SKP Group
SKP GST Update
17 June 2016 | Issue 16
FAQs on the Model Goods and Services Tax (GST) Law

What would the taxable event under GST be?
  • The taxable event under GST shall be the supply of goods and services or both. The term supply is defined in the Model Law to include:
    1. all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposals made or agreed to be made for a consideration.
    2. Certain supplies without consideration, which are meant for furtherence of  business, shall also attract GST.
    3. Importation of services, whether or not for a consideration and whether or not in the course of or furtherance of business.
  • Time of supply provisions to help the taxpayer determine the taxable event on various supplies.
  • Place of supply provisions to help the taxpayer determine the place of supply for goods and services
  • Though the supplier shall be primarily responsible for payment of tax under GST regime, the supply of certain goods and services shall be taxed on a reverse charge basis.
 
Will the supply of software and works contracts be treated as goods or services under GST?
  • Transfer of right to use goods and works contracts have been deemed as service under the Model GST Law. Furthermore, the Model GST Law specifies intangible property as a service. This brings much-needed clarity in the taxation of these sectors.
 
How will the value of supply be determined under GST?
  • GST shall be levied on the transaction value (i.e. price actually paid or payable for supply of goods or services). MRP-based valuation (as existed under excise provisions) is discontinued in the GST regime.
  • Reimbursements of expenses, subsidies, taxes or duties paid other than CGST, SGST or IGST shall be included in the transaction value.
  • After supply discounts shall not be deducted from the transaction value.
  • Specific valuation rules (GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016) provided in the Model GST Law.
 
What are the requirements of registration under the Model GST Law?
  • The threshold for registration provided under the Model GST Law is the aggregate turnover of the supply of taxable goods/services exceeding INR 900,000 in financial year. This threshold shall be INR 400,000 for northeast states including Sikkim.
  • Suppliers engaged in inter-state supply are required to be registered without any basic threshold limit.
  • The Model GST Law requires obtaining state-wise registration. The concept of centralised registration (as presently available under service tax) is not provided for in the Model GST Law.
  • Existing registrations under the current laws will be migrated to the GST regime by way of the GST Network (GSTN).
 
What are the necessary compliances under GST?
 
Compliance Details Periodicity Due Date
Returns Outward supplies Monthly 10th of next month
Inward supplies Monthly 15th of next month
Combined return Monthly 20th of next month
Tax deducted at source Monthly 10th of next month
Input service distributor Monthly 13th of next month
Annual return Annual 31 December of next FY
Audit of books of accounts Audit by a CA or CMA if turnover exceeds the prescribed limit Annual 31 December of next FY
The aforesaid compliances shall be required to be complied separately for each registration.
 

GST shall require payment of CGST, SGST and IGST, what is the mechanism to claim and utilise input tax credit (ITC) of the taxes paid?
  • ITC shall be available for taxes paid on procurement for outward taxable supplies.
  • The manner of the utilisation of ITC of CGST, SGST and IGST shall be as follows:
Tax payable to the government CGST SGST IGST
Credit permitted
(in the following order)
CGST
IGST
SGST
IGST
IGST
CGST
SGST
  • The concept of Input Service Distributor to continue under GST regime.
  • The upper limit of timeline to avail ITC has been specified in the Model GST Law.

Whether cascading of taxes is put to rest under GST and a mechanism is set for seamless flow of input tax credit?
  • Negative list of supplies ineligible to ITC is provided in the Model GST Law which includes services such as insurance, outdoor catering, etc. primarily used for personal consumption of employees; services in relation to the execution of works contract. Thus, to some extent cascading of taxes would still prevail.
  • This is in contrast to the basic principle of GST regime which is envisaged to provide a seamless flow of tax credit.
 
Will upfront exemptions under the current tax regimes (such as SEZ) continue under the GST regime?
  • The Model GST Law is silent on the continuation of exemptions under certain current tax regimes (such as SEZ) in GST regime. However, a separate refund mechanism for exporters of goods and services has been prescribed in the Model GST Law.
  • The Joint Committee report on the refund process has provided for refunds to SEZ units, which may be construed as discontinuance of exemptions to SEZ units. Thus, SEZs may consider representing on this aspect before appropriate forums.
 
What is the fate of CENVAT credit and VAT credit lying in balance in the return under the current regime?
  • A separate chapter which deals with transitional issues has been provided.
  • These provisions allow taxpayers to carry forward the balance tax credit from the current regime to GST regime, subject to the prescribed conditions. Thus, it will be interesting to see what conditions will be prescribed which will enable an assesse to carry forward the unutilised credit balance to the GST regime. Thus, it will be worthwhile to analyse the provisions further, in order to explore the benefits of these transitional provisions.
 
Will ITC refund be available to exporters under GST?
  • The refund of CGST/SGST/IGST could be claimed within two years from the relevant date.
  • Refund of unutilised ITC shall be granted under the following scenarios:
    • Export of goods
    • ITC accumulated on account of rate of tax on inputs being higher than rate of tax on outputs (i.e. inward duty structure)
    • Deemed exports

Is there any clarity provided on e-commerce operators?
  • The Model GST Law has introduced a separate chapter for e-commerce operators. According to the new provisions, e-commerce operators will be liable for the collection of tax at source (TCS) at the prescribed rate from the suppliers, who use its electronic platform for supply of goods and/or services.
  • Furthermore, the operators will be required to furnish electronically a statement of all amounts collected towards outward supplies of goods and/or services effected through it during a calendar month.
  • The aforesaid compliances are expected to burden e-commerce companies.
 
Does the Model GST Law mention anything about an additional 1% tax?
  • There is no mention of the applicability of the proposed 1% non-creditable additional tax in the Model GST Law. Given this, the hopes are high that the proposal to levy 1% additional tax on inter-state supplies may be dropped.
SKP's comments
This Model GST Law certainly portrays the general thought process of the government on every aspect of the new GST Law in India. Considerable research, technical knowledge and ground-level efforts have gone into creating the Model GST Law which shows the government’s GST preparedness and its intent to implement it by April 2017.

On 14 June 2016, in a recently concluded Empowered Committee meeting, all states consented to ‘no Constitutional cap on tax rate’, while unanimously agreeing that contingencies may arise in the future with respect to the quantum fixed by the GST Council and thus, it shall be left to the Council’s discretion.

Now, that the ruling NDA government has strengthened its position in the Rajya Sabha (Upper House) and garnered support (for GST) from many other parties, the tide is almost in GST’s favour. And now with the release of the Model GST Law, business organisations across India will also have to acknowledge that the government is prepared to implement GST in India by April 2017. With this, businesses too will have to begin their process of GST preparedness as soon as possible to ensure full optimisation of this opportunity.
u

19 Adi Marzban Path | Ballard Estate | Fort | Mumbai 400 001 | India
+91 22 6730 9000 |
skp.gst@skpgroup.com | www.skpgroup.com
 
Mumbai | Pune | Hyderabad | New Delhi | Gurgaon | Chennai | Bengaluru
Member of Nexia International
LinkedIn
Twitter
Facebook
Google+
DISCLAIMER
This update contains general information which is provided on an “as is” basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This update should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this update is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

Whilst every effort has been made to ensure the accuracy of the information contained in this update, the same cannot be guaranteed. We accept no liability or responsibility to any person for any loss or damage incurred by relying on the information contained in this update. 

© 2016 SKP Business Consulting LLP. All rights reserved.