- We were waiting for GST for a decade and at this moment we are already in the GST regime. The taxation of GST can be sequentially observed in following 10 steps :
- Is It a Supply?
- Is it a Good or Services?
- Is it a Non-taxable or Exempted Supply?
- Is the supply by a Taxable Person?
- What is the place of supply?
- What is the Time of supply?
- Value of Supply
- Rate of Taxes
- Eligible ITC
- Tax Payable = (Out Put Tax- Eligible ITC)
Is it a Supply ?
(a) Supply is having a very wide grammatical meaning. It means making available any thing. In GST we need to follow only such transactions of goods, services or BOTH which are covered by section 7 of the CGST ACT.
(b) Supply as per section 7 of the CGST or SGST Act brings out to cover almost all activities in Goods, Services or Both as supply provided:
(i) made or agreed to be made
(ii) for a consideration by A person
(iii) in the course or furtherance of business.
(c) Service (Goods) Imported may or may not be in the course or furtherance of business with a consideration.
(d) 4 specific activities are mentioned in Schedule -1 where consideration is not necessary.
(e) There are a few items in Schedule -III which are not supplies ( Negative list)
(f) There are activities mentioned in Schedule- II which are deemed either as goods or services. The same items have been specifically included in the definition of Supply
(g) Anything beyond the scope of supply cannot be brought to tax under GST. However, Sub-section (1) and Sub-section (2) of Section 9 of the CGST Act have specifically excluded 5 petroleum products and alcoholic liquor for human consumption which are outside the ambit of GST.
Is it Goods or Services?
(a) In the GST we are having an idea of one tax and probably we apprehended that there may not be requirement of differentiating between goods and services; however, that fact remains is that in every step of tax compliances we need to differentiate between the goods and services separately.
(b) Further, as per section 8 of the CGST Act, in case of composite supply the rate of principal supply would be applicable to full value of composite supply. Composite supply as per section 2 of the CGST is when two or more goods or services are present in a bundle. Hence, to define the composite supply as goods or services the nature of principal supply might have been followed.
(c) The Goods and services are having different HSN Code and SAC Code. Both are having different tax rates and, hence, for classification the goods and services are to be classified as separate individual items.
(d) Point of taxation in case of Goods in contrast to point of taxation of services is completely different and differentiation is required.
(e) Issuance of Invoice in case of Goods in contrast services is completely different and differentiation is required.
(f) Location of Supplier of Goods and location of recipient of goods are not defined under IGST Act. However, location of Supplier of Services and location of Recipients of Services are defined under IGST Act.
(g) Place of supply of goods in contrast to Place of Supply of Services are completely differently administered. The place of supply of Goods mostly depends upon the physical movement and location of goods, where as in case of place of supply of services the general principle followed is the registered principal to principal. However, place of supply of services in case of immovable property the location of property becomes place of supply.
(h) Section 10 of the CGST Act talks about composition Scheme and it is available to persons dealing with Goods only except one specific service.
(i) Sub-section 3 of section 9 covers specific goods or services where the taxes are to be paid by recipient. Section 24 mandates registration of every person who is liable to pay taxes under Reverse charge mechanism. Hence, specific differentiations of Goods and services needs to be done to evaluate the registration requirement of a recipient.
Is it a Non-taxable or Exempted Supply?
- Tax cannot be levied when the activity is a supply but is either non-taxable, or under negative list or a exempted supply. The definition of these three is specifically given and departs from traditional understanding
(a) Non-taxable supply has been defined as supply which is not leviable to tax. The example could be anything out of preview of Supply as defined under section 7 and five petroleum products and liquor for human consumption specially excluded either permanently or for the time being, as the case may be.
(b) Negative list items have been given in Schedule -III which is in similar line of Section 66D of the erstwhile Finance Act. However, a few items were mentioned in the schedule which are not taxable.
(c) Exempted supply has been defined under CGST Act to include all types of supplies of goods or services or Both
(i) attracting nil rate
(ii) wholly exempt from tax under section 11 of the CGST Act or section 6 of the IGST act
(iii) Non-taxable supply
(d) Hence, once an activity is covered as non-taxable it also a exempted supply and the output tax would be nil. However, if any of such Goods or services were exported it would be regarded as ZERO RATED. Even though the output tax is nil the ITC would be allowed as credit or to be refunded.
Is the supplier a Taxable Person?
- Every taxation statue must consist of provisions with respect to the administration of the law and the collection mechanism of the tax levied thereunder. Under GST Acts taxable person has been defined and entrusted with the responsibility to pay the taxes levied under GST.
(a) Section 9 of the CGST Act, being the charging section, brings responsibility to pay the taxes by the taxable person. Further, sub-section 3 and Sub-section 4 of section 9 have provisions and circumstances where taxes are to be paid by the recipients and all the provisions of tax administration would apply mutatis mutandis. Further, Sub-section 5 of section 9 also enumerates specific services where the e-commerce operator would pay tax who is neither a supplier nor a recipient.
