Revised draft GST Law was put on the public domain on 25th November 2016 and thereafter, whatever suggestions have been received by GST Council were reviewed during GST Council Meetings held during the month December 2016 and finally all the sections of CGST Law & SGST Law have been approved. Similarly, all provisions of IGST Law except for dual control has been approved by GST Council. However, issue of control on the Assessment Adjudications & Audits of the Dealers having turnover less than Rs. 1.5 Cr. has not been finalized since Law Ministry have opined differently than that of demands of State Govt. Perhaps, this issue will be settled in the month January 2017 but winter session of the Parliament has been washed out because political differences on demonetisation and therefore CGST Law & IGST Law could not be tabled in the parliament. Now, it may be tabled in the month of Feb 2017 i.e. Budget Session, but prior to February 2017, issues need to be resolved and therefore meeting the deadlines of Rollout of GST from 1st April 2017 seems to ambitious and difficult.
WHEN GST WILL BE EFFECTIVE FROM?
As stated above, it seems to be difficult to implement GST w.e.f. 1st April 2017, since Draft Law could not be converted into the Law and thereafter Industry needs min 2-3 months for studying the provisions and implementing the same. However, in accordance with Constitution 101st Amendment Act, 2016, GST will have to be implemented prior to 16th September 2017 and therefore GST will be implemented not later by 1st Sept 2017, but it will create more hardships to trade and industries to start mind-way and face the issues arising from transitional provisions and also prepare the two sets of accounts prior to 1st Sept 2017 and thereafter. It will be better for industry, if GST is implemented from the start of second quarter i.e. 1st July 2017, so that quarterly accounts are prepared by most of the industries and there will be less hurdles, if it is implemented w.e.f. 1st July 2017 rather than 1st Sept 2017.
WHAT ARE THE CHANGES IN THE REVISED DRAFT GST LAW?
There are major changes in important provisions of the Model GST Law, which has been incorporated in revised Draft GST Law. Fortunately, most of them are positive changes. Those changes are highlighted in the subsequent paras below. However, important change is the new provision which has been inserted in CGST Law.
- Threshold Limit: Due to change in definition of aggregate turnover, turnover of non-taxable goods will not be considered for calculating the threshold limit and therefore, threshold limit of Rs. 20 lacs will consist of turnover of taxable goods and exempted goods (it is Rs. 10 lacs for North State), but will not include non-taxable goods.
- Interest : Interest also will not be liable for GST, since, account has been defined in IGST law as an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account
Similarly, NBFC has been also defined and interest is the consideration, which is also received in money and money is excluded from the scope of supply of goods & services and hence interest will not be charged.
New definition of ‘Account’ has been inserted which refers to bank account. It seems that “interest” may be exempted from payment of GST.
- Securities Not Liable to GST : With no specific exclusion to “Securities” in the earlier version, there was a general apprehension that securities will be liable to GST. Now, goods has been defined as under :
“Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
- Actionable Claim & Intangible Property will be considered as goods and not as service:
“Actionable claim” shall have the meaning assigned to it in section 3 of the Transfer of Property Act, 1882.
“actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;
Intangible property has been included in Goods since it has been specifically excluded from services.
Earlier, in Model GST Law, it was included in the definition of service and now it has been included in the definition of goods but there is no HSN Code available for actionable claim & intangible property and therefore it will be interesting to see that, what HSN code will be used for the same.
- Registration: Each taxable person, who is required to take the registration and crossed the threshold limit can apply for the registration. Separate registration has to be taken for each state from where supplies are effected. However, it is the option of the person to opt for separate registration, when the person in engaged in supplies of different goods and services which includes:
- the nature of the products or services;
- the nature of the production processes;
- the type or class of customers for the products or services;
- the methods used to distribute the products or provide the services; and
- if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.
Wording relating to AS-17 of earlier Draft Model GST law is replaced with actual conditions as mentioned above.
