Understanding the Draft Modern GST Law

Abhishek Sehgal

This article covers the major highlights of the draft modern GST law including the intention of legislation along with the probable impact on industry & operation:

LEVY OF CENTRAL/STATE GOODS AND SERVICES TAX

Modern GST law is proposed to be levy CGSTS & SGST on local supply & IGST on Inter- state supplies.

On certain categories of supplies (yet to be notify), person receiving the supplies require to pay GST on REVERSE CHARGE BASIS.

TAXABLE PERSON

Person shall be a taxable person & is required to pay tax under proposed law if aggregate turnover in any FY exceeds Rs. 10 lakhs; however, if a person is doing business in North eastern states including Sikkim such threshold limit is reduced to Rs 5 Lakhs.

“Aggregate turnover includes both taxable and exempted supplies on all India basis.

Such low threshold limit is required to keep the GST rate on the lower side, higher the threshold higher the revenue neutral rate”.

Central Government, State Government or any local authority shall be regarded as a taxable person for activities other than the activities as specified in Schedule IV to this Act.

Person shall not be considered as Taxable Person

√ Employee providing services to his employer in course of employment.

√ Person engaged in the business of exclusively supplying goods and/or services that are not liable to tax under the act.

√ Person liable to pay tax under reverse charge receiving services for personal use or other than the business use, & aggregate amount does not exceed the prescribed limit.

TIME AND VALUE OF GOODS

VALUE OF TAXABLE SUPPLY

The value of a supply of goods and/or services shall be the TRANSACTION VALUE (T.V.).Specific Inclusion and exclusion from transaction value is prescribed under the draft law.

Other valuation methods like Comparison method, Computed method, & Residual method are also prescribed under the Draft GST Valuation Rules, 2016. However, methods prescribed in the rules are applicable only in the prescribed situations.

“Modern GST law surprisingly doesn’t include the MRP method for valuation available in the existing Central Excise law which will surely affect the FMCG industry.

Though the computation of TV is well defined, but there are possibilities, that it can be litigated in the GST regime e.g. post supply discount/incentive to be included in T.V.(as same mentioned in the inclusion list in the provision) but what is pre supply discount/incentive and post supply need to be proved or subsidy is linked or not may also be litigated”

TIME OF SUPPLY OF GOODS (TOSG) for regular supplies shall be earliest of the following:

1 2 3 4
Date on which the goods are removed for supply to the recipient (in case of movable goods) Date on which the goods are made available to the recipient (in case of immovable goods) Date of issuing of Invoice by supplier Date of receipt of payment
TOSG in case other than regular supplies are as mentioned below:

Continuous supply* Reverse Charge* Sale or return basis
Earliest of:
– Date of receipt of payment or;
– Date of issue of invoice/date of expiry of predefined period.
Earliest of:
– Date of receipt of goods or;
– Date on which payment is made or;
– Date of receipt of invoice or
– Date of debit in accounts.
Earliest of :
– 6month from date of removal or
– Date of confirmation of supply.
*Supply fall under continuous supply or consider as reverse charge shall be notify by govt. latter on

TIME OF SUPPLY OF SERVICES (TOSS) for regular supplies shall be earliest of the following:

When Invoice issued within prescribed time(a) When Invoice not issued within prescribed time(b) If a or b not apply
Earliest of:
Date of receipt of payment or;
Date of issue of invoice
Earliest of:
Date of receipt of goods or;
Date of completion of services.
Date of which recipient shows the services in his books of accounts
“Government should better specifically classify goods & services as Time of supply of services & goods are different & may invite complexities”

INPUT TAX CREDIT UNDER GST REGIME

Every registered dealer entitled to take ITC.
Person who has applied for registration, within 30 days of liable to get registration, entitled to take ITC on stock held.
Proportionate ITC available in case of partial taxable and non taxable supplies. Zero rated goods shall be considered as taxable supplies for calculating proportionate ITC.
Negative List of supplies prescribed for claiming ITC.
ITC for one F.Y. can be claimed earliest of date of filling of annual return or 20.10.2016.
“ITC can only be available if relevant supplier has paid such taxes and shown in the relevant return . No such provision is there in existing central excise & service tax provisions. It may increase the procedural complexities.

Further, under IT based regime in GST, mechanism to take ITC on stock held as on date of registration yet to specify in the draft law,”

REFUND UNDER GST REGIME

Eligible refund can be applied on or before 2 years from relevant date. No such condition for amount paid under protest.
Unutilized ITC due to export or due to tax on input is higher than tax on output can be claimed as refund by end of any tax period ( i.e. monthly/quarterly).
Refund of credit shall only be granted if incidence of tax has not been transferred to other person.
80% of refund claimed shall be refunded initially, & rest 20% after due verification in case the refund is on account of export.
SCOPE OF SUPPLY- TAXABLE EVENT

Supply under GST law includes all forms of supply of goods &/or services such as sale, barter, rent, lease etc. for consideration in course or furtherance of business; importation of services (not goods) whether or not in course of or furtherance of business; supplies without consideration covered in Schedule I.

“Above provision specifically covers E-commerce industry under the preview of supply of services to avoid e-commerce industry related litigations.

Controversial matters like right to use, deemed services etc. seems to be completely wiped out in the GST regime.

Furtherance of business is specifically included in the provision to cover all activity which are not in the normal course of business such as expansion of business but related to business.

Such broader definition of Taxable event was required to cover all the transaction and to eliminate the litigation.”

COMPOSITION LEVY:

Traditional concept of state VAT laws of composition scheme is taken up in the draft law also with almost all similar conditions such as turnover limit; prohibition to inter-state supply; cannot collect tax etc.

Additionally, being the PAN based registration under GST, if taxable person opting to register under composition levy in one state, he is required to opt to register under composition levy in all other states and for all other organization having same PAN.

Also Read – Applicability of proposed GST to Casual & Non-Resident taxpayers

OTHER RELEVANT PROVISION

As per the existing draft law, tax deduction at source (TDS) provision shall be applicable only on the government establishment/authority/agencies.
E-commerce players need to collect tax from suppliers and deposit the same on behalf of suppliers to the government. Supplier can take a credit of such amount in its returns.
Normal assessee need to submit on monthly basis the Outward supply statement, Inward supply statement and Monthly Return on 10th, 15th & 20th day of the following month.
Much hyped 1% additional tax on interstate transaction is not mentioned in the draft law.
Draft GST modern law give you clear idea how would be the GST regime look like and how it works. But for the better understanding of procedural requirement in the GST regime we need to wait till the GST rules get out.

( Author can be reach at ca.sehgal019@gmail.com)