GST is one of the biggest tax reforms and had its own set of issues during its implementation. Under GST, disputes often arise between taxpayers and officials regarding the difference in taxes paid as per the regulations and the calculation of tax liability.
The purpose of introducing GST was to create a common national market for goods and services in order to rationalize India’s indirect tax system. “Ease of doing business,” economic development, and price rationalization were the foundation of this “one nation-one tax” initiative. The success and effectiveness of tax reforms largely depend on a robust dispute resolution system, which provides expertise in resolving disputes while minimizing litigation costs.
Disputes can arise under GST due to differences in payment of taxes as determined by regulations and the calculation of tax liability by authorities. Such tax disputes can arise due to various reasons during evaluation, audit, and/or examination of records/accounts, such as tax rate, claiming tax exemption, claiming input tax credit, incorrect determination of the place of supply, nature of supplies (composite or mixed supply), classification of goods and services, etc. The spread of tax disputes and the need to simplify tax administration signal the opposite of the initial experience under GST.
Authorities and taxpayers often find themselves in conflicting situations, where disputes indicate underlying issues related to past actions. Disputes arise from differences in interpretation of the law, dissatisfaction with administrative processes, and revenue-focused perspectives of tax officials. It is inevitable that a suitable system, including policy interventions, be implemented to prevent such occurrences and mitigate the situation. Some possible solutions are listed below.
One-time GST amnesty scheme
There is a demand for a one-time GST amnesty scheme to assist genuine taxpayers who may have made inadvertent errors during the initial stages of GST implementation, which was one of its biggest tax reforms. In the early years, taxpayers and officials struggled to grasp the complexities of the law, streamline internal systems, and train staff, resulting in several inadvertent errors. These are now subject to departmental audits/investigations, leading to demands for taxes, interest, and penalties.
It appears that the government is considering a GST dispute resolution scheme to provide businesses with a single opportunity to settle tax matters. It is understood that the proposed scheme will not cover deliberate tax evasion and those against whom investigative agencies have initiated inquiries. It is hoped that the proposed scheme will follow the Center’s 2019 ‘Sabka Vishwas Yojana’ (everyone’s trust scheme), which aimed to resolve all old disputes related to previous service tax and central excise duties.
GST appellate tribunal
Even after five years of GST implementation, the Goods and Services Tax Appellate Tribunal (GSTAT) is yet to be functional. In the absence of GSTAT, taxpayers are forced to knock on the doors of high courts, which further burdens an already overloaded judicial system and causes delays in delivering justice to taxpayers.
From the perspective of taxpayers, including those in entirely justifiable tax situations, they have no other option but to wait for a remedy. In addition, the burden of interest without constitutional tribunal is increasing, real refunds are delayed, pre-deposit of taxes is increasing cash flow challenges, and notices to explain disputes are being issued repeatedly. The immediate establishment of GST Appellate Tribunal and speedy resolution of disputes is a demand of the hour.
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Authority of advance ruling under GST
The revenue-centric approach of the AAR has hurt the confidence of taxpayers and decisions have been unfavorable even in cases where a proper interpretation is clear. It is time to restore confidence in the AAR to fulfill its progressive step’s objectives and goals.
The AAR or AAAR will only be binding on the applicant who has sought the advance ruling and on the concerned/ jurisdictional officer. However, different decisions in different states on the same issue have increased the litigation. The government and the GST Council should establish a central authority for AAR that can address issues related to ‘place of supply’ and resolve conflicting views of state-level AARs.
Alternative Dispute Resolution (ADR) is a channel for resolving disputes between taxpayers and the government without resorting to formal litigation. While ADR can be a form of preliminary decision-making, if the drawbacks of the AAR discussed above are addressed, it can go a long way in reducing improper litigation. Similarly, the start of a Settlement Commission is also aimed at expediting the collection of dues and allowing offenders a one-time option as an alternative.