- Rates of GST :
Though rates of the GST are never the part of provision of the act but as promised in the Rajya Sabha by Hon. Finance Minister Shri Arun Jaitely that upper limit of the tax will be part of the law and therefore upper limit of the tax rate of 14% has been provided in Section 8(1) of CGST /SGST Law) and & 28 % on IGST (Section 5(1) of IGST Law) and therefore, now there will be following categories of the tax rates.
| Rate of Tax | Expected bifurcation | Remark |
| Nil
(Exempted Supply) |
(0% of CGST & 0% of SGST) | Necessity items may be exempted, which are presently exempted in all the states for VAT. Generally, these will be in the range of 80 to 99 items. |
| 5% | (2.5% of CGST & 2.5% of SGST) | Items which are exempted under excise and VAT rate is in the range of 4% to 6% may be covered under this category. |
| 12% | (6% of CGST & 6% of SGST)
|
Items on which excise duty is 6% and VAT rate are in the range of 4% – 6% may be covered under this category. |
| 18% | (9% of CGST & 9% of SGST)
|
Majority of the Items, which are not directly needed to the consumer and not covered above will cover in this category. |
| 28% | (14% of CGST & 14% of SGST) | All other items which are directly reaching to the consumer including luxury goods, i.e. white goods and beverages |
It is expected Clean Cess and Swachha Bharat Cess will also be additionally imposed on the luxury goods and beverages. Needless to say, no ITC credit will be available on such cess.
- Change in Definition of “Capital Goods”
Definition of capital goods is given below:
“capital goods” means goods, the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business;
Earlier definition which was brought from existing cenvat credit rules 2004 has been dispensed with. This will reduce substantial litigations and instant ITC credit will be available on capital goods except for pipelines and telecommunication tower fixed to earth by foundation or structural support including foundation and structural support.
- Zero rated supply:
“zero rated supply” means any of the following taxable supply of goods and/or services, namely
(a) export of goods and/or services; or
(b) supply of goods and/or services to a SEZ developer or an SEZ unit.
Even if, supplies for which GST rate is Nil, ITC credit of inputs will be available.
Refund of Input Tax Credit will be available if supplies are exported under bond or refund of output tax paid on supplies of goods & services, which are exported will be also available, but similar provision is not applicable for supplies to SEZ Developer and SEZ Unit.
However, when supplies are made to SEZ Developer or SEZ Unit, it seems that it will not be zero, since in accordance with Sec(17(4) of IGST Law , SEZ Developer or SEZ Unit receiving the supplies will be eligible to claim refund on IGST paid by registered taxable person on such supplies.
- Meaning & Scope of Supply:
Section 3 has been totally revised and restructured, now there are 5 schedules included in the meaning & Scope of Supply.
| Schedule | Particular | Remark |
| Schedule I | Matters to be treated as supply even if made without Consideration | 1. Earlier, there was the only wording “Permanent transfer/disposal of business assets” will be considered as supplies even though without consideration but now it has been changed to “Permanent transfer/disposal of business assets where input tax credit has been availed on such assets”. It means there will be no GST applicable when there will be free supplies provided, no ITC credit has been availed. However, when free supplies are made to the related person or distinct person then, GST will be applicable on such supplies.
2. “Temporary application of business assets to a private or non-business use” and “Services put to a private or non-business use” has been removed from this schedule, but considered the same for restriction of ITC credit.
3. Importation of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
Importation of services for personal use has been excluded from the chargeability. |
| Schedule II | Matters to be treated as supply of goods or Services | No Substantial change. |
| Schedule III | Activities or transactions which shall be treated neither as a Supply of goods nor a supply of services | This has been aligned with existing provisions of service tax and modification has been made accordingly. |
| Schedule IV
|
Activities or transactions undertaken by the central government, A state government or any local authority which shall be treated Neither as a supply of goods nor a supply of services | This has been aligned with existing provisions of service tax and modification has been made accordingly. |
Importation of services, for a consideration whether or not in the course or furtherance of business will be chargeable to GST. Earlier even importation of services without consideration was also included and now deleted.
- Composite Supply, Mixed Supply and Principal Supply:
- “Composite Supply” means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
- “Mixed Supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply;
- “Principal Supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply;
When there is a Composite Supply, rates will be applicable to supplies which is considered as principal supplies, whereas when there is a mixed supplies, rates will be applicable to the supplies which attract higher rate of tax.
- Time of Supply on Goods:
The deletion of clause “Time of supply shall be the date on which recipient shows receipt of supply in their books” is a very welcome change as it was impossible to adhere to the said condition. Now, when invoice is received or invoice is required to be receive or payment received, whichever is earlier, will be treated as time of supply of goods.
