With a target of implementing Goods and Services Tax (GST) in India from July 1, 2017, the government introduced four centrally regulated GST Bills on March 27, 2017 in the Lok Sabha as money bills. These are,
- Central Goods and Services Tax (CGST) Bill,
- Integrated Goods and Services Tax (IGST) Bill,
- Goods and Services Tax (Compensation to States) Bill, and
- Union Territory Goods and Services Tax (UTGST) Bill.
Over the past two and a half years, the GST has gone through several layers of parliamentary scrutiny. From its early days in the Parliament under the aegis of 122nd Constitutional Amendment Bill in December 2014 to the release of Model GST laws in June 2016 and November 2016, the framework has gone through several amendments over the years to accommodate representations made by concerned stakeholders. The government finally came up with a draft law which received approval from the powerful GST Council and the Union Cabinet.
These amended draft laws have now been tabled in the Lok Sabha as GST Bills. Many amendments have been introduced in the current versions of CGST Bill, IGST Bill, Compensation Bill and UT-GST Bill as compared to the erstwhile Model GST Law (MGL), which was made public in November 2016.
Some of the key amendments are:
- Non applicability of IGST and CGST provisions to Jammu and Kashmir:
The provisions of IGST Bill, 2017 and CGST Bill, 2017 shall not apply to the State of Jammu and Kashmir (J&K). These would have wide ramifications on transactions from and to a person located in J&K. At present, there is no clarity provided in the law on the treatment of supply of goods and/or services by a person in India to a person in J&K and vice-versa. Industry needs to adopt a wait and watch approach for developments related to J&K. The state may have to pass a special law to make the GST applicable, pursuant to which the current bill may be amended to include the state within its ambit.
- Levy of IGST and CGST on petroleum, high speed diesel oil at a future date
The IGST Bill, 2017 and CGST Bill, 2017 provides for the levy of tax on commodities such as petroleum, high speed diesel oil, natural gas, and aviation turbine fuel from a date to be notified in future. The insertion of such provisions reassures the government intent to have petroleum products under the GST net at a later stage.
- New cess introduced on specific goods:
The Goods and Services Tax (Compensation to States) Bill has proposed to introduce a new cess on specific goods like pan masala, tobacco, coal, briquettes, lignite, aerated water, motor cars, and others as notified by the government. The cess on these goods and services has been proposed to be levied on both intra-state and inter-state supplies. However, as expected, in a respite for industries dealing in these goods, an input tax credit of cess paid on procurement is likely to be available against output liability.
- Concept of deemed exports has been narrowed:
The CGST Bill has narrowed down the scope of ‘deemed export’ by introducing a condition that the concept would only be applicable for goods which are ‘manufactured’ in India. Such a provision is, in our view, in line with the government’s Make in India initiative.
- Drawback would mean rebate of duty, tax or cess:
Drawback in GST is defined to mean the rebate of duty, tax or cess chargeable on any imported inputs, domestic inputs, or input services used in the manufacture of exported goods. Further, as provided under the CGST Bill, no refund of input tax credit shall be allowed if the supplier of goods or services avails a drawback in respect of tax paid on inputs. Such proviso shall ensure that assessees are not able to avail dual benefit.
- Definition of works contracts curtailed:
The meaning of the term ‘works contract’ has been curtailed to include only a contract of immovable property. In the erstwhile Model GST Law, works contract was defined including contracts of movable as well as immovable property. Such conceptual clarity in the CGST Bill would end ambiguity on various scenarios.
Supply And Leviability
- Gift given by employer to employee would be considered as supply:
Gifts, not exceeding Rs 50,000 in a financial year, given by an employer to an employee shall be treated as supply of goods or services or both, even if no consideration is charged. However, no clarity has been provided on the coverage of the term ‘gifts’ – leading to unanswered questions, such as whether assets provided for business use by employer to employee above the specified limit would be covered under the GST net.
- Supply of land, building & actionable claim are neither supply of goods nor supply of services:
New entries have been introduced in Schedule III of the CGST Bill which specifically provides that sale of land, building and actionable claims (other than lottery, betting and gambling) shall neither be treated as supply of goods nor supply of services. Earlier, given the wide definition of services, there existed ambiguity on the applicability of GST on real estate transactions. The change appears to be a move toward clarifying this.
