Current system to stay for six months, the next half-year will see system of provisional credits.
The Goods and Services Tax Council on Friday approved a new comprehensive return-generation system and full government ownership of GST Network (GSTN) — the IT backbone for GST — while referring a proposal to impose a cess on sugar and an incentive scheme for digital transactions to two separate groups of ministers (GoMs) for further deliberations.
As reported by FE earlier, despite the council’s nod, the new returns system can be implemented fully only after a year. The system will allow taxpayers to just upload invoice-wise details of sales while the system will generate the returns. The IT system will also calculate the tax liability and input tax credit (ITC) availability on behalf of the assessee and provide for a semi-automatic reversal of credits.
For the next six months, finance secretary Hasmukh Adhia said, taxpayers will continue to file summary return GSTR-3B and GSTR-1 (outward supply details). After that, he said, the new system will be put in place but assessees will be allowed to claim provisional input tax credit for a period six months, which means a taxpayer can seek the credit even when the supporting invoices aren’t uploaded by the seller.
During this (provisional credit) phase, a dealer will be constantly fed with information about the gap between credit available to him as per invoices uploaded by the sellers and the provisional credit claimed. In the next phase, the system will not allow provisional credit claim as ITC would be available only on the basis of invoices uploaded by the sellers, Adhia added.
However, the buyer will be made responsible for credit claimed on purchases for which the supplier has defaulted in tax payments. “We will use legal methods to recover tax from the seller but in circumstance where its not possible, reversal of credit from the buyer will also be an option,” the finance secretary said.
Earlier, a group of ministers headed by Bihar deputy chief minister Sushil Modi had recommended the returns model, by combining the features of two other models, including one mooted by Infosys non-executive chairman Nandan Nilekani.
Separately, citing the ‘state functions’ performed by GSTN, the council approved a proposal for the Centre and states to jointly (and equally) acquire the entire 51% of equity held by the non-governmental institutions in GSTN amounting to Rs 5.1 crore. The GSTN board will initiate the process for acquisition soon. Currently, the Centre and states jointly own 49% in GSTN (24.5% each), while the rest is held by five other entities, including LIC Housing Finance, HDFC Bank and ICICI Bank. Finance minister Arun Jaitley said that the the state governments have GSTN stakes on a pro rata basis depending on their GST revenue profile.
However, to ensure that GSTN continues to be nimble-footed like a private company, the council allowed it to continue with the existing staff at existing terms and conditions for a period of up to five years. The GSTN board will also retain the the flexibility of hiring people through contract on the terms and conditions similar to those used by GSTN till now while hiring regular employees, the minister said.
Sachin Menon, partner and head, indirect tax, KPMG in India, said: “Converting GSTN into a 100% government company is welcome. I hope it will not affect its functional efficiency and ability to take quick and proactive decisions to address the tax payers’ concerns.”
On the issue of promoting digital transactions, Jaitley said that majority of the council members supported the proposal but some members suggested that a negative list of items should be created for the same. Subsequently, the council decided to defer the matter to a GoM (of state ministers) for recommending solutions.
The proposal in its current form would provide concession of 2% (1% each from central GST and state GST) on the GST rate — where the rate is more than 3% on business-to-consumers supplies if the payment is made through cheque or other digital mode. However, the concession would have a ceiling of Rs 100 per transaction.
The council constituted a second GoM on the issue of imposition of cess on sugar to help mills clear cane dues owed to farmers. The proposal was to create a fund from the cess proceeds to finance the gap between the cane price mills can pay to farmers in accordance with a revenue-sharing formula recommended by the Rangarajan committee and the benchmark rate — fair and remunerative price (FRP) • fixed by the central government. Jaitley said that council discussed whether such contingencies could be addressed through such imposts, tax rate hikes or alternative systems of revenue generation. Only Uttar Pradesh and Maharashtra were in favour of the cess move as the it wouldn’t benefit other states, West Bengal finance minister Amit Mitra said. “The decision of sugar cess has been deferred for now, it would be ideal if it is not introduced given it was abolished when GST came in and GST was expected to subsume all such levies. If there is need for revenue augmentation, it can be done by increasing the GST rate rather than distorting the overall structure,” said Pratik Jain, partner and leader, indirect tax, PwC India. MS Mani, senior director, Deloitte India, said: “The staggered introduction of the new returns would enable businesses to prepare for the same and make changes to their systems; businesses are relieved that they would no longer be penalised for their vendors omissions. Simplicity of the new returns would be key to its successful adoption by businesses as past experience with complicated forms and processes indicates that complexity reduces compliance.”

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