Taxability in GST
1. Overview of Goods and Service Tax
Model GST law came into public domain from unknown sources on 5th December, 2015. Some claim that this document was meant for state Government discussions and deliberations on the future of GST in India and one of such state VAT department uploaded the same on their website by mistake. As it is obvious within few hours this was circulated all over India by various websites and emails. In the beginning, Government tried to contain this jungle fire but in the IT world it was impossible to do so, then the government kept on disowning this law. However, with the pressure of experts they had to agree that this model GST law is the base paper for the GST Act. Tax base of GST would be very wide and would comprehensively extend over all goods and services up to the final consumer point. GST would have two components:
- CGST — It would be levied by the Centre; and
- SGST — It would be levied by the States.
The basic features of law such as chargeability, definition of taxable event, taxable person, taxable transaction, basis of classification all would be uniform for both CGST and SGST, i.e. the basis of taxability would be same for both CGST as well as SGST, thereby wiping out all the disputes currently taken up by VAT/Sales tax authorities and Service tax authorities to tax a single transaction.
Please check the laws currently in place which will subsume under the new GST regime
v Central Excise Duty – Central Excise Act, 1944.
v Additional Excise Duties:-
- Additional Duties of Excise Act, 1957 (Goods of Special Importance).
- Additional Duties of Excise Act, 1978 (Textiles and Textile Articles).
v Medicinal & Toilet Preparations (Excise Duties) Act, 1955.
v Service Tax under Chapter V of Finance Act, 1994.
v Additional Custom Duty known as Countervailing Duty (CVD), Additional Duty of Customs (Section 3 of Custom Tariff Act, 1975)
v Entertainment Tax
v Luxury Tax
v Lottery Tax
v Betting & Gambling
2. Meaning of Goods and services
- “Goods’’ means every kind of movable property other than actionable claim and money but includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply
- “Services’’ mean anything other than goods
3. Taxation principle — ‘destination’ basis
- GST will follow the destination principle i.e. impact of GST would fall on the person finally consuming the commodity. Also tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.
- GST would be structured on the destination principle, as a result of this, tax base will shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved from the burden of GST by zero rating. Consequently, revenue will accrue to the State in which the consumption takes place or is deemed to take place.
4. Exemption From tax
Exemption under GST law can be availed by any of the means mentioned below:-
- General Exemption Notification
- Special Exemption Order
- Exemption Clarified
5. Person under GST
‘Person’ is not restricted to natural person. The following shall be considered as persons for the purposes of the Act:
5.1 an individual
5.2 a Hindu undivided family
5.3 a company
5.4 a society
5.5 a limited liability partnership
5.6 a firm
5.7 an association or body of individuals, whether incorporated or not
5.9 a local authority, or
5.10 Every artificial juridical person, not falling within any of the preceding sub-clauses.
6. MATTERS TO BE TREATED AS SUPPLY OF GOODS OR SERVICES
6.1 Any transfer of the title in goods is a supply of goods.
6.2 Any transfer of right in goods/ undivided share in goods without the transfer of title thereof, is a supply of services.
6.3 Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.
6.4 Any lease, tenancy, easement, licence to occupy land is a supply of services.
6.5 Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
6.6 Any treatment or process which is being applied to another person’s goods is a supply of services.
6.7 Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.
6.8 Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.
6.9 Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business.
6.10 Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person
6.11 renting of immovable property;
6.12 Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.
6.13 Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
7. Composition Scheme
Small dealers with annual aggregate turnover of goods and services between `10 Lacs — `40 Lacs may be allowed to opt for a compounded levy of 1%, each towards CGST and SGST, thereby 2% GST would be charged for compounded levy scheme.
Certain high value goods comprising of:
(a) gold, silver and platinum ornaments;
(b) precious stones; and
are prone to smuggling due to high tax incidence. Therefore, it is recommended that dealers in such high value items may, without the ceiling of `40 Lacs, also be allowed to opt for the compounded levy of 1%, each towards CGST and SGST.
No benefit of input credit would be extended to dealers opting for compounded levy scheme. Taxpayers opting for the compounded levy may be required to pay their taxes and file their returns on a quarterly basis.
However, Empowered Committee of State finance ministers are of the view that 0.5% be the rate for compounding scheme of SGST and also the limit of compounded levy scheme be `50 Lacs.
v General pre – requisite for compounding
– A registered taxable person,
– Turnover in a financial year does not exceed 50 lacs of rupees,
– Pay at such rate, not less than 1%, of the turnover during the year:
– Does not effect any inter-state supplies of goods and/or services or
– Does not effect to a person who is liable to pay tax under reverse charge scheme.
v Specific Pre- requisite for compounding
– A registered taxable person
-Engaged in providing a specified category of taxable service
-To pay, tax at such rate not exceeding . . . percent, as may be notified
8. Taxable person
Taxable Person means a person who carries on any business at any place in India and who is registered or required to be registered under this Act. Following person shall not be considered a taxable person:
- An agriculturist
- Person whose aggregate turnover in a financial year is below Rs 10,00,000 (Rs. 5,00,000 if a taxable person conducts his business in any of the NE States including Sikkim)
- Any person who provides services as an employee to his employer in the course of, or in relation to his employment, or by any other legal ties creating the relationship of employer and employee as regards working conditions, remunerations and employer’s liability
- Any person engaged in the business of exclusively supplying goods and/or services that are not liable to tax under this Act;
2. Reverse charge in GST
The Central/State Government may, by notification, specify categories of supply of services the tax on which is payable on reverse charge basis and all the provisions of this Act shall apply mutatis mutandis for collection of such tax.
With this provision it is amply clear that reverse charge will be applicable even under the new regime of GST.
9. Time of supply
9.1 The time of supply of goods/services shall be the earliest of the following dates, namely,-
- The date on which the goods/services are removed or the date on which the goods are made available to the recipient
- The date on which the supplier issues the invoice
- The date on which the supplier receives the payment
- The date on which the recipient shows the receipt of the goods/services in his books of account.
9.2 In case of continuous supply of goods
- Where successive statements of accounts or successive payments are involved – The date of expiry of the period to which such successive statements of accounts.
- If there are no successive statements of account, whichever is earlier
- The date of issue of the invoice
- The date of receipt of payment
9.3 In case of reverse charge
- The date of the receipt of goods/services, or
- The date on which the payment is made, or
- The date of receipt of invoice, or
- The date of debit in the books of accounts.
9.4 Goods sent on approval basis
The time of supply shall be whichever is earlier.
- The time when it becomes known that the supply has taken place or
- months from the date of removal,
9.5 In case of continuous supply of services
- Where the due date of payment is ascertainable from the contract – The date on which the payment is liable to be made by the recipient of service
- Where the due date of payment is not ascertainable from the contract, whichever is earlier
- Payment received
- Invoice issued
- Where the payment is linked to the completion of an event – The time of completion of that event
9.6 Cessation of a service
Where the supply of services ceases under a contract before the completion of the supply- The time when the supply ceases.