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21 June 2017

GST Facilitation Cell (Details)-Department of Industrial Policy & Promotion

A GST facilitation cell has been set up in the Department of Industrial Policy & Promotion to answer queries regarding GST. The GST facilitation cell is headed by Shri Sudhansu Sekhar Das, Economic Adviser (ss.das@nic.in, Tel:23063932) and consists of the following:

1. Shri Piyush Mishra

2. Ms. Astha Funda

3. Ms.Akshita Bhatia

4. Ms. Nitu Jaiswal


They can be contacted over phone: 011-23062379, 23062665; gstcell-dipp@gov.in, #mociseva.

The cell will function on all working days between 9.00 A.M.to 5.30 P.M.

19 June 2017

CBDT Notifies Rule 10CB for Secondary Adjustments under Section 92CE of Income Tax Act, 1961.

Rule 10CB for operationalising the provisions of secondary adjustment has been notified by the Central Board of Direct Taxes on 15th June, 2017. It prescribes the time limit for repatriation of excess money and the rate of interest to be applied for computing the income in case of failure to repatriate the excess money within the prescribed time limit. Separate rates of interest have been provided for international transactions denominated in Indian currency and in foreign currency. The rates of interest are applicable on an annual basis.

The time limit of 90 days for repatriation of excess money shall begin only when the primary adjustments exceeding Rupees One Crore made in respect of Assessment Year 2017-18 or later, attains finality. Where the transfer pricing order is appealed against by the taxpayer, the time limit for repatriation shall commence only after the appeal is finalised by the appellate authority.

The rule is available on the website of the Income-tax Department (www.incometaxindia.gov.in)

The Finance Act, 2017 inserted section 92CE in the Income-tax Act, 1961 with effect from 1st April, 2018 to provide for secondary adjustment by attributing income to the excess money lying in the hands of the associated enterprise, in order to make the actual allocation of funds consistent with that of the primary transfer pricing adjustment. The provision shall apply to primary adjustments exceeding Rupees One Crore made in respect of Assessment Year 2017-18 onwards.

Relaxation in return filing procedure for first two months of GST implementation

With the objective of ensuring smooth rollout of GST and taking into account the concerns expressed by the trade and industry regarding filing of the returns in GST regime, it has been decided that, for the first two months of GST implementation, the tax would be payable based on a simple return (Form GSTR-3B) containing summary of outward and inward supplies which will be submitted before 20th of the succeeding month. However, the invoice-wise details in regular GSTR – 1 would have to be filed for the month of July and August, 2017 as per the timelines given below –












* Facility for uploading of outward supplies for July, 2017 will be available from 15th July, 2017.

No late fees and penalty would be levied for the interim period. This is intended to provide a sense of comfort to the taxpayers and give them an elbow room to attune themselves with the requirements of the changed system. This not only underlines the government’s commitment towards ensuring that all the stakeholders are on board but also provides an opportunity to the taxpayers to be ready for this historic reform.

16 June 2017

CCI issues order against Hyundai Motor India Limited (HMIL) for anti-competitive conduct, imposes penalty of Rs. 87 crore for the anti-competitive conduct.

The Competition Commission of India (CCI) has found Hyundai Motor India Limited (HMIL) to be in contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002 for imposing arrangements upon its dealers which resulted into Resale Price Maintenance in sale of passenger cars manufactured by it. Such arrangements also included monitoring of the maximum permissible discount levels through a Discount Control Mechanism. Further, HMIL was found to have contravened the provisions of Section 3(4)(a) read with Section 3(1) of the Act for mandating its dealers to use recommended lubricants/ oils and penalising them for use of non-recommended lubricants and oils.

The final order has been passed today on informations filed by the dealers of HMIL viz. Fx Enterprise Solutions India Pvt. Ltd. and St. Antony’s Cars Pvt. Ltd.

Apart from issuing a cease and desist order against HMIL, CCI has imposed a penalty of Rs. 87 crore upon HMIL for the anti-competitive conduct. The penalty has been levied @ 0.3% of the average relevant turnover of HMIL of preceding three years. CCI noted in its order that for the purposes of determining the relevant turnover for the impugned infringement, revenue from sale of motor vehicles alone have been taken into account.

