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Model GST Law – An Analysis June 21, 2016

CNK & Associates LLP

Foreword

Dear Reader,

Pursuant to the approval of the Model Goods & Services Tax Bill by the Empowered Committee of State

Finance Ministers, the Government has released the undermentioned draft legislations into the public

domain with the intent of inviting suggestions and feedback from the various stakeholders.

(1) Goods & Services Tax Act, 2016

(2) Integrated Goods & Services Tax Act, 2016 and

(3) GST Valuation (Determination of Valuation of Supply of Goods & Services) Rules, 2016

The draft legislations embody the various fundamental principles and concepts underlying the existing

Indirect Tax laws. In the times to come, the States are expected to draft their own SGST law (based on the

draft legislations) with minor variations and incorporating any State based exemptions.

The extension of the reverse charge mechanism to goods, introduction of TDS provisions for both supply

of goods and services for values exceeding INR 1 million, collection of tax at source from suppliers/vendors

for e-commerce transactions and the right to file an appeal against an advance ruling are some of the new

provisions introduced in the draft legislations.

On the positive note, the draft legislations seek to address the eternal ambiguity between “goods” and

“services”. The introduction of a refund scheme for exporters involving sanction of 80% of the claim

amount in a time bound manner would bring about a huge sigh of relief for the exporters.

On the flip side, the draft legislation would undoubtedly increase the compliance burden of tax-payers with

provisions relating to mandatory registration and filing of a plethora of returns in each State. The exercise

of matching of input/output tax credits (akin to TDS provisions under Income Tax) is likely to be fraught

with practical difficulties. Apart from this, the retention of some of the existing input tax credit restrictions

and the complex valuation rules (particularly those relating to free supplies and transactions with related

parties) may qualify as some of the “misses” in the draft legislations.

Whilst, the Government continues to strive to garner support for this all-important piece of legislation and

is hopeful of achieving the “magical” two third majority in the Rajya Sabha (which would pave the way for

the passage of this Bill in the forthcoming monsoon session of the Parliament), we too look forward with

renewed enthusiasm for an April 2017 roll-out of the Goods & Services Tax Law.


Indirect Tax Team

Contents

Particulars Page No.

Levy of Tax 1

Scope of Supply 2

Registration 3

Time of Supply 4

Value of Supply 5

Input Tax Credit 6 – 7

Tax Deduction 8

Payment of Tax 8

Returns 8

Composition Levy 9

Refunds 9

Electronic Commerce 9

Miscellaneous Provisions 10

The Integrated Goods and Services Tax Act, 2016 11 – 13

Glossary 14

1


Levy of Tax

The Model Goods and Services Tax Act, 2016:

Applicable to whole of India including Jammu & Kashmir;

Concurrent levy in the form of CGST and SGST on every transaction of SUPPLY of GOODS and

SERVICES within the State;

Tax payable by a TAXABLE PERSON other than notified goods / services covered under reverse

charge mechanism;

Taxable event - Supply vis-à-vis the present taxable event of manufacture/ sales/ rendition of

services.

Taxable Person:

Goods Moveable property

Securities, growing crops, grass and

things attached to or forming part of

the land

Actionable claims, Money, Intangible

Property

ServicesAnything other than

Goods

Actionable claims, Intangible Property

Money

Inclusions:

• Any person carrying on any business in India who is registered or is required to be

registered for CGST/SGST

• Central Government/State Government/Local Authority - in respect of specified activities

or transactions

Exclusions:

• Person with an aggregate turnover of up to INR 10,00,000 in a financial year (INR

5,00,000 in case of North Eastern States (including Sikkim))

• Services by an employee to the employer in the course of/in relation to employment

• Person exclusively supplying goods/or services not liable to CGST/SGST

• Person receiving services covered under reverse charge for personal use (subject to

limits yet to be specified)

• Agriculturist

2


Scope of Supply

• Sale, transfer, barter, exchange, license, rental, lease or disposal for a consideration

All Forms of Supply

• Transactions between Principal and Agent for supply/receipt of any goods and/orservices

