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GOODSANDSERVICESTAXANOVERVIEW
By:SrikanthaRaoT

Manuals/Reckoner
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December11,2015
Article

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Experts
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The Goods and Services Tax has frequently been in the news for the last one year or so ever since the new

ExpertsArticles

Governmenthascometopower.ItisworthwhilenotingthatintroductionofGSTasitisreferredto,hasbeeninthe
pipeline for nearly a decade now with the initial announcement being made in 200708 to the effect that the

ExpertsForum

introduction would be with effect from 01st April 2010. This has not happened due to various reasons with one
mainreasonbeingthecomplexitiesinvolvedinintroducingataxwhichwouldbeacceptabletoboththeUnionand
Stateswithoursbeingafederaltaxstructure.ThisfactoralonehasgonealongwayindelayingtheGSTrollout
as harmonization process would involve amendments to Constitution as well as consent of the States to the
proposed model. Nevertheless, we have made some progress from the day the First Discussion Paper on GST

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wasannouncedonNovember10th2009containingthedetailedviewoftheEmpoweredCommitteeoftheState
Finance Ministers regarding the structure of GST along with a FAQ (Frequently Asked Questions) on GST for
discussionwithindustryandtradecircles.

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InthisarticletheauthorhassoughttoanalysethebasicprovisionsoftheproposedGSTlawbasedontheModel
GSTLawdraftedinSeptember2015includingtheproposedIntegratedGoodsandServicesTaxActof2016and
releasedbytheEmpoweredCommitteeoftheStateFinanceMinistersaswouldbefoundusefulbyassesses/tax
payersingeneral,againstthebackdropoftheinitialframeworkannouncedalmostsixyearsago.
WhyGST?
The present tax structure has quite a few shortcomings. At the Union level, we have noninclusion of several
Central taxes in the overall framework of CENVAT, such as additional customs duty, surcharges, etc., besides
noncapturingofvalueaddedchaininthedistributionchainbeyondthemanufacturerintheCENVATscheme.The

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introduction of GST at the Central level will not only include comprehensively more indirect Central taxes and
integrategoodsandservicetaxesforthepurposeofsetoffreliefavoidingcascadingeffectoftaxes,butmayalso
lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the
distributivetrade.
AttheStatelevelthereareseveraltaxeswhichareinthenatureofindirecttaxongoodsandservices,suchas
luxurytax,entertainmenttax,etc.,whichareyettobesubsumedintheexistingVAT.Inadditiontothis,CENVAT

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loadonthegoodsremainsincludedinthevalueofgoodstobetaxedunderStateVAT,andleadingtothatextent
toacascadingeffectoftaxes.Apartfromthis,presentVATdoesnotinvolveintegrationbetweenVATongoods
andtaxonserviceswhichhasalsocontributedtolitigationbeforeCourtsonlevyandvaluationissuesinrespectof
contractswherebothgoodsandservicesareinvolved.
Resolving the above issues would mean constitutional amendments i.e. for instance to enable States to tax
services.TheobjectiveofGSTistoproviderelieftoindustryandtradeapartfromconsumersbyloweringifnot
avoidingaltogetherthecascadingeffectoftaxesthroughamorecomprehensiveandwidercoverageoftaxsetoff
mechanism.ItisalsoexpectedtoresultinhighertaxcollectionsfortheUnioninthelongrunonaccountofwider
coverageofdistributionchainaswellasbettercompliancesthroughrevampedadministrativeprocesses.
GSTModel
AdualGSTstructureisbeingfollowedwithtwocomponentsoneleviedbytheCentre(hereinafterreferredtoas
Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model
wouldbeimplementedthroughmultiplestatutes(oneforCGSTandSGSTstatuteforeveryState).However,the
basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy
including valuation provisions, basis of classification etc. would be uniform across these statutes to the extent
possible.TheCentralGSTandtheStateGSTwouldbeapplicabletoalltransactionsofgoodsandservicesmade
foraconsiderationandtobepaidtotheaccountsoftheCentreandtheStatesseparately.Sincethesewouldbe
treatedseparately,nocrossutilisationbetweenthetwowouldbepossibleexceptincaseofinterstatesupplyof
goodsandservices.
Howwoulditwork?
It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to setoff,
throughataxcreditmechanism,theGSTpaidonthepurchaseofgoodsandservicesasavailableforsetoffon
theGSTtobepaidonthesupplyofgoodsandservices.ThefinalconsumerwillthusbearonlytheGSTcharged
bythelastdealerinthesupplychain,withsetoffbenefitsatallthepreviousstages.Thishasalsobeenillustrated
in the First Discussion Paper on GST with a simple example where the manufacturer of goods would sell to a
wholesaler who would in turn sell to a retailer with margins being enjoyed at each stage. The example is given
below

Stage

of Purchase

supplychain value
Input

Input

Net GST= GST on

of addition andservicesmadetonextstage of
on
Tax
GST output credit

Value

Value at which supply of goods Rate GST

output Input tax


credit

Manufacturer 100

30

130

10% 13

10

1310=3

Wholeseller 130

20

150

10% 15

13

1513=2

Retailer

10

160

10% 16

15

1615=1

150

EverytransactionofsupplyofgoodsandserviceswithinaStatethathastosufferGSTwouldattractbothCentral
GSTandtheStateGST.Further,bothwouldbeleviedonthesamepriceorvalueunlikeStateVATwhichislevied
on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the
countryisimmaterialforthepurposeofCGST,theconcernedSGSTwouldbechargeableonlywhenthesupplier
andtherecipientarebothlocatedwithintheState.Thetaxineffectwouldonlybeonvalueadditionassetoffcan
be claimed by the seller i.e. CGST paid on purchases set off against his CGST liability while SGST paid on
purchaseswithintheStatecouldbeusedandsetoffagainstCGSTliability.CGSTonpurchasescannotbeused
forSGSTpaymentonsaleandviceaversa.WithinCGSTandSGST,crossutilizationwouldbeallowedinterms
oftaxongoodsandservices.
IntrastatetransactionortransactionwithinaState
Going by Section 14 of the model law this would cover supply of goods within the same state or where the
movement of goods commences and terminates in the same State even if goods pass through the territory of
anotherstateduringsuchmovement.Incaseofsupplyofservices,theserviceproviderandtheservicereceiver
havetobelocatedinthesameState.
Timeofsupplyofgoods

