Adverse impact of GST leaves Virudhunagar bleeding

Prelims level : Economy / Polity & Governance – Taxation / Supreme Court Mains level : GS II / III - Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
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Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Being part of an arid region, Virudhunagar has witnessed an industrial proliferation in fireworks, matches, printing, power looms and textile sectors.

However, all these industries have faced one problem or the other over the past five years, with the adverse impact of GST regime being a common issue.

Consequent to the Supreme Court order banning production of joined crackers and using Barium Nitrate and mandating manufacture of only green crackers, the industry remained closed for over 100 days after Deepavali. Only a few days before the declaration of poll schedule, the industry resumed work, though with a lot of restrictions.

This is the longest ever closure we faced in the last nine decades. The labour-intensive industry is waiting with crossed fingers over the outcome of experimenting with green crackers.

Negative impact of GST on SMEs:

Multiple registrations for Pan-India businesses

Under the new regime, a business will have to register online for GST in every state involved in its sales process. If your business delivers goods across 5 states, then you’ll have to register for GST in those 5 states to carry out your business activities. Since the entire registration process takes place online, small business owners who are not used to working online might not find the transition easy.

Returns must be filed on a monthly basis

Under GST, there will be around 36 returns in a fiscal year. GST returns will also require you to close your books on a monthly basis, which, realistically, will take a lot of time. The time that business owners spend filing these returns could instead be spent on other productive activities, like developing their business and acquiring clients.

To top it off, until you’ve filed the relevant returns, you cannot claim refunds and your customers cannot claim tax credit for the goods they bought from you. Should you miss a single return, you’ll be penalized Rs.100/- a day and your compliance rating on the GSTN portal will be reduced.

Cost of tax compliance is likely to increase

As mentioned above, consistently filing 3 returns a month, periodically reconciling your transactions, and uploading invoices regularly will give rise to the need for an accountant with technical expertise. Hiring an accountant and paying them, adds to the burden on small businesses. It’s tedious to maintain separate books of accounts for every state involved in the supply of goods/services and assess the records of various entities involved in every single transaction. To cope with the system, small businesses might use the services of licensed third parties that help firms comply with the GST regime. For this convenience, small businesses will have to dish out a sum ranging from Rs.1000-Rs.5000, depending on the kind of service that is rendered to them.

Registration will be mandatory for e-commerce suppliers and operators

Businesses carrying out activities related to e-commerce should register under GST irrespective of their annual turnover rate. Unlike other types of businesses, e-commerce firms will not be eligible for threshold exemptions or for the Composition Scheme (which allows firms to file their tax returns on a quarterly basis instead of 3 times a year and pay taxes at a much lower rate).

Also, e-commerce firms should register for GST in every single state where they supply goods.

Overall, GST simplifies the entire process of filing and paying taxes. It will also increase the competition between SMEs by unifying the Indian market. If you’re proactive and take care of your GST compliance measures beforehand, you can minimize the potential negative effects of the new regime on your business. In the long term, GST is expected to have a positive impact on SMEs and the Indian economy as a whole.

Court’s Order:

  • The ban came on the basis of a petition filed by two infants through their fathers in 2015.
  • They said the air pollution caused by various factors, especially firecrackers, made Delhi a gas chamber and pleaded for their right to life.
  • Time– The Supreme Court restricted the use of fireworks during Deepavali and other festivals to an 8-10 pm window.
  • For Christmas and New Year, the time slot allowed is half-an-hour, between 11.55 p.m. and half-past midnight.
  • Manufacture– The court banned crackers that are loud and toxic to man, animal and the environment.
  • It banned the manufacture, sale and use of joined firecrackers (series crackers or ‘laris’).
  • It held that they caused “huge air, noise and solid waste problems.”
  • It allowed the manufacture and sale of only “green” and reduced-emission or “improved” crackers.
  • Sale– The sale of green and improved crackers would be only through licensed traders.
  • The court banned the online sale through e-commerce websites, including Flipkart and Amazon.
  • Any e-commerce company selling crackers online would amount to contempt of court.
  • It may also invite orders of monetary penalties from the court.
  • Community– The court urged the Central and State governments to permit “community” bursting of crackers during festivities in pre-designated areas.
  • In the case of Delhi and the National Capital Region (NCR), the court made it mandatory.
  • It gave the Centre, the Delhi and other State governments, whose areas fall within the NCR, a week’s time to identify these pre-designated areas.
  • It directed that the public should be informed about the designated places a week before Diwali.
  • Violation– Local Station House Officers would be held personally liable and hauled up for contempt by the court if there was any violation of the judgement.
  • This applies both to the time slots for bursting crackers and the sale of banned crackers.
  • PESO– The court banned the use of barium salts in fireworks.
  • It entrusted the Petroleum and Explosives Safety Organisation (PESO) in this regard.
  • PESO will have to ensure that only fireworks with permitted chemicals are sold or purchased during festivities or celebrations.
  • It should also test and check for the presence of banned chemicals like lithium/arsenic/antimony/lead/mercury.
  • It has to ensure that only those crackers whose decibel (sound) levels were within the limits are allowed in the market.
  • PESO has been empowered to suspend the licences and appropriately dispose of stocks of manufacturers who violated the court’s directions.

What is the court’s rationale?

  • The court rejected arguments that bursting crackers was a fundamental right.
  • It also ruled it out as being an essential practice during religious festivals like Diwali.
  • It held that Article 25 (right to religion) is subject to Article 21 (right to life).
  • So a religious practice that threatens the health and lives of people is not entitled to protection under Article 25.
  • The ruling has thus struck a balance between two rights –
  1. right of the petitioners under Article 21 (right to public health).
  2. right of the manufacturers and traders under Article 19(1)(g) (right to practice any profession or to carry on any occupation, trade or business).

What are “Green crackers”?

  • “Green crackers” do not contain harmful chemicals that would cause air pollution.
  • Components in firecrackers are replaced with others that are less dangerous and less harmful to the atmosphere.
  • The idea was initially proposed by Science & Technology Minister Harsh Vardhan.
  • It was carried forward by a network of CSIR labs – Central Electro Chemical Research Institute (CECRI), Indian Institute of Chemical Technology, National Botanical Research Institute, National Chemical Laboratory.
  • The team came up with 3-4 formulations and looked at 30-40% of active materials which reduce particulate matter.
  • CSIR-CECRI has developed flower pots by using “eco-friendly materials” that can potentially reduce particulate matter by 40%.
  • CSIR-NEERI is testing the efficacy of bijli crackers by “eliminating the use of ash as desiccants”.
  • Potential sound-emitting functional prototypes that do not emit sulphur dioxide were also developed.
  • These crackers are named as Safe Water Releaser (SWAS), Safe Thermite Cracker (STAR) and Safe Minimal Aluminium (SAFAL).
  • These have the unique property of releasing water vapour and/or air as dust suppressant and diluent for gaseous emissions.
  • The Petroleum and Explosives Safety Organisation is testing and analysing these crackers for safety and stability.
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