Bimal Jain – Chairman Indirect Tax Committee, PHD Chamber of Commerce
The Central Government has put the Draft Model GST Law on public domain after getting in-principle nod from the Empowered Committee of State Finance Ministers, in a way, signalling that the GST might mark its advent from April 1, 2017. The Draft GST Law is a model, which the Central Government and each of the State Governments would use to draft their respective Central and State GST Acts. Further, a Draft of the Integrated GST (IGST) Act, 2016, which will govern levy of GST on inter-State supplies by the Central Government, is also issued.
The Draft Model GST Law provides an insight on the governing provisions regarding levy and collection of GST, which consists of 162 clauses divided into 25 Chapters along with 4 schedules and Rules as to Valuation under GST. Further, the Draft Integrated (IGST) GST Act, 2016 is also issued, which consists of 33 clauses divided into 11 Chapters.
The availability of Draft Model GST Law enables the Trade and Industry to plan the transition from the existing Indirect tax regime to the GST regime. It is important to understand the implication of GST in detail as prevailing concepts of manufacturing of Goods/ provision of Services/ sale of Goods will no longer be relevant and common base has to be arrived at for levy and collection of GST in all cases with determination of taxable jurisdiction and time of supply for levy of GST in respect of supply of goods and services. Further, it is also important to see how seamless flow of GST credit ensured in the draft GST law so as ensure no cascading of taxes and how procedural aspects like Payment of tax, interest, penalty and other amounts; Tax invoice, credit and debit notes; Returns and related compliances; Demands/ recovery; Refund; Transitional provisions, etc., are kept simple and minimal so as to ensure ease of doing business in India.
It is important that a thorough analysis of the Draft GST Law is undertaken so as to provide necessary suggestions/ feedback to the Government.
Pratik Shah – Head Indirect Tax; SKP Business Consulting LLP
14th June 2016 shall be inked as a date of paramount importance for India’s biggest Indirect tax reform since independence – Goods and Services Tax (GST). It was on this very date, that Union Finance Minister deliberated a consensus among various State Finance Ministers to chart the way forward on GST. And, it was on this red lettered date, on which all the States finally agreed to give their provisional consent to “No constitutional cap on tax rate” and decided that the same shall be left for council’s discretion only. This unanimous consent has completely turned the table in favour of GST and has reiterated Governments arduous commitment to introduce GST in India.
Further, on this very date after convening a major consensus on ‘Constitutional Cap on Tax rate’, the Empowered committee also formally accepted the Model GST Law. Soon after the acceptance, Model GST Law was released in public domain for review. The Model GST Law is divided into two major parts Goods and Services Tax Act and Integrated Goods and Services Tax Act covering various aspects relating to definition, administrative structure, levy and exemption of taxes, time and place of supply, registration returns and refunds, provisions relating to Input tax credit, Valuation mechanism, principles for determining supply of goods and services in inter-state trade or commerce, transitional provisions and other aspects. On initial glance of the Model law, it appears that thought it is not the ideal GST legislation but certainly a great piece of work done by legislature and the substantial amount of research, technical knowledge and ground level efforts that has gone behind finalization of this Model GST Law.
With the Model GST Law in public domain, GST has achieved a major milestone in its implementation process. The passage of GST Bill through Rajya Sabha is probably the only major hurdle left to be conquered in the GST implementation process. Further, in a positive turn of events for the ruling NDA Government, many parties (who were in denial earlier) have now provided their consent to support the GST Bill in Rajya Sabha, thus tremendously increasing the chances of getting the GST Bill passed through the Rajya Sabha. Also, the Finance Minister claims to have the requisite numbers to pass the GST Bill in the Rajya Sabha in the upcoming Monsoon session, thus targeting April 2017 as GST’s implementation date to be highly probable. In view of the aforesaid development’s organizations are now required to prepare for GST and ensure full optimization of the GST opportunity knocking at their door!
