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Mint
15-07-2025
- Business
- Mint
Ajit Ranade: A progressive GST is easier to promise than achieve
This month, India's goods and services tax (GST) completed eight years. This is a milestone reform. It is a consumption tax that unifies the national economic market, getting rid of inter-state frictions and tax cascades, and is fully electronic with in-built incentives for compliance and prevention of leakage. In the five years since 2020-21, annual gross GST collections have more than doubled to ₹22 trillion. This growth has generally kept pace with that of India's nominal GDP, although its promise was of higher buoyancy. It still leaves out nearly half the economy—most notably fuels, energy and electricity—from its purview. Even among the items covered, it has too many exemptions. Perhaps that explains why its gross mop-up is still around 6.8% of GDP, although it is on a gradual upward trajectory. The number of registrations under GST rose from 0.65 million in 2017 to 15 million now. Also Read: Mint Quick Edit | India's GST peak is reassuring Even after eight years, one can't escape the feeling that GST is still a work-in-progress. Frequent changes in tax rates are unsettling and its multitude of tax slabs is a big problem. Its apex governance body, the GST Council, has met 55 times in the past eight years and has had to grapple with rate changes and item classifications on numerous occasions. A tax system should be stable and predictable, and hence such frequent tweaks are not healthy for this tax or the economy. Constant tinkering can lead to disputes in classification or interpretation, even problems of discretion and outright corruption. Legal cases are mounting. The GST Appellate Tribunal was given formal birth in 2024, but is yet to be constituted. This has led to a growing backlog of appeals, with taxpayers turning to high courts, overburdening the judiciary and disrupting the dispute resolution mechanism, a key feature of this tax. Also Read: Indian gig workers who offer mobility services deserve GST relief The major conceptual issue has been the progressivity of GST, which is an indirect tax. The tax paid does not depend on the payer's income, but only on the value of the good or service being sold. If we had a single GST rate for all goods and services, then it would be regressive. It would violate the requirement that a tax system has to be fair. The burden should be relatively higher on richer folks. Note the word 'relatively'; it means that as a fraction of their income, the rich are expected to bear a higher burden than the poor. But since the poor spend almost all their income on consumption, a consumption tax is regressive by itself. This is one of the main reasons that demands arise for exemptions and lower rates. Also Read: Simplify India's GST regime: The case for it is clear and it's time to act A recent paper by professor Sacchidananda Mukherjee of the National Institute of Public Finance and Policy (NIPFP) analyses the distributional impact of GST using the Household Consumption Expenditure Survey (HCES) of 2022-23. The survey had a sample of 261,746 households and covers 390 consumption items. His main finding is that GST is moderately progressive based on multiple indices. The tax burden in rural areas on the bottom half is only 31% and is the same on the next 30% of the households. The top 20% bear 37% of the GST burden. In urban areas, the burden shares are 29%, 30% and 41% respectively for the bottom 50%, mid 30% and top 20% of households. This progressivity is mainly because the lower fractiles, both in rural and urban areas, spend more on food that is either exempt or taxed at just 5%. Thus, raising the rates on these lightly taxed items would disproportionately hurt the poor. Even merging the 12% and 18% rate slabs, which seems in the offing, would affect the poor. Note that in this research, the progressivity of GST is assessed using consumption data and not income. Progressivity is achieved without using income targeting through differential GST rates on essential versus luxury goods and by spatial variations that catch the urban rich who consume more durables and services. Also Read: How India's GST revenues can sustain their incline India's share of indirect taxes in total taxes has drifted higher in recent years. This has raised concerns about the regressive nature of taxation overall. The NIPFP paper shows that GST is not regressive because of its design. It might be worth recalling the classic 1976 paper of Anthony Atkinson and Joseph Stiglitz on the design of a tax structure with both direct and indirect taxes. They asked whether governments should rely on indirect taxes (like VAT or GST) in addition to direct taxes (like income tax), or just stick to an optimal income tax to achieve fairness, redistribution and efficiency. Their main result was that the latter works best under some idealized conditions and there is no need for any indirect tax. This is what purists swear by. But their result has caveats relevant to the real world. For instance, if the rich and poor consume very different baskets of goods, then taxing luxury items helps redistribution. Or, if lack of information or a large informal sector makes tax implementation difficult, then indirect taxes can be more effective; they can be made progressive too. India's pending GST reforms include a reduction and rationalization of its rate slabs and the expansion of its coverage. A consumption tax can at best be mildly progressive but cannot be used for redistribution. Simplifying and reducing rate slabs, which is imperative, will make progressivity harder to achieve. Achieving it by using a basket of goods consumed as a proxy for household income is unstable. It is also paternalistic, for it punishes households that are aspiring to and adopting luxury goods. And with better means of gathering income information, surely focusing on direct taxes is a better way to pursue fairness and tax efficiency. The author is senior fellow with Pune International Centre
