CHALLENGES AND ARBITRARY POWERS UNDER GST REGIME: AN ANALYSIS BY - SIDDHANTH SARWAL

CHALLENGES AND ARBITRARY POWERS UNDER GST REGIME: AN ANALYSIS
 

AUTHORED BY - SIDDHANTH SARWAL

L19BLB102

BBA-LLB(HONS.)

BENNETT UNIVERSITY

GREATER NOIDA

 

Introduction

The Goods and Services Tax (GST) is a comprehensive indirect tax system that was implemented in India on July 1, 2017. The GST replaced multiple indirect taxes that were levied by the central and state governments, such as the Value Added Tax (VAT), Central Excise Duty, Service Tax, and others. The introduction of the GST was aimed at simplifying the tax structure, reducing compliance burden, and promoting ease of doing business in India.

The primary aim to introduce GST was to remove the cascading effect with the previous tax system, under which the consumer were paying a tax on tax, known as the cascading effect, which lead to increase in the prices of goods and reduced the purchasing power of the buyers. To curb this limitation in the previous regime GST was implemented, which reduced the prices of finals goods which the consumer had to bear.

However, the GST regime in India has faced several challenges and criticisms, particularly with regard to the arbitrary powers of tax authorities, the complex tax structure, IT glitches and compliance burden, delay in GST refunds, lack of clarity on GST laws and regulations, lack of coordination among states, and impact on consumers. This analysis will examine these challenges and their impact on businesses and consumers in India.

The Constitution of India Empowers the Center or the States to implement and collect taxes from the public and use them for providing services of benefits to the public. These services include construction of infrastructure, salaries of government employees or officers of the law. Article 265 to Article 289 deals with the provisions of tax.

Under the GST Act officers/tax authorities have been granted extensive powers to search and seize goods, detain individuals, and freeze bank accounts. Section 4 of the Act defines the powers and duties of officers and employees.

There are different levels of officer and/or employees:

1. Commissioner
2. Special Commissioner
3. Additional Commissioner
4. Joint Commissioner
5. Assistant Commissioner
6. GST Officers
7. GST Inspectors
8. Stenographer
9. Statistical Assistant
10. Upper Division Clerk
11. Lower Division Clerk

Further, the duty of every officer and employee is to collect revenue on behalf of the government, which further help in the operations of the country. In lieu of this the government has conferred certain powers to them to ensure smooth functioning and ease of tax collection, however, this sometimes may lead to abuse of powers.

Arbitrary Powers & Challenges

One of the major challenges that affect the tax payer or the assessees under the GST regime is the non-existence of GST Tribunal in the Country. Following the hierarchy under the law any person aggrieved or any tax payer aggrieved by the orders passed by the Principal Commissioner has to approach the GST Tribunal and file an Appeal against the same. However, due to the absence of a Tribunal the only option left with the assessee is to either approach the Hon’ble High Court directly and bear high litigation costs, which is a huge issue as not all companies can bear high costs of litigation, with the uncertainty that the order will be passed in the assessees favour. The current Tribunals present are busy with the cases to be settled in the previous regime & don’t have enough man power of the time of the day to address the issues under the new GST regime.

 Another major criticisms of the GST regime in India is the arbitrary powers of tax authorities. Under the GST regime, tax authorities have been granted extensive powers to search and seize goods, detain individuals, and freeze bank accounts. These powers have been criticized for being arbitrary and excessive, leading to harassment of taxpayers and creating an environment of fear and uncertainty.

In the matter of:

Prakashsinh Hathisinh Udavat Vs State Of Gujarat (Gujarat High Court)

That car and mobile of the petitioner were seized without following the provisions of Sec 67 of CGST Act and rule 139 of the Central Goods and Service Tax Rules, 2017. Even after an expiry of 6 months the petitioner wasn’t served with neither a notice under S. 67(7) nor has been served or any order affixed at his residential premises to further extend the period of seizure further than 6 months. And even after submission of oral evidence that the petitioner was willing to give a bond for provisional release of the seized items, but no response from the respondents.

The Hon’ble Gujarat High Court passed an order in the favour of the petitioner and allowed accordingly. The impugned order of seizure Dt. 25.10.2018 was set aside by the Court, and directed the respondent to release the vehicle along with the mobile of the petitioner and hand over the same. The Court also directed the registry to communicate the order to the Chief Secretary of the State and bring to his notice the manner in which the provisions of the CGST Act are being implemented by the officers and functioning thereunder.

