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View | The power of summons and arrests under GST

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The credibility of the Central Board of Indirect Taxes & Customs (CBIC) would depend upon how judiciously these powers are exercised, writes Najib Shah.

The instructions issued by the Central Board of Indirect Taxes & Customs (CBIC) on August 17, on summons and arrests in respect of investigations initiated under the Goods and Services Tax (GST), are welcome. Similar instructions were there earlier in the Central Excise and Service Tax regimes but given that summons and arrest involve the exercising of powers that impinge a citizen’s rights, they need repetition to sensitise both the officers of the department as well as the taxpayer.

But are these powers required in fiscal laws? To put matters in perspective, we do have a serious problem of evasion. The proof of that is the regular detection of cases of humongous value. The month of August itself witnessed detection of GST frauds in excess of Rs 5,500 crore.

We cannot have laws which require the taxpayer to adhere to its legal requirements and ignore somebody who chooses to disregard the laws with impunity. There has to be a legal mechanism to bring such offenders to book.

The process of inquiry starts with the summons. Summons issued under the provisions of the CGST Act are deemed to be judicial proceedings within the meaning of sections 193 and 228 of the IPC. It has substantial statutory force-all persons summoned are bound to appear.

The instruction stresses the fact that these powers should be used judiciously and after due approval. Summons should not be resorted to in the first instance but used only where a letter seeking the information does not work. Senior management should be summoned only if there is an indication to suggest their involvement. The instruction also states that the official summoning should be present at the time/date for which the summons has been issued.

The trigger for the second instruction issued with regard to arrest and bail is apparently the observations made by the Supreme Court (SC) in a recent judgment. Incidentally, these observations were made by the SC in a seven-year-old non-GST-related case.

The instruction quotes the SC mentioning that “merely because an arrest can be made because it is lawful it does not mandate that an arrest must be made. A distinction must be made between the existence of the power to arrest and the justification for the exercise of it”.

Also Read: GST body issues guidelines on summons, arrests, bails — experts welcome move

The instructions state that the powers can be exercised in terms of the provisions of the CGST act where the Commissioner has ‘reason to believe’ that the alleged offender has committed any offence as specified in CGST law. ‘Reason to believe’ which finds mentions in several fiscal laws has not been defined. The Supreme Court has in other matters interpreted the phrase to observe that a person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing, but not otherwise.”

The circumstances under which the powers of arrest can be exercised have been spelt out categorically in the CGST Act and are reiterated in the instructions. The power of arrest can be exercised only after due approval.

Incidentally, the issue of arrest was discussed extensively in a GST Council meeting. While there was consensus about the need for these powers, concerns were expressed about their exercise. Hence the Act stipulates several safeguards in the form of threshold limits – evasion of up to Rs 1 crore, Rs 2 to 5 crore and above 5 crore, having different punishments.

The statute divides offences into non-cognizable and bailable -in which case the bail can be given with suitable conditions by the officer. And into cognisable and non-bailable which relate to the more serious offences- clandestine supply, issue of invoice without goods or receipt of goods without invoice and collecting tax but not passing it on to the government. In these cases, the arrested person has to be produced before the magistrate. The provisions of the Criminal Procedure Code (CrPC) would kick in.

It may be noted that the magistrate in cases of arrest under CGST is not burdened with the twin conditions viz- namely that the accused is not guilty of the offence and that he is not likely to commit any offence while on bail, having to be fulfilled like in the PMLA or NDPS Acts. The onus is on the magistrate whether to accept the department’s argument that the accused is likely to tamper with evidence or intimidate witnesses.

ALSO READ: CBIC says FTA provisions to prevail in case of conflict over Rules of Origin on imported goods

Arrest at this stage is not a punishment. The punishment in the form of imprisonment or fine happens only when the prosecution has been launched and the charges established and a conviction obtained from the court. Thus it is important that in all cases of arrest a prima facie understanding is there that the case is also fit for prosecution. Once this yardstick is also kept in mind the number of cases in which arrest is warranted would reduce.

Instructions have also been issued separately on the customs side -both for arrest and prosecution. The significant difference here is that the threshold limits are different. An arrest is to be done only in cases of outright smuggling where the value is above Rs 50 lakh and Rs 2 crore in cases of commercial frauds. The value limits would not apply in certain types of cases like smuggling of arms, antiques, CITES related offences. These instructions both on the GST and customs side should standardise the procedure.

The fact of the matter remains that GST revenue has been on the upswing. Given a large number of detections and consequential arrests made by the department, obviously, these measures have acted as a deterrent and ensured compliance. The credibility of the CBIC would depend upon how judiciously these powers are exercised.

Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. The views expressed in this article are his own.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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View | Anti-Doping Bill and its urgent necessity

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The influx of foreign coaches and emphasis on performance has resulted in Indian athletes being introduced to the very sophisticated world of performance-enhancing drugs. Now with the Bill having been passed and just waiting for the president’s signature, there should be a greater check.

The countries of the Commonwealth, that irrelevant group of nations, are presently engaged in their own games. More than 5,000 athletes from 72 countries are participating in 280 events in the Commonwealth Games in Birmingham.

By a strange coincidence, this week also saw the Anti-Doping Bill being passed by the Indian Parliament. The Bill now awaits presidential assent to become law. Doping is a scourge plaguing sports. Doping, in simple terms, means sportspersons imbibing illegal substances with an aim to improve strength and stamina. The substances include cannabinoids, narcotics, stimulants, hormone and metabolic modulators, among a host of other substances. To put it succinctly, doping is cheating.

This becomes particularly relevant in individual sports like wrestling, weight lifting, athletics and cycling, where performance is based on both skill and strength and stamina. But it is not unknown even in team events.

The Montreal-based World Anti-doping Agency (WADA) seeks to cleanse sports. It has put in place a World Anti-Doping Code (Code). This is the core document that seeks to harmonise anti-doping policies, rules, and regulations within sports organisations globally. It has put in place international standards with the aim to ensure uniformity and consistency among anti-doping organisations. The Olympic Charter makes anti-doping requirements mandatory for the whole Olympic movement.

