Levy and collection as per IGST Act, 2017

Introduction

The Constitution mandates that no tax shall be levied or collected by a taxing Statute except by authority of law. While no one can be taxed by implication, a person can be subject to tax in terms of the charging section only.

Power to levy any tax is derived from the Constitution of India. As per article 265 of The Constitution of India no tax shall be imposed or collected except by the authority of any Law. The charging section is the must in any Taxing Law for levy ( impose) and collection (payment) of taxes. The very basic for the charge of tax in any taxing statute is taxable event, i.e. the point of time when tax will be imposed.

Under pre GST regime, each indirect taxes has separate taxable event (such as manufacture in case of Excise Duty, provision of services in case of Service Tax, sale of goods in case of VAT/ CST, etc.) Under the GST regime, the taxable event is supply of goods or services or both.

The introduction of Goods and Services Tax (GST) is a significant reform after independence in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and the States will be replaced by one tax called the Goods and Services Tax (GST).

GST is levied on supply of goods and services across India (including Jammu and Kashmir). It is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Under GST credit of taxes paid at previous stages is available as set-off from the output tax.

GST is destination based consumption tax. Benefit of tax (STCG/ UTGST) will accrue to the consuming state.

GST is a multi-stage value added tax levied on the consumption of goods or services or both.

GST is tax on supply and not on supplier

A “Dual GST” model has been adopted in view of the federal structure of our country. Centre and States will simultaneously levy GST on every supply of goods or services or both which, takes place within a State or Union Territory.

Thus, there shall be two components of GST:

(i) Central tax (CGST) (Levied & collected under the authority of CGST Act, 2017 passed by the Parliament)

(ii) State tax (SGST) (Levied & collected under the authority of SGST Act, 2017 passed by respective State)

Centre will levy and administer CGST and IGST while respective States/ UTs will levy and administer SGST/UTGST.

Import will be treated as inter-States supply and IGST will be chargeable along with basic Customs duty.

However, in GST Export will be treated as Zero rated supplies and no IGST is payable

GST will be calculated on value of supply of goods and services, which is transaction value. (subject to some exceptions)

Under GST, every suppliers who have made taxable supply shall required to get himself registered under GST Law.

 A registered person is entitled to take credit (deduction) of input tax paid from the output tax (if any) subject to some restriction.

Under GST regime there is a seamless (without any obstruction) credit flow in case of inter-state supplies, which was not possible in pre GST period. No credit was available for CST paid by the buyer.

Levy and Collection Section 5 of IGST

(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-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 of the Central Goods and Services Tax Act and at such rates, not exceeding forty 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:

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

(2) The integrated 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.

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the

person liable for paying the tax in relation to such supply of goods or services or both.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax

Amendment History:

1. Sub-section (4) substituted vide IGST (Amendment) Act, 2018. Thus the provisions to be applicable only for specified class of persons as the ‘Business vertical’ concept has been omitted.

Govt. has notified the Integrated Goods and Services Tax (IGST) Act, 2017 on 12 April, 2017 followed with various CBIC Notifications on commencement date for various Sections/ Provisions thereof from time to time. Govt. has further notified the Integrated Goods and Services Tax (IGST) (Amendment) Act, 2018 on 30 Aug. 2018 followed with CBIC Notification on commencement date of various Sections/ Provisions thereof from 1 Feb. 2019 vide Notification No. 1/2019 Integrated Tax dt. 29 Jan. 2019 except for amendments where the date of commencement is different from 1 Feb. 2019 and has specifically been mentioned in the IGST Amendment Act, 2018 itself.

Levy and collection as per CGST Act, 2017

U/s 9(1) of CGST Act, 2017 there shall be levied a tax –

• Called the Central Goods and Services Tax(CGST);
• On all the intra-state supplies of goods or services or both, except on supply of alcoholic liquor for human consumption;
• On the value determined u/s 15; and
• At such a rate (maximum 20%,) as notified by the Central Government on recommendation of GST Council; and
• Collected in such a manner as may be prescribed; and
• Shall be paid by the taxable person.

