Yesterday,few of the private tax web-portals
published the copy of the draft GST law. Though the authenticity of the same is
yet to be vetted by the Government officials, meanwhile, in the following paras
the author has tried to decipher the proposed GST law.
1.GST
applicable on ‘supply’
In
GST regime, all ‘supply’ such as sale, transfer, barter, lease, import of
services etc of goods and/ or services made for a consideration will
attract CGST (to be levied by Centre) and SGST (to be levied by State). As GST
will be applicable on ‘supply’ the erstwhile taxable events such as
‘manufacture’, ‘sale’, ‘provision of services’ etc. will lose their relevance.
Further,
certain supplies, even if made without consideration, such as permanent
transfer of business assets, self-supply of goods or services, assets
retained after deregistration etc will attract GST. Interestingly, even a ‘barter’ of goods transaction which
were hitherto un-taxed in VAT regime, will attract GST.
2.GST
payable as per time of supply
The
liability to pay CGST / SGST will arise at the time of supply as determined for
goods and services. In this regard, separate provisions prescribe what will
time of supply for goods and services. The provisions contemplate payment of
GST at the earliest for
a. ‘Goods’- Removal
of goods or receipt of payment or issuance of invoice or date on which buyer
shows receipt of goods
b. ‘Service’s–
Issuance of invoice or receipt of payment or date on which recipient shows
receipt of services
It
can be observed that there are many parameters in determining ‘time’ of
supply. Thus, determining the ‘time’ of supply and further maintaining
reconciliation between revenue as per financials and as per GST rules could be
a major challenge to meet.
3.Determining Place of Supply could be the key
At
present inter-State supply of goods attract Central Sales Tax. Now, its
provides that an inter-State supply of goods and/ or services
will attract IGST ((i.e. CGST plus SGST). Thus, it would be crucial to
determine whether a transaction is a ‘intra-State’ or ‘Inter-State’ as taxes
will be applicable accordingly. In this regard, the draft GST law provides
separate provisions which will help an assessee determine the place of supply
for goods and services.
Typically
for ‘goods’ the place of supply would be location where the good are delivered.
Whereas for ‘services’ the place of supply would be location of recipient.
However, there are multiple scenarios such as supply of services in relation to
immovable property etc wherein this generic principle will not be applicable
and specific rule will determine the pace of supply. Thus, the business will
have to scroll through all the place of supply provisions before determining
the place of supply.
4.Valuation in GST
GST
would be payable on the ‘transaction value’. Transaction valueis the price
actually paid or payablefor the said supply of goods and/or services
between un-related parties. The transaction value is also said to include all
expenses in relation to sale such as packing, commission etc. Even subsidieslinked
to supply will be includable. As regards discounts/ incentives, it will
form part of ‘transaction value’ if it is allowed after supply is
effected. However, discounts/ incentives given before or at the time of
supply will be permissible as deduction from transaction value.
The
law also provides for Valuation Rules to help determine value in certain cases.
The Valuation Rules appear to be drafted by taking few provisions from current
Valuation provisions in vague in Excise (for e.g. concept of ‘transaction
value’), Service Tax (for e.g. concept of ‘pure agent’)and Customs (for e.g.
concept of ‘goods of like kind and quality’).
5.Input tax credit in GST
Current CENVAT Credit regime disallows
CENVAT Credit on various services such as motor vehicle related services, catering
services, employee insurance, construction of civil structure etc.
Similarly, State VAT laws restrict input tax credit in respect of construction,
motor vehicle etc. Current, this denial of credits leads to un-necessary cost
burden on assessee.
It was expected that in GST regime,
seamless credit will be allowed to business houses without any denial or any
restrictions except say goods / services which are availed for personal use
than official use (something similar to Unite Kingdom VAT law). However,
surprisingly, inter-alia, aforesaid credit would continue to be not
available (in respect of both goods or services). Further, credit is proposed
to be denied on goods and/or services used for private or personal
consumption, to the extent they are so consumed. This continuation of
denial will lead to substantial tax cascading (as rate of GST will be higher
that the current rate of service tax!). Also, another round of litigation as
interpretation issues will crop up while determining eligibility or otherwise
of GST paid on personal consumptions such as business lunch with clients.
6.Inter-State
supply of goods for consideration to attract additional tax
Draft
GST law provides that an additional tax upto 1% will be levied by Centre on
inter-State supply of goods (and not on services) made for
consideration. Thus, effectively inter-State branch transfers will not attract
this 1% additional Tax. This additional tax will be assigned to States from
where the supply of goods originates. This additional tax will be applicable
for a period of two years and could be extended further by GST Council.
The
credit of this additional levy will not be available as thus it will be a cost
in the supply chain.
7.There would be 33 GST laws in India
In
GST regime, there will be one CGST law and 31 SGST law for each of the States
including two Union Territories and one IGST law governing inter-State supplies
of goods and services.
8.Rateof GST is not yet specified in the draft
GST law
The rate of GST is not specified
in draft GST law. However, various News reports suggest that the Revenue
Neutral Rate (RNR) as proposed by the Chief Economic Advisor Shri. Arvind Subramaniancould
be 17%-18%. Further, there could be lower rate (of 12%-14%) for concessional
goods and higher rate (upto 40%) for luxury goods (such as luxury cars, tobacco
products etc).
9.Time limit for show cause notices (SCN)
Time
limit for issuance of SCN is generic cases (i.e. other than fraud, suppression
etc) would be three years and in fraud, suppression etc cases it would
be fiveyears. Its pertinent to note that the time limit prescribed for
issuance of SCN for generic cases is much more than the current time limit
prescribe in excise law (i.e. 12 months) and service tax legislation (i.e. 18
months). This will give much leeway to the Authorities while issuing SCN and
sleepless night to assessees for three years!
10.
‘Provision Vapasi’ of old provisions
Most
of the current provisions such as reverse charge, tax deduction, pre-deposit,
prosecution (!), arrest (!) etc have been continued in the proposed draft GST
law. So, after ‘Ghar Vapasi’ and ‘Award Vapasi’ it seems that there is
‘Provision Vapasi’ when we refer the proposed draft GST law.
The new GST law seems to be a new wine
in old bottle as most of the current in-efficiencies has been continued in the
proposed GST law. So, only the time will tell whether the known devil (current
indirect tax regime) is better than un-known one (proposed GST regime).
[At the time of going to publication
the GST draft law was available on Uttar Pradesh Commercial Tax Department website;
however, there could be no assurance that the final GST law shall not contain
any contrary provisions or the aforesaid draft law is authenticate version]
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