The introduction of GST is now nearer than ever. The Budget 2012 should, therefore, take positive steps towards making the path of GST smoother. GST is a combination of comprehensive service tax and comprehensive goods tax. The Comprehensive service tax is expected to come in this Budget. So the next step towards that end is the introduction of comprehensive goods tax (excise tax) with a negative list of goods (not to be taxed). Comprehensive excise tax means the central excise tariff itself will go. What will come will be one or two rates of tax for all goods with a negative list for goods. All the numerous exemptions will go excepting those which are in the negative list. Obviously the Government is not going for comprehensive goods tax in this Budget. But here we can suggest methods as to how this Budget can pave the way for a smoother transition to the comprehensive goods tax in the next Budget.

Abolish distinction between capital goods and input
The first thing that needs to be done for the above purpose is to abolish the distinction between input (raw materials) and capital goods for the purpose of CENVAT credit. Right now there are two definitions of capital goods and input. Both are of enumerative type. Capital goods has been defined as goods falling in the chapters for machinery and instruments, pollution control equipments, mould, dies, jigs, tube pipes, storage tanks and some others. Input has been defined as all goods used in the factory by the manufacturer of final product but excludes certain specified items. It is necessary to abolish this distinction and say that all goods and services used by the manufacturer in the final product are eligible to CENVAT credit except those in a negative list. This negative list is not the same on which no tax is levied. This list refers only to those where no CENVAT credit is allowed. This will ensure smooth credit of input duty for both goods and services which will completely be in line with the concept of GST coming expectedly next year.

Another very important reform in CENVAT procedure is to abolish a large number of duties and cesses. The following duties are now admissible to CENVAT credit.

i. Duty of excise in the First Schedule

ii. Excise duty in the Second Schedule

iii. Additional duty of Excise leviable under Section 3 of additional duty of excise on textile and textile articles

iv. Additional duty of excise leviable under Goods of Special Importance Act

v. National Calamity Contingent Duty

vi. Education Cess

vii. Secondary and Higher Education Cess

viii. Additional duty under Section 3 of Customs Tariff Act

ix. Additional duty under Section 5 of the Tariff Act

x. Additional duty under Section 157 of the Finance Act

xi. Service Tax leviable under Section 66 of the Finance Act

xii. Service Tax leviable under Section 66A of the Finance Act

xiii. Education Cess on taxable services

xiv. Secondary and Higher Education Cess on taxable services

xv. Additional duty leviable under Section 85 of the Finance Act

All the above have several provisos attached to them which are highly complicated.

Abolish the cess pool
There are so many cesses that they are rightly known colloquially as cess pool. There are court cases going right up to Supreme Court to determine whether cess is a fee or a tax. Such litigations and complications can be avoided if all cesses are abolished. They can be merged with the main rate of duty.

Abolish the law of unjust enrichment
The simplification that the GST will bring should not be marred by the complication of denying refund for the so called unjust enrichment. Sales tax does not have any provision for denying refund for unjust enrichment. So if Central Excise and Sales Tax are going to be merged, this provision has to be withdrawn. So let it be done in this Budget itself. The conclusion is that certain systemic changes must be done in advance in this year's Budget to remove the road blocks confronting GST. This will also have the advantage of knowing in advance the difficulties that may arise later.