What is GST ?

The long awaited Goods and Services Tax has finally roll out on July 01 2017, ending a swerve of indirect taxes imposed by the Centre as well as respective States and Union Territories till now GST, the single tax rate for products and services will be applicable in any part of the country. The present 17 indirect taxes have been merged into one tax i.e. GST. The taxes that have been merged are – Central Excise duty, Duty of Excise (Medicinal and Toilet preparations), Additional Duties of Excise (Goods of Special Importance), Additional Duties of Excise (Textiles and Textile Products), Additional Duties of Customs (commonly known as CVD), Special Additional Duty of Customs (SAD), Service Tax, Cesses and surcharges insofar as they relate to supply of goods or services, State VAT, Central Sales Tax, Purchase Tax, Luxury Tax, Entry Tax (All forms), Entertainment Tax (except those levied by the local bodies), Taxes on advertisements, Taxes on lotteries, betting and gambling, State cesses and surcharges insofar as they relate to supply of goods or services.

The GST will have a big impact on the compliances for trade and industry sector. There will be seamless flow of credit across the value chain. Also there will be removal of cascading effect. The GST has been segregated as Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST) and Integrated Goods and Service Tax (IGST). The prescribed GST rates shall be – 5%, 12%, 18% and 28%. The same has been defined as Destination based tax, the taxable event for GST is supply. It all depend where the supply of Goods or services has taken place and accordingly tax is being charged.

The government has also prescribed a threshold exemption limit – INR 20 lakhs & INR 10 lakhs for special category States & North Eastern States. It’s a PAN based registration. The government has provided to deposit taxes by internet banking, NEFT/RTGS, debit card, credit card & over the counter (OTC). The main technology backbone of GST is Goods and Service Tax network (GSTN). It provides IT Infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Service Tax (GST).

Benefits of GST

GST is a win – win situation for the entire country. It brings benefits to all the stakeholders of industry, Government and the consumer. It will lower the cost of goods and services, give a boost to the economy and make the products and services globally competitive. The significant benefits of GST are:

• Creation of unified national market – GST aims to make India a common market with common tax rates and procedures and remove the economic barriers thus paving the way for an integrated economy at the national level.
• Mitigation of ill effects of cascading – By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve liquidity of the businesses.
• Elimination of multiple taxes and double taxation – GST will subsume majority of existing indirect tax levies both at the Central and State level into one tax i.e. GST which will be leviable uniformly on goods and services. This will make doing business easier and will also tackle the highly disputed issues relating to double taxation of a transaction as both goods and services.
• Boost to ‘Make in India’ initiative -  GST will give a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the national as well as international market.
• Buoyancy to the Government Revenue – GST is expected to bring buoyancy to the Government Revenue by widening the tax base and improving the taxpayer compliance.

The GST shall be applicable where the taxable event arises. The taxable event under GST Act is Supply, which become an integral part of charging the tax. Under the old regime, taxable events for various taxes were different. For example, for excise duty the taxable event is manufacture or production of goods. Similarly, for services the taxable event was provision of service. Under Central Sales Tax (CST) and Value Added Tax (VAT) it was sale of goods. To replace such multiplicity, GST has brought in a single and uniform taxable event, which is, SUPPLY.

Supply term has been very subjectively and inclusively defined in the CGST Act. The types of supply has been clearly recognized under the Act –

• Supply which are made or agreed to be made for a consideration by a person in the course or furtherance of business
• Import of services which are for consideration (whether or not in the course or furtherance of business).
• Schedule I activities (whether or not for consideration) like transfer of goods from principle-agent transaction etc.
• Schedule II activities (activities to be treated as supply of goods or supply of services)

Schedule III activities which include :

2. Activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council.

Composite Supply and Mixed Supply

When two or more goods are sold in a combination, it becomes difficult to identify the rate of tax to be levied. For such goods or services, CGST, 2017 has provided with two terms – Composite Supply and Mixed Supply. Composite supply is similar to the concept of “bundled service” as under service tax laws in the existing regime. Both Composite supply and Mixed supply consist of two or more taxable supplies of goods or services or both but the main difference between the two is that Composite supply is naturally bundled i.e., goods or services are usually provided together in normal course of business and cannot be separated. Whereas in Mixed supply, the goods or services can be sold separately. e.g.  F&B & hotel  room rents.

Composition Scheme

Composition Scheme is a scheme which is mainly devised for small taxpayers who find filling of monthly returns both difficult and costly. A registered tax payer under this scheme enjoys benefits like concessional rate of tax and filing of quarterly returns instead of monthly return. To be eligible for registration under Composition scheme it is required that the aggregate turnover of a registered tax payer should not exceed Rs. 50,00,000/- in the preceding financial year.

It is important to note that, registration under this scheme is optional and the registered tax payer whose aggregate turnover is less than Rs. 50,00,000/- can opt not to register for the scheme. A quarterly return in form GSTR-4 is required to be filed within eighteen days after the end of each quarter or part thereof.