Also read: View: Technology is helping modern athletes push the envelope

The governments of more than 183 countries, including India, are signatories to the International Convention against Doping in Sports, which was adopted under the auspices of the UNESCO convention. India also contributes to WADA and has pledged an amount of $1 million in addition to the contribution of about $72,000.

WADA states that an athlete is required to provide a sample at any time and at any place to an anti-doping organisation for anti-doping tests. If tested positive, the individual player is not only liable to be disqualified but also stands to forfeit all medals, points and prizes. As for team sports, in case two or more members of the team are found to be in violation of the anti-doping code, the entire team could be disqualified.

It is in this background the Anti-Doping Bill has to be viewed. The anti-doping process in India was till now under the aegis of the National Anti-Doping Agency (NADA). NADA was established as an autonomous body under the Societies Registration Act, 1860 in November 2009. It did not have any statutory force.

Also read: How Commonwealth Games 2022 gold winner Mirabai Chanu beat life’s many slings and arrows

The Parliamentary Standing Committee on Sports (2021) observed that Anti-Doping Rules are not backed by legislation and are open to challenge in a court of law. It recommended the Department of Sports to bring in an anti-doping legislation. The Bill emphasises the need for maintaining the highest standards of integrity while participating and preparing for sports competitions domestically and internationally.

The Bill categorically prohibits doping across the spectrum, which includes athletes, support personnel, and other persons engaged in sports. This covers coaches, trainers, managers and medical staff as well. All of them are mandated to ensure that there is no presence of prohibited substances or methods and are obliged to provide samples as and when required. Therapeutic use exemptions are permitted.

The Bill provides for severe consequences in case of violations. The athlete could be disqualified from participating in events for specified periods and/or have to forfeit their medals/winnings. Team sports violators would be determined by a disciplinary panel.

The Bill provides for the creation of a national anti-doping agency which would be a statutory body. The agency would be headed by a director-general, to be appointed by the government. Strangely, the Bill does not mention the qualifications and experience required of the director-general. These are to be prescribed through regulations that are not as of now in the public domain. The agency is supposed to plan, implement and monitor all anti-doping activities.

The Bill also provides for a national board for anti-doping in sports to make recommendations to the government and oversee the functioning of the agency. The board would consist of a chairperson and two members — all to be appointed by the government. The board is expected to constitute a disciplinary panel for determining the consequences of violations. Again the qualifications required for the members of the board are not known as of now.

Such a law is urgently required in India. Our record is poor. As per the World Anti-Doping Agency report, India is third in the list of countries with the most number of violations. In 2019, 152 doping violations were reported by India — behind only Russia and Italy. This is a record we can do without. Even now, before the Commonwealth Games, India had to withdraw three athletes who failed the test.

The influx of foreign coaches and emphasis on performance has resulted in Indian athletes being introduced to the very sophisticated world of performance-enhancing drugs. Now, with the Bill having been passed, there should be a greater check. All sporting associations, including BCCI, which kept arguing that cricketers should be outside the Code, are within the purview of the Code. We should ensure the independence of the proposed agency, board and disciplinary panel.

While the Olympics motto is indeed stronger, higher, faster, we have to strive to do this the hard way, the legitimate way.

Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Read his other columns here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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International trade settlement in Indian rupee

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The key to the success of this arrangement with any country is the exchange rate which is determined. The latest RBI circular mentions that the exchange rate between the currencies of the two trading partners ‘may be market determined.’

It was always on the cards. US, EU, and the UK had imposed sanctions on major Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in the wake of the Russia-Ukraine conflict. SWIFT is the Belgium-based globally secure interbank system. Accepted and used near universally, SWIFT assures payments across banks and countries and facilitates the movement of goods and services.

What this meant for India was that export payments of nearly $500 million due from Russia were blocked. There were also substantial security implications. India is a net importer of goods from Russia. In the backdrop of the conflict, India has increased its imports of Russian crude oil. As per Reuters, India has bought at least 13 million barrels of Russian oil since February 24 this year. India is also awaiting the delivery of air defense systems, MIG 29 jets, and Su-30MKI aircraft from Russia.

Further, there was a regular outflow of foreign exchange from India. While there was no imminent danger, there was a concern. The trade deficit expanded to a record $26.2 billion in June 2022. The trade deficit for Q1FY23 has touched $70.8 billion compared with $31.4 billion in Q1FY22. The trade deficit is expected to only rise further-with some suggesting it could touch a record $250 billion – 7.3 percent of GDP. This would imply a CAD of up to 3 percent of the GDP. The combination of widening CAD and persistent FPI outflows could have a further impact on the Indian rupee going forward. It is in this backdrop that the government had recently hiked import duties on gold and imposed export duties on petroleum products.

Also Read: Govt, RBI trying to smoothen rupee slide against US Dollar; Forex levels continue to be comfortable for RBI interventions

So, the announcement permitting international trade settlement in Indian Rupees by the Reserve Bank of India (RBI) earlier this month did not come as a surprise. The RBI circular dated July 11 talks of putting in place an additional arrangement for invoicing, payment, and settlement of exports/imports in the Indian rupee. No mention is made either of SWIFT or Russia in the circular.

Thus, authorised dealers have been permitted to open after prior approval from the RBI, rupee Vostro accounts (nostro and vostro are terms used to describe the same bank account. Nostro, from the Latin, means ours- as in our money that is in deposit in your bank. Vostro again from Latin means yours- as in your money that is in deposit in our bank.)

The special rupee vostro account would be opened in the corresponding banks of the partner trading country. For settlement, Indian importers undertaking imports would make payment in Indian rupee. This would be credited into the special account of the corresponding bank against invoices of the oversea supplier. It is estimated that this arrangement could potentially reduce outflows to the extent of $3 billion per month.

Also Read: View | RBI’s move to enable international trade in rupee is a step towards regaining primacy in the Indian Ocean region

In the case of exporters, the export proceeds would be paid in Indian rupee from the balance of the designated special vostro account of the corresponding bank of the partner country. The circular also significantly permits the set-off of export receivables against import payables in respect of the same overseas buyer and supplier.

