Model GST Law

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Published Date:05-07-2017
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A n A n a ly s is M o d e l G S T La w Model GST Law AN ANALYSIS 0 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is CONTENTS Preface ....................................................................................................................................................................... 2 Preliminary ................................................................................................................................................................. 3 Levy of, and Exemption From, Tax ..............................................................................................................................10 Time and Value of Supply ..........................................................................................................................................12 Input Tax Credit .........................................................................................................................................................16 Compliances ..............................................................................................................................................................19 Refunds .....................................................................................................................................................................24 Electronic Commerce .................................................................................................................................................26 Assessment and Audit ............................................................................................................................................... 27 Inspection, Search, Seizure, Arrest; Offences & Penalties; Prosecution & Compounding ...........................................28 Appeals & Revision ....................................................................................................................................................32 Advance Ruling ..........................................................................................................................................................34 Settlement of Cases ...................................................................................................................................................35 Other Provisions ........................................................................................................................................................36 Transitional Provisions ............................................................................................................................................... 37 Schedules ..................................................................................................................................................................39 The Integrated Goods and Services Tax Act, 2016 ......................................................................................................40 Glossary of Terms ......................................................................................................................................................43 © E c o n o m ic L a w s P r a c t i c e P a g e 1 A n A n a ly s is M o d e l G S T La w PREFACE Dear Reader, In what is a watershed event on the road to the Goods and Services Tax in India, the Government has released a draft version of the ‘Model GST Law’ into the public domain earlier this week. With this development, while the passage of the GST Constitution (122nd) Amendment Bill during the monsoon session is awaited, industry and other stakeholders will be able to provide their inputs and comments on the draft, which will form the basis for the eventual GST legislations. Spanning nearly 200 pages, comprising the CGST/ SGST Act, GST Our Achievements Valuation (Determination of Value of Supply of Goods and Services) Rules and the IGST Act, the model law has made a laudatory attempt Outstanding Firm for Tax in India - Asialaw to codify the existing indirect tax provisions under Customs law, Profiles 2016 Central Excise law, Service tax law, VAT laws, etc. Notably, some of the Winner of Best Tax Firm in India Award - very latest amendments introduced as recently as in the Union Budget LegalEra Awards 2014 & 2015 2016-17 have found their way into the model law. And, it is also Winner of Taxation Firm of the Year Award - significant that certain new concepts that the GST, by its nature, India Business Law Journal’s Indian Law Firm necessitates, have been introduced (e.g. ‘continuous supply of goods’, Awards 2009 to 2015 ‘business vertical’, ‘recipient’, ‘zero-rated supply’ etc.) and varied Top Tier firm for Tax in India - Chambers Asia- scenarios/ transactions have been envisaged and legislatively Pacific 2011 to 2016 addressed (e.g. taxability of intangibles, taxability of barter, job work, Top Tier firm for Tax in India - The Legal500 transactions in respect of deemed export etc.). Asia-Pacific 2014 to 2016 At the same time, there is some distance to cover in terms of ironing Recommended as a Tier 1 law firm in Mumbai, out the wrinkles in the draft and addressing areas of incompleteness, India - Tax Director’s Handbook 2014 to 2016 as well as absorbing inputs that industry will come to provide, Recommended as a Tier 2 firm in India - World especially where the particularities of a sector warrant special Tax 2013 to 2016 dispensation under the law. Industry must endeavor that an impactful Winner of Best Transfer Pricing Firm in India contribution to the shaping of the GST law is made at this critical Award - World Finance Legal Awards 2014 juncture, so as to transition to a statutory framework that is expected to govern all aspects of the levy (on all transactions) for the foreseeable future. While the Empowered Committee has given its in-principle nod to the present draft of the model law, once the draft is in its final form, the next important challenge will lie in ensuring that States adopt and enact the model law in its fullest form, to ensure uniformity of the levy and its consistent