Agent

• With or without consideration• In the course or furtherance of business or otherwise

Import of Services

• Permanent transfer/disposal of business assets• Temporary application of business assets to private or non-business use.• Services put to private or non-business use• Assets retained after deregistration• Supply of goods/ services by a taxable person to another taxable or non taxable

person in the course or furtherance of business• Exclusion - Supply of goods by a registered taxable person to a job-worker

Supply without a Consideration (Schedule I)

• Goods - Transfer of title in goods (including transfers at future dates), transfer ofbusiness assets, business assets sold by a debtor to recover debt, business assetsretained upon closure, supply of goods by an unincorporated association or body ofpersons to its members

• Services - Transfer of goods/right in goods without transfer of title, business assetsput to any private use or made available to another person for other than businesspurposes, leasing of land/building, treatment/process applied to another person'sgoods, declared services (as presently defined under Service Tax)

Transaction to be treated as Supply of Goods or Services (Schedule II)

• Central/State Government can notify transactions that are to be treated as a supply ofgoods or supply of services or neither a supply of goods nor supply of services

Notified Transactions

• Supply of any branded services by an aggregator under a brand name or trade nameowned by him

Supply of Services by an Aggregator

3


Registration

Eligibility:

Person holding a Permanent Account Number issued under the Income Tax Act, 1961

Place of Registration:

State from where a taxable supply of goods/services is made

Threshold Exemption:

Person conducting business in Aggregate Turnover(INR)

North Eastern States including Sikkim 4 lakhs

Other than above 9 lakhs .

Aggregate Turnover:

Value of supplies to be computed on PAN India basis

Inclusions:

Taxable supplies

Non-taxable supplies

Exempt supplies

Exports

Supply made by the taxable person on behalf of all his Principals

Exclusions:

Taxes charged under CGST/SGST/IGST

Supplies taxable under reverse charge mechanism

Inward supplies

Supply of goods, after completion of job-work, by a registered job-worker

Mandatory Registration:

Persons making any inter-state taxable supply;

Casual taxable persons;

Persons required to pay tax under reverse charge;

Non-resident taxable persons;

Persons required to deduct tax;

Persons who supply goods/services on behalf of other registered taxable persons as an agent or

otherwise;

Input service distributors;

Persons who supply goods/services, other than branded services, through electronic commerce

operator;

Electronic commerce operators;

An aggregator who supplies services under his brand name/ trade name;

Other notified persons.

Other Provisions:

Voluntary registration by person, though not liable to pay tax

Option to obtain separate registration for each business vertical in a State

Validity of registration certificate issued to casual / non-resident taxable person – 90 days

Provisions made for cancellation of registration voluntarily/ by the tax authorities in specified

circumstances

4


Time of Supply of Goods and Services

Other Cases:

Category Earliest of following events for

Supply of Goods

Earliest of following events for Supply of

Services

Forward

Charge

Removal of goods / making available

the goods to the buyer (where not

required to be removed)

Issuance of invoice

Issuance of invoice Receipt of payment

Receipt of payment Completion of service (if invoice is not issued

within the prescribed period)

Recipient shows receipt of goods in

books of accounts

Recipient shows receipt of service in books of

accounts (where there is no invoice or payment)

Reverse

Charge

Receipt of goods Receipt of services

Receipt of invoice Receipt of invoice

Date of payment Date of payment

Debit in the books of accounts Debit in the books of accounts

Scenario Supply of Goods Supply of Service

Continuous Supply

Successive statements of accounts/ payments are involved - date of expiry of period to which such statements relate

Due date of payment is ascertainable from the contract – date on which payment is liable to be made by recipient, whether or not the invoice is issued or payment is received by supplier

No such statements of account are involved – date of issuance of invoice or receipt of payment, whichever is earlier

Due date of payment is not ascertainable from the contract – each time when the supplier receives payment or issues an invoice, whichever is earlier

