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FM pitches in for dual rates for GST - 6% and 10% for goods and 8% for

Services
By T!" #e$s Service
#%& '%"() *+", -1) -010. &("% addressing the distinguished gathering of the
Members of Empowered Group on GST, the Union Finance Minister, Mr Pranab
Mukherjee, urged the members of the Empowered Committee of State FMs to finaise
the GST rate in the range of !" to "#$% &n behaf of the Union Go't he proposed to
keep CGST ower rate for goods at ($ and Standard rate at !#$% The ser'ices wi
be charged at )$% States were urged to consider keeping the same rates i%e% the
ower rate for SGST at ($, standard rate at !#$ and ser'ices at )$% This mutua*
supporti'e approach wi ensure that +ndia has a singe rate for CGST and SGST in
the range of !" to "#$ in the first *ear of GST introduction% The peak effecti'e rate
wi be about !,$ which wi be -uite acceptabe to the trade and industr*%
E'entua*, it wi sette down to a e'e of !( to !)$ for both CGST and SGST which
wi mean an effecti'e rate of !"$, he added%
The FM further stated that in the second *ear of impementation of GST depending
upon the re'enue receipt b* the Centre and the States and pa*ment of
compensation b* Go'ernment of +ndia to the States, the standard rate for SGST and
CGST ma* be reduced to .$ retaining the ower rate at ($% /uring the third *ear of
impementation based on our e0perience and depending upon the buo*anc* of
re'enue receipt and pa*ment of compensation b* the Go'ernment of +ndia, the
standard rate ma* be reduced to )$ and ower rate increased to )$ and ser'ices
retained at )$ both for CGST and SGST% Thus, in a phased manner, we wi be abe
to achie'e a singe CGST and SGST rate for both goods and ser'ices, he ad'ised%
&n e0emptions, Mr Mukherjee said that he has decided to re'iew the e0isting
e0emptions from Centra E0cise dut* so that the ist of goods e0empt from CGST is
aigned to the SGST ist and .. items current* e0empt from 12T are e0empt from
both components of GST%%
3hie taking about the compensaiton he assured the States that the compensation
for subsuming Purchase Ta0 on foodgrains wi be pro'ided aong with 12T
compensation for the ne0t four *ears% 2 reference wi be made to the Fourteenth
Finance Commission to suitab* address this issue for the period be*ond "#!4, he
added%
Mr Mukherjee aso announced that the Centre has decided to fu* compensate the
States for their re'enue osses on account of CST reduction during the *ear "##.5!#
and to reease the baance outstanding amount to the States immediate*% 6e further
said that the Centre has been waiting for Empowered Committee7s recommendations
on the CST compensation formua for the *ear "#!#5!! and hoped that it woud hep
States in engaging constructi'e* with difficut issues and find mutua* acceptabe
soutions%
2s for specific issues, ike e0emption threshod under GST, he said that the
e0emption threshod for both goods and ser'ices under both components of GST i%e%
CGST and SGST shoud be uniform at 8s% !# akh% For the same reason, the
threshod for compounding for sma deaers shoud aso be uniform under CGST and
SGST whether it is fi0ed at 8s% ,# akh of turno'er per annum or 8s% ! crore per
annum%
&ne measure that woud immense* faciitate simpification is the use of +nformation
Technoog* so that ph*sica interface between the ta0pa*er and the administration is
minimi9ed, he further said, adding that since +T infrastructure has to be in pace we
before the GST ro5out, the States need to -uick* form an Empowered Group on
this issue%

'ra$/ac0 Misuse - ngenious &ays1
*+", -1) -010
By 2radyu3na) 4dvocate
T(%5% ha'e been numerous write5ups in T!" on Cen'at credit:/ut* /rawback
misuse% Erudite writers ha'e, time and again, enightened us as to how the statutor*
pro'isions are misused and the go'ernment is robbed of its re'enue% 2s far as
outright abuse of ta0 schemes is concerned, /ut* /rawback shoud rank as a most
fa'ored scheme for scamsters and notwithstanding measures initiated b* the
go'ernment, instances of fraud abound resuting in oss of re'enue%
2n ingenious method adopted b* a ne0us of manufacturers and e0porters to a'ai the
drawback and Cen'at credit to their ad'antage is brought about in this write5up%
/rawback in respect of specified e0port goods is admissibe under ;otification ;o
!#4:"##)5Cus dated ".5#)5"##) issued under the Section <, of the Customs 2ct,
!.(" subject to 'arious conditions% 2s per the said notification, drawback is
sanctioned to e0porters at different rates in respect of e0port goods where the