administration, as also the concept of “unified market” that has been central to the proposed GST regime since its inception. We, at ELP, have undertaken an analysis of the various provisions under the model law and we hope you find this analysis informative and useful. Please revert with your comments and questions. Thank you, as always, for your support. Warm Regards, Rohan Shah Managing Partner 2 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is PRELIMINARY S H O RT T I T L E , E X T E N T A N D CO M M E N C E M E N T S E C T I O N 1 The Model Goods and Services Tax Act, 2016 applies to the whole of India and the respective State, as the case may be. Analysis For the first time, the State of Jammu and Kashmir has not been excluded as regards the application of the tax regime that is applicable to the rest of India. D E F I N I T I O N S S E C T I O N 2 Some of the key and new definitions are: Term Definition Analysis address of The address of the recipient of goods and/or services  Definition is now used in the delivery indicated on the tax invoice issued by the taxable person for Model law. Section 2(2) delivery of such goods and / or services.  The “address on record” may be different. aggregate Aggregate value of all taxable and non taxable supplies,  The definition is wide enough to turnover exempt supplies, and export of goods and / or services of a include all the supplies by a Section 2(6) person having the same PAN, but excludes: person whether liable to tax or  taxes paid under GST, if any, exempt.  inward supplies (defined to mean receipt of goods  Such turnover is required to be and/or services whether by purchase, acquisition or computed on pan-India basis for a any other means and whether or not for any PAN. consideration), and  tax paid under reverse charge basis. turnover in a “turnover in a State” means the aggregate value of all  The definition is wide enough to State Section taxable and non-taxable supplies, including exempt supplies include all the supplies by a 2(104) and exports of goods and / or services made within a State person within the State and inter- by a taxable person and inter-state supplies of goods and / state supplies. or services made from the State by the said taxable person excluding taxes, if any charged under the CGST Act, SGST Act and the IGST Act, as the case may be. business Includes:  While the definition of ‘business’ Section  any trade, commerce, manufacture, profession, does not exist in the present 2(17) vocation or any other similar activity, whether or not it Excise / Service tax Law, the same is for a pecuniary benefit, has been defined under the CST  any transaction in connection with or incidental or Act / State VAT legislations. ancillary thereto  The Model law appears to have  any transaction in the nature specified above, borrowed the term from the whether or not there is volume, frequency, latter. This definition assumes continuity or regularity of such transaction. significance as the proposed levy  supply or acquisition of goods including capital assets is qua activities undertaken in the and services in connection with commencement or course or furtherance of business. closure of business,  Profession and vocation has also  provision by a club, association, society, or any such now been included within the body (for a subscription or any other consideration) of definition of business. the facilities or benefits to its members as the case may be,  admission, for a consideration, of persons to any premises, and © E c o n o m ic L a w s P r a c t i c e P a g e 3 A n A n a ly s is M o d e l G S T La w Term Definition Analysis  services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation. business The term ‘business vertical’ shall have the meaning assigned  The AS-17 prescribes principles vertical to a ‘business segment’ in the AS-17 issued by the Institute for segmental reporting in the Section of Chartered Accountants of India. financial information for different 2(18) types of products and services that an enterprise produces. The said AS defined ‘business segment’ to mean a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. The said AS further provides factors that should be considered in determining whether products or services are related.  This definition is relevant since there may be separate registrations for different business verticals.  This definition is also relevant in respect of input service distribution. capital goods The definition of ‘capital goods’ under the Model law is Section similar to the definition under Rule 2(a) of the CCR. 2(20) composite Means a supply consisting of –  This is a new concept that has supply  Two or more goods; been introduced, which inter alia Section  Two or more services; or includes any combination of 2(27)  A combination of goods and services. supplies of two or more goods Provided in the course of furtherance of business, whether and / or services. or not the same can be segregated  Relevance: Goods or services combined but bearing differential rates  No usage of the definition in present draft  This provision is silent in respect of transactions which include immovable property. In a recent decision of the Hon’ble Delhi High Court Suresh Kumar Bansal & Others vs. Union of India & Others, Judgement dated 03-06- 2016 in W.P. (C) 2235/2011 and W.P. (C) 2971/2011, it was held that there is no effective machinery provision to tax the service element in composite construction services, as the valuation provisions in their 4 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is Term Definition Analysis present form refer to exclusion of goods from the value of composite contracts to arrive at the services value, but do not contain any provisions to exclude the value of immovable property while arriving at the value of services in a composite contract having elements of transfer of goods/immovable property and provision of services. Consideration The term ‘consideration’ has been defined to include:  Deposits whether refundable or Section  any payment made or to be made, whether in money not will not be treated as 2(28) or otherwise, consideration till the time such  the monetary value of any act or forbearance, whether deposit is appropriated towards or not voluntary, in respect of, in response to, or for the consideration for supply by the inducement of, the supply of goods and/or services, supplier. whether by the person or by any other person.  