Model GST Laws:

The Government of India has released a Model GST Law in Public Domain. We are sharing an important and path breaking analysis of Model GST Law.

We have tried to analyze the GST law in brief and hope the same will be helpful to readers. We have tried to do the same in following manner:

  1. Important Provisions of Model GST Law
  2. Key Features of GST Law
  3. Analysis of Provisions
  4. Conclusion
  5. Disclaimer

Important Definitions:

(6) “aggregate turnover” means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;

Explanation- Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies.

(17) “business” includes –

(a)any trade, commerce, manufacture, profession, vocation or any other similar activity,whether or not it is for a pecuniary benefit;

(b)any transaction in connection with or incidental or ancillary to (a) above;

(c)any transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;

(d)supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;

(e)provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be;

(f)admission, for a consideration, of persons to any premises; and

(g)services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(20) “capital goods” means: –

(A)the following goods, namely:-

(i) all goods falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the Schedule to this Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof;

(vii) storage tank; and

(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704,8711 and their chassis but including dumpers and tippers

used-

(1) at the place of business for supply of goods; or

(2) outside the place of business for generation of electricity for captive use at the place of business; or

(3) for supply of services,

(B) motor vehicle designed for transportation of goods including their chassis registered in the name of the supplier of service, when used for

(i) supplying the service of renting of such motor vehicle; or

(ii) transportation of inputs and capital goods used for supply of service; or

(iii) supply of courier agency service;

(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the supplier of service, when used for supplying the service of-

(i) transportation of passengers; or

(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills;

(D) Components, spares and accessories of motor vehicles which are capital goods for the taxable person

(27) “composite supply” means a supply consisting of –

(a) two or more goods;

(b) two or more services; or

(c) a combination of goods and services provided in the course or furtherance of business, whether or not the same can be segregated;

(28) “consideration” in relation to the supply of goods and/or services to any person, includes

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person;

(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person:

Provided that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;

(29) “continuous journey” means a journey for which a single or more than one ticket or invoice is issued at the same time, either by a single supplier of service or through an agent acting on behalf of more than one supplier of service, and which involves no stop over between any of the legs of the journey for which one or more separate tickets or invoices are issued;

Explanation.- For the purposes of this clause, ‘stopover’ means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time.

(30) “continuous supply of goods” means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis;

(31) “continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such service as the Central or a State Government may, whether or not subject to any condition, by notification, specify;

(42) “exempt supply” means supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which are specified in Schedule . . . of the Act or which may be exempt from tax under section 10;

(43) “export of goods” with its grammatical variations and cognate expressions,means taking out of India to a place outside India;

(44) the supply of any service shall be treated as “export of service” when

(a) the supplier of service is located in India,

(b) the recipient of service is located outside India,

(c) the place of supply of service is outside India,

(d) the payment for such service has been received by the supplier of service in convertible foreign exchange, and

(e) the supplier of service and recipient of service are not merely establishments of a distinct person;

Explanation.- For the purposes of clause (e), an establishment of a person in India and any of his other establishment outside India shall be treated as establishments of distinct persons.

(48) “goods’’ means every kind of movable property other than actionable claim and money but includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply;

Explanation.– For the purpose of this clause, the term ‘moveable property’ shall not include any intangible property.

(51) “import of goods” with its grammatical variations and cognate expressions,means bringing into India from a place outside India;

(52) the supply of any service shall be treated as an “import of service” if,

(a) the supplier of service is located outside India,

(b) the recipient of service is located in India,

(c) the place of supply of service is in India, and

(d) the supplier of service and the recipient of service are not merely establishments of a distinct person;

(54) “input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

(55) “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

(56) “Input Service Distributor” means an office of the supplier of goods and / or services which receives tax invoices issued under section 23 towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above;

Explanation.- For the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST, Input Service Distributor shall be deemed to be a supplier of services.

(57) “input tax” in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7;

(64) “location of recipient of service” means:

(i) where a supply is received at a place of business for which registration has been obtained, the location of such place of business;

(ii) where a supply is received at a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;

(iii) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and

(iv) in absence of such places, the location of the usual place of residence of the recipient;

(65) “location of supplier of service” means:

(i) where a supply is made from a place of business for which registration has been obtained, the location of such place of business ;

(ii) where a supply is made from a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;

(iii) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and

(iv) in absence of such places, the location of the usual place of residence of the supplier;

(80) “recipient” of supply of goods and/or services means-

(a) where a consideration is payable for the supply of goods and/or services, the person who is liable to pay that consideration,

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available, and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply;

Explanation.- The expression “recipient” shall also include an agent acting as such on behalf of the recipient in relation to the goods and/or services supplied.

