FEATURES OF GST
I.
It would be a dual GST with the Centre and the States
simultaneously levying it on a common base.
II.
It would replace the following taxes currently levied and collected
by the Centre:
(a) Central Excise Duty
(b) The Excise Duty levied under the Medicinal and
Toiletries Preparation Act
(c) Additional Duties of Excise (Goods of Special Importance)
(d) Additional Duties of Excise (Textiles and Textile Products)
(e) Additional Duties of Customs (commonly known as CVD)
(f) Service Tax
(g) Cesses and Surcharges.
FEATURES OF GST – contd.
III.
State taxes that would be subsumed under GST are:
(a) State VAT
(b) Central Sales tax
(c) Luxury Tax
(d) Entry tax ( other than those in lieu of Octroi)
(e) Entertainment tax
(f) Taxes on lottery, betting and gambling.
FEATURES OF GST - contd.
I.
Credit of Central GST paid on inputs may be used only for
paying CGST on the output and the credit of State GST on
inputs only for paying State GST. In other words, the two
streams of input tax credit cannot be mixed except in
specified circumstances of inter-State sales.
II.
GST would apply to all goods other than crude petroleum,
motor spirit, diesel, aviation turbine fuel and natural gas.
It would apply to all services barring a few to be specified.
FEATURES OF GST - contd.
III.
Tobacco and tobacco products would be subject to GST. In
addition, the Centre could continue to levy Central Excise
duty and the State to sales tax.
IV.
A common threshold exemption would apply to both CGST
and SGST and dealers with a turnover below it would be
exempt from tax. A compounding option (i.e. to pay tax at a
flat rate without credits) would be available to small dealers
above this threshold.
FEATURES OF GST - contd.
V.
The list of exempted goods and services would be
kept to a minimum and it would be harmonised for
the Centre and the States.
VI.
Exports would be zero-rated.
VII.
An integrated GST(IGST) would be levied on inter-
State supply of goods and services. This would be
collected by the Centre so that the credit chain is
not
disrupted.
Accounts
would
be
settled
periodically between the Centre and the State to
ensure
that
the
State
GST
components
is
transferred to the destination State where the goods
and services are eventually consumed.
FEATURES OF GST - contd.
VIII.
The administrative mechanism for CGST and SGST would
be harmonized to the extent possible.
IX.
CGST and SGST would be levied at rates to be mutually
agreed upon by the Centre and the States based on the
revenue-neutral rates.
TREATMENT OF INTER-STATE SALES IN GST
 Levy of IGST (CGST rate + SGST rate) on inter-state
movement of goods and services.
 IGST to be collected by Centre.
 Dealers/manufacturers making inter-state clearance to
submit simple returns to CBEC giving details of
quantum of SGST credits used for paying IGST duty
and quantum of IGST credits used for paying SGST
duty.
 NSDL and SBI will act as clearing corporation and
clearing bank respectively.
TREATMENT OF INTER-STATE SALES IN GST
–contd.
 SGST credits and for paying IGST duty to be transferred to
the Centre and IGST credit used for paying SGST duty to be
transferred to the States.
 Adjustments to be made between Centre and the State
through the clearing house mechanism.
 Manufacturers/ dealers can take credit seamlessly.
 It is essential to have Constitutional Amendments for
empowering the States for levy of service tax, GST on
imports and consequential issues as well as corresponding
Central and State legislations with associated rules and
procedures
VALUATION PROVISIONS AND GST
• Taxable event:
Supply of goods and services for a “consideration’.
• Consideration ( definition):
 Monetary
consideration
includes
currency,
cheque,
promissory note, letter of credit, draft, pay order, traveler's
cheque, money order, postal remittances and other similar
instruments but does not include currency that is held for its
numismatic value.
 Non-monetary consideration includes goods or services
supplied as payment for example in a barter ( including part
exchange) in the case of services this includes giving up a
right, refraining from doing something or agreeing to suffer a
loss.
DIFFERENT
ASPECTS
OF
CONSIDERATION
-contd.
SPECIFIC EXAMPLES OF CONSIDERATION:
 Amounts received in furtherance of settlement of
disputes
Any payment for settlement of issue is generally not a
consideration
for
supply by the
aggrieved
party.
