Central excise officials flag GST loopholes

Tax officials are seeking clarification on the definition of supply, valuation of taxable supply of goods and services, among others

Senior officials of the central excise department have prepared a report on major loopholes in the proposed goods and services tax (GST) Act as sought by the Union government to fine-tune and improve the law.

The report would be submitted to the ministry concerned in a week’s time.

“We have raised some key points and specific areas of concerns, which need to be looked into,” said a senior tax official of the central excise department.

In the draft report, tax officials have expressed apprehension on the definition of ‘supply’ — which presumably intends to cover almost all kind of transactions. “In the current draft, there is no clarity on such transactions and its administration, which could lead to dispute and litigation,” said the official.

According to him, Section 3 of the model GST law specifies the meaning and scope of term ‘supply’, which includes all forms of supply of goods and services such as sale, transfer, barter, exchange, licence, rental and lease. This means, anything an assessee changes — whether it is ownership or custody of any kind of goods and services — would attract GST.

Another troubling provision relates to ‘valuation’ of taxable supply of goods and services, which may again create room for confusion and disputes, said another tax official. Under the GST regime, specific additions have been made to the price charged. Such additions include value of goods/services supplied free or at concessional rates by the recipient to the supplier. For instance, if a doctor or a lawyer offers services free of cost or a company offers a “buy one-get one free” kind of scheme, it would be under the tax net.

If the values of these supplies are to be included in the taxable supplies by the service provider, an amount that is already taxed would once again attract taxation.  The report also highlighted the lacuna on the part of ‘input tax credit’, another important area which needs to be revisited, noted the official. The GST law provides for credit of GST paid on all the inputs, except on some items. The exceptions or ineligible credit criteria is quite subjective in nature. For example, services in relation to food/drink, outdoor catering and membership of clubs are restricted when used mainly for personal use of employees. There are concerns that if the loophole remains, it could lead to massive tax evasion. According to tax experts, the administration of GST has to be sorted out. And, if it is not resolved, it could dent ease of ease of doing business.

“It is giving dual responsibility to both the Centre and the states as far as adjudication and assessment are concerned. The GST Council was unable to reach a consensus on who would administer and who would assess the transactions as it is going to be dual control. Now, if each of the authorities comes up with its own assessment, then it is going to be a lot of harassment on the assessee,” said Prajakta Menezes, principal associate (indirect tax), Khaitan & Co.

WHAT THE REPORT SAYS ON GST

- 'Supply' of goods and services needs clarity

- Definition of 'supply' extremely wide and covers almost all kind of transactions, which may increase litigations

- Lacuna in the part of 'valuation' of supply of goods and services

- Addition of certain services or goods under the regime could create confusion and disputes

- Eligibility criteria for 'input tax credit' needs revision

- Exception under tax credit is subjective, could lead to tax evasion