Efficient administration: GST Appellate Tribunal needs close monitoring

The launch of the GST Appellate Tribunal marks a key reform in India's tax system, but its success will hinge on capacity, efficiency, and fair handling of disputes

The goods and services tax (GST) architecture has been significantly improved in recent weeks. First came the simplification of tax rates. GST has moved mainly to a two-rate structure, along with a higher rate for select sin goods. The move has considerably simplified the tax structure. The second big improvement came on Wednesday with the launch of the GST Appellate Tribunal (GSTAT) by Union Finance Minister Nirmala Sitharaman. This was a big missing piece in the overall GST construct. The body was envisioned in law, but its establishment was delayed owing to legal challenges. As a result, it will start with an initial load of 480,000 appeals. 

The Principal Bench of the tribunal will be in New Delhi and will act as the National Appellate Authority for Advance Ruling from next financial year, which will help improve clarity in tax administration. The tribunal will have 31 state Benches, each comprising two judicial members and one technical member from both the Centre and the state. The initial composition of the state Benches, which envisaged having one judicial member, was challenged. The law provides for a three-tier appeal structure in GST: First, the Appellate Authority; then the Appellate Tribunal; and finally, high courts and the Supreme Court. Now with the launch of the Appellate Tribunal, the administration of GST should get streamlined. 

As the tribunal has been established and will start addressing appeals, there are certain  capacity-related issues  that need careful monitoring. It will be important that Benches have adequate infrastructure and human resources. There is a significant backlog of cases that need to be disposed of at the earliest. Capacity constraints at the tribunal may lead to similar conditions faced by the broader judicial system. It is worth pointing out that even well-intended laws can lead to suboptimal outcomes if institutions involved in their administration are not adequately provided for. The outcomes under the Insolvency and Bankruptcy Code are a case in point. Inordinate delays, partly because of capacity constraints, are affecting outcomes. It must be understood that in commercial matters, delays in the settlement of disputes can substantially increase the cost of doing business. Capacity constraints often also affect the quality of judgments, which end up clogging the higher judiciary. 

It is also important for the tax authorities to be more careful in proceeding against businesses. Excessive tax demands often lead to litigation in both direct and indirect taxes, which must be avoided. It is no one’s case that tax evaders should not be brought to book, but it must also be ensured that genuine and honest businesses are not harassed. Further, while a reduction in the number of GST slabs will itself simplify the indirect tax structure, processes need to be further simplified. Simple processes will themselves reduce disputes and litigation. Nevertheless, despite the delay, the establishment of the tribunal should improve the functioning of the GST system. As pending appeals are addressed, they would also provide clarity to stakeholders and potentially reduce future litigation. Nonetheless, the progress under the GSTAT will need to be closely monitored in the near term.