However settlement which grants the aggrieved party a
right may be consideration for supply in GST. For
example permission for future use of a trading title in
lieu of a payment.
 Defects:
Returnable defects not part of consideration.
 Subsidies:
DIFFERENT
ASPECTS
OF
CONSIDERATION
-contd.
SPECIFIC EXAMPLES OF CONSIDERATION- contd.
 Fine and penalties:
 Project funding:
To be included in supply of rights if there
is a legal right.
 Deposits:
Returnable deposit not includible.
 Free samples:
Treated as deemed
consideration.
 Compensation for damaged goods:
 Repairs under warranties: Not includable.
supplies for a
DEFINITION OF VALUE
• Value of a supply is defined to be an amount which
with the addition of the GST paid or payable is equal to
the consideration when the supplier and the buyer are
not related or there is no other consideration flowing
from the buyer to the supplier.
• Value includes
 Taxes , duties, levies, charges including GST on the
supplies;
and
incidental
expenses
such
as
commission, packing, transport, insurance cost
charged to the supplier.
DEFINITION OF VALUE
•
value excludes
 Price deduction by way of discount for prompt
payment
 Price discounts and rebates granted to the
customer and obtained by him at the time of
supply.
 Reimbursement of actual expenses incurred as
payment of expenditure on behalf of the
customer (agency function)
VALUATIONS AND RELATED PERSONS
Following treated as related persons :Inter connected undertakings (defined under section 2 of MRTP
Act)
Relatives (Section 2 of the Companies Act)
Associated persons ( defined under the Income Tax Act)


In the case of supply to related persons the value shall be
the open market value. Open market value refers to the full
value which a buyer at the same marketing stage is required
to pay in order to obtain the goods or services in question at
that time and when the buyer and supplier are not related.
When no comparable supply of goods or service can be
ascertained ; open market value includes – in respect of
goods an amount that is equal to 105% of the purchase price
of identical goods failing which is of similar goods or in the
absence of a purchase price, 105% of the cost price
determined at the time of supply.
VALUATION
• Valuation and consideration partly or wholly received in
kind:
- part kind part cash:
 the principle here is what would the provider of part
exchange would have had to pay if the payment had
been wholly in monetary terms.
- completely barter
 This would have to be done on the basis of the open
market value.
-
VALUATION
-
- contd.
Valuation in the case of issuance credit and debit notes.
 A supplier issuing a credit or debit note is required to make
an adjustment to the output tax.
 A supplier receiving a credit note or debit note needs to
make an adjustment in input tax. For this principle to
operate, it is necessary that debit and credit note is issued
for a single supply and not by issue of another tax invoice.
VALUATION – contd.
•
VALUATION IN RESPECT OF MARGIN SCHEMES.
•
The margin scheme is an optional method of accounting which allows for
calculation of GST on the value added rather than on the full selling price.
This scheme is allowed in a few situations when there is a problem in
taking input tax credit.
•
Types of margin scheme:
 Tour operator margin scheme
 Second hand goods ( procured or cleared)
 Paintings
 Antique deals.
 Grant or sale of long term lease.
 Auctioneers scheme.
 Ineligible item:- - precious metals, - precious stones and ornaments in gold.
VALUATION – contd.
•
Traders dealing in the sale of eligible goods can use the schemes
provided they meet the following conditions:
 The trader is registered for GST
 The purchase invoices for the goods does not show GST
separately.
 The trader does not issue a GST invoice or other invoice which
shows GST separately for the sale of the goods ( in other words,
the buyer cannot take the credit)
 All the record-keeping, accounting and invoice requirements are
met.
VALUATION – contd.
Input credit distributor:
 In the case of an ‘input credit distributor’ the present scheme
under service tax allows for transfer of credit from Head office to
other offices when credit relates to supply of services and the
supply is received by one of the offices of the registered person.
This scheme is likely to continue.
 Distribution of such credit will be deemed to be a supply of
credit and the value of such credit transfer will be equal to the
consideration to which such credit relates
VALUATION – contd.