India has experience in operating alternate payment mechanisms to settle dues in rupees instead of dollars. Article VI of the 1953 India-Soviet trade agreement had a similar clause. The arrangement covered all commercial transactions and other payments as mutually agreed by the central banks of India and the erstwhile USSR. The purpose of this arrangement was not to circumvent any sanction but to conserve foreign exchange and promote exports.

The key in all such arrangements is the exchange rate at which the settlements would be done. In the 1953 protocol, the exchange rate was initially valued based on the gold standard. Subsequently with the global gold reserves becoming inadequate to support such a system a 1978 protocol set it at Rs 10. This was further revised to Rs 31.78. The balance of trade was hopelessly skewed with imports from Russia far exceeding exports. The rupee balances in USSR accounts kept increasing. The arrangement was finally terminated in 1992, and it took a long time to liquidate the rupee balance.

Similarly, India had a rupee-rial payment mechanism with Iran when economic sanctions were imposed. This worked well to pay for some portion of our oil imports till product-specific sanctions were imposed by the US.

Also Read: View: Rupee rebound was more due to fall in crude than steps taken by RBI

There is no doubt that it is strategically essential to have in place alternate arrangements. If Russia does participate in the arrangement, we should be alive to the charge of assisting them to evade sanctions. It is a different matter that Europe despite the rhetoric, gets its gas from Russia to this day.

The key to the success of this arrangement with any country is the exchange rate which is determined. The latest RBI circular mentions that the exchange rate between the currencies of the two trading partners ‘may be market determined.’ Times have changed considerably since 1953 when the earlier protocol with Russia was conceived. Today India’s GDP is higher than Russia’s, as is its credit rating.

India continues to have a trade deficit with Russia. As per the Department of Commerce, imports worth Rs 64,623 crore took place in 2021-22, with exports being only Rs 23,658 crore. The possibility of the rupee balance similarly ballooning if Russia participates in the arrangement cannot be ruled out. The latest circular does permit utilisation of the excess balance for investment in government treasury bills — this is a departure made obviously with an eye on addressing this eventuality. Whether this will take care of the problem will need to be seen. Our experience in the past has also seen cases of switch trading with Indian exports being diverted to hard currency countries-reaching Helsinki instead of Vladivostok! We would have to be alive to this possibility also.

Interesting times ahead!

— Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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View: How will the goverment gain from the tarrif intervention in gold and petroleum products

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The Government has in effect struck two birds with one stone – making petroleum products available for the domestic market and also reducing the loss because of the excise duty cuts.

The government in a surprise move initiated tariff measures on two very different commodities — gold and petroleum products. With respect to gold, there was a hike in the import duties while in the case of petroleum products special additional excise duty has been imposed on the export of petroleum crude, HSD, petrol, and aviation turbine fuel.

Gold has been a sensitive commodity vulnerable to smuggling. Given our fascination bordering on obsession for the yellow metal, there has always been a high demand.

Our annual licit import is in the region of 650-700 tonnes. 2021 was an aberration with imports touching 1067 tonnes as per the Gem Jewellery Export Promotion Council. Further, the Reserve Bank of India (RBI) held 743.84 tonnes of gold at end of September 2021.

Also read: Gold prices today: Yellow metal gains as government hikes import duty

It may be recalled that as per Finance Minister Nirmala Sitharaman’s Union Budget speech 2015-16 approximately 20,000 tonnes of gold was said to be available domestically — gold which was neither traded nor monetised. Despite the government’s best efforts this gold continues to languish in vaults. India’s foreign exchange reserves are at a healthy $590.58 billion as of mid-June 2022.

The impetus for the demand continues to be cultural. The price difference between Dubai the major source country, and Mumbai continues to make smuggling an attractive option.

Smuggling at the end of the day is a trading activity. When there is demand and restrictions in any form, supply will seek to evade these restrictions to garner increased profit. All the elements were always there in respect of gold.

Unsatiated demand, restrictions in the form of customs duty, multiple international airports and a very porous border with Bangladesh and Myanmar. There was a steady illegal flow.

Also read: UK joins US, Canada, Japan at G7 Summit to ban Russian gold imports

Thus, huge seizures of gold were made by the customs officials, with the Directorate of Revenue Intelligence (DRI) leading the charge. As per the PIB release of May 2022, DRI has in the fiscal year 2021-22 seized 833 kg of gold valued at over Rs 4-5 crore.

The NE region has been the most vulnerable with 208 kg being seized from that region. This is apart from seizures made in all the major airports by the Customs with 403 kgs in Mumbai airport being the highest. The point being made is that even when the basic customs duty was 7.5 percent, the profit available in smuggling gold more than made up for the risks.

Undoubtedly merchandise trade deficit for April-May 2022 has increased. It was estimated at $44.69 billion as against $21.82 billion in April-May 2021, which is an increase of 104.80 percent. The rupee has weakened considerably by 6 percent in the last 6 months.

The current account deficit (CAD) is likely to widen to about 3-3.5 percent of GDP in FY23. The unprecedented FPI outflows(nearly $44 billion in the last 6 months) and the CAD widening mean that there is a strong likelihood of the Balance of Payments(BoP) moving into negative territory in FY23.

There has also been a surge in imports of gold in recent times – 107 tonnes have been imported in May and the imports in June also are said to be significant.

It is in this backdrop that the customs duty has been increased in the hope that it will reduce the stress on CAD. The duty has been increased to 12.5 percent. The 2.5 percent agriculture development cess continues-in effect making the duty on gold 15 percent. It is a moot point if imports will reduce because of this-or this will further incentivise smuggling.

The price of 10 gm 24 carat gold in Dubai in Indian rupees as on July 4 is Rs 51, 980. In India, it is Rs 52, 340. It is this price differential coupled with the customs duty which gives the incentive for smuggling; which provides the arbitrage.

The challenge has always been to strike the right balance-impose a duty high enough to reduce profit and not so high that smugglers feel emboldened to take the risk. With the festive season approaching there is bound to be a surge in demand and attempts to cater to the demand through smuggling. As per the World Gold Council, the demand is likely to be in the region of about 850 tonnes. The enforcement agencies have their work cut out.

The second major policy intervention is the imposition of export duty on a range of petroleum products. Special additional excise duty of Rs 23,250 per tonne on petroleum crude, Rs 6 per litre on petrol and aviation turbine fuel respectively and Rs 13 per litre on diesel has been imposed.

While the imposition of export duties is WTO compliant it is resorted to rarely. It is imposed to make goods available domestically, and discourage exports by making them costlier-ironically since we also plan to achieve an export target of around $800 billion for FY23. Petroleum products constitute a major portion of our export basket — in 2020-21 India exported around 56,796 TMT of petroleum products.

As per reports, the export duties should generate about Rs 1 lakh crore. What this means is that the estimated loss of revenue because of the recent excise duty cuts on petroleum products should be made up.

The Government has in effect struck two birds with one stone-making petroleum products available for the domestic market and also reducing the loss because of the excise duty cuts. For good measure, the DGFT has also issued a notification.

The exporter of such petroleum products will be expected to declare that 50 percent of the quantity mentioned in the shipping bill has been /will be supplied in the domestic market during the current FY. This should be a short-term measure and carefully calibrated.

It will be interesting to watch the outcome of these two policy interventions.

— Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Read his other columns here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

 Daily Newsletter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

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View: Five years of GST and the road ahead

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

Even its worst critic will admit that GST has done well. Yes, there are rough edges. But the GST Council has sought to address these concerns — on average the Council has met nearly nine times a year. It has to continue to play a critical role.

Yet another meeting of that institution, an ’embodiment of pooled sovereignty’, the GST Council, has come to an end. This was the 47th meeting of the Council and was being held on the eve of the 5th anniversary of the introduction of the Goods and Services Tax (GST). There were two elephants in the room — the continuation of compensation cess and the fallout of the recent Supreme Court decision regarding the nature of the Council’s recommendations. While the first was discussed perfunctorily, the second was not even on the agenda.

On the issue of compensation, while most sought an extension, some states reportedly stated it was no longer required. The finance minister in her inimitable style did mention that the concern of the States was heard. However, no decision was taken — thus for now ending a cess levied on goods consumed by ‘sinners’ to compensate for the loss. It may be noted that cess will continue to be collected until March 2026 for a different purpose — to pay back the loan extended to the states. No decision regarding the levy or otherwise of GST on cryptocurrency has also been taken.

Having said that the meeting did take several critical decisions based on reports submitted by specific GoMs. Thus, there was rate rationalisation which basically meant cutting down some exemptions and the correction of the inverted duty structure on some goods and services, directions given to GSTN on IT-related matters and on the e-way bill movement of precious metals. The GoM on online gaming and casinos has been given an extension. The issue relating to the convergence of rates is to be examined later.

ALSO READ | GST Council changes tax rates — these items will be more expensive

Anniversaries are also an opportune time for appraisals. India has seen very few tax reforms as sweeping as GST. This was a reform that almost everybody agreed was needed. Paradoxically, there are also very few tax reforms that faced as much criticism as the GST.

However, even its worst critic will admit that GST has done well. Yes, there are rough edges. But the GST Council has sought to address these concerns — on average the Council has met nearly nine times a year. It has to continue to play a critical role — of hearing the voices, of persuading and being persuaded. It must bridge the trust deficit.

Road ahead

Going forward, there should not be too much burden of revenue on GST. Revenue in any tax regime is a function of the tax base and the rate. Revenue growth will be a natural corollary. And GST revenues have been doing well. The tax base has to be expanded. The inclusion of at least some petroleum products can be explored as also electricity and land. The aim ultimately should be to include all supplies within the GST chain.

There has to be a gradual move towards convergence of rates. And not at ‘one fell swoop’ but gently to reach the pre-GST weighted average rate of 14.8 percent from the present 11.8 percent. The process of reducing exemptions has commenced and should continue. Exemptions break the credit chain and add to costs. Inverted duty structures are also aberrations — corrections here are more challenging but necessary.

The issue of continuing the compensation cess as a guarantee for loss of revenue because of implementation of GST beyond the five-year period needs a finality. It has only resulted in the States becoming fiscally complacent. Ideally, it should not be extended — but if extended the rate has to be a more realistic 8-10 percent. The call will be political.

An area of concern in any tax administration is dispute resolution — it has to be time-bound, consistent with law and with clear channels of appeal. There is an urgent need for establishing the much-delayed GST Tribunal. The decision to constitute a GoM is welcome.

ALSO READ | GST council seems to be losing unanimity, says TS Singh Deo

MSMEs are the backbone of the economy. The decision taken in this meeting to permit composition taxpayers to supply through e-commerce operators is a step in the right direction. MSME and the export sectors will continue to need a benign eye.

GSTN the technology network has a key role to play. It has settled down after the initial glitches. The focus on technology should continue relentlessly; the USP of GST is that it is technology-driven. The effort should be to make compliance easy.

Any tax regime is as good as how it is administered. The need for regular and constant training of tax personnel cannot be overemphasised. Training should focus on changes in attitude as much as on technical aspects — we cannot look at taxpayers as adversaries. Having said that we cannot have a tax system where the taxpayer can afford to evade taxes with impunity. Enforcement driven by data analytics should continue as also focussed audits.

GST has more than lived up to its promise. And if ever a validation was required that the Indian business is happy with the GST tax administration it was provided by the recent survey carried out by Deloitte. Ninety percent of Indian CXOs across key sectors have backed ‘this dynamic and technologically driven indirect tax regime’ which has ‘made doing business easy and effective for both businesses and taxpayers’.

There can be no better endorsement.

Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Read his other columns

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index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
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View | The compensation cess saga continues

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The Compensation Cess Act was enacted to provide for compensation to the states for the loss of revenue on account of implementation of the Goods and Services Tax in pursuance of the provisions of the Constitution (one hundred and first Amendment) Act.

In a significant late-night development on June 25, the Central Government has notified extension of the levy and collection of cess under the Goods and Services Tax (Compensation to States) Act 2017 up to March 31, 2026. The notification has been issued in exercise of the powers vested with the Central Government under the Act ibid.

The Compensation Cess Act was enacted to provide for compensation to the states for the loss of revenue on account of implementation of the Goods and Services Tax in pursuance of the provisions of the Constitution (one hundred and first Amendment) Act.

Section 8 of the Compensation Cess Act provides for collection of cess on intra-state and inter-state supplies of goods and services as may be prescribed. The section states that such compensation to the states is for loss of revenue arising on account of implementation of goods and services tax. The period is also specified — the compensation is to be given for a period of five years ‘or such period as may be prescribed on the recommendations of the Council’.

By way of background, it may be mentioned that Clause 18 of the Constitution (one hundred and first amendment) Act states that the Parliament shall by law ‘on the recommendations of the Goods and Services Tax Council provide for compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years. The Compensation Cess Act was a consequence of this express provision. It is a moot point whether the period specified in the Clause 18 ibid would also have to be extended for the present notification to have legal force. It is a different issue that no State will be challenging this extension.

Also Read: View | The journey of illicit drugs, from seizure to destruction, and why NDPS Act needs an update

The terse notification does not throw any light whether the extension of levy and collection of compensation cess will be to meet financing a loan arrangement as was agreed to earlier. In other words, if the states will be extended a back-to-back loan on the same terms as earlier. It may be recalled that discussions in the 42nd GST Council meeting had resulted in an arrangement whereby loan was to be extended to the states, and that the borrowing would be done by the Centre.

What is interesting is that the notification suggests that this extension has been done on the recommendations of the GST Council,which is the only way that the Central Government could have extended the cess period. While undoubtedly the GST Council meetings have discussed at length the need for extension of the compensation, I could not find any GST Council minutes recording an express recommendation to extend the period of compensation.

The 43rd meeting of the Council for instance records the fact of shortfall in compensation. It mentions the decision taken to meet the compensation by raising Rs 1.1 lakh crore of debt and passing it on to the states on an average rate of interest of 4.85 percent. It highlights the fact that the amount of borrowing would depend on the monthly gross revenue.

It may be recalled that the issue of compensation was a matter of deep concern to all states across the political divide with the opposition states being more vocal about it. The indication that the Central government had given all along was that it was not inclined to extend the period.

The decision to extend the compensation beyond the period of five years coming on the eve of the scheduled GST Council meeting would mean that a major grievance of the states has been addressed. This was an issue which threatened to disrupt the proceedings of the GST Council. What should not be lost sight of is that extension of imposition of cess would mean an increase in costs on these supplies. It would be inflationary.

It is a moot point if the decision to increase the compensation period beyond the deadline is a tacit admission that the implementation of GST has resulted in loss of revenue. Or was it a political call to ease strained federal relations. To place the blame on implementation of GST would be unfair-more so when GST revenues have been doing very well and there are many external factors at play.

But it does show maturity and sagacity on the part of the Centre. The only grouse, if any, is that it would have been better had the decision been taken as an outcome of the GST Council meeting scheduled to be held on 28th and 29th. A discussion would have also helped in arriving at a compensation rate lesser than the absurdly high 14 percent rate. In fact, this was an opportunity missed of reducing the rate of compensation to a more realistic number of 9-10 percent.

The decision to increase compensation thus should ensure that the 45th GST Council meeting would be held in a cordial atmosphere. This would help in discussion of issues. For as Timsy Jaipuria of CNBC-TV 18 has in a series of scoops pointed out, the agenda for this meeting is likely to be heavy. Issues relating to levy on crypto currency, increase in rates on some goods and services, correction of inverted duty structure are all on the cards.

Also Read: View: There will be two elephants in the room at the next GST Council meeting

This is apart from the discussion regarding the fall out of the Supreme Court decision in the Mohit Metals matter, which raised a fundamental issue — are the recommendations of the Council binding. The decision made the distinction that recommendations of the GST Council ‘are made biding on the government when it exercises its power to notify secondary legislation’. Secondary legislation refers to delegated legislation. The implication of this would mean that all other recommendations of the GST Council are not binding.

The 45th GST Council meeting does promise to be an action-packed affair!

Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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View: There will be two elephants in the room at the next GST Council meeting

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The next meeting of the GST Council is scheduled in June. It comes against the backdrop of the much-debated recent Supreme Court decision on the Goods and Services Tax (GST). Further, the compensation cess arrangement with the states is also to come to an end. The GST Council meeting thus is critical for the very future of GST.

The next meeting of the GST Council is scheduled in June. It comes against the backdrop of the much-debated recent Supreme Court decision on the Goods and Services Tax (GST). Further, the compensation cess arrangement with the states is also to come to an end. The GST Council meeting thus is critical for the very future of GST.

It is incumbent upon the GST Council to discuss these two elephants in the room.

Regarding the levy of integrated goods and services tax (IGST) on ocean freight service and on the nature of composite supply, it is best if the apex court decision is accepted. As has been pointed out by the Supreme Court, what was being attempted was a dissection of the supplies. This, the court has held, defeats the concept of composite supply where the tax liability was to be fastened only on the principal supply. Undoubtedly there will be substantial revenue repercussions. There will be a lot of administrative work in processing the refund claims. This should be done speedily.

The Supreme Court, while discussing the constitIonality of the levy, raised other issues. It has held that the central government and the state governments have simultaneous powers to legislate under GST. The court has gone on to say that the recommendations of the GST Council are not binding on state legislature.

Also read: View: Centre & states must work together on GST — there’s too much at stake for the country

The court’s observations regarding the role of the GST Council came in the context of the Centre’s argument that the recommendations of the council were binding. The contention being that the GST Council acts as a “converging platform for both the Union and the states” and hence was the ultimate decision-making body. This, it was contended, was borne by a combined reading of Articles 246A (the Article which stipulates that the Centre and the states have the power to make laws with respect to GST) and 279A (which deals with the contours of the GST Council including its powers).

