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Distortions have given GST a bad name, says Chidambaram

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New Delhi, July 28: Senior Congress leader and former finance minister P. Chidambaram on Saturday blamed the Narendra Modi government for the various distortions in the implementation of Goods and Service Tax (GST) including the 28% GST rate that resulted into becoming a “bad word” among business persons.

Taking a dig at the Narendra Modi-led government, Chidambaram said that the Central government deliberately did not took the note of the report filed by the Chief Economic Advisor (CEA) and also dismissed Opposition’s plea to cap GST rate at 18 per cent.

“BJP government brushed aside the report of the CEA and summarily dismissed our plea to cap GST rate at 18%. Now it claims wisdom in phasing our the 28% rate!,The 28% GST rate was the contribution of a lazy BJP government that simply added the Excise, VAT and CST.” Chidambaram tweeted.

 

Launching a scathing attack on the government, he said every step that the government had taken with regard to the GST was deeply flawed, Chidambaram said, “Following demonetisation, the faulty implementation of GST destroyed thousands of SMEs and millions of jobs. Ask any trader or businessperson and you will know the truth.The 28% rate (and the cesses) was only one aspect of the faulty implementation of GST. There are other distortions that have given GST a bad name.

The Congres leader reteriarted that GST’s design, structure, rates and implementation were so flawed that it has become a “bad word” among business persons, traders, exporters and common citizens.

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Temporary retention, not diversion: FinMin on CAG audit of GST cess

Time taken in reconciliation of compensation receipts can’t be termed as diversion of GST cess fund when the dues to states were fully released by the central government, they said

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Nirmala Sitharaman

Finance ministry sources have countered CAG audit finding of central government wrongly retaining Rs 47,272 crore of GST compensation cess meant for states, saying temporary retention cannot be termed as diversion.

Days after the Comptroller and Auditor General (CAG) flagged that the Centre in first two years of the GST implementation wrongly retained GST compensation cess that was meant to be used specifically to compensate states for loss of revenue, ministry sources said compensation due for the year 2017-18 and 2018-19 was fully paid to states.

Time taken in reconciliation of compensation receipts can’t be termed as diversion of GST cess fund when the dues to states were fully released by the central government, they said.

Sources said that in 2017-18, Rs 62,611 crore was collected, out of which the government released full compensation dues of Rs 41,146 crore to the states and union territories (UTs).

In 2018-19, an amount of Rs 95,081 crore was collected, out of which Rs 69,275 crore was paid as full compensation dues to states and UTs.

They said an amount of Rs 47,271 crore collected in the 2017-18 and 2018-19 had remained unutilised for reconciliation post full payment of GST compensation dues.

For the year 2019-20, the central government released Rs 1,65,302 crore as GST compensation against a cess collection of Rs 95,444 crore which it could do so with the unutilised cess of Rs 47,271 crore.

The GST (Compensation to States) Act guarantees all states an annual growth rate of 14 per cent in their GST revenue in the first five years of implementation of GST beginning July 2017. It was introduced as a relief for states for the loss of revenues arising from the implementation of GST.

If a state’s revenue grows slower than 14 per cent, it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess. To provide these grants, a GST compensation cess is levied on certain luxury and sin goods.

The collected compensation cess flows into the consolidated fund of India (CFI), and is then transferred to the Public Account of India, where a GST compensation cess account has been created. States are compensated bi-monthly from the accumulated funds in this account.

However, instead of transferring the entire GST cess amount to the GST compensation fund during 2017-18 and 2018-19, the CAG found that the Centre retained these funds in the CFI and used it for other purposes.

The finance ministry sources said the compensation receipt in the CFI was subject to reconciliation in the coming months, as usual, in the forthcoming financial year.

If for that reason the amount remained in the CFI, how can that be treated as diversion, they asked adding even the CAG in its report has not said so.

The amount collected under compensation cess fund has been regularly and fully distributed to states as per their dues and budgetary provisions and by the end of July 2020, everything has been accounted for and released, source added.

The CAG in its report tabled in Parliament earlier this week said out of the Rs 62,612 crore GST Compensation Cess collected in 2017-18, Rs 56,146 crore was transferred to the non-lapsable fund.

In the following year (2018-19), Rs 54,275 crore out of Rs 95,081 crore collected was transferred to the fund.

The short transfer in 2017-18 was Rs 6,466 crore and in 2018-19 it was Rs 40,806 crore, the CAG said adding the Centre used this money for “other purposes” which “led to an overstatement of revenue receipts and understatement of fiscal deficit for the year”.

Sources explained that all amounts including taxes and cess that are collected by the Centre should, under the Article 266 of the Constitution, get credited first to the CFI and then only it could be transferred to any other fund through a budget head in Union Budget.

The government makes all efforts to transfer all amounts collected by the end of every financial year into the fund by making necessary budget provisions, they said.

In case of compensation cess, since the final accounts of amounts collected are known only after the end of financial year, any amount collected over and above the estimate will remain in the CFI temporarily, they said adding after reconciliation, the amount is transferred to Compensation Fund and from that fund to states as per their compensation formula.

Therefore, such temporary retention of GST cess in CFI pending reconciliation cannot be treated as diversion by any stretch of imagination, sources said.

Since the cess collected by the Government has been used for full payment of due compensation, then it cannot be alleged that unutilizedcess amount has been diverted for other purposes, they insisted.

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Vodafone Wins Arbitration Against India In Rs 20K Cr Retrospective Tax Dispute Case

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New Delhi: Vodafone has won the case against India over a retrospective tax demand of more than Rs 20,000 crore.

The Permanent Court of Arbitration at The Hague has ruled that the conduct of India’s tax department is in breach of “fair and equitable” treatment.

Voafone had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties’ arbitrators in finalising a judge for the tax dispute.

Following this, a tribunal was constituted in June 2016 after Vodafone challenged India’s use of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone’s $11 billion acquisition of a 67 per cent stake in Hutchison Whampoa in 2007. The retrospective tax law had been enacted after the Supreme Court judgement went in Vodafone’s favour.

Vodafone had challenged the tax department’s demand of Rs 7,990 crore as capital gains taxes (Rs 22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).

Buoyed by the arbitration award, Vodafone Idea stock closed 12 per cent higher at Rs 10.20.

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GST E-Invoicing Mandatory From October

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GST Collection Down

New Delhi: No further relaxation is likely in terms of e-invoicing as the Centre is set to go ahead with the decision to make GST e-invoicing mandatory for companies with annual turnover of over Rs 500 crore for their business-to-business transactions starting October 1.

Industry representatives, however, have urged the government to not make it mandatory and rather allow voluntary compliance.

The relief, however, would be there for relatively smaller businesses, as the threshold for mandatory e-invoicing, a step to improve tax compliance, was earlier planned to be kept at Rs 100 crore, is set to be raised to Rs 500 crore on the recommendations of an empowered panel of the Goods and Services Tax (GST) Council.

The initial date for its roll out was April 1, 2020, but the Centre notified October 1, 2020, as revised date for implementation of e-invoicing.

As per the website of the Good and Service Network ‘e-invoicing’ has many advantages for businesses such as standardisation, interoperability, auto-population of invoice details into GST return and other forms (like e-way bill), reduction in processing costs, reduction in disputes, improvement in payment cycles and thereby improving overall business efficiency.

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