(104) “turnover in a State” means the aggregate value of all taxable and non-taxable supplies, including exempt supplies and exports of goods and / or services made within a State by a taxable person and inter-state supplies of goods and / or services made from the State by the said taxable person excluding taxes, if any charged under the CGST Act, SGST Act and the IGST Act, as the case may be;

(105) “usual place of residence” means

(a) in case of an individual, the place where he ordinarily resides;

(b) in other cases, the place where the person, as defined in sub-section (74), is incorporated or otherwise legally constituted;

(107) “works contract” means an agreement for carrying out for cash, deferred payment or other valuable consideration, building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property;

(108) “year” means the financial year; and

(109) “zero-rated supply” means a supply of any goods and/or services on which no tax is payable but credit of the input tax related to that supply is admissible;

Explanation.- Exports shall be treated as zero-rated supply.

Section 3: Meaning and Scope of Supply:

Bare Provisions:

(1) Supply includes

(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

(b) Importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and

(c) a supply specified in Schedule I, made or agreed to be made without a consideration.

(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.

(2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.

(3) Subject to sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as—

(i) a supply of goods and not as a supply of services; or

(ii) a supply of services and not as a supply of goods; or

(iii) neither a supply of goods nor a supply of services.

(4) Notwithstanding anything contained in sub-section (1), the supply of any branded service by an aggregator, as defined in section 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator.

Analysis of Supply: In the GST this is most Important Provision. As we all know GST is a consumption based Tax. This mean that situs will be place where goods or services are delivered and not from where goods or services originated their movement.

Therefore Scope of Supply becomes Very Important. However under Model GST Law as expected supply is an inclusive in nature and would lead to litigation in future. However an attempt is made where anomaly in Erstwhile Sales tax or in current VAT regime barters are Tax-Free, in GST Regime the same is Taxable.

It has further included anything supplied with consideration or without consideration and this would be very litigative in nature as what is consideration for a specific supply.

Further principal agent transaction is also covered and hence anything supplied to agent is taxable under GST which is exempt in VAT or Service Tax. Aggregation Services or Aggregator is also covered under GST and thus draft has tried to resolve the confusion under Aggregator services.

However here Schedules has become very important as what is Supply of Goods and Supply of Services is provided there. There has been considerable change if we keenly analyze the Schedules. The pragmatic shift has been to have what is internationally acceptable vs. what is there in Indian Taxation Statutes.

Some examples can be like treating Works Contract and Leases as Supply of Services

Section 8; Composition Levy:

(1) Notwithstanding anything to the contrary contained in the Act but subject to subsection (3) of section 7, on the recommendation of the Council, the proper officer of the Central or a State Government may, subject to such conditions and restrictions as may be prescribed, permit a registered taxable person, whose aggregate turnover in a financial year does not exceed [fifty lakh of rupees], to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than one percent of the turnover during the year:

Provided that no such permission shall be granted to a taxable person who effects any inter-State supplies of goods and/or services.

Provided further that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.

(2) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(3) If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty equivalent to the amount of tax payable as aforesaid:

Provided that no penalty shall be imposed without giving a notice to show cause and without affording a reasonable opportunity of being heard to the person proceeded against.

Analysis: Composition scheme is provided to small tax payers who pay tax less than 50 Lacs. Minimum rate on Composition is Defined @1%.

However the provision is taken from VAT laws where incidence of Tax is not allowed to be passed on to the consumer. This step is regressive in nature. Ideally composition scheme should be made such that burden of compliance is reduced and officers not powers given above as they might cancel the composition based on their wishful thinking. This I feel would also lead to litigations.

Further providing powers to grant permission to operate under composition is not just in law as this would complicate the system and might lead to harassment of officers to small tax payers.

Section 9: Taxable Person:

Registration is Required in Following Cases:

  1. If the Supply exceeds 10 Lacs except in North East states including Sikkim where threshold limit is 5 Lacs
  2. Exemption is granted if either supply is not liable to be taxed, Employer-Employee Relationship or providing supply of personal use.

The provision is derived from Service Tax. However this will impact dealers under Excise as current Limit is 1.5 Cr and now the limit has been changed to 10 Lacs. The persons not taxable excise now will be taxable in future and they would have to get themselves registered.

The impact would be seen since the incidence of Levy will be passed on to consumer and there would be increase in prices of certain goods. It will hit ancillary and MSME the most as now they need to get themselves registered under SGST and CGST. The Compliance cost will go up to them.

Time and value of Supply:

12. Time of supply of goods

(1) The liability to pay CGST / SGST on the goods shall arise at the time of supply as determined in terms of the provisions of this section.

