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© Eco
nom
ic L
aws
Prac
tice
2015
INTER-STATE SUPPLIES UNDERGOODS AND SERVICES TAX IN INDIAAugust 20, 2015
GST STUDY CIRCLE MEETING
/MR. ROHIT JAIN
© Economic Laws Practice 2015
SCHEME & STRUCTURE OF INTER-STATE SUPPLIES
2
© Economic Laws Practice 2015 3
Constitutional amendments proposed by 122nd Bill
No power to States to levy tax on any inter-State transactions (goods and services)
No power to States to levy tax on any inter-State transactions (goods and services)
© Economic Laws Practice 2015
Key issues under current regime
4
• Determining nature of supply• Intra-State versus Inter-State
supply• Inter-State supply of goods under
Central Sales Tax Act, 1956 to mean:• “Occasioning movement of goods
from one State to another”– Both originating State and
destination State demanding taxes
• Need absolute clarity on place of supply under GST to avoid multiplicity of payment and tax demands:
• State A versus State B• Center versus State
© Economic Laws Practice 2015
Consequential phase out of CST
5
Initial proposal for introduction of GST (2006)• CST phase out necessary
CST phased out for introducing GST• CST compensation for FY 2010-11
promised
Compensation to States in 122nd Bill proposed as under
• Compensation over 5 years for any revenue loss• Full compensation for initial 3 years• Partial compensation for balance 2
years• 1% additional tax levy on inter-state supply
of goods for 2 years to origin State
© Economic Laws Practice 2015 6
Constitutional amendments proposed by 122nd Bill
Article 286 prohibits States from taxing both inter-State supplies and imports, of goods and services
Article 286 prohibits States from taxing both inter-State supplies and imports, of goods and services
Article 246A – “(1)…(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
Article 246A – “(1)…(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
© Economic Laws Practice 2015 7
Recent Progress
Views of the Select Committee of MPs Dissenting views
Key recommendations•Restricting the levy of 1% additional GST to supplies with consideration•Full compensation to States for five years on account of loss, if any pursuant to GST•Moderate rates of GST with wide base•GST rates to be domain of GST Council and not to be incorporated in the Amendment Bill
Key recommendations•Total Elimination of 1% additional GST on inter State supply of goods•Cap on GST rates to 18%•Introduction of provisions to ensure local bodies’ tax collection does not suffer•GST Council to have 1/4th representation from Centre and 3/4th from States as against 1/3rd and 2/3rd respectively presently proposed
© Economic Laws Practice 2015 8
Recent Progress“I’m game, are you?” - FM
•FM’s clarifies the Government’s stand on the Constitution Amendment Bill via Social Media –
• GST rate to be decided by the GST Council• GST on Inter unit transfer – GST charged on
supplies will be VATable and will not have any cascading effect
• Share of local bodies in the revenue buoyancy should be a part of the proposed constitution amendment – not acceptable
• Two years transient provision which provided for an additional tax of 1% added to allay the fears of manufacturing States
• Electricity, tobacco products and alcohol for human consumption should be given the same treatment as petroleum in the Amendment bill – no such consensus with the States
© Economic Laws Practice 2015 9
Concept of IGST
IGST Mechanism
10
Inter-State
SGSTSGST
Procurement of goods
Procurement of goods
Import
Intra-State
Intra-State sales of goods
Inter-State sales
Exports
Intra-State
Procurement of ServicesProcurement of Services
Manufacturer/ Service ProviderManufacturer/
Service Provider
Stock Transfers
C Excise CGSTCGST
VAT SGSTSGST
C Excise
BCDBCD
CVD IGSTIGST
SADS Tax CGSTCGST
Inter-State Import
S Tax S Tax IGSTIGST
C Excise CGSTCGST
SGSTSGST
C Excise
No taxes
IGSTIGST
IGSTIGST
IGSTIGST
CSTCST
BCDBCD No taxes
No taxes
IGST?IGST?