Payment made “otherwise” than A deposit, whether refundable or not, given in respect of in money would also constitute the supply of goods and/or services shall not be considered consideration. as payment made for the supply unless the supplier applies the deposit as consideration for the supply. continuous A supply of goods on a continuously or on recurrent basis This phrase has been defined for the supply of under a contract whether or not, by means of a wire, cable, first time. goods pipelines or other conduit the supplier issue invoices on Section regular or periodic basis. 2(30) deemed ‘Deemed exports’ as notified by the Central Government / The definition of ‘deemed exports’ has exports State Government on the recommendation of the GST been incorporated from the Foreign Section Council, refer to transactions: Trade Policy 2015-2020. 2(37)  Where goods supplied do not leave India, and  Payment for such supplies is received either in Indian Rupees, or in convertible foreign exchange. goods Means every kind of movable property other than This definition is identical to the Section actionable claim and money, and includes securities, definition of ‘goods’ contained in 2(48) growing crops, grass and things attached to or forming part Section 2(7) of the Sales of Goods Act, of the land which are agreed to be severed before supply or 1930. under the contract of supply. For the purpose of this clause, the term ‘movable property’ Also by way of explanation, it has been shall not include any intangible property. clarified that intangible properties will not fall under the category of goods. Inputs Means any goods other than capital goods, subject to This definition provides that the goods Section exceptions as may be prescribed, used or intended to be are to be actually used for the purpose 2(54) used by a supplier for making an outward supply In the of outward supply or are intended to course or furtherance of business. be used for the purpose of outward supply to qualify as inputs. Further, similar to the present exclusion in the inputs as defined under Rule 2(l) of CCR, once a good qualifies as capital goods, it will not be considered as inputs. The requirement that inputs be used at the place of business has not been specified under the above definition. No exceptions have been prescribed © E c o n o m ic L a w s P r a c t i c e P a g e 5 A n A n a ly s is M o d e l G S T La w Term Definition Analysis as yet. market value Means full amount which a recipient of a supply is required This definition has been adopted from Section to pay in order to obtain the goods and/or services of like certain State VAT legislations. 2(67) kind and quality at or about the same time, and at the same commercial level where the recipient and the supplier are not related. place of Includes: Hitherto, place of business was not business  a place from where the business is ordinarily carried defined. The definition broadly Section on, and includes a warehouse, a godown or any other borrows from the definition of ‘place 2(75) place where a taxable person stores his goods, provides of removal’ under the CE Act, while or receives goods and/or services; or expanding the same to include a place  a place where a taxable person maintains his books of where a person maintains his books of account; or account.  a place where a taxable person is engaged in business through an agent, by whatever name called. Recipient ‘Recipient of supply of goods and/or services’ has been The term recipient has been defined (Section defined to mean: for the first time. In the past there 2(80)  where a consideration is payable for the supply of have been issues as regards who goods and/or services, the person who is liable to pay would be considered to be the service that consideration, recipient where the beneficiary of  where no consideration is payable for the supply of services differs from the person goods, the person to whom the goods are delivered or making payment for such services. made available, or to whom possession or use of the This definition puts to rest these goods is given or made available, and issues, and is in line with the  where no consideration is payable for the supply of a judgements of the CESTAT in the cases service, the person to whom the service is rendered, of Paul Merchants Ltd. v. CCE, and any reference to a person to whom a supply is made Chandigarh 2013 (29) S.T.R. 257 (Tri. - shall be construed as a reference to the recipient of the Del.), GAP International Sourcing supply; (India) Pvt. Ltd. v. CST, Delhi TS-61- Explanation.- The expression “recipient” shall also include Tribunal-2014-ST and Vodafone Essar an agent acting as such on behalf of the recipient in relation Cellular Ltd. vs. CCE, Pune-III 2013 to the goods and/or services supplied. (31) STR 738 (Tri-Mum). related Persons shall be deemed to be ‘related persons’ only if: This definition has been adopted from persons  they are officers or directors of one another’s the Customs Valuation Rules. The only Section businesses, modification appears to be that under 2(82)  they are legally recognized partners in business, the Customs Valuation Rules persons  they are employer and employee, who are associated in the business of  any person directly or indirectly owns, controls or holds one another where one is the sole five per cent or more of the outstanding voting stock or agent or sole distributor or sole shares of both of them, concessionaire, have to meet one of  one of them directly or indirectly controls the other, the eight specified criteria to qualify as  both of them are directly or indirectly controlled by a being ‘related’; however, under the third person, Model law persons associated in the  together they directly or indirectly control a third business of one another shall qualify person, as ‘related persons’ merely by virtue  they are members of the same family. of being the sole agent or sole It is clarified that (i) the term ‘person’ also includes legal distributor or sole concessionaire. persons; and (ii) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other shall be deemed to be related. reverse Means the liability to pay tax by the person receiving goods This term has been defined for the charge and/or services instead of the person supplying the goods first time. Section and/or services in respect of such categories of supplies as 2(85) the Central or a State Government may, on the recommendation of the Council, by notification, specify. 6 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is Term Definition Analysis Services ‘Services’ has been defined to mean anything other than Whether a transaction in intangible Section goods. Explanation to the definition provides that services property constitutes goods or services 2(88) include transactions in intangible property and actionable has been a recurring issue under the claim but does not include money. present indirect tax law. The Model law leaves no scope for such disputes, since the definition of ‘goods’ expressly excludes, and the definition of ‘service’s expressly includes, ‘intangible property’. ‘Intangible property’ is defined to mean any property other than tangible property, and ‘tangible property’ has been defined to mean any property that can be touched or felt. works Means an agreement for carrying out for cash, deferred The definition has been adopted from contract payment or other valuable consideration, building, State VAT enactments. Section construction, fabrication, erection, installation, fitting out, 2(107) improvement, modification, repair, renovation or commissioning of any moveable or immovable property. zero-rated Refers to a supply of any goods and/or services on which no This term has been defined for the supply tax is payable but credit of the input tax related to that first time. Section supply is admissible. It is clarified that exports shall be 2(109) treated as zero-rated supply. M EA N I N G A N D S CO P E O F ‘ S U P P LY ’ S EC T I O N 3 Supply of Goods and/or services to include:  all forms of supply of goods/ services such as sale, transfer, barter, exchange, license, rental, lease or disposal, for consideration  importation of services whether or not for a consideration, and whether or not in the course or furtherance of business  supplies specified in Schedule I, made or agreed to be made without consideration, viz.  Permanent transfer/disposal of business assets  Temporary application of business assets to a private or non-business use  Services put to a private or non-business use  Assets retained after deregistration  Supply of goods and/ or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business  supply of goods by a registered taxable person to a job-worker not to be treated as supply of goods  Schedule II is to be applied for determining ‘what is or is to be treated as a supply of goods or services’. Particulars of Nature of Transactions To be Treated as Supply Supply of Transfer Title in goods. Goods Goods or of right in goods or of undivided share in goods without the transfer Services of title thereof. Title in goods under an agreement which stipulates that property in goods Goods will pass at a future date upon payment of full consideration as agreed. Transfer of Where goods forming part of the assets of a business are transferred or Goods business assets disposed of by or under the directions of the person carrying on the business, whether or not for a consideration. © E c o n o m ic L a w s P r a c t i c e P a g e 7 A n A n a ly s is M o d e l G S T La w Particulars of Nature of Transactions To be Treated as Supply Supply of Goods held or used for the purposes of the business are put to any private use Services 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. Where any goods, forming part of the business assets of a taxable person, are Goods sold by any other person to recover any debt owed by the taxable person. Where a person ceases to be a taxable person, any goods forming part of the Goods 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, unless—  the business is transferred as a going concern to another person; or  the business is carried on by a personal representative who is deemed to be a taxable person. Land and Any lease, tenancy, easement, licence to occupy land. Services Building Any lease or letting out of the building including a commercial, industrial or Services residential complex for business or commerce, either wholly or partly. Treatment or Any treatment or process which is being applied to another person’s goods. Services process Declared list of Similar to clause 66E of the Finance Act, except for clause (j) of 66E Services services introduced w.e.f 14.05.2016 stating that, assignment by the government of the right to use the radio frequency spectrum and subsequent transfer thereof. By Any supply of goods for cash, deferred payment or other valuable Goods unincorporated consideration. association or body of person to its members  Where a person, acting as an agent, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.  Subject to the provisions of Schedule II, the Central or a State Government may, upon recommendation of the Council, specify by notification, the transactions that are to be treated as—  a supply of goods and not as a supply of services; or  a supply of services and not as a supply of goods; or  neither a supply of goods nor a supply of services.  The supply of any branded service by an aggregator under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator. Analysis  This is a critical provision which sets out the scope of transactions that qualify as supplies liable to tax under the GST regime (under Section 7 - charging Section).  To fall within the scope of Section 3, all forms of supply in course or furtherance of business, require consideration for it. The exceptions, i.e. where consideration is not required for tax to apply are:  Supplies specified under Schedule I  Import of services, whether or not in the course or furtherance of business.  Aggregators are liable for payment of tax on the services rendered under the brand / trade name of the aggregator, by suppliers to potential customers who are connected on the electronic platform owned and managed by such aggregator. 