- Payment is linked to completion of an event – time of completion of event

Specific

Scenarios

Supply is unascertainable (sale on approval/sale or return basis) – When it is known supply has taken place or 6 months from date of removal, whichever is earlier

Supply of services ceases under a contract before the completion of the supply – when the supply ceases

Residuary

Where a periodical return is to be filed, the date on which such return is to be filed In any other case, the date on which CGST/ SGST is paid

In all the above cases, date of receiving/ making payment refers to the date on which the payment is entered into books of account or date

on which payment is credited/ debited to bank account, whichever is earlier

5


Value of Supply

Transaction Value

• Transaction Value - Price actually paid or payable for the supply of goods/services

• Transaction value to be followed for supplies to related party, so long as there is no influence on price

• Transaction value to be followed in case of goods transferred from one place of business to another place

of the same business or from the principal to an agent or from an agent to the principal

• Inclusions - Amounts incurred by the recipient but liable to be paid by the supplier, value of goods

/services supplied, directly/indirectly by the recipient, free of charge/at reduced costs, royalties and

license fees payable by the recipient directly/indirectly, as a condition of supply, any taxes, duties, fees and

charges levied under any statute other than SGST/CGST/IGST, commission/packing/other amount charged

by the supplier at the time of/before delivery of the goods/services, subsidies provided in any form or

manner, linked to the supply, reimbursable expenditure/cost charged in relation to the supply of

goods/services, post-supply discount/incentive

• Exclusions - Discount allowed before/at time of supply, post-supply discount as per agreement and

known at/before time of supply and specifically linked to relevant invoices

Supply consists of both taxable and non-taxable supply

• Value - Monetary consideration attributable to the taxable supply

Consideration not wholly/partly in money

Related Party Transaction and

Inaccurate Transaction Value declared by Supplier

• Comparison Method - Transaction value of goods/services of “like kind and quality” supplied at or about

the same time to other customers (after specified adjustments)

• Computed Value Method - Cost of production, manufacture or processing of the goods or, the cost of

provision of the services (+) charges, if any, for the design or brand (+) profit and general expenses related

to such supply

• Residual Method - Reasonable basis consistent with the principles and general provisions of the Valuation

Rules

Pure Agent

• Conditions similar to those laid down under the present Service Tax regime

• Expenditure incurred in the capacity of pure agent to be excluded from the value of supply

Money Changer

• Value (in case of currencies exchanged in INR):

• If RBI Reference Rate is available: Buying/Selling rate (-) RBI Reference Rate (x) Total Units of

Currency

• If RBI Reference Rate is not available: 1% of gross amount of INR provided/received by person

changing the money

• Value (in case of currencies not exchanged in INR):

• Value = 1% of the lesser of the two amounts that the person changing the currency would receive by

converting any of the two currencies into Indian Rupees on that day, at the reference rate provided

by RBI

6


Input Tax Credit

Pre-requisites for claiming input tax credit:

Time limit for availing the credit:

Earliest of the following:

One year from the date of issue of tax invoice relating to supply;

Filing of return for the month of September following the end of financial year to which such

invoice pertains;

Filing of relevant annual return.

Manner of distribution of credit – ISD:

Scenario Type of credit that may be distributed

Credit may be distributed as

Distributor and recipient of credit are located in different states

CGST/SGST/IGST IGST

Distributor and recipient of credit, being a business vertical, are located in the same state

CGST/IGST CGST

SGST/IGST SGST

Credit of input services attributable to a supplier shall be distributed only to that supplier

Credit of input services attributable to more than one supplier shall be distributed on pro-rata basis

amongst such suppliers to whom the input service is attributable

Order of Utilization:

Type of credit available

Order of utilization of credit

1st 2nd 3rd

IGST IGST CGST

SGST

CGST CGST IGST

-

SGST SGST IGST

-

Tax Invoice/Debit Note/Supplementary Invoice/Other prescribed tax-paying document issuedby registered supplier

Receipt of goods/services

Tax charged in respect of the supply has been paid to the Government

Tax return has been furnished

In case where goods against an invoice are received in lots or installments, credit can be takenonly on receipt of last lot or instalment