U/s 9(2) of CGST Act 2017, the CGST of following supply shall be levied with the effect from such date as notified by the Central Government on recommendation of GST Council-

• Petroleum crude
• High speed diesel
• Motor spirit (commonly known as petrol)
• Natural gas
• Aviation turbine fuel

(c) U/s 9(3), CGST is to be paid on reverse charge basis by the recipient on notified goods/ services or both (liability to pay tax by the recipient of supply of goods / services rather than supplier of goods/ services under forward charge)

(d) U/s 9(4), CGST on taxable supply of goods/ services to registered supplier from unregistered supplier is to be paid on reverse charge basis by the recipient.

(e) U/s 9(5), E-Commerce operator is liable to pay CGST on notified intra-state supplies.

Levy and collection as per IGST Act, 2017

U/s 5(1) of IGST Act, 2017 there shall be levied a tax –

• Called the Integrated Goods and Services Tax (IGST);
• On all the inter-state supplies of goods or services or both, except on supply of alcoholic liquor for human consumption;
• On the value determined u/s 15 of CGST Act, 2017; and
• At such a rate (maximum 40%,) as notified by the Central Government on recommendation of GST Council; and
• Collected in such a manner as may be prescribed; and
• Shall be paid by the taxable person.

Provided further that IGST will be imposed on goods/ services imported into India.

U/s 5(2) of IGST Act, 2017, the CGST of following supply shall be levied with the effect from such date as notified by the Central Government on recommendation of GST Council-

• Petroleum crude
• High speed diesel
• Motor spirit (commonly known as petrol)
• Natural gas
• Aviation turbine fuel

U/s 5(3), IGST is to be paid on reverse charge basis by the recipient on notified goods/ services or both (liability to pay tax by the recipient of supply of goods/ services rather than supplier of goods/ services under forward charge).

U/s 5(4), IGST on taxable inter-state supply of goods/ services to registered supplier in respect of specified categories of goods or services or both received from unregistered supplier is to be paid on reverse charge basis by the recipient.

U/s 5(5), E-Commerce operator is liable to pay CGST on notified inter-state supplies.

5.1 Introduction

This is the charging provision of the IGST Act. It provides that all inter-State supplies would be liable to IGST at rate recommended by the Council and notified subject to a ceiling rate of 40%. The provision of this section is comparable to the provision under section 9 of the CGST Act and section 7 of the UTGST Act.

The levy is on all goods or services or both except alcoholic liquor for human consumption.

Further, GST may be levied in supply of petroleum crude, high spirit diesels, motor spirit (petrol), natural gas and aviation turbine fuel with effect from the date notified by the Government on the recommendations of GST Council.

The levy of tax on supply of goods and / or services is in three parts –

(i) in the hands of the supplier and

(ii) in the hands of the recipient of goods / services under reverse charge mechanism and,

(iii) in case of specified services, in the hands of electronic commerce operator.

5.2 Analysis

In terms of section 2(24) of the Act, any words or expression which are used in this Act, but are not defined should be assigned the meaning as given to such words or expressions in the CGST Act, the UTGST Act, and the GST (Compensation to States) Act.

With specific reference to this section, the following words/ expressions would be relevant-

• Supply
• Inter-State supply
• Goods
• Services
• Taxable person

The meaning to the expression ‘inter-State supply’ can be understood from section 7 of this Act which is already explained in the previous publication Nature of Supply .

However, the meaning of ‘supply’ and ‘taxable person’ should be borrowed from the CGST Act.

Levy of tax:-

Every inter-State supply will be liable to tax, if:

(i) There is a Supply either of goods or services or both, even when a supply involves goods or services or both the law provides that such supply would be classifiable only as goods or services in terms of Schedule II of the Act.

(ii) The supply is an inter-State supply – viz. ordinarily, the location of the supplier and the place of supply are in different States. (Refer section 7 of the IGST Act to understand the meaning of inter-State supply already explained in the previous publication Nature of Supply .);

(iii) The tax shall be payable by a ‘taxable person’ as explained in section 2(107) read with section 22 and section 24 of the CGST Act.

