As the nation paves its way with patience and resilience through a phase of unprecedented turmoil, the Goods and Services Tax (GST) has indeed emerged as an unshakable pillar of the economy. As we complete 4 years of its implementation, we consider the journey that gave us the most important tax reform since India’s independence. The origins of India’s biggest fiscal reform can be traced back to the year 2000, when the then Prime Minister conceived the concept of GST and formed a committee to conceptualize the ambitious legislation. The integration and restructuring of one of the most diverse indirect tax systems in the world was a huge task fraught with challenges which was compounded only by the diversity of different stakeholders.
The Constitution (101st) Amendment Act, 2016 paved the way for the implementation of GST legislations and gave concurrent tax powers to the Center and the State by inserting Article 246A. Article 279A of the Constitution envisages the creation of the GST Council, which has been entrusted with broad recommendatory powers. The GST Council has been the flag bearer of cooperative federalism since then and has adopted consensus to address many divisive issues.
Like all other laws in the early stages, the GST laws were not untouched by interpretive and constitutional issues. To protect these explanatory issues and rights, many assessees have resorted to the writ measure. The pragmatic and tireless approach of the GST Council has rendered many writ petitions infructuous. The issuance of over 700 notifications and 150 circulars in a short span of 4 years demonstrates the keenness of the executive to ensure that GST is truly the epitome of ‘Good and Simple Tax’.
Despite a solid foundation, certain areas of tampering, such as reducing the compliance burden and resolving legislative ambiguities, would be suitable for business. For example, the announcement of a definitive and sector-specific methodology to detect profiteering would help benefit consumers. Another area that wants to be revisited is the regular use of retrospective amendments, which deprive taxpayers of tax certainty. The GST Council may consider introducing retrospective amendments as a last resort and use such legislative instrument sparingly.
Eliminating the cascading effect of taxes was one of the primary objectives that GST was intended to achieve. The GST law has also mandated a complete ban on availing credit on specified goods and services and measures to limit input tax credit of unreported transactions. Such barriers to credit eligibility have acted as impediments in eliminating the cascading effect of taxes and are subject to challenge in various High Courts. The GST Council should expeditiously address the factors that hinder credit flow to truly realize the goal of a seamless credit chain and reduce the burden of courts. Further, while the scope of levy under GST may be extended to include petroleum products, the levy has been deferred. Exclusion of such products from the surcharge of GST hinders smooth credit flow.
Despite the scope for change, it cannot be denied that GST is a landmark reform in the legislative history of India and has taken years of tireless efforts to flourish. A GST law that aligns itself with the vision of “One Nation One Tax” and lends itself to “ease of doing business” initiatives, has helped to gain India Inc’s trust and unleash a buoyant economy. will go a long way.
Disclaimer: Abhishek A Rastogi is a Partner at Khaitan & Co and Mahir is a Senior Associate at Chablani. Views expressed are personal.
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