Classification of goods under GST, the new flash point say experts

The government may be rejoicing after getting the GST (Goods and Services Tax) council to agree to the rates and slabs for the new tax, but experts and insiders point out that the biggest hurdle is yet to be crossed: choosing the goods that will fall into these slabs. It has been decided that a committee of top officials of all states will work on this, but this could become a flash point in the run-up to the implementation of this new indirect tax.

The GST Council, the highest decision making authority for the new tax, last week agreed to a four-tiered GST. Essential items such as food grains, one of the main reasons for rising inflation, will be taxed at zero rate. The lowest rate of 5% will be on items of common use, followed by the standard rates of 12% and 18% and the highest rate is 28%. Additionally, a cess will be added to the top 28% GST rate on luxury cars and harmful products like tobacco and fizzy drinks.

“A committee will decide the fitment of goods into the four-tiered GST rates. We cannot divulge anything more than this, now,” said revenue secretary, Hasmukh Adhia.

Top sources in finance ministry say that this committee is yet to be formed. The demand is to include senior functionaries from all states in the committee for deciding this ‘fitment’.

“But that would become very cumbersome. A committee with so many people will make the decision making even more difficult,” said an official in the know of the matter who did not wish to be named.

The GST council will have to define luxury and essential goods even before the classification of goods begin, the official quoted above, added.

Experts agree. “Classification of goods for fixing their tax slabs will throw up a fresh set of disputes and this may lead to some confusion,” Bipin Sapra, tax pertner, EY told HT.

Classification of goods into categories and applying different tax rates on them has the potential of leading to litigation, say experts.

“Multiple GST slab rates may be politically correct but it will lead to classification dispute and compliance challenges unless the items covered under the slabs are not clearly defined,” Sachin Menon, partner and head of indirect tax, KPMG said.

But, a top official in the revenue department allays all fears saying that the process of classifying goods will be based on the process of elimination. “Once the essential items and luxury goods are classified what is left will fall in to the standard category,” he added.

At the end of the fourth GST council meeting on November 4, finance minister Arun Jaitley had said that the issue of cross-empowerment is the only pending matter that needs to be resolved, before the other GST-related legislations are finalized.

Cross empowerment deals with the issue of who will tax whom between the Centre and the states once GST is rolled out.

But functionaries involved say that the issue of ‘fitment of categories of goods in to the tax slabs’ will be a more immediate hurdle to cross.