- The Goods and Services Tax (GST) is a comprehensive Value Added Tax (VAT) on the supply of Goods or Services. The word Supply has vide scope which includes stock transfers also. It is a levy on Value Addition at each stage of supply chain with availment of tax credit on eligible inputs & capital goods procured from any place i.e., within the State or import from outside the State / Country. Its main objective is to combine all indirect tax levies into a single tax thereby replacing multiple tax levies, overcoming the limitation of current indirect tax structure and creating efficiency in tax administration.
Also read :Read Are you ready to implement GST ? क्या आपने GST लागु करने के लिए तैयारी कर ली है। (part-2)
Present Indirect Taxes in India
At present the following indirect tax aspects are relevant to the Construction Industry-
i. Customs Duties on goods imported or exported into or out of India through Customs Act and Customs Tariff Act.
ii. Excise Duty on goods manufactured in India and availment of Cenvat Credit through Central Excise Act and Central Excise Tariff Act
iii. Central Sales Tax (CST) on sale or purchase of goods in the course of interstate trade or commerce through Central Sales Tax Act
iv. VAT on Goods sold or bought including deemed sale of goods under Works Contract and availment of VAT Input Credit through VAT Acts by each State
v. Entry Tax / Octroi for entry or consumption of goods in local area through Entry Tax Act or Octroi Act by some States
vi. Service Tax on taxable value of services provided in taxable area through Finance Act, 1994
Proposed Goods and Service Tax
The Government started its efforts in 2006-2007 to introduce the GST Act and the GST enactment process has begun on 10-11-2009 by issue of white paper on GST for discussion. The constitution (122nd Amendment) Bill, 2014 introduced in Lok Sabha on 19.12.2014 and passed on 6-5-2015. It is waiting for approval of Rajya Sabha with the amendments proposed by the Select Panel of Rajya Sabha.The following Central Taxes would be subsumed under the proposed GST:
a. Central Excise Duty
b. Additional Excise Duties
c. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
d. Service Tax
e. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
f. Special Additional Duty of Customs (SAD)
g. Surcharges, and
The following State related taxes and levies would be subsumed under GST:
(i) VAT / Sales Tax
(ii) Entertainment Tax (unless it is levied by the local bodies)
(iii) Luxury Tax
(iv) Taxes on lottery, betting and gambling
(v) State Cesses and Surcharges in so far as they relate to supply of goods and services
(vi) Entry Tax not in lieu of Octroi.
Both the Centre and the States will have concurrent power to levy tax on all goods and services. But local levies like Octroi imposed by local bodies on movement of goods and services are not in the list of taxes which will be subsumed by GST and will continue to exist even after introduction of GST.
At present the taxable event is manufacture or production for Excise Duty levy, providing service for Service Tax levy and sale or deemed sale for Sale Tax/VAT. In respect of GST the taxable event will be at the point of “supply of goods or services”. Hence even the stock transfer would be taxable under GST.
The GST shall have two components i.e., one levied by the Centre under 'Central GST' (CGST) Statute and the other levied by the every State under 'State GST' (SGST) Statute. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, the SGST would be chargeable only when the supplier and the recipient are both located within the State. In the place of present CST, the government is proposed to introduce 'Integrated GST' (IGST) for levy of tax on inter-state supply of goods or services which consist of SGST & CGST. Since the GST would be a destination or consumption based levy as against the present concept of origin based levy, the tax accrues to the State where the goods or services are consumed. It is understood that the Government is considering the revenue neutral rate of GST at a rate between 18% to 22% which represents the aggregate of CGST and SGST payable on the transaction. The salient features of GST are given below- (click on respective heading to read details )
- A. CGST -
- The CGST(Central Goods & Service Tax) is payable at the specified rates on all transactions of supply of goods or services whether within the State or Outside. This accrues to the Centre.
- B. SGST
- The SGST (State Goods & Service Tax) is payable at the specified rates on all transactions of supply of goods or services whether within or outside the State. This amount accrues to the State of destination in normal course.
- C. IGST
- The IGST (Integrated Goods & Service Tax) is payable on all interstate transactions of supply of goods or services. The rate would be a combination of both the State and Central GST. It will be applicable on imported goods or on consignment / stock transfer from outside the State. However there is proposal to exempt tax on consignment or stock transfers.
GST Credit Availment
`The GST credit i.e., CGST, SGST or IGST may be availed-
- a. On all the input goods or input services procured for supply or resupply or resale.
- b. On the goods or services even though in the negative list, when the business is carried for trading / resale of such goods or services.
- c. On the eligible capital goods procured for use in the business or manufacture.
- d. On the consumables or maintenance spares procured for use in the manufacture or business other than those which are specifically excluded as ineligible.
GST Credit Utilization
- a. CGST can be used to pay CGST or IGST and it cannot be adjusted towards SGST.
- b. SGST can be used only to pay SGST or IGST and it cannot be adjusted towards CGST.
