GST@5: Government Working On SOP For Investigations, Arrests
Senior Advocate Arvind Datar and Additional Solicitor General N Venkatraman weigh in on GST's litigious journey and its future.
Parathas will attract an 18% tax rate and cannot enjoy the same privilege of 5% rate on roti, chapati or khakra.
No GST on papad, but fryums face an 18% rate.
Pizza toppings pretending to be cheese toppings will go in the 18% bracket.
Memes, disapproving remarks, and some laughs—disputes around GST rates on food products gave us all of these.
On a serious note, the struggle on the transition credit front was quite real, with India Inc. rushing to high courts with writs for relief.
In the last five years, the Supreme Court, too, answered some important questions for supply of ocean freight services, refund of unutilised tax credit of input services, and secondment of employees. Of course, the apex court’s observations on the weight that the GST Council’s decisions carry, led to a lot of worried editorials.
And then, news of GST officers using their search, seizure and arrest powers indiscriminately made a lot of businesses nervous.
This short introduction doesn’t even begin to cover the GST litigation we’ve seen in the last five years. The absence of the dedicated forum—GST Tribunal—made matters worse for taxpayers.
Two of the most credible and experienced legal voices spoke to The Fineprint on GST's litigious journey—Senior Advocate Arvind Datar and Additional Solicitor General N Venkatraman.
'Not Every Investigation Is Vexatious Or Frivolous', Says Venkatraman
The ASG admitted that much of the litigation on transition credit could've been avoided. Expect a one-time solution for ongoing disputes on this front soon, he said.
We have taken some policy views and the government is extremely cooperative. Hopefully, as matters come up after reopening [of courts], we will be giving a solution, a one-time solution which will solve five years [of disputes].N Venkatraman, Additional Solicitor General
Similarly, in the latest GST Council meet, the Supreme Court's suggestion on a fair formula for calculation of input tax credit refund due to inverted duty structure, has also been taken care of, Venkatraman said, underscoring the point that the government is willing to listen.
But where there is blatant evasion and instances of fraud, the department has the right to pursue those cases, make arrests, etc., he said.
"There are cases where they don't have a PAN or GST registration—not even for two weeks. What do you do with these guys?"
There is evasion of Rs 240 crore with fake invoices. Hundreds of false Aadhaar cards. 400 units existing only for a few weeks. These are the extremes we have had. I understand the reservation. So, we are now drafting Standard Operating Procedures for both—search/seizure and arrests.N Venkatraman, Additional Solicitor General
Venkatraman also shared his views on constitution of the GST Tribunal, and whether it is realistic to expect an independent Authority for Advance Rulings.
People who authored the GST law, they put so much pain in drafting various sections that they got tired when they came to appellate remedies.N Venkatraman, Additional Solicitor General
The ASG also shared his personal views on the challenges and potential approach with respect to AAR's and the GST Tribunal.
For context, the law prescribes one judicial member, one technical member from the central government, and one technical member from the state for a Tribunal bench. This was struck down by the Madras High Court as unconstitutional on grounds that the number of judicial members should be equal or higher than the technical members.
Venkatraman said that:
We don't need to have a Tribunal bench in every state. But, how do you allow the fusion in meeting the standards of cooperative federalism, which is a constitutional requirement?
"Suppose we initially start with four or five Tribunals in different regions. And whenever a matter from a particular state comes up, you can possibly have a regional representation on the bench. You don't need multiple benches because that will lead to plurality of views. You cannot not have state representation at all—it will not work."
As per the Central GST law, an AAR bench consists of two members—one officer from the central tax department and one from the state tax department. Here, there's a need for a rethink, Venkatraman said, as you can't have a bench in every state. A business with presence in 12 different states will end up getting 12 different answers.
"The standards of AAR under income tax law—when it was led by a retired judge of the Supreme Court—and the kind of judgments the court delivered, it's a different class. So, we should be less bureaucratic and more efficient."
'Lot Of Pain Points Can Be Avoided At The Threshold', Says Datar
If the government takes a more reasonable approach, a more purposive interpretation, rather than focusing on maximising revenue at any cost, a lot of pain points can be avoided at the threshold itself, Datar said. Classification of goods, he pointed out, is one of the key dispute areas.
I know of three cases where on certain products, we have succeeded up to the Supreme Court [on classification]. They are now raking up the same issue. Such things can be wholly avoided.Arvind Datar, Senior Advocate
On the state of forums, Datar said, AARs have become 'Authority for Adverse Rulings', and just a means to get to the high courts.
On GST Tribunals, he said, the government is now waiting for a report but the excise tribunals were working reasonably well.
"I have suggested that like in CESTAT, let there be a judicial member and technical member under GST as well."
The difficulty there is constitution—both centre and states want representation on tribunal benches, which is an incorrect approach, he said.
The Tribunal is not there to protect revenue. The law for central and state government is identical. If we have to decide on whether fryum is to be taxed at 5% or 18%, it doesn't matter where the technical member and the judicial member come from.Arvind Datar, Senior Advocate
Besides, getting a functional Tribunal and independent AARs, the biggest worry is indiscriminate use of arrest powers by GST officers, Datar said.
The feedback that I get from my clients is that this power has been misused to a large extent. There are so many cases where it was said unless you pay 'X' amount, you will be arrested. People have been in jail for 90 days without any chargesheet being filed; after that, there is no trial. As a matter of law, power of arrest should not be given to individual officers.Arvind Datar, Senior Advocate
At the ground level, there are multiple problems—one, there is no accountability and two, I don't think many high courts are assessee-friendly, Datar said.
Watch the full discussion: