The Draft Model of the Goods and Service Tax Law has been framed with an approach to resolve the current tax issues faced by various industries. It is an attempt to bring harmony in tax laws across states with the objective of contributing to the growth story of the Indian economy. This is to align with the aim of the government to create an industry friendly environment for ‘Make in India’ vision. Thus, this potentially means the end of a ‘State war’ and intensifies the ‘Global war’.

Partner Amit Kumar Sarkar Find out more

Introduction

Draft Model Goods and Services Tax Laws (referred as Model GST Law) comprise of following:

  • Model Goods and Services Tax Act, 2016
  • The Integrated Goods and Services Tax Act, 2016 along with schedules; and
  • GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016

Below is a part-wise synopsis/analysis of the model laws along with our view on certain key aspects:

Draft Central/State Goods and Services Tax Act, 2016

Central Goods and Services Tax (‘CGST’) and State Goods and Services Tax (‘SGST’) Act would extend to the entire country (and respective state in case of SGST) from a notified date.

Grant Thornton comment: The model law proposed to extend to the state of Jammu and Kashmir

Key definitions:

  • Business: To include trade, commerce, manufacture, profession etc. or similar activity whether or not for a pecuniary benefit and whether or not there is a volume, frequency, continuity of such transaction
  • Composite supply: Supply consisting of two or more goods/ services or a combination of both provided in the course of furtherance of business, whether or not the same can be segregated
  • Deemed Exports: To be notified by Central/Sate Government, to cover transactions in which goods do not leave India
  • Goods: To include every kind of movable property other than actionable claim and money. Moveable property to specifically exclude intangible property
  • Intangible property: Any property other than tangible property
  • Output tax: Output tax to exclude tax payable on reverse charge basis
  • Outward Supply: To exclude supplies where tax is payable under reverse charge basis;
  • Services: Anything other than goods. Further services to include intangible property and actionable claim but does not include money
  • Works Contract: To include building, construction, fabrication, installation, improvement, repair, etc. of any immovable or movable property
  • Zero rated supply: Means a supply of any goods and/or services on which no tax is payable but credit of the input tax related to that supply is admissible. Exports shall be treated as zero-rated supply

Other key highlights:

  • Supply of goods and/ or services to include:
    • Sale, Transfer, Barter, Exchange, License, Rental, Lease or disposal and importation of services
    • transactions specified in schedule I like permanent transfer/disposal of business assets, temporary application of business assets etc. made/agreed to be made without consideration

Complex transactions in relation to transfer, land and building, treatment or process, transfer of business asset have been clarified under schedule II for determining the supply of goods or services

Grant Thornton comment: Key classification issues for works contract, lease, software etc. has been put to rest

Levy, collection and exemption from tax:

  • CGST/SGST on all intra-state supplies of goods and/or services
  • Tax shall be levied on reverse charge basis on supply of certain specified services and goods which are to be notified
  • Compounded lower rate of tax proposed to be prescribed for registered taxable persons having turnover upto INR 50 lacs with conditions
Grant Thornton comment: Entry for consideration/cost to religious places may be taxed

Time of supply

  • Time of supply of goods and services will be determined on independent parameters
  • Due Date of filing of returns or payment of CGST/SGST will be the time of supply if not determinable as per prescribed rules
  • Time of supply of goods under the reverse charge mechanism has also been defined

Value of supply

  • Value of supply shall be the transaction value and includes the amount which has been incurred by the receiver, re-imbursements, free of charge supplies, royalties/license fees as condition of sale, incidental expenses, subsidies linked to supply, discount after supply and all taxes other than GST levies
  • Value of supply shall be determined as per the prescribed rules in cases where consideration is not in money, supplier/recipient are related, pure agent, other notified supplies

Input tax credit

Admissible input tax credit (used to the extent of business) shall be used to offset output tax liability:

  • Input tax credit to be utilised in the following chronological order:

IGST

CGST

SGST

IGST*

CGST

SGST

CGST

IGST

IGST

SGST

 