M/s. Usha Martin Ltd. v. Additional Commissioner & Ors. (W.P.(T) No. 3055 of 2022) dated November 10, 2022

The petitioner, a manufacturing company of iron and steel products, carried forward CENVAT credit under GST regime by filing GST TRAN-1. However, the respondent issued a show-cause notice alleging that the petitioner could not claim CENVAT credit in lieu of invoices raised by an entity in the erstwhile tax regime. The respondent disallowed the CENVAT credit, and the petitioner filed a writ petition questioning the jurisdiction of the GST authorities to examine the correctness of the CENVAT credit. The High Court held that Section 73 of the CGST Act does not provide power to adjudicating authority to issue notice pertaining to CENVAT credit. Therefore, initiating proceedings under Section 73 was not proper, and the court quashed the order passed by the respondent as being without jurisdiction

Moreover, there have been instances where tax authorities have used these powers arbitrarily, leading to harassment of taxpayers and impeding the ease of doing business in India. The arbitrary exercise of powers by tax authorities has also impacted the confidence of businesses in the GST regime and has led to increased compliance burden and costs.

To address this challenge, the government needs to ensure that the arbitrary powers of tax authorities are not abused, and that taxpayers are not harassed or inconvenienced. The government needs to put in place checks and balances to ensure that tax authorities exercise their powers judiciously and in accordance with the law.

Complex tax structure, the GST regime in India has also faced criticism for its complex tax structure. The GST regime has five tax slabs - 0%, 5%, 12%, 18%, and 28% - and several exemptions and cesses. This complex tax structure has led to confusion and uncertainty among taxpayers, particularly with regard to the applicability of GST on their products or services.

Moreover, the complex tax structure has also increased the compliance burden on businesses, particularly SMEs, who may not have the resources to comply with the different tax requirements. The compliance burden has also been increased by the multiple filings required under the GST regime, which has been criticized for being time-consuming and cumbersome.

To address this challenge, the government needs to simplify the tax structure under the GST regime. The government needs to rationalize the tax slabs and reduce the number of exemptions and cesses. The government also needs to simplify the compliance requirements under the GST regime, particularly for SMEs, who may not have the resources to comply with the complex tax structure.

IT glitches and compliance burden the GST regime in India has also faced criticism for IT glitches and compliance burden. The GST Network (GSTN), which is the IT backbone of the GST regime, has faced several technical issues since its implementation. These technical issues have led to delays in filing returns and processing of refunds, leading to increased compliance burden on businesses.

Moreover, the GST regime has also increased the compliance burden on businesses, particularly SMEs, who may not have the resources to comply with the complex tax structure and multiple filings required under the GST regime. The compliance burden has also been increased by the requirement of e-way bills for the movement of goods, which has been criticized for being time-consuming and cumbersome.

To address this challenge, the government needs to improve the IT infrastructure for GST compliance. The government needs to ensure that the GSTN is equipped to handle the large volumes of data generated under the GST regime. This can be achieved by investing in IT infrastructure and providing training to taxpayers to use the IT system effectively. Moreover, the government needs to simplify the compliance requirements under the GST regime, particularly for SMEs, who may not have the resources to comply with the complex tax structure and multiple filings required under the GST regime.

Delay in GST refunds another major challenge faced by taxpayers under the GST regime in India is the delay in GST refunds. The GST regime provides for a mechanism to claim input tax credit (ITC) on the taxes paid on purchases of goods or services. This ITC can be used to set off the GST liability on the sales of goods or services.

However, taxpayers have faced delays in receiving the GST refunds, leading to increased working capital requirements and financial burden on businesses. The delay in GST refunds has been attributed to various factors, including IT glitches, lack of coordination among states, and verification processes.

To address this challenge, the government needs to expedite the processing of GST refunds and simplify the refund procedures. The government needs to improve the IT infrastructure for processing of refunds and provide training to tax authorities to process refunds effectively. Moreover, the government needs to ensure that the verification processes are streamlined to reduce the delays in processing of refunds.

Lack of clarity on GST laws and regulations, the GST regime in India has also faced criticism for the lack of clarity on GST laws and regulations. The GST laws and regulations have been amended several times since their implementation, leading to confusion and uncertainty among taxpayers. Moreover, there have been instances where tax authorities have issued contradictory rulings on the same issue, leading to further confusion and uncertainty.

The lack of clarity on GST laws and regulations has increased the compliance burden on businesses and led to increased litigation. Moreover, the lack of clarity has also impacted the confidence of businesses in the GST regime and has led to increased costs of compliance and risk management.

To address this challenge, the government needs to ensure that the GST laws and regulations are clear and unambiguous. The government needs to provide guidance and training to taxpayers and tax authorities on the interpretation and application of the GST laws and regulations. Moreover, the government needs to establish a mechanism for resolving disputes and issuing clarifications on the GST laws and regulations.

Lack of coordination among states, the GST regime in India is a dual GST system, where both the central and state governments have the power to levy and collect GST. However, the lack of coordination among states has been a major challenge under the GST regime. The lack of coordination has led to different interpretations and implementations of the GST laws and regulations by different states, leading to confusion and uncertainty among taxpayers.

Moreover, the lack of coordination among states has also impacted the ease of doing business in India. Businesses have faced challenges in complying with different GST requirements in different states, leading to increased compliance burden and costs.