A copy of the CCI’s order passed in Case Nos. 36 & 82 of 2014 has been uploaded on the website of CCI at www.cci.gov.in.

13 June 2017

DGFT creates GST Facilitation Cell for exporters

DGFT has constituted a GST facilitation cell in DGFT Headquarters to assist and advice exporters , trade and industry for smooth transition from present regime to GST regime w.e.f. 1st July 2017.The GST facilitation cell is headed by Mr Nikunj Kumar Srivastava, Add DGFT and comprises two other officers Mr Rakesh Kumar Joint DGFT(r.kumar73@nic.in), Mr Kaushlendra Pratap Singh Deputy DGFT(Kaushlendrap.singh@nic.in. Exporters can email their queries concerning GST and pertaining to FTP. 

Similarly all regional offices of DGFT have constituted GST facilitation cell and the cell would headed by head of the regional office i.e. Add DGFT/ Joint DGFT with other two officers of the rank of Deputy DGFTor Asst DGFT. 

Recently, DG, DGFT also convened a meeting of stakeholders (FIEO/ trade/ industry) on 9 th June to understand the issues being faced by them in GST system. These issues have been taken up with department of revenue and GSTN, who have informed that most of the issues have already been resolved. 

Earlier, DGFT, jointly with FIEO, had also organised an outreach program on 2nd June, 2017 to educate the exporters about GST regime. This program was attended by large number of exporters. Shri Ajay Bhalla, Director General DGFT himself addressed the exporters and explained them about all aspects of GST including benefits that will accrue to them because of automatic and quick refund of all taxes paid on inputs. DG also responded to many queries of the exporters regarding various export promotion schemes, filing of GST returns and claiming refund. Shri Tejpal singh, Addl DG, DGEP and Shri Yoginder Garg commissioner customs were also present in the workshop, who made detailed presentation on GST. 

It may be noted that earlier Department of Commerce had announced to align the mid-term review of Foreign Trade Policy with roll out of GST for the convenience of exporters and industry.

10 June 2017

GSTN holds a Review Meeting with GST Suvidha Providers (GSPs) to Assess Readiness for GST roll-out from 01st July, 2017

GSTN called a meeting with all the GST Suvidha Providers (GSPs) at their office at Aero City in national capital yesterday. There are 34 GSPs that have been selected by GSTN to provide additional channel of filing returns and other compliances related to GST. GSPs are expected to help large businesses with complex and varied internal processes to comply with the GST regime that becomes effective from 01st July 2017. The meeting was chaired by the Chairman, GSTN who heard and assessed the preparations of the GSPs. The meeting was also attended among others by Shri Arun Goyal, Additional Secretary, GST Security Council, who interacted with the GSPs. 

Of the 34 GSPs, representatives of 30 of the GSPs were present physically and 2 attended via conference call. GSTN presented the timelines of the release of updated specifications of APIs for the new GSTR forms that are to be applicable from the 01st of July. The API specifications will be released in staggered manner for all the GSPs and their partner ASPs so that they can study and analyse the same for making changes in their software developed on old design of returns. Subsequent to publishing of the specifications, GSTN will also make available live APIs on the sandbox for testing of the codes that the GSPs will modify/develop. The dates for the release of the specifications and the Live APIs for various returns for testing/integration were communicated to all the GSPs. The specifications of GSR-1 return (for uploading the supply data) was released yesterday and the live API will be made available on 29th June. The dates of release of specification and live APIs for the remaining GST return forms were also discussed and communicated. Staggered delivery of specifications and live APIs was agreed by all to manage the changes made in the rules and forms recently. 

GSTN also published and explained the method and manner in which the GSPs would be able to integrate with the GST System to be able to submit all the return forms on behalf of their clients and tax payers. The requirement of GSPs being secure and in turn ensuring security of the GST system was also highlighted and emphasised. GSPs were told that they must have their systems audited as per the prevailing ISO standard on security from one of the auditors on the panel of CERT-IN before they connect with and start pushing data into the GST System. 

GSTN advised all GSPs to continue to visit the GSP ecosystem webpage on the GSTN website (www.gstn.org/ecosystem) for all information, updates and guidelines, which are regularly updated. 