Economic Times
01-07-2025
- Business
- Economic Times
GST's 8th Anniversary: With disputes piling up, India pushes for faster, fairer resolution framework
The Goods and Services Tax (GST) is arguably India's most significant tax reform. It has simplified compliance and administration by replacing multiple indirect tax levies within a single unified system, thus harmonising tax across states. Although this reform has made considerable strides in digital compliance, the GST system is now facing a critical challenge: a rising number of tax disputes and a growing backlog within the adjudication system, that is delaying dispute resolution. While Government has taken several notable measures, as GST completes eight years, it might be the opportune time to look at the evolution of the GST adjudication system. Also Read: GST @8: India's tax landscape has changed but key reforms are still pending Pending GST cases have more than doubled—from 10k cases involving disputed demands of INR 22k crore in 2021-22 to 22k cases amounting to INR 1.14 lac crore in 2023-24. Alongside this, the cash amount blocked in pending indirect tax appeals has more than doubled over the same period, rising from INR 3.67 lac crore to INR 7.40 lac crore. Further compounding the issue is the extended timeline for dispute resolution. In 2023-24, approximately 22k indirect tax appeals have been pending across forums for over five years. For many taxpayers, particularly MSMEs, these blocked funds represent vital working capital frozen due to unresolved disputes, impacting operational liquidity. Several factors such as differing legal interpretations across states have contributed to the challenge. Initially, businesses were not familiar with the laws and divergent positions were adopted, with minimal clarity and precedents. In adjudication, although the law imposes strict timelines for issuing Show Cause Notices (SCNs) and initial orders, the timelines for appellate decisions at first-level appeals or tribunal remain suggestive rather than binding. This has resulted in inconsistent adherence and rising case pre-deposit requirement - mandating taxpayers to deposit 10% of the disputed tax upfront before filing appeals is another constraint. While intended to filter out frivolous cases, this requirement restricts cash flow for legitimate taxpayers, particularly smaller businesses with limited liquidity. While the Government has constituted the GST Appellate Tribunal and initiated the e-filing process, its operationalization is eagerly awaited. The Government has introduced multiple measures aimed at reducing disputes and addressing systemic challenges. These include the issuance of FAQs, circulars, and advance rulings to clarify complex GST provisions and reduce misinterpretations leading to National Litigation Policy was also introduced to rationalise government litigation by discouraging redundant appeals, thereby focusing resources on significant cases. Additionally, monetary thresholds for departmental appeals were established to prevent compulsive appeals by tax department from overburdening the recognition of cash flow challenges faced by taxpayers, pre-deposit requirements have been relaxed. Additionally, Section 11A in the CGST Act was introduced, allowing regularisation of cases involving short levy or short payment of tax due to established trade practices on 'as is/ where is'. Once implemented, it will offer a mechanism to resolve disputes on controversial sectoral issues. These measures undoubtedly point to Government's intention of addressing the backlog and improve dispute resolution. As next wave of reforms in dispute resolution, the operationalisation of GSTAT will enable faster, specialised resolution of Government may consider possibility of mandating timelines for passing of appeal orders, to reduce adjudication delays. Awaited procedural guidelines for implementation of Section 11A will promote its use as an effective tool for reducing litigation step worth consideration is the establishment of a National Authority for Advance Ruling (National AAR), to harmonise legal interpretations across states, eliminate conflicting rulings, and reduce disputes caused by inconsistent legal ease the burden on departmental infrastructure, perhaps ADR mechanisms like arbitration may offer complementary path for dispute resolution beyond the existing adjudication process. Incorporating arbitration within GST framework would provide taxpayers and authorities with a mechanism for settling disputes in a faster, cost-effective and flexible manner. While this would not replace current adjudication, its adoption can significantly reduce litigation volumes, expedite resolution, and improve taxpayer satisfaction. The GST framework faces a critical challenge of managing the rising volume of disputes and the growing backlog in the adjudication system. Government initiatives to clarify interpretation, rationalise litigation, relax pre-deposit norms, and introduce measures for dispute regularisation are laudable. Now swift operationalisation of GSTAT, enforcement of binding appellate timelines, establishment of a National AAR will further compliment these initiatives. Further, a broader adoption of arbitration as an ADR mechanism can also aid GST dispute resolution. Fair to say that these reforms will create a more transparent, efficient, and fair dispute resolution structure - key to supporting GST's objectives of simplicity, fairness, and ease of doing business. Saurabh Agarwal and Divya Bhushan are Tax Partners at EY India. Tanmay Chaturvedi, Tax Professional, EY India also contributed to the article.
