The fifth meeting of the GST Council (“GSTC”) is underway, however, as per the inputs at the end of the first day (of the two-day meet), there was no consensus on the issue of dual control of assesses / tax-payers; this issue has remained as a bone of contention, lingering unresolved for some time now. Besides this, it is indicated that on day two (today), the GSTC will deliberate the impact of demonetisation on revenue.
During the week, the Union Finance Minister who is also the chairperson of the GSTC has re-stressed that GST must be rolled out prior to September 2017, since it will not be possible to run the nation without tax (collection).
Some highlights of the draft GST legislations circulated in last week of November 2016
The Central Government made available drafts of the Central / State Goods and Services Tax Act, 2016 (“the Draft CGST Act/ SGST Act”) and the Integrated Goods and Services Tax Act, 2016 (“IGST Act”) on 26th November 2016. Some noteworthy aspects of these amended versions of the proposed law, in comparison with the drafts circulated in June 2016 (“MGL of June”), are:
- The proposed law is far more pruned in its amended version, containing only 24 chapters as opposed to 34 under MGL of June.
- A cap of 14% each for CGST and SGST and 28% for IGST has been incorporated in the drafts.
- The expression “supply” is almost un-altered. Branch transfers continue to be covered under Schedule I (supply without consideration), though the words used have been altered slightly.
- Securities has been cast out of the ambit of both “goods” and “services” (under the MGL of June, it was understood as goods) and hence will be out of GST altogether. Securities will thus not be leviable to a GST, much like in the present indirect taxes regime, where these do not suffer a sales tax or service tax.
- The clear prescription that “intangibles” would be considered as service, as provided under the MGL of June, has now been removed. This will open up a pandora’s box of a variety of issues, that could result in litigation.
- Supply to an SEZ Developer or a Unit is now zero-rated, though chargeable to IGST, with a refund mechanism for such taxes. Supply by an SEZ Developer or Unit is now deemed to be an inter-state supply and liable to IGST. Thus, SEZ transactions will be continued to be incentivised.
- Though the key concept of what constitute as inter-state supply and intra-state supply has remained the same, one peculiar change is in Section 3(5) of the Draft IGST Act. In case the service provider is in India and the place of supply is outside India, the transaction would be deemed to be inter-State supply (and thus liable to IGST). In the absence of this deeming fiction, if the place of supply was outside India, an interpretation was that the transaction would neither be intra-State supply nor inter-State supply, hence out of the ambit of GST. If such a transaction cannot be shown to be an “export”, hence zero-rated, it will be liable to IGST. The foreign customers who cannot take credit of Indian GST may gravitate towards foreign suppliers, rather than Indian suppliers in such cases.
- Place of supply Rules have been overhauled, especially in the context of services. The place of supply provisions under the MGL of June was more or less made applicable only in a situation where both the service provider and service recipient are in India. This position stands altered with the detailed place of supply rules involving a recipient (of services) outside India. Separately a rule for “intermediary” services has been incorporated in the November version of the draft laws.
- The Chapter on e-commerce has been altered. The definition of “aggregator” has been removed while the concept of “electronic commerce operator” has been retained. The obligation of tax collection at source (at the rate of 1%) is cast on electronic commerce operators.
- New provisions have been introduced in relation to Online Information and Data Access or Retrieval Services (“OIDAR Services”) which are comparable to the changes made under Service tax law, effective from 1st December 2016.
- Peculiarly, the chapter on settlement of cases has been deleted.
These drafts are said to have been circulated to States in the week of 14th November for their comments and are now to be discussed by the GST Council during its current meeting on 2-3 December 2016.
The drafts circulated in November appear to be more streamlined, however, certain provisions are still prone to ambiguity e.g. intangibles, or the place of supply rules, which could result in avoidable litigation.