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Model GST Rule in India-An Overview

Dated: 14/11/2016

GST Rule Framework in India

The GST rule has in total 25 Chapters, 162 Sections and 4 Schedules

  • SUPPLY:
  • Tax on supply of goods or services rather than manufacture / production of goods, provision of services or sale of goods.
  • Supply includes:
    • all forms of supply for a consideration;
    • certain specified supplies without a consideration;
    • importation of service;
    • transaction between a principal and agent;
    • supply of any branded service by an aggregator under a brand name.
  • Reverse charge mechanism on certain supplies on recommendations of GST Council (GSTC).
  • Certain supplies declared as supply of services or that of goods:
  • Powers to grant exemptions, by notification or by special order, given to the Central and State Governments, on the recommendation of the GST Council
  • LEVY OF TAX:
  • On Intra-State supplies of goods and/ or services, CGST & SGST shall be levied by the Central and State Government respectively, at the rate to be prescribed; 
  • TAXABLE PERSON
  • Taxable person means a person who is registered or required to be registered under Schedule III.
  • Liability to pay tax arises only when the taxable person crosses the exemption threshold i.e. [Rs. 10 lakhs]. (Rs. 5 lakh for special category States).
  • The Central / State Government and local authorities are regarded as taxable person.
  • Persons who are not regarded as taxable persons under GST:
    • an agriculturist;
    • an employee providing services to his employer;
    • person dealing with goods and/or services that are not liable to tax under the Act;
    • person receiving services from abroad up to a specified value for personal use
  • COMPOSITION LEVY:
  • A registered taxable person, with aggregate turnover not exceeding Rs. 50 lakhs in a financial year shall be provided an option to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than 1% of the turnover during the year, subject to following conditions:
    • The benefit of composition scheme shall not be granted to a taxable person who effects any Inter-State supplies of goods and/or services;
    • The taxable person opting for composition levy shall not collect any tax from the recipient to whom goods and/ or services are supplied;
    • No credit of input tax shall be allowed.

 

  • VALUATION:
  • Tax is to be paid on Transaction value of supply generally i.e. the price actually paid or payable for the supply of goods and/or services.
  • Transaction value shall, inter-alia, include:
    • any taxes, duties, fees and charges levied under any statute other than CGST/SGST/IGST Act;
    • incidental taxes such as commission, packing etc. charged by the supplier to the recipient of supply;
    • royalties and licence fees related to the supply of goods and/or services;
    • subsidies provided in any form or manner including subsidies provided by the Government;
    • any discount or incentive that may be allowed after supply has been effected.

 

  • INPUT TAX CREDIT (ITC):
  • ITC is available for business purposes and in respect of all taxable supplies.
  • Input Tax Credit of tax paid on goods or services used for making taxable supplies by a taxable person allowed subject to four conditions:
    • possession of invoice;
    • receipt of goods or services;
    • tax actually paid to government;
    • furnishing of return.
  • Proportionate credits allowed in case inputs, inputs services and capital goods used for taxable and non-taxable supplies.
  • Negative list approach for non-allowance of ITC.
  • Full ITC allowed on capital goods in one go.
  • ITC cannot be availed on invoices which are more than one year old.
  • Unutilized ITC can be carried forward or can be claimed as refund in certain situations.
  • Manner of utilization of credit:
    • ITC of IGST can be utilized towards payment of IGST, CGST and SGST in that order;
    • ITC of CGST can be utilized towards payment of CGST and IGST in that order;
    • ITC of SGST can be utilized towards payment of SGST and IGST in that order;
    • No cross-utilization of CGST and SGST credits.
  • Input Service Distributor (ISD) can distribute ITC amongst its units located in different States or different business verticals within the State, on the strength of a prescribed document, by utilising ITC of CGST and SGST towards IGST and vice versa.
  • Where credit distributed by ISD is more than the available quantum, excess credit so distributed shall be recovered from ISD.
  • Where distribution results in excess credit with one or more supplier but no overall excess distribution by ISD, such excess credit shall be recovered from the supplier(s).