Further it was contended that the Parliament or the state legislature cannot legislate a law on GST under Article 246A independent of the recommendations of the GST Council.

Justice DY Chandrachud has in a detailed order gone into the architecture of GST (Part C of the Supreme Court decision) and the meaning of the word ‘recommendation’ in different contexts. He has emphasised the need for cooperative federalism which permits debate and dissent. He gone on to uphold the order of the Gujarat High Court. The unambiguous conclusion being that both the Centre and the states have powers under the GST to make laws. The implication again being that the GST Council’s decisions are not binding.

Undoubtedly the apex court has reiterated the provisions of the Constitution. The fact remains that if interpreted by the states to mean to legislate in defiance of the GST Council’s recommendations, it would mean chaos.  Filing of a review petition can be considered to get clarity.

Also read: Centre still studying SC judgment on GST, might seek legal view to firm up its stand

This is even more needed in the context of Justice Chandrachud’s observation as reported in Live Law — that he said that he was intrigued by the articles written on the GST decision which ultimately “ruled on the aspect of composite supply”.

Having said that, the Centre needs to engage with the States. It needs to spell out in dire detail the chaos which can be unleashed if each state were to act independent of the GST Council’s recommendations. It needs to be more accommodative of the concerns of the states.

The second issue which needs urgent finality is compensation cess. Clause 18 of the Constitution Amendment Act stipulates compensation be given to states for loss of revenue arising out of implementation of GST for a period of five years.  This period comes to an end shortly. The indications thus far are that compensation cess will not be extended beyond five years.

Incidentally the Supreme Court had in 2018 upheld the constitutional validity of the GST (Compensation to States) Act. The Court had held that Article 248 read with articles 246 and 246A of the Constitution indicates that residuary power of legislation is with Parliament.

The Centre should seriously consider extending the period of compensation. This is an issue which has singularly strained federal relations. The states do find themselves in a difficult fiscal position. While undoubtedly it would be unfair to place the blame for this at the door of GST, a solution needs to be found.

Also read: View | Supreme Court delivers body-blow to naive belief that GST is ‘One Nation, One Tax’

The Centre has taken several measures to tackle inflation — cut down cess on petrol and diesel, increase subsidy on fertiliser and LPG cylinders, and waived import duty on a range of raw materials for the steel industry.  All this is going to impact revenue.

The Centre needs to impress upon the states the need to reduce the percentage at which the perceived loss is to be calculated, from 14 percent to a more realistic number. It is unlikely that the cess amount collected will be sufficient to meet the compensation requirement.  The earlier arrangement of back-to-back loans to meet the shortfall can be explored.

This is certainly not the right time to have any discussion on rationalisation of rates. With inflation still a matter of concern, the Russian-Ukraine conflict persisting, there are too many “known unknowns”.

This is a good time to remind ourselves of the observations of the then Chairperson of the GST Council in its early days (third council meeting). He emphasised the need to arrive at a consensus on each issue “even if it needed discussion and re-discussion”. The onus is on the Centre to step in and take the lead to bridge the trust deficit.

— Najib Shah (retired) is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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View: Centre & states must work together on GST — there’s too much at stake for the country

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

One would hope that the Supreme Court decision does not result in the unravelling of GST — this will mean fiscal chaos. States should use the decision to make their voices heard — not embark on a path which will undo all that has been achieved. The decision should spur the council to address and resolve issues which strain federal relations.

The Supreme Court has in decision pronounced today — in an appeal filed by the Centre against an order of the Gujarat High Court — made several critical observations. It has held that the central government and state governments have simultaneous powers to legislate the goods and services tax (GST). The court has gone on to say that the recommendations of the GST Council are not binding on state legislatures. While the detailed judgement is not yet available, the apex court has in effect reiterated the provisions of the Constitution.

The decision has cheered the opposition-ruled states. They believe that the decision is a reaffirmation of the federal nature of Indian polity. Tamil Nadu has in particular emphasised that this is the second decision in two days wherein the court has asserted the power of the states — the first being the decision that the governor is bound by the advice of the state cabinet.

The court’s observations in the GST matter came in the context of the High Court decision which held that Integrated GST (IGST) was not imposable on reverse-charge basis on ocean freight service (reverse charge is a well-accepted taxation sleight of hand, wherein the tax is imposed on the recipient instead of the supplier of the goods or service). The Supreme Court upheld the decision of the High Court and went on to make these observations which have got the tax fraternity buzzing.

The observations have raised a concern — whether this would mean the very unravelling of GST; whether this would mean the very architecture of GST will get impacted.

Also read: Supreme Court says states are NOT bound to follow GST Council recommendations

As is known, Article 246A of the Constitution was brought in through the 101st Constitutional Amendment Act. This is the amendment through which GST was ushered in. The article categorically states that both Parliament and the legislature of every state “have power to make laws with respect to goods and services imposed by the Union or by such state “.

Incidentally, Article 246A (2) expressly states that Parliament has exclusive power to make laws with respect to GST where the supply of goods or of services, or both, takes place in the course of inter-state trade or commerce.

In this regard, it may be mentioned that the proposed Constitutional Amendment Bill was examined by a select committee. The Empowered Committee of State Finance Ministers (which later morphed into the GST Council) was in agreement with the proposed amendment. It was clearly understood that the purpose was to indeed empower the states.  It was being done not by an entry in the concurrent list but by an insertion of an article in the Constitution itself. The idea being that the states (and the Centre) will act on the recommendations of the Council. This is the very core of GST — a uniform rate of levy across the country.

The SC has gone on to observe that the decisions of the GST Council are not binding on the states. Here again, Article 279A (4) of the Constitution expressly states that “the Goods and Services Tax Council shall make recommendations to the Union and states on… (emphasis added).”

Also read: Supreme Court sentences Navjot Singh Sidhu to 1 year jail term in 1988 road rage case

The Article 279A (6) of the Constitution specifies — and which again the apex court has in its observations highlighted — that the council will be guided by the need for a harmonised structure of GST. The Constitution states this will be for “the development of a harmonised national market for goods and services”.

