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'GST Groups' Is it good to join hands?

JULY 14, 2010


B !rita" #ahur$, %&
& business group venturing in different business segments usually
forms different companies / legal entities. A real life example is India's
biggest business group which has approximately 97 companies
operating in diverse business interest such as software, tea, consumer
products, automobile, communication, infrastructure, insurance,
chemicals, housing, financial services, hotels, power etc. sually, in
such cases more than 9!" shareholding and effective control will rest
with the said business conglomerate.
#he existing $A# laws oblige each company to independently comply
with $A#/%ales tax compliances, payments and returns though it may
be owned by the same group. &ence, to ease the '%# related
compliances and also administrations of '%#, many countries have
introduced the concept of ('%# group' in their '%# regulations.
#he concept of ('%# 'roups' is li)e this. '%# *epartment, on
satisfaction of certain conditions, grants permission to closely held
companies to form a ( '%# group' and allows an (identified member' of
this ('%# group' to ta)e up the responsibility to comply with '%#
formalities. +urther, inter,group transactions are generally excluded
from the purview of '%#.
&'(&)T&G*S +, ,+-#I)G & GST G-+U!
+ollowing table depicts how the concept of ('%# 'roup' drastically
reduces the compliance levels. Assuming five closely held companies
come together and form a ('%# 'roup'-
&ppar$nt
.o"p/ian.$ und$r
GST
Ind$p$nd$nt
.o"p/ian.$s
%o"p/ian.$s 0or
1GST Group'
.onthly payment of
'%#
/! payments 012 months
3 4 companies5
12
.onthly return of
'%#
/! returns 012 months 3 4
companies5
12
Annual assessment 4 0Asst. 3 4 companies5 1
Annual audit 4 0Audit 3 4 companies5
Stat$s to r$dis.o2$r GST on Ju/ 213 )andan )i/$4ani to ta4$
Stat$s through 2oag$ o0 r$dis.o2$r5
B Shailendra 6u"ar, *ditor
T7* proposed '%# is by all standards a gigantic tas). 6hat ma)es it
more arduous is the presence of heterogeneous sta)e,holders. %tates
represented by the 7mpowered 8ommittee 0785 constitute the most
unwilling and reluctant lot. 9ut history seems to be luring them.
8oming 6ednesday is going to be perhaps the last chance for the
%tates to arrive at a consensus on some of the basic policy decisions if
April 1, 2!11 is to be the historic day for both the *#8 and the '%#.
#he 78 is meeting on :uly 21 in ;ew *elhi. #he three basic issues
which the 78 cannot sidestep this time are the exemption threshold,
number of goods and taxes to be )ept outside the purview of '%# 0the
negative list5 and the retention of the common exemption
notifications. 8entre has already made up its mind for <s 1! la)h
exemption threshold , same is the %tate. #he 78 has to simply express
its agreement to it. .ost of the items which would fall under the head
of exempted goods are almost )nown , petrol, diesel, alcohol etc.
%tates have to simply endorse the final list. +or pruning exemption
notifications, the 78 has to decide on 99 notifications under $A# and
=4/ exemption notifications of the 8entre. 6hat is crystal clear is that
there are not going to be goods or services which would be exempted
by the 8entre but would be taxed by the %tates li)e today's scenario
under $A# regime. If certain goods are to be exempted, they are to be
exempted under both the 8'%# and the %'%#.
Another important item on the 78's agenda is going to be the
8onstitutional Amendment. nless the 8onstitution is amended and
powers are given to both the 8entre and the %tates to tax the same
set of goods and services, the '%# Act cannot be tabled in the
>arliament or %tate Assemblies. It is learnt that the 8entre has done
its ?ob on its part. #he @aw .inister has approved the final draft, and
the +. has also put his seal of approval. #he three highlighting
features of this Amendment are believed to be a8 th$ po9$rs to :$
2$st$d in :oth th$ %$ntr$ and th$ Stat$s to /$2 GST a/ong 9ith
a n$gati2$ /ist o0 it$"s3 :8 th$ GST %oun.i/, and .8 th$
0or"ation o0 GST %o""ission ; Tri:una/ to sort out disput$s
r$/ating to d$2iant Stat$s<
#he Amendment is learnt to have proposed the constitution of '%#
8ouncil which will have the +inance .inister and the .o%0<5 as two
representative members for the 8entre and +inance .inisters of 2A
%tates. #he nion +inance .inister will be its 8hairman, and will also
have a vote. %ince %tates will have a structural ma?ority right from the
beginning, the veto power couched in +.'s vote will rest with the
8entre. &// d$.isions o0 this %oun.i/ 9i// "andatori/ :$
appro2$d : th$ t9o=third "ajorit and ''agr$$d to'' : th$
Union ,inan.$ #inist$r<
In case any %tate 'ovt deviates from the common '%# structure at
any stage of implementation of the new regime, one may go to the
'%# 8ommission / #ribunal for ?udicially binding decision. #he
8ommission will have three .embers , one from the ?udiciary and one
each from the 8entre and %tates. Its formation will be consented by
the 8hief :ustice of India. #he 8ommission will determine the Buantum
of penalty to be paid by the defaulting %tate or the 8entre.