8 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is  This provision was also included under the Service Tax Rules, 1994 w.e.f. 1-3-2015, so as to bring to tax the amounts paid for the services provided under the brand/ trade name of the aggregator.  Schedule I  A computer, company car, when put to non-business use would be covered under the schedule. Similarly, any services provided by the company for private or non-business use, for which no consideration is received, will be treated as supply.  The assets retained after deregistration of the company under GST regime, would be considered as supply.  Supply of goods / service by a taxable person to another taxable or non-taxable person in course of business, is treated as supply. The supply of goods / service to self i.e. inter-unit supply or branch transfers will not be considered as supply. However, free of cost supplies, such as a supply of physician samples, distribution of goods for sales promotion, etc. will be considered supplies.  Schedule II  Schedule II demarcates supply of goods and supply of services. This will hopefully put to rest some of the current tax issues involving dual levy of Service tax and VAT on certain transactions. © E c o n o m ic L a w s P r a c t i c e P a g e 9 A n A n a ly s is M o d e l G S T La w LEVY OF, AND EXEMPTION FROM, TAX C H A RG I N G P ROV I S I O N S E C T I O N 7 CGST and SGST will be levied and collected on all ‘intra-state supplies’ of goods and/ or services at the specified rate. CGST/ SGST will be paid by the ‘taxable person’. For certain notified categories of goods/ services, per the recommendation of the GST Council, the tax will be payable on reverse charge basis. Analysis  The charging provision levies CGST/ SGST on all ‘intra-State supplies’; however, this term is undefined under the CGST/ SGST Act and instead is defined in the IGST Act.  Importantly, the rate of GST continues to remain a mystery.  The reverse charge mechanism, which shifts the liability to discharge tax to the recipient, has been extended to supplies of goods, unlike the existing regime where the reverse charge only extends to services. ELP Comments The reverse charge mechanism for goods marks an important deviation, whereby businesses may be required to discharge a levy akin to the ‘purchase tax’ imposed by certain States under the extant VAT laws. TA X A B L E P E RS O N S E C T I O N 9 Taxable person has been defined to mean a person carrying on any business at any place in India/ State of India who is registered or required to be registered for CGST/ SGST, subject to the following exclusions:  Person with an aggregate turnover equal to or less than INR 10,00,000 in a financial year (INR 5,00,000 for NE States including Sikkim).  Government or local authorities to be considered a ‘taxable person’ qua activities or transactions carried out by them as public authorities subject to specified exceptions under Schedule IV.  Services provided by an employee to the employer in the course of/ in relation to employment, or by any other ties creating a relationship of employer and employee as regards working conditions, remunerations and employer’s liability.  Persons engaged in the business of exclusively supplying goods and/or services that are not liable to CGST/ SGST.  Persons receiving services of value not exceeding an annual threshold (to be specified) for personal use, other than for use in the course of furtherance of business. Analysis  The exclusion for services provided by an employee to employer, which was previously under the definition of ‘service’, now finds place under the concept of ‘taxable person’.  Various other exclusions from the requirement to register, such as the threshold exemption and exemptions for persons engaged solely in non-taxable activity, have been continued under the concept of ‘taxable person’. 10 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is P O W E R TO G R A N T E X E M P T I O N F R O M TA X S EC T I O N 1 0  The Central/ State Governments are empowered to grant exemptions from CGST/ SGST by way of issuance of notification (or by special order in circumstances of an exceptional nature), on the recommendation of the GST Council.  Where exemptions are granted absolutely, no tax shall be paid on such goods/ services.  For the purpose of clarifying the scope or applicability of any notification, an explanation may be inserted within one year of issuance of the notification, which will have effect as if it had always been part of the said notification. Analysis  The mandate under Section 5A of the CE Act has been extended to this law to ensure that no tax is collected and paid on certain goods/ services enjoying absolute exemption (i.e. such exemptions will have to be compulsorily availed).  The power to insert an Explanation within one year of issuance of a Notification, which would apply ab initio, runs counter to the law declared by the Supreme Court in Union of India vs. Martin Lottery Agencies Ltd. 2009 (14) S.T.R. 593 (S.C.) and SEDCO Forex International Drill Inc. vs. Commissioner of Income Tax (2005) 12 SCC 717, which is to the effect that an Explanation does not automatically take effect retrospectively even if it is stated to be “for the removal of doubts”. On the contrary, where an Explanation effects a substantive alteration of the provision, it can only apply prospectively. This amendment has similarly been enacted vide the Finance Act, 2016. © E c o n o m ic L a w s P r a c t i c e P a g e 11 A n A n a ly s is M o d e l G S T La w TIME AND VALUE OF SUPPLY T I M E O F S U P P LY S E C T I O N S 1 2 & 1 3 Time of supply is to be the earliest of the following: Category Goods Services Forward charge  Date of removal of goods / making  Date of issuance of invoice available the goods to the buyer (where  Date of receipt of payment not required to be removed)  Date of completion of service (if invoice  Date of issuance of invoice not issued within prescribed period)  Date of receipt of payment  Date on which recipient shows receipt of  Date on which recipient shows receipt of service in books of account (where there goods in books of account is no invoice or payment) Reverse charge  Date of receipt of goods  Date of receipt of services  Date of receipt of invoice  Date or receipt of invoice  Date of making payment  Date of making payment  Date of debit in the books of accounts  Date of debit in the books of accounts For the following cases the time of supply is as specified: Scenario Goods Services Continuous supply  Where successive statements of  Where due date of payment is accounts/ payments are involved - date ascertainable from the contract – date on of expiry of period to which such which payment is liable to be made by statements relate recipient, whether or not invoice issued  Where no such statements of account or payment received by supplier are involved – date of issuance of invoice  Where due date of payment is not or receipt of payment, whichever is ascertainable from the contract – each earlier time when the supplier receives payment or issues an invoice, whichever is earlier  Where payment is linked to completion of an event – time of completion of event Specific scenarios  Where it is not possible to determine  Where supply of services ceases under a when the supply will take place (e.g. sale contract before the completion of the on approval basis) – when it becomes supply – when the supply ceases known that the supply has taken place or, 6 months from date of removal, whichever is earlier Residuary  Where a periodical return is to be filed, the date on which such return is to be filed  In any other case, the date on which CGST/ SGST is paid Note: In all the above cases, receiving/ making payment refers to the date on which the payment is entered into books of account or date on which payment is credited/ debited to bank account, whichever is earlier. C H A N G E I N R AT E O F TA X FO R S E RV I C ES S EC T I O N 1 4 The existing Rule 4 of the POT Rules is incorporated in the model law. For the purpose of this Section, the date of receipt of payment is the date of credit in the bank account if such credit occurs after 4 working days from the date of change in effective rate of tax. Analysis It is important to note that the aforesaid provision applies only to services. Hence, qua goods, it appears that scenarios of rate change will fall under the default provision for time of supply of goods, viz. Section 12. 12 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is VA LU E O F TA X A B L E S U P P LY S E C T I O N 1 5  The value of a supply of goods and/or services will be the ‘transaction value’, i.e. price actually paid or payable for the said supply of goods and/or services, subject to the condition that:  the supplier and recipient of the supply are not related; and  the price is the sole consideration for the supply.  Specific inclusions which shall form part of the ‘transaction value’:  any amount the supplier is liable to pay but which has been incurred by the recipient of the supply, to the extent not already included;  the value, apportioned as appropriate, of goods and/or services supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued, to the extent not already included;  royalties and license fees related to the supply of goods and/or services being valued that the recipient of supply must pay, either directly or indirectly, as a condition of the said supply, to the extent not already included;  any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act  incidental expenses such as commission, packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods/ services;  subsidies provided in any form or manner, linked to the supply;  any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and/ or services;  any discount or incentive that may be allowed after the supply has been effected.  Specific exclusions from ‘transaction value’:  any discount allowed before or at the time of supply, provided such discount is allowed in the course of normal trade practice and has been duly recorded in the invoice issued in respect of the supply;  Post-supply discount which is established as per the agreement and is known at or before the time of supply and specifically linked to the relevant invoices; Analysis  Valuation for goods and services is pegged to transaction value, which concept has been taken from the existing provisions under the Customs/ Central Excise laws. Further, the specific inclusions are largely aligned with Rule 10 of the Customs Valuation Rules.  The requirement that pre-supply discounts should be reflected in the invoice is currently envisaged under various VAT statutes.  As regards reimbursable expenditure or cost being included in the transaction value, this is in line with the recent amendment to Section 67 of the Finance Act. ELP Comments Service providers, who were hitherto taxable on the basis of ‘gross amount’, will, under the GST regime, be subjected to tax on the ‘transaction value’ concept; which concepts are un-tested in the context of rendition of services. © E c o n o m ic L a w s P r a c t i c e P a g e 13 A n A n a ly s is M o d e l G S T La w G ST VA LUAT I O N ( D E T E R M I N AT I O N O F T H E VA LU E O F S U P P LY O F G OO D S A N D S E RV I C E S ) R U L E S , 20 1 6  Value of goods and /or services would be the “transaction value” viz. the value of goods and/or services within the meaning of Section 15 of the CGST Act.  The transaction value is to be determined in monetary terms.  In cases where the supply consists of both taxable and non-taxable supply, the monetary consideration attributable to the taxable supply will constitute the transaction value.  Transaction value shall be accepted even where the supplier and recipient of supply are related, provided that the relationship has not influenced the price.  Value of goods transferred from one place of business to another place of the same business and from the principal to an agent or from an agent to the principal whether or not situated in the same State shall be the transaction value.  