CA Koduri Jitendra Babu
1. GST Council Secretariat has released Revised Draft Model GST Law, Nov 2016 (hereinafter referred to as Revised Draft), in the place of earlier Model GST Law of June 2016 (hereinafter referred to as Original Draft). Important changes in the Revised Draft compared to Original draft are discussed hereunder.
2. Definition of Aggregate turnover has been modified. Non-taxable supplies have been excluded from the aggregate turnover, while inter-state supplies were added. This is a right move as non-taxable supplies cannot be part of aggregate turnover.
3. Definition of Capital Goods has been amended and made more practical and comprehensive. All the goods which are capitalized in the books of accounts and which used in the course of business are capital goods. The revised definition of capital goods reads as under:
“Capital goods means goods the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business”
Earlier definition was lined with Central Excise Tariff Heading and/or Tariff description which is more prone to litigation. The revised definition should help in reducing the litigation on the interpretation of “What capital goods are”.
4. Definition of “consideration” has been modified to exclude subsidy given by the Central Government or State Government in the consideration. This is a good move and eliminate interpretation of inclusion or otherwise of subsidy received by industries like fertilizers from Government.
5. Definitions of ‘First Stage delaer’ and ‘Second Stage dealer’ have been inserted in the revised draft law. This will help in passage of ITC smoothly by the intermediaries.
6. Definition of goods has been modified to include “Actionable Claim”, but excluding money and securities. Earlier actionable claim was excluded from the definition, while securities were included in the definition.
7. Definition of India is deleted. The definition in IGST Act should take care of the definition, since inter-state supply and intra-state supply definitions are also borrowed from IGST Act.
8.Definitions of “Intra-State supply of goods” and “Inter-State supply of goods” have been inserted as without definitions being borrowed from IGST Act, there could be legal interpretations and consequent litigation, as to what is “Intra-State Supply” and what is “Inter-State Supply”.
9. Definition of “Input Service” has been modified and simplified to include any service used or intended to be used by a supplier in the course of or furtherance of business. Earlier definition was restrictive and prone to interpretation as it reads “any service used ……for making an outward supply used or intended to be used by ……”. The clause “for making an outward supply” has been deleted, to avoid interpretation as to what constitutes “for making outward supply”. Now all the input services which are used in the course of or furtherance of business are eligible for credit, except for few exceptions relating to employee benefits, exempted goods etc.
10. Explanation to definition of “services” has been modified. Earlier explanation includes intangible properties and actionable claims in the purview of services. Now, as per the explanation, service includes transactions in money but does not include money and securities. Thereby, intangible properties are to be considered as goods. Money and Securities are neither goods nor services. Only service transactions in money and securities are liable for tax, as per Explanation 2.
11. The revised definition of “works contract” does not include moveable property. Earlier the definition includes both moveable and immoveable property.
12. Changes in meaning and scope of supply:
a. Earlier definition covers importation of services whether for a consideration or not. As per revised definition, importation of services for a consideration only are covered. That means service imports without consideration are not liable for tax. This is a welcome measure.
b. Earlier draft stipulates that the transaction between principal and agent are to be treated as supply. The provision has been deleted. Consequently, the transaction between principal and agent shall not be treated as supply. This would help in removing unnecessary tax burden on the transactions between principal and agent.
13. Composition scheme – restrictions:
a. In the earlier draft, composition scheme is not permitted to a taxable person who is engaged in inter-state supply of goods and/or services.
b. In the revised draft, restriction is extended to following categories –
i. Taxable person who is engaged in the supply of services. This restriction is not reasonable and curtailing the option of the taxable person.
ii. Taxable person who make any supply of goods through an electronic commerce operator who is required to collect tax at source;
iii. Taxable person who is a manufacturer of goods as may be notified;
iv. Taxable person who makes any of the goods which are not leviable to tax under this Act.
14. Remission of tax on supplies found deficient in quantity – withdrawn:
Original draft provides for remission of tax on the supplies found deficient in quantity due to natural causes, as Central or State Government can prescribe.
The Section did not find place in new draft. Therefore, tax is applicable on the goods found deficient in quantity.
15. Time of Supply of goods:
The provisions are simplified to the effect that the liability to pay tax arises, (i) date of issue of invoice or the last date by which is required to issue invoice or (ii) the date on which supplier receives the payment, whichever is earlier.