#he 78 will have to approve the 8onstitutional Amendment at its
forthcoming conclave so that it could be tabled in >arliament during
the latter half of the .onsoon %ession. %tates could also
simultaneously see) approval of their own state assemblies. #rue, it
would be certainly referred to the @o) %abha %tanding 8ommittee
which will have a couple of months to ponder over the wordings, the
phrases and the expressions used in the amendment. #he %tanding
8ommittee will ensure that the proposed amendment does not dilute
the traces of a stronger 8entre as enshrined by our constitution,
ma)ers. Cnce it is approved, a bill will be tabled for approval of the
>arliament during 6inter %ession. ;etiDens may recall that unless this
amendment sails through the &ouse approval, the '%# 9ill cannot be
tabled either by the 8entre or the %tates. If everything goes through
smoothly, the '%# Acts, based on model legislations which are being
fine,tuned, may be tabled during the 9udget %ession and the Act may
be in its groove on April 1, 2!11. #he ma)ing of rules falls under the
delegated powers of the 'ovt, and they can be notified close to the
deadline.
#he most important and challenging dimension of the proposed regime
is the I# Infrastructure. nless a robust I# infrastructure is put in
place, there would be no '%#. It is learnt that the I# ?uggernaut, .r
;andan ;ile)ani, is ready with his detailed presentation for the %tates.
&e has given an impressive presentation to the nion +inance .inister
who has given his nod to his detailed configuration about a common
'%# portal. .r ;ile)ani is now scheduled to give a similar,type of
presentation to the 78 on :uly 21. 9roadly, his presentation is le
A Tax Administration For Dual GST - Why Not in Single Hand?
>
> JU! "#$ %&"&
>
> 'y Sudhir Hala(handi$ )A
>
> *N the Federal system o+ Go,ernan-e$ the National GST .as a ,ery
remote
> /ossi0ility .hi-h .as re1e-ted 0y the states immediately a+ter introdu-tion
> o+ the -on-e/t o+ Goods and ser,i-e tax in our -ountry i2e2 in %&&3 .hen
4r2
> 52 )hidam0aram$ the then Finan-e 4inister o+ *ndia introdu-ed GST in his
> 'udget S/ee-h2 et us see the +irst introdu-tion o+ GST in %&&3 0y the
> Finan-e 4inister 4r2 52 )hidam0aram6-
>
> 7*t is my sense that there is a large -onsensus that the -ountry should mo,e
> to.ards a National e,el Goods and Ser,i-e Tax 8GST9 that should 0e
shared
> 0et.een the )entre and the states2 * /ro/ose that .e set A/ril "$ %&"& as
> the date o+ introdu-ing GST2 World o,er$ Goods and Ser,i-es attra-t the
same
> rate o+ Tax2 This is the +oundation o+ GST2 5eo/le must get used to the
idea
> o+ a GST2 We must /rogressi,ely -on,erge the ser,i-e tax rate and )en,at
> rate2 * /ro/ose to ta(e one ste/ this year and in-rease the ser,i-e tax rate
> +rom "& /er -ent to "% /er -ent2 et me hasten to add that sin-e ser,i-e tax
> /aid -an 0e -redited against ser,i-e tax /aya0le or ex-ise duty /aya0le$ the
> net im/a-t .ill 0e ,ery small2:
>
> The statement .as sho-(ing +or the em/o.ered -ommittee o+ state
Finan-e
> 4inisters and soon therea+ter$ due to their o//osition to national GST$ it
> .as settled that 7Dual GST: -an only 0e introdu-ed in *ndia and no. a+ter
> release o+ Dis-ussion /a/er 0y ;) o+ the Finan-e 4inisters o+ states and
> also the re/ort o+ "< th Finan-e )ommission it is -lear the Goods and
> ser,i-e Tax .hene,er it .ill 0e introdu-ed in *ndia .ill 0e a Dual GST in
> .hi-h 0oth the -entre and the State .ill im/ose and -olle-t tax on the
same
> transa-tion2
>
> Still there are di++eren-es 0et.een the states and the -entre on the 0asi-s
> o+ the GST and ma1or di++eren-es are related to the rate o+ tax 0oth under
> SGST and )GST-dual or single rate- states are demanding lo.er rate +or
> essentials $ the threshold limit +or )GST = states are demanding "2>&
-rores
> 8e?ual to )entral ex-ise exem/tion imit9 0ut -entre is o+ the ,ie. that
> 0oth the threshold- under SGST and )GST should 0e maintained at @s2 "&
> a(hs$ the matter o+ the /ur-hase tax and last 0ut not the least the matter
> o+ -om/ensation +rom -entre to the states2 As +ar as the matter o+ Tax rate