 

  • REGISTRATION:
  • Registration to be obtained within 30 days from the date registration becomes due.
  • A supplier has to take registration in the State from where taxable goods and/or services are supplied.
  • Liability to be registered:
    • Every person who is registered or who holds a license under an earlier law;
    • Every person whose turnover in a year exceeds Rs. [9 lakhs]. (Rs. 4 lakhs for special category States).
  • Liability to be registered irrespective of threshold:
    • Persons making inter-State taxable supply;
    • Persons required to pay tax under reverse charge;
    • Casual and non-resident taxable persons;
    • E-Commerce operator ;
    • Persons who supply goods through e-commerce operator;
    • An aggregator who supplies services under his brand name;
    • Persons who supply goods and/or services on behalf of a registered taxable person;
    • Input Service Distributor;
    • Persons required to deduct tax at source.
  • A person, though not liable to be registered, may take voluntary registration.
  • Registration to be PAN based and is required to be obtained for each State from where taxable supplies are being made (State-wise).
  • A person having multiple business verticals in a State may obtain separate registration for each business vertical.
  • UN agencies, Embassies etc. shall be granted a Unique Identity Number instead of registration.
  • Registration shall be given by both Central and State Tax Authorities on a common e-application.
  • Registration is deemed to be granted after three common working days unless objected to.
  • Amendment of certain specified details of registration on self-service basis, for other details approval of tax authorities required.
  • Provision for surrender of registration and also for suo motu cancellation under certain circumstances.
  • Cancellation of registration under CGST Act means cancellation of registration under SGST Act and vice-versa.

 

  • RETURNS:
  • First return: Every registered taxable person to furnish first return from the date on which he became liable to registration till the end of the month in which the registration has been granted.
  • Normally, registered taxable persons are required to file, electronically, monthly GSTR-1(for outward supplies), GSTR-2(for inward supplies) and GSTR-3(return) consisting of all details by 20th of the month succeeding the tax period.
  • Compounding taxpayers to file Quarterly returns within 18 days after end of such quarter.
  • TDS Deductor to file a return, electronically, within 10 days after the end of month in which deduction is made.
  • Input Service Distributor to file a return, electronically, within 13 days after the end of tax period
  • Casual taxpayers, non-resident taxpayers, TDS Deductors, Input service Distributors (ISDs) to file separate returns.
  • Different cut offs for filing of returns keeping in mind auto-population and matching requirements.
  • Short-filing of return is allowed, but returns filed without payment of full tax shall not be treated as a valid return for allowing ITC.
  • ITC shall be provisionally allowed on filing of return.
  • An Annual return shall be required to be filed by 31st December of the following Financial Year along with a reconciliation statement.
  • After filing of return, inward supplies details in GSTR-2 shall be matched with the corresponding outward supplies details declared by the supplier in his GSTR-1. In case of matching, ITC claimed by the recipient shall be finally accepted if matched. In case of mis-match, ITC to be disallowed after a period of two months.
  • Final return:Every registered taxable person who applies for cancellation of registration to furnish a final return within three months of the date of cancellation or date of cancellation order, whichever is later.

 

  • PAYMENT:
  • There shall be an electronic cash ledger and electronic ITC ledger
  • Every deposit made by a taxable person shall be credited to the electronic cash ledger of such person
  • ITC as self assessed in the return of a taxable person shall be credited to his electronic credit ledger.
  • Payment of Tax to be made not later than last date on which return is to be furnished.
  • Payment of tax is made by way of the debit in the electronic cash or credit ledger.
  • Where the amount available in the cash/ credit ledger falls short of the aggregate of tax, interest etc. payable, the same shall be debited in the following order:
    • interest liability related to returns of previous tax periods;
    • tax liability related to returns of previous tax periods;
    • tax liability of the current tax period; and
    • any other amount payable under the Act including the demand determined under section 51 in the order of penalty, interest and tax.
  • TDS: Certain persons including government departments, local authorities and government agencies shall deduct a part of taxes payable by the supplier. This deducted amount shall be credited to the electronic cash ledger of the supplier who can use it for discharge of his tax liability.

