DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY,LUCKNOW

2019-20

Final Draft

LAW OF TAXATION

ONE YEAR OF GOODS AND SERVICES TAX:

SUCCESSES, FAILURES AND SUGGESTIONS

Submitted to: Submitted by:

Mr. Bhanu Pratap Singh Deepak Kumar Rav

Assistant Professor (Law) Enrolment No. 160101059

Dr. RMLNLU, Lucknow. BA.LLB (Hons), VII Semester

1
 ABSTRACT

GST also known as the Goods and Services Tax is defined as the giant indirect tax structure
designed to support and enhance the economic growth of a country. More than 150 countries
have implemented GST so far. However, the idea of GST in India was mooted by Vajpayee
government in 2000 and the constitutional amendment for the same was passed by the Lok
Sabha on 6th May 2015. The Goods and Services Tax (GST), implemented on July 1, 2017, is
regarded as a major taxation reform till date implemented in India since independence in
1947. GST was planned to be implemented in April 2010, but was postponed due to political
issues and conflicting interest of stakeholders. The primary objective behind development of
GST is to subsume all sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax,
Service tax, etc. and implement one taxation system in India. The GST based taxation system
brings more transparency in taxation system and increases GDP rate from 1% to 2% and
reduces tax theft and corruption in country.
 INTRODUCTION

Tax policies play an important role on the

economy. The main source of revenue
for government of India is from tax. Direct
and indirect taxes are the two main
source of tax revenue. When the impact and
incidence falls on same person it is
called direct tax. When the impact and
incidence falls on different person that is
when burden can be shifted to other person it
is called indirect tax.
Tax policies play an important role on the
economy. The main source of revenue
for government of India is from tax. Direct
and indirect taxes are the two main
source of tax revenue. When the impact and
incidence falls on same person it is
called direct tax. When the impact and
incidence falls on different person that is
when burden can be shifted to other person it
is called indirect tax.
India’s economy has been among the fastest growing economies in recent years. This growth
has been supported by several factors like market reforms, large inflow of foreign direct
investment, raising foreign exchange reserves, a blooming information technology and real
estate sector and flourishing capital market. Traditionally India’s tax regime relied heavily
on indirect taxes. Revenue from indirect taxes was the major source of tax revenue till tax
reforms were undertaken during nineties.

The major argument put forth for heavy reliance on indirect taxes was that the India’s
majority of population was poor and thus widening base of direct taxes had inherent
limitations. But the Indian system of indirect taxation was characterized by cascading,
distorting tax on production of goods and services which lead to hampering productivity and
slower economic growth. There were endless taxes, few levied by Centre and rest levied by
state, to remove this multiplicity of taxes and reducing the burden of the tax payer a simple
tax that was required was the Goods and Service Tax (GST).1

In recent years also, India has been viewed as an attractive and dynamic investment
destination, and has witnessed an increased presence of multinational enterprises (MNEs) and
a consequential increase in cross- border trade. This has created many opportunities to the
Government for improving tax system of the country.

The Goods and Services Tax (GST) is a vast concept that simplifies the giant tax structure by
supporting and enhancing the economic growth of a country. GST is a comprehensive tax
levy on manufacturing, sale and consumption of goods and services at a national level. 2
Under this system, the consumer pays the final tax but an efficient input tax credit system
ensures that there is no cascading of taxes- tax on tax paid on inputs that go into manufacture
of goods.3

CONCEPT OF GOODS AND SERVICES TAX

GST or Goods and Services Tax, the greatest tax reform in India since Independence is meant
to simplify the indirect tax regime of India by replacing a host of taxes by a single unified
tax. GST is a comprehensive, multi-stage, destination-based tax that is levied on every value
addition. GST has brought a new dimension to the Indian economy by making a common

1
GST in India: A Critical Review, available at:
https://www.researchgate.net/publication/324573396_GST_in_India_A_Critical_Review
2
The Economic Times (2009) Featured Articles from The Economic Times.
3
GST India (2015) Economy and Policy.
market and reducing the cascading effect of tax on the cost of goods and services. It has
affected the entire indirect tax system the tax structure, tax incidence, tax computation,
compliance, input credit utilization and reporting procedures.4 India had adopted the dual
system of GST as CGST and SGST. The need for a concurrent dual GST model is based on
the following:
1. As per constitution of India concurrent power to levy tax on domestic goods and
services is provided to both central and state government
2. As per the dual GST model tax can be levied independently by the central and state
government but both are operating in common platform for imposition of taxes,
liabilities would be identical.