(b) Section 2 defines that taxable person is one who is either a registered person or is liable to be registered.
(c) Section 22 and section 24 define when a person is liable to be registered. Section 22 gives a blanket minimum exemption limit for registration, whereas section 24 enumerates a compulsory registration in case of specific conditions.
(d) Section 23 also specifies instances where registration is not required.
(e) Where a person is not registered and is also not liable to be registered, he cannot be regarded as a taxable person and, hence, cannot be brought under GST law to pay taxes.
(f) However, there are specific cases where different responsibility has been casted to register under GST to comply with certain provisions. However, the same are not related with output tax liability. The examples are
(i) Tax Deduction Account number
(ii) Tax Collection Account number
(iii) Unique Identification number
(iv) Unique enrolment number
What is the place of supply?
- Place of supply is nothing but the backbone of GST mechanism. The principle of “Destination based consumption tax”, is fulfilled by the principles of Place of supply. Place of supply not only specifies the transactions as intra-State or inter-State, it also specifies which State or which union territory. Place of supply is the mechanism to differentiate between the destination of the tax among the 31 States and 5 union territories as per GST law and constitutional amendments. (Constitutional amendments have suitable definitions that for the purpose of GST, the union territories of Delhi and Pondicherry are regarded as States).
(a) Whenever a supplier or a taxable person is liable to pay taxes for the supply of goods, services or both, the first requirement is to define the place of supply of such goods, services or both.
(b) The location of the recipients may be required to evaluate the correct place of supply. However, for place of supply, location of supplier or location of the recipient is not required per se.
(c) Where the location of the recipient and the place of supply in different States the credit may not be available to the recipient. However, to evaluate the correct place of supply and to denote correct State or union territory code in the invoice as well as return of GST is the prime responsibility casted on the taxable person.
(d) It is pertinent to mention here that evaluating a wrong place of supply does not amount to any kind of evasion or less payment of taxes as in any way the amount of taxes are same. But the correct evaluation of Place of supply is warranted for the purpose of transferring the tax revenue to the appropriate State or union territory.
What is the Time of supply?
- Time of supply is the point of time when the tax becomes payable . In case of GST the law has taken colour from the provisions of the Finance Act and the rule made thereunder. However, the point of taxation for goods has undergone a change from erstwhile VAT to current GST regime. The taxation of advance amount on sale would be looked into specifically.
Value of Supply
- Value of supply has been in general a transaction Value. However, Valuation Rules have been notified in the absence of transaction value. The interest, penalty for delayed payment now have to be regarded as value for GST.
Rate of Taxes
- Rate of taxes as per HSN wise and SAC wise are to be found out and to be applied. However, in case of mixed supply of different goods or services the higher rate on all the items is to be applied. Similarly, in case of composite supply the rate of taxes applicable to the principal supply would be applied to the complete value of supply
- Though ITC is being allowed in gross, there are certain cases of blocked credit. Further, in case of supply of taxable as well as exempted goods or services or both, the ITC needs to be reversed partially.
(a) A registered person will be eligible to claim Input Tax Credit (ITC) on fulfilment of the following conditions:
(i) Possession of a tax invoice or debit note or document evidencing payment
(ii) Receipt of goods and/or services
(iii) goods delivered by supplier to other person on the direction of registered person against a document of transfer of title of goods
(iv) Furnishing of a return
(b) Where goods are received in lots or instalments ITC will be allowed to be availed when the last lot or instalment is received.
(c) Failure of the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed will be added to output tax liability and interest is to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed.
(d) No ITC will be allowed if depreciation has been claimed on tax component of a capital good.
(e) Items on which credit is not allowed
(i) Motor vehicles and conveyances (with some exceptions)
(ii) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
(iii) Membership of a club, health, fitness centre.
(iv) rent-a-cab, health insurance and life insurance (except few)
(v) Travel benefits extended to employees on vacation such as leave or home travel concession.
(vi) Works contract service for construction of an immovable property (except plant & machinery or for providing further supply of works contract service)
(vii) Goods and/or services for construction of an immovable property whether to be used for personal or business use.
(viii) Goods and/or services where tax has been paid under composition scheme
(ix) Goods and/or services used for personal use.
(x) Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.
(xi) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
(f) ITC will not be available in the case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or wilful misstatements or suppression of facts or confiscation and seizure of goods.
(g) It is the duty of the taxable persons to avail of the credit as per law
Tax Payable= (Out Put Tax- Eligible ITC)
- Final tax liability would be calculated by sub-tracting the Eligible ITC from Output taxes. Taxes for IGST, CGST and SGST would be paid separately.
Though the GST law has brought new challenges it brings new opportunities as well.