Tag: Indirect Tax BMS Notes Mumbai University

Schedule I

Activities to be treated as supply even if made without consideration

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods:

(a) By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Schedule II

Activities or transactions to be treated as supply of goods or supply of services

1. Transfer

(a) Any transfer of the title in goods is a supply of goods.

(b) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.

(c) Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

2. Land and Building

(a) Any lease, tenancy, easement, licence to occupy land is a supply of services.

(b) 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.

3. Treatment or process

Any treatment or process which is applied to another person’s goods is a supply of services.

4. Transfer of business assets

(a) 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.

(b) 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, the usage or making available of such goods is a supply of services.

(c) 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, unless:

(i) The business is transferred as a going concern to another person; or

(ii) The business is carried on by a personal representative who is deemed to be a taxable person.

5. Supply of services

The following shall be treated as supply of services, namely:

(a) Renting of immovable property.

(b) 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 after its first occupation, whichever is earlier.

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:

(a) Works contract as defined in clause (119) of section 2.

(b) Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

7. Supply of Goods

The following shall be treated as supply of goods, namely:

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

Schedule III

Activities or transactions which shall be treated neither as a supply of goods nor a supply of services

1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any court or Tribunal established under any law for the time being in force.
3. (a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity.

(c) The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
8. (a) Supply of warehoused goods to any person before clearance for home consumption.

(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

Section 14 of Integrated Goods and Services Tax Act 2017: Special provision for payment of tax by a supplier of online information and database access or retrieval services

(1) On supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services:

Provided that in the case of supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a nontaxable online recipient, an intermediary located in the non-taxable territory, who arranges or facilitates the supply of such services, shall be deemed to be the recipient of such services from the supplier of services in non-taxable territory and supplying such services to the non-taxable online recipient except when such intermediary satisfies the following conditions, namely:

1. The invoice or customer’s bill or receipt issued or made available by such intermediary taking part in the supply clearly identifies the service in question and its supplier in non-taxable territory;
2. The intermediary involved in the supply does not authorize the charge to the customer or take part in its charge which is that the intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-taxable online recipient and the supplier of such services;
3. The intermediary involved in the supply does not authorize delivery; and the general terms and conditions of the supply are not set by the intermediary involved in the supply but by the supplier of services.

(2) The supplier of online information and database access or retrieval services referred to in sub-section (1) shall, for payment of integrated tax, take a single registration under the Simplified Registration Scheme to be notified by the Government:

Provided that any person located in the taxable territory representing such supplier for any purpose in the taxable territory shall get registered and pay integrated tax on behalf of the supplier:

Provided further that if such supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he may appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax.

Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

• Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
• The subsumation should result in free flow of tax credit in intra and inter-State levels.
• The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.

Central Taxes to Be Subsumed In GST

On application of the above principles and various papers which have been released in this regard, it is deduced that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:

• Central Excise Duty (CENVAT)
• Additional Excise Duties
• The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955
• Service Tax
• Additional Customs Duty, commonly known as Countervailing Duty (CVD)
• Special Additional Duty of Customs – 4% (SAD)
• Surcharges and Cesses levied by Centre are also likely to be subsumed wherever they are in the nature of taxes on goods or services. This may include cess on rubber, tea, coffee, national calamity contingent duty etc.
• Central Sales Tax to be phased out.

State Taxes to Be Subsumed In GST

Following State taxes and levies would be, to begin with, subsumed under GST:

• VAT / Sales tax
• Entertainment tax (unless it is levied by the local bodies)
• Luxury tax
• Taxes on lottery, betting and gambling
• State Cesses and Surcharges in so far as they relate to supply of goods and services
• Octroi and Entry Tax
• Purchase Tax

Taxes Which are Not to be Subsumed

GST may not subsume the following taxes within its ambit:

• Basic Customs Duty: These are protective duties levied at the time of Import of goods into India.
• Exports Duty: This duty is imposed at the time of export of certain goods which are not available in India in abundance.
• Road & Passenger Tax: These are in the nature of fees and not in the nature of taxes on goods and services.
• Toll Tax: These are in the nature of user fees and not in the nature of taxes on goods and services.
• Property Tax
• Stamp Duty
• Electricity Duty

Treatment of Specific Goods

The Central Government tabled the 122nd Constitution Amendment Bill, 2014 (‘Bill’) on the introduction of Goods and Services Tax (‘GST’) before the lower house of Parliament on December 19, 2014. On analysis of the Bill, the Bill contains the following treatment for the following specific goods:

