Goods and Services Tax – GST – By: – Srikantha Rao T – Dated:- 11-12-2015 – The Goods and Services Tax has frequently been in the news for the last one year or so ever since the new Government has come to power. It is worthwhile noting that introduction of GST as it is referred to, has been in the pipeline for nearly a decade now with the initial announcement being made in 2007-08 to the effect that the introduction would be with effect from 01st April 2010. This has not happened due to various reasons with one main reason being the complexities involved in introducing a tax which would be acceptable to both the Union and States with ours being a federal tax structure. This factor alone has gone a long way in delaying the GST roll-out as harmonization process would involve amendments to Constitution as well as consent of the States to the proposed model. Nevertheless, we have made some progress from the day the First Discussion Paper on GST was announced on November 10th 2009 containi
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Central level will not only include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of set-off relief avoiding cascading effect of taxes, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade. At the State level there are several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., which are yet to be subsumed in the existing VAT. In addition to this, CENVAT load on the goods remains included in the value of goods to be taxed under State VAT, and leading to that extent to a cascading effect of taxes. Apart from this, present VAT does not involve integration between VAT on goods and tax on services which has also contributed to litigation before Courts on levy and valuation issues in respect of contracts where both goods and services are involved. Resolving the above issues would mean constitu
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classification etc. would be uniform across these statutes to the extent possible. The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration and to be paid to the accounts of the Centre and the States separately. Since these would be treated separately, no cross-utilisation between the two would be possible except in case of inter-state supply of goods and services. How would it work? It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. This has also been illustrated in the First Discussion Paper on GST with a simple example where the manufacturer of goods
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ly be on value addition as set off can be claimed by the seller i.e. CGST paid on purchases set off against his CGST liability while SGST paid on purchases within the State could be used and set off against CGST liability. CGST on purchases cannot be used for SGST payment on sale and vice-a-versa. Within CGST and SGST, cross utilization would be allowed in terms of tax on goods and services. Intra-state transaction or transaction within a State Going by Section 14 of the model law this would cover supply of goods within the same state or where the movement of goods commences and terminates in the same State even if goods pass through the territory of another state during such movement. In case of supply of services, the service provider and the service receiver have to be located in the same State. Time of supply of goods The liability to CGST and/or SGST would be at the time of supply. In respect of goods, it shall be the earliest of the following – the date on which the goods are rem
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ject to such treatment to be notified by the Central/State Government), where successive statements of accounts or successive payments are involved, the time of supply shall be the date of expiry of the period to which such successive statements of accounts or successive payments relate. If there are no successive statements of account, the date of issue of the invoice (or any other document) or the date of receipt of payment, whichever is earlier, shall be the time of supply. Sale on approval etc. If the goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place, the time of supply shall be at the time when it becomes known that the supply has taken place or twelve months from the date of removal, whichever is earlier. In other cases the time of supply shall in a case where a periodical return has to be filed, be the date on which such return is to be filed, or in any other case, be the date on which the C
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whether or not any invoice has been issued or any payment has been received by the service provider. Where the due date of payment is not ascertainable from the contract, each such time when the service provider receives the payment, or issues an invoice, whichever is earlier. Where the payment is linked to the completion of an event, the time of completion of that event. The aforesaid clause would pose issues to notified services where the point of completion cannot be known owing to practical difficulties. Even if payment terms are known from contract, delays in payment by clients could impact supplier of service as liability would be based on timing of accrual of dues based on contract. Timing of liability in case of reverse charge liability It shall be the earliest of the following dates – the date of receipt of services, or the date on which the payment is made, or the date of receipt of invoice, or the date of debit in the books of accounts. Where aforesaid clauses are not appli
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ard a conveyance, such as a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board. The place of supply of all services u/s 16 of the Model GST Law, except specified services made to a registered person shall be the location of the service receiver. Where made to any person other than a registered person shall be the location of the service provider. The specified services which are subject to different norms for determination of place of supply can be indicated as follows – Based on location of the immovable property or boat or vessel or intended to be located – Services in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or coordination of construction work or Services by way of lodging accommodation by a
