GST implementation may trigger tax litigation

Analysts foresee three layers of litigation that could arise as and when GST comes into force, with the first layer being between the taxpayers and the various government departments.

The implementation of the Goods and Services Tax (GST) is likely to keep the legal fraternity busy sorting out legal disputes expected to arise between different stakeholders. Many admit that the initial phase of GST’s implementation would be a “honeymoon period” for taxation lawyers and would eventually push up the cost of doing business in India. As India experiments with the most phenomenal reform in its indirect tax regime, it is bound to attract litigations because “GST would be an evolving tax regime” said Nalin Kohli, national spokesperson of the Bharatiya Janata Party (BJP).

It could take years before the GST perfectly sinks in with the system. Most disputes would arise from its (GST) handling by multiple government agencies. “The ideal situation would have been a National-GST wherein only one authority manages GST in its entirety,” said Bimal Jain of A2Z Taxcorp LLP.

India has adopted a DualGST regime which gives power to both Central and state governments to impose and collect GST, known as Central (CGST) and State ( SGST) respectively. Analysts foresee three layers of litigation that could arise as and when GST comes into force. The first layer could be between the taxpayers and the various government departments. The GST law is a new law and there are many subjectivities which are open-ended and therefore prone to multiple interpretations. This could give rise to legal disputes between the taxpayers and the government. The second set of acrimony could arise between various state governments inter-se. The third layer of litigation could be between Central and state governments as both have dual authority to collect GST. They might have difference of opinions on each other’s authority to impose and collect GST. This is where the spirit of co-operative federalism would be severely tested.

India has taken a bold risk to embrace GST to leverage many a benefit that GST is expected to bring about. Doing away with multiplicities of indirect taxes and making compliances easier for tax payers are prominent credentials of the new taxation architecture. The prices of goods are expected to come down as the taxation component on them would be reduced to about 18% (yet to be decided) from the present 28%. The GST is also expected to boost the national economy by two percentage points each year for the next many years.