An open letter from Bharat Goenka
GST: Great or Gruesome

Last updated on April 20th, 2017 at 12:44 pm

By far, the GST amendment will be the biggest step the country has taken in ensuring economic integration.  While the draft law comes with a promise of economic growth, it poses several critical pitfalls that can adversely affect businesses in the country.

GST: Great or Gruesome

The trust deficit between the Citizens of India and the Government of India has plummeted to new depths when one reads the Draft GST Law (in case you have not read the draft laws, please click here to read it). In one fell swoop, a swathe of businesses is staring at their death knell – as instead of being the promising vehicle for growth, GST has the potential to destabilize all that is good.  On the bright side, this is still a draft law – and corrections can be applied, so that GST indeed becomes the Greatest Simplified Tax regime, and the biggest economic event of Independent India.  It has all the ingredients to become so.  Why then, am I sounding the danger bells?

The most critical cause of failure of GST will be in the transference of responsibility and liability of tax remittance to the customers of a supplier (Section 16(11)( c)). Basically, the law postulates that if a particular supplier has failed to comply with the law correctly – by furnishing the correct returns (Section 27(3)) and/or making the correct payment (Section 27(2))  – then its’ customers cannot avail the input credit, and if given, it will be reversed.

The origin of this provision lies in the history of tax avoidance through false representations by a small section of businesses[i] and the fact that it was not feasible for the Government to systematically contain this problem.  With the framing of this law, the Government hopes that the market will self-weed out the bad eggs – which is not wrong in theory.  What is wrong is not understanding the cascading consequences of doing this in practice – and the mayhem it will create.  While the effort for driving compliance will reduce, the consequential effect of businesses shutting down, and therefore collections going down, have not been treated seriously enough.

What exactly is the problem?

Let us understand this by visualizing a scenario.

Assume Business A operates on a retained margin in the range of 8-9% [ii]

Because it is (say) an SME, it buys without access to good credit terms.  So, it has purchased goods worth 50,000, and with GST of 20%, it has paid Rs. 60,000 for the invoice.  It now sells this at Rs. 55,000, with an applicable GST of 11,000 – so raises an invoice of Rs. 66,000 on Business B.

Business B is a distributor, operating on a margin of (say)  2% [iii]

Now, Business B is concerned that the input credit of Rs. 11,000 may or may not available to it, in case Business A is negligent in its compliance.  Therefore, it refuses to pay the GST amount UNTIL it can be certain to get the input credit (which is an entire ‘return’ cycle away).  So, it pays only Rs. 55,000 on an invoice valued Rs. 66,000.

Business A, in order to ‘get’ the balance due of Rs. 11,000, has to first finish all compliance requirements, including payment of Tax, when it has not yet ‘collected’ the Tax amount! In contrast, if Business B ‘trusts’ Business A and DOES pay the Rs. 11,000 – and if, for whatsoever reason (negligence, cash difficulties, mal-intent), Business A fails to complete the compliance, Business B will lose not just Rs. 11,000, but in effect, the ‘margin’ it makes on 10 other such invoices (since it operates on a thin margin of 2%)!

Critically, this is not just an ‘invoice to invoice’ problem.  Business A probably supplies to twenty-thirty people, and each of its customers will not have access to input credit due to any negligence of Business A!

Apart from this, there are going to be enough collateral problems.  For example, when the input credit is denied, will this be formally treated as a ‘business expense’ and not be taxed by Income Tax?  Obviously yes!  But at what point do I treat this as ‘contingent expense’?  Will my Advance Tax payments made on the assumption of ‘possible write back’ be accepted?  If not, will I be reimbursed for the cash-flow cost I incurred?  How do I report my end-of-quarter and end-of-year?  Will banks fund me?  Will insurance cover this risk?  How much more working capital will I require?  Will I be eligible for it?

When the input credit is uncertain and outside one’s span of control, the correspondent questions which will arise – and correspondent litigations can only be imagined.  The last two-three questions will kill a large number of businesses (SMEs, Distributors, Stockists, Industrial Retail, Commodity traders – who either work on wafer-thin margins, and/or with inadequate cash).

