FEATURES OF GSTFEATURES OF GST

I. It would be a dual GST with the Centre and the States

simultaneously levying it on a common base.

II. It would replace the following taxes currently levied and collected

by the Centre:

(a) Central Excise Duty

(b) The Excise Duty levied under the Medicinal and

Toiletries Preparation Act

(c) Additional Duties of Excise (Goods of Special Importance)

(d) Additional Duties of Excise (Textiles and Textile Products)

(e) Additional Duties of Customs (commonly known as CVD)

(f) Service Tax

(g) Cesses and Surcharges.

FEATURES OF GST – contd.FEATURES OF GST – contd.

III. State taxes that would be subsumed under GST are:

(a) State VAT

(b) Central Sales tax

(c) Luxury Tax

(d) Entry tax ( other than those in lieu of Octroi)

(e) Entertainment tax

(f) Taxes on lottery, betting and gambling.

FEATURES OF GST - contd.FEATURES OF GST - contd.

I. Credit of Central GST paid on inputs may be used only

for paying CGST on the output and the credit of State

GST on inputs only for paying State GST. In other words,

the two streams of input tax credit cannot be mixed

except in specified circumstances of inter-State sales.

II. GST would apply to all goods other than crude

petroleum, motor spirit, diesel, aviation turbine fuel and

natural gas. It would apply to all services barring a few to

be specified.

FEATURES OF GST - contd.FEATURES OF GST - contd.

III. Tobacco and tobacco products would be subject to GST. In

addition, the Centre could continue to levy Central Excise

duty and the State to sales tax.

IV. A common threshold exemption would apply to both CGST

and SGST and dealers with a turnover below it would be

exempt from tax. A compounding option (i.e. to pay tax at a

flat rate without credits) would be available to small dealers

above this threshold.

FEATURES OF GST - contd.FEATURES OF GST - contd.

V. The list of exempted goods and services would be

kept to a minimum and it would be harmonised for

the Centre and the States.

VI. Exports would be zero-rated.

VII. An integrated GST(IGST) would be levied on inter-

State supply of goods and services. This would be

collected by the Centre so that the credit chain is

not disrupted. Accounts would be settled

periodically between the Centre and the State to

ensure that the State GST components is

transferred to the destination State where the

goods and services are eventually consumed.

FEATURES OF GST - contd.FEATURES OF GST - contd.

VIII. The administrative mechanism for CGST and SGST would

be harmonized to the extent possible.

IX. CGST and SGST would be levied at rates to be mutually

agreed upon by the Centre and the States based on the

revenue-neutral rates.

TREATMENT OF INTER-STATE SALES IN GSTTREATMENT OF INTER-STATE SALES IN GST

Levy of IGST (CGST rate + SGST rate) on inter-state

movement of goods and services.

IGST to be collected by Centre.

Dealers/manufacturers making inter-state clearance to

submit simple returns to CBEC giving details of

quantum of SGST credits used for paying IGST duty

and quantum of IGST credits used for paying SGST

duty.

NSDL and SBI will act as clearing corporation and

clearing bank respectively.

TREATMENT OF INTER-STATE SALES IN GST TREATMENT OF INTER-STATE SALES IN GST –contd. –contd.

SGST credits and for paying IGST duty to be transferred to

the Centre and IGST credit used for paying SGST duty to be

transferred to the States.

Adjustments to be made between Centre and the State

through the clearing house mechanism.

Manufacturers/ dealers can take credit seamlessly.

It is essential to have Constitutional Amendments for

empowering the States for levy of service tax, GST on

imports and consequential issues as well as corresponding

Central and State legislations with associated rules and

procedures

VALUATION PROVISIONS AND GSTVALUATION PROVISIONS AND GST• Taxable event:

Supply of goods and services for a “consideration’.• Consideration ( definition):

Monetary consideration includes currency, cheque,

promissory note, letter of credit, draft, pay order, traveler's

cheque, money order, postal remittances and other similar

instruments but does not include currency that is held for its

numismatic value.

Non-monetary consideration includes goods or services

supplied as payment for example in a barter ( including part

exchange) in the case of services this includes giving up a

right, refraining from doing something or agreeing to suffer a

loss.

DIFFERENT ASPECTS OF CONSIDERATIONDIFFERENT ASPECTS OF CONSIDERATION -contd. -contd.