faciit* of Cen'at credit is a'aied and where such faciit* of Cen'at credit is not
a'aied% +t is ob'ious that higher drawback accrues on e0ports goods manufactured
out of inputs in respect of which no Cen'at credit is a'aied under Cen'at Credit
8ues, "##=% This is tune with the poic* of the go'ernment that whie e0port goods
are entited to some kind of incenti'e, there shoud not be doube benefit in the form
of both drawback and Cen'at credit on the same goods% This is where a combination
of unscrupuous manufacturers and merchant5e0porters has been duping the
go'ernment b* s*stematica* misrepresenting facts%
2 manufacturer wiing to manufacture and e0port his fina products has the option of
e0porting the goods without pa*ment of dut* under >etter of Undertaking or under
caim of rebate of dut* paid on fina product or dut* paid on the inputs in terms of
Centra E0cise 8ues, "##" ?8ue !) @ !.A% The manufacturer5e0porter is aware that
e0port under >UT or under caim of rebate does not fetch him benefit o'er and abo'e
the dut* paid or pa*abe on the fina products% The said manufacturer a'ais Cen'at
credit on the inputs used in the manufacture of his fina products and then foats a
fictitious e0port di'ision or enters into partnership with a known merchant e0porter
who wiing* agrees to be hand5in5go'e in the racket% 3hie cearing the finished
goods from his factor* ocated sa* in Pune, the manufacturer fies the re-uisite
documents ike 28E5! where he indicates the name of the merchant5e0porter and
the goods meant for e0port are ceared without pa*ment of dut* in terms of 8ue !.
of CE8 or under caim of rebate on pa*ment of dut* as the case ma* be% The burden
of the manufacture ceases once he produces to the Centra E0cise department proof
e'idencing e0port of the goods which of course are e0ported through the merchant5
e0porter%
The merchant5e0porter who bu*s the goods from the manufacturer fies his own
shipping bi under caim of drawback from the e0ports in another customs house sa*
;ha'a She'a% Prior to Ma* "##. Customs 6ouses were insisting on ;on5a'aiment of
Cen'at credit Certificates issued b* 8ange &fficers ha'ing jurisdiction o'er the
manufacturer7s factor*% 6owe'er, taking cogni9ance of difficut* faced b* genuine
merchant5e0porters who bought goods from traders or unregistered sma
manufacturers or unorgani9ed sector, CBEC came out with a Circuar dated ",5#,5
"##. noting there that e0porters without supporting manufacturers cannot gi'e such
certificates as the* bought goods from traders% The Circuar aso noted that most of
garments were being manufactured b* pett* manufacturers or cottage industries in
the arge* unorgani9ed sectors and therefore higher or fu rate of drawback coud
not be denied b* insisting on Cen'at ;on52'aiment /ecaration% 2s it has happens
the Board came out with a Csoution7% The Board, therefore, accepted the 'iew of the
Committee constituted b* the Go'ernment to formuate 2 +ndustr* 8ate of /ut*
/rawback for the *ear "##)5#. that Dmerchant e0porters who source their e0port
goods from the market shoud be gi'en higher rate of drawback without an*
decarations as the* ha'e to purchase the products from the manufacturer after
e0cise cearance i%e% after pa*ment of e0cise dut* and therefore as far as merchant
e0porters are concerned, the fu drawback rate has to be made a'aiabe to him for
neutrai9ation of e0cise dut* paid when cearing the goods from the manufacturer7s
premises E%
Considering the abo'e recommendation, the Board, inter aia noted that goods
a'aiabe in the market are deemed to be dut* paid goods and hence the* bear an
eement of centra e0cise dut*, which needs to be reimbursed, if such goods are
e0portedF that idea* the termina centra e0cise dut* paid at the time of cearance
from factor* shoud be refundedF that that is not possibe in case of e0port of goods
purchased from the market as the trader e0porter doesn7t ha'e dut* pa*ing
documents that the ne0t best option is to grant 2 +ndustr* 8ate ?2+8A of dut*
drawback as 2+8 drawback represents a'erage incidence of ta0es suffered b* inputs
used in the e0port product that granting this rate on the condition that the e0porter
woud furnish Cen'at non a'aiment decaration ma* not be proper as such goods
ma* ha'e changed se'era hands before e0ports and the fina e0porter ma* not be
aware of the actua manufacturer and whether Cen'at credit was a'aied on such
goodsF that goods a'aiabe in the market are deemed to be dut* paidF that e'en if it
is assumed that such goods had a'aied Cen'at, then such Cen'at woud ha'e been
used to pa* the dut* on fina products ceared for home market Fthat the Cen'at