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conference, fair, exhibition, celebration or similar events, or Services ancillary to such admission to or organization of any of the above events or services, or Services by way of assigning of sponsorship of any of the above events. Based on the location at which such goods are handed over for their transportation – where services by way of transportation of goods, or mail or courier to an unregistered person is involved. Where the person is registered, it shall be the location of the service receiver. The place of supply of passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey. Where the right to passage is given for future use and the point of embarkation is not known, location of the service recipient where recipient is registered and location of service provider where the recipient is not registered The place of supply of services on board a conveyance such as vessel, aircraft, train or motor vehicle, shall be t
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rovider s records being considered where pre-payment or recharge is by internet banking or electronic means) The place of supply of banking and other financial services including stock broking services to any person shall be the location of the service receiver on the records of the service provider subject to location of service provider being considered where services are not linked to account of the receiver. The place of supply of insurance services shall: to a registered person, be the location of the service receiver; and to a person other than a registered person, be the location of the service receiver on the records of the service provider. For all general insurance services related to an immovable property, be the location of the property The place of supply of advertisement services to the Central Government, a State Government, a statutory body or a local authority meant for identifiable States, shall be taken as located in each of such States and the value of such supplies
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nder IGST Act The concept of place of supply of goods and/or services is identical to the one under Model GST Law covering CGST and SGST for taxing transactions within a State. One additional clause though is regarding place of supply of gas which would be the location where gas is used and consumed. It has been sought to be clarified that the view of the Central Government on place of supply for B2B supplies is that the location of service recipient would be the determining factor unless otherwise specified for certain specific cases. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Central Government the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Central Government will transfer to the importing State the credit of IGST used in payment of SGST (Section 9(2)
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GST law applicable to CGST Act 2016 like for instance valuation, registration, returns, input tax credit, time of supply of services, exemption, tax payments, audit etc. are applicable to IGST Act and these have not been covered separately going by Section 11 of IGST Act 2016. Import and Export Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import of goods and services. Exports would be zero-rated with similar benefits to supplies to processing zones within Special Economic Zones (SEZs). No benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed. Since exports have been zero rated, credit of input tax related to such supply (i.e. exports) would be allowed even though no tax is payable on exports.
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ermine whether or not services are exported unlike in case of goods where physical movement of goods out of India would establish fact of export. Who is liable? What is liable? As per proposed Section 7(2), the liability to CGST/SGST would be on the taxable person. This has to be read with Section 7(1) where levy is on all intra-state supply of goods and services (with IGST being dealt with separately) and by the taxable person. The definition of goods is similar to the one prevailing now going by Section 2(31). The term supply would generally include all forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal, and importation of services, made or agreed to be made for a consideration by a person in the course or furtherance of business and also includes a supply specified in Schedule I, made or agreed to be made without a consideration. It is interesting to note that export has not been made part of the definition though it remains to be seen wheth
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would include supplies on his own account as well as those on account of principal. A person supplying inter-state would be liable to register irrespective of his turnover. Casual taxable person (occasional supplier with no fixed place of business in the taxable territory) and person liable on reverse charge mechanism have also been covered. Readers may note that while employees providing services to employer have been excluded from being regarded as taxable person, Central Government and State Government along with local authorities would be regarded as taxable person in respect of activities or transactions in which they are engaged as public authorities unless they are exempted on recommendations of the GST Council. The term business has been defined to include any trade, commerce, manufacture, profession, vocation or any other similar activity, whether or not it is for a pecuniary benefit. Regularity or otherwise of the transaction would be immaterial. Readers who are familiar wit