Sudipta Bhattacharjee - Principal-Tax Controversy Management, Advaita Legal
When one looks through the model law, apart from the various structural aspects, one point that clearly emerges is the fact that the Government has learnt its lessons from the various Constitutional challenges it has lost before various High Courts and taken corrective measures by adopting a cautious approach to the drafting of this model legislation. For example, the entire litigation over power to levy service tax on a reverse charge basis on import of services which finally ended with the incorporation of Section 66A in the Finance Act has been pre-empted vide specific statutory provisions for levy of service tax on reverse charge basis. On similar grounds, doubts were expressed by various trade bodies on the validity of levying service tax on ‘aggregators’ since currently the concept of ‘aggregators’ is currently mentioned only in the Service Tax Rules – these concerns have now been dealt with by incorporating the concept of ‘aggregator’ the legislation itself. Further, assumption of general powers of audit by service tax authorities had been struck down by various High Courts in the last two years inter alia on the ground that the service tax legislation does not provide for general powers of audit – this aspect has been dealt with by specifically providing for general powers of audit in the model legislation. Furthermore, given the time-to-time conflicts (and set-backs) that the State Governments have had in their attempts at taxation of E-Commerce companies in the sale of goods space (either through VAT laws or through entry tax laws), the model laws includes a whole chapter to deal with E-commerce and has prescribed a tax collection at source model – this is akin to what the Karnataka Government sought to do post the Amazon fiasco. Similarly, in a praiseworthy move, the model legislation clearly lays down that intangible property will not qualify as ‘goods’ but as ‘services’ – this will go a long way in mitigating double taxation and consequent avoidable litigation as is prevalent today vis a vis software, intellectual property (including brand names – like in the case of Tata Sons) etc. Continuing with the litigation theme, it is worth noting the rather draconian provision in this model law that no limitation period has been prescribed for issuance of show cause notice irrespective of whether such notice is occasioned with or without wilful default/intent to evade. The only limitation provided is in relation to passing of the order in relation to such proceedings.
Moving on, the concept of seamless credit under the GST regime appears to be more of a myth. On a quick glance of the input credit provisions under the model legislation, it appears that most of the credit restriction provisions under the extant CENVAT Credit Rules and various State VAT legislations have all been included in the GST model law. One such restrictive provision is the non-availment of CENVAT credit in relation to goods and services which are used for execution of works contract which results in construction of immovable property, except plant and machinery. This provision would result in substantial increase in tax cost for construction and real estate sectors. While the credit provisions are indeed restrictive, a possible silver lining may be discerned in the form of the credit transition provisions which may allow the taxpayer to take credit which has been carried forward in the return, provided that the credit was admissible as CENVAT credit under the earlier law and also under the GST law. This may enable tax payers to avail credit of the unutilized credit of education cesses (lying unutilized since last year), which although was admissible as CENVAT Credit, but could not be utilized by the tax payers on account of non-levy of the cess.
Biren Vyas – Director, Grant Thornton India LLP
“The Draft Model Goods and Services Tax Law has been framed with an approach to address the current tax issues faced by most of the industries. An overall basis, it is an attempt to introduce simplified tax model to bring uniformity and provide ease in doing business which could be achieved with technology support for compliance demanding model.”
Sarika Goel – Partner, Ernst & Young LLP
“The Model GST Law is a fairly comprehensive document with certain new concepts being combined with the legacy VAT and CENVAT framework. The industry had been eagerly waiting for the draft legislation, since it provides the much needed visibility and window for industry to understand the proposed GST framework and provide its necessary feedback to the policymakers, to help them shape the final law in a manner that provides certainty, tax efficiency and ease of doing business for the taxpayer.
However, certain key aspects such as treatment of supplies to SEZ/ STP, area based incentives and state level incentives under the GST regime, still remain unanswered. Also, at this stage no negative list has been prescribed. Some of these require consensus-building and hopefully, further clarity will emerge in the ensuing months. Also, the credit mechanism continues to reflect legacy framework and is restrictive, contrary to the industry expectation of a comprehensive and liberal credit regime.
At the same time, the Model GST Law brings hope that the controversies related to taxability of works contracts, lease transactions and supply of software will be put to rest, by classifying them as services irrespective of whether the transaction involve goods or services or both. The transition provisions appear to be well thought through and are comprehensive, covering multiple situations, though the condition that all transition credits have to be admissible under the previous regulations as well as the GST regulations can impact a smooth change over.
The announcement of more frequent meetings of the Empowered Committee in the coming months to discuss the revenue neutral rate and other topics has revived India Inc’s hope of the GST being rolled out from April 2017.”