Tax On Supply of The Alcoholic Liquor for Human Consumption

As per the proposed amendment to Constitution by the Constitution (122nd Amendment) Bill, 2014, supply of the alcoholic liquor for human consumption has been excluded from the definition of goods and service tax. New clause 12A has been inserted in article 366 which defines goods and service tax as follows:

“Goods and Services tax” means any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption

Hence, the supply of the alcoholic liquor for human consumption will be out of the GST. Alcohol products for human consumption would continue to be exclusively taxed by the States. Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within GST at a future date would require another constitutional amendment. CST on inter-state sales of alcohol would also continue. It therefore appears that the empowerment of States to tax alcohol products is intended to remain unaltered in the near future.

Tax On Tobacco Products

Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a separate excise duty by the Centre.

Tax On Petroleum Crude/ High Speed Diesel/ Motor Spirit/ Natural Gas/ Aviation Turbine Fuel

The States would continue as per the current laws to impose Value Added Tax (VAT) on Petroleum Crude/ High Speed Diesel/ Motor Spirit/ Natural Gas/ Aviation Turbine Fuel on intra-state sales while inter-state sales would continue to attract Central Sales Tax (CST). These products would be transitioned into the GST regime from a future date to be notified by the GST Council. It is currently unclear from the schematics of the Bill whether States would fully discontinue collecting VAT/ CST on these products from this notified date, or whether the transition would be gradual. The Bill however also states that these products can be subjected to an excise duty imposed by the Centre; this levy would be imposed now and even after GST comes into force. Such duty can be in addition to the applicable VAT or GST imposed.

Tax On Newspapers and Advertisement Therein

GST would be capable of being levied on the sale of newspapers and advertisements therein. This would give the governments the access to substantial incremental revenues since this industry has historically been tax free in its entirety.

Taxation of Services: Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter-State has already been formulated by the Working Group of Principal Secretaries/Secretaries of Finance/Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.

GST is a destination-based tax applicable on all transactions involving supply of goods and services for a consideration subject to exceptions thereof. GST in India comprises of Central Goods and Services Tax (CGST); levied and collected by Central Government, State Goods and Services Tax (SGST); levied and collected by State Governments/Union Territories with State Legislatures and Union Territory Goods and Services Tax (UTGST); levied and collected by Union Territories without State Legislatures, on intra-State supplies of taxable goods and/or services.

Inter-State supplies of taxable goods and/or services are subject to Integrated Goods and Services Tax (IGST). IGST is approximately the sum total of CGST and SGST/UTGST and is levied by Centre on all inter-State supplies.

CGST

Central Goods and Services Tax or CGST is the indirect tax levied by the Central Government. It is levied on the transaction of goods and services which are undertaken within the state i.e. intrastate. The tax collected under the head “CGST” is payable to the central government treasury.

The CGST is charged to compensate the central government for previously existed indirect taxes such as:

• Central Excise Duty
• Service Tax
• Duties of Custom
• Surcharges
• Cesses etc.

The CGST is charged along with SGST or UTGST and at the same rates. This is done as per the Dual GST model followed in India, where both central and state governments have their separate taxation legislatures.

IGST

Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India.

IGST is levied on all interstate supply of goods and services by the Central Government. Unlike, CGST, SGST, & UTGST which are levied upon the supply of goods or services within a state.

IGST has provided a standardization to taxation on the supply of goods and services made outside the state. This applies both on a supply made outside the state and those made outside the country.

The rate of IGST would always be approximately equal to the CGST rate plus SGST rate.

SGST

Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act. As explained above, CGST will also be levied on the same Intra State supply but will be governed by the Central Government.

SGST is charged along with and at the equal rates that of CGST on a good or service. This tax is charged by all the states of India but has also been adopted by two union territories of

• Puducherry
• Delhi

Because both of these union territories have their own legislative assembly and council.

UTGST

Similar to how SGST is levied by the state governments on the intra-state supply of goods and services, Union Territory Goods and Services Tax or UTGST is levied by the Union Territory governments. It refers to the tax levied on the intra-Union Territory supply of goods and services. It is governed by the UTGST Act and is levied along with CGST.

UTGST is similar to SGST and is levied in Union Territories which do not have their own legislature. UTGST is applicable on the supplies that take place in the Union Territories of Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep. Please note that the Union Territories of Delhi and Puducherry will fall under SGST law as they have their own legislature.