The reasoning of the Government is: people are today colluding (albeit in small percentages) to fraudulently take input credit when it is not due.  Therefore, it is only fair to put this risk back on the citizen.  It also reasons that because this is a small percentage, which will keep declining due to self-correction by citizens, it is not a ‘great burden’ – that is, the ‘business risk’ is small enough to be manageable.

The problem is not the ‘management of a manifest risk’ – the problem is the side-effects of cash flow, improper accounting, and reduced ability for people to trade with new suppliers and new customers – since there is uncertainty about the business outcome.

Is there a solution?

Of course.  One of the greatest benefits of GST is that it is built ground up as a technology-enabled-tax-system.

In the past, it was not feasible for the Government to systematically mitigate the risk of fraud, since there was no practical human ability to keep track and trace the culprits – who could/would repeatedly create phantom organizations, and/or phantom invoices.  Against this history, it is no wonder that the Government wants to control this menace!

However, GST gives extraordinary traceability.  For one, it fully eliminates the ability to have phantom invoices.  That alone, will massively reduce the problem. Secondly, with the near ubiquity of Aadhaar and the passage of the Aadhaar Bill, the Government MUST mandate that all GST registrations are traceable to individuals based on their Aadhaar identity.  Now, the ability to repeatedly create phantom organizations which allow credit to be taken without correspondent payment will rapidly evaporate. And, of course, the sheer traceability of the individuals, and strong public actions showcased for deterrence, will NOW become effective.

While Tally has been working to ensure that the right software is available to all of you to simplify and manage your business when GST comes, it will obviously not help to solve this basic problem created by the law itself.


GST has all the ingredients to be Great.  Making it practical and convenient, by removing this one MAJOR lacuna, will go a long way in its ‘welcome embracement’ rather than ‘resisted embracement’. Being technology led, it also has all the ingredients to spiral upwards the trust deficit, rather than spiral downwards. If all of us, as responsible citizens of India, rally together to help make it Great, we will all live together in a Greater and Grander India.

Bharat Goenka, Managing Director.
Tally Solutions Pvt. Ltd.



To read the complete draft GST Law, please click here.

Our detailed representation to the relevant authorities can be found here.





Comment Moderation Guidelines Share your thoughts
  • Dear Sir,
    For this why Government should take the tax before like prepaid mobile system and make online forms with every bill or as simple as a number from a govt department through sms. from this tax will be safe for both the government and the buyer and the bills will be always genuine. and with out online forms bill should not have any validity.

  • Hello Bharat Goenka, You Article on GST is well detailed and explained. Very informative to our customers who can now get an insight into GST and be well prepared for what we foresee when implemented

  • Sir
    Tally has started a good work to educate its users by holding sessions on GST (to be started w.e.f.1.4.2017 by govt. of India) at ground level ( means who really have to do practical work). Only yesterday I have attended one of such session where a very useful information is given to us at Panchkula ( Chandigarh) at ESBC SCF 7 2nd floor Panchkula. I would request to continue your educational programme till it is actually comes into force.

    Thanks a lot

  • Dear Mr. Goenka , well the GST is one of the and just beginning of the Global trade and Global accountability. The brain of all human being may not be restricted by merely showing the Aadhar card as base individual record to accountability in our reality Indian situations where we have high experience in corruption. Our human invented technology as robotic software which justify and provide 100% accuracy and also in multiple language and ready to adjust with growing technology at any extend in future.
    The combination of Aadhar not only sufficient and real time account once you have look into the history of numerical figures duly audited and certified by Robotic software besides the authentication by CA’s CWA’s CS’s and Govt. in general. Once we have identified the 700 crores all human beings finger print, iris analysis and signature and also the DNA if possible may be the true identification and can trace any where in the world who beneficiary really in one transaction for which the United contribution by each individual towards robotic software and correction there of on the basis of growing our needs and technology outstanding in linking all together at present by Air and sun light but in future with networking of human being through quantum technology, through neutrino particles technology where the natural organic things act as mass storage server for example tree which communicate each other from for away distance of 1000 of kms. Our Tally software ready to incorporate multi language portability to mobile with in built OS which has been through wireless network using organic based data server connected through the network directly read by mobile at present but in future through brain of each human being can view the transaction in a light speed and there will be no man has identity for the any development but benefit of equal to all our human beings in our mother Earth and beyond

  • The provision of dis-allowing input credit already exists in Delhi VAT. A monthly mis-match report on the VAT website lists which of our suppliers has not deposited VAT, and input credit claimed by us is therefore dis-allowed. We tell the suppliers to deposit the tax and file a revised return; normally it works, but if a suppler repeatedly defaults, we simply change the supplier.