• VALUATION OF IMPORT OF GOODS:
In case of imports, the value for GST is proposed to be the
value adopted for the purpose of levying additional duty of
Customs under Section 3 of the Customs Tariff Act, 1985.
when goods exported from India are re-imported after having
undergone certain processes like repair/ reworking then the
value would be the cost of the value addition abroad, the
insurance along with freight both ways plus the customs duty
(excluding import GST leviable)
VALUATION – contd.
• TAX VALUE IN CASE OF IMPORT OF SERVICES:
• When service is received and duty liability under GST is to be
discharged on reverse charge basis , then the importer has two
identities – both a customer and a supplier. In such cases the
importer discharges the duty liability. The value in such cases will
be the total amount paid or payable including any tax levied
abroad and converted into rupees.
VALUATION – contd.
•
VALUATION IN RESPECT OF COMPOSITE SUPPLIES:
- Indicators of single supply:
– different elements are integrated to the main supply – removal of
one supply would affect the nature of supply.
– Same amount is charged whether or not the customer buys all
elements. ( in-flight meals)
– The elements are advertised as a package.
– The customer perceives what is supplied as a single supply not
as independent elements ( for example, supply of ready-made
suit, not separate supply of cloth, buttons, thread or stitching)
– Ancillary supplies treated as single supply.
VALUATION – contd.
-
VALUATION IN RESPECT OF COMPOSITE SUPPLIES:
-
Indicators of multiple supply:
– Separate pricing or invoicing
– Elements are available separately.
– There is a time differential between parts of the supply.
– Elements are not inter-dependent/ connected.
VALUATION – contd.
VALUATION IN THE CASE OF TRANSACTION BETWEEN PRINCIPAL AND
AGENT:
•
An agent will be usually involved in at least two separate supplies at
any one time – the supplies made between principal and third parties
and the supply of agent’s own services to the principal for which the
agent may charge a fee or commission. An agent may be a ‘buying
agent’ acting on behalf of the buyer or a selling agent acting on behalf
of the seller. A pure agent means a person who enters in to a
contractual agreement with the client ( recipient of a service) to act on
his behalf- such an agent does not use goods or services but only
receives the actual amount incurred to procure such goods or
services.
•
Normally when an agent incurs expenditure or costs in the course of providing
taxable supply , all such expenditure or costs would be includible in the value
for charging GST.
However disbursements on account of pure agency
functions will not be includible.
EXAMPLES OF TRANSACTIONS
• 1
X contracts Y (an architect) for building a house
Y incurred expenses such as
charges, air travel fare, hotel stay.
telephone
Whether Y gives itemised billing or as a part of overall fee, GST is
payable on the total payable by X to Y.
bills a customer separately for royalty or license
• 2. Afeemanufacturer
(incurred in making a supply)
Royalty ,etc are not disbursements
Output tax payable on full value including royalty, etc.
• 3.
In a private function held in a restaurant, customer pays for food,
drink & other facilities. Also pays for overtime to staff of
restaurant.
Overtime is not a disbursement for restaurant.
Supply of staff is only to the restaurant.
. GST is payable on full value
EXAMPLES OF TRANSACTIONS.
• 4
A consultant flies to Dubai to perform some work as per client’s
instruction.
Airfare to Dubai is not a disbursement for the
consultant. Supply of airline is a supply to him
and not to the client.
The consultant must pay output tax on the full value of supply as
airfare represents part of overall value of supply to client.
• 5
Company X provides rent-a-cab service to overseas visitors. Cab
driver is given a lump sum amount to cover his food, overnight
stay and other incidental charges(parking fee). After tour, driver
returns the balance with a statement on his expenses and bills.
Company X charges these amounts from the
recipient of services.
These expenses billed are part of gross amount charged for
provision of services by the company.
JOB WORK TRANSACTIONS
Broad principles:
• Job work transactions will not be allowed without payment of
GST – they would no more represent an unique transaction.
• Job work transactions conform to the definition of taxable
event as they represent supply of goods and services for a
consideration.
• GST is distinguishable on the value addition reflected in the
job work charges received.
• With the constitutional amendment dutiability will no more be
related to the activity of manufacture but to supply of goods
and services for a consideration.
• Perhaps job work transaction could be brought under the
margin scheme.
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