The order of ITC utilisation of UTGST is similar to SGST. ITC of UTGST should first be set off against UTGST. Any balance remaining may be used to set off any IGST liability.

Deemed Exports

The supply of goods or services to the following would be treated as exports under GST:

• Supply of goods by a registered person against Advance Authorisation.
• Supply made to an Export oriented undertaking (EOU) or Hardware Technology Park unit, Software Technology Park unit, Biotechnology Park unit.
• Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.
• Supply of gold by a bank or Public Sector Undertaking against Advance Authorisation as per Customs law.
• Inter-State supply and covered under the IGST Act.
• ‘Zero rated supply’ i.e. the goods or services exported shall be relieved of GST levied upon them either at the input stage or at the final product stage.

The salient features of the scheme of export under GST regime are as follows:

• The goods and services can be exported either on payment of IGST which can be claimed as refund after the goods have been exported, or under bond or Letter of Undertaking (LUT) without payment of IGST.
• In case of goods and services exported under bond or LUT, the exporter can claim refund of accumulated ITC on account of export.
• In case of goods the shipping bill is the only document required to be filed with the Customs for making exports. Requirement of filing the ARE 1/ARE 2 has been done away with.
• The supplies made for export are to be made under self-sealing and self-certification without any intervention of the departmental officer.
• The shipping bill filed with the Customs is treated as an application for refund of IGST and shall be deemed to have been filed after submission of export general manifest and furnishing of a valid return in Form GSTR3 by the applicant.

Refund of Tax

(a) In case of refund of tax on inputs used in exports:

• Refund of 90% will be granted provisionally within seven days of acknowledgement of refund application.
• Remaining 10% will be paid within a maximum period of 60 days from the date of receipt of application complete in all respects.
• Interest @ 6% is payable if full refund is not granted within 60 days.

(b) In the case of refund of IGST paid on exports:

Upon receipt of information regarding furnishing of valid return in Form GSTR-3 by the exporter from the common portal, the Customs shall process the claim for refund and an amount equal to the IGST paid in respect of each shipping bill shall be credited to the bank account of the exporter.

Section 13(2) IGST determines the place of supply of any type of service except the services specified in sub-sections (3) to (13) IGST shall be the location of the recipient of services.

Place of Supply Relating to Goods (Section 13(3)(a) IGST):

According to this section location of the place of supply shall be the location where the goods are available for service.

Place of Supply Relating to Individual (Section 13(3)(b) IGST):

According to this section location of the place of supply shall be the location where the services are provided to the individual, represented either as the recipient of services or a person acting on behalf of the recipient.

Place of Supply Relating to Immovable Property (Section 13(4) IGST):

According to this section location of the place of supply shall be the location where the immovable property is located or intended to be located.

Section 13(5) IGST:

The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held.

Section 13(8) IGST Act Relating to Three Services Whose Place of Supply Shall be location of The Supplier of Services.

(a) Services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders.

(b) Intermediary services.

(c) Services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month.

Intermediary Services defined in section 2(13) of the IGST Act i.e.

“intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;

“INTERMEDIARY SERVICES” are exempted from GST Tax

Section 13(12) IGST Act Relating to Online Services

The place of supply of online information and database access or retrieval services shall be the location of the recipient of services.

(a) The location of address presented by the recipient of services through internet is in the taxable territory.

(b) The credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory.

(c) The billing address of the recipient of services is in the taxable territory.

(d) The internet protocol address of the device used by the recipient of services is in the taxable territory.

(e) The bank of the recipient of services in which the account used for payment is maintained is in the taxable territory.

(f) The country code of the subscriber identity module card used by the recipient of services is of taxable territory.

(g) The location of the fixed land line through which the service is received by the recipient is in the taxable territory.

GST stands for “Goods and Services Tax”, and aimed at creating a single, unified market that will benefit both corporates and the economy. It is an indirect tax that will lead to the abolition of all other taxes such as octroi, central sales tax, state-level sales tax, excise duty, service tax, and value-added tax (VAT). Both the state and the central governments will impose GST on almost all goods and services produced in India or imported into the country.

GST is levied at every stage of the production distribution chain with applicable set off in respect of the tax remitted at previous stages. It is basically a tax on final consumption. GST is to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. GST is an destination based taxed. Its main objective is to consolidates all indirect tax levies into a single tax, except customs (excluding SAD) replacing multiple tax levies, overcoming the limitations of existing indirect tax structure, and creating efficiencies in tax administration.