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taxable supplies as well as non-taxable supplies and exempted supplies (other than zero rated supplies). Readers may observe here that relaxation would be admissible for capital goods as long as they are used for business. In other words, if not used for business even credits thereon would require to be split. Owing to the dual structure, there are conditions in terms of manner of utilisation of credits. For instance, IGST credits should first be utilized for IGST payment and then for payment of CGST and SGST in that order. The CGST credits should first be applied to pay off CGST dues and balance if any can be used for payment of IGST. Similarly, SGST credits left over after utilisation for paying off SGST can be used to pay off IGST. Cross utilisation between CGST and SGST has been specifically prohibited (Sec. 18(5)(d) and Sec.18(5)(e)). Any unadjusted input tax credit at the end of the period could be claimed as refund by the taxable person where accumulation is on account of export
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ution of works contract when such contract results in construction of immovable property, other than plant and machinery goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery goods and/or services on which tax has been paid under section 8 of the Act i.e. compounded levy; and goods and/or services used for private or personal consumption, to the extent they are so consumed. The restrictions here are similar to the ones prevalent under Cenvat Credit Rules 2004. As far as petrol and petroleum products are concerned, these are not to be subsumed in GST and question of set off of tax thereon would not arise. Even when subsumed credit thereon would be denied. In the humble opinion of the author, the two clauses highlighted above dealing with works contract scenarios would require clarity (or even possibly amendment) as there
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under law which if done, could lead to practical issues. Ideally this should be avoided. Deeming provision on goods and services and supplies without consideration The proposed Schedule I to the Model GST law presently includes the following as supplies deemed to be without consideration for taxability – Permanent transfer/disposal of business assets. Temporary application of business assets to a private or non-business use. Services put to a private or non-business use. Self-supply of goods and/or services. Assets retained after deregistration. Section 3 of the Model Law proposed also provides for the Central Government or the State Government to notify transactions/supplies which may not be regarded as supply of goods and/or supply of services. Schedule II also contains matters which may be treated as supply of goods or as supply of services. The following is the specification under Schedule II – Any transfer of the title in goods is a supply of goods. Any transfer of goods or of rig
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iness, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services. Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business. Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless- the business is transferred as a going concern to another person; or the business is carried on by a personal representative who is deemed to be a taxa
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g followed u/r 6 of Central Excise Valuation (determination of Price of Excisable Goods) Rules 2000. Readers may note that this would now apply to services as well and not just to goods. The transaction value above shall not include any discount allowed before or at the time of supply provided such discount is allowed in the course of normal trade practice and has been duly recorded in the invoice issued in respect of the supply. This could mean post supply discounts being subjected to tax. Reference to Valuation Rules The proposed GST Valuation (determination of the Value of Supply of Goods and Services) Rules 2016 would have to be referred where transaction value cannot be followed. This would be in the following scenarios – the consideration, whether paid or payable, is not money, wholly or partly; the supplier and the recipient of the supply are related; there is reason to doubt the truth or accuracy of the transaction value declared by the supplier; business transactions in the na
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s 17 includes anything charged by the supplier of goods and/or services at the time of or before delivery of goods or at the time of or before provision of services. This could mean reimbursements being kept out of tax net only where the concept of pure agent is satisfied. Concept of related person The definition proposed u/s 2(55) is wider in scope as compared to the present one under Section 4 of Central Excise Act 1944 and would apply to transaction in goods or services. Persons (including legal persons) shall be deemed to be related persons if only – they are officers or directors of one another's businesses; they are legally recognized partners in business; they are employer and employee; any person directly or indirectly owns, controls or holds five per cent or more of the outstanding voting stock or shares of both of them; one of them directly or indirectly controls the other; both of them are directly or indirectly controlled by a third person; together they directly or ind
