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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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Publish Date: 10 Oct, 2015
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BATTLE ON GST : STATES V/S CENTRE

BATTLE ON GST : STATES V/S CENTRE  

 

An article by:-
CA. Pradeep Jain
CA. Preeti Parihar
Neelam Jain

 
INTRODUCTION:-
Goods and Services Tax (GST), the 122nd Constitutional Amendment Bill, 2014 tabled by Finance Minister Arun Jaitley has already passed in the Lok Sabha. However, due to conflicts between the States and Centre and the reason that the Centre is not having majority in Rajya Sabha; GST bill is lying on the tables of Rajya Sabha since past few months, awaiting the clearance therefrom. What are the reasons of conflicts between the States and Centre? What steps are taken by the Centre to make the States affirmative to GST implementation? Why the states are taking so much time to give green signals to GST bill? This article is an attempt to find answers to some of these questions.
 
TAXING POWERS OF CENTRE & STATES – PRESENT STATUS:-
Under present scenario, Centre is empowered to levy and collect following Indirect taxes:-
·        Central Excise Duty – On manufacture of goods
·        Customs Duty – On import of goods from abroad
·        Service tax – On provision of services
Indirect Taxes levied and collected by States are as follows:-
·        Value Added Tax (VAT) – On sale of goods
·        Central Sales Tax (CST) – On interstate sale of goods
·        State Excise – On manufacture of alcohol
Besides these taxes, State government is also empowered to levy other indirect taxes like Entry tax, Entertainment tax, Luxury tax, Electricity tax, stamp duty, etc which are normally entrusted to local bodies prevailing in the states.
 
TAXING POWERS OF CENTRE & STATES – AFTER IMPLEMENTATION OF GST:-
In the GST bill, the constitutional amendment has been proposed to empower the Centre and States simultaneously to levy and collect indirect taxes on the entire chain from the stage of manufacture till the sale to ultimate consumer of goods/services. Thus, after implementation of GST:-
·        In the GST bill, dual GST has been proposed. Therefore, both Centre and states will be able to levy and collect GST simultaneously on the same set of transaction from the stage of manufacture till consumption.
·        The taxable event will no longer be manufacture or sale of goods; rather it will be supply of goods/ services against a consideration.
·        States will also receive revenue from transactions related to provision of services. Presently, states are not empowered to collect any amount in respect of provision of services.
·        Centre will also receive revenue from supply of goods post manufacture. Presently, Centre is not empowered to collect any tax on any post manufacture activity.
·        Taxes levied by local bodies like Purchase tax, entertainment tax, octroi, luxury tax, etc. will not be subsumed in GST, thus, these will continue to be collected by local bodies working under direct control of respective States.
·        GST on petroleum crude and products will be levied on some future date as decided by GST Council. Till then, VAT will continue to be levied by States on sale of petroleum and products. 
·        1% additional levy proposed in the GST bill will be collected by the Centre and will be distributed in the State in which the supply originates.
 
 
FEAR OF STATES:-
As each thing has its own pros and cons the GST also brings with it many consequences which makes its implementation a tough challenge for Modi Sarkar and the GST proposal is presently receiving severe opposition from some states even those ruled by the BJP government because of their very reasons. Here the important thing to consider is that Why the states are so worried about the upcoming GST? Some of the fears of States are:-
·        States predict that there will be huge loss of revenue due to implementation of GST as those taxes which are their major source of revenue would get subsumed in GST. It is feared that the development of states will have adverse affect due to scarcity of funds.
·        The revenue neutral rate (RNR), i.e. the rate at which neither any gain nor loss will occur to states initially; is yet to be decided and may be another reason of dispute between the Centre and States.
·        Central Sales tax (CST) which is levied on interstate trade @ 2% is a major source of revenue of States. In the GST Regime, CST is to be replaced by 1% additional levy which will be levied for initial two years of implementation of GST. This period can be increased if the GST council decides. There is direct loss due to decrease in rate by 1% besides other projected losses. Tamil Nadu, for example, estimates its losses from scrapping CST as Rs. 3,500 crore annually.
·        The GST bill proposes that there will be dual GST structure where the Centre and the States will administer independently the CGST and SGST, respectively. Since the same set of transactions will be subject to control by both authorities, it is feared by States that the Centre will be the dominating authority.
 
NO SUCH HUGE LOSS TO STATES - CENTRE’S VERDICT:-
On the one hand, States are worried and opposing GST on the grounds that it will take them to the ocean of huge Revenue losses; on the other hand, the Centre says there will not be such a huge loss. The reasons stated by Centre for this verdict are summed as follows:-
·        The proposed GST rate is also roaming between 18-22% which will generate more revenue to both Centre as well as the States.
·        The scope of GST will be much wider than the existing tax structure. Thus, number of assessees in GST regime will be much more than registered at present. More the no. of assessees, more the tax collection.
·        The loss suffered due to scrapping of VAT will be compensated mainly by the income derived from provision of services in the GST regime.
·        Loss suffered by subsuming the CST will be fulfilled to some extent by 1% additional levy.
·        The taxes like purchase tax, octroi, entertainment tax, etc. will not be subsumed in GST. Thus, there will be direct income from these taxes collected by local bodies which report to the States.
·        The petroleum crude and petroleum products have been kept away from GST initially and will be brought under purview of GST in some future date as decided by GST council. Till then, the States will continue to charge VAT on the same.
 
COMPENSATION OF LOSSES FOR 5 YEARS – A STEP TO SEEK ‘YES’ OF STATES:-
It has been assured by Finance Minister that States will not suffer much loss due to implementation of GST. The reasons for this assurance have already been discussed in the forgoing para. However, if there is any loss anyhow, the Centre has promised to compensate the same for first five years. The compensation will be as follows:-
For first 3 years – 100%
In fourth year – 75%
In fifth year – 50%.
This assurance is said to be the most important step taken to make the States agree for implementation of GST. However, it is expected by Centre that all states may not require compensation for five years; particularly the Consuming states; which will enjoy the revenue increase with the implementation of GST.

While parting:-
Introduction of GST have the drastic impact on the present taxation system of our country as it subsumes most of the Indirect Taxes. However, the States are not able to accept the change so easily. The provision of compensation for five years may make them affirmative towards GST. But at the same time, effective measures are required to be taken so that this provision may not be misused by the States. However, at present, what the Centre wants is only one “Yes” from the States. Once the GST bill is passed, it is hoped that all the demerits associated to it will be coped by effective drafting of the GST Act and its implementation.  
 

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