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TheliabilitytoCGSTand/orSGSTwouldbeatthetimeofsupply.Inrespectofgoods,itshallbetheearliestofthe
following
thedateonwhichthegoodsareremovedbythesupplierforsupplytothebuyer,inacasewherethegoods
arerequiredtoberemovedand
thedateonwhichthegoodsaremadeavailabletothebuyer(i.e.placedathisdisposal),inacasewhere
thegoodsarenotrequiredtoberemoved(i.e.wheregoodsphysicallycannotbemovedoraresuppliedin
assembledorinstalledformoraresuppliedtohimselfortohisprincipaloragent)or
thedateonwhichthesupplierissuestheinvoicewithrespecttothesupplyor
thedateonwhichthesupplierreceivesthepaymentwithrespecttothesupplyor
thedateonwhichthebuyershowsthereceiptofthegoodsinhisbooksofaccount.
In other words, it shall be the earlier of date of removal (or being made available in case of nonmovement of
goods)orthedateofreceiptofpaymentordateofinvoicing.Incaseofpartinvoicingorpayment,supplyshallbe
consideredtotheextentinvoicedortotheextentpaymentisreceived.
In case of continuous supply of goods (goods subject to such treatment to be notified by the Central/State
Government),wheresuccessivestatementsofaccountsorsuccessivepaymentsareinvolved,thetimeofsupply
shallbethedateofexpiryoftheperiodtowhichsuchsuccessivestatementsofaccountsorsuccessivepayments
relate.Iftherearenosuccessivestatementsofaccount,thedateofissueoftheinvoice(oranyotherdocument)
orthedateofreceiptofpayment,whicheverisearlier,shallbethetimeofsupply.
Saleonapprovaletc.
Ifthegoods(beingsentortakenonapprovalorsaleorreturnorsimilarterms)areremovedbeforeitisknown
whether a supply will take place, the time of supply shall be at the time when it becomes known that the
supplyhastakenplaceortwelvemonthsfromthedateofremoval,whicheverisearlier.
Inothercasesthetimeofsupplyshallinacasewhereaperiodicalreturnhastobefiled,bethedateonwhich
suchreturnistobefiled,orinanyothercase,bethedateonwhichtheCGST/SGSTispaid.
Timeofsupplyofservices
Inrespectofservices,itshallbe
the date of issue of invoice or the date of receipt of payment, whichever is earlier, if the invoice is issued
withintheprescribedperiodor
thedateofcompletionoftheprovisionofserviceorthedateofreceiptofpayment,whicheverisearlier,if
theinvoiceisnotissuedwithintheprescribedperiodor
thedateonwhichtherecipientshowsthereceiptofservicesinhisbooksofaccount,inacasewherethe
abovetwoclausesdonotapply
Cessationofservicesbeforecompletion
Inacasewherethesupplyofservicesceasesunderacontractbeforethecompletionofthesupply,suchservices
shallbedeemedtohavebeenprovidedatthetimewhenthesupplyceases.
Incaseofcontinuoussupplyofservices(servicestobenotifiedbyCentral/StateGovernment),wheretheduedate
ofpaymentisascertainablefromthecontract,thedateonwhichthepaymentisliabletobemadebytheservice
receiver,whetherornotanyinvoicehasbeenissuedoranypaymenthasbeenreceivedbytheserviceprovider.
Wheretheduedateofpaymentisnotascertainablefromthecontract,eachsuchtimewhentheserviceprovider
receivesthepayment,orissuesaninvoice,whicheverisearlier.Wherethepaymentislinkedtothecompletionof
anevent,thetimeofcompletionofthatevent.
Theaforesaidclausewouldposeissuestonotifiedserviceswherethepointofcompletioncannotbeknownowing
topracticaldifficulties.Evenifpaymenttermsareknownfromcontract,delaysinpaymentbyclientscouldimpact
supplierofserviceasliabilitywouldbebasedontimingofaccrualofduesbasedoncontract.
Timingofliabilityincaseofreversechargeliability
Itshallbetheearliestofthefollowingdates
a. thedateofreceiptofservices,or
b. thedateonwhichthepaymentismade,or
c. thedateofreceiptofinvoice,or
d. thedateofdebitinthebooksofaccounts.
Whereaforesaidclausesarenotapplicable,thetimeofsupplyshallinacasewhereaperiodicalreturnhastobe