(2) The time of supply of goods shall be the earliest of the following dates, namely,-

(a) (i) the date on which the goods are removed by the supplier for supply to the recipient, in a case where the goods are required to be removed or

(ii) the date on which the goods are made available to the recipient, in a case where the goods are not required to be removed; or

(b) the date on which the supplier issues the invoice with respect to the supply; or

(c) the date on which the supplier receives the payment with respect to the supply; or

(d) the date on which the recipient shows the receipt of the goods in his books of account.

Explanation 1.- The provisions of sub-clause (ii) of clause (a) shall apply in cases where the goods

(a) are physically not capable of being moved; or

(b) are supplied in assembled or installed form; or

(c) are supplied by the supplier to his agent or his principal.

Explanation 2.- For the purposes of sub-clause (ii) of clause (a), the expression ’made available to the recipient’ shall mean when the goods are placed at the disposal of the recipient.

Explanation 3.- For the purposes of clauses (b) and (c) of sub-section (2), the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.

Explanation 4.- For the purpose of clause (c) of sub-section (2), “the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.

(3) In case of continuous supply of goods, 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.

(4) For the purposes of sub section (3) above, the Central or a State Government may, on the recommendation of the Council, specify, by notification, the supply of goods that shall be treated as continuous supply of goods;

(5) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely—

(a) the date of the receipt of goods, or Page 31 of 190

(b) the date on which the payment is made, or

(c) the date of receipt of invoice, or

(d) the date of debit in the books of accounts.

Explanation.- For the purpose of clause (b) of sub-section (5), “the date on which the payment is made” shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.

(6) 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 six months from the date of removal, whichever is earlier.

(7) In case it is not possible to determine the time of supply under the provisions of subsection (2), (3), (5) or (6), the time of supply shall

(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed, or

(b) in any other case, be the date on which the CGST/SGST is paid.

13. Time of supply of services:

(1) The liability to pay CGST/SGST on services shall arise at the time of supply, as determined in terms of the provisions of this section.

(2) The time of supply of services shall be:-

(a) the date of issue of invoice or the date of receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period; or

(b) the date of completion of the provision of service or the date of receipt of payment, whichever is earlier, if the invoice is not issued within the prescribed period; or

(c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or (b) do not apply.

Explanation 1.- For the purposes of clauses (a) and (b), the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.

Explanation 2.- For the purpose of clause (a) and (b) of sub-section (2), “the date of receipt of payment” shall be the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.

(3) In case of continuous supply of services, the time of supply shall be –

(a) where the due date of payment is ascertainable from the contract, the date on which the payment is liable to be made by the recipient of service, whether or not any invoice has been issued or any payment has been received by the supplier of service;

(b) where the due date of payment is not ascertainable from the contract, each such time when the supplier of service receives the payment, or issues an invoice, whichever is earlier;

(c) where the payment is linked to the completion of an event, the time of completion of that event;

(4) For the purposes of sub section (3) above, the Central or a State Government may on the recommendation of the Council, specify, by notification, the supply of services that shall be treated as continuous supply of services;

(5) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely-

(a) the date of receipt of services, or

(b) the date on which the payment is made, or

(c) the date of receipt of invoice, or

(d) the date of debit in the books of accounts.

Explanation.- For the purpose of clause (b) of sub-section (5), “the date on which the payment is made” shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.

(6) In a case where the supply of services ceases under a contract before the completion of the supply, such services shall be deemed to have been provided at the time when the supply ceases.

(7) Where it is not possible to determine the time of supply of services in the manner specified in sub-sections (2), (3), (5) and (6), the time of supply shall

(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or

(b) in any other case, be the date on which the CGST/SGST is paid.

14. Change in rate of tax in respect of supply of services

(1) Notwithstanding anything contained in section 13, the time of supply, in cases where there is a change in the effective rate of tax in respect of services, shall be determined in the following manner, namely:-

(a) in case the taxable service has been provided before the change in effective rate of tax –

(i) where the invoice for the same has been issued and the payment is also received after the change in effective rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or

(ii) where the invoice has been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the time of supply shall be the date of issue of invoice; or

(iii) where the payment is received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the time of supply shall be the date of receipt of payment;

(b) in case the taxable service has been provided after the change in effective rate of tax

(i) where the payment is received after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the time of supply shall be the date of receipt of payment; or

(ii) where the invoice has been issued and the payment is received before the change in effective rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or

(iii) where the invoice has been issued after the change in effective rate of tax but the payment is received before the change in effective rate of tax, the time of supply shall be the date of issue of invoice.

