GST Update – January 2016

Cost Competitiveness

Tax Reforms

Ease of doing business

Digital India

It was expected priorities of the nation will be given importance over the political priorities but unfortunately we have seen how democratic process has been mis-utilized. It is surprising 40 to 50 MPs of Upper House of Indian National Congress have totally stalled the progress and hope of GST to be implemented w.e.f. 1.04.2016 has been vanished. In spite of the facts economist claim and implementation of GST will improve the GDP by 1.5% to 2%, still different issues have taken the priorities over the national priorities. Meanwhile, Model GST Law which is under discussion was leaked through hosting the same on website of UP Government and immediately it was declared by Mrs. Rashmi Verma – Special Secretary, Department of Revenue that the report, which has been put on website of UP Govt. is not official report but thereafter number of changes have taken place in the series of discussion with State and Central Govt. officials. In spite of the said fact, it is felt to discuss the important point of the said report and represent Govt Officials w.r.t. difficulties which will be faced by the Trade and Industries and thereafter an attempt has been made to discuss important features.

1. Draft GST Law (CGST, SGST & IGST Law) will have number of similar provisions which was prevailing either in Central Excise Act 1944 & rules made thereunder, Finance Act 1994 & Rules made thereunder for Service Tax and State VAT Acts. In addition to that some provisions of Customs Act 1962 & Rules made thereunder have also been imported in the Draft Law and therefore Draft GST Law is not “Old Wine in the New Bottle” but it is the “Blend of Old & New Wine” or if some of the provisions remains as it is, it can be considered as “Cocktail” and will have the “Kick” to the Trade & Industries.
2. Fortunately, “Meaning of Supply” has been provided in Sec 3 of the said Law, which is the foundation of GST Law. Earlier self-supply of goods and services without consideration were included in the Schedule I of the said Law, but it is understood that the same has been taken it out otherwise it might have created lot of negative impact on Trade & Industries.
3. Time & Place of Supply has been given and it seems that person who are dealing in Goods & Services on “PAN India Basis” they will have to obtain registration in each State, otherwise there may be a cascading effect of the taxes.
4. Valuation of goods or services without consideration will be the challenge, since parallel provisions of Customs Act 1962 and Rules made thereunder has been incorporated in the Draft GST Law.
5. Fortunately, consensus is emerging for not introducing 1% additional tax for Inter-State supply of goods & services irrespective of for consideration or without consideration. Hope, this should prevail, since it is against the principle of GST.
6. Draft Business Process Reports on Registration, Payment, Refund & Returns has been put on the public domain and recommendations made by public are under discussion and hope these will be incorporated in Model GST.
7. Blacklisting provisions of the Tax Payer will be real hardship, since trigger for blacklisting, which has bene given in Business Process Reports are normal anomalies of trade & industries and hence such harsh provisions needs to be deleted.
8. Existing exclusions in the definition of Input & Input Services of Cenvat Credit Rules 2004 has been retained, which will be hurdle for not having the cascading effect of taxes.
9. Existing provisions of offences, penalties, prosecutions and recoveries of Central Excise Act has been retained in the Model GST Law which will cause un-necessary harassment to the trade & industries.
10. Transitional provisions for carry forward of existing balances of taxes i.e. credit is welcome provision. However, deemed credit provisions on stock in absence of duty paying documents will be required.

We give below existing provisions which have been carried forward in the Draft Model GST Law: Provisions of Central Excise Act, 1994:

Section/Rule	Provision	Section in Draft Act
Section 3, Central Excise Act, 1944	Rate of Tax as per the Schedule to the Act	Section 7(1)
Section 3A , Central Excise Act, 1944	Compounded levy	Section 8
Section 2(f)(iii), Central Excise Act, 1944	Manufacturer (in GST Taxable person)	Section 9
Section 4, Central Excise Act, 1944	Valuation – Transaction value	Section 17(2)
Section 4A, Central Excise Act, 1944	Valuation – MRP/Retail Price Valuation method	Section 17(5)
Section 11A, Central Excise Act, 1944	Demand	Section 20A
Section 11AC, Central Excise Act, 1944	Penalty	Section 20A
Section 11AC, Central Excise Act, 1944	Limitation Period	Section 20A
Section 11D, Central Excise Act, 1944	Recovery of duty	Section 11D
Section 14A & 14AA, Central Excise Act, 1944	Special Audit	Section 55
Section 34A,Central Excise Act, 1944	Confiscation or penalty	Section 62
Section 12F,Central Excise Act, 1944	Power of inspection, search and seizure	Section 68
Section13, 18, 19 & 20, Central Excise Act, 1944	Power to arrest	Section 69
Section 14, Central Excise Act, 1944	Power To summon	Section 70
Section 15B, Central Excise Act, 1944	Penalty for failure to furnish information return	Section 76
Section 12C, Central Excise Act, 1944	Consumer Welfare Fund	Section 78
Section 12E, Central Excise Act, 1944	Powers of officers	Section 79

Provisions of Central Excise Rules 2002 :