SPECIFIC EXAMPLES OF CONSIDERATION:

Amounts received in furtherance of settlement of

disputes

Any payment for settlement of issue is generally not a

consideration for supply by the aggrieved party.

However settlement which grants the aggrieved party a

right may be consideration for supply in GST. For

example permission for future use of a trading title in

lieu of a payment.

Defects:

Returnable defects not part of consideration.

Subsidies:

DIFFERENT ASPECTS OF CONSIDERATIONDIFFERENT ASPECTS OF CONSIDERATION -contd -contd..

SPECIFIC EXAMPLES OF CONSIDERATION- contd.

Fine and penalties:

Project funding: To be included in supply of rights if there

is a legal right.

Deposits: Returnable deposit not includible.

Free samples: Treated as deemed supplies for a

consideration.

Compensation for damaged goods:

Repairs under warranties: Not includable.

DEFINITION OF VALUEDEFINITION OF VALUE

• Value of a supply is defined to be an amount which

with the addition of the GST paid or payable is equal to

the consideration when the supplier and the buyer are

not related or there is no other consideration flowing

from the buyer to the supplier.

• Value includes

Taxes , duties, levies, charges including GST on the

supplies; and incidental expenses such as

commission, packing, transport, insurance cost

charged to the supplier.

DEFINITION OF VALUEDEFINITION OF VALUE

• value excludes

Price deduction by way of discount for prompt

payment

Price discounts and rebates granted to the

customer and obtained by him at the time of

supply.

Reimbursement of actual expenses incurred as

payment of expenditure on behalf of the

customer (agency function)

VALUATIONS AND RELATED PERSONSVALUATIONS AND RELATED PERSONS Following treated as related persons :-

Inter connected undertakings (defined under section 2 of MRTP Act)

Relatives (Section 2 of the Companies Act)

Associated persons ( defined under the Income Tax Act)

In the case of supply to related persons the value shall be the open market value. Open market value refers to the full value which a buyer at the same marketing stage is required to pay in order to obtain the goods or services in question at that time and when the buyer and supplier are not related.

When no comparable supply of goods or service can be ascertained ; open market value includes – in respect of goods an amount that is equal to 105% of the purchase price of identical goods failing which is of similar goods or in the absence of a purchase price, 105% of the cost price determined at the time of supply.

VALUATION VALUATION

• Valuation and consideration partly or wholly received in

kind:

- part kind part cash:

the principle here is what would the provider of part

exchange would have had to pay if the payment had

been wholly in monetary terms.

- completely barter

This would have to be done on the basis of the open

market value.

-

VALUATION - contd.VALUATION - contd.

- Valuation in the case of issuance credit and debit notes.

A supplier issuing a credit or debit note is required to make

an adjustment to the output tax.

A supplier receiving a credit note or debit note needs to

make an adjustment in input tax. For this principle to

operate, it is necessary that debit and credit note is issued

for a single supply and not by issue of another tax invoice.

VALUATION – contd.VALUATION – contd.• VALUATION IN RESPECT OF MARGIN SCHEMES.

• The margin scheme is an optional method of accounting which allows for

calculation of GST on the value added rather than on the full selling price.

This scheme is allowed in a few situations when there is a problem in

taking input tax credit.

• Types of margin scheme:

Tour operator margin scheme

Second hand goods ( procured or cleared)

Paintings

Antique deals.

Grant or sale of long term lease.

Auctioneers scheme.

Ineligible item:- - precious metals, - precious stones and ornaments in gold.

VALUATION – contd.VALUATION – contd.

• Traders dealing in the sale of eligible goods can use the schemes

provided they meet the following conditions:

The trader is registered for GST

The purchase invoices for the goods does not show GST separately.

The trader does not issue a GST invoice or other invoice which

shows GST separately for the sale of the goods ( in other words, the

buyer cannot take the credit)

All the record-keeping, accounting and invoice requirements are met.

.

VALUATION – contd.VALUATION – contd.

Input credit distributor:

In the case of an ‘input credit distributor’ the present scheme

under service tax allows for transfer of credit from Head office to

other offices when credit relates to supply of services and the

supply is received by one of the offices of the registered person.

This scheme is likely to continue.

Distribution of such credit will be deemed to be a supply of

credit and the value of such credit transfer will be equal to the

consideration to which such credit relates

VALUATION – contd.VALUATION – contd.