In case goods/services are used for effecting taxable and non-taxable supplies, the credit shallbe limited to credit attributable to taxable supplies including zero-rated supplies

7


Ineligible Credits:

Input tax credit by Principal in respect of inputs sent for job work:

• Credit ineligible except in following cases:• Supplied in the usual course of business or• Used for providing services of transportation of

passengers/goods/ imparting training on motor driving skills

Motor Vehicles

• Services in relation to food and beverages, outdoor catering,beauty treatment, health services, cosmetic and plastic surgery,membership of a club, health and fitness centre, life insurance,health insurance and travel benefits extended to employees onvacation such as leave or home travel concession

Primarily for personal use/

consumption of any employee

• Goods/Services used in the execution of works contract andresulting in construction of immovable property other than plantand machinery

• Goods (where the property is not transferred as goods or in someother form) used in the construction of immovable property, otherthan plant and machinery

Works Contract

• Goods/Services on which tax has been levied at a composite rateCompounded Levy

• Goods/Services used for private/personal consumptionPrivate/Personal Consumption

• Tax component of the cost of Capital Goods on which depreciation has been claimed under the tax lawsCapital Goods

InputsIf the inputs after completion of job work are received back by thePrincipal within 180 days

Capital GoodsIf capital goods after completion of job work are received back bythe Principal within 2 years

Credit Reversal with interest

If inputs/capital goods are not received back within the specifiedtime limit

ReclaimInput tax credit and interest paid on receipt of inputs/capitalgoods (reversed earlier)

8


Tax Deduction

Payment of Tax

Returns

Return Particulars Due Date

GSTR 1 Monthly return of outward supplies (other than compounding taxpayer and ISD)

10th of next month

GSTR 2 Monthly return of inward supplies (other than compounding taxpayer and ISD)

15th of next month

GSTR 3 Monthly return of taxes paid (other than compounding taxpayer and ISD)

20th of next month

GSTR 4 Quarterly return for compounding taxpayer 18th

of next month

GSTR 5 Periodic return by Non-Resident Foreign Taxpayer Last day of registration

GSTR 6 Monthly Return for Input Service Distributor (ISD) Within 30 days after the end of such month

GSTR 7 Return for Tax Deducted at Source 10th

of next month

GSTR 8 Annual Return 31st December of next financial year

• 1% from payments/credits to supplier towardstaxable supply of goods/services where contract valueexceeds INR 10 lakhs

Rate of Deduction

• Department/establishment of Central/StateGovernment

• Local Authority• Governmental Agencies• Persons notified by the Central/State Government

Persons liable to deduct

• On or before the due date of filing the periodic return(i.e 20th of next month)

CGST, SGST, IGST

• On or before the due date of filing the periodic TDSreturn (i.e 10th of next month)

Tax Deducted at Source

• Option to pay tax (other than self-assessed) inmaximum 24 monthly installments with interest, ifapproved by the Commissioner/Chief Commissioner

• Default in payment of installments will render theperson liable to pay the balance amount forthwith

Payment in Installments

9


Composition Scheme

Refunds

Electronic Commerce Operator

Eligibility• Aggregate turnover in a FY upto INR 50 lakhs• No inter-state supplies • Composite levy to be applied for all units

Rate of Tax• Minimum 1% of turnover (Exact rate yet to

be prescribed)

Conditions• No tax to be collected from the recipient• No input tax credit can be claimed• Bill of supply to be issued instead of tax invoice

Eligibility

• Accumulation of credits due to inverted duty structure (i.e. rateof tax on input supplies is higher than the rate of tax on outputsupplies)

• Accumulation of credits on account of exports

Time frame to file the application

• 2 years from the Relevant Date

Refund Order

• 90 days from the date of receipt of application• 80% of the claim amount in case of specified exporters to be

refunded (on provisional basis) and balance 20% afterverification of documents

Definition / Applicability

• Person who directly/indirectly, owns, operates or manages an electronic platform that is engaged infacilitating the supply of any goods/services or in providing any information or any other servicesincidental to or in connection therewith