“taxable person” means a person who is registered or liable to be registered under section 22 or section 24;

Every ‘supplier’ shall be liable to be registered under the GST law in the State (or Union territory) from where he makes any taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds the specified limit (Rs. 20 Lacs or Rs. 10 Lacs / Rs.40 lacs in case of persons dealing only in goods – refer Section 22 for details).

A person will become a taxable person if he attracts section 9(1) or 9(5).

But a non-taxable person will become liable to registration even if he attracts 9(3) or 9(4) and on default under section 79(1)(vi).

Imports:-

Proviso to section 5(1) makes a very important exception in respect of “goods imported into India”.

Import of goods is defined in section 2(10) in a manner identical with the definition under Customs Act in section 2(23).

As per section 2(10) in the IGST Act, 2017

‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;

Section 2(23) in the Customs Act, 1962

“import”, with its grammatical variations and cognate expressions, means bringing into India from a place outside India;

The important exception made under the proviso is the carve out from the levy under section 5 supplies involving import of goods and place such transactions under Customs Act and not under IGST Act.

In other words, goods imported into India will be liable to IGST but not under IGST Act instead under section 3(7) of Customs Tariff Act.

Vide Taxation Laws (Amendment) Act, 2017 sweeping changes have been brought about in Customs in the wake of introduction of GST.

Amongst others, one significant change is that, in addition to basic customs duty levied under section 12 of Customs Act- section 3 of Customs Tariff Act – sub-section 7 levies IGST on import of goods & sub-section 9 levies compensation cess wherever applicable when the said goods are imported into India.

Going back to the proviso to sub-section 1, the expression ‘the point at which import duties are leviable’ is very significant.

Examination of the ‘point of levy’ under Customs Act reveals that goods brought into India are liable to customs duties at the time specified in section 15.

Accordingly, no duties are levied until the bill of entry for home consumption is filed.

Imported goods are defined in section 2(25) of Customs Act as:

“imported goods” means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption”

Goods that have been cleared for home consumption will cease to be imported goods.

Goods which have entered India but not yet cleared for home consumption will not attract the levy of customs duty until bill of entry for home consumption is filed.

Customs Act permits goods that have entered India to be deposited in a bonded warehouse on filing ‘into-bond’ bill of entry without payment of duty.

Hence, goods that have entered India will not attract liability to IGST until they reach the point – location or time – when bill of entry for home consumption is ready to be filed.

In such cases, IGST is to be levied only when ex-bond bill of entry is filed or until date specified in section 15 is reached.

Further, goods imported by SEZ also do not attract liability to IGST as the goods are ‘not yet’ liable to be assessed to customs duty.

Section 53 of the SEZ Act states that:

53(1). A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations.

Fine Points:

√ Goods deposited in warehouse by filing into-bond bill of entry do not attract liability to any customs duty until the date specified in section 15 is reached or ex-bond bill of entry is filed;

√ Goods received by EOU attracts liability to customs duty because notification 44/2016- Cus. dated 29 Jul, 2016 has delicensed warehouse facility of EOUs which has also been clarified in detail vide circular 35/2016-Cus. dated 29 Jul, 2016;

√ Circular 35/2017-Cus dated 1 Aug, 2017 regarding high-sea sales states that IGST is applicable but deferred until bill of entry for home consumption is filed;

√ supplies made before the goods are cleared for home consumption has been considered as a Schedule III negative list entry as per the CGST Amendment Act, 2018 w.e.f. 1 Feb 2019.

√ merchant trade transactions have been covered under Schedule III as per the CGST Amendment Act, 2018.

√ Merchant Trade transactions are those transactions where the trader in one country A, purchases goods from country B and supply the goods to a second buyer in country C,directly, without goods entering country A. Since, goods never cross the Customs frontier of the country of trader In case country A is India then, GST law cannot apply when supply takes place ‘outside taxable territory’ even though said person (trader) is located in India.

√ GST is tax on supply and not on supplier. It will form part of revenue (turnover) of person (legal entity) but as a ‘no supply’ transaction.

√ Circular 03/01/2018-GST dated 25 May 2018 (superseded circular 46/2017-Cus dated 24 November 2017) stated that in-bond sales WILL NOT be liable to IGST until bill of entry for home consumption is filed. This circular 03 was rescinded from 1 Feb 2019 since amendment to CGST Act by introduction of para 8 in schedule III.

proviso to section 5(1) is of paramount importance which makes way for Customs Tariff Act to take over levy of IGST on imported goods leaving IGST under IGST Act inapplicable to imported goods.