 

*IGST = Integrated Goods and Services Tax as explained below

  • Supplies and services ineligible for input tax credit includes motor vehicle, personal use, works contract which result in immovable property etc.
  • Restriction to claim input tax credit within one year from the date of invoice
  • Principal allowed to take credit of goods sent to the job-worker
  • Input service distributor can distribute credit in following manner:
    • Interstate distribution of credit can be done by way of IGST
    • Intrastate state distribution of credit (including IGST) can be done by way of CGST/SGST
  • Registered taxable person shall be entitled to take credit of self-assessed input tax as reflected in the returns. Such amount would be credited on a provisional basis to the electronic credit ledger

Transitional provisions

  • Provisional registration will be granted on the appointed date with a validity of six months; final certificate shall be issued on furnishing prescribed documents within a period of six months
  • Eligible CENVAT credit/input VAT credit would  be transitioned to GST regime
  • Continuing works/construction contracts would be transitioned in the GST regime based on the date of supply of goods / materials
  • Pending litigation / refund claims would be adjudicated under the respective pre-GST legislation(s)
  • Specific transition provisions for unavailed CENVAT credit, persons availing GST composition scheme, inputs/finished goods received from job worker in the GST regime, ISD credit distribution, stock transfers
  • In respect of upward revision in price of a pre-GST contract, supplementary documents like invoice, debit/ credit note to be issued within 30 days would be deemed to be a supply under GST regime

Registration

  • Permanent Account number (PAN) based registration; mandatory for existing registered persons
  • Supplier to take registration in the state from where the taxable supply of goods and/or services is made
  • Registration to be taken within 30 days from the date on which a person becomes liable
  • Mandatory registration for identified persons like persons making interstate supplies, liable under reverse charge mechanism, input service distributor, E-commerce operators, etc.
  • Separate registration is permissible for different verticals of a single business within a State
  • Option of voluntary registration is available
  • Threshold for registration and tax payment:
Location of persons conducting business For registration (INR) For payment of tax (INR)
In North Eastern states (including Sikkim) 4 lacs 5 lacs
In states other than North Eastern states 9 lacs 10 lacs

Tax Invoice

  • Tax invoice with specific particulars to be issued for supply of taxable goods and/or services
  • ‘Bill of supply’ to be issued for supply of non taxable goods and/ or services or under composition

Accounts and records

  • Certificate of registration, books of account and similar records to be maintained at respective locations
  • Books of accounts and records may be maintained in electronic format
  • Records to be retained for a period of 60 months from the last date of filing annual return

Annual return and Audit report

  • Annual return to be furnished electronically by 31 December following the end of every financial year;
  • Exceptions to filing Annual Return: input service distributor, person liable to withhold tax at source, casual taxable person, non-resident taxable person
  • Audit by a Chartered Accountant/ Cost Accountant in case turnover exceeds the prescribed limit
  • Electronic submission of Audit report with Annual return, annual accounts, reconciliation statement

Returns

Information/ Returns to be submitted

Due date of submission

Details of Outward supplies*

10 days from close of tax period

Details of Inward supplies*

15 days from close of tax period

Consolidated monthly electronic return (except Composition levy)

20 days after end of every month

Quarterly electronic return by persons opting for Composition levy

18 days after end of every quarter

Monthly electronic return by person withholding tax at source

10 days after end of every month

Monthly electronic return by Input Service Distributor

13 days after end of every month

Tax payments

By respective due date of filing returns

* Not applicable for Input Service Distributor, persons opting for Composition levy and person responsible for withholding tax at source

  •  Details of inward supplies furnished electronically by the recipient would be matched with the details of outward supplies and additional customs duty paid by the corresponding taxable person;
  • Discrepancies identified would be communicated to the supplier and recipient; specific discrepancies not rectified by the supplier result in tax and interest payment by the recipient
  • Subsequent to correction made by the supplier would entitle the recipient to receive credit with interest

 Tax payments and tax deduction at source (TDS)

