The passage of 122nd Constitutional Amendment Bill, 2014 (CAB) by Rajya Sabha on 3rd August 2016, was considered a historic moment as it cleared the hurdle for introduction of a path-breaking tax reform in India, the Goods and Services Tax (GST).
Since then manifold developments have occurred to meet the April 1, 2017 deadline set by Finance Minister Arun Jaitley for the introduction of GST.
To begin with, ratification of the CAB by 50 percent of the States materialised within 23 days, much earlier than the expected timeline of 30 days (as per Revenue Secretary’s statement). As per the Constitutional process, CAB was then accorded Presidential assent on September 8, 2016 and finally became law by way of promulgation as the 101st Constitutional Amendment Act, 2016.
Furthermore, in compliance with Article 279A of the Constitution of India, the Cabinet approved the creation of the GST Council and its Secretariat effective September 12, 2016 and the Council’s first meeting was held on September 22 and 23.
NACEN –Government On Frontfoot
The anticipated challenge of comprehending the GST law as also the potential transitional difficulties are zealously being addressed by the Government by issuing clarifications, statements, etc from time to time.
In this regard recently, the National Academy of Customs, Excise & Narcotics (‘NACEN’) prepared a comprehensive set of Frequently Asked Questions (‘FAQs’) – a 276 pager document to get industry and indirect tax officers acquainted with the Model GST Law 2016 (issued on June 14, 2016). The document covers 24 topics with over 500 questions in all. It should be noted that this is the first version of FAQs released by NACEN and updated versions would be released when statutes are enacted and rules are framed. Also it is made clear that the purpose of the FAQs is to create awareness of at law to the industry and it should not be treated as legal advise/opinion/interpretation.
Separately, NACEN is conducting a mammoth capacity building exercise to train about 60,000 indirect tax officers of the centre and states so that officers are well equipped to implement GST when it is rolled out.
While all the questions covered under the FAQ are relevant, some of the key questions (in our view) are reproduced below:
Which of the existing taxes are proposed to be subsumed under GST?
The GST would replace the following taxes:
Taxes currently levied and collected by the Centre
- Central Excise duty
- Duties 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
- Central Surcharges and Cesses so far as they relate to supply of goods and services
State taxes that would be subsumed under the GST are
- State VAT
- Central Sales Tax
- Luxury Tax
- Entry Tax (all forms)
- Entertainment and Amusement Tax (except when levied by the local bodies)
- Taxes on advertisements
- Purchase Tax
- Taxes on lotteries, betting and gambling
- State Surcharges and Cesses so far as they relate to supply of goods and services
The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges, currently levied by the Centre, the States and the local bodies, which may be subsumed in the GST.
What do you mean by “supply made in the course or furtherance of business”?
No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:
The test may ensure that occasional supplies, even if made for a consideration, will not be subjected to GST.
- Is the activity a serious undertaking earnestly pursued?
- Is the activity pursued with reasonable or recognisable continuity?
- Is the activity conducted in a regular manner based on sound and recognised business principles?
- Is the activity predominantly concerned with the making of taxable supply for consideration/ profit motive?
Are self-supplies taxable under GST?
Inter-state self-supplies such as stock transfers will be taxable as a taxable person has to take state-wise registration in terms of Schedule 1(5). Such transactions have been made taxable even if there is no consideration. However, intra-state self-supplies are not taxable.
Can a company have multiple ISD?
Yes, different offices like marketing division, security division etc. may apply for separate ISD. Importation of Goods is conspicuous by its absence in Section 3.
Importation of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty.
Suppose a taxable person has paid IGST/CGST/SGST mistakenly as an interstate/intrastate supply, but the nature of which is subsequently clarified. Can the CGST/SGST be adjusted against wrongly paid IGST or vice versa?
No. He will have to pay the appropriate tax and claim refund of the tax wrongly paid. (IGST Sec.30 and Sec.53 GST).
Whether Works contracts and Catering services will be treated as supply of goods or supply of services? Why?
Works contract and catering services shall be treated as supply of service as specified in Schedule-II of MGL.
An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of MGL? Give reasons for the answer.
No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.
Where goods and/or services received by a taxable person are used for effecting both taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable person?
As per section 16(6) of MGL, the input tax credit of goods and / or service attributable to only taxable supplies can be taken by registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the MGL read with GST ITC Rules (yet to be issued). It is important to note that credit on capital goods also would now be permitted on proportionate basis.
With the government moving fast to ensure timely implementation of GST, it is imperative that industry gear-up for this new regime and make best use of the time available till implementation.
Hence it would be useful for industry to go through the FAQs issued and ascertain if some of the issues/clarifications sought are resolved. Simultaneously, for the smooth transition to GST and to be GSTready from the 1st day of implementation, it is advisable for industry to undertake some of the aspects mentioned as below:
- Conduct GST transaction-wise impact analysis.
- Form GST steering committee to have a control on GST impact and implementation process across business functions.
- File representations with the government to seek clarity/amend provisions (more than 40,000 pages of representation done till August 2016).
- Realign business models to suit the GST regime.
- Develop SOPs and training modules for training employees/vendors.
- Ascertain the impact of GST on long-term contracts.
- Ascertain whether IT Systems require an upgrade and undertake one if required.
- Prepare a plan for effective transition.
The article is authored by Jigar Doshi - Partner, Sunny Kachalia - Senior Manager and Sneha Bhandari - Executive at SKP. SKP is a tax consulting firm. The views above are personal.
The views expressed here are those of the authors’ and do not necessarily represent the views of Bloomberg Quint or its editorial team.