    So I do not see why GST, in its present form, will create a problem. We are really looking forward to GST being implemented, as we can then select suppliers from all over India, instead of just Delhi

  • Dear Sir
    Thanks for the valuable information, which seems very logical in the current situation

    We use Mac computers and we are finding it very difficult to work on Tally which works only on Windows
    When are you planning to introduce the Mac version please let us know

  • Dear Bharat sir,

    After reading this i am feeling very pleasure that i am attached as an partner with a huge accounting software tally company.Want to go as far as the company will go.

    Thank You sir,
    Lalit Kumar Poddar


  • Sir,

    I twas a very good step by Govt of India to get on track GST bill to flow the fair business and to curb the tax defaulters.

    But it is now a good question that how the Input should be taken if the Manufacturer doesn’t comply correctly and a lot of questions arises like if the material supplied is not good the material is sent back, retailer doesn’t have any TIN and to give output and how to sell it to retail customers directly like it is does in E-Commerce, etc.

    The deadline is 1st April 2017 and the framework has to be started and the same have to be explained to the Manufacturers, Wholesalers, Traders, Distributers, etc.

    What is the effect on Proprietory and Partnerships.

    Govt has to take measures to bring all of them to understand the GST in Principle and Practice and GST to run smoothly.

    P. Venugopal Reddy.

  • iam buying from traders . vat is paid . ecixse is paid but not shown in bill .’
    what will happen to my stock on 1 april .
    how i will get diff credit that i paid .
    is my stock will be treated as tax paid .

  • i wouldn’t agree the solution forced upon by Govt. it is not just to leave business fight /suffer among themselves. rather i have a solution for this – PREPAID GST. vendor will generate a “Tax paid code” by paying GST online and print the same on invoice. the buyer shall verify the code online and pay the amount. as simple as that! what more? govt is getting tax amount faster

  • Dear Sir,

    Thanks for your valuable input on GST “GST FUTURE IN INDIA”

    Definitely we responsible as citizens of Indian, to contribute something which is create easy our system and transform…


    Pratap Narayan Chaturvedi

  • Very rightly pointed out . There have been any number of cases in Karnataka where the onus of ensuring the payment of taxes by the selling dealer has been passed on to the purchasing dealer. Small units without the wherewithal to engage in costly litigation have been the victims of these actions.
    If the same provisions are allowed to creep into GST, MSME’S will die a premature death.

  • Dear Bharat,

    While it is true that GST will bring its own complication, but unlike any change – Change is dificult to digest and moreover difficult to implement (more challenge towards acceptance of change) and we have the mentality of comparing the past with the present.

    Anyways, given that GST will be reality, we need to be prepared in best possible manner and would like to know what Tally as a partner is doing to ensure that their customer will be compliant with robust support of Tally.

    Thanks for your views

  • Bharat ji, I was shocked at first glance, when I read that you do not expect the GST law to succeed, but as I read through, I could understand your cause of concern.
    You have rightly and timely pointed out the factor, which if ignored could create havoc in the market.
    Sir, I wonder what would be the scenario with end user, for example, if a consumer buys a Laptop and the retailer doesn’t pay due GST, though he avails credit as the whole-seller has paid his due GST .
    Filing so many returns in time and with accuracy will certainly require software to meet the compliance, so it will be good and busy time for Tally family.
    Wish you great times ahead 🙂

  • Thank you B G Sir, for putting Limelight on the New taxonomy -GST, it help us to understand the GST Bill , why it is bad for short term but Good for INDIA’s Future.

    We also know that Tally will Help every SME to work with any Taxation policy with Comfort . Like Tally will give 7.2 for VAT. Like this we assure that Tally is ready for GST.

    Tally is a great Company with Emotions, Ethics & Integrity.

    Great Sir..


