The Goods and Services Tax council which will be appointed, will look for help from the Central Board of Excise and Customs, one which is not a house divided as is evident from the legal cell's battle with the rest of the crew
Even as States start circling the drain on the exact standard and Revenue Neutral Rate (RNR) for Goods and Service Tax (GST), there may well be a maelstrom brewing right under the nose of the policy mavens. For, as the States wail for higher compensation in lieu of the losses and manufacturing, they stand to benefit a rate much higher than 18 per cent, seems to be on the anvil. A fear of the unknown is obviously stalking all around. Scaremongering is not helping. For clearly, if the majority of the products are going to be cheaper, since they will be spared cascading taxes by being taxed only once at the factory gate they emanate from, services will undeniably be more expensive. As it is, with the Swachch Bharat cess and the Krishi Kalyan cess having kicked in, one is coughing 15 per cent for services effective this June. A standard goods and services tax rate of 18 per cent to 20 per cent that will be levied on most goods, except some essential ones that will be levied at a lower rate, and some ‘demerit goods’ or luxury goods, which will be levied at a higher late.
Revenue Neutral Rate or the rate at which tax revenues will remain the same (for Centre and States) is split between standard and low rate. The higher the needle moves on the standard rate, the more inflationary it gets. last year, a committee headed by Chief Economic Advisor Arvind Subramanian had recommended the standard GST rate at 17 per cent to 18 per cent and RNR was put at 15 per cent to 15.5 per cent.
“RNR in the 15 per cent to 15.5 per cent range with a lower rate of 12 per cent and a standard rate of 18 per cent would have no aggregate inflation impact,” the committee had said. “But a higher RNR with a lower rate of 12 per cent and a standard rate of 22 per cent would increase inflation by between 0.3 per cent to 0.7 per cent,” it added, warning that care needs to be taken to ensure that “GST does not become the target of popular disaffection on the grounds that it fed higher inflation”.
Former Union Finance Minister P Chidambaram, during a debate in the Rajya Sabha ahead of the voting on GST Bill scathingly said, “let me go on record that it is hugely inflationary and will lead to a backlash if you jack up the service tax rate from the current 14.5 per cent to around 23 per cent or 24 per cent.” In the interregnum between now and a proposed kick start of GST on April 1, 2017, the path is strewn with many complex riddles which will require deciphering. The road is long and arduous, but GST is a defining tax reform in India’s history for it has also shown a bipartisanship in a very hateful political environment. That it will pump prime revenues over time and create one India, one tax and one market is now irreversible.
So, even as the Central Board of Excise and Customs (CBEC) comes to terms with the new law and its waterfall impact on the tax structure across the land, it has an internecine war taking place internally where Ananya Ray, Member in CBEC (legal & IT) is fighting a pitched battle with Najib Shah, chairman of CBEC. The procedure prescribed for filing a Special leave Petition (SlP) is clearly delineated. Reference has to be made to the law Ministry and the Solicitor General and approval has to be taken from the Finance Minister before an SlP can be filed.
Officers have chosen to bypass all these niceties and are busy filing court cases against Tribunal and High Court orders, adding to the burden of pendency. In a major turf war, an infuriated Rajendra Kumar, Director (legal) in the Ministry of Finance, department of revenue, CBEC (legal cell) has dashed off a bold missive dated August 8 to members customs, central excise, budget, sales tax and legal & income tax with a copy to Chairman CBEC, Joint Secretary (tax research unit 1), Joint Secretary (TRU II), Joint Secretary review, Joint secretary customs, Joint secretary (drawback), Commissioner (central excise), Commissioner (customs & EP), Commissioner service tax, Commissioner R&I, pretty much the entire phalanx of bureaucrats who dominate this domain.
This note clearly throws into stark relief the power games that are taking place with regard to territorial transgressions — need for avoiding parallel decision being taken for filing SlPs in the Supreme Court against orders of the High Court. The sum and substance is clear that the legal cell of CBEC examines proposals from all angles received from the field formations for filing of SlPs/appeals in the Supreme Court against the orders of the High Court.
Existing rules laid down and followed in the past have seen comments from concerned policy wing/tax research unit being sought when situation warrants, before the file is forwarded to the Ministry of law and Justice for further action.
lately, however, emasculation of the legal cell is so severe that it has been reduced to a ‘post office.’ The strongly worded note then goes on to say that various policy sections of CBEC including TRU are taking suo moto decisions to file appeals/SlPs in the apex court after which the case is sent to the legal cell for mere filing, which makes it redundant. It then attempts to put its foot down by stating — moreover it may so happen that the legal cell may not agree with the views of the policy wing/TRU based on precedent decisions that ‘create a very piquant situation.’
Not only does the legal cell want this to be ‘avoided’, but in case it is felt that the order of the High Court needs to be appealed against, their comments should be sent to the legal cell, giving reasons for filing of SlP/appeal, which shall be taken forward by the legal cell for necessary action.
The protest is not just against unilateralism, but is based on the principles of fair play. In the rapidly evolving scenario going forward where States will be seeking redressal for disputes that will arise in the new fangled GST regime, mechanisms are obviously being devised for greater transparency. The GST council which will be appointed and have a vital role to play in this situation will obviously be looking for help from a properly functioning CBEC, one which is not a house divided as is evidenced from the legal cell’s battle with the rest of the crew. Remember, GST is an indirect tax reform and CBEC is the overarching body overseeing formulation of policy relating to levy and collection of indirect taxes namely customs duty, central excise duty and service tax.