 

  • REFUNDS:
  • Refund of tax or interest or amount can be claimed within two years from the relevant date.
  • The limitation of two years shall not apply where such tax or interest or the amount has been paid under protest.
  • Refund of ITC allowed in case of exports or where the credit accumulation is on account of inverted duty structure.
  • Refund of ITC not allowed where the export goods are subject to Export duty under Customs Tariff Act.
  • Refund shall be granted within 90 days from the date of receipt of application.
  • In case of refund claim on account of exports, 80% of the amount of refund claim can be given immediately on a provisional basis.
  • Principle of Unjust Enrichment: Applicant shall produce documentary evidence that he has not passed on the incidence of tax on to any other person.
  • No need to furnish such evidence if the refund claim is less than Rs. 5 lakhs. Self-certification would suffice.
  • Interest payable after 90 days from the date of receipt of application till the date of refund.

 

  • ASSESSMENT:
  • Taxable person shall himself assess the taxes payable
  • Taxable person may request for provisional assessment in cases where he is unable to determine the value or rate of tax
  • Taxable person will have to furnish bond and security for availing this facility.
  • Provisional assessment is to be finalized within 6 months
  • After final assessment, the taxable person shall be liable to pay additional tax or may claim refund, as case may be

 

  • AUDIT:
  • Audit can be conducted at the place of business of the taxable person or at the office of the tax authorities.
  • Taxable person shall be informed sufficiently in advance, prior to the conduct of audit.
  • Audit to be completed within 3 months, extendable by a further period of 6 months.
  • On conclusion of audit, the proper officer shall without delay notify the taxable person of the findings, the taxable person’s rights and obligations and reasons for the findings.

 

  • DEMAND:
  • Adjudication order shall be issued within 3 years of filing of annual return in normal cases
  • The time limit is 5 years (from the filing of annual return) in fraud/suppression cases.
  • No separate time lines for issue of SCN and adjudication order.
  • Provisions for settlement of cases at every stage, right from audit/investigation to the stage of passing of adjudication order and even thereafter.
  • Minimal penalty if the tax and interest is paid at the stage of audit/investigation.
  • The officer shall in his order set out the relevant facts and the basis of his decision.
  • No demand shall be confirmed on grounds other than the grounds specified in the notice

 

  • TAX COLLECTED BUT NOT PAID TO THE GOVERNMENT:
  • Any amount collected as tax from customers shall be paid to account of the Government regardless of whether the supplies are taxable or not.
  • If not paid, SCN shall be issued.
  • The proper officer shall, after considering the representation if any, determine the amount.
  • The person concerned shall pay tax along with interest from the day the tax was collected till the date of payment.
  • The proper officer shall issue the order within 1 year from the date of issue of SCN.
  • The person who has ultimately borne the incidence of tax may apply for refund.

RECOVERY OF TAX FROM THE PERSON IN DEFAULT:

  • The proper officer may deduct the amount from any money owing to such person which is under his control or he may make a request to another officer to do so.
  • The proper officer may recover the amount by detaining and selling goods belonging to such person which are under his control, or he may make a request to another officer to do so.
  • The proper officer may, by notice in writing, require any other person from whom money is due or may become due to such person to pay the amount to the Govt.
  • Every person to whom the notice is issued shall be bound to comply with such notice.
  • The proper officer may prepare a certificate specifying the amount and send it to District Collector, who shall recover the amount as if it were an arrear of land revenue.

SEARCH, SEIZURE AND ARREST:

  • Officers to have the Power to search places and seize goods, documents etc.
  • After seizure of goods, if notice not is given within 60 days, the goods shall be returned to the person. The period is extendable up to 6 months.
  • A person can be arrested only where the amount of tax evaded exceeds Rs.25 lakhs or where it is a repeat offence.
  • If the amount of tax evaded exceeds Rs.2.5 crore, the offence is cognizable and non-bailable.
  • If the amount of tax evaded is below Rs.2.5 crore, the offence is non-cognizable and bailable.