ONE YEAR OF GST

The year 2017 will forever be etched in Indian history as the year that saw the
implementation of the biggest and most important economic reform since Independence—the
Goods and Services Tax (GST). The reform that took more than a decade of intense debate
was finally implemented with effect from 1 July 2017, subsuming almost all indirect taxes at
the Central and State levels. It got overwhelming support from industry, with a few
exceptions, such as from the textile sector and small businesses at certain places. Publicised
as the ‘one nation one tax’, the GST brought with it expectations of free-flowing credits,
resulting in an overall reduction in the prices of goods and services as well as barrier-free
movement of goods across India. Furthermore, in light of the Government’s commitment to
foster ‘ease of doing business’, the public was expecting the tax regime to be substantially
simplified, with fewer rate slabs applicable across all goods and services.5

Furthermore, the Government has launched various web-based mobile applications to

facilitate dissemination of information on a real-time basis.6 Moreover, several working
groups have been formed to work on sector-specific issues. In addition, the GST Council has
convened numerous meetings during the last one year to address industry’s concerns, and has
4
Dr. Sanjiv Agarwal, Basic Concepts of GST (Part-1) (Jan. 12, 2016) available at:
https://www.gstindia.com/basic-concepts-of-gst-part-1/
5
One year of GST: The Successes, Failures and What's Next on the Agenda, The Economic Times (June 29,
2018) available at: //economictimes.indiatimes.com/articleshow/64787124.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
6
One year of GST: Reality Check of Government Initiatives, The Economic Times (June 30, 2018) available at:
//economictimes.indiatimes.com/articleshow/64803422.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
to a large extent resolved issues. While there is seemingly a gap between expectations of
India Inc. and actual delivery in terms of simplification, ease of doing business and overall
reduction in prices, the Government’s report card after 365 days of implementation of the
GST reflects an overall positive impact in terms of macro-economic growth and
simplification of processes and digitalisation.7

INITIAL CHALLENGES

After implementation of the GST, industry has been facing various challenges, ranging from
new and unique concepts, customisation of IT systems to meet new requirements, supply-
chain reengineering, complex documentation and high tax rates for certain goods and services
to complex or no clear treatment of many common transactions. 8 Some of the challenges
faced by India Inc. are elaborated on below:
A. Technology-related challenges
One of the major areas of concern for India Inc. since implementation of the GST is
functioning of the online compliance portal. The experience of compliance in the first year
has not been smooth and the Government has had a difficult time fixing the bugs ever since
the portal was made functional in July 2017. To address performance-related issues on the
portal, the Government has constituted a committee to look into the teething problems and
provide a quick resolution to these.9 However, there are still issues such as the slow response
rate and fixing of errors that remain unaddressed. This should be a significant area of concern
for the Government.10
B. Complex tax structure

Most countries levy the GST at a single rate. In India, the initial proposal was to keep a single
GST rate for both goods and services (for implementation of a simple and easy to understand
Indirect Taxation system).11 However, the GST rate structure that was finally implemented
7
One year of GST: A look at the journey so far, The Indian Express (July 1, 2018)
8
World Bank, India development update. India’s growth story. (March 2018) available at:
http://documents.worldbank.org/curated/en/814101517840592525/pdf/123152-REVISED-PUBLIC-
MARCH14-IDU-March-2018-with-cover-page.pdf
9
ibid.
10
Press Information Bureau, Government of India. Ministry of Finance, GST leads to the formalisation of
economy and widening of tax base, available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=180011
11
Overcoming GST Implementation Challenges in Indian Federation (Apr. 05, 2018) available at:
https://www.livemint.com/Opinion/TdTeRqgDLfpRLssu4ATezI/Overcoming-GST-implementation-challenges-
in-Indian-federatio.html
had multiple tiers of tax rates for goods and services, without a roadmap for eventual
unification12 of GST rates. The multiple rate structure not only complicates the taxation
system, but also leads to unwarranted disputes pertaining to classification.13

THE EXPERIENCE SO FAR

Despite some teething problems in managing compliance- related requirements,

implementation of the GST is seen as being directionally positive. As it progresses on its
journey, it is clear that the GST is not merely a tax reform, but a complete overhaul of the
entire business scenario.
The GST is seen as an important change and critical for businesses to remain competitive in
the market. Today, when we are celebrating the first anniversary of its implementation, it can
be said that the Government has been proactive in bridging the gap between the expectations
of India Inc. and actual implementation of the GST. Nevertheless, there are still some gaps
that need to be bridged on a priority basis to boost domestic and foreign investors’ confidence
in India’s taxation system.
A period of one year for implementation of such a transformational change is hardly adequate
to put in place a perfect tax system. Keeping this in mind, we have discussed below some key
indicators to reflect on the experience of the first 365 days of the GST in India.

