While Goods and Services Tax (GST) has been embraced with open arms by India’s business community, its implementation and adoption has not been without teething troubles. The Dollar Business caught up with Vanaja N. Sarna, Chairperson, Central Board of Excise and Customs (CBEC), to discuss issues relating to GST, and learn how the new tax could be a game changer for India ‘Manufacturing & Exports’ Inc.

INTERVIEW BY AHMED SHARIQ KHAN | September 2017 Issue | The Dollar Business

TDB: India is today globally recognised as an economic powerhouse. What has made this possible?

Vanaja N. Sarna (VNS): The 21st Century definitely belongs to India. The many reformative policy decisions along with the advent of ambitious schemes like ‘Make in India’ are proof of the fact that we have taken the right path. Now, while traversing on this path, we will have to create the right environment for both existing and new investors. ‘Skill India’, I believe, is one initiative which will help in harnessing the benefits of our demographic dividend.

"A Non-Intrusive IT System should be the interface between industry and tax officials"

TDB: As Chairperson of Central Board of Excise and Customs (CBEC), what are your short and long term priorities to help India enhance its image as a competitive manufacturing hotspot? 

VNS: The most important short-term goal is to have a smooth and successful roll-out of the Goods and Services Tax (GST) regime. And, so far, the response has been very encouraging. Industry and businesses are successfully migrating and registering to the GST regime. And from our end, we have been very flexible – as and when the need has arisen, we have extended some of the requisite deadlines particularly related to registration and return filing. Similarly, the date to opt for the composition scheme has been extended. And, based on feedbacks, we are trying to help businesses by ways of notifications, circulars, orders, press releases, advertisements, FAQs, etc. To facilitate export, we have allowed export without payment of duty through furnishing bonds and letter of undertaking.

In the long-term, we would like a non-intrusive IT system to be the interface between industry and tax officials. I am of the view that minimal official intervention and lesser discretionary power would make the system self-driven.

Another goal we envisage is to use the power of data analytics. The objective would not only be to capture the entire gamut of transactions but to also analyse and identify deviant behaviour. Anti-evasion and preventive functions would be made efficient and effective by using IT tools. In this regard, our focus will be on capacity building – both, human as well as technical.

TDB: CBEC’s proposed rechristening as Central Board of Indirect Taxes & Customs (CBIC) points toward an enhanced mandate for the CBIC. What are your thoughts on this?

VNS: With the advent of GST, we have done away with the laws which had been in existence for more than 70 years. Throughout these years, gradual changes were incorporated which had resulted in moving from a regulatory framework to a facilitative mode in a self-assessment era.

But sometimes these gradual changes do not help in keeping pace with the changing environment and aspirations of the country. And hence, a need was felt for transformative changes to reconstruct the entire indirect tax structure. GST was one such change that arose out of a need to keep pace with the world. In a single stroke, 17 taxes and various cesses being levied by the Centre and state governments have now been subsumed into one.

The role of CBEC has now become very challenging as well as exciting. For the first time, CBEC will be administering retailers along with the manufacturers and service providers. And going forward, different types of entities will be under our ambit. Moreover, the entire process will be IT driven. And all this will require handholding the businesses – whether it is a trader, manufacturer, service provider or a dealer.

"The  new role of cenrtal board of excise and customs is very challenging as well as exciting"

Another new role that is being played by CBEC is that of collaborating with the officials of the state governments by way of capacity building and collaborating in indirect tax administration. It will also be a process of mutual learning. So, in the GST regime, our role expands and becomes more holistic in relation to indirect taxation. Right from capacity building for officers to facilitating the trade to guarding revenue, we will have to evolve according to the situation and keep changing every day.

These multiple roles will help us in ushering in the new era of GST. I am happy to say that we have been preparing ourselves for this for quite some time now and that preparedness has helped us in meeting the requirements of these roles and the challenges arising thereof.

TDB: CBEC has relaxed norms on bonds to help exports take off under the new tax regime. Could you shed some light on how CBEC has envisaged the roadmap on this aspect?

VNS: To facilitate exports, the CGST Rules, 2017, provide that instead of exporting goods or services on payment of integrated GST (IGST), the exporter can furnish a bond or letter of undertaking (LUT) and thereafter export without payment of IGST. The conditions for furnishing bonds or LUT were subsequently notified. One needs to furnish a bond or LUT for the entire financial year. Moreover, we have also liberalised the process of container sealing for exports.

TDB: Existence of inverted duty structure is a hurdle cited by many in the manufacturing sector. We understand that CBEC is reviewing the relevant policy in this regard. Could you give us an update?

VNS: In the GST regime our prime target was to keep the incidence of taxation at the same level as it was in the pre-GST era. However, there may be a few instances where the duty structure is inverted. The government’s objective is very clearly to make India a manufacturing hub of the world. So, any anomaly, which is a deterrent for both our growth and revenue, will require a relook. GST Council, in its own wisdom, will take the corrective steps as and when required.

TDB: Now, after a prolonged period of slowdown, exports seem to be recovering. Going forward, how do you see the role of CBEC as an enabler for enhancing the country’s exports shipments?

VNS: The role of CBEC is to provide the taxation and procedural framework within which the exporters can realise their true potential. On the legislative front, the GST law has defined exports as ‘zero-rated supply’, which means the exporters will be eligible for refund of all taxes that the goods or services being exported might have suffered in their supply chain.

