CA Madhukar N Hiregange

CA Ashish Chaudhary

Background

Everyone is awaiting what would be outcome of Constitutional Amendment Bill in the impending monsoon session. But the government seems to be very keen to introduce the GST from next financial year. After issuing Joint Committee Reports on registration, refund, tax payment and filing of return last month, the government has issued draft model law on GST. There would be separate Acts for CGST, SGST and IGST. The model Act would guide for drafting GST Act for each of the state.

The bird eye view of the GST Act is discussed as following:

Levy of Tax

Charging section 7 of the Act provides 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 at the rate specified in the Schedule . . . to this Act and collected in such manner as may be prescribed. The CGST/SGST shall be paid by every taxable person in accordance with the provisions of this Act. The essential features of the Act are as follows:

1. There should be a taxable person:

Taxable person has been defined in the section 9 of the Act. It covers

  • Any person carrying on business in India
  • Include CG,SG and local authorities in relation to transactions in which they are engaged as public authorities
  • Employees, in relation services provided to employer, kept out of definition of taxable person.
  • Similarly, person with aggregate turnover of less than Rs. 10 lacs (Rs. 5 lacs for NE states) shall be considered as non taxable person.

2. The taxable person should be engaged in the business

The definition of taxable person provides that the person should be engaged in carrying out any business. The business has been defined in section 2 (17) in very wide term. It includes the following:

(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;

but does not include agriculture;

3. The business should be in relation to goods or services:

To levy GST, the business should be in relation to goods or services. The term goods and services have been defined as follows:

Section 2 (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;

Section 2 (59): “services’’ mean anything other than goods. It also includes intangible property and actionable claim.

Note: The service has been defined very large. It could include immovable property also.

4. There should be supply

GST is levied on supply of goods or service. Supply has been defined in section 3 of the Act as follows:

Supply defined in very wide term to cover all forms of supply such as:

  • All forms of supply of goods and/or services by way of sale, transfer, barter, exchange, licence, rental, lease, and disposal of assets for consideration in the course of business
  • Importation of service, whether or not for consideration
  • Schedule I: Supply without consideration considered as deemed supply
  • Schedule II: Determination of what is supply of goods and supply of services

5. The supply should be of goods/services: Anything not falling within meaning of goods/services cannot be brought to tax.

6. The tax shall be levied at the time of supply of goods/services.

♣ Tax shall be levied at the time of supply of goods/services. The time of supply of goods and services have been provided separately.

♣ Time of supply of goods shall be earliest of the following dates: (section 12)

i. Date of removal of goods by supplier to the buyer for supply

ii. Where goods are not required to be removed, the date on which goods are made available to the buyer

iii. Date when supplier issues invoice for supply

iv. Date on which supplier receive payment for supply

v. Date on which buyer shows receipt of goods in books of account

♣ Distinction has been made between REMOVAL and SUPPLY. Where goods have been removed but supply has not taken place, the time of supply shall be when it become known that supply has taken place or 6 months from removal date, whichever is earlier

♣ Time of supply of service shall be earliest of following: (section 13)

i. The date of issue of invoice or date of receipt of payment, whichever is earlier. (provided invoice issued within prescribed time)

ii. Date of completion of service or receipt of payment, whichever is earlier. (if invoice not issued within prescribed time)

iii. Date on which recipient shows receipt of service in books of account. (If not covered by case i and ii above)

♣ In case of services covered by reverse charge, the time of supply shall be earliest of

i. Date of receipt of service

ii. Date of which payment is made

iii. Date of receipt of invoice

iv. Date of debit in books of account

♣ Provisions have been made for determining time of supply of service in case of continuous supply of service on milestone basis

7. Nature of tax (CGST/SGST/IGST) shall depend upon nature of supply

♣ Supply of goods shall be :

i. Interstate supply: if supply involves movement of goods from one state to another

ii. Intra state supply: If goods remain within the state

♣ Supply of service shall be

i. Interstate supply: If service provider and service receiver are located in different states

ii. Intra state supply: If located in the same state

♣ Above principles of supply of goods and supply of service are by default principle. In case of specified goods and services, nature of supply may change depending upon the place of supply.

8. The supply should be for a consideration

♣ Tax can be levied only when there is consideration. In the absence of consideration, no tax shall be levied

♣ Consideration has been defined in section 2 (20) in relation to supply of goods/services as:

i. Any payment in money or otherwise in respect of supply of goods or services, whether by person or by any other person

ii. Monetary value of any act or forbearance in respect of supply of goods or services

iii. Refundable deposit shall not be considered as consideration unless this is adjusted against value of goods/services supplied

9. The tax shall be levied on value of taxable supply:

♣ Value of taxable supply shall be transaction value (where transaction is between unrelated party and the price is sole consideration). TV includes the following:

i. Price paid or payable for supply of goods or services

ii. Value of free supply or supply at reduced cost by recipient of supply to supplier

iii. Royalties and licence fees relatable to supply of goods and service

iv. Any duty, tax, cess, fees levied other than CGST/SGST/IGST

v. Incidental expenses at the time or before delivery of goods/services

vi. Subsidy linked to supply

vii. Any discount allowed after supply has been effected. Discount allowed before or at the time of supply shall not be included in the transaction value.

♣ Where value cannot be determined as per above, it shall be calculated in accordance with the rules framed in this behalf.

