Compliance barriers on the road to GST- An Analysis of Model GST Law

1. Introduction

"Will you walk into my parlour?" said the Spider to the Fly, '

Tis the prettiest little parlour that ever you did spy;

The way into my parlour is up a winding stair,

And I've a many curious things to show when you are there."

Oh no, no," said the little Fly," to ask me is in vain,

For who goes up your winding stair can ne'er come down again."

(an extract of the poem 'The spider & the fly', by Mary Botham Howitt)

With the advent of Goods and Services Tax (GST) in India, the above extract appears to be a fitting & interesting one. While there have been several discussions of how the GST regime would be beneficial to the Indian Economy, the aspect of compliances was never on the agenda. Recently released Model GST Law, throws light on this aspect. While the assessees should revamp their IT systems to be compliant with the new regime, it is also of utmost importance to understand how complying with the statutory timelines could have an impact on their cash flows and credit mechanism. Is tax becoming one of the key factors to drive a business or are we still in an era where business drives the tax. This article attempts to examine whether the compliance aspects under the model GST law are flight's of winding stairs to the spider's parlour or otherwise.

2. Registration of suppliers under the GST regime

Every supplier would be liable for registration under the GST regime, in the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds rupees nine lakhs. While some might compare this threshold to the existing Service tax regime, it would be interesting to note the definition of 'aggregate turnover', which would be the aggregate value of:

•		all taxable and non-taxable supplies,
•		exempt supplies and exports of goods and/or services of a person having the same PAN, which is to be computed on an all India basis, and
•		excludes taxes, under the Central GST Act, State GST Act and the Integrated GST Act.

The term 'supply' featuring in the above definition includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rentals, lease or disposal made or agreed to be made for a consideration by a person in the course (or furtherance) of business. The same also includes importation of service, whether or not for a consideration and whether or not in the course of or furtherance of business. Besides the above, there are also some specified transactions which would be categorized as a supply, even though undertaken sans consideration. Judging from the ambit of the above definitions, it appears that the framers of the model GST law have ensured to spread the tax net wide enough to increase the assessee base. The model GST law also provides for a transitional shift into the new regime for the existing taxpayers. For the said purpose, on the appointed day, i.e., the day when the Central/State Goods and Service Tax Act comes into effect, every person registered under the earlier laws would be issued a certificate of registration on a provisional basis, which after submission of the prescribed details would be granted registration on a final basis.

To sweeten the deal, a benefit has been provided in the model GST Law where a supplier would not be liable to registration if his aggregate turnover consists of only goods and/or services which are not liable to tax. Does this mean that even a single taxable transaction (irrespective of its value) would warrant registration and would subject an assessee to the prescribed statutory compliances? Would the assessee be better off if the definition of turnover would include only taxable goods/services, as under the existing regime?

3. Invoices; Debit and Credit Notes

At a broad level, the provisions pertaining to issuance of invoices are similar to those under the existing tax regime. Relevant provisions are also proposed to be enacted for issuance of debit and credit notes for instances where the tax invoice is found to exceed the taxable value and/or tax payable in respect of such a supply. The details of debit/credit notes are required to be incorporated in the returns for the month of issuance/receipt or in the return for any subsequent month but not later than September following the end of the financial year in which such supply was made, or the date of filing the relevant annual return, whichever is earlier.

Under the model GST law, it appears that instances for issuance of a debit/credit note would only arise where the taxable value or the tax exceeds what was actually payable. The said legislation does not mention the treatment required where goods are returned on account of any defects/deficiencies. Did the framers of the model GST law intentionally exclude such instances and intended to treat each leg (i.e., the sale and the subsequent return) as an independent transaction ? Can the tax costs of such transactions be set off by the applicable credits? It would be interesting to see the developments on this front.