Goods and Service Tax (GST)

GST is a most talked law in India now a day and it is said that it would change the future of India being a single tax system after Independence and by contributing 1%-2% in GDP. The Government of India is decided to implement GST Law from 1st April, 2017 for which it has already constituted a GST council.

We are trying to decode the draft Model GST Law circulated by Central Government of India

Meaning is GST

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 set off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer

Introduction of 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 and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain 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 our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer

The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply

Authority to levy and administer GST

Centre will levy and administer CGST & IGST while respective states will levy and administer SGST

Since India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism

Criteria for subsumed

The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

a)     Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

b)     Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

c)      The subsumation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.

d)     Revenue fairness for both the Union and the States individually would need to be attempted.

Subsumed /replaced Acts under GST

(i) Taxes currently levied and collected by the Centre:

a. Central Excise duty

b. Duties of Excise (Medicinal and Toilet Preparations)

c. Additional Duties of Excise (Goods of Special  Importance)

d. Additional Duties of Excise (Textiles and Textile Products)

e. Additional Duties of Customs (commonly known as  CVD)

f. Special Additional Duty of Customs (SAD)

g. Service Tax

h. Central Surcharges and Cessesso far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST are:

a. State VAT

b. Central Sales Tax

c. Luxury Tax

d. Entry Tax (all forms)

e. Entertainment and Amusement Tax (except when  levied by the local bodies)

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling

i. State Surcharges and Cesses so far as they relate to  supply of goods and services

Commodities proposed to be kept outside the purview of GST

Alcohol for human consumption, Petroleum Products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel& Electricity.

The existing taxation system (VAT & Central Excise) will continue in respect of the above commodities

GST- Applicability and threshold exemption limit

Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the threshold exemption, i.e. Rs.20 lakhs (Rs.10 lakhs for North East and Hill States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit.

The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all inter State supply of goods and/or services. The CGST /SGST and IGST are payable at the rates specified in the Schedules to the respective Acts

Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption

Monitoring of Assessee

All 11 lakh service providers registered with the tax department will be assessed by central tax authorities and new ones will be shared with state authorities after due training

Assesses with a turnover of less than Rs 1.5 crore annually will be assessed by state tax authorities and those above that through the new cross-empowerment model

Levy of GST on a particular transaction of goods and services:

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.

Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State

GST Council

The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council

A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers to make recommendations to the Union and the States on

(i)          the taxes, cesses and surcharges levied by the Centre, the States and the local

bodies which may be subsumed under GST;

(ii)          the goods and services that may be subjected to or exempted from the GST;

(iii)              the date on which the GST shall be levied on petroleum crude, high speed

(iv)             model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;

(v)               the threshold limit of turnover below which the goods and services may be exempted from GST;

(vi)             the rates including floor rates with bands of GST;

(vii)            any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster;

(viii)          special provision with respect to the North East States, J&K, Himachal Pradesh and Uttarakhand; and

(ix)             any other matter relating to the GST, as the Council may decide

Import and Export

Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services

Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available as refund to the exporters

Composition Scheme - optional

Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers.

Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

Composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN

Taxable person under composition scheme is not eligible to claim input tax credit.

Customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice

Goods and Service Tax Network (GSTN)

A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for implementation of GST.

The GSTN is developing a common GST portal and applications for registration, payment, return and MIS/ reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for tax payers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal etc. The CBEC and Model I States (15 States) are themselves developing their GST back-end systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth

The functions of the GSTN would, inter alia, include:

(i)                 facilitating registration;

(ii)               forwarding the returns to Central and State authorities;

(iii)              computation and settlement of IGST;

(iv)             matching of tax payment details with banking network;

(v)               providing various MIS reports to the Central and the State Governments based on the tax payer return information;

(vi)             providing analysis of tax payers’ profile; and

(vii)            Running the matching engine for matching, reversal and reclaim of input tax credit.

Dispute Resolution in GST Regime

GST Council shall establish a mechanism to adjudicate any dispute between

(a) The Government of India and one or more States; or

(b) The Government of India and any State or States on one side and one or more other Sates on the other side; or

(c) Two or more States, arising out of the recommendations of the Council or implementation there of.