Do Taxpayers mandatorily need services of GSP or ASP under GST? 

For the convenience of taxpayers, GSTN has come-up with an Offline Tool where data on invoices (business to business), exports, supplies to consumers etc., which are required to create GSTR-1 (Outward Supply Return), can be entered in an excel sheet in offline mode (without being connected to Internet). At desired interval, the tool can be run to upload all such data on the portal. Only while uploading the data on GST portal, Internet connectivity will be required. The Offline tool will be provided free of cost and taxpayers will be able to download it from the GST portal (www.gst.gov.in) from last week of June. GSTN will release the format of Excel in which businesses will start maintaining the data from 1st of July for using the free offline tool for uploading the invoice data and other return data. 

Taxpayers using offline tool will not require services of any GSP. Similarly those having small number of business to business invoices, like retailers and small traders, can do the data entry on portal itself and they will also not require the services of GSPs.

9 June 2017

GST Council constitutes 18 Sectoral Groups for smooth roll-out of GST

As decided in the 14th Meeting of the GST Council held on 18th-19th May, 2017 in Srinagar, J&K, 18 Sectoral Groups have been constituted representing various sectors of the economy in order to ensure smooth roll-out of GST. These 18 Sectoral Groups representing various sectors of the economy and containing Senior Officers of the Centre and the States are being set-up to ensure smooth implementation of GST by timely responding to the issues and problems of their respective Sector(s).


In fact, they are being with the following objectives:

  • Interact and examine representations received from trade and industry associations/bodies of their respective sector.
  • Highlight specific issues for the smooth transition of the respective sector to the GST regime.
  • Prepare sector specific draft guidance.

These Sectoral Working Groups consist of Senior Officers from the Centre and the States.

18 Sectoral Groups along with the names of Co-convenor(s) are as follows:


S. No.

Sector
Central Government
State Government 
Name & Designation
Name & Designation


1

Banking, Financial & Insurance
Upender Gupta, Commissioner, GST Policy Wingh, CBEC
Dhananjay Akhade, Jt. Commissioner, Maharashtra


2


Telecom
Amitabh Kumar, Jt. Secretary (TRU-II), CBEC
Sh. Mukesh Kumar Meshram, CCT, Uttar Pradesh

3
Exports (incl EOUs and SEZs)
Dr. Tejpal Singh, ADG, DGEP, CBEC
Amitabh Jain, Principal Secretary, Chhattisgarh

4.

IT & ITes
M. Vinod Kumar, Chief Commissioner, CBEC
Ms. Smaraki Mahapatra, CCT, West Bengal

5

Transport & Logistics
J.M. Kennedy, ADG, DRI, CBEC
Ms. Sujatha Chaturvedi, Pr. Secretary, Bihar

6

Textiles
Yogendra Garg, Commissioner, CBEC
Ms. Mona Khandhar, Secretary (EA), Gujarat


7


MSMEs (incl. job work)
Manish Sinha, Commissioner, CBEC & GST Council
H. Rajesh Prasad, Commissioner, VAT, Delhi


8

Oil & Gas (upstream & downstream)
P.K. Jain, Chief Commissioner, (AR), CBEC
Anurag Goel, CCT, Assam

9
Gems & Jewellery
Reyaz Ahmad, Director (TRU)
Dr. P.D. Vaghela, CCT, Gujarat


10
Services received and provided by Government
D.P. Nagendra Kumar, Pr. Commissioner, CBEC
Arun Mishra, Additional Secretary (CT) Bihar

11

Food Processing
Ajay Jain, Chief Commissioner, CBEC
Khalid Anwar, Sr. Jt. CCT, West Bengal

12

E-commerce
R. Sriram, Commissioner, CBEC
Ritvik Pandey, CCT, Karnataka





13
Big Infra (Airport & Sea ports including Maintenance, Repair & Overhaul, Power Sector, Housing and Construction)




Sandeep Prakash, Commissioner, CBEC




J. Syamala Rao, CCT, Andhra Pradesh


14


Travel & Tourism

Smt. Sungita Sharma, Pr. Commissioner, CBEC
Raghwendra Kumar Singh, CCT, Madhya Pradesh (Indore)