New Indian Express
02-05-2025
- Business
- New Indian Express
Rationalise rates, set up tribunal to streamline tax system
While the buoyancy in collections is expected to sustain, what's concerning is the delay in the GST Council's decisions. It's expected to convene once every three months, but is not doing so. The last meeting was held in December and the next is expected later this month or the next, which is a gap of nearly six months. The delay is raising concerns over clarity on critical issues such as rate rationalisation. For instance, following the personal income tax relief in the February budget, none other than Finance Minister Nirmala Sitharaman confirmed that GST rates will fall further. She also reasoned that the revenue-neutral rate, at which tax revenue remains the same despite changes in tax laws, reduced from 15.8 percent in 2017 to 11.4 percent in 2023; more correction is expected. A ministers' group set up for this task has submitted its report, but analysts expect the need for at least two or three council meetings to arrive at a final decision. The next meeting, whenever it happens, must take up the rationalisation process including reducing tax slabs and streamlining rates. For one, it should take a call on lowering the rate on health and life insurance premiums from 18 percent to 5 percent. And the long-delayed GST Appellate Tribunal needs to be set up soon, as its absence affects both taxpayers and the government.
Time of India
27-04-2025
- Business
- Time of India
‘A game-changer for taxpayers': GST Appellate Tribunal rules notified - all you need to know
AI generated representative image NEW DELHI: In a landmark move poised to transform India's indirect tax dispute resolution system, the Central government has notified the Goods and Services Tax Appellate Tribunal (Procedure) Rules, 2025, paving the way for the long-awaited operationalization of the GST Appellate Tribunal ( GST AT). Notified under Section 111 of the Central Goods and Services Tax (CGST) Act, 2017, and effective from April 24, 2025, the new rules introduce a digital-first, transparent framework aimed at resolving pending GST appeals, and are being hailed by experts as a "game-changer" for taxpayers seeking timely and fair redressal. The absence of a functional GSTAT has forced taxpayers to seek relief from High Courts, escalating costs and delays. "These rules establish a digital-first, transparent framework to tackle over 8,100 pending GST cases, including more than 2,800 unresolved for over a year, as reported in the recent Compliance Audit of the Central Board of Indirect Taxes and Customs (CBIC)In the absence of a constituted GSTAT, genuine litigants have had to approach High Courts to seek relief from tax recoveries or coercive actions," said Brijesh Kothary, Partner at Khaitan & Co. He added that taxpayers are eagerly awaiting the Tribunal's establishment to address unwarranted tax demands, with the government expediting appointments of judicial and technical members while the Goods and Services Tax Network (GSTN) develops the technology platform for appeal processing. Comprising 124 rules across 15 chapters, the GSTAT Procedure Rules, 2025, mandate electronic filing of appeals through the GSTAT portal, ensuring standardized formats and clear timelines. Sonam Chandwani, Managing Partner at KS Legal & Associates, described the rules as "a pivotal reform to operationalise the GST Appellate Tribunal with a digital-first, transparent, and efficient framework." She emphasized that they "replace an ad hoc system that left taxpayers grappling with delays and inconsistencies" by enforcing online filings, public hearings, and ex parte provisions. Addressing the backlog and procedural challenges Taxpayers intending to appeal adverse orders must deposit 10% of the disputed amount, capped at Rs 20 crores each for CGST and SGST, and notify the proper officer of their intent to file once the GSTAT is operational. "Taxpayers are advised to prepare draft appeals in advance," Kothary noted. The rules aim to reduce High Court litigation, with Chandwani stating they will "slash judicial backlogs, boost taxpayer trust, and align with India's ease of doing-business goals." CA Ashish Niraj, Partner at A S N & Company, Chartered Accountants, highlighted the rules' comprehensive scope: "These rules were long awaited by professionals and business entities, and they contain the whole functioning, procedures, powers, etc. All documentation, order uploads, etc., will be done electronically through the GSTAT portal." He praised clarifications like the Tribunal's power to rectify arithmetical or clerical errors without notice and provisions for reviewing Supreme Court or High