10. The rate of tax shall be as specified in the schedule:

The rate of tax has not been provided in the Act. It would be provided separately in the schedule. There may be different rate of taxes for different class of goods and services.

11. The tax may be paid after availing input tax credit.

♣ Tax may be paid after adjusting the eligible credit.

♣ Where goods and services are used partly for business and partly for other purpose, credit shall restricted as attributable to business

♣ Where goods (excl. capital goods) and services are partly used for taxable supply and partly for non taxable supply, credit restricted to taxable supply.

♣ Order of utilisation shall be as follows:

i. IGST to be used for IGST, CGST and SGST in that order

ii. CGST to be used for CGST and IGST in that order

iii. SGST to be used for SGST and ISGT in that order

iv. CGST to SGST and SGST to CGST adjustment not possible

♣ Excess credit may be carried forward to next tax period

♣ Credit can be claimed as refund where accumulated due to export or where tax on input is higher than tax on output

♣ Certain expenditure mainly in the nature of personal expenses have been excluded from the eligibility of credit.

12. Option has been provided for payment of tax under compounded scheme

♣ Section 8 of the model Act talks about compounding scheme. The option would be available to registered taxable person whose turnover in a financial year does not exceed Rs. 50 lacs.

♣ The term “turnover” has been defined in very wide term which includes:

i. Taxable supply

ii. Non taxable supply

iii. Exempt supply

iv. Export

♣ Payment under compounding scheme shall be considered as “amount” not “tax”.

♣ The rate under compounding scheme shall not be less than 1 % as may be notified. The amount needs to be paid on turnover (not on taxable turnover). This means it would be applicable on exempted, non-taxable and export supply also.

♣ Compounded scheme option not eligible to person making inter-state supply and the person liable to pay tax under reverse charge mechanism.

13. The government may provide exemption from tax:

  • Exemption may be granted by government based on recommendation of council. The exemption may be absolute or conditional.
  • Where exemption has been granted absolutely, it would be mandatory to claim the exemption.

14. Registration needs to be taken by person liable to pay tax (section 19)

  • There would be separate categories of registrations for different taxable persons viz., normal taxpayer, taxpayer under compounding scheme, casual dealers, non-resident supplier, input service distributor and unique ID for UN bodies/ governmental authorities and PSUs.
  • Registration would be PAN based.
  • An entity having a single PAN but effecting supplies from multiple States would be required to take registration in each of the States from where the supply is being made.
  • Separate registrations may be taken for different business verticals within the same State. This would be optional and not mandatory.
  • The facility of taking registration through Tax Return Preparer (TRP) and Facilitation Centre (FC) has been introduced.

15. Taxable person needs to file the return

  • Every taxable person required to file return submitting details of outward supply on or before 10th of the succeeding month (section 25)
  • Details of inward supplies need to be submitted before 15th of the succeeding month (section 26)
  • Final return shall be submitted on or before 20th of the succeeding month giving details of inward and outward supplies of goods and/or services, input tax credit availed, tax payable, tax paid and other particulars.
  • Person deducting TDS has to file the return within 10th of the succeeding month.
  • Every registered dealer, other than casual and non-resident dealer, is required to file annual return on or before 30th December after end of FY.

16. Tax needs to be paid on or before filing of return

  • It has been provided in the model law that the tax should be paid before filing of return.
  • If tax is not paid, the return filed shall be deemed to be invalid.

17. Tax deduction at source (TDS)

♣  CG or SG may mandate deduction of tax @ 1% on payment made or credited by:

i. Department of CG or SG

ii. Local authorities

iii. Governmental agencies

iv. Other notified categories

♣ It should be deducted on specified goods or service to be notified

♣ Applicable when total value of such supply under a contract exceeds Rs. 10 lacs

♣ TDS should be deducted within 10th of next month. Delay in payment would attract late fee of Rs. 100 per day.

18. Assessment

  • Every registered person shall self assess the tax payable by him under the Act
  • Returns furnished by taxpayer would be subject to scrutiny by department
  • Department may carry out best judgment assessment in case of non-filers of return and unregistered person.

19. There are provision for audit, recovery of tax, interest, imposition of penalties, detention and confiscation of goods, arrest and prosecution.

20. Provisions for appeals and reviews have also been provided.

21. Facility of Advance Ruling would be available. However, presently, no provision has been made for settlement commission.

22. Transitional Provisions: Smooth migration from existing regime to new regime warrants proper transitional provisions. Following transitional provisions have been provided in the law:

a. Existing assessee may migrate to GST by issuing provisional RC

b. Cenvat credit carried forward in return to be allowed as input tax credit. (Important to properly capture the credits in the return at the time of migration)

c. Unavailed cenvat credit on capital goods, not carried forward in return, allowed to carry forward

d. Credit of eligible duties and taxes in respect of inputs held in stock to be allowed as credit to the persons who are not liable to be registered under existing regime

e. There are few other specific provisions to deal with job work cases, goods sent on approval, goods returned, price variation, refund claim etc. to resolve the issues in migration from existing regime to new regime

Conclusion: On cursory look at the GST Act, it appears that the same has been drafted in very simplified manner avoiding much of provisio, explanations and other jargons. But the manner of operation of law would be changed in entirety. The industry and professionals need to study and analyse the new law to implement it smooth manner. For any feedback, you may write to authors at ashish@hiregange.com or madhukar@hiregange.com.

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