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filed,bethedateonwhichsuchreturnistobefiledorinanyothercase,bethedateonwhichtheCGST/SGSTis
paid.
Placeofsupplyofgoodsandservices
Theplaceofsupplyofgoodsu/s15oftheModelGSTLawshallbethelocationatwhichthegoodsaredelivered
to the receiver where the supply involves movement of goods. This would also cover a scenario where the
goodsaresuppliedtoabuyerlocatedinanotherStateandthesupplierarrangesthetransportofgoods.
Wherethesupplydoesnotinvolvemovementofgoods,theplaceofsupplyshallbethelocationofsuchgoodsat
thetimeofthedeliverytothereceiver.Thiswouldapplytoconstructivedeliveryofgoodswheretitleistransferred
withoutphysicallydeliveringgoodstothebuyer.Wherethegoodsareassembledorinstalledatsite,theplaceof
supplyshallbetheplaceofsuchinstallationorassembly.
Wherethegoodsaresuppliedonboardaconveyance,suchasavessel,anaircraft,atrainoramotorvehicle,the
placeofsupplyshallbethelocationatwhichsuchgoodsaretakenonboard.
Theplaceofsupplyofallservicesu/s16oftheModelGSTLaw,exceptspecifiedservicesmadetoaregistered
person shall be the location of the service receiver. Where made to any person other than a registered person
shall be the location of the service provider. The specified services which are subject to different norms for
determinationofplaceofsupplycanbeindicatedasfollows
Basedonlocationoftheimmovablepropertyorboatorvesselorintendedtobelocated
a. Services in relation to an immovable property, including services provided by architects, interior
decorators,surveyors,engineersandotherrelatedexpertsorestateagents,anyserviceprovidedby
way of grant of rights to use immovable property or for carrying out or coordination of construction
workor
b. Servicesbywayoflodgingaccommodationbyahotel,inn,guesthouse,homestay,cluborcampsite,
bywhatevernamecalledandincludingahouseboatoranyothervessel,or
c. Services by way of accommodation in any immovable property for organizing any marriage or
receptionormattersrelatedtherewith,official,social,cultural,religiousorbusinessfunctionincluding
servicesprovidedinrelationtosuchfunctionatsuchproperty.
Basedonlocationwhereservicesareactuallyperformedrestaurantandcateringservicesandservicesin
relation to training, performance appraisal, personal grooming, fitness, beauty treatment, health services
includingcosmeticandplasticsurgery
Basedonlocationwhereaneventisheld
a. Servicesbywayofadmissiontoacultural,artistic,sporting,scientific,educational,orentertainment
eventoramusementparkoranyotherplace,or
b. Servicesbywayoforganizationofacultural,artistic,sporting,scientific,educationalorentertainment
event including supply of service in relation to a conference, fair, exhibition, celebration or similar
events,or
c. Servicesancillarytosuchadmissiontoororganizationofanyoftheaboveeventsorservices,or
d. Servicesbywayofassigningofsponsorshipofanyoftheaboveevents.
Basedonthelocationatwhichsuchgoodsarehandedoverfortheirtransportationwhereservicesbyway
of transportation of goods, or mail or courier to an unregistered person is involved. Where the person is
registered,itshallbethelocationoftheservicereceiver.
Theplaceofsupplyofpassengertransportationserviceshallbetheplacewherethepassengerembarkson
theconveyanceforacontinuousjourney.Wheretherighttopassageisgivenforfutureuseandthepointof
embarkation is not known, location of the service recipient where recipient is registered and location of
serviceproviderwheretherecipientisnotregistered
Theplaceofsupplyofservicesonboardaconveyancesuchasvessel,aircraft,trainormotorvehicle,shall
bethelocationofthefirstscheduledpointofdepartureofthatconveyanceforthejourney.
Theplaceofsupplyoftelecommunicationservicesincludingdatatransfer,broadcasting,cableanddirectto
hometelevisionservicestoanypersonshall
a. in case of services by way of fixed telecommunication line, leased circuits, internet leased circuit,
cable or dish antenna, be the location where the telecommunication line, leased circuit or cable
connectionordishantennaisinstalledforreceiptofservices
b. incaseofmobileconnectionfortelecommunicationandinternetservicesprovidedonpostpaidbasis,
bethelocationofbillingaddressoftheservicereceiveronrecordoftheserviceprovider
c. in cases where mobile connection for telecommunication and internet service are provided on pre
paymentthroughavoucheroranyothermeans,bethelocationwheresuchprepaymentisreceived
or such vouchers are sold. (This is subject to location of service receiver as indicated in service

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providers records being considered where prepayment or recharge is by internet banking or
electronicmeans)

Theplaceofsupplyofbankingandotherfinancialservicesincludingstockbrokingservicestoanyperson
shall be the location of the service receiver on the records of the service provider subject to location of
serviceproviderbeingconsideredwhereservicesarenotlinkedtoaccountofthereceiver.
Theplaceofsupplyofinsuranceservicesshall:
a. toaregisteredperson,bethelocationoftheservicereceiverand
b. toapersonotherthanaregisteredperson,bethelocationoftheservicereceiverontherecordsof
theserviceprovider.
c. Forallgeneralinsuranceservicesrelatedtoanimmovableproperty,bethelocationoftheproperty
TheplaceofsupplyofadvertisementservicestotheCentralGovernment,aStateGovernment,astatutory
bodyoralocalauthoritymeantforidentifiableStates,shallbetakenaslocatedineachofsuchStatesand
the value of such supplies specific to each State shall be in proportion to amount attributable to service
providedbywayofdisseminationintherespectiveStatesasmaybedeterminedintermsofthecontractor
agreemententeredintointhisregard.
Interstatetransaction
The Central Government would levy IGST (Section 4 of The Integrated Goods & Services Tax Act 2016) which
would be CGST plus SGST on all interState transactions of taxable goods and services. For the purpose,
explanation to Section 2(c) of The Integrated Goods & Services Tax Act 2016 regards supply of goods and/or
servicesinthecourseofimportintotheterritoryofIndiaassupplyofgoodsand/orservicesinthecourseofinter
statetradeorcommerce.Inordertoconstituteaninterstatesale,thelocationofsupplier/serviceproviderandthe
placeofsupplyofgoodsorservicesaretobeindifferentStatesgoingbySection3ofTheIntegratedGoods&
ServicesTaxAct2016proposed.
PlaceofsupplyofgoodsandservicesunderIGSTAct
The concept of place of supply of goods and/or services is identical to the one under Model GST Law covering
CGSTandSGSTfortaxingtransactionswithinaState.Oneadditionalclausethoughisregardingplaceofsupply
ofgaswhichwouldbethelocationwheregasisusedandconsumed.Ithasbeensoughttobeclarifiedthatthe
viewoftheCentralGovernmentonplaceofsupplyforB2Bsuppliesisthatthelocationofservicerecipientwould
bethedeterminingfactorunlessotherwisespecifiedforcertainspecificcases.
TheinterStatesellerwillpayIGSTonvalueadditionafteradjustingavailablecreditofIGST,CGST,andSGSTon
hispurchases.TheExportingStatewilltransfertotheCentralGovernmentthecreditofSGSTusedinpaymentof
IGST.TheImportingdealerwillclaimcreditofIGSTwhiledischarginghisoutputtaxliabilityinhisownState.The
CentralGovernmentwilltransfertotheimportingStatethecreditofIGSTusedinpaymentofSGST(Section9(2)
of The IGST Act 2016). The relevant information is also submitted to the Central Agency which will act as a
clearing house to verify the claims and inform the respective governments to transfer the funds. The tax set off
scenariocouldbeexplainedbythetablegivenbelow

Tax to be paid Tax


incurred
(Outputtax)
goods/services

on Tax
incurred
on Set off available on
goods/servicesprocured taxonprocurement

procured(withinState) (interstate)