    Palak Agarwal
    Version Software’s, Jaipur (Today We applied for becoming a Helping hand for Tally As Partner)

  • the goverment should trust the taxpayer ,has the common man trust the government.2000 years back tamil litature has well said how taxes should be collected. A flower with its colour and fragance attract butterfly and bees for cross pollination , allow them to collect honey without causing any harm to the flower . honey collection is like tax collection. the flower will not get hurt .

  • Very Good Information about GST, One Tax in Country, I think this is so good for all businessman and Tally.ERP9 is fully ready software with GST.

  • Very Good Information about GST, One Tax in Country, I think this is so good for all businessman and Tally.ERP9 is fully ready software with GST.

    • Mac is outdated, pls update to windows and enjoy the benefits of tally. You can upgrade yourselves to seamless user experience in accounting & reporting in Indian environment

  • Very Good Information about GST, One Tax in Country, I think this is so good for all businessman and Tally.ERP9 is fully ready software with GST …………… Thanks
    Vinod Kaushik INFOTECH 3 star certified partner Panipat Haryana INDIA

  • Thanks for your valuable input about GST and we share to our Partners.


    Product Specialist

    Winways Systems Private Limited
    Madurai. Tamilnadu.

  • Dear B.G.Sir,
    Thank you for giving such a good analysis of upcoming GST Tax regime. After knowing few points about the complexity in GST Set off, as a Better Citizen of Hindustan, can we make it a JAN ANDOLAN to make dealer/business men to understand, not to do any wrong practices, so that GST becomes a pleasure to live in Hindustan. And not be a punishment of good uniform Tax Regime? If your words become true, as such Hindustan Government is more keen to give benefits of 7th Pay commission to Job holders, small business community will extinct. Let us come together to fulfill the adaptability of GST.
    Thank you sir.

  • Your consent is logical but the situation cannot be as worse as you are thinking.
    In India taking input is very COMMAN in ED ( EXCISE DUTY ) & VAT (TAXES LEVIED BY SATE )
    Have you ever heard these things happened in CENTRAL EXCISE DEPT, ABSOLUTELY NOT.

    This same problem came in existence after VAT was introduced.
    Yes it happened a lot in VAT because the STATES were not so strong in IT .

    Over the period , STATE GOVT. understood the problem and applied lot of measures
    which ultimately resulted in bringing down these type of NOTORIES ACTIVITIES.

    One such example is J1 & J2 implemented by MAHRASHTRA GOVT.
    One such measure taken by CHHATISHGARH GOVT was to submit monthly sales & purchase
    details by all DEALERS of the STATE if the value exceeds 1 lac per month.

    India’s taxation process is getting MATURED day by day so I expect that these ambiguities
    will be sorted out as and when required by the MINISTRY OF FINANCE.

  • Well, sir the Pandora box of GST has now opened, what happens next is on individuals imagination only. If scenerio mentioned by you happens it has to be taken care as soon as possible. We should share this information on social media at our level best so that some corrective measures can be taken by the top leadership.
    Hats off to your effort and alertness. Hope we would get more business friendly environment in years to come.

    CyberTec Solutions

  • Thank you for the detailed insight. Very well articulated. I hope the authorities understand this Lacuna and do the needful required to make India a greater country.

    Best Regards

  • I believe that even if the bill is passed without making changes to the section you have pointed out, it will be challenged in the court and will be struck down. After all, the person collecting GST and remitting it to the government, is in effect an agent of the government, and not of the buyer.
    VAT, and the earlier Sales Tax, operate without putting the burden of VAT payment on the buyer (unless there is strong reason to believe that there is fraud). I believe that this section will be used in the same way, and has been placed to take care of fraudulent transactionssec m vat act 48 (5).
    sir their should be mecanisem or if any party fails to pay gst it should be recoverd from him only not from his byure .

  • Nice presnetation in the right time, and honestly i wish you to congratulate you and your tally time that, with in the short period of time (say in months) you taught the commodity name, code, schdule to every registered dealer who use tally in simple manner and helped for filing tn vat return. Similarly, we belive you that you may well prepare to meet the requirment to fulfill the GST and ready to guide, teach in the same way. thank you why don’t you plan to open some outlet in chennai like airtel

  • Dear Bharathji,

    I feel you have foreseen the Universal Busines Management Problem. If left unsolved, will eventually as foreseen by your article, I too guess, that small and Medium Enterprises suffer a lot. Inspite of Friendly Tax Environments and a BEUTIFUL ERP SOFTWARE LIKE TALLY ERP9, still there are lot of problems for SMEs unresolved. However, most of the problems relate to the Mangement.

