Representation in respect of the Model Goods and Services Tax Law.

1.1. Currently, the role of the GST Council under Article 279A is merely “recommendatory” in nature. This could result in some States deviating from the model GST law or the substantive provisions therein. Since GST is an indirect tax ecosystem, with each constituent dependent on another for smooth implementation of the law, it is suggested that though the role of GST Council under Article 279A is merely “recommendatory” in nature, the Centre as well as the States respect all the recommendations made by the GST Council and do not deviate from the same.

1.2. One important reason for the implementation of GST is to bring about uniformity of taxation across the country. It is therefore strongly recommended that the exemptions, rate of tax, classification and all other rules should be uniform for all the States. It may be noted that any deviation by a particular State can result in tax arbitrage, distortion of business processes and increased business compliances. Further it would also complicate the operations of the GST Network and could derail the entire GST Mechanism in the country.

1.3. The Constitution as well as the model GST Laws provide for the notification of the effective date from which GST will be implemented. It is recommended that this effective date should be common for all the States and that GST should be implemented from the first date of any financial year. Further, it is recommended that sufficient time should be provided to the industry and the Department Officers to prepare for GST and therefore, all relevant information should be made available in public domain at earliest opportune time.

2. SUPPLY

2.1. Section 3(1) and Schedule I of the model GST Law provides for taxation of supplies whether they are made for a consideration or otherwise. This can result in many difficulties and unforeseen situations of tax liabilities. Essentially, free supplies of not only goods but also services will become taxable. For example, retail chains providing products under free scheme would be required to discharge GST. Similarly, a common citizen downloading free software from the internet and using websites like Google, Facebook, etc. will be exposed to GST. Volunteers and NGOs will also be required to discharge GST on activities carried out by them without any charge.

2.2. It is therefore recommended that supplies should be taxed only if there is a consideration. Supplies made without consideration, especially in the case of services, should not be taxed.

2.3. Further, if the intent is to tax branch transfers, only such branch transfer of goods should be deemed to be supply and the term should be clearly defined to include only goods transferred from a branch in one State to another branch in another State for the purposes of further manufacture or resale.

2.4. The proviso inserted in Schedule I excludes supplies to the job worker following procedure under Section 43A. As per Section 43A, there is requirement to obtain permission from the Commissioner for such exempt movement of goods on account of job work. Such requirement for permission would not only increase the process time but would also conflict with the core attribute of GST being system driven.

3. NATURE OF SUPPLY

3.1. Under the model GST Law, on a reading of the definition of goods u/s 2(48) and services u/s 2(88), it appears that only supply of money and employment services are excluded from the scope of supply. This results in certain cases where the transaction is essentially of investment and not of consumption (like immoveable properties and securities) becoming liable for GST.

3.2. It is therefore recommended that supplies of immoveable properties and securities should be excluded from GST

4. TIME OF SUPPLY

4.1. Sections 12 and 13 of the model GST Law provides for complicated provisions requiring discharge of GST at the earliest of 4-5 trigger points. This should be done away with, since the provisions relating to time of supply do not create a tax liability but only state the time of paying the liability

4.2. It is therefore recommended that the time of supply should be the date of invoice. As an anti-avoidance measure, if required, the law may prescribe a maximum time (currently 30 days under the service tax law) from the date of removal of goods/ completion of service for the raising of the invoice

5. VALUE OF SUPPLY

5.1. The model GST Law provides for inclusion of various amounts in the value of the taxable supply. Since each of the specific inclusions in the value under Section 15(2) is an independent supply liable for GST, such inclusions are uncalled for and would result in double taxation. It is therefore recommended that the provisions for such notional inclusions should be done away with and only the consideration should be included in the value of supplies

6. PLACE OF SUPPLY

6.1. High Seas Sale should be excluded from the purview of IGST since the subsequent transaction is a subject matter of Customs Duty

6.2. The benefit of ‘zero rating’ provided under Section 2(109) to exports should be extended to deemed exports and supplies to SEZ, EOU and STP

6.3. It should be clarified that the location of supplier under Section 2(65) would be determined based on the person/establishment entitled to receive the consideration, this would bring parity with the definition of location of recipient of service.

6.4. Section 6(4) provides for the source rule in case of services connected with immoveable property. The said rule should cover only services “directly in relation to immovable property…” and should not cover services connected with vessels since they are moveable in nature

6.5. In case of re-classification issues between IGST vs. CGST/SGST, the respective Governments should internally transfer the funds and not require the assessee to once again pay the tax. Similar relaxation should be provided in case of issues of interpretation of place of supply in case of IGST transactions. Section 30 of the IGST Act may be suitably amended.

