Goods and service tax (GST) is said to be the greatest indirect tax reform in India. With this, India realizes its dream of ‘One Nation- One Tax.’ GST is an indirect tax used in India on the supply of goods and services. It is also called as a ‘destination’ based tax as it has subsumed almost all the indirect taxes and will help in improving the overall economic growth of the nation. There is the least amount of physical interaction between taxpayers and tax collectors as it can be paid in the electronic mode which ensures compliance with the least government intervention.
Due to implementation of GST, one can expect a reduction of corruption, increase in tax revenue for the nation, reduced tax litigations and creation of employment in our country with several other benefits. GST is divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18% and 28%. The tax came into effect from 1st July, 2017.
Before India implemented GST, several other countries in the world have been following GST since many decades. The first country that implemented GST was France, in 1954. GST is now practiced in more than 150 countries in the world. India has adopted the Dual GST model in which both the State as well as the Central levies tax on Goods or Services or both.
PROBLEMS BEFORE THE IMPLEMENTATION OF GST:
Some of the problems were: multiplicity of tax laws, multiplicity of tax rates, dual taxation, confusion between goods and services, etc. A businessman had to comply with various laws while supplying goods and services from one State to another. Before the implementation of GST, each State Government was free to decide the tax rates or to provide tax incentive in order to attract business and investments in the state. This resulted in an unhealthy competition among the states and a reduction in the revenue for the Government. Due to the problem of dual taxation, the businessmen had to pay taxes to both the Central and State Governments for the same activity. Free flow of goods across India was a problem earlier as each State Government had its own check post which led to corruption and tax evasion. Many local bodies levied octroi for entry into a city which caused delay and increased the transaction cost of the assessees.
TYPES OF TAXES UNDER GST: (Rao, 2022)
Under GST, there are four types of taxes levied. If the sale of goods or service is within the same state or union territory, CGST and SGST, or CGST and UTGST will apply as applicable. If it is an interstate supply, then IGST will apply.
1. SGST: State Goods and Service Tax or SGST is the tax levied by the State Government on the transaction of goods and services within a State. SGST is charged along with CGST. SGST replaces the State VAT, Central sales tax, Luxury tax, etc.
2. CGST: Central Goods and Service Tax or CGST refers to the tax levied by the Central Government on the transaction of goods and services. The tax collected under this head is payable to the Centre. The CGST is charged along with SGST Or UTGST, as per the dual GST regime.
3. IGST: The tax on inter-state supply of goods and services is known as the Integrated Goods and Service Tax or IGST. The Central Government levies IGST on all inter-state transactions of taxable goods or services.
4. UTGST: Union Territory Goods and Service Tax or UTGST is similar to SGST, however, here the tax collected goes to the administration of the Union Territory. Thus, like SGST, UTGST is charged in addition to CGST. UTGST applies to the five Union territories without legislatures: Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep, Daman and Diu.
FEATURES OF GST: (Rao, 2022)
Ø GST is based on the principle of destination-based consumption as against the principle of origin-based taxation. It is levied based on the place where the goods or services are to be consumed.
Ø GST is applicable to all goods and services except alcohol for human consumption. GST on five specified petroleum products (crude, petrol, diesel, aviation turbine fuel and natural gas) would be applicable from a date to be recommended by the GST Council.
Ø Tobacco and tobacco products are also subject to GST. In addition, the Central Government would have the power to levy Central excise duty on these products.
Ø There will be a common threshold exemption to both CGST and SGST. Tax payers with an annual turnover not exceeding Rs. 20 lakhs (Rs. 10 lakhs for special category states) would be exempt from GST.
Ø Exports would be zero-rated supplies.
GOODS AND SERVICE TAX COUNCIL: (Rao, 2022)
As provided for in Article 279A of the Constitution, the Goods and service tax Council was notified with effect from 12th September,2016. The Council is comprised of the Union Finance Minister (he/she will be the Chairman of the Council), the Minister of State (revenue) and the State Finance/taxation ministers as members. It shall make recommendations to the Union and the States on the following issues:
· The goods and services that may be subjected to or exempted from the GST.
· The threshold limit of turnover below which the goods and services may be exempted from GST.
· Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.
· Special provision with respect to the North-east states, J&K, Himachal Pradesh and Uttarakhand; and
· Any other matter relating to GST as the Council may decide.
The quorum of the meeting will constitute of one half of the total number of Members of the Goods and Services Tax Council. There should be a majority of not less than three-fourths of the weighted votes of the members present in the meeting of the Goods and Services Tax Council.