- Supply in territorial waters:
The new GST Bill has once and for all provided some clarity on determination of of supply or supplier in case of supplies made in territorial waters (high seas sales in territorial waters). The coastal state or union territory where the nearest point of baseline is located would be considered as the location of supplier or place of supply.
- Reverse charge mechanism to apply in case of supply by a unregistered dealer:
The CGST and IGST bills propose to introduce a reverse charge mechanism on supplies received by a registered dealer from an unregistered dealer. This provision appears to bring in the prevalent VAT concept of purchase tax applicable even under the new GST regime.
Input Tax Credit And Refund
- Time limit to avail input tax credit is relaxed:
The time limit for reversal of input tax credit in case of non-payment by the customer to the supplier has been relaxed from a period of 90 days to a period of 180 days. This gives all industries more time to digest the metamorphic reform without disruption of business.
- In case of inter-branch supplies by banks & financial Institutions:
The restriction of fifty percent would not apply to tax paid on inter-branch supplies made by one registered person to another registered person having the same PAN. This is a welcome move for the banking and financial services industry, and shows that the government is taking in feedback made via representations by industry.
- Availability in case of restricted input services:
In case of outdoor catering services, beauty treatment services, healthcare services, rent-a-cab services, life insurance services, health insurance services, the input tax credit would be available subject to the condition that such supplies are used for making the same category of outward taxable supply. This is a beneficial provision for the tourism, catering and healthcare sectors.
- Telecommunication towers and pipelines excluded:
The terms ‘telecommunication towers’ and ‘pipelines’ have been excluded from the definition of ‘plant and machinery’ under input tax credit provisions. Also, the mechanism which was provided in the erstwhile Model GST Law has been deleted. So it appears that input tax credit may not be available for telecommunication towers and pipelines, and the current litigation around this is likely to continue under the GST regime.
The transitional provisions in the erstwhile Model GST Law were spread over 32 long sections. In the current CGST Bill, 2017, most of the provisions in the erstwhile Model GST Law have been rearranged and incorporated into four main sections: Section 140-143. One of the important transitional changes would be that the amount of CENVAT credit carried forward to the first GST return shall not be allowed where no returns have been filed by a person for a period of 6 months prior to the date of implementation of GST. However, companies would need to go through the fine print of the transitional provisions to ascertain the impact on them.
Considering all the discussion and debate around the applicability of the anti-profiteering measure, it appears that the GST Council has made an effort to rationalise the clause through the CGST Bill by removing a direct ‘penalty clause’ and also introducing the requirement of the GST Council’s recommendation for the formation of an Anti-Profiteering related Authority. Further, the revised clause has also explicitly stated that the anti-profiteering measure would apply to following scenarios:
- Input tax credit availed by any registered person has resulted in any commensurate reduction in price of goods;
- Reduction in tax rate has resulted in any commensurate reduction in price of goods.
The GST bills have already been tabled in the Lok Sabha and given that all political parties are on board through the Empowered Committee of State Finance Ministers, these bills are more or less likely to be accepted as the final versions. Apart from the passage of the GST bills in Parliament, it is also important to check the status of equally important activities occurring in the background. These include:
- Training of government officials for the final GST law,
- Trade consultations by the GST working group,
- Finalisation of GST rules and rates,
- A nationwide GST awareness initiative for the common man.
The government may want to seriously consider the option of delaying the implementation date till September 1, 2017 to ensure smooth transition rather than a half-baked transition. However, at present, there is no official announcement of any delay and the government seems to be firm on its stand of implementing GST from July 1, 2017. Irrespective of the date of implementation, India Inc has to ensure that they are well provisioned for July 1, 2017 and ensure that their tax positions, process and IT systems are in sync with GST from day one of implementation.
Jigar Doshi is an indirect tax partner and Priyanka Naik is a senior manager at consulting firm SKP Group. Ravi and Harshal provided support in decoding the laws. The views above are personal in nature.
The views expressed here are those of the authors’ and do not necessarily represent the views of BloombergQuint or its editorial team.