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Renewed GST concerns
MOHAN R. LAVI
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The new Chairman for the Empowered
Committee to implement Goods and Services Tax
(GST) seems to have quickly taken the side of the
various States and has asked the Centre to have
an open mind to their concerns. The main
concern of the States is the Constitution
Amendment Bill that creates a GST Dispute
Resolution Authority which they opine would
undermine their powers of appeal. Municipal
Corporations in Maharashtra depend on Octroi
revenue for their sustenance and are seeking
suitable compensation if GST replaces it. The
Centre and the States have never seen eye to eye
on the issue of compensation for the reduction in
the Central Sales Tax (CST) and the differences
are substantial. Though CST was supposed to be
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MOHAN R. LAVI
are substantial. Though CST was supposed to be
removed after the introduction of VAT, it
remains on the statute book at 2 per cent.
Maharashtra VAT
VAT was also introduced through an Empowered
Committee Report. VAT laws across States were
supposed to be by and large similar. Recently,
many State Governments have tinkered with
VAT laws to boost revenues. Recent amendments
in Maharashtra VAT are almost driving large
automobile units nursing growth plans out of the
State. Under the present Industrial Policy of
Maharashtra, a number of Mega Units have set
up captive distribution or marketing companies
within the State to carry out their marketing &
distribution activities.
These distribution companies discharged VAT on their sales within Maharashtra and Central Sales Tax
(CST) on their inter-State sales after claiming setoff of the VAT paid on their purchases from the Mega
Units. A distribution company, on making inter-State sales, would typically discharge tax at the rate of
2 per cent, but would get a set-off on its purchases at the rate of 12.5 per cent with the difference of
10.5 per cent being refundable.
Rule 52A introduced by the Finance Department Notification No. VAT-1511/CR-44/Taxation-1 dated
March 17, 2011 spoilt the refund dreams of these companies. This Rule permitted set-off and thereby
refunds only on the taxes paid or payable under the Central Sales Tax Act, 1956 on the inter-State
resale of the corresponding goods and the taxes paid on the purchases of said goods, if are re-sold
locally under the Act. A proviso added that nothing in this rule shall apply to the purchases of such
goods that are used within the State in the manufacturing of the goods. The net impact of the
Notification was that the auto companies got incentives on sales within the State, but not outside.
Bajaj Auto reflects an amount of Rs 882.35 crore in its Balance-Sheet as VAT Refund Receivable. If the
above Notification was not enough of a blow, Mahindra and Mahindra got another one when the Nashik
Municipal Corporation withdrew the octroi concessions granted to the company.
Do we need GST?
With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited. The
best GST systems across the world use a single GST while India has opted for a dual-GST model. Critics
claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and
CST and hence GST brings nothing new to the table. The concept of value-add has never been utilised
in the levy of service as the Delhi High Court is attempting to prove in the case of Home Solution Retail
while under Central Excise the focus is on defining and refining the definition of manufacture instead of
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while under Central Excise the focus is on defining and refining the definition of manufacture instead of
focusing on value additions. The Revenue can be very stubborn when it comes to refunds as the
Maharashtra Government proves and software entities that applied for refunds on excess service tax
paid on inputs discovered.
The all-new Cenvat Credit Rules, 2011 do little to clarify eligibility for input credits by using general
terms such as any goods which have no relationship whatsoever with the manufacture of a final
product and services used primarily for personal use or consumption of any employee. Before
penning the GST Act and Rules, the Empowered Committee would do well to take a hard look at all the
present laws that GST subsumes and their complexities. It could tempt them to rethink on the necessity
to draft even the preamble.
Before penning the Goods and Services Tax Rules, the Empowered Committee would
do well to take a hard look at all the present laws that GST subsumes and their
complexities.
(This article was published in the Business Line print edition dated July 23, 2011)
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