GSTIN- GST Identification Number:
A 15-digit distinctive code is provided to every taxpayer. It is provided based on the State one lives in and the PAN. Some of the benefits of a GSTIN number are: loans can be availed with the help of the number, refunds can be claimed, verification process is easy and corrections can be easily made.
Every supplier is liable to be registered under this Act in the State or Union Territory other than special category States. A supplier is liable for registration from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rupees twenty-lakhs. In the case of special category states, he shall be liable for registration if his aggregate turnover in a financial year exceeds Rupees 10,00,000/-.
An agriculturist, is not liable for registration, to the extent of supply of produce out of cultivation of land. Also, any person who is not liable to tax or wholly exempt from tax under this Act, is not liable for registration.
PROCEDURE FOR REGISTRATION: (Rao, 2022)
Every person who is liable to be registered under Section 22 or Section 24 shall apply for registration in every such State or Union Territory in which he is so liable within 30 days from the date on which he becomes liable to registration.
Every person making a supply from the territorial waters of India shall obtain registration in the coastal State or Union Territory where the nearest point of the appropriate baseline is located.
A person who has obtained or is required to obtain more than one registration, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
INPUT TAX CREDIT:
Input tax credit (ITC) helps in the flow of goods and services across India from one state to another. The taxes paid under reverse charge mechanism are available as ITC to the registered person. ITC refers to the tax already paid by a person at time of purchase of goods or services and which is available as deduction from tax payable.
However, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. Also, ITC is not allowed on goods given as gifts or free samples.
Credit of CGST paid on inputs may be used only for paying CGST on the output. Credit of SGST paid on inputs may be used only for paying SGST. ITC of CGST cannot be used for payment of SGST and vice versa.
Points to remember regarding ITC: (Rao, 2022)
· ITC of CGST is allowed for payment of CGST and IGST in that order.
· ITC of SGST is allowed for payment of SGST and IGST in that order.
· ITC of IGST is allowed for payment of IGST, CGST and SGST in that order.
PLACE OF SUPPLY WITHIN INDIA:
As GST is a destination-based tax, it is important to ascertain the place of consumption of the goods and services to know under whose jurisdiction the consumption takes place.
The following factors are important to determine the place of supply:
Ø Location of service provider.
Ø Location of service receiver.
Ø Place of performance.
Ø Place where it is consumed.
Ø Person who is benefitted by the supply.
Where the goods are supplied on board a conveyance including an aircraft, a vessel a train or motor vehicle, the place of supply will be the location at which such goods are taken on board.
Where there is no movement of goods during supply, the place of supply shall be the location of such goods at the time of the delivery to the recipient.
TIME OF SUPPLY:
The time of supply fixes the point when the liability to charge GST arises. It indicates when a supply is deemed to have been made.
In case of normal supplies of goods, the time of supply shall be the earlier of the following dates:
Ø The date of issue of invoice by the supplier.
Ø The date on which the supplier receives the payment.
In case of supply of services, it shall be the earliest of the following dates:
Ø The date of issue of invoice by the supplier.
Ø The date of provision of service, if the invoice is not issued within the period prescribed.
Ø The date on which the recipient shows the receipt of services in his books of account.
For late filing of GST, there is a late fee of rupees hundred per day, that is, rupees hundred under CGST and rupees hundred under SGST, which makes it a penalty of rupees two-hundred per day. The maximum penalty is rupees five thousand in this case. Also, it is to be noted that there is no penalty in case of late filing of IGST.
Penalty on registered person: any registered person who supplies any goods or services or both on which tax has not been paid, commits fraud by willful misstatement or by suppression of facts to evade tax; such a person shall be liable to a penalty of ten thousand rupees or 10% of the tax due from such person, whichever is higher. This penalty is charged in cases when a there is a supply of goods/services without a invoice or a false invoice, if refunds are obtained by fraud, submission of false information while registering under the Act, etc.
General penalty: any person who contravenes any provisions of the Act, shall be liable to a penalty which may extend to rupees 25,000/-.
Thus, due to the implementation of GST, the Government can collect taxes from more members of the society, as more people will be included in the tax bracket, helping in the development of the country, reduce tax evasions, fewer complications in the process of tax payment, elimination of cascading tax effect, regulation of the unorganized sector, etc. There will be confidentiality of the taxpayers’ information and paperwork will be reduced to a great extent. The implementation of GST system in India, will help to reduce inflation in the long run as prices for goods will be lower. Therefore, with the help of GST, India can realize its dream of ‘ONE NATION- ONE TAX.’
Dr. Rega Surya Rao, Lectures on law of taxation, 162-168, Gogia law agency 2022.
This article is written by Tarana Suvarna of G.J.Advani Law College.