To address this challenge, the government needs to improve the coordination among states under the GST regime. The government needs to establish a mechanism for regular meetings and consultations among the central and state governments to ensure consistency and uniformity in the interpretation and implementation of the GST laws and regulations.

Impact on consumers, the GST regime in India has also had an impact on consumers. While the GST was aimed at simplifying the tax structure and reducing the tax burden on consumers, there have been instances where the GST has led to increased prices of goods and services.

Moreover, the GST regime has also led to confusion and uncertainty among consumers, particularly with regard to the applicability of GST on different products and services. This has impacted the confidence of consumers in the GST regime and has led to increased compliance burden and costs for businesses.

To address this challenge, the government needs to ensure that the GST is implemented in a manner that benefits consumers. The government needs to ensure that the GST rates are rationalized and kept at a reasonable level. The government needs to ensure that the benefits of the GST regime are passed on to consumers in the form of reduced prices of goods and services.

Moreover, the government needs to improve the communication and awareness of the GST regime among consumers. The government needs to provide guidance to consumers on the applicability of GST on different products and services and ensure that the pricing of goods and services is transparent and inclusive of GST.

Arbitrary powers of tax authorities, one of the major challenges faced by taxpayers under the GST regime in India is the arbitrary powers of tax authorities. Tax authorities have been criticized for their arbitrary and high-handed approach in enforcing the GST laws and regulations. Tax authorities have been accused of conducting raids and inspections without proper cause and harassing taxpayers with excessive demands for documentation and information.

Moreover, the GST laws provide tax authorities with extensive powers of search and seizure, which have been criticized for their potential for misuse and abuse. Tax authorities have been accused of using these powers to harass taxpayers and to extract bribes and other illegal payments.

To address this challenge, the government needs to ensure that tax authorities are held accountable for their actions and that there is transparency and fairness in the enforcement of the GST laws and regulations. The government needs to establish an independent mechanism for redressal of grievances and complaints against tax authorities.

Moreover, the government needs to ensure that tax authorities are trained in the proper use of their powers and that they are held accountable for any misuse or abuse of their powers.

Lack of automation and digitization, another major challenge faced by taxpayers under the GST regime in India is the lack of automation and digitization. The GST regime requires taxpayers to file multiple returns and comply with various compliance requirements, leading to a significant compliance burden on businesses.

Moreover, the lack of automation and digitization has led to errors and mistakes in the filing of returns, leading to increased litigation and penalties.

To address this challenge, the government needs to invest in IT infrastructure and provide training to taxpayers to use the IT system effectively. The government needs to simplify the compliance requirements under the GST regime, particularly for SMEs, who may not have the resources to comply with the complex tax structure and multiple filings required under the GST regime.

Moreover, the government needs to ensure that the IT system for GST is robust and secure, to prevent cyber threats and attacks on the IT system.

Conclusion

In conclusion, the GST regime in India has faced several challenges since its implementation in 2017. The challenges range from the complexity of the tax structure and compliance requirements to the lack of clarity on GST laws and regulations and the arbitrary powers of tax authorities.

To address these challenges, the government needs to undertake a comprehensive review of the GST regime and make the necessary changes to simplify the tax structure and compliance requirements, improve the coordination among states, and ensure transparency and fairness in the enforcement of the GST laws and regulations.

Moreover, the government needs to invest in IT infrastructure and provide training to taxpayers and tax authorities to use the IT system effectively. The government needs to ensure that the GST regime is implemented in a manner that benefits consumers and that tax authorities are held accountable for their actions.

By addressing these challenges, the GST regime in India can become a simpler and more efficient tax system, which can benefit both businesses and consumers and contribute to the growth and development of the Indian economy.

The government also needs to work closely with the business community and address their concerns and grievances related to the GST regime. The government should engage with the various industry bodies and trade associations to understand the challenges faced by businesses and work towards addressing these challenges.

Moreover, the government should provide a stable and predictable policy environment for businesses to operate in. Frequent changes in the GST laws and regulations create uncertainty and can have a negative impact on the business environment.

The GST regime in India has the potential to be a game-changer for the Indian economy, by simplifying the tax structure, improving compliance, and enhancing revenue collections. However, to realize this potential, the government needs to address the challenges faced by businesses and consumers under the GST regime.

In summary, the major challenges faced by taxpayers under the GST regime in India include the complexity of the tax structure and compliance requirements, lack of clarity on GST laws and regulations, inadequate coordination among states, impact on consumers, arbitrary powers of tax authorities, and lack of automation and digitization.

To address these challenges, the government needs to simplify the tax structure and compliance requirements, improve coordination among states, ensure transparency and fairness in the enforcement of GST laws and regulations, invest in IT infrastructure, and provide training to taxpayers and tax authorities to use the IT system effectively.

The government also needs to work closely with the business community and provide a stable and predictable policy environment for businesses to operate in. By addressing these challenges, the GST regime in India can become a simpler and more efficient tax system, which can benefit both businesses and consumers and contribute to the growth and development of the Indian economy.