Levy and Collection Mechanism under GST

CA Vaishali Kharde

On 14^th June 2016 ‘Model law of GST’ was made available in public domain. After the passage of Goods and Services Tax (GST) Constitutional Amendment Act in Rajya Sabha, President Pranab Mukherjee gave assent to the GST Bill on 8^th September 2016, which will eventually make GST a reality.  Now, in the seventh meeting which was began on Tuesday on 20^th Dec 2016 in New Delhi the SGST and CGST draft comprising of 197 section 5 schedules was approved.

Broad framework of GST

The framework of GST which is proposed to be implemented in India would be ‘Dual GST’. It will be administered through Central Goods and Service Tax Act (CGSTAct), State GST Acts and Integrated GST Act.

Charging event

CGST and SGST is applicable on intra-State transaction whereas IGST Act will be applicable on inter-State transactions.

In this regard, the charging section is Section 8 (1) of the CGST/SGST Act which prescribes that, ‘There shall be levied a tax called the Central/State Goods and Services Tax (CGST/SGST) on all intra-State supplies of goods and/or services on the value determined under section 15 and at such rates as may be notified by the Central/State Government in this behalf, but not exceeding fourteen percent ……’

Further, for inter-State transactions, the charge is created through section 5(1) of the IGST Act, which prescribes that‘There shall be levied a tax called the Integrated Goods and Services Tax on all supplies of goods and/or services made in the course of inter-State trade or commerce on the value determined under section 15 of CGST Act, 2016 and at such rates as may be notified by the Central Government in this behalf, but not exceeding twenty eight percent…’

Accordingly, supply of the goods and services determine the levy GST. In this regard, it is crucial to note that CST and SGT at a rate not exceeding 14% is levied on intrastate supply and IGST at a rate not exceeding 28% is levied on interstate supply of goods and services.

Meaning of supply

GST is leviable on ‘supply’ defined under section 3 of the Act. The present levies / taxes like Excise on the manufacture, Service Tax on the provision of service, VAT on the intra-State sale of goods, CST on inter-State sale of goods etc.will loose their relevance. Further, if we refer Section 3 of the Act, the term ‘supply’is defined in such way that it may include the certain free supply of goods and/or services. As per section 3(1)(a) supply includes sale, transfer, barter, exchange etc. agreed to be made for a consideration by a person in the course or furtherance of business. Thus the transaction like barter which is not under the preview of current taxation may get covered under GST. Also, the importation of the services for a consideration will be liable to GST. As per sub-clause 1(c)  certain transactions given under schedule I of the GST Act, even made without consideration liable to GST  like supply of the goods and services between related persons or between distinct person, Permanent transfer/ disposal of business asset where input tax credit has been availed, supply of goods between principle and agent etc,  Hence the transaction like branch transfer will be liable to GST.

Collection of GST

Once the applicability of levy of GST is evident, then the next question is about the collection of GST.In the current regime, the collection of excise is at the time of removal of the goods from factory, collection of Service Tax is in accordance with Point of Taxation Rules, 2011 whereas the collection of VAT or CST is at the time of transfer of title in goods.

In GST regime liability to pay CGST or SGST on the supply of goods arises as per‘Time of Supply’.As per section 12 and 13, Time of Supply for goods and services shall be the earliest of the four events given below.

Further the time of supply for GST payable under Reverse Charge Mechanism (RCM), In case of Supply of Voucher, Change in rate of tax etc. is separately provided under section 12,13 and 14 of the GST Act.

Hence, if we look into the a fore said provision regarding collection with respect of manufacturer they are now required to track additional event like date of payment etc. as compared to today’s single point collection. Further, trader is also required to track the advances received by them.

Given this, change in levy and collection mechanism will certainly impact invoicing, IT system, working capital requirements etc. Considering, these numerous changes it will be desirable that the taxpayers should take appropriate steps before GST sees light of the day.

GSTR 3B form Download