GST Appellate Tribunal (GSTAT) & Issues in GST Implementation

IN NEWS:

• Recently, the Finance Ministry issued a notification to set up 31 benches of Goods and Services Tax Appellate Tribunals (GSTAT) across 28 states and eight Union Territories).

MORE ON NEWS:

• The establishment of these tribunals, envisaged at the time of the implementation of the GST regime on July 1, 2017, got final clearance from the GST Council in July 2023.
• While states had proposed 50 tribunal benches to the GST Council, the Union government had signalled that they would come up in a phased manner, beginning with state capitals and cities with High Court benches.
• The first set of tribunals will become operational sometime between November 2023 and January 2024.

GOODS AND SERVICES TAX APPELLATE TRIBUNAL (GSTAT):

• The GST Appellate Tribunal (GSTAT) is a quasi-judicial body that has been envisioned to provide a platform for the resolution of disputes that arise between businesses, individuals, and the government regarding the implementation and interpretation of the GST.
• The GST Council recommended setting up GSTAT with one Principal Bench and a number of State Benches.
  • The Principal Bench will take up matters related to inter-state disputes, while Benches in States will take up all other issues, including rates. The aggrieved parties can move to High Courts and Supreme Court.
• According to experts, the Principal Bench in New Delhi and regional Benches in different States will provide a unified structure to Tribunals.

WHY IS THE GST APPELLATE TRIBUNAL NEEDED?

• To resolve  growing number of taxpayer disputes:
  • The Constitution of the GST Appellate Tribunals across the country is expected to resolve a growing number of taxpayer disputes with the Revenue Department.
  • For instance, the number of appeals against the orders of first appellate authorities has been rising sharply, which in the last 2 years alone has moved up by more than double from 5,499 in 2020–21 to 11,899 cases in 2022–23.
• Unburden the judicial system:
  • The Constitution of the GST Appellate Tribunal would unburden the judicial system as a rising number of disputes under the GST regime are now clogging the High Courts and other judicial forums.
• Divergent interpretations and resultant disputes:
  • The GST law has been subjected to divergent interpretations by the taxpayers as well as the authorities, leading to numerous disputes mainly in the context of the levy, valuation, classification, creditability (including transitional credits), and refunds.
  • Thus, the constitution of dedicated and specialised GSTATs is expected to guarantee uniformity across India and faster redress of grievances.
• Bolstering ease of doing business:
  • Ensuring speedier and economic resolution of cases by dedicated and specialised GSTATs will help in bolstering business sentiments and ease of doing business in the country.
• Clamp down tax evasion:
  • While the government has taken several steps to clamp down on tax evasion, the number of legal challenges associated with tax evasion cases mounted by taxpayers in various high courts and the Supreme Court has also been rising in the absence of the dedicated GST Tribunal.

ISSUES IN GST IMPLEMENTATION:

• High compliance cost:
  • Medium and small-sized enterprises (SMEs) have found it challenging to operate and compete with larger companies due to the high costs associated with compliance under the GST. The costs of compliance include a variety of procedures like GST registration, GST return filing, keeping records, and going through audits etc.
  • For instance, not all SMEs will be able to afford the cost of computers and accountants required to implement GST.
• Reversal of Input Tax Credit and MSMEs:
  • The provision for the reversal of Input Tax Credit ( ITC) if payment is not made to the supplier within 180 days from the date of the invoice is introduced to support MSME in getting payment on time from customers.
  • However, practically, this provision is hitting hard on MSME, as MSMEs are not able to pay their supplier within 180 days. Even if the contracts provide more time for payment, GST law requires that ITC be reversed along with interest if not paid within 180 days.
•  Issues associated with Goods and Service Tax Network (GSTN): 
  • The Goods and Service Tax Network (GSTN)  has been a cause for concern since the inception of GST, as the GSTN’s failure in its initial years has created a lot of challenges for the authority. The situation has improved, but still, GSTN is giving trouble from time to time, and it is still a cause for conce rn.
• Lot of notices are being issued under the GST:
  • There is a concern related to the fact that a lot of notices are being issued under the GST, and most of them are related to non-issues or minor issues.
  • For instance, notices are being issued for minor amounts of Rs. 2 or Rs. 4.
  • The number of notices creates problems for GST officers to dispose of.