Court orders before the same bench. Key highlights of the GSTAT procedure rules, 2025 Effective Date : Rules took effect on April 24, 2025, upon Gazette publication (Rule 1). Applicability: Covers all appeals filed before the GSTAT (Rule 1). Tribunal Structure : Comprises Principal and State Benches with Judicial and Technical Members (Rules 2, 109). Authorized Representatives : Must file valid authority letters, e.g., vakalatnama, to represent parties (Rule 28). Electronic Filing : Appeals must be submitted online via GSTAT portal in prescribed formats (Rules 18, 115). Appeal Requirements : Must include facts, legal grounds, GSTIN, and certified/attested impugned order (Rules 20-21). Paragraph Structure : Each paragraph must address a separate point or argument (Rule 20). Time Computation : Excludes holidays; delays condonable with sufficient cause (Rules 3, 14). Registry Management : Registrar oversees appeal scrutiny, record maintenance, and cause lists (Rule 15). Document Translation : Non-English/Hindi documents require certified English translations (Rule 23). Public Hearings : Open unless restricted; ex parte decisions for absent parties (Rules 7, 42-43). Cause Lists : Published online daily, prioritizing urgent and part-heard matters (Rules 38-39). Miscellaneous Applications : Delay condonation, adjournment, or early hearing applications use GSTAT Form-01 with affidavits (Rule 29). Tribunal Powers : Can summon witnesses and enforce attendance per Code of Civil Procedure, 1908 (Rules 84, 88). Inherent Powers: Allows orders to ensure justice or prevent abuse of process (Rule 10). Recusal Provisions : Members recuse for personal, familial, or professional conflicts, with undisclosed reasons (Rule 106). Order Publication : Signed orders uploaded online; final orders may be published (Rules 51, 52, 115). Fee Structure : Rs 5,000 for inspection/applications; Rs 5/page for certified copies (Rule 119). Case Registers : Maintains registers for provisional appeals, inspections, and Supreme Court cases (Rule 59). Procedural Flexibility : Exemptions or deadline extensions allowed with sufficient cause (Rules 13-14). Abatement Provisions : Proceedings may abate for respondent's death, insolvency, or company wind-up (Rule 44). Error Rectification: Registrar corrects arithmetical, grammatical, or clerical errors without notice (Rules 26, 108). Higher Court Orders : Supreme Court/High Court orders reviewed by President or same bench (Rule 117). Sittings Location : Held at Central Government-notified locations (Rule 7). Operating Hours : Sitting hours are 10:30 AM–1:30 PM, 2:30 PM–4:30 PM; office hours are 9:30 AM–6:00 PM (Rules 8-9). Additional Evidence : Allowed only with Tribunal approval for justice or sufficient cause (Rule 45). Ensuring transparency and fairness The rules prioritize transparency and integrity. "The proceedings under the rules will be open for public unless the tribunal has specifically limited its access," Niraj stated. He also highlighted ethical provisions: "The President or any Member recusing himself may record reasons for recusal; however, no party to the proceedings or any other person shall have a right to know the reasons for recusal." The Tribunal's powers, akin to those under the Code of Civil Procedure, 1908, include summoning witnesses and enforcing attendance, ensuring legally binding outcomes, Niraj added. The rules address procedural nuances, such as abatement of proceedings in cases of a respondent's death, insolvency, or company wind-up, as Niraj noted. "Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal," he emphasized, underscoring the Tribunal's flexibility. Implementation and challenges The government is moving swiftly to operationalize the GSTAT. "The Government is expediting the appointment of judicial and technical members for both Principal and State benches of GSTAT, while the Goods and Services Tax Network (GSTN) is simultaneously developing the technology platform for processing appeals," Kothary confirmed. However, digital access remains a concern. "The shift to a tech-driven, uniform Tribunal will expedite dispute resolution, reduce High Court litigation, and foster a predictable GST ecosystem, though challenges like digital access for smaller taxpayers remain," Chandwani added. With a fee structure—Rs 5,000 for record inspection and applications, Rs 5 per page for certified copies—and standardized forms like GSTAT Form-01 and GSTAT Form-06, the rules ensure accessibility and uniformity. Stay informed with the latest business news, updates on bank holidays and public holidays . Master Value & Valuation with ET! Learn to invest smartly & decode financials. Limited seats at 33% off – Enroll now!
