Though on a bumpy ride, government is still optimistic that goods and service tax (GST) will be implemented in line with time. Finance Minister Pranab Mukhejee has said that GST will be meet its deadline of April, 2011 reports.

Informing that the government hasn’t changed the date for GST,  Mukhejee has informed hat the negotiations are continuing on  its introduction. Though Congress-ruled states have favoured it several BJP states are still playing hardball.

Earlier there were news that FM may go slow on rolling out GST as the government has not managed to get a consensus among all the states. 

Mukherjee had offered concessions on most major demands by states on legislation needed to allow a tax reform to take effect from next April.

As per the changes introduced, regime would replace existing multiple state and central levies such as excise duty, service tax, and value-added tax, simplifying tax administration, and aiming to curb tax evasion.

After states objected to a clause in the draft GST bill giving the federal finance minister veto power over state tax matters, the finance minister dropped this clause altogether.

Section 227 of the Companies Act 1956 requires an auditor to express an opinion on if the balancesheet presents a true and fair view of the state of the company’s affairs at the end of the financial year and whether the profit and loss account presents a true and fair view of the profit or loss for the financial year. It also requires an auditor to state specifically whether, in his opinion, the profit and loss account and the balance sheet comply with accounting standards. Auditing and Assurance Standard (AAS) 28 requires the auditor to express an opinion on whether "the financial statements give a true and fair view in conformity with the accounting principles generally accepted in India".

The law requires the auditor to express an ‘opinion’ and therefore, an auditor should not adopt the ‘check list’ approach. This is more so, because India has adopted the ‘principle based’ approach, rather than the ‘rule-based’ approach in formulating accounting standards. However, some auditors adopt the ‘check list’ approach, which causes hurdles in adopting superior accounting principles and methods by companies.

Accounting standards
From the beginning, India decided to benchmark its accounting standards with IFRS. All through, IFRS (erstwhile IAS) was the starting point in formulating accounting standards. Therefore, it may not be incorrect to say India always pursued the policy of convergence with IFRS. However, India did not keep pace with the IASs, while new IASs were issued. It is difficult to guess if the decision not to revise Indian accounting standards in line with revised IASs was deliberate was just inability of ICAI to keep pace with developments in international accounting practices. ICAI never articulated the reasons for widening gap between the IFRS and the Indian GAAP. It is quite possible the Indian companies and the accounting profession were not comfortable with new accounting principles stipulated in revised IASs and therefore, in the interest of the industry, ICAI adopted the go-slow policy in revising accounting standards. It is a fact there was no urge to adopt IASs because only a few companies could attract foreign capital. Whatever be the reasons, India adopted a lacklustre approach in catching up with developments in accounting practices in the global arena.

Situation has changed since India decided to meet full convergence of Indian accounting standards with IFRS. Soon, many exposure drafts were issued and those are still floating. Proposed changes will bridge the gap between Indian standards and extant IFRSs.

The set of accounting standards, notified by the Ministry of Corporate Affairs, is a part of company law. Therefore, accounting standards applicable at the balancesheet date be applied in the preparation and presentation of financial statements. This is the correct position. The government has not notified any revised or new accounting standards since 2006. This has put many in a predicament. They cannot adopt better and globally accepted accounting practices and methods, acknowledged by the government and the ICAI by deciding to converge Indian accounting standards with the same, because those are yet to be enacted as law in India.

Principle versus rules
Indian accounting standards are principle based. Therefore, it is appropriate companies be allowed to formulate accounting policies based on principles and methods in IFRSs, so long they are not in conflict with accounting principles and methods stipulated in Indian standards or their use is not prohibited by accounting standards or any other law. Some auditors, who adopt the ‘check list’ approach, are not comfortable with this. They believe, any deviation from ‘accounting principles generally accepted in India’ should lead to qualification in audit report. A case in point is the accounting for expenditure incurred on ‘inspection and overhaul’ of an item of property, plant and equipment, for example, of an aircraft. Indian companies recognise the expenditures as expenses. IFRS specifically requires capitalisation of those expenditures and principles stipulated in Indian Accounting standard is not in conflict with IFRS requirement. But some auditors believe an accounting policy to capitalise those expenditures is a deviation from the Indian accounting standard.

There is a need to change the mindset of auditors who adopt the ‘check list’ approach.

The revenue department has contested the petition filed by PVR Pictures in the Delhi High Court against the government’s decision to levy service tax on copyright services such as sale of music rights, sale of direct-to-home satellite TV rights, and screening in cinemas. In a counter affidavit filed in the court, the department has said that temporary transfer of rights to copy in a limited manner will be chargeable to service tax.

“While complete transfer or rights to use any goods (where the original owner completely forgoes the title to a copyright) may be deemed to be considered as sale of goods, the temporary transfer of rights or just the transfer of rights to use or enjoy that copyright for specified purposes is a service provided by the person who is the holder of the copyright,” the government said in its affidavit.

In a rejoinder, PVR Pictures, the film distribution and production arm of PVR Ltd, said the government had incorrectly stated that it had power to tax temporary transfer of copyrights and such kind of transfers were not taxed by states.

According to a finance ministry official, transfer of copyright is a composite transaction, which involves service provided in relation to goods. “In all other countries it is taxed as a service.

The United Nation Central Product Classification also treats it as a service. When I’m transferring my rights to copy as per terms and conditions of a contract, there should be a service tax,” he told Media.

On July 1, the finance ministry had introduced tax on copyright services through a notification, which said all entities transferring for use the copyright in a film or sound recording would be liable to pay service tax at 10.3 per cent. States are already levying value added tax on sale of copyright.

PVR Pictures, Balaji Telefilms, Yash Raj Films, UTV Motion Pictures and Reliance Big Entertainment had challenged the tax, saying it was beyond the Centre’s power under the Constitution and would lead to dual taxation. The producers argued that copyrights are treated as goods and the transfer of copyrights as sale of goods, which falls within the domain of taxation by states under Article 246.

The tax department will lose at least100 crore in revenue in the first year if the court’s decision goes in favour of the producers. The department had estimated that its revenues will go up further in the coming years from the $1-million industry on transfer of copyrights.