15

Handicrafts
Pradeep Goel, Commissioner, CBEC
Ms. Sangeetha P. CCT, Chhattisgarh



16



Media & Entertainment


M. Srinivas, Commissioner, CBEC
Omnarayan Chainsukhji Bhangdiya, Addl. Commissioner, Sales Tax, Maharashtra, Pune

17
Drugs & Pharmaceuticals
A.R.S. Kumar, Commissioner, CBEC
Dr. M.P. Ravi Prasad, Joint CCT, Karnataka


18


Mining

S.N. Singh, Chief, Commissioner, CBEC
Praveen Gupta, Secretary (Finance), Rajasthan


The officials of these Sectoral Groups will deal with the issues and the problems of the respective sector(s) they represent. Concerned industry Groups/Associations or even individual industry representative(s) may approach the respective Sectoral Group officers with their problems, if any, relating to GST implementation who, in turn, will try to guide and help them in resolving the same. This exercise will help in dealing with most of the sectoral problems and issues at the local/regional level.

8 June 2017

Central Board of Direct Taxes (CBDT) notifies new Safe Harbour Regime

In order to reduce transfer pricing disputes, to provide certainty to taxpayers, to align safe harbour margins with industry standards and to enlarge the scope of safe harbour transactions, the Central Board of Direct Taxes (CBDT) has notified a new safe harbour regime based on the report of the Committee set up in this regard.

The salient features of the new Safe Harbour Regime are:
  • It has come into effect from 1st of April, 2017, i.e. A.Y. 2017-18 and shall continue to remain in force for two immediately succeeding years thereafter, i.e. up to A.Y. 2019-2020.
  • Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them.
  • A new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” has been introduced.
  • The new safe harbour regime is available for transactions limited to Rs. 200 crore in provision of software development services, provision of information technology-enabled services, provision of knowledge process outsourcing services, provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs.
  • In respect of transactions involving provision of software development services and provision of information technology-enabled services, safe harbour margins have been reduced to peak rate of 18% from 22% in the previous regime.
  • In respect of transactions involving provision of knowledge process outsourcing services, a graded structure of 3 different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% in the previous regime.
  • In respect of transactions involving provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs, safe harbour margins have been reduced to 24% from 30% and 29% respectively in the previous regime.
  • Risk spreads on intra-group loans denominated in foreign currency will be benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th September of the relevant year and on loans denominated in Indian Rupees to the 1-year SBI MCLR as on 1st April of the relevant year.
  • The safe harbour regime is optional to taxpayers.
The notification is available on the department’s website www.incometaxindia.gov.in

2 June 2017

GST FAQ


Q 1: What is the justification of GST? 

Ans: There was a burden of "tax on tax" in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The introduction of Central VAT (CENVAT) has removed the cascading burden of "tax on tax" to a good extent by providing a mechanism of "set off" for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime. 

But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive 30 trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade. 

Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax. In addition, although the burden of Central Sales Tax (CST) on inter-State movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed, 31 and a continuous chain of set-off from the original producer's point and service provider's point upto the retailer's level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With GST, the burden of CST will also be phased out. 

Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax – a justified step forward.



Q 2: What is GST? How does it work? 

Ans: As already mentioned in answer to Question 1, GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer's point and service provider's point upto the retailer's level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods 32 and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. 

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST 33 on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.










Q 3: How can the burden of tax, in general, fall under GST? 

Ans: As already mentioned in Answer to Question 1, the present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through "tax on tax" 34 which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer's point to the retailer's point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.



Q 4: How will GST benefit industry, trade and agriculture ? 

Ans: As mentioned in Answer to Question 3, the GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.



Q 5: How will GST benefit the exporters? 

Ans: The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.



Q 6: How will GST benefit the small entrepreneurs and small traders? 

Ans: The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries.



Q 7: How will GST benefit the common consumers? 

Ans: As already mentioned in Answer to Question 3, with the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer’s point to the retailer’s point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers.





Q 8: What are the salient features of the proposed GST model? 

Ans: The salient features of the proposed model are as follows:
  • Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.
  • The Central GST and the State GST would be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. 
  • The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. 
  • Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. 
  • Cross utilisation of ITC between the Central GST and the State GST would, in general, not be allowed. 
  • To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST. 
  • The administration of the Central GST would be with the Centre and for State GST with the States. 
  • The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities. 
  • Each taxpayer would be allotted a PAN linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department. 
  • Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States. 