Extent and Commencement

Part I of the Constitution of India states: “India, that is Bharat, shall be a Union of States”. It provides that territory of India shall comprise the States and the Union Territories specified in the First Schedule of the Constitution of India. The First Schedule provides for twenty-nine (29) States and seven (7) Union Territories.

Part VI of the Constitution of India provides that for every State, there shall be a Legislature, while Part VIII provides that every Union Territory shall be administered by the President through an ‘Administrator’ appointed by him. However, the Union Territories of Delhi and Puducherry have been provided with Legislatures with powers and functions as required for their administration.

India is a summation of three categories of territories namely:

(i) States

(ii) Union Territories with Legislature

(iii) Union Territories without Legislature.

The State of Jammu and Kashmir enjoys a special status in the Indian Constitution in terms of Article 370 (Abolished) of the Indian Constitution. The Parliament has power to make laws only on Defence, External Affairs and Communication related matters of Jammu and Kashmir. As regards the laws related on any other matter, subsequent ratification by the Government of Jammu and Kashmir is necessary to make it applicable to that State. (Amendment to whole India)

Therefore, the State of Jammu & Kashmir were required to pass special laws to be able to implement the Goods and Services Tax Acts. Accordingly, the assembly of J&K passed the GST bill in the first week of July. Subsequently, Honourable President of India had promulgated two ordinances, namely, the CGST (Extension to Jammu and Kashmir) Ordinance, 2017 and the IGST (Extension to Jammu and Kashmir) Ordinance, 2017 making the CGST/ IGST applicable to the State of Jammu and Kashmir, w.e.f. 8th July, 2017.

Once the laws are passed by the State of Jammu & Kashmir, the Union Government will have to amend the Central Goods and Services Act, 2017 to delete the phrase that such provisions do not apply to the State of Jammu & Kashmir. After the promulgation of ordinance, the India has adopted GST in its form across the country.

Commencement:

The CGST Act came into operation on 01.07.2017, the date appointed by the Central Government. However, certain provisions i.e. Sections 1,2,3,4,5,10,22,23,24,25,26,27,28,29, 30,139, 146,164 were made effective form 22.6.2017.

Benefits of GST

Regulation of Unorganised Industries

Certain sectors in the country, such as textile and construction, are highly unorganised and unregulated. GST aims to ensure that payments and compliances are done online, and input credit can only be availed when the supplier accepts the amount, thus ensuring that these industries have regulation and accountability.

Common Portal

Since technology will be used heavily to drive GST, taxpayers will have a common portal (GSTN). The procedures for different processes like registration, tax payments, refunds, returns, etc., will be automated and simplified. Whether it is the filing of returns, filing of refund claims, payment of taxes, or even registration, all processes will be done online via GSTN. The verification of input tax credit will be done online too, and input tax credit across the country will be matched electronically, thereby turning the process into an accountable and transparent one. As a result, the process will also be much quicker since the taxpayer will not have to interact with the tax administration.

Simpler and Lesser Number of Compliances

Compliance will be simpler through the harmonisation of tax rates, procedures, and laws. Synergies and efficiencies are expected across the board thanks to common formats/forms, common definitions, and common interface via the GST portal. Inter-state disputes such as those on e-commerce taxation and entry tax that currently prevail will no longer cause concerns, while multiple taxation on the same transactions will also be removed. Compliance costs will also reduce as a result.

Cascading of Taxes

The cascading of taxes will be prevented by GST as the whole supply chain will get an all-inclusive input tax credit mechanism. Business operations can be streamlined at each stage of supply thanks to the seamless accessibility to input tax credit across products or services.

Common Procedures

The procedures for refund of taxes and registration of taxpayers will be common, while the formats of tax return will be uniform. The tax base will also be common, as will the system of assortment of products or services in addition to the timelines for each activity, thereby ensuring that taxation systems have greater certainty.

Lowered Tax Burden on Industry and Trade

The average tax burden on industry and trade is expected to lower because of GST, resulting in a reduction of prices and increased consumption, which will eventually increase production and ultimately enhance the development of various industries. Domestic demand is set to increase and local businesses will have greater opportunities, thus generating more jobs within the country.

