Key GST Bills were passed in Lok Sabha. It is expected that GST regime shall be implemented with effect from 1st of July, 2017. Key proposals in the bill passed in Lok Sabha is as follows -
1. Non-Applicability of GST Law in the State of Jammu and Kashmir: The GST law is not applicable to the State of Jammu & Kashmir. It appears that present arrangement shall continue in the state.
2. Taxable Event i.e. Supply: Taxable event is supply. Supply includes all forms of supply including sale, transfer, barter, exchange, license, rental, lease, disposal etc. in course of furtherance of business. The term has been defined widely and it encompasses within itself all forms of supply of goods and services. In a nutshell, every business activity shall fall within the definition of supply and the business shall be taxable under the GST Law.
With a view to keep some flexibility to increase the rates in future, the upper cap has been fixed at 20% and 40% respectively under CGST and IGST Law. However, the applicable slab rate is expected to be same as approved by council i.e. 5%, 12%, 18% and 28%.
3. Supply made by a non-registered person to a registered person is taxable under reverse charge method [Section 8(4) of the CGST Law].
The innocuous proposal is path breaking. A registered person is required to pay GST on all supplies received from a non-registered person. The proposal shall encourage all suppliers to get registered.
4. Composition scheme: GST laws proposes composition scheme for supplier of goods @1% in case of manufacturing unit, @0.5% in case of trading unit. Composition scheme is not applicable to service providers except to restaurant, eateries, banquet halls etc. The scheme is applicable only when turnover in the previous financial year was less than 50 lakhs.
No input tax credit is available of taxes paid under composition scheme. In view of this composition scheme shall be useful only to those suppliers who are supplying predominantly to non-registered consumers.
5. Input Tax Credit: Taxes paid on inputs are available as credit which can be used for payment of output taxes. Input CGST credit received can be used for payment of CGST & IGST, input SGST credit received can be used for payment of SGST and IGST, and input IGST credit can be used for payment of IGST or CGST or SGST in that order. There is no loss of input credit.
Certain restrictions have been placed in taking credit. Input credit on motor vehicles, personalized services like food, catering, health, insurance given to employees, clubs, LTA travel benefits etc. are not allowed. Credit of construction of building is not allowed.
Input credit is required to be taken within 1 year from the issuance of invoice, before end of September of next financial year.
6. Removal of uncertainty relating to chargeability of GST on Supply of Immovable Property/ actionable claim: “Services” were defined as anything other than goods. Thus there was an apprehension that Government may levy GST on supply of Immovable Property such as Land or building apart from levy of Stamp duty on such transactions. Now in the bill introduced in the parliament, the government has removed that uncertainty by providing in Schedule III that, “Sale of land and, sale of building except the sale of under construction building will neither be treated as a supply of goods nor a supply of services. Thus GST can’t be levied in those supplies.
In the Schedule III of newly introduced bill, Actionable Claim, other than lottery, betting and gambling will neither be treated as a supply of goods not a supply of services. Thus GST can’t be levied in that case.
7. Payment to be made in 6 months: Earlier where a recipient fails to pay to the supplier of services, the amount towards the value of supply along with taxes thereon within a period of 3 months from the date of issue of invoices by the supplier, an amount equal to ITC availed were required to be paid along with interest thereon. Thus the aforesaid provision was restricted only in case of Services. Further there was no provision made in the law for re-allowing the credit reversed earlier due to application of aforesaid provisions. Now in the bill, the aforesaid provision is also extended to supply of Goods. Further, the time period for payment is extended to 180 days from earlier 3 months. Further provision has also been made for re-availing the credit reversed earlier at the time of actual payment.
8. Detailed procedure has been prescribed regarding preparation of invoices, debit note and credit notes, maintenance of accounts and records, procedure of filing returns etc. The procedure prescribed appears reasonable and clear. Such procedures will reduce interface with the department and likely to reduce corruption/disputes. Provision has been made for the electronic cash register, electronic credit register, electronic liability register etc. which is likely to reduce disputes in these areas.
These provisions requires diligence on the part of the assessee. However, such provisions are boon to honest and diligent assessee as these will reduce unnecessary disputes.
9. Detailed provisions have been made in Chapter V of the IGST Bill to determine place of supplies. Determination of place of supply at the time of preparation of invoice is necessary to determine if SGST or IGST is required to be paid.
The issue of determination of place of supply is likely to affect interests of the states, provision has been made that only national bench of the appellate tribunal shall hear appeal involving questions of place of supply. Further appeal shall lie directly to Supreme Court.
10. Demand can be raised within three years from date of furnishing annual returns if there is no suppression, misstatement or fraud. The time limit is extended to five years in case of suppression, misstatement or fraud.
11. The bill has provided for adjudication/appeal etc. The bill is silent on first appellate authority. It is expected that Government will try to create independent and impartial first appellate authority. A departmental and rubber stamp appellate authority merely results in wastage of time and corruption without any benefit to either the revenue or to the assessee.
12. The provision of Advance Ruling has been extended. It appears that every state shall have any authority with appellate authority for advance ruling. Various questions like classification of goods, admissibility of credit, determination of time and value of supply, determination of tax etc. can be raised before authority of advance ruling.
13. Strong deterrent provision has been made for violation of laws. List of violations have been increased substantially with deterrent provisions of penalty, arrest and prosecution. Provision of compounding has also been retained.
14. The bill has proposed GST compliance rating of assessee. It is a very novel and progressive concept. It is suggested that every GST office should also be rated by assessee. Such ratings will make offices courteous and efficient.
A detailed analysis of various aspects of the proposed law shall follow. We shall keep you informed regarding further changes likely to be declared when Rules/notifications are notified. A smooth transition to GST regime is necessary for every progressive business.