CGST

CGST

IGST

SGST

SGST

CGST

IGST

IGST

SGST

IGST (on inter CGST


statesale)
SGST

CGST

SGST
IGST

IGST

CGST
SGST
IGST

TheaforesaidscenariohasbeenconfirmedbyproposedSection2(36)oftheModelLawinrespectofgoodsor
servicesusedortobeusedinthecourseorfurtheranceoftaxablepersonsbusiness.Thismodelwouldreplace
the existing Central Sales Tax on interstate sale of goods reducing the cost of procurement to the interstate

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buyerowingtosetoffbeingavailableonIGST.
Readers have to note that other provisions Model GST law applicable to CGST Act 2016 like for instance
valuation,registration,returns,inputtaxcredit,timeofsupplyofservices,exemption,taxpayments,auditetc.are
applicabletoIGSTActandthesehavenotbeencoveredseparatelygoingbySection11ofIGSTAct2016.
ImportandExport
Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will
followthedestinationprincipleandthetaxrevenueincaseofSGSTwillaccruetotheStatewheretheimported
goodsandservicesareconsumed.FullandcompletesetoffwillbeavailableontheGSTpaidonimportofgoods
and services. Exports would be zerorated with similar benefits to supplies to processing zones within Special
EconomicZones(SEZs).NobenefittothesalesfromanSEZtoDomesticTariffArea(DTA)willbeallowed.Since
exports have been zero rated, credit of input tax related to such supply (i.e. exports) would be allowed even
thoughnotaxispayableonexports.ThishasbeencoveredspecificallybyproposedSection2(77)oftheModel
GSTLaw.ThetermexportwouldrequiretakingoutofIndiatoaplaceoutsideIndia.
ThishastobereadwithproposedSections2(42)and2(43)dealingwiththelocationoftheserviceproviderand
servicereceiverinthecontextofserviceswhicharesimilartotheonesunderPlaceofProvisionofServiceRules
2012 under service tax. The Author here would like to highlight the fact that some clarity is needed on the
proposedprovisionswhichwouldgovernexportofservicesoutofIndiaasbarringthosecasesspecificallycovered
u/s16,inothercasesthelocationoftheservicerecipientwouldbethedeterminingfactorforplaceofsupplyof
services. This comes with the condition that the service recipient is registered. This may not work in case of
servicerecipientbeingoutsideIndia.Insuchcases,theneedforhimbeingregisteredshouldideallybedoneaway
with.Thiscouldhelpataxablepersontodeterminewhetherornotservicesareexportedunlikeincaseofgoods
wherephysicalmovementofgoodsoutofIndiawouldestablishfactofexport.
Whoisliable?Whatisliable?
AsperproposedSection7(2),theliabilitytoCGST/SGSTwouldbeonthetaxableperson.Thishastobereadwith
Section7(1)wherelevyisonallintrastatesupplyofgoodsandservices(withIGSTbeingdealtwithseparately)
andbythetaxableperson.ThedefinitionofgoodsissimilartotheoneprevailingnowgoingbySection2(31).
The term supply would generally include all forms of supply such as sale, transfer, barter, exchange, license,
rental,leaseordisposal,andimportationofservices,madeoragreedtobemadeforaconsiderationbyaperson
inthecourseorfurtheranceofbusinessandalsoincludesasupplyspecifiedinScheduleI,madeoragreedtobe
madewithoutaconsideration.Itisinterestingtonotethatexporthasnotbeenmadepartofthedefinitionthoughit
remainstobeseenwhetherthisdefinitionissubjecttoamendmentsmovingforward.
The definition of service gives it a wide meaning and that is anything other than goods. Here readers may note
that concept of declared service as is prevalent under service tax has been brought under GST law. Works
contracthasbeensoughttoberegardedasservice.Thisshouldhelpinresolvingvaluationrelatedissuesbeing
facedpresentlybycontractorsthoughweareyettogetfinalratesunderGST.Moreover,owingtoapplicabilityof
transaction value norms, intercorporate related party transactions could be under scrutiny not only for works
contractsbutalldeclaredservicesaswell.
The term taxable person u/s 9 would mean a person who carries on any business at any place in India or the
concernedStateandwhoisregisteredorrequiredtoberegisteredunderScheduleIIIofthisActforpaymentof
tax.ThisSchedulerequiresalltaxablepersonshavingturnoverabovethethresholdbeingrequiredtoregister.
Turnoverwouldincludesuppliesonhisownaccountaswellasthoseonaccountofprincipal.Apersonsupplying
interstatewouldbeliabletoregisterirrespectiveofhisturnover.Casualtaxableperson(occasionalsupplierwith
nofixedplaceofbusinessinthetaxableterritory)andpersonliableonreversechargemechanismhavealsobeen
covered.
Readersmaynotethatwhileemployeesprovidingservicestoemployerhavebeenexcludedfrombeingregarded
astaxableperson,CentralGovernmentandStateGovernmentalongwithlocalauthoritieswouldberegardedas
taxablepersoninrespectofactivitiesortransactionsinwhichtheyareengagedaspublicauthoritiesunlessthey
areexemptedonrecommendationsoftheGSTCouncil.
The term business has been defined to include any trade, commerce, manufacture, profession, vocation or any
othersimilaractivity,whetherornotitisforapecuniarybenefit.Regularityorotherwiseofthetransactionwould
beimmaterial.
Readers who are familiar with the definition of person under Service Tax may note that the term has been
similarlydefinedunderproposedSection2(50).