7. INPUT TAX CREDIT
7.1. Since GST has comprehensive coverage, all credits should be allowed. In fact the FA Q issued by the Government clearly acknowledges that it is a tax on value addition at each stage and there would be no cascading effect. In the light of this core aspect of GST, the restrictions provided under Section 16(9) should be done away with.

7.2. Genuine Credit should not be denied merely due to non reflection in the GST Network. The provisions for reversal of credit on account of mis-match under Section 29 should be done away with.

7.3. Non payment of tax by the vendor should not result in denial of credit to the taxpayer. The condition under Section 16(11)(c) should be deleted.

7.4. Input Service Distributor should be permitted to freely transfer the credits to any of its’ branches. Provisions of Section 17 should be suitably amended.

7.5. The current CENVAT Credit Rules defer the entitlement of credit in certain cases to a future date. While transition provision has been enacted for the claim of credit of second instalment of capital goods, many other transition provisions are not incorporated. It should therefore be provided that in all cases where the credit would have been allowable under the erstwhile CENVAT Credit Rules, the same should be permitted under the GST Law as well. Some examples are listed below

• Re-credit of service tax under proviso to Rule 4(7) in case of delayed payment to the vendor.
• Re-credit of amount revered under Rule 6(3) on finalisation of ratio of exempted turnover to total turnover
• Delayed receipt of invoices from the vendors
• Staggered Credit in respect of Spectrum Payments

8. RATES AND EXEMPTIONS
8.1. Threshold of Aggregate Turnover of Rs. 10 lakhs is across all States, includes exempted and exported supplies and therefore is fairly low when compared to the excise threshold of Rs. 150 lakhs. This will result in substantial hardship to small entrepreneurs. Further, this will also result in substantial increase in the number of assesses to be administered by the Centre (a rough estimate suggests at least 40 times the current bench strength), resulting in a huge pressure on the officials as well as on the network. It is therefore suggested that the aggregate turnover for exemption should be Rs. 50 lakhs with an optional compounding scheme upto Rs. 150 lakhs.

8.2. Exemption provided for agriculturist under Section 9 needs to be extended to cover agricultural produce throughout the supply chain. Further the definition of agriculture under Section 2(7) needs to be widely provided and activities like poultry, diary, etc. should be considered as part of agriculture.

8.3. At present, various tax exemptions are provided to units set up in specific areas. The said exemptions should also continue under the GST law since the units were set up in those areas due to the tax benefit provided. The government should provide clarity on the same.

8.4. In view of the comprehensive coverage and the self policing nature of GST, the base for taxation would increase fundamentally. Therefore, the revenue neutral rate suggested by the Arvind Subramaniam Committee is fair and adequate to meet the revenue requirements of the Centre and the States. It is therefore recommended that the standard rate of GST should not be higher than 18%.

8.5. The rates of GST need to be realigned considering the current rate structures. Many products which are currently exempted or liable for a very low rate of tax should not be directly moved to the RNR but either the exemption should be continued or such products should be kept under the merit rate.

9. REFUND
9.1. Section 38 allows refund only in two situations i.e. Export and Inverted Duty Structure. However, refund should also be allowed in cases where the credit which is accumulated due to other reasons.

10. PROCEDURAL ASPECTS

10.1. The model GST Law provides for strict timeline for various compliances as under
• Filing of Details of Outward Supplies by 10th
• Filing of Details of Inward Supplies by 15th
• Filing of Return by 20th

10.2. S ince transaction level details are to be uploaded onto the GST Network, the above timelines are too short. Considering the diversity of the country, with frequent power cuts and unavailability of internet network in many parts of the country, these timelines cannot be complied with. Further, the volume of data to be uploaded on the GST Network is unprecedented and we do not have any prior benchmark of the same. Therefore, it is suggested that for the first two years, the time lines provided above should be relaxed and based on the stability of the new system, the timelines can be revisited

10.3. There is no justification to subject the taxpayer to two assessments for the same base and similar law. It is suggested that some suitable allocation of the taxpayers be decided such that some taxpayers are assessed by the State Authorities and some taxpayers are assessed by the Centre.

10.4. There are very wide powers to make rules, prosecution, confiscation, etc. which should be avoided. All such provisions merely result in harassment of the asssesees and reduce the ‘ease of doing business’ without any corresponding benefit to the exchequer.