Arjuna (Fictional Character): Krishna, The Government is trying its best to bring into effect the GST Law on 1st July 2017. Seeing at the close encounters during the current IPL, tell me what will happen if a match is to be played between GST and Service tax?
Krishna (Fictional Character): Arjuna, currently service tax is levied on Services only, while GST will be levied on both goods and services. The owner of Service Tax team is Central Government while the owner of GST team is both Central and State Government. In GST, CGST and SGST will be levied on intrastate transactions, UTGST in Union territories and IGST will be levied on interstate transactions. In some cases, Compensation cess may be levied up and above GST.
Arjuna: Krishna, when is Service Tax and GST levied?
Krishna: Arjuna, the Service Tax is levied on all services except services specified in negative list, mega exemptions and exempt services, whereas according to the GST law anything other than goods will be treated as services. Services that will not be taxed in GST have not been specified yet. Service tax was levied on “provision of services” while GST will be levied on supply of services.
Arjuna: Krishna, what is the difference in the registration procedure of GST and Service Tax?
Krishna: Arjuna, In Service tax if the services provided by a Supplier cross Rs 9 Lakhs then registration of service tax is mandatory and if the services provided cross Rs.10 Lakhs then he must collect and pay service tax, whereas in GST the turnover limit is Rs.20 Lakhs and in case the business is in Mizoram, Manipur, Meghalaya, Arunachal Pradesh, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand the turnover limit is Rs.10 Lakhs for obtaining registration. In case of IGST transaction there is no limit of registration. Further to pay liability under Reverse Charge Mechanism GST registration is must.
Arjuna: Krishna, what are the differences between the rate in Service Tax and GST?
Krishna: Arjuna, in Service tax the rate is 15%, while in GST the rate of tax on services might be 12% or 18%. The rate of tax on Services will be defined according to the Service Accounting Code.
Arjuna: Krishna, what will be the difference between Service Tax and GST when it comes to filling return?
Krishna: Arjuna, in service tax the return is filed every six months i.e. for the period of April to September and October to March, while in GST returns have to be filed every month (except for the dealers who have registered under Composition Scheme; they have to file return quarterly) and at the end of every Financial Year annual return is required to be filed. As per the provisions of service tax, service tax return can be revised within 90 days but a return cannot be revised in GST and if GST returns are not filed for a period of 6 months then the GST registration will be cancelled. In service tax, company taxpayer has to pay service tax monthly while proprietors, partnership firm, LLP, HUF, one person company have to pay service tax quarterly. In GST, each and every person has to pay tax monthly. The provisions for return filling in GST are very strict. Each person has to give invoice-wise details of Outward supplies of services/goods before 10th of every month and for the inward supplies of services/goods the same has to be confirmed before 15th of the month. The payments have to be made before 20th of the same month and persons will not be allowed to avail credit if the payment is not made.
Arjuna: Krishna, what will be the difference in availing Input tax credit in Service Tax and GST?
Krishna: Arjuna, in service tax, credit can be taken on the tax charged on input services. In GST credit can be taken on tax charged on both goods and services. But the CGST credit cannot be adjusted against SGST credit and vice versa. IGST credit can be availed by the tax payer. In service tax the details furnished for input tax is accepted by the department. In GST if the invoice of the supplier does not match with the details of invoice of the recipient, the credit shall not be allowed to that person. For Ex: Mr. A takes services from Mr. B of Rs.2 Lakhs and GST is levied on of Rs.20,000. If the details provided by B states that services provided are of the value Rs.6 Lakhs and GST on it is Rs.16,000, then A will get credit worth only Rs.16,000.
Arjuna: Krishna, what will happen in GST for cases of goods where both VAT and Service tax is charged?
Krishna: Arjuna, VAT is levied on goods and collected by the state government while service tax is levied on services and is collected by the central government. But in case of certain transactions both VAT and service tax is charged for ex.: Construction, restaurant, etc. There are various litigations on levying VAT or Service Tax. However, in GST a clear definition of goods and services has been given. Such transactions like restaurant, construction, etc. will be considered as services and accordingly GST will be levied on it.
Arjuna: Krishna, What is the difference between the Reverse charge mechanism in GST and service tax?
Krishna: Arjuna, In Service tax reverse charge mechanism is applied on body corporates and there is also provisions for reverse charge and partial reverse charge. But in GST reverse charge mechanism is applicable for all. Inward of goods/services is made from Unregistered Dealers, even then GST will have to be paid on it by every registered dealer. This is one of the most important features of GST which will have a heavy impact.
Arjuna: Krishna, what is the difference in the composition schemes of GST and service tax?
Krishna: Arjuna, there is no composition scheme in Service tax, instead abatement was there. Now, in GST composition is applicable for services by a Restaurant or hotelier if their turnover is below Rs. 50 Lakhs and they will have to pay tax at the rate of 2.5% under both CGST and SGST that is total 5%. Under GST pure service provider will not be covered in Compensation Scheme.
Arjuna: Krishna, what is compliance rating in GST?
Krishna: Arjuna, there is no concept of compliance rating in Service Tax but in GST compliance rating will be taken of every taxpayer. Compliance rating will be based on timely filling of return and payment of taxes and will be shown on GSTN network. So, doing business might become difficult if the compliance rating goes down.
Arjuna: Krishna, what should one learn from the existing service tax and the coming GST law?
Krishna: Arjuna, In India every person avails some or the other service but there are many persons who don’t follow the law and the government fails to recognize such persons. But this escape will not be possible in GST. Each and every person will have to follow the rules or else it might be a very difficult task to do business in the GST era. The scope of services has increased in GST. In the next week, the differences between Excise and GST will be discussed.