The first discussion paper of the state finance ministers and task force report on GST has succeeded in providing an insight into the broad framework of the GST. However, there still remains ambiguity regarding the issues affecting the stakeholders.

To ensure an effective and purposeful transition to the GST from the existing indirect tax regime, the Centre has to be mindful of certain key issues that businesses are likely to encounter, primarily among them being the transitional provisions.

The transition to the GST regime should be such that it addresses the critical issues that are likely to be faced by businesses. These include issues such as treatment of unutilised tax credit under CENVAT and state VAT, tax treatment of advances/deferred payments, treatment of stock-in-hand, which has been subject to CST/VAT and the provisions for registration under GST.

The GST structure is expected to lead to an increased availability of credits across goods and services with suppliers at each stage being permitted to set-off of GST paid through a tax credit mechanism. However, from a business perspective one of the first things to consider is whether, and the manner in which, unutilised credit under the current tax regime would be carried forward to the GST.

Under the current regime, accumulation of credit is major worry for businesses and can be caused by various factors. A reason for such accumulation is the inverted-duty structure where the duty on the finished product is lower than that on intermediate products. This inverted duty structure acts as a disincentive for businesses.

Currently, there has been no clarity on carry forward of excess credits from the present regime into the GST. Transitory provisions must be framed allowing either the carry forward of excess credit or refund of such credits.

Alternatively, in case there is no carry forward of credit, adequate refunds should be allowed in respect of tax paid goods held in stock on the date of implementation of GST.

Complications would also arise with respect to on-going contracts where payments are made on milestone basis or as advances. Special rules would be required which take into consideration cases where the period of execution of the contract is spread across the existing tax regime and the GST regime but payments are made on lumpsum basis either prior or post the implementation of the GST.

Similarly, complications would also arise in respect of taxability of payments made before the commencement of GST for goods to be sold or services to be performed after commencement of the GST. Other issues such as treatment of goods sold under the current regime, but returned as sales returns under the GST regime would also need to be addressed.

The industry expects that there should be similar formats for registration, returns and other records under both Central GST and State GST. A common format for different procedural requirement would erase the existing compliance difficulties faced by assessees.

Further, adequate time should be provided to allow assessees to obtain registration post implementation of the GST with minimal procedural requirements for dealers already registered under the current regime.

During the consideration of the Finance Bill 2010 in the Parliament, the finance minister has reiterated the government's commitment towards implementation of the GST with effect from 1st April, 2011. A revised discussion paper is expected to be released by next month followed by draft legislation, to be placed before Parliament in the monsoon session.