1. INTRODUCTION
Cast your mind back to November last year: following the implementation of the Government's demonitisation drive, the realisation of the new goods and services tax ("GST") regime was looking unlikely. Many predicted that the momentum achieved in passing the 101st Amendment to the Constitution of India (the "Amendment") back in the summer of 2016, paving the way for the GST regime, would be lost.
Against all the odds, several months later, Parliament passed cornerstone legislation at the beginning of April (the "Acts"), keeping the implementation of the new GST regime on track. The Acts essentially implement the intention of the Amendment, clearing the way for new fiscal powers at the Center and the State level, permitting the collection and sharing of the GST.
2. THE ACTS
In order to implement the Amendment, Parliament passed the following 4 (four) Acts to put into effect the new regime for the taxation of goods and services.
- The Central Goods and Services Tax Act, 2017 (the "CGST");
- The Integrated Goods and Services Tax Act, 2017 (the "IGST");
- The Goods and Services Tax (Compensation to States) Act, 2017 (the "GSTCS"); and
- The Union Territory Goods and Services Tax Act, 2017 (the "UTGST").
The bills were introduced in the Lok Sabha on March 27, 2017 and were passed on March 29, 2017. They were subsequently introduced in the Rajya Sabha on April 6, 2017 and were passed on the same day. The bills then received presidential assent on April 6, 2017.
Pursuant to and upon the implementation of the above Acts, States are now required to implement their respective State Goods and Services Tax Acts ("SGSTs") to complement the CGST and IGST, effectively completing the statutory framework to implement the new regime.
GST essentially abolishes and replaces a number of indirect taxes, including: the State Value Added Tax; Entry Tax and other local body taxes; Luxury Tax; and Taxes on advertisements.
The CGST and SGST will stipulate (in their respective schedules) those goods and services which will be taxed where there is no inter-State movement. The IGST will be applicable to all goods and services if such a supply of goods and services crosses State borders.
3. KEY FEATURES OF THE ACTS
3.1 Scope and Applicability of the Acts
- CGST
and SGST
The CGST and SGST will levy tax on all intra-State supply of goods and services (except tax on alcohol for human consumption). The rate of tax will be determined by each respective State based on the recommendations of the Goods and Services Tax Council (the "Council"). The rate of tax that can be imposed under the CGST is capped at twenty (20) percent of the value of the goods and services.1 - IGST
The IGST will levy tax on all inter-State supply of goods and services. The rate of tax will be determined by the Central Government based on the recommendations of the Council. The rate of tax under the IGST is capped at forty (40) percent of the value of the goods and services.2 - GSTCS
The GSTCS is intended to compensate the States for losses they may suffer as a result of the change in the taxation regime that the CGST, SGST and IGST introduces. The GSTCS is time-bound and will be in force only for a period of 5 years or the period recommended by the Council.3 - UTGST
The UTGST is the union territory equivalent of the SGST for union territories that do not have their own legislatures. The UTGST will implement the taxation scheme in the same manner as the SGSTs implement it in the States.
3.2 Place of Supply
Considering the distinction drawn between inter-State and intra-State supply of goods and services, the IGST specifies the manner of determination of the place of supply of goods and services (and applicable under the CGST as well). The determination of the place of supply plays a key role in concluding the place and instance of taxation under the CGST, IGST and SGST.
- Goods
Under the IGST, the place of taxation of goods is determined as follows:4
- Transactions in relation to the installation or assembling of goods will be taxable at the place of such installation or supply;
- Transactions requiring the physical transfer of goods will be taxable at the final destination of the goods;
- Transactions requiring the physical transfer of goods under the direction of a third party that is neither the supplier or recipient, will be taxable at the place of business of such third party;
- Transactions that do not involve movement of goods are taxable where the goods are situated at the time of delivery to the recipient;
- Transactions involving the movement of goods on board a conveyance are taxable at the location where the goods are taken on board; and
- Transactions involving the import of goods are taxable at the location of the importer.5
- Services
The place of supply of services under the IGST is determined as follows:
- Services by a person registered under the IGST and CGST will be taxable at the place where such person is located;6
- Services by an unregistered person will be at the location of the recipient, if such recipient's address is available, failing which, it will be taxable at the location of the supplier of the services;7
- Services in relation to immovable property will be taxable at the place where the immovable property is situated;8 and
- Services that are to be actually performed at a particular place (such as catering, grooming and fitness services) will be taxable at the place where the services are actually performed.9
3.3 Computation of Tax
The value of the goods or services for the purpose of taxation under the acts, will be computed considering the following, as may be applicable:10
- Price actually paid or payable for the goods and services;
- Any amount incurred by the recipient in relation to the supply of goods or services that the supplier will be liable to pay, if such amount was not included in the price of the goods and services;
- Incidental expenses to the supply of goods and services, either before or at the time of such supply, including, but not limited to, commission and packing;
- Interest, penalty or late fee charged for any delayed payment of consideration;
- Subsidies, other than State and Central Government subsidies, that have a direct correlation to the price of the goods and services.
3.4 Composition Levy
As an alternative to the taxation of each instance of supply under the CGST and SGST, any registered person under the Acts whose turnover does not exceed INR 50,00,000 (Indian Rupees fifty lakhs) (approximately USD 75,000) in the previous financial year can opt to pay a composition levy.11 The CGST stipulates the upper limit of the composition levy that may be prescribed for different categories of supply and the conditions that the dealers must fulfil to be eligible to opt for a composition levy.
