Duel on dual control



Principal Consultant, STVAT Consulting


(In this article, Sridharan shares his views on the issue of cross empowerment / Dual Control and opines that in the interest of efficiency, Audit of Assessees is ideally by a team comprising State and Central Administrators.)


One of the contentious issues holding up the early roll out of dual GST is the issue of Cross Empowerment or Dual Control.




For the benefit of those who may not have been tracking the developments. Here is a brief backdrop.


The dual GST designed to be implemented in India subsumes a host of Indirect Taxes levied by the Central Government and State Governments. The taxes hitherto levied by the Central Government now subsumed as Central Goods and Services Tax (CGST) is primarily Central Excise and Service Tax besides certain other levies.


The taxes hitherto levied by the State Governments now subsumed as State Goods and Services Tax (SGST) is primarily State VAT besides certain other levies.


Under GST, Interstate Supply of Goods and Services would be subject to Integrated Goods and Service Tax (IGST).


The Centrally levied taxes (Central Excise and Service Tax) are at present administered by the Central Board of Excise and Customs (CBEC). Taxes levied by the States are at present administered by State Authorities primarily the VAT Commissionerate of the respective States.


Since the taxable value is common for both CGST and IGST, it is recognized that an assessee should be assessed by either the Central Administration or the State Administration.


While there is consensus that all assessees engaged in supply of goods with annual turnover below Rs.1.5 crores would be assessed by the State Administration, the bone of contention is control over Service Tax Assessees. While the States want control of all assessees (engaged in supply of goods and or services) with annual turnover below Rs.1.5 crores, the Central Government wants control over all Service Tax Assessees.


It is reported that for assessees having taxable turnover of over Rs 1.5 crores, a system of cross empowerment between states and Centre is contemplated.


The issue is how to split the assessee base between the Central Administration and the State Administration.




While the strength of personnel in CBEC is about 77,000 and that of State Administration is 2.80 lakhs (source: Press Reports), the State Authorities content that the assessee base with annual turnover of less than Rs.1.5 crores would be numerically larger and that their strength of personnel being larger than that of Central Authorities they should be handling fully this segment including those effecting only supply of services.


The Central Authorities content that being experienced in administering service tax since 1994, they are better equipped to assess taxable persons effecting supply of services. This is countered by State Administrators that they are experienced in assessment of composite supply of goods and services like works contract and they do have the competence to assess services.


It is also to be borne in mind that GST that is to be implemented is nothing but extension to the central level the present system of State level VAT devoid of interpretation issues like what constitute manufacturer etc. and that with an IT infrastructure, selection of cases would be based on risk parameters flagged in the system.


While whatever be the merits of the contention of the Central Administrators and State Administrators, it is important that GST Council, in its decision on cross empowerment and division of assessee, balances the indisputable requirement of an efficient tax collection mechanism and at the same time provide the most important stake holder, the taxable entity, a transparent and knowledgeable administration.


To better understand the need for an efficient tax administration, the following observation is relevant.


… unless the accompanying tax administration is able to handle those laws in terms of having the appropriate staff to interpret and implement them, the field-level reality of the actual incidence of the tax system may be quite different from the original objectives. (Faria, Angelo and Zutu Yucelik (1995), The Inter relationship between Tax Policy and Tax Administration in Parthasarathi Shome (ed.), Tax Policy Handbook, International Monetary Fund, Washington D.C.)




With the GST Council set to meet on 22nd and 23rd December, 2016 some suggestion for consideration in the decision on the division of assessee base are


The assessee base with annual turnover of less than Rs.1.50 crores may be divided between the Central and State Administration in proportion of the respective cadre strength in the respective States without distinction of the nature of supply of the assessee being that of goods or services. Even at present dealer in goods with annual turnover less than Rs.1.50 crores could also be a service tax assessee.


Further with the avowed objective of obliterating the distinction between the supply of goods and services, it is not desirable to continue the distinction for the purpose of administration and assessment.


Division of this strata of the assessee base would help effective deployment of the existing strength of personnel and also provide exposure to the Central Administrators to assessees presently handled exclusively by the VAT Authorities and would also provide exposure to assessment of services to the VAT Authorities.


Since the turnover base is only Rs.1.50 crores risks are relatively lesser and would be a good training base for the officials.


  In so far as the division of taxable entity with annual turnover of more than Rs.1.50 crores is concerned, it is suggested that


a)  Assessees predominately engaged in provision of service like insurance, banking, telecommunication and other major services on a PAN India basis may be assessed by Central Authorities so as to ensure uniformity on interpretation matters like time of supply and place of supply.


b)  Service Tax assessees holding centralized registration may be assessed by Central Authorities since most of the assessees holding centralized registration may have operations across States.


c)  The rest of the assesses could be split on the basis of the relative strength of personnel in the respective States.


  There should be a process in place for desk review by both Central and State Administrators and sharing of observations to the designated assessing authority ( “Proper Officer” as in GST draft Legislation)


  Since only a small percentage of Assessees would be selected for Audit, the Audit team should ideally comprise officials drawn from the Central and State Administration.


The rationale for the suggestion to split the assessee base on the basis of the strength of personnel is that the existing personnel need to be effectively deployed and this basis will also to a certain extent satisfy the State Administrators who have been making out a case based on their numerical strength.


It is also suggested that in computing the strength of personnel, the strength of supporting staff may be excluded and only the strength of officers engaged in assessment / audit work besides higher level administrators may be reckoned.


It is needless to reiterate that for successful implementation of GST constructive cooperation and coordination between the Central and State Administrators is of paramount importance.


Whoever may be the Assessing Authority is important that the authority should be well informed and for this purpose a national training authority on the lines of NANCEN is required in each of the States.


Let us hope that in the ensuing meeting of the GST Council on 22nd and 23rd December, 2016 the issue of cross empowerment / dual control is resolved.


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Published : December 20, 2016

Updated : December 21, 2016


The articles in Editor's page is based on inputs available on the date noted and is to be read in that context. The articles are usually not updated for later development.