Interim Budget 2024: Here’s why GST needs to be rationalised 

It has been more than six years since the introduction of GST and assessments have been completed in respect of the first year of GST, i.e. July 2017 to March 2018 and are currently ongoing for Financial Year 2018-19. A large number of notices have been issued to the businesses involving lakhs of crores on various legislative and procedural issues. While some of these notices involve issues of interpretation which may eventually get settled at Tribunals/ Courts, a significant part of these demands pertain to procedural or technical matters, such as mismatches in input tax credits, incorrect reporting of turnover and mismatches in monthly and annual returns with the audited reconciliation statements etc. Suitable directions may be issued to the adjudicating/ appellate authorities to adopt a lenient view in respect of procedural or technical lapses, given that most of these demands pertain to the first year of GST introduction, where the mechanism for online compliances was also not streamlined. Another positive step would be to expedite the operationalization of GST Appellate Tribunals to ensure that businesses have appropriate appellate remedies against such demands and Courts are not overburdened with these litigation.

Recently, amendments have been carried out in the GST laws to provide for a deeming valuation mechanism in respect of taxability of services in respect of online gaming and provision of corporate guarantees by holding or parent companies to the group companies. While these amendments have not been made effective from retrospective date, the GST authorities are taking a contrary view and issuing notices to businesses demanding tax in respect of such services for the past period as well. A suitable clarification may be issued to avoid such frivolous litigation.

Certain rationalization in the tax rates are required to take care of inverted duty structure in respect of some of the sectors, such as electric vehicles and parts thereof, restaurant services, real estate, construction services etc. The Government may also consider to provide the benefit of input tax credit to some of these sectors, which is currently not available. Further, the list of activities in respect of which the availability of input tax credit to businesses is restricted may be reviewed and credits may be allowed for certain expenses such as employee insurance, construction and expenses incurred towards fulfillment of corporate social responsibility etc.

It may also be considered to increase the turnover threshold for mandatory GST registrations, given the high rate of inflation and erosion in the value of money. Also, simplifications are required for the procedure in claiming export refunds and it may be considered to allow refund of input tax credits towards GST paid on procurement of capital goods used in export of goods and services.

Since this is only a ‘vote on account’ and not a full-blown budget which will be presented before Parliament only after the upcoming elections, it may not be possible for the Government to operationalize the measures relating to rate rationalization and availability of input tax credits at this stage. However, it may be the right opportunity to issue appropriate clarifications on some of the other issues mentioned above, which should go a long way in improving the business sentiments in the backdrop of robust GST collections and steady economic growth. 
Views are personal. The author is Partner, JSA Advocates and Solicitors