a'aied has therefore been Cgi'en back7 to the Go'ernment when such goods were
ceared for oca marketF that the on* possibiit* of doube benefit woud arise on*
when the e0porter is abe to take the drawback of the centra e0cise portion and aso
the rebate of termina e0cise dut* paid on goods at the time of their cearance to the
oca marketF that such rebate is present* not possibe in terms of ;o%!.:#=5 CE
?;TA and "#:#=5CE ?;TA as the rebate is granted on* if goods are e0ported direct*
from the factor*: warehouse and not from the market and that as an abundant
precaution, the merchant e0porters sourcing their goods from the market and
caiming centra e0cise portion of dut* drawback ma* be asked to specifica* decare,
at the time of e0port, that no rebate ?both input rebate and fina product rebateA
sha be taken against the e0ports made against these shipping bisF that the Custom
6ouses sha get the 'eracit* of such decarations 'erified at random and reco'er
e0cess drawback in case the 'erification re'eas that the decaration fied b* the
e0porter was fase or doube benefit has been a'aied of%
Coming to the present case, the ingenious merchant5e0porter fies a decaration with
Custom 6ouse that that he has not availed any Cenvat credit on the duty paid
finished goods ?which apparent* is true since being a merchant5e0porter he
coudn7t ha'e a'aied Cen'at credit and that too finished goodsA which is enough to
pass the re-uirement in terms of instructions contained in Board7s Circuar referred
abo'e and which wi enabe him to get the drawback without an* hindrance%
6owe'er, the decaration that shoud ha'e been actua* fied b* the merchant5
e0porter so as to fufi conditions stipuated under ;otification ;o !#4:"##)5Cus is
that no Cenvat credit had been availed on the inputs used in the
manufacture of finished goods exported% E'en though the Board7s Circuar
mentioned supra re-uires the merchant5e0porter to gi'e detais of the trader from
whom the e0port goods were purchased, it is sedom noticed b* Customs as at man*
ports the authorities themse'es are unaware of the Board7s instructions and wi
readi* accord green signa if the merchant5e0porter gi'es a certificate that he has
not availed any Cenvat credit on the duty paid finished goods as against a
certificate that no Cen'at credit has been a'aied in inputs consumed b* the
manufacturer of the goods in -uestion% The seeming* innocuous decaration b* the
merchant5e0porter is enough to hoodwink the Customs 6ouse authorities and the
e0porter succeeds in getting the drawback without an* more hasses% +n an* case,
when the Board Circuar itsef re-uires random 'erification of the decarations, the
Custom 6ouse authorities cannot be e0pected to cause discreet en-uir* in respect of
each and e'er* caim of drawback% +n other words, the Board7s Circuar which is
actua* meant to gi'e reief to honest e0porters who source e0port goods from open
market is used to ad'antage b* the merchant5e0porter who, by deliberate
wording in the declaration, gets drawback at full rates on the export goods
even as he sources exports goods from a manufacturer who has availed
Cenvat credit on the inputs. 2s stated abo'e athough the Board7s Circuar enjoins
the e0porter to furnish detais of the trader from who has purchased the e0port
goods, Customs officias at the gatewa* ports sedom scrutini9e such detais and if
the e0porter mentions the name of the suppier5manufacturer as a trader it can
easi* pass the scrutin* b* Customs%
The damage caused to the re'enue is twofod% First, the manufacturer takes fu
ad'antage of the Cen'at credit% 6ad the said manufacturer e0ported goods under
caim of rebate, either on his own or through the merchant5e0porter, he or the
merchant5e0porter woud ha'e at best got back the dut* paid on the fina products or
inputs% Second*, drawback woud not ha'e been a'aiabe to the merchant5e0porter
if he had procured the e0port goods from a manufacturer who had a'aied Cen'at
credit on the inputs% 2t best, the merchant5e0porter woud ha'e got compensation in
the form of rebate and in which the Cen'at credit a'aied b* the manufacturer woud
ha'e been utii9ed for pa*ment of dut*% +n the present scenario the Cen'at credit
remains intact with the manufacturer, which he can utii9e for host of purposes as the
fina products meant for e0port are ceared without pa*ment of dut*% The
merchant-exporter stands to gain full' drawback as against partial
drawback on the export goods on the strength of a false declaration that he
has not availed Cenvat credit on the export goods.
