Courtesy: CA Rockey
Model GST Law, 2016: A Practical Analysis of Levy and Time & Place of Supply
Finance Ministry of India has placed Model GST Law, 2016 for public comments/suggestions on its website with aiming to GST roll out w.e.f. April, 2017. Goods and Services Act, 2016 (GST Act), is divided into 25 chapters and having 162 sections and 4 schedules.
In this write-up I tried to keep practical insight while analyzing provisions related to:-
- Levy of GST
- Time of supply of Goods and/or Services
- Place of supply of Goods and/or Services
Introduction: – With the roll out of GST Law Indirect taxes levied by Central Government and State Government shall be subsumed into GST.
|Illustrative List of taxes to be subsumed into GST|
|Indirect Taxes levied by Central Govt.||Indirect Taxes levied by State Govt.|
|Central Excise Duty||VAT/Sale Tax|
|Service Tax||Luxury Tax|
|CVD under Custom Act||Entertainment Tax|
|Additional Excise Duty||Purchase Tax/Octroi|
GST would be implemented in India with the Dual GST approached. In this, there shall be Two GST Law, Central GST (CGST) and State GST (SGST) enacted by the Central Govt. & States govt. respectively. Intra-state supplies of Goods/Services will be subjected to both rate of tax i.e. CGST rate and SGST rate. However, Inter-state supplies shall be governed by a separate enactment called Integrated Goods and Services Act, 2016 (IGST Act). IGST rate will be sum of CGST rate and SGST rate.
Levy of Central GST (CGST)/State GST (SGST):-
Section 7 of GST Act, 2016 talks about levy & collection of CGST/SGST as follows:
(1) There shall be levied a tax called the Central/State Goods and Services Tax (CGST/SGST) on all intra-State supplies of goods and/or services at the rate specified in the Schedule . . . to this Act and collected in such manner as may be prescribed.
(2) The CGST/SGST shall be paid by every taxable person in accordance with the provisions of this Act.
- CGST/SGST shall be applicable on all intra-state supplies. Inter-state supply shall be govern by the Integrated GST Act. However, intra-state supplies is not defined in GST Act, it is defined in IGST Act. To determine whether a supply is Intra-state or inter-state, one need to refer provisions stipulated in section 3, (Sec. 3 is subject to the provision of sec. 5 & 6 which deal with place of supply of goods and Place of supply of services, respectively. These provisions has been discussed herein after).
- Meaning of supply:-As per sec. 3, supply of goods and/or services refer to sale, transfer, barter, exchange, license, rental, lease or disposal of goods/services, for a consideration by a person in course of business. Supply also includes Import of service (with or without consideration) and also includes supplies specified in Schedule-I, made or agreed to be made without a consideration. There is some declared supplies as stipulated in Schedule-II.
- To know the date/time of levy one need to refer to Time of Supply of Goods/Services (Sec. 12 and 13 deal with Time of Supply of goods and Service. These provisions has been discussed herein after).
- Taxable person is liable to discharge the CGST/SGST. Taxable person mean a person who is registered or required to be registered under Schedule-III of GST Act.
Reverse Charge mechanism is applicable on supply of goods/services as may be notified by Central/State Government.
Following person is required to be registered under GST Act:-
- Every person who already registered under any law (indirect tax law) on the date of commencement of this act.
- Every other person who is not already registered under any law (indirect tax law) on the date of commencement of this act and whose turnover exceeds Rs. Nine Lacs (Rs. Four lacs for NE states). However, Registered taxable person required to charge/collect GST when his aggregate turnover in a financial year exceeds Rs. Ten Lacs (Rs. Five lacs for NE states)
- Person making inter-state supply.
- Casual Taxable person (“casual taxable person” means a person who occasionally undertakes transactions involving supply or acquisition of goods and/or services in the course or furtherance of business whether as principal, agent or in any other capacity, in a taxable territory where he has no fixed place of business)
- Person liable to pay tax under reverse change mechanism.
- Non-resident taxable person
- Person required to deduct TDS under GST Law
- Input Service Distributor
- E-commerce operator
- An aggregator who supplies services under his brand name or his trade name.