    But as highlighted by you, if law also creates additional problem, we are at Risk.

  • Sir, Your Approach and concern towards the GST is Appreciable and I believe current government also will leave no stone unturned while Final implementation of GST. As a fact Government also keep encouraging people to become entrepreneur/Self Dependent therefore their prior concern would be Ease of Doing Business.

    On that note I believe ‘Everything works out in the End’ as a Indian Citizen.

  • Sir,
    Your information was helpful to every one.
    Simplicity is the Best Ornament!
    Thanks Sir for share this letter.

    Sanjeev Nagal
    Bikaner, Rajasthan

  • Very useful information. I am surprised, how come these scenarios and questions were not considered by lawmakers.. I know this requires thorough understanding of different business scenarios and impact analysis skills. IMHO, people like Bharat Goenka Ji should be made a member of committee who is responsible for preparing drafts for such bills.

    Thank You BG Sir for your valuable insight.

  • Bharatji , well done.. you are find a very minus point of gst law which create diffrences and dispute cases between traders. Aadhar card n pan no. Also make it easy for creare a demand or case if any trader not depososite tax in time.. or deposite return in future.. any law related problem solve by govt..thats not public work.
    I also with you…

  • We should not ignore our socio economy position Illiteracy is more important point Even 90/Or more MP s could understand what is GST Creating noise of growth employment BJP
    Forcibly excueted it What a fun Nobody knows what will be outcome How far consumers will suffer It is a nontechnical analysis but should be noticed

  • Finally, GST Constitutional Amendment bill has been passed in Rajya SAbha.

    Now it is on the State and Central Government how easy it make the GST Act for Traders, Business and consumers.

    What rates are decided and how the states adhere to this ? How many type of Goods and Services are brought to lower level of taxes.

    Rakesh Gupta
    Global Technologies, Bangalore

  • Mr. Goenka,

    Very valid points. If I recall correctly a similar situation is (was) seen with TDS. CBDT office memo F.No 275/29/2014-IT dated March 11,2016 has clarified that non-deposit of deducted TDS cannot be coercively recovered from assesses in such cases.

    I believe that even if the bill is passed without making changes to the section you have pointed out, it will be challenged in the court and will be struck down. After all, the person collecting GST and remitting it to the government, is in effect an agent of the government, and not of the buyer.

    VAT, and the earlier Sales Tax, operate without putting the burden of VAT payment on the buyer (unless there is strong reason to believe that there is fraud). I believe that this section will be used in the same way, and has been placed to take care of fraudulent transactions.

    • Dear Sunil,

      In Maharashtra , something similar to this is happening. If the seller has not paid the VAT collected or the his returns inadvertently shows a wrong credit, that much of input credit is disallowed to the assessee ( buyer ) during assessment. Matching of J1 and J2 is indeed a laborious process ,putting onus on the buyer to prove the genuineness of the supplier. Companies has already slowly started holding VAT pmts till credit is seen in the system. Again this has led to the big companies slowly moving the SME vendors out of its Supply chain .This alongwith MSME Act acts as a deterrant to promoting MSME.



  • Very nice BG sir

    We need to look at sending this feedback to Central Government officially from Tally Solutions… and individuals concerned

    Pursue until this gets resolved.

  • Superb Bharatji Truely Sir, GST will gives extraordinary trace ability or cent percent cent percent transparency and I am 100% agree with your concluding word
    ” we should welcome embracement’ rather than ‘resisted embracement’”.

