Goods & Service Tax -Allowability of Credit

samarth jain , Last updated: 03 August 2015
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INTRODUCTION

‘G’ - GOODS
‘S’ - SERVICES
‘T’ - TAX

Goods and Service Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption [proposed Article 366(12A) of Constitution of India]. It will be a Destination Based Tax.

There will be no term like trader or provider of Service any more. Everything will get covered under the term “Supply”. Thus, stock transfers, branch transfers will also get covered under GST net. GST is a tax on goods and services under which every person is liable to pay tax on his output and is entitled to get input tax credit (ITC) on the tax paid on his inputs (therefore a tax on value addition only) and ultimately the final consumer shall bear the tax.

Under GST no distinction is made between goods and services for levying of tax. It will mostly substitute all indirect taxes except the following taxes levied on goods and services by the Central and State governments in India:

I) Customs duty II) Excise duty on Tobacco products III) Specific Cess IV) Taxes on liquor V) Electricity Cess VI) Property tax VII) Toll tax (VIII) Stamp Duty (VIII) Taxes collected by local bodies.

PROPOSED GST MODEL

The Dual GST model is proposed by the Empowered Committee and accepted by the Centre. Dual GST Model shall have two components i.e.

Central GST
State GST

Therefore, a dual structure in India would mean that there would be a Central GST and a State GST, each levied on a comprehensive base comprising both goods and services. Thus, every transaction would attract both taxes. It is also learned that under the proposed GST regime, the Centre will give input tax credit (set off) only for Central GST and the States will give input tax credit only for State GST. Cross-utilization of credit between Central GST and State GST will not be allowed. However, the dealers could claim set-off within the respective heads. After introduction of GST, all the traders will be paying both the types of taxes i.e. CGST and SGST.

Taxability of sale/service also determines the eligibility of input tax credit, as under:

S. No	Nature of Supply	Availability of Input Tax
1	Taxable Supply	Yes
2	Zero Rated Supply	Yes
3	Exempted Supply	No

Moreover, only the registered dealers would be eligible for input tax credit.

LEVY OF GST ON INTRA-STATE TRANSACTIONS

The dual GST model shall have two components i.e. Central GST and State GST. Both will be charged on a common base at the rates decided by the GST Council. There will be two parallel Statutes – one at the Centre and other under the respective State GST Act – governing the tax liability of the same transaction.

Cross utilization of ITC both in case of Inputs and capital goods between the CGST and the SGST would not be permitted except in the case of inter-State supply of goods and services (i.e. IGST).

LEVY OF GST ON INTER-STATE TRANSACTIONS

The existing CST will be discontinued. Instead, a new statute known as IGST will come into place. It will empower the CG to levy and collect the tax on the inter-state transfer of the Goods and Services. Rate of IGST will roughly be equal to the sum of CGST and SGST. Revenue from interstate transactions will accrue to the destination state and not to the Origin state.

Supplier in the origin State will charge IGST on Inter State transactions, which will be aggregate of CGST & SGST, i.e., IGST = CGST+SGST. Inter-State Supplier shall use his input CGST and input SGST for payment of IGST, i.e., he shall pay net IGST.

Inter-State Buyer shall avail input tax credit on the basis of tax invoice for payment of his own IGST, CGST or SGST.

Since ITC of SGST shall be allowed, the Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his SGST liability (while supplying the goods and services in state itself). Thereafter, the Centre will transfer to the importing State the credit of IGST used in payment of SGST.

IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST. IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importing dealer for supplies made by him.

Input Tax Component	Output Tax Liability
Input Tax Component	IGST	CGST	SGST
IGST	√	√	√
CGST	√	√	X
SGST	√	x	√

As per 122nd Constitutional Amendment Bill, it is proposed that Central Government would levy and collect an additional tax at the rate of not more than one percent, in respect of the supply of goods in course of inter-state trade or commerce. The tax is proposed to be levied for a period of 2 years. The additional tax would be collected by the Centre and would be apportioned to the state from where the supply originates. The additional tax would be non- vatable.

LEVY OF GST ON EXPORTS

GST on export would be zero rated.

LEVY OF GST ON IMPORTS

Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

LEVY OF GST ON BRANCH TRANSFERS

Branch transfers are now taxable under the proposed GST structure and they would be treated like a normal transaction of sale.

TREATMENT OF FOLLOWING SPECIFIC GOODS UNDER GST

1. TOBACCO PRODUCTS:

Tobacco and its products will be subjected to GST. Simultaneously, Centre will be allowed to levy excise duty on tobacco and its products in addition to i.e. over and above GST.

2. ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION:

It is kept outside the scope of GST. Sales Tax/VAT will continue to be levied on alcoholic liquor as per the existing practice. Excise duty, which is presently being levied by the states, will also not be affected. It would require another Constitutional Amendment whenever brought within ambit.

3. PETROLEUM PRODUCTS:

Specified petroleum goods will be brought within the GST ambit from a date recommended by GST Council. Until then, Union Excise Duty/VAT will continue to be levied on these goods in the present manner. However, it is stated that these goods will also be subject to GST but at Zero Rate. Following goods have been specified under this category: