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Model GST Law grants GST officers “Ghostly” powers

The draft GST Law has been shared by government in June 2016 for public views. There are high hopes that GST Law will help simplifying the law, evade duplications of taxes, lesser compliances, would help increasing country’s GDP and so on.

However, the draconian provisions are lesser known.

Section 21(2) of Model GST Act reads as under:

“(2) The proper officer may, in the manner as may be prescribed, cancel the registration of taxable person from such date, including any anterior date, as he may deem fit, where, –
(a) the registered taxable person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 8 has not furnished returns for three consecutive tax periods; or
(c) any taxable person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 19 has not commenced business within six months from the date of registration.”

What it interprets, the proposed GST Act, empowers the GST officers to cancel your GST registration upon any non-compliance of law or rules. Though you will be served a notice before your registration cancellation and a reasonable opportunity of being heard, but severity of non compliance leading to cancellation isn’t defined. Any sort of non-compliance may lead to the cancellation of registration under the Act.

Let us analyse, what does registration cancellation means and what are its effects.

To do any fair business in country, one would be required to have the GST registration. The threshold under the law is proposed as INR 10 lacs per annum. This has been significantly dropped from current VAT threshold of Rs 20 lacs (in many states) and Rs 1.50 crore of threshold of excise registration for small scale industry benefit for manufactures. In GST regime any dealer has to deposit taxes on his value addition only and he can claim credit of tax paid to vendor.

Thus, if any business buys any goods or avail any services from any dealer whose registration has been cancelled, he cannot take any credit of input tax and the goods are supposed to costlier by at least 20%. This consequently renders the dealer as untouchable in market.

Further, if a businessman is above the threshold specified, he has to be a registered dealer as per the GST Law. Thus, to stay in business or to avoid further penalties, one has to get his registration restored. Generally, if the tax officers don’t understand your plea, one takes course of court to contend his agreement. But if your business has been put to halt, will one go to court to contend the case or pay the tax amount to save the precious business days. Though the proposed law doesn’t stop you to go to judiciary theoretically, but if your business has been put to halt, one would prefer to give the tax ransom rather than contending the penalties levied.

The Model Act also poses liability on the buyer to discharge tax in case of default by seller. This would mean that any fine morning a buyer may come to know that seller was/has been blacklisted and he now may require paying more taxes. The impact of after effects of black listing a dealer would have very high magnitude.
With this law, the tax officers may blacklist you for any meagre or severe default. If someone has contravened the law, take penal action against him, impose monetary penalties, take him to prison, but rendering him blacklisted would not help any cause. Bringing the business to halt for mere tax reasons would never help economy.

The day is not far wherein while drafting “Force Majeure” clause in any contract or agreement, one will also add on “any act of GST officers” along with “act of Gods such as earthquake, hurricane, tornado, flooding, or volcanic eruption”

There is no guarantee that such a big power in the hands of GST officers will not be misused. With such power the stature of officers would not be lesser than God for businessman. Our country has already have lot of examples wherein global players have exited out of country due to tax litigations or extortions. We are witnessing the era, wherein many global players are avoiding testing waters of our country due to ambiguity in tax enforcements and the local Indian players are preferring setting up business outside India. Enforcing GST law with such arbitrary powers with administrators will add on to this bad business scenario.

Saurabh Gupta CASaurabh Gupta is a practicing Chartered Accountant having qualified post qualification course in “Master in Business Finance” from ICAI. He has over 14 years of experience in finance and accounts domain. He specializes in strategic planning and implementation, financial control, fund raising, transfer pricing audits, tax planning & statutory compliances. He is having versatile corporate experience in retail sector and has worked in financial controller role with DLF Brands prior to joining practice.

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