GST: Maharashtra’s Confusing Move
A tax advisor looks over paperwork while working with a customer (Photographer: David Paul Morris/Bloomberg)  

GST: Maharashtra’s Confusing Move

A recent trade circular by the Maharashtra tax department has taxpayers worried.

The state has done away with a deemed adoption status to the circulars issued by the Central Board of Indirect Taxes and Customs. That reverses a July 2019 notification which allowed the adoption of any central government circular.

Citing the need for a “single source” of information, Maharashtra has now said it will issue a separate circular regarding the applicability of any new central circular, for implementation of the Maharashtra GST Act.

The circular denotes a retrograde trend, Jigar Doshi, partner at TMSL LLP, told BloombergQuint. “Businesses in Maharashtra will be throttled between the state and the centre (governments), and taxpayers may have to scratch their head to figure out which circular applies to them and which doesn’t.”

Withdrawal Of Deemed Adoption Status: What Does It Mean?

Goods and Services Tax was introduced in 2017 with the theme of “One Nation, One Tax”, aimed at avoiding multiple taxes and compliances for businesses.

GST is imposed through three different sets of laws—the Central GST Act passed by the parliament; State GST Acts, which nearly replicate the CGST law but are passed by the state governments; and the Integrated GST Act. Both governments are empowered to issue rules and circulars under their respective spheres.

Initially, the Maharashtra government had adopted more than 80 central government circulars in order to maintain uniformity in the implementation of the MGST Act. This included circulars dealing with:

  • Clarification on issues relating to filing of returns, tax rate, job work, restriction on refund of accumulated tax credits in certain instances.
  • Determination of place of supply, refund-related issues and levy of GST on the director’s remuneration.
  • E-way bills, eligibility of taxpayers to file a refund application etc.

The withdrawal means that Maharashtra will have to issue a separate circular against any new central government circular to clarify its applicability under the MGST Act.

Move May Create Confusion, Experts Say

Experts pointed out that the circular is an outcome of the friction in centre-state relations, exacerbated by the compensation cess dispute, and goes against the GST’s core theme of “one nation one tax”.

All states are part of the GST Council and hence, decisions like these should be unanimously discussed and decided, Abhishek Rastogi, partner at Khaitan & Co., said. Inconsistency of approach and circulars between different states as well as between the central and state governments would only result in chaos, he said.

There will be a lesser damage to consistency if the difference between the circulars is purely on procedural aspects. But any difference on factors such as taxability won’t provide any clarity but will only create an inconsistency in approach. 
Abhishek Rastogi, Partner, Khaitan & Co.

The idea of “one nation one tax” shouldn’t drown in political differences which have so far not come in the way of GST despite the wide level of divergences, Tarun Jain, partner at BMR Legal Advocates, said.

While many states have issued their own circulars in the past, no one has directed that the circulars issued by the central government shall not apply.

One would hope that Maharashtra will be quick to replicate the central circulars and in any case, not deviate from them unless the reasons for difference are first raised and discussed before the GST Council. 
Tarun Jain, partner, BMR Legal Advocates

Taxpayers will have to bear the brunt of additional compliance in case of any inconsistency between the central and state government circulars. If other states follow suit, businesses operating from multiple locations will have to adopt state-specific measures which may increase compliance costs.

So far, 140 circulars have been issued till date under the CGST Act, of which 50 came out last year, Doshi pointed out.

“Imagine the agony of the taxpayer when she has to verify every year if 50 circulars have been made applicable in the state or not,” he said.

A bigger question that arises is what would happen if no parallel circulars are issued under MGST or what can one do during the time lag between the two circulars. How will the judiciary or the AAR decide cases where a parallel circular in MGST is found missing? Will we now have separate rules for CGST and SGST component? And what about IGST ?
Jigar Doshi, partner, TMSL LLP

In a slight relief for taxpayers, the state government has clarified that the withdrawal won’t affect more than 80 circulars that have already been adopted.

Also read: GST Input Tax Credit: Honest Taxpayers May Be Spared Brunt Of New Rule

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