3.5 Investigative and Recovery Powers
It should be noted that the CGST grants wide powers of search and seizure. Any officer of the rank of Joint Commissioner or higher may authorize any officer of central tax to conduct and inspect or search a place and seize documents or goods if he reasonably suspects that an transgression of the Acts had occurred, and that such inspection, search or seizure is necessary to investigate such transgression.12 The officers so authorized by an officer of the rank of the Joint Commissioner or above, will also have access to the place of business of a registered person and the right to inspect any record, document, account or computer device.
The CGST also provides powers to officers to assess any person's returns and determine if either tax was unpaid, or short paid, or input tax credit was wrongly availed. In such instances, the officer must issue a notice to the assessee and provide the assessee with an opportunity to make a representation. If the officers passes an order adverse to the assessee, the assessee has a period of 3 (three) months from the order to pay the demand amount, failing which, the officer can institute recovery proceedings.13
The modes of recovery include:14
- any officer who holds any monies of the assessee to deduct the due amount from the same;
- any officer who holds any goods of the assessee to sell the same and recover the due amount;
- any person who holds monies for the assessee (or may hold monies for the assessee at some time in the future, including banks and insurers) to deduct the due amount from such monies and pay the Department;
- the attachment and sale of any movables or immovable of the assesse;
- the dues recovered as arrears in land revenue.
3.6 Miscellaneous Provisions
The Acts retain the input tax credit scheme and provide for the utilization of input tax credit provided under one Act to be utilized towards dues under another Act (or Acts). The Acts provide for a specific manner in which input tax credit can be availed interchangeably. However, it should be underlined that tax credits gained under the IGST and CGST cannot be utilized for payment of dues under the SGST and vice versa. As under the previous tax regime, input tax credit can only be availed by persons who have registered themselves under the Acts.
The Acts also retain the taxation on a reverse charge basis, under which, the recipient of the goods or services is required to pay the tax under the Acts instead of the supplier. The respective Governments are to determine the specific goods and services, for which, tax will be imposed on a reverse charge basis.
The Acts also provide for the determination of the time at which the tax liability arises, establishment of anti-profiteering measures and establishment of a "compliance rating" for each person that falls under the purview of the Acts, which shall be made available in the public domain.
Further, the Acts also make the partners of a partnership firm liable15 and the directors of a company[16] personally liable, jointly or severally, to pay any tax that has been determined to be due but unpaid. Similarly, for transactions between an agent and principal, both may be held liable for any tax that has been determined to be due for the said transaction but remains unpaid.[17]
4. THE TRANSITION TO THE NEW TAX REGIME
The Central Government has fixed July 1, 2017 as the date of the implementation of the GST and has already undertaken numerous measures to transition to the new regime. The Central Government, through its central tax departments and instrumentalities, has implemented various awareness and outreach campaigns to inform the public of the transition to the new regime, the change that it would introduce to daily life and the steps to be taken by the public to register and comply with the GST laws.
The Finance Ministry has set up a 'GST Working Group' to examine sector specific issues and peculiar difficulties that certain sectors might face in the transition and how best to alleviate such issues and difficulties.18
The Central Board of Excise and Customs has, as of this date, released two sets of non-binding FAQs that provide detailed information on the purpose, applicability and scope of the Acts and the proposed implementation of the various provisions thereunder.
The various draft GST rules have been formulated and released for public perusal and comment and the draft rules are currently available for perusal on the website of the Central Board of Excise and Customs.
The next step in the transition is for the various State Governments to introduce their respective SGST Acts and for the Central and State Governments to ensure that the various dealers under the old taxation regime all register under the GST Acts and for the Governments to announce the rates applicable for the goods and services effective July 1, 2017
5. CONCLUSION
The Acts, implementing the intention of the Amendent, pave the way for the roll out of the GST later this year. How quickly each State Government implements the SGST remains to be seen and will determine whether the target date of 1 July 2017 will be met.
Concerns persist in the manner of implementation of the Acts, and to what extent the SGST is implemented in its model form across the country. Correlating the Acts is absolutely critical in bringing about uniform implementation. It also remains to be seen to what extent different State Governments will deviate from the recommendations of the Council in setting applicable rates.
Moreover, doubts continue to remain as to whether the Acts, in their current form, will be effective in reducing the regulatory and administrative hurdles and paperwork currently faced by those to whom the Acts apply. That said, the Acts, though less than perfect, are steps in the right direction of creating a unified indirect taxation market.
Footnotes
1. Section 9(1) of the CGST
2. Section 5 of the IGST
3. Section 8(1) of the GSTCS
4. Section 10(1) of the IGST
5. Section 11 of the IGST
6. Section 12(2)(a) of the IGST
7. Section 12(2)(b) of the IGST
8. Section 12(3) of the IGST
9. Section 12(2)(4) of the IGST
10. Section 15 of the CGST
11. Section 10 of the CGST
12. Section 67 of the CGST
13. Section 78 of the CGST
14. Section 79(1) of the CGST
15. Section 90 of the CGST
16. Section 89 of the CGST
17. Section 86 of the CGST
18. By way of the Central Board of Excise and Customs order dated March 24, 2017
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