A. Inflation rate didn’t rise: GST, it was widely feared, would cause inflation to rise, as
with many countries that launched a single tax regime. That hasn’t happened in India.
The recent spike in consumer inflation has been due to high food and fuel prices,
unrelated to GST. What helped? The much-criticised multi-slab structure. It ensured
the levy was as close as possible to the existing rate, which meant the incidence of tax
didn’t rise. The second factor was the anti-profiteering authority. Though the body
was set up after the GST rollout, the prospect of its establishment was enough to
ensure businesses did not abuse the transition.

12
GST Turns One: From Challenges which Rocked Boardrooms, Government Initiatives to Possible
Solutions (Jun 12, 2018) available at:
//economictimes.indiatimes.com/articleshow/64552859.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
13
Overcoming GST Implementation Challenges in Indian Federation (Apr. 05, 2018) available at:
https://www.livemint.com/Opinion/TdTeRqgDLfpRLssu4ATezI/Overcoming-GST-implementation-challenges-
in-Indian-federatio.html
 B. Single national market: Long queues of trucks at state borders disappeared as check
posts were dismantled, creating a seamless national market. These barriers had
restricted movement of goods across the country, leading to huge delays and
increasing transaction costs for the logistics sector, eventually translating into higher
costs for consumers.

C. One tax nationally: A consumer in Kanyakumari now pays the same tax on an item
as one in Jammu & Kashmir. GST has also allowed businesses to streamline
distribution systems—production, supply chain, storage—to make them more
efficient, having previously been forced to design them keeping state taxes in mind.

D. Formalisation kicks off, tax base begins to widen: One of the expected benefits was
that GST would encourage formalisation of the economy. Evasion would stop making
sense, thanks to transparent digital processes and incentive of input credit and invoice
matching. With number of registrations crossing 10 million, it seems more businesses
are signing up for GST. Rise in the Employees’ Provident Fund Organisation
subscriber base provides further evidence of the same. More people filing income tax
returns could also have something to do with GST.

E. Everyone wins: As many as 17 taxes and multiple cesses were subsumed into GST,
aligning India with global regimes. Central taxes such as excise duty, services tax,
countervailing duty and state taxes were all rolled into one. The new regime provided
for free flow of tax credits and did away with cascading due to tax on tax, boosting
company financials and resulting in reduced prices for consumers. It also ensured a
single law for the whole country with uniform procedures and rules, which reduces
compliance burden and business complexity. The government sacrificed revenues, but
improved compliance should cover any gap.

THE ROAD AHEAD

The GST journey has been nothing short of a roller- coaster ride. As the most critical tax
reform India has witnessed since Independence, it has been the hot topic of discussion in the
country. Despite initial teething problems, implementation of the GST regime will
undoubtedly be the catalyst for the Government to achieve its stated agenda of improving
ease of doing business in India. Its aim is to simplify GST-related compliance requirements
and return formats, and rationalise the tax rate structures of a wide range of products and
services. This is in line with its pro-business mind-set. In realising this goal, the Central and
state governments are putting into practice their learning from the international GST
experience.14

As a further step, the Government should also focus on simplifying processes and removing
the ambiguity around widely debated tax-related issues to enable a painless experience for
India Inc. At the same time, businesses should quickly adapt their operations to the new
dynamics and support the Government in making the GST a success. The following are some
areas on which the Government needs to focus in the current year to further improve ease of
doing business for Indian industry.

A. Expansion of tax base

The key idea behind implementation of the GST was to levy a single tax on all goods and
services, resulting in free-flowing credit in the country. However, at present, certain items
such as petroleum products15 (including petrol, diesel, ATF and natural gas), alcohol and
immoveable property are outside the GST net. To compromise with the states, the
Government had initially decided to keep petroleum products, which form a major part of
states’ revenue, outside the ambit of the GST till revenue collections stabilised. Similarly, the
states were concerned about protecting their revenue generation from levies including Stamp
Duty, Registration Charges and Property Tax levied on Real Estate, justifying exclusion of
the sector from the GST net. With the input of these products being subject to the GST and
the output outside its coverage, the tax structure applicable to these goods and sectors, as well
their compliance-related requirements, have become fairly complicated. This is in effect
defeating the Government’s purpose in implementing the new tax regime.

It is expected that there may be an intense debate about expansion of the GST base by
bringing Real Estate and Petroleum within its scope in 2018-19. Already, representations are
being made to bring industrial fuel, including natural gas and ATF, under the GST net.
14
GST: Gaming the Game-Changer (Oct. 2, 2018) available at: https://www.gstindia.com/gst-gaming-the-
game-changer/
15
No GST on petrol, diesel in near future as Centre, states not in favour (Aug. 24, 2018) available at:
https://www.gstindia.com/no-gst-on-petrol-diesel-in-near-future-as-centre-states-not-in-favour/
However, the bottleneck encountered in including petroleum products under the GST is
building a consensus among the states. However, in the absence of any constitutional
limitations, inclusion of the Petroleum sector under the ambit of the GST is only a matter of
time, until the states are assured that they can maintain their levels of tax revenue. The
inclusion of Real Estate is however likely to be a little more difficult, with the additional
requirement of a requisite constitutional amendment. To effectively deliver on its promise of
implementing a ‘one-nation-one-tax’ economy, the Government is likely to include the
products mentioned above.