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Inputtaxcredit
UnderproposedSection18oftheModelGSTlaw,everytaxablepersonshallbeentitledtotakecreditofinputtax
anddeductthesameinrespectofataxperiodfromtheoutputtaxpertainingtothesametaxperiodsubjectto
conditionstobeprescribed.Taxperiodistheperiodforwhichtaxreturnisrequiredtobefiled.Itremainstobe
seenwhetherfreecarryforwardofcreditsforutilisationbeyondtaxperiodwouldbeallowedatallmovingforward
as present Cenvat scheme has no restrictions on utilisation once credit is admissible. One can only hope that
there would be no restrictions in this regard. Where the goods and/or services are partly used for business
purposes,creditattributabletobusinessusealonewouldbeadmissible.
Similarconditionexistsforusageofgoods(excludingcapitalgoods)andserviceswithinthebusinessfortaxable
supplies as well as nontaxable supplies and exempted supplies (other than zero rated supplies). Readers may
observeherethatrelaxationwouldbeadmissibleforcapitalgoodsaslongastheyareusedforbusiness.Inother
words,ifnotusedforbusinessevencreditsthereonwouldrequiretobesplit.
Owing to the dual structure, there are conditions in terms of manner of utilisation of credits. For instance, IGST
credits should first be utilized for IGST payment and then for payment of CGST and SGST in that order. The
CGSTcreditsshouldfirstbeappliedtopayoffCGSTduesandbalanceifanycanbeusedforpaymentofIGST.
Similarly,SGSTcreditsleftoverafterutilisationforpayingoffSGSTcanbeusedtopayoffIGST.Crossutilisation
betweenCGSTandSGSThasbeenspecificallyprohibited(Sec.18(5)(d)andSec.18(5)(e)).Anyunadjustedinput
tax credit at the end of the period could be claimed as refund by the taxable person where accumulation is on
account of exports (provided no export duty exists on such goods) or on account of input tax rate being higher
thanoutputtaxrate.Refundwouldbesubjecttoadjustmentofpendingtaxduesasthecasemaybe.
Ineligibleinputtaxcredits
Inputtaxcreditatthemomenthasbeensoughttobedisallowedonthefollowing
motorvehicles,exceptwhentheyaresuppliedintheusualcourseofbusinessorareusedforprovidingthe
followingtaxableservices
i. transportationofpassengers,
ii. transportationofgoods,
iii. impartingtrainingonmotordrivingskills
goodsorservicesprovidedinrelationtooutdoorcatering,beautytreatment,healthservices,cosmeticand
plasticsurgery,membershipofaclub,healthandfitnesscentre,lifeinsurance,healthinsuranceandtravel
benefits extended to employees on vacation such as leave or home travel concession, when such goods
and/orservicesareusedprimarilyforpersonaluseorconsumptionofanyemployee
goods and/or services acquired by the principal in the execution of works contract when such
contractresultsinconstructionofimmovableproperty,otherthanplantandmachinery
goods acquired by a principal, the property in which is not transferred (whether as goods or in
someotherform)toanyotherperson,whichareusedintheconstructionofimmovableproperty,
otherthanplantandmachinery
goodsand/orservicesonwhichtaxhasbeenpaidundersection8oftheActi.e.compoundedlevyand
goodsand/orservicesusedforprivateorpersonalconsumption,totheextenttheyaresoconsumed.
The restrictions here are similar to the ones prevalent under Cenvat Credit Rules 2004. As far as petrol and
petroleumproductsareconcerned,thesearenottobesubsumedinGSTandquestionofsetoffoftaxthereon
wouldnotarise.Evenwhensubsumedcreditthereonwouldbedenied.Inthehumbleopinionoftheauthor,the
two clauses highlighted above dealing with works contract scenarios would require clarity (or even possibly
amendment) as there is every possibility of the matter seeing considerable litigation based on differences in
perceptionbetweenassessesandtheAuthorities.
Thecreditwouldbeallowedonlyonavalidtaxinvoiceandoncethetaxsostatedthereonhasbeenpaidtothe
credit of the appropriate Government in cash or through utilisation of input tax set off as the case may be at
vendors end. Credit transfer mechanism in case of sale of business as is prevalent under Cenvat Credit Rules
2004hasalsobeencarriedforwardtoGSTModellaw.
Nonresidenttaxablepersonwhetherneedingtoregister?
Readers may specifically note that the term u/s 2(46) of Model GST Law means a taxable person who
occasionallyundertakestransactionsinvolvingsupplyoracquisitionofgoodsand/orserviceswhetherasprincipal
oragentorinanyothercapacitybutwhohasnofixedplaceofbusinessinIndia.Thereisapparentlyasuggestion
toincludenonresidenttaxablepersonwithinScheduleIIIrequiringthemtoregisterunderlawwhichifdone,could
leadtopracticalissues.Ideallythisshouldbeavoided.

