The following paper was presented by the author in CA Students National Convention in December 2016. It has been written in accordance with the revised Draft GST Model Law released in November 2016
INTRODUCTION
The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth.
GST was first introduced in France in 1954. Worldwide over 160 countries have implemented GST. The rate varies from as low as 5% to as high as 40% in Gambia.
CONCEPT
GST means tax on goods and services. Under the GST Scheme, no distinction is made between goods and services for levying of tax. In other words, goods and services attract the same rate of tax GST is a multi-tier tax where ultimate burden of tax falls on the consumer of goods/services. It is called value added tax because at every stage, tax is being paid on the value addition. Under GST scheme, a person who was liable to pay tax on his output, whether for provision of services or sale of good, is entitled to get input tax credit on the tax paid on its inputs, i.e. for purchase of goods or services, thus ultimately tax is being paid on the value additions, which is being paid to the Government. In a situation where output tax exceeds input tax, the person is entitled for the difference or same may be carried forward.
It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. Destination based tax means the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.
India has a federal system of governance which results in tax being administered by the central and state government. Lack of facility to utilize credits across these two entities has resulted in partial cascading still being left in the system. Added to this, the burden of compliance has also increased due to involvement of multiple agencies. GST precisely addresses these concerns by driving uniformity across India through a single tax and ensuring an unrestricted flow of tax credit. Conceptually, GST is similar to VAT, meaning tax will be applied only on the value addition at each point in the supply chain. Pursuant to which a dual system of GST would be implemented. Both the state and central government shall levy and collect a single tax. There will be accordingly three types of taxes namely Central GST(CGST),State GST (SGST)&Integrated GST (IGST)
LEVY IN EXISTING TAX STRUCTURE
GST Model Law had been brought by the Government containing the various provisions of the proposed CGST Act, SGST Act and IGST Act for public opinion. On the basis of the comments received a revised GST Law has been released and would be presented in the parliament. Based on the REVISED GST model law Levy and scope of supply on GST have been explained in this paper. The Final Act is yet to be passed by the parliament.
LEVY In the existing tax structure, tax is levied if there is
i) Manufacture of goods
ii) Sale of goods
iii) Provision of Service
In case of GST,tax will be levied on Supply of goods and/or services. Supply is explained in the next part of this paper. When there would be a supply of goods and /or services in the course of INTRA State trade (within the state itself) CGST/SGST would be levied at a rate which shall be notified but not exceeding 14 %, on the recommendation of the council. It would be collected in manner as prescribed.
The Central or a State Government may notify , on the recommendation of the Council, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis and the tax thereon shall be paid by the recipient of such goods and/or services In case of specified categories services the tax on which shall be paid by the electronic commerce operator(ECO) if such services are supplied through it, making him equivalent to person liable for paying the tax in relation to the supply of such services.
Further if there is no physical presence of the ECO in the taxable territory, any person representing the ECO shall be liable to pay the tax. Additionally in case of no physical presence of the ECO and absence of a representative , he would be required to appoint a person who would then become liable to pay the tax.
The supply of such goods and/or services For Inter-state trade and commerce[ between two states, import, to or by SEZ Developer or SEZ Unit] Integrated Goods and service tax (IGST) shall be levied. The levy on supply of goods and /or services is in two parts in the hands of
i) Supplier
ii) Recipient of goods and / or services under the reverse charge mechanism.
Intra-State supply of goods means any supply of goods where the location of the supplier and the place of supply are in the same State:
PROVIDED that the intra-State supply of goods shall not include:
(i) supply of goods to or by a SEZ developer or to or by an SEZ unit;
(ii) supply of goods brought into India in the course of import till they cross thecustoms frontiers of India.
Intra-State supply of services means any supply of services where the location of the supplier and the place of supply are in the same State:
PROVIDED that the intra-State supply of services shall not include supply of services to or by a SEZ developer or to or by an SEZ unit.
The rate as decided by the GST council on 3rd November 2016 is 0%, 4%, 12%, 18% & 28%. Luxury cars, tobacco and aerated drinks may also be levied with an additional cess on top of the highest tax rate.
COMPOSITION LEVY
There will exist a composition scheme for eligible taxable person as prescribed. Under the scheme a reduced rate of tax of at least 2.5% in case of manufacturer and 1% in any other case shall be charged of the turnover in a state during the year. Though the exact rate shall be notified.
The scheme is NOT available for the following taxable person
i. Supplier of services
ii. Supplier of goods not leviable under to tax under this Act
iii. Inter-State Outward supplier of goods
iv. Who makes any supply of goods through electronic commerce operator whose required to collect tax at source under section 56
v. Manufacturer of such goods as may be notified on the recommendation of the Council
In order to opt for the scheme the aggregate turnover should not exceed Rs. 50 lacs in a financial year of a person having same PAN. Aggregate turnover means Value of all (taxable and non-taxable supplies + Exempt supplies + Exports) – (Taxes + Value of inward supplies +Value of supplies taxable under reverse charge).It would be applicable to both goods and services. A person cannot opt for composition scheme for supply of service and opt to pay regular taxes for supply of goods
The composition scheme would be applicable to all business verticals/registration sunder the same PAN. To further simply it can be said that a person having multiple business registered being operated under the same PAN, the composition scheme would be applicable to all of the business being operated under the same PAN and not to just one which is applied for. The person will not be able to collect tax from the recipient of supply and would be ineligible for any input tax credit.
The permission to pay tax at a lower rate shall stand withdrawn from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees. In case a proper officer has reasons to believe that a taxable person was not eligible to pay tax under composition levy, such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for determination of tax and penalty Further rules ands conditions may be prescribed by the government.
It is important to note that for any tax payable under reverse charge mechanism, the option of payment under this scheme will not be available.
SCOPE OF SUPPLY
GST being a Destination based tax system, the term supply is of vital importance .According to the Model GST Law supply is described as follows
- Supply includes
- All forms of supply of goods and/or services made or agreed to be made for a consideration by a person in the course or furtherance of business. It specifically includes sale, transfer, barter, exchange, license, rental, lease or disposal.
- Import of service, for a consideration and whether or not in the course or furtherance of business. Even services imported for personal consumption shall qualify as supply and would be liable to tax .Such services are most likely to be covered under reverse charge mechanism. It would be liable to IGST since it is not an intra-state supply
- Transactions without considerations would be treated as a supply in the following cases:
i. Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.
ii. Supply of goods or services between related persons, or between distinct persons as specified in section 10 (taxable person), when made in the course or furtherance of business.
iii. Supply of goods—
-(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or
-(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
iv. 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.
- Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
- The following shall neither be treated as supply of goods nor a supply of services
- activities or transactions specified in schedule III; or
- activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities as specified in Schedule IV.
- The tax liability on a composite or a mixed supply shall be determined in the following manner —
- a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;
- a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
Dec 05, 2016 - GST - Anish Burad