And once Customs Tariff Act applies, it attracts the levy of IGST (CTA) not before the bill of entry for home consumption is due to be filed in accordance with the provisions of Customs Act.

√  IGST levied under Customs Tariff Act which we call IGST (CTA); and

√ IGST levied under IGST Act which we call IGST (GST).

√ DTA sales by SEZ will NOT be liable to GST under forward charge as IGST will be paid when DTA-buyer files bill of entry in terms of Rule 48(1) of SEZ Rules.

Reverse charge mechanism:

Normally, the supplier of goods and/ or services will be liable to discharge tax on the supplies effected. However, the Central Government is empowered to specify categories of supplies in respect of which the recipient of goods and/ or services will be liable to discharge the tax.

After the amendment in Section 5(4) of the IGST Act 2017, the liability of reverse charge on the registered recipient on receiving supplies from unregistered supplier will be applicable only on

(a) specified class of registered persons and

(b) on specified categories of goods or services or both.

E-commerce:

Where any supply of services is effected through e-commerce operator (commonly known as services provided by aggregator), the law provides that the Central / State Government may on recommendation of the Council specify (notify) that the ecommerce operator will be liable to discharge the tax on such supplies.

 It is important to note that, in such supplies, the e-commerce operator is neither the actual supplier of service/s nor does he actually receive the services.

The actual supplier of services is a third party who provides such service to the customer through e-commerce operator.

Instead of levying tax on such actual supplier, the law has imposed levy on e-commerce operator. Therefore, this would be an exception to the imposition of tax as specified in para supra.

It is important to note that this exception is carved out only in respect of supply of services through an ecommerce operator and will not be applicable / relevant to supply of any goods through an ecommerce operator.

Fine Points about e-commerce operations:

√ Every online transaction is not e-commerce. It could be a portal providing information online to carry out the transaction or it could be a online tracking of an offline transaction or it could be a service using internet;

√ Supplier offering ‘online channel’ to sell goods or services in addition to offline stores also does not qualify as e-commerce;

√ It does not necessarily require a ‘website’ or ‘app’ (application on mobile phones) to constitute e-commerce, any ‘digital network’ like a easy dial phone number is enough; and

√ Digital wallets are NOT e-commerce. In fact, most e-wallet companies do not have RBI approval but work jointly with Payments Banks or (regular) Banks to provide a e-wallet experience where technology comes from the enterprise and the cash-custody is with the banking license holder .

√ Notification No. 14/2017-Integrated Tax (Rate) dated 28-Jun-17 amended vide Notification No. 23/2017-Integrated Tax (Rate) dated 22-Aug-17 has been issued to provide that in case of the following categories of services, the tax on inter-State supplies shall be paid by the electronic commerce operator.

(i) services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motorcycle;

(ii) services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except

where the person supplying such service through electronic commerce operator is liable for registration under clause (v) of section 20 of the Integrated Goods and Services Tax Act, 2017 read with sub-section (1) of section 22 of the said Central Goods and Services Tax Act.

(iii) services by way of house-keeping, such as plumbing, carpentering etc, except

where the person supplying such service through electronic commerce operator is liable for registration under clause (v) of section 20 of the Integrated Goods and Services Tax Act, 2017 read with sub-section (1) of section 22 of the said Central Goods and Services Tax Act.

In case where the e-commerce operator:

(a) Does not have a physical presence then the person who represents the e-commerce operator will be liable to pay tax.

(b) Does not have a physical presence or a representative, then the e-commerce operator is mandatorily required to appoint a person who will be liable to pay tax.

The author-CA (Adv.) Sikander Sachdeva, FCA is a Chartered Accountant in Practice from Delhi and  can be contacted for further clarification at 8882370570 or via mail at [email protected]

Disclaimer

The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The document is made with utmost professional caution but in no manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the matter given. The document is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this document  will be accepted by us. Professional advice recommended to be sought before any action or refrainment.