Q 9: Why is Dual GST required? 

Ans: India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.



Q 10: How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)? 

Ans: The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State. 

Illustration I: Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST. 

Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.



Q 11: Which Central and State taxes are proposed to be subsumed under GST? 

Ans: The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
  • Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services. 
  • Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other. 
  • The subsumption should result in free flow of tax credit in intra and inter-State levels. 
  • The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST. 
  • Revenue fairness for both the Union and the States individually would need to be attempted. 
On application of the above principles, the Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:
  • Central Excise Duty 
  • Additional Excise Duties 
  • The Excise Duty levied under the Medicinal and Toiletries Preparation Act 
  • Service Tax 
  • Additional Customs Duty, commonly known as Countervailing Duty (CVD) 
  • Special Additional Duty of Customs - 4% (SAD) 
  • Surcharges, and 
  • Cesses. 
The following State taxes and levies would be, to begin with, subsumed under GST:
  • VAT / Sales tax 
  • Entertainment tax (unless it is levied by the local bodies). 
  • Luxury tax 
  • Taxes on lottery, betting and gambling. 
  • State Cesses and Surcharges in so far as they relate to supply of goods and services. 
  • Entry tax not in lieu of Octroi. 
Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the foodgrain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected. 

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC. 

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies. A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations. 

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter46 State has already been formulated by the Working Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.



Q 12: What is the rate structure proposed under GST? 

Ans: The Empowered Committee has decided to adopt a two-rate structure –a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For upholding of special needs of each State as well as a balanced approach to federal flexibility, it is being discussed whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years. It is also being discussed whether the Government of India may adopt, to begin with, a similar approach towards exempted list under the CGST. 

For CGST relating to goods, the States considered that the Government of India might also 47 have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services, there may be a single rate for both CGST and SGST. 

The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.




Q 13: What is the concept of providing threshold exemption for GST? 

Ans: Threshold exemption is built into a tax regime to keep small traders out of tax net. This has three-fold objectives:

It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them. 
The compliance cost and compliance effort would be saved for such small traders. 
Small traders get relative advantage over large enterprises on account of lower tax incidence. 

The present thresholds prescribed in different State VAT Acts below which VAT is not applicable varies 48 from State to State. A uniform State GST threshold across States is desirable and, therefore, as already mentioned in Answer to Question 6, it has been considered that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories might be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept Rs.1.5 Crore and the threshold for services should also be appropriately high.



Q 14: What is the scope of composition and compounding scheme under GST? 

Ans: As already mentioned in Answer to Question 6, a Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross 49 annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off.



Q 15: How will imports be taxed under GST? 

Ans: With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.



Q 16: Will cross utilization of credits between goods and services be allowed under GST regime? 

Ans: Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.



Q 17: How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method? 

Ans: The Empowered Committee has accepted the recommendation for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds. 

The major advantages of IGST Model are:
  • Maintenance of uninterrupted ITC chain on inter-State transactions. 
  • No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer. 
  • No refund claim in exporting State, as ITC is used up while paying the tax. 
  • Self monitoring model. 
  • Level of computerisation is limited to inter-State dealers and Central and State Governments should be able to computerise their processes expeditiously. 
  • As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially. 
  • Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.


Q 18: Why does introduction of GST require a Constitutional Amendment? 

Ans: The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services 52 and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues. 

As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure.



Q 19: How are the legislative steps being taken for CGST and SGST? 

Ans: A Joint Working Group has recently been constituted (September 30, 2009) comprising of the officials of the Central and State Governments to prepare, in a time-bound manner a draft legislation for Constitutional Amendment.



Q 20: How will the rules for administration of CGST and SGST be framed? 

Ans: The Joint Working Group, as mentioned above, has also been entrusted the task of preparing draft legislation for CGST, a suitable Model Legislation for SGST and rules and procedures for CGST and SGST. Simultaneous steps have also been initiated for drafting of legislation for IGST and rules and procedures. As a part of this exercise, the Working Group will also address to the issues of dispute resolution and advance ruling.