• Multiple Tax Rates:
  • Unlike many other economies which have implemented this tax regime, India has multiple tax rates.
  • This hampers the progress of a single indirect tax rate for all the goods and services in the country.
• Higher tax rates:
  • Though rates are rationalised, there is still 50 percent of items are under the 18 percent bracket.
• Failed to bring petroleum under GST:
  • Petroleum products are used as inputs for production or supply of other goods and services. Excluding them from GST results in cascading of taxes
  • The Centre and states have been increasingly dependent on excise duties on petroleum products to shore up their revenues.
  • Hence, the GST council has been reluctant to discuss the matter, as around 30 per cent of the states’ revenue comes from excise duties on petrol and diesel.
• Transitional Issues:
  • Even after six years, many assesses are still experiencing technical/legal issues as a result of the transition from the old to the new GST system.
• Complex tax slabs:
  • The complex slab structure and continually switching between them has created an undesired confusion in the compliance system.
  • Additionally, fluctuating tax rates often led to unethical profiteering practices.

• Failed to check tax evasion
  • GST tax evasion and tax fraud, including use of fraudulent invoices, fake e-way bills, etc has led to massive losses in revenue collection.

• GST council and federalism:
  •  Voting is provided in GST council for in case of lack of consensus. The Union government has one-third of the votes and the states together, two-third. Since 75% of the votes are required to pass a resolution, the Union government effectively has veto power.
  • Further, it can persuade smaller states to vote in its favour and currently, the ruling party in the Union can push its agenda since it also rules in many of the states.
  • So critics argue that while technically federalism is maintained, in reality it is diluted.
  • The recent (2022) Supreme Court ruling (in the Union of India vs. Mohit Minerals case) that the GST Council’s recommendations are not binding would strengthen federalism in the GST regime.
• The Goods and Services Tax (GST) compensation period ended:
  • The Union government was to compensate states for five years for any shortfall in revenue growth below 14%.
  • For this purpose, a compensation cess was proposed on luxuries and sin goods. The Union government in 2022 decided to continue it for four more years (till 31 March 2026) but it has not acceded to the state's demand for continuing the compensation.
  • While the initial shortfall in revenues in the post-compensation period was addressed by state governments by imposing higher taxes on property, liquor, and even vehicles, the states must adapt to the changing dynamics of revenue generation.
  • States face the challenge of independently raising revenue and widening the tax net in the long term.

WAY FORWARD:

• Refine the compliance system of GST:
  • The GST compliance system in the country has to be improved because of the numerous filing requirements and lengthy returns. Exorbitant compliance expenditures and efforts have resulted from this.
  • To ensure that correct disclosure may be made with the least amount of trouble and time, it is necessary to have rationalised, simplified, resilient, and lowered compliance standards with enough room for rectification and amendment.
• GST Appellate Tribunal (GSTAT):
  • The GST Appellate Tribunal should be established as soon as possible, as the absence of a specialised tribunal has resulted in multiple court cases, heavy interest costs, GST refunds being trapped, etc.
• Improve GSTN:
  • One of the major challenges is that the GST Network (GSTN) compliance portal is yet to reach full operating capacity. This resulted in not only difficulties in the functioning of the GST regime but also fraudulent activities and fake invoices. 
• Simplifying tax structure and rationalize GST rates:
  • A simpler tax slab structure limiting commodities to three tax slabs is the need of the hour. Experts have recommended a three-slab structure that will help rationalize this indirect tax system.
  • Currently there are four main slabs—5%, 12%, 18% and 28%. One option, reportedly being proposed by the tax authorities, is to merge the 5% and 12% slabs into an 8% slab. Since the items in the 12% slab are relatively few in number, the loss of revenue would be minimal.
• Ensuring tax predictability:
  • The GST Council should adjust the rates only once a year.
  • Further, the Center shouldn’t bypass GST by introducing any Cess.
  • The Center can also rationalise the present Cess ecosystem in India to a bare minimum. This will ensure tax predictability to states and enhance the ease of doing business.
• Bring important sectors under the GST regime:
  • Electricity and petroleum products should be brought under GST to avoid the cascading effect of taxes, as these are used as input by the majority of manufacturers and service providers.
• Solving the issues between Centre and States:
  • The Centre needs to urgently figure out and put to rest the battle between the Central and State Governments on the sharing of revenue collections and should further improve the spirit of federalism in the GST regime.

PRACTICE QUESTION:

Q. “The GST regime has moved forward with alacrity, but there is still a long way to go to achieve its full potential.". Analyse critically.