• VALUATION OF IMPORT OF GOODS:

In case of imports, the value for GST is proposed to be

the value adopted for the purpose of levying additional duty

of Customs under Section 3 of the Customs Tariff Act, 1985.

when goods exported from India are re-imported after having

undergone certain processes like repair/ reworking then the

value would be the cost of the value addition abroad, the

insurance along with freight both ways plus the customs

duty (excluding import GST leviable)

VALUATION – contd.VALUATION – contd.

• TAX VALUE IN CASE OF IMPORT OF SERVICES:

• When service is received and duty liability under GST is to be

discharged on reverse charge basis , then the importer has two

identities – both a customer and a supplier. In such cases the

importer discharges the duty liability. The value in such cases will

be the total amount paid or payable including any tax levied

abroad and converted into rupees.

VALUATION – contd.VALUATION – contd.

• VALUATION IN RESPECT OF COMPOSITE SUPPLIES:

- Indicators of single supply:

– different elements are integrated to the main supply – removal of

one supply would affect the nature of supply.

– Same amount is charged whether or not the customer buys all

elements. ( in-flight meals)

– The elements are advertised as a package.

– The customer perceives what is supplied as a single supply not

as independent elements ( for example, supply of ready-made

suit, not separate supply of cloth, buttons, thread or stitching)

– Ancillary supplies treated as single supply.

VALUATION – contd.VALUATION – contd.

- VALUATION IN RESPECT OF COMPOSITE SUPPLIES:

- Indicators of multiple supply:

– Separate pricing or invoicing

– Elements are available separately.

– There is a time differential between parts of the supply.

– Elements are not inter-dependent/ connected.

VALUATION – contd.VALUATION – contd.VALUATION IN THE CASE OF TRANSACTION BETWEEN PRINCIPAL AND

AGENT:

• An agent will be usually involved in at least two separate supplies at

any one time – the supplies made between principal and third parties

and the supply of agent’s own services to the principal for which the

agent may charge a fee or commission. An agent may be a ‘buying

agent’ acting on behalf of the buyer or a selling agent acting on behalf

of the seller. A pure agent means a person who enters in to a

contractual agreement with the client ( recipient of a service) to act on

his behalf- such an agent does not use goods or services but only

receives the actual amount incurred to procure such goods or

services.

• Normally when an agent incurs expenditure or costs in the course of providing

taxable supply , all such expenditure or costs would be includible in the value

for charging GST. However disbursements on account of pure agency

functions will not be includible.

EXAMPLES OF TRANSACTIONSEXAMPLES OF TRANSACTIONS

• 1

• 2.

• 3.

X contracts Y (an architect) for building a house

Y incurred expenses such as telephone charges, air travel fare, hotel stay.

Whether Y gives itemised billing or as a part of overall fee, GST is payable on the total payable by X to Y.

A manufacturer bills a customer separately for royalty or license fee (incurred in making a supply)

Royalty ,etc are not disbursements

Output tax payable on full value including royalty, etc.

In a private function held in a restaurant, customer pays for food, drink & other facilities. Also pays for overtime to staff of restaurant.

Overtime is not a disbursement for restaurant. Supply of staff is only to the restaurant.

. GST is payable on full value

EXAMPLES OF TRANSACTIONS.EXAMPLES OF TRANSACTIONS.

• 4

• 5

A consultant flies to Dubai to perform some work as per client’s instruction.

Airfare to Dubai is not a disbursement for the consultant. Supply of airline is a supply to him and not to the client.

The consultant must pay output tax on the full value of supply as airfare represents part of overall value of supply to client.

Company X provides rent-a-cab service to overseas visitors. Cab driver is given a lump sum amount to cover his food, overnight stay and other incidental charges(parking fee). After tour, driver returns the balance with a statement on his expenses and bills.

Company X charges these amounts from the recipient of services.

These expenses billed are part of gross amount charged for provision of services by the company.

JOB WORK TRANSACTIONS

Broad principles:

• Job work transactions will not be allowed without payment of GST – they would no more represent an unique transaction.

• Job work transactions conform to the definition of taxable event as they represent supply of goods and services for a consideration.

• GST is distinguishable on the value addition reflected in the job work charges received.

• With the constitutional amendment dutiability will no more be related to the activity of manufacture but to supply of goods and services for a consideration.

• Perhaps job work transaction could be brought under the margin scheme.

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