Note-1: – Sec. 2(6) states that aggregate turnover means aggregate value of:-
- Taxable and Non-taxable supplies
- Exempt Supplies
- Export of goods/services
Of a person having same PAN and to be computed all over India basis. However, aggregate turnover shall not include the taxes charges under CGST, SGST and IGST.
Analysis: – While computed aggregate turnover, one has to take into account all his Non-taxable and exempt supplies also. This mean if any supplier is providing only non-taxable and/or exempt supplies exceeding the specified limit is required to take registration and comply with provisions of GST Law.
Note-2: – Sec. 8 stipulates the provisions related to composition levy as follows:-
- A registered taxable person may opt for composition scheme if his aggregate turnover does not exceed Rs. 50 lacs in a financial year.
- Rate of composition levy shall not be less than 1%.
- A person who enter into inter-state supplies is not permitted to opt this scheme.
- A person who opted for composition levy is also required to comply with the provisions of reverse charge mechanism.
- Credit of input tax is not permitted under composition scheme.
Time of supply of Goods/Services:-
1. Why we need to know time of supply of goods/services?
We need to know the time of supply to determine the exact date of supply as liability to pay CGST/SCGT shall arise at the time of supply.
2. Time of Supply of goods:-
Sec. 12 deals with time of supply of Goods. As per provisions of this section time of supply of goods shall be the earliest of followings dates:
a. date of removal of goods by the supplier,
b. date on which goods are made available to recipient
c. date on which invoice issues,
d. date of which payment received or
e. date on which buyer shows the receipt of goods in his books.
If the goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place, the time of supply shall be at the time when it becomes known that the supply has taken place or six months from the date of removal, whichever is earlier.
3. Time of Supply of Services:-
Sec. 13 deals with time of supply of services as follows:
a. If Invoice is issued within the prescribed time: date of issue of invoice or date or receipt of payment, whichever is earlier.
b. If Invoice is not issued within the prescribed time: date of completion of provision of service or date of receipt of payment, whichever is earlier.
c. If recipient of service shows the receipt of service in his books of accounts before above a or b: such date of showing receipt of service in the books.
d. Continuous supply of services-where due date of payment is ascertainable from contract: such due date, whether or not invoice is issued or payment is received.
e. Continuous supply of services-where due date of payment is not ascertainable from contract: payment of issue of invoice, whichever is earlier.
f. Continuous supply of services-where payment is linked to completion of an event: date of such completion of event.
Time of supply in case of reverse charge shall be earliest of the followings:-
- Date of receipt of goods/services,
- Date of on which payment is made,
- Date of receipt of invoice or
- Date of debit in the books of accounts
Time of supply is similar to the Point of taxation Rule, 2011 (POT) to a great extent. However, rule-7 of POT links the payment of tax liability under reverse charge with the payment to service provider, whereas sec. 13 of GST Act, 2016 does not provides such linkage and just make it simple similar to general provision of time of supply.
Time of supply when there is change in rate of tax:-Sec. 14 deals with the provisions related to determine the time of supply when there is change in the rate of tax. Sec. 14 stipulates the provisions similar to the rule-4 of POT Rules.
Place of Supply of Goods/Services:-
a. Why we need place of supply provision?
GST law is the based on the destination principal, in which goods/services are taxed in the state in which they are consumed/used. CGST/SCGT is to be levied only on intra-state supply. To know whether a supply is intra-state or not we need set of rules/guidelines, known as Place of Supply provisions/rules.
As I have stated earlier that intra-state supplies is not defined in GST Act, it is defined in IGST Act. Sec. 3A of IGST Act, stipulates the broad criteria to determine which supply of goods/services are intra-states. To determine the exact place of supply, sec. 3A is subject to the provisions of sec. 5 & 6 of IGST Act.
First of all we need to get the understanding of broad criteria set out by sec. 3A to determine Intra-state supply, then we need to have understanding of the provision of sec. 5 (Place of supply of Goods) and sec. 6 (Place of supply of Services) to know the exact place of supply.
Broad criteria are as follows:-
b. Supply of Goods/Services:- 3A states supply of goods/services shall be intra state if Location of Supplier and Place of supply are in same State.