VAT
CSTCST
1% Addl tax ?
1% Addl tax ?
1% Addl tax
1% Addl tax
1% Addl tax?
1% Addl tax?
© Economic Laws Practice 2015 11
Central GovernmentCentral Government
Clearing HouseClearing House
State AState A State BState B
Inter-state sale Rs. 1,000
Intra-state sale Rs. 3,000
Rs. 240
Rs. 160
Rs. 200
Rs. 20
Rs. 15
Rs. 155
STATE A
Balance 15
Less: paid to clearing house
(15)
Net Cash flow 0
CLEARING HOUSE
ITC Balance 10
Add: received from ABCPaid by State AReceived from C.G.
155 1520
Less: Paid to State B (200)
Net Cash flow 0
CENTRAL GOVERNMENT
ITC Balance 20
Less: paid to clearing house
(20)
Add: Received from XYZ
240
Net Cash Flow 240
STATE B
Received from XYZ 160
Add: Received from Clearing House
200
Net Cash flow 360
The IGST Mechanism
*Rates – CGST – 8%SGST – 12%IGST – 20%
XYZABC
© Economic Laws Practice 2015
Additional GST
12
© Economic Laws Practice 2015
ISSUES & IMPLICATIONS
13
© Economic Laws Practice 2015
Origin / destination based taxation
14
ORIGIN BASED TAXATION
GOODS - • Inter-State movement of goods: CST
remitted to origin State
SERVICES – • For certain services (e.g. Intermediary, online
information and database access retrieval services etc.), situs of service is location of Service Provider (Rule 9 of PPSR)
DESTINATION BASED TAXATION
• Destination based consumption tax recommended in First Discussion Paper and Task Force Report
• As per Apex Court decision in All India Federation of Tax Practitioners vs. Union of India - Appeal (civil) 7128 of 2001
• In line with International practices and precedents
© Economic Laws Practice 2015
Inter-State transactions in Goods
15
State-specific incentives: Schemes may continue under GST (may have refund / subsidy mechanism instead) – Transitional provisions may ensure benefits not
revoked in untimely manner
State-specific incentives: Schemes may continue under GST (may have refund / subsidy mechanism instead) – Transitional provisions may ensure benefits not
revoked in untimely manner
CU
RREN
T C
URR
ENT
GST
REG
IME
GST
REG
IME
© Economic Laws Practice 2015
Need to re-look at logistics
16
IMPORTANCE / RELEVANCE OF DEPOTSIMPORTANCE / RELEVANCE OF DEPOTS
© Economic Laws Practice 2015
Inter-State supply of Intangibles
17
© Economic Laws Practice 2015
Inter-State supply of Services
18
© Economic Laws Practice 2015
Treatment of supply to Self
19
© Economic Laws Practice 2015
International Precedents
20
© Economic Laws Practice 2015
Q&A
MUMBAI109, A WingDalamal TowersNariman PointMumbai 400 021T: +91 22 6636 7000F: +91 22 6636 7172E: [email protected]
DELHI405-406World Trade CentreBarakhamba LaneNew Delhi 110 001T: +91 11 4152 8400F: +91 11 4152 8404E: [email protected]
BENGALURU6th FloorRockline Centre54, Richmond RoadBangalore 560 025T: +91 80 4168 5530/1E: [email protected]
AHMEDABAD801, Abhijeet IIIMithakali Six RoadsEllisbridgeAhmedabad 380 006T: +91 79 6605 4480/8F: +91 79 6605 4482E: [email protected]
PUNESuyog Fusion7th Floor, No. 197 Dhole Patil RoadPune 411 001T: +91 20 4146 7400F: +91 20 4146 7402E: [email protected]
CHENNAINo. 6,4th LaneNungambakkam High RoadChennai 600 034T: +91 44 4210 4863E: [email protected]
© Eco
nom
ic L
aws
Prac
tice
2015