Needless to say, one can fulfil the constitutional mandate of a harmonised national market only if there is a uniformity in the fiscal laws and rates across the country. If the recommendations of the council are acted upon by both the Centre and the states. “One Nation, One Tax” was not mere hyperbole. It is this which made it possible to eliminate checkpoints across state borders to eliminate tax arbitrage and reduce evasion.

We should not forget that the GST Council’s decisions thus far have invariably been by consensus, and have been uniformly implemented across the country. Yes, there have been a few decisions wherein voting was necessitated. But is this not a sign of healthy federal relations? Of debate and differences getting resolved democratically?

There is universal agreement that GST was a transformational tax reform — a reform whose time had come; which removed the inefficiencies of the previous taxation system; which had multiple taxes; which did not permit availing of credit, where, in effect, there was tax on tax; and which facilitated tax arbitrage since each state could have its rate of value-added tax (VAT).

Also read: Gyanvapi Masjid row: Supreme Court to hear case on Friday; asks Varanasi court not to take up matter today

It will not be correct to suggest that everything is fine with the GST law. But this was a law that was conceived after several years of close corroboration and discussion between the Centre and the states. The GST council is an outstanding example of cooperative federalism — of how institutions can address vexatious issues.

One would hope that the Supreme Court decision does not result in the unravelling of GST — this will mean fiscal chaos. States should use the decision to make their voices heard — not embark on a path which will undo all that has been achieved. The decision should spur the council to address and resolve issues which strain federal relations.

GST is too important a levy to meet an early demise. And this when we are looking forward to celebrating the completion of five years of the levy with revenue on the upswing.

It is up to the Centre and the states to iron out differences and make GST work. There is too must at stake for the country.

— Najib Shah (retired) is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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View | The road to a $2 trillion export target

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

Exports have been doing well. FY 2021-22 witnessed an all-time high annual merchandise export figure of USD 417.81 billion. Services exports also set a new record of USD 213.2 billion.

May 2022 saw the coming into force of the India-UAE Comprehensive Economic Partnership Agreement (CEPA). This was an agreement entered into after a long gap — the last being the India- Malaysia Comprehensive Economic Cooperation Agreement in 2011. The interregnum saw India abandoning its proposed entry into the Regional Comprehensive Economic Partnership (RCEP). The long drawn RCEP discussions did however give India valuable lessons about the need for balancing domestic concerns with expansion of its export footprint.

And it is obvious that we do believe that FTAs are the way forward. Udyog Bhavan has been seeing a flurry of activity. Free trade agreements with multiple countries — EU, UK, Canada, Australia, New Zealand are in advanced stages of finalization. This is apart from discussions with various other countries, either for expanding existing agreements or for new agreements.

The underlying belief driving this urge to enter into FTA’s is that these are essential for participating in the global value chains (GVC). However, the role of FTAs in building GVC’s is largely exaggerated.

GVC is determined by factors such as market size and institutional quality. And India does not lack in either. In the context of FTA’s, GVC would mean investments in the country, leading to goods entering the country at preferential rates for value addition and export.

Having said that, there are provisions in the Customs Act with corresponding enabling duty exemptions. Provisions which permit import of goods at nil rates when meant for value addition and export. So, when we are entering into an FTA, we are looking at more than just promoting our exports. We are looking at a comprehensive economic partnership.

Also Read: India’s export ban makes wheat more expensive than ever — these countries would be the worst hit

Exports have been doing well. FY 2021-22 witnessed an all-time high annual merchandise export figure of USD 417.81 billion. Services exports also set a new record of USD 213.2 billion.

It is a moot point as to how much of a fillip FTAs have given to exports. On the contrary it is a known fact that very many of our export destinations are countries other than partner FTA countries. In fact, much of our exports even with our FTA partners are outside the preferential route (incidentally this is true also for imports).

How then do we make our exporters take advantage of FTAs? One can do no better than invite the attention of policy makers to the report of the Surjit S. Bhalla-headed High Level Advisory Group. The Report emphasizes that while selecting trade partners, long term economic interest should be the only driver.

Industry should be made close associates in the entire process. Minister Piyush Goyal’s recent confabulations at Mumbai with the industry as part of India’s FTA negotiations with UK, EU and Canada is a welcome step. Industry should be empowered to speak their concerns and expectations.

Market access is more than reduction in tariff. Tariff barriers are already low with countries such as UK and the EU. We will be giving in much more. It is the non-tariff barriers which are major detriments. These need to be clearly identified — our negotiations should ensure that these barriers do not act as impediments in free trade.

Services related access should be much more than merely movement of persons. It should include relaxation of investment norms. We have enough major players with the capability and interest in investing in these countries.

Also Read: India’s exports jump 30.7% in April; trade deficit widens to $20.11 bn

Exporters need to be educated to take advantage of such agreements. Ministry of Commerce and FIEO have a crucial role to play in this regard. Which brings us to the role of the Export Inspection Council (EIC) and the Export Promotion Councils (EPC).

EIC is the official export certification body with the mandate to ensure quality and safety of products exported from India. Set up under the Export (Quality Control & Inspection) Act, its importance has never been appreciated. EIC should not be reduced to playing a largely bureaucratic role; as yet another agency from whom permission is required.

Exporters need to be educated about the importance of maintaining rigorous quality control. A good product will always find a market-a bad product will hurt the image of the country and put at risk all other products.

Exporters need to be sensitized about maintaining delivery timelines. The importance of Brand India has to be keenly imbibed by the exporting community. EPC’s have to drive this.

The Indian exporter needs to be encouraged to build relationships with the foreign buyer. There needs to be an effective redressal system — both for the foreign buyer and the Indian exporter. Indian missions abroad have to act as facilitators in resolving these issues.

Export incentives have been a key driver of exports. As per the Receipts Budget 2022, an amount of Rs 46,894 crore was the revenue impact in 2020-21 on account of input tax neutralization or exemption schemes linked to promotion of exports. Another Rs 32,894 crore was the revenue impact because of export-linked incentive schemes.

This is money well spent. However, it should not make exporters too dependent on governmental support. Exporters should instead demand and expect government support in building the necessary infrastructure and environment for manufacture and export.