Further, in the CGST Act, it has been provided that exporters will be eligible to avail provisional refund of 90% of the amount claimed as refund within seven days of submission of application. The final settlement of the refund application will be carried out in 60 days. Earlier, the same activity used to be conducted in a period of 90 days. Hence, the period for grant of refund has been reduced by 30 days which will result in a lot of savings for the exporters.

TDB: Could you also share the procedural advances under the GST?

VNS: Well, on the procedural side, the biggest improvement will be actualised in the filing and processing of refund applications. Under the GST regime, the refund process is completely electronic with minimal requirement for human intervention between the applicants and the tax authority.

So, you will find that a lot of documentation that was earlier required for this purpose has now been done away with. Existing shipping bill formats (both manual and electronic) have been modified to make them compliant with the IGST law. The shipping bill, having inter-alia GST invoice details, filed by an exporter will be deemed to be an application for refund of integrated tax provided the exporter has filed an export manifest and valid return.

Similarly, the process of sealing of container in the premise for export has been liberalised. Going forward, our emphasis is on self-sealing. All these are the new enablers which will help in increasing the country’s exports shipments.

TDB: We are now over a month into GST, but there is a lack of procedural clarity as to how IGST is to be paid (due to which many exports consignments are said to be held at the factory gate). How is CBEC addressing such issues?

VNS: One of the hallmarks of the GST process has been the level of interaction as well as feedback that policymakers have sought from the trade and industry. At each and every stage, be it the GST laws, rules or processes, the documents have been put up in public domain to seek comments and observations from the stakeholders and endeavours have been made to streamline them in the light of the suggestions made.

CGST rules have been framed and the processes to be followed are in place right from day one. In my view, businesses will take some time to adapt to the new procedure. And for export, the rules, notifications and circulars are in place and field officers are accepting bonds/ LUT submitted by the exporters. Help desks have been established to facilitate as well as guide our exporters.

Moreover, 18 sectoral committees were formed to study the issues of certain important sectors. These committees consulted the industry stakeholders and guidance notes in the form of FAQs for every sector are now being released. It is pertinent to mention that around 5,000 GST awareness programmes have been carried out till date all over India to familiarise the industry with GST laws. So, in sum, CBEC has taken a multipronged approach in handholding our exporters in order to enable them to get acquainted with the rules and procedures of the new GST regime.

TDB: Major sectors such as petroleum, electricity, the farm sector, etc., are still outside the ambit of GST. This may, for instance, lead to a significant amount of blocked input taxes and erode India’s competitiveness in the global markets. Do you think we may have to revisit the GST law in the future?

VNS: The first thing that we should keep in mind is that India has a federal structure with a democratic setup where both the central and state governments have been constitutionally endowed with powers of taxation. Against this backdrop, the key to any effective reform is consultation and collaboration which has been the cornerstone of the GST process.

Right from the onset, we were very clear that everyone, including the governments, both the central and the state, had to be on board for the GST reform to be rolled out smoothly. It is important to realise here that the state governments were initially wary about any loss of revenue that they might face on account of the introduction of the GST. For them, as well as the Centre, GST was a leap in the dark as nobody could fathom accurately as to what will be the impact of the new tax regime on the revenues of the concerned governments.

And keeping all these hurdles in mind, GST could have never been a reality if we were not ready to work collaboratively with each other. As regards the few items, which have remained outside the purview of GST, all I can say now is that we have made a very good beginning and as the governments become certain about revenues, other items can gradually be considered.

TDB: It is vital for the government to continually promote modernised methods to improvise its tax administration structure and bring ease of doing business, which had earlier been marred by a heavily bureaucratised “Inspector Raj” system. How is CBEC working towards curtailing this?

VNS: The key objective of GST is to establish a non-intrusive electronic system for each and every process of indirect tax administration so that there is minimal human interface between the taxpayer and tax authority. The entire process is IT-driven, right from the filing of an application for registration to cancellation of the same. There is provision for online registration within a period of three working days. Any query, showcause notice or its reply will also be done online.

"The period for grant of refund has been reduced by 30 days, Which will result in a lot of savings"

Besides, the tax being self-assessed, we now have electronic payment of taxes through a single challan for all taxes. The e-filing of returns and other details, electronic matching, reversal and reclaim of input tax credit, electronic maintenance of accounts and other records and electronic sanctioning of refund claims will have an enormous positive impact on the compliance cost for the taxpayers. Timelines too have been defined for processes and can be easily monitored. For example, whenever a registered person sends a request for a refund, an acknowledgement would be generated. An officer cannot delay the process. All requests/ replies will be lying in the queue of the officer and he will be answerable for any delay. Lesser human interaction, along with time bound monitoring, should lead to a massive improvement in the tax administration of our country.

TDB: CBEC has been making efforts to strengthen its IT network. However, IT literacy and IT penetration in India’s tier-2 and tier-3 towns still pose as a roadblock. How does CBEC propose to overcome this hurdle?

VNS: Return forms have been designed to be easy to understand and filing returns will be very simple in the GST regime. It can be done offline by downloading the excel utility and then subsequently uploading the same. For registered persons dealing in B2C business, only consolidated amount needs to be filled up. A registered person just needs to fill up the outward supply details in GSTR1. The other two return forms will be auto-populated and very few fields, if required, need to be updated.

CBEC has been conducting massive awareness programme for the same. Facilitation centre and help desks have been set up to help businesses in this regard. Further, both central and state governments are working on the last mile connectivity of IT infrastructure. Considering all this, IT infrastructure of tier-2 and tier-3 cities of our country will not be a hurdle to a smooth transition to the GST regime.