- c. IGST can be used first to pay for IGST then CGST and then SGST and can be adjusted with any tax but in order specified. The following mechanism is being evolved for IGST:
- The Inter-State seller will pay IGST on value addition after adjusting the available credit of IGST, CGST and SGST on his purchases i.e., tax to be collected by the Centre in the Origin State.
- If the dealer in exporting State utilizes credit of SGST for payment of IGST, then the exporting State will transfer to the Centre such amount of SGST used in payment of IGST or the Centre will debit that amount to the exporting State.
- The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. If he utilizes such IGST credit for payment of SGST, then the Centre will transfer the credit of IGST used in payment of SGST to the importing State. In other words, that amount will be reimbursed by the Centre to the importing State i.e., tax passed over to the destination State. Hence the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import of goods and service. Thus Centre will act as clearing house among different States.
Time Limit for Credit
Presently under the State VAT Laws, the time limit for availment of input credit is the tax period and in some States the time limit is 3 months or 6 months or within financial year from the date of invoice. Similarly under the Cenvat Credit Rules the time limit is one year for credit availment. Hence it is to be ensured to avail the credit within the time limits in order to avoid disallowance. Under the GST the time limit may be one year for availing GST Credit similar to the present Cenvat credit. The time of supply is considered to have taken place at the earliest of the following events as per the principle adopted by many countries-
- a. The time of an invoice issued or
- b. The time of any payment received by the supplier or
- c. The time of a taxable supply made
- Input Credit Claim Verification
- At present VAT input credit claims are being verified by the tax officials through their computer system. Under GST Regime, a suitable system for automatic matching of invoice wise input credit claims would be required for comprehensive revenue reconciliation and detection of fraudulent availment or misuse of GST Credit. The suppliers and receivers of goods or services should be able to upload the details of GST invoice into the Government Computer System, which would enable them to identify the mismatches at their levels without involvement of tax officials like Income Tax TDS credit gets reflected in Form 26AS. Otherwise the buyer has to suffer with loss of credit, when there is mismatch of GST credit as per his Return with the GST amount shown by the seller in his Return which further aggravates the problem instead of simplifying under GST Regime. Hence automatic matching of GST credit claims and identification of all mismatches for follow up action would be required. A transparent automated tax system will encourage voluntary compliance, reduce disputes, and act as a major deterrent in preventing misuse of GST Credit, thereby augmenting revenue.
Negative List under GST
As the GST envisages seamless credit, the restrictions on tax credits may be at a minimum. GST credit will not be available on the proposed 1% CST levy which is expected to be in force for 2 years. In case the tax is paid under special rates prescribed for small businesses or lower rate prescribed under special schemes then the GST credit may not be available. In general, GST credit may not be available in respect of the following items:
a) On supply of goods or services supplied by unregistered person unless GST paid under RCM (Reverse Charge Mechanism).
b) On supply of goods or services for manufacture or processing or packing or storing of exempted goods or services, except when such goods or services are exported.
c) On restricted goods such as those specified when such goods are not used for supply or resale or trading or manufacture or process of goods and for provision of services.
d) On petroleum products when used as fuel to motor vehicles except when used as fuel in the production and supply of goods or services.
e) On the inputs which are lost or destroyed or damaged prior to use of the same in the manufacture or process or in provision of service.
f) On goods or services used for personal and non business use.
g) On capital goods specifically excluded.
Documents on which credit is eligible
The following documents may be specified for availment of GST Credit:
- a. Supply Invoice for goods or services issued by manufacturer, dealer or service provider
- b. GST payment challan
- c. Supplementary Invoice for goods or services
- d. Bill of Entry where GST is charged
- e. Certificate of Customs appraiser
- f. Any other document specified/ prescribed for this purpose
The above source documents are to be collected and preserved for the specified period as proof for availing the GST Credit since the Assessment under GST Regime may be the Audit based one. Various States as well as Central Government Audit agencies will verify / scrutinise the records and documents periodically in order to protect the Revenue. Credit would not be available unless supply of goods or service is evidenced by tax paying documents.
Advantages of GST
a. It will bring uniformity in tax rates with only one or two tax rates across the supply chain and avoid cascading effect of taxes.
b. It will enable simple, transparent and easy tax structure by subsuming of all levies on goods and services into one GST.
c. It will provide smooth administration for levy and collection of indirect taxes.
d. It will increase tax collections due to wider tax base and better conformity.
e. It will reduce the overall production cost so that to compete in Global Market
f. It will remove tax distortions from the economy which will lead to sustainable higher growth and improve the business climate in the country. As a result GDP ratio is expected to grow by 2%.
g. Simple tax system will attract more productive investment for growth.
Read Are you ready to implement GST ? क्या आपने GST लागु करने के लिए तैयारी कर ली है। (part-2)
Read Are you ready to implement GST ? क्या आपने GST लागु करने के लिए तैयारी कर ली है। (part-2)