Benefits to Industry and Trade

• Elimination of cascading of taxes thanks to the seamless flow of tax credit from the supplier or manufacturer to the retailer or user.
• Uniform procedures for registration, filing of returns, payment of taxes, and tax refunds.
• Higher efficiency with regards to the neutralisation of taxes so that exports are globally competitive.
• Small scale suppliers can make the most of the composition scheme to make their goods less expensive.

Benefits to the Economy

• Increase in manufacturing processes.
• Creation of a unified common market.
• Generation of more jobs through enhanced economic activity.
• Enhancement of exports and investments.

The import of goods has been defined in the IGST Act, 2017 as bringing goods into India from a place outside India. All imports shall be deemed as inter-State supplies and accordingly Integrated tax shall be levied in addition to the applicable Custom duties. The IGST Act, 2017 provides that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under the Customs Act, 1962. The integrated tax on goods shall be in addition to the applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act. In addition, GST compensation cess, may also be leviable on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017.

Import as Baggage:

Passenger Baggage are exempted from IGST as well as compensation cess. The basic customs duty at the rate of 35% and the applicable education cess shall be leviable on the value which is in excess of the duty-free allowances provided under the Baggage Rules, 2016.

Tax Treatment of Goods imported into India and deposited in a warehouse and sold while in warehouse before clearance from Customs:

The Customs Act, 1962 provides for removal of goods from a customs station to a warehouse without payment of duty. The said Act has been amended to include ‘warehouse’ in the definition of “customs area” in order to ensure that an importer would not be required to pay the Integrated tax at the time of removal of goods from a customs station to a warehouse.

Leviability of Integrated Tax on High Seas Sales Transactions:

‘High Sea Sales’ is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. After the High sea sale of the goods, the Customs declarations i.e. Bill of Entry etc. is filed by the person who buys the goods from the original importer during the said sale. IGST on high sea sale transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

Import of goods by 100% EOU’s and SEZs:

Import of goods by 100% EOU’s would be governed by Customs. EOUs are allowed duty free import of goods (exempt from Customs duties, IGST & Compensation Cess) under the said notifications.

Goods imported by a unit or a developer in the Special Economic Zone for authorised operations are exempted from the whole of integrated tax under section 3 (7) of the Customs Tariff Act, 1975.

Input tax credit of integrated tax

The definition of “input tax” in relation to a registered person also includes the integrated tax and compensation cess charged on import of goods. Thus, input tax credit of the integrated tax and the compensation cess, if any, paid at the time of import shall be available to the importer and the same can be utilized by him as Input Tax credit for payment of taxes on his outward supplies. The integrated tax and compensation cess paid at the time of import shall in essence be a pass through to that extent. The input tax credit of compensation cess, however, can only be used for payment of compensation cess. Furthermore, the Basic Customs Duty (BCD) and education cess, shall, not be available as input tax credit.

HSN (Harmonised System of Nomenclature) code would be used for the purpose of classification of goods under the GST regime.

As per section 11 of the IGST Act, 2017 the place of supply of goods, imported into India shall be the location of the importer. Thus, if an importer say is located in Bihar, the state tax component of the integrated tax shall accrue to the State of Bihar.

Import of Services

Import of services has specifically been defined under IGST Act, 2017 and refers to supply of any service where the supplier is located outside India, the recipient is located in India and the place of supply of service is in India.

The provisions present in Section 7(1)(b) of the Central Goods and Services Tax Act, 2017, mentions that when services are imported with consideration, it will be deemed as a supply, regardless of whether it is utilised in the continuance or course of business. When services are imported without consideration, they will not be deemed as supply. Businesses, however, are not mandated to undertake any tests for service imports to be deemed as a supply.

In view of the provisions contained in Section 14 of the IGST Act, 2017, import of free services from Google and Facebook by individuals without any consideration are not considered as supply.

Import (Downloading) of a song for consideration for personal use would be a service, even though the same are not in the course or furtherance of business. Import of some services by an Indian branch from their parent company, in the course or furtherance of business, even if without consideration will be a supply.

Thus, import of services can be considered as supply based on whether there is consideration or not and whether the service is supplied in the course or furtherance of business.

The same has been explained in the table below:

The idea of moving towards GST was first mooted by the then Union Finance Minister in his Budget speech for 2006-07. Initially, it was proposed that GST would be introduced from 1st April 2010.The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for GST. Joint Working Groups of officials having representatives of the States as well as the Centre were set up to examine various aspects of GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the EC released its First Discussion Paper (FDP) on the GST in November, 2009. This spelt out features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.

