© Economic Laws Practice 2015 INTER-STATE SUPPLIES UNDER GOODS AND SERVICES TAX IN INDIA August 20,...

© 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)


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


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


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.”


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


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


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?


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


Additional GST

12


ISSUES & IMPLICATIONS

13


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


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


Need to re-look at logistics

16

IMPORTANCE / RELEVANCE OF DEPOTSIMPORTANCE / RELEVANCE OF DEPOTS


Inter-State supply of Intangibles

17


Inter-State supply of Services

18


Treatment of supply to Self

19


International Precedents

20


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

© Economic Laws Practice 2015 INTER-STATE SUPPLIES UNDER GOODS AND SERVICES TAX IN INDIA August 20,...

Documents

Transcript of © Economic Laws Practice 2015 INTER-STATE SUPPLIES UNDER GOODS AND SERVICES TAX IN INDIA August 20,...