+t is we5known that /ut* /rawback scheme intends to pro'ide input stage incenti'e
to e0porters b* enabing the e0porter to Cdrawback7 duties paid on inputs used in the
manufacture of finished goods on the condition that no Cen'at credit is a'aied on
the inputs% 2ternati'e*, a manufacturer5e0porter or merchant5e0porter can awa*s
get rebate as per Centra E0cise 8ues, "##" if Cen'at credit is a'aied on inputs used
in the manufacture of e0port goods in which case drawback woud be non5
permissibe% +n the present case b* sheer semantic jugger* a combination
manufacturer and merchant5e0porter succeeds in not on* retaining the Cen'at credit
a'aied in inputs but aso getting fu drawback% +sn7t there need for CBEC to come
out with further mechanism to dea with such fraudsG

GST roll-out. FM floats 6Fusion Theory6 for dual rates7 succeeds in roping in purchase
ta8
T!" - 9!B:&%B; - 1<=
*+", --) -010
By Shailendra >u3ar) %ditor
T(% GST5cara'an took a ong stride forward *esterda* when the Centre, the major
partner in the on5going muti5atera taks, for the first time propounded the 6Theory
of Fusion6 for dua GST rates for the dua GST regime% +n his address to the
members of the Empowered Committee of State Finance Ministers, the Union Finance
Minister, Mr Pranab Mukherjee, who has turned man* 7poitica stones7 in his fa'our in
the recent weeks, roed out the hitherto e0cessi'e*5specuated range of GST rates
for the proposed s*stem% Mr Mukherjee admitted that athough the fu potentia of
the proposed s*stem can be reaised on* if +ndia goes for a singe rate structure with
the merger of the rates for goods and ser'ices but gi'en the geopoitica fisca and
federa reaities, the GST ro5out needs a phased approach for painess transition% 6e
said that the Centre is agreeabe to the dua rate structure for the goods, in the
inception%
For 2pri !, "#!!, he proposed ($ as the ower rate essentia* for essentia goods
and !#$ as standard rate for the arge chunk of goods% For the Ser'ices, he
ad'ocated the mean rate of )$% 6e aso urged the States to adopt the same rates so
that the fina dut* iabiit* coud range between !"5"#$% Gi'en the fact that a
e0emption notifications cannot be consigned to fames right in the beginning, the
effecti'e dut* rate woud be about !,$%
;ot missing the sight of the 6Theory of Fusion6, Mr Mukherjee further suggested
that depending on the buo*anc* inde0 of re'enue coections in the first *ear, the
peak rate of !#$ ma* be reduced to .$ in the second *ear, and )$ in the third
*ear% Since the third *ear is proposed to see the actua e'ent of fusion, the ower rate
of ($ woud jump to )$ to merge with the ser'ice ta0 rate of )$ and reduced rate
of )$ for the goods%
;ow the -uestion is 5 3hat if there is no e*e5peasing buo*anc* in the re'enue
coections in the first two *ears% Mr Mukherjee has committed himsef to fu
compensation to a those States which ma* suffer bouts of fisca spasms% +n other
words, the FM has worded his commitment in such a fashion that if need be, the
Finance Commission7s recommendations coud be o'erooked to pro'ide more funds
for compensation% +n fact, to gi'e a taste of the sweet5pi promised *esterda*, the
Finance Minister announced that the Centre has decided to clear the outstanding
pay3ents for revenue loss incurred on account of the 9ST reduction? 6e aso
indicated that the Centre has been waiting for the EC7s formua to work out the
pa*ment for the current fisca%
;otwithstanding the ta promises of the Union Finance Minister, the States7
skepticism did not ebb much, and the* insisted on retaining the 9ST /y lending
it a ne$ na3e for at least first t$o years% This is certain* not a 'er* good news
for the industr* and trade% +n fact, what shows the a'ersion of the Centre to this
proposa is the fact that Mr Mukherjee undipomatica* e0pressed his dispeasure to
the State eaders insisting on retaining the 9ST in so3e disguised for3 $ith a
vague no3enclature?
