Goods & Services Tax: Decoded
Since its inception on July 1, 2017, GST has impacted politics, economics and commerce. It has also perhaps been the most irksome for the ordinary Indian citizen. In his new book, GST: Explained for the Common Man, author Sumit Dutt Majumder painstakingly discusses the nuances of this mammoth tax upheaval that has drastically altered the functioning of the Indian polity. Excerpts:
Goods and Services Defined
The Constitution read with the GST laws like Central GST Act, 2017, etc. defines the 'goods' and the 'services'. The definition of 'goods' as mentioned before is simple one, the goods being tangible. But, the definition of 'services' may look simple, but it has many implications. By virtue of being 'anything other than goods', any business activity which is other than 'supply of goods' will be treated as 'supply of services' in GST regime, provided of course that activity comes within the scope of 'supply'. Further, being intangible, dealing with services, particularly determination of its place of supply has its inherent complications, as would be explained in Chapter 6 that deals with IGST.
GST – A Destination-Based Consumption Tax for Inter-State Supplies
As per the international practice, GST is a destination-based consumption tax. Therefore, for inter-state trade or commerce, the state's share of tax would accrue to the destination state where consumption takes place. So, in GST regime, the tax would accrue to the state which has jurisdiction over the place of consumption, and that is known as the 'place of supply'. Determination of place of supply of goods and/or services will be critical in determining whether the supply is intra-state i.e. within the state or inter-state i.e. from one state to another. Such determination will also be important to find out which is the destination state, where the state's share of GST will accrue. The GST for inter-state trade is known as Integrated GST or IGST, and all these aspects will be explained in more details while discussing IGST in Chapter 6.
Value Added Tax (VAT)
As mentioned before, GST would be levied at all stages right from manufacture or production of an item till the final consumption, while at the same time providing credit of input tax paid at all previous stages; that credit could be utilized for payment of tax on the output supply. Thus, in GST regime, only the value addition at each stage will be taxed in such Business to Business (B to B) transactions. Finally, the burden of tax would be borne by the final consumer in Business to Consumer (B to C) transactions. EU calls this tax VAT, while other countries call it GST.
Charging Provisions and Power to Levy and Exempt GST
The charging provisions for the levy and collection of the different components of GST – viz. CGST, SGST, UTGST, IGST have been separately laid down in the following acts – CGST Act, SGST Acts, UTGST Act and the IGST Act respectively. Power to levy GST is derived from Article 246A read with Article 269A introduced by the 101st Constitution Amendment Act. Article 246A confers concurrent powers to both Parliament and the State Legislatures to make laws with respect to GST i.e. CGST and SGST or UTGST, as the case may be. Further, Clause (2) of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to IGST, and to the centre to levy and collect IGST. Coming to the Acts, Section 9 of the CGST Act authorizes the levy of CGST on all intrastate supplies of goods and/or services. The value of supply is determined under Section 15 read with the Valuation Rules; the rates of GST are notified on the recommendation of the GST Council. Similar provisions are therefore, SGST Acts and UTGST Acts.
Reverse Charge Mechanism
The basic principle of taxation is that tax is collected from the supplier of goods and/or services. But, in order to bring as many people as possible in the tax net, the tax administrations also collects tax from the recipients of goods/services in certain situations. This is called Reverse Charge Mechanism (RCM), and Section 9(3) of the Act deals with it. Thus, in cases of supply from an unregistered person who is outside the ambit of GST, the registered person who is receiving the goods or services from him will be liable to pay tax under Reverse Charge basis. In respect of Inter-state Trade, the 'Reverse Charge' has similarly been authorized by Section 5(3) of the IGST Act. Certain provision of RCM has been kept in abeyance.
In order to have smooth implementation of GST and its continued policy reviews, the 101st Constitution Amendment Act has envisaged setting up of a constitutional body named GST Council. It is to examine issues relating to GST and make recommendations to the Union and the states. It is chaired by the Union Finance Minister, and will have the Union Minister of State (Revenue) and the Finance Ministers of all states as its members. The Council will make recommendations on the following:
* the taxes, cesses and surcharges levied by the centre, the states and the local bodies which may be subsumed under GST
* the goods and services that may be subjected to or exempted from the GST
* the date on which the GST shall be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel
* model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply
* the threshold limit of turnover below which the goods and services may be exempted from GST
* the rates including floor rates with bands of GST
* any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster
* special provision with respect to the North-East states, J&K, Himachal Pradesh and Uttarakhand
* any other matter relating to the GST, as the Council may decide
Further, every decision of the GST Council will be taken either unanimously or on the basis of voting. The voting rights of centre and the states have been so designed that neither centre alone nor all the states taken together, alone can make a decision or change a decision. It will require an agreement between centre and a sizeable section of the states.
(Excerpted with permission from GST: Explained for Common Man; Author: Sumit Dutt Majumder; Published by: Niyogi Books, in 2018)