The introduction of the Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, GST will mitigate ill effects of cascading or double taxation in a major way and pave the way for a common national market. From the consumers point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. It would also imply that the actual burden of indirect taxes on goods and services would be much more transparent to the consumer. Introduction of GST would also make Indian products competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production and distribution. Studies show that this would have a boosting impact on economic growth. Last but not the least, this tax, because of its transparent and self-policing character, would be easier to administer. It would also encourage a shift from the informal to formal economy. The government proposes to introduce GST with effect from 1st July 2017.

GST and Centre-State Financial Relations

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium , narcotics etc.) while the States have the powers to levy tax on sale of goods. In case of inter-states sales, the Centre has the powers to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the originating States. As for services, it is the Centre alone that is empowered to levy Service Tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportations from India, the Centre levies and collects this tax in addition to the Basic Customs Duty. This additional duty of customs (commonly known as CVD and SAD) counterbalance excise duty, sales tax, State VAT and other taxes levied on the like domestic product. Introduction of GST required amendments in the Constitution so as to empower the Centre and the States concurrently to levy and collect GST.

The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST required a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. To address all these and other issues, the Constitution (122nd Amendment) Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill provides for a levy of GST on supply of all goods or services except alcohol for human consumption. The tax shall be levied as Dual GST separately, but concurrently the Union (CGST) and the States (SGST). The Parliament would have exclusive power to levy GST (IGST) on inter state trade or commerce (including imports) in goods and services. The Central Government will have the power to levy excise duty in addition to GST, on tobacco and tobacco products.

The constitution Amendment Bill was passed by the Lok Sabha in May, 2015. The Bill with certain amendments was finally passed in the Rajya Sabha and thereafter by the Lok Sabha in August, 2016. Further, the Bill has been ratified by the required number of States and has since received the assent of the President on 8th September,2016 and has been enacted as the 101st Constitution Amendment Act, 2016. The GST Council has also been notified w.e.f. 12th September,2016. GST Council is being assisted by a Secretariat.

The Goods and Service Tax Council (hereinafter referred to as, “GSTC”) comprises of the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other matters. One-half of the total number of members of GSTC form quorum in meetings of GSTC. Decision in GSTC are taken by a majority of not less than three-fourth of weighted votes cast. Centre has one-third weightage of the total votes cast and all the states taken together have two-third of weightage of the total votes cast.

All decisions taken by the GST Council has been arrived at through consensus. The option of exercising a vote has not been resorted to till date.

To ensure smooth roll-out of the GST, various Committees and Sectoral groups has been formed comprising of members from both Centre and States.

Salient features of GST

The salient features of GST are as under:

(i) GST is applicable on ‘supply’ of goods or services as against the present concept on the manufacture of goods or on sale of goods or on provision of services.

(ii) GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.

(iii) It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre would be called Central GST(CGST) and that to be levied by the States would be called State GST (SGST). (iv) An Integrated GST (IGST) would be levied an inter-state supply (including stock transfers) of goods or services. This shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by Law on the recommendation of the GST Council.

(v) Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable customs duties.

(vi) CGST, SGST & IGST would be levied at rates to be mutually agreed upon by the Centre and the States. The rates would be notified on the recommendation of the GST Council. In a recent meeting, the GST Council has decided that GST would be levied at four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would fall under each of these slabs has been worked out. In addition to these rates, a cess would be imposed on “demerit” goods to raise resources for providing compensation to States as States may lose revenue owing to the implementation of GST.

(vii) GST would replace the following taxes currently levied and collected by the Centre:

a) Central Excise Duty

b) Duties of Excise (Medicinal and Toilet Preparations)

c) Additional Duties of Excise (Goods of Special Importance)

d) Additional Duties of Excise (Textiles and Textile Products)

e) Additional Duties of Customs (commonly known as CVD)

f) Special Additional Duty of Customs (SAD)

g) Service Tax

h) Cesses and surcharge in so far as they relate to supply of goods and services.

(viii) State taxes that would be subsumed within the GST are:

a) State VAT

b) Central Sates Tax

c) Purchase Tax d) Luxury Tax

e) Entry Tax (All forms)

f) Entertainment Tax and Amusement Tax (except those levied by the local bodies)

g) Taxes on advertisements

h) Taxes on lotteries, betting and gambling

i) State cesses and surcharges in so far as they relate to supply of goods and services.

(ix) GST would apply on all goods and services except Alcohol for human consumption.

