GST Simplified Series#2
We
are back with next GST Simplified Series. If you have missed any of our
previous write-ups you can discover them here GST
Simplified.
Series#2 explains aspects
of Levy, Rates & Supply under GST.
Update: CGST, IGST, UTGST Bills have been passed in Lok Sabha on
29.03.2017. Any reference of sections and provisions in this write-up relates
to CGST Bill as passed in Lok Sabha.
Levy under GST (Section 9)
Every
tax law has a charging section which provides for levy of tax on certain
premise. Section 9 provides as under:
·
GST
shall be levied on intra-state supply of goods or services
or both
·
GST
shall apply on value as determined as per law.
·
Rates to be notified, Maximum rate
capped at 20%
·
Supplier
shall collect and pay the tax to the Government.
·
Alcoholic
liquor for human consumption is kept out of levy.
·
Enabling
provision to levy GST on Petroleum Products (5 items) on later date.
In
normal course, Supplier shall collect and pay GST, however, there is enabling
provision of applying reverse charge mechanism i.e. where Recipient of supply
is liable to pay tax under following situations:
·
Specified
categories of supplies (in line with current Service tax
law)
·
Supply
is made by unregistered person to registered person (in
line with current VAT laws)
Each
and every underlined item is relevant to effectuate levy of GST. Intra-State as
already discussed in Series#1 is supply where location of supplier and
place of supply is in same State. Let’s discuss other terms.
What is ‘Supply’ (Section- 7)
Currently,
taxable event for Service tax, Central Excise and VAT is provision of service,
manufacture of goods and sale of goods respectively. With GST coming in, this
phenomenon will change completely and ‘Supply’ will trigger levy of GST. CGST
bill defines ‘Supply’ to its widest extent in following 4 parts:
A. If made for
consideration in course or furtherance of business
B. If made
without consideration as per Schedule-I
C. Deemed supply
of Goods as per Schedule-II
D. Deemed supply
of services as per Schedule-II
Thread-bare of aforesaid points:
Apart
from above, Import of service shall be treated as ‘supply’ in following cases:
·
for
a consideration whether or not in course or furtherance of business.
·
Import
by taxable person from a related person or from any of his other establishments
outside India, in the course or furtherance of business.
On-going
through the detailed definition of supply, it is undisputable that scope of
‘Supply’ is quite wide to cover under its ambit various transactions. This is
in line with agenda of Government to widen the tax base.
CGST
Bill also contains the negative List of activities which will not be treated as
supply and hence, not liable to GST, briefed as under:
ü
Gifts
by an employer to an employee upto Rs. 50,000/-
in a financial year
ü
Services
by an employee to employer in course of or in relation to employment
ü
Services
by Court or Tribunal
ü
Any
Services related to deceased viz. funeral, crematorium etc.
ü
Functions
performed by a person in sovereign capacity- M.P., M.L.A., Constitutional post
ü
Specific
activities undertaken by Government, Local Authority engaged as public
authorities.
ü Sale
of land & building
ü Actionable
claims, other than lottery, betting and gambling
Analysis
Once
GST is in place, the impact of expanded scope of ‘supply’ as taxable event in
GST vis-à-vis current laws is explained herebelow:
i.
Stock Transfer: As you are aware that
registration in GST shall be State-wise with provision of more than one
registration in a State based on different business verticals. Registration in
each state shall be treated as distinct person for GST. Under current tax
scenario, inter-state or intra-state stock transfers are subjected to levy of
Excise Duty on removal of Goods. The same is not subject to VAT/ CST. In GST, Stock
transfers will be treated as Supply and liable to GST. Although, input tax
credit can be availed by Stock Transferee but it will block the working capital
of business. Plus, there would be issues on value on which GST will be
applicable.
ii.
Renting of land & Residential space: Currently
renting of only commercial space is liable to service tax, while renting of
land and residential space is negative list items. As per CGST bill passed in Loksabha,
both these activities will now be treated as deemed supply and exigible to GST.
This will have denting impact on real estate & logistics sectors.
iii.
Currently exempted but GST Law silent: There are
various services like provided by RBI, Foreign Diplomatic mission, toll fees,
space selling in print media, interest on loans/deposits, health care services,
advocates, educational institutions and charitable activities which are
currently exempted from service tax. However, CGST Bill is silent on their
taxability.
There may be
possibility of these being exempted by way of Notification. Interestingly,
Services by foreign diplomatic mission was covered under negative list in
Revised GST Law but it has been removed in CGST Bill.
iv.
Works Contract & Food Supply: As of now,
assessee pays both VAT as well as service tax on these transactions, leading to
overlapping of tax levy on same value. Treating Works contract and food supply
as composite supply and deeming them as supply of service in GST, litigation on
its classification of these activities as goods or services or both has been
put on rest. But the vital question here is – Works contract and food supply
are treated as Deemed sale of goods by Article 366(29A) of Constitution of
India. So, treating these items as deemed service in GST will not render them
contradictory to the Constitution of India ?
v.
Supply of Tangible Goods: This is
another transaction wherein classification of it under ‘goods’ or under ‘services’
haunts industry. Transfer of right to use goods is leviable to VAT whereas,
transfer of goods without transferring right is leviable to service tax. In
GST, the entire transaction is treated as deemed service obviating need to
classify as ‘goods’ or ‘services’.
vi.
GST on Cross-border Transaction: Recently the Government
has widened its tax base by making B2C Cross border ‘Online Information &
Data base retrieval service’ liable to service tax. Whereas other B2C
transactions of import of Service remains exempted. However, GST has travelled
one step further to tax all B2C transactions of import of service if made with
consideration. Possibly Reverse charge will apply on it and this will surely
impact overseas service providers. Further, related party cross border
transactions have also been made taxable.
Composition Levy (Section 10)
This is quite well known concept wherein Small
scale industries taxpayers are provided an option to simply pay certain % of
total turnover with minimal record keeping and compliance. The scheme under
GST is outlined as under:
Rates under GST
This
is most interesting issue wherein everyone is keeping their eyes on. What will
be the Rates under GST ? Which Product will be taxable under which category ?.
As of now following 4 Slabs have been zeroed in meeting of GST Council:
|
Rates
|
Expected
Category
|
|
5%
|
Common use items
|
|
12%
|
Standard
rates
|
|
18%
|
Services to be taxed under this slab
|
|
28%
|
Luxury/Sin
Goods
|
Additionally,
GST Compensation Cess will be imposed on luxury cars, aerated drinks, pan
masala and tobacco products to compensate States for loss of revenue post
implementation of GST. However, Finance Minister has many a times assured that
rate categorization will more or less be similar to existing structure to avoid
any high disruption atleast at initial stage.
Before parting………
There
has been a deliberation on how GST is ‘One Nation One Tax’ amid various tax
slabs. In my opinion, in country as diversified like India, one rate cannot
apply on all items. Otherwise this will severely impact the entire economy. Even
4 Slab structure + Zero-rated structure is commendable provided all States do
minimum deviations in their rate structure to roam towards Dream GST.
To be continued…….