Explanation.- For the purpose of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account, whichever is earlier:

Provided that the date of receipt of payment shall be the date of credit in the bank account when such credit in the bank account is after four working days from the date of change in the effective rate of tax.

15. Value of taxable supply

(1) The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The transaction value under sub-section(1) shall include:

(a) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services;

(b) the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued, to the extent that such value has not been included in the price actually paid or payable;

(c) royalties and licence fees related to the supply of goods and/or services being valued that the recipient of supply must pay, either directly or indirectly, as a condition of the said supply, to the extent that such royalties and fees are not included in the price actually paid or payable;

(d) any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act;

(e) incidental expenses, such as, commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or, as the case may be, supply of the services;

(f) subsidies provided in any form or manner, linked to the supply;

(g) any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and/or services;

(h) any discount or incentive that may be allowed after the supply has been effected:

Provided that such post-supply discount which is established as per the agreement and is known at or before the time of supply and specifically linked to relevant invoices shall not be included in the transaction value.

(3) The transaction value under sub-section (1) 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.

(4) The value of the supply of goods and/or services in the following situations which cannot be valued under sub-section (1), shall be determined in such manner as may be prescribed in the rules.

(i) the consideration, whether paid or payable, is not money, wholly or partly;

(ii)the supplier and the recipient of the supply are related;

(iii)there is reason to doubt the truth or accuracy of the transaction value declared by the supplier;

(iv)business transactions undertaken by a pure agent, money changer, insurer, air travel agent and distributor or selling agent of lottery;

(v) such other supplies as may be notified by the Central or a State Government in this behalf on the recommendation of the Council.

Analysis of Chapter V: This is the most important part of GST. Since the entire GST is based on Supply and not sale, it’s important to know the supply of goods and services and what would be value of goods. However blanket analysis provides that time of supply of goods is based at removal or invoice whichever is earlier. The concept is mix of excise and VAT regime and ideally time would be treated as when the goods are removed from the location.

This is an important shift from current regime since in VAT it’s the invoice which triggers the sale. However this is understandable since the Tax has shifted its nature from Sale to Supply. However for Services the regime is simple. Supply of service will treated as issue of invoice or provisioning of Services whichever is earlier.

The chapter has tried to resolve the issue related to change in taxation. Ideally it says that date of invoice would be the date for which tax rate is applied. Only Exception is that in case payment is made before the date of invoice then date of payment need to be taken to determine the tax rate in case of goods.

For Supply it takes date of payment which is there in Service Tax. It’s something like retrospective taxation since the provision is done and payment is not made as per terms effective rate is date of payment. This ideally should be the date of provisioning or supply of service.

Now another important aspect is derived what is transaction Value. The concept is more or less derived from Excise/Customs where in value is treated as Invoice Value plus royalties, Fees or any consideration involved in the transaction.

Input Tax Credit:

Bare reading of Provisions provides that as mentioned in various forums that there will be seamless flow of Credit, the same will not be there. The Government in its draft has already mentioned a negative list for ITC and this is against the principles of GST. Ideally GST talks about uniform taxes and seamless credit but draft compromises on the same. The Negative list is reproduces as under:

Sec. 16 (9):Notwithstanding anything contained in sub-section (1), (2), (2A) or (3) input tax credit shall not be available in respect of the following:

(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) imparting training on motor driving skills;

(b) goods and / or services provided in relation to food and beverages, outdoor catering,beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee;

(c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

(d) 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;

(e) goods and/or services on which tax has been paid under section 8; and

(f) goods and/or services used for private or personal consumption, to the extent they are so consumed.

(10) Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.

(11) Notwithstanding anything contained in this section, but subject to the provisions of section 28, no registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless

(a) he is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be prescribed, issued by a supplier registered under this Act or the IGST Act;

(b) he has received the goods and/or services;

(c)the tax charged in respect of such supply has been actually paid to the credit of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 27:

Provided that where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or installment.

Explanation.—For the purpose of clause (b), it shall be deemed that the taxable person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such taxable person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise.

Analysis: Ideally the seamless credit of ITC in India is still distant reality. We have discussed many times and it was assured at all forums that GST will usher new regime where Seamless Credit will flow from one end to another. However Government while making bill followed VAT footsteps and legalized that credit be denied in case it’s not paid by Selling Dealer.

Further they have mentioned that credit of Invoice can be taken within one year from the date of Invoice.

This would mean that ITC provision seems to be like old Wine in New Bottle. This ideally should not be the case but knowing Indian Taxation system the current negative list is mix of Service Tax and VAT. If these provisions follow than it seems that GST will not serve its desired purpose.