Conditions & Restrictions

• A Casual tax payer and a non-resident taxable person cannot register under this scheme
• The registered person under composition scheme is not permitted to collect tax and thus cannot issue a taxable invoice
• Input tax credit is not available
• Tax payers making inter- state supplies or making supplies through ecommerce operators who are required to collect tax at source shall not be eligible for composition scheme
• A person should not be engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II, to opt for this scheme
• Supplier of goods which are not taxable under the CGST Act/SGST Act/UTGST Act is not eligible to register under this scheme.

Under GST regime, the tax shall be levied as Dual GST separately but concurrently by the Union (CGST) as well as the States (including Union Territories with legislatures) (SGST) and Union territories without legislatures (UTGST). The Parliament would have exclusive power to levy GST integrated GST (IGST) on inter-State trade or commerce (including imports) on goods or services or both. Alcohol for human consumption is kept out of the purview of GST. Also, GST on specified petroleum products (crude, high speed diesel, petrol, ATF and natural gas) would be levied from a later date on the recommendation of the GST Council.

Classification

Goods under GST regime, will be classified under, Harmonised System of Nomenclature (HSN) code whereas services will be classified as per the Services Accounting code (SAC). HSN is an internationally standardized system of names and numbers to classify traded products. At present, HSN code is used to classify goods under Value added tax.

Liability for Registration

Section 22 of the Central Goods & Services Tax (CGST) Act, 2017 specifies persons who are liable for registration under GST whereas section 24 of CGST Act, 2017 specifically provides list of persons who are compulsorily required to take registration. A list of such persons liable to obtain registration under CGST Act, 2017 has been summarised as under:

Input Tax Credit

Input Tax Credit (ITC) of CGST and SGST/UTGST will be available throughout the supply chain, but cross utilization of credit and SGST/UTGST will not be possible, i.e. CGST credit cannot be utilized for payment of SGST/UTGST and SGST/UTGST credit cannot be utilized for payment of CGST. However, cross utilization will be allowed between CGST/SGST/UTGST and IGST i.e. credit of IGST can be utilized for the payment of CGST/SGST/UTGST and vice versa.

Since GST is a destination based consumption tax, revenue of SGST will ordinarily accrue to the consuming States. The inter-state supplier in the exporting State will be allowed to set off the available credit of IGST, CGST and SGST/UTGST (in that order) against the IGST payable on interstate supply made by him. The buyer in the importing state will be allowed to avail the credit of IGST paid on inter- state purchases made by him. Thus, unlike the existing scenario where the credit chain breaks in case of inter-state sales on account of non-VATable CST, under GST regime there is seamless credit flow in case of inter-state supplies too.

The revenue of inter-state sale will not accrue to the exporting State and the exporting state and the exporting state will be required to transfer to the Centre the credit the credit of SGST/UTGST used in payment of IGST. The Centre will transfer to the importing State the credit of IGST used in payment of SGST/UTGST. Thus, the inter-State trade of goods and services would need a robust settlement mechanism amongst the State and the Centre. A central agency is needed which can act as a clearing house and verify the claims and inform the respective Governments to transfer the funds. This is possible only with the help of a strong IT infrastructure.

Goods and Services Tax Network (GSTN)

GSTN is a special purpose vehicle which has been set to provide a shared infrastructure and services to Central and State Governments, taxpayers and other stakeholders for implementation of GST. The functions of the GSTN, inter alia include –

• Facilitating registration;
• Forwarding the returns to Central and State authorities;
• Computation and settlement of IGST;
• Matching of tax payment details with banking network;
• Providing various MIS reports to the Central and the State Governments based on the taxpayer return information;
• Providing analysis of taxpayer’s profile; and
• Running the matching engine for matching, reversal and reclaim of input tax credit.

All registered taxpayers are free to design their own invoice format under GST; however, it is required that certain fields as mentioned in the invoice rules be incorporated in all invoices. Some of these fields are as follows:

• name, address and GSTIN of the supplier;
• a consecutive serial number, in one or multiple series,
• date of its issue;
• name, address and GSTIN or UIN, if registered, of the recipient;
• name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered and where the value of taxable supply is fifty thousand rupees or more;
• HSN code of goods or Accounting Code of services;
• description of goods or services;
• quantity in case of goods and unit or Unique Quantity Code thereof;
• total value of supply of goods or services or both;
• taxable value of supply of goods or services or both taking into account discount or abatement, if any;
• rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
• amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess); 
• place of supply along with the name of State, in case of a supply in the course of inter-State trade or commerce;
• address of delivery where the same is different from the place of supply;
• whether the tax is payable on reverse charge basis;
• Signature or digital signature of the supplier or his authorized representative etc. 

Invoice under GST shall be issued in the following manner:

Conclusion

GST is expected to serve as a strong antidote to numerous direct and indirect economic  ailments, Indian taxation has been struggling with, since independence. It surely seems to be a much simpler and ideal tax net.

Assuming the average rate of GST to be 18%, the consumers at large, have reasons to believe, that for most goods, there would be a significant reduction in the overall costs, while bringing more businesses and tax payers on board.

By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve liquidity of the businesses. While GST is a harbinger of growth, lack of effective infrastructure opens GST upto a series of possible teething troubles in the first few months.

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Acquisory News Chronicle – June 2017