With the increase in FTAs, the role of the agencies issuing the certificates of origin cannot be overemphasized. Integrity is the key. The agencies should conduct themselves in a transparent manner — in effect in the same manner like we expect the foreign certificate issuing authorities to conduct themselves.

All these steps are essential if we are keen to not just exploit FTAs, but also exports to non-FTA countries. And if we are to meet the ambitious target of $2 trillion by 2027.

The author is the former chairman of the Central Board of Indirect Taxes and Customs. Read his other pieces here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

 Daily Newsletter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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 5 Minutes Read

View | The incredible April GST revenue

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

The gross GST revenue collection touched a phenomenal Rs 1,67,540 crore. This is the highest ever revenue collection. It reflects a growth by Rs 25,000 crore over the previous highest which was achieved just last month in March 2022.

The figures of GST revenue for the month of April 2022 have been published. Commentators are in a tizzy trying to understand the astounding numbers.

The gross GST revenue collection touched a phenomenal Rs 1,67,540 crore. This is the highest ever revenue collection. It reflects a growth by Rs 25,000 crore over the previous highest which was achieved just last month in March 2022.

The total number of e-way bills generated in March 2022 was 7.7 crore. This is the first time the 1.5 lakh crore mark has been breached. The month of April also witnessed the highest ever tax collection in a single day. April 20th 2022 saw a collection of Rs 57,847 crore.

The number of GSTR 3B returns (the consolidated monthly summary return of inward and outward supplies) filed were a staggering 1.06 crore. This accounted for filing percentage of 84.7 percent. GSTR 1 returns (the monthly statement of outward supplies to be filed by all GST assesses) filed also were up at 1.05 crore accounting for a filing percentage of 83.11 percent.

All this would suggest better compliance. This would suggest better tax administration and better enforcement. The Central Board of Indirect Taxes & Customs (CBIC) deserves encomiums.

The new financial year also witnesses record exports. India’s merchandise export in April 2022 touched USD 38.19 billion. This is an increase of 24.22 percent over the corresponding month last year. India’s services exports also set a new record of USD 254.4 billion in FY2021-22.

The S&P Global India Manufacturing (PMI) increased to 54.7 in April 2022 from 54.0 in the previous month. This has been ascribed to expansions both in new orders and output. The last PMI Services data available as on date (March 2022) also saw growth. The figure touched 53.60 as against 51.80 in the month of February 2022.

Without trying to sound like a Cassandra always predicting doom and gloom, one has to necessarily juxtapose these glowing numbers with other realities.

Inflation has been a persistent irritant. Paradoxically while inflation is bad, it has contributed significantly to the increase in GST revenues. All rates being ad-valorem have resulted in this surge of revenues. A study of how much increase in GST revenue is because of inflation and how much because of increased economic activity will be revealing. The tightening of input credit norms would have also contributed to the spurt in revenue.

Headline CPI was moving towards 7 percent as against the market consensus of 6.4 percent. The RBI sanguine till now of being in control of inflation has reacted. In a surprising and unexpected move which caught the markets off-guard, the RBI in an off-cycle meeting raised policy rate by 40 bps to 4.40 percent. The cash reserve ratio (CRR) has been increased by 50 bps to 4.5 percent.

The result of these actions will be higher lending rates of banks. It will mean an increased cost of capital. It is estimated that the higher CRR will mean sucking liquidity to the extent of Rs 87,000 crore from the system. Given the geopolitical factors at play, it is a moot point if this will indeed control inflation. But given its mandate of keeping inflation within the 6 percent band the RBI had to perforce react.

All these developments will have unintended consequences. It will have an adverse impact on both manufacturing activity and the service sector. GST revenue going forward could get impacted.

The Centre for Monitoring the Economy’s (CMIE) Consumer Pyramids Household Survey suggests that employment in India fell from 408.9 million in 2019-20 to 387.2 million in 2020-21. It recovered to 401.8 million in 2021-22. The numbers suggest that the employment was still 7 million short of the pre-pandemic employment levels. Revenue nevertheless has done well. This is yet another unexplained paradox.

And in the legitimate exuberance of exports doing well we should not lose sight of the increase in imports. Again, while this results in a robust contribution to GST revenues through the IGST route, it also contributes to a burgeoning trade deficit. The trade deficit in April 2022 was above USD 20 billion- a growth of over 31 percent in April 2022 over April 2021.

A GST council meeting is long overdue. This is an opportune time for the Council to examine seriously the GST rates. This is more so since better revenue performance is a reflection of better compliance and enforcement. It is a reflection that the taxpayer is settling down to the levy. It is time to move towards a revenue-neutral rate.

This can be done in a gradual and calibrated manner. Thus, in the first instance, we could move towards a weighted average rate of about 14.4 percent as was prevalent when GST was introduced. This will mean an upward revision from the weighted average rate of 11.6 percent which we have reached today.

This is an opportune time for the GST council to examine if petroleum products need to be brought into the fold. Their continued presence outside the GST ambit contributes to inflation apart from militating against the concept of a value added tax. The Central Excise, cess & surcharge and VAT imposed on these products are outside the value-added chain. Credit of these levies is consequently not available adding to costs.

The GST Council will also have to take a call on the continuation or otherwise of the compensation cess. Clarity on this issue is of critical importance.

To paraphrase novelist Charles Dickens, it is the best of times, it is the worst of times. And the Government has its task cut out.

— The author is chairman (retired) of the Central Board of Indirect Taxes and Customs. Read his other pieces here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

 Daily Newsletter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Previous Article

Oil Fluctuates as Traders Assess China’s Vow, Unrest in Libya

Next Article

Shanghai residents turn to NFTs to record COVID lockdown, combat censorship

LIVE TV

today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
Quiz
Powered by
Are you a Crypto Head? It’s time to prove it!
10 Questions · 5 Minutes
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Win WRX (WazirX token) worth Rs. 1500.
Question 1 of 5

What coins do you think will be valuable over next 3 years?

Answer Anonymously

Should Elon Musk be able to buy Twitter?