Further denying credit on goods or services used for home consumption is also a regressive mentality. Ideally it would happen that assets used for home consumption or used in office would be denied credit and this will be cost that consumer has to bear. I think since it’s a draft there is change which should be done and principles of GST should be followed so that GST becomes a successful Tax Reform.

Provisions related to ISD and job work is same as are there in current laws.

Registration:

Section 19 to 22 Deals with registration in GST. As per provisions of Registration one has to apply registration within 30 days to get them registered. However if one is registered under Current Laws they don’t have apply as stated in provisions of Act.

Registration No will be Pan based and Company can get their Business vertical registered. Therefore the company may have different registration. This will allow seamless ISD. Further a person can do voluntary registration.

Returns:

As per model draft code every person is required to file return within 20 days after end of the month. However in case the criteria for such person are quarterly the same should be filed within 18 Days. A valid return for allowing ITC is one which is filed after payment of taxes. Every person is required to file NIL return in case he has not affected supplier for particular Tax Period.

Provisional Credit is allowed to Dealer when he will file returns. However there will be process to match the ITC and in case there is mismatch the same would be intimated to Dealer. TO the extent there is mismatch the same will be disallowed and dealer has to pay the balance liability.

However a Dealer can revise the return before he files next return. Once the next return is filed he will not be able to file the Returns for that particular Quarter.

An annual return need to file by every dealer by 31st of December of following year in manner prescribed.

Payment of Tax:

As per provisions of GST, Cross-Credit will not be allowed in between CGST and SGST. However credit of IGST is allowed against SGST and CGST. Further cross credit is allowed against IGST of CGST and SGST.

Refunds:

As per Model GST draft carry forward of ITC is allowed. However refund is allowed only in one case. The same is allowed if the same is used for Exports. Further Refund can be applied within two years from end of Financial Year for which the refund relates.

The provisions seem to be taken from Service Tax Law and thus it’s also a regressive. In years we have seen that cash gets stuck due to Carry Forward of ITC. However there is still time for final law and hence there are chances that this provision might change.

Other Provisions:

1. Accounts need to be kept for 5 years from the date of Filing of Annual Returns

2. Special Provisions for Job Workers has been mentioned

3. There is chapter for taxability of E-commerce Transaction. However Electronic Commerce operator need to collect the tax at rates prescribed

a. E-commerce Definitions:

i. ‘aggregator’ means a person, who owns and manages an electronic platform, and by means of the application and a communication device, enables a potential customer to connect with the persons providing service of a particular kind under the brand name or trade name of the said aggregator;

ii. ‘brand name or trade name’ means, a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as an invented word or writing, or a symbol, monogram, logo, label, signature, which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some other person using the name or mark with or without any indication of the identity of that person;

iii. ‘branded Services’ means services which are supplied by an electronic commerce operator under its own brand name or trade name, whether registered or not;

iv. ‘electronic commerce’ shall mean the supply or receipt of goods and / or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator;

v. ‘electronic commerce operator’ shall include every person who, directly or indirectly, owns, operates or manages an electronic platform that is engaged in facilitating the supply of any goods and/or services or in providing any information or any other services incidental to or in connection there with but shall not include persons engaged in supply of such goods and/or services on their own behalf.

4. The provisions related to Assessment are taken from current Laws. Further provisions related to Assessments, Appeals and Advance Rulings are more or Less same as in current Laws.

5. Transitional Provisions:

a. Existing Dealer to get the registration on provisional basis

b. To Apply registration within 6 Months

c. CENVAT Credit or Credit under VAT will be carry forwarded as Opening Credit

Conclusion: The Draft GST Law is mix of Exiting VAT Laws and Central Indirect Tax Laws. However some provisions are too regressive in nature and defeat the entire purpose of GST. The provisions like negative list in GST, and disallowing ITC if the seller has not paid the GST is not correct. However Draft has tried to put few things in order.

Further Refund provisions need be modified as No refunds for excess Carry Forward of ITC other than export is not a welcome move. In VAT laws such refund is allowed and this will block huge cash in system. I feel this provision needs to be looked upon.

The collection of Tax, Payment methods and other provisions as stated in the laws seems to ease the business but actual implementation needs to be seen. The effort and intention to bring any statute or reform is always good but what need to be seen that whether the same is implemented well.

However Rules will play important role to determine the effective implementation of GST. GST will defiantly release various bottlenecks of system and is progressive step in Taxation Reforms.

(About The Author: Mr. Himanshu Dhakad is a Chartered Accountant and company Secretary by Profession. The views are his personal views. For any queries you can follow him on twitter handle @hemanshow79 or can email him at hemanshow79@gmail.com)

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