Goods and Services Tax
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Mark Twain once said, “A man who is a pessimist before 48 knows too much, if he is an optimist after it, he knows too little.”
In recent times, almost all economic indicators coming out on the Indian economy give no room for pessimism. India’s gross domestic product (GDP) for the January-March quarter of fiscal 2023-24 (Q4FY24) came in at 7.8%, driven by strong growth in the manufacturing sector. The Indian economy beat estimates and grew by 8.2% for the full year (FY24). According to data released by the National Statistical Office (NSO), the sector-wise analysis revealed that the real gross value added (GVA) grew at a rate of 7.2% in 2023-24 compared to the 6.7% growth observed in 2022-23. The growth propelled the Indian economy to $3.5 trillion and set the stage for achieving the $5-trillion target in the next few years.
The gross Goods and Services Tax (GST) revenue for May 2024 stood at Rs 1.73 lakh crore. This represents a 10% year-on-year growth, driven by a strong increase in domestic transactions (up 15.3%) and a slowing of imports (down 4.3%). After accounting for refunds, the net GST revenue for May stands at Rs 1.44 lakh crore, reflecting a growth of 6.9% compared to the same period last year. Maharashtra, Karnataka, Gujarat, Tamil Nadu and Uttar Pradesh retain the top 5 positions in terms of GST revenues.
Amidst all this optimism, the Supreme Court has been hearing a bunch of almost 300 petitions that complained about the methods being adopted by various departments like GST, Customs and the enforcement of the Prevention of Money Laundering Act (PMLA) to collect taxes and dues. The Supreme Court instructed the Centre that any arrest under the GST Act should not be on mere suspicion but has to be based on cogent material and adherence to proper procedure. The court was of the opinion that the material upon which an arrest is made should be verifiable by a magistrate and certified by the commissioner.
Dealing with the Customs Act, the court ruled that the right to arrest is not taken away from a customs official and a special legislation overrides any other law in force. The bench said it will pronounce its verdict on the legal principle and deal with individual cases separately.
Hearing another petition, the apex court instructed the government not to use threat and coercion during search-and-seizure operations against traders for the recovery of GST and said they should be persuaded to clear the dues voluntarily. Examining various sections of the GST Act, the bench said there is no provision under the law that empowers authorities to exert force for the payment of outstanding dues. Last month, the top court had asked the Centre to furnish details about the issuance of notices and arrests effected under the provisions of the GST Act, saying it may interpret the law and lay down appropriate guidelines to avoid harassment of citizens by depriving them of their liberty. It voiced concern over the ambiguity in Section 69 of the GST Act that deals with the powers of arrest. The top court had said it would interpret the law to strengthen the concept of liberty, if need be, but not allow citizens to be harassed.
The GST Council should also consider amending Section 69 and providing some guard rails to ensure that the threat of an arrest should not weigh on the taxpayer’s mind when he is deciding an appropriate response to the notice.
Over the last seven years, GST officials have been quick to pounce on specific transactions that are of large value and demand their pound of flesh without considering the taxability of the transactions — the concept of cross-charge and denial of input tax credit on certain common expenses such as professional fees serve as good examples. Foreign airline companies have received notices from the GST department for services provided by the headquarters to their local entities in India. The headquarters of airlines or shipping companies cover expenses such as maintenance, crew payments, and rental costs. Tax authorities said these services were provided by the headquarters to the local entity, constituting transactions between legal entities and subject to taxation in India. It is being reported that the government is considering exempting such services and the intelligence wing of the GST department has been instructed not to issue notices and collect tax at any cost.
Budget 2024 will be expected not to tamper too much with GST laws. The constitution of GST Appellate Tribunals across the country and manning them with competent and adequate members should be the main priority of the government. Tribunals are going to be saddled with a barrage of cases that could delay justice for the taxpayer.
(The writer is a Bengaluru- based tax expert)