B. Pruning of tax rates

Currently, there are four rate brackets—5%, 12%, 18% and 28%. The standard rate, under
which the majority of the goods and services fall, is 18%, while ‘luxury’ or ‘sin’ goods and
services are levied 28% GST. Another item on the Government’s priority list for
the coming year should be further pruning of these rates. While there has been a substantial
reduction in the number of products included in the 28% bracket, it should also consider
reducing the rate from 28% to around 22%. Another simplification that it could explore is to
club together the 12% and 18% bracket and fix it in the range of 14%-16% to make it more
reasonable. These options can, however, only be truly explored once GST collections
stabilise.

C. Simplification of compliance-related requirements and ease of doing business

The Government has already taken an initiative in this direction with its proposal of
consolidating all periodical returns (whether operational or not) into a single return. The
government machinery is already working on the new format and the IT-related changes
required. Therefore, a new and simplified return filing process may become effective in the
next six to nine months. Taxpayers will need to be prepared to adapt to this change as and
when it is implemented. India Inc. will however require adequate time to undertake the
requisite IT customisation without any disruption in their business operations.

D. Tax administration

Digitalisation of the Indian economy has been one of the main goals of this Government and
it plays a vital role in all of its endeavours. Implementation of the GST was in line with this
goal. The GST Law provides for online filing of registrations, returns, refunds and all other
compliance- related applications. Therefore, it is imperative that there should be a sound
digital backbone to the GST. This is where the GSTN comes in. As widely propagated, the
GSTN is a world- class system, which is capable of maintaining a substantial amount of data,
including invoices and the range-wise details of all taxpayers who use it to apply for GST
registration in order to make payments and file returns.16

In the future, it will be interesting to see how the Government plans to use such granular data
to its benefit. The GST has resulted in formalisation of the economy, and consequently, the
flow of information will eventually augment not only Indirect Tax but also Direct Tax
collections. As recently mentioned by the Finance Ministry in its press release, dated 18 June
2018, the implementation of the GST is putting a “premium on honesty” through better tax
compliance and transparency in the taxation system. For an efficacious tax administration, the
Government should explore the option of consolidating the GST portal with the Customs
portal as an immediate option and as we go along, the Direct and Indirect Tax information
sharing should take place to widen the tax base.

E. Legislative changes

Like any critical reform, the GST Law also suffers from certain ambiguities and loopholes
that have come to light only after its practical implementation. Certain provisions of the GST
seem to unintentionally contradict its objectives, for instance, provisions relating to taxation
of transactions (e.g., service to self) between the branches of the same entity in India and
overseas. These are likely to see amendments in the near future.

Furthermore, one of the key objectives of the GST was to ensure a seamless flow of input tax
credits. Keeping this in view, it is expected that measures to facilitate liberalisation of credit
will be implemented and most credit blockages in the law be done away with. However, so
far, the Government has only partially achieved this objective. Some genuine business
expenses are still excluded from the ambit of Input Tax credit claims (without any
explanations). For instance, currently, credit is not allowed on food and beverages, and

16
Government to examine GST, income tax and transfer pricing filings to find leakage (Aug. 29, 2018)
available at: https://www.gstindia.com/government-to-examin-gst-income-tax-and-transfer-pricing-filings-to-
find-leakage/
construction services. Industry expects that these issues will be seriously looked into and
addressed.

Certain provisions of the GST also create unnecessary roadblocks for taxpayers’ working
capital. An example of this is the need to pay upfront tax on various transactions such as
deemed exports and subsequently claim a refund. Such provisions do not result in
augmentation of revenue for the Government, but only increase taxpayers’ interaction with
the Tax Department. This makes them vulnerable to undue harassment and leads to working
capital-related blockages.

F. GST public forum

The Government may consider launching an India GST forum to facilitate public
involvement and transparency. It could benefit by setting up an open forum to provide a
supervised and regulated discussion platform on which industry and GST authorities can
meet to discuss how implementation of the legislation can be improved in practice. This will
give businesses the opportunity to represent their concerns before authorities in a systematic
manner. A similar forum was set up in the European Union to improve cooperation between
businesses and tax administrations, and saw wide acceptability.

BIBLIOGRAPHY

Books-

 Dr. Niti Bhasin, Dr Sameer Lama; Taxmann’s GST & Customs Law

Online Sources-
 https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
 https://cleartax.in/s/gst-law-goods-and-services-tax