Sec. 5, Place of Supply of Goods:-
- Where a supply involves movement of goods:-In case of such supply, place of supply shall be the “Location at which the goods are delivered” to the receiver.
- Where a supply does not involves movement of goods:-In such case, place of supply shall be the “Location of such goods at the time of the delivery” to the receiver.
- Where goods are assembled or installed at site:-Place of supply shall be the “Place of such installation or assembly”.
- Where goods are supplied on board of a conveyance (like on vessel, aircraft, train or motor vehicle):-Place of supply shall be the “Location at which such goods are taken on board”.
- Where place of supply cannot be determined in terms of above (1 to 4), then it shall be determined in accordance with the law made by Parliament on the recommendation of Council.
Sec. 6, Place of Supply of Services:-
This section deals with the provisions to determine the place of supply in case of services. This section provides the provisions similar to the Place of Provision of Service Rule, 2012, to a great extent. Before going ahead to discuss the provisions of this section, we must have the understanding of “Location of Service Provider” and “Location of Service Receiver”.
Location of Service Provider:-Location of service Provider means:
1. Location of Business Establishment: (where a supply is made from a business establishment registered under GST Law);
E.g. ABC Ltd. is providing service from its office located at Gurgaon and also get same office registered under GST law. In this case Location of Business Establishment is Gurgaon.
2. Location of Fixed Establishment: (where a supply is made from a place not registered under GST Law);
E.g. ABC Ltd. is also providing service from its office located at Rohtak (for this office registration is not taken). In this case Location of Fixed Establishment is Rohtak.
3. where a supply is made from more than one establishment, whether business or fixed, the location of the establishment most directly concerned with the provision of the supply;
4. in absence of such places (1 to 3 above), the location of the usual place of residence of the person;
Location of Service Receiver:-Location of service Receiver means:
1. Location of Business Establishment: (where a supply is received at a business establishment registered under GST Law).
E.g. XYZ Ltd. received service at its office located at Gurgaon and also get same office registered under GST law. In this case Location of Business Establishment is Gurgaon.
2. Location of Fixed Establishment: (where a supply is received at a place not registered under GST Law).
E.g. XYZ Ltd. also received service at its office located at Rohtak (for this office registration is not taken). In this case Location of Fixed Establishment is Rohtak.
3. where a supply is received at more than one establishment, whether business or fixed, the location of the establishment most directly concerned with the receipt of the supply;
4. in absence of such places (1 to 3 above), the location of the usual place of residence of the person;
How to determine Place of supply of a Service:-
Where a service is provide to a registered person, then place of supply shall be the “Location of such service receiver”.
Where a service is provided to an unregistered person then place of supply shall be the “Location of service receiver” if address on records is available, otherwise “Location of service provider”.
In case of followings services Place of supply shall be as follows:-
1. Service related to immovable property: Place of supply is the location where such immovable property is located or intended to be located.
2. The place of supply of restaurant and catering services and services in relation to training, performance appraisal, personal grooming, fitness, beauty treatment, health services including cosmetic and plastic surgery shall be the location where the services are actually performed.
3. The place of supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational, or entertainment event or amusement park or any other place and services ancillary thereto, shall be the place where the event is actually held or where the park or such other place is located.
4. The place of supply of services provided by way of—
(a) organization of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of service in relation to a conference, fair, exhibition, celebration or similar events, or
(b) services ancillary to organization of any of the above events or services, or assigning of sponsorship of any of the above events, to
(i) a registered person, shall be the location of such person;
(ii) a person other than a registered person, shall be the place where the event is actually held.
5. The place of supply of services by way of transportation of goods, including by mail or courier to,
(a) a registered person, shall be the location of such service receiver;
(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.
6. The place of supply of passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey.
7. The place of supply of services on board a conveyance such as vessel, aircraft, train or motor vehicle, shall be the location of the first scheduled point of departure of that conveyance for the journey.
8. The place of supply of banking and other financial services including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services:
Where the service is not linked to the account of the recipient of services, the place of supply shall be location of the supplier of services. –