With regional general elections to state assembly in some states getting concluded, policy makers on GST front got active and we saw a fully charged meeting or Empowered Committee under the Chairmanship of Mr. Amit Mitra, Finance Minister of West Bengal on 14-15 June, 2016. This meeting which took place after a gap of over 5 months could see the release of model law on goods and services tax, a major development in moving forward on GST front. This also indicates near consensus on various issues concerning GST. There may be some disagreements on certain issues by some State Governments but the release of model GST law in public domain is certainly a welcome step and would take the efforts forward. Now the eyes would be on monsoon session of Parliament in August, 2016 wherein Constitutional Amendment Bill is hopefully likely to be considered for passage. If that could happen, we may have GST in place as early as April, 2017 or a bit later. This much awaited indirect tax reform is already delayed. Now it appears that virtually every state has accepted the idea of GST and that GST has entered the second last lap of legislative ladder, last being enactment of GST law.
Model law comprises of following two laws –
- Goods and Service Tax Act, 2016
- Integrated Goods and Service Tax Act, 2016
According to the model law released, GST rates will be specified in the Schedule to the Act. Online or e commence transaction would also be under the GST ambit.
The Model GST law consists of :
- 162 + sections divided into 25 Chapters
- 4 schedules
- Rules relating to Valuation under GST
- Draft Integrated GST Act (IGST) consisting of 33 sections divided into 11 Chapters.
All forms of ‘supply’ of goods and services such as sale, transfer, barter, exchange, license, rental, lease and import of services of goods and services made for a consideration within the state will attract CGST (central levy) and SGST (state levy). On inter-state supply of goods, IGST shall be applicable. GST would be applicable on ‘supply’ of goods and services.
The salient feature of model GST law are enumerated hereunder:
1) Threshold limit for registration
The dealer is required to take registration under this law if his aggregate turnover in a financial year exceeds ₹ 9 lakhs. However, dealers conducting business in any North Eastern State are required to take registration if their turnover exceeds ₹ 4 lakhs.
2) Place of registration
The dealer has to take registration in the State from where taxable goods or services are supplied.
3) Migration of existing taxpayers to GST
Every person already registered under extant law will be issued a certificate of registration on a provisional basis. This certificate shall be valid for period of 6 months. Such person will have to furnish the requisite information within 6 months and on furnishing of such information, final registration certificate shall be granted by the Central/State Government.
4) GST compliance rating score
Every taxable person shall be assigned a GST compliance rating score based on his record of compliance with the provisions of this Act. The GST compliance rating score shall be updated at periodic intervals and intimated to the taxable person and also placed in the public domain.
5) Levy of Tax
The person registered is liable to pay tax if his aggregate turnover in a financial year exceeds ₹ 10 lakhs. However, a dealer conducting business in any of the North Eastern is required to pay tax if his aggregate turnover exceeds ₹ 5 lakhs.
A negative list has also been prescribed for transactions and activities of Government and Local Authorities which shall be exempt from GST levy, like activities of issuance of passport, visa, driving license, birth certificate or death certificate, etc.
6) Taxable Event
The taxable event under GST regime will be supply of goods or services. Supply includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration. It also includes importation of service, whether or not for a consideration.
7) Point of taxation
CGST/SGST shall be payable at the earliest of the following dates, namely:
(i) Date on which the goods are removed for supply to the recipient (in case of movable goods).
(ii) Date on which the goods are made available to the recipient (in case of immovable goods).
- Date of issuing invoice by supplier; or
- Date of receipt of payment by supplier; or
- Date on which recipient shows the receipt of the goods in his books of account.
8) TCS on online sales of goods or service
Every E-commerce operator engaged in facilitating the supply of any goods and/or services (like Amazon, Flipkart, etc.) shall collect tax at source at the time of credit or at the time of payment whichever is earlier.
9) Valuation Rules
Valuation Rules shall apply to the supply of goods and/or services under the IGST/CGST/SGST Bill. Some of the methods prescribed for valuation are:
a) Transaction value
b) Transaction value of goods or services of like kind
c) Computed value method:
d) Residual method
10) Utilization of credit
Utilization of IGST: The amount of input tax credit on account of IGST available in the electronic credit ledger of dealer shall first be utilized towards payment of IGST and the amount remaining, if any, may be utilized towards the payment of CGST and SGST, in that order.
Utilization of SGST: The amount of input tax credit on account of SGST available in the electronic credit ledger shall first be utilized towards payment of SGST and the amount remaining, if any, may be utilized towards the payment of IGST.
Utilization of CGST: The amount of input tax credit on account of CGST available in the electronic credit ledger shall first be utilized towards payment of CGST and the amount remaining, if any, may be utilized towards the payment of IGST.
The input tax credit on account of CGST shall not be available for payment of SGST.
Any tax, interest, penalty, fee, etc., shall be paid via internet banking or by using credit/debit cards or NEFT or RTGS. This amount shall be credited to the electronic cash ledger of dealer.
The Central or a State Government may mandate certain departments (viz, local authority, Govt. agencies) to deduct tax at the rate of one percent on notified goods or services, where the total value of such supply, under a contract, exceeds ₹ 10 lakhs.
A person can claim refund of any tax and interest by making an application in that regard to the prescribed officer of IGST/CGST/SGST within two years.
Dealers shall be required to furnish following returns-
a) Monthly return
b) Return for composition scheme
c) TDS return
d) Return for input service distributor
e) First return
f) Annual return
g) Final return
These returns are for different periods / or frequencies / at intervals.
15) Transitional provisions
These will ensure smooth migration to GST.
It is expected that GST would add to GDP of the country by about 2 percent. It is hoped that to get GST rolling by April, 2017, Union Government and all State Governments will have to work hard and act fast to have GST in place by this date. The target is ambitious but achievable. Let’s hope that collective wisdom of all members of Parliament (including the opposition) shall prevail to allow the GST to see the light of the day.
By: Dr. Sanjiv Agarwal – June 30, 2016