The Goods and Services Tax (GST) has come a long way in six years. The number of taxpayers has doubled from around 68 lakh in 2017 to around 1.4 crore; the average monthly revenue has also risen almost at the same pace from close to Rs 90,000 crore in 2017-18 to Rs 1.69 lakh crore in the current financial year.
At a macro level, it has significantly contributed to the formalisation and digitisation of the Indian economy.
But it is still a long way from the originally promised panacea of being a 'good and simple tax'. Several legal challenges remain, the two most critical and widely applicable of which are discussed below.
First and foremost, availment of the input tax credit has been one of the biggest flashpoints of disputes under GST – with every instance of GST fraud/fake invoicing leading to the hardening of the stance of GST authorities and an increasingly frequent invocation of stringent enforcement powers, the assessee-department trust has suffered, and genuine taxpayers are increasingly at the receiving end of suspicion and even instances of abuse of power by GST authorities on the ground.
Also read: GST Council may approve changes to plug fake ITC claims in July 11 meet
High courts across the country are faced with petitions filed by taxpayers against arbitrary cancellations of GST registrations and disproportionate denials of input credits owing to doubts raised about the veracity of even one of the suppliers in a supply chain.
While robust guidelines have been issued recently for strengthening the process of verification of GST registration applications, tackling the current scale of identity theft-based GST evasions would require robust technological solutions to supplement the existing legal provisions (which already vest GST officers with a vast array of powers and need no further strengthening).
For example, instead of using copies of PAN and Aadhaar cards, live video verification may be introduced where the relevant person can hold the identity document in question in front of the camera – this will at least mitigate GST fraud based on identity theft. Such live video verification is already in vogue by various insurance/investment companies (they undertake live video KYC automated through a BOT/app).
In any case, GST authorities must not lose sight of the fact that the fight against GST fraud is an ongoing one and will require eternal vigilance. The government ought to ensure that, in the name of preventing evasion, honest taxpayers cannot be harassed and coerced by GST officers at the ground level. In order to maintain balance and ensure accountability, the government must come down heavily on instances of abuse of power by GST officers against honest taxpayers.
Secondly, not having the GST Appellate Tribunals in place even after six years is a major legal challenge for taxpayers who are left with no recourse but to repeatedly approach the high courts. While the enabling legal provisions for GST Appellate Tribunals were finally introduced earlier this year, the following steps still remain to be taken:
- Final approval from the GST Council on the minute operational details of GST Tribunals, which is expected to happen in the upcoming GST Council meeting this month.
Also read: Next GST Council meet to approve number of appellate tribunal benches in each state
- Thereafter, the enabling legal provisions vis-à-vis the establishment of the tribunal (which have already been approved by the GST Council and for which requisite amendments have already been carried out in the Central Goods and Services Tax Act, 2017 vide Union Budget 2023, although the said amendments have not been notified yet) as well as the necessary rules/circulars, etc. would need to be brought into effect/notified. That can happen once all the State legislatures pass corresponding amendments to the respective State GST statutes.
- Once the legal framework is in place, necessary recruitments of tribunal members/judges as well as administrative staff will need to be undertaken, and appropriate budgetary allocations and infrastructural developments/allocations will need to be made across the country.
Given all the above steps that remain, practically, GST Appellate Tribunals are unlikely to be fully functional before January-February 2024.
Even then, the effectiveness of GST Appellate Tribunals will be completely dependent on the judges/members being recruited. Here, the lessons from advance ruling authorities under GST (which have been almost unanimously criticised for their evident 'pro-revenue' bias) as well as VAT/Sales Tax tribunals in states would be relevant.
Already, concerns have been raised about practicing lawyers not being eligible for consideration as members/judges of the GST Appellate Tribunal. Unless the GST Appellate Tribunal offers taxpayers the opportunity for a fair hearing, they will continue to knock on the doors of the high courts, thereby increasing the pendency of cases and leading to bottlenecks in the justice delivery system.
Given all the milestones achieved by GST in six years, the biggest tax reform in India post-independence, one sincerely hopes that the above legal challenges will be mitigated and duly dealt with by the time we gear up to celebrate the seventh anniversary of GST.
(The author is Partner-Indirect Taxes & Customs, Khaitan & Co. The views expressed in this article are personal and do not constitute legal or professional advice of Khaitan & Co. For any further queries or follow up, please contact the author at ergo@khaitanco.com)
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