The curious case of Non-GST Goods

Background

1st July 2017 can be regarded as one of the historic days for the economy of our country.  The biggest reforms in the form of GST was implemented from this day and the life of professionals has never been the same ever after.

Since day 1 of inception of GST, the professionals viz CA’s, Advocates, CMA’s have been working day and night to make the GST a success. For the economy to grow, we professionals have been working on every festival and every due date with great dedication to make GST a success.  In spite of 100’s of notifications and circulars and clarifications by the government, this ‘Good and Simple Tax’ remains to be simplified further. There are numerous areas which still remain grey and open to litigation. There are various provisions and terms in the Act where multiple interpretations are possible and all of which seems to be correct. For example- Some say credit of RCM of 17-18 if paid in 19-20 cannot be claimed as the law does not allow for it. Some say that RCM credit arises only when you pay it and hence you can claim it any time after you pay for it. 

One such issue for which no clarification has yet been received from the government is about Non-GST goods. 

A supplier needs to report non-GST goods in table 3 of GSTR 3B point (e) ‘Non-GST outward supply’. Again Table-5 of GSTR 3B required a dealer to report Non-GST inward supply.

In GSTR-1, in Table-9, Non-GST outward supplies need to be reported. In GSTR-9 reporting is required under clause 5(f)-Non-GST supply under the heading “Details of Outward supplies on which tax is not payable as declared in returns filed during the financial year”. In fact, we as auditors also have to report and certify the figure of Non-GST supply in Table-7 of GSTR-9C.

The funny thing is that the term Non-GST supply has not been defined in any of the Acts- CGST Act, 2017 or IGST Act, 2017 or any of the states or UT GST Acts and we are supposed to certify the same.

Some may say that non-GST, though not defined, is the same as non-taxable supply which has been defined in the Act. But I beg to differ-

Allow me to explain

Let us start from the very basic definition of Aggregate Turnover

As per sec 2(6),

6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

So basically, Aggregate Turnover includes both, taxable as well as exempt supplies.

The next question then comes as to what is the meaning of these 2 terms.

1. Taxable Supplies- Sec 2(108) defines taxable supplies as

“(108) “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;”

Simple and straightforward

 2.Exempt Supplies: this is where things get tricky. The act defines u/s 2(47)

“(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”

Thus, it includes nil-rated goods and services and also those goods and services which are wholly exempt under the Act. It also includes non-taxable supplies. Now a new question arises, what is a non-taxable supply?  Fortunately, the term non-taxable supply has been defined under the Act. As per section 2(78) the term non-taxable supply means 

“(78) “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act; “

So this means that non-taxable supply is something on which there is no levy at all under the Act. To know what is leviable to tax under the act we have to go to Section 9.

Section 9 is reproduced below

“9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 

(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.” 

sub-section 1 speaks-of, that there is no levy of tax on alcoholic liquor for human consumption, but as per sub-section 2; petroleum, crude, natural gas etc. are leviable to tax but are temporarily kept outside GST.

The definition of Non-taxable supply states that non-taxable supply is something on which there is no  Levy and so as per subsection 1 above alcoholic liquor for human consumption is a non-taxable goods. However, the same analogy could not be extended in the case of Petroleum, crude and other items.  These items are liable to tax, but at the present, they are kept outside the purview of it. Thus, in my humble opinion, petrol and other petroleum products cannot be treated as non-taxable goods. There is certainly a difference between something on which there is no levy at all and something on which there is a levy but which has been kept in abeyance.  Nowhere in the forms are we required to report on non-taxable items but we are specifically required to report on non-GST items. The reason for this being that the government wants us to report on petrol crude etc. but as alcoholic liquor is not liable to tax they don’t want any information on the same.

Also, at all places in every GSTR form, they use the terms exempt, Nil rated and non-GST together. Ex. In GSTR 3B table 5 reads “Values of exempt, nil-rated and non-GST inward supplies”. But as per sec 2(47), exempt includes non-taxable. Thus the intention here seems that non-GST and exempt are two different things and so the two terms cannot be used interchangeably as they have got different meanings. And if that be it, I am sure it has some pretty big repercussions as well.

The first one being the applicability of GST Audit to petrol pumps. The major chunk of turnover of petrol pump is in petrol and diesel sale and only some part is an account of sale of oils and other income but because aggregate turnover includes everything petrol pumps are liable to GST audit. But if we go by above discussion petrol and diesel and non-GST goods so they are neither exempt nor non-taxable and hence they cannot form part of aggregate turnover and thus audit applicability for petrol pumps is under question.

Also, GST registration is required in case the aggregate turnover is above 20 or 40 lacs as the case may be.  But as the sale of petrol and diesel is not part of aggregate turnover thus the petrol pumps are also not required to get registered under GST act if other turnover is less than 20 or 40 lacs.

As per rule 42 of CGST rules, if common ITC is used for effecting taxable supplies as well as exempt supplies, some part of ITC is to be reversed.  As per common understanding in case of petrol pump as 99% sale is of exempt or non-taxable goods so they cannot claim any common credit. But going by the above discussion sale of petrol and diesel is neither taxable supply nor exempt supply and hence rule 42 is not applicable in this case and thus a petrol pump can claim 100% credit of ITC. 

The way I am interpreting may be right or wrong, but unless the government comes up with the proper definition of Non-GST goods we will never know what the exact intention of the lawmaker is in this case and it has to be left on the whims and fancies of assessing officers. But for the time being, suppliers may continue to take advantage of the chaos, at their own risks.