(x) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) would by applicable from a date to be recommended by the GSTC.

(xi) Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.

(xii) A common threshold exemption would apply to both CGST and SGST. Tax payers with an annual turnover not exceeding Rs.20 lakh (Rs.10 Lakh for special category States) would be exempt from GST. For small taxpayers with an aggregate turnover in a financial year upto 50 lakhs, a composition scheme is available. Under the scheme a taxpayer shall pay tax as a percentage of his turnover in a State during the year without benefit of Input Tax Credit. This scheme will be optional.

(xiii) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as well as across States as far as possible.

(xiv) Exports would be zero-rated supplies. Thus, goods or services that are exported would not suffer input taxes or taxes on finished products.

(xv) Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. Input Tax Credit (ITC) of CGST cannot be used for payment of SGST and vice versa. In other words, the two streams of Input Tax Credit (ITC) cannot be cross-utilised, except in specified circumstances of inter-state supplies for payment of IGST. The credit would be permitted to be utilised in the following manner:

a) ITC of CGST allowed for payment of CGST & IGST in that order.

b) ITC of SGST allowed for payment of SGST & IGST in that order.

c) ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

(xvi) Accounts would be settled periodically between the Centre and the States to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre. Similarly, IGST used for payment of SGST would be transferred by the Centre to the Importing State. Further, the SGST portion of IGST collected on B2C supplies would also be transferred by the Centre to the destination State. The transfer of funds would be carried out on the basis of information contained in the returns filed by the taxpayers. (xvii) The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

The whole GST system will be backed by a robust IT system. In this regard, Goods and Services Tax Network (GSTN) has been set up by the Government. It will provide front end services and will also develop back end IT modules for States who opted for the same.

Legislation is always enacted with some purposes, objects and reasons. A proposed Legislation is placed before Parliament with a statement of objects and reasons appended to it.

The objects and reasons accompanying a bill, which subsequently gets converted into an Act, are to be taken into consideration in interpreting the provisions of the statute. It is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of the law to determine the purpose or object of the legislation.

246A:

(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause

(2) The Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

Article 254: Inconsistency between laws made by Parliament and laws made by the Legislatures of States:

(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.

(2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State:

Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State.

Article 246 clearly demarcates the subject matters where the Union and the States have their legislative competence and Article 254 deals with the issues of inconsistency or repugnancy of laws made by the Parliament and the State Legislatures. Article 246(2) does not provide for concurrent levy of tax, it lists the subject matters where both the States and Centre have legislative capacity but the laws made by them are independent of one another. It does not apply concurrently on the same transaction.

On few occasions, co-existence of Central and State laws in a particular area or on the same subject matter may lead to problems because the Union or a State may encroach upon each other’s territory. It may also arise because though there may not be any encroachment as such, still the two laws might conflict. Where the subject matter of the legislation in question falls within either the State List or the Union List only, the question that is to be decided with reference to legislative competence is whether the same is ultra vires or not. On the other hand, where the legislation passed by the Union and the States is on a subject matter of the concurrent list, the matter cannot be determined by applying the test of ultra vires because the hypothesis is that both the laws are constitutionally valid. Accordingly, test of repugnancy comes under such circumstances under article 254(2).

Because of adopting a dual GST model in India where a particular transaction is concurrently taxed both by the Union and a State/UT, a situation has arisen where the concurrent powers of legislation to both the Union and States/UTs are to be ensured. Article 246A was therefore, inserted to confer concurrent taxing powers on the Union as well as the States including Union Territories with Legislature (Delhi and Puducherry) to make laws for levy of GST on every transaction of supply of goods or services or both. However, article 246A does not categorically provide that the laws made by the Union as well as the States with respect to GST will apply concurrently or simultaneously on the same transaction although the statement of Objects and Reasons clearly states that the Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States. If for any reasons, the laws made by the Union and the State on the same subject matter of GST differ, how the test of inconsistency or repugnance will be applied considering the fact that Article 246A has overridden Article 254 so far as Goods and Services Tax is concerned? Is the GST Council or any other authority legally competent to ensure that CGST and SGST/UTGST laws run consistently to achieve the principles of dual GST?

