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The GST Maze – Prof. Jacob Chandy

Jan 11, 2022.

It is almost universally acknowledged both within the country and outside, that the Indian bureaucracy and government are among the most inefficient in the world and that they are one of the most important reasons why it is so difficult to do business in India. To be fair, this dubious image has somewhat improved since the advent of Sri. Narendra Modi as Prime Minister of India, but he himself has often admitted that he finds it difficult to deal with India’s powerful bureaucratic juggernaut.

The most effective tool that the bureaucracy uses to make life difficult for businessmen is the legal system which is so dense that even the most brilliant would be daunted. This maze of double speaks, circular speaks and sometimes just plain pig-headedness makes it almost impossible for anybody to do the “right” thing because it is very difficult to wrap one’s head around exactly what the law specifies. If anyone wants evidence of this, all one has to do is to examine the Goods and Service Tax legislation in India – it is a classic example of how not to levy a value added tax. When German industrialist Georg Wilhelm von Siemens invented value added tax, he envisioned it as a system that would be easy to implement and easy to follow, compared to existing tax laws at the time. GST legislation in India is anything but easy to implement and easy to follow simply because it is not easy to understand.

In fact, in several instances traders’ unions across the country have gone to the extent of protesting and organizing bundhs demanding a simplification of GST and an end to harassment by tax officials. But as usual they are ignored because of a socialistic hangover that regards doing business as a less than noble activity.

Dual GST

Of course, the first rule of obfuscation is to never simplify anything that can be complicated. Accordingly, we have adopted a Dual GST model – after all, why have a Single GST model when we can justify a Dual GST model. More the GSTs, more the complication, elementary, my dear Watson.

Therefore, in India GST is levied by the Central Government as well as by State Governments and accordingly there are GST laws both at the central and state levels instead of one all-encompassing regulation which would have made life simpler for everybody. As if that were not enough, India has Union Territories which are technically not states and therefore what looks like a complicated Dual GST is even more complicated by what is not exactly a Triple GST but almost makes it into Triple GST territory. And as if that were not enough, we also have differences between Union Territories with legislatures and Union Territories without legislatures.

For the uninitiated, the GST tax law structure consists of Central Goods and Services Tax (CGST) Law, State Goods and Services Tax (SGST) Law and Union Territory Goods and Services Tax (UTGST) Law. Since there are 28 states and 8 union territories, it means 28 SGST Acts, 8 UTGST Acts and 1 CGST Act, i.e., a total of 37 different Acts that a businessman must be familiar with in order to be sure to comply with the law.

The beauty of it is that CGST, SGST and UTGST are exactly equal, and in any given transaction 50% of the tax is CGST and 50% of the tax is either SGST of UTGST depending on destination of supply. There is also the case of export or import transactions in which case the tax is the sum of CGST and SGST or UTGST, but in this case also CGST is equal to SGST or UTGST.

Therefore, since CGST is equal to SGST which is equal to UTGST in every case, it could have been possible to have one single comprehensive act which would have reduced the compliance burden and therefore the enforcement burden on everybody. But that seems not to have been the purpose of its authors.


The previous paragraphs have already given some indication of the complexity that arises because of the large number of Acts that regulate the GST system in India.

All across the GST Acts are repeated references to CGST, SGST and UTGST when there is actually no difference between them at all except for the fact that CGST belongs to the Centre, SGST belongs to the State and UTGST belongs to the Union Territory involved in the transaction. These verbal contortions and repetitions make it very difficult to read these GST Acts and effectively serves no purpose except to make compliance difficult because the Act becomes difficult to understand because of repeated references to CGST, SGST and UTGST.

The recipient of the tax revenue collected from each transaction is easily ascertainable by examining the source and destination addresses on the invoice and simply dividing the tax revenue from that transaction equally between the Centre and the State or Union Territory without having all these separate Acts which actually serve no purpose in real terms.

Furthermore, it forces the vendor to print two extra lines on each invoice just for the sake of separating CGST and SGST or UTGST although both lines show exactly the same percentages and amounts, whereas only one line would have been necessary if no distinction is made between GSTs.

Multiple Tax Rates

Remember the first rule of obfuscation is to never simplify anything that can be complicated. Most countries that have implemented a value added tax system levy a single rate of tax regardless of the product or service in the interests of simplicity, but India at latest count levies four different rates of tax discriminating on the basis of luxury and essential products and services in the interests of complexity – it’s not as if luxury products and services don’t exist in other countries. There were several more rates of tax when GST was first introduced but it has now been reduced to four since even the babus recognized that the system was drowning in complexity.

Most traders deal in a large variety of products and services and it becomes essential for them to identify the tax rates applicable to each product and service. For this, the trader has to identify the product in the Harmonized System of Nomenclature list to identify the tax rate for a particular product and identify the service in the Service Accounting Code list to identify the tax rate for a particular service. Both lists contain thousands of entries and identification of a product or service code is by no means a straightforward process.

It also means that each invoice containing multiple products and services will have to have two extra lines per product or service in the invoice that has a different tax rate.

The Registration Catch-22

Joseph Heller coined the term Catch-22 in his 1961 novel by the same name. which mocks weird rules for soldiers in World War II. The rules said that any soldier could be discharged from the army provided he was found to be crazy. However, embedded in these rules was Rule 22 which said that any soldier requesting evaluation for insanity cannot be discharged since any soldier wanting to be discharged cannot be crazy.

GST law in India provides a vast explanation about who is liable to register under GST and collect tax. The main criterion is aggregate turnover and of course, the aggregate turnover criteria is not uniform across all states and union territories, upholding the first rule of obfuscation to never simplify anything that can be complicated. There are also other complicated criteria, however, in the interest of being brief, we will not explore them. Suffice it to say that, any trader who wants to know a simple thing like whether he is liable for registration or not has to expend considerable time to understand these rules and that clarity is something that he is unlikely to find.

Later on, in the labyrinth of the law there is also an innocuous looking rule about what is called the Reverse Charge Mechanism. This is a mechanism where the recipient of supply is liable to collect GST instead of the supplier. This means that any business availing for example, transportation services from a transport van operator, is liable to collect GST on the transportation service although the business is only the recipient of the transportation service. Now which business can claim that it does not need such transportation services at some time or the other to transport something or the other even if the business is dealing purely in services. However, GST cannot be collected by an unregistered business and therefore this effectively means that any and every business is liable for GST registration regardless of any other criteria – a Catch-22. In other words, a business should have simply registered instead of going through the onerous exercise of figuring out whether it was liable to register in the first place.


We have examined only some of the complexities of GST rules. However, the GST legislation is rife with many more obfuscations that make it difficult for an honest businessman to be honest even if he is willing to be honest. Tax compliance is critically dependent on simplicity but until now the government has only tinkered with the GST edifice and made cosmetic changes that have done little to solve the basic problem – harassment by tax officials which is encouraged by the unnecessary complexity of tax law.

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