The draft GST Law has been brought into the public domain on 3rd December, 2015. Following are the highlights of the draft law -
Meaning and Scope of Supply
The term ‘supply’ under the GST law has subsumed the concept of ‘Sale of Goods’ and ‘Provision of Service’. The scope of the term ‘supply’ covers sale, transfer, barter, exchange, license, rental, lease or disposal and importation of services for consideration in the course of business. Some transactions are included under the term ‘supply’ even if these transactions are carried out without any consideration –
- Transfer/disposal of business assets.
- Temporary application of business assets to a private or non-business use.
- Services put to a private or non-business use.
- Self-supply of goods and/or services.
- Assets retained after deregistration.
Some matters like Transfer, Land & Building, Treatment or Process and Transfer of Business Assets are required to be treated as supply of either goods or services depending upon the nature of transaction.
For the purpose of inter-state supply of goods and services, supply of goods shall be deemed to take place if there is movement of goods from one state to another, whereas supply of services shall be deemed to take place if the location of the service provider and the place of supply of service are in different States.
Additional Tax
An ‘additional tax’ of 1% is proposed to be levied on any supply of goods for a consideration, in the course of interstate trade or commerce.
Compounded Levy
A taxable person whose turnover in a financial year does not exceed Rs. 50 lakhs, has an option to pay GST at a specific rate not less than 1% of the turnover during the year. However this option is not allowed to a taxable person who effects any inter-state supplies of goods and/or services or to a person who is liable to pay tax on Reverse Charge Mechanism. A taxable person availing the above option shall not charge any tax on supplies made by him nor shall he be entitled to any credit of input tax.
Taxable Person
Any person who carries on a business at any place in India and is required to be registered as per the GST Law for payment of tax, shall be considered as a taxable person excluding any person who provides services as an employee to his employer in the course of or in relation to his employment.
Time of Supply of Goods
As per the general rule, time of supply of goods shall be either when goods are removed by the supplier, or made available to the buyer or issue of invoice or receipt of payment or record of receipt in the books of accounts, whichever is earlier. Specific provisions are applicable in cases of continuous supply of goods or when goods are sent for approval, etc.
Time of Supply of Services
The essence of time of supply of services has been derived from Point of Taxation Rules, 2011, where the general rule for time of supply of services is the date of issue of invoice or receipt of payment, whichever is earlier. If the invoice is not issued within a prescribed period, then, the date of completion of service or receipt of payment, whichever is earlier. In absence of applicability of these provisions, the date on which the recipient shows the receipt in his books of accounts. Specific provisions are present for continuous supply of services and services on which tax is payable on reverse charge basis.
Change in rate of tax in respect of supply of services
The provisions applicable in respect of change in rate of GST in respect of supply of services is a replica of Rule 4 of Point of Taxation Rules, 2011, which deals with determination of point of taxation of levy of service tax in case of change in effective rate of tax.
Place of Supply of Goods
The concept of ‘distance supply’ is a new concept introduced by the GST law which occurs when the goods are supplied to a buyer located in another state and the supplier arranges the transport of goods. In general case, the place of supply of goods is the location where the goods are delivered to the receiver. Specific provisions are in place for goods not involving movement, assembled at site, on board a conveyance etc.
Place of Supply of Services
The concept of supply of services is in line with Place of Provision of Services Rules, 2012 where in case of supply to a registered person, place of supply is the location of service receiver and in case of supply to an unregistered person, place of supply is the location of service provider. Separate provisions for place of supply have been specified for some services like insurance services, telecommunication services, banking and financial services etc.
Value of taxable supply
The valuation provisions under GST are a combination of the Customs Valuation Rules, Central Excise Valuation Rules and Service Tax Valuation Rules. The value of supply will be the transaction value, subject to the condition that buyer and seller are not related parties and price is the sole consideration for the transaction. The transaction value shall include:
- Any amount of suppliers liability incurred by the recipient of supply
- The appropriate value apportioned to goods/services supplied by the recipient of supply to the supplier, free of charge or at reduced cost which is used in connection with the supply which is being valued (i.e. supply provided to the recipient of service)
- Royalties and license fees paid or payable to the supplier
- Any other taxes levied except SGST, CGST & IGST
- Incidental expenses
- Subsidies
- Discount or incentives allowed after the supply had been affected
Further, in case of sale of goods by a taxable person to a person other than taxable person, the value of goods will be the retail sale price less the tax leviable under this Act.
The value of goods in specific cases shall be valued as per the provisions of GST Valuation rules. The valuation rules provide the methods of determining the taxable value and also specifies manner in which values for the following cases are to be determined:
- When consideration is non-monetary
- Supplier and recipient are related
- Doubt regarding the accuracy of declared transaction value
- Pure agent
- Money Changer
Input Tax Credit
Input Tax Credit under the GST law is similar to that under the Cenvat Credit system. Input Tax credit with respect to Motor Vehicles, Petroleum Products, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance, health insurance etc. are restricted as is under Cenvat Credit Rules. Further, no credit is allowed with respect to goods or services used for private / personal consumption, tax paid under compounded levy scheme, goods or services acquired by principal in construction of immovable property & goods or services acquired by a principal, the property in which is not transferred to any other person and is used in the construction of immovable property (other than plant and machinery).
Also, where input goods (except capital goods) and services are used partly for taxable and partly for non taxable supplies, the input credit is restricted to the goods and services used for taxable and zero-rated supplies. Further, Input Credit of CGST can be used to pay CGST and IGST tax in that order, Input Credit of IGST can be used to pay IGST, CGST & SGST in that order and Input Credit of SGST can be used to pay SGST & IGST in that order.
One of the mechanisms introduced in GST is for matching the input credit claimed by the purchaser to the output tax declared by the seller in their respective GSTR – 1 & GSTR-2. In case of a mismatch, the purchaser will not be eligible to claim the input tax credit with regard to a purchase unless the same has been disclosed by the seller in his returns. Consequently, the purchaser is penalized for a fault of the seller and is denied credit despite having valid documents to evidence the purchase and input tax credit. This is done in order to plug the supposed loophole in the current system whereby the input tax credit is allowed to the purchases irrespective of the payment of tax on the same by the supplier.
Conclusion
The draft law gives us a sense of the possible future GST Law that will be introduced by the Government and provides organisations an opportunity to streamline their accounting and manage their business in a manner suited for the GST Regime. Further, once the Constitutional Amendment Bill for GST is passed by the Rajya Sabha (which is expected to be done during the on-going winter session of Parliament), we hope that the Government releases the final draft of the GST Laws for comments and suggestions by trade and industry.
GST rate structure and other matters
The Chief Economic Advisor led panel has also submitted its report on GST to the Finance Ministry on 4th December, 2015. The panel has recommended 17 - 18% as the standard rate of GST. The panel has also recommended the removal of 1% Additional Tax on interstate supply of goods. It has suggested a 12% rate for merit goods and 40% rate for goods such as luxury cars, aerated beverages, pan masala, tobacco and tobacco products. The panel has further advised the Government to include alcohol, real estate, electricity and petroleum within the scope of the GST to make the Indian manufacturing more competitive.