  • TDS @ 1% on specific supplies by specific category of persons for a contract exceeding INR 10 lacs
  • Certificate to be issued by deductor within 5 days of making payment and deductee to claim credit

Refund

  • Application to be made to the respective officer within 2 years before expiry of relevant date
  • Refund of unutilised credit allowed in cases of Export, rate of tax on inputs higher than rate on output          
  • No refund of unutilised credit would be allowed when export is subject to export duty
  • In case of export of goods/services, refund of upto 80% of the total amount claimed may be granted; balance 20% after verification of documents

Job work

  •  Supplies between principal and job worker would not be liable to GST on obtaining prior approvals

E-commerce

  • In respect of goods sold/services provided through the E-commerce platform, tax to be collected at source on amount paid or payable by electronic commerce operators to its suppliers

Generic provisions

  • Consignments of value exceeding INR 50,000 to be accompanied with valid prescribed documents

Draft Integrated Goods and Services Tax Act, 2016 (‘IGST Act’)

Key definition:

  • Integrated Goods and Services Tax:
    • tax levied on the supply of any goods and/or services in the course of inter-State trade or commerce
    • ­supply of goods/ services in the course of import/export covered under inter-state trade or commerce

Place of supply

Place of supply rules at the sub-national level will be relevant to determine where the supply has occurred.

Place of supply of goods

Particulars

Place of supply

Movement of goods is involved

Location where the movement of goods terminates

Goods delivered by supplier to recipient/ any other person on direction of third person

Principal place of business of the third person who received the goods

Movement of goods is not involved

Location of goods at the time of delivery to recipient

Assembly or installation

Location of installation or assembly

Goods are supplied on a board a conveyance

Location where goods are taken on board

Place of supply of services

Particulars of key services

Registered/ unregistered

Place of supply

Default rule

Registered

Location of service recipient

Un-registered

Location of the service supplier (where the recipient address on record is not available)

Restaurant services, personal grooming

Not relevant

Location where services are performed

Services by way of transportation of goods

Registered

Location of the person

Un-registered

Location at which goods are handed over for transportation

Services by way of transportation of passengers

Registered

Location of the person

Un-registered

Location at which passenger(s) embark on the conveyance for a continuous journey

Place of supply of home television services/ D2H

Not relevant

Location where the cable or dish antenna is installed

Place of supply for banking and other financial services (other than insurance)

Not relevant

Location of the service recipient on the records of the supplier of services

Place of supply of insurance service

Registered

Location of service supplier

Transitional provision

  • If the tax has been paid in part on import of services under the earlier laws, balance amount if tax shall be payable on such transactions under the IGST Act

 GST valuation rules

  • Transaction value shall be accepted even when supplier and recipient are related provided that the relationship has not influenced the price
  • Value of supply for stock transfer or transfer from principal to agent/ vice versa shall be transaction value
  • Transaction value not to be considered and value to be determined as per the prescribed valuation rules in following cases:
    • the consideration is not paid in money;
    • the supplier and the recipient of the supply are related;
    • there is reason to doubt the truth or accuracy of the transaction value declared;
    • business transactions undertaken by a pure agent, money changer, and other specified persons;
    • ­ other notified supplies.

Grant Thornton comment:

  • Ambiguity on valuation of interstate supply without consideration proposed to be taxed
  • Apportionment of consideration may be a challenge in case of interstate supply arrangement/contract with headoffice, supplied to various branches of recipient
  • Clarification awaited on treatment to incentives granted by state government to backward area units, SEZ, STPI etc.

Disclaimer

Limited purpose of providing the above synopsis is to outline a summary of the key provisions as contained in the model laws as it stands today and provide some preliminary thoughts on some of the critical aspects that are emerging out of a plain reading of the same. Hence, our views expressed herein-above are very preliminary and nascent in nature, hence not final or definite. These comments are subject to further review especially in case of any further recommendations/ changes by Government. These comments would require to be revised/revisited once final legislation is publicly made available by the Government.