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Revised Model GST Law: Changes & Key Takeaways

Jan 18, 2017

The Central government on the 26th of November released drafts of three supporting legislations for the GST: Central GST, Integrated GST and States Compensation Bills. The bills form the basis of the revised GST laws prepared by the GST council secretariat and highlights changes in the draft Model GST law released earlier this year on June 14. The modifications were done keeping in mind the feedback and comments received from various stakeholders. The changes are in the nature of making the GST law clearer, comprehensive and more business friendly. Various deliberations made by the GST council over past few months are aimed at making the new indirect tax policy more progressive and to ensure that the benefits are passed on to the common man. In the process, industry concerns related to exemption of taxes, place of supply, point of taxation, valuation and anti-profiteering measures seem to be comprehensively discussed.

Changes in Conceptual Framework: New Additions

      Some of the key modifications in the revised model GST law are mentioned below.
    • Securities are not taxed under GST

No taxes shall be applicable on securities and subsidies granted by the Central or any State Governments. The earlier version of the model GST law classified securities as goods and considered them for taxation. This had made concerned stakeholders in the financial services industry skeptical of the benefits of the proposed GST. Now since their concerns have been addressed, they seem assured that the GST will not affect stock transactions adversely.

    • Benefits of anti-profiteering measures to reach the common man

The revised GST laws contain provisions to ensure the benefits of anti-profiteering measures are passed on to the common citizens and not unduly retained by businesses. A mechanism will be established to monitor whether the benefit accrued to businesses and companies are in reality being passed on the common man. To this end, businesses will need to justify the difference between their current and new profit levels under the GST regime.

    • Concept of composite supply and mixed supplies introduced

Composite supply as defined in the draft law means ‘a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.’ A mixed supply, on the other hand, means ‘two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.’ For instance in the supply of a package consisting of canned foods, sweets, cakes, dry fruits and aerated drinks when supplied for a single price is a mixed supply, since each of these items can also be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately. The mixed supply is likely to attract the highest tax rate under GST.

    • Point of taxation and place of supply

The point of taxation under the revised GST laws has clear references to the date of invoice generation and the receipt of consideration. As per the revised laws, the place of supply of the goods/ services is the location of importer in case of import and in case of an export transaction, the location outside India will be considered the point of supply. This can be construed from Section 2(112) of CGST Act 2016 when read with Section 2(5)/ (6) of IGST Act 2016. In addition, supplies from special economic zones (SEZs) have also been covered and defined as inter-state supply.

Changes Made in the Model GST Law released on 6th November, 2016

The revised draft law released by the government on 6th November contains significant changes in provisions related to valuation and tax rate as laid down in the model draft law released on 14th June, 2016.

ASPECT TOPIC Draft Law-14th June, 2016 Revised Draft Law-26th November, 2016
Registration Threshold Limit Rs 5 Lakhs for North East states
Rs 10 Lakhs for Rest of India
Rs 10 Lakhs for Special Category States
Rs 20 Lakhs for other than Special Category States
Composition levy Rate of Tax At least 1% of Turnover in a State during the financial year. 2.5 % of Turnover in a State during the financial year for manufacturer and 1 % for others.
Job Work Input Tax Credit (i) Principal manufacturer needs to receive the inputs sent for job work within 180 days
(ii) Period to receive back the capital goods is 2 years
(i) Principal need to receive the inputs sent for job work within 1 year
(ii) Period to receive back the capital goods is 3 years
Refund Interest on Delayed Refund Interest will be paid, if not refunded within 3 months. Interest will be paid, if not refunded within sixty days.

Other additions are summarized below:

CONCEPT ADDITIONS DETAILS RELEVANT SECTION
Definition Capital Goods Capital goods means goods, the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business. Section 2 (19)
Time And Value Of Supply Time of Supply of Goods The time of supply of goods shall be the earlier of the following dates:
(a) The date of issue of invoice by the supplier or the last date on which he is required to issue the invoice with respect to the supply.
(b) The date on which the supplier receives the payment with respect to the supply.
Chapter IV, Sec 1.2
Time And Value Of Supply Supply of Voucher The time of supply shall be
(a) The date of issue of voucher, if the supply is identifiable at that point.
(b) The date of redemption of voucher, in all other cases.
Chapter IV, Sec 1.2
Time And Value Of Supply Time of Supply of Services The time of supply of services shall be the earlier of the following dates:
(a) The date of issue of invoice by the supplier or the last date on which he is required, under section 28, to issue the invoice with respect to the supply.
(b) The date on which the supplier receives the payment with respect to the supply.
Chapter IV, Sec 1.3
Time And Value Of Supply Reverse
Charge Basis for Goods
The time of supply shall be the earliest of the following dates, namely:
(a) The date of the receipt of goods.
(b) The date on which the payment is made.
(c) The date immediately following thirty days from the date of issue of invoice by the supplier.
Chapter IV, Sec 1.2
Time And Value Of Supply Reverse
Charge Basis for Services
The time of supply shall be the earlier of the following dates, namely:
(a) The date on which the payment is made.
(b) The date immediately following sixty days from the date of issue of invoice by the supplier.
Chapter IV, Sec 1.3
ITC on Capital Goods For Pipeline and Telecom Towers (a) The ITC should not exceed one-third of the total input tax in the financial year in which the said goods are received, (b) two-third of the total input tax, including the credit availed in the first financial year, in the financial year immediately succeeding the year referred to in the aforementioned clause (a) in which the said goods are received, and (c) the balance of the amount of credit in any subsequent financial year. Chapter 5 Sec (1.6)
Transitional Provision Excise Duty-ITC A first stage Dealer/second stage dealer/importer is allowed to avail input tax credit on closing Stock.
Entry Tax Entry tax paid is allowed to be availed as input tax credit on closing stock held.
Service Tax Service provider engaged in providing exempted services which are taxable in GST, can avail the tax credit on inputs.
Migration of Existing Taxpayers to GST (1) On the appointed day, every person registered under any of the earlier laws and having a valid PAN shall be issued a certificate of registration on a provisional basis in such form and manner as may be prescribed.
(2) The certificate of registration issued under aforementioned sub-section (1) shall be valid for a period of six months from the date of its issue.
Definition First Stage Dealer First stage dealer means a dealer, who purchases the goods directly from:
(i) The manufacturer under the cover of an invoice issued in terms of the provisions of Central Excise Rules, 2002 or from the depot of the said manufacturer, or from premises of the consignment agent of the said manufacturer or from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice.
(ii) An importer or from the depot of an importer or from the premises of the consignment agent of the importer, under cover of an invoice.
Section 2(46)
Definition Second Stage Dealer Second stage dealer means a dealer who purchases the goods from a first stage dealer as defined in sub-section (46). Section 2(91)

To sum up

The revised GST law with numerous clauses and schedules is very comprehensive; hence, it is not feasible to cover all aspects and their nuances in one article. Nonetheless, few clauses still lack clarity. The way anti-profiteering measures is implemented will truly define the benefits of the GST law to the common citizens. In addition, the inclusion of actionable claims in the definition of goods lacks clarity. The dual control of assesses under the GST law is another contentious issue. Deliberations by the GST council are ongoing to bring consensus and clarity on these issues so that the Central Government does not miss the timeline of September 16, 2017 to implement the GST Act.

Tags: GST 2017, GST Bill, GST Implementation, GST Law, GST News, GST Tax Structure, GST Updates

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