Question also arises about the necessity of inserting a new article whereas GST as a subject matter of legislation could have been included in the concurrent list under Seventh Schedule to the Constitution. The necessity has arisen because so far as the subject matters of the concurrent list are concerned, the Legislature of any State as well as the Union has powers to make laws with respect to those subject matters but that does not necessarily mean that the laws enacted by the States as well as the Union will run parallel or concurrently which may defeat the purpose and intention of dual GST model. The system of levy of dual GST on the same transaction necessitated that the laws need to be completely or substantially similar in so much as that these can be concurrently applied on the same transaction. The newly inserted article is therefore, unique in the sense that for the first time a legislative power has been provided to enact laws on a subject matter which has not been included in any of the lists under Seventh Schedule.

So far as the above amendment to article 246A as proposed in The Constitution (One Hundred and Fifteenth Amendment) Bill, 2011 and The Constitution (One Hundred Twenty Second Amendment) Bill 2014 are concerned, most of the States agreed to this amendment. Two states were, however, sceptical that this amendment would take away the fiscal autonomy of the States given by the Constitution since 1950 and also the proposed article 246A inflicts severe blow on provision of distribution of legislative powers by introducing a separate category. While some states also felt that it should be ensured that the Constitutional Amendments should not affect the fiscal autonomy of the States as enshrined in the Indian Constitution, some other states were of the opinion that since the proposed article 246A provided for concurrent jurisdiction for both Union and the States, there should be a clarity as to which legislative power shall prevail had there been a case of conflict of interests.

The Ministry of Finance (Department of Revenue) clarified their position with the narrative that they agree to the fact that both Centre and States will have power to simultaneously levy GST on supply of goods and services but this power was not being given through an entry in the Concurrent List but through insertion of an Article in the main body of the Constitution itself. The proposed article 246A does not limit the legislative power of the States as the intention is to allow autonomy to the State legislature on the basis of the recommendations of the GST Council until it affects the harmonized working of GST. It gives reasons to believe that while some of the states were sceptical about the new article, the Ministry had tried to allay the fears subject to a rider that such autonomy should not affect the synchronized working of GST i.e. CGST and SGST/UTGST laws need to be similar.

Goods 2(52) of CGST act

“Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Services 2(102) of CGST act

“Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

Money 2(75) of CGST act

“Money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.

Securities 2(101) of SCRA act 1956

The definition of securities as per Section 2(101) of the CGST Act straightaway requires one to draw parallel from the definition of securities given under Section 2(h) of the Securities Contracts (Regulation) Act 1956. The definition of securities given under the said provision is as below:

“Securities” include:

(i) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.

(ia) Derivative.

(ib) Units or any other instrument issued by any collective investment scheme to the investors in such schemes.

(ic) Security receipt as defined in clause (zg) of section 2 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).

(id) Units or any other such instrument issued to the investors under any mutual fund scheme.

(ie) Any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be.

(ii) Government securities.

(iia) Such other instruments as may be declared by the Central Government to be securities.

(iii) Rights or interests in securities.

Any consideration earned from transaction in the abovementioned securities will be outside the levy of GST.

India 2(56) of CGST act

“India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters.

Persons 2(84) of CGST act

“Person” includes:

(a) an individual

(b) A Hindu Undivided Family

(c) A company

(d) A firm

(e) A Limited Liability Partnership

(f) An association of persons or a body of individuals, whether incorporated or not, in India or outside India.

(g) Any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013.

(h) Any body corporate incorporated by or under the laws of a country outside India.

(i) A co-operative society registered under any law relating to co-operative societies.

(j) A local authority

(k) Central Government or a State Government.

(l) Society as defined under the Societies Registration Act, 1860.

(m) Trust

(n) Every artificial juridical person, not falling within any of the above.

Taxable Persons 2(107) of CGST act

“Taxable person” means a person who is registered or liable to be registered under section 22 or section 24.

Business 2(17) of CGST act

“Business” includes:

(a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) Any activity or transaction in connection with or incidental or ancillary to sub-clause (a).

(c) Any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction.

(d) Supply or acquisition of goods including capital goods and services in connection with commencement or closure of business.

(e) Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.

(f) Admission, for a consideration, of persons to any premises.

(g) 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.

(h) Services provided by a race club by way of totalisator or a licence to book maker in such club.

(i) Any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.

Considerations 2(31) of CGST act

“Consideration” in relation to the supply of goods or services or both Includes:

(a) Any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

(b) The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

E-commerce operator 2(45) of CGST act

“Electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;

Supplier 2(105) of CGST act

“Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.

Recipient 2(93) of CGST act

“Recipient” of supply of goods or services or both, means:

(a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration.

(b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available.

(c) Where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.