The value of supplies in cases prescribed under Section 15(4) shall be determined by proceeding sequentially through Rules 4 to 6 which have been summated below: Rule Determination of Value Determination of value of supply The value shall be determined on the basis of the transaction value of goods by comparison – Rule 4 and/or services of “like kind and quality” supplied at or about the same time to other customers, adjusted taking into consideration the relevant factors, including- a) difference in the dates of supply, b) difference in commercial levels and quantity levels, c) difference in composition, quality and design between the goods and/or services being valued and the goods and/or services with which they are compared, d) difference in freight and insurance charges depending on the place of supply. Computed value method – Rule 5 Value shall be based on a computed value which shall include the following:- a) the cost of production, manufacture or processing of the goods or, the cost of provision of the services; b) charges, if any, for the design or brand; c) an amount towards profit and general expenses equal to that usually reflected in supply of goods and/or services of the same class or kind as the goods and/or services being valued which are made by other suppliers. Residual method - Rule 6 The value shall be determined using reasonable means consistent with the principles and general provisions of these rules.  Rejection of declared value Rule 7 - The proper officer may query the truth or accuracy of the value declared in relation to any goods and/or services and after providing an opportunity to the supplier, may proceed to determine the value afresh in accordance with the provisions of Rule 4, 5 or 6 proceeding sequentially.  Rule 8 deals with valuation in case of pure agents and money changers. Analysis  These rules are largely based on Customs Valuation Rules, 2007 and provide for determining value on the basis of comparison with like goods/services, computed method, and, rejection of declared value.  The Rules do not include any special valuation mechanisms, such as composition schemes for hotels and restaurants and insurance services.  No specific valuation provisions have been prescribed in respect of transactions in the nature of barter/exchange which are treated as taxable supplies. 14 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is  The pure agent conditions and valuation mechanism for money changes is identical as existing under the Service tax legislation. ELP Comments  Currently, a number of products are covered under MRP based assessment under Section 4A of CE Act. These products will now be taxed on their transaction value.  Under the present indirect tax regime, varied valuation mechanisms are prescribed. With the above Rules, the valuation processes places far greater onus on the supplier. © E c o n o m ic L a w s P r a c t i c e P a g e 15 A n A n a ly s is M o d e l G S T La w INPUT TAX CREDIT M A N N E R O F TA K I N G I N P U T TA X C R E D I T ( S EC T I O N 1 6 ) Every registered taxable person shall be entitled to take credit of input tax admissible to him, subject to such conditions as may be prescribed. The key aspects in this regard are set out below:  Timelines:  Credit in respect of any invoice pertaining to a financial year can be taken only up to: ­ the filing of return for the month of September following the said financial year; or ­ filing of the relevant annual return whichever is earlier  Conditions:  Possession of a tax invoice, or other tax-paying document issued by a supplier  Goods / services have been received or deemed to be received by the registered taxable person  Tax charged in respect of said supplies has been actually paid to the credit of the appropriate Government  Return has been furnished by the registered taxable person  Credit for goods against an invoice, which are received in lots or installments can be taken only upon receipt of the last lot or installment  Restrictions: Particulars Restrictions Goods or services used partly for Credit shall be restricted to input tax attributable to the purposes of business, business and partly for non-taxable in the manner as may be prescribed by notification. Restriction does not apply / exempted / other purposes to credits pertaining to zero-rated supplies Credit not available in respect of motor vehicles, except when supplied in the Motor vehicles usual course of business or are used to provide taxable services viz., transportation of passengers, transportation of goods and imparting training on motor driving skills Credit not available in respect of: Goods / services used for personal - goods or services (such as outdoor catering, beauty treatment, health consumption services, membership of a club, life and health insurance etc), when used primarily for personal use or consumption of any employee - goods or services used for private or personal consumption Credit not available in respect of: Works contract resulting in - Goods / services acquired by a principal in the execution of works contract immovable property (other than resulting in the construction of an immovable property plant and machinery) - Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, used in the construction of immovable property - Credit not admissible on such tax component of the cost of capital goods, Capital Goods for which depreciation has been claimed under the Income Tax Act, 1961 - In case of supply of capital goods on which input tax credit has been taken, payment is required to be made for an amount equal to input tax credit reduced by percentage as may be specified or tax on the transaction value of such capital goods, whichever is higher 16 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is Particulars Restrictions Credit is not available on procurement of goods / services, on which tax has Goods / services suffering been paid under composition scheme as per Section 8 composition levy I N P U T TA X C R E D I T I N R E S P E C T O F I N P U T S / C A P I TA L G OO D S S E N T FO R J O B W O R K ( S EC T I O N 1 6 A )  Principal shall be be entitled to take credit of input tax on inputs / capital goods sent to a job-worker (either by principal or directly), if the said inputs / capital goods, after completion of job-work, are received back by the principal:  within 180 days in case of inputs  within 2 years in case of capital goods  In