Opinion: Clarity on GST is Keenly Awaited

(Abhishek Jain is a tax partner at EY)

The expectations of the businesses from the new government continue to be high and the upcoming Union Budget is anticipated as the "first real Budget" of the NDA government.

The Budget is being closely watched by all stakeholders as more clarity is expected on various major initiatives like 'Goods and Service tax (GST)', 'Make in India' plan, Digital India', 'Skill India program', and so on.

It goes without saying that, in the upcoming Budget, the center of attention would be the government's announcement regarding 'GST'. In the recent months, we have seen more states warming up towards GST, the Constitution Amendment Bill being introduced and GST in 2016 is starting to look like a reality. However, having said the above, some critical issues such as GST rate still escape consensus. Thus, while there have been some positive developments in this area, a lot of work is still required. Nonetheless, we expect some more clarity and certainty regarding GST in the upcoming Budget.

While GST is likely to hog the limelight in the coming Budget, there are other critical areas in indirect tax where the Budget is likely to bring in more clarity/ give relief to the businesses.

Inverted duty structure has been a major issue for manufacturing sectors in India. Several representations have been filed by various industries and industrial chambers in this regard. Existence of inverted duty structure is largely on account of Special Additional Duty of Customs ('SAD') culminating in unutilized credit sitting in books.

Some duty rates were revised in the interim Budget to remove this anomaly; we believe that the Finance Minister could make further announcements for removal/ rationalize the existence of inverted duty structure.

As a policy reform, the government could bring down SAD from 4 per cent to 2 per cent to bring it in line with the existing CST rate to boost manufacturing in line with the 'Make in India' campaign and also to make the sector more cost competitive.

Other important grudge of the industry has been the restrictive Cenvat credit regime, especially after 2001, wherein Cenvat credit in respect of civil structures, business related expenses and personnel related expenses are not allowed. Industry is eagerly waiting for a more liberal credit regime specially as a precursor to the introduction of GST in 2016

Other than the aforesaid issues, another pain point for most MNCs operating in India is the Special Valuation Branch (SVB) under customs. Several representations have also been filed highlighting the substantial time (over 1 year) taken in obtaining the SVB order. The delays in obtaining SVB order results in substantial hardship for the industry as 1 per cent additional duty is levied on imports from related parties and the assessments are kept provisional pending receipt of final SVB order. We expect some changes in the current setup to make the process more accountable and streamlined to avoid delays and consequent hardship to the industry.

Introduction of interest rates as high as 30 per cent on delayed deposit of service tax came as a severe blow to the industry. Accordingly, there might be some relaxation in the upcoming Budget with respect to the interest rates under the service tax law.

Separately, the limitation of 6 months introduced for availment of Cenvat credit again has caused much hue and cry and causing a lot of difficulty at the ground level. The recent Circular clarifying that the limitation is only on availment of Cenvat for the 1st time, comes as some relief but does not completely resolve all the issues. Thus, we believe that the time limit of 6 months might be increased to 1 year in the upcoming Budget.

Though there are large expectations from this Budget, but not all anomalies/ expectations of the industry are likely to be resolved. It is believed that the anomalies can only be resolved post the introduction of the GST regime. Thus, introduction of GST would go a long way in removing anomalies in the current Indirect tax framework.

(Saurabh Agarwal, senior tax professional, EY contributed to the article)

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