GST is paving the way for a robust and concentric administration of all the Indirect Taxes in India. With the introduction of concept of Supply under the Central Goods and Services Tax Bill, 2017,(“CGST”) the principles governing leviability of Excise, Service Tax, VAT/CST and Luxury Tax will be done away with. There would only be a keystone i.e. Rule of Supply. That said, it would be incumbent for the GST Council mandarins to address the conundrums pertaining to Rule of Supply, prior to its roll out.
RULE OF SUPPLY
Section 7 of the CGST Bill, 2017 defines the term Supply to include (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II; Schedule III and specified activities or transactions undertaken by the Central Government, a State Government or any local authority (negative list).
Under the present regime, taxable event for Excise is manufacturing, movability, marketability and presence of the specific good under the Central Excise Tariff. Similarly, taxable event for Service Tax is provisioning of service i.e. any activity carried out by a person for another for a consideration and taxable event for VAT/ CST is sale of goods.
Under the CGST Bill, 2017 there is only one taxable event i.e. Supply. Such a radical change in the law will benefit the works contractors the most. Currently, a works contractor issuing composite bill have to bifurcate the service portion (as per Service Tax Law) and sale of goods (as per respective VAT Law) for the purpose of levying Service Tax on service portion and VAT/CST on sale of goods and due to such overlapping in the laws, the works contractor pays both Service Tax and VAT/CST on some portion of its composite bill. Now, as per para 6(f) of the Schedule-I of the CGST Bill, 2017, works contract including transfer of property would be considered as Supply of services. Thereby, all the works contracts issuing composite bill would be saved from the hassle of bifurcating their composite bill into service portion and sale of goods and also, there would not be any double taxation.
Para 4 of the Schedule-I (Activities to be treated as supply even if made without consideration) of the CGST Bill, 2017
Para 4: “Importation of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.”
> Para 4 enunciates that any service being imported, without a consideration, in furtherance of business, by a taxable person (Section 2(107) defines the term “taxable person” means a person who is registered or liable to be registered under Section 22 or Section 24 of the CGST Bill, 2017) from a related person or from any of its other establishments outside India shall be considered as Supply and would be subject to GST.
> Currently, service without consideration is not a service for the purpose of applicability of Service Tax.
> In today’s world of globalisation and Economic integration, where exchange of information and services like consultancy services, accounting services, legal services and other similar services among the related parties, without a consideration, is a daily routine. In such a scenario, how should multinationals transacting in such services, on a regular basis, determine the value of such services for the purpose of leviability of GST? Further, owing to the quantum and diversity in the nature of such transactions, it would be a herculean task for all the taxable persons to keep a track of such services.
> This would increase the compliances burden on all the taxable persons especially multinationals along with substantial increase in tax burden.
Para 4 (a) of the Schedule-II (Activities to be treated as supply of goods or services) of the CGST Bill, 2017
“Para 4(a): Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.”
> The above provision unequivocally enunciates that any transfer or disposal of business assets, irrespective of consideration would be considered as supply of goods. Now, as per this provision, any industry/ trader offering its products to its employees or distributing the products free of cost would be subject to GST. It is imperative to note that currently, Excise is being levied on such transactions and no VAT/ CST is being levied. However, owing to the above provision the tax burden on the taxable person (both manufactures and traders) would increase substantially.
Para 4 (b) of the Schedule-II of the CGST Bill, 2017
“Para 4(b): Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.”
> The above provision may lead to various ambiguities, such as:
√ In the event, a car is owned by a taxable person in the name of a company and the same is being used by him occasionally for his personal use then as per above provision such personal use would be considered as supply of service and would be subject to GST.
√ In the given scenario, how should the taxable person determine the value of such services (personal use) for the purpose of leviability of GST?
√ Also, keeping a track of such transaction would immolate the taxable person.
The above radical change in taxable event under CGST Bill, 2017 will surely foster the ideology of GST i.e. one nation- one tax. However, concerns remain w.r.t the valuation of services, without a consideration in the case of overseas related parties and goods used for the purposes of the business when put to any private use. There is a pressing for the Government to look into these issues in more detail to avoid any ambiguity which might affect the economic environment of the country.