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Deemingprovisionongoodsandservicesandsupplieswithoutconsideration
TheproposedScheduleItotheModelGSTlawpresentlyincludesthefollowingassuppliesdeemedtobewithout
considerationfortaxability
1. Permanenttransfer/disposalofbusinessassets.
2. Temporaryapplicationofbusinessassetstoaprivateornonbusinessuse.
3. Servicesputtoaprivateornonbusinessuse.
4. Selfsupplyofgoodsand/orservices.
5. Assetsretainedafterderegistration.
Section3oftheModelLawproposedalsoprovidesfortheCentralGovernmentortheStateGovernmenttonotify
transactions/supplieswhichmaynotberegardedassupplyofgoodsand/orsupplyofservices.ScheduleIIalso
contains matters which may be treated as supply of goods or as supply of services. The following is the
specificationunderScheduleII
Anytransferofthetitleingoodsisasupplyofgoods.
Anytransferofgoodsorofrightingoodsorofundividedshareingoodswithoutthetransferoftitlethereof,
isasupplyofservices.
Anytransferoftitleingoodsunderanagreementwhichstipulatesthatpropertyingoodswillpassatafuture
dateuponpaymentoffullconsiderationasagreed,isasupplyofgoods.
Anylease,tenancy,easement,licencetooccupylandisasupplyofservices.
Anyleaseorlettingoutofthebuildingincludingacommercial,industrialorresidentialcomplexforbusiness
orcommerce,eitherwhollyorpartly,isasupplyofservices.
Anytreatmentorprocesswhichisbeingappliedtoanotherpersonsgoodsisasupplyofservices.
Where goods forming part of the assets of a business are transferred or disposed of by or under the
directionsofthepersoncarryingonthebusinesssoasnolongertoformpartofthoseassets,whetheror
notforaconsideration,suchtransferordisposalisasupplyofgoodsbytheperson.
Where,byorunderthedirectionofapersoncarryingonabusiness,goodsheldorusedforthepurposesof
the business are put to any private use or are used, or made available to any person for use, for any
purpose other than a purpose of the business, whether or not for a consideration, the usage or making
availableofsuchgoodsisasupplyofservices.
Where any goods, forming part of the business assets of a taxable person, are sold by any other person
whohasthepowertodosotorecoveranydebtowedbythetaxableperson,thegoodsshallbedeemedto
besuppliedbythetaxablepersoninthecourseorfurtheranceofhisbusiness.
Where any person ceases to be a taxable person, any goods forming part of the assets of any business
carried on by him shall be deemed to be supplied by him in the course or furtherance of his business
immediatelybeforeheceasestobeataxableperson,unless
a. thebusinessistransferredasagoingconcerntoanotherpersonor
b. thebusinessiscarriedonbyapersonalrepresentativewhoisdeemedto
beataxableperson.
Considerationandtransactionvalue
The term consideration going by proposed Section 2(20) would include payment in money or kind or even
monetaryvalueofanyactorforbearance(whetherornotvoluntary)inresponsetosupplyofgoodsorservices
and by the recipient or any other person. This has the potential in the humble opinion of the Author to lead to
litigationonvaluationissues.ThisdefinitionhastobeseeninthecontextofproposedSection17whichdealswith
valueoftaxablesupply.
The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or
payableforthesaidsupplyofgoodsand/orserviceswherethesupplierandrecipientofthesupplyarenotrelated
and the price is the sole consideration for the supply. This would be subject to any additional consideration not
being part of the price being required to be added to arrive at the value. This would be similar to the valuation
methodology presently being followed u/r 6 of Central Excise Valuation (determination of Price of Excisable
Goods)Rules2000.Readersmaynotethatthiswouldnowapplytoservicesaswellandnotjusttogoods.
Thetransactionvalueaboveshallnotincludeanydiscountallowedbeforeoratthetimeofsupplyprovidedsuch
discount is allowed in the course of normal trade practice and has been duly recorded in the invoice issued in
respectofthesupply.Thiscouldmeanpostsupplydiscountsbeingsubjectedtotax.
ReferencetoValuationRules
The proposed GST Valuation (determination of the Value of Supply of Goods and Services) Rules 2016 would

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havetobereferredwheretransactionvaluecannotbefollowed.Thiswouldbeinthefollowingscenarios
theconsideration,whetherpaidorpayable,isnotmoney,whollyorpartly
thesupplierandtherecipientofthesupplyarerelated
thereisreasontodoubtthetruthoraccuracyofthetransactionvaluedeclaredbythesupplier
businesstransactionsinthenatureofpureagent,moneychanger,insurer,airtravelagentanddistributoror
sellingagentoflottery
suchothersuppliesasmaybenotifiedbytheCentraloraStateGovernmentinthisbehalf.
ReadershereneedtonotethatSection17(5)requirestaxtobechargedonMaximumRetailPriceforthegoods
(excludingtaxcomponentunderthislaw)wherethesalesofgoodsaretoapersonwhocannotberegardedasa
taxablepersonandsuchpriceneedstobedeclaredonthepackageunderTheLegalMetrologyAct2009orthe
rulesframedthereunder.TheissuehereiswhetheranyabatementfromtheMRPisgoingtobenotifiedmoving
forwardastherecouldbeincreasedtaxburdentoconsumersinsomecases.
Pureagentconceptforreimbursementinrespectofservices
TheconceptofpureagentasisprevalentunderservicetaxhasbeencarriedforthtoGSTinrespectofservices
provided despite the Courts holding reimbursements as not being subjected to tax. The concept of transaction
valueu/s17includesanythingchargedbythesupplierofgoodsand/orservicesatthetimeoforbeforedeliveryof
goodsoratthetimeoforbeforeprovisionofservices.Thiscouldmeanreimbursementsbeingkeptoutoftaxnet
onlywheretheconceptofpureagentissatisfied.
Conceptofrelatedperson
The definition proposed u/s 2(55) is wider in scope as compared to the present one under Section4 of Central
ExciseAct1944 and would apply to transaction in goods or services. Persons (including legal persons) shall be
deemedtoberelatedpersonsifonly
a. theyareofficersordirectorsofoneanother'sbusinesses
b. theyarelegallyrecognizedpartnersinbusiness
c. theyareemployerandemployee
d. any person directly or indirectly owns, controls or holds five per cent or more of the outstanding
votingstockorsharesofbothofthem
e. oneofthemdirectlyorindirectlycontrolstheother
f. bothofthemaredirectlyorindirectlycontrolledbyathirdperson
g. togethertheydirectlyorindirectlycontrolathirdpersonor
h. theyaremembersofthesamefamily.
Personswhoareassociatedinthebusinessofoneanotherinthatoneisthesoleagentorsoledistributororsole
concessionaire, howsoever described, of the other shall also be deemed to be related. The transaction value
would be accepted even in case of related party transactions if the relationship has not influenced the price
chargedforthetransaction.
Transfersbetweenagentprincipalandwithinbusiness
Thesetransfersorsuppliesfromagenttoprincipalorviceaversaorfromoneplaceofbusinesstoanotherplace
ofthesamebusiness(irrespectiveofStateinwhichpartiesarelocated)wouldalsobeattransactionvalue.
ValuationRulesWhencantransactionvaluebeignoredforgoodsand/orservices?
Thevaluationprovisionsunderthevaluationrulescouldbesummarisedasfollows
The value of goods and/or services shall be the transaction value (value determined in monetary terms)
unlesstheproperofficerhasreasontodoubtthetruthoraccuracyofthevaluedeclaredinrelationtoany
goodsand/orservicesbasedon
a. thesignificantlyhighervalueatwhichgoodsand/orservicesoflikekindorqualitysuppliedatorabout
thesametimeincomparablequantitiesinacomparablecommercialtransactionwereassessed
b. thesignificantlylowerorhighervalueofthesupplyofgoodsand/orservicescomparedtothemarket
valueofgoodsand/orservicesoflikekindandqualityatthetimeofsupplyor
c. any misdeclaration of goods and/or services in parameters such as description, quality, quantity,
yearofmanufactureorproduction.
Wheretransactionvaluecannotbefollowed,thevaluehastobedeterminedbyfollowingthebelow
stepssequentially
a. the value shall be determined on the basis of the transaction value of goods and/or services of like