2n*wa*, on the e0emption threshod front, Mr Mukherjee made it cear that 8s !#
akh shoud be the threshod for both the Centre and the States for both the goods
and ser'ices% 6owe'er, the EC highighted the pight of the ;orth5Eastern States
which fear that such a high threshod woud wipe off their entire ta0base% Therefore,
their suggestion is that the threshod shoud be 8s , akh% ;ow, the FM has take a
ca on this issue and work out a specia compensation package for the se'en sister5
states%
For the Compounding scheme, the threshod coud be an*thing between 8s ,# akh
and 8s one crore for sma business entities% The Centre aso minced no words b*
making it cear that it woud aign its e0emption notifications with the number of 12T
e0emptions retained b* the States% There is no -uestion of an* mismatch in this
respect%
Mr Mukherjee deser'ing* ooked 'er* peased to announce that the State of Punjab
has agreed to the proposa for the GST to subsume the Purchase Ta0% There $ould
/e hundred percent co3pensation for the sa3e /ut only for foodgrains?
Since he has managed to thaw the ice in the case of Punjab, the other States e'*ing
purchase ta0 are aso ike* to join the bandwagon%
&n the +T infrastructure front, Mr ;andan ;iekani7s presentation was simp* spe5
binding% Those who were inside the cosed5door presentation, confided in T+&> that
Mr ;iekani7s +T roadmap was apped up b* the States, and Mr 2sim /asgupta
-uick* accepted the Centre7s proposa to set up an %3po$ered Group to take 'ita
decisions to impement the same% Mr ;iekani basica* proposed the s*stem of
9!MM!# 2!5T4" which woud be known as 7GST ;etwork7 ?GST;A% 3ho woud
own thisG 2 specia purpose 'ehice ?SP1A woud be foated to own this porta% The
three stake5hoders woud be the Centre, the States and the Technoog* partner% The
Empowered Group woud seect one of the two ;ationa +nformation Units 5 the ;S/>
and the Pa*ment Settement Corporation for working on the project% This GST; wi
pro'ide dedicated interface to the ta0pa*ers, the Centre and the States%
3hie discussing and thrashing out major differences, the Centre has aso handed
o'er the fina draft of Constitutiona amendment to the EC% The EC is now schedued
to meet again on 2ugust =, and woud gi'e its recommendations if it sees an* need
for further fine5tuning% &nce it is done, the Centre is going to tabe it in the
Pariament during the Monsoon Session itsef%
&n the administrati'e front, the CBEC has been recei'ing inputs from 'arious CCs7
9ones on the proposed structura changes in the shape and si9e of the fied
formations% Gi'en the massi'e jump in the assessee5base to o'er ,# akh, the CBEC
is ike* to go for at east ",# Commissionerates to hande the impementation% Since
the focus is going to be on 2udit, there woud be at east @0-A0 64udit
9o33issionerate6% For anti5e'asion, about -- ne$ 9o33issionerates woud be
re-uired% 2nd about !(# new GST Commissionerates woud be in pace as GST
Commissionerates% For additiona manpower, the cadre re'iew is aread* on, and a
-uick detaied pan appro'ed b* the Centre woud hep the CBEC restructure its fied
formations on priorit*%
+f 2pri !, "#!! is the deadine, the draft aw aong with the GST procedures are
re-uired to be in pace at east four months in ad'ance% E'en the Common Porta
needs to be in pace in ad'ance% The on* sa'ing grace is that a these miestones
ha'e been identified so that hardship coud be a'oided for the ta0pa*ers% B* a
standards, +ndia now stands at a critica stage of transition into a much5reformed
new indirect ta0 regime, but are our trade and industr* read* for the sameG &n* the
time wi ha'e an answer to this -uestionH

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