case inputs / capital goods are not received in the aforesaid time frame, credit shall be reversed (along with interest), which can be re-claimed at the time when inputs / capital goods are received back. M A N N E R O F D I ST R I B U T I O N O F C R E D I T ( S EC T I O N 1 7 )  Input service distributor may distribute the credits by way of prescribed document in the following manner: Nature of input Credit may be Situation tax distributed as CGST or IGST Where the distributor and the recipient of credit are located in the different States SGST or IGST CGST or CGST Where the distributor and the recipient of credit, being a business vertical, are IGST located in the same State SGST or SGST IGST  Distribution of credits by an input service distributor is subject to the following key conditions:  Credit of input services attributable to a supplier shall be distributed only to that supplier  Credit of input services attributable to more than one supplier shall be distributed on pro-rata basis amongst such supplier(s) to whom the input service is attributable O R D E R O F U T I L I Z AT I O N ( S E C T I O N 3 5 )  Amount of credit available with the taxable person shall be credited to his ‘electronic credit ledger’ and is permitted to be utilized in the following order: Particulars Order of Utilization of ITC IGST - IGST - CGST - SGST CGST - CGST - IGST SGST - SGST - IGST © E c o n o m ic L a w s P r a c t i c e P a g e 17 A n A n a ly s is M o d e l G S T La w  Input tax credit of CGST shall not be utilized towards payment of SGST and similarly input tax credit of SGST shall not be utilized towards payment of CGST. Analysis  The amalgam of existing CENVAT Credit and State VAT laws would ensure greater availability of credits since deficiencies existing in the contemporary Central laws, such as reversal with respect to trading of goods or the State VAT laws, such as retention of credit pertaining to inter-state branch transfer of goods, will be eliminated.  Condition of “receipt of services” for availment of credit is a departure from the present CENVAT Credit provisions which, for input services, allows availment of credit on the basis of “receipt of invoice / bill”.  Credit continues to be restricted for non-taxable and exempted services except in case of exports.  Outer timelines for availment credit continue to exist under the model law, with certain modifications as compared to the present scheme. The present CENVAT Credit provisions prescribe a time limit of one year from the date of tax invoice and the State VAT laws of certain States (such as Maharashtra) require setting off of input tax credits in the same financial year.  Credit records have to be maintained on a electronic register (which appears will be facilitated by the GSTN).  Various important aspects of existing CENVAT credits / VAT credit laws such as, credit on capital goods on 50:50 basis, sector specific provisions such as banking sector / financial sector, negative list / retention items under the State VAT laws, etc. are presently absent in the model law. ELP Comments The model law prescribes onerous condition for availability of credits only when tax has been actually paid into the coffers of the respective Government. Imposing such a condition is a clear departure from the present practice under the Central laws and seeks to follow the scheme provided under the certain State VAT laws. 18 P a g e © E c o n o m ic L a w s P r a c t i c e M o d e l G S T L a w A n A n a ly s is COMPLIANCES R EG I ST R AT I O N S EC T I O N 1 9 – 2 2  The threshold limit for registration has been prescribed to be INR 9 lakhs. A reduced threshold limit of INR 4 lakhs has been prescribed for North Eastern States including Sikkim. This limit includes all supplies, whether on own account or on behalf of principal, except supplies in the capacity of a registered job-worker, which shall be treated as supplies by the principal. The said threshold is to be computed on an all India basis.  A person shall not be liable to registration if his aggregate turnover consists of only goods and / or services which are not liable to tax.  A person having multiple business verticals in a State may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed.  A person, though not liable, may get himself registered voluntarily.  Every person shall have a Permanent Account Number issued under the Income Tax Act, 1961, in order to be eligible for grant of registration.  The following categories of persons shall be mandatorily required to obtain registration, irrespective of the threshold limit-  persons making any inter-State taxable supply;  casual taxable persons;  persons who are required to pay tax under reverse charge;  non-resident taxable persons;  persons who are required to deduct tax under section 37;  persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise;  input service distributor;  persons who supply goods and/or services, other than branded services, through electronic commerce operator;  every electronic commerce operator;  an aggregator who supplies services under his brand name or his trade name;  Such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council.  If a person, other than an Input Service Distributor, is already registered under an earlier law, it shall not be necessary for him to apply for fresh registration and he shall follow the procedure as may be prescribed in this regard.  A causal taxable person or a non resident taxable person shall, at the time of submission of application for registration, make an advance deposit of tax of an amount equivalent to the estimated tax liability for the period for which the registration is sought. The certificate of registration issued to such class of persons shall be valid for a period of 90 days, which may be extended upto 90 days.  Powers have been provided for cancellation of registration if the assessee contravenes the provisions or obtains the registration by fraudulent means. However, such cancellation may be revoked, in terms of the prescribed procedure. Analysis  The concept of a single/centralised registration for multiple places of business has not been provided. © E c o n o m ic L a w s P r a c t i c e P a g e 19