- Time of Supply on Services:
The deletion of clause “Time of supply shall be the date on which recipient shows receipt of supply in their books” is a very welcome change as it was impossible to adhere to the said condition. Now, when invoice is received or invoice is required to be receive or payment received, whichever is earlier, will be treated as time of supply of goods except for supplies from associated enterprises. In that case, existing provision will apply.
- Allowability of Input Tax Credit (Section 16):
“Input & input services” definition has been amended and therefore input used or intended to be used in the course or furtherance of business will be eligible for credit even if not used for outward supply. This will avoid litigation
input service used or intended to be used in the course or furtherance of business will be eligible for credit even if not used for outward supply. This will avoid litigation.
Allowability of following input tax credit in the Revised GST Law:
- Pipelines and telecommunication tower fixed to earth by foundation or structural support
- Works contract services input credit if it is an input service for further supply of Works contract service
- Food and Beverages, Outdoor Catering, beauty treatment, health services, cosmetic and plastic surgery for making an outward supply of same category of goods and services
- Rent-a-cab, life insurance, health insurance where the same is notified by Government to be obligatory under any law for the employer
Further, Plant & machinery has been defined in the explanation as under :
‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.
Therefore, Input credit also will be allowed on foundation and structural support.
- Job Work:
Now no permission will be required to be taken for sending goods to job worker. Only intimation will be required.
Times limit for bringing goods back is 1 year for inputs and 3 years for capital goods other than moulds, dies , jigs and tools.
- No interest on Wrong Payment of Tax (CGST & SGST as against IGST and vice-a-versa:
Section 19 of IGST Act clarifies that in case of wrong payment of tax under CGST / SGST instead of IGST and vice- versa, no interest will be payable for delay on payment on correct tax.
- Refund:
Refund will be granted immediately, when application is made with all required documents to the extent of 90% as against 80% and balance 10% will be given within 60 days as against 90 days.
Even the recipient or any person who has borne the incidence of tax can apply for the refund with 6 months from the issue of order
- Transitional Provision:
Provisions relating to Transitions has been amended so as to avoid double taxation on the stocks lying with registered dealers (1st Stage Dealer, 2nd Stage Dealers, Import Dealers). Further, ITC credit will be allowed on the followings:
- Credit of Eligible duties and taxes in respect of input and input services during transit
- Refund claims filed after the appointed day for goods cleared or services provided before the appointed day & exported before or after the appointed to be disposed of under earlier law
- Transfer of unutilsed cenvat credit by taxable person having centralised registration under earlier law
- Cenvat credit reversed under earlier law due to non-payment of consideration within a period of three months, can be reclaimed if payment is made within three months from the introduction of GST
Comparison with Old Model GST Law (June 2016) with Revised Draft GST Law (November 2016) has been made clause by clause in detail which can be downloaded from the link below:
ANTI-PROFITEERING MEASURE:
Section 163 of CGST Law provides that:
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The Central Government may by law constitute an Authority, or entrust an existing Authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.
The Authority referred to in sub-section (1) shall exercise such functions and have such powers, including those for imposition of penalty, as may be prescribed in cases where it finds that the price being charged has not been reduced as aforesaid.
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In other words, each taxable person under GST Law will have to do the “IMPACT ANALYSIS” on his business to find out due to changes in existing tax regime, what are the additional benefits he will be able to get by way of ITC Credit, no retention and different taxes for which no set off was allowed. Similarly, what will be the savings on account of input tax and output tax? Savings will have to be worked out considering that there will be no cascading effect on account of followings:
- Tax on Tax
- SAD to Service Provider
- VAT Credit to Service Provider
- VAT Retention for Stock Transfer and less credit for capital goods
- Cenvat Credit on Input Services to Trader
- Central Sales Tax
- Entry Tax
- Purchase Tax
Similarly, additional tax burden, if any also will have to be worked out considering new provisions of Model GST Law. If there is a savings then such savings will have to be passed on to the customer and that will be the legal requirement to demonstrate that savings have been passed on to the customers otherwise penal provisions will attract.
In view of the above, each taxable person will have to do impact analysis and keep the same as part of books of account and use the same towards the compliances u/s 163 of CGST Law. Same provisions have been made applicable to SGST Law and IGST Law.
Even though, there is uncertainty whether GST will be made effective from 1st April 2017, there is a need to start the GST implementation work immediately and do the changes in the Business Strategies and Business Systems including Supply Chain, Accounting & IT System.