• Exclusion - Person engaged in supply of such goods/services on one's own behalf

Obligations - Operator

• Collection of tax at prescribed rates from the amount payable to the supplier towards the supply ofgoods/services

• Payment of tax collected and filing monthly statement of all amounts collected by it towards outwardsupplies effected through it, within ten days from the end of the month

• Furnish details of supplies effected through it and stock of goods held by the suppliers in the godownsor warehouses mangaged by it and declared as additional places of business by such suppliers, if sodemanded by the tax authorities

Provisions - Supplier

• Supplier can claim credit of tax collected by the Operator• Supplier would be liable to pay tax on any mismatches between the outward supply reported by the

Operator and that reported by the Supplier

10


Miscellaneous Provisions

Accounts and Records

• Mandatorily filing of audited accounts alongwith a statement reconciling the value of supplies declaredin the returns for the year with the corresponding audited financials

• Maintenance of Records:• Upto 60 months from the last date of filing of Annual Return (i.e. 31st December ) for the year• In case of appeals/revisions/proceedings - Upto 1 year after final disposal of appeal/revision/

proceeding or upto 60 months from the last date of filing of Annual Return (i.e. 31st December ) forsuch year, whichever is later

Assessments

• Provisions relating to scrutiny and assessments (including self assessments, provisional assessment,best judgement assessments), audits, inspection, search and seizure, arrest, offences and penalties,confiscation of goods, imposition of fines/penalties, prosecution and compounding incorporated underGST

• Provisions for demand and recovery of tax also incorporated under GST• Provision for summary assessment in certain special cases (i.e. where delay in assessments wuld

adversely affect the interests of the Revenue) introduced

Advance Ruling

• Eligibility- Any person, registered/desirous of obtaining registration can apply for an advance ruling.• Eligible Matters- Classification of goods/services, applicability of notification, valuation principles,

eligibility of tax credits, determination of tax liability, registration, scope of supply• Exclusions- Advance ruling cannot be sought for matters pending proceedings or decided by the

adjudicating/ assessing authority• Right to Appeal- Provisions for appeal against advance ruling have been introduced for the first time

Transitional Provisions

• Provisions made for migration of existing taxpayers to GST, carry forward of unutilised CENVAT / VATcredit as per returns filed under the earlier law, unavailed CENVAT credit on capital goods, eligibleduties on inputs contained in semi-finished and finished goods held in stock, return of duty paid goods,returns by job-workers, pending refund claims / appeal proceedings, pending long term construction /works contracts, credit distribution by ISDs and TDS provisions on pending contracts

Other Provisions

• Provisions relating to payment of tax liability in special cases such as transfer of business,amalgamation/merger, liquidation, liability of guardians/trustees, liability of legal representatives etc.introduced

• National Goods and Services Tax Appellate Tribunal to be constituted and appeals against the orders passed by the first appellate authority to be filed before the Appellate Tribunal

GST Compliance Rating

• Assignment of GST compliance rating score to taxable persons based on the record of their compliancewith the provisions of GST

• Scoring parameters to be prescribed• Compliance rating score shall be updated periodically and also be placed in the public domain

11


The Integrated Goods and Services Tax Act, 2016

Place of Supply of Goods

Supply of Goods / Services

Inter-State (including imports and exports) - Location of the

supplier and the PLACE OF SUPPLY in different States

IGST

Intra-State - Location of the supplier and the PLACE OF SUPPLY in the same State

CGST and SGST

• Location at which the movement of goods terminates fordelivery

Supply involves movement of goods

• Principal place of business of the third person on whosedirection the goods are delivered by the supplier to therecipient or any other person

Delivery of goods before or during their movement

• Location of goods at the time of deliverySupply does not involve

movement of goods

• Place of installation or assemblyGoods are assembled or

installed at site

• Location at which goods are taken on boardSupply on board a

conveyance

• To be determined by law made by the ParliamentAny other case

12


Place of Supply of Services

Nature of Supply Place of Supply of Services

• Services in relation to immovable property,

including services rendered by architects,

interior decorators, etc.