> is -on-erned$ it is ,ery mu-h di++i-ult matter to 0e settled 0e-ause states
> are demanding dual rate o+ tax and they are right on their /art also 0e-ause
> i+ the essential goods li(e = Wheat$ ri-e$ iron and steel$ -otton$ yarn et-2
> are taxed .ith other material and goods then it .ill ,ery mu-h di++i-ult to
> 1usti+y the so-io = e-onomi- utility and ,ia0ility o+ GST2
>
> These /ro0lems are dis-ussed so many times and in e,ery meeting o+ the
> states .ith the -entre 0ut one more se,ere /ro0lem .hi-h has not 0een
> dis-ussed yet is related to 7administration o+ the Goods and Ser,i-e tax:
> and see at /resent the dealers registered under the State AAT A-t are too
> mu-h in num0er -om/ared to the num0er o+ dealers registered under the
> )entral ex-ise or ser,i-e tax and the ratio o+ di++eren-e is almost "6%&2
>
> No. .hen dual tax is 0eing im/osed and +urther i+ the -entre insists on
> threshold o+ @s2 "& a(hs instead o+ @s2 "2>& -rore on )GST then all the
> dealers registered under the State AAT A-t$ .ill re?uire their registration
> under the -entral Goods and ser,i-e tax also2 See the administration o+ the
> SGST .ill naturally 0e remained .ith the State AAT de/artment and that
o+
> )GST .ill remain .ith the )entral Goods and ser,i-e tax de/artment
.hi-h at
> /resent is (no.n as 7)entral ;x-ise and )ustom de/artment2
>
> See this .ill -reate t.o /ro0lems .hi-h .e are dis-ussion here2 Bne is
> related to the in+rastru-ture at )entral De/artment to administer this
> in-reased num0er o+ dealers 0e-ause the num0er is too mu-h2 Se-ond i+
the
> turno,er is the same on .hi-h 0oth SGST and )GST are re?uired to 0e
/aid on
> the agreed rates +or the 0oth and SGST .ill 0e the re,enue o+ the states
and
> the )GST .ill 0e the re,enue o+ the )entre then .hat is the need +or
dealers
> to re/ort the same turno,er to 0oth the de/artments and +a-e 0oth the
> de/artments +or assessment$ a//eals and re+unds ? This .ill 0e a great
> harassment to a large num0er o+ dealers s/e-ially the small and medium
siCe
> dealers2 2
>
> At /resent also$ a -ertain num0er o+ dealers are +a-ing 0oth the
de/artments
> sin-e manu+a-turers a+ter -ertain le,el are re?uired their registration
> under the -entral ex-ise also 0ut their num0er -om/ared to o,erall AAT
> dealers is ,ery small2
>
> No. .e -an /rodu-e a uni?ue idea to the la. ma(ers 0oth at the -entre
and o+
> the states and it is related to gi,ing the 7single handed administration: o+
> 0oth the GST to the AAT de/artment o+ the state Go,ernments2 See the
idea
> loo(s li(e ,ery sim/le 0ut it -an 0e made .or(a0le i+ the la. ma(ers are
> -on-erned .ith the .el+are o+ the tax/ayers2
>
> The turno,er is the same on .hi-h 0oth the SGST and )GST are re?uired
to 0e
> /aid and 0oth these taxes -an 0e /aid 0y the dealer +rom di++erent -hallan -
> Bne se/arately designed -hallan +or SGST and other one +or )GST
dire-tly
> going to the se/arate ex-he?uers2 The turno,er -an 0e re/orted in the
single
> return ha,ing di++erent -olumns +or SGST and )GST and the same -an 0e
> /resented to the state AAT de/artment2
>
> *+ there are -ertain ex-e/tions$ due to some exem/tions et-2$ o+ this ,ery
> sim/le +ormula that -an 0e handled .ith the ex-e/tional me-hanism and
.ith
> the su/er,ision o+ the -entral de/artment and +urther instead o+ assessing
> the same turno,er 0y 0oth de/artment$ these t.o de/artment -an .or(
.ith
> 0etter -oordination and that .ill naturally im/ro,e the ?uality o+
> -olle-tion o+ tax on the one hand and +urther gi,en a great relie+ to the
> honest tax/ayer -ommunity o+ the nation2 The -entral de/artment -an also
> .or( as a 7su/er,isor: to se-ure the /ro/er -olle-tion o+ their tax and also
> -oordinate .ith the state de/artment to im/ro,e the ?uality o+ -olle-tion o+
> tax instead o+ indulging itsel+ .ith the lot o+ /a/er .or( and large num0er
> o+ dealers2
>
> Here the su--ess o+ this idea and sim/le solution de/ends u/on the +a-t
that
> ho. the other /ro0lem and -ontro,ersies .ould 0e handled 0y the -entre
and
> the states .ith res/e-t to GST2
>

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