Another step towards fulfilling the dream of GST. On June 14, 2016, the Central Government has put the Draft Model GST Law on public domain after getting in-principle nod from the Empowered Committee of State Finance Ministers. With this step in place, now we are even more close to the actual implementation of GST from April, 2017. As per this model draft law, there would be separate Acts for CGST, SGST and IGST. The model Act would guide for drafting GST Act for each of the state. In this article, we have summarized the Tax Exemptions, Return Filing, Highligts- GST Act explained.

As per the proposed law, 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. This tax shall be payable by every taxable person in accordance with the provisions of this Act.

 

 

The major highlights here are:

 

• There should be a taxable person first of all. Taxable person on the other hand has been defined under Section 9 of this Act. Section 9 includes any person carrying on business in India as a “Taxable Person”. There are certain exceptions to this rule. A person with aggregate turnover of less than Rs. 10 lacs are kept out of the purview of this definition. This limit again is Rs. 5 lacs for NE states. Similarly, employer employee relationship has also been kept out of this.
• Registration is mandatory for Taxable Persons. Registration would be linked with PAN. Various categories like Normal Taxpayers, Casual dealers, NRI Suppliers, taxpayer under compounding scheme, etc. Separate state-specific registrations would be required to be taken for multiple States from where supply is taking place. Separate registrations may be taken for different business verticals within the same State. The facility of taking registration through Tax Return Preparer (TRP) and Facilitation Centre (FC) has been introduced.
• The taxable person should be engaged in the business. For GST to be levied, the taxable person as mentioned above must be engaged in a “business”. Business again has a very wide connotation in this Act.

It includes the following:

(a) any trade, commerce, manufacture, profession, vocation or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any transaction in connection with or incidental or ancillary to (a) above;

(c) any transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;

(e)provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members as the case may be;

(f) admission, for a consideration, of persons to any premises; and

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

 Business however does not include agriculture.

• The business should be in relation to goods or services. To levy GST, the business should be in relation to goods or services. The term goods and services again has been defined in Section 2. Anything not falling within the definition of “goods and services” cannot be brought to tax.

• There should be supply of these goods and services. GST is levied on supply of goods or service. Supply again has been defined in section 3. Tax shall be levied at the time of supply or goods of services.

• Time of supply of goods should be earliest of the following dates:

                   (a) Date of removal of goods by supplier to the buyer for                                     supply 

                  (b) Where goods are not required to be removed, the date on                               which goods are made available to the buyer

                   (c) Date when supplier issues invoice for supply

                   (d) Date on which supplier receive payment for supply

                  (e) Date on which buyer shows receipt of goods in books of                                account

• Time of supply of service shall be earliest of following:

               (a) The date of issue of invoice or date of receipt of payment,                            whichever is earlier. (provided invoice issued within prescribed                    time)

           (b)Date of completion of service or receipt of payment, whichever is                earlier. (if invoice not issued within prescribed time)

          (c) Date on which recipient shows receipt of service in books of                        account. (If not covered by case i and ii above)

In case of services covered by reverse charge, the time of supply shall be earliest of:

          (a) Date of receipt of service
         (b) Date of which payment is made
         (c) Date of receipt of invoice
         (d) Date of debit in books of account

• There shall be tax only if the services are provided for consideration. If there is no consideration, then there is no tax. Consideration has been defined again in Section 2.
• The tax shall be levied on value of taxable supply. Value of taxable supply shall be transaction value (where transaction is between unrelated party and the price is sole consideration). It includes the following:

1. Price paid or payable for supply of goods or services
2. Value of free supply or supply at reduced cost by recipient of supply to supplier
3. Royalties and license fees relatable to supply of goods and service
4. Any duty, tax, cess, fees levied other than CGST/SGST/IGST
5. Incidental expenses at the time or before delivery of goods/services
6. Subsidy linked to supply
7. Any discount allowed after supply has been effected. Discount allowed before or at the time of supply shall not be included in the transaction value.

Where value cannot be determined as per above, it shall be calculated in accordance with the rules framed in this behalf.

• The tax rates have not been provided in the Act. The rates of taxes would be provided in separate Schedules to the Act.
• The tax may be paid after availing input tax credit. Tax may be paid after adjusting the eligible credit. Where goods and services are used partly for business and partly for other purpose, credit shall be restricted as attributable to business. Where goods (excl. capital goods) and services are partly used for taxable supply and partly for non-taxable supply, credit restricted to taxable supply.
• Order of utilization shall be as follows:

1. IGST to be used for IGST, CGST and SGST in that order
2. CGST to be used for CGST and IGST in that order
3. SGST to be used for SGST and ISGT in that order
4. CGST to SGST and SGST to CGST adjustment not possible

• Excess credit may be carried forward to next tax period. Credit can be claimed as refund where accumulated due to export or where tax on input is higher than tax on output.
• Certain expenditure mainly in the nature of personal expenses have been excluded from the eligibility of credit.

• Compounding Scheme- Registered taxable person whose turnover in a financial year does not exceed Rs. 50 lacs can avail this scheme. “Turnover” includes taxable, non-taxable, exempt supply and exports. The rate under compounding scheme shall not be less than 1 % as may be notified. The amount needs to be paid on total turnover (not on taxable turnover). Compounded scheme option not eligible to person making inter-state supply and the person liable to pay tax under reverse charge mechanism.
• Payment of Tax- It has been provided in the model law that the tax should be paid before filing of return. If tax is not paid, the return filed shall be deemed to be invalid.
• Tax deduction at source (TDS)- CG or SG may mandate deduction of tax @ 1% on payment made or credited by department of CG or SG, Local authorities, Governmental agencies & other notified categories. It should be deducted on specified goods or service to be notified when total value of such supply under a contract exceeds Rs. 10 lacs. TDS should be deducted within 10th of next month. Delay in payment would attract late fee of Rs. 100 per day.
• Exemption from GST- Exemption may be granted by government based on recommendation of council. The exemption may be absolute or conditional. Where exemption has been granted absolutely, it would be mandatory to claim the exemption.
• Assessment- Every registered person shall self-assess the tax payable by him under the Act. Returns furnished by taxpayer would be subject to scrutiny by department. Department may carry out best judgment assessment in case of non-filers of return and unregistered person.
• Transitional Provisions: Smooth migration from existing regime to new regime warrants proper transitional provisions. Following transitional provisions have been provided in the law:

1. Existing assessee may migrate to GST by issuing provisional RC
2. Cenvat credit carried forward in return to be allowed as input tax credit. (Important to properly capture the credits in the return at the time of migration)
3. Unavailed cenvat credit on capital goods, not carried forward in return, allowed to carry forward
4. Credit of eligible duties and taxes in respect of inputs held in stock to be allowed as credit to the persons who are not liable to be registered under existing regime
5. There are few other specific provisions to deal with job work cases, goods sent on approval, goods returned, price variation, refund claim etc. to resolve the issues in migration from existing regime to new regime.

The Government has been trying to bring GST in form for quite some time now. Many hopes are associated with the coming of GST in India. Lowering of inflation and promotion of growth is the highlight of GST.

The availability of Draft Model GST Law enables the Trade and Industry to plan the transition from the existing Indirect tax regime to the GST regime. It is important that a thorough analysis of the Draft GST Law is undertaken so as to provide necessary suggestions/ feedback to the Government. It is expected that the Government will soon come out with a mechanism to invite suggestions/ feedbacks of the Trade and Industry.

Download the draft :GST MODEL LAW

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