The revised draft of the GST bills tabled in Parliament could put pressure on the working capital of industries and spark greater litigation in the coming years

The revised draft of the goods and services tax (GST) legislation tabled in Parliament on Monday could put pressure on the working capital of industries and spark greater litigation in the coming years, analysts said.

According to the provisions of the central GST law tabled in the Lok Sabha, taxpayers can claim credit only on the basis of receipt of goods or services. The earlier version of the draft had provided for the facility of provisional credit, which has now been done away with. So, even if a taxpayer has made an advance payment, he cannot claim credit until he receives the entire consignment.

According to the provisions of the central GST law tabled in the Lok Sabha, taxpayers can claim credit only on the basis of receipt of goods or services
Further, entities purchasing from unregistered dealers will have to pay GST to the government under a reverse charge mechanism, placing further burden on the working capital of firms. The provisions also say telecom towers and pipelines will not be able to avail of credit in a GST regime. This seems to be in line with judicial precedent where they have been held to be inputs and not capital goods, analysts said. The earlier provision in the GST law provided that every capital good will be able to avail of credit over a period of two years. For telecom towers and pipelines, the credit could be deferred over a period of three years.

“The clause that telecom towers and pipelines will not get credit will hurt the industry. There was an expectation that this issue will be addressed. But this seems to continue which will, in turn, be a cost for these industries,” said Harishanker Subramaniam, national leader, indirect tax, EY India.

Under the new GST law, Even if a taxpayer has made an advance payment, he cannot claim credit until he receives the entire consignment
Pratik Jain, indirect tax leader at PwC India, said the issue of credit availment in case of telecom towers and pipelines has been a highly litigated matter with more than Rs1,000 crore involved.

“The department argues credit is not available because telecom towers are not capital goods,” he said.

The definition of works contract has also been changed to include only immovable property and not both immovable and movable property as in the earlier draft.

This could cause interpretational issues as now the classification and the tax rate applicable will depend on whether the goods component or the service component is more dominant.

"The clause that telecom towers and pipelines will not get credit will hurt the industry. There was an expectation that this issue will be addressed. But this seems to continue which will, in turn, be a cost for these industries"
- Harishankar Subramaniam, national leader (indirect tax), EY India
Clarity also evades on the treatment of supply of services between two registered legal related entities.

Finance minister Arun Jaitley tabled four pieces of GST related legislation as money bills in the Lok Sabha on Monday. The bills will be debated in the House on Wednesday and put to vote. The government is aiming to get the Parliament’s nod for these bills in the ongoing budget session of Parliament to give the industry enough time to study the final framework and start the transition process for adopting this new indirect tax regime.

The definition of works contract has also been changed to include only immovable property and not both immovable and movable property as in the earlier draft
However, on the positive side, the law has given some respite for taxpayers. According to the earlier draft, tax credit after the matching of invoices could be reversed if the tax is not paid within three months. This clause was, however, only for services. Now, it has been extended to both goods and services, but the time for tax payment has been increased to 180 days.