit (Cenvat) should not be denied to real estate sector and
allowed to works contracts only. Guidelines for valuation of land should
be made clear and transparent. Also, non-subsuming of stamp duty in
GST should be reconsidered.
• Reversal of input tax credit used for goods and/ or services used for
personal or private consumption should be allowed.
• Concept of TCS to be done away with as it proves to be detrimental to
small suppliers and leads to blockage of funds in TCS.
• Rate of interest on delay in payment of refunds by the Government
should be kept at par with the provisions relating to interest payable on
delay in payment of taxes by the tax payer.
• Requirement of double payment of taxes be eliminated. Further, the
refund/ adjustment procedure for such cases be made fast-tracked,
simple and quick.
• Government should not hurry the implementation of GST from April,
2017. There is lot of ground work to be done. The most important tasks
are awareness, education, training and trial runs. 1st April 2017 is not
that sacrosanct but introduction of a perfect law at the right time is more

4. Volume XVI Part 5 September 10, 2016 18 Business Advisor
important. Country can wait for a strong and robust GST law for some
more time.
General suggestions
• It should be ensured that all states have verbatim same provisions for
rates, levy, administration and procedures. Only negative list or
exemptions may vary based on regional issues.
• A large number of compliances/ returns/ reconciliations are proposed.
This will only burden all stakeholders, and make GST inefficient and a
regressive tax. Cost of compliance will be a major issue which may take
away the benefits of GST.

5. Volume XVI Part 5 September 10, 2016 19 Business Advisor
• Smooth, transparent and simple transition provisions are needed rather
than revenue-centric provisions. These ought to be practical too.
Transitional provisions should bear this objective. Supplies effected under
the current tax regime, but which are delivered or received after the date
of implementation of GST, normally referred to as goods-in-transit. The
transitional provisions should suitably provide for credit of taxes/ duties
paid under the current law.
• Refund of any credit balance other than for exports is not allowed. This
should be allowed subject to safeguards/ limitations.
• Special focus on awareness and training of all - officers, professionals
and assessees - is required including making available literature on GST
available in different languages.
• Current/ past disputes on GST introduction should be proactively
addressed by way of speedy redressal of cases and/ or practical, proactive
and objective dispute resolution scheme so that baggage of disputes in
not carried forward.
• Non-compliances attract very harsh and heavy penalties/ punishment
and need to be diluted in view of GST being a new levy and new law.
Prosecution threshold should be kept at Rs 2 crore as minimum. There
should be a provision that except in fraudulent cases, no arrest/
prosecution be made in first year of implementation.
• No new taxes should be allowed to be levied by states in GST regime
when compensation for revenue loss, if any, is guaranteed.
• GST is the future tax. GST law should, therefore, be forward-looking and
open for futuristic businesses such as e-commerce, technology-based, IT
etc. and recognise internet, digital economy, startups etc.
With 18 States so far (till 7th September, 2016) ratifying the Constitutional
Amendment Bill enabling levy of GST in India, the first major road block is
clear and President has assented the same. The action would then shift to
GST Council which will decide on rates, dual control, dispute resolution,
revenue sharing and compensation, exemptions etc. The legislation of State
and Central GST enactments and their timing would decide as to when GST
may be introduced in India from one common date.
GST law should be a very simple tax law as the proposed law/ provisions
are too complex to understand by a common man.
(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur.)