• Accommodation by a hotel, inn, guest house,

etc. including a house boat or any other vessel

• Accommodation for official, social, cultural,

religious or business functions

• Ancillary services provided in relation to the

above services

Location of immovable property, boat or vessel

Restaurant and catering services, personal

grooming, fitness, beauty treatment, health

services including cosmetic and plastic surgery

Place of Performance

Training and performance appraisal services • Location of registered person

• Place of Performance (in case the recipient is

not registered)

Admission to a cultural, artistic, sporting,

scientific, educational, or entertainment event or

amusement park or any other place and services

ancillary thereto

Location of event/park

Organization of a cultural, artistic, sporting,

scientific, educational or entertainment event

including supply of service in relation to a

conference, fair, exhibition, celebration, etc.

including ancillary services and assigning of

sponsorship

• Location of registered person

• Place of Performance (in case the recipient is

not registered)

Transportation of Goods (including by mail or

courier)


• Location at which goods are handed over for

their transportation (in case the recipient is not

registered )

Transportation of Passengers

Right to passage is given for future use and point

of embarkation is not known at the time of issue of

such right


• Place where the passenger embarks on the

conveyance for a continuous journey (in case

the recipient is not registered)


• Other than registered person:

• Location of recipient when address on

record is available

• Location of supplier in other cases

Note: Return journey shall be treated as a separate

journey, even if the right to passage for onward and

return journey is issued at the same time.

13


Nature of Supply Place of Supply of Services

Services on board a conveyance such as vessel,

aircraft, train or motor vehicle

Location of the first scheduled point of departure of

that conveyance for the journey

Telecommunication services including data

transfer, broadcasting, cable and direct to home

television services:

• Services by way of fixed telecommunication

line, leased circuits, internet leased circuit,

cable or dish antenna

• Mobile connection for telecommunication and

internet services provided on post-paid basis

• Mobile connection for telecommunication and

internet services are provided on pre-

payment through a voucher or any other

means

• Location where the telecommunication line,

leased circuit or cable connection or dish

antenna is installed

• Location of billing address of the service

receiver on record of the service provider

• Location where such pre-payment is received

or such vouchers are sold. If prepaid service is

availed through electronic network – the

location of the service recipient as per the

record of the service provider

Banking and financial services including stock

broking services

• Location of the service recipient on the records

of the service provider

• If service is not linked to account of service

recipient, then the place of supply shall be the

location of service provider

Insurance Services • Location of registered person

• Location of service recipient on records of the

service provider (in case the recipient is not

registered )

Advertisement services to the Central

Government/ State Government/a Statutory

Body/Local Authority meant for identifiable

States

Each such State

Any other services • Location of registered person

• Other than registered person:

• Location of recipient when address on

record is available

• Location of supplier in other cases

14


Glossary

Abbreviation Meaning

CGST Central Goods and Services Tax

GST Goods and Services Tax

IGST Integrated Goods and Services Tax

INR Indian Rupees

ISD Input Services Distributor

PAN Permanent Account Number

RBI Reserve Bank of India

SGST State Goods and Services Tax

Disclaimer and Statutory Notice

This e-publication is published by CNK & Associates, LLP, Chartered Accountants, India, solely for the purposes of

providing necessary information to employees, clients and other business associates. This publication summarises

the important statutory and regulatory developments. Whilst every care has been taken in the preparation of this

publication, it may contain inadvertent errors for which we shall not be held responsible. The information given in

this publication provides a bird’s eye view on the recent important select developments and should not be relied

solely for the purpose of economic or financial decision. Each such decision would call for specific reference of the

relevant statutes and consultation of an expert.

This document is a proprietary material created and compiled by CNK & Associates LLP. All rights reserved. This

newsletter or any portion thereof may not be reproduced or sold in any manner whatsoever without the consent of

the publisher.

This publication is not intended for advertisement and/or for solicitation of work.


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