But, the proviso is not clear, which reads as under:
PROVIDED that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess shall, at the option of the said supplier, be the date of issue of invoice.
The proviso is not clear. If the amount is received before raising invoice, as per the Section, date of receipt is the time of supply. If the amount is received after raising invoice, then invoice date is the time of supply.
If the amount received is more than rupees one thousand, then what is the time of supply of invoice. Since the amount is received after raising invoice, invoice date shall be the time of supply. There is no need for this proviso. Or the proviso need to be redrafted to have clarity or to make intention clear.
16. Time of supply of goods in case of reverse charge:
In case of reverse charge, time of supply is modified as earliest of the following dates:
(i) The date of receipt of the goods; or
(ii) The date on which the payment is made; or
(iii) The date immediately following thirty days from the date of issue of invoice by the supplier.
In the earlier draft, the fourth option was date of debit in the books of accounts, which is to be considered, as per the revised draft, only if the time of supply cannot ascertained from the earlier of the three options above.
17. Time of supply of services:
Time of supply of services is the earliest of the following two, as against various options in the earlier draft:
(i) The date of issue of invoice by the supplier or the last date on which he is required to issue invoice; or
(ii) The date on which the supplier receives the payment with the respect to supply.
18. Time of supply of services in case of reverse charge:
Time of supply of services in case of reverse charge has been modified to, to earliest of the following two:
(i) The date on which the payment is made; or
(ii) The date immediately following sixty days from the date of issue of invoice by the supplier.
The options are reduced and made easier to arrive at time of supply.
19. Value of taxable supply:
Important changes are made as to the amounts to be included in value of taxable supply. As per the revised the draft, the following amounts need not be added to value of taxable supply, as they do not find place in revised draft, which were intended to be difficult points to be dealt with in the earlier draft.
(a) 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;
This is a major relief, as goods supplied free of cost which is a very common trade practice in many businesses are not liable for tax. Similarly goods supplied at reduced cost as per the practice are liable for tax on the consideration received. This is a very good positive and practical amendment.
(b) 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;
This is also a positive and practical move, as this clause is prone for litigation.
(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;
No tax on the reimbursable expenditure on cost incurred by or on behalf of the supplier, as this cannot be included in the value of taxable supply. This is in line with various judgements in the service tax arena.
20. Credit of input tax permissible in respect of Pipelines and Telecommunications Towers:
A welcome amendment. Credit of input tax is permissible in respect of pipelines and telecommunication tower fixed to earth by foundation or structural support including foundation and structural support thereto. The credit is permitted over a period of three years.
21. Credit on services to be reversed if payment is not made to supplier within three months:
This amendment will bring in lot of practical difficulties to the taxable person. Credit is permitted to the taxable person under the proposed GST only if the supplier pays the tax to the Government. Then, there is no point in linking the credit permissible to taxable person with payment towards services. Since the Government has received the tax amount, there is no loss to Government if the credit is availed and utilized. This provision will create lot of practical problems. For ex., if the taxable person has a credit period of 6 months, why should he pay the value of services and tax to the supplier within 3 months, only to ensure that credit is not to be reversed.
Further, this provision poses operational difficulties like keeping track of payments to suppliers, which is very difficult in a big company.
This provisions needs to be deleted, keeping in view that there is no revenue implication as credit is taken only after payment by the supplier and considering the huge business operational issues.
22. Sale of Capital goods on which credit is availed:
In case of sale of capital goods on which credit is taken, the supplier shall pay an amount equal to the credit availed, after deduction of percentage points as prescribed.
Proviso says that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods.
What is about goods other than “refractory bricks, moulds and dies, jigs and fixtures”. The proviso should be amended to include all capital goods and inputs which are sold as scrap shall be removed on payment of tax on transaction value.
23. Changes in pre-deposit to be made in case of appeals:
Another important and positive change is that the appellant is required to make a deposit of 10% of the disputed tax demand at the time of filing 1st appeal. The pre-deposit is restricted to disputed tax amount, as against amount in dispute which includes interest and penalty as per earlier draft.
Similarly in case of appeal before Tribunal, 10% of the balance disputed tax amount is to be deposited at the time of filing appeal, as against 10% of the amount in dispute which includes interest and penalty.