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kindandqualitysuppliedatoraboutthesametimetoothercustomers,adjustedfor
i. differenceinthedatesofsupply,
ii. differenceincommerciallevelsandquantitylevels,
iii. differenceincomposition,qualityanddesignbetweenthegoodsand/orservicesbeingvalued
andthegoodsand/orserviceswithwhichtheyarecompared,
iv. differenceinfreightandinsurancechargesdependingontheplaceofsupply.

b.Wherethevaluecannotbedeterminedbasedontheaforesaidcomparativemethod,itwouldbeon
computedvaluewhichshallinclude
i. thecostofproduction,manufactureorprocessingofthegoodsor,thecostofprovisionofthe
services
ii. charges,ifany,forthedesignorbrand
iii. an amount towards profit and general expenses equal to that usually reflected in supply of
goods and/or services of the same class or kind as the goods and/or services being valued
whicharemadebyothersuppliers.
The Rules provide for residual method consistent with principles of the said Rules where both the aforesaid
methodscannotbefollowed.Theauthorhereisofthehumbleviewthatwhileanalyzingcomparativepricedetails
forgoodswouldbeeasier,applicationofthesametoservicescouldposeproblems.
CompoundingScheme
The upper ceiling in terms of gross annual turnover for composition scheme is expected to be 50 lakhs. A
review of proposed Section 8(1) of the Model GST Law reveals that while the turnover limit has been kept at
rupeesfiftylakhs,therateisexpectedtobemorethanonepercentunliketheearlierindicatedbaserateof0.5%.
However, the turnover limit would be computed on all India basis for the assesse including those on goods and
services(whethertaxableornot)puttogether.AreadingofproposedSection2(73)revealsturnoverdefinedto
meantheaggregatevalueofalltaxableandnontaxablesupplies,exemptsuppliesandexports,ofgoodsand/or
services,tobecomputedonallIndiabasisandexcludestaxes,ifany,chargedunderthisAct.
Thecompoundingbenefitwouldnotbeavailabletoasellerwhosellsgoodsorsuppliesservicesinterstateortoa
personwhoisliabletopaytaxonreversechargebasis.Thecompositiontaxbenefitwouldbeavailablesubjectto
conditionofnonavailmentofinputtaxcreditandnoncollectionoftaxfromthebuyer/customer.
Taxrates
Goingbypresentindicators,therecouldbedifferentratesforgoodsofbasicimportance,thosetoattractgeneral
rateandspecialrateforpreciousmetalsandluxuries.Thestandardrateisexpectedtobearound18%whilethe
basebeingaround12%.Thehigherrateforluxuriescouldbearound40%thoughthiscouldchangeovertime.
Reversechargeliabilitywhethermechanismexists?
It is worthwhile noting that proposed Section 7 of the Model GST Law as per Report of SubCommittee II of
Empowered Committee of State Finance Ministers incorporates a clause i.e. clause (3) which allows Central or
State Government to specify by Notification, the categories of supply of services on which tax is payable on
reversechargebasis.Whilethismechanismpresentlyexistsinservicetax,theStateGovernmentstoohenceforth
would have the power to notify services for collecting tax on reverse charge basis. One saving grace as of now
seemstobethefactthatSection2(49)regardstaxpayableonreversechargebasisasoutputtax.
AsimilarprovisionexistsinSection4ofTheIntegratedGoods&ServicesTaxAct2016proposedwhichenables
theCentralGovernmenttospecifycategoriesofsupplyofserviceswherethelocationoftheserviceproviderand
theplaceofsupplyofserviceareindifferentStatesinwhichcase,therecipientwouldbeliabletopayservicetax
onreversechargebasisinthecourseofinterstatetrade.
Recoveryoftaxnotpaidorshortpaid
The time period for issue of Show Cause Notice has been fixed at three years from the relevant date. This is
followedbyanotheroneyearforissueofstatementofduespostissueofSCN,forthesubsequentperiodaslong
asthegroundsarethesameasthoseinearliernotice.Theceilingforpenaltyis 5000ortenpercentoftaxdue
whicheverishigher.TheperiodforSCNincasesoffraudormisstatementhoweverhasbeenkeptatfiveyears
while penalty has been fixed at fifteen percent of tax due. The aforesaid clauses in the humble opinion of the
author need to be reviewed so as to reduce period for regular cases other than those involving fraud or mis
statementasthreeyearperiodseemsharsh.
Whereanytaxnotrequiredtobepaid,iscollectedbythetaxablepersonfromanother,thesamewouldhavetobe