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r officer has reason to doubt the truth or accuracy of the value declared in relation to any goods and/or services based on – the significantly higher value at which goods and/or services of like kind or quality supplied at or about the same time in comparable quantities in a comparable commercial transaction were assessed the significantly lower or higher value of the supply of goods and/or services compared to the market value of goods and/or services of like kind and quality at the time of supply; or any mis-declaration of goods and/or services in parameters such as description, quality, quantity, year of manufacture or production. Where transaction value cannot be followed, the value has to be determined by following the below steps sequentially – the value shall be determined on the basis of the transaction value of goods and/or services of like kind and quality supplied at or about the same time to other customers, adjusted for difference in the dates of supply, difference in com
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be easier, application of the same to services could pose problems. Compounding Scheme The upper ceiling in terms of gross annual turnover for composition scheme is expected to be ₹ 50 lakhs. A review of proposed Section 8(1) of the Model GST Law reveals that while the turnover limit has been kept at rupees fifty lakhs, the rate is expected to be more than one percent unlike the earlier indicated base rate of 0.5%. However, the turnover limit would be computed on all India basis for the assesse including those on goods and services (whether taxable or not) put together. A reading of proposed Section 2(73) reveals turnover defined to mean the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports, of goods and/or services, to be computed on all India basis and excludes taxes, if any, charged under this Act. The compounding benefit would not be available to a seller who sells goods or supplies services inter-state or to a person who is liable to pay t
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nts too henceforth would have the power to notify services for collecting tax on reverse charge basis. One saving grace as of now seems to be the fact that Section 2(49) regards tax payable on reverse charge basis as output tax. A similar provision exists in Section 4 of The Integrated Goods & Services Tax Act 2016 proposed which enables the Central Government to specify categories of supply of services where the location of the service provider and the place of supply of service are in different States in which case, the recipient would be liable to pay service tax on reverse charge basis in the course of inter-state trade. Recovery of tax not paid or short paid The time period for issue of Show Cause Notice has been fixed at three years from the relevant date. This is followed by another one year for issue of statement of dues post issue of SCN, for the subsequent period as long as the grounds are the same as those in earlier notice. The ceiling for penalty is ₹ 5000 or ten
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ness premises as well as processes within his business premises. The period of retention of records would be sixty months from the date of the annual return. The registered person would be required to file various returns as indicated in the Report of the Joint Committee on Business Processes for GST on GST Returns. A common e-return for CGT, SGST and IGST is envisaged. While a compounding tax payer would be required to file GSTR 4 at quarterly intervals within 18th of the month following the quarter, regular tax payers would be required to file GSTR 3 (monthly return) within 20 days from the end of the month. Input service distributors would be required to file GSTR 6 monthly within 15 days of the succeeding month. Annual return would be in form GSTR 8 within 31st December of the succeeding financial year. TDS return would be filed in form GSTR 7 within 10th of the following month. Regular tax payers would also be required to file GSTR 1 and GSTR 2 monthly for outward and inward suppl
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it would be date of filing of relevant return. Where refund is on account of return of goods, it would be date of return to premises. In respect of unadjusted input tax, the end of the financial year in which claim arises. Constitutional Amendment The Constitution (One Hundred and Twenty Second Amendment) Bill 2014 has sought to insert Article 246A in the Constitution providing the Legislature of every State power to make laws with respect to goods and services tax imposed by the Union or by such State. However, the Parliament alone would have exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Article 269A which is sought to be inserted provides for levy and collection of goods and services tax in the course of inter-state trade or commerce and it would be collected by the Government of India and such tax shall be apportioned between the Union and the States i
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such time recommended by GST Council. The following taxes would be subsumed into GST – Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services The Bill seeks to dispense with the concept of declared goods of special importance and also has a clause for a much debated additional levy of one percent on inter-state supply of goods which could be levied for two years or
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Minister and will have the Union Minister of State in-charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It would be responsible for recommendations to the Union and States on – the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; the goods and services that may be subjected to, or exempted from the goods and services tax; model Goods and Services Tax Laws, principles of levy, apportionment of Integrated Goods and Services Tax and the principles that govern the place of supply; the threshold limit of turnover below which goods and services may be exempted from goods and services tax; the rates including floor rates with bands of goods and services tax; any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; special provision with respe
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