  • Excellent Info Sir,,

    I am impressed with your letter and like to thank for disclosing so deep knowledge analyses about GST, and all information you shared with is very true and accurate,
    and as a legend of accounting software we all customers and non customers have expected this from you and your team,

    we all appreciate your letter to us,

    Mr Ashu kumar,
    Asset Infotech Ltd

  • Great sir

    Thanks you very much for sharing GST ACT. We are the first people to share the knowledge to our customers

    Vasanthakumar K V
    Sun Rise Solutions

  • Greetings to all!
    Bharatji has echoed one of the many scenarios that the new tax regime may present. It is also worthwhile to note many leading economies of the world have embraced the GST system and it is for us as a country to experience this transformation. Nevertheless, hindrances can be resolved by leveraging on the technology and this is the right point and time to re-emphasise the prowess of Tally! Have a great day..





  • Very true… But it is not the case where there is no solution to resolve the compliance problem.

    Compliance burden can be reduced to very very small effort.

    Let every seller report his sales transactions over a period of time… Say on a weekly or fortnightly basis.. The information received by system can be used to give credit to each buyer.. As sales are reported with respective buyers details, credit of taxes can be given automatically within a period of week or fortnightly basis and differential tax liability can also be automatically computed by the Department and than paid by the seller in the treasury.

    The systems can reduce the compliance requirement of retailers and SMEs as they should not be required to claim credit but automatically receive the credit.

  • Thanks for the input Bharat.

    I completely agree with the views given by Raghvenk Industries and also about the point mentioned by you.

    In fact based on the rules given in draft law, buyer will get credit of taxes paid only if seller has paid the taxes o Government.

    If Buyer ask the Seller to product document related to payment of taxes then how the buyer will ensure that the tax paid by him to seller is properly paid as the total Tax to be paid by Seller will cumulative of all taxes collected by him and most importantly why Seller will give his tax documents to Buyer ? This is another issue in proposed GST Law.

    Also, why the buyer be denied Input Credit for no fault of his ?

    Apart from his, default by one will have cascading effect on the others in the chain and will have more and more litigation.


  • All these days we were expecting the reference/input/Thought sharing from your side. Finally the wait is over. Thanks for sharing the concepts in Tally’s power of simplicity way.

    The day when you are talking about Compliance in Tally we understand the statutory revolution. Thanks for your efforts.

  • While the desirability of the reform is not in doubt, making a transition to GST involves not only
    considerable work but also formidable challenges.GST is quite different from the existing indirect taxation system in the country. For effective implementation of GST, tax administration staff – both at central and state levels – would require to be trained properly in terms of concept, legislation and procedure. The tax administration staff would also need to change their mindset, approach and attitude towards the tax payers. And for this, they would have to ‘learn, unlearn, and relearn’ the GST not only in letter but in spirit

  • Sir, well explained. In general buyers will pay tax when they are sure about getting credit in B2B. Consumers do not need to get credit so will pay full (retail/direct consumer selling). Alternatively , later, our government can arrive at a system where buyers who needs to get credit will pay TAX Direct against the purchase invoice and seller will get his money only not the TAX amount, and on paying the Tax amount buyer will be allowed to get credit, it will be very tough to monitor whether supplier has paid TAX properly, if responsibility is on buyer then in his/her own interest the tax will be paid properly and in time. sellers have to pay TAX only for their direct End User/Consumer sales. As a business house we practice same since VAT implemented, we pay VAT amount to our suppliers only when we are sure that returns are matching and we are going to get credit of the same.

  • thanks bharatji for your forthright views! but there is another point to this VAT/GST taxation.
    in trying to be systematic,and, all encompassing,the system has put forth so many compliance regulations and formalities that it takes a long time to post entries.
    imagine a distributor, dealing in products of companies in multitude, and supplying to atleast 2500 retailers.the no. of entries to be posted,under the present VAT regime,product code wise,retailer wise,tax rate wise,etc.etc. is so terrible.i wonder if there would be any change for the better.Corporates can afford to have big offices,collect tax in advance(as they insist on advance payments)and comply with submission of returns much better and cheaper than people like us who have to spend more on compliance albeit with wafer thin margins.this government is definitely not SME friendly just as they are not FARMER friendly.they definitely LOVE corporates.

  • Sir , its no big thing to hear / read the words of yours. Because I personally know how big is your vision and thought. Also it is no big thing for me that Tally shall be (may be the first one) having the GST compliance features on the very first morning of the new law being incorporated.

    It has been many “Firsts” in last 28 years. So any further “First” is no big deal rather only a kid’s play.


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