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depositedtotheGovernment.
Registrationandreturns
The person liable would have to register himself within thirty days from the date on which it is due. The person
would have the option of separate registration for each business vertical within a State. For registration a basic
requirement would be that of PAN under Income Tax Act. The registered person would be required to maintain
proper registers for sales, purchases, input tax, output tax besides movement of goods to and from business
premises as well as processes within his business premises. The period of retention of records would be sixty
monthsfromthedateoftheannualreturn.
TheregisteredpersonwouldberequiredtofilevariousreturnsasindicatedintheReportoftheJointCommittee
on Business Processes for GST on GST Returns. A common ereturn for CGT, SGST and IGST is envisaged.
While a compounding tax payer would be required to file GSTR 4 at quarterly intervals within 18th of the month
followingthequarter,regulartaxpayerswouldberequiredtofileGSTR3(monthlyreturn)within20daysfromthe
end of the month. Input service distributors would be required to file GSTR 6 monthly within 15 days of the
succeedingmonth.AnnualreturnwouldbeinformGSTR8within31stDecemberofthesucceedingfinancialyear.
TDS return would be filed in form GSTR 7 within 10th of the following month. Regular tax payers would also be
requiredtofileGSTR1andGSTR2monthlyforoutwardandinwardsuppliesrespectivelywithinthe10thand15th
ofthesucceedingmonth.
Therecordswouldbesubjectedtoauditoncetheprescribedturnoverlimitforauditisexceededandthiswouldbe
requiredtobeconductedbyaCharteredAccountantofaCostAccountant.Theauditedfinancialstatementswould
alsohavetobereconciledwiththereturnsfiledbythetaxablepersonandthestatementthereofsubmittedalong
withtheauditedstatements.
Refunds
The time limit has been kept at two years from the relevant date (not applicable to payments under protest).
Refund is to be granted within sixty days from the date of application where on account of export of goods and
ninetydayswhereonaccountofexportofservices.Forunadjustedcreditsotherthantheearliercases,itwould
befortyfivedays.Refundwouldbesubjecttoconditionofnonclaimingofthetaxfromcustomer/recipientwithin
India.Relevantdatewouldingeneralrefertodateofpaymentoftaxwiththeexceptionofexportswhereitwould
be date of filing of relevant return. Where refund is on account of return of goods, it would be date of return to
premises.Inrespectofunadjustedinputtax,theendofthefinancialyearinwhichclaimarises.
ConstitutionalAmendment
TheConstitution(OneHundredandTwentySecondAmendment)Bill2014hassoughttoinsertArticle246Ainthe
ConstitutionprovidingtheLegislatureofeveryStatepowertomakelawswithrespecttogoodsandservicestax
imposedbytheUnionorbysuchState.However,theParliamentalonewouldhaveexclusivepowertomakelaws
withrespecttogoodsandservicestaxwherethesupplyofgoods,orofservices,orbothtakesplaceinthecourse
ofinterStatetradeorcommerce.
Article269Awhichissoughttobeinsertedprovidesforlevyandcollectionofgoodsandservicestaxinthecourse
of interstate trade or commerce and it would be collected by the Government of India and such tax shall be
apportioned between the Union and the States in the manner as may be provided by Parliament by law on the
recommendationsoftheGoodsandServicesTaxCouncilwhichinturnistobesetupunderArticle279A.Inthis
context,supplyofgoods,orofservices,orbothinthecourseofimportintotheterritoryofIndiashallbedeemed
tobesupplyofgoods,orofservices,orbothinthecourseofinterStatetradeorcommercewiththeParliament
formulatingtheprinciplesfordeterminingtheplaceofsupply,andwhenasupplyofgoods,orofservices,orboth
takesplaceinthecourseofinterStatetradeorcommerce.
ThetermgoodsandservicestaxhasalsobeensoughttobedefinedinArticle366(12A)tomeansanytaxon
supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human
consumption.AmendmentshavealsobeensoughttobemadetoUnionandStateListsintheSeventhSchedule
totheConstitutionwiththenetresultbeingpetroleumandpetroleumproductsnotbeingsubjecttoGSTtillsuch
timerecommendedbyGSTCouncil.ThefollowingtaxeswouldbesubsumedintoGST
Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet
Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as
CountervailingDuty,SpecialAdditionalDutyofCustoms,andCentralSurchargesandCessessofarasthey
relatetothesupplyofgoodsandservices
StateValueAddedTax/SalesTax,EntertainmentTax(otherthanthetaxleviedbythelocalbodies),Central
Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury
tax, Taxes on lottery, betting and gambling and State cesses and surcharges in so far as they relate to

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supplyofgoodsandservices
TheBillseekstodispensewiththeconceptofdeclaredgoodsofspecialimportanceandalsohasaclausefora
muchdebatedadditionallevyofonepercentoninterstatesupplyofgoodswhichcouldbeleviedfortwoyearsor
moreasdecidedbytheGSTCouncilandcollectedbyCentralGovernmentandassignedtotheSatesfromwhere
thesupplyoriginates.
Administration
TheadministrationoftheCentralGSTtotheCentreandforStateGSTtotheStateswouldbegiven.Thiswould
imply that the Centre and the States would have concurrent jurisdiction for the entire value chain and for all
taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre. The
thresholdsareexpectedtobe 10lakhsintermsofgrossannualturnoverforgoodsandservicesfortheState
GST (including Union Territories) and 1.50 crores for goods under Central GST. The threshold for services
undercentralGSTshouldideallybegoingupfromthepresent 10lakhsunderservicetax.GSTwouldnotbe
leviedforturnoverbelowthesethresholds.
GSTCouncil
TheCouncil(providedforinArticle279AoftheConstitution)shallfunctionundertheChairmanshipoftheUnion
FinanceMinisterandwillhavetheUnionMinisterofStateinchargeofRevenueorFinanceasmember,alongwith
theMinisterinchargeofFinanceorTaxationoranyotherMinisternominatedbyeachStateGovernment.Itwould
beresponsibleforrecommendationstotheUnionandStateson
the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be
subsumedinthegoodsandservicestax
thegoodsandservicesthatmaybesubjectedto,orexemptedfromthegoodsandservicestax
modelGoodsandServicesTaxLaws,principlesoflevy,apportionmentofIntegratedGoodsandServices
Taxandtheprinciplesthatgoverntheplaceofsupply
thethresholdlimitofturnoverbelowwhichgoodsandservicesmaybeexemptedfromgoodsandservices
tax
theratesincludingfloorrateswithbandsofgoodsandservicestax
anyspecialrateorratesforaspecifiedperiod,toraiseadditionalresourcesduringanynaturalcalamityor
disaster
special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya,Mizoram,Nagaland,Sikkim,Tripura,HimachalPradeshandUttarakhandand
anyothermatterrelatingtothegoodsandservicestax,astheCouncilmaydecide.
Whiledischargingitsfunctions,theGoodsandServicesTaxCouncilistobeguidedbytheneedforaharmonised
structure of goods and services tax and for the development of a harmonised national market for goods and
services.
TheauthorinthisarticlehassoughttosummarisethebasicprovisionsofthemodelGSTlawbasedon
informationavailableatthetimeofreleaseofthisarticletoprovidereadersabirdseyeviewofessential
provisions.Readersmayalsonotethattherecouldbechangesintheproposedmodellawwhichcould
alter the nature of discussion moving forward from this date. They are therefore advised to keep
themselves updated regarding further announcements by law makers in this regard. For any queries
regardingthisarticlereadersmaycontacttheauthoratsrikanthrao.rce@gmail.com

By:SrikanthaRaoTDecember11,2015

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