Section/Rule	Provision	Section in Draft Act
Central Excise Valuation (determination of price of excisable goods) Rules, 2000	Valuation	GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 21, Central excise rules, 2002	Remission of duty	Section 19
Rule 11, Central excise rules, 2002	Invoice	Section 30
Rule 12, Central excise rules, 2002	Returns	Section 36
Rule 12, Central excise rules, 2002	Late fee for filing of return	Section 45
Rule 8, Central excise rules, 2002	Payment of tax, penalty, interest	Section 47
Rule 6, Central excise rules, 2002	Self Assessment	Section 47
Rule 26, Central excise rules, 2002	Offences and Penalties	Section 56
Rule 27, Central excise rules, 2002	General Penalties	Section 57
Rule 27, Central excise rules, 2002	Confiscation of goods and levy of penalty	Section 60
Rule 22, Central excise rules, 2002	Access to business premises	Section 71
Rule 3(1), CENVAT credit rules, 2004	Input Tax Credit	Section 18(1)
Rule 2(a),(k),(l) & Rule 6, CENVAT credit rules, 2004	Eligibility of Input Tax credit	Section 18(2) & Section 18(9)
Rule 6, CENVAT credit rules, 2004	Reversal of Credit	Section 18(3)
Rule 4, CENVAT credit rules, 2004	Utilization of credit	Section 18(5)
Rule 5, CENVAT credit rules, 2004	Refund of cenvat credit	Section 18(7)
Rule 9(1), CENVAT credit rules, 2004	Conditions for availment of credit	Section 18(10)
Rule 10, CENVAT credit rules, 2004	Transfer of cenvat credit balance in certain cases	Section 18(11)
Rule 14, CENVAT credit rules, 2004	Recovery of CENVAT credit wrongly taken or erroneously refunded	Section 39
Rule 15, CENVAT credit rules, 2004	Penalty for wrong utilization of credit	Section 56

  Provisions of Finance Act, 1994 :  

Section/Rule	Provision	Section in Draft Act
Section 67,Finance Act 1994	Valuation	Section 17(1)
Section 71(3)(a),Finance Act 1994	Submission of returns through Tax Return Preparers	Section 46
Section 70,Finance Act 1994	Self-Assessment	Section 49
Section 72(a),Finance Act 1994	Assessment of non-filers of returns	Section 46
Section 72(b),Finance Act 1994	Summary assessment in certain special cases	Section 53
Section 72A,Finance Act 1994	Special Audit	Section 55

  Provisions of Service Tax Rules, 1994

Section/Rule	Provision	Section in Draft Act
Rule 2(1)(d), Service Tax Rules, 1994	Person liable to pay tax	Section 9
Rule 5, Service Tax (Determination of Value) Rules, 2006	Valuation	Rule 8 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 6(7B), Service Tax Rules, 1994	Valuation	Rule 8 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 4(5), Service Tax Rules, 1994	Deemed registration	Section 26(8)
Rule 4A, Service Tax Rules, 1994	Invoice	Section 30
Rule 5, Service Tax Rules, 1994	Maintenance of records	Section 32
Rule 7, Service Tax Rules, 1994	Returns	Section 36
Rule 7C, Service Tax Rules, 1994	Late fees for late filing of return	Section 45
Rule 6, Service Tax Rules, 1994	Payment of tax	Section 47

  Provisions of Customs Valuation (Determination of value of Imported Goods) Rules, 2007 :

Section/Rule	Provision	Section in Draft Act
Rule 2,Customs Valuation (Determination of value of Imported Goods) Rules, 2007	similar and identical goods	Rule 2 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 4&5,Customs Valuation (Determination of value of Imported Goods) Rules, 2007	Valuation	Rule 4 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 8 ,Customs Valuation (Determination of value of Imported Goods) Rules, 2007	Computed value method	Rule 5 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 9 ,Customs Valuation (Determination of value of Imported Goods) Rules, 2007	Residual method	Rule 6 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016
Rule 12 ,Customs Valuation (Determination of value of Imported Goods) Rules, 2007	Rejection of declared value	Rule 7 of GST Valuation (Determination of the Value of Supply of Goods and Services)Rules, 2016

  Provisions of MVAT Act, 2002/ CST Act, 1956 :

Section/Rule	Provision	Section in Draft Act
Section 6, CST Act,1956	Levy on all intra-state supplies of goods and services	Section 7
Section 8, CST Act,1956	Rate of Tax as per the Schedule to the Act	Section 7
Section 2(8), MVAT Act,2002	Dealer	Section 9
Section 3/4, CST Act,1956	Nature of supply	Section 14
Section 63, MVAT Act,2002	Records	Section 32
Rule 17(4)(d), MVAT Rules, 2005	J1 – J2 return	Section 36
Rule 17, MVAT Rules, 2005	Returns	Section 36
Section 61, MVAT Act,2002	Annual Return	Section 43
Section 20, MVAT Act,2002	Late fee	Section 45
Section 31, MVAT Act,2002	TDS	Section 2(41)
Section 20, MVAT Act,2002	Self-Assessment	Section 49
Section 23(3), MVAT Act,2002	Assessment of non-filers of returns	Section 51
Section 23(4), MVAT Act,2002	Assessment of unregistered persons	Section 52
Section 23, MVAT Act,2002	Summary assessment in certain special cases	Section 53
Section 22, MVAT Act,2002	Audit	Section 54
Section 22, MVAT Act,2002	Cognizance of offences	Section 64

It can be appreciated from above that most of the provisions of existing law will be in the Draft GST Law. In other words, the stricter provisions w.r.t. Tax, Administration and Compliance of either laws has been incorporated in Draft GST Law. Since there is no any liberal provision in either law, no liberal provisions has been invented. Time will decide whether it will be ease of doing business or otherwise. Nothing concrete has been mentioned in Draft GST Law for adjudication except National Tax Tribunal, but whether assessment and first appeal will have combined dispute resolution system for CGST, IGST and SGST is not clear and that will be the test of “Whether there will be Acche Din OR continued to be the same”… Let us hope, Model Draft GST law will be put on Public Domain by January 2016 end and 122^nd Constitutional Amendment Bill will be tabled again in Upper House either in the budget session or subsequent to the budget session in month of April 2016, but one thing is definite, GST is not going to be implemented w.e.f. 1^st April 2016 and time will decide whether it will be in 2016 or w.e.f. 1^st April 2017.]]>