In continuation to the special session on GST by SADGAMAYA the second session was furthered towards unlocking various questions that the industry is dazzled with. V. Lakshmikumaran, Founder & Managing Partner, Lakshmikumaran & Sridharan, once again enlightened the audience with various aspects of GST. Lex Witness as the Official Magazine Partner brings to you a summary of the session.

The introduction of the landmark 101st Constitutional Amendment Act in the present session of the Parliament has brought us closer than ever to the reality of the landmark Goods and Services Tax (GST). GST is expected to reform the entire indirect taxation regime in the country. The government released the draft Model GST Law on 14th June 2016 and thereafter, the Draft Rules on various procedures were circulated in the last week of September 2016.

In this context, several questions which arise in one’s mind are: what is the hype about GST and the Constitutional Amendment Act? Why this amendment was needed and is GST a mere summative tax which encompasses in itself excise duty, service tax & VAT?

To answer the above question, it is imperative to know the background of the Constitution of India. Prior to the Constitutional amendment, the Centre could not impose any tax on goods beyond manufacturing (Excise) or primary import (Customs) stage, while states did not have the power to tax services. Thus, in order to enable the Centre & the States to simultaneously tax goods & services, the Constitution of India had to be amended and hence, the Constitutional Amendment Bill was needed.

Under the proposed GST, various central (Excise Duty, Additional Excise Duty, service tax, Countervailing or Additional Customs Duty, Special Additional Duty of Customs, etc.), as well as state-level indirect taxes (VAT/sales tax, purchase tax, entertainment tax, luxury tax, octroi, entry tax, etc.) will get subsumed. Amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, would mitigate the ill effects of cascading of taxes and pave the way for a common national market. Once the GST Act gets implemented, there will only be a national-level central GST and a state-level GST spanning the entire value chain for all goods and services.

The GST Law, which is expected to become operational from 1st April 2017, was introduced with certain basic objectives like avoidance of cascading effect of taxes, seamless flow of credit and free movement of goods and services. Though the Model GST Law, in the as introduced form, attempts to take care of these objectives, certain grey areas remain.

Let us now try to understand how the GST Law operates. GST law is a multi-stage consumption tax which is levied on supply of goods as well as services on each level of the supply chain. This tax comprises three taxes, SGST (State GST), CGST (Central GST) and IGST (Integrated GST). In a case where the supply is inter-state, IGST needs to be paid and in a situation where the supply takes place within the same State, the supplier needs to pay dual GST i.e. CGST & SGST. Since GST is a destination-based consumption tax, transactions involving import of goods have been deemed as an inter-state supply leviable to IGST.

In contrast to the taxable event in the present taxing statues, viz. excise duty, service tax & VAT, the taxable event in the proposed GST regime is the supply of goods and/or services for a consideration. Further, certain transactions have been specifically included in the definition of supply like barter, license, exchange, etc. Also, certain transactions made without any consideration have been deemed as supply by way of mentioning the same under Schedule 1 of the Model GST Law.

Under the proposed GST regime, the CGST and the SGST would be levied simultaneously on every transaction of supply of goods and services on the same value unlike the present taxes where the base for each of the tax is different. It has been recommended under the Model GST Law that the tax would normally be paid on the transaction value, i.e., the price paid or payable, when the parties are not related and price is the sole consideration. However, when the price is influenced by some factors like relationship of parties or in case of certain transactions that are deemed to be supply but do not have a price, it is required to overcome these factors to determine the transaction value correctly. In these transactions, reference has to be made to the Valuation Rules, the draft of which has also been released for comments.

Another important aspect which is relevant is when a transaction is chargeable to IGST and under what situations the transaction will be chargeable to CGST & SGST. The relevance of answering this question is based on the basic principle of GST being a consumption-based tax. Therefore, if the transaction is an intra-state transaction chargeable to CGST & SGST, the tax would continue to remain within the State. However, if the place of supply is interstate, i.e., the transaction is chargeable to IGST, the tax revenue will flow to the state where the supply will get consumed. Another relevant point to be determined under the Model GST Law is the time of supply which will determine the time when the liability to charge GST arises. The Model GST Law provides different time of supplies for goods and services.

In addition to the above, the GST Council has also been formed which is responsible for taking all the important decisions relating to GST like the rate of GST, what all goods and services will be exempt, the revenue threshold for traders to be exempt from this tax, etc.

Post the release of the draft rules on procedures relating to registration, refunds, returns, invoice & the latest press releases, it has become abundantly clear that the Government is determined to implement the GST law from 1st April 2017.