PENALTY DISCIPLINES:

  • No substantial penalties for minor breaches of tax regulations or procedural requirements.
  • No penalty in respect of any omission or mistake in documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence.
  • Penalty shall be commensurate with the degree and severity of the breach.
  • No penalty shall be imposed w/o issue of SCN and w/o giving PH.
  • Reasoning to be given in the order, specifying the nature of the breach and the applicable laws or procedure.
  • In case of voluntary disclosure of breach, the tax authorities may consider this fact as a potential mitigating factor when establishing a penalty for that person

PROSECUTION:

OFFENCES PUNISHMENT
Ø  Amount of tax evaded exceeds Rs.2.5 crore, or repeat offences. Ø  5 years  imprisonment plus fine

 
Ø  Amount of tax evaded exceeds Rs. 50 lakhs but does not exceed Rs.2.5 crore. Ø  3 years imprisonment plus fine

 
Ø  Amount of tax evaded exceeds Rs.25 lakhs but does not exceed Rs.50 lakhs. Ø  1 year  imprisonment plus fine

 

 

  • Any offence, either before or after institution of prosecution, can be compounded by Competent Authority on payment of compounding amount to the Central Government or the State Government.
  • Compounding to be allowed only after making payment of tax, interest and penalty involved in such offences.
  • Option of Compounding available only once.

APPEALS:

  • First appeal against any order passed by an adjudicating authority shall lie before the First Appellate Authority.
  • Subsequent appeals lie before the Tribunal, High Court and Supreme Court.
  • One Tribunal with State-level branches.
  • Tribunal benches consisting of three members one Judicial, one CGST-Technical and one SGST-Technical.
  • Pre-deposit of 10% of the amount in dispute for filing an appeal before the First Appellate Authority and Tribunal.
  • The Department could request for higher amount of deposit in “serious cases,” where the disputed tax liability is Rs.25 crore or more.
  • First Appellate Authority/Tribunal shall hear and decide the appeal within a period of 1 year, where it is possible to do so.
  • Appeal to be filed in Supreme Court against an order of the Appellate Tribunal:
    • where two or more States or a State and the Centre have a difference of views regarding place of supply; or
    • where the matter involves two or more States or a State and Centre regarding treatment of transactions being intra-State or inter-State.
  • Certain decisions are not appealable, viz.,
    • an order for transfer of proceeding from one officer to another officer.
    • an order pertaining to seizure or retention of books of account, register and other documents.
    • an order sanctioning prosecution under the Act.
    • an order passed by the Commissioner allowing payment of tax dues in installments.

ADVANCE RULING:

  • Advance ruling may be sought in respect of classification, method of valuation, rate of tax, admissibility of ITC etc.
  • Advance ruling is not to be given where the issue is:
    • already pending in the applicants’ case before any appellate forum;
    • the same as in a matter already decided by the Appellate Tribunal or any Court.
  • Advance ruling to be issued within 90 days.
  • Advance ruling shall be binding only on the applicant and jurisdictional tax authorities.
  • Advance ruling shall be binding unless there is a change in law or facts.
  • Advance ruling shall be void in certain circumstances.
  • Advance ruling cane be appealed against by the applicant or the tax Authority

 

JOB WORK:

  • A registered person can send goods for job work without payment of tax subject to conditions and restrictions specified.
  • The Principal can bring back goods after completion of job work to any of his place of business without payment of tax for supply within India or export.
  • Goods can be supplied directly from premises of job worker if Principal declares the place of business of job worker as his additional place of business.

E-COMMERCE:

  • E-Commerce Operators required to collect and deposit Tax at source on payments made to vendors.
  • Supplies of branded services by Aggregators to be deemed supply by Aggregator.

 

TRANSITIONAL PROVISIONS:

  • Amount of Cenvat credit carried forward in a return to be allowed as ITC. Similar provision for carry forward of Value Added Tax.
  • Carry forward allowed only if ITC admissible under the GST Laws. Procedure in this regard to be notified by Rules.
  • Unavailed Cenvat credit on capital goods, not carried forward in a return, also allowed in certain situations.

Credit of eligible Duties and Taxes in respect of inputs held in stock also allowed in certain situations.

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